(

)

Income Taxes

The provision for income taxes includes federal, state, local and foreign taxes. The Company’s effective tax rate varies from period to period due to the proportion of foreign and domestic pre-tax income expected to be generated by the Company. The Company provides for income taxes for its domestic operations at a statutory rate of

21%

and

35%

2018

and

2017,

respectively and for its foreign operations at a statutory rate of

30%

2018

and

2017.

Reconciling items between the federal statutory rate and the effective tax rate also include the expected usage of federal net operating loss carryforwards, state income taxes, valuation allowances and certain other permanent differences.

The Company recognizes liabilities or assets for the deferred tax consequences of temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements in accordance with ASC

740,

Income Taxes (ASC

740

). These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of assets or liabilities are recovered or settled. ASC

740

requires that a valuation allowance be established when it is more likely than

not

that all or a portion of a deferred tax asset will

not

be realized. The Company evaluates its deferred tax position on a quarterly basis and valuation allowances are provided as necessary. During this evaluation, the Company reviews its forecast of income in conjunction with other positive and negative evidence surrounding the realizability of its deferred tax assets to determine if a valuation allowance is needed. Based on its current forecast, the Company has established a valuation allowance against the domestic net deferred tax asset. Until an appropriate level and characterization of profitability is attained, the Company expects to continue to maintain a valuation allowance on its net deferred tax assets related to future U.S. and non-U.S. tax benefits.

December 2017,

the

2017

Tax Act was enacted. The

2017

Tax Act includes a number of changes to previous U.S. tax laws that impact the company, most notably a reduction of the U.S. corporate income tax rate from

percent to

percent for tax years beginning after

December 31, 2017.

The company recognized the income tax effects of the

2017

Tax Act in the financial statements included in its

2017

Annual Report on Form

-K in accordance with Staff Accounting Bulletin

No.

118,

which provides SEC staff guidance for the application of ASC Topic

740,

Income Taxes, in the reporting period in which the

2017

Tax Act was signed into law.

The Tax Act also provides that undistributed and previously untaxed post-

1986

foreign earnings will be deemed distributed in

2017

and be subject to tax at reduced effective rates (Transition Tax). The Company estimates it has a net cumulative deficit in E&P from its foreign subsidiaries and, consequently, will

not

be subject to the Transition Tax. In the event that a final calculation were to result in a nominal Transition Tax, as the Company has an NOL in excess of the accumulated E&P of its Mexican subsidiaries as of

December

31,

2017,

it will

not

incur a liability for the deemed repatriation of foreign earnings. Additionally, as of

April

2018

and

December

31,

2017,

the Company’s U.S. deferred liability for cumulative undistributed earnings has been eliminated.