Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.2.2
Income Taxes
12 Months Ended
Aug. 31, 2022
Income Tax Disclosure [Abstract]  
Income taxes Income Taxes
Current income taxes are based upon the year’s income taxable for federal and state tax reporting purposes. Deferred income taxes (benefits) are provided for certain income and expenses, which are recognized in different periods for tax and financial reporting purposes.
Deferred tax assets and liabilities are computed for differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the period in which the differences are expected to affect taxable income. The Company’s deferred income taxes arise from the temporary differences between financial statement and income tax recognition of net operating losses. These loss carryovers would be limited under the Internal Revenue Code should a significant change in ownership occur within a three-year period.
Significant components of the net deferred tax assets as reflected on the consolidated balance sheets are as follows:
August 31,
2022 2021
Deferred tax liabilities:
Depreciation $ (587,000) $ (597,000)
Note receivable —  (1,088,000)
Total deferred tax liabilities (587,000) (1,685,000)
Deferred tax assets:
Net operating loss carryforward 26,069,000  18,198,000 
Business interest 2,942,000  2,998,000 
Other accruals 896,000  458,000 
Workers’ compensation accruals 1,734,000  2,061,000 
Stock-based compensation 135,000  207,000 
Deferred rent —  168,000 
ASC 842 Lease liability 31,000  — 
Other 4,000  6,000 
Total deferred tax assets 31,811,000  24,096,000 
Valuation allowance (31,224,000) (22,411,000)
Total net deferred tax assets $ 587,000  $ 1,685,000 
Net deferred tax assets $ —  $ — 
Income tax expense/(benefit) from continuing operations consists of the following:
For the Year Ended August 31,
2022 2021
Current
Federal $ —  $ — 
State (38,000) 42,000 
Total current (38,000) 42,000 
Deferred
Federal (6,177,000) (5,059,000)
State (2,476,000) (2,807,000)
Total deferred (8,653,000) (7,866,000)
Change in valuation allowance $ 8,653,000  $ 7,866,000 
Total Income Tax Expense (Benefit) $ (38,000) $ 42,000 
The reconciliation of the statutory federal rate to the Company’s effective income tax rate is as follows:
August 31,
2022
August 31,
2021
Federal statutory rate (21%) $ (9,124,000) $ (5,738,000)
Inducement Loss
917,000
— 
Non-deductible penalties and other permanent differences 1,227,000  333,000 
State and local income taxes, net of federal benefit (1,983,000) (1,607,000)
Redetermination of prior year taxes 272,000  (812,000)
Change in valuation allowance 8,653,000  7,866,000 
Net income tax provision (Benefit) $ (38,000) $ 42,000 
The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of August 31, 2022, and 2021, the Company had no accrued interest and penalties related to uncertain tax positions.
The deferred tax assets primarily comprise net operating loss carryforwards and other net temporary deductible differences such as stock-based compensation, deferred rent, depreciation and workers’ compensation accrual. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, the projected future taxable income and tax planning strategies in making this assessment. Based on management’s analysis, they concluded that it was more likely than not that the deferred tax asset would not be realized. Therefore, the Company established a full valuation allowance against the deferred tax assets. The change in the valuation allowance in 2022 and 2021 was approximately $8,653,000 and $7,866,000, respectively.
As of August 31, 2022, and 2021, the Company had cumulative federal net operating loss ("NOL") carryforwards of approximately $93,597,000 and $64,652,000 respectively, which begin to expire in 2035 and state net operating loss carryforwards of approximately $100,780,000 and $68,034,000, respectively. The Company’s net operating losses may be limited by the provisions of IRC Section 382, for which the Company has not performed an analysis of the potential limitations. These limitations will be imposed when the Company attains taxable income against which the NOL will be utilized. As of August 31, 2022 and 2021, the company had NOLs of $66,755,000 and $37,809,000 which have an indefinite life but are limited to 80% of taxable income when used. As explained above, the Company has determined that it is more likely than not that the Company’s deferred tax assets related to NOL Carryforwards will not be utilized.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company' evaluated the impact of the CARES Act and determined that there was no material effect.
The Company is subject to taxation in the U.S. The tax years for 2018 and forward are subject to examination by tax authorities. The Company is not currently under examination by any tax authority.
Management has evaluated tax positions in accordance with FASB ASC 740, and has not identified any tax positions, other than those discussed above, that require disclosure. The Company does not expect a material change to this assessment over the 12 months following August 31, 2022.

In August 2022 the United States enacted tax legislation through the Inflation Reduction Act (IRA). The IRA introduces a 15% corporate alternative minimum tax (CAMT) for corporations whose average annual adjusted financial statement income (AFSI) for any consecutive three-tax-year period ending after 31 December 2021 and preceding the tax year exceeds $1 billion. The CAMT is effective for tax years beginning after 31 December 2022. The CAMT is currently not applicable to the Company.