Note 9. Taxes on Income
Provision (benefit) for income taxes in the consolidated statements of income consisted of the following components (in thousands):
| Fiscal Year Ended | ||||||||
| February 28, | February 29, | |||||||
| 2017 | 2016 | |||||||
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Current: |
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Federal |
$ | — | $ | — | ||||
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State |
19 | 7 | ||||||
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| 19 | 7 | |||||||
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Deferred: |
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Federal |
— | — | ||||||
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State |
— | — | ||||||
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| — | — | |||||||
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Total |
$ | 19 | $ | 7 | ||||
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The provision for income taxes differs from the amount computed by applying the federal statutory rate of 34% to income before income taxes as follows (in thousands):
| Fiscal Year Ended | ||||||||
| February 28, 2017 |
February 29, 2016 |
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Statutory U.S. federal income tax rate |
$ | (370 | ) | $ | (863 | ) | ||
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State income taxes, net of federal benefit |
19 | 7 | ||||||
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Valuation allowance |
530 | 791 | ||||||
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Other |
(160 | ) | (65 | ) | ||||
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Taxes at effective income tax rate |
$ | 19 | $ | 7 | ||||
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The income tax expense effective tax rate for fiscal 2017 was (1.8%) % compared to 0% for fiscal 2016. The higher effective rate in 2017 compared to the effective rate in 2016 was primarily due to state income taxes, the valuation allowance the Company recognized on deferred tax benefits not expected to be realized, research and experimentation credits, the non-deductible losses and various other permanent items.
The deferred tax assets were reduced by a valuation allowance because, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has determined that a 100% valuation allowance is needed due to recent taxable net operating losses, the sale of profitable divisions and the limited taxable income in the carry back periods.
The sources of the temporary differences and carry forwards, and their effect on the net deferred tax asset consisted of the following (in thousands):
| February 28, | February 29, | |||||||
| 2017 | 2016 | |||||||
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Current deferred tax assets(liabilities): |
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Uniform capitalization costs |
$ | 87 | $ | 141 | ||||
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Inventory reserves |
703 | 470 | ||||||
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Accrued liabilities |
127 | 114 | ||||||
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Allowance for doubtful accounts |
7 | 6 | ||||||
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Other |
(3 | ) | (22 | ) | ||||
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Valuation Allowance |
(921 | ) | (709 | ) | ||||
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Net current deferred tax assets |
— | — | ||||||
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Non-current deferred tax assets: |
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Amortization of intangibles |
55 | 81 | ||||||
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Deferred rent |
67 | 111 | ||||||
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Non-deductible losses |
2,107 | 2,285 | ||||||
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State net operating loss carry-forward |
534 | 491 | ||||||
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Federal net operating loss carry-forward |
3,174 | 2,622 | ||||||
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Federal tax credit carry forward |
318 | 318 | ||||||
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Foreign tax credit carry-forward |
99 | 99 | ||||||
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Basis difference of property, plant and equipment |
106 | 135 | ||||||
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Valuation allowance |
(6,460 | ) | (6,142 | ) | ||||
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Net non-current deferred tax assets |
— | — | ||||||
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Net deferred tax assets |
$ | — | $ | — | ||||
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Current asset |
$ | — | $ | — | ||||
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Non-current asset |
— | — | ||||||
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| $ | — | $ | — | |||||
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The Company has available federal and state net operating loss carryforwards of $9.4 million and $9.3 million, respectively. The net operating loss carryforwards expire at various dates through fiscal 2037, if not used.