Annual report pursuant to Section 13 and 15(d)

TAX EXPENSE

v3.21.1
TAX EXPENSE
12 Months Ended
Dec. 31, 2020
TAX EXPENSE  
NOTE 12 - TAX EXPENSE

The components of deferred income tax assets and (liabilities) are as follows:

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

Deferred income tax assets:

 

 

 

 

 

 

Options expense

 

$

2,871

 

 

$

2,314

 

Depreciation

 

 

194

 

 

203

 

Allowance for Doubtful Accounts

 

 

291

 

 

 

663

 

Net operating Losses

 

 

19,676

 

 

 

14,921

 

 

 

 

 

 

 

 

 

 

Total

 

 

23,032

 

 

 

18,101

 

Deferred income tax liabilities:

 

 

 

 

 

 

 

 

Unrealized gain on investments

 

 

(8,658

)

 

 

-

 

Total

 

 

14,374

 

 

 

18,101

 

 

 

 

 

 

 

 

 

 

Valuation allowance

 

 

(14,374

)

 

 

(18,101

)

 

 

 

 

 

 

 

 

 

Net deferred tax assets (liabilities)

 

$

-

 

 

$

-

 

 

The company did not incur income tax expense or benefit for the years ended December 31, 2020 or 2019 from continuing or discontinued operations. The reconciliation between the Company’s effective tax rate and the statutory tax rate is as follows:

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Expected Income Tax  Benefit at Statutory Tax Rate, Net

 

$

(6,151

)

 

$

(9,705

)

Amortization

 

 

713

 

 

 

641

 

IRC 280E adjustment

 

 

2,683

 

 

 

3,785

 

State taxes

 

 

(2,045

)

 

 

 

 

Impairment of assets

 

 

-

 

 

 

73

 

Impairment of intangibles

 

 

5,572

 

 

 

1,680

 

Other

 

 

613

 

 

 

29

 

Uncertain tax position

 

 

2,342

 

 

 

-

 

Change In valuation allowance

 

 

(3,727

)

 

 

3,496

 

 

 

 

 

 

 

 

 

 

Reported income tax expense (benefit)

 

$

-

 

 

$

-

 

   

For the years ended December 31, 2020 and 2019, the Company had subsidiaries that produced and sold cannabis or cannabis pure concentrates, subjecting the Company to the limits of Internal Revenue Code (“IRC”) Section 280E. Pursuant to IRC Section 280E, the Company is allowed only to deduct expenses directly related to sales of product. The State of California does not conform to IRC Section 280E and, accordingly the Company is allowed to deduct all operating expenses on its California income tax returns. As the Company files consolidated federal income tax returns, the taxable income generated from its subsidiaries subject to IRC Section 280E has been offset by losses generated by operations not subject to IRC Section 280E.

 

As of December 31, 2020, and 2019, the Company had net operating loss carryforwards of approximately $44.58 million and $47.48 million, respectively, which, if unused, will expire beginning in the year 2034. These tax attributes are subject to an annual limitation from equity shifts, which constitute a change of ownership as defined under IRC Section 382, which will limit their utilization. The Company assessed the effect of these limitations and did not believe the losses through December 31, 2020 to be substantially limited.

 

Management assesses the 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 losses incurred through the period ended December 31, 2020. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as of December 31, 2020, a valuation allowance of has been recorded against all net deferred tax assets as these assets are more likely than not to be unrealized. 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 our projections for growth.

 

The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. All tax years are subject to examination.

  

Under ASC 740-10, Income Taxes, we periodically review the uncertainties and judgments related to the application of complex income tax regulations to determine income tax liabilities in several jurisdictions. We use a “more likely than not” criterion for recognizing an asset for unrecognized income tax benefits or a liability for uncertain tax positions. We have determined we have unrecognized assets related to uncertain tax positions for IRC Section 280E as of December 31, 2020. We do not anticipate any significant changes in such uncertainties and judgments during the next twelve months. To the extent we are required to recognize interest and penalties related to unrecognized tax liabilities, this amount will be recorded as an accrued liability. As of December 31, 2020, we had $11.15 million of unrecognized tax benefits, all of which would affect the effective tax rate if recognized. Of the $11.15 million in unrecognized tax benefits, $2.06 million relate to 2020 and $9.09 million relate to prior years.