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, 2019

and

2018

are as follows (dollars in thousands):

	December 31,
	2019			2018

Deferred tax assets:
Net operating losses	$	70,202		$	65,852
Fixed asset basis difference		4,547			4,551
Contributions carryover		30			32
Deferred compensation		1,098			1,073
Accrued liabilities		271			492

Total deferred tax assets		76,148			72,000

Valuation allowance for deferred tax assets		(76,148	)		(72,000	)

Net deferred tax asset	$	-		$	-

The valuation allowance increased

$4,148,000

and

$5,563,000

2019

and

2018,

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

2017

Tax Reform Act was to reduce the effective federal corporate tax rate to

21%,

effective

January 1, 2018.

As of

December 31, 2019,

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

$322

million for federal income tax purposes and

$213

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, 2019,

the Company possessed unrecognized tax benefits totaling approximately

$1.5

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

2016

through

2019

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

2015

through

2019

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,
	2019			2018			2017

Expected federal income tax benefit: (2019 & 2018 at 21%; 2017 at 34%)	$	(6,200	)	$	(5,516	)	$	(11,477	)
Loss with no tax benefit provided		2,508			4,175			8,156
State income tax		6			6			4
Expiring carryforwards		2,427			-			-
Non-deductible expenses and other		1,265			1,341			3,321

Income tax expense	$	6		$	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.