Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

7. Income Taxes

The components of the provision (benefit) for income taxes for the years ended December 31, 2019 and 2018 consisted of the following:

	2019		2018
Current
Federal	$	—	$	—
State		—		—
Foreign		—		900
	$	—	$	900
Deferred
Federal	$	—	$	—
State		—		—
Foreign		—		—
		—		—
Total	$	—	$	900

The following table summarizes the differences between income tax expense and the amount computed applying the federal income tax rate of 21% for the years ended December 31, 2019 and 2018, respectively:

	2019			2018
Federal income tax (benefit) at statutory rate	$	116,400		$	(6,600)
State income tax (benefit) at statutory rate		13,900			(900)
Foreign tax rate differential		—			900
SBC – NQ cancellations		(2,700	)		(83,900)
Change in valuation allowance		(284,900	)		(92,800)
Meals and entertainment (50%)		1,000			700
Prior year true-up adjustments		103,400			165,300
Deferred compensation		—			17,800
Contributed services		52,900			—
Other items		—			400
Provision (benefit) for income tax	$	—		$	900

Deferred income taxes and benefits result from temporary timing differences in the recognition of certain expense and income items for tax and financial reporting purposes. The following table sets forth those differences as of December 31, 2019 and 2018:

	2019			2018
Net operating loss carryforwards	$	13,702,300		$	13,870,200
Tax credit carryforwards		977,500			977,500
Compensation expense – non-qualified stock options		69,000			166,800
Deferred revenue and maintenance service contracts		419,800			425,000
Depreciation, amortization, and capitalized software		—			11,300
Reserves and other		58,200			52,400
Total deferred tax assets		15,226,800			15,503,100
Deferred tax liability – depreciation, amortization and capitalized software		—			—
Net deferred tax asset		15,226,800			15,503,100
Valuation allowance		(15,226,800	)		(15,503,100	)
Net deferred tax asset	$	—		$	—

For financial reporting purposes, with the exception of the years ended December 31, 2019, the Company has incurred a loss in each year since inception. Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company has provided a full valuation allowance against its net deferred tax assets at December 31, 2019 and 2018. The net change in the valuation allowance was decreased by $276,000 and $139,000 for the years ended December 31, 2019 and 2018, respectively.

At December 31, 2019, the Company had approximately $62.9 million of federal net operating loss carryforwards and approximately $6.9 million of California state net operating loss carryforwards available to reduce future taxable income. The federal loss carryforwards began to expire in 2019 and the California state loss carry forwards begin to expire in 2028. Under the Tax Reform Act of 1986, the amount of benefits from net operating loss carryforwards may be impaired or limited if the Company incurs a cumulative ownership change of more than 50%, as defined, over a three-year period.

At December 31, 2019, the Company had approximately $0.9 million of federal research and development tax credits that began to expire in 2018.