Income Taxes

12 Months Ended

Aug. 31, 2012

Income Taxes [Abstract]

Income Taxes

5. Income Taxes

The provision (benefit) for income taxes consisted of the following:

	Year Ended August 31,
	2012		2011
			(Restated)
Current tax (benefit) expense:
Federal	$	—	$	(569,430	)
State		—		(3,000	)
Total current		—		(572,430	)
Deferred tax (benefit) expense:
Federal		4,018,699		(785,038	)
State		—		—
Total deferred		4,018,699		(785,038	)
Total income tax (benefit) expense	$	4,018,699	$	(1,357,468	)

As of August 31, 2012 there was an income tax expense of $4,018,699. The Company had anticipated collecting significant amounts of money from the MDR cases, which were fully reserved, to offset some of the prior years’ losses but has not been successful as yet. In addition, the Company in fiscal year 2012 continued to have operating losses. The Company believes that the likelihood of realizing future tax benefit for the deferred tax assets is low, and hence increased the valuation allowance to write-off the deferred tax assets. As of August 31, 2011, the Company had an income tax benefit of $1,146,766. Please refer to note 15 of these Consolidated Financial Statements for a discussion of the restated income tax receivable as at August 31, 2011.

The components of the provision (benefit) for deferred income taxes at August 31 were as follows:

	2012			2011
				Restated
Applicable to:
Net operating loss carryforward	$	(4,941,754	)	$	(5,466,384	)
Differences between revenues and expenses recognized for federal income tax and financial reporting purposes		2,172,058			(341,188	)
Difference in method of computing depreciation for tax and financial reporting purposes		49,061			(42,535	)
Valuation allowance		6,739,334			5,065,069
Deferred income tax expense (benefit)	$	4,018,699		$	(785,038	)

Significant components of the Company’s deferred tax liabilities and assets were as follows at August 31, 2012:

	Current			Noncurrent
Deferred tax liabilities:
Depreciation	$	—		$	(180,415	)
Deferred tax assets:
Net operating loss carryforward		—			7,827,575
Revenue and expense differences		54,664			3,342,010
Allowance for uncollectible accounts		513,456			—
Asset impairment		370,320			—
Other		(166,758	)		43,551
Valuation allowance		(771,682	)		(11,032,721	)
Net deferred tax asset (liability)	$	—		$	—

Significant components of the Company’s deferred tax liabilities and assets were as follows at August 31, 2011:

	Current			Noncurrent
				(Restated)
Deferred tax liabilities:
Depreciation	$	—		$	(131,353	)
Exchange gains provision		—			(518,217	)
Investment valuation		—			(3,500,481	)
Deferred tax assets:
Net operating loss carryforward					2,885,821
Revenue and expense differences		350,986			4,521,437
Allowance for uncollectible accounts		656,884			—
Asset impairment		79,239			633,915
Other		—			86,838
Valuation allowance		(1,087,109	)		(3,977,960	)
Net deferred tax asset (liability)	$	—		$	—

In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Due to the uncertainty of the Company’s ability to recognize the benefit from the net operating losses, the Company has recorded a full valuation allowance against the deferred tax assets as at August 31, 2012.

The Company recognizes tax benefits only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards.

A reconciliation of the benefit for income taxes with amounts determined by applying the statutory federal income tax rate to income before income taxes and noncontrolling interests is as follows:

	Year Ended August 31,
	2012			2011
				(Restated)
Benefit for income taxes computed using the statutory rate of 35%	$	(2,294,590	)	$	(6,561,039	)
State income taxes, net of federal benefit		—			(1,950	)
Noncontrolling interest in loss of consolidated subsidiaries		16,575			5,592
Non-deductible expenses		(442,620	)		134,860
Changes in valuation allowance		6,739,334			5,065,069
Expense (benefit) for income taxes	$	4,018,699		$	(1,357,468	)

The Company files income tax returns in the U.S. federal and foreign jurisdictions. The U.S. Internal Revenue Service has closed examination of the Company’s income tax returns through fiscal year 2007. With regard to foreign tax jurisdictions, the Company has not been subjected to examination by tax authorities since it started its foreign operations.