Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 13. Income Taxes

The income tax provision consists of the following ($ in thousands):

	For the years ended December 31,
	2021			2020
Federal
Current	$	-		$	(85	)
Deferred		(1,581	)		(1,821	)
Increase in valuation allowance		1,581			1,821
State and local
Current
Deferred		2,492			(3,739	)
Increase in valuation allowance		(2,492	)		3,739
Income Tax Provision (Benefit)	$	-		$	(85	)

The following is a reconciliation of the U.S. federal statutory rate to the effective income tax rates for the years ended December 31, 2021 and 2020:

	For the years ended December 31,
	2021			2020
U.S. Statutory Federal Rate		21	%		21	%
State Taxes, Net of Federal Tax Benefit			%			%
Other Permanent Differences		(0.87	)%		0.04	%
State rate change in effect		(5.65	)%		40.36	%
AMT credit benefit			%		0.68	%
Decrease due to true up of State NOL		(44.95	)%		(10.36	)%
Decrease due to change in Federal NOL and other true ups		12.96	%		(6.34	)%
Change in Valuation Allowance		17.51	%		(44.7	)%
Income Tax Benefit		0.00	%		0.68	%

At December 31, 2021 and 2020, the Company’s deferred tax assets and liabilities consisted of the effects of temporary differences attributable to the following ($ in thousands):

	As of December 31,
	2021			2020
Deferred tax assets:
Net-operating loss carryforward	$	20,161		$	19,000
Stock based compensation		8,196			8,290
Patent portfolio and other		13,917			14,917
Total Deferred Tax assets		42,274			42,207
Valuation allowance		(39,759	)		(40,670	)
Deferred Tax Asset, Net of Allowance	$	2,516		$	1,537
Deferred tax liability:
Fair value adjustment of investment	$	(2,516	)	$	(1,537	)

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 period 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. The Company has determined that, based on objective evidence currently available, it is more likely than not, the deferred tax assets will not be realized in future periods. Accordingly, the Company has provided a full allowance for the deferred tax assets at December 31, 2021 and 2020. As of December 31, 2021, the change in valuation allowance is approximately $4.1 million.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, makes any Alternative Minimum Tax Credit carry forward fully refundable in tax years beginning on or after January 1, 2018. The Company filed Form 1139 in 2020 and received a cash refund for its $85k AMT credit carry forward before December 31, 2020.

On December 27, 2020 the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law. The CAA includes the COVID-related Tax Relief Act of 2020 (“COVID TRA”). The Company is continuing to assess the effect of the CAA and does not believe it will result in a material impact to the Company’s income tax provision.

As of December 31, 2021, the Company has approximately $41 million federal net operating loss carryovers (“NOLs”), which expire from 2033 through 2037, and $22 million of federal NOLs with indefinite utilization. The Company has approximately $85 million of state and city NOLs, which expire from 2024 through 2040.

The NOL carryover may be subject to limitation under Internal Revenue Code section 382, should there be a greater than 50% ownership change as determined under the regulations. No study has been performed since the last known ownership change of September 10, 2013.

As required by the provisions of ASC 740, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of NOL or amount of tax refundable is reduced) 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.

If applicable, interest costs and penalties related to unrecognized tax benefits are required to be calculated and would be classified as interest and penalties in general and administrative expense in the statement of operations. As of December 31, 2021 and 2020, no liability for unrecognized tax benefit was required to be reported. No interest or penalties were recorded during the years ended December 31, 2021 and 2020. The Company does not expect any significant changes in its unrecognized tax benefits in the next year. The Company files U.S. federal and state income tax returns. As of December 31, 2021, the Company’s U.S. and state tax returns (Delaware, New York, New York City, Pennsylvania, Virginia, and Texas) remain subject to examination by tax authorities beginning with the tax return filed for the year ended December 31, 2017, however, there were no audits pending in any of the above-mentioned jurisdictions during 2021 and 2020. The Company believes that its income tax positions would be sustained upon an audit and does not anticipate any adjustments that would result in material changes to its consolidated financial position.