Note 10. Income Taxes
At October 31, 2012 and July 31, 2012, the Company has
deferred tax assets as a result of the net operating losses incurred from inception. The resulting deferred tax assets are reduced
by a valuation allowance as discussed in Note 1, equal to the deferred tax asset as it is unlikely, based on current circumstances,
that the Company will ever realize a tax benefit. Deferred tax assets and the corresponding valuation allowances amounted to approximately
$1.8 million and $1.8 million at October 31, 2012 and July 31, 2012, respectively. The statutory tax rate is 35% and the effective
tax rate is zero.
Under current tax laws, the cumulative operating losses
incurred amounting to approximately $6.7 million and $6.7 million at October 31, 2012 and July 31, 2012, respectively, and will
begin to expire in 2023.
Section 382 of the U.S. Internal Revenue Code imposes
an annual limitation on loss carry-forwards to offset taxable income when an ownership change occurs. The Company meets the definition
of an ownership change and some of the net operating loss carry-forwards will be limited.