Note 6 - Income Taxes

12 Months Ended

Feb. 28, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 6 - INCOME TAXES

Income tax expense is comprised of the following for the years ending February 28 or 29:

	2014		2013			2012
Current
Federal	$	1,668,259	$	2,090,996		$	1,128,049
State		227,904		287,026			173,822
Total Current		1,896,163		2,378,022			1,301,871
Deferred
Federal		237,538		(1,107,287	)		729,900
State		20,959		(37,275	)		3,975
Total Deferred		258,497		(1,144,562	)		733,875
Total	$	2,154,660	$	1,233,460		$	2,035,746

A reconciliation of the statutory federal income tax rate and the effective rate as a percentage of pretax income is as follows for the years ending February 28 or 29:

	2014			2013			2012
Statutory rate		34.0	%		34.0	%		34.0	%
State income taxes, net of federal benefit		3.1	%		4.8	%		2.0	%
Domestic production deduction		(2.4	%)		(3.2	%)		(1.8	%)
Other		0.1	%		1.5	%		0.2	%
Acquisition related expenses		-			6.4	%		-
Valuation allowance, U-Swirl, Inc. Consolidated loss		5.9	%		4.2	%		-
Effective Rate		40.7	%		47.7	%		34.4	%

The decrease in the effective tax rate for the year ended February 28, 2014, compared to the prior year, is primarily due to the tax consequences of acquiring a majority interest in U-Swirl, Inc in the prior year, and the associated increase in the effective rate for that period. The acquisition of our interest in U-Swirl, Inc. resulted in non-deductible acquisition related expenses of approximately $268,000 for the fiscal year ended February 28, 2013. The Company also recognized a gain of $222,000 during the year ended February 28, 2013 for purposes of income tax reporting, the result of the transfer of Aspen Leaf Yogurt franchise rights to U-Swirl, Inc. U-Swirl, Inc. and RMCF will continue to file separate income tax returns for each entity. U-Swirl, Inc. has a history of net losses and does not expect to realize the tax benefit of those losses. The consolidation of U-Swirl net loss into the results of RMCF did not reduce the taxable income for RMCF in the current or prior years.

The components of deferred income taxes at February 28 are as follows:

	2014			2013
Deferred Tax Assets
Allowance for doubtful accounts and notes	$	219,108		$	280,030
Inventories		75,505			93,726
Accrued compensation		210,290			136,406
Loss provisions and deferred income		143,877			166,650
Self insurance accrual		27,240			43,625
Amortization, design costs		54,312			71,868
Restructuring charges		1,850			115,963
U-Swirl, Inc. accumulated net loss		689,590			380,383
Valuation allowance, U-Swirl, Inc. accumulated net loss		(689,590	)		(380,383	)
Net deferred tax assets		732,182			908,268
Deferred Tax Liabilities
Depreciation and amortization		(1,133,467	)		(1,079,004	)
Prepaid expenses		(110,333	)		(82,325	)
Net deferred tax liability	$	(1,243,800	)	$	(1,161,329	)
Current deferred tax assets	$	538,871		$	628,633
Non-current deferred tax liabilities		(1,050,489	)		(881,694	)
Net deferred tax liability	$	(511,618	)	$	(253,061	)

The Company files income tax returns in the U.S. federal and various state taxing jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal and state tax examinations in its major tax jurisdictions for periods before FY 2009.

Realization of the Company's deferred tax assets is dependent upon the Company generating sufficient taxable income, in the appropriate tax jurisdictions, in future years to obtain benefit from the reversal of net deductible temporary differences. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed. Management believes that it is more likely than not that RMCF will realize the benefits of its deferred tax assets as of February 28, 2014.

The Company accounts for uncertainty in income taxes by recognizing the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized in the financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The application of income tax law is inherently complex. As such, the Company is required to make judgments regarding income tax exposures. Interpretations of and guidance surrounding income tax law and regulations change over time and may result in changes to the Company's judgments which can materially affect amounts recognized in the balance sheets and statements of operations. The result of the assessment of the Company's tax positions did not have an impact on the financial statements for the years ended February 28, 2014 or 2013. The Company's federal tax returns for all years after 2010 and the Company's state tax returns after 2009 are subject to future examination by tax authorities for all of the Company's tax jurisdictions. The Company does not have any significant unrecognized tax benefits and does not anticipate a significant increase or decrease in unrecognized tax benefits within the next twelve months. Amounts are recognized for income tax related interest and penalties as a component of general and administrative expense in the statement of income and are immaterial for years ended February 28, 2014 and 2013.

As of February 28, 2014, U-Swirl, Inc. was not consolidated with us for purposes of filing federal income tax. U-Swirl, Inc. files a separate federal tax return and has its own federal loss carry forward. As of February 28, 2014 U-Swirl, Inc. had recorded a full valuation allowance related to the realization of its deferred income tax assets.

In accordance with section 382 of the Internal Revenue Code, deductibility of U-Swirl, Inc.’s U.S. net operating loss carryovers may be subject to annual limitation in the event of a change in control. We have performed a preliminary evaluation as to whether a change in control has taken place, and have concluded that there was a change of control with respect to the net operating losses of U-Swirl, Inc. when the Company acquired its majority ownership interest in January 2013.

We estimate that the potential future tax deductions of U-Swirl, Inc. accumulated net operating losses, limited by section 382, to be approximately $1.0 million with a resulting deferred tax asset of approximately $690,000. We have recorded a valuation allowance for this amount to reflect the likelihood of realization of this deferred tax asset.