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INCOME TAXES
 12 Months Ended
May 31, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 7: INCOME TAXES

 

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

 

SCHEDULE OF PROVISION FOR INCOME TAXES 

   2023   2022 
   For the Year Ended May 31, 
   2023   2022 
Current:          
U.S. Federal  $-   $- 
Foreign Taxes Subsidiaries   (50,000)   (23,000)
State and local   (1,000)   (1,000)
Total current   (51,000)   (24,000)
Deferred:          
U.S. Federal   -    - 
State and local   -    - 
Total deferred   -    - 
Income tax expense  $(51,000)  $(24,000)

 

 

Provision for income taxes differs from the amounts computed by applying the U.S. Federal income tax rate applicable for each year (21% for 2023 and 2022) to pretax income as a result of the following:

 

   2023   2022 
   For the Year Ended May 31, 
   2023   2022 
Computed “expected” tax benefit  $1,490,000    947,000 
Increase (reduction) in income taxes resulting from:          
Change in valuation allowance   (1,973,000)   (1,022,000)
State income taxes, net of federal benefit   583,000    300,000 
Research and development tax credits   -    50,000 
Permanent tax differences and other   (17,000)   (197,000)
Stock based compensation benefit   (5,000)   11,000 
Foreign taxes of subsidiaries   (129,000)   (113,000)
Income tax expense  $(51,000)  $(24,000)

 

 

 The tax effect of significant temporary differences is presented below:

 

 SCHEDULE OF DEFERRED TAX ASSETS

   2023   2022 
   May 31, 
   2023   2022 
Deferred tax assets:          
Accounts receivable, principally due to allowance for doubtful accounts  $8,000   $43,000 
Inventory valuation   188,000    237,000 
Compensated absences   118,000    120,000 
Net operating loss carryforwards   5,817,000    4,349,000 
Tax credit carryforwards   1,239,000    1,096,000 
Deferred rent expense/Capitalized leases   11,000    20,000 
Stock Options   1,296,000    1,035,000 
Sec 174 capitalized costs   284,000    - 
Losses of foreign subsidiaries & other, net   -    41,000 
Accumulated depreciation and amortization   (21,000)   26,000 
Total deferred tax assets   8,940,000    6,967,000 
Less valuation allowance   (8,940,000)   (6,967,000)
Net deferred tax asset  $-   $- 

 

The Company has provided a valuation allowance of approximately $8,940,000 and $6,967,000 as of May 31, 2023 and 2022, respectively. The net change in the valuation allowance for the years ended May 31, 2023 and 2022 was an increase of $1,973,000 and $1,063,000, respectively.

 

On May 31, 2023, the Company has Federal income tax net operating loss carryforwards of approximately $21,958,000. On May 31, 2023, the Company has California state income tax net operating loss carryforwards of approximately $17,269,000. For tax reporting purposes, operating loss carryforwards are available to offset future taxable income; such carryforwards expire in varying amounts beginning in 2024 and 2038 for federal and state purposes, respectively. Federal net operating losses beginning in 2018 have no expiration date.

 

On May 31, 2023, the Company has Federal research and development tax credit carryforward of approximately $817,000. The Federal credits begin to expire in 2028. The Company also had similar credit carryforwards for state purposes of $533,000 on May 31, 2023, which do not 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, 2023, the Company performed an analysis 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.