INCOME TAXES

12 Months Ended

Aug. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 9 – INCOME TAXES

We utilize FASB ASC 740-10, “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.

Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

The components of the income tax provision for the years ended August 31, 2021, 2020 and 2019 were as follows:

(in thousands)	2021			2020			2019
Current
Federal	$	1,315		$	2,098		$	1,795
State		450			478			426
Foreign		166			39			51
Total current tax expense		1,931			2,615			2,272
Deferred
Federal		(379	)		(428	)		(141	)
State		(249	)		(132	)		(158	)
Total deferred federal and state		(628	)		(560	)		(299	)
Total	$	1,303		$	2,055		$	1,973

A reconciliation of the expected income tax computed using the federal statutory income tax rate to the Company's effective income tax rate is as follows for the years ended August 31, 2021, 2020 and 2019:

	2021			2020			2019
Income tax computed at federal statutory tax rate		21.0	%		21.0	%		21.0	%
State taxes, net of federal benefit		2.0			4.1			4.1
Meals & entertainment		–			0.1			0.1
Stock based compensation		(6.8	)		(1.2	)		(2.6	)
Other permanent differences		(0.3	)		(0.3	)		(0.7	)
Research and development credit		(1.6	)		(2.8	)		(2.3	)
Foreign tax related differences		(2.6	)		(1.4	)		–
Research & credit adjustments to expense		0.2			0.3			–
Change in prior year estimated taxes		(0.1	)		(1.8	)		(0.9	)
Total		11.8	%		18.0	%		18.7	%

Significant components of the Company's deferred tax assets and liabilities for income taxes for the years ended August 31, 2021, and 2020 are as follows:

(in thousands)	2021			2020
Deferred tax assets:
Accrued payroll and other expenses	$	586		$	402
Deferred revenue		102			7
Capitalized merger costs		703			742
Intellectual property		7			8
Research and development credits		66			–
State taxes		72			100
Allowance for doubtful accounts		20			13
State tax deferred		80			125
Total deferred tax assets		1,636			1,397
Less: Valuation allowance		–			–
Deferred tax asset		1,636			1,397
Deferred tax liabilities:
Property and equipment		(83	)		(82	)
State tax deferred		(26	)		(19	)
Intellectual property		(1,456	)		(1,876	)
Capitalized computer software development costs		(1,797	)		(1,774	)
Total deferred tax liabilities		(3,362	)		(3,751	)
Net deferred tax liabilities	$	(1,726	)	$	(2,354	)

We follow guidance issued by the FASB with regard to our accounting for uncertainty in income taxes recognized in the financial statements. Such guidance prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to income tax expense. Interest and penalties were immaterial for fiscal years 2021, 2020, and 2019, respectively. We file income tax returns with the IRS and various state jurisdictions as well as with the countries of India and France. Our federal income tax returns for fiscal year 2018 thru 2020 are open for audit, and our state tax returns for fiscal year 2017 through 2020 remain open for audit.

Our review of prior year tax positions using the criteria and provisions presented in guidance issued by FASB did not result in a material impact on our financial position or results of operations.