Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

6. Income Taxes

The components of the provision (benefit) for income taxes for the years ended December 31, 2022 and 2021 consisted of the following:

		2022		2021
Current
Federal	$	—	$	—
State		—		—
Foreign		—		—
	$	—	$	—
Deferred
Federal	$	—	$	—
State		—		—
Foreign		—		—
		—		—
Total	$	—	$	—

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, 2022 and 2021, respectively:

	2022			2021
Federal income tax (benefit) at statutory rate	$	25,900		$	221,000
State income tax (benefit) at statutory rate		2,700			24,000
Stock-based compensation – NQ cancellations		-			61,100
Meals and entertainment		400			200
Change in valuation allowance		(2,737,800	)		(2,670,000	)
Adjustments and NOL expirations		2,708,800			2,363,700
Provision (benefit) for income tax	$	-		$	-

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, 2022 and 2021:

	2022			2021
Net operating loss carryforwards	$	6,495,800		$	9,135,000
Tax credit carryforwards		445,900			572,900
Compensation expense – non-qualified stock options		-			900
Deferred revenue and maintenance service contracts		318,500			326,500
Reserves and other		110,500			41,600
Total deferred tax assets		7,370,700			10,076,900
Deferred tax liability – depreciation, amortization and capitalized software		-			100
Net deferred tax asset		7,370,700			10,077,000
Valuation allowance		(7,370,700	)		(10,077,000	)
Net deferred tax asset	$	-		$	-

For financial reporting purposes, with the exception of recent years, the Company has incurred a loss in each year since inception. Based on the available objective evidence, and considering all available positive and negative evidence, including but not limited to projected future taxable income, tax-planning strategies and results of operations, 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, 2022 and 2021. The net change in the valuation allowance was decreased by $2,706,000 and $2,395,000 for the years ended December 31, 2022 and 2021, respectively.

At December 31, 2022, the Company had approximately $30.2 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 2023 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. The Company is subject to U.S. federal and state tax examinations by tax authorities for years 2018 through present. As of December 31, 2022, there are no pending tax examinations. Uncertain tax positions to disclose.

At December 31, 2022, the Company had approximately $0.4 million of federal research and development tax credits that began to expire in 2023.