Annual report pursuant to Section 13 and 15(d)

Income taxes

Income taxes
12 Months Ended
Jul. 31, 2018
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]

Note 6 - Income taxes

The benefit (provision) for income taxes for fiscal years ended July 31 is as follows:

    2018     2017     2016  
Federal   $ 1,097     $     $ (968 )
State and local                 (121 )
Foreign                 (45 )
Deferred benefit                 60  
Benefit (provision) for income taxes   $ 1,097     $     $ (1,074 )

On December 22, 2017, the Act was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.

The Act also puts in place new tax laws that will apply prospectively, which include, but are not limited to, (1) implementing a base erosion and anti-abuse tax, (2) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (3) a new provision designed to tax currently in the U.S. global intangible low-taxed income (“GILTI”) of foreign subsidiaries, which allows for the possibility of utilizing foreign tax credits to offset the income tax liability (subject to some limitations), and (4) a lower effective U.S. tax rate on certain revenues from sources outside the U.S.

The Company calculated its best estimate of the impact of the Act in accordance with its understanding of the Act and guidance available as of the date of this filing and recorded a $1.1 million tax benefit in the 2018 period in which the legislation was enacted, related to a credit for alternative minimum taxes (AMT) paid in prior periods. A provisional amount related the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future resulted in a charge of $11.5 million which was fully offset by an equivalent adjustment to the deferred tax valuation allowance. No provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was deemed necessary.

On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company has determined that the $1.1 million benefit recorded which relates to the AMT credit is a provisional amount and a reasonable estimate as of July 31, 2018.

Deferred tax assets and liabilities arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The components of deferred tax assets (liabilities) as of July 31 are as follows:

    2018     2017  
Deferred tax assets:                
Federal tax carryforward losses   $ 13,975     $ 18,831  
Provision for uncollectible accounts receivable     791       1,392  
State and local tax carry forward losses     352        
Accrued royalties     102       149  
Stock compensation     575       782  
Depreciation     581       804  
Research and development and other tax credit carryforwards     1,286       2,208  
Foreign tax carryforward losses     2,771       2,420  
Intangibles     1,811       2,888  
Inventory     1,786       2,536  
Accrued expenses     1,194       1,420  
Other, net     58       69  
Deferred tax assets     25,282       33,499  
Prepaid expenses     (772 )     (863 )
Other, net     (39 )     (55 )
Deferred tax liabilities     (811 )     (918 )
Net deferred tax assets before valuation allowance     24,471       32,581  
Less: valuation allowance     (24,471 )     (32,581 )
Net deferred tax liabilities   $     $  

The Company recorded a valuation allowance during the years ended July 31, 2018 and 2017 equal to domestic and certain foreign net deferred tax assets. The Company believes that the valuation allowance is necessary as it is not more likely than not that the deferred tax assets will be realized in the foreseeable future based on positive and negative evidence available at this time. This conclusion was reached because of uncertainties relating to future taxable income, in terms of both its timing and its sufficiency, which would enable the Company to realize the deferred tax assets. For fiscal year 2018 and 2017 the change in the valuation allowance was $8.1 million and $2.3 million, respectively.

As of July 31, 2018, the Company had U.S. federal net operating loss carryforwards of approximately $65.8 million. The U.S. federal tax loss carryforwards, if not fully utilized, expire between 2030 and 2038. Utilization is dependent on generating sufficient taxable income prior to expiration of the tax loss carryforwards. In addition, the Company has research and development tax credit carryforwards of approximately $1.3 million which expire between 2025 and 2038. As of July 31, 2018, the Company has state net operating loss carryforwards of approximately $6.5 million, which if not fully utilized, expire between 2037 and 2038. As of July 31, 2018, the Company had foreign loss carryforwards of approximately $10.8 million.

The components of income (loss) before income taxes consisted of the following for the years ended July 31:

    2018     2017     2016  
United States operations   $ (9,540 )   $ (212 )   $ 48,692  
International operations     (1,878 )     (2,292 )     (2,332 )
Income (loss) before taxes   $ (11,418 )   $ (2,504 )   $ 46,360  

The benefit (provision) for income taxes was at rates different from U.S. federal statutory rates for the following reasons for the years ended July 31:

    2018     2017     2016  
Federal statutory rate     26.4 %     34.0 %     (34.0 )%
Penalties and other expenses not deductible for income tax return purposes     (1.0 )     (14.5 )     (1.1 )
State income taxes, net of benefit of federal tax deduction                 (0.1 )
Change in valuation allowance     73.9       64.0       32.9  
State tax law change           (81.1 )      
Impact of Tax Act on valuation allowance     (100.1 )            
AMT refund under Tax Act     9.6              
Other     0.8       (2.4 )      
      9.6 %     %     (2.3 )%

Because there are no undistributed earnings at the Company’s foreign subsidiaries at July 31, 2018, no U.S. federal income taxes have been provided. As of July 31, 2018, the Company has no liabilities for uncertain tax positions. It is the Company’s policy to record interest and penalties as a component of tax expense. The Company files income tax returns in the U.S. Federal jurisdiction, various U.S. state jurisdictions and several foreign jurisdictions.