INCOME TAXES

12 Months Ended

May 31, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

6.    INCOME TAXES 

Income tax (benefit) expense from continuing operations for the years ended May 31, 2013 and 2012 consists of the following current provisions:

			2013		2012
Current:
	U.S. Federal	$	--	$	--
	State and local		(21,493)		63,414
	Total current		(21,493)		63,414
Deferred:
	U.S. Federal		(521)		--
	State and local		9,521		1,600
	Total deferred		9,000		1,600
	Income tax (benefit) expense	$	(12,493)	$	65,014

Income tax (benefit) expense from continuing operations differs from the amounts computed by applying the U.S. Federal income tax rate of 35 percent to pretax income as a result of the following:

Years ended May 31,			2013		2012
Computed "expected" tax expense (benefit)		$	184,000	$	215,000
Increase (reduction) in income taxes resulting from:
	True up of carry forwards and other items		-		30,000
	Change in valuation allowance		(205,000)		(219,000)
	State income taxes, net of federal benefit		15,000		36,000
	Research and development tax credits		(14,000)		(4,000)
	Permanent tax differences and other		7,507		7,014
	Income tax (benefit) expense	$	(12,493)	$	65,014

The tax effect of significant temporary differences is presented below:

Years ended May 31,				2013		2012
Deferred tax assets:
		Accounts receivable, principally due to allowance for doubtful accounts and sales returns	$	47,000	$	46,000
	Inventory valuation			32,000		30,000
	Compensated absences and deferred payroll			37,000		70,000
	Net operating loss carryforwards			94,000		327,000
	Tax credit carryforwards			117,000		83,000
	Deferred rent expense			28,000		31,000
	Other			42,000		77,000
Total deferred tax assets				397,000		664,000
Less valuation allowance				--		(280,000)
		Deferred Tax Asset Net		397,000		384,000
Deferred tax liabilities:
	Accumulated depreciation of property and equipment			(168,000)		(146,000)
Net deferred tax asset			$	229,000	$	238,000
Deferred tax assets, current portion			$	144,000	$	177,000
Deferred tax assets, long-term portion				85,000		61,000
		Deferred tax assets, Total	$	229,000	$	238,000

The Company has provided a valuation allowance of $0 and $280,000 as of May 31, 2013 and 2012, respectively.   After analyzing the Company’s tax position, operational history and profitability for the past 3 years, management has chosen to remove all of the remaining allowance for the uncertainty of its future income, as the determination that it was more likely that the deferred tax asset would be realized in the future. The net change in the valuation allowance for the years ended May 31, 2013 and 2012 was a decrease of $280,000 and $231,000, respectively.

At May 31, 2013 and 2012, the Company has federal income tax net operating loss carryforwards of approximately $480,000 and $848,000 respectively. Of the reported net operating loss carryforwards, approximately $211,000 are related to windfall tax benefits from the exercise of the Company’s stock options by certain employees. Pursuant to ASC 718, the federal benefit of approximately $74,000 associated with this portion of the net operating loss will be credited to additional paid-in capital when the tax benefits are actually realized. The federal net operating loss carryforwards begin to expire in 2021. At May 31, 2013 and 2012, the Company has California state income tax net operating loss carryforwards of approximately $0 and $527,000, respectively. 

At May 31, 2013, the Company has federal research and development tax credit carryforward of approximately $109,000.  The federal credits begin to expire in 2027.  The Company also had similar credit carry forwards for state purposes of $8,000 at May 31, 2013.

Pursuant to Internal Revenue Code 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 Code, the annual use of the Company's NOLs would be limited if there is a cumulative change of ownership (as that term is defined in Section 382(g) of the Code) of greater than 50% in a three year period. Based on management's analysis the Company does not believe that a cumulative change in ownership of greater than 50% has taken place.

For the fiscal year ended May 31, 2013 and 2012, the Company did an analysis of its ASC 740 position 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 financial statements. The Company is no longer subject to any significant U.S. federal tax examinations by tax authorities for years before fiscal year 2009.