Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

Income Taxes

6 Months Ended

May 31, 2018

CCA and its subsidiaries file a consolidated federal income tax return.

The Company previously adopted the provisions of ASC Subtopic 740-10-25, “Uncertain Tax Positions”. Management believes that there were no unrecognized tax benefits, or tax positions that would result in uncertainty regarding the deductions taken, as of May 31, 2018 and May 31, 2017. ASC Subtopic 740-10-25 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

As a result of the enactment by the United States Government of public law 115-97, an Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (formerly known as the Tax Cut and Jobs Act of 2017), federal corporate tax rates for periods beginning after January 1, 2018 have been reduced to 21%. The Company's federal rate was previously 34%. The Company values its deferred tax assets and liabilities using the tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The Company, prior to the enactment of public law 115-97, had valued its deferred tax assets and liabilities at a combined federal and state tax rate of 36.45%. Due to the corporate tax rate change, the Company determined that its deferred tax assets and liabilities should be valued based on an estimated future tax rate of 24.13%, effective in the first quarter of fiscal 2018.

The SEC issued Staff Accounting Bulletin ("SAB") 118, which provides guidance on accounting for the tax effects of public law 115-97. SAB 118 provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting under ASC 740. To the extent that a company’s accounting for certain income tax effects of public law 115-97 is incomplete but is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. The change in rate caused the Company to record an additional tax expense as part of the provision for income tax in the first quarter of fiscal 2018. In addition, ASU 2015-17 is effective with the first quarter of fiscal 2018 which requires that all deferred tax assets be classified as long-term. The Company as of November 30, 2017 had $2,079,988 of deferred tax assets that were recorded as a current asset. This amount has been retrospectively reclassified as a non-current asset as of November 30, 2017.

The following chart shows the calculation of the previous tax rate and the new tax rate:



	Previous Rate		New Rate
Federal rate	34.00	%	21.00	%
State rate, net of federal tax benefit	2.45	%	3.13	%
Total	36.45	%	24.13	%

A portion of the loss carry forward deferred tax asset was valued at a slightly higher blended rate of 25.19%, due to the tax law taking effect on January 1, 2018.

The deferred compensation amount is from the issuance of stock options (see Note 12 - Stock-Based Compensation), and will be realized in future years if the options are exercised.

At May 31, 2018 and November 30, 2017, respectively, the Company had temporary differences arising from the following:



	May 31, 2018						November 30, 2017
Type	Amount			Deferred Tax			Amount			Deferred Tax
Depreciation	$	(417,190	)	$	(100,661	)	$	(378,580	)	$	(137,992	)
Reserve for bad debts	23,342			5,632			6,629			2,416
Reserve for returns	738,309			178,142			246,513			89,854
Accrued returns	162,646			39,244			109,646			39,966
Reserve for obsolete inventory	150,102			36,217			158,269			57,689
Vacation accrual	32,719			7,895			70,856			25,827
Alternative minimum tax carry forward	—			122,360			—			122,360
Deferred Compensation	573,224			138,310			487,061			177,534
Bonus obligation unpaid	—			—			400,166			145,861
Charitable contributions	314,843			75,967			305,633			111,403
Section 263A costs	61,660			14,878			48,317			17,612
Loss carry forward	24,511,083			5,935,109			24,279,259			8,849,789
Net deferred tax asset	$	26,150,738		$	6,453,093		$	25,733,769		$	9,502,319

Income tax expense (benefit) is made up of the following components:



	Three Months Ended					Six Months Ended
	May 31, 2018			May 31, 2017		May 31, 2018		May 31, 2017

Current tax - Federal	$	—		$	5,000	$	—	$	16,000
Current tax - State & Local	2,675			2,938		5,349		5,877
Deferred tax	(17,016		)	407,516		3,093,780		506,217
Total Income Tax Expense	$	(14,341	)	$	415,454	$	3,099,129	$	528,094

Prepaid and refundable income taxes are made up of the following components:



Prepaid and refundable income taxes	Federal		State & Local		Total
November 30, 2017	$	1,015	$	37,138	$	38,153

Income taxes payable are made up of the following components:



Income Taxes Payable	Federal		State & Local		Total
May 31, 2018	$	—	$	3,534	$	3,534

A reconciliation of the provision for income taxes computed at the statutory rate to the effective rate for the three months and six months ended May 31, 2018, and May 31, 2017 is as follows:



	Three Months Ended					Three Months Ended
	May 31, 2018					May 31, 2017
	Amount			Percent of Pretax Income		Amount		Percent of Pretax Income
Provision for income taxes at federal statutory rate	$	(64,399	)	21.00	%	$	378,761	34.00	%
Changes in provision for income taxes resulting from:
State income taxes, net of federal income tax benefit	(9,598		)	3.13	%	32,306		2.90	%
Non-deductible expenses and other adjustments	59,656			(19.45	)%	4,387		0.39	%
Provision for income taxes at effective rate	$	(14,341	)	4.68	%	$	415,454	37.29	%



	Six Months Ended					Six Months Ended
	May 31, 2018					May 31, 2017
	Amount			Percent of Pretax Income		Amount		Percent of Pretax Income
Provision for (benefit from) income taxes at federal statutory rate	$	(86,909	)	21.00	%	$	480,554	34.00	%
Increases in taxes resulting from:
State income taxes, net of federal income tax benefit	(12,954		)	3.13	%	40,988		2.90	%
Change in tax rate related to future deferred tax benefits	3,150,147			(761.18	)%	—		—	%
Non-deductible expenses and other adjustments	48,845			(11.80	)%	6,552		0.46	%
Provision for (benefit from) income taxes at effective rate	$	3,099,129		(748.85	)%	$	528,094	37.36	%