8. Income Taxes

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

Loss (income) before provision for income taxes was as follows:

	Years Ended December 31,
(In thousands)	2017			2016
Domestic	$	(708	)	$	(537	)
Foreign		(742	)		1,088
(Loss) income before income taxes	$	(1,450	)	$	551

The components of provision for income taxes for periods presented are as follows:

	Components of Provision for Income Tax (Benefit) Expense
,	Years Ended December 31
	2017									2016
(In thousands)	Current			Deferred			Total			Current		Deferred			Total
Federal	$	–		$	(102	)	$	(102	)	$	–	$	(140	)	$	(140	)
State		2			–			2			4		–			4
Foreign		(218	)		4			(214	)		247		(4	)		243
Total Income Tax (Benefit) Expense	$	(216	)	$	(98	)	$	(314	)	$	251	$	(144	)	$	107

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. We have calculated our best estimate of the impact of the Act in our year end income tax provision in accordance with our understanding of the Act and guidance available as of the date of this filing and as a result have recorded $103,000 as additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future, was a benefit of $13,000. The provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings resulted in an increase in our tax expense of $116,000.

On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company has determined that the $13,000 of the deferred tax benefit recorded in connection with the remeasurement of certain deferred tax assets and liabilities and the $116,000 of current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount and a reasonable estimate at December 31, 2017. Additional work is necessary to do a more detailed analysis of historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in the quarter of 2018 when the analysis is complete.

Due to the adoption of ASU 2016-09 in 2017, all excess tax benefits and deficiencies are recognized as income tax expense in the Company’s Consolidated Statement of Operations. This will result in increased volatility in the Company’s effective tax rate.

A reconciliation of the provision for income taxes, with the amount computed by applying the statutory Federal income tax rate to income before income taxes is as follows:

Effective Tax Rate Reconciliation	Years Ended December 31,
(In thousands)	2017			2016
Expense (benefit) computed at statutory rate	$	(493	)	$	187
Change in valuation allowance - Foreign		(114	)		(30	)
Effect of items deductible for book not tax, net
Share based compensation		32			40
Other - Domestic		5			5
Effect of foreign tax credit		33			11
Effect of foreign tax rate differential		118			(109	)
State income taxes, net of Federal benefit		2			3
Impact of Tax Cuts and Jobs Act of 2017
Change in tax rate		(13	)		–
Transition Tax		116			–
	$	(314	)	$	107

Significant Components of Deferred Taxes	Year Ended December 31,
(In thousands)	2017			2016
Deferred Tax Assets:
Net operating loss carry-forwards - Domestic	$	214		$	316
Net operating loss carry-forwards - Foreign		840			758
Intercompany profit		43			50
Alternative minimum tax credit carryforwards		20			65
Domestic reserves		20			33
Foreign tax credits		515			642
Other deferred assets - Domestic		25			57
Other deferred assets - Foreign		–			107
	$	1,677		$	2,028
Valuation Allowance - Foreign		(1,364	)		(1,478	)
Total deferred tax assets		313			550
Deferred Tax Liabilities:
PP&E - Domestic	$	287		$	590
PP&E - Foreign		14			52
Unrealized foreign currency gains - Domestic		11			–
Unrealized foreign currency gains - Foreign		–			5
Other		2			3
Total deferred tax liabilities		314			650
Net deferred tax asset (liability)	$	(1	)	$	(100	)

Our effective tax rate is based on our level of pre-tax income, statutory rates and tax planning strategies. Significant management judgment is required in determining the effective rate and in evaluating our tax position. At December 31, 2017, our U.S. operation had federal NOL carry-forwards of approximately $1,018,000 which resulted in a deferred tax asset (“DTA”) of approximately $214,000 which will begin to expire in 2033. At December 31, 2017, the U.S. operation had deferred tax liabilities (“DTL”) of $287,000, primarily related to book vs. tax depreciation. These temporary differences are expected to fully reverse prior to the expiration of the existing DTA; therefore, we determined that it is not necessary to provide a valuation allowance for our U.S. NOL as we believe the DTA is fully recoverable. The Company remeasured these non-current assets and liabilities at the applicable tax rate of 21% in accordance with the Tax Cuts and Jobs Act of 2017. The remeasurement resulted in a total decrease in the U.S. deferred taxes of $13,000.

At December 31, 2017, our Asian operation, TMM, had NOL carry-forwards of approximately $3,502,000 and certain other deferred tax assets of approximately $2,183,000 which resulted in a DTA of approximately $1,356,000.  Due to the uncertainties regarding TMM’s ability to utilize these DTAs, the Company established a valuation allowance to fully reserve against these DTAs.