Entity information:
(
1
4
)
Income Taxes
 
Loss before income taxes for the years ended
April 30, 2017
and
2016
consisted of the following components:
 
 
 
April 30, 2017
 
 
April 30, 2016
 
   
(in thousands)
  
                 
Domestic
   $
(9,805
 )   $
(14,223
 )
Foreign
    
(379
 )    
(535
 )
Total loss before income taxes
   $
(10,184
 )   $
(14,758
 )
 
 
The income tax benefit for the years ended
April 30, 2017
and
2016
consist of state income tax benefits of
$0.7
million and
$1.7
million, respectively, from the sale of New Jersey net operating losses and research and development credits.
 
Tax Rate Reconciliation
 
The effective income tax rate differed from the percentages computed by applying the US federal income tax rate of
34%
to loss before income taxes as a result of the following:
 
 
 
April 30, 2017
 
 
April 30, 2016
 
                 
Computed expected tax benefit
    
-34.0
 %    
-34.0
 %
Increase(reduction) in income taxes resulting from:
               
State income taxes, net of federal benefit
    
2.3
 %    
6.0
 %
Federal research and development tax credits
    
-1.7
 %    
-3.0
 %
Foreign rate differential
    
0.3
 %    
1.0
 %
Other non-deductible expenses
    
0.1
 %    
5.0
 %
Proceeds of sale of New Jersey tax benefits
    
-6.9
 %    
-11.0
 %
Other
    
11.7
 %    
13.0
 %
Increase in valuation allowance
    
25.9
 %    
12.0
 %
Income tax benefit
    
2.3
 %    
-11.0
 %
 
 
Significant Components of Deferred Taxes
 
The tax effects of temporary differences and carry forwards that give rise to the Company's deferred tax assets and deferred tax liabilities are presented below.
 
 
 
April 30, 2017
 
 
April 30, 2016
 
   
(in thousands)
  
                 
Deferred tax assets:
                
Federal net operating loss carryforwards
   $
44,355
    $
40,540
 
Foreign net operating loss carryforwards
    
3,761
     
4,393
 
State operating loss carryforwards
    
1,281
     
1,375
 
Federal and New Jersey research and development tax credits
    
2,996
     
2,708
 
Stock compensation
    
1,096
     
732
 
Unrealized foreign exchange loss
    
17
     
536
 
Accrued expenses
    
576
     
1,324
 
Other
   
627
     
945
 
Net deferred tax assets before valuation allowance
    
54,709
     
52,553
 
Valuation allowance
    
(54,709
 )    
(52,553
 )
Net deferred tax assets
   $
-
    $
-
 
 
In assessing the realizability of deferred tax assets, management considers whether it is more likely than
not
that some portion or all of the deferred tax assets will
not
be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences and carry forwards become deductible or are utilized. As of
April 
30,
2017
and
2016,
based upon the level of historical taxable losses, valuation allowances of
$54.7
million and
$52.6
million, respectively, were recorded to fully offset deferred tax assets. The valuation allowance increased
$2.1
million and
$1.8
during the years ended
April 
30,
2017
and
2016,
respectively.
 
As of
April 
30,
2017,
the Company had net operating loss carry forwards for federal income tax purposes of approximately
$130.5
million, which begin to expire in fiscal
2019.
The Company also had federal research and development tax credit carry forwards of approximately
$2.8
million as of
April 
30,
2017,
which begins to expire in
2019.
The Tax Reform Act of
1986
contains provisions that limit the utilization of net operating loss and tax credit carry forwards if there has been an ownership change, as defined. The Company has determined that such an ownership change, as described in Section 
382
of the Internal Revenue Code, occurred in conjunction with the Company's U.S. initial public offering in
April 2007.
The Company's annual Section 
382
limitation is approximately
$3.3
million. The Section 
382
limitation is cumulative from year to year, and thus, to the extent net operating loss or other credit carry forwards are
not
utilized up to the amount of the available annual limitation, the limitation is carried forward and added to the following year's available limitation. Such limitation only applies to net operating losses incurred in periods prior to the ownership change. The Company has
not
performed additional analysis on ownership changes that
may
have occurred subsequently to further limit the ability to utilize net tax attributes. As of
April 
30,
2017,
the Company had state net operating loss carry forwards of approximately
$21.6
million which begin to expire in
2019,
which also
may
be limited to utilization limitations. As of
April 
30,
2017,
the Company had foreign net operating loss carry forwards of approximately
$16.9
million. The ability to utilize these carry forwards
may
also be limited in the event of a significant change to ownership.
 
During the years ended
April 30, 2017
and
2016,
the Company sold New Jersey State net operating losses in the amount of
$7.8
million and
$19.7
million, respectively, resulting in the recognition of income tax benefits of
$0.7
million and
$1.7
million, respectively, recorded in the Company’s Statement of Operations.
 
The Company applies the guidance issued by the FASB for the accounting and reporting of uncertain tax positions. The guidance requires the Company to recognize in its consolidated financial statements the impact of a tax position if that position is more likely than
not
to be sustained upon examination, based on the technical merits of the position. We are currently undergoing an income tax audit in Spain for the period from
2008
to
2014,
when our Spanish branch was closed. The branch reported net operating losses for each of the years reported. It is anticipated that we will be assessed a penalty relating to these tax years for these losses. We have estimated this penalty to be
$132
thousand, and as such, for the period ended
April 30, 2017,
we have recorded
$132
thousand for this penalty to Selling, general and administrative costs in the Statement of Operations. At
April 
30,
2017
and
2016,
the Company had
no
other unrecognized tax positions. The Company does
not
expect any material increase or decrease in its income tax expense in the next
twelve
months, related to examinations or uncertain tax positions. U.S. federal and state income tax returns were audited through fiscal
2014
and fiscal
2010
respectively. Net operating loss and credit carry forwards since inception remain open to examination by taxing authorities, and will continue to remain open for a period of time after utilization.  
 
 
 
 
The Company does
not
have any interest or penalties accrued related to uncertain tax positions as it does
not
have any unrecognized tax benefits.