NOTE 7 — INCOME TAXES

Income taxes consist of the following:


	Fiscal Year
	2018		2017
Current tax (expense) benefit:
Federal	$	7,000	$	—
State		(7,000)		(11,000)
Total current provision		—		(11,000)
Deferred tax benefit:
Federal		—		95,000
State		—		—
Total deferred tax benefit		—		95,000
Current and deferred tax benefit	$	—	$	84,000

The income tax benefit differs from the amount computed using the federal statutory income tax rates of 21% and 32.9% for fiscal 2018 and 2017, respectively, as follows:


	Fiscal Year
	2018		2017
Federal tax benefit at statutory rate	$	(1,232,000)	$	1,047,000
State and local taxes, net of federal benefit (expense)		(95,000)		195,000
Change in valuation allowance		(767,000)		4,505,000
Permanent items:
Incentive stock options		18,000		(112,000)
Change in fair value of warrants liability		—		15,000
Other		1,000		(24,000)
Reserve for uncertain tax position		32,000		(19,000)
R&D Credit (Federal)		(158,000)		219,000
R&D Credit (State)		134,000		(129,000)
Tax Cuts and Jobs Act		—		(5,827,000)
Expiring carryforwards		1,965,000		—
Other		102,000		214,000
Income tax benefit	$	—	$	84,000

The Company provides deferred income taxes for temporary differences between assets and liabilities recognized for financial reporting and income tax purposes. The income tax effects of these temporary differences and credits are as follows:


	January 31,
	2019		2018
Deferred tax assets:
Allowance for doubtful accounts	$	84,000	$	91,000
Deferred revenue		63,000		155,000
Accruals		141,000		71,000
Net operating loss carryforwards		9,532,000		10,617,000
Stock compensation expense		205,000		236,000
Property and equipment		30,000		109,000
R&D credit		1,102,000		1,144,000
Other		133,000		117,000
Total deferred tax assets		11,290,000		12,540,000
Valuation allowance		(11,045,000)		(11,813,000)
Net deferred tax assets		245,000		727,000
Deferred tax liabilities:
Finite-lived intangible assets		(245,000)		(727,000)
Total deferred tax liabilities		(245,000)		(727,000)
Net deferred tax liabilities	$	—	$	—

At January 31, 2019, the Company had U.S. federal net operating loss carry forwards of $36,800,000, which expire at various dates through fiscal 2037. The Company also had state net operating loss carry forwards of $17,170,000, which expire through fiscal 2038. Federal and state R&D credit carry forwards will expire through fiscal 2038 and 2028, respectively. The Tax Cuts and Jobs Act signed into law on December 22, 2017 eliminated the ability to carryback net operating losses and allows net operating losses to be carried forward indefinitely. At January 31, 2019, the Company had indefinite-lived federal net operating loss carry forwards of $3,900,000.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all or some portion of 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 become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company established a valuation allowance of $11,045,000 and $11,813,000 at January 31, 2019 and 2018, respectively. The decrease in the valuation allowance of $768,000 was driven primarily by the expiration of federal net operating loss carry forwards.

The Company and its subsidiary are subject to U.S. federal income tax as well as income taxes in multiple state and local jurisdictions. The Company has concluded all U.S. federal tax matters for years through January 31, 2014. All material state and local income tax matters have been concluded for years through January 31, 2013. The Company is no longer subject to IRS examination for periods prior to the tax year ended January 31, 2014; however, carryforward losses that were generated prior to the tax year ended January 31, 2014 may still be adjusted by the IRS if they are used in a future period.

The Company has recorded a reserve, including interest and penalties, for uncertain tax positions of $275,000 and $295,000 as of January 31, 2019 and 2018, respectively. As of January 31, 2019 and 2018, the Company had no accrued interest and penalties associated with unrecognized tax benefits.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits (excluding interest and penalties) is as follows:


	2018		2017
Beginning of fiscal year	$	295,000	$	290,000
Additions for tax positions for the current year		32,000		62,000
Additions for tax positions of prior years		—		3,000
Subtractions for tax positions of prior years		(52,000)		(60,000)
End of fiscal year	$	275,000	$	295,000

Impact of the Tax Cuts and Jobs Act

The Tax Act was signed into law on December 22, 2017. Among other things, the Tax Act reduces the U.S. federal corporate tax rate from 34.0 percent to 21.0 percent effective January 1, 2018 and allows for 100 percent expensing of certain fixed assets placed in service after September 27, 2017.

On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations where a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to finalize the calculations for certain income tax effects of the Tax Cuts and Jobs Act. In accordance with SAB 118, in fiscal 2017 the Company recorded a provisional estimated net tax expense of $5.8 million in connection with the tax effect of the Tax Act. Adjustments to this provisional amount recorded in fiscal 2018 did not have a significant impact on our consolidated financial statements. Our accounting for the effects of the Tax Act enactment is now complete.