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INCOME TAXES
 12 Months Ended
Dec. 31, 2021
INCOME TAXES  
INCOME TAXES

NOTE 7 – INCOME TAXES

 

The Company provides for income taxes using an asset and liability approach under which deferred income taxes are provided for based upon enacted tax laws and rates applicable to periods in which the taxes become payable.

 

The domestic and foreign components of income (loss) before (benefit) provision for income taxes were as follows: 

 

 

 

12/31/2021

 

 

12/31/2020

 

Domestic

 

$(8,365,297 )

 

$(2,901,276 )

Foreign

 

 

517,659

 

 

 

4,099,597

 

 

 

$(7,847,638 )

 

$1,198,321

 

 

The components of the (benefit) provision for income taxes are as follows:

 

 

 

12/31/2021

 

 

12/31/2020

 

Current tax provision

 

 

 

 

 

 

Federal

 

$-

 

 

$-

 

State

 

 

-

 

 

 

-

 

Foreign

 

 

802,364

 

 

 

555,965

 

Total current tax provision

 

$802,364

 

 

$555,965

 

 

 

 

 

 

 

 

 

 

Deferred tax provision

 

 

 

 

 

 

 

 

Domestic

 

$-

 

 

$-

 

State

 

 

-

 

 

 

-

 

Foreign

 

 

(688,354 )

 

 

(178,430 )

Total deferred tax provision

 

$(688,354 )

 

$(178,430 )

 

 

 

 

 

 

 

 

 

Total current provision

 

$114,010

 

 

$377,535

 

The reconciliation of income tax expense computed at the U.S. federal statutory rate to the income tax provision for the years ended December 31, 2021 and 2020 is as follows:

 

 

 

 

12/31/2021

 

 

12/31/2020

 

US

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

$(7,847,639)

 

$1,198,321

 

Taxes under statutory US tax rates

 

 

$(1,648,004)

 

$251,647

 

Increase (decrease) in taxes resulting from:

 

 

 

 

 

 

 

 

 

Increase in valuation allowance

 

 

$3,001,899

 

 

$216,518

 

Foreign tax rate differential

 

 

$(24,977)

 

$(55,540)

Permanent differences

 

 

$(734,428)

 

$(218,216)

US tax on foreign income

 

 

$493,028

 

 

$604,419

 

163(j) catch up

 

 

(76,888)

 

 

-

 

Prior period adjustments

 

 

$52,034

 

 

$(97,829)

State taxes

 

 

$(948,654)

 

$(323,464)

Income tax expense

 

 

$114,010

 

 

$377,535

 

 

Companies subject to the Global Intangible Low-Taxed Income provision (GILTI) have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for outside basis temporary differences expected to reverse as GILTI. We have elected to account for GILTI as a period cost.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities consist of the following:

 

 

 

12/31/2021

 

 

12/31/2020

 

Net operating loss carryforward

 

$

4,515,900

 

 

$

1,494,424

 

Capital loss carryforward

 

 

801,744

 

 

 

801,744

 

Section 163(j) carryforward

 

 

-

 

 

 

-

 

Nonqualified stock options

 

 

96,104

 

 

 

170,297

 

Foreign exchange

 

 

13,438

 

 

 

-

 

Allowance for doubtful accounts

 

 

374,604

 

 

 

-

 

Accrued expenses

 

 

528,895

 

 

 

7,389

 

Mark to market adjustment in securities

 

 

358,761

 

 

 

357,829

 

Lease liability

 

 

253,620

 

 

 

247,797

 

Gain on extinguishment of debt

 

 

-

 

 

 

179,958

 

Depreciation

 

 

(6,765

) 

 

 

4,226

 

Total deferred tax assets

 

 

6,936,211

 

 

 

3,263,664

 

 

 

 

 

 

 

 

 

 

Intangibles

 

 

(8,139

)

 

 

(10,729

)

Inventory

 

 

(14,728

)

 

 

-

 

Right of use asset

 

 

(243,207

)

 

 

(253,818

) 

Goodwill

 

 

(10,979

)

 

 

(14,473

)

Total deferred tax liabilities

 

 

(277,053

)

 

 

(279,020

)

Valuation allowance

 

 

(5,808,384

)

 

 

(2,806,214

)

Net deferred tax assets (liabilities)

 

$

850,774

 

 

$

178,430

 

 

At December 31, 2021, the Company had U.S. net operating loss ("NOL") carryforwards of approximately $12,513,177 that may be offset against future taxable income, subject to limitation under IRC Section 382. Of the $12.5 million Federal NOL carryforwards, $2.5 million are pre-2018 and begin to expire in 2031. The remaining balance of $10 million, are limited to utilization of 80% of taxable income but do not have an expiration. At December 31, 2021, the Company had fully utilized all the Greek NOL carryforwards and has an NOL of $546,683 in the UK. A valuation allowance exists for the U.S. operations, but not for the non-U.S. operations, based on a more likely than not criterion and in consideration of all available positive and negative evidence.

 

ASC 740 requires that the tax benefit of net operating losses ("NOLs"), temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is "more likely than not." Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period. Because of the Company's history of domestic operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance, on our U.S. net domestic deferred tax assets. In 2020, foreign (Greece and United Kingdom) valuation allowances were released, aggregating $200,000. Management considered all available evidence to when evaluating the realizability of foreign deferred tax assets by jurisdiction and concluded primarily based upon a strong earnings history that these deferred tax assets were more-likely-than-not realizable.

 

The Company applied the "more-likely-than-not" recognition threshold to all tax positions taken or expected to be taken in a tax return, which resulted in no unrecognized tax benefits as of December 31, 2021 and December 31, 2020, respectively. We recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense.

 

The Company files income tax returns in Illinois, United States, and in foreign jurisdictions including Greece, and United Kingdom. As of December 31, 2021, all domestic tax years are open to tax authority examination due the availability of net operating loss deductions, 2010 through 2021. In Greece, the statute of limitations is open for five years, 2016 through 2021. In United Kingdom, the statute of limitations is open for four years, 2017 through 2021. Currently, there are no ongoing tax authority income tax examinations.

 

As of December 31, 2021, the Company had $1.7 million of undistributed earnings and profits for which no deferred tax liabilities have been recorded, since the Company intends to indefinitely reinvest such earnings to fund the international operations and certain obligations of the subsidiary. Should the above undistributed earnings be distributed in the form of dividends or otherwise, the distributions would result in $350.3 thousand of tax expense.