8. Income Taxes

12 Months Ended

Oct. 31, 2014

Notes

8. Income Taxes

8. Income Taxes

The Company’s provision for income taxes in each fiscal year consists of current federal, state, and local minimum taxes.

A reconciliation of the U.S statutory tax rate to the Company’s effective tax rate for fiscal years 2014 and 2013 is as follows:                                                                                                   

	2014		2013
	Amount	Percent	Amount	Percent
U.S. statutory tax	$     294,000	34.0%	$     217,000	34.0%
Permanent differences (1)	68,000	7.8	77,000	12.1
State tax, net of federal benefit	87,000	10.1	62,000	4.7
Change in deferred tax rate	66,000	7.7	-	-
Income tax expense (benefit), net	$    515,000	59.6%	$    356,000	55.8%

(1) Permanent differences are comprised of stock compensation of $126,000 and $63,000, in fiscal years 2014 and 2013, respectively, partially off set by other permanent differences of $58,000 in fiscal year 2014, as well as additional other permanent differences of $14,000 in fiscal year 2013.

The tax effect of temporary differences that give rise to deferred tax assets and liabilities as of October 31, 2014 and 2013 is as follows:

	2014	2013
Deferred tax assets and liabilities:
Net operating loss carry-forward	$ 3,007,000	$ 3,665,000
Accrued vacation	126,000	115,000
Allowance for doubtful accounts receivable	12,000	11,000
Stock compensation-nonqualified	148,000	111,000
Depreciation	(721,000)	(854,000)
Deferred tax assets and liabilities	$ 2,572,000	$ 3,048,000

In accordance with accounting standards, the Company has not recorded a deferred tax asset related to the net operating losses resulting from the exercise of disqualifying stock options in the accompanying financial statements. The cumulative amount of unrecognized tax benefits from the exercise of stock options at October 31, 2014 was approximately $1,435,000, and if the Company is able to utilize this benefit in the future, it would result in a credit to additional paid-in capital.

The income tax expense (benefit) for fiscal years ended October 31, 2014 and 2013 is as follows:

	2014	2013
Current:
Federal	$               -	$     (14,000)
State	39,000	16,000
Income tax provision-current	39,000	2,000
Deferred:
Federal	415,000	303,000
State	61,000	51,000
Total income tax expense (benefit), net	$    515,000	$    356,000

At October 31, 2014, the Company had available a federal net operating loss carry-forward of $9,149,000 for income tax purposes, which will expire in various tax years from fiscal year 2021 through fiscal year 2034. The Company evaluates whether a valuation allowance related to deferred tax assets is required each reporting period. A valuation allowance is established if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized. At October 31, 2013, the Company had available a federal net operating loss carry-forward of $10,224,000 for income tax purposes, which will expire in various tax years from fiscal year 2020 through fiscal year 2033.

At October 31, 2014 and 2013, the Company did not have any uncertain tax positions. As permitted by ASC 740-10, the Company’s accounting policy is to prospectively classify accrued interest and penalties related to any unrecognized tax benefits in its income tax provision. The Company’s tax return years that are subject to examination by taxing authorities are fiscal years 1999 through 2005 and fiscal years 2010 through 2014.