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, 2016

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,
	2016	2015
Deferred tax assets:
Net operating loss carryforwards	$2,393,200	$1,816,200
Deferred revenue	344,300	503,300
Depreciation and depletion	247,400	320,300
Other	65,600	34,200
Valuation allowance	(3,050,500)	(2,674,000)
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,
	2016	2015	2014
Expected benefit from federal taxes at statutory rate of 34%	$(420,300)	$(195,500)	$97,100
State taxes, net of federal benefit	(40,700)	(19,000)	9,400
Expiration of net operating losses	-	-	89,400
Permanent and other differences	84,500	91,900	96,500
Change in valuation allowance	376,500	122,600	(292,400)
Total income tax expense / (benefit)	$-	$-	$-

At August 31, 2016, the Company has $6.5 million of net operating loss carryforwards available for income tax purposes, which expire between fiscal 2032 and 2036. 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.

No net operating loss carryforwards expired during the fiscal years ended August 31, 2016 or 2015. Net operating loss carryforwards of $239,600 expired during the fiscal year ended August 2014.