Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 12. Income Taxes

The components of income before income tax provision are as follows (in thousands):

	December 31,
	2021		2020
U.S.	$	33,011	$	3,665

During the years ended December 31, 2021 or 2020, the Company’s provision for (benefit from) income taxes was as follows (in thousands):

	December 31,
	2021			2020
Current expense (benefit)
State	$	185		$	174
Deferred expense (benefit)
Federal		6,944			(1,661	)
State		(47	)		(50	)
Total income tax expense (benefit)	$	7,082		$	(1,537	)

The components of the income tax provision (benefit) are as follows (in thousands):

	December 31,
	2021			2020
Federal tax provision at statutory rate	$	6,945		$	771
Change in valuation allowance		(21,208	)		(14,194	)
State taxes, net of federal income tax benefit		95			84
Mark-to-market adjustments		(58	)		123
Contingent consideration revaluation		(60	)		924
Other		(125	)		411
Write off of deferred tax assets		21,493			10,344
Total income tax expense (benefit)	$	7,082		$	(1,537	)

The Company records deferred tax assets if the realization of such assets is more likely than not to occur in accordance with accounting standards that address income taxes. Significant management judgment is required in determining whether a valuation allowance against the Company’s deferred tax assets is required. The Company has considered all available evidence, both positive and negative, such as historical levels of income and predictability of future forecasts of taxable income from existing investments, in determining whether a valuation allowance is required. The Company is also required to forecast future taxable income in accordance with accounting standards that address income taxes to assess the appropriateness of a valuation allowance, which further requires the exercise of significant management judgment. The Company focuses on forecasting future taxable income for the investment portfolio that exists as of the balance sheet date. Specifically, the Company evaluated the following criteria when considering a valuation allowance:

· the history of tax net operating losses in recent years;

· predictability of operating results;

· profitability for a sustained period of time; and

· level of profitability on a quarterly basis.

As of December 31, 2021, the Company had cumulative net income before tax for the three years then ended. Based on its historical operating performance, the Company has concluded that it was more likely than not that the Company would not be able to realize the full benefit of the U.S. federal and state deferred tax assets in the future. However, at December 31, 2021 the Company has concluded that it is more likely than not that the Company will be able to realize approximately $20.5 million benefit of the U.S. federal and state deferred tax assets in the future.

The Company will continue to assess the need for a valuation allowance on the deferred tax assets by evaluating both positive and negative evidence that may exist on a quarterly basis. Any adjustment to the deferred tax asset valuation allowance would be recorded in the consolidated statements of income for the period that the adjustment is determined to be required. The valuation allowance against deferred tax assets was $16.3 million and $37.5 million as of December 31, 2021 and 2020, respectively.

Deferred tax assets consist of the following (in thousands):

	December 31,
	2021			2020
Deferred tax assets:
Credit carryforward	$	3,077		$	2,960
Stock-based compensation		138			398
Other		3,334			3,647
Net operating losses		32,362			60,774
Gross deferred tax assets		38,911			67,779
Deferred tax liabilities:
Intangible assets other than goodwill		(1,609	)		(2,299	)
Other		(479	)		(496	)
Valuation allowance		(16,284	)		(37,493	)
Net deferred tax assets	$	20,539		$	27,491

The Tax Reform Act of 1986 limits the use of NOLs and tax credit carryforwards in certain situations where stock ownership changes occur. In the event the Company has had a change in ownership, the future utilization of the Company’s net operating loss and tax credit carryforwards could be limited.

As of December 31, 2021, the Company had NOL carryforwards for federal income tax purposes of approximately $154.1 million. The federal NOL carryforwards, if not offset against future income, will expire by 2037. Approximately $4.0 million can be carried forward indefinitely.

The Company also had federal research carryforwards of $3.1 million. The federal credits will expire by 2040, with the majority of such credits expiring by 2029.

The Company records liabilities, where appropriate, for all uncertain income tax positions and recognizes potential accrued interest and penalties related to unrecognized tax benefits within income tax expense. As of December 31, 2021 and 2020, the Company had approximately $0.3 million and $0.1 million, respectively, of unrecognized tax benefit, none of which would impact the effective tax rate if recognized. The Company does not expect the unrecognized tax benefits to change materially over the next twelve months. There are no tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within twelve months of December 31, 2021.

The Company is subject to taxation in the U.S. and various state jurisdictions. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending December 31, 2001 through December 31, 2021 due to carryforward of unutilized net operating losses and research and development credits. The Company does not anticipate significant changes to its uncertain tax positions through December 31, 2021.