INCOME TAXES

12 Months Ended

Dec. 31, 2021

INCOME TAXES [Abstract]

INCOME TAXES

10. INCOME TAXES

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s net deferred tax assets relate primarily to its net operating loss carryforwards, allowance for doubtful accounts and stock-based compensation, offset by property and equipment and intangible assets. The Company has recorded a full valuation allowance to offset the net deferred tax assets, as it is more likely than not that the Company will not realize future benefits associated with these net deferred tax assets at December 31, 2021 and 2020.

At December 31, 2021 and 2020, the Company had net deferred tax assets of $15.2 million and $13.5 million, respectively, against which a full valuation allowance has been recorded. The increase in the valuation allowance for the years ended December 31, 2021 and 2020 is $1.7 million and $2.8 million, respectively, resulting from additional net operating losses generated in the year. The deferred tax liabilities associated with the book versus tax basis difference of intangible assets are the result of an asset step-up pursuant to a June 2017 merger transaction (the “Merger”). Significant components of the Company’s deferred tax assets at December 31, 2021 and 2020 are as follows:

	Dollars in Thousands
	2021		2020
Deferred tax assets:
Net operating loss and credit carryforwards	$	17,604	$	15,941
Allowance for doubtful accounts		403		986
Stock-based compensation		915		461
Other		127		39
Gross deferred tax assets		19,049		17,427
Deferred tax liabilities:
Property and equipment		(257)		(94)
Intangible assets		(3,589)		(3,849)
Other		(18)		—
Gross deferred tax liabilities		(3,864)		(3,943)
Net deferred tax assets		15,185		13,484
Less valuation allowance		(15,185)		(13,484)
Net deferred liability	$	—	$	—

The Company’s provision for income taxes for the years ended December 31, 2021 and December 31, 2020 relates to income taxes in states and other jurisdictions and differs from the amounts determined by applying the statutory federal income tax rate to the loss before income taxes for the following reasons:

	Dollars in Thousands
	2021		2020
Benefit at federal rate	$	(1,788)	$	(2,231)
Increase (decrease) resulting from:
State income taxes—net of federal benefit		(289)		(379)
Miscellaneous permanent differences		62		48
Warrant liability revaluation		(97)		(3)
Meals and entertainment		19		18
PPP Loan forgiven		(192)		—
Income taxed to owners on Non-Controlling Interest (NCI)		(3)		—
Change in valuation allowance		2,288		2,547
Total income tax benefit	$	—	$	—

The income tax expense consists of the following for the years ended December 31, 2021 and 2020.

	Dollars in Thousands
	2021		2020
Federal:
Current	$	—	$	—
Deferred		—		—
Total Federal	$	—	$	—
State:
Current	$	—	$	—
Deferred		—		—
Total State	$	—	$	—
Foreign:
Current	$	—	$	—
Deferred		—		—
Total Foreign	$	—	$	—
Total Tax Provision	$	—	$	—

The Company had available gross federal net operating loss (“NOL”) carryforwards of approximately $73 million, and state NOL carryforwards of $2 million as of December 31, 2021. Beginning in 2018, under the TCJ Act, federal loss carryforwards have an unlimited carryforward period, however such losses can only offset 80% of taxable income in any one year. Included in the total NOLs for 2021 are $45 million of federal losses that fall under these new rules. For state NOL expiration dates, it varies from 2021 to unlimited. Section 382 of the Internal Revenue Code, and similar state regulations, contain provisions that may limit the NOL carryforwards available to be used to offset income in any given year upon the occurrence of certain events, including changes in the ownership interests of significant stockholders. In the event of a cumulative change in ownership in excess of 50% over a three-year period, the amount of the NOL carryforwards that the Company may utilize in any one year may be limited. The Company reduced its tax attributes (NOLs and tax credits) and generated a limitation on utilization of such attributes resulting from the Merger.

At December 31, 2021, and as a result of the limitations under Section 382 of the Internal Revenue Code, the Company had a total of unused federal tax net operating loss carryforwards with expiration dates as follows:

	Dollars in
	Thousands
	2021
2036	$	14,277
2037		13,641
Unlimited life		44,595
Total Federal	$	72,513

The Company has adopted guidance on accounting for uncertainty in income taxes which clarified the accounting for income taxes by prescribing the minimum threshold a tax position is required to meet before being recognized in the financial statements as well as guidance on de-recognition, measurement, classification and disclosure of tax positions. There are no material uncertain tax positions that would require recognition in the financial statements. The Company is obligated to file income tax returns in the U.S. federal jurisdiction and various U.S. states. Since the Company had losses in the past, all prior years that generated NOLs are open and subject to audit examination in relation to the NOL generated from those years. Currently, there is an IRS exam in progress for 2019, which resulted in a change to the NOL carryforward. Our evaluation of uncertain tax positions was performed for the tax years open to examination.