Income Taxes

12 Months Ended

Apr. 30, 2023

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, 2023, 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.

Management’s evaluation 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.” In fiscal 2022, we transitioned from a cumulative loss in recent years to cumulative income. This transition coupled with additional positive evidence enabled us to fully release our valuation allowance as of April 30, 2022. We maintained the same position that our deferred tax assets did not require a valuation allowance as of April 30, 2023.

The valuation allowance did not change for the fiscal year ended April 30, 2023. For the fiscal year ended April 30, 2022, $122.7 million was released through our consolidated statements of income and comprehensive income and $(11.3) million was recognized related to the valuation adjustments for the adoption of ASU 2020-06, which was reflected as an adjustment to our opening consolidated balance sheet on May 1, 2021.

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 and our federal and state returns from April 30, 2020 and April 30, 2019, respectively, remain open for examination. Due to the presence of net operating loss (“NOL”) carryforwards the tax authorities can also examine years prior to the standard statue of limitations.

At April 30, 2023, we had federal NOL carry forwards of approximately $442.4 million. The federal NOL carry forwards generated prior to January 1, 2018 expire in fiscal years 2024 through 2038, unless previously utilized. The federal NOL generated after January 1, 2018 of $77.9 million can be carried forward indefinitely. Utilization of NOLs generated subsequent to 2020 are limited to 80% of future taxable income. We also have California state NOL carry forwards of approximately $294.7 million at April 30, 2023, which begin to expire in fiscal year 2024. We also have other state NOL carry forwards of approximately $0.9 million at April 30, 2023, which begin to expire in fiscal year 2037.

Additionally, the future utilization of our NOL 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. A Section 382 analysis has been completed through April 30, 2022, and it was determined that no significant change in ownership had occurred. However, ownership changes occurring subsequent to April 30, 2022 may impact the utilization of NOL carry forwards and other tax attributes in future periods.

At April 30, 2023, we had $5.8 million and $1.5 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 fiscal year 2026.

The provision for income taxes on our net income before income taxes for the fiscal years ended April 30, 2023, 2022 and 2021 is comprised of the following (in thousands):

	2023		2022			2021
Federal income taxes at statutory rate	$	421	$	2,659		$	2,355
State income taxes, net of valuation allowance		301		605			–
Expiration and adjustments of deferred tax assets		–		–			451
Change in federal valuation allowance		–		(122,703	)		2,450
Stock-based compensation including 162M limitations		615		(1,153	)		(240	)
Research and development credits		–		–			(4,958	)
Adjustment for federal benefit of state		–		5,326			–
Permanent differences		66		425			4
Other, net		40		(170	)		(62	)
Income tax expense (benefit)	$	1,443	$	(115,011	)	$	–

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, 2023 and 2022 are as follows (in thousands):

	2023			2022
Net operating losses	$	112,194		$	99,710
Research and development credits		5,569			5,550
Stock-based compensation		2,589			2,710
Deferred revenue		2,420			5,494
Lease liabilities		12,742			11,107
Accrued liabilities		2,248			785
Accrued compensation		1,781			1,705
Total deferred tax assets		139,543			127,061
Less valuation allowance		–			–
Total deferred tax assets, net of valuation allowance		139,543			127,061
Deferred tax liabilities:
Fixed assets		(14,320	)		(1,972	)
ROU assets		(11,584	)		(10,007	)
Total deferred tax liabilities		(25,904	)		(11,979	)
Net deferred tax assets	$	113,639		$	115,082

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, 2023 and 2022 are as follows (in thousands): 

	2023			2022
Unrecognized tax positions, beginning of year	$	5,133		$	1,600
Gross (decrease) increase – prior period tax positions		(1,693	)		3,533
Unrecognized tax positions, end of year	$	3,440		$	5,133

If recognized, the unrecognized tax positions will impact our income tax benefit or effective tax rate. We do not expect any significant increases or decreases to our unrecognized tax positions within the next 12 months.

It is our policy to recognize interest and penalties related to income tax matters in interest expense and other income (expense), net, respectively, in our consolidated statements of income and comprehensive income. For the fiscal years ended April 30, 2023 and 2021, we did not incur any interest or penalties. For the fiscal year ended April 30, 2022, we recognized an immaterial amount of interest and penalties.