INCOME TAXES

12 Months Ended

Dec. 31, 2018

(7)

INCOME TAXES

The pre-tax income from continuing operations on which the provision for income taxes was computed is as follows (in thousands):

	2018			2017
United States	$	10,237		$	7,511
Foreign		(21	)		(17	)
Total		10,216			7,494

Income tax expense consists of the following for the years ended December 31, 2018 and 2017 (in thousands):

	2018			2017
Current tax expense:
Federal	$	1,080		$	119
State		309			10
Total tax expense:		1,389			129
Deferred tax (benefit):
Federal		(462	)		—
State		(263	)		—
Total Deferred tax (benefit):	$	(725	)	$	—
Total	$	664		$	129

A reconciliation of income tax computed at the U.S. statutory rate of 21% to the effective income tax rate is as follows:

	2018			2017
Statutory rate		21	%		34	%
State taxes		4			3
Permanent differences and other		1			0
Change in valuation allowance		(16	)		(54	)
Stock based compensation		(3	)		—
Other (true – up)		0			7
Rate Adjustment		0			12
Effective rate		7	%		2	%

The tax effects of temporary differences that give rise to deferred tax assets (liabilities) at December 31, 2018 and 2017 are as follows (in thousands):

	2018			2017
Deferred tax assets:
Accrued expenses	$	37		$	25
Deferred Revenue		217			217
Accounts receivable		18			19
Inventory		117			92
Stock based compensation		138			137
Tax Credits and NOL Carryforward		354			1,141
Other		150			6
Property and equipment		-			35
Amortization		57			64
		1,088			1,736
Less: Valuation allowance		(172	)		(1,727	)
Deferred tax assets	$	916		$	9

Deferred tax Liabilities:
Property and equipment	$	(176	)	$	-
Prepaid Expenses		(15	)		(9	)
Deferred tax liabilities	$	(191	)	$	(9	)

Net Deferred tax assets	$	725		$	-

For federal tax purposes, the Company completely utilized its remaining $2.7

million in NOL carryforwards as of December 31, 2018. The Company has state NOL carryforwards of approximately $

4.9 million for state purposes, which expire at various dates ranging from five to seven years. The Company has $0.2 million in federal R&D tax credits that will expire by the year

2021

As of December 31, 2017, the Company had a valuation allowance of approximately $1.8 million. The ultimate realization of deferred tax assets is dependent upon the portion of the asset for which it is more likely than not that a benefit will be realized. Management considers past history, the scheduled reversal of deferred tax liabilities, available taxes in carryback periods, projected future taxable income projections and tax planning strategies in making this assessment. During 2018, Management determined that a valuation allowance was no longer necessary and released the entire amount except those related to the release of certain tax credits totaling $0.2 million.

The accounting standard related to income taxes applies to all tax positions and defines the confidence level that a tax position must meet in order to be recognized in the financial statements. The accounting standard requires that the tax effects of a position be recognized only if it is "more-likely-than-not" to be sustained by the taxing authority as of the reporting date. If a tax position is not considered "more-likely-than-not" to be sustained, then no benefits of the position are to be recognized. Differences between financial and tax reporting which do not meet this threshold are required to be recorded as unrecognized tax benefits. This standard also provides guidance on the presentation of tax matters and the recognition of potential IRS interest and penalties. As of December 31, 2018 and 2017, the Company does not have an unrecognized tax liability.

The Company does not classify penalty and interest expense related to income tax liabilities as an income tax expense.

The Company files income tax returns in the U.S. and various state jurisdictions, and there are open statutes of limitations for taxing authorities to audit our tax returns from 2011 through the current period.