Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.22.1
INCOME TAXES
 12 Months Ended
Dec. 31, 2021
INCOME TAXES  
INCOME TAXES

NOTE 16. INCOME TAXES

The components of the income tax provision are as follows:

​

​

​

​

​

​

​

​

​

​

Years Ended December 31, 

($’s in thousands)

    

2021

    

2020

Current:

​

​

  

​

​

  

Federal

​

$

—

​

$

1,669

State

​

 

67

​

 

536

Total current

​

 

67

​

 

2,205

​

​

​

​

​

​

​

Deferred:

​

 

  

​

 

  

Federal

​

 

(7,829)

​

 

(234)

State

​

 

(1,474)

​

 

(101)

Total deferred

​

 

(9,303)

​

 

(335)

Valuation allowance

​

​

10,870

​

​

—

Total income tax expense

​

$

1,634

​

$

1,870

​

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

The significant components of the Company’s deferred tax assets consisted of the following:

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​

​

​

​

​

​

​

​

​

December 31, 

($’s in thousands)

    

2021

    

2020

Deferred tax assets:

​

​

  

​

​

  

Net operating loss carryforwards

​

$

3,113

​

$

5

Amortization of license fees

​

 

4,760

​

 

1,086

Stock compensation

​

 

667

​

 

113

Lease liability

​

 

25

​

 

48

Reserve on sales return, discount and bad debt

​

 

3,573

​

 

765

Accruals and reserves

​

 

505

​

 

248

Tax credits

​

 

193

​

 

—

Business interest expense deduction limit

​

 

41

​

 

—

State taxes

​

 

12

​

 

—

Total deferred tax assets

​

 

12,889

​

 

2,265

Less: valuation allowance

​

​

(10,870)

​

​

—

Deferred tax assets, net

​

$

2,019

​

$

2,265

​

​

​

​

​

​

​

Deferred tax liability:

​

​

​

​

​

​

Section 481(a) adjustment on reserve on sales return, discount and bad debt

​

​

(1,996)

​

​

(765)

Right-of-use asset

​

​

(23)

​

​

(46)

Deferred tax assets, net

​

$

—

​

$

1,454

​

A reconciliation of the statutory tax rates and the effective tax rates is as follows:

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​

​

​

​

​

​

​

​

Years Ended December 31, 

 

​

    

2021

    

2020

 

Percentage of pre-tax income:

​

  

​

  

​

U.S. federal statutory income tax rate

 

21

%  

21

%

State taxes, net of federal benefit

 

4

%  

6

%

Non-deductible items

 

(5)

%  

0

%

Provision to return

 

0

%  

0

%

Change in state rate

 

0

%  

(1)

%

Change in valuation allowance

​

(26)

%  

0

%

Other

 

2

%  

0

%

Effective income tax rate

 

(4)

%  

26

%

​

The Company has incurred NOLs in previous years. As of December 31, 2021, the Company had remaining federal NOLs of approximately $13.8 million and had remaining state NOLs of approximately $4.3 million, which will begin to expire in 2034. The Company also had federal research and development credit carryforward of $193 thousand as of December 31, 2021, which will begin to expire in 2040 if unused. The utilization of the Company’s NOLs and tax credits may be subject to annual Internal Revenue Code Section 382 limitations (382 Limitations).

The Company is subject to U.S. federal and various state taxes. As of December 31, 2021, the earliest federal tax year open for the assessment of income taxes under the applicable statutes of limitations is its 2018 tax year. The expiration of the statute of limitations related to the various state income and franchise tax returns varies by state.