INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

12.     INCOME TAXES

The income tax provision on the statements of operations was comprised of the following for the years ended December 31: 

	2021		2020
Current:
Federal	$	–	$	(23,298	)
State		10,198		–
Current income tax provision (benefit)		10,198		(23,298	)
Deferred:
Federal		–		917,480
State		–		–
Deferred income tax provision		–		917,480
Income tax provision	$	10,198	$	894,182

For the years ended December 31, 2021 and 2020, the reconciliation of the federal statutory tax rate to the benefit rate for income taxes is as follows: 

	2021			2020
Federal taxes at U.S statutory rate		21.0	%		21.0	%
Stock-based compensation		4.0			14.9
IRC Section 162(m) limitation		(7.4	)		–
Tax credits		4.1			1.3
Other permanent differences		(0.3	)		–
State taxes		0.7			–
Change in state rate		(1.8	)		–
Return-to-provision adjustments		7.5			2.8
Change in valuation allowance		(2.3	)		(56.9	)
Change in carryovers and tax attributes		(25.9	)		6.1
Effective tax rate		(0.4	)%		(10.8	)%

Deferred tax assets are comprised of the following at December 31: 

	2021			2020
Deferred tax assets:
Net operating loss carryforward	$	4,082,474		$	4,261,552
Operating lease obligation		1,079,312			1,016,847
Stock-based compensation		621,460			650,737
Tax credits		526,549			491,261
Capital loss carryforward and other		–			270,551
Other carryforwards		3,603			–
Accrued bonuses		285,336			–
Deferred tax assets, gross		6,598,734			6,690,948
Deferred tax liabilities:
Intangible assets		(651,767	)		(548,149	)
Fixed assets		(111,255	)		(435,218	)
Right-of-use assets		(1,079,507	)		(1,014,606	)
		(1,842,529	)		(1,997,973	)
Less valuation allowance		(4,756,205	)		(4,692,975	)
Deferred tax asset, net	$	–		$	–

As of December 31, 2021, the Company has gross Federal net operating loss carryforwards of approximately $20,087,818 and gross state net operating loss carryforwards of approximately $4,470,645. Approximately $882,542 of the Federal net operating loss carryforwards begin to expire in 2034 and the remaining Federal net operating losses can be carried forward indefinitely. The carryforwards of the Company's state net operating losses range from ten years to an indefinite carryforward period and begin to expire in 2031.

Pursuant to Sections 382 and 383 of the Internal Revenue Code ("IRC"), Federal and state tax laws impose significant restrictions on the utilization of net operating losses and other tax carryforwards in the event of a change in ownership of the Company. The Company's federal and state net operating losses at December 31, 2021 are not materially impacted by IRC Section 382 nor IRC Section 383.

Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial reporting purposes. 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 tax assets will not be realized. At December 31, 2020, management determined that its more-likely-than-not that the Company’s net deferred tax assets would not be realized in the near future and placed a full valuation allowance on the deferred tax assets. The Company continues to have a full valuation allowance in 2021. The Company's valuation allowance represents the amount of tax benefits that are likely to not be realized. The net change in the valuation allowance from December 31, 2020 was $63,230.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: 

Balance as of December 31, 2019	$	–
Additions for current year		–
Additions for prior year		–
Subtractions for current year		–
Balance as of December 31, 2020		–
Additions for current year		28,041
Additions for prior year		337,324
Subtractions for current year		–
Balance as of December 31, 2021	$	365,365

As of December 31, 2021 and 2020, the Company has no accrual for interest and penalties related to its unrecognized tax benefits. The balance of the unrecognized tax benefits as of December 31, 2021 are included in the deferred tax asset, net. The Company's effective tax rate would not be impacted if its uncertain tax benefits were recognized due to the Company's full valuation allowance. There are no positions for which it is reasonably possible that the uncertain tax benefit will significantly increase or decrease within twelve months. The Company files income tax returns in the United States and various state jurisdictions. The federal statute of limitation remains open for the 2018 tax year to present. The state statutes of limitation remain open for the 2020 tax year through present.