Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

Income Taxes
3 Months Ended
Feb. 29, 2012
Income Taxes [Abstract]  


Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting and tax purposes. Components of the Company’s deferred tax assets and liabilities as of February 29, 2012 and November 30, 2011 are as follows:


    February 29, 2012     November 30, 2011  

Deferred Tax Assets:


Organization costs

  $ (19,511)      $ (20,068)   

Net operating loss carry forwards

    (4,367,714)        (2,624,525)   

Cost recovery of leased assets

    (99,176)        (119,970)   

AMT and state of Kansas credit

    (215,039)        (205,039)   








  $ (4,701,440)      $ (2,969,602)   







Deferred Tax Liabilities:


Basis reduction of investment in partnerships

  $ 4,072,650       $ 2,244,914    

Net unrealized gain on investment securities

    4,057,168         697,152    








  $ 8,129,818       $ 2,942,066    







Total net deferred tax liability (asset)

  $ 3,428,378       $ (27,536)    







At February 29, 2012, a valuation allowance on deferred tax assets was not deemed necessary because the Company believes it is more likely than not that there is an ability to realize its deferred tax assets through future taxable income. Any adjustments to the Company’s estimates of future taxable income will be made in the period such determination is made. The Company’s policy is to record interest and penalties on uncertain tax positions as part of tax expense. As of February 29, 2012, the Company had no uncertain tax positions and no penalties and interest were accrued. Tax years subsequent to the year ending November 30, 2006 remain open to examination by federal and state tax authorities.


Total income tax expense (benefit) differs from the amount computed by applying the federal statutory income tax rates of 35 percent for the period ended February 29, 2012 and 34 percent for the period ended February 28, 2011 to net investment income and net realized and unrealized gains on investments for the periods presented, as follows:


    For the
three months ended
February 29, 2012
    For the
three months ended
February 28, 2011




Application of statutory income tax rate

  $ 3,224,535       $ 289,343   

State income taxes, net of federal tax benefit

    241,379         15,488   


    —         (8,560)  

Change in deferred tax valuation allowance

    —         (558,533)  







Total income tax expense (benefit)

  $ 3,465,914       $ (262,262)  







Total income taxes are computed by applying the federal statutory rate plus a blended state income tax rate.

The components of income tax expense include the following for the periods presented:



For the

three months ended

February 29, 2012


For the

three months ended

February 28, 2011




Current tax expense:



  $ 10,000       $ —    







Total current tax expense

    10,000         —    







Deferred tax expense (benefit):



    3,215,230         (248,937)  

State (net of federal tax benefit)

    240,684         (13,325)  







Total deferred tax expense (benefit)

    3,455,914         (262,262)  







Total Income tax expense (benefit)

  $ 3,465,914       $ (262,262)  







The deferred income tax benefit for the three months ended February 28, 2011 includes the impact of the change in valuation allowance.

As of November 30, 2011, the Company had a net operating loss for federal income tax purposes of approximately $7,236,000. The net operating loss may be carried forward for 20 years. If not utilized, this net operating loss will expire as follows: $3,883,000 and $3,353,000 in the years ending November 30, 2029 and 2030, respectively. The amount of deferred tax asset for net operating losses at February 29, 2012 includes amounts for the period from December 1, 2011 through February 29, 2012. As of November 30, 2011, the Company estimated that it utilized its capital loss carry forward for approximately $12,000,000. Such estimate is subject to revision upon receipt of the 2011 tax reporting information from the individual partnerships. As of November 30, 2011, an alternative minimum tax credit of $203,109 was available, which may be credited in the future against regular income tax. This credit may be carried forward indefinitely.

The aggregate cost of securities for federal income tax purposes and securities with unrealized appreciation and depreciation, were as follows:



February 29, 2012


November 30, 2011




Aggregate cost for federal income tax purposes

  $ 59,559,785      $ 65,471,208   







Gross unrealized appreciation

    19,430,998        8,307,122   

Gross unrealized depreciation

    (2,217,953)       (4,883,958)  







Net unrealized appreciation

  $ 17,213,045      $ 3,423,164