Income Taxes

Information pertaining to the Company’s loss before income taxes and the applicable provision for income taxes is as follows:



	December 31,
	2017			2016
Income (loss) before income taxes:
Domestic income (loss)	$	590,660		$	(10,998,240	)
Foreign income	469,347			586,653
Total income (loss) before income taxes:	1,060,007			(10,411,587		)
Provision (benefit) for income taxes:
Current:
Federal	$	2,640		$	(17,626	)
State and local	(85,972		)	1,886
Foreign	238,729			723,502
	155,397			707,762
Deferred:
Federal	$	(530,478	)	$	154,641
State and local	(8,215		)	1,766
Foreign	390,902			(276,962		)
	(147,791		)	(120,555		)
Total provision for income taxes:	$	7,606		$	587,207

During 2017, the Company recorded a tax provision of $7,606 related to federal, state and local and foreign income taxes including a tax benefit related to our Minimum Tax Credit carryforwards which are now realizable on a more-likely-than-not basis as such amounts will be refundable under the Tax Cuts and Jobs Act ("TCJA"), partially offset with the accrual of foreign withholding taxes as the Company is no longer permanently reinvesting its foreign earnings. During 2016, the Company recorded a tax provision of $587,207 related to state and local and foreign income taxes and is inclusive of a tax provision of $122,004 as a result of the Company's change in estimate with respect to the realizability of a certain portion of its Minimum Tax Credits.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:



	December 31,
	2017			2016
Deferred Tax Assets:
Allowance for receivables	$	76,266		$	100,414
Deferred revenue	1,970,216			3,648,029
Share-based compensation	517,841			2,254,428
Accrued expenses and other liabilities	404,316			418,483
Domestic net operating loss carryforwards	19,572,148			30,714,934
Foreign net operating loss carryforwards	17,997			9,761
Tax credit carryforwards	3,106,022			574,997
AMT tax credit carryforwards	464,571			460,607
Capital loss carryforwards	57,768			78,296
Fixed assets	218,412			489,105
Intangibles	625,126			1,435,994
Sub-total	27,030,683			40,185,048
Valuation allowance	(25,602,357		)	(38,800,877		)
Total Deferred Tax Assets	1,428,326			1,384,171
Deferred Tax Liabilities:
Deferred state income tax	(450,797		)	(923,553		)
Foreign withholding taxes	(472,112		)	(137,659		)
Total Deferred Tax Liabilities	(922,909		)	(1,061,212		)
Net Deferred Tax Assets	$	505,417		$	322,959

As of each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. In assessing the Company’s ability to recover its deferred tax assets, the Company evaluated whether it is more likely than not that some portion or the entire deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. The Company considered all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Based on these factors the Company determined that its U.S. deferred tax assets with the exception of its Minimum Tax Credit are not realizable on a more-likely-than-not basis and has recorded a full valuation allowance against such net deferred tax assets. The Company’s valuation allowance decreased by $13.2 million primarily related to the remeasurement of our deferred tax assets and liabilities using the new federal statutory rate of 21%.

As of December 31, 2017, the Company had federal net operating loss carry forwards of approximately $83.5 million which are set to expire beginning in 2030 through 2036, if not utilized. As of December 31, 2017, the Company had approximately $3.1 million of research and development tax credit carry forwards which expire at various dates beginning in 2023 through 2028, if not utilized.

The effective tax rate before income taxes varies from the current statutory federal income tax rate as follows:



	December 31,
	2017			2016
Tax at Federal statutory rate	$	371,003		$	(3,644,056	)
Increase (reduction) in income taxes resulting from:
State and local taxes	355,888			2,172
Non-deductible expenses	(50,579		)	(28,812		)
Stock compensation	1,273,956			—
Net effect of foreign operations	(14,022		)	232,858
Uncertain tax positions	(41,482		)	12,440
Impact of U.S tax reform	14,295,386			—
Change in valuation allowance	(15,072,298		)	4,011,710
Foreign withholding taxes	468,376			—
Decrease in unrecognized tax benefits	(1,427,906		)	—
Other	(150,716		)	895
	$	7,606		$	587,207

On December 22, 2017 the U.S. government enacted comprehensive tax reform commonly referred to as the Tax Cuts and Jobs Act (“TCJA”). Under ASC 740, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. Among other things, the TCJA (1) reduces the US statutory corporate income tax rate from 35% to 21% effective January 1, 2018 (2) eliminates the corporate alternative minimum tax (3) requires companies to record/pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred (4) creates new taxes on certain foreign sourced earnings (5) changes rules related to uses and limitations of net operating loss carry forwards beginning after December 31, 2017.

The TCJA reduces the corporate tax rate to 21% effective January 1, 2018. The Company remeasured its U.S. deferred tax assets and liabilities based on the lower federal rate and recorded a provisional income tax expense of $13.5 million, offset by change in its valuation allowance of $13.6 million. The TCJA also enacted a one-time transition tax, which is based on the Company’s total post-1986 earnings and profits (“E&P”) that were previously deferred from U.S. income taxes. The Company recorded a provisional amount for the one-time transition tax liability for all of its foreign subsidiaries resulting in an income tax expense of $0.7 million, offset by valuation allowance. The Company has not yet completed its calculation of the total post-1986 E&P for these foreign subsidiaries as certain information is not readily available.

Due to the change in U.S. federal tax law, the Company does not intend to indefinitely reinvest any of its unremitted foreign earnings as of December 31, 2017. As such, the Company has provided for additional foreign withholding taxes on approximately $3.3 million of undistributed earnings of its subsidiaries operating outside of the United States for which withholding tax applies. The Company has recorded a provisional estimate of $0.3 million of withholding tax, which has been recorded as a deferred tax liability.

The Company has not yet made a policy election with respect to its treatment of potential global intangible low-taxed income (“GILTI”). Companies can either account for taxes on GILTI as incurred or recognize deferred taxes when basis differences exist that are expected to affect the amount of the GILTI inclusion upon reversal. The Company is still in the process of analyzing the provisions of the TCJA associated with GILTI and the expected impact of GILTI on the Company in the future.

While the Company is able to make a reasonable estimate of the impact on the items indicated above, the provisional amounts may change due to a variety of factors, including, among other things, (i) anticipated guidance from the U.S. Department of Treasury about implementing the TCJA (ii) potential additional guidance from the Securities and Exchange Commission or the Financial Accounting Standards Board related to the TCHA and (iii) Management’s further assessment of the TCJA and related regulatory guidance. The Company is not complete in its assessment of the impact of the TCJA on its business and financial statements.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:



	2017			2016
Balance at January 1,	$	217,461		$	217,289
Increases to tax positions taken in prior years	10,104			4,510
Decreases to tax positions taken in prior years	—			—
Increase for tax positions taken during the current year	—			—
Expiration of statutes of limitation	(53,169		)	(3,323		)
Translation	5,806			(1,015		)
Balance at December 31,	$	180,202		$	217,461

At December 31, 2017, $262,711 including interest, if recognized, would reduce the Company’s annual effective tax rate. As of December 31, 2017, the Company had approximately $82,508 of accrued interest. The Company believes it is reasonably possible that $71,887 of its unrecognized tax benefits will reverse within the next 12 months. The Company records any interest and penalties related to unrecognized tax benefits in income tax expense.

The Company files federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2014 through 2017 tax years generally remain subject to examination by federal and most state tax authorities. In addition to the U.S., the Company’s major taxing jurisdictions include China, Taiwan, Japan, France and Germany.