INCOME TAXES

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

11. INCOME TAXES

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. The CARES Act includes provisions relating to refundable payroll tax credits, net operating loss carryback periods, alternative minimum tax refunds, modifications to the net interest deduction limitations and technical corrections to the tax depreciation methods for qualified improvement property. The CARES Act has an immaterial impact on the Company’s income taxes.

The Company accounts for income taxes in accordance with ASC 740 which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition. There were no unrecognized tax benefits as of January 1, 2019 and during the years ended December 31, 2020 and 2019.

The Company has identified its federal tax return and its state tax return in New York as “major” tax jurisdictions, as defined in ASC 740. Based on the Company's evaluation, it has concluded that there are no significant uncertain tax positions requiring recognition in the Company's consolidated financial statements. The Company's evaluation was performed for tax years ended 2017 through 2020. The Company believes that its income tax positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its consolidated financial position.

The Company's policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense. There were no amounts accrued for penalties or interest as of or during the year ended December 31, 2020. For the year ended December 31, 2020, the Company determined that, more likely than not, its deferred tax assets would not be realized and, accordingly, decreased the valuation allowance. The increase in the valuation allowance is included in the income tax provision in the accompanying consolidated statement of operations for the year ended December 31, 2020. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

The provision for income tax consisted of the following:

	For the Years Ended December 31,
	2020			2019
Current:
Federal	$	-		$	-
Foreign		619			1,805
State and Local		-			-
Total Current		619			1,805
Deferred
Federal		1,731,000			1,337,000
Foreign		-			-
State and Local		(9,000	)		25,000
Adjustment to valuation allowance related to net deferred tax assets		(1,722,000	)		(1,362,000	)
Total Deferred		-			-
Provision for income taxes	$	619		$	1,805

The provision for income taxes for the years ended December 31, 2020 and 2019 of approximately $600 and $1,800, respectively, is the result of certain licensing revenues that are subject to withholding of income tax as mandated by the foreign jurisdiction in which the revenues are earned partially offset by a Federal income tax refund relating to alternative minimum tax credits.

Loss before income taxes is comprised of the following:

	For the Years Ended December 31,
	2020			2019
Domestic	$	(826,359	)	$	(555,843	)
Foreign		3,143			9,082
Net loss before income taxes	$	(823,216	)	$	(546,761	)

A reconciliation between the effective rate for income taxes and the amount computed by applying the statutory Federal income tax rate to loss before provision for income taxes is as follows:

	For the Years Ended December 31,
	2020		2019
Tax provision at statutory rate	(21	)%	(21	)%
State and local taxes	(3	)%	(3	)%
Incentive Stock Option Expense	-		1	%
Change in valuation allowance for net deferred tax assets	24	%	23	%
	-	%	-	%

The components of temporary differences that give rise to significant portions of the deferred tax asset, net, are as follows:

	For the Years Ended December 31,
	2020			2019
Deferred tax assets:
Accrued expenses	$	16,000		$	17,000
Allowance for doubtful accounts		1,000			1,000
Deferred revenue		8,000			-
Reserve for obsolescence		23,000			25,000
Expense associated with non-qualified stock options		37,000			37,000
Revenue Sharing Agreement		210,000			234,000
General business credit		1,004,000			1,198,000
NOL carryforward		5,732,000			7,241,000
		7,031,000			8,753,000
Less: valuation allowance		(7,031,00	)		(8,753,000	)
Deferred tax asset, net	$	-		$	-

The change in the valuation allowance for deferred tax assets are summarized as follows:

	For the Years Ended December 31,
	2020			2019
Beginning Balance	$	8,753,000		$	10,115,000
Change in Allowance		(1,722,000	)		(1,362,000	)
Ending Balance	$	7,031,000		$	8,753,000

As of December 31, 2020, Andrea federal had net operating loss carryforwards of approximately $27,000,000. $2,400,000 of these federal net operating loss carryforwards are carried forward indefinitely, the remaining $24,600,000 expire in varying amounts beginning in 2021 through 2036. Andrea has state net operating loss carryforwards of approximately $3,700,000 expiring in varying amounts beginning in 2035. Andrea has general business credits of approximately $1,000,000 expiring in varying amounts beginning in 2021 through 2039. The Company records tax benefits and expense in the statements of earnings.