Income Taxes

12 Months Ended

Feb. 29, 2024

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 13 - INCOME TAXES

Income tax expense (benefit) is comprised of the following for the years ended February 29 or 28:

	2024		2023			2022
Current
Federal	$	-	$	(116,792	)	$	204,058
State	-			8,472			46,704
Total Current	-			(108,320	)		250,762
Deferred
Federal	-			621,841			(231,430	)
State	-			100,322			(36,144	)
Total Deferred	-			722,163			(267,574	)
Total	$	-	$	613,843		$	(16,812	)

A reconciliation of the statutory federal income tax rate and the effective rate as a percentage of pretax income is as follows for the years ended February 29 or 28:

	2024			2023			2022
Statutory rate		21.0	%		21.0	%		21.0	%
State income taxes, net of federal benefit		0.0	%		2.9	%		3.8	%
Work opportunity tax credits		0.0	%		0.0	%		(1.2	)%
Equity compensation tax expense		0.0	%		(0.7	)%		(8.2	)%
Compensation and benefits permanent differences		(0.2	)%		(3.2	)%		(1.9	)%
Other		1.6	%		0.7	%		0.1	%
Valuation allowance		(22.4	)%		(33.3	)%		0.0	%
Impact of CARES act		0.0	%		0.0	%		(10.3	)%
Effective tax rate		(0.0	)%		(12.6	)%		3.3	%

During FY 2024, the Company's effective tax rate was zero. This was primarily the result of losses reported in the year, no income taxes due, and full valuation allowance against deferred tax assets.

During FY 2023 the Company’s effective tax rate resulted in recognition of income tax expense despite incurring a pretax loss. During FY 2023 income tax expense was primarily the result of expense associated with an increase in reserves for deferred tax assets. Management evaluated recent losses before income taxes and determined that it is no longer more likely than not that our deferred income taxes are fully realizable. Because of this determination, the Company reserved for approximately $1.6 million of deferred tax assets. As of February 28, 2023, the Company has a full valuation allowance against its deferred tax assets.

During FY 2022 the low effective income tax rate was primarily the result of permanent differences between the Company’s expenses as valued for financial reporting purposes versus for income tax purposes. These differences were primarily valuation of restricted stock units and the period of recognition for employee retention credits. During FY 2021 the Company’s effective tax rate resulted in recognition of an income tax benefit as a result of a pretax loss being recognized for the year.

The components of deferred income taxes as of February 29 or 28 are as follows:

	2024			2023
Deferred Tax Assets
Allowance for doubtful accounts and notes	$	169,615		$	182,031
Inventories		30,849			100,725
Accrued compensation		437,972			158,652
Loss provisions and deferred income		303,600			340,652
Self-insurance accrual		27,893			24,098
Interest & other		17,239			—
Restructuring charges		99,069			98,693
Right of use liabilities		479,732			—
Accumulated net losses		3,576,640			1,669,288
Valuation allowance		(3,106,393	)		(1,721,306	)
Net deferred tax assets	$	2,036,216		$	852,833
Deferred Tax Liabilities
Depreciation and amortization		(1,450,441	)		(771,593	)
Right of use assets		(479,609	)		—
Prepaid expenses		(106,166	)		(81,240	)
Deferred Tax Liabilities		(2,036,216	)		(852,833	)
Net deferred tax assets	$	-		$	-

The following table summarizes deferred income tax valuation allowances as of February 29 or 28:

	2024		2023
Valuation allowance at beginning of period	$	1,721,306	$	98,693
Tax expense realized by valuation allowance		1,385,087		1,622,613
Valuation allowance at end of period	$	3,106,393	$	1,721,306

The Company files income tax returns in the U.S. federal and various state taxing jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal and state tax examinations in its major tax jurisdictions for periods before FY 2019.

Realization of the Company's deferred tax assets is dependent upon the Company generating sufficient taxable income, in the appropriate tax jurisdictions, in future years, to obtain benefit from the reversal of net deductible temporary differences. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed. A valuation allowance to reduce the carrying amount of deferred income tax assets is established when it is more likely than not that we will not realize some portion or all of the tax benefit of our deferred income tax assets. The Company evaluates, on a quarterly basis, whether it is more likely than not that our deferred income tax assets are realizable based upon recent past financial performance, tax reporting positions, and expectations of future taxable income. The determination of deferred tax assets is subject to estimates and assumptions. The Company periodically evaluates our deferred tax assets to determine if our assumptions and estimates should change. As of February 29, 2024 and February 28, 2023, the Company had a full valuation allowance against its deferred tax assets.

The Company accounts for uncertainty in income taxes by recognizing the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized in the consolidated financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The application of income tax law is inherently complex. As such, the Company is required to make judgments regarding income tax exposures. Interpretations of and guidance surrounding income tax law and regulations change over time and may result in changes to the Company's judgments which can materially affect amounts recognized in the balance sheets and statements of operations. The result of the assessment of the Company's tax positions did not have an impact on the consolidated financial statements for the years ended February 29 or 28, 2024 or 2023. The Company does not have any significant unrecognized tax benefits and does not anticipate a significant increase or decrease in unrecognized tax benefits within the next twelve months. Amounts are recognized for income tax related interest and penalties as a component of general and administrative expense in the statement of income and are immaterial for the years ended February 29 or 28, 2024 and 2023.

The Company’s subsidiaries, SWRL, along with U-Swirl had a history of net operating losses prior to the company’s acquisition of them and thus the Company has a related net operating loss carry forward. In accordance with Section 382 of the Internal Revenue Code, deductibility of SWRL’s and U-Swirl’s Federal net operating loss carryovers may be subject to annual limitation in the event of a change in control. The Company has performed a preliminary evaluation as to whether a change in control has taken place, and has concluded that there was a change of control with respect to the net operating losses of U-Swirl when the Company acquired its controlling ownership interest. The initial limitations will continue to limit deductibility of SWRL’s and U-Swirl’s net operating loss carryovers, but the annual loss limitation will be deductible to RMCF and U-Swirl International Inc. upon the filing of joint tax returns in FY 2017 and future years.

The Company estimates that the potential future tax deductions of U-Swirl’s Federal net operating losses, limited by section 382, to be approximately $1,811,000 with a resulting deferred tax asset of approximately $445,000. U-Swirl’s Federal net operating loss carryovers will expire at various dates beginning in 2026.

Income tax provision (benefit) allocated to continuing operations and discontinued operations for the years ended February 29 or 28, 2024, 2023 and 2022 was as follows:

	2024		2023		2022
Continuing operations	$	-	$	613,843	$	(16,812	)
Discontinued operations		-		618,308		52,194
Total tax provision (benefit)	$	-	$	1,232,151	$	35,382