Note 6 - Income taxes

The provision for income taxes consists of the following:

	2011			2010
Current:
Federal	$	318,148		$	825,965
State		43,744			211,222
		361,892			1,037,187
Deferred:
Federal		24,540			(135,300	)
State		(7,600	)		(31,300	)
		16,940			(166,600	)

Totals	$	378,832		$	870,587

Income tax at the Federal statutory rate is reconciled to the Company's actual net provision for income taxes as follows:

	2011						2010
	Amount			% of Pretax Income			Amount		% of Pretax Income

Income tax at Federal statutory rate	$	392,500			34.1	%	$	710,100		34.0	%
State tax provision, net of Federal tax benefit		23,855			2.1			118,748		5.7
Nondeductible differences:
ISO stock options, net		16,297			1.4			38,000		1.8
Business acquisition costs		131,504			11.4			-		-
Uncertain tax positions		(116,284	)		(10.1	)		-		-
R&D credit		(86,166	)		(7.5	)		-		-

Other		17,126			1.5			3,739		0.1
Provision for income taxes	$	378,832			32.9	%	$	870,587		41.6	%

The Company's total deferred tax assets and deferred tax liabilities at October 31, 2011 and 2010 are as follows:

	2011			2010
Current Assets:
Allowance for doubtful accounts	$	40,000		$	30,200
Inventory obsolescence		58,600			64,500
Accrued vacation		114,100			105,500
State income taxes		19,700			71,800
Stock based compensation awards		209,600			200,300
Section 263A costs		132,800			97,600
Other		35,900			43,200
Total current assets		610,700			613,100

Long-Term Assets:
Amortization / intangible assets		-			131,600

Long-Term Liabilities:
Amortization / intangible assets		(763,700	)		-
Depreciation / equipment and furnishings		(308,500	)		(150,400	)

Net deferred tax assets (liabilities)	$	(461,500	)	$	594,300

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follow:

Balance at November 1, 2009	$	241,344
Lapse of statute of limitations- tax positions in prior period		(194,921	)
Gross increase – tax positions in current period		169,748
Balance at October 31, 2010		216,171
Lapse of statute of limitations - tax positions in prior period		(136,948	)
Balance at October 31, 2011	$	79,223

The Company’s total gross liability for unrecognized tax benefits at October 31, 2011 was $79,223, including $18,947 of interest and penalties. At November 1, 2010 the Company’s total gross liability for unrecognized tax benefits was $216,171, including $52,415 of interest and penalties. During the year ended October 31, 2010, a net increase of $7,350 of interest and penalties as a result of a revaluation of prior year balances was recorded as a component of income tax expense in the Consolidated Statements of Income.

The Company does not expect any material changes to the estimated amount of the liability associated with its uncertain tax positions within the next 12 months. During the year ended October 31, 2011, a reduction of $31,310 of interest and penalties as a result of a revaluation of prior year balances was recorded as a component of income tax expense in the statement of income. As of October 31, 2011, $21,106 of accrued interest and penalties are included in other long-term liabilities in the balance sheet. As of October 31, 2010, $52,415 of accrued interest and penalties were included in other long-term liabilities in the balance sheet.

The Company is currently not undergoing any tax examinations. Tax fiscal years ended October 31, 2007 through October 31, 2011 remain subject to examinations.