7. Income Taxes

12 Months Ended

Apr. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 7 – Income Taxes

Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

At April 30, 2021, management assessed the realizability of deferred tax assets and evaluated the need for a valuation allowance for deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740 wherein management analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of our deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more-likely-than-not that the asset will not be realized. In assessing the realization of our deferred tax assets, management considers all available evidence, both positive and negative.

In concluding on the evaluation, management placed significant emphasis on guidance in ASC 740, which states that “a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome.” Based upon available evidence, it was concluded on a more-likely-than-not basis that all deferred tax assets were not realizable as of April 30, 2021. Accordingly, a valuation allowance of $111.4 million has been recorded to offset our deferred tax asset. The valuation allowance decreased $6.7 million and $1.4 million for the years ended April 30, 2021 and 2020, respectively.

We are subject to taxation in the United States and various states jurisdictions. We have not been notified that we are under audit by the IRS or any state taxing authorities, however, due to the presence of NOL carryforwards, all of the income tax years remain open for examination in each of these jurisdictions.

At April 30, 2021, we had federal net operating loss carry forwards of approximately $406.7 million. The federal net operating loss carry forwards generated prior to January 1, 2018 expire in fiscal years 2022 through 2038. The federal net operating loss generated after January 1, 2018 of $19.6 million can be carried forward indefinitely. Utilization of net operating losses generated subsequent to 2020 are limited to 80% of future taxable income. We also have California state net operating loss carry forwards of approximately $272.1 million at April 30, 2021, which begin to expire in fiscal year 2029. We also have other state net operating loss carry forwards of approximately $0.9 million at April 30, 2021, which begin to expire in fiscal year 2037.

Additionally, the future utilization of our net operating loss carry forwards to offset future taxable income may be subject to an annual limitation, pursuant to Internal Revenue Code Section 382, as a result of ownership changes that may have occurred previously or that could occur in the future. A Section 382 analysis has been completed through April 30, 2021, which it was determined that no significant change in ownership had occurred. However, ownership changes occurring subsequent to April 30, 2021 may impact the utilization of net operating loss carry forwards and other tax attributes.

At April 30, 2021, we had $5.8 million and $3.3 million of federal and California research and development credit carry forwards. The California research credits do not expire and the federal credits begin to expire in in fiscal year 2026.

The provision for income taxes on our income (loss) from continuing operations for the fiscal years ended April 30, 2021, 2020 and 2019 is comprised of the following (in thousands):

	2021			2020			2019
Federal income taxes at statutory rate	$	2,355		$	(2,197	)	$	(1,120	)
State income taxes, net of valuation allowance		–			–			(48	)
Expiration and adjustments of deferred tax assets		451			2,588			2,507
Change in federal valuation allowance		2,450			(1,664	)		(2,480	)
Stock-based compensation		(240	)		1,138			1,309
Research and development credits		(4,958	)		–			–
Other, net		(58	)		135			(452	)
Income tax expense (benefit)	$	–		$	–		$	(284	)

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of our deferred tax assets and deferred tax liabilities at April 30, 2021 and 2020 are as follows (in thousands):

	2021			2020
Net operating losses	$	109,663		$	114,105
Research and development credits		7,566			–
Stock-based compensation		2,776			2,573
Deferred revenue		1,086			810
Lease liabilities		6,260			6,324
Debt issuance costs		470			–
Accrued liabilities and other		942			1,197
Accrued compensation		2,263			–
Total deferred tax assets		131,026			125,009
Less valuation allowance		(111,388	)		(118,137	)
Total deferred tax assets, net of valuation allowance		19,638			6,872
Deferred tax liabilities:
Fixed assets		(1,404	)		(1,216	)
ROU assets		(5,508	)		(5,656	)
Beneficial conversion feature		(12,726	)		–
Total deferred tax liabilities		(19,638	)		(6,872	)
Net deferred tax assets	$	–		$	–

In accordance with ASC 740, we are required to recognize the impact of an uncertain tax position in the consolidated financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. An uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained upon examination by the tax authorities. Unrecognized tax positions at April 30, 2021 and 2020 are as follows (in thousands):

	2021		2020
Unrecognized tax positions, beginning of year	$	–	$	–
Gross increase – prior period tax positions		1,600		–
Unrecognized tax positions, end of year	$	1,600	$	–

It is our policy, in accordance with authoritative guidance, to recognize interest and penalties related to income tax matters in interest expense and interest and other income, net, respectively, in our consolidated statements of operations and comprehensive income (loss) for the fiscal years ended April 30, 2021 and 2020. If recognized, none of the unrecognized tax positions would impact our income tax benefit or effective tax rate as long as our net deferred tax assets remain subject to a full valuation allowance. We do not expect any significant increases or decreases to our unrecognized tax positions within the next 12 months.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, the creation of certain refundable employee retention credits, and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property. The CARES Act did not have a material impact on our income tax provision for the years ended April 30, 2021, or 2020.

On June 29, 2020, the state of California enacted Assembly Bill No. 85 (AB 85) suspending California net operating loss utilization and imposing a cap on the amount of business incentive tax credits companies can utilize, effective for tax years 2020, 2021 and 2022. This bill is not anticipated to materially impact our income tax provision.