Entity information:

The provision for (benefit from) income taxes as of December 31, is set forth below:

 

    2016   2015
Current        
Federal   $ -     $ -  
State     49,000       53,000  
Prior year overaccruals                
Federal     -       (123,000 )
State     -       -  
Total Expense (Benefit)     49,000       (70,000 )
Deferred Tax Benefit     (4,962,000 )     (216,000 )
Valuation Allowance     7,025,000       -  
Net Provision for (Benefit from) Income Taxes   $ 2,112,000     $ (286,000 )

 

The following is a reconciliation of our income tax rate computed using the federal statutory rate to our actual income tax rate as of December 31,

 

    2016   2015
U. S. statutory income tax rate     34.00 %     -34.00 %
State taxes     1.50 %     4.70 %
Permanent differences, overaccruals and non-deductible items     0.08 %     3.00 %
Rate change and provision to return true-up     0.85 %     -40.20 %
Expired stock options     -0.15 %     40.80 %
Deferred tax valuation allowance     -51.64 %     -  
Total     -15.36 %     -25.70 %

 

The components of net deferred tax assets at December 31, 2016 and 2015 are set forth below:

 

    December 31,   December 31,
    2016   2015
Deferred tax assets                
Current:                
Net operating losses   $ 4,754,000     $ 462,000  
Bad debts     413,000       336,000  
Inventory - 263A adjustment     -       8,000  
Accounts payable, accrued expenses and reserves     930,000       919,000  
Total current deferred tax assets before valuation allowance     6,097,000       1,725,000  
Valuation allowance     (6,097,000 )     -  
Total current deferred tax assets after valuation allowance     -       1,725,000  
                 
Non-current:                
Section 1231 loss carry forward     4,000       4,000  
Stock based compensation - options and restricted stock     164,000       79,000  
Capitalized engineering costs     431,000       432,000  
Deferred rent     468,000       410,000  
Amortization - NTW Transaction     1,324,000       789,000  
Inventory reserves     1,157,000       680,000  
Deferred gain on sale of real estate     121,000       126,000  
Other     160,000       257,000  
Total non-current deferred tax assets before valuation allowance     3,829,000       2,777,000  
Valuation allowance     (928,000 )     (4,000 )
Total non-current deferred tax assets after valuation allowance     2,901,000       2,773,000  
                 
Deferred tax liabilities:                
Property and equipment     (2,595,000 )     (2,091,000 )
Amortization - NTW Goodwill     (33,000 )     (13,000 )
Amortization - AMK Goodwill     -       (18,000 )
Amortization - Welding Transaction     (273,000 )     (313,000 )
Total non-current deferred tax liabilities     (2,901,000 )     (2,435,000 )
                 
Net non current deferred tax asset   $ -     $ 338,000  

 

The Company had a capital loss carry forward from the sale of Sigma Metals, Inc., a former subsidiary of the Company, of $2,719,000 which expired in fiscal 2015.

 

During the year ended December 31, 2016, the Company recorded a valuation allowance equal to its net deferred tax assets. The Company determined that due to a recent history of net losses, that at this time, sufficient uncertainty exists regarding the future realization of these deferred tax assets through future taxable income. If, in the future, the Company believes that it is more likely than not that these deferred tax benefits will be realized, the valuation allowances will be reduced or eliminated. With a full valuation allowance, any change in the deferred tax asset or liability is fully offset by a corresponding change in the valuation allowance. At December 31, 2016 and 2015, the Company provided a valuation allowance on its deferred tax assets of $7,025,000 and $4,000, respectively.

 

At December 31, 2016 and 2015, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. The Company does not expect that its unrecognized tax benefits will materially increase within the next twelve months. The Company recognizes interest and penalties related to uncertain tax positions in interest expense. As of December 31, 2016 and 2015, the Company has not recorded any provisions for accrued interest and penalties related to uncertain tax positions.

 

In certain cases, the Company's uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. The Company files federal and state income tax returns in jurisdictions with varying statutes of limitations. The 2013 through 2016 tax years generally remain subject to examination by federal and state tax authorities.