12. Income taxes
The Company is subject to federal and state income taxes in the United States. The benefit for income taxes on loss from continuing operations consisted of the following:
|
|
|
Year Ended December 31, |
|
|||||||||
|
(In thousands) |
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(123 |
) |
|
State |
|
|
- |
|
|
|
87 |
|
|
|
- |
|
|
|
|
|
- |
|
|
|
87 |
|
|
|
(123 |
) |
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(7,117 |
) |
|
|
(14,278 |
) |
|
|
(15,771 |
) |
|
State |
|
|
(1,855 |
) |
|
|
(1,732 |
) |
|
|
(689 |
) |
|
Valuation allowance |
|
|
8,972 |
|
|
|
1,881 |
|
|
|
- |
|
|
|
|
|
- |
|
|
|
(14,129 |
) |
|
|
(16,460 |
) |
|
Income tax benefit |
|
$ |
- |
|
|
$ |
(14,042 |
) |
|
$ |
(16,583 |
) |
On December 22, 2017, the Act was enacted, resulting in significant modifications to existing law, including lowering the U.S. corporate statutory income tax rate to 21%, among other changes. As a full valuation allowance was provided as of December 31, 2017, the Act does not have any material net impact on our consolidated financial statements, however, certain income tax disclosures, including the re-measurement of deferred tax assets and liabilities and related valuation allowance, and the effective income tax rate reconciliation, are affected. The Company follows the guidance in SAB 118, which provides additional clarification regarding the application of ASC 740 in situations where the Company does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Act for the reporting period in which the Act was enacted. SAB 118 provides for a measurement period beginning in the reporting period that includes the Act’s enactment date and ending when the Company has obtained, prepared, and analyzed the information needed in order to complete the accounting requirements but in no circumstances should the measurement period extend beyond one year from the enactment date. Due to certain ambiguities in the Act, the Company is still evaluating the impact of changes to Code Section 162(m) on our consolidated financial statements. It is the intention of the Company to complete the necessary analysis within the measurement period, upon receiving further clarifying guidance from U.S. Department of the Treasury, no later than December 31, 2018.
The Company’s effective income tax benefit differed from the U.S. corporate statutory income tax rate of 34% for the years ended December 31, 2017, 2016 and 2015. For the years ended December 31, 2017, this difference is mainly the result of the valuation allowance applied against the Company’s deferred tax assets, share-based compensation tax deficiencies, deferred remeasurement for tax rate change resulting from the Act, and state income taxes. For the years ended December 31, 2016, this difference is mainly the result of the valuation allowance applied against the Company’s deferred tax assets and state income taxes. For the year ended December 31, 2015, this difference is primarily due to state income taxes and one-time contingent earn-out costs related to shares issued pursuant to the TBO Merger Agreement. A reconciliation is as follows:
|
|
|
Year Ended December 31, |
|
|||||||||||||||||||||
|
(In thousands) |
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||||||||||||||
|
Tax on continuing operating loss before income taxes |
|
$ |
(18,090 |
) |
|
|
34.0 |
% |
|
$ |
(14,663 |
) |
|
|
34.0 |
% |
|
$ |
(20,117 |
) |
|
|
34.0 |
% |
|
Effect of state taxes (net of federal tax benefit) |
|
|
(1,515 |
) |
|
|
2.8 |
% |
|
|
(1,645 |
) |
|
|
3.8 |
% |
|
|
(1,800 |
) |
|
|
3.0 |
% |
|
Share-based compensation tax deficiencies |
|
|
5,133 |
|
|
|
-9.6 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Loss on amendments of warrants |
|
|
342 |
|
|
|
-0.6 |
% |
|
|
433 |
|
|
|
-1.0 |
% |
|
|
- |
|
|
|
- |
|
|
Contingent earn-out costs |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,862 |
|
|
|
-8.2 |
% |
|
Others |
|
|
41 |
|
|
|
-0.1 |
% |
|
|
(48 |
) |
|
|
0.1 |
% |
|
