INCOME TAXES

12 Months Ended

Oct. 31, 2011

Notes to Financial Statements

INCOME TAXES

The Company’s provision for income taxes in 2011 and 2010 consisted of the following:

	2011			2010
Current
Federal	$	1,036,645		$	1,179,132
State and local		15,377			187,857
		1,052,022			1,366,989
Deferred
Federal		(782,000	)		100,000
State and local		(40,500	)		12,500
		(822,500	)		112,500
Income tax expense	$	229,522		$	1,479,489

A reconciliation of the difference between the expected income tax rate using the statutory federal tax rate and the Company’s effective tax rate is as follows:

	2011			2010
Tax at the federal statutory rate of 34%	$	365,672		$	1,316,735
Non controlling interest		(11,600	)		(1,500	)
Amortization		(14,900	)		(6,000	)
Section 199		(40,000	)		(17,000	)
Other permanent differences		(25,600	)		27,000
State and local tax, net of federal		(44,050	)		160,254
Provision for income taxes	$	229,522		$	1,479,489
Effective income tax rate		21	%		38	%

The tax effects of the temporary differences that give rise to the deferred tax assets and liabilities as of October 31, 2011 and 2010 are as follows:

	2011		2010
Current deferred tax assets:
Accounts receivable	$	91,400	$	72,556
Unrealized loss		758,000		—
Inventory		47,000		56,403
Total current deferred tax asset	$	896,400	$	128,959
Non-current deferred tax assets:
Deferred rent		50,600		—
Deferred compensation		190,500		199,041
Total non-current deferred tax asset	$	241,100	$	199,041
Total deferred tax asset	$	1,137,500	$	328,000
Deferred tax liabilities: Current deferred tax liability:
Unrealized gains   Non-current deferred tax liability:		—	$	73,00
Fixed assets		277,000		216,700
Total deferred tax liabilities	$	277,000	$	290,000

A valuation allowance was not provided at October 31, 2011 or 2010. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are expected to be deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.

As of October 31, 2011 and 2010, the Company did not have any unrecognized tax benefits or open tax positions. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of October 31, 2011 and 2010, the Company had no accrued interest or penalties related to income taxes. The Company currently has no federal or state tax examinations in progress.

The Company files a U.S. federal income tax return and California, Colorado, New Jersey, New York, Texas and Oregon state tax returns. The Company’s federal income tax return is no longer subject to examination by the federal taxing authority for years before fiscal 2007. The Company’s California, Colorado and New Jersey income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2006. The Company’s Oregon, New York, Kansas and Texas income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2007.