Note 6 - Income taxes

The benefit (provision) for income taxes for fiscal years ended July 31 is as follows:

Deferred tax assets and liabilities arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The components of deferred tax assets (liabilities) as of July 31 are as follows:

At July 31, 2013, the Company had net deferred tax liabilities of approximately $0.2 million which consists primarily of identifiable intangible assets and cumulative tax deductions in excess of book expenses recognized by foreign subsidiaries.

Net deferred tax liabilities are included in the consolidated balance sheets as of July 31 as follows:

The Company recorded a valuation allowance during the year ended July 31, 2013 and 2012 equal to domestic and certain foreign net deferred tax assets. The Company believes that the valuation allowance is necessary as it is not more likely than not that the deferred tax assets will be realized in the foreseeable future based on positive and negative evidence available at this time. This conclusion was reached because of uncertainties relating to future taxable income, in terms of both its timing and its sufficiency, which would enable the Company to realize the deferred tax assets.

As of July 31, 2013, the Company had U.S. federal net operating loss carryforwards of approximately $102.5 million. The U.S. federal tax loss carryforwards, if not fully utilized, expire between 2018 and 2033. Utilization is dependent on generating sufficient taxable income prior to expiration of the tax loss carryforwards. In addition, the Company has research and development tax credit carryforwards of approximately $0.9 million which expire between 2025 and 2033. As of July 31, 2013, the Company had foreign loss carryforwards of approximately $3.7 million.

As a result of certain acquisitions approximately $0.7 million of the Company’s U.S. federal net operating loss carryforwards are subject to an annual limitation under Internal Revenue Code Section 382 due to the ownership change. However, management does not believe that such a change would have a significant impact on the Company’s ability to utilize its tax loss carryforwards. The components of loss before income taxes consisted of the following for the years ended July 31:

The benefit (provision) for income taxes were at rates different from U.S. federal statutory rates for the following reasons for the years ended July 31:

U.S. federal income taxes have not been provided on approximately $252 of undistributed earnings at the Company’s foreign subsidiaries at July 31, 2013, because it is the Company’s intent to keep the earnings reinvested. As of July 31, 2013, the Company has 0 liabilities for uncertain tax positions. It is the Company’s policy to record interest and penalties as a component of tax expense. The Company files income tax returns in the U.S. Federal jurisdiction, various U.S. state jurisdictions and several foreign jurisdictions. With few exceptions, the years that remain subject to examination are years July 31, 2010 through 2012.