Annual report pursuant to Section 13 and 15(d)

Income taxes

v3.20.4
Income taxes
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income taxes Income taxes
A reconciliation of the federal statutory income tax provision to our actual provision for the years ended December 31, 2020 and 2019 is as follows:
  2020 2019
Pre-tax book income (loss) $ (6,187,020) $ (4,779,179)
Expected tax at 21%
(1,299,274) (1,008,353)
Permanent differences:
Mark to market 20,665  4,133 
Goodwill impairment 613,677  775,572 
Intangible Amortization (84,085) (105,573)
Other 2,757  684 
State taxes:
Current 30,171  15,194 
Deferred (161,203) (110,517)
Other items:
Federal research and development credits (13,161) (48,153)
Change in valuation allowance 1,049,000  1,479,000 
Deferred tax past year true-up's 11,767  (30,981)
Other (140,143) (955,812)
Income tax provision $ 30,171  $ 15,194 
The components of net deferred tax assets recognized in the accompanying consolidated balance sheets at December 31, 2020 and 2019 are as follows:
  2020 2019
Net operating loss carryforwards $ 9,341,000  $ 8,299,000 
R&D and ITC credit carryforwards 313,000  317,000 
Accrued expenses and other 267,000  1,224,000 
Intangibles 191,000  — 
Leases 25,000  — 
Accounts receivable 108,000  20,000 
Stock options 238,000  — 
Inventory 217,000  78,000 
Property, plant and equipment 790,000  779,000 
Other 276,000  — 
Deferred tax assets 11,766,000  10,717,000 
Valuation allowance (11,766,000) (10,717,000)
Deferred tax assets, net $ —  $ — 

At December 31, 2020, we had approximately $37,638,000 of Federal net operating loss carryforwards ("NOL") of which $27,640,000 expire beginning in 2021 through 2037 and $9,998,000 have an indefinite carryforward. In addition, we have $1,437,000 of state net operating losses, expiring at various dates starting in 2021 through 2039.
    The Tax Cuts and Jobs Act was enacted on December 22, 2017. A significant provision of the act was to reduce the statutory Federal tax rate from 34% to 21%. During 2020, our valuation allowance increased by $1,049,000. This increase is affected by the absorption of deferred tax attributes associated with its acquisition of American DG Energy, Inc. along with permanent book to tax differences and provision to return adjustments.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES"), a sweeping stimulus bill intended to bolster the U.S. economy, and provide emergency assistance to qualifying businesses and individuals, was enacted and signed into law in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows net operating losses incurred in tax years 2018 through 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. We are currently evaluating the impact of this provision, but do not expect the net operating loss carryback provision will yield a material benefit. The CARES Act also modifies the limitation of business interest expense for the tax years beginning in 2019 and 2020. The modifications to Section 163(j) of the Internal Revenue Code increases the allowable business interest deduction from 30% of adjusted taxable income to 50%. This modification is not expected to materially effect us, as our adjusted taxable income is below zero for the tax years beginning in 2019 and 2020.
On April 17, 2020, we obtained an unsecured loan through Webster Bank, N.A. in the amount of $1,874,200 in connection with the Paycheck Protection Program ("PPP") pursuant to CARES and as administered by the United States Small Business Administration ("SBA"). On November 10, 2020, we submitted a loan forgiveness application to Webster seeking full forgiveness of the PPP loan. On January 19, 2021, we received a letter dated January 12, 2021 from Webster Bank, NA confirming that the Paycheck Protection Program Loan granted to us pursuant to the Coronavirus Aid, Relief, and Economic Recovery Act, as amended, in the original principal amount of $1,874,200 together with all accrued interest thereon was forgiven in full as of January 11, 2021. The loan forgiveness amount which aggregates to $1,886,933, including $12,733 of accrued interest, will be recognized in the first quarter of Fiscal 2021 (see Note 18. "Subsequent Events.") The funds received by us are expected to be nontaxable and have been treated accordingly.
    In accordance with the provisions of the Income Taxes topic of the Codification, we have evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of net operating losses. Management has determined that it is more likely than not that we will not recognize the benefits of federal and state deferred tax assets and, as a result, a full valuation allowance has been established for 2019 and 2020 respectively.
    Utilization of the NOL and research and development credit carryforwards are subject to a substantial annual limitation due to ownership changes, as provided by Section 382 of the Internal Revenue Code of 1986, as well as similar state provisions. Ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period.
    We acquired American DG Energy, Inc. during 2017, by acquiring 100 percent of the company's stock. Accordingly, utilization of their consolidated and/or separately computed NOL and/or tax credit carryforwards will be subject to an annual limitation under Internal Revenue Code Section 382. Any such limitation may result in expiration of a portion of the NOL or tax credit carryforwards before utilization. The extent of the limitation, and related allocation and impact upon the NOL and credit carryforwards has been determined to be $391,940 per year for a 20 year period at the ADGE level. However, we have sufficient pre-merger NOLs to offset anticipated taxable income for the taxable year ended December 31, 2020 and is not expected to be limited in NOL utilization for the period.
    A full valuation allowance has been provided against our loss carryforwards and, if an adjustment is required under Section 382, it would be offset by a corresponding adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations if an adjustment were required.

We have not recorded any amounts for unrecognized tax benefits as of December 31, 2020 or 2019.

We file tax returns as prescribed by the tax laws of the jurisdiction in which it operates. In the normal course of business, we are subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. Our tax returns from tax year 2017 are still open for examination for both federal and state jurisdictions.