|12 Months Ended|
Jul. 31, 2015
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 balance sheet at July 31, 2015 and July 31, 2014, respectively, and has recognized approximately $0, $41,000 and $0 of interest and/or penalties in the statement of operations for the year ended July 31, 2015, 2014 and 2013, respectively.
The Company is subject to taxation in the United States, California, New York, North Carolina and Washington. 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, 2015, the Company had federal and California income tax net operating loss carryforwards of approximately $40,330,000 and $39,009,000, respectively. In addition, the Company has federal and California research and development tax credit carryforwards of approximately $660,000 and $694,000, 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 2027 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, 2015 and 2014 are listed below:
A valuation allowance of $18,880,000 and $10,209,000 at July 31, 2015 and 2014, 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:
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef