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Income Taxes
 12 Months Ended
Apr. 30, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

(15) Income Taxes

 

Loss before income taxes for the years ended April 30, 2023 and 2022 consisted of the following components:

 

   April 30, 2023   April 30, 2022 
   (in thousands) 
Domestic  $(26,578)  $(20,665)
Foreign   (26)   (32)
Total loss before income taxes  $(26,604)  $(20,697)

 

Tax Rate Reconciliation

 

The effective income tax rate differed from the percentages computed by applying the U.S. federal income tax rate for the periods ended April 30, 2023 and 2022 to loss before income taxes as a result of the following:

 

   April 30, 2023   April 30, 2022 
Computed expected tax benefit   (21.0)%   (21.0)%
Increase(reduction) in income taxes resulting from:          
State income taxes, net of federal benefit   4.0%   5.2%
Federal research and development tax credits   1.9%   (0.6)%
Foreign rate differential   —%   —%
Other non-deductible expenses   (1.1)%   (0.9)%
Proceeds of sale of New Jersey tax benefits   (7.0)%   (7.0)%
Other   1.3%   1.3%
Increase in valuation allowance   22.9%   14.1%
Income tax (benefit)   1.0%   (8.9)%

 

 

Significant Components of Deferred Taxes

 

The tax effects of temporary differences and carry forwards that give rise to the Company’s deferred tax assets and deferred tax liabilities are presented below.

 

   April 30, 2023   April 30, 2022 
   (in thousands) 
Deferred tax assets:          
Federal net operating loss carryforwards  $43,788   $40,338 
Foreign net operating loss carryforwards   2,059    2,061 
State operating loss carryforwards   1,578    968 
Federal and New Jersey research and development tax credits   5,143    4,167 
Stock compensation   662    429 
Accrued expenses   474    79 
Capitalized section 174 research & development   

1,453

    

-

 

Leases

   

448

    

207

 
Other   76    142
Net deferred tax assets before valuation allowance  $55,681   $48,391 
Valuation allowance  $(54,644)   (47,597)
Deferred tax assets  $1,037   $794 
           
Deferred tax liabilities:          
Lease liabilities  $448   $203 
Intangibles   

792

    

794

 
Net deferred tax liabilities  $(203)  $(203)

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences and carry forwards become deductible or are utilized. As of April 30, 2023 and 2022, based upon the level of historical taxable losses, valuation allowances of $54.6 million and $47.6 million, respectively, were recorded to fully offset deferred tax assets. The valuation allowance increased $7 million during the year ended April 30, 2023 and increased $2.5 million during the year ended 2022 respectively, due to continuing net operating losses.

 

As of April 30, 2023, the Company had net operating loss carry forwards for federal income tax purposes of approximately $207.8 million, which begin to expire in fiscal 2023; $72.8 million of the federal carryforward has no expiration, but the deductibility of such federal net operating losses may be limited to 80% of our taxable income in future years. The Company also had federal research and development tax credit carry forwards of approximately $4.0 million as of April 30, 2023, which begins to expire in 2024. The Tax Reform Act of 1986 contains provisions that limit the utilization of net operating loss and tax credit carry forwards if there has been an ownership change, as defined. The Company has determined that as a result of multiple ownership changes, as described in Section 382 of the Internal Revenue Code, its ability to utilize these NOL’s and research and development tax credit have been significantly limited.

 

In addition, as of April 30, 2023, the Company had state net operating loss carry forwards of approximately $22.5 million which begin to expire in 2042, which also may be limited to utilization limitations. Further, as of April 30, 2023, the Company had foreign net operating loss carry forwards of approximately $10.8 million. The ability to utilize these carry forwards may also be limited due to ownership changes.

 

Income Tax Benefit

 

The Company has sold New Jersey State net operating losses and research development credits under the New Jersey Economic Development Authority Tax Transfer programs, The income tax benefit for the years ended April 30, 2023 and 2022 consisted of state minimum tax benefits of $0.3 million and $1.4 million, respectively, from the sale of New Jersey net operating losses and research and development credits. New Jersey-based technology or biotechnology companies with fewer than 225 US employees may be eligible to sell net operating losses and research and development tax credits to unaffiliated corporations, up to a maximum lifetime benefit of $20 million per business.

 

 

Uncertain Tax Positions

 

The Company applies the guidance issued by the FASB for the accounting and reporting of uncertain tax positions. The guidance requires the Company to recognize in its consolidated financial statements the impact of a tax position if that position is more likely than not to be sustained upon examination, based on the technical merits of the position. The Company is currently undergoing an income tax audit in Spain for the period from 2011 to 2014, when the Company’s Spanish branch was closed. At April 30, 2023 and 2022, the Company had no other unrecognized tax positions. The Company does not expect any material increase or decrease in its income tax expense in the next fiscal year, related to examinations or uncertain tax positions. Net operating loss and credit carry forwards since inception remain open to examination by taxing authorities and will continue to remain open for a period after utilization.

 

The Company does not have any interest or penalties accrued related to uncertain tax positions as it does not have any unrecognized tax benefits.

 

Tax Law Update

 

Effective for tax years beginning after December 31, 2021, taxpayers are required to capitalize any expenses incurred that are considered incidental to research and experimentation (“R&E”) activities under IRC Section 174. While taxpayers historically had the option of deducting these expenses under IRC Section 174, the December 2017 Tax Cuts and Jobs Act mandates capitalization and amortization of R&E expenses for tax years beginning after December 31, 2021. Expenses incurred in connection with R&E activities in the US must be amortized over a 5-year period if incurred, and R&E expenses incurred outside the US must be amortized over a 15-year period. R&E activities are broader in scope than qualified research activities that are considered under IRC Section 41 (relating to the research tax credit). The Company prepared an analysis if the tax impact of capitalizing and amortizing these costs over the required periods and for calendar year 2022, it is expected to be in a loss position after the estimated add back.