Note 12. Income Taxes

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

The provision (benefit) for income taxes consisted of the following components for the years ended December 31 (in 000’s):

	2017			2016
Current:
Federal	$	116		$	500
State		13			95
Foreign		62			56
Total Current		191			651
Deferred:
Federal		(59	)		(130	)
State		23			(17	)
Foreign		(24	)		(40	)
Total Deferred		(60	)		(187	)
Total expense (benefit) for income taxes	$	131		$	464

Reconciliation between the statutory rate and the effective tax rate is as follows at December 31(in 000’s, except percentages):

	2017						2016
	Amount			Percentage			Amount			Percentage
Federal statutory tax rate	$	681			34.0	%	$	687			34.0	%
State tax rate		21			1.0	%		66			3.3	%
Permanent difference – stock-based compensation		(156	)		(7.8	)%		32			1.6	%
Permanent difference – other		63			3.1	%		67			3.3	%
Tax reform deferred re-measurement		(351	)		(17.5	)%		—			—	%
Provision to return		(3	)		(0.1	)%		(8	)		(0.4	)%
Change in unrecognized tax benefits		—			—	%		(58	)		(2.8	)%
Foreign rate differential		(41	)		(2.0	)%		(52	)		(2.6	)%
Research and development credit		(70	)		(3.5	)%		(56	)		(2.8	)%
Sub-total		144			7.2	%		678			33.6	%
Change in valuation allowance		(13	)		(0.7	)%		(214	)		(10.6	)%
Total	$	131			6.5	%	$	464			23.0	%

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 U.S. corporate tax rate decrease from 34% 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. The Company has calculated its best estimate of the impact of the Act in its year end income tax provision in accordance with its understanding of the Act and guidance available as of the date of this filing and does not believe it will be material to its results of operations. The provisional amount related to the re-measurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future was $351,000. 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 $351,000 of the deferred tax income recorded in connection with the re-measurement of certain deferred tax assets and liabilities and the expectation the transition tax is immaterial are reasonable estimates 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. Additionally, the Company recognized a permanent income tax benefit of $156,000 in 2017, of which $182,000 is attributable to equity-based compensation in connection with the FASB issuance of ASU 2016-09 which requires all excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement. In prior years, all excess tax benefits and deficiencies were recorded to APIC.

Components of net deferred income tax assets, including a valuation allowance, are as follows at December 31 (in 000’s):

	2017			2016			Change
Assets:
Net operating loss	$	69		$	179		$	(110	)
Deferred revenue		122			138			(16	)
Allowance for doubtful accounts		88			142			(54	)
Stock options		184			298			(114	)
Basis difference in intangible assets		9			80			(71	)
Prepaid D&O Insurance		2			6			(4	)
Foreign tax credits carryforward		1,181			1,181			—
Other		—			37			(37	)
Total deferred tax asset		1,655			2,061			(406	)
Less: Valuation allowance		(1,181	)		(1,194	)		13
Total net deferred tax asset		474			867			(393	)
Liabilities
Prepaid expenses		(35	)		(38	)		3
Capitalized software		(475	)		(492	)		17
Purchase of intangibles		(534	)		(263	)		(271	)
Other		(3	)		—			(3	)
Total deferred tax liability		(1,047	)		(793	)		(254	)
Total net deferred tax asset / (liability)	$	(573	)	$	74		$	(647	)

A valuation allowance of $1,181,000 and $1,194,000 was recorded against deferred tax assets as of December 31, 2017 and 2016, respectively. The valuation allowance as of December 31, 2017, relates to a full valuation allowance on the remaining foreign tax credit carryforwards. For the year ended December 31, 2017, the Company released a portion of the valuation allowance in the amount of $13,000 attributable to the utilization of foreign net operating losses, which constituted a final utilization and release of the valuation allowance for foreign net operating losses.

In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. It has been determined that it is more likely than not that the deferred tax assets attributable to foreign tax credit carryforwards will not be realized, as it has been deemed unlikely that there will be sufficient foreign source income generated to use the foreign tax credits.

The Company had no unrecognized tax benefits as of December 31, 2017 or 2016. As of December 31, 2015, the Company had $58,000 of unrecognized tax benefits, however, released this amount, inclusive of interest and penalties, as a result of expired statute of limitations for a prior tax year and management's conclusion that the uncertain tax positions related to the statute lapse were effectively settled. The aggregate changes in the balance of unrecognized tax benefits were as follows (in 000’s):

	2017		2016
Balance as of January 1:	$	—	$	58
Change related to current year positions		—		—
Change related to statute expirations		—		(58	)
Balance as of December 31:	$	—	$	—

Undistributed earnings of the Company are insignificant as of December 31, 2017. With the enactment of the 2017 Act, the Company does not consider any of its foreign earnings as indefinitely reinvested. The Company does not expect the transition tax charge associated with undistributed foreign earnings to be material to its results from operations.

The Company is subject to income taxation by both federal and state taxing authorities. Income tax returns for the years ended December 31, 2016, 2015 and 2014 are open to audit by federal and state taxing authorities.