NOTE 10 – PROVISION FOR INCOME TAXES
The Company provides for income taxes under ASC 740, Income Taxes. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse.
ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Taxes based on income (loss) were as follows:
|
|
|
For the Years Ended December 31, |
||
|
|
|
2016 |
|
2015 |
|
Current: |
|
|
|
|
|
U.S. federal taxes |
$ |
-- |
$ |
1,923 |
|
State taxes |
|
(2,479) |
|
4,472 |
|
International taxes |
|
(8,195) |
|
51,920 |
|
|
$ |
(10,674) |
$ |
58,315 |
|
Deferred: |
|
|
|
|
|
U.S. federal taxes |
$ |
-- |
$ |
-- |
|
State taxes |
|
-- |
|
-- |
|
International taxes |
|
-- |
|
-- |
|
|
|
-- |
|
-- |
|
Provision (benefit) for income taxes |
$ |
(10,674) |
$ |
58,315 |
The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate of 34% to pretax income for the following reasons:
|
|
|
For the Years Ended December 31, |
||
|
|
|
2016 |
|
2015 |
|
Book income (loss) from operations |
$ |
(1,507,873) |
$ |
(906,422) |
|
State tax (benefit) expense |
|
(155,005) |
|
17,659 |
|
Permanent items |
|
253,916 |
|
402,147 |
|
Foreign rate differential |
|
293,186 |
|
658,375 |
|
Foreign tax credits |
|
(32,714) |
|
(35,846) |
|
Return to provision items |
|
(80,845) |
|
31,450 |
|
Other Deferred Adjustments |
|
(103) |
|
-- |
|
Change in valuation allowance |
|
1,218,764 |
|
(109,048) |
|
Total provision for income taxes |
$ |
(10,674) |
$ |
58,315 |
The effective tax rate was 0.24% and negative 2.19% for the years ended 2016 and 2015, respectively.
Net deferred tax assets consist of the following components as of:
|
|
|
December 31, |
||
|
|
|
2016 |
|
2015 |
|
Net operating loss carry forwards |
$ |
8,335,504 |
$ |
7,289,516 |
|
Accrued commissions |
|
316,176 |
|
369,766 |
|
Inventory differences |
|
288,236 |
|
87,288 |
|
Employee accruals |
|
25,214 |
|
37,635 |
|
Depreciation and amortization |
|
(701,012) |
|
(641,511) |
|
U.S. federal credits |
|
178,673 |
|
143,955 |
|
Allowance for doubtful accounts |
|
194,944 |
|
133,029 |
|
Other |
|
29,589 |
|
28,882 |
|
Valuation allowance |
|
(8,667,324) |
|
(7,448,560) |
|
Net deferred taxes |
$ |
-- |
$ |
-- |
The Company assesses the need for a valuation allowance against its deferred income tax assets at December 31, 2016. Factors considered in this assessment include recent and expected future earnings and the Company’s liquidity and equity positions. As of December 31, 2016, and 2015, the Company has determined that a valuation allowance is necessary against the entire amount of its net deferred income tax asset.
As of December 31, 2016, the Company has U.S. federal and state net operating loss carry forwards of $21,365,507 and 21,424,632, respectively. These carry forwards are available to offset future taxable income, if any, and begin to expire in 2019. The utilization of the net operating loss carry forwards is dependent upon the tax laws in effect at the time the net operating loss carry forwards can be utilized and may be significantly limited based on ownership changes within the meaning of section 382 of the Internal Revenue Code.
Under FASB ASC 740-10-05-6, tax benefits are recognized only for the tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the company's tax return that do not meet these recognition and measurement standards.