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 Deferred income taxes result from differences in the bases of assets and liabilities for tax and accounting purposes.

     Under the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", ("FAS 109"), Management is required to evaluate whether a valuation allowance should be established against its deferred tax assets based on the consideration of all available evidence using a "more likely than not" standard. Realization of deferred tax assets is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies, and reversals of existing taxable temporary differences. FAS 109 provides that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years or losses expected in early future years. As a result of significant losses in fiscal 2008 and losses in recent years, the Company concluded that a valuation reserve should be recorded in the 3rd quarter of 2008. A partial reserve was recognized after consideration of tax planning strategies at July 11, 2008. Significant fourth quarter losses and further deterioration of economic conditions including further decreases in building and real estate values resulted in a change in the tax planning strategies at October 31, 2008. As a result, management believes it is more likely than not that the deferred tax assets will not be realized and has recorded a full valuation allowance on all deferred tax assets during the fourth quarter of fiscal 2008.

     As of October 31, 2008, the Company had net operating loss carryforwards of approximately $8,055 and $7,417 for federal and state purposes, respectively. These loss carryforwards will expire at various dates from 2011 through 2027.

     In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”), an interpretation of FASB Statement No. 109, “Accounting for Income Taxes,” (“FASB 109”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB 109. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The cumulative effect of applying FIN 48 was reported as an adjustment to the opening balance of retained earnings during fiscal year beginning November 3, 2007.

     As of October 31, 2008, the Company has provided a liability of $97 for unrecognized tax benefits related to various federal and state income tax matters. The cumulative effect of applying FIN 48 has been recorded as a decrease of $92 to opening retained earnings with an offsetting increase to accrued FIN 48 liability. This entire amount would reduce the Company’s effective income tax rate if the asset is recognized in future reporting periods. The Company has not identified any new unrecognized tax benefits.

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