Income Taxes

12 Months Ended

Aug. 31, 2017

Notes

Income Taxes

Income Taxes

The Company follows the provisions of the ASC 740 -10 related to, Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

The Company has adopted ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open.

For the years ended August 31, 2017, 2016 and 2015, the benefit for income taxes differed from the amounts computed by applying the statutory federal income tax rate at which rate the tax benefits is expected to occur. The reconciliation is as follows:

	Years Ended August 31,
	2017	2016	2015
Benefit computed at statutory rate	$     157,000	$     (295,000)	$   (142,000)
State tax (benefit), net of federal affect	31,000	(61,000)	(30,000)
Permanent differences (primarily change in fair value of derivative liability)	(188,000)	253,000	77,000
Increase in valuation allowance	-	103,000	95,000
Net income tax benefit	$                -	$                  -	$                -

The Company has net operating loss carry-forwards for income tax totaling purposes approximately $4.2 million at August 31, 2017 which expire at various times through 2037. A significant portion of these carry-forwards is subject to annual limitations due to “equity structure shifts” or “owner shifts” involving “five percent shareholders” (as defined in the Internal Revenue Code) which results in a more than fifty percent change in ownership.

The net deferral tax asset is as follows:

	Years Ended August 31,
	2017	2016	2015
Net operating loss carry-forward	$        1,043,000	$        1,043,000	$        941,000
Accrued compensation	130,000	172,000	130,000
Valuation allowance	(1,173,000)	(1,215,000)	(1,071,000)
Net deferred tax asset	$                       -	$                       -	$                    -

The valuation allowance increased by $424,000 during the fiscal year ended August 31, 2017.