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INCOME TAXES
 12 Months Ended
May 31, 2022
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]

NOTE 7:    INCOME TAXES

 

Provision for income taxes for the years ended May 31 consists of the following:

 

 

 

 For the year ended May 31,

 

2022

2021

Current:

 

 

 

 

 

 

U.S. Federal

$

 -

$

 -

Foreign Taxes Subsidiaries

 

 

(23,000)

 

 

(12,000)

State and local

 

(1,000)

 

(1,000)

Total current

 

 

(24,000)

 

 

(13,000)

Deferred:

U.S. Federal 

 

 

 -

 

 

 -

State and local

 -

 -

Total deferred

 

 

 -

 

 

 -

Income tax expense

 

 $

(24,000)

 

$

(13,000)

Provision for income taxes differs from the amounts computed by applying the U.S. Federal income tax rate applicable for each year (21% for 2022 and 2021) to pretax income as a result of the following:

 

 

 

For the year ended May 31,
   

2022

  

2021

Computed "expected" tax benefit

 

$

947,000

 

$

1,561,000

Increase (reduction) in income taxes resulting from:

            

Change in valuation allowance

 

 

(1,022,000)

 

 

(2,292,000)

State income taxes, net of federal benefit

    

300,000

    

217,000

Research and development tax credits

 

 

50,000

 

 

456,000

Permanent tax differences and other

    

(217,000)

    

(88,000)

Stock based compensation benefit

 

 

11,000

 

 

145,000

Foreign taxes of subsidiaries

 

 

(113,000)

 

 

(12,000)

Income tax expense

  

$

(24,000)

  

$

(13,000)

The tax effect of significant temporary differences is presented below:

 

 

 

May 31,

2022

2021

Deferred tax assets:

 

 

 

 

 

 

Accounts receivable, principally due to allowance for doubtful accounts

$

43,000

$

200,000

Inventory valuation   

 

 

237,000

 

 

387,000

Compensated absences

120,000

85,000

Net operating loss carryforwards   

 

 

4,349,000

 

 

3,194,000

Tax credit carryforwards

1,096,000

1,055,000

Deferred rent expense/Capitalized leases

 

 

20,000

 

 

15,000

Stock Options

1,035,000

613,000

Losses of foreign subsidiaries & Other, net

 

 

41,000

 

 

370,000

Accumulated depreciation and amortization

 

26,000

 

(15,000)

Total deferred tax assets   

 

 

6,967,000

 

 

5,904,000

Less valuation allowance

 

(6,967,000)

 

(5,904,000)

Net deferred tax asset

 

$

 -

 

$

 -

The Company has provided a valuation allowance of approximately $6,967,000 and $5,904,000 as of May 31, 2022 and 2021, respectively. The net change in the valuation allowance for the years ended May 31, 2022 and 2021, was an increase of $1,063,000 and $2,292,000, respectively.

 

On May 31, 2022, the Company has Federal income tax net operating loss carryforwards of approximately $17,116,000.  On May 31, 2022, the Company has California state income tax net operating loss carryforwards of approximately $10,805,000. For tax reporting purposes, operating loss carryforwards are available to offset future taxable income; such carryforwards expire in varying amounts beginning in 2023 and 2037 for federal and state purposes, respectively.  Federal net operating losses beginning in 2018 have no expiration date.

 

On May 31, 2022, the Company has Federal research and development tax credit carryforward of approximately $784,000.  The Federal credits begin to expire in 2027.  The Company also had similar credit carryforwards for state purposes of $395,000 on May 31, 2022, which don’t expire.

 

Pursuant to Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the Company's net operating loss ("NOL") and credit carryforwards may be limited by statute because of a cumulative change in ownership of more than 50%. Pursuant to Sections 382 and 383 of the IRC, the annual use of the Company's NOLs and credit carryforwards would be limited if there is a cumulative change of ownership (as that term is defined in Section 382(g) of the IRC of greater than 50% in a three-year period. Management has not performed an analysis to determine if the Company has had a cumulative change in ownership of greater than 50%.

 

For the year ended May 31, 2022, the Company did an analysis of its ASC 740 position and has not identified any uncertain tax positions as defined under ASC 740. Should such position be identified in the future, and should the Company owe interest and penalties as a result of this, these would be recognized as interest expense and other expense, respectively, in the consolidated financial statements. The Company is no longer subject to any significant U.S. federal tax examinations by tax authorities for years before fiscal 2018.