Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

The provision for income taxes consists of the following:

	Year Ended December 31,
	2021			2020
Deferred:
Federal	$	(1,723,223	)	$	(1,172,382	)
State and local		1,266			22,240
		(1,721,957	)		(1,150,142	)
Valuation allowance		1,721,957			1,150,142
	$	—		$	—

The provision for income taxes varies from the amount determined by applying the U.S. federal statutory rate to income before income taxes as a result of the following:

	Year Ended December 31,
	2021			2020
U.S. statutory income tax rate		21.0	%		21.0	%
State and local taxes, net of federal tax benefit		1.4	%		1.8	%
Stock compensation permanent differences between book and tax		(10.1	)%		-	%
Other permanent differences between book and tax		5.3	%		(3.5	)%
State rate adjustments		(1.5	)%		(2.2	)%
Prior year return-to-provision adjustment		0.0	%		0.2	%
Valuation allowance		(16.1	)%		(17.3	)%
Effective income tax rate		—	%		—	%

The stock compensation permanent difference relates to the February 23, 2021 Board approved grant of the Performance Share Unit Award pursuant to the CEO Performance Share Unit Award Agreement (the “PSU Agreement”) to David L. Fischel, the Company’s Chief Executive Officer. Total stock-based compensation attributed to the PSU Agreement was $6.1 million for the year ended December 31, 2021 of which only a portion was allowed as a tax deduction due to Internal Revenue Code Section 162 (m) limitations. Included in other permanent differences between book and tax in the above table are differences such as incentive stock option expenses, nondeductible meals and entertainment and stock compensation shortfalls. The state rate adjustments are a result of changes in apportionment and various state rate law changes.

The components of the deferred tax asset are as follows:

	Year Ended December 31,
	2021			2020
Current accruals	$	1,068,263		$	1,329,681
Operating lease liabilities		1,421,910			536,307
Deferred revenue		145,724			9,412
Depreciation and amortization		521,993			952,208
Deferred compensation		1,111,150			874,403
Net operating loss carryovers		27,219,641			25,264,611
Deferred tax assets		31,488,681			28,966,622
Valuation allowance		(30,100,904	)		(28,378,947	)
Net deferred tax assets before deferred tax liabilities		1,387,777			587,675
Operating lease right-of-use assets		(1,334,462	)		(524,105	)
Capitalized compensation costs		(53,315	)		(63,570	)
Net deferred tax assets	$	—		$	—

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Following significant ownership changes during 2013, the Company initiated a review of the availability of its U.S. net operating loss carryforwards. As a result of this review, it was determined that a large portion of the Company’s net operating loss carryovers would expire unused due to the limitation under IRC Section 382. The Company reduced the net operating loss carryover and corresponding valuation allowance as a result of these limitations as reflected in the net operating loss carryovers in the table above. The remaining net operating loss carryforwards following the ownership change have been assigned a full valuation allowance against all net deferred tax assets.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not 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. The Company considers projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable losses, and projections for future periods over which the deferred tax assets are deductible, the Company determined that a 100% valuation allowance of net deferred tax assets was appropriate.

On December 21, 2020, Congress approved the Consolidations Appropriations Act, 2021 (the “Appropriations Act”), which was signed into law by the President on December 27, 2020. The Appropriations Act funds the federal government to the end of the fiscal year and provides further COVID-19 economic relief. One of the business provisions included in the Appropriations Act is clarification of the income tax deductibility of business expenses that were paid for with the Paycheck Protection Program funds. The Company will continue to monitor for additional legislation related to COVID-19 and its impact on our results of operations.

As of December 31, 2021, we had gross federal net operating loss carryforwards of approximately $120.1 million. The federal net operating loss carryforwards reflect accumulated book losses reduced for the 2013 IRC Section 382 ownership change limitation of $255.6 million and approximately $123.3 million of book/tax differences and expiration of unused carryforwards. The federal net operating loss carryforwards generated prior to the 2018 tax year will expire between 2030 and 2037. The federal net operating loss generated during and beyond 2018 will be carried forward indefinitely as a result of changes in the tax law following the Tax Cuts and Jobs Act. As of December 31, 2021, we had gross state net operating loss carryforward of approximately $37.6 million which will expire at various dates between 2022 and 2041 if not utilized.

The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. As the Company has a federal net operating loss carryforward from the year ended December 31, 2000 forward, all tax years from 2000 forward are subject to examination. As states have varying carryforward periods, and the Company has recently entered into additional states, the states are generally subject to examination for the previous 10 years or less.

At December 31, 2021 and 2020, the Company had approximately $0.1 million in reserves for uncertain tax positions. The Company recognizes interest accrued, if any, net of tax and penalties, related to unrecognized tax benefits as components of the income tax provision, as applicable. As of December 31, 2021, accrued interest and penalties were less than $0.1 million.