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Note 7 - Income Taxes | 12 Months Ended
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Dec. 31, 2020
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
7. | Income Taxes
The provision (benefit) for income taxes consists of the following:
|  | Year Ended December 31, |
(In thousands) |  | 2020 |  |  | 2019 |
Federal |  | $ | - |  |  | $ | - |
State |  |  | 33 |  |  |  | - |
Total current tax provision |  |  | 33 |  |  |  | - |
Federal |  |  | (3,297 | ) |  |  | (1,541 | )
State |  |  | - |  |  |  | - |
Total deferred tax provision |  |  | (3,297 | ) |  |  | (1,541 | )
Provision (benefit) for income taxes |  | $ | (3,264 | ) |  | $ | (1,541 | )
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, |
|  | 2020 |  |  | 2019 |
Tax on net income at federal statutory rate |  |  | 21 | % |  |  | 21 | %
State tax expense |  |  | 39 | % |  |  | - |
Change in valuation allowance |  |  | 35 | % |  |  | (5 | %)
Stock-based compensation |  |  | 538 | % |  |  | 74 | %
Section 162(m) limitation on executive compensation |  |  | (35 | %) |  |  | (17 | %)
Book loss on equity method investment |  |  | - |  |  |  | (5 | %)
Fair value change in warrant liability |  |  | 127 | % |  |  | (82 | %)
Gain on stock acquisition |  |  | - |  |  |  | 64 | %
Transaction costs |  |  | (6 | %) |  |  | (4 | %)
Fair value change in contingent consideration |  |  | (81 | %) |  |  | - |
Tax credits |  |  | 12 | % |  |  | 5 | %
Expired net operating losses |  |  | (100 | %) |  |  | (5 | %)
Other |  |  | (3 | %) |  |  | 1 | %
Total |  |  | 547 | % |  |  | 47 | %
The principal components of the Company’s net deferred tax assets are as follows:
|  | December 31, |
(In thousands) |  | 2020 |  |  | 2019 |
Deferred tax assets related to: |  |  |  |  |  |  |  |
Net operating loss carryforward |  | $ | 12,314 |  |  | $ | 9,495 |
Stock-based compensation |  |  | 1,678 |  |  |  | 1,110 |
Accruals and reserves |  |  | 427 |  |  |  | 192 |
Inventory |  |  | 142 |  |  |  | 88 |
Lease liabilities |  |  | 2,247 |  |  |  | 208 |
Tax credit carryforward |  |  | 225 |  |  |  | 152 |
Other |  |  | 48 |  |  |  | 4 |
Total deferred tax assets |  |  | 17,081 |  |  |  | 11,249 |
Deferred tax liabilities related to: |  |  |  |  |  |  |  |
Intangibles |  |  | (5,025 | ) |  |  | (2,217 | )
Right-of-use assets |  |  | (2,261 | ) |  |  | (218 | )
Fair value change in investments |  |  | (287 | ) |  |  | - |
Fixed assets |  |  | (959 | ) |  |  | (108 | )
Other |  |  | (51 | ) |  |  | - |
Total deferred tax liabilities |  |  | (8,583 | ) |  |  | (2,543 | )
Total deferred taxes |  |  | 8,498 |  |  |  | 8,706 |
Less: valuation allowance |  |  | (8,498 | ) |  |  | (8,706 | )
Net deferred taxes |  | $ | - |  |  | $ | - |
The Company maintains a full valuation allowance on its net deferred tax assets. The assessment regarding whether a valuation allowance is required considers both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. In making this assessment, significant weight is given to evidence that can be objectively verified. In its evaluation, the Company considered its cumulative book losses, not including transaction gains, as significant negative evidence. Based upon a review of the four sources of income identified within ASC 740, “Accounting for Income Taxes”, the Company determined that the negative evidence outweighed the positive evidence and a full valuation allowance on its deferred tax assets will be maintained. The Company will continue to assess the realizability of its deferred tax assets going forward and will adjust the valuation allowance as needed. As of December 31, 2020, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $56.6 million, which is available to reduce future taxable income. Approximately $32.3 million of NOL will expire from 2021 through 2036, and approximately $24.3 million of NOL will be carried forward indefinitely. The NOL carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The Company is planning to complete a study during 2021 to determine whether the net operating losses are subject to such limitations. 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. As of December 31, 2020, the Company had the following uncertain tax positions:
(In thousands) |  | 2020 |  |  | 2019 |
Balance at January 1 |  | $ | - |  |  | $ | - |
Increase related to prior year tax positions |  |  | 36 |  |  |  | - |
Increase related to current year tax positions |  |  | 60 |  |  |  | - |
Balance at December 31 |  | $ | 96 |  |  | $ | - |
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.

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