Income Taxes

12 Months Ended

May 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

(2) Income Taxes

A reconciliation of the provision for income taxes computed at the federal statutory rates of 21.0% for fiscal 2021 and fiscal 2020 to the reported amounts is as follows:

	2021						2020
	Amount			%			Amount			%
Amounts at statutory federal tax rate	$	(144,000	)		(21.0	)%	$	(380,000	)		(21.0	)%
Noncontrolling interest		(5,000	)		(0.7	)		(6,000	)		(0.3	)
State and local taxes, net of federal income tax effect		(23,000	)		(3.4	)		(147,000	)		(8.1	)
Federal benefit of state NOL		50,000			7.3			-			-
Benefit of NOL at higher federal rate		-			-			(202,000	)		(11.2	)
Non-deductible expenses and other		13,000			1.9			23,000			1.3
	$	(109,000	)		(15.9	)%	$	(712,000	)		(39.3	)%

The components of the provision for income taxes are as follows:

		Federal			State			Total
2021:	Current	$	-		$	48,000		$	48,000
	Deferred		(96,000	)		(61,000	)		(157,000	)
		$	(96,000	)	$	(13,000	)	$	(109,000	)
2020:	Current	$	(586,000	)	$	22,000		$	(564,000	)
	Deferred		16,000			(164,000	)		(148,000	)
		$	(570,000	)	$	(142,000	)	$	(712,000	)

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets at May 31, 2021 and 2020 are as follows:

	2021			2020
Allowance for doubtful accounts receivable	$	52,000		$	52,000
Accrued compensation and other accrued expenses		26,000			23,000
Net operating loss carryforwards		421,000			487,000
Equipment and leasehold improvement depreciation and amortization		(32,000	)		(3,000	)
Unrealized gain		(8,000	)		(10,000	)
Legal settlement with investor		275,000			233,000
Non-cash stock compensation		70,000			-
Non-cash lease expense		36,000			-
Accumulated amortization		95,000			-
Other items, net		6,000			2,000
Total deferred income tax assets	$	941,000		$	784,000

The Company believes that it is more likely than not that it will realize the benefits of its deferred tax assets based primarily on the Company’s history of and projections for taxable income in the future. The federal net operating loss carryforwards may be used indefinitely, and the state carryforwards are generally usable for 20 years.

The Company recognizes interest and penalties associated with tax matters as selling, general and administrative expenses and includes accrued interest and penalties with accrued and other liabilities in the consolidated balance sheets.

On March 27, 2020, the CARES Act was signed into law in response to the COVID-19 pandemic. The CARES Act provides numerous tax provisions and stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property. The Company has evaluated the provisions of the CARES Act relating to income taxes which resulted in the ability to carryback net operating losses and file for a federal tax refund of approximately $586,000 which was recorded in the May 31, 2020 consolidated balance sheet. The amount was subsequently collected in April 2021.

In the third quarter of fiscal 2018, the Company discovered it had not filed required information returns related to a foreign bank account opened by a subsidiary in fiscal 2016 with contributions totaling approximately $25,000. The Company accrued an expense of $30,000 with a charge to selling, general and administrative expenses for potential penalties that may be assessed. The Company monitored this reserve periodically to determine if it was more-likely-than-not that penalties will be assessed. The reserve was reversed in fiscal 2021 due to the expiration of the statute of limitations on the returns.

A reconciliation of the beginning and ending amount of unrecognized tax benefit as follows:

	2021			2020
Balance at beginning of fiscal year	$	30,000		$	30,000
Additions based on tax positions related to current year		-			-
Additions for tax positions of prior years		-			-
Reductions for tax positions of prior years		(30,000	)		-
Settlements		-			-
Balance at end of fiscal year	$	-		$	30,000

The Company’s federal and state income tax returns prior to fiscal year 2018 are closed.