Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.21.1
Income Taxes
12 Months Ended
Dec. 31, 2020
Income Taxes  
Note 9. Income Taxes

The Company has estimated net operating loss carry forwards of approximately $44,200,000 and $27,800,000 as of December 31, 2020 and 2019, respectively. The potential benefit of these net operating losses has not been recognized in these financial statements because the Company cannot be assured it is more likely than not that it will utilize the net operating losses carried forward in future years. T In December 2017, tax legislation was enacted limiting the deduction for net operating losses from taxable years beginning after December 31, 2017 to 80% of current year taxable income, eliminating net operating loss carrybacks for losses arising in taxable years ending after December 31, 2017, and allowing net operating losses to be carried forward indefinitely. On March 27, 2020 the Coronavirus Aid Relief, and Economic Security Act was enacted which modified the prior legislation to allow 100% of the net operating losses arising in tax years 2018, 2019, and 2020 to be carried back five years. The Company does not have taxable income available in the carryback period. Net operating losses originating in taxable years beginning prior to January 1, 2018 are still subject to former carryover rules. The net operating loss carryforwards generated prior to this date of approximately $11,000,000 will expire between 2021 through 2038.

 

The current and deferred income tax expense (benefit) consists of the following for the years ending December 31, 2020 and 2019:

 

 

 

December 31,

2020

 

 

December 31,

2019

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

Federal

 

$

(3,430,038

)

 

$

(3,174,242

)

State

 

 

 

 

 

 

-

 

Total current tax expense (benefit)

 

 

(3,430,038

)

 

 

(3,174,242

)

 

 

 

 

 

 

 

 

 

Deferred tax timing differences

 

 

 

 

 

 

 

 

Federal

 

 

(10,004,343

)

 

 

(894,687

)

State

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in valuation allowance

 

 

13,434,381

 

 

 

4,068,929

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

$

-

 

 

$

-

)

 

The components of deferred tax assets and liabilities as of December 31, 2020, and 2019 is as follows:

 

 

 

December 31,

2020

 

 

December 31,

2019

 

 

 

 

 

 

 

 

Deferred tax assets:

 

 

 

 

 

 

NOL carry forwards

 

$

9,273,296

 

 

$

5,843,257

 

Bad debt reserves

 

 

77,896

 

 

 

77,896

 

Impairment of oil and gas assets

 

 

8,278,289

 

 

 

403,289

 

Unrealized loss

 

 

695

 

 

 

695

 

Derivative losses

 

 

149,982

 

 

 

1,301,952

 

Book tax depletion difference

 

 

4,333,842

 

 

 

2,233,842

 

Share based compensation

 

 

3,637,737

 

 

 

2,456,423

 

 

 

 

 

 

 

 

 

 

Total deferred tax assets

 

 

25,751,736

 

 

 

12,317,354

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Derivative gains

 

 

(121,947

)

 

 

(121,947

)

Bargain purchase gain

 

 

(5,674,498

)

 

 

(5,674,498

)

 

 

 

 

 

 

 

 

 

Total deferred tax liabilities

 

 

(5,796,445

)

 

 

(5,796,445

)

 

 

 

 

 

 

 

 

 

Deferred tax assets - before valuation allowance

 

 

19,955,291

 

 

 

6,520,909

 

Less valuation allowance

 

 

(19,955,291

)

 

 

(6,520,909

)

 

 

 

 

 

 

 

 

 

Deferred tax asset (liability) - net

 

$

-

 

 

$

-

 

 

A reconciliation of the federal and state statutory income tax rates to the Company’s effective income tax rate applicable to income before income tax benefit from continuing operations is as follows for the years ended December 31, 2020 and 2019:

 

 

 

December 31,

2020

 

 

December 31,

2019

 

 

 

 

 

 

 

 

Continuing operations

 

 

 

 

 

 

Expected provision at US statutory rate

 

 

21.00

%

 

 

21.00

%

State income tax net of federal benefit

 

 

0.00

%

 

 

0.00

%

Other items effecting timing differences

 

 

0.00

%

 

 

0.00

%

Valuation allowance

 

 

21.00

%

 

 

21.00

%

 

 

 

 

 

 

 

 

 

Effective income tax rate

 

 

0.00

%

 

 

0.00

%

 

The Company files income tax returns on a consolidated basis in the United States federal jurisdiction. As of December 31, 2020, the tax returns for the Company for the years ending 2017 through 2019 remain open to examination by the Internal Revenue Service. The Company and its subsidiaries are not currently under examination for any period.

 

As a result of the company becoming a majority-owned subsidiary of Camber as discussed in Note 1, the Company has undergone an ownership change as defined in Section 382 of the Internal Revenue Code, and the Company’s tax net operating loss carry forwards generated prior to the ownership change will be subject to an annual limitation, which could reduce or defer the utilization of these losses.