v3.26.1
Note 9 - Income Taxes
 12 Months Ended
Feb. 28, 2026
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

9. INCOME TAXES

 

On July 4, 2025, H.R.1 (the “Tax Reform Act of 2025”) was enacted in the U.S. The Tax Reform Act of 2025 includes significant provisions, such as the permanent extension of certain expiring provisions of the limited to, reinstatement of permanent expensing of domestic research and development costs, higher EBITDA cap on the deduction for interest expense and 100% bonus depreciation. The provisions in the Tax Reform Act of 2025 have multiple effective dates, with certain provisions effective in 2025 and others implemented through future years. The Tax Reform Act of 2025 did not materially impact the Company’s effective tax rate for the year. The Company continues to evaluate the future impact of these tax law changes on its financial statements.

 

In accordance with ASU 2023-09, the following table summarizes differences between income tax expense (benefit) at the statutory federal income tax rate and as presented on the statements of operations for fiscal years ended February 28, 2026, and February 28, 2025, as follows:  

 

 

  

2026

      

2025

     

Net Income Before Taxes

 $1,096,000      $993,000     
                 

Provision at statutory rate

  230,000   21.0%  208,000   21.0%

State Tax Provision net of federal benefit

  36,000   3.3%  36,000   3.7%

Permanent Book/Tax Differences

  3,000   0.2%  3,000   0.3%

True-Up & Adjustments

  20,000   1.8%  (69,000)  -6.9%

Income Tax Provision

  289,000   26.3%  178,000   18.1%

Effective income tax rate

                

 

The income tax expense attributable to income from continuing operations before income taxes was $289,000 and $178,000 for the fiscal years ended  February 28, 2026 and February 28, 2025, respectively.

 

Total net deferred taxes are comprised of the following at February 28, 2026 and February 28, 2025:

 

Deferred Tax Asset:

 

2026

  

2025

 

Accrued Liabilities

 $88,000  $65,000 

Inventory Allowance

  1,226,000   1,211,000 

Allowance for Sales Reserve

  64,000   76,000 

Net Operating Loss Carryforwards

  1,061,000   1,589,000 

Capitalized R&D

  36,000   56,000 

R&D Credit Carryforward

  50,000   50,000 

Unrealized Gains

  19,000   (94,000)

MEI accrual to cash

  (45,000)  (90,000)

Net book value of intangible assets

  (657,000)  (696,000)

Prepaid expenses

  (30,000)  (26,000)

Net Book Value of Fixed Assets

  (480,000)  (519,000)

Total Deferred Tax Assets

  1,332,000   1,622,000 

Valuation allowance

  -   - 
  $1,332,000  $1,622,000 

 

 

 

As of February 28, 2026, the Company estimates it has approximately $4.5 million of Federal and $2.5 million of state net operating loss (“NOL”) carryforwards as compared to $6.7 million of Federal and $4.1 million of state net operating loss carryforwards as of February 28, 2025.  The remaining balance of federal NOL carryforwards will begin to expire in 2029.  Such net operating losses are available to offset future taxable income, if any. In management’s opinion, as of February 28, 2026, the utilization of such net operating losses for tax purposes is more likely than not, therefore the deferred tax asset has no valuation allowance as of February 28, 2026.  

 

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, (the Code), substantial changes in the Company’s ownership may limit the amount of net operating loss and research and development credit carryforwards that could be used annually in the future to offset taxable income.  A formal Section 382 study has not been completed to determine if an ownership change has occurred and if its net operating losses are subject to an annual limitation. Such annual limitations could affect the utilization of NOL and tax credit carryforwards in the future.    

 

The Federal net operating loss carryforwards will expire as follows:         

 

Fiscal Year Ending February 28/29

 

Amount

 

2029

 $216,000 

2037

  322,000 

2038

  188,000 

indefinite

  3,806,000 

Total

 $4,532,000