Note 7 - Income Taxes

Through December 31, 2019, the Company incurred net operating losses for federal tax purposes of approximately $62,600,000. The Company experienced an “ownership change” within the meaning of Section 382(g) of the Internal Revenue Code of 1986, as amended, during April 2012. The ownership change will subject net operating loss carryforwards to an annual limitation, which may restrict the ability to use them to offset taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate value of the Company’s stock at the time of the ownership change multiplied by a tax-exempt interest rate specified by the Internal Revenue Service. The Company analyzed the available information to determine the amount of the annual limitation. Based on information available, the 2012 limitation is estimated to be $686,000 annually. The availability of the Company’s net operating loss carry forwards may be subject to further limitation if a change in the ownership of more than 50% occurs within any three-year period since the last ownership change. The net operating loss carry forwards generated before 2018 may be used to reduce taxable income through the years 2028 to 2037. Net operating loss carryforwards generated for year 2018 and thereafter do not expire.

A reconciliation of the expected tax computed at the statutory federal income tax rate to the provision for income taxes is as follows:


	2019		2018
Expected tax benefit at 21%	$	(1,781,000)	$	(1,970,000)
Tax Reform
Change in valuation allowance		1,595,000		1,890,000
Other		186,000		80,000
Provision for income taxes	$	—	$	—

The net deferred tax asset at December 31, 2019 and 2018 was $13,505,000 and $11,910,000, respectively. In assessing the potential realization of these deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during the periods in which those temporary differences become deductible. At December 31, 2019 and 2018, management was unable to determine if it is more likely than not that the Company’s deferred tax assets will be realized and has therefore recorded an appropriate valuation allowance against deferred tax assets at such dates. Significant components of the deferred tax assets (liabilities), are approximately as follows:


	2019		2018
Net operating loss carry forwards	$	13,216,000	$	11,540,000
Accrued liabilities		217,000		280,000
Stock compensation		(48,000)		(50,000)
Depreciation		145,000		160,000
Prepaid expenses		(21,000)		(20,000)
Other		(4,000)		—
Deferred tax assets, net		13,505,000		11,910,000
Valuation allowance		(13,505,000)		(11,910,000)
Net deferred tax asset	$	—	$	—

Although the Company is not under examination, the tax years for 2016 and forward are subject to examination by United States tax authorities.

The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2019, and 2018, there were no accrued interest or penalties related to uncertain tax positions.