Income Taxes

12 Months Ended

Oct. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

10. INCOME TAXES

The provision (benefit) for income taxes for the years ended October 31, 2017 and 2016 consisted of (in thousands):

	2017			2016
Current:
Federal	$	-		$	-
State		-			(3)
Deferred:
Federal		(2,679	)		(1,709	)
State		(304	)		(692	)
Impact of change in effective tax rates on deferred taxes		-			-
Change in: valuation allowance		2,983			2,404
	$	-		$	-

The difference between income taxes computed at the statutory federal rate and the provision for income taxes for 2017 and 2016 related to the following (in thousands, except percentages):

	2017						2016
	Amount			Percent of Pretax Income			Amount			Percent of Pretax Income
Tax (benefit) at federal statutory rate	$	(44,283	)		34	%	$	(1,577	)		34	%
State income taxes, net of federal income taxes		(304	)		-	%		(695	)		15	%
Effect of warrant liability		(74	)		-	%		(84	)		2	%
Effect of other permanent items		(82	)		-	%		144			(3	)%
Change in valuation allowance		2,983			(2	)%		2,401			(52	)%
Effect of Acquisition of intangible assets		35,595			(27	)%		-			-	%
Effect of stock compensation		3,147			(3	)%		-			-	%
Reduction of NOL’s due to Section 382 Limitations		3,018			(2	)%		-			-	%
	$	-			-	%	$	-			-	%

The components of deferred income tax assets (liabilities) were as follows (in thousands):

	October 31,
	2017			2016
Impairment of development costs	$	-		$	641
Depreciation and amortization		95			224
Impairment of inventory		-			-
Compensation expense not deductible until options are exercised		4,553			1,116
All other temporary differences		248			629
Net operating loss carry forward		3,158			2,461
Less valuation allowance		(8,054	)		(5,071	)
Deferred tax asset	$	-		$	-

Realization of deferred tax assets, including those related to net operating loss carryforwards, are dependent upon future earnings, if any, of which the timing and amount are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. Based upon the Company’s current operating results management cannot conclude that it is more likely than not that such assets will be realized.

Utilization of the Company’s net operating loss carryforwards maybe subject to a substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code. The annual limitations may result in the expiration of net operating loss carryforwards before utilization. The net operating loss carryforwards available for income tax purposes at October 31, 2017 amount to approximately $7.9 million, and expire between 2026 and 2036 for federal income taxes, and approximately $7.9 million for state income taxes, which primarily expire between 2017 and 2023.

The Company files income tax returns in the U.S. and various states. As of October 31, 2017, the Company had no unrecognized tax benefits, which would impact its tax rate if recognized. As of October 31, 2017, the Company had no accrual for the potential payment of penalties. As of October 31, 2017, the Company was not subject to any U.S. federal and state tax examinations. The Company’s U.S. federal tax returns have been examined for tax years through 2011, with the results of such examinations being reflected in the Company’s results of operations as of October 31, 2013. The Company does not anticipate any significant changes in its unrecognized tax benefits over the next 12 months.