Note 9: Income Taxes

12 Months Ended

Aug. 31, 2013

Notes

Note 9: Income Taxes

Note 9:  Income Taxes

The income tax provision of $1,938, $988, and $800 for the years ended August 31, 2013, 2012 and 2011, respectively, is comprised of a current provision for state income taxes.

The income tax (provision) benefit differs from the amount computed at federal statutory rates as follows:

	Years Ended August 31,
	2013	2012	2011
Income tax benefit at federal statutory rate	$     2,805,000	$     2,706,000	$     1,797,000
Stock-based compensation	(335,000)	(324,000)	(249,000)
State income taxes, net of federal benefit	272,000	263,000	174,000
Research and development credit	106,000	88,000	102,000
Change in valuation allowance	(2,905,000)	(3,000,000)	(1,688,000)
Other	55,062	266,012	(136,800)
	$           (1,938)	$              (988)	$              (800)

Deferred tax assets (liabilities) are comprised of the following:

	August 31,
	2013	2012
Current Asset:
Accruals and reserves	$         26,000	$         19,000
Deferred revenue	266,000	76,000
Inventories	68,000	71,000
Valuation allowance	(360,000)	(166,000)
	$                   -	$                   -
Long-Term Asset (Liability):
Deferred compensation	$       601,000	$      550,000
Research and development and other tax credits	1,804,000	1,680,000
Net operating loss carryforwards	11,380,000	8,848,000
Depreciation and amortization	3,000	(1,000)
Valuation allowance	(13,788,000)	(11,077,000)
	$                  -	$                  -

The ultimate realization of the deferred tax assets is dependent, in part, upon the tax laws in effect, our future earnings, and other events.  As of August 31, 2013, we recorded a valuation allowance of $360,000 against current deferred tax assets and a valuation allowance of $13,788,000 against net long-term deferred tax assets.  The increase in the valuation allowance for the year ended August 31, 2013 relates primarily to our operating losses.  In recording the valuation allowance, we were unable to conclude that it is more likely than not that our deferred tax assets will be realized.

As of August 31, 2013, we had a net operating loss carryforward available to offset future taxable income of approximately $28,000,000, which will begin to expire in 2029.  If substantial changes in the Company’s ownership should occur, there would be an annual limitation of the amount of the net operating loss carryforward which could be utilized.

We perform a review of our material tax positions in accordance with recognition and measurement standards established by authoritative accounting literature, which requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position.  If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.  Based upon our review and evaluation, during the years ended August 31, 2013, 2012 and 2011, we concluded the Company had no unrecognized tax benefit which would affect its effective tax rate if recognized. 

We classify any interest and penalties arising from the underpayment of income taxes in our statements of comprehensive loss in other income (expense).  As of August 31, 2013 and 2012, we had no accrued interest or penalties related to uncertain tax positions.

We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions.  U.S. federal income tax returns from the year ended August 31, 2006 through the year ended August 31, 2013 are subject to examination.