8. INCOME TAXES

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

INCOME TAXES

Income tax expense consists of:

	Current		Deferred		Total
Year Ended December 31, 2016:
U.S. federal	$	––	$	––	$	––
State and local		––		––		––
Foreign		7,070		––		7,070
	$	7,070	$	––	$	7,070
Year Ended December 31, 2017:
U.S. federal	$	––	$	––	$	––
State and local		––		––		––
Foreign		14,660		––		14,660
	$	14,660	$	––	$	14,660

A reconciliation of the expected income tax expense or benefit to actual follows:

	2016			2017
Computed "expected" US tax (benefit) at Federal statutory rate	$	(997,268	)	$	(287,070	)
Change resulting from:
State and local income taxes, net of federal income tax benefit		(185,083	)		(101,924	)
Valuation allowance		1,219,633			(6,663,556	)
Non––deductible items		(162,068	)		(94,344	)
Expired Federal capital loss		127,855			––
Federal rate change		––			7,160,556
State net operating loss true up and rate change		4,001			998
Income tax expense	$	7,070		$	14,660

Temporary differences at December 31 follow:

	2016			2017
Deferred income tax assets:
Inventories	$	116,776		$	135,077
Accounts receivable		141,587			128,817
Accrued expenses		83,227			272,008
Net operating loss and tax credit carry forwards		19,562,969			12,714,278
Plant and equipment		535			8,389
Stock compensation		128,524			111,493
Other – investment impairments		––			––
Total deferred income tax assets		20,033,618			13,370,062
Valuation allowance		(20,033,618	)		(13,370,062	)
Net deferred tax assets	$	––		$	––

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) that significantly revised the U.S. tax code effective January 1, 2018 by, among other things, lowering the corporate income tax rate from a top marginal rate of 35% to a flat 21%. We have recorded a tax provision of $7,160,556 due to a re-measurement of deferred tax assets and liabilities for tax rate changes due to the Tax Act, which was fully offset by a valuation allowance. Other than the reduction in statutory rate, the Company does not anticipate the regulations will have a material impact on income taxes in future years.

As of December 31, 2017 the Company had federal net operating loss carry forwards of approximately $54,595,000 which are available to offset future taxable income. They are due to expire in varying amounts from 2018 to 2037. As of December 31, 2017, the Company had state net operating loss carry forwards of approximately $8,879,000 which are available to offset future taxable income. They are due to expire in varying amounts from 2031 through 2037. A valuation allowance has been established for the full amount of deferred income tax assets as management has concluded that it is more-likely than-not that the benefits from such assets will not be realized.

The Company reviews annually the guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a "more-likely-than-not" recognition threshold. At December 31, 2017 and 2016, the Company did not have any uncertain tax positions. No interest and penalties related to uncertain tax positions were accrued at December 31, 2017 and 2016.

The Company files income tax returns in the United States and Mexico. Tax years subsequent to 2012 remain subject to examination for both US federal and state tax reporting purposes. Tax years subsequent to 2010 remain subject to examination for Mexico tax reporting purposes. The foreign income tax reported represents tax on operations for the Company that is located in a special economic zone in Mexico. Other than the Mexico facility, the Company has no operations in a foreign location.