7.	Income Taxes

The Company recorded its interim provision for income taxes by applying the estimated annual effective tax rate to the year-to-date pre-tax income (loss) and adjusting for discrete tax items recorded in the period. Deferred income taxes result from temporary differences between the reporting of amounts for financial statement purposes and income tax purposes. These differences relate primarily to different methods used for income tax reporting purposes, including for depreciation, amortization, and vacation accruals, and deductions related to allowances for doubtful accounts receivable and inventory reserves. The provision for income taxes (benefits) included current federal and state income tax expense (benefit), as well as deferred federal and state income tax expense.

The effective tax rate for the

three

months ended

June 30, 2019

is a benefit of

37.8%,

compared to expense of

21.4%

for the

three

months ended

June 30, 2018.

The primary driver of the increase in the effective tax rate is the quarterly loss as compared to income for the same period last year. The Company recorded an income tax benefit of

$70,000

and an income tax expense of

$40,000

for the

three

months ended

June 30, 2019

and

2018,

respectively.

The effective tax rate for the

six

months ended

June 30, 2019

is a benefit of

23.3%,

compared to expense of

56.7%

for the

six

months ended

June 30, 2018.

The primary driver of the decrease in our effective tax rate is the year-to-date loss as compared to income for the same period last year. We recorded an income tax benefit of

$173,000

and an income tax expense of

$19,000

for the

six

months ended

June 30, 2019

and

2018,

respectively.

The income tax provision for the

2019

and

2018

periods differ from the expected tax benefit due to unfavorable non-deductible items and generation of research and development credits.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority is more-likely-than-

not

to sustain the position following an audit. For tax positions meeting the more-likely-than-

not

threshold, the amount recognized in the condensed consolidated financial statements is the largest benefit that has a greater than

50%

likelihood of being realized upon ultimate settlement with the relevant tax authority. As of

June 30, 2019

the Company has

unrecognized tax benefits.

The Company is

not

currently under examination in any jurisdiction. In the event of any future tax assessments, the Company has elected to record the income taxes and any related interest and penalties as income tax expense on the statement of operations. The federal Tax Cut and Jobs Act of

2017

(the “Tax Reform Act”) was enacted

December 22, 2017.

Effective

January 1, 2018,

the Tax Reform Act reduced statutory corporate income tax rates from

35%

21%

in addition to other tax changes.