Annual report pursuant to Section 13 and 15(d)

Income taxes

v2.4.0.6
Income taxes
 12 Months Ended
Jul. 31, 2012
Income Tax Disclosure [Text Block]

Note 7 - Income taxes


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


 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

2011

 

2010

 

 

 

 

 

 

Current (provision) benefit:

 

 

 

 

 

 

 

Federal

 

$

—

 

$

8

 

$

119

 

State and local

 

 

(49

)

 

(161

)

 

(75

)

Foreign

 

 

(61

)

 

33

 

 

(61

)

Deferred (provision) benefit

 

 

1,762

 

 

(17

)

 

45

 

 

 

 

 

 

Benefit (provision) for income taxes

 

$

1,652

 

$

(137

)

$

28

 

 

 

 

 

 


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:


 

 

 

 

 

 

 

 

 

 

2012

 

2011

 

 

 

 

 

Deferred tax assets:

 

 

 

 

 

 

 

Federal tax carryforward losses

 

$

29,531

 

$

25,504

 

Provision for uncollectible accounts receivable

 

 

1,263

 

 

1,340

 

State and local tax carry forward losses

 

 

2,914

 

 

2,419

 

Accrued royalties

 

 

143

 

 

143

 

Stock compensation

 

 

450

 

 

1,218

 

Depreciation

 

 

445

 

 

—

 

Research and development and other tax credit carryforwards

 

 

795

 

 

633

 

Foreign tax carryforward losses

 

 

108

 

 

381

 

Intangibles

 

 

2,903

 

 

—

 

Inventory

 

 

1,630

 

 

1,515

 

Accrued expenses

 

 

909

 

 

736

 

Other, net

 

 

15

 

 

23

 

 

 

 

 

Deferred tax assets

 

 

41,106

 

 

33,912

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

 

 

Deferred patent costs

 

 

(139

)

 

(170

)

Intangibles

 

 

—

 

 

(2,983

)

Depreciation

 

 

—

 

 

(27

)

Prepaid expenses

 

 

(613

)

 

(691

)

Other, net

 

 

(31

)

 

(55

)

 

 

 

 

Deferred tax liabilities

 

 

(783

)

 

(3,926

)

 

 

 

 

 

 

 

 

 

 

 

 

Net deferred tax assets (liabilities) before valuation allowance

 

 

40,323

 

 

29,986

 

Less: valuation allowance

 

 

(41,261

)

 

(32,920

)

 

 

 

 

Net deferred tax liabilities

 

$

(938

)

$

(2,934

)

 

 

 

 


At July 31, 2012, the Company had net deferred tax liabilities of approximately $0.9 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:


 

 

 

 

 

 

 

 

 

 

2012

 

2011

 

 

 

 

 

Deferred taxes:

 

 

 

 

 

 

 

Current

 

$

—

 

$

—

 

Non-current

 

 

938

 

 

2,934

 

 

 

 

 

 

 

$

938

 

$

2,934

 

 

 

 

 


The Company recorded a valuation allowance during the year ended July 31, 2012 and 2011 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, 2012, the Company had U.S. federal net operating loss carryforwards of approximately $86.9 million. The U.S. federal tax loss carryforwards, if not fully utilized, expire between 2013 and 2032. 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 $0.7 million which expire between 2025 and 2032. As of July 31, 2012, the Company had foreign loss carryforwards of approximately $0.4 million.


As a result of certain acquisitions approximately $1.1 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:


 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

2011

 

2010

 

 

 

 

 

 

United States operations

 

$

(31,817

)

$

(12,284

)

$

(19,642

)

International operations

 

 

(9,104

)

 

(539

)

 

(2,619

)

 

 

 

 

 

Loss before taxes

 

$

(40,921

)

$

(12,823

)

$

(22,261

)

 

 

 

 

 


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:


 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

2011

 

2010

 

 

 

 

 

 

Federal statutory rate

 

 

34.0

%

 

34.0

%

 

34.0

%

Expenses not deductible for income tax return purposes

 

 

(0.5

)

 

(2.3

)

 

(1.5

)

State income taxes, net of (benefit) of federal tax deduction

 

 

0.9

 

 

1.0

 

 

0.1

 

Change in valuation allowance

 

 

(23.2

)

 

(34.6

)

 

(32.3

)

Impairment of goodwill

 

 

(7.1

)

 

—

 

 

—

 

Reversal of tax reserve

 

 

—

 

 

0.1

 

 

0.5

 

Other

 

 

(0.1

)

 

0.7

 

 

(0.7

)

 

 

 

 

 

 

 

 

4.0

%

 

(1.1

)%

 

0.1

%

 

 

 

 

 


U.S. federal income taxes have not been provided on approximately $164 of undistributed earnings at the Company’s foreign subsidiaries at July 31, 2012, because it is the Company’s intent to keep the earnings reinvested. As of July 31, 2012, the Company has no 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, 2009 through 2011.