INCOME TAXES

Income taxes consist of the following:



	Fiscal Year
	2016			2015
Current tax (expense) benefit:
Federal	$	15,000		$	—
State	(2,976		)	(17,578		)
Total current provision	12,024			(17,578		)
Deferred tax benefit:
Federal	—			8,838
State	—			737
Total Deferred tax benefit	—			9,575
Current and deferred tax (expense) benefit	$	12,024		$	(8,003	)

The income tax (expense) benefit for income taxes differs from the amount computed using the federal statutory income tax rate as follows:



	Fiscal Year
	2016			2015
Federal tax benefit at statutory rate	$	1,771,675		$	1,455,816
State and local taxes, net of federal benefit (expense)	84,402			(267,997		)
Change in valuation allowance	(2,134,096		)	(1,629,786		)
Permanent items:
Incentive stock options	(361,245		)	(513,708		)
Escrow refund	—			255,000
Change in fair value of warrants liability	54,033			553,951
Goodwill basis difference recognized upon asset sale	(220,112		)	—
Section 162(m) disallowance	(22,647		)	—
Other	(23,272		)	(28,914		)
Reserve for uncertain tax position	(262,525		)	—
R&D Credit (Federal)	1,045,453			—
R&D Credit (State)	267,172			—
Other	(186,814		)	167,635
Income tax (expense) benefit	$	12,024		$	(8,003	)

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,
	2017			2016
Deferred tax assets:
Allowance for doubtful accounts	$	72,886		$	58,379
Deferred revenue	282,112			244,163
Accruals	120,165			203,291
Net operating loss carryforwards	15,141,861			15,179,685
Stock compensation expense	501,120			592,654
Property and equipment	132,934			78,295
AMT credit	102,144			102,144
R&D credit	1,050,100			—
Other	106,833			17,794
Total deferred tax assets	17,510,155			16,476,405
Valuation allowance	(16,318,124		)	(14,184,030		)
Net deferred tax assets	1,192,031			2,292,375
Deferred tax liabilities:
Definite-lived intangible assets	(1,192,031		)	(2,292,375		)
Total deferred tax liabilities	(1,192,031		)	(2,292,375		)
Net deferred tax liabilities	$	—		$	—

At January 31, 2017, the Company had U.S. federal net operating loss carry forwards of $44,293,000, which expire at various dates through fiscal 2036. The Company also has an Alternative Minimum Tax net operating loss carry forward of $39,909,000, which has an unlimited carryforward period. The Company also had state net operating loss carry forwards of $14,889,000, which expire on or before fiscal 2036. Federal and state R&D credit carry forwards will expire through fiscal 2036 and 2026, respectively.

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 $16,318,000 and $14,184,000 at January 31, 2017 and 2016, respectively. The increase in the valuation allowance of $2,134,000 was driven primarily by losses incurred during the year ended January 31, 2017. Management believes it is more likely than not the Company will realize the remaining deferred tax assets, net of existing valuation allowances, in future years.

Due to the reporting requirements of ASC 718, “Compensation-Stock Compensation”, $1,592,000 of the net operating loss carryforward (tax effected $588,000) is not recorded on the Company’s balance sheet because the loss was created by the tax benefits of stock option exercises, which cannot be recognized for book purposes until the benefit has been realized by actually reducing taxes payable. When recognized, the tax benefit of these losses will be accounted for as a credit to additional paid-in capital rather than a reduction of the income tax provision.

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, 2012. All material state and local income tax matters have been concluded for years through January 31, 2011.

The Company has recorded a reserve, including interest and penalties, for uncertain tax positions of $263,000 and zero as of January 31, 2017 and 2016, respectively. As of January 31, 2017 and 2016, 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:



	2016		2015
Beginning of fiscal year	$	—	$	—
Additions for tax positions for the current year	59,000		—
Additions for tax positions of prior years	231,000		—
End of fiscal year	$	290,000	$	—