Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.1
Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

14. Income Taxes

 

The Company has the following net deferred tax assets and liabilities at December 31, 2021 and 2020:

 

    2021     2020  
    December 31,  
    2021     2020  
Goodwill and intangible assets   $ (38,346 )   $ (41,780 )
Developed technology     (11,251 )     (7,010 )
Derivative liability     (112,564 )     (112,564 )
Property and equipment     (8,023 )     3,378  
Other deferred tax assets     141,745       23,627  
Settlements     381,026       473,302  
Stock based compensation     107,028       95,103  
Net operating loss     8,671,958       8,017,170  
Valuation allowance     (9,293,933 )     (8,637,265 )
Net deferred tax liability   $ (162,360 )   $ (186,039 )

 

The benefit for income taxes for the years ended December 31, 2021 and 2020 consists of the following:

 

    2021     2020  
    Year Ended December 31,  
    2021     2020  
Federal:                
Current provision   $ -     $ -  
Deferred tax benefit     (18,764 )     (27,288 )
 Total Federal   $ (18,764 )   $ (27,288 )
State:                
Current provision   $ -     $ -  
Deferred tax benefit     (2,776 )     (7,927 )
 Total State   $ (2,776 )   $ (7,927 )
Foreign:                
Current provision   $ -     $ -  
Deferred provision (benefit)     -       -  
 Total Foreign   $ -     $ -  
                 
Income tax expense benefit   $ (21,540 )   $ (35,215 )

 

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

 

    2021     2020  
    Year Ended December 31,  
    2021     2020  
Expected federal statutory rate     21.0 %     21.0  %
State income taxes, net of federal benefit     6.1 %     6.1  %
Impairment charge     0.0 %     0.0  %
Valuation allowance     (23.0 )%     (21.4 )%
Permanent items     (2.2 )%     (3.4 )%
Rate change     0.0 %     0.0  %
Other     (1.1 )%     (1.5 )%
 Effective income tax rate     0.8 %     0.8  %

 

The valuation allowance at December 31, 2021 was approximately $9,294,000. The net change in the valuation allowance during the year ended December 31, 2021 was an increase of approximately $657,000. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income 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 income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a valuation allowance as of December 31, 2021.

 

 

At December 31, 2021, the Company had U.S. federal, Illinois, and New York net operating loss carryforward of approximately $32,000,000, $13,630,000, and $13,123,000, respectively. Of the federal amount, $22,892,000 expires between 2034 and 2038, and $9,108,000 has an indefinite carryforward period. The Illinois losses may be carried forward 12 years and begin to expire in 2026. The New York losses may be carried forward 20 year and begin to expire in 2035. Certain tax attributes are subject to an annual limitation as a result of changes in ownership as defined under Internal Revenue Code Section 382. The Company files tax returns in multiple jurisdictions and is subject to examination in these jurisdictions. Significant jurisdictions in the U.S. include New York and Illinois.

 

The U.S. Tax Cuts and Jobs Act of 2017 provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign E&P through the year ended December 31, 2017. Due to the seizure of cash, by Chinese local authorities, the Company’s undistributed foreign E&P has been reduced to $0.