NOTE 12 - INCOME TAXES

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

NOTE 12 - INCOME TAXES

Components of income (loss) before taxes:

	Year Ended December  31,
(in thousands)	2016	2015
U.S. operations	$1,401	$420
Foreign operations	291	502
Total income (loss) before taxes	$1,692	$922

Income tax expense (benefit) consists of:

(in thousands)	Year Ended December  31,
Current tax expense (benefit)	2016	2015
U.S. federal	$25	$0
State	6	(1)
Foreign	5	(4)
	36	(5)
Deferred tax expense (benefit) – U.S. federal	-	-
Total income tax expense (benefit)	$36	($5)

A reconciliation of our effective income tax and the U.S. federal tax rate is as follows:

	Year Ended December  31,
	2016	2015
(in thousands)
Statutory tax	$575	$313
State and foreign income tax, net of
federal income tax benefit	64	(105)
Valuation allowance for deferred tax assets	(603)	(213)
Total income tax expense (benefit)	$36	($5)

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets are presented below:

	Year Ended December  31,
	2016	2015
(in thousands)
Deferred income tax assets:
Allowance for doubtful accounts	$17	$11
Inventory and product return reserves	632	723
Compensation accruals	1,726	1,533
Accrued liabilities	524	311
Book-over-tax depreciation and amortization	93	99
Foreign net operating loss carryforwards	550	809
U.S. net operating loss carryforwards	6,419	6,919
U.S. credit carryforwards	1,287	1,264
	11,248	11,669
Valuation Allowance	(11,248)	(11,669)
Total Deferred Income Tax Assets	$ -	$ -

The valuation allowance for deferred tax assets decreased $421,000 during the year ended December 31, 2016, and decreased $133,000 during the year ended December 31, 2015.  The net deferred tax assets have a full valuation allowance provided due to uncertainty regarding our ability to utilize such assets in future years.  This full valuation allowance evaluation is based upon our volatile history of losses and the cyclical nature of our industry and capital spending.  Credit carryforwards consist primarily of research and experimental and alternative minimum tax credits with expiration years from 2020 to 2036.  U.S. net operating loss carryforwards are $18,878,000 at December 31, 2016 with expiration years from 2020 to 2036.  Utilization of net operating loss and credit carryforwards is subject to certain limitations under Section 382 of the Internal Revenue Code of 1986, as amended.

The gross changes in uncertain tax positions resulting in unrecognized tax benefits are presented below:

	Year Ended December  31,
	2016	2015
(in thousands)
Unrecognized tax benefits, opening balance	$210	$197
Prior period tax position increases	-	(3)
Additions based on tax positions related to current year	16	16
Unrecognized tax benefits, ending balance	$226	$210

Historically, we have incurred minimal interest expense and no penalties associated with tax matters.  We have adopted a policy whereby amounts related to penalties associated with tax matters are classified as general and administrative expense when incurred and amounts related to interest associated with tax matters are classified as interest income or interest expense. 

Tax years that remain open for examination include 2013, 2014, 2015 and 2016 in the United States of America.  In addition, tax years from 2000 to 2012 may be subject to examination in the event that we utilize the net operating losses and credit carryforwards from those years in our current or future year tax returns.