Note 14 — Income Taxes

The income tax provisions as of October 1, 2017 and October 2, 2016 include the following:

The income tax provision for Optex Systems as of October 1, 2017 differs from those computed using the statutory federal tax rate of 34%, due to the following permanent differences:

Deferred income taxes recorded in the balance sheets results from differences between financial statement and tax reporting of income and deductions.  A summary of the composition of the deferred income tax assets (liabilities) follows:

As of October 1, 2017, the Company has a net operating loss carryforward of $6,503 thousand as compared to net loss carryforwards of $6,601 thousand available as of October 2, 2016.

As of October 1, 2017 management assessed the recoverability of deferred tax assets and determined due to historical loss conditions and the downturn in the defense budget spending, that the balance of deferred tax assets may not be realized. The valuation allowance reserve was decreased by $75 thousand during the twelve months ended October 1, 2017, consistent with the 2017 change in deferred tax assets. As of October 1, 2017 Optex Systems Inc. has a deferred tax asset valuation allowance of ($4.6) million against a deferred tax asset of $4.6 million.

As the result of the application of the FASB ASC 740-10, Optex Systems Holdings has no unrecognized tax benefits. By statute, the tax years ending in October 1, 2017, October 2, 2016 and September 27, 2015 are open to examination by the major taxing jurisdictions to which the Optex Systems Holdings is subject.

There were no income taxes paid during the fiscal years ended October 1, 2017 or October 2, 2016.