Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE H – INCOME TAXES

 

Income taxes are provided for temporary differences between financial and tax bases of assets and liabilities. The following is a reconciliation of the amount of benefit that would result from applying the federal statutory rate to pre-tax loss with the benefit from income taxes for the years ended December 31, 2020 and 2019:

 

The components of deferred tax assets and liabilities are as follows at December 31, 2020 and 2019, using a combined deferred income tax rate of 28% for 2019 and 2020:

 

The provisions for income taxes for the years ended December 31, 2020 and 2019 are as follows:

 

    2020   2019
Current:                
Federal   $ (4,778,000 )   $ (265,000 )
State     (2,206,000 )     (123,000 )
Deferred:                
Federal     2,246,000       (1,992,000 )
State     1,037,000       (920,000 )
Change in Valuation Allowance     3,701,000       3,300,000  
Provision for income taxes   $ —       $ —    

 

A reconciliation of the federal statutory tax rate to the effective tax rate is as follows:

 

    2020   2019
Federal statutory rate     21 %     21 %
State, net of federal tax benefit     6.98 %     6.98 %
Change in valuation allowance     (28 )%     (28 )%
Effective tax rate   $ —       $ —    

 

At December 31, 2020 and 2019 the deferred income tax assets consisted of the following:

 

    2020   2019
Deferred tax assets:   $ 18,264,000     $ 14,563,000  
Less: Valuation Allowance     (18,264,000 )     (14,563,000 )
Net deferred income taxes   $ —       $ —    

 

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. The majority of the balance is due deferred compensation, share based payments, the fair value of derivatives, and to continued losses resulting in NOL carryforwards, which may not be realized in future periods. As such, the Company has recorded a 100% valuation allowance against the deferred tax assets.

 

At December 31, 2020 and 2019 the deferred income tax assets consisted of the following temporary differences:

 

    2020   2019
Net operating losses   $ 15,513,000     $ 8,530,000  
Share based compensation     361,000       269,000  
Accrued payroll     1,238,000       1,632,000  
Accrued interest     586,000       —    
Derivative liability     —         4,132,000  
Mandatorily redeemable equity instruments of subsidiary     566,000       —    
Total deferred tax assets     18,264,000       14,563,000  
Less: Valuation allowance     (18,264,000 )     (14,563,000 )
    $ —       $ —    

 

At December 31, 2020 and 2019, the Company has federal net operating loss carryforwards of approximately:

 

    2020   2019
Net operating losses   $ 46,109,000     $ 21,152,000  

 

Inasmuch as it is not possible to determine when or if the net operating losses will be utilized, a valuation allowance has been established to offset the benefit of the utilization of the net operating losses.

 

As of December 31, 2020, the Company had available net operating losses of approximately $46.1 million which can be utilized to offset future earnings of the Company. The utilization of the net operating losses is dependent upon the tax laws in effect at the time such losses can be utilized. Certain loss carryforwards begin to expire in 2021 and a portion may be used indefinitely. Should the Company experience a significant change of ownership, the utilization of net operating losses could be reduced.

 

The Company and its subsidiaries file tax returns in the U.S. Federal jurisdiction and, in the state of California. The Company is no longer subject to U.S. federal tax examinations for tax years before and including December 31, 2016. The Company is no longer subject to examination by state tax authorities for tax years before and including December 31, 2016.