Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 13 - Income Taxes

Deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income.

In evaluating the ultimate realization of deferred income tax assets, management considers whether it is more likely than not that the deferred income tax assets will be realized. Management establishes a valuation allowance if it is more likely than not that all or a portion of the deferred income tax assets will not be utilized. The ultimate realization of deferred income tax assets is dependent on the generation of future taxable income, which must occur prior to the expiration of the net operating loss carryforwards.

The Company accounts for uncertainty in income taxes by recognizing the tax benefit or expense from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits and expenses recognized in the consolidated financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company has not identified any material uncertain tax positions as of December 31, 2021 and 2020, respectively. Interest and penalties associated with tax positions are recorded as general and administrative expenses. Tax years that remain subject to examination include 2018 through the current year for federal and generally 2017 through the current year for state purposes.

Income tax provision (benefit) reported in the consolidated statements of operations is comprised of the following:

	For the Years Ended
	December 31,
($ in thousands)	2021			2020
Current provision (benefit)
Federal	$	187		$	—
State, net of state tax credits		1,276			564
Total current provision (benefit)		1,463			564
Deferred provision (benefit)
Federal		2,022			(10,193	)
State and local		480			(1,623	)
Valuation allowance		(2,422	)		11,458
Total deferred provision (benefit)		80			(358	)
Total income tax provision (benefit)	$	1,543		$	206

The following is a reconciliation of the statutory federal income tax rate applied to pre-tax accounting net income (loss), compared to the income tax provision (benefit) in the consolidated statements of operations:

	For the Years Ended
	December 31,
($ in thousands)	2021					2020
Expected federal tax (benefit)	$	3,317		21.0	%	$	(9,795	)	21.0	%
State tax provision, net of federal benefit		1,743		11.0	%		(1,378	)	3.0	%
Prior year true up		331		2.1	%		(7	)	0.0	%
Change in tax rate		—		0.0	%		304		-0.6	%
Effect of increase in valuation allowance		(2,422	)	-15.3	%		11,458		-24.6	%
Change in fair value of warrant liability		661		4.2	%		(518	)	1.1	%
PPP loan forgiveness		(2,651	)	-16.8	%		—		0.0	%
Interest		525		3.3	%		—		0.0	%
Other permanent differences		39		0.2	%		142		-0.3	%
Provision (benefit)	$	1,543		9.8	%	$	206		-0.4	%

The effective tax rates for the income tax provision for the years ended December 31, 2021 and 2020 are 9.8% and -0.4%, respectively. The differences are primarily due to state taxes, the change in valuation allowance, and the forgiveness of the PPP Loan.

The following are the components of the Company’s net deferred taxes for federal and state income taxes:

	December 31,
($ in thousands)	2021			2020
Deferred tax assets
Accrued expenses and other	$	2,269		$	2,232
Advancement income		—			1,658
Debt discount		591			2,171
Interest		5,033			3,855
Stock-based compensation		860			708
Lease liabilities		10,018			10,440
Loss carryforwards		11,123			12,408
Total deferred tax assets		29,894			33,472
Valuation allowance		(16,703	)		(19,125	)
Net deferred tax assets		13,191			14,347
Deferred tax liabilities:
Prepaid expenses		(99	)		(148	)
Lease assets		(8,268	)		(10,061	)
Fixed assets and intangible assets		(4,921	)		(4,155	)
Total deferred tax liabilities		(13,288	)		(14,364	)
Net non-current deferred tax liability	$	(97	)	$	(17	)

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the lack of sustained profitability in recent years. Such objective evidence limits the ability to consider other subjective evidence, such as the Company's projections for future growth.

On the basis of this evaluation, as of December 31, 2021 and 2020, a valuation allowance of $16.7 million and $19.1 million, respectively, has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted based on changes in objective and subjective evidence in future years. If and when the Company determines the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that period’s consolidated statement of operations, the effect

of which would be an increase in reported net income. The amount of any such tax benefit associated with release of the Company's valuation allowance in a particular reporting period may be material.

As of December 31, 2021, the Company had federal and state net operating losses of approximately $44.7 million and $30.2 million, respectively. As of December 31, 2020, the Company had federal and state net operating losses of approximately $50.5 million and $30.1 million, respectively. As of December 31, 2021, the Company has approximately $3.6 million of federal net operating losses available to offset future taxable income for 20 years and will begin to expire in 2036. The remaining $41.1 million of federal net operating losses are carried forward indefinitely to offset future taxable income up to an 80% limitation of taxable income in the year of use. The state net operating losses began to expire in 2022. These federal and state net operating loss carryforwards are reserved with a full valuation allowance because, based on the available evidence, we believe it is more likely than not that we would not be able to utilize those deferred tax assets in the future. If the actual amounts of taxable income differ from our estimates, the amount of our valuation allowance could be materially impacted.

For the years ended December 31, 2021 and 2020, the Company had no uncertain tax positions or interest and penalties related to uncertain tax positions. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses, if any.