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, 2013

NOTE 10 – INCOME TAXES

There is no provision for income taxes, because the Company has incurred operating losses. 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,
	2013			2012
Deferred tax assets:
Net operating loss carryforwards	$	6,080,000		$	5,948,300
Imputed interest on Tap Participation Fee		10,074,200			8,852,500
Deferred revenue		494,600			560,700
Impairment charges		—			2,408,800
Depreciation and depletion		4,899,800			2,425,700
Other		43,600			45,000
Valuation allowance		(21,592,200	)		(20,241,000	)
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,
	2013			2012			2011
Expected benefit from federal taxes at statutory rate of 34%	$	(1,411,200	)	$	(5,922,300	)	$	(2,045,500	)
State taxes, net of federal benefit		(137,000	)		(574,800	)		(198,500	)
Expiration of net operating losses		147,400			90,000			121,000
Permanent and other differences		27,400			25,800			37,800
Change in valuation allowance		1,373,400			6,381,300			2,085,200
Total income tax expense / benefit	$	—		$	—		$	—

At August 31, 2013, the Company has $16.3 million of net operating loss carryforwards available for income tax purposes, which expire between fiscal 2014 and 2028. 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 $395,200, $241,200 and $324,500 expired during the fiscal years ended August 31, 2013, 2012 and 2011, respectively.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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