NOTE 8. INCOME TAXES

The provision for income tax consists of the following:

For the year ended October 1, 2017, the Company reported a pre-tax profit of $2,035,954 and utilized a portion of its Federal net operating loss carry-forward to offset its Federal tax liability, resulting in a zero regular Federal income tax liability. However, the Company has estimated it will owe approximately $30,300 in Federal alternative minimum tax for its 2017 fiscal year.

The provision for Federal income tax consists of the following:

The cumulative tax effect, at the expected rate of 34%, of significant items comprising our net deferred tax asset is as follows:

The cumulative Federal net operating loss carry-forward is approximately $471,000 as of October 1, 2017 and will expire beginning in the year 2026. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of approximately $471,000 for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, Federal net operating loss carry forwards may be limited as to use in future years.

Prior to October 2, 2016, the net deferred tax asset generated by the Federal net operating loss carry-forwards was fully reserved by a valuation allowance. Based on then current expectations, the Company determined that it was more likely than not it will fully realize the future benefit of its Federal net operating loss carry-forwards, therefore, the valuation allowance against its remaining net operating loss carry forwards was no longer appropriate as of October 2, 2016.

For the fiscal years ended October 1, 2017 and October 2, 2016, the Company recorded a provision for State of Georgia income taxes of $125,600 and $72,000, respectively.