9 - INCOME TAXES

12 Months Ended

Dec. 31, 2016

9 - INCOME TAXES

Income tax provision is summarized as follows:


	Year Ended December 31,
	2016			2015
Current:
Federal	$	-		$	-
Foreign		18,000			-
State		2,000			1,000
		20,000			1,000
Deferred:
Federal		(955,000	)		(176,000	)
State		(265,000	)		(39,000	)
Increase in valuation allowance		1,220,000			215,000
		-			-

Income tax provision	$	20,000		$	1,000

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,
	2016			2015
“Expected” income tax benefit	$	(1,059,000	)	$	(202,000	)
State tax expense, net of Federal benefit		1,000			1,000
Foreign loss		6,000			6,000
Increase in valuation allowance		1,220,000			215,000
Foreign tax expense		18,000			-
Other		(166,000	)		(19,000	)
Income tax provision	$	20,000		$	1,000

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

	December 31,
	2016			2015
Deferred tax assets:
Inventory reserves	$	3,657,000		$	2,431,000
Section 263a adjustment		69,000			74,000
Allowances for bad debts and returns		21,000			20,000
Accrued expenses		29,000			22,000
Asset valuation reserve		542,000			187,000
State net operating loss carry forward		521,000			526,000
Other		96,000			365,000
Total deferred tax assets		4,935,000			3,625,000
Valuation allowance		(4,585,000	)		(3,365,000	)
		350,000			260,000
Deferred tax liabilities:
Deferred state taxes		(350,000	)		(260,000	)

Net deferred tax assets	$	-		$	-

As of December 31, 2016, we had approximately $1,197,000 and $1,286,000 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, 2016 and 2015, we have $4,585,000 and $3,365,000 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, 2016 and 2015.