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Note 14 - Income Taxes | 12 Months Ended
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Aug. 31, 2020
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | 14. INCOME TAXES The provision for income taxes for the fiscal years ended August 31, 2020 and 2019 was approximately as follows:
|  | Fiscal Year Ended August 31,
|  | 2020 |  | 2019
Current: |  |  |  |  |  |  |  |
Federal |  | $ | — |  |  | $ | — |
State |  |  | 23,000 |  |  |  | 48,000 |
Foreign |  |  | 1,226,000 |  |  |  | 902,000 |
|  |  | 1,249,000 |  |  |  | 950,000 |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | 1,501,000 |  |  |  | (315,000 | )
State |  |  | 101,000 |  |  |  | (21,000 | )
Foreign |  |  | (177,000 | ) |  |  | 228,000 |
|  |  | 1,425,000 |  |  |  | (108,000 | )
|  | $ | 2,674,000 |  |  | $ | 842,000 |
Reconciliations of the expected federal income tax at the statutory rate of 21.0% with the provisions for income taxes for the fiscal years ended August 31, 2020 and 2019 were approximately as follows:
|  | Fiscal Year Ended August 31,
|  | 2020 |  | 2019
Tax computed at statutory rates |  | $ | 365,000 |  |  | $ | 1,398,000 |
State income tax, net of federal benefit |  |  | 23,000 |  |  |  | 27,000 |
Tax effect on equity in income of international joint ventures |  |  | (888,000 | ) |  |  | (1,490,000 | )
Tax effect of foreign operations |  |  | 641,000 |  |  |  | 672,000 |
Deemed repatriation |  |  | 108,000 |  |  |  | 204,000 |
Research and development credit |  |  | (368,000 | ) |  |  | (133,000 | )
Valuation allowance |  |  | 2,797,000 |  |  |  | 133,000 |
Stock based compensation |  |  | 189,000 |  |  |  | 208,000 |
Non-controlling interest |  |  | (55,000 | ) |  |  | (74,000 | )
Other |  |  | (138,000 | ) |  |  | (103,000 | )
|  | $ | 2,674,000 |  |  | $ | 842,000 |
The Company has not provided U.S. income taxes or foreign withholding taxes with respect to its portion of the cumulative undistributed earnings of certain foreign subsidiaries and joint ventures that are essentially permanent in duration. As a result of the 2017 tax law changes, U.S. federal income taxes on dividends received from the Company's foreign subsidiaries and joint ventures after December 31, 2017 have been generally eliminated. However, the Company continues to be subject to foreign withholding taxes upon repatriation of any undistributed earnings that are not essentially permanent in duration. The Company recorded a tax benefit of approximately $76,000 and tax expense of approximately $4,000 during fiscal 2020 and fiscal 2019, respectively, representing changes in the deferred tax liability for foreign withholding taxes to be paid with respect to the portion of the cumulative undistributed earnings of foreign subsidiaries and joint ventures that the Company determined were not essentially permanent in duration. The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. The tax effect of the temporary differences and tax carryforwards comprising the net deferred taxes shown on the consolidated balance sheets as of August 31, 2020 and 2019 was approximately as follows:
|  | August 31,
|  | 2020 |  | 2019
Accrued compensation |  | $ | 173,500 |  |  | $ | 153,400 |
Inventory costs |  |  | 64,000 |  |  |  | 60,900 |
Other accrued expenses |  |  | 74,900 |  |  |  | 39,700 |
Lease liability |  |  | 147,500 |  |  |  | - |
Goodwill and other intangible assets |  |  | 581,200 |  |  |  | 688,400 |
Stock-based compensation |  |  | 397,300 |  |  |  | 299,300 |
Foreign tax credit carryforward |  |  | 5,790,500 |  |  |  | 5,790,500 |
Other credit and loss carryforwards |  |  | 4,824,200 |  |  |  | 3,631,700 |
Total deferred tax assets |  |  | 12,053,100 |  |  |  | 10,663,900 |
Valuation allowance |  |  | (11,561,700 | ) |  |  | (8,764,300 | )
Total deferred tax assets after valuation allowance |  |  | 491,400 |  |  |  | 1,899,600 |
Property and equipment |  |  | (50,700 | ) |  |  | (111,900 | )
Right-of-use asset |  |  | (147,500 | ) |  |  | - |
Other |  |  | (83,400 | ) |  |  | (153,400 | )
Total deferred tax liabilities |  |  | (281,600 | ) |  |  | (265,300 | )
Net deferred tax assets |  | $ | 209,800 |  |  | $ | 1,634,300 |
