Income Taxes

12 Months Ended

Aug. 31, 2012

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 10.  Income Taxes

The following summarizes the Company’s provision for income taxes on income from continuing operations:

	For the Year Ended August 31, 2012			For the Year Ended August 31, 2011
Current:
Federal	$	62,000		$	281,000
State		363,000			413,000
Foreign		—			—
		425,000			694,000
Deferred:
Federal		1,237,000			729,000
State		29,000			12,000
Foreign		(12,000	)		30,000
		1,254,000			771,000
	$	1,679,000		$	1,465,000

Income taxes for the years ended August 31, 2012 and 2011 differ from the amounts computed by applying the federal statutory corporate rate of 34% to the pre-tax income from continuing operations. The differences are reconciled as follows:

	For the Year Ended August 31, 2012			For the Year Ended August 31, 2011
Current:
Expected income tax at statutory rate	$	1,393,000		$	1,226,000
Increase (decrease) in taxes due to:
State tax, net of federal benefit		194,000			184,000
Permanent differences		22,000			48,000
Change in deferred tax asset valuation allowance		(261,000	)		(120,000	)
Other, net		335,000			127,000
Income tax expense	$	1,679,000		$	1,465,000

The components of deferred taxes at August 31, 2012 and 2011 are summarized below:

	August 31, 2012			August 31, 2011
Deferred tax assets:
Net operating loss	$	1,584,000		$	2,643,000
Capital losses		3,351,000			3,445,000
Allowance for doubtful accounts		89,000			84,000
Accrued expenses		190,000			217,000
Accrued worker’s compensation		1,048,000			1,102,000
Related party interest accrual		—			376,000
Inventory reserve		602,000			483,000
Unrealized losses (gain) on investment		(4,000	)		75,000
Excess of tax over book depreciation		305,000			236,000
Other		263,000			222,000
Total deferred tax assets		7,428,000			8,883,000
Valuation allowance		(3,887,000	)		(4,064,000	)
		3,541,000			4,819,000
Deferred tax liabilities:
Deferred gains		(1,140,000	)		(1,134,000	)
Total deferred tax liabilities		(1,140,000	)		(1,134,000	)
Net deferred tax assets	$	2,401,000		$	3,685,000

At August 31, 2012, the Company has federal net operating loss carryforwards (“NOLs”) of approximately $3.1 million, which will begin to expire in 2027 and state NOLs of approximately $11.3 million, which will begin to expire in 2017. The Company also had federal and state capital loss carryforwards of approximately $8.68 million and $8.83 million, respectively, which are deductible only to the extent the Company has future capital gains.

In accordance with Sections 382 and 383 of the Internal Revenue Code, the utilization of Federal NOLs and other tax attributes may be subject to substantial limitations if certain ownership changes occur during a three-year testing period (as defined). Management has determined that the merger with Bisco would not limit the Company’s utilization of its NOLs or credit carryovers.

The Company records net deferred tax assets to the extent management believes these assets will more likely than not be realized.  In making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income (if any), tax planning strategies and recent financial performance.  

Management reviewed the positive and negative evidence available at August 31, 2012 and 2011 and determined that the capital loss carryforwards, unrealized losses on investments and EACO’s state net operating losses did not meet the more likely than not threshold required to be recognized. As such a valuation allowance was retained on these deferred tax assets.

The Company applies ASC 740 for the accounting for uncertainty in income taxes recognized in a company’s financial statements. ASC 740 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in the tax return. The Company did not recognize any additional liability for unrecognized tax benefit as a result of the implementation. The Company has no liability for unrecognized tax benefit related to tax positions for the years ended August 31, 2012 or 2011.

The Company will recognize interest and penalty related to unrecognized tax benefits and penalties as income tax expense. As of August 31, 2012, the Company has not recognized liabilities for penalty and interest as the Company does not have any liability for unrecognized tax benefits.

The Company is subject to taxation in the U.S., Canada and various states. The Company’s tax years for 2008, 2009, 2010 and 2011 are subject to examination by the taxing authorities. With few exceptions, the Company is no longer subject to U.S. federal, state, local or foreign examinations by taxing authorities for years before 2008.