12.

Income Taxes

Compenents of loss before income taxes:	Year ended December 31
	2018			2017

United States	$	(1,694,301	)	$	(30,606	)
Foreign		(111,040	)		(121,306	)
	$	(1,805,341	)	$	(151,912	)

Compenents of provision (benefit) for income taxes:	Year ended December 31
	2018			2017
Current:
Federal	$	(3,000	)	$	(2,000	)
State		4,000			5,000
Foreign		97,000			33,000
Total current		98,000			36,000

Deferred:
Federal		-			-
State		-			-
Foreign		-			509,000
Total deferred		-			509,000
	$	98,000		$	545,000

The provision (benefit) for income taxes is different from the amounts computed by applying the United States federal statutory income tax rate of

21%

and

34%

for the years ended

December 31, 2018

and

2017,

respectively. The reasons for these differences are as follows:

	Year ended December 31
	2018			2017

Income taxes at U.S. statutory rate	$	(379,000	)	$	(52,000	)
State income taxes, net of federal benefit		7,000			11,000
Higher/(lower) effective taxes on earnings/losses in foreign countries		38,000			(65,000	)
Foreign corporate income taxes		97,000			33,000
Foreign tax credit carryover		-			(66,000	)
Life insurance settlement		118,000			-
GILTI		34,000			-
Nondeductible meals and entertainment expense		9,000			13,000
Valuation allowance, net		186,000			707,000
Other		(12,000	)		(36,000	)
	$	98,000		$	545,000

The Company has determined that it was more likely than

not

that its U.S. federal and various state net operating losses will

not

be realized based on projections of future U.S. taxable income, estimated reversals of existing taxable timing differences, and other considerations. Accordingly, the

2018

and

2017

income tax provisions include the impact of recording a full deferred tax asset valuation allowance of approximately

$186,000

and

$198,000,

respectively, against the annual losses generated from a U.S. tax perspective. The Company has a deferred tax asset relating to domestic federal net operating loss carryforwards of approximately

$451,000

December 31, 2018

of which approximately

$188,000

will expire between

2036

and

2037.

The Company has a deferred tax asset of

$3,118,000

December 31, 2018

relating to foreign net operating loss carryforwards in various jurisdictions which principally do

not

expire. At

December 31, 2018,

the Company has recorded a full valuation allowance against all domestic and foreign net operating loss carryforward balances as it is more likely than

not

that this asset will

not

be realized.

As of

December 31, 2017,

management’s assessment of the realizability of its Europe’s subsidiary’s deferred tax assets concluded that it

longer meets the threshold of more likely than

not

based upon the subsidiary’s recent declining operating results. Accordingly, the Company recorded a full valuation allowance against the Europe subsidiary’s deferred tax assets with a corresponding deferred income tax charge of

$509,000

2017.

The components of the deferred tax assets and liabilities, and the related tax effects of each temporary difference at

December 31, 2018

and

2017,

are as follows:

	2018			2017
Deferred tax assets:
Inventory obsolescence reserve	$	53,000		$	62,000
Product refund reserve		-			7,000
Deferred revenue		91,000			-
Organization costs		117,000			127,000
Deferred compensation		97,000			94,000
Depreciation and amortization		2,000			-
Miscellaneous accrued expenses		23,000			13,000
Domestic net operating loss carryforwards		451,000			186,000
Foreign net operating loss carryforwards		3,118,000			3,413,000
Valuation allowance		(3,845,000	)		(3,767,000	)
		107,000			135,000
Deferred tax liabilities:
Depreciation and amortization		-			28,000
Foreign currency exchange		107,000			107,000
		107,000			135,000
Net deferred tax assets (liabilities)	$	-		$	-

The United States Tax Cuts and Jobs Act (TCJA) was enacted in

December 2017,

which significantly changed U.S. tax law, principally by permanently reducing the U.S. federal statutory rate to

21%

effective

January 1, 2018,

implementing a territorial tax system, and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The effect of the federal tax rate reduction to

21%

was reflected as a reduction in the

December 31, 2017

U.S. deferred tax asset balances with a corresponding reduction in the valuation allowance. Under the TCJA’s repatriation tax, the Company’s cumulative amount of unremitted foreign earnings and related tax was immaterial.

Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”)

118

to provide guidance to companies on the reporting of the impacts of TCJA in their financial statements. Under SAB

118,

the Company recorded affected items in fiscal year

2017

as provisional to allow additional time for clarifying technical guidance from Treasury and analysis of the effect to the Company’s current tax positions. In

2018,

the Company has completed its analysis and did

not

record any adjustments to its

2017

provisional income tax amounts.

The TCJA introduced a new tax on global intangible low-taxed income (“GILTI”) effective as of

January 1, 2018.

The Company’s policy is to treat GILTI as a period cost when incurred.

December 31, 2018

and

2017,

the Company had

$32,000

and

$36,000,

respectively, of cumulative unrecognized tax benefits, of which only the net amount of

$22,000

would impact the effective income tax rate if recognized.

The aggregate changes in the balance of net unrecognized tax benefits were as follows:

	2018			2017

Beginning of year	$	26,000		$	32,000
Settlements and effective settlements with tax authorities		-			-
Lapse of statute of limitations		(7,000	)		(6,000	)
Decrease to tax positions taken during prior periods		(3,000	)		(6,000	)
Increase to tax positions taken during current period		6,000			6,000
End of year	$	22,000		$	26,000

The Company applied applicable accounting guidance relating to accounting for uncertainty in income taxes. Reserves for uncertainty in income taxes are adjusted quarterly in light of changing facts and circumstances, such as the progress of tax audits, case law, and emerging legislation. The primary difference between gross unrecognized tax benefits and net unrecognized tax benefits is the U.S. federal tax benefit from state tax deductions. It is the Company’s practice to recognize interest and / or penalties related to income tax matters in income tax expense.

December 31, 2018

and

2017,

the Company had

$10,000

and

$11,000,

respectively, accrued for interest and penalties within the balance of unrecognized tax benefits. The Company’s unrecognized tax benefits balance is included within other noncurrent liabilities on the consolidated balance sheets.

The Company, including its domestic and foreign subsidiaries, is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company has concluded all U.S. federal income tax matters for years through

2014

and concluded years through

2014

with its primary state jurisdiction.

One of the Company’s foreign subsidiaries is presently under local country audit for alleged deficiencies (totaling approximately

$800,000

plus interest at

20%

per annum) in value-added tax (VAT) and withholding tax for the years

2004

through

2006.

The Company, in consultation with its legal counsel, believes that there are strong legal grounds that it should

not

be liable to pay the majority of the alleged tax deficiencies. As of

December 31, 2010,

management estimated and reserved approximately

$185,000

for resolution of this matter and recorded this amount within Selling, General, and Administrative expense in the

2010

Consolidated Statement of Income. In

2011,

the Company made good faith deposits to the local tax authority under the tax agency’s administrative judicial resolution process. As of

December 31, 2018,

management’s estimated reserve (net of deposits) for this matter is approximately

$172,500.