12. Income Taxes

On July 4, 2025, President Trump signed H.R.1, the One Big Beautiful Bill Act (“OBBBA”) into law. In accordance with U.S. GAAP, the Company accounted for the tax effects of changes in tax law in the period of enactment during the first quarter of fiscal year 2026. The OBBBA made changes to the U.S. tax code, including, but not limited to: (1) allowing taxpayers to fully deduct domestic research expenditures for tax years beginning after December 31, 2024, (2) provides a catch-up relief provision for taxpayers to accelerate deductions for unamortized domestic research expenditures, (3) provides a permanent provision for 100% bonus depreciation deductions for most tangible personal property with a recovery period of 20 years or less, acquired and placed in service after January 19, 2025, and (4) for tax years beginning after December 31, 2024, restores Adjusted Taxable Income by adding back amortization and depreciation to calculate the limitation on interest deductions (effectively returning to EBITDA). The enactment of the OBBBA did not have a material impact on our provision or effective tax rate as of April 30, 2026. We continue to evaluate the OBBBA and its requirements, as well as its application to our business and its impact on cash taxes and our effective tax rate.

For financial reporting purposes, (Loss) income before benefit for income taxes, includes the following components (in thousands):

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

The difference between the federal statutory rate of 21% and the Company’s effective tax rate after the adoption of ASU 2023-09 is summarized as follows (in thousands):

In the fiscal year ended April 30, 2026, state and local income taxes in California comprise the majority of the state and local income taxes, net of the federal income tax effect category.

The difference between the federal statutory rate of 21% and the Company’s effective tax rate before the adoption of ASU 2023-09 is summarized as follows:

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

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. Concluding that a valuation allowance is not needed is difficult when there is significant negative evidence such as cumulative losses in recent years.

As required under ASU 2023-09, the Company has included only the portion of the valuation allowance related to federal deferred tax assets in the “Change in valuation allowances” line of the rate reconciliation. The following table presents a reconciliation of the total change in the valuation allowance.

The Company maintains a valuation allowance of approximately $1.4 million against certain deferred tax assets including state tax credits and capital loss carryforwards because the realization of these tax attributes requires sufficient taxable income be sourced to the respective state jurisdiction and capital gain income is required to utilize capital losses. The Company will continue to evaluate the realizability of its deferred tax assets quarterly. Any further increases or decreases in the valuation allowance could have an unfavorable or favorable impact on the Company’s income tax provision and net income in the period in which such determination is made. As of April 30, 2026, the deferred tax asset is recorded at its more-likely-than-not realizable amount.

As of April 30, 2026, the Company has U.S. federal net operating losses of $10.9 million of which $1.7 million begins to expire in fiscal year 2027 through fiscal year 2031. The U.S. federal net operating losses of $10.9 million includes $1.7 million which is subject to an annual limitation under Internal Revenue Code Section 382. The remaining U.S. federal net operating losses of $9.2 million have an indefinite carry-forward period. The U.S. federal capital loss carry-forward of $0.7 million expires in fiscal year 2028. U.S. federal R&D credits of $0.8 million begin to expire in fiscal year 2038 through fiscal year 2046. 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):

The entire amount reflected in the above table at April 30, 2026, if recognized, would reduce our effective tax rate. As of April 30, 2026 and 2025, the Company did not recognize or accrue for the payment of interest or penalties.

The Company is subject to taxation in the U.S. federal, and various state and local, 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 2021 and prior. Net operating losses and tax attributes generated in closed years and utilized in open years are subject to adjustment by the tax authorities.

Cash taxes paid were as follows (in thousands):

Income taxes paid (net of refunds) exceeded 5% of total income taxes paid (net of refunds) in the following jurisdictions: