NOTE 11 Income Taxes

The Company computes income tax expense using the liability method. Under this method, deferred income taxes are provided, to the extent considered realizable by management, for basis differences of assets and liabilities for financial reporting and income tax purposes.

The Company follows guidance issued by the FASB with respect to accounting for uncertainty in income taxes. A tax position is recognized as a benefit only if it is “more-likely-than-not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more-likely-than-not” test, no tax benefit is recorded.

The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of the state of Florida. The Company’s income tax returns for the past three years are subject to examination by tax authorities, and may change upon examination.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company did not reflect any amounts for interest and penalties in its 2016 or 2015 statements of operations, nor are any amounts accrued for interest and penalties at November 5, 2016 and October 31, 2015.

The provision for income taxes for the years ended consists of the following:


	November 5, 2016		October 31, 2015
Current tax expense:
Federal	$	769,463	$	5,629
State		—		—

		769,463		5,629
Deferred tax expense		2,449,579		1,105,489
Valuation allowance		—		(975,312	)

Income tax expense	$	3,219,042	$	135,806

The following table shows the reconciliation between the statutory federal income tax rate and the actual provision for income taxes for the years ended:


	November 5, 2016			October 31, 2015
Provision—federal statutory tax rate	$	3,122,640		$	1,037,408
Increase (decrease) resulting from:
State taxes, net of federal tax benefit		253,435			110,759
Permanent differences:
Stock option expirations		—			6,045
Manufacturing and other deductions		(74,544	)		—
Other		(82,489	)		(43,094	)
Changes in DTA valuation allowance		—			(975,312	)

Income tax expense	$	3,219,042		$	135,806

The types of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts and the related deferred tax assets and deferred tax liabilities are as follows:


	November 5, 2016			October 31, 2015
Deferred tax assets:
Allowance for doubtful accounts	$	87,261		$	87,261
Inventories		440,988			651,980
Carrying value of other investments		6,313			1,186,668
Accrued expenses		156,260			75,141
Stock-based compensation		4,717			8,971

Total deferred tax assets		695,539			2,010,021
Deferred tax liabilities:
Depreciation		(38,050	)		(37,982	)
Installment sales of Cypress Creek		(871,277	)		—
Carrying value of investments		(302,147	)		—
State income tax refunds		—			(29,598	)
Amortization		(58,810	)		(58,810	)
Prepaid expenses		(9,011	)		(17,808	)

Net deferred tax assets (liabilities)	$	(583,756	)	$	1,865,823

These amounts are included in the accompanying consolidated balance sheets under the following captions:


	November 5, 2016			October 31, 2015
Current assets:
Deferred tax assets	$	684,509		$	814,381
Deferred tax liabilities		(127,736	)		(159,188	)

Net current deferred taxes		556,773			655,193

Non-current assets:
Deferred tax assets		11,030			1,307,422
Deferred tax liabilities		(1,151,559	)		(96,792	)

Net non-current deferred taxes		(1,140,529	)		1,210,630

Net deferred tax asset (liability)	$	(583,756	)	$	1,865,823

In assessing the ability to realize a portion of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. For fiscal years 2016 and 2015, the Company determined that a valuation reserve for the Company’s deferred tax assets was not considered necessary as the deferred tax assets were fully realizable.