Income tax provision

12 Months Ended

Oct. 31, 2016

Note 9 - Income tax provision

The provision (benefit) for income taxes for the fiscal years ended October 31, 2016 and 2015 consists of the following (in thousands):

	2016		2015
Current:
Federal	$	(332)	$	300
State		(13)		4
		(345)		304

Deferred:
Federal		(179)		(126)
State		(128)		(38)
		(307)		(164)

	$	(652)	$	140

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

	2016					2015
			% of Pretax					% of Pretax
	Amount		Income			Amount		Income

Income taxes at federal statutory rate	$	(1,592)		34.0	%	$	287		34.0	%
State tax provision, net of federal tax benefit		(53)		1.1	%		38		4.5	%
Nondeductible differences:
Goodwill and other intangible asset impairment		916		(19.6)	%		-		0.0	%
Rel-Tech earn-out		52		(1.1)	%		-		0.0	%
Qualified domestic production activities deduction		46		(1.0)	%		(36)		(4.3)	%
ISO stock options		43		(0.9)	%		50		6.0	%
Meals and entertainment		29		(0.6)	%		31		3.7	%
Comnet book income		-		0.0	%		(46)		(5.5)	%
Transaction costs		-		0.0	%		28		3.4	%
Temporary true-ups		(3)		0.1	%		(89)		(10.6)	%
State tax refunds, net of federal expense		(38)		0.8	%		(66)		(7.9)	%
R&D credits		(46)		1.0	%		(44)		(5.2)	%
Other		(6)		0.1	%		(13)		(1.3)	%
	$	(652)		13.9	%	$	140		16.8	%

The Company’s total deferred tax assets and deferred tax liabilities at October 31, 2016 and 2015 are as follows (in thousands):

	2016		2015

Deferred Tax Assets:
Reserves	$	216	$	171
Accrued vacation		134		143
Stock-based compensation awards		159		-
Uniform capitalization		148		97
Other		43		15
Total deferred tax assets		700		426

Deferred Tax Liabilities:
Stock-based compensation awards		-		136
Amortization / intangible assets		(864)		(1,036)
Depreciation / equipment and furnishings		(211)		(247)
Other		(34)		4
Total deferred tax liabilities		(1,109)		(1,143)

Total net deferred tax assets (liabilities)	$	(409)	$	(717)

Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has evaluated the available evidence supporting the realization of its gross deferred tax assets, including the amount and timing of future taxable income, and has determined it is more likely than not that the assets will be realized in future tax years.

The Company had adopted the provisions of ASC 740-10, which clarifies the accounting for uncertain tax positions. ASC 740-10 requires that the Company recognize the impact of a tax position in the financial statements if the position is not more likely than not to be sustained upon examination based on the technical merits of the position. The Company’s practice is to recognize interest and penalties related to income tax matters in income from continuing operations. The Company has no material unrecognized tax benefits as of October 31, 2016.

The Company is subject to taxation in the United States and state jurisdictions. The Company’s tax years for October 31, 2013 and forward are subject to examination by the United States and October 31, 2012 and forward with state tax authorities.

In November 2015, the FASB issued Accounting Standards Update 2015-17 (ASU 2015-17) Balance Sheet Classification of Deferred Taxes, which requires that deferred tax assets and deferred tax liabilities be classified as noncurrent in the balance sheet. ASU 2015-17 is effective for annual periods ending after December 15, 2017. Early adoption is permitted, and the Company has adopted the provisions of ASU 2015-17 prospectively as of October 31, 2016 and is not retrospectively adjusting prior periods.