(

)

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.

December 22, 2017,

a new tax law was enacted that reduces the top corporate income tax rate from

35%

%. 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.