Note 12. Income Taxes

The Company recognizes deferred tax assets and liabilities using the asset and liability method. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. This method requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

As of July 31, 2017, the Company’s deferred tax assets relate to net operating loss (“NOL”) carryforwards that were derived from operating losses and stock based compensation from prior years. A full valuation allowance has been applied to the Company’s deferred tax assets. The valuation allowance will be reduced when and if the Company determines it is more likely than not that the related deferred income tax assets will be realized.

At July 31, 2017, the Company had federal and state net operating loss carry forwards, which are available to offset future taxable income, of 4,936,604. The Company’s NOL carryforwards can be carried forward to offset future taxable income for a period of 20 years for each tax year’s loss. These NOL carryforwards begin to expire in 2026. No provision was made for federal income taxes as the Company has significant NOLs. All of the Company's income tax years remained open for examination by taxing authorities.

The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate to the net loss before provision for income taxes for the following reasons:

	July 31, 2017		July 31, 2016

Net income (loss) before taxes at statutory rate	$	2,992,311	$	(3,242,916)
Permanent items		5,828		1,764
Temporary items		385,910		4,770,850
Income tax expense at statutory rate		3,384,049		1,529,698)

Valuation allowance		(2,833,575)		(1,529,698

Income tax expense per books	$	550,474	$	-

Net deferred tax assets consist of the following components as of:

	July 31, 2017		July 31, 2016

Net operating loss carryover at statutory rate	$	4,936,604	$	10,063,523
Stock-based compensation expense		9,922,093		9,217,868
Fixed asset depreciation		(1,143)		-
Intangible asset amortization		(1,327)		-
		14,856,227		19,281,391

Valuation allowance		(14,856,227)		(19,281,391)

Net deferred tax asset	$	-	$	-

The Company had no uncertain tax positions at July 31, 2017 or July 31, 2016.