9. Income Taxes
The Company’s provision for income taxes in each fiscal year consists of current federal, state, and local minimum taxes.
The income tax expense for fiscal years ended October 31, 2017 and 2016 consisted of the following:
| 2017 | 2016 | ||
| (As Restated) | |||
| Current: | |||
| Federal | $ - | $ - | |
| State | $ 20,000 | $ 50,000 | |
| Income tax provision-current | $ 20,000 | $ 50,000 | |
|
| |||
| Deferred: |
|
| |
| Federal | $ 1,826,000 | $ 514,000 | |
| State | $ 116,000 | $ 79,000 | |
| Total income tax expense, net | $ 1,962,000 | $ 643,000 | |
|
| $ 1,961,506 |
| $ 643,023 |
The difference between income taxes expected at the U.S federal statutory income tax rate of 34% and the reported income tax expense are summarized as follows:
| 2017 | 2016 | ||||
| Amount | Percent | Amount | Percent | ||
| (As Restated) | |||||
| U.S. statutory tax | $ (530,000) | 34.0% | $395,000 | 34.0% | |
| Stock compensation | 174,000 | --11.2% | 125,000 | 10.8% | |
| Meals and entertainment | 14,000 | -0.9% | 14,000 | 1.2% | |
| State tax, net of federal benefit | (37,000) | 2.4% | 109,000 | 9.4% | |
| Other | 63,000 | -4.0% | - | 0.0% | |
| Change in Valuation Allowance | 2,278,000 | -146.1% | - | 0.0% | |
| Income tax expense, net | $ 1,962,000 | -125.8% | $643,000 | 55.4% | |
|
| 1,961,506 |
|
| 643,023 |
|
The tax effect of temporary differences that give rise to deferred tax assets and liabilities as of October 31, 2017 and 2016 is as follows:
| 2017 | 2016 | ||
| (As Restated) | |||
| Deferred tax assets and liabilities: | |||
| Net operating loss carry-forward | $ 2,157,000 | $ 1,696,000 | |
| Deferred Revenue | 178,000 | - | |
| Allowance for doubtful accounts receivable | 70,000 | 19,000 | |
| Stock compensation-nonqualified | 217,000 | 198,000 | |
| Accruals | 58,000 | - | |
| Depreciation | (402,000) | 29,000 | |
| Sub-total | $ 2,278,000 | $ 1,942,000 | |
| Valuation allowance | (2,278,000) | - | |
| Deferred tax assets and liabilities | $ - | $ 1,942,000 |
At October 31, 2017, the Company had available federal net operating loss carryforwards of $7,474,000, which will expire in various tax years from fiscal year 2023 through fiscal year 2037. As a result of certain realization requirements of ASC 718, the table of deferred tax assets and liabilities does not include certain deferred tax assets that arose directly from tax deductions related to equity compensation greater than compensation recognized for financial reporting.
At October 31, 2017 and 2016, 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 2014 through 2017.