Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.8
Income Taxes
12 Months Ended
Jul. 31, 2014
Income Taxes  
Income Taxes

Note 10—Income Taxes

 

The FASB Topic on Income Taxes prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company has had no unrecognized tax benefits.

 

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had an accrual of $0 and $0 for interest or penalties on the Company’s consolidated balance sheets at July 31, 2014 and July 31, 2013 respectively, and has recognized $41,000, $0 and $0 of interest and/or penalties in the consolidated statements of operations for the years ended July 31, 2014, 2013 and 2012, respectively.

 

The Company is subject to taxation in the United States and California. The Company’s tax years for 2008 and forward are subject to examination by the United States and California tax authorities due to the carry forward of unutilized net operating losses and research and development credits.

 

At July 31, 2014, the Company had federal and California income tax net operating loss carryforwards of approximately $12,056,000 and $11,905,000, respectively.  In addition, the Company has federal and California research and development tax credit carryforwards of approximately $128,000 and $268,000, respectively. The Company also has California Hiring Credits of approximately $9,300.  The federal net operating loss, research tax credit carryforwards and California net operating loss carryforwards will begin to expire in 2030 unless previously utilized. The California research and development credit carryforwards will carry forward indefinitely until utilized. The Company has not completed a study to assess whether an ownership change has occurred, as defined by IRC Section 382/383 or whether there have been multiple ownership changes since the Company’s formation due to the complexity and cost associated with such a study, and the fact that there may be additional such ownership changes in the future.  Based on a preliminary assessment, the Company believes that an ownership change occurred in 2011. The Company estimates that if such a change did occur, the federal and state net operating loss carry-forwards and research and development credits that can be utilized in the future will be significantly limited. There can be no assurance that the Company will ever be able to realize the benefit of some or all of the federal and state loss carryforwards or the credit carryforwards, either due to ongoing operating losses or due to ownership changes, which limit the usefulness of the loss carryforwards.

 

Significant components of the Company’s deferred tax assets as of July 31, 2014 and 2013 are listed below (in thousands):

 

 

 

2014

 

2013

 

Net operating loss carryforwards

 

8,211,000

 

4,444,000

 

Credits

 

397,000

 

190,000

 

Start-up costs

 

61,000

 

67,000

 

Accumulated Depreciation

 

663,000

 

450,000

 

Other

 

877,000

 

253,000

 

Net deferred tax assets

 

10,209,000

 

5,404,000

 

Valuation allowance for deferred tax assets

 

(10,209,000

)

(5,404,000

)

Net deferred taxes

 

$

 

$

 

 

A valuation allowance of $10,209,000 and $5,404,000 at July 31, 2014 and 2013, respectively, has been recognized to offset the net deferred tax assets as realization of such assets is uncertain.

 

A reconciliation of incomes taxes using the statutory income tax rate, compared to the effective rate, is as follows:

 

 

 

2014

 

2013

 

2012

 

Federal tax benefit at the expected statutory rate

 

34.00

%

34.00

%

34.00

%

State income tax, net of federal tax benefit

 

(0.01

)%

(0.01

)%

(0.07

)%

Loss on extinguishment of debt

 

 

 

(11.48

)%

Adjustment of fair value of derivative liabilities

 

 

 

63.20

%

Non-deductible expenses

 

(0.45

)%

(0.08

)%

(6.63

)%

Change in valuation allowance

 

(33.90

)%

(33.93

)%

(81.58

)%

Other

 

 

 

2.45

%

Income tax benefit - effective rate

 

(0.36

)%

(0.02

)%

(0.11

)%