7. INCOME TAXES

12 Months Ended

Oct. 31, 2012

Income Tax Disclosure [Abstract]

INCOME TAXES

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

	2012			2011
Current
Federal	$	1,145,145		$	1,036,645
State and local		134,736			15,377
		1,279,881			1,052,022
Deferred
Federal		211,000			(782,000	)
State and local		(20,500	)		(40,500	)
		190,500			(822,500	)
Income tax expense	$	1,470,381		$	229,522

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:

	2012			2011
Tax at the federal statutory rate of 34%	$	1,378,625		$	365,672
Non controlling interest		(33,600	)		(11,600	)
Amortization		(14,900	)		(14,900	)
Section 199		(23,100	)		(40,000	)
Accrual adjustments		50,430			–
Other permanent differences		24,000			(25,600	)
State and local tax, net of federal		88,926			(44,050	)
Provision for income taxes	$	1,470,381		$	229,522
Effective income tax rate		36	%		21	%

The tax effects of the temporary differences that give rise to the deferred tax assets and liabilities as of October 31, 2012 and 2011 are as follows:

	2012		2011
Current deferred tax assets:
Accounts receivable	$	77,543	$	91,400
Unrealized loss		580,390		758,000
Inventory		44,722		47,000
Total current deferred tax asset	$	702,655	$	896,400
Non-current deferred tax assets:
Deferred rent		60,484		50,600
Deferred compensation		191,861		190,500
Total non-current deferred tax asset	$	252,345	$	241,100
Total deferred tax asset	$	955,000	$	1,137,500
Non-current deferred tax liability:
Fixed assets		285,000		277,000
Total deferred tax liabilities	$	285,000	$	277,000

A valuation allowance was not provided at October 31, 2012 or 2011.  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, 2012 and 2011, 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, 2012 and 2011, 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.