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INCOME TAXES

We are subject to Federal and certain state income taxes. In addition, we are taxed in certain foreign countries.

On

December 22, 2017

the President of the United States signed into law the Tax Act. One of the principal elements of the Tax was a

one

-time transition tax that was imposed on the previously unremitted earnings of our foreign subsidiaries. Due to the complexities involved in determining the previously unremitted earnings of our foreign subsidiaries, at

December 31, 2017,

we recorded a provisional amount for the transition tax payable on those unremitted earnings. The provisional amount recorded, net of related foreign tax credits, was a tax of

$476.

During the

first

half of

2018

we completed the process of obtaining, preparing and analyzing the required information, including a Section

965

analysis and an earnings and profits study. As a result, we determined that

transition tax was due, and, accordingly, during the

second

quarter of

2018

we reversed the

$476

that had been accrued in the

fourth

quarter of

2017.

Earnings before income taxes was as follows:

	Years Ended December 31,
	201 9		201 8
Domestic	$	1,804	$	3,647
Foreign		800		1,396
Total	$	2,604	$	5,043

Income tax expense (benefit) was as follows:

	Years Ended December 31,
	201 9			201 8
Current
Domestic – Federal	$	510		$	1,352
Domestic – state		101			190
Foreign		97			381
Total	$	708		$	1,923
Deferred
Domestic – Federal	$	(413	)	$	103
Domestic – state		(13	)		(20	)
Foreign		-			-
Total		(426	)		83
Income tax expense	$	282		$	2,006

Deferred income taxes reflect the net tax effect of net operating loss and tax credit carryforwards as well as temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following is a summary of the significant components of our deferred tax assets and liabilities as of

December 31, 2019

and

2018:

	December 31,
	201 9			201 8
Deferred tax assets:
Operating lease liabilities	$	1,123		$	-
Net operating loss (state and foreign)		280			299
Inventories		247			212
Accrued vacation pay and stock-based compensation		279			184
Tax credit carryforwards		112			81
Allowance for doubtful accounts		44			46
Accrued warranty		19			20
Acquisition costs		12			13
Other		13			18
Total		2,129			873
Valuation allowance		(234	)		(241	)
Deferred tax assets		1,895			632
Deferred tax liabilities:
Net intangible assets		(2,923	)		(3,167	)
Right of use assets		(1,066	)		-
Depreciation of property and equipment		(169	)		(154	)
Deferred tax liabilities		(4,158	)		(3,321	)
Net deferred tax liabilities	$	(2,263	)	$	(2,689	)

The net change in the valuation allowance for the years ended

December 31, 2019

and

2018

was a decrease of

and

$129,

respectively. In assessing the ability to realize the deferred tax assets, we consider whether it is more likely than

not

that some portion or all of the deferred tax assets will

not

be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In order to fully realize the total deferred tax assets, we will need to generate future taxable income prior to the expiration of net operating loss and tax credit carryforwards which expire in various years through

2039.

An analysis of the effective tax rate for the years ended

December 31, 2019

and

2018

and a reconciliation from the expected statutory rate of

21%

is as follows:

	Years Ended December 31,
	201 9			201 8
Expected income tax provision at U.S. statutory rate	$	547		$	1,059
Increase (decrease) in tax from:
Restricted stock		114			67
Dividend from foreign subsidiaries		97			175
NOL carryforwards utilized		32			118
Global intangible low taxed income		30			57
Nondeductible expenses		4			1,466
Current year tax credits (foreign and research)		(234	)		(553	)
Domestic tax expense (benefit), net of Federal benefit		(184	)		310
Section 250 foreign derived intangible income deduction		(145	)		(233	)
Foreign income tax rate differences		(51	)		90
Changes in valuation allowance		(7	)		(129	)
Federal transition tax payable		-			(476	)
Other		79			55
Income tax expense	$	282		$	2,006

In accounting for income taxes, we follow the guidance in ASC Topic

740

(Income Taxes) regarding the recognition and measurement of uncertain tax positions in our financial statements. Recognition involves a determination of whether it is more likely than

not

that a tax position will be sustained upon examination with the presumption that the tax position will be examined by the appropriate taxing authority having full knowledge of all relevant information. Our policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations. As of

December 31, 2019

and

2018,

we did

not

have an accrual for uncertain tax positions.