INCOME TAXES

Income taxes consist of the following:



	Fiscal Year
	2017			2016
Current tax (expense) benefit:
Federal	$	—		$	15,000
State	(11,573		)	(2,976		)
Total current provision	(11,573		)	12,024
Deferred tax benefit:
Federal	95,403			—
State	—			—
Total Deferred tax benefit	95,403			—
Current and deferred tax benefit	$	83,830		$	12,024

The income tax benefit differs from the amount computed using the federal statutory income tax rate of 32.9 percent as follows:



	Fiscal Year
	2017			2016
Federal tax benefit at statutory rate of 32.9 percent	$	1,047,221		$	1,771,675
State and local taxes, net of federal benefit (expense)	195,117			84,402
Change in valuation allowance	4,504,875			(2,134,096		)
Permanent items:
Incentive stock options	(112,349		)	(361,245		)
Change in fair value of warrants liability	15,197			54,033
Goodwill basis difference recognized upon asset sale	—			(220,112		)
Section 162(m) disallowance	—			(22,647		)
Other	(24,673		)	(23,272		)
Reserve for uncertain tax position	(18,509		)	(262,525		)
R&D Credit (Federal)	219,305			1,045,453
R&D Credit (State)	(129,111		)	267,172
Tax Cuts and Jobs Act	(5,827,034		)	—
Other	213,791			(186,814		)
Income tax benefit	$	83,830		$	12,024

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,
	2018			2017
Deferred tax assets:
Allowance for doubtful accounts	$	91,360		$	72,886
Deferred revenue	154,574			282,112
Accruals	71,286			120,165
Net operating loss carryforwards	10,617,120			15,141,861
Stock compensation expense	235,920			501,120
Property and equipment	108,537			132,934
AMT credit	—			102,144
R&D credit	1,144,058			1,050,100
Other	116,603			106,833
Total deferred tax assets	12,539,458			17,510,155
Valuation allowance	(11,812,860		)	(16,318,124		)
Net deferred tax assets	726,598			1,192,031
Deferred tax liabilities:
Definite-lived intangible assets	(726,598		)	(1,192,031		)
Total deferred tax liabilities	(726,598		)	(1,192,031		)
Net deferred tax liabilities	$	—		$	—

At January 31, 2018, the Company had U.S. federal net operating loss carry forwards of $45,973,000, which expire at various dates through fiscal 2037. The Company also had state net operating loss carry forwards of $18,230,000, which expire through fiscal 2037. Federal and state R&D credit carry forwards will expire through fiscal 2037 and 2027, 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 $11,813,000 and $16,318,000 at January 31, 2018 and 2017, respectively. The decrease in the valuation allowance of $4,505,000 was driven primarily by the federal tax rate change from the passage of the Tax Cuts and Jobs Act.

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, 2013. All material state and local income tax matters have been concluded for years through January 31, 2012. The Company is no longer subject to IRS examination for periods prior to the tax year ended January 31, 2013; however, carryforward losses that were generated prior to the tax year ended January 31, 2013 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 $286,000 and $263,000 as of January 31, 2018 and 2017, respectively. As of January 31, 2018 and 2017, 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:



	2017			2016
Beginning of fiscal year	$	290,000		$	—
Additions for tax positions for the current year	62,000			59,000
Additions for tax positions of prior years	3,000			231,000
Subtractions for tax positions of prior years	(60,000		)	—
End of fiscal year	$	295,000		$	290,000

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, the Company has determined that the net tax expense of $5.8 million recorded in connection with the tax effect of the Tax Act is a provisional amount and a reasonable estimate as of January 31, 2018. Additional work is necessary to finalize the calculation for certain income tax effects of the Tax Cuts and Jobs Act, which we expect to complete with the filing of our 2017 U.S. federal income tax return.