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Note 12 - Income Taxes | 12 Months Ended
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Oct. 31, 2017
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
( 12 ) | Income Taxes
Income tax expense (benefit) for the years ended October 31, 2017, 2016 and 2015 consists of:
Fiscal year ended October 31, 2017 |  | Current |  |  | Deferred |  |  | Total |
U.S. Federal |  | $ | — |  |  | $ | — |  |  | $ | — |
State |  |  | (5,438 | ) |  |  | — |  |  |  | (5,438 | )
Totals |  | $ | (5,438 | ) |  | $ | — |  |  | $ | (5,438 | )
Fiscal year ended October 31, 2016 |  | Current |  |  | Deferred |  |  | Total |
U.S. Federal |  | $ | 35,118 |  |  | $ | — |  |  | $ | 35,118 |
State |  |  | (29,219 | ) |  |  | — |  |  |  | (29,219 | )
Totals |  | $ | 5,899 |  |  | $ | — |  |  | $ | 5,899 |
Fiscal year ended October 31, 2015 |  | Current |  |  | Deferred |  |  | Total |
U.S. Federal |  | $ | (624,825 | ) |  | $ | 2,098,615 |  |  | $ | 1,473,790 |
State |  |  | (120,917 | ) |  |  | 129,509 |  |  |  | 8,592 |
Totals |  | $ | (745,742 | ) |  | $ | 2,228,124 |  |  | $ | 1,482,382 |
Reported income tax expense for the years ended October 31, 2017, 2016 and 2015 differs from the “expected” tax expense (benefit), computed by applying the U.S. Federal statutory income tax rate of 34% to income before income taxes as follows:
|  | Years ended October 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
“Expected” tax benefit |  | $ | (593,031 | ) |  | $ | (610,332 | ) |  | $ | (957,121 | )
Increase (reduction) in income tax benefit resulting from: |  |  |  |  |  |  |  |  |  |  |  |
State income taxes, net of federal benefit |  |  | (29,422 | ) |  |  | (79,386 | ) |  |  | (78,880 | )
Loss of permanent deductions due to NOL carryback |  |  | — |  |  |  | — |  |  |  | 35,636 |
Other differences, net |  |  | 54,686 |  |  |  | 50,627 |  |  |  | 67,491 |
Change in valulation allowance |  |  | 562,329 |  |  |  | 644,990 |  |  |  | 2,415,256 |
Reported income tax expense (benefit) |  | $ | (5,438 | ) |  | $ | 5,899 |  |  | $ | 1,482,382 |
The tax effects of temporary differences that give rise to significant portions of the Company ’s deferred tax assets and deferred tax liabilities as of October 31, 2017 and 2016 are presented below:
|  | October 31, |
|  | 2017 |  |  | 2016 |
Deferred tax assets: |  |  |  |  |  |  |  |
Accounts receivable, due to allowances for doubtful accounts and sales returns |  | $ | 71,085 |  |  | $ | 87,472 |
Inventories, due to allowance for damaged and slow-moving inventories and additional costs inventoried for tax purposes pursuant to the Tax Reform Act of 1986 |  |  | 1,088,631 |  |  |  | 999,468 |
Liabilities recorded for accrued expenses, deductible for tax purposes when paid |  |  | 114,713 |  |  |  | 67,758 |
Share-based compensation expense |  |  | 265,027 |  |  |  | 134,653 |
Investment in Centric Solutions |  |  | — |  |  |  | 6,984 |
Net operating loss carryforwards |  |  | 2,099,195 |  |  |  | 1,958,734 |
Other |  |  | 118,119 |  |  |  | 110,773 |
Total gross deferred tax assets |  |  | 3,756,770 |  |  |  | 3,365,842 |
Valuation allowance |  |  | (3,622,575 | ) |  |  | (3,060,246 | )
Net deferred tax assets |  |  | 134,195 |  |  |  | 305,596 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Plant and equipment, due to differences in depreciation and capital gain recognition |  |  | (130,626 | ) |  |  | (301,590 | )
Other receivables, due to accrual for financial reporting purposes |  |  | (3,569 | ) |  |  | (4,006 | )
Total gross deferred tax liabilities |  |  | (134,195 | ) |  |  | (305,596 | )
Net deferred tax asset |  | $ | — |  |  | $ | — |
As a result of the acquisition of AOS, the Company recorded certain deferred tax assets totaling $1,517,605 (after purchase accounting adjustments), related to gross net operating loss (“NOL”) carryforwards of $4,455,525, estimated to be available after considering Internal Revenue Code Section 382 limitations. As of October 31, 201 7, $1,680,000 of these gross NOL carryforwards remain unused and may be used to reduce future taxable income. These remaining gross NOL carryforwards begin to expire in fiscal year ending October 31, 2028. Additionally, the Company has federal and state gross NOL carryforwards of $4,203,483 and $1,462,204, respectively; all of which originated beginning with fiscal year 2015, and will not begin to expire until fiscal year 2030. For the years ended October 31, 201 7 and 2016, the Company considered all positive and negative evidence available to assess whether it is “more likely than not” that some portion or all of the deferred tax assets will not be realized. For each year, the Company concluded that in accordance with the provisions of Accounting Standards Codification 740, Income Taxes , the negative evidence outweighed the objectively verifiable positive evidence. As a result, the Company established a valuation allowance of $3,622,575 and $3,060,246, respectively, against net deferred tax assets existing as of October 31, 2017 and 2016. The Company estimates a liability for uncertain tax positions taken or expected to be taken in a tax return. The liability for uncertain tax positions is included in other noncurrent liabilities on the accompanying consolidated balance sheets. A reconciliation of the unrecognized ta x benefits for fiscal years 2017 and 2016 follows:
|  | October 31, |
|  | 2017 |  |  | 2016 |
Unrecognized tax benefits balance at beginning of year |  | $ | 78,322 |  |  | $ | 79,322 |
Gross decreases for tax positions of prior years |  |  | (12,773 | ) |  |  | (1,000 | )
Unrecognized tax benefits balance at end of year |  | $ | 65,549 |  |  | $ | 78,322 |
During fiscal year 201 7, the Company reduced accrued interest and penalties by $4,633 and $3,194, respectively, related to unrecognized tax benefits. During fiscal year 2016, the Company accrued interest of $6,284 and reduced accrued penalties by $250, respectively, related to unrecognized tax benefits. As of October 31, 2017 and 2016, the Company had approximately $36,761 and $44,587, respectively, of accrued interest and penalties related to uncertain tax positions. The total amount of unrecognized tax benefits that would affect the Company’s effective tax rate if recognized is $36,336 and $43,191 as of October 31, 2017 and 2016, respectively. The Company does not expect its unrecognized tax benefits to change significantly in the next 12 months. The Company files income tax returns in the U.S. federal jurisdiction and in various state jurisdictions. The statute of limitations remains open for U.S. and certain state income tax examinations for years ended October 31, 201 4 through October 31, 2016.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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