| 9. | Income Taxes |
The components of income before income as shown in the accompanying Consolidated Statement of Operations, consisted of the following for the years ended December 31, 2017, 2016 and 2015:
| Years Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
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Income before income taxes: |
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Domestic |
$ | 1,875 | $ | 3,544 | $ | 3,995 | ||||||
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Foreign |
1,073 | 476 | 430 | |||||||||
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Income before income taxes |
$ | 2,948 | $ | 4,020 | $ | 4,425 | ||||||
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The Company has foreign subsidiaries in Canada and India, both of which generate revenues from foreign clients. Additionally, the Company has foreign subsidiaries in Cananda and India which provide services to its U.S. operations. Accordingly, the Company allocates a portion of its income to these subsidiaries based on a “transfer pricing” model and reports such income as foreign in the above table.
The provision for income taxes, as shown in the accompanying Consolidated Statement of Operations, consisted of the following for the years ended December 31, 2017, 2016 and 2015:
| Years Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
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Current provision: |
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Federal |
$ | 1,101 | $ | 1,189 | $ | 1,375 | ||||||
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State |
159 | 101 | 143 | |||||||||
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Foreign |
276 | 161 | 143 | |||||||||
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Total current provision |
1,536 | 1,451 | 1,661 | |||||||||
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Deferred provision: |
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Federal |
(205 | ) | 43 | 10 | ||||||||
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State |
(73 | ) | 6 | 1 | ||||||||
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Foreign |
64 | — | — | |||||||||
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Total deferred provision |
(214 | ) | 49 | 11 | ||||||||
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Total provision for income taxes |
$ | 1,322 | $ | 1,500 | $ | 1,672 | ||||||
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The reconciliation of income taxes from continuing operations computed using our statutory U.S. income tax rate and the provision for income taxes for the years ended December 31, 2017, 2016 and 2015 were as follows:
| Years Ended December 31, | ||||||||||||||||||||||||
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(Amounts in thousands) |
2017 | 2016 | 2015 | |||||||||||||||||||||
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Income taxes computed at the federal statutory rate |
$ | 1,002 | 34.0 | % | $ | 1,367 | 34.0 | % | $ | 1,505 | 34.0 | % | ||||||||||||
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State income taxes, net of federal tax benefit |
116 | 3.9 | 107 | 2.7 | 144 | 3.3 | ||||||||||||||||||
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Excess tax benefits from stock options/restricted shares |
(140 | ) | (4.7 | ) | — | — | — | — | ||||||||||||||||
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Estimated charge for U.S. tax reform |
372 | 12.6 | — | — | — | — | ||||||||||||||||||
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Difference in income taxes on foreign earnings/other |
(28 | ) | (1.0 | ) | 26 | 0.6 | 23 | 0.5 | ||||||||||||||||
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| $ | 1,322 | 44.8 | % | $ | 1,500 | 37.3 | % | $ | 1,672 | 37.8 | % | |||||||||||||
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The components of the deferred tax assets and liabilities were as follows:
| At December 31, | ||||||||
| 2017 | 2016 | |||||||
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Deferred tax assets: |
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Allowance for doubtful accounts |
$ | 99 | $ | 151 | ||||
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Accrued vacation, bonuses and severance |
230 | 334 | ||||||
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Stock-based compensation expense |
119 | 164 | ||||||
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Acquisition-related transaction costs |
501 | — | ||||||
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Total deferred tax assets |
949 | 649 | ||||||
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Deferred tax liabilities: |
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Prepaid expenses |
160 | 205 | ||||||
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Depreciation, intangibles and other |
321 | 190 | ||||||
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Total deferred tax liabilities |
481 | 395 | ||||||
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Net deferred tax asset |
$ | 468 | $ | 254 | ||||
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A reconciliation of the beginning and ending amounts of unrecognized tax benefits related to uncertain tax positions, including interest and penalties, for the three years ended December 31, 2017 is as follows:
| Years Ended December 31, | ||||||||||||
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(Amounts in thousands) |
2017 | 2016 | 2015 | |||||||||
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Unrecognized tax benefits, beginning balance |
$ | 128 | $ | 135 | $ | 138 | ||||||
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Additions related to current period |
— | 20 | 35 | |||||||||
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Additions related to prior periods |
— | — | — | |||||||||
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Reductions related to prior periods |
(33 | ) | (27 | ) | (38 | ) | ||||||
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Unrecognized tax benefits, ending balance |
$ | 95 | $ | 128 | $ | 135 | ||||||
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The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. As of December 31, 2017, 2016 and 2015, the Company had $12,000, $15,000 and $16,000, respectively, accrued for interest and penalties.