Entity information:

NOTE J – INCOME TAXES

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using the enacted tax rates in effect in the years in which the differences are expected to reverse.  

 

The Company’s deferred income taxes are comprised of the following:

 

  November 30,  November 30, 
  2017  2016 
Deferred Tax Assets      
Net operating loss $3,786,406  $4,208,030 
Allowance for bad debts  49,909   49,276 
Inventory  92,225   100,446 
Deferred Rent  13,786   15,961 
Depreciation  115,752   149,172 
Total deferred tax assets  4,058,078   4,522,885 
Valuation allowance  (3,075,198)  (3,608,225)
         
Deferred Tax Assets $982,880  $914,660 

 

The valuation allowance for the deferred tax assets relates principally to the uncertainty of the utilization of deferred tax assets and was calculated in accordance with the provisions of ASC 740, which requires that a valuation allowance be established or maintained when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. The valuation allowance decreased by approximately $533,000 during the year ended November 30, 2017.  This valuation is based on management estimates of future taxable income. Although the degree of variability inherent in the estimates of future taxable income is significant and subject to change in the near term, management believes, that the estimate is adequate. The estimated valuation allowance is continually reviewed and as adjustments to the allowance become necessary, such adjustments are reflected in the current operations.

 

The Company’s income tax expense consists of the following:

 

  Years Ended 
  November 30, 
2017		  November 30, 
2016		 
       
Current:      
Federal $-  $- 
States  27,399   17,088 
         
   27,399   17,088 
Deferred:        
Federal  (55,940)  65,321 
States  (12,280)  14,169 
         
   (68,220)  79,490 
         
Provision for income taxes $(40,821) $96,578 

 

The Company files a consolidated income tax return with its wholly-owned subsidiaries and has net operating loss carryforwards of approximately $9,466,000 for federal and state purposes, which expire through 2020. A reconciliation of the difference between the expected income tax rate using the statutory federal tax rate and the Company’s effective rate is as follows: 

 

  Years ended 
  November 30,  November 30, 
  2017  2016 
U.S Federal Income tax statutory rate  34%  (34)%
Valuation allowance  (56)%  78%
State income taxes  9%  9%
Other  -   - 
Effective tax rate  (13)%  53%