Annual report pursuant to section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Oct. 31, 2011
Income Taxes [Abstract]  
Income Taxes
9. INCOME TAXES

Income tax provision (benefit) consists of the following:

 

     Year Ended October 31,  
     2011     2010  

Federal:

     

Current

    $ —        $ —     

Deferred

      6,380,000        365,000   

State:

     

Current

      —          —     

Deferred

      (10,000 )      5,000   

Foreign:

     

Current

      600,000        —     

Adjustment to valuation allowance related to net deferred tax assets

      (6,370,000 )      (370,000 ) 
  

 

 

    

 

 

  
   $ 600,000      $ —     
  

 

 

    

 

 

  

The tax effects of temporary differences that give rise to significant portions of the deferred tax asset, net, at October 31, 2011 and 2010, are as follows:

 

     2011     2010  

Long-term deferred tax assets:

     

Federal and state NOL and tax credit carryforwards

    $ 25,062,000      $ 31,482,000   

Unrealized gain (loss) on available for sale securities

      —          (2,000 ) 

Deferred Compensation

      2,244,000        2,204,000   

Other

      385,000        375,000   
  

 

 

    

 

 

  

Subtotal

      27,691,000        34,059,000   

Less: valuation allowance

      (27,691,000 )      (34,059,000 ) 
  

 

 

    

 

 

  

Deferred tax asset, net

    $ —        $ —     
  

 

 

    

 

 

  

As of October 31, 2011, we had tax net operating loss and tax credit carryforwards of approximately $71,177,000 and $1,476,000, respectively, available, within statutory limits (expiring at various dates between 2012 and 2031), to offset any future regular Federal corporate taxable income and taxes payable. If the tax benefits relating to deductions of option holders' income are ultimately realized, those benefits will be credited directly to additional paid-in capital. Certain changes in stock ownership can result in a limitation on the amount of net operating loss and tax credit carryovers that can be utilized each year.

We had tax net operating loss and tax credit carryforwards of approximately $71,111,000 and $51,000, respectively, as of October 31, 2011, available, within statutory limits, to offset future New York State corporate taxable income and taxes payable, if any, under certain computations of such taxes. The tax net operating loss carryforwards expire at various dates between 2012 and 2031 and the tax credit carryforwards expire between 2012 and 2026.

During the fiscal year ended October 31, 2011, we received a $3,000,000 license fee from AUO which was subject to a 20% foreign withholding tax. The $600,000 withholding tax, at the election of the Company, could be deducted as an operating expense for US income tax purposes or credited against future US income tax.

 

We have provided a valuation allowance against our deferred tax asset due to our current and historical pre-tax losses and the uncertainty regarding their realizability. The primary differences from the Federal statutory rate of 34% and the effective rate for the years ended October 31, 2011 and 2010 of 8.85% and 0%, respectively, is attributable to certain permanent differences, a change in the valuation allowance and foreign taxes. The following is a reconciliation of income taxes at the Federal statutory tax rate to income tax expense (benefit):

 

     Year Ended October 31,  
     2011     2010  

Income tax benefit at U.S. Federal statutory income tax rate

    $ (2,305,000 )      (34 %)    $ (1,760,000 )      (34 %) 

State income taxes

      (4,000 )      (.06 %)      (3,000 )      (.06 %) 

Permanent differences

      10,000        .15 %      234,000        4.52 % 

Credits

      (89,000 )      (1.31 %)      (81,000 )      (1.57 %) 

Expiring net operating

losses, credits and other

   

 

8,171,000

 

  

 

120.55

% 

  

 

1,980,000

 

  

 

38.26

% 

Foreign rate difference on impairment

      587,000        8.65 %      —          —     

Foreign withholding tax

      600,000        8.85 %      —          —     

Change in valuation allowance

      (6,370,000 )      (93.98 %)      (370,000 )      (7.15 %) 
  

 

 

      

 

 

    

Income tax provision

    $ 600,000        8.85 %    $ —          0 % 
  

 

 

      

 

 

    

During the two fiscal years ended October 31, 2011, we incurred no Federal and no State income taxes. We account for interest and penalties related to income tax matters in selling, general and administrative expenses.