Income Taxes

12 Months Ended

Dec. 31, 2019

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, 2019, 2018 and 2017 are as follows (in thousands):


	2019		2018		2017
Current:
Federal	$	(303)	$	(448)	$	(91)
State	290		126		14
Total Current (Benefit)	$	(13)	$	(322)	$	(77)
Deferred:
Federal	$	(3,409)	$	1,070	$	(2,359)
State	(939)		321		297
Foreign	—		115		(115)
Total Deferred Provision (Benefit)	$	(4,348)	$	1,506	$	(2,177)
Total Tax Provision (Benefit)	$	(4,361)	$	1,184	$	(2,254)

A reconciliation of the differences between the effective tax rate and the federal statutory tax rate for the years ended December 31, 2019, 2018 and 2017 is as follows:


	2019		2018		2017
Federal statutory tax rate	21.00	%	21.00	%	34.00	%
State income taxes, net of federal income tax benefit	(19.47)	%	11.01	%	(4.96)	%
Non-deductible expenses	7.49	%	3.80	%	(17.57)	%
Compensation expense	(135.12)	%	(12.52)	%	(25.95)	%
Transaction expenses	—	%	7.09	%	—	%
Deferred revaluation for Tax Cuts and Jobs Act	—	%	—	%	116.24	%
Adjustment due to adoption of Accounting Standards	—	%	(13.84)	%	—	%
Deferred income tax adjustments	(10.98)	%	—	%	—	%
Foreign Tax Rate Differential	—	%	7.20	%	(12.99)	%
Other, net	(8.32)	%	(1.21)	%	(3.72)	%
Valuation allowance	25.74	%	8.44	%	—	%
Effective tax rate	(119.66)	%	30.97	%	85.05	%

At December 31, 2019 and 2018, our current and non-current deferred income tax assets and liabilities consisted of the following (in thousands):


	2019		2018
Deferred tax assets:
Allowance for doubtful accounts	$	1,401	$	634
Accrued compensation	3,718		1,935
Other accruals	—		156
Other	571		502
Net operating loss carry-forwards	17,687		17,825
Nonqualified stock options and warrants	2,056		1,613
Operating lease liabilities	6,822		—
Gross deferred tax assets	32,255		22,665
Less: valuation allowance	(1,261)		(323)
Total deferred tax assets	30,994		22,342
Deferred tax liabilities:
Operating right-of-use assets	(6,422)		—
Accumulated depreciation and amortization	(40,138)		(44,799)
Total deferred tax liabilities	(46,560)		(44,799)
Net deferred income tax liability	$	(15,566)	$	(22,457)

At December 31, 2019, the Company has federal net operating loss carry forwards of approximately $67.7 million, foreign net operating loss carryforwards of $7.1 million and state net operating loss carry forwards of approximately $30.7 million. These

net operating loss carry forwards will begin to expire in 2036 for federal tax, 2022 for state tax and 2024 for Switzerland tax purposes, if not utilized in future periods. The net operating loss carryforwards in Singapore do not expire. 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 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, 2019, management determined that sufficient positive evidence did not exist to conclude that it is more likely than not that the Net Operating Losses incurred by the Company's Switzerland and Singapore operations would be utilized in future periods. Accordingly, management established a full valuation allowance of $1.3 million against the deferred tax assets generated by these two jurisdictions.

We file income tax returns in the U.S. 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, 2015 to December 31, 2018. Our 2017 U.S. federal income tax filing is currently under examination by the IRS.

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 are our unrecognized tax benefits as of December 31, 2019 and 2018 (in thousands):


	For the Years Ended December 31,
	2019		2018
Unrecognized tax benefits - January 1	$	1,847	$	—
Increases in prior year positions	27		632
Reversals of prior year positions	(1,215)		—
Increases in tax positions taken in current year	—		1,215
Statute expirations	(215)		—
Unrecognized tax benefits - December 31	$	444	$	1,847

The amount of unrecognized tax benefits at December 31, 2019, 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 Sheets. 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.

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 fiscal year ended December 31, 2021 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 2018 or 2019 under the tax holiday.