INCOME TAXES

12 Months Ended

Dec. 31, 2021

INCOME TAXES

INCOME TAXES

NOTE 21 – INCOME TAXES

The Company accounts for income taxes under ASC Topic 740: Income Taxes which requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. ASC Topic 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets.

The Company generated a deferred tax asset through net operating loss carry-forwards. Management of the Company’s analysis indicates the net operating losses would be subject to significant limitations pursuant to Internal Revenue Code Section 382/383. The Company has not completed its IRC Section 382 Valuation, as required and the NOL’s because of potential Change of Ownerships might limit the usage or render the NOL’s completely worthless. Therefore, Management of the Company based upon Management’s evaluation has recorded a Full Valuation Reserve (100%), since it is more likely than not that no benefit will be realized for the Deferred Tax Assets.

Deferred income taxes arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or noncurrent depending on the periods in which the temporary differences are expected to reverse. The Company does not have any uncertain tax positions.

The total deferred tax asset is calculated by multiplying a domestic (US) 21 percent marginal tax rate by the cumulative Net Operating Loss Carryforwards (“NOL”). The Company currently has NOL’s of approximately $13.8 million, which expire through 2038, in general, and NOL’s of approximately $26.9 million, which has an infinite life. The deferred tax asset related to the NOL carryforwards Management has determined based on all the available information that a 100% Valuation reserve is required. The change in the valuation allowance was $7.8 million and $7.3 million for the years ended December 31, 2021 and 2020, respectively.

The provision for incomes taxes for the years ending December 31 is as follows (in thousands):

	2021		2020
Current expense
Federal	$	-	$	-
State		-		-
Deferred expense
Federal	$	-	$	-
State		-		-
Total income tax expense	$	-	$	-

Deferred income tax (liabilities) assets at December 31 are as follows (in thousands):

	2021			2020
Deferred income tax assets
Net operating loss carryforward	$	6,862		$	14,359
Change in fair value of convertible promissory notes		2,517			2,627
Noncash compensation		899			1,018
Deferred revenue		142			180
Reserves and accruals		74			-
Lease liability		89			118
Other intangibles		195			195
Inventory reserve		31			82
Stock based compensation		79			79
Allowance for doubtful accounts		22			96
Accrued expenses		135			131
Total deferred tax assets		11,045			18,885
Deferred income tax liabilities
State income taxes		-			-
ROU assets		(83	)		(110	)
Prepaid expenses and other assets		(43	)		(84	)
Depreciation and amortization		(48	)		(48	)
Valuation allowance		(10,871	)		(18,643	)
Total deferred tax liabilities		(11,045	)		(18,885	)
Deferred income tax, net	$	-		$	-

Open income tax years for audit purposes (Federal and State) are from 2018 through 2021. The Company has not been serviced with any audit notices, as of the year ended December 31, 2021. In addition, the Company is current in filing our sales and income tax returns.

Internal Revenue Code Section 382 places a limitation (“Section 382 Limitation”) on the amount of taxable income that can be offset by NOL carryforwards after a change in control (generally greater than 50% change in ownership within a three-year period) of a loss corporation. California has similar rules. Generally, after a change in control, a loss corporation cannot deduct NOL carryforwards in excess of the Section 382 Limitation. Due to these “change in ownership” provisions, utilization of the NOL and tax credit carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods.

In general, the Company is no longer subject to tax examination by the Internal Revenue Service or state taxing authorities for years before 2016. Although the federal and state statutes are closed for purposes of assessing additional income tax in those prior years, the taxing authorities may still make adjustments to the NOL and credit carryforwards used in open years. Therefore, the tax statutes should be considered open as it relates to the NOL and credit carryforwards used in open years. For tax years that remain open to examination, potential examinations may include questioning of the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with the Internal Revenue Code or state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

The Company’s practice is to recognize interest and penalties related to income tax matters in tax expense. As of December 31, 2021 and 2020, The Company has no accrued interest and penalties.