8. INCOME TAXES

12 Months Ended

Aug. 31, 2019

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 2019, 2018 and 2017 were as follows:

	2019			2018			2017
Current
Federal	$	1,794,596		$	2,370,955		$	2,385,660
State		426,364			460,619			217,281
Foreign		51,285			104,377			28,103
		2,272,245			2,935,951			2,631,044
Deferred
Federal		(140,730	)		(1,698,201	)		(612,629
State		(158,368	)		(33,620			434,255
		(299,098	)		(1,731,821	)		(178,374	)
Total	$	1,973,147		$	1,204,130		$	2,452,670

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 2019, 2018 and 2017:

	2019		2018		2017
Income tax computed at federal statutory tax rate		21.0%		25.4%		34.0%
State taxes, net of federal benefit		4.1		4.0		3.5
Meals & entertainment		0.1		0.0		0.0
Stock based compensation		(2.6)		0.5		0.0
Other permanent differences		(0.7)		1.2		(0.5)
Research and development credit		(2.3)		(2.6)		(3.6)
Domestic production activities		–		(1.8)		(2.3)
Change in deferred income taxes due to statutory rate changes		–		(14.8)		–
Change in prior year estimated taxes		(0.9)		(0.0)		(1.3)
Total		18.7%		11.9%		29.8%

Significant components of the Company's deferred tax assets and liabilities for income taxes for the fiscal years ended August 31, 2019 and 2018 are as follows:

	2019			2018
Deferred tax assets
Accrued payroll and other expenses	$	236,455		$	187,220
Deferred revenue		55,038			34,955
Capitalized merger costs		361,103			365,801
Intellectual property		9,301			11,066
State taxes		89,537			96,730
State tax deferred		146,815			174,800
Total deferred tax assets		898,249			870,572
Less: Valuation allowance		–			–
		898,249			870,572
Deferred tax liabilities
Property and equipment		(61,991	)		(57,636	)
State tax deferred		(16,471	)		(10,701	)
Intellectual property		(2,217,234	)		(2,593,292	)
Capitalized computer software development costs		(1,334,169	)		(1,404,082	)
Total deferred tax liabilities		(3,629,865	)		(4,065,711	)
Net deferred tax liabilities	$	(2,731,616	)	$	(3,195,139	)

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 income tax expense. Interest and penalties totaled $2,531, -0-, and $-0- for fiscal year 2019, 2018, and 2017, respectively. We file income tax returns with the IRS and various state jurisdictions and India. Our federal income tax returns for fiscal year 2015 thru 2018 are open for audit, and our state tax returns for fiscal year 2013 through 2018 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.

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.