Entity information:
(
14
)
Income Taxes
 
Total income tax expense (benefit) for the years ended
November 30, 2017
and
2016
consists of the following:
 
   
November 30, 2017
    
November 30, 2016
  
Current Expense (benefit)
   $
15,360
     $
(288,935
 )
Deferred expense (benefit)
    
(572,175
 )    
(29,939
 )
    $
(556,815
 )   $
(318,874
 )
 
The reconciliation of the statutory Federal income tax rate
is as follows:
 
   
November 30, 2017
    
November 30, 2016
  
Statutory federal income tax rate
    
34.0
 %    
34.0
 %
Valuation allowance on foreign
net operating loss
    
(7.8
 )    
0.0
  
Permanent
differences and other
    
(0.7
 )    
(6.0
 )
     
25.5
 %    
28.0
 %
 
Tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabi
lities) at
November 30, 2017
and
2016
are presented below:
 
   
November 30
  
   
2017
    
2016
  
Current deferred tax assets (liabilities):
                
Accrued expenses
   $
95,000
     $
110,000
  
Inventory capitalization
    
33,000
      
16,000
  
N
et operating loss and tax credit carryforward
    
586,000
      
133,000
  
Asset reserves
    
746,000
      
808,000
  
Total current deferred tax assets
   $
1,460,000
     $
1,067,000
  
Non-current deferred tax assets
                
Property, plant, and equipment
   $
(559,000
 )   $
(737,000
 )
Total non-current deferred tax assets (liabilities)
   $
(559,000
 )   $
(737,000
 )
Net deferred taxes
   $
901,000
     $
330,000
  
 
 
Based on the Company
’s adoption of ASU
2015
-
17,
Income Taxes, the Company has prospectively classified the
2017
net deferred tax asset as a noncurrent asset in the accompanying financial statements. The
2016
presentation reports the deferred tax asset and deferred tax liability as a current asset and noncurrent liability pursuant to previous GAAP guidance.
 
In assessing the realizability of deferred tax assets, management considers whether it is more likely than
not
that some portion or all of the deferred tax assets will
not
be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Based on these assessments, in fiscal
2016
the Company recorded a reserve against its deferred tax assets related to its net operation loss of its Canadian operations of approximately
$75,000.
During fiscal
2017
the Company has continued to create a reserve for any estimated income tax benefits related to the Canadian net operating losses. From the time of acquisition, the Company has
not
yet generated taxable income from these operations, and management believes that the amount of this deferred tax asset will
not
be realized. The Company’s net operating loss amounting to approximately
$1,800,000
and tax credit carryforward amounting to approximately
$105,000
for its US operations expires on
November 30, 2036
and
2037.
Management believes that the Company will be able to utilize the US net operating losses before their expiration.
 
On
December 22, 2017,
a new tax law was enacted that reduces the top corporate income tax rate from
35%
to
21
%. The law and rate change is generally effective for tax years beginning after
December 31, 2017.
While the Company is assessing the impact of the law on its reported assets, liabilities, and results of operations, management believes that going forward, the overall rate reduction will have a positive impact on the Company’s net earnings in the long run. However, during the
first
quarter of the Company’s
2018
fiscal year, its reported net deferred tax asset will have to be substantially restated using the new lower rates. Based on the Company’s recorded deferred tax asset at
November 30, 2017,
management estimates the rate change will reduce the Company’s deferred tax asset by approximately
$300,000,
which will be recorded as an adjustment to its tax provision in the
first
quarter ending
February 28, 2018.