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Note 15 - Income Taxes
 12 Months Ended
Aug. 31, 2012
Income Tax Disclosure [Text Block]
15.           INCOME TAXES

The provision for income taxes for the fiscal years ended August 31, 2012 and 2011 consists of the following:

   
Fiscal Year Ended August 31,
 
   
2012
   
2011
 
Current:
           
Federal
  $ —     $ —  
State
    25,000       40,000  
Foreign
    1,015,000       344,000  
      1,040,000       384,000  
Deferred:
               
Federal
    44,000       303,000  
State
    (43,000 )     19,000  
Foreign
    —       —  
      1,000       322,000  
    $ 1,041,000     $ 706,000  

Reconciliations of the expected federal income tax at the statutory rate with the provisions for income taxes for the fiscal years ended August 31, 2012 and 2011 are as follows:

   
Fiscal Year Ended August 31,
 
   
2012
   
2011
 
Tax computed at statutory rates
  $ 1,570,000     $ 1,692,000  
State income tax, net of federal benefit
    (17,000 )     46,000  
Tax effect on equity in income (loss) of international joint ventures
    (1,616,000 )     (1,705,000 )
Tax effect on dividends received from joint ventures
    1,363,000       1,229,000  
Benefit of foreign operations
    556,000       119,000  
Foreign tax credit
    (1,729,000 )     (1,440,000 )
Research and development credit
    (330,000 )     (205,000 )
Valuation allowance
    1,177,000       896,000  
Other
    67,000       74,000  
    $ 1,041,000     $ 706,000  

The Company has not provided U.S. income taxes or foreign withholding taxes with respect to its portion of the cumulative undistributed earnings of foreign joint ventures that are essentially permanent in duration.  The Company’s portion of the cumulative undistributed earnings of foreign joint ventures that are essentially permanent in duration were $18,185,000 and $17,948,000 at August 31, 2012 and 2011, respectively.  If some or all of the undistributed earnings of the joint ventures are remitted to the Company in the future, income taxes, if any, after the application of foreign tax credits will be provided at that time.  To the extent undistributed earnings of the Company’s joint ventures are distributed in the future, it is not expected to result in any material additional income tax liability after the application of foreign tax credits.

The tax effect of the temporary differences and tax carry forwards comprising the net deferred taxes shown on the consolidated balance sheets at August 31, 2012 and 2011 are as follows:

   
August 31,
 
   
2012
   
2011
 
Current:
           
Accrued bonus
  $ 404,100     $ —  
Allowance for doubtful accounts
    7,200       7,200  
Inventory costs
    11,900       12,600  
Prepaid expenses and other
    (27,300 )     (24,900 )
Other accrued expenses
    96,200       122,600  
Deferred joint venture expenses
    104,100       104,100  
Total current
  $ 596,200     $ 221,600  
                 
Noncurrent:
               
Property and equipment
  $ (159,500 )   $ (141,100 )
Goodwill
    43,100       51,000  
Other intangible assets
    949,200       497,200  
Nonqualified stock options
    196,100       113,000  
Foreign tax credit carryforward
    3,438,300       3,524,300  
                 
Research and development credit
    1,485,800       1,155,600  
New hire retention credit
    9,000       10,000  
      5,962,000       5,210,000  
Valuation allowance
    (4,933,100 )     (3,799,300 )
Total noncurrent
  $ 1,028,900     $ 1,410,700  

At August 31, 2012, the Company had foreign tax credit carryforwards of approximately $3,438,300, of which approximately $469,000 will expire if not utilized by August 31, 2013.  In addition, the Company had federal and state tax credit carryforwards of $1,494,800 at August 31, 2012 which begin to expire in fiscal 2019.  These federal and state tax credit carryforwards consist primarily of federal and Minnesota research and development credit carryforwards.

The Company has recorded a valuation allowance of $3,438,300 with respect to the foreign tax credit carryforwards.  In addition, the Company has recorded a valuation allowance of $1,494,800 with respect to Minnesota research and development credit carryforwards.

The Company records a tax valuation allowance to reduce deferred tax assets to the amount expected to be realized when it is more likely than not that some portion or all of its deferred tax assets will not be realized.  The Company determined based on all available evidence, including historical data and projections of future results, that it is more likely than not that all of its deferred tax assets, except for its foreign tax credit carryforward and Minnesota research and development credit carryforwards, will be fully realized.  The Company determined that its deferred tax asset related to foreign tax credit carryforwards will not be realized due to insufficient federal taxable income within the carryforward period and the fact that for ordering purposes the foreign tax credit carryforwards are not allowed to be used until after any current year foreign tax credits are utilized.  In addition, based on historical data and future projections, the Company determined that it is more likely than not that its deferred tax asset related to federal and Minnesota research and development credit carryforwards will not be realized due to insufficient federal and Minnesota taxable income within the carryforward period after considering the foreign tax credit usage.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:

   
Fiscal Year Ended August 31,
 
   
2012
   
2011
 
Gross unrecognized tax benefits – beginning balance
  $ 131,000     $ 105,000  
Gross increases - prior period tax positions
    -       11,000  
Gross increases – current period tax positions
    -       15,000  
Gross unrecognized tax benefits – ending balance
  $ 131,000     $ 131,000  

The entire amount of unrecognized tax benefits would affect the effective tax rate.  It is not expected that the amount of unrecognized tax benefits will change significantly in the next 12 months.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the Company’s income tax provision.  Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet.  The liability for the payment of interest and penalties was $0 at both August 31, 2012 and August 31, 2011.

The Company is subject to taxation in the United States and various states and foreign jurisdictions.  With few exceptions, as of August 31, 2012, the Company is no longer subject to federal, state, local, or foreign examinations by tax authorities for years prior to August 31, 2009.