NOTE 9 — INCOME TAX

The components of income tax expense (benefit) are as follows:

For the year ended April 30, 2018, current income tax expense related to operations substantially represents minimum state income taxes. The deferred income tax benefit represents a reduction of the valuation allowance due to a change in tax law permitting alternative minimum tax credits to be refundable.

The difference between the benefit for income taxes computed at the statutory rate and the reported amount of tax expense (benefit) from operations is as follows:

The deferred tax assets / (liabilities) are summarized as follows:

Deferred tax assets:

Under the provisions of the Internal Revenue Code, certain substantial changes in our ownership may result in a limitation on the amount of net operating losses that may be utilized in future years. During the year ended April 30, 2018, approximately $32.4 million and $4.3 million of our U.S. federal and State net operating losses, respectively, became subject to limitation under Internal Revenue Code Section 382 in connection with the consummation in May 2017 of the Merger Transaction. It is estimated that approximately $30.0 million and $4.0 million of our U.S. federal and State net operating losses, respectively, will not be able to be utilized because of the ownership change. As a result of the ownership change, we reduced our gross deferred tax assets and valuation allowance by $10.6 million as of April 30, 2018, which has no impact on our consolidated financial statements for the year ended April 30, 2018. Net operating losses of approximately $6.6 million, which were generated since May 2017, are currently not subject to an annual limitation under Section 382. Future significant ownership changes could cause a portion or all of these net operating losses to expire before utilization.

The Tax Cuts and Jobs Act (the “Act”) was enacted in December 2017. Among other things, the Act reduced the U.S. federal corporate tax rate from 34 percent to 21 percent as of January 1, 2018 and eliminated the alternative minimum tax (“AMT”) for corporations. Since the deferred tax assets are expected to reverse in a future year, it has been tax effected using the 21% federal corporate tax rate. As a result of the reduction in the corporate tax rate, we decreased our gross deferred tax assets by approximately $2.1 million which was offset by a corresponding decrease to the valuation allowance as of April 30, 2018, which has no impact on our consolidated financial statements for the year ended April 30, 2018. The Company recognized a deferred income tax benefit of $438,000 for the year ended April 30, 2018 due to a reduction of the valuation allowance related to the AMT credit carryforward. As a result of the Act, the AMT credit carryforward is determined to be more likely than not to be realized.

On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin 118, which allows a measurement period, not to exceed one year, to finalize the accounting for the income tax effects of the Act. Until the accounting for the income tax effects of the Act is complete, the reported amounts are based on reasonable estimates, are disclosed as provisional and reflect any adjustments in subsequent periods as estimates are refined or the accounting of the tax effects are completed.

As of April 30, 2018, we had U.S. Federal and state net operating loss carryforwards of approximately $8.9 million and $0.3 million, respectively, available to reduce future taxable income. The U.S. federal and state net operating loss carryforwards will begin to expire in 2034.

We file income tax returns in the U.S. federal jurisdiction and various states. For federal income tax purposes, our fiscal 2015 through 2018 tax years remain open for examination by the tax authorities under the normal three-year statute of limitations. For state tax purposes, our fiscal 2014 through 2018 tax years generally remain open for examination by most of the tax authorities under a four-year statute of limitations.