Note 7 - Income Taxes

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

7.

   INCOME TAXES

As a result of the Company's history of net operating losses and full valuation allowance against its deferred tax assets, there was

no

current or deferred income tax provision other that current state minimum taxes for the years ended

December 31, 2020

and

2019.

Reconciliations to the statutory federal income tax rate and the Company's effective tax rate consist of the following:

	December 31,
	2020			2019
Statutory federal income tax rate		(794,343	)		(177,562	)
State income taxes, net of federal tax benefits		(114,864	)		(79,257	)
Stock Based Compensation		-			27,940
Foreign Rate Differential		(45	)		-
Warrant Expense		227,651			-
Beneficial conversion feature related to notes		201,953			-
Other Permanent Differences		19,204			473
Valuation allowance		461,244			229,206
		800			800

The components of deferred tax assets included on the balance sheet are:

	December 31,
	2020			2019
NOL carryforwards		9,177,607			8,711,765
Accruals and reserves		10,898			14,402
Stock compensation		237,976			83,472
Fixed assets/capitalized start-up costs		3,332			3,589
		9,429,813			8,813,228
Valuation allowance		(9,429,813	)		(8,813,228	)
Net deferred tax assets		-			-
Deferred income taxes		-			-

The Company has established a full valuation allowance against its deferred tax assets due to the uncertainty surrounding realization of such assets.  Total increase in  valuation allowance is

$616,858

for the year ending

December 31, 2020.

The Company currently has net operating loss carryforwards of approximately

$39.5

million and

$12.6

million for US Federal and state purposes respectively. Approximately

$35.3

million of the US Federal losses begin to expire in

2029.

The balance, all post-

2018

federal net operating losses

may

be carried forward indefinitely. The deferred tax asset relates to the NOL carryforwards. Management has determined based on all the available information that a

100%

Valuation reserve is required.

As of

December 31, 2020

and

2019,

the Company had

no

research and development credit carryforwards to offset federal and California state income taxes, respectively, available to reduce its future taxable income, if any.

The Tax Reform Act of

1986

limits the use of net operating loss carryforwards in certain situations where changes occur in the stock ownership of a company.  In the event that the Company has a change in ownership, utilization of carryforwards could be limited.

The Company has elected to recognize interest and penalties related to uncertain tax positions as components of income tax expense.  As of

December 31, 2020

and

2019,

the Company has

no

accrual for payment of interest related to unrecognized tax benefits.

The Company's income tax returns for all years remain open to examination by federal and state taxing authorities.  The Company does

not

expect that its unrecognized tax benefit will change significantly in the next

12

months.

As of

December 31, 2020

and

2019,

the Company has

no

unrecognized tax benefits that, if recognized, would change its effective rate.

On

March 

27,

2020,

the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. Certain provisions of the CARES Act impact the

2019

income tax provision computations of the Company and will be reflected in the

first

quarter of

2020,

or the period of enactment. The CARES Act contains modifications on the limitation of business interest for tax years beginning in

2019

and

2020.

The modifications to Section 

163

(j) increase the allowable business interest deduction from

30%

of adjusted taxable income to

50%

of adjusted taxable income. As the company is in losses, there is

no

modification for the current year.