Note 10.

Income Taxes

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

	For the Year Ended August 31,
	2014		2013
Current:
Federal	$	751,000	$	467,000
State		214,000		269,000
Foreign		9,000		(94,000)
		974,000		642,000

Deferred:
Federal		(343,000)		1,113,000
State		378,000		(446,000)
Foreign		-		-
		35,000		667,000
Total	$	1,009,000	$	1,309,000

Income taxes for the years ended August 31, 2014 and August 31, 2013 differ from the amounts computed by applying the federal statutory corporate rates of 34% to the pre-tax income from continuing operations.

The differences are reconciled as follows:

	For the Year Ended August 31,
	2014		2013
Current:
Expected income tax benefit at statutory rate	$	2,085,000	$	1,335,000
Increase (decrease) in taxes due to:		-
State tax, net of federal benefit		287,000		197,000
Permanent differences		29,000		24,000
Change in deferred tax asset valuation allowance		(919,000)		(2,392,000)
Other, net		(473,000)		2,145,000
Income tax expense (benefit)	$	1,009,000	$	1,309,000

The components of deferred taxes at August 31, 2014 and 2013 are summarized below:

	August 31,
	2014		2013
Deferred tax assets:
Net operating loss	$	527,000	$	432,000
Capital losses		99,000		1,344,000
Allowance for doubtful accounts		4,000		49,000
Accrued expenses		333,000		186,000
Accrued worker's compensation		125,000		987,000
Inventory reserve		644,000		618,000
Unrealized losses on investment		(51,000)		(37,000)
Excess of tax over book depreciation		(131,000)		562,000
Other		331,000		267,000
Total deferred tax assets		1,881,000		4,368,000
Valuation allowance		(576,000)		(1,495,000)
		1,305,000		2,873,000
Deferred tax liabilities:
Deferred gains		–		(1,140,000)
Total deferred tax liabilities		–		(1,140,000)

Total deferred tax assets	$	1,305,000	$	1,733,000

At August 31, 2014, the Company has state net operating losses (NOLs) of approximately $11,000,000, which will begin to expire in fiscal year 2017. The Company did not have any federal NOLs at August 31, 2014. The Company also had capital loss carryforwards of approximately $258,000 which are deductible only to the extent the Company has future capital gains.

Deferred taxes on income result from temporary differences between the reporting of income for financial statement and tax reporting purposes. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some or all of the deferred tax asset will 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.

On January 1, 2007, we adopted ASC 740 “Income Taxes”, formerly the Financial Accounting Standards Board FASB Interpretation No. 48 an interpretation of FASB Statement No. 109 (ASC 740). ASC 740 clarifies 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 either the August 31, 2013 year end or the August 31, 2014 year end.

The Company will recognize interest and penalty related to unrecognized tax benefits and penalties as income tax expense. As of August 31, 2014, 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 2010, 2011, 2012 and 2013 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 2010.