Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Nov. 30, 2016

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, 2016 and November 30, 2015. 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 2012 through 2015 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, 2016.

The charitable contributions and net operating loss portion of the deferred tax asset has $8,412,035 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, 2016.

At November 30, 2016 and November 30, 2015, respectively, the Company had temporary differences arising from the following:



	November 30, 2016
							Classified As
Type	Amount			Deferred Tax			Short-Term Asset		Long-Term Asset
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

	November 30, 2015
							Classified As
Type	Amount			Deferred Tax			Short-Term Asset		Long-Term (Liability)
Depreciation	$	(250,811	)	$	(92,558	)	$	—	$	(92,558	)
Reserve for bad debts	4,911			1,812			1,812		—
Reserve for returns	907,777			335,003			335,003		—
Accrued returns	407,992			150,564			150,564		—
Reserve for obsolete inventory	821,259			303,075			303,075		—
Vacation accrual	35,955			13,269			13,269		—
Bonus obligations unpaid	24,000			8,857			8,857		—
Restructuring costs	1,264,218			466,544			466,544		—
Charitable contributions	734,643			271,109			86,402		184,707
Section 263A costs	67,129			24,773			24,773		—
Loss carry forward	27,022,986			9,972,473			864,023		9,108,450
Net deferred tax asset				$	11,454,921		$	2,254,322	$	9,200,599

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 available information and determined the negative objective evidence, primarily recent losses offset by positive objective evidence, including the effects of current year restructuring expenses that will not recur, the savings of the related payroll and rent expense resulting from the restructuring and forecasts for future profitability. 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.

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



	November 30,
Continuing Operations	2016		2015			2014
Current tax - Federal	$	20,000	$	—		$	—
Current tax - State & Local	28,949		(2,795		)	33,664
Deferred tax expense (benefit)	899,584		(1,589,514		)	(1,740,876		)
	$	948,533	$	(1,592,309	)	$	(1,707,212	)



	November 30,
Discontinued Operations	2016			2015		2014
Current tax - Federal	$	—		$	—	$	—
Current tax - State & Local	—			—		—
Deferred tax (benefit) expense	(9,126		)	6,073		(3,651,431		)
	$	(9,126	)	$	6,073	$	(3,651,431	)

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



Prepaid and refundable income taxes	Federal		State & Local		Total
November 30, 2016	$	—	$	44,154	$	44,154
November 30, 2015	$	—	$	70,056	$	70,056

Income tax payable is made up of the following components:



Income Taxes Payable	Federal		State & Local		Total
November 30, 2016	$	20,000	$	—	$	20,000
November 30, 2015	$	—	$	—	$	—

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, 2016, 2015 and 2014 is as follows:




	2016				2015					2014
	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	$	728,014	34.00	%	$	(1,648,640	)	34.00	%	$	(1,533,618	)	34.00	%
Changes in provision for (benefit from) income taxes resulting from:
State income taxes, net of federal income tax benefit	52,460		2.45	%	(140,619		)	2.90	%	(130,809		)	2.90	%
Change in tax rate related to future deferred tax benefits	140,483		6.56	%	—			—	%	—			—	%
Non-deductible expenses and other adjustments	27,576		1.29	%	196,950			(4.06	)%	(42,785		)	0.95	%
Provision for (benefit from) income taxes at effective rate	$	948,533	44.30	%	$	(1,592,309	)	32.84	%	$	(1,707,212	)	37.85	%



Discontinued Operations
(Benefit from) provision for income taxes at federal statutory rate	$	(7,004	)	34.00	%	$	6,288		34.00	%	$	(3,280,140	)	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	%	$	(279,777	)	2.90	%
Non-deductible expenses and other adjustments	(1,617		)	7.85	%	(751		)	(4.06	)%	(91,514		)	0.95	%
(Benefit from) provision for income taxes at effective rate	$	(9,126	)	44.30	%	$	6,073		32.84	%	$	(3,651,431	)	37.85	%