Note

– Income Taxes

The income tax provision (benefit) from operations consists of the following (in thousands):

	December 31,
	2019		2018
Current
Federal	$	-	$	-
State		32		32
Total Current		32		32
Deferred
Federal		-		-
State		-		-
Total Deferred		-		-
Total Income Tax Benefit	$	32	$	32

Reduction of U.S. federal corporate tax rate

December 22, 2017,

the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax

Act reduces the corporate tax rate to

percent, effective

January 1, 2018.

In addition, for tax years beginning after January 1, 2018, net operating losses can offset only 80% of taxable income in any given year. Furthermore, net operating losses can no longer be carried back, they must be carried forward. The 20-year carryforward period has been replaced with an indefinite carryforward period.

A reconciliation of computed income taxes by applying the statutory federal income tax rate of

21%

to income (loss) from operations before taxes to the provision (benefit) for income taxes for the years ended

December

31,

2019

and

2018

is as follows (in thousands):

	December 31,
	2019			2018

Computed income taxes at 21% for 2019 and 2018, respectively	$	(1,118	)	$	(1,047	)

Increase in income taxes resulting from:
State and local income taxes, net of federal impact		(154	)		(142	)
Change in valuation allowance		1,298			1,373
Stock-based compensation		14			(204	)
Other		(8	)		52

(Expense) Benefit for income taxes	$	32		$	32

In assessing the realization of deferred tax assets, management 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 the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management recorded a valuation allowance to reduce its net deferred tax assets to zero.

We have a requirement of reporting of taxes based on tax positions which meet a more likely than

not

standard and which are measured at the amount that is more likely than

not

to be realized.

Differences between financial and tax reporting which do

not

meet this threshold are required to be recorded as unrecognized tax benefits. This standard also provides guidance on the presentation of tax matters and the recognition of potential IRS interest and penalties. As of

December 31, 2019

and

2018,

the Company does

have an unrecognized tax liability.

The Company has approximately

$27.5

million of net operating losses that will begin to expire in the year

2035.

The components of deferred income taxes for the

years ended

December 31, 2019

and

2018

are as follows (in thousands):

	December 31,
	2019			2018

Deferred tax assets
Reserves and accruals	$	1,040		$	476
Amortization		(12	)		(11	)
Capital losses and other		11			1
Non-qualified stock option expense		182			165
Loss Carryforwards		6,897			5,901
Total deferred tax assets		8,118			6,532
Valuation allowance		(4,951	)		(3,081	)
Net deferred tax assets		3,167			3,451

Deferred tax liabilities
Depreciation		(3,167	)		(3,451	)
Total deferred tax liabilities		(3,167	)		(3,451	)

Net deferred tax assets (liabilities)	$	-		$	-

The Company uses significant judgment in forming conclusions regarding the recoverability of its deferred tax assets and evaluates all available positive and negative evidence to determine if it is more-likely-than-

not

that the deferred tax assets will be realized. To the extent recovery does

not

appear likely, a valuation allowance must be recorded. The Company recorded a valuation allowance of

$4.9

million and

$3.1

million as of

December 31, 2019

and

2018,

respectively.

It is possible that the relative weight of positive and negative evidence regarding the realization of deferred tax assets

may

change, which could result in a material increase or decrease in the Company

’s valuation allowance. Such a change could result in a material increase or decrease to income tax expense in the period the assessment was made.

The Company classifies penalty and interest expense related to income tax liabilities as an other ex

pense. The Company did

incur any interest and penalties for the years ended

December 31, 2019

and

2018,

respectively.

The Company files tax re

turns in the United States, in various states including Colorado, Kansas, North Dakota, Ohio, Pennsylvania, and Texas. The Company’s United States federal income tax filings for tax years

2016

through

2019

remain open to examination. In general, the Company’s various state tax filings remain open for tax years

2015

2019.