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12. INCOME TAXES
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES

Income tax expense consists of:

 

    Current     Deferred     Total  
Year Ended December 31, 2019:                  
U.S. federal   $ ––     $ ––     $ ––  
State and local     10,792       ––       10,792  
Foreign     14,073       ––       14,073  
    $ 24,865     $ ––     $ 24,865  
Year Ended December 31, 2020:                        
U.S. federal   $ ––     $ ––     $ ––  
State and local     11,752       ––       11,752  
Foreign     14,964       ––       14,964  
    $ 26,716     $ ––     $ 26,716  

 

 

A reconciliation of the expected income tax expense or benefit to actual follows:

 

    2019     2020  
Computed "expected" US benefit at Federal statutory rate   $ (685,652 )   $ (807,799 )
Change resulting from:                
     State and local income taxes, net of federal income tax benefit     (102,770 )      (145,891 )
     Valuation allowance     411,810       (121,000 ) 
     Non––deductible items     87,998       394,236  
     Expired Federal net operating loss     218,376       1,043,171  
     Federal and state rate changes     95,103       (113,340 )
     Non-taxable PPP loan forgiveness     ––       (222,661 )
           Income tax expense    $ 24,865     $ 26,716  

 

Temporary differences at December 31 follow:

 

    2019     2020  
Deferred income tax assets:            
     Inventories   $ 145,884     $ 241,874  
     Accounts receivable     253,559       445,392  
     Accrued expenses     80,068       116,254  
     Net operating loss and tax credit carry forwards     13,276,081       15,243,998  
     Plant and equipment     6,014       39,521  
     Stock compensation     123,841       448,375  
     Lease accounting     26,515       248  
     Other – interest expense     12,385       24,009  
Total deferred income tax assets     13,924,347       16,559,671  
Valuation allowance     (13,924,347 )     (16,559,671 )
Net deferred tax assets   $ ––     $ ––  

  

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) that significantly revised the U.S. tax code effective January 1, 2018 by, among other things, lowering the corporate income tax rate from a top marginal rate of 35% to a flat 21%. Other than the reduction in statutory rate, the Company does not anticipate the regulations will have a material impact on income taxes in future years.

 

As of December 31, 2020, the Company had federal net operating loss carry forwards of approximately $61,779,000 which are available to offset future taxable income. They are due to expire in varying amounts from 2021 to 2039. Federal net operating losses occurring after December 31, 2017, of approximated $13,617,000 may be carried forward indefinitely. As of December 31, 2020, the Company had state net operating loss carry forwards of approximately $19,151,000 which are available to offset future taxable income. They are due to expire in varying amounts from 2032 through 2039. The Company’s merger with Minim in 2020 triggered a change of ownership that may limit the use of our net operating losses. The Company is in the process of determining the impact of any such limitation. A valuation allowance has been established for the full amount of deferred income tax assets as management has concluded that it is more-likely than-not that the benefits from such assets will not be realized.

 

The Company reviews annually the guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a "more-likely-than-not" recognition threshold. At December 31, 2020 and 2019, the Company did not have any uncertain tax positions. No interest and penalties related to uncertain tax positions were accrued at December 31, 2020 and 2019.

 

The Company files income tax returns in the United States and Mexico. Tax years subsequent to 2016 remain subject to examination for both US federal and state tax reporting purposes. Tax years subsequent to 2014 remain subject to examination for Mexico tax reporting purposes. The foreign income tax reported represents tax on operations for the Company that is located in a special economic zone in Mexico. Other than the Mexico facility, the Company has no operations in a foreign location.