Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.23.1
Income Taxes
12 Months Ended
Jan. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

12. Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and various foreign jurisdictions. The Company has closed out an audit with the Internal Revenue Service for its U.S. income tax returns through fiscal 2013; however, the taxing authorities will still have the ability to review the propriety of certain tax

attributes created in closed years if such tax attributes are utilized in an open tax year, such as federal research and development credit carryovers.

The components of loss from operations before income taxes are as follows:

 

 

For the Fiscal Years Ended January 31,

 

 

 

2023

 

 

2022

 

 

 

(Amounts in thousands)

 

Domestic

 

$

(4,458

)

$

(6,616

)

Foreign

 

 

(7,142

)

 

 

(829

)

Loss before income taxes

 

$

(11,600

)

 

$

(7,445

)

The components of the income tax (benefit) provision from operations are as follows:

 

 

For the Fiscal Years Ended January 31,

 

 

 

2023

 

 

2022

 

 

 

(Amounts in thousands)

 

Current:

 

 

 

 

 

 

Federal

 

$

 

 

$

 

State

 

 

40

 

 

 

(6

)

Foreign

 

 

(221

)

 

 

(9

)

Income tax benefit

 

$

(181

)

 

$

(15

)

Deferred:

 

 

 

 

 

 

Foreign

 

 

(15

)

 

 

 

Total

 

 

(15

)

 

 

 

Income tax benefit

 

$

(196

)

 

$

(15

)

The Company recorded an income tax benefit of less than $0.2 million for the year ended January 31, 2023. The Company’s effective tax rate in fiscal 2023, and in future periods, may fluctuate as a result of changes in jurisdictional forecasts where losses cannot be benefitted due to the existence of valuation allowances on deferred tax assets, changes in actual results versus estimates, or changes in tax laws, regulations, accounting principles or interpretations thereof.

The income tax benefit was computed using the federal statutory income tax rate and average state statutory rates, net of related federal benefits. The provision differs from the Company’s effective tax rate primarily due to the following:

 

 

For the Fiscal Years Ended January 31,

 

 

 

2023

 

 

2022

 

 

(Amounts in thousands)

 

Statutory U.S. federal tax rate (21%)

 

$

(2,436

)

 

$

(1,563

)

State taxes, net of federal tax benefit

 

 

(127

)

 

 

(6

)

Losses not benefitted

 

 

(939

)

 

 

1,593

 

Non-deductible stock compensation expense

 

 

154

 

 

 

292

 

Other non-deductible items

 

 

353

 

 

 

(642

)

Innovative technology and development incentive

 

 

(206

)

 

 

(264

)

Foreign tax rate differential

 

 

(51

)

 

 

70

 

Expiration of federal tax credits

 

 

1,145

 

 

 

1,179

 

Goodwill impairment

 

 

1,911

 

 

 

 

Current fiscal year impact of FIN 48

 

 

 

 

 

(674

)

Income tax benefit

 

$

(196

)

 

$

(15

)

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The CARES

Act allowed the Company to accelerate the refund of its AMT credit from fiscal 2022 to fiscal 2021. The refund was received in the fourth quarter of fiscal 2021.

As a result of the Tax Cuts and Jobs Act enacted in 2017, foreign earnings may now generally be repatriated back to the U.S. without incurring U.S. federal income tax. Historically, the Company has asserted the intention to indefinitely invest the cumulative undistributed earnings of the Company's foreign subsidiaries with the exception of Ireland. The Company declared cash dividends from the subsidiaries to the parent of approximately $0.0 million and $1.8 million in fiscal 2023 and 2022, respectively.

