Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  



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


    Years Ended December 31,  
    2019     2018  
Federal income tax rate     (21 )%     (21 )
State tax, net of federal benefit     (7 )%     (7 )%
Carryback net operating loss     21 %      
Change in valuation allowances     7 %     7 %
Effective income tax rate     %     (21 )%


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, 2019 and 2018 are as follows:


  December 31,
    December 31,
Deferred tax assets:                
Inventory reserves   $ 395,562     $ 210,283  
Accrued liabilities and other reserves     208,366       120,251  
Net operating loss carryover     734,207       326,515  
Deferred tax liability:                
Accumulated depreciation     (97,055 )     (86,562 )
Net deferred tax assets     1,241,080       570,487  
Valuation allowance     (1,241,080 )     (570,487 )
Net deferred tax assets, net of valuation allowances   $     $  


Effective January 1, 2007, the Company adopted 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 the date of adoption, and as of December 31, 2019 and 2018, 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 2010.


The Company's policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31, 2019 and 2018, the Company had no accrued interest or penalties related to uncertain tax positions. Additionally, tax years 2010 through 2019 remain open to examination by the major taxing jurisdictions to which the Company is subject.


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.


As of December 31, 2019, the Company has approximately $2,400,000 of available net operating loss carryforwards which may be available to offset income in future periods.


On March 25, 2020, the Senate passed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), commonly known as "Phase Three" of coronavirus economic relief. The CARES Act provides stimulus to individuals, businesses, and hospitals in response to the economic distress caused by the coronavirus (COVID-19) pandemic. On March 27, 2020, the House of Representatives passed the CARES Act by voice vote. President Trump signed the bill into law that same day.  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 believes it will be entitled to a refund of approximately $1,200,000 from the payment of prior year taxes. The Company will account for the refund in the first quarter of 2020, the period that includes the enactment date of the new tax law.