NOTE

— INCOME TAXES

The Company (a “C” Corporation) provides for income taxes based on the Federal and state statutory rates on taxable income. U.S. and foreign components of income before incomes taxes are presented below:

	For the years ended December 31,
(In thousands)	2019		2018			2017
Domestic	$	455	$	(13,015	)	$	(10,423	)
Foreign		20,483		25,183			12,896
Total	$	20,938	$	12,168		$	2,473

The income tax provisions are comprised of the following:

	For the years ended December 31,
(In thousands)	2019			2018			2017
Current
Federal	$	-		$	191		$	(15	)
State		22			(14	)		529
Foreign - Other		682			578			1,062
Total current		704			755			1,576
Deferred
Federal		1,325			937			8,168
State		379			(1,161	)		242
Foreign - Other		(218	)		85			16
Total deferred		1,486			(139	)		8,426
Income tax expense (benefit)	$	2,190		$	616		$	10,002

A reconciliation of the U.S. federal statutory income tax (benefit) expense to the Company’s effective income tax provision is as follows:

	For the years ended December 31,
	2019			2018			2017
Tax provision at statutory rate – federal		21.0	%		21.0	%		35.0	%
U.S. tax reform toll charge		0.0	%		0.0	%		562.2	%
Tax rate change deferred revaluation		0.0	%		0.0	%		(63.3	%)
Tax provision at effective state and local rates		1.9	%		(9.6	%)		23.9	%
Foreign tax rate differential		(16.5	%)		(12.8	%)		(158.3	%)
Subpart F income		3.4	%		22.7	%		0.0	%
Nondeductible expenses		0.4	%		0.2	%		6.5	%
Uncertain tax provisions		(2.2	%)		(0.4	%)		1.2	%
Valuation allowance		2.8	%		(11.9	%)		2.8	%
Prior period adjustments		(0.1	%)		(3.2	%)		11.2	%
Stock compensation		(0.2	%)		(0.8	%)		(9.5	%)
Tax credits		0.0	%		(0.1	%)		(7.3	%)
Other		0.0	%		0.0	%		0.0	%
Total effective income tax rate		10.5	%		5.1	%		404.4	%

The Company, through its subsidiaries and affiliated entities in the U.S., the Cayman Islands, Ecuador and Australia are subject to US Federal, US state, Ecuadorian Federal and Australian Federal income taxes. The Cayman Islands do

not

impose federal or local income taxes.

Deferred tax (liabilities) assets, net, are comprised of the following:

	As of December 31,
(In thousands)	2019			2018
Net operating loss carryforward	$	14,810		$	15,235
Property and equipment		(18,546	)		(17,164	)
Disallowed interest carryforward		2,136			1,549
Valuation allowance		(2,136	)		(1,549	)
Stock-based compensation		116			57
Intangibles		(716	)		(949	)
Other (a)		63			34
Deferred tax (liabilities) assets	$	(4,273	)	$	(2,787	)

__________

(a) Other is net of a

$0.2

million deferred tax asset.

The Company recognizes valuation allowances to reduce deferred tax assets to the amount that is more likely than

not

to be realized. In assessing the likelihood of realization, management considers: (i) future reversals of existing taxable temporary differences; (ii) future taxable income exclusive of reversing temporary differences and carryforwards; (iii) taxable income in prior carryback year(s) if carryback is permitted under applicable tax law; and (iv) tax planning strategies.

The U. S. Tax Cuts and Jobs Act (the “Tax Act”) introduced significant changes to U.S. income tax law that have a meaningful impact on our provision for income taxes in prior years. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our financial statements for the year ended

December 31, 2017.

As part of this effort, we recognized a provisional amount for our

one

-time transitional tax liability as a reduction of net operating loss carryforwards totaling

$13.9

million and a deferred tax benefit of

$1.8

million to reflect the reduced U.S. tax rate and other effects of the Tax Act. During

2018,

we recorded tax charges for the impact of the Tax Act effects using the current available information and technical guidance on the interpretations of the Tax Act. As permitted by SEC Staff Accounting Bulletin

118,

Income Tax Accounting Implications of the Tax Cuts and Jobs Act, we recorded provisional estimates and have subsequently finalized our accounting analysis based on the guidance, interpretations, and data available as of

December 22, 2018.

In the

fourth

quarter of

2018,

we recorded a benefit of

$0.6

million related to the state tax treatment of the

one

-time mandatory repatriation of foreign earnings.

other adjustments made during

2018

2019

were considered material.

The Company also had deferred tax assets related to U.S. loss carryforwards of

$57.3

million as of

December 31, 2019,

which begin to expire in

2027.

The timing and manner in which the Company will utilize the net operating loss carryforwards in any year, or in total,

may

be limited in the future as a result of changes in the Company’s ownership and any limitations imposed by the jurisdictions in which the Company operates. In

2018,

the Company filed its final tax return in Australia. As a result, it

longer has Australian net operating or capital loss carryforwards, and

corresponding valuation allowance.

As a result of the transition to the territorial tax regime effectuated by the Tax Act described above, any potential dividends from our foreign subsidiaries would

longer be subject to Federal tax in the United States. We continue to assert our prior position regarding the repatriation of historical foreign earnings from our Ecuadorian and Australian subsidiaries. We currently have

intention to remit any additional undistributed earnings of our Ecuadorian and Australian subsidiaries in a taxable manner. We

longer remain permanently reinvested in the earnings of our Cayman subsidiary.

taxes have been accrued as a result of this change because

taxes are expected to be imposed by either the United States or the Cayman Islands upon such a remittance.

The Company is subject to income taxes in the U.S. and various state and foreign jurisdictions. Significant judgment is required in evaluating tax positions and determining the provision for income taxes. The Company establishes liabilities for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes

may

be due. These liabilities are established when the Company believes that certain positions might be challenged despite its belief that its tax return positions are fully supportable. The Company adjusts these liabilities in light of changing facts and circumstances, such as the outcome of a tax audit. The provision for income taxes includes the impact of changes to these liabilities.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits and does

not

include related interest and penalties:

	For the years ended December 31,
(In thousands)	2019			2018			2017
Beginning of year	$	298		$	421		$	447
Current year positions		-			-			-
Prior year positions		(298	)		(123	)		(26	)
End of year	$	-		$	298		$	421

The Company has elected an accounting policy to classify interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of

December 31, 2019,

2018

and

2017,

interest and penalties included in income tax expense were

not

significant.

The Company is subject to tax audits in all jurisdictions for which it files tax returns. Tax audits by their very nature are often complex and can require several years to complete. Currently, there are

U.S. federal, state or foreign jurisdiction tax audits pending. During

2018,

the Company recently closed tax audits on its

three

Ecuadorian entities. The Company’s corporate U.S. federal and state tax returns for the current year and the

three

prior years remain subject to examination by tax authorities and the Company’s foreign tax returns for the current year and the

four

prior years remain subject to examination by tax authorities.