Annual report pursuant to Section 13 and 15(d)

Income taxes

v3.5.0.2
Income taxes
 12 Months Ended
Jul. 31, 2016
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:


    2016     2015     2014  
Current (provision) benefit:                        
Federal   $ (968 )   $ —     $ —  
State and local     (276 )     (72 )     (68 )
Foreign     (45 )     (25 )     (22 )
Deferred benefit     60       104       18  
Benefit (provision) for income taxes   $ (1,229 )   $ 7     $ (72 )

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:


    2016     2015  
Deferred tax assets:                
Federal tax carryforward losses   $ 18,964     $ 35,411  
Provision for uncollectible accounts receivable     1,406       685  
State and local tax carry forward losses     2,757       2,661  
Accrued royalties     146       144  
Stock compensation     616       99  
Depreciation     769       618  
Research and development and other tax credit carryforwards     2,152       1,134  
Foreign tax carryforward losses     2,046       1,476  
Intangibles     2,915       2,951  
Inventory     2,477       2,558  
Accrued expenses     1,321       2,627  
Unrealized foreign exchange     100       98  
Other, net     63       18  
Deferred tax assets     35,732       50,480  
                 
Deferred tax liabilities:                
Deferred patent costs     —       (152 )
Prepaid expenses     (820 )     (676 )
Other, net     —       (31 )
Deferred tax liabilities     (820 )     (859 )
                 
Net deferred tax assets before valuation allowance     34,912       49,621  
Less: valuation allowance     (34,912 )     (49,658 )
Net deferred tax liabilities   $ —     $ (37 )

Net deferred tax liabilities are included in the consolidated balance sheets as of July 31 as follows:


    2016     2015  
Deferred taxes:                
Current   $ —     $ —  
Non-current     —       37  
    $ —     $ 37  

The Company recorded a valuation allowance during the years ended July 31, 2016 and 2015 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 2016 and 2015 the change in the valuation allowance was $14.7 million and $0.2 million, respectively.


As of July 31, 2016, the Company had U.S. federal net operating loss carryforwards of approximately $55.0 million. The U.S. federal tax loss carryforwards, if not fully utilized, expire between 2030 and 2035. 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 $1.0 million which expire between 2025 and 2036. As of July 31, 2016, the Company had foreign loss carryforwards of approximately $7.9 million.


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


    2016     2015     2014  
United States operations   $ 48,847     $ (615 )   $ (8,702 )
International operations     (2,332 )     (1,677 )     (1,203 )
Income (loss) before taxes   $ 46,515     $ (2,292 )   $ (9,905 )

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


    2016     2015     2014  
Federal statutory rate     (34.0 )%     34.0 %     34.0 %
Penalties and other expenses not deductible for income tax return purposes     (1.1 )     (18.6 )     (6.6 )
State income taxes, net of benefit of federal tax deduction     (0.4 )     (0.5 )     0.2  
Change in valuation allowance     32.9       (15.2 )     (16.5 )
State tax law change     —       —       (12.3 )
Other     —       0.6       0.5  
      (2.6 )%     0.3 %     (0.7 )%

U.S. federal income taxes have not been provided on approximately $101 of undistributed earnings at the Company’s foreign subsidiaries at July 31, 2016, because it is the Company’s intent to keep the earnings reinvested. As of July 31, 2016, 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.