Income tax expense consisted of the following for the fiscal years ended July 31, 2013 and 2012 (in thousands):

	Fiscal year ended
	July 31, 2013		July 31, 2012
Current
Federal	$	-	$	-
State		20		20
		20		20
Deferred
Federal		-		-
State		-		-
		-		-
	$	20	$	20

A reconciliation between the income tax expense recognized in the Company's consolidated statements of operations and the income tax expense (benefit) computed by applying the domestic federal statutory income tax rate to income before income taxes for fiscal years 2013 and 2012 is as follows (in thousands):

	2013		2012

Income tax expense at federal statutory rate (35%)	$	85	$	186
State income taxes		13		13
Change in valuation allowance		382		(160)
Effect of tax rate differences and newly enacted tax rates in Puerto Rico		(245)		-
Imputed interest expense on notes payable - related parties		(193)		(32)
Other, net		(22)		13
Total income tax expense	$	20	$	20

The deferred tax effects of the Company's principal temporary differences at July 31, 2013 and 2012 are as follows (in thousands):

	2013		2012

Allowance for doubtful receivables	$	105	$	177
Inventories		227		858
Basis difference in property and equipment		(12)		(5)
Accrued warranty costs		87		50
Accrued expenses and other		123		115
Deferred revenue		-		(42)
Net operating loss carry-forwards		10,668		9,663
Valuation allowance		(11,198)		(10,816)
Total deferred tax asset	$	-	$	-

Due to uncertainties surrounding the timing of realizing the benefits of its net favorable tax attributes in future tax returns; to the extent that it is more likely than not that the deferred tax assets may not be realized, the Company has recorded a valuation allowance against its deferred tax assets at July 31, 2013 and 2012.

At July 31, 2013, the Company has federal and state net operating loss carry-forwards of approximately $28 million which expire on various dates through 2033. As a Puerto Rico corporation not doing business in the United States, CSPR is subject to Puerto Rico income taxes but is exempt from U.S. federal income taxes. CSPR has net operating loss carry-forwards totaling approximately $500,000 available to offset future taxable income of CSPR expiring at various dates through 2022.

Approximately $450,000 of CSPR’s net operating loss carry-forwards were generated in its assembly of telecommunication equipment business which is subject to a reduced income tax rate pursuant to an exemption granted under the tax code of the Commonwealth of Puerto Rico. Such NOL is limited in availability to offset future taxable income of CSPR’s assembly operations.

Tax periods for all years after fiscal 2009 remain open to examination by the federal and state taxing jurisdictions to which the Company is subject.