Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

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Income Taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Note J – Income Taxes

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act.  The Act made significant modifications to the provisions of the Internal Revenue Code, including but not limited to, a corporate tax rate decrease from 35% to 21% effective as of January 1, 2018.  The Company’s net deferred tax assets and liabilities have been revalued at the newly enacted U.S. corporate rate in the year of enactment.  The adjustment related to the remeasurement of the deferred tax asset and liability balances, including the revaluation of amounts originally reported in other comprehensive income (loss), is a net benefit of $3.0 million and is included in income as of December 31, 2017.  
Significant components of the provision for income taxes for the years ended December 31, 2018, 2017 and 2016 are as follows (in thousands):
  2018 2017
(as adjusted)
2016
(as adjusted)
Current:      
Federal $ (448) $ (91) $ (8)
State 126  14  39 
Total Current Provision (Benefit) $ (322) $ (77) $ 31 
Deferred:
Federal $ 1,070  $ (2,359) $ (1,451)
State 321  297  (281)
Foreign 115  (115) — 
Total Deferred Provision (Benefit) $ 1,506  $ (2,177) $ (1,732)
Total Tax Provision  $ 1,184  $ (2,254) $ (1,701)
A reconciliation of the differences between the effective tax rate and the federal statutory tax rate for the years ended December 31, 2018, 2017 and 2016 is as follows:
  2018 2017
(as adjusted)
2016
Federal statutory tax rate 21.00  % 34.00  % 34.00  %
State income taxes, net of federal income tax benefit 11.01  % (4.96) % 3.43  %
Non-deductible expenses 3.80  % (17.57) % (1.88) %
Compensation expense (12.52) % (25.95) % (13.37) %
Transaction expenses 7.09  % —  % —  %
Deferred revaluation for Tax Cuts and Jobs Act —  % 116.24  % —  %
Adjustment due to adoption of Accounting Standards (13.84) % —  % —  %
Foreign Tax Rate Differential 7.20  % (12.99) % —  %
Other, net (1.21) % (3.72) % 0.73  %
Valuation allowance 8.44  % —  % —  %
Effective tax rate 30.97  % 85.05  % 22.91  %
At December 31, 2018 and 2017, our current and non-current deferred income tax assets and liabilities consisted of the following (in thousands):
  2018 2017
(as adjusted)
Net non-current deferred income tax liability:    
Allowance for doubtful accounts $ 634  $ 170 
Accrued compensation 1,935  943 
Other accruals 156  84 
Other 502  (274)
Net operating loss carry-forwards 17,825  12,282 
Nonqualified stock options and warrants 1,613  1,342 
Accumulated depreciation and amortization (44,799) (21,235)
Net deferred income tax liabilities (22,134) (6,688)
Less: Valuation allowance (323) — 
Total Non-Current Deferred Income Tax Liability $ (22,457) $ (6,688)

At December 31, 2018, the Company has federal net operating loss carry forwards of approximately $71.3 million and state net operating loss carry forwards of approximately $33.0 million.  The Company adopted ASU 2016-09 as of January 1, 2017.  Adoption required a modified retrospective transition whereby the cumulative-effect is an adjustment to equity as of the beginning of the period.  This resulted in an adjustment to the deferred tax assets related to net operating loss carryforwards and equity of $6.4 million.  These net operating loss carry forwards will begin to expire in 2030, for both federal and state tax purposes, if not utilized in future periods. An ownership change of more than 50 percent could result in a limitation of the use of net operating loss carryforwards under IRC Section 382 and the regulations thereunder. Management believes it is more likely than not that a limitation under Section 382 would not impact the realizability of the federal and state net operating loss deferred tax assets.

Management assesses the recoverability of its deferred tax assets as of the end of each quarter, weighing all positive and negative evidence, and is required to establish and maintain a valuation allowance for these assets if it's determined that it is more likely than not that some or all of the deferred tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which the evidence can be objectively verified. If negative evidence exists, positive evidence is necessary to support a conclusion that a valuation allowance is not needed. As of December 31, 2018, management determined that sufficient positive evidence did not exist to conclude that it is more likely than not that the Net Operating Losses being generated by the Company's Switzerland and Singapore operations would be able to be utilized in future periods. Accordingly, management has decided to establish a full valuation allowance of $0.3 million against the deferred tax assets generated by these two jurisdictions.
We file income tax returns in the U.S. federal jurisdiction as well as Singapore, Switzerland and in various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment. For federal and state purposes, we have open tax years ending December 31, 2010 to December 31, 2017.  We are not currently subject to any ongoing income tax examinations.
The Company adopted the accounting standard for uncertain tax positions, ASC 740-10, and as required by the standard, 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. Increases or decreases to the unrecognized tax benefits could result from management’s belief that a position can or cannot be sustained upon examination based on subsequent information or potential lapse of the applicable statute of limitation for certain tax positions.
The following is our unrecognized tax benefits as of December 31, 2018 (in thousands):
Year Ended December 31, 
2018
Unrecognized tax benefits - December 31, 2017  $ — 
Increases from acquisitions  632 
Settled positions  — 
Statute expirations  — 
Unrecognized tax benefits - December 31, 2018  $ 632 
The amount of unrecognized tax benefits at December 31, 2018, if recognized would favorably affect the Company's effective tax rate. These unrecognized tax benefits are classified as other long term liabilities in the Company's consolidated balance sheet. The interest and penalties related to the unrecognized tax benefit are $0.1 million. Interest and tax penalties related to unrecognized tax benefits are included in income tax expense.  There were no uncertain tax positions for the years ended December 31, 2017 or 2016.
The Company has received a temporary tax holiday in Switzerland as an incentive to locate and grow our operations. The tax holiday is for two consecutive 5 year periods beginning with the year ended December 31, 2017 and is dependent on meeting agreed upon employment and capital investment targets. The first 5 year period ends with the year ended December 31, 2021 fiscal year and the second 5 year period, should our employment and capital investment targets be met end with the 2026 fiscal year. As the Switzerland operations have been in a tax loss position since inception, no financial benefits have been realized in 2017 or 2018 under the tax holiday.