Income Taxes |
12 Months Ended |
|---|---|
Dec. 31, 2021 | |
| Income Taxes [Abstract] | |
| Income Taxes | NOTE 13 - INCOME TAXES Income tax (benefit) expense from continuing operations consists of the following: Year Ended December 31 2021 2020Current year income taxes (benefit): Federal $ 6,000 $ (9,000)State 19,000 14,000 25,000 5,000 Deferred income taxes: Federal $ — $ 10,000 — 10,000 Income tax expense (benefit) $ 25,000 $ 15,000 The Company’s Austin Taylor Communications, Ltd. unit operated in the United Kingdom (U.K.) and is subject to U.K. rather than U.S. income taxes. Austin Taylor had no activity in 2021 and 2020. At the end of 2021, Austin Taylor’s net operating loss carry-forward was $7,462,000. The Company remains uncertain whether it will be able to generate the future income needed to realize the tax benefit of the carry-forward. Accordingly, the Company has continued to maintain its deferred tax valuation allowance against any potential carry-forward benefit from Austin Taylor. Net2Edge, Ltd., formally known as Transition Networks EMEA, Ltd., operates in the U.K. and is subject to U.K. rather than U.S. income taxes. Net2Edge, Ltd. had pretax losses of $120,000 and $955,000 in 2021 and 2020, respectively. At the end of 2021, Net2Edge, Ltd.’s net operating loss carry-forward was $10,195,000. Net2Edge was included in the E&S Sale Transaction, which resulted in all deferred balances being reduced to zero as of December 31, 2021. The provision for income taxes for continuing operations varied from the federal statutory tax rate as follows: Year Ended December 31 2021 2020Tax at U.S. statutory rate 21.0% 21.0%State income taxes, net of federal benefit (0.3) (0.4)Foreign income taxes, net of foreign tax credits — —Other nondeductible items 3.8 (1.0)Change in valuation allowance (22.2) (22.5)Other (2.6) 2.6Effective tax rate (0.3)% (0.3)% Deferred tax assets and liabilities as of December 31 related to the following: 2021 2020Deferred tax assets: Allowance for doubtful accounts$ 12,000 $ 26,000Inventory 21,000 798,000Accrued and prepaid expenses 139,000 313,000Lease liability 43,000 70,000Domestic net operating loss carry-forward 2,684,000 2,959,000Capital loss carry-forward — 439,000Nonemployee director stock compensation 616,000 552,000Other stock compensation — 82,000Foreign net operating loss carry-forwards and credits 1,418,000 3,261,000Federal and state credits 367,000 767,000Other 386,000 19,000 Gross deferred tax assets 5,686,000 9,286,000Valuation allowance (5,210,000) (8,728,000) Net deferred tax assets 476,000 558,000 Deferred tax liabilities Depreciation (303,000) (318,000)Intangible assets (136,000) (175,000)Lease right-of-use asset (37,000) (65,000) Net deferred tax liability (476,000) (558,000) Total net deferred tax asset$ — $ — The Company assesses available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ending December 31, 2021. This objective evidence limits the ability to consider other subjective evidence such as the projections for future growth. On the basis of this evaluation, as of December 31, 2021, a valuation allowance of $5,210,000 has been recorded to reflect the portion of the deferred tax asset that is more likely to not be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as the Company’s projections for growth. At December 31, 2021, the Company has a federal net operating loss carryforward from 2015 through 2021 activity of approximately $10,008,000 that is available to offset future taxable income and begins to expire in 2035. This includes the removal of all Transition Networks’ net operating losses from prior years due to the E&S Sale Transaction in 2021. During 2015, the Company engaged in a research and development tax credit study for the tax years 2011 to 2014. As a result of this study, the Company claimed $1,554,000 of federal and $1,024,000 of state research and development credits. The Company amended prior year tax returns to claim these credits and offset prior year taxes paid. Credits not used to reduce taxes are available to be carried forward. At December 31, 2021, the Company has an estimated federal research and development credit carryforward of approximately $220,000 and a state research and development credit carryforward of approximately $387,000. The Company assesses uncertain tax positions in accordance with ASC 740. Under this method, the Company must 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 these uncertain tax positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense. Changes in the Company’s uncertain tax positions are summarized as follows: 2021 2020Uncertain tax positions – January 1 $ 115,000 $ 101,000Gross increases - current period tax positions (2,000) 14,000Uncertain tax positions – December 31, 2021 $ 113,000 $ 115,000 Included in the balance of uncertain tax positions at December 31, 2021 are $113,000 of tax benefits that if recognized would affect the tax rate. The Company’s unrecognized tax benefits will be reduced by $0 in the next twelve months due to statute of limitations expirations. There are no other expected significant changes in the Company’s uncertain tax positions in the next twelve months. The Company’s income tax liability accounts included accruals for interest and penalties of $0 at December 31, 2021. The Company’s 2021 income tax expense decreased by $0 due to net decreases for accrued interest and penalties. The Company’s federal and state tax returns and tax returns it has filed in Costa Rica and the United Kingdom are open for review going back to the 2018 tax year. |