INCOME TAXES

12 Months Ended

Dec. 31, 2016

INCOME TAXES

INCOME TAXES

NOTE 8 - INCOME TAXES

As of December 31, 2016, the Company had net operating loss carry forwards for income tax reporting purposes of approximately $357,000 that may be offset against future taxable income through 2034. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.

As of December 31, 2015, the Company had significant net operating loss carry forwards for income tax reporting purposes of approximately $3,187,000. No tax benefit was reported in the financial statements, because the Company believed there was a 50% or greater chance the carry forwards would expire unused. The Company therefore determined that a full valuation allowance against its net deferred tax assets was necessary as of December 31, 2015.

For the years ended December 31, 2016 and 2015, the Company recorded a change in the valuation allowance of $756,000 and $263,000, respectively, on the basis of management's reassessment of the amount of its deferred tax assets that are more likely than not to be realized. As of each reporting date, management considers new evidence, both positive and negative, that could affect its determination of the future realization of deferred tax assets. As of December 31, 2016, in part because in the current year the Company achieved two years of pretax income, management determined that there is sufficient positive evidence to conclude that it is more likely than not that the deferred taxes are realizable. Management therefore reduced the valuation allowance accordingly and the impact of the change is reflected in current income.

The Company is subject to income taxes in the U.S. federal jurisdiction, various state jurisdictions and certain other jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the relaxed tax laws and regulations and require significant judgement to apply. The Company is not subject to U.S. federal, state and local tax examinations by tax authorities for the years 2013 and prior.

If the Company were to subsequently record an unrecognized tax benefit, associated penalties and tax related interest expense would be recorded as a component of income tax expense.

The provision for income taxes for the year ended December 31, 2016 and 2015 was calculated based on the estimated annual effective rate for the full 2016 and 2015 calendar years, adjusted for an income tax benefit from the expected utilization of net operating loss carryforwards.

The income tax provision consists of:

	2016		2015
Current:
Federal	$	51,000		7,500
Deferred:
Federal		216,000		-
Income Tax Provision	$	267,000	$	7,500

The provision for income taxes differ from the amount computed using the federal US statutory income tax rate as follows:

	2016			2015
Provision at U.S. statutory rate	$	1,050,000		$	240,000
Alternative minimum tax		51,000			7,500
Depreciation and amortization		(37,000	)		(29,000	)
Accrued liabilities and sales allowances		38,000			(31,000	)
Non-deductible stock based compensation		23,000			32,000
Other differences		(102,000	)		51,000
Decrease in valuation allowance		(756,000	)		(263,000	)
Income tax provision	$	267,000		$	7,500

The tax effects of temporary differences and carry forwards that give rise to significant portions of deferred tax assets and liabilities consist of the following:

	2016			2015
Deferred tax assets:
Net operating loss carryforward	$	121,000		$	1,084,000
Liabilities and reserves		88,000			50,000
Property and equipment and inventory		14,000			17,000
Valuation allowance		-			(756,000	)
		223,000			395,000
Deferred tax liabilities:
Intangible assets		(439,000	)		(395,000	)
		(439,000	)		(395,000	)
Net deferred tax assets and liabilities	$	(216,000	)	$	-