RMG Networks Holding Corp - 10-K filing on 2018-04-04

Income Taxes

12 Months Ended

Dec. 31, 2017

5. Income Taxes

The following table summarizes the tax provision for U.S. federal, state, and foreign taxes on income for the years noted below:


(in thousands)	2017		2016
Current
Federal	$	—	$	—
State		(6)		25
Foreign		34		139
Current tax expense		28		164
Deferred
Federal		—		(7)
State		—		—
Foreign		24		(14)
Deferred tax expense		24		(21)
Total income tax expense	$	52	$	143

Income taxes differed from the amounts computed by applying the U.S. federal income tax rate of 34% to income (loss) before income taxes as follows:


(in thousands)	2017		2016
Computed expected tax benefit	$	(1,748)	$	(1,485)
State tax benefit, net of federal benefit		(107)		(141)
Non-taxable income charge		381		(231)
Nondeductible expenses, principally goodwill & impairment		827		14
Change in valuation allowance		(8,844)		1,861
Change in federal rate		9,485		—
Foreign income tax		58		125
Total	$	52	$	143

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at December 31 and inclusive of discontinued operations are as follows:


(in thousands)	2017		2016
Deferred revenue	$	172	$	321
Deferred rent		405		699
Accrued wages		10		34
Deferred state sales tax		18		30
Bad debt reserve		14		22
Foreign currency loss		25		39
Other		30		73
Current deferred tax assets		674		1,218
Depreciation and amortization		(220)		(443)
Equity-based compensation		1,691		2,432
Intangible assets		(1,124)		(2,564)
Net operating loss carryforwards		16,432		25,654
Non-current deferred tax assets		16,779		25,079
Total deferred tax assets		17,453		26,297
Valuation allowance		(17,453)		(26,297)
Net deferred tax assets	$	—	$	—

The Company evaluates the recoverability of the deferred income tax assets and the associated valuation allowances on a regular basis. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. The decrease in the valuation allowance from 2016 to 2017 was $8.8 million and is primarily due to changes in net operating loss carryforwards due to the deemed repatriation of its accumulated earnings and profits from its foreign subsidiaries and the impact of reduced federal income tax rate applicable to corporations to 21% from a maximum rate of 35% from TCAJA.

At December 31, 2017, the Company had federal net operating loss carryforwards of approximately $68.7 million, which expire in 2032-2035. Of the $16.4 million in non-current net operating losses above, approximately $0.5 million relates to state net operating losses. The Company evaluates a variety of factors on a regular basis to determine the amount of deferred income tax assets to recognize in the financial statements. These factors include the Company’s recent earnings history, projected future taxable income, the number of years the Company’s net operating loss and tax credits can be carried forward, the existence of taxable temporary differences, and available tax planning strategies.

The Company accounts for uncertain tax positions in accordance with FASB ASC Topic 740. This guidance prescribes a comprehensive model as to how a company should recognize, present, and disclose in its financial statement uncertain tax positions that a company has taken or expects to take on its tax return. Symon’s open tax years are for the years ended January 31, 2012 and 2013 and the short period ending April 19, 2013. All Reach Media Group tax years within the statute of limitations are open. As of December 31, 2017 and 2016, the Company had no accruals recorded for uncertain tax positions. The Company has elected to recognize accrued interest and penalties related to income tax matters as a component of income tax expense if incurred. For the years ended December 31, 2017 and 2016, there were no such costs related to income taxes. It is determined not to be reasonably likely for the amounts of unrecognized tax benefits to significantly increase or decrease within the next 12 months. The Company is currently subject to a three-year statute of limitation by major tax jurisdictions.