Income Taxes (Tables)

12 Months Ended

Jul. 31, 2020

Income before provision for income taxes

Income before provision for (benefit from) income taxes consists of the following:


	Fiscal Years Ended July 31,
	2020		2019	2018
U.S.	$	7,226,000	28,813,000	22,243,000
Foreign	2,084,000		97,000	2,383,000
	$	9,310,000	28,910,000	24,626,000

Provision for income taxes

The provision for (benefit from) income taxes included in the accompanying Consolidated Statements of Operations consists of the following:


	Fiscal Years Ended July 31,
	2020		2019	2018
Federal – current	$	1,053,000	(2,190,000)	367,000
Federal – deferred	721,000		4,782,000	(7,499,000)

State and local – current	1,137,000		1,715,000	440,000
State and local – deferred	(1,312,000)		(321,000)	1,115,000

Foreign – current	298,000		62,000	429,000
Foreign – deferred	393,000		(179,000)	5,000
Provision for (benefit from) income taxes	$	2,290,000	3,869,000	(5,143,000)

Provision for income taxes differed from amounts computed by applying the U.S. Federal income tax rate

The provision for (benefit from) income taxes differed from the amounts computed by applying the U.S. Federal income tax rate as a result of the following:


	Fiscal Years Ended July 31,
	2020					2019					2018
	Amount		Rate		Amount	Rate		Amount	Rate
Computed "expected" tax expense	$	1,955,000	21.0	%	6,071,000	21.0	%	6,615,000	27.0	%
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal benefit	(278,000)		(3.0)		967,000	3.3		1,193,000	4.8
Stock-based compensation	308,000		3.3		(44,000)	(0.1)		(1,112,000)	(4.5)
Research and experimentation credits	(1,210,000)		(13.0)		(1,129,000)	(3.9)		(678,000)	(2.8)
Foreign-derived intangible income deduction	(162,000)		(1.7)		(632,000)	(2.2)		—	—

Nondeductible transaction costs	301,000		3.2		394,000	1.4		—	—
Nondeductible executive compensation	595,000		6.4		330,000	1.1		(22,000)	(0.1)
Fines and penalties	189,000		2.0		2,000	—		1,000	—
Audit settlements	1,000		—		(2,081,000)	(7.2)		—	—
Remeasurement of deferred taxes	(135,000)		(1.5)		—	—		(11,317,000)	(46.0)
Foreign income taxes	453,000		4.9		5,000	—		(221,000)	(0.9)
Other, net	273,000		3.0		(14,000)	—		398,000	1.5
Provision for (benefit from) income taxes	$	2,290,000	24.6	%	3,869,000	13.4	%	(5,143,000)	(21.0)	%

Tax effects of temporary differences

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at July 31, 2020 and 2019 are presented below:


	2020		2019
Deferred tax assets:
Inventory and warranty reserves	$	5,786,000	7,318,000
Compensation and commissions	3,210,000		3,548,000
Contract liabilities	—		5,331,000
Federal, state and foreign research and experimentation credits	19,656,000		18,183,000
Stock-based compensation	4,955,000		5,817,000
Foreign scientific research and experimental development expenditures	1,765,000		1,689,000
Federal, state and foreign net operating losses	3,942,000		6,248,000
Lease liabilities	7,335,000		—
Other	6,600,000		9,012,000
Less: valuation allowance	(11,471,000)		(12,568,000)
Total deferred tax assets	41,778,000		44,578,000
Deferred tax liabilities:
Plant and equipment	(801,000)		(1,362,000)
Lease right-of-use assets	(7,080,000)		—
Intangibles	(50,368,000)		(54,612,000)
Total deferred tax liabilities	(58,249,000)		(55,974,000)
Net deferred tax liabilities	$	(16,471,000)	(11,396,000)

Summary of unrecognized tax benefits

The following table summarizes the activity related to our unrecognized tax benefits for fiscal years 2020, 2019 and 2018 (excluding interest):


	2020		2019	2018
Balance at beginning of period	$	7,203,000	9,137,000	8,586,000
Increase related to current period	684,000		893,000	645,000
Increase related to prior periods	464,000		17,000	49,000
Expiration of statute of limitations	(73,000)		(394,000)	(81,000)
Decrease related to prior periods	(8,000)		(2,450,000)	(62,000)
Balance at end of period	$	8,270,000	7,203,000	9,137,000