Annual report pursuant to Section 13 and 15(d)

Income taxes

v3.7.0.1
Income taxes
 12 Months Ended
Jul. 31, 2017
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]

Note 6 - Income taxes


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


    2017     2016     2015  
Current (provision) benefit:                        
Federal   $ -     $ (968 )   $ —  
State and local     (70)       (276 )     (72 )
Foreign     (12)       (45 )     (25 )
Deferred benefit     -       60       104  
Benefit (provision) for income taxes   $ (82)     $ (1,229 )   $ 7  

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:


    2017     2016  
Deferred tax assets:                
Federal tax carryforward losses   $ 18,831     $ 18,964  
Provision for uncollectible accounts receivable     1,392       1,406  
State and local tax carry forward losses     —       2,757  
Accrued royalties     149       146  
Stock compensation     782       616  
Depreciation     804       769  
Research and development and other tax credit carryforwards     2,208       2,152  
Foreign tax carryforward losses     2,420       2,046  
Intangibles     2,888       2,915  
Inventory     2,536       2,477  
Accrued expenses     1,420       1,321  
Unrealized foreign exchange     —       100  
Other, net     69       63  
Deferred tax assets     33,499       35,732  
                 
Prepaid expenses       (863 )     (820 )
Other, net     (55 )     —  
Deferred tax liabilities     (918 )     (820 )
                 
Net deferred tax assets before valuation allowance     32,581       34,912  
Less: valuation allowance     (32,581 )     (34,912 )
Net deferred tax liabilities   $ —     $ —  

The Company recorded a valuation allowance during the years ended July 31, 2017 and 2016 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 2017 and 2016 the change in the valuation allowance was $2.3 million and $14.7 million, respectively.


As of July 31, 2017, the Company had U.S. federal net operating loss carryforwards of approximately $56.2 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 $1.1 million which expire between 2025 and 2037 and $1.1 million of alternative minimum tax credits which have an indefinite carryforward period. As of July 31, 2017, the Company had foreign loss carryforwards of approximately $9.3 million.


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


    2017     2016     2015  
United States operations   $ (130 )   $ 48,847     $ (615 )
International operations     (2,292 )     (2,332 )     (1,677 )
Income (loss) before taxes   $ (2,422 )   $ 46,515     $ (2,292 )

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:


    2017     2016     2015  
Federal statutory rate     34.0 %     (34.0 )%     34.0 %
Penalties and other expenses not deductible for income tax return purposes     (14.5 )     (1.1 )     (18.6 )
State income taxes, net of benefit of federal tax deduction     (2.1 )     (0.4 )     (0.5 )
Change in valuation allowance     64.0       32.9       (15.2 )
State tax law change     (82.8 )     —       —  
Other     (2.0 )     —       0.6  
      (3.4 )%     (2.6 )%     0.3 %

U.S. federal income taxes have not been provided on approximately $87 of undistributed earnings at the Company’s foreign subsidiaries at July 31, 2017, because it is the Company’s intent to keep the earnings reinvested. As of July 31, 2017, 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.