Annual report pursuant to Section 13 and 15(d)

Note 10 - Income Taxes

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Note 10 - Income Taxes
 12 Months Ended
Aug. 31, 2012
Income Tax Disclosure [Text Block]
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,
 
   
2012
   
2011
 
Deferred tax assets:
           
Net operating loss carryforwards
  $ 5,948,300     $ 5,259,200  
Imputed interest on Tap Participation Fee
    8,852,500       7,558,000  
Deferred revenue
    560,700       702,000  
Impairment charges
    2,408,800       -  
Depreciation and depletion
    2,425,700       301,600  
Other
    45,000       38,900  
Valuation allowance
    (20,241,000 )     (13,859,700 )
Net deferred tax asset
  $ -     $ -  

The Company has recorded a valuation allowance equal to the excess of the deferred tax assets over the deferred tax liability 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,
 
   
2012
   
2011
   
2010
 
Expected benefit from federal taxes at statutory rate of 34%
  $ (5,922,300 )   $ (2,045,500 )   $ (1,833,000 )
State taxes, net of federal benefit
    (574,800 )     (198,500 )     (177,900 )
Expiration of net operating losses
    90,000       121,000       147,900  
Permanent and other differences
    25,800       37,800       (27,100 )
Change in valuation allowance
    6,381,300       2,085,200       1,890,100  
Total income tax expense / benefit
  $ -     $ -     $ -  

At August 31, 2012, the Company has $16 million of net operating loss carryforwards available for income tax purposes, which expire between fiscal 2013 and 2032. 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 $241,200, $324,500 and $396,500 expired during the fiscal years ended August 31, 2012, 2011 and 2010, respectively.