12. Income Taxes

On March 27, 2020, the CARES Act was enacted to provide economic relief to those impacted by the COVID-19 pandemic. The CARES Act includes provisions, among others, allowing for the carryback of net operating losses generated in tax years 2018, 2019 and 2020, refunds of alternative minimum tax credits, temporary modifications to the limitations placed on the tax deductibility of net interest expense, and technical corrections so that qualified improvement property can be immediately expensed under IRC § 168(k) and net operating losses arising in tax years beginning in 2017 and ending in 2018 can be carried back two years and forward twenty years.

The (benefit) provision for income taxes consisted of the following (in thousands):

	Year Ended April 30,
	2021			2020
Current:
Federal	$	(119	)	$	(1,713	)
State		(85	)		(37	)
Current (benefit) provision		(204	)		(1,750	)
Deferred:
Federal		-			9
State		-			(1	)
Deferred tax (benefit) provision		-			8

Total (benefit) provision	$	(204	)	$	(1,742	)

The following table reconciles the reported income tax (benefit) provision, recorded primarily due to the (i) recognition of previously unrecognized tax benefits, (ii) state and local taxes, (iii) and a change in the valuation allowance, with the amount computed using the federal statutory income tax rate (in thousands):

	Year Ended April 30,
	2021			2020
Statutory rate	$	100		$	(2,471	)
State and local tax		69			(417	)
Valuation allowance on deferred tax assets		961			2,009
Nondeductible expenses		2			(134	)
Uncertain tax positions		(898	)		-
Nontaxable life insurance cash value increase		(63	)		(73	)
Taxable life insurance gain		128			-
Stock Compensation		242			-
Tax credits		(434	)		(46	)
Change in tax rate		(323	)		(120	)
Impact of CARES Act		-			(592	)
Other items		12			102
Total (benefit) provision	$	(204	)	$	(1,742	)

The components of deferred taxes are as follows (in thousands):

	Year Ended April 30,
	2021			2020
Deferred tax assets:
Employee benefits	$	4,789		$	4,794
Inventory		1,946			1,904
Accounts receivable		119			207
Tax credits		2,027			1,610
Other assets		883			1,073
Lease Liability		2,593			2,807
Capital Loss carry-forward		2,602			2,515
Net operating loss carryforwards		6,203			6,185
Total deferred tax asset		21,162			21,095
Deferred tax liabilities:
Property, plant and equipment		(666	)		(1,518	)
Right of use asset		(2,514	)		(2,696	)
Other liabilities		(195	)		(193	)
Deferred state income tax		(932	)		(842	)
Net deferred tax asset		16,855			15,846
Valuation allowance		(16,863	)		(15,854	)
Net deferred tax (liability) asset	$	(8	)	$	(8	)

In assessing the potential for realization of deferred tax assets, the Company considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will be realized. A valuation allowance, if needed, reduces the deferred tax assets to the amounts expected to be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating loss carryforwards can be utilized. We assess all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, prior earnings history, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Significant weight is given to positive and negative evidence that is objectively verifiable. As of April 30, 2021 and 2020, we have a full valuation allowance against our U.S. net deferred tax assets. If these estimates and assumptions change in the future, the Company may be required to reduce its existing valuation allowance resulting in less income tax expense.

For the year ended April 30, 2021, the valuation allowance increased by approximately $1.0 million from the prior year primarily due an increase in the net deferred tax asset for which no tax benefit was provided.

The Company has a net deferred tax liability related to the tax effect of differences between financial reporting and tax basis of intangible assets that are not expected to reverse within the Company’s net operating loss carryforward periods. The utilization of indefinite lived net operating losses are limited to 80% of taxable income in an annual period.

As of April 30, 2021, the Company has U.S. federal net operating losses of $24.3 million of which $16.4 million begins to expire in Fiscal 2026 through 2038, including $3.4 million which is subject to annual limitation under IRC § 382. The remaining U.S. federal net operating losses of $7.9 million have an indefinite carry-forward period. The U.S. federal capital loss carry-forward of $10.0 million expires in Fiscal 2023. U.S. federal R&D credits of $0.7 million begin to expire in Fiscal 2036 through 2040. The Company also has state net operating loss carryforwards, and state tax credits that expire in various years and amounts.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits, is as follows (in thousands):

	2021			2020
Balance at the beginning of the fiscal year	$	1,354		$	1,258
Additions based on positions taken in the current year		-			15
Additions based on positions taken in prior years		-			119
Decreases based on positions taken in prior years		-			(2	)
Lapse in statute of limitations		(1,235	)		(36	)
Balance at the end of the fiscal year	$	119		$	1,354

The Company recognized $1.2 million of unrecognized benefits during the year ended April 30, 2021 in connection with the lapse of the statute of limitations. Approximately $1.1 million of this amount increased the net operating loss carryforwards which attracted a valuation allowance. The entire amount reflected in the above table at April 30, 2021, if recognized, would reduce our effective tax rate. As of April 30, 2021, and 2020, the Company had $0 and $119,000, respectively, accrued for the payment of interest and penalties. For the fiscal years ended April 30, 2021 and 2020, the Company recognized interest (income) and expense of $(119,000) and $60,000, respectively. Although it is difficult to predict or estimate the change in the Company’s unrecognized tax benefits over the next twelve months, the Company believes no additional amounts will be recognized in the next twelve months.

The Company is subject to taxation in the U.S. federal, various state and local, and foreign jurisdictions. The Company is no longer subject to examination of its U.S. federal income tax returns by the Internal Revenue Service for fiscal years 2017 and prior. The Company is no longer subject to examination by the taxing authorities in foreign jurisdictions for fiscal years 2017 and prior. Net operating losses and tax attributes generated by domestic and foreign entities in closed years and utilized in open years are subject to adjustment by the tax authorities.