INCOME TAXES

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

INCOME TAXES

The provision for (benefit from) income taxes as of December 31, is set forth below:

	2016			2015
Current
Federal	$	-		$	-
State		49,000			53,000
Prior year overaccruals
Federal		-			(123,000	)
State		-			-
Total Expense (Benefit)		49,000			(70,000	)
Deferred Tax Benefit		(4,962,000	)		(216,000	)
Valuation Allowance		7,025,000			-
Net Provision for (Benefit from) Income Taxes	$	2,112,000		$	(286,000	)

The following is a reconciliation of our income tax rate computed using the federal statutory rate to our actual income tax rate as of December 31,

	2016			2015
U. S. statutory income tax rate		34.00	%		-34.00	%
State taxes		1.50	%		4.70	%
Permanent differences, overaccruals and non-deductible items		0.08	%		3.00	%
Rate change and provision to return true-up		0.85	%		-40.20	%
Expired stock options		-0.15	%		40.80	%
Deferred tax valuation allowance		-51.64	%		-
Total		-15.36	%		-25.70	%

The components of net deferred tax assets at December 31, 2016 and 2015 are set forth below:

	December 31,			December 31,
	2016			2015
Deferred tax assets
Current:
Net operating losses	$	4,754,000		$	462,000
Bad debts		413,000			336,000
Inventory - 263A adjustment		-			8,000
Accounts payable, accrued expenses and reserves		930,000			919,000
Total current deferred tax assets before valuation allowance		6,097,000			1,725,000
Valuation allowance		(6,097,000	)		-
Total current deferred tax assets after valuation allowance		-			1,725,000
Non-current:
Section 1231 loss carry forward		4,000			4,000
Stock based compensation - options and restricted stock		164,000			79,000
Capitalized engineering costs		431,000			432,000
Deferred rent		468,000			410,000
Amortization - NTW Transaction		1,324,000			789,000
Inventory reserves		1,157,000			680,000
Deferred gain on sale of real estate		121,000			126,000
Other		160,000			257,000
Total non-current deferred tax assets before valuation allowance		3,829,000			2,777,000
Valuation allowance		(928,000	)		(4,000	)
Total non-current deferred tax assets after valuation allowance		2,901,000			2,773,000
Deferred tax liabilities:
Property and equipment		(2,595,000	)		(2,091,000	)
Amortization - NTW Goodwill		(33,000	)		(13,000	)
Amortization - AMK Goodwill		-			(18,000	)
Amortization - Welding Transaction		(273,000	)		(313,000	)
Total non-current deferred tax liabilities		(2,901,000	)		(2,435,000	)
Net non current deferred tax asset	$	-		$	338,000

The Company had a capital loss carry forward from the sale of Sigma Metals, Inc., a former subsidiary of the Company, of $2,719,000 which expired in fiscal 2015.

During the year ended December 31, 2016, the Company recorded a valuation allowance equal to its net deferred tax assets. The Company determined that due to a recent history of net losses, that at this time, sufficient uncertainty exists regarding the future realization of these deferred tax assets through future taxable income. If, in the future, the Company believes that it is more likely than not that these deferred tax benefits will be realized, the valuation allowances will be reduced or eliminated. With a full valuation allowance, any change in the deferred tax asset or liability is fully offset by a corresponding change in the valuation allowance. At December 31, 2016 and 2015, the Company provided a valuation allowance on its deferred tax assets of $7,025,000 and $4,000, respectively.

At December 31, 2016 and 2015, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. The Company does not expect that its unrecognized tax benefits will materially increase within the next twelve months. The Company recognizes interest and penalties related to uncertain tax positions in interest expense. As of December 31, 2016 and 2015, the Company has not recorded any provisions for accrued interest and penalties related to uncertain tax positions.

In certain cases, the Company's uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. The Company files federal and state income tax returns in jurisdictions with varying statutes of limitations. The 2013 through 2016 tax years generally remain subject to examination by federal and state tax authorities.