Annual report pursuant to Section 13 and 15(d)

11. Income Taxes

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

11. Income Taxes


For the years ended December 31, 2019 and 2018 the provisions for income taxes were as follows:



    2019   2018
Federal – current   $  -   $  -
State – current      -      -
Foreign – current      -      -
Total   $  -   $  -


Under ASC 740, deferred income tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.


Significant components of our net deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows:


    2019   2018
Deferred tax assets (liabilities):            
Net operating loss carryforwards   $  14,136,000   $  11,621,000
Stock based compensation      3,877,000      3,551,000
Accrued compensation      34,000      16,000
Depreciation and amortization      4,241,000      4,759,000
Other      5,000      20,000
Total deferred tax assets      22,293,000      19,967,000
Valuation allowance for net deferred tax assets      (22,293,000)      (19,967,000)
Total   $  -   $  -


The Company has provided a valuation allowance against deferred tax assets recorded as of December 31, 2019 and 2018 due to uncertainties regarding the realization of such assets.


The net change in the total valuation allowance for the year ended December 31, 2019 was an increase of approximately $2,326,000. The net change in the total valuation allowance for the year ended December 31, 2018 was an increase of approximately $2,088,000. In assessing the valuation of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. The Company considers projected future taxable income and planning  strategies in making this assessment. Based on the level of historical operating results and projections for the taxable income for the future, the Company has determined that it is more likely than not that the deferred tax assets will not be realized. Accordingly, the Company has recorded a valuation allowance to reduce deferred tax assets to zero. There can be no assurance that the Company will ever be able to realize the benefit of some or all of the federal and state loss carryforwards, either due to ongoing operating losses or due to ownership changes, which limit the usefulness of the loss carryforwards.


As of December 31, 2019, the Company has available net operating loss carryforwards of approximately $51,000,000 for federal income tax purposes, which will start to expire in 2026. The net operating loss carryforwards for state purposes are approximately $51,000,000 and will start to expire in 2028.


The difference between the provision for income taxes and income taxes computed using the U.S. federal income tax rate for the years ended December 31, 2019 and 2018 was as follows:



    2019   2018
Computed expected tax expense   $  (1,853,000)   $  (1,515,000)
State taxes, net of federal benefit      (581,000)      (630,000)
Expiration of NOL carryforwards     44,000     44,000
Other     64,000     13,000
Change in valuation allowance     2,326,000     2,088,000
Total   $  -   $  -


The Company has determined that during 2010 it experienced a “change of ownership” as defined by Section 382 of the Internal Revenue Code. As such, utilization of net operating loss carryforwards and credits generated before the 2010 change in ownership will be limited to approximately $207,000 per year until such carryforwards are fully utilized. The pre change net operating loss carryforward was approximately $6,000,000. Since 2010 the Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since 2010, utilization of the net operating loss carryforwards tax credit carryforwards would be subject to further annual limitation under Section 382. Any limitation may result in expiration of a portion of the net operating loss carryforwards before utilization.


The Company files income tax returns in the U.S. federal jurisdiction, Arizona, and California. Because the Company is carrying forward federal and state net operating losses from 2006, the Company is subject to U.S. federal and state income tax examinations by tax authorities for all years since 2006. The Company does not have a liability for any uncertain tax positions. As of December 31, 2019, no accrued interest or penalties are recorded in the financial statements.


On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (“TCJA”), which instituted fundamental changes to the taxation of multinational corporations, including a reduction the U.S. corporate income tax rate to 21% beginning in 2018. As a result, the Company re-measured its deferred tax assets and deferred tax liabilities at the new lower corporate income tax rate and reduced its net deferred tax assets by $7,657,000, with a corresponding net adjustment to the valuation allowance of $7,657,000 for the year ended December 31, 2017.


In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA.  The Company has recognized the provisional tax impacts related to the revaluation of the deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017.  The ultimate impact may differ from these provisional amounts due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the TCJA.  The Company completed the accounting for all of the enacted date income tax effects of the TCJA during 2018. No adjustments were recognized to the provisional amounts recorded at December 31, 2017.