(

)

Income Taxes

Total income tax expense (benefit) for the

2018

and

2017

fiscal years consists of the following:

	November 30, 2018			November 30, 2017
Current Expense (benefit)	$	127,673		$	15,360
Deferred expense (benefit)		(654,413	)		(572,175	)
	$	(526,740	)	$	(556,815	)

The reconciliation of the statutory Federal income tax rate is as follows:

	November 30, 2018			November 30, 2017
Statutory federal income tax rate		21.0	%		34.0	%
Valuation allowance on foreign net operating loss		(1.4	)		(7.8	)
Revaluation of deferred tax asset		(7.6	)		-
Permanent Differences and Other		1.5			(0.7	)
		13.5	%		25.5	%

Tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at

November 30, 2018

and

2017

are presented below:

	November 30
	2018			2017
Current deferred tax assets (liabilities):
Accrued expenses	$	59,000		$	95,000
Inventory capitalization		73,000			33,000
Net operating loss and tax credit carryforward		826,000			586,000
Asset reserves		609,000			746,000
Total current deferred tax assets	$	1,567,000		$	1,460,000
Non-current deferred tax assets
Property, plant, and equipment	$	(135,000	)	$	(559,000	)
Total non-current deferred tax assets (liabilities)	$	(135,000	)	$	(559,000	)
Net deferred taxes	$	1,432,000		$	901,000

Based on the Company’s adoption of ASU

2015

17,

Income Taxes, the Company has prospectively classified the

2018

and

2017

net deferred tax assets as a noncurrent asset in the accompanying financial statements.

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. The Company’s net operating loss amounting to approximately

$3,300,000

and tax credit carryforward amounting to approximately

$124,000

for its U.S. operations expire on

November 30, 2036,

2037

and

2038.

Management believes that the Company will be able to utilize the U.S. net operating losses and credits before their expiration.

December 22, 2017,

the Tax Cuts and Jobs Act of

2017

was enacted, which reduced the top corporate income tax rate from

35%

21%.

The Company has assessed the impact of the law on its reported assets, liabilities, and results of operations, and 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

2018

fiscal year, the Company substantially reduced its net deferred tax asset using the new lower rates. Based on the Company’s recorded deferred tax asset at

November 30, 2017,

the Company reduced the deferred tax asset by approximately

$298,000,

which was recorded as an adjustment to our tax provision in the

first

quarter of the

2018

fiscal year.