Note 8 - Income Taxes

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

8. Income taxes

The following are the domestic and foreign components of the Company's loss before income taxes:

	Year Ended December 31,
(In thousands)	2021			2020			2019
Domestic	$	(27,317	)	$	(597	)	$	(3,198	)
Foreign		(436	)		-			-
Total	$	(27,753	)	$	(597	)	$	(3,198	)

Income tax benefit consists of the following:

	Year Ended December 31,
(In thousands)	2021			2020			2019
Current:
Federal	$	-		$	-		$	-
State		-			33			-
Foreign		9			-			-
Total current tax provision		9			33			-
Deferred:
Federal		(17,703	)		(3,297	)		(1,541	)
State		(2,424	)		-			-
Foreign		-			-			-
Total deferred tax benefit		(20,127	)		(3,297	)		(1,541	)
Income tax benefit	$	(20,118	)	$	(3,264	)	$	(1,541	)

In the years ended December 31, 2021, 2020, and 2019, income tax benefit included excess tax benefits from stock-based compensation of $10.5 million, $3.2 million, and $2.3 million, respectively.

In connection with the 2021 Global Cooling acquisition, the Company recognized a deferred tax liability estimated to be $24.1 million. As a result, the Company recorded an income tax benefit of $8.0 million for the release of valuation allowance on our existing U.S. deferred tax assets as a result of the offset of the deferred tax liabilities established for intangible assets from the acquisition. In connection with the 2021 Sexton acquisition, the Company recorded a deferred tax liability estimated to be $1.5 million with an offset to goodwill.

In connection with the 2020 SciSafe acquisition, the Company recognized a deferred tax liability of $3.3 million on acquired intangible assets. As a result, the Company recorded an income tax benefit of $3.3 million for the release of valuation allowance on our existing U.S. deferred tax assets as a result of the offset of deferred tax liabilities established for intangible assets from the acquisition.

In connection with the 2019 SAVSU acquisition, the Company recognized a deferred tax liability of $1.5 million on acquired intangible assets. As a result, the Company recorded an income tax benefit of $1.5 million for the release of valuation allowance on our existing U.S. deferred tax assets as a result of the offset of deferred tax liabilities established for intangible assets from the acquisition.

A reconciliation of income taxes computed using the U.S. federal statutory rate to that reflected in operations follows:

	Year Ended December 31,
	2021			2020			2019
Federal statutory tax		21	%		21	%		21	%
State tax, net of federal benefit		7	%		39	%		-
Stock compensation		38	%		538	%		74	%
Sec. 162(m) limitation on executive compensation		(12	%)		(35	%)		(17	%)
Fair value change in contingent consideration		(2	%)		(81	%)		-
Fair value change in warrant liability		-			127	%		(82	%)
Transaction costs		(1	%)		(6	%)		(4	%)
Gain on stock acquisition		5	%		-			64	%
Tax credits		-			12	%		5	%
Change in valuation allowance		21	%		35	%		(5	%)
Book loss on equity method investment		-			-			(5	%)
Expired net operating losses		(5	%)		(100	%)		(5	%)
Other		-			(3	%)		1	%
Total		72	%		547	%		47	%

The principal components of the Company’s net deferred tax assets are as follows as of December 31, 2021 and 2020:

(In thousands)	2021			2020
Deferred tax assets related to:
Net operating loss carryforwards	$	27,500		$	12,314
Stock-based compensation		2,066			1,678
Accruals and reserves		2,902			427
Inventory		236			142
Lease liabilities		4,198			2,247
Tax credit carryforward		594			225
Other		318			48
Total deferred tax assets		37,814			17,081
Deferred tax liabilities related to:
Intangibles		(35,241	)		(5,025	)
Right-of-use assets		(4,070	)		(2,261	)
Fair value change in investments		(294	)		(287	)
Fixed assets		(1,203	)		(959	)
Other		-			(51	)
Total deferred tax liabilities		(40,808	)		(8,583	)
Net deferred tax (liabilities) assets before valuation allowance		(2,994	)		8,498
Less: valuation allowance		(2,493	)		(8,498	)
Net deferred tax liabilities	$	(5,487	)	$	-

Realization of deferred tax assets is dependent upon the generation of future taxable income, if any, the timing and amount of which are uncertain. The assessment regarding whether a valuation allowance is required on deferred tax assets considers the evaluation of both positive and negative evidence when concluding whether it is more likely than not that deferred tax assets are realizable. The valuation allowance recorded as of December 31, 2021 and 2020 primarily relates to deferred tax assets for net operating loss carryforwards.

The changes in the valuation allowance for deferred tax assets were as follows:

(In thousands)	2021			2020			2019
Balance at January 1	$	8,498		$	8,706		$	8,345
Deferred tax liabilities assumed through acquisitions		(8,498	)		(3,297	)		(1,541	)
Charged to income tax expense		2,493			3,089			1,902
Balance at December 31	$	2,493		$	8,498		$	8,706

As of December 31, 2021, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $120.6 million. Approximately $39.5 million of NOL will expire from 2023 through 2037, and approximately $81.1 million of NOL will be carried forward indefinitely. The NOL carryforwards are subject to an annual limitation in the event of certain cumulative changes in the ownership interest. This limited the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. Subsequent ownership changes may further affect the limitation in future years.

The Company determines its uncertain tax positions based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be sustained upon examination by the relevant income tax authorities.

A reconciliation of the beginning and ending balances of uncertain tax positions in the years ended December 31, 2021 and 2020 is as follows:

(In thousands)	2021		2020
Balance as of January 1	$	96	$	-
Increase related to prior year tax positions		-		36
Increase related to current year tax positions		159		60
Balance as of December 31	$	255	$	96

The Company did not have any uncertain tax positions or changes in uncertain tax positions as of or in the year ended December 31, 2019. The Company is generally subject to examination by U.S. federal and local income tax authorities for all tax years in which loss carryforward is available, which includes 2003 through 2021.