Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes
12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes



On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted and signed into law in response to the COVID-19 pandemic. Under the CARES Act, NOLs arising in tax years beginning after December 31, 2017, and before January 1, 2021 (e.g., NOLs incurred in 2018, 2019, or 2020 by a calendar-year taxpayer) may be carried back to each of the five tax years preceding the tax year of such loss. Since the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA), NOLs generally could not be carried back but could be carried forward indefinitely. Further, the TCJA limited NOL absorption to 80% of taxable income. The CARES Act temporarily removes the 80% limitation, reinstating it for tax years beginning after 2020.


Based on the passage of Cares Act, the Company determined that the NOL carryback provision in the CARES Act would result in a cash benefit to us for the fiscal years 2017, 2018, and 2019. As a result, during the year ended December 31, 2020, an income tax benefit of $2,139 was recorded related to U.S. Federal loss carryforwards that became eligible for carryback. At December 31, 2020, we have recorded an income tax receivable of $1,702 for the benefit of carrying back the NOLs for 2018 to 2019 to the tax year ended September 30, 2016. We are forecasting an NOL for fiscal year 2020 and expect to carry it back to the short tax period ended December 31, 2016. As a result, we have also included the 2020 provisional amounts of $655 in income tax receivable at December 31, 2020.


The benefit from income taxes for the years ended December 31, 2020 and 2019 consists of the following:


    Years Ended December 31,  
    2020     2019  
Current Federal     (2,139 )     -  
Current State     -       -  
Deferred Federal     -       -  
Deferred State     -            -  
Benefit from income taxes     (2,139 )     -  


The reconciliation of the effective income tax rate to the federal statutory rate is as follows:


    Years Ended December 31,  
    2020     2019  
Federal income tax rate     (21 )%     (21 )
State tax, net of federal benefit     (7 )%     (7 )%
Carryback net operating loss     %     21 %
Change in valuation allowances     12 %     7 %
Effective income tax rate     16 %     %


Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2020 and 2019 are as follows:


    December 31,
    December 31,
Deferred tax assets:                
Inventory reserves   $ 1,379     $ 396  
Accrued liabilities and other reserves     169       208  
Operating lease liability     465       635  
Net operating loss carryforwards     2,281       734  
Gross deferred tax assets     4,294       1,973  
Valuation allowance     (3,515 )     (1,266 )
Total deferred tax assets     779       707  
Deferred tax liabilities:                
Operating lease right-of-use asset, net     (436 )     (610 )
Depreciation     (343 )     (97 )
Total deferred tax liabilities     (779 )     (707 )
Net deferred tax asset (liability)   $     $  


At December 31, 2020, the Company had available Federal and state net operating loss carryforwards (“NOL”s) to reduce future taxable income of approximately $7,200,000 and $10,900,000, respectively. The Federal NOL can be carried forward indefinitely, but can only offset 80% of taxable income in future years. The state carryforward expires in 2039 through 2040.


Authoritative guidance issued by the ASC Topic 740 – Income Taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. The Company considers all evidence available when determining whether deferred tax assets are more likely-than-not to be realized, including projected future taxable income, scheduled reversals of deferred tax liabilities, prudent tax planning strategies, and recent financial operations. The evaluation of this evidence requires significant judgement about the forecast of future taxable income is consistent with the plans and estimates we are using to manage the underlying business. Based on their evaluation, the Company determined that their net deferred tax assets do not meet the requirements to be realized, and as such, the Company has provided a full valuation allowance against them.


The Company follows FASB guidelines that address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this guidance, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. This guidance also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At December 31, 2020 and 2019, the Company did not have a liability for unrecognized tax benefits, and no adjustment was required at adoption.


The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company is subject to U.S. federal or state income tax examinations by tax authorities for tax years after 2016.


The Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31, 2020 and 2019, the Company had no accrued interest or penalties related to uncertain tax positions. Additionally, tax years 2016 through 2020 remain open to examination by the major taxing jurisdictions to which the Company is subject.