INCOME TAXES

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

The Company was classified as a partnership through the Closing Date, and therefore, not subject to entity level tax.  After the Closing Date, the Company is taxed as a C corporation and files a consolidated return with True Drinks, Inc.

The tax effects of temporary differences and tax loss and credit carry forwards that give rise to significant portions of deferred tax assets and liabilities at December 31, 2020 and 2019 are comprised of the following (in thousands):

	As of December 31,
	2020			2019
Deferred tax assets:
Bad Debt	$	82		$	133
Inventory		39			9
Accrued Expenses		16			-
Lease liability		294			385
Stock compensation		201			349
Transaction costs		-			808
Net operation loss		1,577			698
Contribution		1			-
Derivatives		287			268
Total deferred income tax assets		2,496			2,650
Deferred income tax liabilities:
ROU assets		(292	)		(384	)
Fixed assets		(67	)		(20	)
Other		5
Total deferred income tax liabilities		(354	)		(404	)
Net deferred income tax assets		2,142			2,246
Valuation allowance		(2,142	)		(2,246	)
Deferred tax asset, net of allowance	$	(0	)	$	(0	)

At December 31, 2020, the Company had federal and state net operating loss carry forwards for income tax purposes of approximately $76.8 million. The effect of an ownership change would be the imposition of an annual limitation on the use of net operating loss carryforwards (“NOL”) attributable to periods before the change. Any limitation may result in expiration of a portion of the NOL carryforwards before utilization. The Company has not performed a detailed analysis to determine the realizability of the NOL under Section 382 of the IRC. As such, deferred tax assets related to NOLs incurred before the Closing Date of $71 million relating to True Drinks, Inc. have not been recorded.  After the Closing Date we incurred $5.8 million of federal gross NOLs and $5.1 million of state gross NOLs, which will begin to expire in 2029.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and taxing strategies in making this assessment. Based on the review of positive and negative evidence, the Company has provided a full valuation allowance against its deferred tax assets as it is more likely than not that they may not be realized.

The expected tax expense (benefit) based on the U.S. federal statutory rate is reconciled with actual tax expense (benefit) as follows:

	Year ended December 31, 2020			Year ended December 31, 2019
Statutory federal income tax rate		21.0	%		21.0	%
Non-taxable Income		(2.5	)%		15.1	%
State taxes, net of federal tax benefit		4.7	%		20.6	%
Stock compensation		(3.5	)%		-	%
Non-deductible expenses		(0.0	)%		(1.3	)%
Derivatives		(0.7	)%		27.2	%
Return to provisoin adjustment		(19.8	)%		-	%
Change in valuation allowance		0.8	%		(81.3	)%
Income taxes provision (benefit)		-	%		1.4	%

	As of December 31,
	2020			2019
Current
US Federal	$	-		$	-
US State		-			-
Total current provision		-			-
Deferred
US Federal		(399	)		1,331
US State		341			443
Total deferred benefit		(59	)		1,774
Change in valuation allowance		59			(1,745	)
Total provision for income taxes	$	0		$	29

ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. As of December 31, 2020, and 2019, there were no uncertain tax positions. The Company’s policy for recording interest and penalties associated with uncertain tax positions is to record such expense as a component of income tax expense. There were no amounts accrued for penalties or interest during the years ended December 31, 2020 and 2019. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

The Company is subject to U.S. federal and state taxes in the normal course of business, and its income tax returns are subject to examination by the relevant tax authorities.  Tax years 2017-2020 are still open for examination by Federal tax authorities and tax years 2016-2020 are generally open for examination by state tax authorities.  The Company is under IRS audit for 2017, however no material adjustments have currently been identified that would affect the tax provision as stated.