Note 2 - Income Taxes

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

2. INCOME TAXES

Income tax (benefit) expense for the years ended

December 

31,

2019

 and

2018

 consists of the following:

	2019			2018
Current:
Federal	$	—		$	—
State		11,000			7,000
		11,000			7,000
Deferred - Federal		(183,000	)		39,000
	$	(172,000	)	$	46,000

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

21%

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

	2019			2018
Expected income tax (benefit) provision for federal income taxes	$	(207,000	)	$	39,000
State income taxes, net of federal benefit		(7,000	)		7,000
Non-deductible meals, entertainment, and life insurance		11,000			12,000
Research and development credit		(29,000	)		(43,000	)
Change in valuation allowance		51,000			18,000
Prior year true-ups and other		9,000			13,000
	$	(172,000	)	$	46,000

Net deferred tax liabilities consist of the following as of

December 

31,

2019

 and

2018:

	2019			2018
Deferred tax liabilities:
Accrued vacation	$	21,000		$	18,000
Inventories reserve		42,000			46,000
Allowance for doubtful accounts		3,000			2,000
Allowance for sales returns		10,000			9,000
Research and development credit carryforward		245,000			161,000
Accrued self-insured medical		3,000			4,000
Property and equipment		(295,000	)		(282,000	)
Intangible assets		(53,000	)		(73,000	)
Net operating loss		230,000			33,000
Other		8,000			8,000
Valuation allowance		(214,000	)		(109,000	)
Net deferred tax liabilities	$	—		$	(183,000	)

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

December 31, 2019 

was

$1,042,000

and

$114,000,

respectively, and will begin to expire in

2037.

  The Company’s state net operating loss carryforwards at

December 31, 2019 

total

$171,000

and begin expiring in

2026.

  The Company has state research and development credit carryforwards as of

December 

31,

2019

 of

$163,000.

 

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the

three

-year period ended

December 31, 2019.

Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.

On the basis of this evaluation, as of

December 31, 2019,

a valuation allowance of

$214,000

has been recorded to reserve for deferred tax assets, which are

not

expected to be realized.  The valuation allowance will be reevaluated on a quarterly basis and

may

change if estimates of future taxable income during the carryforward period is increased or if objective negative evidence in the form of cumulative losses is

no

longer present and additional weight is given to subjective evidence such as our projections for growth.

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,

2019

 and

2018,

there was

no

liability for unrecognized tax benefits.

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

December 31, 2019,

with few exceptions, the Company is

no

longer subject to examination prior to tax year

2016.