9 - INCOME TAXES

Income tax provision is summarized as follows:

	Year Ended December 31,
	2019			2018
Current:
Federal	$	-		$	-
Foreign		-			-
State		-			6,000
		-			6,000
Deferred:
Federal		97,000			216,000
State		7,000			103,000
Decrease in valuation allowance		(104,000	)		(319,000	)
		-			-

Income tax provision	$	-		$	6,000

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,
	2019			2018
“Expected” income tax benefit	$	204,000		$	288,000
State tax expense, net of Federal benefit		-			5,000
Foreign loss		(30,000	)		-
Decrease in valuation allowance		(104,000	)		(319,000	)
Foreign tax expense		-			(4,000	)
Other		(70,000	)		36,000
Income tax provision	$	-		$	6,000

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

	December 31,
	2019			2018
Deferred tax assets:
Inventory reserves	$	1,758,000		$	2,146,000
Allowances for bad debts and returns		5,000			11,000
Accrued expenses		21,000			19,000
Asset valuation reserve		539,000			481,000
Net operating loss carry forwards		283,000			136,000
Other		160,000			152,000
Total deferred tax assets		2,766,000			2,945,000
Valuation allowance		(2,587,000	)		(2,691,000	)
		179,000			254,000
Deferred tax liabilities:
Inventory overhead deferred tax liability		-			(73,000	)
Deferred state taxes		(179,000	)		(181,000	)
Total deferred tax liabilities		(179,000	)		(254,000	)

Net deferred tax assets	$	-		$	-

As of December 31, 2019, we had approximately $800,000 and $1,298,000 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, 2019 and 2018, we have $2,587,000 and $2,691,000 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 our statements of operations. We have incurred no interest or penalties as of December 31, 2019 and 2018.