Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

Income Taxes

3 Months Ended

Feb. 28, 2014

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 February 28, 2014 and February 28, 2013. 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. There were penalties and related interest of $669 and $24 for the three months ended February 28, 2014, and 2013,respectively. Penalties are recorded in selling, general and administrative expenses.

As of February 28, 2014, the Company had unrealized gain on its investments of $146,552. This amount was reduced by a deferred tax expense of $54,083. The deferred tax expense for three months ended February 28, 2014 has been recorded as part of the deferred tax asset, and offset against the unrealized gains on marketable securities reported on the consolidated balance sheet. The charitable contributions portion of the deferred tax asset has $357,649 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 February 28, 2014.

At February 28, 2014 and November 30, 2012, respectively, the Company had temporary differences arising from the following:



	February 28, 2014
							Classified As
Type	Amount			Deferred Tax			Short-Term Asset			Long-Term Asset
Depreciation	$	(984,890	)	$	(363,460	)	$	—		$	(363,460	)
Unrealized (gain) on investments	(146,552		)	(54,083		)	(54,083		)	—
Reserve for bad debts	28,880			10,658			10,658			—
Reserve for returns	1,994,072			735,885			735,885			—
Reserve for obsolete inventory	2,833,739			1,045,754			1,045,754			—
Vacation accrual	173,513			64,033			64,033			—
Charitable contributions	996,145			367,613			9,964			357,649
Section 263A costs	207,268			76,490			76,490			—
Loss carry forward	9,436,602			3,482,452			1,641,077			1,841,375
Net deferred tax asset (liability)				$	5,365,342		$	3,529,778		$	1,835,564

	November 30, 2013
							Classified As
Type	Amount			Deferred Tax			Short-Term Asset			Long-Term (Liability)
Depreciation	$	(980,638	)	$	(361,891	)	$	—		$	(361,891	)
Unrealized (gain) on investments	(289,021		)	(106,669		)	(106,669		)	—
Reserve for bad debts	56,513			20,855			20,855			—
Reserve for returns	2,070,223			763,988			763,988			—
Reserve for obsolete inventory	3,030,306			1,118,294			1,118,294			—
Vacation accrual	252,117			93,040			93,040			—
Charitable contributions	988,611			364,833			9,964			354,869
Section 263A costs	212,794			78,529			78,529			—
Loss carry forward	7,096,270			2,618,784			690,746			$	1,928,038
Net deferred tax asset (liability)				$	4,589,763		$	2,668,747		$	1,921,016

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



	Three Months Ended
	February 28, 2014			February 28, 2013
Current tax - Federal	$	—		$	—
Current tax - State & Local	1,200			552
Deferred tax	(722,993		)	(658,282		)
Total tax	$	(721,793	)	$	(657,730	)

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



Prepaid and refundable income taxes	Federal		State & Local		Total
February 28, 2014	$	337,532	$	339,857	$	677,389
November 30, 2013	$	337,532	$	341,357	$	678,889

A reconciliation of the (benefit from) provision for income taxes computed at the statutory rate to the effective rate for the three months ended February 28, 2014, and February 28, 2013 is as follows:



	Three Months Ended					Three Months Ended
	February 28, 2014					February 28, 2013
	Amount			Percent of Pretax Income		Amount			Percent of Pretax Income
(Benefit from) provision for income taxes at federal statutory rate	$	(666,862	)	34.00	%	$	(568,861	)	34.00	%
Changes in (benefit) provision for income taxes resulting from:
State income taxes, net of federal income tax benefit	(56,879		)	2.90	%	(48,520		)	2.90	%
Non-deductible expenses and other adjustments	1,948			(0.10	)%	(40,349		)	2.41	%
(Benefit from) provision for income taxes at effective rate	$	(721,793	)	36.80	%	$	(657,730	)	39.31	%

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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