Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Note 4 — Income Taxes

We incurred a net loss in each year of operation since inception resulting in no current or deferred tax expense for 2019, 2018 or 2017.

Due to our operating losses, the 2017 Tax Act did not impact our 2018 operating results or income tax expense. The primary impact of the 2017 Tax Act was the re-measurement of our deferred tax assets, based upon the new U.S. statutory corporate tax rate of 21% and the required change to the related valuation allowance. The deferred tax assets decreased by $300,000 as a result of the change in tax rates.

As of December 31, 2019, the Company’s foreign subsidiaries had negative earnings and profits. As a result, no income tax provision was required for the deemed repatriation tax or the global intangible low tax income (GILTI) tax.

The benefit for income taxes differs from the amount obtained by applying the federal statutory income tax rate to loss before benefit for income taxes for 2019, 2018 and 2017 as follows:

	2019			2018			2017
Tax benefit computed at federal statutory rate		21.0	%		21.0	%		34.0	%
Increase (decrease) in taxes due to:
Change in tax rate under tax reform		—			—			(13.0	)
Change in valuation allowance		(21.0	)		(21.0	)		(21.0	)
		—	%		—	%		—	%

The significant components of deferred tax assets (liabilities) at December 31 are as follows:

	2019			2018
Loss carryforwards	$	3,662,000		$	4,355,000
Depreciation & Amortization		684,000			826,000
Stock Option Compensation		394,000			376,000
Other		132,000			127,000
Less: valuation allowance		(4,872,000	)		(5,686,000	)
	$	—		$	—

As of December 31, 2019, we had net operating loss carryforwards for federal and state income tax purposes of approximately $342.4 million which of which $325 million expire in the years 2020 through 2038. Of these amounts, $66.9 million resulted from the acquisition of Conductus. We also had $8.4 million of Federal net operating losses from the 2018 tax year and $3.5 million from the 2019 tax year which do not expire, but are subject to an annual limitation under section 382 discussed below. We also had $17.9 million of Federal net operating losses from post 2017 years which do not expire. Under the Internal Revenue Code change of control limitations, a maximum of $17.9 million will be available for reduction of future taxable income.

Due to the uncertainty surrounding their realization, we have recorded a full valuation allowance against our net deferred tax assets. Accordingly, no deferred tax asset has been recorded in the accompanying balance sheet. The valuation allowance decreased by $814,000 in 2019 and increased by $1,780,000 in 2018.

Section 382 of the Internal Revenue Code imposes an annual limitation on the utilization of net operating loss carryforwards based on a statutory rate of return (usually the “applicable federal funds rate,” as defined in the Internal Revenue Code) and the value of the corporation at the time of a “change of ownership” as defined by Section 382. We had changes in ownership in August 1999, December 2002, June 2009, August 2013, December 2016 and May 2019. In addition, we acquired the right to Conductus’ net operating losses, which are also subject to the limitations imposed by Section 382. Conductus underwent seven ownership changes, which occurred in February 1999, February 2001, December 2002, June 2009, August 2013, December 2016 and May 2019. Therefore, the ability to utilize Conductus’ and our net operating loss carryforwards of $337 million which were incurred prior to the 2019 ownership changes, will be subject in future periods to annual limitations of $115,000. Net operating losses released from this limitation and/or incurred by us subsequent to the ownership changes and therefore not subject to this limitation totaled $5.9 million. An additional $71,000 in losses were released from limitation during the year under Section 382.