Income Taxes

The income tax provision consists of the following:

	As of December 31,
	2017			2016			2015
Current –
Federal	$	2,507		$	3,016		$	(214	)
State		101			114			(55	)
Foreign		898			-			-
		3,506			3,130			(269	)
Deferred –
Federal		(1,326	)		279			544
State		(124	)		(111	)		(439	)
Foreign		-			-			-
		(1,450	)		168			105
Income Tax Provision	$	2,056		$	3,298		$	(164	)

A reconciliation of the effective rate with the federal statutory rate is as follows:

	2017			2016			2015
Federal statutory rate		34.0	%		34.0	%		34.0	%
State income taxes, net of federal benefit		-0.2	%		0.1	%		-22.0	%
Permanent differences		0.4	%		0.1	%		1.3	%
Stock based compensation		-0.7	%		0.0	%		3.9	%
Federal R&D Credits		-1.3	%		-1.1	%		-29.4	%
Foreign Taxes		7.1	%		0.0	%		0.0	%
Federal Deferred Rate Decrease		-14.2	%		0.0	%		0.0	%
Effective tax rate		25.1	%		33.1	%		-12.2	%

December 22, 2017,

the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cut and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code that affected

2017,

including, but

not

limited to, accelerated depreciation that allowed for full expensing of qualified property. The Tax Act also establishes new tax laws that affects

2018

and future years, including a reduction in the U.S. federal corporate income tax rate from

35%

21%.

As a result of the Tax Act, we provisionally remeasured certain deferred tax assets and liabilities based on the rates at which they are anticipated to change to in the future, which is generally

21%.

This resulted in a reduction of the deferred tax liability of

$1.2

million, or a

14.2

percentage point reduction. This was offset in part by the impact of foreign income taxes owed (impact of

7.1%

on the rate) with the establishment of a subsidiary in Brazil. For the year ended

December 31, 2015,

the Company’s -

12.2%

effective income tax rate was primarily due to Federal and California research and development (R&D) tax credits. As of

December 31, 2017,

there were

Federal tax credit carryforwards from

2016.

As of

December 31, 2017,

there were

$731

of California tax credit carryforwards relating to

2012

2017

which have an unlimited carryforward period.

December 22, 2017,

the Securities and Exchange Commission issued guidance under Staff Accounting Bulletin

No.

118,

Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB

118”

) directing taxpayers to consider the impact of the U.S. legislation as “provisional” when it does

not

have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law.

December 31, 2017,

we have

not

completed our accounting for the tax effects of enactment of the Tax Act; however, we have made a reasonable estimate of the effects on our existing deferred tax balances and the

one

-time transition tax. For the year ended

December 31, 2017,

we recognized

transition tax because the Company’s Brazil entity is a disregarded entity for U.S. income tax purposes. In all cases, we will continue to make and refine our calculations as additional analysis is completed. In addition, our estimates

may

also be affected as we gain a more thorough understanding of the tax law.

The components of the net deferred tax liabilities included in the accompanying balance sheets are as follows:

	Year Ended December 31,
	2017			2016
Net deferred tax liability:
Excess of tax over book depreciation and amortization	$	(1,980	)	$	(3,321	)
Prepaid expenses		(39	)		(55	)
Allowance for doubtful accounts		14			18
Accrued expenses		105			133
Stock-based compensation		79			135
R&D tax credits		578			397
Net deferred tax liabilities	$	(1,243	)	$	(2,693	)

ASC

740

contains a

two

-step approach to recognizing and measuring uncertain tax positions (tax contingencies). The

first

step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than

not

that the position will be sustained on an audit, including resolution of related appeals or litigation processes, if any. The

second

step is to measure the tax benefit as the largest amount which is more than

50%

likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company’s tax positions and tax benefits, which

may

require periodic adjustments and which

may

not

accurately forecast actual outcomes. In

2016,

the Company elected to adopt ASU

2015

17,

Income Taxes - Balance Sheet Classification of Deferred Taxes

, that simplifies the presentation of deferred taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet.

The Company operates within multiple taxing jurisdictions and could be subject to audit in these jurisdictions. These audits

may

involve complex issues, which

may

require an extended period of time to resolve. The Company has provided for its estimated taxes payable in the accompanying financial statements. Interest and penalties related to income tax matters are recognized as a general and administrative expense. The Company did

not

have any interest or penalties accrued as of

December 31, 2017

and

2016.

The tax years ended

December 31, 2014

through

December 31, 2017

remain subject to examination by all major taxing authorities.