Note 10 – Income Taxes

The consolidated income tax expense for the years ended July 31, 2013 and 2012 was determined based upon estimates of the Company’s consolidated effective income tax rates for the years ending July 31, 2013 and 2012, respectively. The difference between the consolidated effective income tax rate and the U.S. federal statutory rate is primarily attributable to state income taxes, and the effect of certain permanent differences.

FASB Topic 740, Accounting for Uncertainty in Income Taxes, prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Generally accepted accounting principles require that the Company recognizes in the financial statements a liability for tax uncertainty if it is more likely than not that the position will be sustained on an audit, based on the technical merits of the position. They also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure. The Company has not recorded any liability for unrecognized tax benefits as of July 31, 2013. There have been no material changes in unrecognized tax benefits at July 31, 2013.

The Company’s tax returns are subject to examination by federal, state and foreign taxing authorities. As of July 31, 2013, the statute of limitations for examining the Company’s federal income tax returns has not expired for the years ended July 31, 2010 through 2012. As of July 31, 2013, the statutes of limitation for tax examinations in the state of California have not expired for tax returns filed for the years ended July 31, 2009 through 2012.

The Company provided $1,600 and $800 for income taxes in the years ended July 31, 2013 and 2012 respectively. The effective tax rates takes into consideration federal and state minimum tax rates and foreign taxes.

The Company has accumulated NOLs of $2.16 million, which, if unutilized, will begin to expire in 2018. Future tax benefits, which may arise as a result of these losses, have not been recognized in these financial statements, and have been offset by a valuation allowance since there is no assurance that we will be able to utilize these NOLs. Details of future income tax assets are as follows:

Future income tax assets

	July 31, 2013			July 31, 2012
NOL available for carry forward	$	2,158,886		$	1,939,781
Other temporary timing differences		105,676			142,287
		2,264,562			2,082,068
Statutory tax rate (combined federal and state)		29.03	%		42.81	%
		657,474			891,250
R&D credit		126,278			111,547

Net deferred tax asset		783,752			1,002,797

Valuation allowance		(783,752)			(1,002,797)

	$	-		$	-