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Note 8 - Income Tax Provision (Benefit) | 12 Months Ended
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Oct. 31, 2023
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | Note 8 – Income tax provision (benefit) The provision (benefit) for income taxes for the fiscal years ended October 31, 2023 and 2022 consists of the following (in thousands):
|  | 2023 |  |  | 2022 |
Current: |  |  |  |  |  |  |  |
Federal |  | $ | (501 | ) |  | $ | 1,252 |
State |  |  | 6 |  |  |  | 225 |
|  |  | (495 | ) |  |  | 1,477 |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | (438 | ) |  |  | (1,054 | )
State |  |  | (239 | ) |  |  | (284 | )
|  |  | (677 | ) |  |  | (1,338 | )
|  | $ | (1,172 | ) |  | $ | 139 |
Income tax at the federal statutory rate is reconciled to our actual net provision (benefit) for income taxes as follows (in thousands, except percentages):
|  | 2023 |  |  | 2022 |
|  |  |  |  |  | % of Pretax |  |  |  |  |  |  | % of Pretax |
|  | Amount |  |  | Loss |  |  | Amount |  |  | Income |
Income taxes at federal statutory rate |  | $ | (893 | ) |  |  | 21.0 | % |  | $ | 333 |  |  |  | 21.0 | %
State tax provision, net of federal tax benefit |  |  | (212 | ) |  |  | 5.0 | % |  |  | 60 |  |  |  | 3.8 | %
Nondeductible differences: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock options |  |  | 88 |  |  |  | -2.1 | % |  |  | 19 |  |  |  | 1.2 | %
Permanent differences |  |  | 15 |  |  |  | -0.4 | % |  |  | 5 |  |  |  | 0.3 | %
R&D credits |  |  | (238 | ) |  |  | 5.6 | % |  |  | (219 | ) |  |  | -13.6 | %
Foreign derived intangible income |  |  | - |  |  |  | 0.0 | % |  |  | (68 | ) |  |  | -4.3 | %
ASC 740-10 Liability |  |  | 13 |  |  |  | -0.3 | % |  |  | (7 | ) |  |  | -0.4 | %
Section 481(a) adjustment |  |  | - |  |  |  | 0.0 | % |  |  | 142 |  |  |  | 8.9 | %
Return-to-provision adjustments |  |  | (69 | ) |  |  | 1.6 | % |  |  | (126 | ) |  |  | -7.9 | %
Other |  |  | 124 |  |  |  | -2.9 | % |  |  | - |  |  |  | 0.0 | %
|  | $ | (1,172 | ) |  |  | 27.5 | % |  | $ | 139 |  |  |  | 9.2 | %
Our total deferred tax assets and deferred tax liabilities at October 31, 2023 and 2022 are as follows (in thousands):
|  | 2023 |  |  | 2022 |
Deferred Tax Assets: |  |  |  |  |  |  |  |
Reserves |  | $ | 497 |  |  | $ | 404 |
Accrued vacation |  |  | 275 |  |  |  | 294 |
Stock-based compensation awards |  |  | 213 |  |  |  | 168 |
Uniform capitalization |  |  | 208 |  |  |  | 173 |
Lease liability |  |  | 5,177 |  |  |  | 4,169 |
State taxes |  |  | 21 |  |  |  | 72 |
Other |  |  | - |  |  |  | 36 |
Capitalized Section 174 Costs |  |  | 864 |  |  |  | - |
Credits |  |  | 128 |  |  |  | - |
163(j) interest carryforward |  |  | 118 |  |  |  | - |
Net operating loss carryforwards |  |  | 73 |  |  |  | - |
Total deferred tax assets |  |  | 7,574 |  |  |  | 5,316 |
Deferred Tax Liabilities: |  |  |  |  |  |  |  |
Amortization / intangible assets |  |  | (192 | ) |  |  | (29 | )
Change in right-of-use assets |  |  | (3,942 | ) |  |  | (3,335 | )
Depreciation / equipment and furnishings |  |  | (822 | ) |  |  | (136 | )
Total deferred tax liabilities |  |  | (4,956 | ) |  |  | (3,500 | )
Valuation allowance |  |  | (124 | ) |  |  | - |
Total net deferred tax assets (liabilities) |  | $ | 2,494 |  |  | $ | 1,816 |
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 federal and combined state deferred tax assets will be realized in future tax years, but it is not more likely than not that the separate state deferred tax assets will be realized in future tax years. As such, a valuation allowance has been recorded against the separate state deferred tax assets. The change in valuation allowance was $0.1 million and $0.0 million for fiscal 2023 and 2022, respectively. At October 31, 2023, the Company has gross United States federal and state net operating loss (NOL) carryforwards of $0.3 million and $0.2 million, respectively. The federal NOL carryforwards will carry forward indefinitely. The state NOL carryforwards of $0.2 million will begin to expire in 2043 unless previously utilized. At October 31, 2023, the Company also has IRC 163(j) interest carryforwards of $0.6 million, which will carry forward indefinitely. At October 31, 2023, the Company also has state research and development credit carryforwards of $0.2 million. The state credit carryforwards of $0.2 million will begin to expire in 2029 unless previously utilized and the remainder will carry forward indefinitely. The provision (benefit) for income taxes was ($1.2) million or 27.5% and $0.1 million or 9.2% of income before income taxes for fiscal 2023 and 2022, respectively. The fiscal 2023 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, the change in valuation allowance and state taxes. 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, 2023 and 2022 are as follows:
|  | 2023 |  |  | 2022 |
Balance, at beginning of year |  | $ | 121 |  |  | $ | 128 |
Increase for tax positions related to the current year |  |  | 78 |  |  |  | 50 |
Increase (decrease) for tax positions related to prior years |  |  | 2 |  |  |  | (29 | )
Increase for interest and penalties |  |  | - |  |  |  | - |
Statute of Limitations Expirations |  |  | (23 | ) |  |  | (28 | )
Balance, at end of year |  | $ | 178 |  |  | $ | 121 |
We had gross unrecognized tax benefits of $178,000 and $121,000 attributable to U.S. federal and California research tax credits as of October 31, 2023 and 2022 respectively. During fiscal 2023, the increase in our gross unrecognized tax benefit was primarily related to increased federal and California research tax credits being generated. The uncertain tax benefit of $40,000 is recorded as a reduction to deferred tax assets and the remainder is recorded in 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 $20,000 and $13,000 during the years ended October 31, 2023 and 2022 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 twelve-month period. We are subject to taxation in the United States and state jurisdictions. Our tax years for October 31, 2020 and forward are subject to examination by the United States and October 31, 2019 and forward with state tax authorities.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 946 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 13 -Publisher FASB -URI https://asc.fasb.org//1943274/2147480990/946-20-50-13 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 235 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480678/235-10-S99-1 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//740/tableOfContent Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 14 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-14 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 21 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-21 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 270 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482526/740-270-50-1 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 17 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-17 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479360/740-10-S99-1 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479360/740-10-S99-2 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 30 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org//1943274/2147482603/740-30-50-2 + Details
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