Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes
12 Months Ended
Nov. 30, 2017
Income Tax Disclosure [Abstract]  
Income Taxes


The Company recorded the following income tax provision for the years ended November 30, 2017 and 2016.


     2017      2016  




   $ 1,483,000      $ 432,000  


     483,000        212,000  


     108,000        109,000  


     2,074,000        753,000  




     (318,000      (1,662,000


     (447,000      (250,000


     —          —    


     (765,000      (1,912,000

Income Tax (Benefit) Expense

   $ 1,309,000      $ (1,159,000








As of November 30, 2017 and 2016, the tax effects of temporary differences that give rise to the deferred tax assets are as follows:


     2017      2016  

Tax Assets:


Deferred income (Net of Discounts)

   $ 5,886,000      $ 4,917,000  

NOLs, credits, and other carryforward items

     8,000        459,000  

Tax over book basis in unconsolidated affiliate

     1,788,000        1,678,000  

Accrued payroll

     405,000        68,000  

Reserves and other accruals

     1,039,000        1,416,000

Stock compensation

     711,000        433,000  

Depreciation and Amortization

     618,000        616,000  

RSA Buy-out

     1,909,000        1,996,000  







Total Assets:

     12,364,000        11,583,000  

Tax Liabilities:


Unrealized gains on AFS securities

     (12,000      (21,000







Total Liabilities:

     (12,000      (21,000

Less: Valuation Allowance

     (2,316,000      (2,301,000







Net Deferred Tax Asset

   $ 10,036,000      $ 9,261,000  







A valuation allowance covering the deferred tax assets of the Company for November 30, 2017 and November 30, 2016, has been provided as the Company does not believe it is more likely than not that all of the future income tax benefits will be realized. The valuation allowance changed by approximately ($73,000) and ($329,000) during the years ended November 30, 2017 and 2016, respectively. The change for year ended November 30, 2016 was primarily a result of Nyberg’s RSA Buy Out, impairment of the PrepaCyte’s intangible assets, and a partial release of the valuation allowance. The change for year ended November 30, 2017 was a result of capital loss carryovers expiring unused.

The Company evaluates the recoverability of our deferred tax assets as of the end of each quarter, weighing all positive and negative evidence, and are required to establish and maintain a valuation allowance for these assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which the evidence can be objectively verified. If negative evidence exists, positive evidence is necessary to support a conclusion that a valuation allowance is not needed.

The positive evidence that weighed in favor or releasing the allowance as of November 30, 2016 and ultimately outweighed the negative evidence against releasing the allowance was the following:


    Identifiable sources of future income relating to the company’s deferred revenue accounts.


    Certainty as to the amount available of deferred tax assets and nature in which the deferred tax assets reverse;


    Profitability for years ended November 30, 2014 and 2015 and our expectations regarding the sustainability of these profits;


    The Company’s three-year cumulative position as of November 30, 2016; and


    The Company’s taxable income projection for fiscal years ending November 30, 2017, 2018 and 2019.


The Tax Cuts and Jobs Act (the “Tax Act”) was signed into law on December 22, 2017. The Tax Act makes significant changes to provisions of the Internal Revenue Code, including changing the corporate tax rate to a flat 21% rate as of January 1, 2018. This requires the Company’s net deferred tax assets and liabilities to be revalued at the newly enacted U.S. corporate rate. The impact will be recognized in tax expense in the year of enactment (i.e., for the Company, the fiscal year ended November 30, 2018). Based on evaluation, the Company’s discrete expense for the rate impact will be approximately $3.0 million. Based on the Company’s evaluation, the Tax Act is not expected to impact the recoverability of its deferred tax asset.

A reconciliation of the income tax provision with the amount of tax computed by applying the federal statutory rate to pretax income follows:


     For the Years Ended November 30,         
     2017      %      2016      %  

Tax at Federal Statutory Rate

     1,195,000        34.0        (880,000      34.0  

State Income Tax Effect

     179,000        5.1        (94,000      3.6  

Valuation Allowance Release

     —          0.0        (329,000      (12.7

Permanent Disallowances

     159,000        4.5        184,000        (7.3

Deferred Repricing

     (343,000      (9.8      —       


     119,000        3.4        (40,000      1.6  

Foreign tax credits

     (108,000      (3.1      (109,000      4.3  

Foreign tax withholding

     108,000        3.1        109,000        (4.3













Total income taxes

   $ 1,309,000        37.2      $ (1,159,000      47.7  













The Company adopted the accounting standard for uncertain tax positions, ASC 740-10, on December 1, 2007. As required by the standard, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Increases or decreases to the unrecognized tax benefits could result from management’s belief that a position can or cannot be sustained upon examination based on subsequent information or potential lapse of the applicable statute of limitation for certain tax positions. There were no uncertain tax positions as of November 30, 2017 and 2016.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. For the years ended November 30, 2017 and 2016, the Company had no material provisions for interest or penalties related to uncertain tax positions.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. The table below summarizes the open tax years and ongoing tax examinations in major jurisdictions as of November 30, 2017:



   Open Tax Years      Examinations in Process  

United States – Federal Income Tax

     2013 - 2016        N/A  

United States – Various States

     2012 - 2016        N/A