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NOTE 13 - INCOME TAXES

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

Components of income (loss) before taxes:

		Year Ended December 31,
(in thousands)		2019				2018
U.S. operations		$	(2,518	)		$	(137	)
Foreign operations			1,362				2,034
Total income (loss) before taxes		$	(1,156	)		$	1,897

Income tax expense (benefit) consists of:

(in thousands)		Year Ended December 31,
Current tax expense (benefit)		2019				2018
U.S. federal		$	(42	)		$	5
State			8				20
Foreign			65				266
			31				291
Deferred tax expense (benefit) – U.S. federal			-				-
Total income tax expense (benefit)		$	31			$	291

A reconciliation of our effective income tax and the U.S. federal tax rate is as follows:

		Year Ended December 31,
		2019				2018
(in thousands)
Statutory tax		$	(243	)		$	398
State and foreign income tax, net of federal income tax benefit			(230	)			(159	)
Valuation allowance for deferred tax assets			568				245
Federal rate change			-				-
Foreign sourced deemed dividend income			-				-
Stock based compensation			(177	)			(282	)
AMT credit refund			-				-
Other			113				89
Total income tax expense (benefit)		$	31			$	291

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets are presented below:

		Year Ended December 31,
		2019				2018
(in thousands)
Deferred income tax assets:
Allowance for doubtful accounts		$	13			$	8
Inventory and product return reserves			464				467
Compensation accruals			1,723				1,515
Accrued liabilities			129				321
Book-over-tax depreciation and amortization			25				21
Foreign net operating loss carryforwards			3				132
U.S. net operating loss carryforwards			2,904				2,345
U.S. credit carryforwards			2,280				2,161
			7,541				6,970

Valuation Allowance			(7,541	)			(6,970	)
Total Deferred Income Tax Assets		$	-			$	-

The valuation allowance for deferred tax assets increased $571,000 and $140,000 during the years ended December 31, 2019 and 2018, 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. We intend to continue to reinvest foreign earnings of our operating subsidiaries.

U.S. net operating loss carryforwards are $13,830,000 at December 31, 2019 with expiration years from 2022 to 2039. 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,
		2019				2018
(in thousands)
Unrecognized tax benefits, opening balance		$	308			$	272
Prior period tax position increases			10				-
Additions based on tax positions related to current year			30				36
Unrecognized tax benefits, ending balance		$	348			$	308

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 2016, 2017, 2018 and 2019 in the United States of America. In addition, various tax years from 2002 to 2015 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.