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Note 9 - Income Taxes
 6 Months Ended
Apr. 30, 2025
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

Note 9 – Income taxes

 

In accordance with applicable accounting guidance, the Company is required to use an estimated annual effective tax rate to compute its tax provision during an interim period. However, there is an exception to the use of this method when a reliable estimate of the annual effective tax rate cannot be made due to the sensitivity of changes in estimates of ordinary income (loss). In that case, an entity may report the actual tax provision or benefit applicable when annual income (loss) cannot be estimated as a discrete item in the interim period. This exception was used in determining the tax provision for the six months ended April 30, 2025.

 

We recorded income tax provisions of $135,000 and $3,649,000 for the three months ended April 30, 2025 and 2024, respectively. The effective tax rate for the three months ended April 30, 2025 and 2024 was (122.7%) and (564.7%), respectively. For the six months ended April 30, 2025 and 2024, we recorded income tax provisions of $171,000 and $2,818,000, respectively. The effective tax rate for the six months ended April 30, 2025 and 2024 was (53.6%) and (99.3%), respectively. The effective tax rate for the three months and six months ended April 30, 2025 differed from the U.S. statutory tax rate of 21% primarily due to state taxes, various permanent differences, research and development tax credits, unrecognized tax benefits and change in valuation allowance.

 

We had $224,000 and $186,000 of unrecognized tax benefits as of April 30, 2025 and October 31, 2024, respectively. The unrecognized tax benefits, if recognized, would result in a net tax benefit of $144,000 as of April 30, 2025.         

 

The Company assesses all positive and negative evidence in determining if, based on the weight of such evidence, a valuation allowance is required to be recorded against the deferred tax assets as of April 30, 2025. The Company has evaluated future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In making such judgements, significant weight is given to evidence that can be objectively verified. After analyzing all available evidence, including the recent trend of losses, the Company has determined that it is not more likely than not that all of its deferred tax assets will be realized, and therefore, has a partial valuation allowance against its deferred tax assets. The Company's valuation allowance was $4,040,000 and $3,962,000 as of April 30, 2025 and October 31, 2024, respectively.