NOTE 7

Income Taxes

At November 30, 2015, the Corporation’s gross deferred tax assets of approximately $50 million consist of approximately $34 million in federal net operating loss and tax credit carryforwards, $8 million in state net operating loss carryforwards and $8 million resulting from temporary differences between financial and tax reporting. The federal net operating loss and tax credit carryforwards have a life expectancy of between thirteen and twenty years. The state net operating loss carryforwards have a life expectancy, depending on the state where a loss was incurred, between one and twenty years. The Corporation has recorded a full valuation allowance against this asset. If the Corporation, after considering future negative and positive evidence regarding the realization of deferred tax assets, determines that a lesser valuation allowance is warranted, it would record a reduction to income tax expense and the valuation allowance in the period of determination. For the three months and six months ended November 30, 2015, the Corporation reported the utilization of previously fully-reserved federal net operating loss carryforwards of $307,000 and state operating loss carryforwards of $74,000 and released corresponding amounts of the valuation allowance to offset federal income tax expense of $307,000 and state income tax expense of $74,000.