INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 7 - INCOME TAXES

As of December 31, 2021, the Company had federal and state net operating loss carry forwards of approximately $2,687,000 and $5,073,000, respectively. The federal net operating loss is available to the Company indefinitely and available to offset up to 80% of future taxable income each year. The net deferred tax liability as of December 31, 2021 and 2020 was $274,000 and $260,000, respectively, and is reflected in long-term liabilities in the accompanying consolidated balance sheets.

On March 27, 2020, the CARES Act was enacted into law. The CARES Act is a tax and spending package intended to provide economic relief to address the impact of the COVID-19 pandemic. The CARES Act includes several significant income and other business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOLs”) and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years. The Company was able to carryback the 2018 and the 2019 NOLs to 2017 tax year and generate an estimated refund of previously paid income taxes at an approximate 34% federal tax rate. This resulted in a net benefit of $575,645 which was recorded in the first quarter 2020. The Company was also able to carryback a portion of its 2020 NOL, for which it recorded a further net benefit of $286,433. For the year ended December 31, 2020, the Company has recorded $2,320 in net tax expense.

Tax benefit for income taxes differs from the amount computed using the federal US statutory income tax rate as follows:

	Years Ended December 31,
	2021			2020
Tax benefit at U.S. statutory rate	$	(409,203	)	$	(629,108	)
State income taxes, net of federal benefit		(25,607	)		(86,744	)
Tax effect of foreign operations		47,428			119,558
Non-deductible items		5			57
NOL carryback rate difference		—			(329,618	)
Valuation allowance		420,570			345,397
Other		(18,138	)		(31,481	)
Income Tax Expense (Benefit)	$	15,055		$	(611,939	)

The effective tax rate for the years ended December 31, 2021 and 2020, respectively, was -0.77% and 20.43% and the statutory tax rate was 23.70% in 2021 and 24.46% in 2020.

The income tax benefit for the years ended December 31, 2021 and 2020 consists of:

	2021			2020
Current:
Federal	$	—		$	(873,278	)
State		823			1,600
Foreign		—			—
Deferred:
Federal		18,070			230,562
State		(3,838	)		29,177
Income Tax Expense (Benefit)	$	15,055		$	(611,939	)

Deferred tax assets are to be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred assets will not be realized. The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2021 and 2020. Since indefinite-lived assets cannot be used as a source of taxable income to support the realization of deferred tax asset, a valuation allowance was recorded against the deferred tax assets, and a net deferred tax liability or naked credit of approximately $274,000 and $260,000 is presented on the company’s balance sheet. The Company’s valuation allowance increased by $345,397 in 2021.

The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the Company believes that it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcome of examinations by tax authorities in determining the adequacy of its provision for income taxes.

As of December 31, 2020, the Company had an income tax refundable of approximately $861 thousand of which approximately $576 thousand income tax and $10.4 thousand of interest was refunded on February 3, 2021. As of December 31, 2021, the Company has a remaining tax refund of $285 thousand.