7. INCOME TAXES

12 Months Ended

Aug. 31, 2015

Income Tax Disclosure [Abstract]

INCOME TAXES

We utilize FASB ASC 740-10, “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.

Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

The components of the income tax provision for fiscal years 2015 and 2014 were as follows:

	2015			2014
Current
Federal	$	1,557,897		$	186,052
State		236,152			2,858
		1,794,049			188,910
Deferred
Federal		(15,036	)		1,180,655
State		70,955			118,241
		55,919			1,298,896
Total	$	1,849,968		$	1,487,806

A reconciliation of the expected income tax (benefit) computed using the federal statutory income tax rate to the Company's effective income tax rate is as follows for fiscal years 2015 and 2014:

	2015			2014
Income tax computed at federal statutory tax rate		34.0%			34.0%
State taxes, net of federal benefit		5.0			5.1
Meals & Entertainment		0.1			0.1
Other permanent differences		(0.2	)		2.6
Research and development credit		(6.9	)		(9.6	)
Change in prior year estimated taxes		0.5			0.8
Total		32.5%			33.0%

Significant components of the Company's deferred tax assets and liabilities for income taxes for the fiscal years ended August 31, 2015 and 2014 are as follows:

	2015			2014
Deferred tax assets
Accrued payroll and other expenses	$	97,625		$	88,573
Deferred revenue		43,703			12,473
Capitalized merger costs		299,965			93,306
Intellectual property		24,221			19,442
Research and development credit		90,365			216,917
State taxes		78,089			272
State Tax Deferred		175,044			120,575
Total deferred tax assets		809,012			551,558
Less: Valuation allowance		–			–
		809,012			551,558
Deferred tax liabilities
Property and equipment		(159,980	)		(27,178	)
State Tax Deferred		(8,445	)		(5,914	)
Intellectual Property		(2,053,219	)		(1,361,535	)
Capitalized computer software development costs		(1,566,815	)		(1,417,959	)
Total deferred tax liabilities		(3,788,460	)		(2,812,586	)
Net deferred tax liabilities	$	(2,979,447	)	$	(2,261,028	)

We follow guidance issued by the FASB with regard to our accounting for uncertainty in income taxes recognized in the financial statements. Such guidance prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. Interest and penalties totaled $ -0- and $-0- for fiscal years 2015 and 2014, respectively. We file income tax returns with the IRS and various state jurisdictions and India. Our federal income tax returns for fiscal year 2011 thru 2014 are open for audit, and our state tax returns for fiscal year 2010 through 2014 remain open for audit. In addition our California tax return for the fiscal year 2007 and fiscal year 2008 remains open with regard to research and development tax credits as a result of a previous audit for which we received a letter from the California Franchise Tax Board stating that an audit will not be conducted for those years at this time; however it may be subject to future audit. In 2015 the Company was informed that the IRS will be auditing the Company’s tax return for 2014. The audit was started in October 2015 and has not been completed. The Company does not believe that this examination by the IRS will result in a significant change to our financial position or results of operations.

Our review of prior year tax positions using the criteria and provisions presented in guidance issued by FASB did not result in a material impact on our financial position or results of operations.