XML 27 R16.htm IDEA: XBRL DOCUMENT v3.21.2
Income Taxes
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

Income tax benefit consists of the following:

 

    As Restated    
Year Ended December 31   2020   2019
Current taxes - Federal    $ (233,000)    $ -
Current taxes - State              42,000                38,000
Deferred taxes - Federal                       -             (402,000)
Deferred taxes - State                       -               (60,000)
         
Income tax benefit    $ (191,000)    $ (424,000)

 

The actual tax benefit attributable to loss before taxes differs from the expected tax benefit computed by applying the U.S. federal corporate income tax rate of 21% as follows:

 

    As Restated    
Year Ended December 31   2020     2019  
Federal statutory rate   21.0 %   21.0 %
             
Stock-based awards   (0.8)     (0.7)  
State taxes   3.6     3.2  
Other permanent differences   (0.3)     (0.6)  
Impact of uncertain tax positions   (0.7)     (0.5)  
Valuation allowance   (19.6)     (15.4)  
Other   0.8     0.1  
             
Effective federal income tax rate   4.0 %   7.1 %

 

Components of resulting noncurrent deferred tax assets (liabilities) are as follows:

 

    As Restated    
As of December 31   2020   2019
Deferred tax assets        
Accrued expenses    $ 376,000    $ 260,000
Inventory reserve                 9,000                5,000
Stock-based awards                65,000               88,000
Reserve for bad debts                33,000               16,000
Net operating loss and credit carryforwards           1,422,000             715,000
Other                47,000               26,000
Depreciation                52,000                       -
Valuation allowance          (1,946,000)         (1,003,000)
         
Total deferred tax assets    $ 58,000    $ 107,000
         
Deferred tax liabilities        
Depreciation    $ -    $ (18,000)
Prepaid expenses               (58,000)              (89,000)
         
Total deferred tax liabilities               (58,000)            (107,000)
         
Net deferred income tax liabilities    $ -    $ -

 

 

As of December 31, 2020, the Company had a Federal net operating loss (NOL) to carry forward of approximately $5,400,000 and state NOLs of approximately $4,500,000 to carry forward. The Federal NOLs can be carried forward indefinitely. The expiration of state NOLs carried forward varies by taxing jurisdiction.

 

Section 382 of the U.S. Internal Revenue Code of 1986 (“Section 382”), as amended, generally imposes an annual limitation on the amount of NOL carryforwards that might be used to offset taxable income when a corporation has undergone significant changes in stock ownership. During 2020, we believe we may have experienced an ownership change as defined in Section 382 which would limit our ability to utilize our NOLs. The Company has not yet completed a formal Section 382 analysis. In addition, our ability to utilize the current NOL carryforwards might be further limited by future issuances of our common stock.

 

In March 2020, Congress passed the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The CARES Act, among other provisions, allows for companies to carry back federal NOLs generated in 2018, 2019 and 2020 for up to five years for refunds of federal taxes paid. This provision created an opportunity for the Company to utilize NOLs not previously expected to be utilized. Thus, the Company has reversed approximately $215,000 of its valuation allowance against the NOLs in its deferred tax assets which the Company carried back to claim a refund of federal taxes paid. As the Company expects to receive the tax refund from the ability to carry back the NOLs within the next 12 months, this discrete benefit has been recorded within income taxes receivable on the balance sheet. In addition to the $215,000 recognized, $17,000 was included as a discrete tax benefit for the year and included in income taxes receivable related to the NOL carry back due to differences in the federal tax rate utilized for the deferred tax asset compared to the rates in effect for the years in which the NOL is being carried back.

 

The Company evaluates all significant available positive and negative evidence, including the existence of losses in prior years and its forecast of future taxable income, in assessing the need for a valuation allowance. The underlying assumptions the Company uses in forecasting future taxable income require significant judgment and take into consideration the Company’s recent performance. The change in the valuation allowance for the years ended December 31, 2020 and 2019 was $943,000 and $924,000, respectively.

 

The Company has recorded a liability of $677,000 and $643,000 for uncertain tax positions taken in tax returns in previous years as of December 31, 2020 and 2019, respectively. This liability is reflected as accrued income taxes on the Company’s balance sheets. The Company files income tax returns in the United States and numerous state and local tax jurisdictions. Tax years 2017 and forward are open for examination and assessment by the Internal Revenue Service. With limited exceptions, tax years prior to 2017 are no longer open in major state and local tax jurisdictions. The Company does not anticipate that the total unrecognized tax benefits will change significantly prior to December 31, 2021.

 

A reconciliation of the beginning and ending amount of the liability for uncertain tax positions is as follows:

 

Balance at January 1, 2019    $ 613,000
Increases due to interest and state tax                 30,000
Balance at December 31, 2019               643,000
Increases due to interest and state tax                 34,000
Balance at December 31, 2020    $ 677,000