Annual report pursuant to Section 13 and 15(d)


12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  



The income tax expense consists of the following:


(in thousands)   2021     2020  
Current   $ 38     $  
Deferred     36       (36 )
Change in valuation allowance     (36 )     36  
U.S. Federal                
Deferred     575       5,766  
Change in valuation allowance     (627 )     (5,815 )
State and local                
Deferred     61       (103 )
Change in valuation allowance     71       159  
Income tax expense   $ 118     $ 7  



Amergent Hospitality Group, Inc. and Subsidiaries

Notes to the Consolidated and Combined Financial Statements


The income tax expense using the statutory U.S. federal tax rate of 21% is reconciled to the Company’s effective tax rate as follows:


(in thousands)   2021     2020  
Computed “expected” income tax benefit   $ (580 )   $ (4,325 )
State income taxes, net of federal benefit     61       (57 )
Prior year true-ups and other deferred tax balances     1,329       25  
Permanent items     25       2,500  
Rate change     (169 )     (142 )
Other     45       (249 )
Adjustment to NOLs due to Merger           8,350  
Change in valuation allowance     (593 )     (6,095 )
Income tax expense    $ 118     $ 7  


Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for tax purposes. Major components of deferred tax assets at December 31, 2021 and 2020 were:


(in thousands)   December 31, 2021     December 31, 2020  
Net operating loss carryforwards   $ 6,582     $ 6,802  
Capital loss carryforwards     387       369  
Fixed assets and intangibles     750       1,119  
Section 1231 loss carryforwards           40  
Charitable contribution carryforwards     7       13  
Section 163(j) limitation     848       789  
Restaurant start-up expenses     77       5  
Accrued expenses     733       915  
Credits     153        
Contract liabilities     198       227  
Total deferred tax assets     9,735       10,279  
Deferred occupancy liabilities     (21 )     (39 )
Investments     (323 )     (202 )
Other     (18 )     (31 )
Total deferred tax liabilities     (362 )     (272 )
Net deferred tax assets     9,373       10,007  
Valuation allowance     (9,523 )     (10,116 )
 Total   $ (150 )   $ (109 )


As of December 31, 2021, the Company has U.S. federal and state net operating loss carryovers of approximately $25.2 million, which will expire at various dates beginning in 2031 through 2036 if not utilized, with exception of loss carryovers generated in tax years after 2017. As a result of Tax Cuts and Jobs Act of 2017 (“TCJA”), net operating losses generated in 2018 and beyond have indefinite lives. In accordance with Section 382 of the internal revenue code, deductibility of the Company’s U.S. net operating loss carryovers may be subject to an annual limitation in the event of a change of control as defined under the Section 382 regulations. Quarterly ownership changes for the past three years were analyzed, and it was determined that there was no change of control as of December 31, 2021.



Amergent Hospitality Group, Inc. and Subsidiaries

Notes to the Consolidated and Combined Financial Statements


In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance. For the years ended December 31, 2021 and 2020, the change in valuation allowance was approximately $(0.6) million and $(5.9) million respectively.


The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in the financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the company has taken or expects to take in its return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between two positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits”. A liability is recognized for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing-authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.


Interest related to uncertain tax positions are required to be calculated, if applicable, and would be classified as “interest expense” in the combined and consolidated statements of operations. Penalties would be recognized as a component of “general and administrative expenses”. For the years ended December 31, 2021 and 2020, no interest or penalties were required to be reported.


The Company previously did not record a provision for taxes on undistributed foreign earnings, based on an intention and ability to permanently reinvest the earnings of its foreign subsidiaries in those operations. Under the TCJA, the Company has re-assessed its strategies by evaluating the impact of the TCJA on its operations. As a result of the TCJA, the Company analyzed if a liability needed to be recorded for the deemed repatriation of undistributed earnings. It was determined that there is no outstanding liability associated with this based on overall negative undistributed earnings (accumulated deficit) in the consolidated foreign group.


An additional provision of the TCJA is the implementation of the Global Intangible-Low Taxed Income Tax, or “GILTI.” The Company has elected to account for the impact of GILTI in the period in which the tax actually applies to the Company. Due to foreign losses in 2021 and 2020, the impact of GILTI on taxable income is nil.