Note 8 - Income Tax Provision

12 Months Ended

Oct. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

8

–

Income tax provision

The provision (benefit) for income taxes for the fiscal years ended

October 31, 2020

and

2019

consists of the following (in thousands):

	2020			2019
Current:
Federal	$	279		$	859
State		143			220
		422			1,079
Deferred:
Federal		(593	)		(25	)
State		(196	)		(18	)
		(789	)		(43	)
	$	(367	)	$	1,036

Income tax at the federal statutory rate is reconciled to our actual net provision (benefit) for income taxes as follows (in thousands, except percentages):

	2020						2019
				% of Pretax						% of Pretax
	Amount			Income			Amount			Income
Income taxes at federal statutory rate	$	(94	)		21.0	%	$	957			21.0	%
State tax provision, net of federal tax benefit		(41	)		9.2	%		160			3.5	%
Nondeductible differences:
Stock options		(123	)		27.5	%		21			0.5	%
Meals and entertainment		2			-0.4	%		8			0.2	%
Parking disallowance		5			-1.1	%		-			0.0	%
R&D credits		(152	)		33.9	%		(119	)		-2.6	%
Foreign derived intangible income		(5	)		1.1	%		-			0.0	%
ASC 740-10 Liability		27			-6.0	%		21			0.5	%
Penalties		11			-2.5	%		-			0.0	%
Other		3			-0.7	%		(12	)		-0.3	%
	$	(367	)		82.0	%	$	1,036			22.8	%

Our total deferred tax assets and deferred tax liabilities at

October 31, 2020

and

2019

are as follows (in thousands):

	2020			2019
Deferred Tax Assets:
PPP Loan	$	706		$	-
Reserves		344			172
Accrued vacation		149			97
Stock-based compensation awards		100			87
Uniform capitalization		92			64
Lease liability		381			-
Other		35			55
Total deferred tax assets		1,807			475
Deferred Tax Liabilities:
Amortization / intangible assets		(479	)		(307	)
Change in ROU assets		(359	)		-
Depreciation / equipment and furnishings		(135	)		(124	)
Total deferred tax liabilities		(973	)		(431	)
Total net deferred tax assets (liabilities)	$	834		$	44

On

March 27, 2020,

the United States enacted the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effects of the COVID-

19

pandemic. The CARES Act includes several provisions that provide economic relief for individuals and businesses. We continue to evaluate the impact the CARES Act will have on our tax obligations, but have concluded it did

not

materially impact our income taxes for the fiscal year ended

October 31, 2020.

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 assets will be realized in future tax years.

The provision (benefit) for income taxes was $(

0.4

) million or

81.9%

and

$1.0

million or

22.7%

of income before income taxes for fiscal

2020

and

2019,

respectively. The fiscal

2020

effective tax rate differed from the statutory federal rate of

21%

primarily as a result of the benefit from research and development tax credits and tax benefits associated with share-based compensation.   

Our adjustments to uncertain tax positions in fiscal years ended

October 31, 2020

and

2019

are as follows:

	2020			2019
Balance, at beginning of year	$	80		$	59
Increase for tax positions related to the current year		32			23
Increase for tax positions related to prior years		-			3
Increase for interest and penalties		6			2
Statute of Limitations Expirations		(11	)		(7	)
Balance, at end of year	$	107		$	80

We had gross unrecognized tax benefits of

$96,000

and

$72,000

attributable to U.S. federal and California research tax credits as of

October 31, 2020

and

2019,

respectively. During fiscal

2020,

the increase in our gross unrecognized tax benefit was primarily related to claiming additional federal and California research tax credits. The uncertain tax benefit is recorded as income taxes payable in our consolidated balance sheet.

We recognize interest and penalties related to uncertain tax positions in income tax expense. We recognized expense of approximately

$11,000

and

$8,000

during the years ended

October 31, 2020

and

2019,

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, 2017

and forward are subject to examination by the United States and

October 31, 2016

and forward with state tax authorities.