The components of deferred income taxes are as follows:

 

 

As of January 31,

 

 

 

2023

 

 

2022

 

 

 

(Amounts in thousands)

 

Deferred tax assets:

 

 

 

 

 

 

Accruals and reserves

 

$

386

 

 

$

79

 

Deferred revenue

 

 

919

 

 

 

801

 

Stock-based compensation expense

 

 

143

 

 

 

232

 

U.S. federal, state and foreign tax credits

 

 

7,659

 

 

 

7,146

 

Property and equipment

 

 

44

 

 

 

219

 

Lease liabilities

 

 

321

 

 

 

510

 

Intangible assets

 

 

154

 

 

 

44

 

Other

 

 

57

 

 

 

419

 

Loss carryforwards

 

 

33,650

 

 

 

36,161

 

Capitalized R&D costs for tax purposes

 

 

2,009

 

 

 

 

Deferred tax assets

 

 

45,342

 

 

 

45,611

 

Less: Valuation allowance

 

 

(44,960

)

 

 

(44,920

)

Deferred tax assets, net of valuation allowance

 

 

382

 

 

 

691

 

Deferred tax liabilities:

 

 

 

 

 

 

Right-of-use assets

 

 

(321

)

 

 

(510

)

Other

 

 

(61

)

 

 

(181

)

Deferred tax liabilities

 

 

(382

)

 

 

(691

)

Net deferred tax assets and liabilities

 

$

 

 

$

 

 

At January 31, 2023, the Company had federal, state and foreign net operating loss carry forwards of $131.0 million, $6.9 million and $1.9 million respectively, which can be used to offset future tax liabilities and expire at various dates beginning in fiscal 2023. The Company performs an analysis under Section 382 of the Internal Revenue Code of 1986, as amended, analysis on a periodic basis and utilization of these net operating loss carry forwards may be limited pursuant to provisions of the respective local jurisdiction. In addition, at January 31, 2023, the Company had federal and state research and development credit carry forwards of $3.0 million and $2.0 million, respectively. The Company has foreign tax credit carry forwards of $1.2 million, which are available to reduce future federal regular income taxes. These credits expire at various dates beginning in fiscal 2023.

The Company reviews the adequacy of the valuation allowance for deferred tax assets on a quarterly basis. The Company has evaluated the positive and negative evidence bearing upon the ability to realize the Company's deferred tax assets and have established a valuation allowance of $45.0 million for such assets, which are comprised principally of net operating loss carry forwards, research and development credits, deferred revenue, and stock-based compensation. If the Company generates pre-tax income in the future, some portion or all of the valuation allowance could be reversed and a corresponding increase in net income would be reported in future periods. The valuation allowance increased by less than $0.1 million for the year ended January 31, 2023 and increases by $1.5 million for the fiscal year ended January 31, 2022.

A reconciliation of gross unrecognized tax benefits is as follows:

 

 

For the Fiscal Years Ended January 31,

 

 

 

2023

 

 

2022

 

 

 

(Amounts in thousands)

 

Balance of gross unrecognized tax benefits, beginning of period

 

$

3,454

 

 

$

4,632

 

Decrease due to expiration of statute of limitation

 

 

(219

)

 

 

(116

)

Settlements and credit expiration

 

 

 

 

 

(1,049

)

Effect of currency translation

 

 

 

 

 

(13

)

Balance of gross unrecognized tax benefits, end of period

 

$

3,235

 

 

$

3,454

 

As of January 31, 2023, the Company had $3.2 million of unrecognized tax benefits, a portion of which are classified as long term and included in long-term liabilities on the Company's consolidated balance sheets. The Company recognized interest and penalties related to unrecognized tax benefits in the income tax benefit on the Company's consolidated statements of operations and comprehensive loss. As of January 31, 2023 and 2022, total gross interest accrued was $0.0 million and $0.1 million, respectively. Included in the balance of unrecognized tax benefits as of January 31, 2023 and January 31, 2022 are $0.0 million and $0.1 million, respectively for both of the periods of tax benefits that, if recognized, would affect the effective tax rate.

When accounting for uncertain tax positions, the impact of uncertain tax positions is recognized in the financial statements if they are more likely than not of being sustained upon examination, based on the technical merits of the position. The Company has determined that it has uncertain tax positions as of January 31, 2023 and 2022 that to the extent recognized, are recorded through the consolidated statements of operations and comprehensive loss. The Company does not expect any change to this determination in the next twelve months.