Note 8 - Income Tax Provision

12 Months Ended

Oct. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 8 – Income tax provision

The provision (benefit) for income taxes for the fiscal years ended October 31, 2022 and 2021 consists of the following (in thousands):

	2022			2021
Current:
Federal	$	1,252		$	401
State		225			189
		1,477			590
Deferred:
Federal		(1,054	)		323
State		(284	)		123
		(1,338	)		446
	$	139		$	1,036

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

	2022						2021
				% of Pretax						% of Pretax
	Amount			Income			Amount			Income
Income taxes at federal statutory rate	$	333			21.0	%	$	1,516			21.0	%
State tax provision, net of federal tax benefit		60			3.8	%		246			3.4	%
Nondeductible differences:
Stock options		19			1.2	%		(86	)		-1.2	%
PPP loan forgiveness		-			0.0	%		(588	)		-8.1	%
Permanent differences		5			0.3	%		5			0.1	%
R&D credits		(219	)		-13.6	%		(51	)		-0.7	%
Foreign derived intangible income		(68	)		-4.3	%		(15	)		-0.2	%
ASC 740-10 Liability		(7	)		-0.4	%		29			0.4	%
Section 481(a) adjustment		142			8.9	%		-			0.0	%
Return-to-provision adjustments		(126	)		-7.9	%		-			0.0	%
Other		-			-0.0	%		(20	)		-0.3	%
	$	139			9.2	%	$	1,036			14.4	%

Our total deferred tax assets and deferred tax liabilities at October 31, 2022 and 2021 are as follows (in thousands):

	2022			2021
Deferred Tax Assets:
Reserves	$	404		$	383
Accrued vacation		294			241
Stock-based compensation awards		168			144
Uniform capitalization		173			134
Lease liability		4,169			366
State Taxes		72			52
Other		36			25
Total deferred tax assets		5,316			1,345
Deferred Tax Liabilities:
Amortization / intangible assets		(29	)		(487	)
Change in ROU assets		(3,335	)		(357	)
Depreciation / equipment and furnishings		(136	)		(112	)
Total deferred tax liabilities		(3,500	)		(956	)
Total net deferred tax assets (liabilities)	$	1,816		$	389

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. We have 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 provision (benefit) for income taxes was $0.1 million or 9.2% and $1.0 million or 14.4% of income before income taxes for fiscal 2022 and 2021, respectively. The fiscal 2022 effective tax rate differed from the statutory federal rate of 21% primarily as a result of the tax benefit from research and development tax credits and foreign derived intangible income deduction and the tax expense associated with tax accounting method changes.

The Company recognizes the benefit of tax positions taken or expected to be taken in its tax returns in the consolidated financial statements when it is more likely than not that the position will be sustained upon examination by authorities. Recognized tax positions are measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement.         

A reconciliation of the beginning and ending balance to total uncertain tax positions in fiscal years ended October 31, 2022 and 2021 are as follows:

	2022			2021
Balance, at beginning of year	$	141		$	107
Increase for tax positions related to the current year		50			44
Increase for tax positions related to prior years		(29	)		(1	)
Increase for interest and penalties		-			2
Statute of Limitations Expirations		(28	)		(11	)
Balance, at end of year	$	134		$	141

We had gross unrecognized tax benefits of $121,000 and $128,000 attributable to U.S. federal and California research tax credits as of October 31, 2022 and 2021, respectively. During fiscal 2022, the decrease in our gross unrecognized tax benefit was primarily related to statute expirations and adjustments for prior year federal and California research tax credits. The uncertain tax benefit is recorded as income taxes payable in our consolidated balance sheet and if recognized in the future would impact our effective tax rate. We recognize interest and penalties related to uncertain tax positions in income tax expense. We recognized expense of approximately $13,000 and $13,000 during the years ended October 31, 2022 and 2021, respectively. We believe that an adequate provision has been made for any adjustments that may result from tax examinations. However, it is possible that certain changes may occur within the next twelve months, but we do not anticipate that our accrual for uncertain tax positions will change by a material amount over the next 12-month period.

We are subject to taxation in the United States and state jurisdictions. Our tax years for October 31, 2019 and forward are subject to examination by the United States and October 31, 2018 and forward with state tax authorities.