8 - INCOME TAXES

12 Months Ended

Dec. 31, 2015

8 - INCOME TAXES

Income tax provision is summarized as follows:

	Year Ended December 31,
	2015			2014
Current:
Federal	$	-		$	-
State		1,000			3,000
		1,000			3,000
Deferred:
Federal		(176,000	)		(362,000	)
State		(39,000	)		(65,000	)
Increase in valuation allowance		215,000			427,000
		-			-

Income tax provision	$	1,000		$	3,000

The actual income tax provision differs from the “expected” tax computed by applying the Federal corporate tax rate of 34% to the loss before income taxes as follows:

	Year Ended December 31,
	2015			2014
“Expected” income tax benefit	$	(202,000	)	$	(386,000	)
State tax expense, net of Federal benefit		1,000			2,000
Foreign (income) loss		6,000			10,000
Increase in valuation allowance		215,000			427,000
Other		(19,000	)		(50,000	)
Income tax provision	$	1,000		$	3,000

The tax effects of temporary differences which give rise to significant portions of the deferred taxes are summarized as follows:

	December 31,
	2015			2014
Deferred tax assets:
Inventory reserves	$	2,431,000		$	2,820,000
Section 263a adjustment		74,000			79,000
Allowances for bad debts and returns		20,000			21,000
Accrued expenses		22,000			23,000
Asset valuation reserve		187,000			187,000
State net operating loss carry forward		526,000			40,000
Other		365,000			226,000
Total deferred tax assets		3,625,000			3,396,000
Valuation allowance		(3,365,000	)		(3,150,000	)
		260,000			246,000
Deferred tax liabilities:
Deferred state taxes		(260,000	)		(246,000	)

Net deferred tax assets	$	-		$	-

As of December 31, 2015, we had approximately $1,206,000 and $1,316,000 in net operating loss carryforwards for federal and state income tax purposes, respectively. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. We consider the scheduled reversal of deferred tax assets, the level of historical taxable income and tax planning strategies in making the assessment of the realizability of deferred tax assets. We have identified the U.S. federal and California as our "major" tax jurisdiction. With limited exceptions, we remain subject to IRS examination of our income tax returns filed within the last three (3) years, and to California Franchise Tax Board examination of our income tax returns filed within the last four (4) years.

As a result of the implementation of ASC 740, we recognized no material adjustment to unrecognized tax benefits. At the adoption date of January 1, 2007, we had $795,000 of unrecognized tax benefits, all of which would affect our effective tax rate if recognized. At December 31, 2015 and 2014, we have $3,365,000 and $3,150,000 of unrecognized tax benefits, respectively. We will continue to classify income tax penalties and interest, if any, as part of interest and other expenses in its statements of operations. We have incurred no interest or penalties as of December 31, 2015 and 2014.