v3.26.1
10. Income Taxes
 12 Months Ended
May 31, 2026
Notes  
10. Income Taxes:

10.  Income Taxes:

 

The Company adopted ASU 2023-09 on a prospective basis as of June 1, 2025, which resulted in additional income tax disclosures for the rate reconciliation and income taxes paid for 2026.  Given that the Company elected to adopt ASU 2023-09 prospectively, the 2025 rate reconciliation is not disaggregated in accordance with ASU 2023-09 and the income taxes paid is not presented by jurisdiction.

 

2026

 

2025

 

Current tax provision:

 

 

 

 

Federal

$100,000 

 

$2,204,000  

 

State

100 

 

1,000  

 

100,100 

 

2,205,000  

 

Deferred tax provision (benefit):

 

 

 

 

Federal

324,900 

 

(585,000) 

 

State

- 

 

-  

 

324,900 

 

(585,000) 

 

$425,000 

 

$1,620,000  

 

 

The provision for income taxes for the fiscal year ended May 31, 2026 differed from the amount computed by applying the federal statutory income tax rate due to:

 

 

Amount

 

Percent

 

U.S. Federal Statutory Income Tax and Rate

$1,888,000  

 

21.0% 

 

State and local income taxes, net of federal income tax effect (1)

100  

 

0.0% 

 

Effect of Cross Border Tax Laws:

 

 

 

 

Foreign-Derived Deduction Eligible Income

(14,300) 

 

-0.2% 

 

Tax Credits:

 

 

 

 

Research and development tax credits

(369,000) 

 

-4.1% 

 

Nontaxable and nondeductible items:

 

 

 

 

Share-based payment awards

(929,900) 

 

-10.3% 

 

Other

10,900  

 

0.1% 

 

Other adjustments:

 

 

 

 

   Various miscellaneous items

(160,800) 

 

-1.8% 

 

 

$425,000  

 

4.7% 

 

 

 

 

 

 

(1)State taxes in California make up the majority (more than 50%) of the tax effect of this category. 

 

A reconciliation of the statutory U.S. federal income tax rate to the effective tax rate for the period before the adoption of ASU 2023-09 was as follows:

 

 

2025

 

Computed tax provision at the expected statutory rate

 

$2,317,000  

 

Tax effect of permanent differences:

 

 

 

Research tax credits

 

(489,692) 

 

Foreign-derived intangible income deduction

 

(224,700) 

 

Stock option costs

 

(11,682) 

 

Other permanent differences

 

24,300  

 

Other

 

4,774  

 

 

$1,620,000  

 

Effective income tax rate

 

14.7% 

 

 

Income taxes paid (net of refunds) consisted of the following:

 

 

2026

Federal

 

$-  

State

 

875  

 

$875  

 

Income taxes paid (net of refunds) was $2,425,000 for the year ended May 31, 2025.

 

Income taxes paid, net of refunds, exceeded five (5) percent of total income taxes paid (net of refunds) in the following jurisdictions:

 

 

2026

Federal

 

$- 

 

 

 

State

 

 

New York

 

50 

   California

 

800 

   Other

 

25 

 

$875 

 

The tax effects of temporary differences that give rise to the deferred income tax assets at May 31, 2026 and 2025 are as follows:

 

2026

 

2025

 

Deferred tax assets:

 

 

 

 

Allowance for estimated credit losses

$41,000  

 

$118,500  

 

Tax inventory adjustment

67,200  

 

52,600  

 

Allowance for obsolete inventory

145,900  

 

165,500  

 

Accrued professional fees

20,100  

 

-  

 

Accrued vacation

179,000  

 

169,600  

 

Warranty reserve

100,100  

 

112,500  

 

R&D capitalization

1,450,500  

 

2,111,200  

 

Stock options issued for services

537,700  

 

117,700  

 

2,541,500  

 

2,847,600  

 

Deferred tax liabilities:

 

 

 

 

Excess tax depreciation

(1,268,500) 

 

(1,249,600) 

 

Net deferred tax assets

$1,273,000  

 

$1,598,000  

 

 

Realization of the deferred tax assets is dependent on generating sufficient taxable income at the time temporary differences become deductible.  The Company provides a valuation allowance to the extent that deferred tax assets may not be realized.  A valuation allowance has not been recorded against the deferred tax assets since management believes it is more likely than not that the deferred tax assets are recoverable.  The Company considers future taxable income and potential tax planning strategies in assessing the need for a potential valuation allowance.  The amount of the deferred tax assets considered realizable however, could be reduced in the near term if estimates of future taxable income are reduced.  The Company will need to generate approximately $12.1 million in taxable income in future years in order to realize the deferred tax assets recorded as of May 31, 2026 of $2,541,500.

 

The Company and its subsidiary file consolidated Federal and State income tax returns.  As of May 31, 2026, the Company had State investment tax credit carryforwards of approximately $546,000 expiring through May 2031.