Note 2 - Income Taxes

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

2. INCOME TAXES

Income tax expense (benefit) for the years ended

December 

31,

2018

 and

2017

 consists of the following:

	2018		2017
Current:
Federal	$	—	$	(5,000	)
State		7,000		9,000
		7,000		4,000
Deferred - Federal		39,000		(302,000	)
	$	46,000	$	(298,000	)

The Tax Reform Act reduced the Company’s U.S. corporate tax rate from

34%

to

21%.

  The expected provision (benefit) for income taxes, computed by applying the U.S. federal income tax rate of

21%

in

2018

and

34%

in

2017

to income (loss) before taxes, is reconciled to income benefit as follows:

	2018			2017
Expected provision for federal income taxes	$	39,000		$	(178,000	)
State income taxes, net of federal benefit		7,000			2,000
Non-deductible meals, entertainment, and life insurance		12,000			29,000
Research and development credit		(43,000	)		(38,000	)
Change in valuation allowance		18,000			16,000
Tax rate change adjustment related to Tax Reform Act		—			(115,000	)
Prior year true-ups and other		13,000			(14,000	)
	$	46,000		$	(298,000	)

Net deferred tax liabilities consist of the following as of

December 

31,

2018

 and

2017:

	2018			2017
Deferred tax liabilities:
Accrued vacation	$	18,000		$	19,000
Inventories reserve		46,000			46,000
Allowance for doubtful accounts		2,000			2,000
Allowance for sales returns		9,000			9,000
Research and development credit carryforward		161,000			131,000
Accrued self-insured medical		4,000			1,000
Property and equipment		(282,000	)		(242,000	)
Intangible assets		(73,000	)		(65,000	)
Net operating loss		33,000			40,000
Other		8,000			6,000
Valuation allowance		(109,000	)		(91,000	)
Net deferred tax liabilities	$	(183,000	)	$	(144,000	)

The Company’s federal net operating loss carryforward and research and development credit carryover as of

December 31, 2018

was

$141,000

and

$52,000,

respectively, and will begin to expire in

2037.

  The Company’s state net operating loss carryforwards at

December 31, 2018

total

$54,000

and begin expiring in

2026.

  The Company has state research and development credit carryforwards as of

December 

31,

2018

 of

$138,000.

 

The valuation allowance balance of

$109,000

and

$91,000

at

December 31, 2018

and

2017,

relates entirely to Minnesota research and development credit carryforwards that the Company does

not

expect to utilize and begin to expire in

2028.

  The change in the valuation allowance was

$18,000

in

2018

and

$31,000

in

2017.

  Approximately

$15,000

of the

$31,000

change in

2017

is a result of recording the impact of the revaluation on these credits and corresponding increase in valuation allowance related to the Tax Reform Act discussed above.

It has been the Company’s policy to recognize interest and penalties related to uncertain tax positions in income tax expense.  As of

December 

31,

2018

and

2017,

there was

no

liability for unrecognized tax benefits.

The Company is subject to federal and state taxation. As of

December 31, 2018,

with few exceptions, the Company is

no

longer subject to examination prior to tax year

2015.