|
472 |
|
|
|
-0.8 |
% |
|
Deferred remeasurement for tax rate change |
|
|
5,117 |
|
|
|
-9.6 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Valuation allowance |
|
|
8,972 |
|
|
|
-16.9 |
% |
|
|
1,881 |
|
|
|
-4.4 |
% |
|
|
- |
|
|
|
- |
|
|
Income tax benefit |
|
$ |
- |
|
|
|
- |
|
|
$ |
(14,042 |
) |
|
|
32.5 |
% |
|
$ |
(16,583 |
) |
|
|
28.0 |
% |
Components of deferred tax assets and liabilities consist of the following:
|
(In thousands) |
|
December 31, 2017 |
|
|
December 31, 2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
7,555 |
|
|
$ |
8,041 |
|
|
Share-based compensation |
|
|
16,321 |
|
|
|
21,503 |
|
|
Accounts receivable |
|
|
480 |
|
|
|
392 |
|
|
Accrued expenses and other current liabilities (1) |
|
|
1,128 |
|
|
|
43 |
|
|
Others |
|
|
22 |
|
|
|
11 |
|
|
|
|
|
25,506 |
|
|
|
29,990 |
|
|
Valuation allowance |
|
|
(10,853 |
) |
|
|
(1,881 |
) |
|
|
|
|
14,653 |
|
|
|
28,109 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Intangible assets |
|
$ |
14,505 |
|
|
$ |
27,962 |
|
|
Property and equipment |
|
|
148 |
|
|
|
117 |
|
|
Internal Revenue Code Sec. 481 adjustment |
|
|
- |
|
|
|
30 |
|
|
|
|
|
14,653 |
|
|
|
28,109 |
|
|
Net deferred tax liability |
|
$ |
- |
|
|
$ |
- |
|
|
(1) |
Included in deferred tax assets in relation to accrued expenses and other current liabilities as of December 31, 2017, there was deferred tax assets balance of $1,037 resulting from the unpaid TRADS Litigation Settlement of $4,000. |
As of December 31, 2017, the Company had federal and state net operating loss carryforwards of $29,274 and $24,046, respectively, which begin to expire in 2034. The Company’s net operating losses may be subject to annual Section 382 limitations due to ownership changes that could impact the future realization. The Company uses ASC 740 ordering when determining when excess tax benefits have been realized.
ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. On a periodic basis, management evaluates and determines the amount of valuation allowance required and adjusts such valuation allowance accordingly. Primarily due to cumulative pre-tax losses, management determined a valuation allowance of $10,853 and $1,881 was necessary as of December 31, 2017 and 2016, respectively, to reduce the deferred tax assets to the amount that is more likely than not to be realized.
The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the Company’s financial statements.
The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. All of the Company’s income tax filings since inception remain open for tax examinations.
A reconciliation of the gross amounts of unrecognized tax benefits, excluding accrued interest and penalties, for the years ended December 31, 2017 and 2016 (no such items for the year ended December 31, 2015), is as follows:
|
|
|
Year Ended December 31, |
|
|||||
|
(In thousands) |
|
2017 |
|
|
2016 |
|
||
|
Unrecognized tax benefits, opening |
|
$ |
1,668 |
|
|
$ |
- |
|
|
Gross increase - tax position in prior period |
|
|
- |
|
|
|
1,668 |
|
|
Decrease as a result of the Act |
|
|
(534 |
) |
|
|
- |
|
|
Unrecognized tax benefits, ending balance |
|
$ |
1,134 |
|
|
$ |
1,668 |
|
In our tax return filed for the year ended December 31, 2015, a loss of $4,375, resulted from the disposal of Advertising Business, was included. This uncertain tax position of $1,668 is reflected as a reduction in deferred tax assets, which was adjusted to $1,134 as a result of the Act as of December 31, 2017. Based on management’s assessment, no tax benefit has been recognized for the loss mentioned above. This unrecognized tax benefit, if recognized, would favorably affect the Company’s annual effective tax rate before application of any valuation allowance. The Company has not accrued any interest or penalties as of December 31, 2017 with respect to its uncertain tax positions.
The Company does not anticipate a significant increase or reduction in unrecognized tax benefits within the next twelve months.