| Income Tax Disclosure [Text Block] |
Note 8 – INCOME TAXES
Deferred income taxes reflect
the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The tax effects of significant items comprising our net deferred tax assets and liabilities
are as follows:
| | |
August 31, | | |
February 28 | |
| | |
2026 | | |
2026 | |
| Deferred tax assets: | |
| | |
| |
| Allowance for credit losses | |
$ | 25,300 | | |
$ | 29,600 | |
| Inventory overhead capitalization | |
| 201,400 | | |
| 182,700 | |
| Inventory valuation allowance | |
| 117,300 | | |
| 96,900 | |
| Inventory valuation allowance – noncurrent | |
| 225,700 | | |
| 217,300 | |
| Allowance for sales returns | |
| 27,200 | | |
| 27,200 | |
| Net operating loss carry forward (1) | |
| 778,000 | | |
| 109,300 | |
| Disallowed interest (2) | |
| 2,001,600 | | |
| 2,001,300 | |
| Accruals | |
| 16,000 | | |
| 12,100 | |
| Total deferred tax assets | |
| 3,392,500 | | |
| 2,676,400 | |
| | |
| | | |
| | |
| Deferred tax liabilities: | |
| | | |
| | |
| Property, plant, and equipment | |
| (1,044,700 | ) | |
| (1,121,600 | ) |
| Total deferred tax liabilities | |
| (1,044,700 | ) | |
| (1,121,600 | ) |
| | |
| | | |
| | |
| Valuation allowance (3) | |
| (2,347,800 | ) | |
| (1,554,800 | ) |
| Net deferred tax assets | |
$ | - | | |
$ | - | |
| (1) | The Company’s net operating loss (“NOL”) carry forward was generated from losses incurred in fiscal 2025 and first and second quarter of fiscal 2027. The Company’s NOL can be carried forward indefinitely but are limited to an 80% maximum offset of taxable income. | | (2) | The Company’s disallowed interest was generated from interest expense that was not deductible for tax purposes due to a maximum allowable deduction of 30% of taxable income. The disallowed interest is carried forward to be deducted against future income, subject to the 30% limitation. | | (3) | In evaluating the need for a valuation allowance and the realizability of deferred tax assets, the Company utilized the framework contained in ASC 740, “Income Taxes,” pursuant to which management analyzed all positive and negative evidence available at the balance sheet date to determine whether all or some portion of the deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more likely than not that they will not be realized. In conclusion, management placed significant emphasis on guidance in ASC 740, which includes that a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome. Based upon available evidence, it was concluded on a more-likely-than-not basis that certain deferred tax assets were not realizable as of August 31, 2026 and February 28, 2026. Accordingly, a valuation allowance has been recorded to offset these deferred tax assets. |
The reconciliation of taxes at the federal statutory
rate to our provision for income taxes for the six months ended August 31, 2026 was as follows:
| | |
August 31, 2026 | |
| | |
Amount | | |
Percentage | |
| U.S. federal statutory income tax rate | |
$ | (617,500 | ) | |
| 21.0 | % |
| Tax credits | |
| | | |
| | |
| U.S. state and local income taxes, net of federal benefit | |
| (181,100 | ) | |
| 6.2 | % |
| Changes in valuation allowance | |
| 793,000 | | |
| (27.0 | )% |
| Other | |
| 38,600 | | |
| (1.3 | )% |
| Effective tax rate | |
$ | 33,000 | | |
| (1.1 | )% |
The components of income tax
expense (benefit) are as follows:
| | |
August 31, | | |
August 31, | |
| | |
2026 | | |
2025 | |
| Current: | |
| | |
| |
| Federal | |
$ | 38,900 | | |
$ | 32,100 | |
| State and local | |
| 33,000 | | |
| 33,000 | |
| | |
| 71,900 | | |
| 65,100 | |
| Deferred: | |
| | | |
| | |
| Federal | |
| 166,800 | | |
| (671,000 | ) |
| State and local | |
| (205,700 | ) | |
| (223,700 | ) |
| | |
| (38,900 | ) | |
| (894,700 | ) |
| Total income tax expense (benefit) | |
$ | 33,000 | | |
$ | (829,600 | ) |
The following reconciles our
expected income tax rate to the U.S. federal statutory income tax rate:
| | |
August 31, | | |
August 31, | |
| | |
2026 | | |
2025 | |
| U.S. federal statutory income tax rate | |
| 21.0 | % | |
| 21.0 | % |
| U.S. state and local income taxes–net of federal benefit | |
| 6.2 | % | |
| 6.2 | % |
| Valuation allowance | |
| (27.0 | )% | |
| - | % |
| Other | |
| (1.3 | )% | |
| (1.3 | )% |
| Effective tax rate | |
| (1.1 | )% | |
| 25.9 | % |
|