INCOME TAX

6 Months Ended

Nov. 30, 2023

INCOME TAX

INCOME TAXES

4. INCOME TAX  

The Company is subject to U.S federal and state and foreign income taxes as a corporation. The Company’s tax provision and the resulting effective tax rate for the interim period is determined based upon its estimated annual effective tax rate adjusted for the effect of discrete items arising in that quarter. The Company recorded a provision for income taxes of $20,000 and $36,000 for the three and six months ended November 30, 2023, respectively, which consisted primarily of foreign withholding taxes and foreign income taxes. The Company recorded a provision for income taxes of $18,000 and $32,000 for the three and six months ended November 30, 2022, respectively, which consisted primarily of foreign withholding taxes and foreign income taxes.

Income taxes have been provided using the liability method whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and net operating loss and tax credit carryforwards measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse, or the carryforwards are utilized. Valuation allowances are established when it is determined that it is more likely than not that such assets will not be realized.

Since fiscal 2009, a full valuation allowance was established against all deferred tax assets, as management determined that it was more likely than not that certain deferred tax assets would not be realized. The Company continues to reassess the need for a valuation allowance on a quarterly basis.

The Company accounts for uncertain tax positions consistent with authoritative guidance. The guidance prescribes a “more likely than not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income taxes.