Pure Cycle Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

INCOME TAXES

12 Months Ended

Aug. 31, 2015

There is a provision of $292,700 for income taxes as of August 31, 2015. Deferred income taxes reflect the tax effects of net operating loss carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets as of August 31 are as follows:

	For the Fiscal Years Ended August 31,
	2015			2014
Deferred tax assets:
Net operating loss carryforwards	$	1,816,200		$	7,279,900
Imputed interest on Tap Participation Fee		-			10,609,600
Deferred revenue		503,300			768,400
Impairment charges		-			2,360,200
Depreciation and depletion		320,300			4,695,900
Other		34,200			26,700
Valuation allowance		(2,674,000	)		(25,740,700	)
Net deferred tax asset	$	-		$	-

The Company has recorded a valuation allowance against the deferred tax assets as the Company is unable to reasonably determine if it is more likely than not that deferred tax assets will ultimately be realized.

Income taxes computed using the federal statutory income tax rate differs from our effective tax rate primarily due to the following for the fiscal years ended August 31:

	For the Fiscal Years Ended August 31,
	2015			2014			2013
Expected benefit from federal taxes at statutory rate of 34%	$	(7,863,500	)	$	(105,900	)	$	(1,411,200	)
State taxes, net of federal benefit		(763,200	)		(10,300	)		(137,000	)
Expiration of net operating losses		-			89,400			147,400
Sale of land and water assets		(14,239,200	)		4,078,800			-
Permanent and other differences		91,900			96,500			27,400
Change in valuation allowance		23,066,700			(4,148,500	)		1,373,400
Income tax expense - current	$	292,700		$	-		$	-

At August 31, 2015, the Company has $4.3 million of net operating loss carryforwards available for income tax purposes, which expire between fiscal 2032 and 2034. Utilization of these net operating loss carryforwards may be subject to substantial annual ownership change limitations provided by the Internal Revenue Code. Such an annual limitation could result in the expiration of the net operating loss carryforwards before utilization.

Net operating loss carryforwards of nil, $239,600 and $395,200 expired during the fiscal years ended August 31, 2015, 2014 and 2013, respectively.