Note 8 - Income Taxes
Income tax for 2017 and 2016 consisted of a benefit of $(111) and an expense of $93, respectively, of federal and state income taxes. The actual expense differs from the expected tax provision (benefit) as computed by applying the U.S. federal statutory income tax rate of 34 percent for 2017 and 2016, as follows:
|
|
| 2017 |
| 2016 |
|
|
|
|
|
|
Income tax provision at U.S. federal statutory rate |
|
| $ 466 |
| $ 624 |
State tax provision, net of federal income tax |
|
| 48 |
| 48 |
Change in valuation allowance attributable to operations |
|
| (25,093) |
| (936) |
Change in effective tax rate |
|
| 22,311 |
| - |
Pension settlement |
|
| - |
| (213) |
Stock compensation |
|
| 570 |
| - |
True-up adjustments and expiration of tax carryforwards and credits |
| 1,568 |
| 548 | |
Other, net |
|
| 19 |
| 22 |
Income tax provision (benefit) |
|
| $ (111) |
| $ 93 |
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and liabilities as of December 31, 2017 and 2016 are as follows:
|
|
| 2017 |
| 2016 |
|
|
|
|
|
|
Property and equipment, principally due to differences in depreciation |
| $ 71 |
| $ (643) | |
Inventory reserves and other inventory-related temporary basis differences |
| 361 |
| 614 | |
Warranty, vacation, deferred rent and other liabilities |
|
| 371 |
| 687 |
Retirement liabilities |
|
| 645 |
| 1,032 |
Net operating loss carryforwards |
|
| 38,536 |
| 62,484 |
Credit carryforwards |
|
| 27 |
| 36 |
Other |
|
| 143 |
| 1,037 |
Total deferred income tax |
|
| 40,154 |
| 65,247 |
Less valuation allowance |
|
| (40,154) |
| (65,247) |
Net deferred income tax |
|
| $ - |
| $ - |
Worldwide income before income taxes consisted of the following:
|
|
| 2017 |
| 2016 |
|
|
|
|
|
|
United States |
|
| $ 1,370 |
| $ 1,836 |
International |
|
| - |
| - |
Total |
|
| $ 1,370 |
| $ 1,836 |
Income tax benefit (provision) consisted of the following:
|
|
| 2017 |
| 2016 |
Current |
|
|
|
|
|
U.S. federal |
|
| $ (8) |
| $ 10 |
State |
|
| (103) |
| 83 |
Total current expense (benefit) |
|
| $ (111) |
| $ 93 |
Deferred |
|
|
|
|
|
U.S. federal |
|
| $ 23,012 |
| $ 937 |
State |
|
| 2,081 |
| (1) |
Total |
|
| 25,093 |
| 936 |
Valuation allowance increase |
|
| (25,093) |
| (936) |
Total deferred expense (benefit) |
|
| - |
| - |
|
|
|
|
|
|
Total income tax expense (benefit) |
|
| $ (111) |
| $ 93 |
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
E&S has total federal net operating loss carryforwards of approximately $169,100 which expire from 2020 through 2036. The Company has federal minimum tax credit carryforwards of approximately $27 which do not expire. The Company has $3,200 of federal research credits that begin to expire in 2019 and $1,800 of state research credits that begin to expire in 2018. The Company has not recorded a benefit for these research credits in the financial statements because it does not meet the more-likely-than-not position recognition threshold. E&S also has state net operating loss carryforwards of approximately $70,400 that expire at various dates depending on the rules of the states to which the loss or credit is allocated.
The Company evaluates its deferred tax assets for realizability based on all of the available positive and negative evidence. Due to cumulative losses and the significance of the carryforwards, the Company determined that it is more likely than not that the deferred tax assets will not be realized. Accordingly, a valuation allowance has been established to offset the net deferred tax assets. During the years ended December 31, 2017 and 2016, the valuation allowance on deferred tax assets decreased by $25,093 and $936, respectively.
The Company is subject to audit by the IRS and various states for tax years dating back to 2014. No federal or state tax return are currently under audit. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.