. Income Taxes

Compenents of income (loss) before income taxes:	Year ended December 31
	2019			2018

United States	$	(332,929	)	$	(1,694,301	)
Foreign		356,572			(111,040	)
	$	23,643		$	(1,805,341	)

Compenents of provision (benefit) for income taxes:	Year ended December 31
	2019			2018
Current:
Federal	$	(2,000	)	$	(3,000	)
State		5,000			4,000
Foreign		465,000			97,000
Total current		468,000			98,000

Deferred:
Federal		-			-
State		-			-
Foreign		-			-
Total deferred		-			-
	$	468,000		$	98,000

During the fiscal years of

2016

through

2019,

we determined that it was more likely than

not

that losses generated in the U.S. and certain foreign jurisdictions will

not

be realized. As a result, we recorded a valuation allowance on all of our domestic and foreign deferred tax assets. Accordingly, the

2019

and

2018

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

$91,000

and

$186,000,

respectively, against the annual losses generated from a U.S. tax perspective

The effective income tax rate percentage was

not

meaningful for the year ended

December 31, 2019

and was (

5.4

)% for the year ended

December 31, 2018.

The income tax provision amounts primarily represent estimated income taxes for

one

of our foreign subsidiaries and certain U.S. states, plus the current year settlement of several foreign tax audits.

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

21%

for the years ended

December 31, 2019

and

2018,

respectively. The reasons for these differences are as follows:

	Year ended December 31
	2019		2018

Income taxes at U.S. statutory rate	$	5,000	$	(379,000	)
State income taxes, net of federal benefit		8,000		7,000
Higher effective taxes on earnings in foreign countries		77,000		38,000
Foreign corporate income taxes		51,000		97,000
Foreign income tax audit settlements		154,000		-
Life insurance settlement		-		118,000
GILTI		71,000		34,000
Nondeductible meals and entertainment expense		7,000		9,000
Valuation allowance, net		91,000		186,000
Other		4,000		(12,000	)
	$	468,000	$	98,000

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

December 31, 2019

and

2018,

are as follows:

	2019			2018
Deferred tax assets:
Inventory obsolescence reserve	$	41,000		$	53,000
Deferred revenue		54,000			91,000
Organization costs		117,000			117,000
Deferred compensation		-			97,000
Depreciation and amortization		33,000			2,000
Operating lease liabilities		76,000			-
Miscellaneous accrued expenses		20,000			23,000
Domestic net operating loss carryforwards		649,000			451,000
Foreign net operating loss carryforwards		3,311,000			3,118,000
Valuation allowance		(4,117,000	)		(3,845,000	)
		184,000			107,000
Deferred tax liabilities:
Operating lease right-to-use assets		77,000			-
Foreign currency exchange		107,000			107,000
		184,000			107,000
Net deferred tax assets (liabilities)	$	-		$	-

We have a deferred tax asset relating to domestic federal net operating loss carryforwards of approximately

$649,000

December 31, 2019

of which approximately

$464,000

will expire between

2036

and

2038.

We have a deferred tax asset of

$3,311,000

December 31, 2019

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

not

expire. At

December 31, 2019,

we have 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.

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. Under the TCJA’s repatriation tax, our cumulative amount of unremitted foreign earnings and related tax was immaterial.

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

January 1, 2018.

Our policy is to treat GILTI as a period cost when incurred.

December 31, 2019

and

2018,

we had

$30,000

and

$32,000,

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

$19,000

would impact the effective income tax rate if recognized.

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

	2019			2018

Beginning of year	$	22,000		$	26,000
Settlements and effective settlements with tax authorities		-			-
Lapse of statute of limitations		(5,000	)		(7,000	)
Decrease to tax positions taken during prior periods		(3,000	)		(3,000	)
Increase to tax positions taken during current period		5,000			6,000
End of year	$	19,000		$	22,000

We have applied applicable 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 our practice to recognize interest and / or penalties related to income tax matters in income tax expense.

December 31, 2019

and

2018,

we had

$10,000

accrued for interest and penalties within the balance of unrecognized tax benefits. Our unrecognized tax benefits balance is included within other noncurrent liabilities on the consolidated balance sheets.

Our domestic and foreign subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. We have concluded all U.S. federal income tax matters for years through

2015

and concluded years through

2015

with our primary state jurisdiction. During the

third

quarter of

2019,

the U.S. Internal Revenue Service (IRS) commenced an examination of our

2017

U.S. federal income tax return.

Foreign Tax Audit Settlements

For the year ended

December 31, 2019,

our operating results include

$154,000

and

$25,000

for income tax expense and various net general administrative and interest expenses, respectively, in settlement of the following foreign tax audits.

ax Year

2017

Settlement

In mid-

2019,

one

of our foreign subsidiaries received a local country tax year

2017

audit assessment alleging deficiencies of approximately

$217,000

plus interest. In the

third

quarter of

2019,

we paid the local taxing authority approximately

$96,000

in final settlement of the

2017

tax year audit.

Tax Years

200

–

2006

Settlement

One of our foreign subsidiaries has been under local country audit for greater than

ten

years 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.

2011,

we made good faith deposits of approximately

$173,000

to the local tax authority under the tax agency’s administrative judicial resolution process.

May 2018,

we received a formal notice of denial of

one

of our appeals under the tax agency’s administrative judicial resolution process; however, we continued to pursue other available legal processes as we continued to maintain our position that we were

not

liable for the majority of the alleged tax deficiencies. As of

December 31, 2018,

our estimated reserve (net of deposits) for these matters was approximately

$172,500.

November 2019,

under a tax amnesty program, we paid the local taxing authority approximately

$164,000

in final settlement of tax years

2005

and

2006.

December 2019,

we have an agreement in principle with the local taxing authority to settle the tax year

2004

audit. At

December 31, 2019,

we have an estimated full reserve of approximately

$84,000

for resolution of this matter.