Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

INCOME TAXES

12 Months Ended

Oct. 31, 2014

9. INCOME TAXES

Income tax provision (benefit) consists of the following:

	Year Ended October 31,
	2014		2013
Federal:
Current	$	-	$	-
Deferred		(1,606,000)		(2,489,000)
State:
Current		-		-
Deferred		(1,000)		3,000
Adjustment to valuation allowance related to net deferred tax assets		1,607,000		2,486,000
Income tax provision (benefit)	$	-	$	-

The tax effects of temporary differences that give rise to significant portions of the deferred tax asset, net, at October 31, 2014 and 2013, are as follows:

	2014		2013
Long-term deferred tax assets:
Federal and state NOL and tax credit carryforwards	$	26,669,000	$	25,689,000
Deferred Compensation		4,517,000		3,484,000
Deferred Revenue		-		404,000
Other		298,000		300,000
Subtotal		31,484,000		29,877,000

Less: valuation allowance		(31,484,000)		(29,877,000)
Deferred tax asset, net	$	-	$	-

As of October 31, 2014, we had tax net operating loss and tax credit carryforwards of approximately $77,159,000 and $1,110,000, respectively, available, within statutory limits (expiring at various dates between 2015 and 2034), 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. As of October 31, 2014, management has not determined the extent of any such limitations, if any.

We had tax net operating loss and tax credit carryforwards of approximately $76,999,000 and $11,000, respectively, as of October 31, 2014, available, within statutory limits (expiring at various dates between 2015 and 2034), to offset future New York State corporate taxable income and taxes payable, if any, under certain computations of such taxes.

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 of 0% is attributable to certain permanent differences and a change in the valuation allowance. The following is a reconciliation of income taxes at the Federal statutory tax rate to income tax expense (benefit):

	Year Ended October 31,
	2014			2013
Income tax benefit at U.S.
Federal statutory income Tax rate	$	(3,266,00)	(34.00%)	$	(3,427,000)	(34.00%)
State income taxes		(6,000)	(.06%)		(6,000)	(.06%)
Permanent differences		1,529,000	15.92%		294,000	2.92%
Expiring net operating losses, credits and other		115,000	1.19%		250,000	2.48%
Foreign rate difference on impairment		21,000	.22%		403,000	4.00%
Change in valuation allowance		1,607,000	16.73%		2,486,000	24.66%
Income tax provision	$	-	0%	$	-	0%

During the two fiscal years ended October 31, 2014, we incurred no Federal and no State income taxes. We have no unrecognized tax benefits as of October 31, 2014 and 2013 and we account for interest and penalties related to income tax matters in marketing, general and administrative expenses. Tax years to which our net operating losses relate remain open to examination by Federal authorities and other jurisdictions to the extent which the net operating losses have yet to be utilized.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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