8. INCOME TAXES

12 Months Ended

Aug. 31, 2018

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 8 - 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 year 2018, 2017 and 2016 were as follows:

	2018			2017			2016
Current
Federal	$	2,370,955		$	2,385,660		$	2,118,229
State		460,619			217,281			171,840
Foreign		104,377			28,103			19,428
		2,935,951			2,631,044			2,309,497
Deferred
Federal		(1,698,201	)		(612,629	)		22,936
State		(33,620	)		434,255			(46,177	)
		(1,731,821	)		(178,374	)		(23,241	)
Total	$	1,204,130		$	2,452,670		$	2,286,256

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 year 2018, 2017 and 2016:

	2018			2017			2016
Income tax computed at federal statutory tax rate		25.4%			34.0%			34.0%
State taxes, net of federal benefit		4.0			3.5			3.4
Meals & Entertainment		0.0			0.0			0.1
Stock Based Compensation		0.5			0.0			1.3
Other permanent differences		1.2			(0.5	)		(0.6	)
Research and development credit		(2.6	)		(3.6	)		(2.7	)
Domestic Production Activities		(1.8	)		(2.3	)		(3.6	)
Change in deferred income taxes due to statutory rate changes		-14.8			–			–
Change in prior year estimated taxes		(0.0	)		(1.3	)		(0.3	)
Total		11.9%			29.8%			31.6%

Significant components of the Company's deferred tax assets and liabilities for income taxes for the fiscal years ended August 31, 2018 and 2017 are as follows:

	2018			2017
Deferred tax assets
Accrued payroll and other expenses	$	187,220		$	254,897
Deferred revenue		34,955			62,617
Capitalized merger costs		365,801			540,312
Intellectual property		11,066			18,775
State taxes		96,730			91,513
State Tax Deferred		174,800			293,879
Total deferred tax assets		870,572			1,261,993
Less: Valuation allowance		–			–
		870,572			1,261,993
Deferred tax liabilities
Property and equipment		(57,636	)		(95,071	)
State Tax Deferred		(10,701	)		(16,763	)
Intellectual Property		(2,593,292	)		(4,343,311	)
Capitalized computer software development costs		(1,404,082	)		(1,733,808	)
Total deferred tax liabilities		(4,065,711	)		(6,188,953	)
Net deferred tax liabilities	$	(3,195,139	)	$	(4,926,960	)

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 year 2018, 2017, and 2016, respectively. We file income tax returns with the IRS and various state jurisdictions and India. Our federal income tax returns for fiscal year 2013 and 2015 thru 2017 are open for audit, and our state tax returns for fiscal year 2012 through 2017 remain open for audit. In addition, our California tax return for the fiscal year 2007 and fiscal year 2008 remains open with regard to R&D 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 was auditing the Company’s tax return for 2014. This audit was completed during FY2016; there were no changes as a result of the audit.

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.