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NOTE 13 - INCOME TAXES | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
INCOME TAXES | Components of income (loss) before taxes:
|  | Year Ended December 31,
(in thousands) |  | 2017 |  | 2016
U.S. operations |  | $ | 3,817 |  |  | $ | 1,401 |
Foreign operations |  |  | 1,344 |  |  |  | 291 |
Total income (loss) before taxes |  | $ | 5,161 |  |  | $ | 1,692 |
Income tax expense (benefit) consists of:
(in thousands) |  | Year Ended December 31,
Current tax expense (benefit) |  | 2017 |  | 2016
U.S. federal |  | $ | (494 | ) |  | $ | 25 |
State |  |  | 8 |  |  |  | 6 |
Foreign |  |  | 198 |  |  |  | 5 |
|  |  | (288 | ) |  |  | 36 |
Deferred tax expense (benefit) – U.S. federal |  |  | — |  |  |  | — |
Total income tax expense (benefit) |  | $ | (288 | ) |  | $ | 36 |
A reconciliation of our effective income tax and the U.S. federal tax rate is as follows:
|  | Year Ended December 31,
|  | 2017 |  | 2016
(in thousands) |  |  |  |
Statutory tax |  | $ | 1,755 |  |  | $ | 575 |
State and foreign income tax, net of federal income tax benefit |  |  | 83 |  |  |  | 259 |
Valuation allowance for deferred tax assets |  |  | (4,800 | ) |  |  | (603 | )
Federal rate change |  |  | 2,979 |  |  |  | — |
Foreign sourced deemed dividend income |  |  | 1,145 |  |  |  | — |
Stock based compensation |  |  | (970 | ) |  |  | (184 | )
AMT credit refund |  |  | (494 | ) |  |  | — |
Other |  |  | 14 |  |  |  | (11 | )
Total income tax expense (benefit) |  | $ | (288 | ) |  | $ | 36 |
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets are presented below:
|  | Year Ended December 31,
|  | 2017 |  | 2016
(in thousands) |  |  |  |
Deferred income tax assets: |  |  |  |  |  |  |  |
Allowance for doubtful accounts |  | $ | 11 |  |  | $ | 17 |
Inventory and product return reserves |  |  | 406 |  |  |  | 632 |
Compensation accruals |  |  | 1,233 |  |  |  | 1,726 |
Accrued liabilities |  |  | 236 |  |  |  | 524 |
Book-over-tax depreciation and amortization |  |  | 33 |  |  |  | 93 |
Foreign net operating loss carryforwards |  |  | 133 |  |  |  | 550 |
U.S. net operating loss carryforwards |  |  | 2,761 |  |  |  | 6,419 |
U.S. credit carryforwards |  |  | 2,017 |  |  |  | 1,287 |
|  |  | 6,830 |  |  |  | 11,248 |
Valuation Allowance |  |  | (6,830 | ) |  |  | (11,248 | )
Total Deferred Income Tax Assets |  | $ | — |  |  | $ | — |
The valuation allowance for deferred tax assets decreased $4,418,000 and 421,000 during the years ended December 31, 2017 and 2016, respectively. The net deferred tax assets have a full valuation allowance provided due to uncertainty regarding our ability to utilize such assets in future years. This full valuation allowance evaluation is based upon our volatile history of losses and the cyclical nature of our industry and capital spending. Credit carryforwards consist primarily of research and experimental and foreign tax credits. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. We have completed our accounting for the effects of the Act during the period ending December 31, 2017. The changes that impact our 2017 financial statements include: a federal corporate tax rate decrease from 34% to 21% for tax years beginning after December 31, 2017, the repeal of corporate Alternative Minimum Tax (AMT) for tax years after December 31, 2017, and a one-time tax on the mandatory deemed repatriation of cumulative foreign earnings of “post 1986 Earnings & Profits”. We have computed our provision for income taxes in accordance with the Act and guidance available as of the date of this filing and as a result have recorded a net tax benefit of $531,000 on our income statement in the fourth quarter of 2017, the period in which the legislation was enacted, made up of $67,000 of additional tax relating to the “deemed repatriation” and recognizing a tax benefit of $598,000 related to refundable “Alternative Minimum Tax Credits” in carryforward. We have estimated that the deemed repatriation tax will result in the utilization of $3.4 million of net operating loss carryforwards against which we maintain a corresponding valuation allowance. As a result of the corporate income tax rate reduction from 34% to 21%, we have revalued our net deferred tax assets at December 31, 2017, which resulted in a decrease of the net deferred tax assets and corresponding valuation allowance balance of $3.0 million. U.S. net operating loss carryforwards are $13,147,000 at December 31, 2017 with expiration years from 2022 to 2034. Utilization of net operating loss and credit carryforwards is subject to certain limitations under Section 382 of the Internal Revenue Code of 1986, as amended. The gross changes in uncertain tax positions resulting in unrecognized tax benefits are presented below:
|  | Year Ended December 31,
|  | 2017 |  | 2016
(in thousands) |  |  |  |
Unrecognized tax benefits, opening balance |  | $ | 226 |  |  | $ | 210 |
Prior period tax position increases |  |  | 10 |  |  |  | — |
Additions based on tax positions related to current year |  |  | 36 |  |  |  | 16 |
Unrecognized tax benefits, ending balance |  | $ | 272 |  |  | $ | 226 |
Historically, we have incurred minimal interest expense and no penalties associated with tax matters. We have adopted a policy whereby amounts related to penalties associated with tax matters are classified as general and administrative expense when incurred and amounts related to interest associated with tax matters are classified as interest income or interest expense. Tax years that remain open for examination include 2014, 2015, 2016 and 2017 in the United States of America. In addition, various tax years from 2000 to 2013 may be subject to examination in the event that we utilize the net operating losses and credit carryforwards from those years in our current or future year tax returns.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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