Income Taxes

12 Months Ended

Jul. 31, 2023

Income Tax [Abstract]

Income Taxes

Note 12—Income Taxes

The components of (loss) income before income taxes are as follows:

Fiscal year ended July 31,
(in thousands)	2023			2022
Domestic	$	(6,724	)	$	12,009
Foreign		160			(403	)
(Loss) income before income taxes	$	(6,564	)	$	11,606

Provision for (benefit from) income taxes consisted of the following:

Fiscal year ended July 31,
(in thousands)	2023			2022
Current:
Foreign	$	90		$	60
Federal		413			2,163
State		16			53
Total current expense		519			2,276
Deferred:
Foreign		-			44
Federal		(1,004	)		(507	)
State		23			79
Total deferred expense		(981	)		(384	)
(Benefit from) provision for income taxes	$	(462	)	$	1,892

The differences between income taxes expected at the U.S. federal statutory income tax rate and income taxes reported were as follows:

Fiscal year ended July 31,
(in thousands)	2023			2022
U.S federal income tax at statutory rate	$	(1,378	)	$	2,437
State tax (net of federal benefit)		36			120
Change in valuation allowance		(55	)		-
Foreign tax rate differential		(18	)		(12	)
Change in fair value of contingent consideration and goodwill impairment		832			(832	)
Stock-based compensation		306			-
Other		(185	)		179
(Benefit from) provision for income taxes	$	(462	)	$	1,892

The Company is subject to taxation in the United States and certain foreign jurisdictions. Earnings from non-U.S. activities are subject to local country income tax.

The material jurisdictions where the Company is subject to potential examination by tax authorities include the United States, Norway and Lithuania.

The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) contains a provision which subjects a U.S parent of a foreign subsidiary to current U.S. tax on its global intangible low-taxed income (“GILTI”). The GILTI income is eligible for a deduction, which lowers the effective tax. The Company will report the tax impact of GILTI as a period cost when incurred. Accordingly, the Company is not providing deferred taxes for basis differences expected to reverse as GILTI.

U.S companies are eligible for a deduction that lowers the effective tax rate on certain foreign income. This regime is referred to as the Foreign-Derived Intangible Income deduction (“FDII”).

Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows:

July 31,
(in thousands)	2023			2022
Deferred tax assets:
Net operating loss carryforwards (Foreign)	$	1,840		$	1,840
Net operating loss carryforwards (State)		6			66
Reserves and accruals		162			240
Stock-based compensation		483			313
Depreciation and amortization		882			57
Others		309			240
Net deferred tax assets		3,682			2,756
Less valuation allowance		(1,840	)		(1,895	)
Total deferred tax assets	$	1,842		$	861

At July 31, 2023 and 2022, the Company had available U.S. state NOL carryforwards from domestic operations of approximately $0.1 million and $0.9 million, respectively, to offset future taxable income. The state NOL carryforwards will begin to expire in 2038. At July 31, 2023 and 2022, the Company has approximately $8.0 millions of Foreign NOLs (Israel) which is available to offset Israel’s future taxable income without time limit.

The change in the valuation allowance is as follows:

Fiscal year ended July 31, (in thousand)	Balance at beginning of year		Additions related to GuruShots acquisition		Deductions			Balance at end of year
2023
Reserves deducted from deferred income taxes, net:
Valuation allowance	$	1,895	$	-	$	(55	)	$	1,840
2022
Reserves deducted from deferred income taxes, net:
Valuation allowance	$	55	$	1,840	$	-		$	1,895

At July 31, 2023 and 2022, the Company did not have any unrecognized tax benefits and does not anticipate any significant changes to the unrecognized tax benefits within twelve months of this reporting date. In the fiscal years ended July 31, 2023 and 2022, the Company recorded no interest and penalties on income taxes. At July 31, 2023 and 2022, there was no accrued interest included in income taxes payable.

The Company currently remains subject to examinations of its U.S. federal, state, and foreign tax returns generally for the fiscal 2019 to fiscal 2022 years.

The Tax Cuts and Jobs Act of 2017 (TCJA) has modified the IRC 174 expenses related to research and development (R&D) for the tax years beginning after December 31, 2021. The Company must now capitalize the expenditures related to R&D activities and amortize over 5 years for US activities and 15 years for non-US activities using mid-year convention. For US GAAP purposes, the Company capitalize all R&D expenditures on the consolidated balance sheet and amortize over 3 years for book purposes. Therefore, we will have book to tax difference in amortization expense and no additional capitalization on R&D expenditures for tax purposes under IRC 174.