9 - INCOME TAXES

Income tax provision is summarized as follows:

	Year Ended December 31,
	2018			2017
Current:
Federal	$	-		$	-
Foreign		-			2,000
State		6,000			3,000
		6,000			5,000
Deferred:
Federal		216,000			1,494,000
State		103,000			55,000
Increase in valuation allowance		(319,000	)		(1,549,000	)
		-			-

Income tax provision	$	6,000		$	5,000

The actual income tax provision differs from the “expected” tax computed by applying the Federal corporate tax rate of 21% to the loss before income taxes as follows:

	Year Ended December 31,
	2018			2017
“Expected” income tax benefit	$	288,000		$	234,000
State tax expense, net of Federal benefit		5,000			2,000
Foreign loss		-			4,000
Increase in valuation allowance		(319,000	)		(1,549,000	)
Foreign tax expense		(4,000	)		(1,000	)
Tax rate change		-			1,264,000
Other		36,000			51,000
Income tax provision	$	6,000		$	5,000

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

	December 31,
	2018			2017
Deferred tax assets:
Inventory reserves	$	2,146,000		$	2,341,000
Section 263a adjustment		-			47,000
Allowances for bad debts and returns		11,000			12,000
Accrued expenses		19,000			19,000
Asset valuation reserve		481,000			426,000
Net operating loss carry forwards		136,000			307,000
Other		152,000			71,000
Total deferred tax assets		2,945,000			3,223,000
Valuation allowance		(2,691,000	)		(3,018,000	)
		254,000			205,000
Deferred tax liabilities:
Inventory overhead deferred tax liability		(73,000	)		-
Deferred state taxes		(181,000	)		(205,000	)
Total deferred tax liabilities		(254,000	)		(205,000	)

Net deferred tax assets	$	-		$	-

As of December 31, 2018, we had approximately $416,000 and $544,000 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. At December 31, 2018 and 2017, we have recorded valuation allowances against our net deferred tax assets of $2,691,000 and $3,018,000, respectively, as management determined that it is not more likely than not that the Company will realize the benefits of the net deferred tax assets, primarily based on the Company’s historical net losses. 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.