INCOME TAXES

12 Months Ended

Feb. 28, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

The Company did not have a provision for income taxes (current or deferred tax expense) for tax years ended February 28, 2021 and February 29, 2020.

A reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate for fiscal year ended February 28, 2021 and February 29, 2020 is as follows:

	2021		2020
Net Income/(Loss) Before Taxes	1,381,000		(606,000)
Provision/(Benefit) at statutory rate	290,000	21.0%	(127,000)	21.0%
State Tax Provision/(Benefit) net of federal benefit	50,000	3.6%	(19,000)	3.0%
Permanent Book/Tax Differences	-	0.0%	27,000	-4.5%
Change in Valuation Allowance	(340,000)	-24.6%	138,000	-22.8%
Other	-	0.0%	(19,000)	3.1%
Income Tax Provision / (Benefit)	-		-
Effective income tax rate	0.00%		0.00%

Total net deferred taxes are comprised of the following at February 28, 2021 and February 29, 2020:

Deferred Tax Asset (Liability):	2021	2020
Accrued Liabilities	$56,736	$44,177
Inventory Allowance	1,406,453	1,339,208
Section 263A Capitalized Costs	53,799	59,095
Net Operating Loss Carryforwards	2,456,278	2,865,302
Other	14,902	32,972
Depreciation	(6,058)	(18,952)
Total Deferred Tax Assets (Liabilities)	3,982,110	4,321,802
Valuation allowance	(3,982,110)	(4,321,802)
Total Net Deferred Tax Assets (Liabilities)	$-	$-

A valuation allowance is recorded to reduce the deferred tax asset if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. After consideration of all the evidence, both positive and negative, management has determined that a valuation allowance of $3,982,110 and $4,321,802 for the years ended on February 28, 2021 and February 29, 2020 respectively, is necessary to reduce the deferred tax asset to the amount that will more likely than not be realized.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. Certain provisions of the CARES Act could impact the 2019 income tax provision computations of the Company and will be reflected in the period of enactment (tax year 2020). The CARES Act, among other things, contains modifications on the limitation of business interest expense under Section 163(j), allow for NOL carryovers and carrybacks to offset 100% of taxable income for taxable years before 2021, and includes a technical correction to the TCJA with respect to Qualified Improvement Property ("QIP") where such property has a 15-year recovery period for purposes of the general depreciation system of Section 168(a). The Company has evaluated the impact of the CARES Act, and it believes that none of the modifications or tax law changes will result in any material benefit.

As of February 28, 2021, the Company estimates it has approximately $10.1 million of Federal and $9.3 million of state net operating loss (“NOL”) carryforwards as compared to $11.8 million of Federal and $11 million of state net operating loss carryforwards as of February 29, 2020. Of the Federal NOL carryforwards, $0 expired in 2021 and the remaining balance will expire between 2022 and 2040. Of the state NOL carryforwards, $0 expired in 2021, and the remaining balance will expire between 2022 and 2040. Such net operating losses are available to offset future taxable income, if any. As the utilization of such net operating losses for tax purposes is not assured, the deferred tax asset has been fully reserved through the recording of a 100% valuation allowance.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, (the Code), substantial changes in the Company’s ownership may limit the amount of net operating loss and research and development credit carryforwards that could be used annually in the future to offset taxable income. A formal Section 382 study has not been completed to determine if an ownership change has occurred and if its net operating losses are subject to an annual limitation. Such annual limitations could affect the utilization of NOL and tax credit carryforwards in the future.

The Federal net operating loss carryforwards will expire as follows:

Fiscal Year Ending February 28/29	Amount
2023	$837,000
2029	7,514,000
2037	322,000
2038	187,000
2039	986,000
2040	285,000
Total	$10,131,000