NOTE

– INCOME TAXES

Deferred taxes are recorded based upon differences between the financial statement and tax bases of assets and liabilities and available carryforwards. Temporary differences and carryforwards which gave rise to a significant portion of deferred tax assets and liabilities as of

December 31, 2018

and

2017

are as follows (dollars in thousands):

	December 31,
	2018			2017

Deferred tax assets:
Net operating losses	$	65,852		$	59,551
Fixed asset basis difference		4,551			4,559
Contributions carryover		32			4
Deferred compensation		1,073			1,352
Accrued liabilities		492			971

Total deferred tax assets		72,000			66,437

Valuation allowance for deferred tax assets		(72,000	)		(66,437	)

Net deferred tax asset	$	-		$	-

The valuation allowance increased

$5,563,000

and decreased

$21,189,000

2018

and

2017,

respectively. The change in deferred tax assets resulted from current year net operating losses and changes to future tax deductions resulting from terms of stock compensation plans, fixed assets, and accrued liabilities. The

2017

change in deferred tax assets was impacted significantly by the passage of the

2017

Tax Act Reform. One of the law changes in the tax act was to reduce the effective federal corporate tax rate to

21%,

effective

January 1, 2018.

As of

December 31, 2018,

the Company had net operating loss (NOL) carryforwards of approximately

$308.8

million for federal income tax purposes and

$188.8

million for California income tax purposes. Such carryforwards expire in varying amounts through the year

2038.

For federal losses arising in tax years ending after

December 31, 2017,

the NOL carryforwards are allowed indefinitely. Use of the carryforward amounts is subject to an annual limitation as a result of a previous ownership change.

As of

December 31, 2018,

the Company possessed unrecognized tax benefits totaling approximately

$1.8

million.

None

of these, if recognized, would affect the Company's effective tax rate because the Company has recorded a full valuation allowance against these tax assets.

The Company's tax years

2015

through

2018

remain subject to examination by the Internal Revenue Service, and tax years

2014

through

2018

remain subject to examination by California tax jurisdictions. In addition, the Company's loss carryforward amounts are generally subject to examination and adjustment for a period of

three

years for federal tax purposes and

four

years for California purposes, beginning when such carryovers are utilized to reduce taxes in a future tax year.

A reconciliation of the income tax benefit to the statutory federal income tax rate is as follows (dollars in thousands):

	Year Ended December 31,
	201 8			201 7

Expected federal income tax benefit: (2018 at 21%; 2017 at 34%)	$	(5,516	)	$	(11,477	)
Loss with no tax benefit provided		4,175			8,156
State income tax		6			4
Non-deductible expenses and other		1,341			3,321

Income tax expense	$	6		$	4

Because it is more likely than

not

that the Company will

not

realize its net deferred tax assets, it has recorded a full valuation allowance against these assets. Accordingly,

deferred tax asset has been recorded in the accompanying balance sheet.