9 - INCOME TAXES

Income tax provision is summarized as follows:

	Year Ended December 31,
	2017			2016
Current:
Federal	$	-		$	-
Foreign		2,000			18,000
State		3,000			2,000
		5,000			20,000
Deferred:
Federal		1,494,000			(955,000	)
State		55,000			(265,000	)
Increase in valuation allowance		(1,549,000	)		1,220,000
		-			-

Income tax provision	$	5,000		$	20,000

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,
	2017			2016
“Expected” income tax benefit	$	234,000		$	(1,059,000	)
State tax expense, net of Federal benefit		2,000			1,000
Foreign loss		4,000			6,000
Increase in valuation allowance		(1,549,000	)		1,220,000
Foreign tax expense		(1,000	)		18,000
Tax rate change		1,264,000			-
Other		51,000			(166,000	)
Income tax provision	$	5,000		$	20,000

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

	December 31,
	2017			2016
Deferred tax assets:
Inventory reserves	$	2,341,000		$	3,657,000
Section 263a adjustment		47,000			69,000
Allowances for bad debts and returns		12,000			21,000
Accrued expenses		19,000			29,000
Asset valuation reserve		426,000			542,000
Net operating loss carry forwards		307,000			521,000
Other		71,000			96,000
Total deferred tax assets		3,223,000			4,935,000
Valuation allowance		(3,018,000	)		(4,585,000	)
		205,000			350,000
Deferred tax liabilities:
Deferred state taxes		(205,000	)		(350,000	)

Net deferred tax assets	$	-		$	-

As of December 31, 2017, we had approximately $966,000 and $1,174,000 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.

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying statement of operations and comprehensive income (loss). As of December 31, 2017 and 2016, no accrued interest and penalties are recorded.