NOTE 12 - INCOME TAXES

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

Components of income (loss) before taxes:

	Year Ended December 31,
(in thousands)	2020			2019
U.S. operations	$	(4,451	)	$	(2,518	)
Foreign operations		874			1,362
Total income (loss) before taxes	$	(3,577	)	$	(1,156	)

Income tax expense (benefit) consists of:

	Year Ended December 31,
(in thousands)	2020			2019
Current tax expense (benefit)
U.S. federal	$	0		$	(42	)
State		(2	)		8
Foreign		389			65
		387			31
Deferred tax expense (benefit) – U.S. federal		-			-
Total income tax expense (benefit)	$	387		$	31

A reconciliation of our effective income tax and the U.S. federal tax rate is as follows:

	Year Ended December 31,
	2020			2019
(in thousands)
Statutory tax	$	(751	)	$	(243	)
State and foreign income tax, net of federal income tax benefit		151			(230	)
Valuation allowance for deferred tax assets		1,513			568
Foreign sourced deemed dividend income		(394	)		-
Stock based compensation		(136	)		(177	)
Other		4			113
Total income tax expense (benefit)	$	387		$	31

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets are presented below:

	Year Ended December 31,
	2020			2019
(in thousands)
Deferred income tax assets:
Allowance for doubtful accounts	$	10		$	13
Inventory and product return reserves		573			464
Compensation accruals		1,973			1,723
Accrued liabilities		179			129
Book-over-tax depreciation and amortization		91			25
Foreign net operating loss carryforwards		53			3
U.S. net operating loss carryforwards		3,739			2,904
U.S. credit carryforwards		2,345			2,280
		8,963			7,541
Valuation Allowance		(8,963	)		(7,541	)
Total Deferred Income Tax Assets	$	-		$	-

The valuation allowance for deferred tax assets increased $1,422,000 and $571,000 during the years ended December 31, 2020 and 2019, respectively. The net deferred tax assets have a full valuation allowance provided due to uncertainty regarding our ability to utilize such assets in future years. This full valuation allowance evaluation is based upon our volatile history of losses and the cyclical nature of our industry and capital spending. Credit carryforwards consist primarily of research and experimental and foreign tax credits. We intend to continue to reinvest foreign earnings of our operating subsidiaries.

U.S. net operating loss carryforwards are $17.8 million at December 31, 2020 with expiration years from 2022 to 2034. Utilization of net operating loss and credit carryforwards is subject to certain limitations under Section 382 of the Internal Revenue Code of 1986, as amended.

The gross changes in uncertain tax positions resulting in unrecognized tax benefits are presented below:

	Year Ended December 31,
	2020		2019
(in thousands)
Unrecognized tax benefits, opening balance	$	348	$	308
Prior period tax position increases		-		10
Additions based on tax positions related to current year		17		30
Unrecognized tax benefits, ending balance	$	365	$	348

Historically, we have incurred minimal interest expense and no penalties associated with tax matters. We have adopted a policy whereby amounts related to penalties associated with tax matters are classified as general and administrative expense when incurred and amounts related to interest associated with tax matters are classified as interest income or interest expense.

Tax years that remain open for examination include 2017, 2018, 2019 and 2020 in the United States of America. In addition, various tax years from 2002 to 2014 may be subject to examination in the event that we utilize the net operating losses and credit carryforwards from those years in our current or future year tax returns.