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Income Taxes | 12 Months Ended
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Oct. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | Note 18. Income Taxes The components of loss before income taxes for the years ended October 31, 2019, 2018, and 2017 were as follows (in thousands):
|  | 2019 |  |  | 2018 |  |  | 2017 |
U.S. |  | $ | (74,133 | ) |  | $ | (47,314 | ) |  | $ | (49,723 | )
Foreign |  |  | (3,326 | ) |  |  | (3,035 | ) |  |  | (4,136 | )
Loss before income taxes |  | $ | (77,459 | ) |  | $ | (50,349 | ) |  | $ | (53,859 | )
The Company recorded an income tax provision totaling $0.1 million for the year ended October 31, 2019 compared to income tax benefit of $3.0 million and a tax provision of $0.04 million for the years ended October 31, 2018 and 2017, respectively. The income tax expense for the year ended October 31, 2019 primarily related to foreign taxes in South Korea and Canada. The income tax benefit for the year ended October 31, 2018 primarily related to the Tax Cuts and Jobs Act (the “Act”) that was enacted on December 22, 2017. The Act reduced the U.S. federal corporate tax rate from 34% to 21% effective January 1, 2018 which resulted in a deferred tax benefit of $1.0 million primarily related to a reduction of the Company’s deferred tax liability for in process research and development (“IPR&D”). The Act also established an unlimited carryforward period for the net operating loss (“NOL”) the Company generated after 2017. This provision of the Act resulted in a reduction of the valuation allowance attributable to deferred tax assets at the enactment date by $2.0 million based on the indefinite life of the resulting NOL as well as the deferred tax liability for IPR&D. The income tax expense for the year ended October 31, 2017 related to foreign withholding taxes and income taxes in South Korea and there was no deferred federal income tax expense (benefit) for the year ended October 31, 2017. Franchise tax expense, which is included in administrative and selling expenses, was $0.2 million, $0.5 million and $0.5 million for the years ended October 31, 2019, 2018 and 2017, respectively. The reconciliation of the federal statutory income tax rate to our effective income tax rate for the years ended October 31, 2019, 2018 and 2017 was as follows:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Statutory federal income tax rate |  |  | (21.0 | )% |  |  | (23.2 | )% |  |  | (34.0 | )%
Increase (decrease) in income taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |
State taxes, net of Federal benefits |  |  | (2.9 | )% |  |  | 0.7 | % |  |  | (1.3 | )%
Foreign withholding tax |  |  | 0.1 | % |  |  | 0.0 | % |  |  | 0.1 | %
Net operating loss expiration and true-ups |  |  | (1.3 | )% |  |  | 4.6 | % |  |  | (4.6 | )%
Nondeductible expenditures |  |  | 0.2 | % |  |  | 1.5 | % |  |  | 1.9 | %
Change in tax rates |  |  | (0.1 | )% |  |  | 201.6 | % |  |  | (0.8 | )%
Other, net |  |  | (0.3 | )% |  |  | 0.0 | % |  |  | 0.6 | %
Valuation allowance |  |  | 25.4 | % |  |  | (191.2 | )% |  |  | 38.2 | %
Effective income tax rate |  |  | 0.1 | % |  |  | (6.0 | )% |  |  | 0.1 | %
Our deferred tax assets and liabilities consisted of the following at October 31, 2019 and 2018 (in thousands):
|  | 2019 |  |  | 2018 |
Deferred tax assets: |  |  |  |  |  |  |  |
Compensation and benefit accruals |  | $ | 7,446 |  |  | $ | 7,767 |
Bad debt and other allowances |  |  | 905 |  |  |  | 426 |
Capital loss and tax credit carry-forwards |  |  | 12,645 |  |  |  | 12,295 |
Net operating losses (domestic and foreign) |  |  | 217,430 |  |  |  | 202,643 |
Deferred license revenue |  |  | 4,264 |  |  |  | 4,765 |
Inventory valuation allowances |  |  | 312 |  |  |  | 238 |
Accumulated depreciation |  |  | 9,200 |  |  |  | 4,374 |
Grant revenue |  |  | 798 |  |  |  | 910 |
Gross deferred tax assets: |  |  | 253,000 |  |  |  | 233,418 |
Valuation allowance |  |  | (250,985 | ) |  |  | (231,403 | )
Deferred tax assets after valuation allowance |  |  | 2,015 |  |  |  | 2,015 |
Deferred tax liability: |  |  |  |  |  |  |  |
In process research and development |  |  | (2,321 | ) |  |  | (2,356 | )
Net deferred tax liability |  | $ | (306 | ) |  | $ | (341 | )
We continually evaluate our deferred tax assets as to whether it is “more likely than not” that the deferred tax assets will be realized. In assessing the realizability of our deferred tax assets, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. Based on the projections for future taxable income over the periods in which the deferred tax assets are realizable, management believes that significant uncertainty exists surrounding the recoverability of the deferred tax assets. As a result, we recorded a valuation allowance against our net deferred tax assets. None of the valuation allowance will reduce additional paid in capital upon subsequent recognition of any related tax benefits. As of October 31, 2019, we had federal and state NOL carryforwards of $850.0 million and $438.8 million, respectively. The federal NOL carryforwards expire in varying amounts from 2020 through 2037 while state NOL carryforwards expire in varying amounts from fiscal year 2020 through 2039. Federal NOLs generated beginning in fiscal 2018 are not subject to expiration subsequent to the Act discussed above. Additionally, we had $8.8 million of state tax credits available that will expire from tax years 2020 to 2039. We complete a detailed Section 382 ownership shift analysis on an annual basis to determine whether any of our NOL and credit carryovers will be subject to limitation. Based on that study, we determined that there was no ownership change as of the end of our fiscal year 2019 that impacts Section 382. The acquisition of Versa in fiscal year 2013 triggered a Section 382 ownership change at the level of Versa Power System which will limit the future usage of some of the federal and state NOLs that we acquired in that transaction. Accordingly, a valuation allowance has been recorded against the deferred tax asset associated with these attributes. The Company’s financial statements reflect expected future tax consequences of uncertain tax positions that the Company has taken or expects to take on a tax return (including a decision whether to file or not file a return in a particular jurisdiction) presuming the taxing authorities’ full knowledge of the position and all relevant facts. The liability for unrecognized tax benefits as of October 31, 2019 and 2018 was $15.7 million. This amount is directly associated with a tax position taken in a year in which federal and state NOL carryforwards were generated. Accordingly, the amount of unrecognized tax benefit has been presented as a reduction in the reported amounts of our federal and state NOL carryforwards. It is our policy to record interest and penalties on unrecognized tax benefits as income taxes; however, because of our significant NOLs, no provision for interest or penalties has been recorded. We file income tax returns in the U.S. and certain states, primarily Connecticut and California, as well as income tax returns required internationally for South Korea and Germany. We are open to examination by the Internal Revenue Service and various states in which we file for fiscal year 2002 to the present. During the fiscal year ended October 31, 2018, the Company underwent an IRS examination for its fiscal year 2016 tax year which was closed without material adjustment.

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- 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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