Note 7 - Income taxes

The provision for income taxes for the fiscal years ended October 31, 2013 and 2012 consists of the following (in thousands):

	2013		2012
Current:
Federal	$	1,365	$	1,329
State		153		315
		1,518		1,644

Deferred:
Federal		285		(142)
State		27		(3)
		312		(145)

	$	1,830	$	1,499

Income tax at the federal statutory rate is reconciled to the Company’s actual net provision for income taxes as follows (in thousands, except percentages):

	2013				2012
			% of Pretax				% of Pretax
	Amount		Income		Amount		Income

Income tax at Federal statutory rate	$	2,315	34.0	%	$	1,396	34.0	%
State tax provision, net of Federal tax benefit		232	3.4	%		230	5.6	%
Nondeductible differences:
ISO stock options, net		(509)	-7.4	%		7	0.2	%
Qualified domestic production activities deduction		(87)	-1.3	%		(46)	-1.1	%
Other		40	0.6	%		36	0.9	%
Uncertain tax positions		-	-			(79)	-1.9	%
R&D credit		(87)	-1.3	%		-	-
Other		(74)	-1.1	%		(45)	-1.2	%
Provision for income taxes	$	1,830	26.9	%	$	1,499	36.5	%

The Company’s total deferred tax assets and deferred tax liabilities at October 31, 2013 and 2012 are as follows (in thousands):

	2013		2012

Current Assets:
Allowance for doubtful accounts	$	40	$	37
Inventory obsolescence		-		66
Accrued vacation		144		154
State income taxes		27		118
Stock based compensation awards		-		236
Section 263A costs		104		129
Other		7		21
Total current assets		322		761

Long-Term Assets:
Amortization / intangible assets		90		103

Long-Term Liabilities:
Amortization / intangible assets		(708)		(799)
Depreciation / equipment and furnishings		(332)		(381)
Net long-term deferred tax liabilities		(950)		(1,077)

Total deferred tax liabilities	$	(628)	$	(316)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Balance at November 1, 2011	$	79
Lapse of statute of limitations - tax positions in prior period		(79)
Balance at October 31, 2012		-
Lapse of statute of limitations - tax positions in prior period		-
Balance at October 31, 2013	$	-

The Company had no gross liability for unrecognized tax benefits at October 31, 2013 and 2012.

During the year ended October 31, 2012, a reduction of $19,000 of interest was a result of the expiration of the statute of limitations. As of October 31, 2013 and 2012, no accrued interest or penalties were included in other long-term liabilities on the balance sheet.

The Company is currently not undergoing any tax examinations. Tax fiscal years ended October 31, 2009 through October 31, 2013 remain subject to examination.