7. Income Taxes

The unaudited provision for income taxes for the three and six months ended January 31, 2012 and 2011 is composed of the following (in thousands):


		*(Unaudited)*						*(Unaudited)*
		Three months ended January 31						Six months ended January 31
		2012			2011			2012			2011
Current:
Federal	$	-		$	-		$	-		$	-
State		(4	)		(10	)		(22	)		(10	)
Change in the estimated deferred tax asset
valuation allowance		21			137			21			137
Deferred, net		(78	)		(61	)		(228	)		(206	)
Income tax (expense) benefit	$	(61	)	$	66		$	(229	)	$	(79	)

The provision for income taxes is based on taxes payable under currently enacted tax laws and an analysis of temporary differences between the book and tax bases of the Company's assets and liabilities, including various accruals, allowances, depreciation and amortization, and does not represent current taxes due. The tax effect of these temporary differences and the estimated benefit from tax net operating losses are reported as deferred tax assets and liabilities in the balance sheet. We have unused net operating loss carry forwards for federal income tax purposes, and as a result, we generally only incur alternative minimum taxes at the federal level.

As of January 31, 2012, the Company had accumulated net operating loss carryforwards for federal and state tax purposes of approximately $12,414,000 and $6,993,000, respectively, which expire as follows:


Year ended July 31,*			Federal		State
2012	†	$	1,832	$	1,332
2013			2,746		1,841
2014			-		482
2015			-		3,258
2019			843		4
2020			6,043		-
2024			4		-
2025			-		75
2030			946		-
		$	12,414	$	6,993

* Years not shown have no amounts that expire.

† Was reduced for current year estimated usage/expiration for the six months ended January 31, 2012.

An assessment is performed semi-annually of the likelihood that the Company's net deferred tax assets will be realized from future taxable income. To the extent management believes it is more likely than not that some portion, or all, of the deferred tax asset will not be realized, a valuation allowance is established. This assessment is based on all available evidence, both positive and negative, in evaluating the likelihood of realizability. Issues considered in the assessment include future reversals of existing taxable temporary differences, estimates of future taxable income (exclusive of reversing temporary differences and carryforwards) and prudent tax planning strategies available in future periods. Because the ultimate realizability of deferred tax assets is highly subject to the outcome of future events, the amount established as a valuation allowance is considered to be a significant estimate that is subject to change in the near term. To the extent a valuation allowance is established or there is a change in the allowance during a period, the change is reflected with a corresponding increase or decrease in the tax provision in the Consolidated Statements of Income.

The Company recorded a benefit related to a net change in estimate on our valuation allowance of approximately $21,000 for the quarter ended January 31, 2012 and $137,000 for the same period last year, as a result of our semi-annual evaluation of the likelihood that our net deferred tax assets will be realized from future taxable income. We will continue to evaluate the realizability of our deferred tax assets on a semi-annual basis.