Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Nov. 30, 2017

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 November 30, 2017 and November 30, 2016. 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.

The Company files federal and state income tax returns in jurisdictions with varying statutes of limitations. The 2013 through 2016 tax years remain subject to examination by federal and state tax authorities. The Company is not under examination by any federal and state tax authorities as of November 30, 2017.

The alternative minimum tax, deferred compensation and net operating loss portion of the deferred tax asset has $7,422,331 that has been reclassified as a long-term asset, based on an estimate of the amount that will be realizable in periods greater than twelve months from November 30, 2017. In November 2015, the FASB issued ASU 2015-17, which is an update to Topic 740, "Income Taxes". The update will require that all deferred tax assets and liabilities be classified as non-current. The update is effective for fiscal years, and the interim periods within those years, beginning after December 15, 2016. ASU 2015-17 will have a material impact on the Company's balance sheet, as the deferred tax reported as a current asset will be reported as a non-current asset once the update is effective, resulting in a decrease

to the Company's current ratio. As of November 30, 2017, the Company reported $2,079,988 of deferred tax as a current asset. The Company will be reporting all deferred tax assets as a non-current asset beginning with the first quarter of fiscal 2018. It is not expected to have a material impact on the Company's results of operations.

At November 30, 2017 and November 30, 2016, respectively, the Company had temporary differences arising from the following:



	November 30, 2017
							Classified As
Type	Amount			Deferred Tax			Short-Term Asset		Long-Term Asset
Depreciation	$	(378,580	)	$	(137,992	)	$	—	$	(137,992	)
Reserve for bad debts	6,629			2,416			2,416		—
Reserve for returns	246,513			89,854			89,854		—
Accrued returns	109,646			39,966			39,966		—
Reserve for obsolete inventory	158,269			57,689			57,689		—
Vacation accrual	70,856			25,827			25,827		—
Alternative minimum tax carry forward	—			122,360			—		122,360
Deferred compensation	487,061			177,534			—		177,534
Bonus obligations unpaid	400,166			145,861			145,861		—
Charitable contributions	305,633			111,403			111,403		—
Section 263A costs	48,317			17,612			17,612		—
Loss carry forward	24,279,259			8,849,789			1,589,360		7,260,429
Net deferred tax asset				$	9,502,319		$	2,079,988	$	7,422,331

	November 30, 2016
							Classified As
Type	Amount			Deferred Tax			Short-Term Asset		Long-Term (Liability)
Depreciation	$	(349,763	)	$	(127,489	)	$	—	$	(127,489	)
Reserve for bad debts	15,801			5,759			5,759		—
Reserve for returns	941,228			343,078			343,078		—
Accrued returns	194,873			71,031			71,031		—
Reserve for obsolete inventory	500,156			182,307			182,307		—
Vacation accrual	29,528			10,763			10,763		—
Alternative minimum tax carry forward				20,000					20,000
Deferred compensation	304,945			111,153					111,153
Bonus obligations unpaid	304,355			110,937			110,937		—
Restructuring costs	925,000			337,163			337,163		—
Charitable contributions	584,558			213,071			96,249		116,822
Section 263A costs	79,539			28,992			28,992		—
Loss carry forward	25,398,347			9,257,698			962,485		8,295,213
Net deferred tax asset				$	10,564,463		$	2,148,764	$	8,415,699

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%. This will result in a reduction of the value of the deferred tax assets and a corresponding increase in the provision for income tax to be recorded in the first quarter of fiscal 2018. In addition, ASU 2015-17 is effective with the first quarter of fiscal 2018 and will require that all deferred tax assets be classified as long-term. Please see Note 19, Subsequent Events for further information regarding the effects of the federal corporate tax rate change. Please see Note 2, Accounting Policies, Recent Accounting Pronouncements for further information regarding ASU 2015-17.

The amounts recognized in the deferred tax asset are management's best estimate of the amount more likely than not to be realized and the actual results could differ from those estimates. In determining the amount more likely than not to be realized, management considered all available information. Future profitability in this competitive industry depends on the successful execution of management's initiatives designed to obtain sales levels and improve operating results. The inability to successfully execute these initiatives could reduce estimates of future profitability, which could affect the Company's ability to realize the deferred tax assets. A substantial portion of the deferred tax asset is the loss carry forward as a result of losses incurred by the Company is fiscal 2015 and earlier periods. If the Company does not meet its objectives, it could also result in taking a longer period of time for the net operating loss carry forward to be utilized.

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



	November 30,
Continuing Operations	2017		2016		2015
Current tax - Federal	$	105,770	$	20,000	$	—
Current tax - State & Local	5,640		28,949		(2,795		)
Deferred tax expense (benefit)	1,062,144		899,584		(1,589,514		)
	$	1,173,554	$	948,533	$	(1,592,309	)



	November 30,
Discontinued Operations	2017		2016			2015
Current tax - Federal	$	—	$	—		$	—
Current tax - State & Local	—		—			—
Deferred tax (benefit) expense	—		(9,126		)	6,073
	$	—	$	(9,126	)	$	6,073

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
November 30, 2016	$	—	$	44,154	$	44,154

Income tax payable is made up of the following components:



Income Taxes Payable	Federal		State & Local		Total
November 30, 2017	$	—	$	—	$	—
November 30, 2016	$	20,000	$	—	$	20,000

A reconciliation of the (benefit from) provision for income taxes computed at the statutory rate to the effective rate for the three years ended November 30, 2017, 2016 and 2015 is as follows:




	2017				2016				2015
	Amount		Percent of Pretax Income		Amount		Percent of Pretax Income		Amount			Percent of Pretax Income
Continuing Operations
Provision for (benefit from) income taxes at federal statutory rate	$	1,021,610	34.00	%	$	728,014	34.00	%	$	(1,648,640	)	34.00	%
Changes in provision for (benefit from) income taxes resulting from:
State income taxes, net of federal income tax benefit	73,616		2.45	%	52,460		2.45	%	(140,619		)	2.90	%
Change in tax rate related to future deferred tax benefits	—		—	%	140,483		6.56	%	—			—	%
Non-deductible expenses and other adjustments	78,328		2.61	%	27,576		1.29	%	196,950			0.95	%
Provision for (benefit from) income taxes at effective rate	$	1,173,554	39.06	%	$	948,533	44.30	%	$	(1,592,309	)	37.85	%



Discontinued Operations
(Benefit from) provision for income taxes at federal statutory rate	$	—	—	%	$	(7,004	)	34.00	%	$	6,288		34.00	%
Changes in (benefit from) provision for income taxes resulting from:
State income taxes, net of federal income tax benefit	—		—	%	(505		)	2.45	%	$	536		2.90	%
Non-deductible expenses and other adjustments	—		—	%	(1,617		)	7.85	%	(751		)	(4.06	)%
(Benefit from) provision for income taxes at effective rate	$	—	—	%	$	(9,126	)	44.30	%	$	6,073		32.84	%