As of August 31, 2020, the Company had foreign tax credit carryforwards of approximately $5,790,500, which will begin to expire if not utilized prior to August 31, 2021. In addition, the Company had federal and state tax credit carryforwards of $3,312,400 as of August 31, 2020 which began to expire in fiscal 2021. These federal and state tax credit carryforwards consist primarily of federal and Minnesota research and development credit carryforwards. The Company also has a deferred tax asset of $1,260,600 for federal and state net operating loss carryforwards as of August 31, 2020. The federal net operating loss carryforward has an indefinite carryforward period. The Company has a deferred tax asset of $251,200 for foreign net operating loss carryforwards, $229,200 of which has an indefinite carryforward period. 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. As of August 31, 2020, the Company determined based on all available evidence, including historical data and projections of future results, that it is more likely than not that its domestic deferred tax assets, including its foreign tax credit carryforward and federal and Minnesota research and development credit carryforwards will not be realized. The Company determined that its domestic deferred tax assets, including its federal and state net operating loss carryforwards, foreign tax credit carryforwards, and federal and Minnesota research and development credit carryforwards will not be realized due to the absence of objectively verifiable sources of taxable income. On the basis of this evaluation, the Company has recorded a valuation allowance of $11,561,700 as August 31, 2020 to recognize only the portion of the deferred tax assets that is more likely than not to be realized. The net deferred tax asset as of August 31, 2020 relates entirely to non-US deferred tax assets which are expected to be realized by offset of deferred tax liability for withholding tax on cumulative undistributed earnings in foreign subsidiaries and joint ventures that the Company determined were not essentially permanent. As of August 31, 2019, the Company determined it was still in a position that a full valuation allowance was not necessary and recorded a valuation allowance of $5,790,500 with respect to the foreign tax credit carryforwards and a valuation allowance of $2,973,800 with respect to federal and state tax credit carryforwards that was determined would not be utilized prior to expiration. The Company determined that its foreign tax credit carryforward would not be realized due to insufficient foreign source taxable income within the carryforward period and the fact that for ordering purposes the foreign tax credit carryforward is not allowed to be utilized until after any current year foreign tax credits are utilized. The Company determined that its federal and Minnesota research and development credit carryforwards would not be realized due to insufficient federal and Minnesota taxable income within the carryforward period after considering the foreign tax credit utilization. The change in the valuation allowance totaled $2,797,000 and $133,000 for the years ended August 31, 2020 and 2019, respectively. The following is a tabular reconciliation of the total amounts of approximated unrecognized tax benefits:
|  | Fiscal Year Ended August 31,
|  | 2020 |  | 2019
Gross unrecognized tax benefits – beginning balance |  | $ | 248,000 |  |  | $ | 242,000 |
Gross increases – prior period tax positions |  |  | 15,200 |  |  |  | 1,000 |
Gross increases – current period tax positions |  |  | 15,000 |  |  |  | 5,000 |
Gross unrecognized tax benefits – ending balance |  | $ | 278,200 |  |  | $ | 248,000 |
The entire amount of unrecognized tax benefits would affect the effective tax rate if recognized. It is not expected that the amount of unrecognized tax benefits will change significantly in the next 12 months. The Company recognizes interest related to unrecognized tax benefits and penalties as income tax expense. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet. There was no liability for the payment of interest and penalties as of both August 31, 2020 and August 31, 2019. The Company is subject to taxation in the United States and various states and foreign jurisdictions. With few exceptions, as of August 31, 2020, the Company is no longer subject to federal, state, local, or foreign examinations by tax authorities for years prior to August 31, 2017.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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