7. INCOME TAXES

12 Months Ended

Oct. 31, 2014

Income Tax Disclosure [Abstract]

INCOME TAXES

The Company’s provision (benefit) for income taxes in 2014 and 2013 consisted of the following:

	2014		2013
Current
Federal	$	1,607,952	$	(60,108	)
State and local		332,199		181,341
		1,940,151		121,233
Deferred
Federal		886,060		(516,000	)
State and local		120,891		1,000
		1,006,951		(515,000	)
Income tax (benefit) expense	$	2,947,102	$	(393,767	)

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

	2014			2013
Tax at the federal statutory rate of 34%	$	2,708,175		$	(585,362	)
Other permanent differences		(62,348	)		71,910
State and local tax, net of federal benefit		301,278			119,685
Provision for income taxes	$	2,947,102		$	(393,767	)
Effective income tax rate		37	%		(23	)%

The tax effects of the temporary differences that give rise to the deferred tax assets and liabilities as of October 31, 2014 and 2013 are as follows:

	2014		2013
Current deferred tax assets:
Accounts receivable	$	54,407	$	54,553
Net operating loss		27,807		866,000
Unrealized loss		183,216		372,791
Inventory		78,227		37,322
Total current deferred tax asset	$	343,657	$	1,330,666
Non-current deferred tax assets:
Deferred rent		79,575		74,044
Deferred compensation		194,768		195,290
Total non-current deferred tax asset	$	274,343	$	269,334
Total deferred tax asset	$	618,000	$	1,600,000
Non-current deferred tax liability:
Fixed assets		439,500		415,000
Total deferred tax liabilities	$	439,500	$	415,000

As of October 31, 2014 the Company had U.S. federal and state net operating loss carryovers (“NOLs”) of $0 and $735,000 respectively. As of October 31, 2013 the Company had U.S. federal and state NOLs $2,417,000. The Company’s U.S. federal NOL was fully utilized during the year ended October 31, 2014 since the Company was able to carry it back to offset taxable income in a prior year. No carryback was allowed for state income tax purposes.

A valuation allowance was not provided at October 31, 2014 or 2013.  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, 2014 and 2013, 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, 2014 and 2013, 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, Connecticut, Kansas, Michigan, New Jersey, New York, Texas, Rhode Island, South Carolina 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 2011.  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 2008.  The Company’s Oregon, New York, Kansas, South Carolina, Rhode Island, Connecticut and Michiganand Texas income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2009.