Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Mar. 31, 2013
Income Taxes [Abstract]  
Income Taxes
Note 6.  Income Taxes

The deferred tax asset valuation allowance as of March 31, 2013 is attributed to U.S. federal, and state deferred tax assets, which result primarily from future deductible accruals, net operating loss carryforwards, and tax credit carryforwards. We believe that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding our ability to realize the deferred tax assets such that a full valuation allowance has been recorded. These factors include our history of losses, and the lack of carryback capacity to realize deferred tax assets.

In accordance with Section 382 of the Internal Revenue Code, the amounts of and benefits from net operating loss and tax credit carryforwards may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses or credits that we may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50% as defined, over a three year period.
We recognize interest and penalties related to uncertain tax positions in income tax expense. Income tax expense for the year ended March 31, 2013 includes no interest. As of March 31, 2013, we have no accrued interest and penalties related to uncertain tax positions.

Components of loss from continuing operations before income taxes is attributed to the following geographic locations for the years ended March 31, 2013 and 2012 (in thousands):

Year ended March 31,
 
2013
 
 
2012
 
 
 
 
 
 
 
Domestic
 
$
(4,056
 )
 
$
(4,543
 )
Foreign
 
 
-
 
 
 
-
 
Loss from continuing operations before income tax expense (benefit)
 
$
(4,056
 )
 
$
(4,543
 )
 
Components of income tax expense (benefit) for the years ended March 31, 2013 and 2011 consisted of the following (in thousands):

Year ended March 31,
 
2013
 
 
2012
 
 
 
 
 
 
 
Current:
 
 
 
 
 
 
U.S. Federal
 
$
-
 
 
$
-
 
State and Local
 
 
-
 
 
 
-
 
Foreign (credit)
 
 
-
 
 
 
-
 
Total current tax expense (benefit)
 
 
-
 
 
 
-
 
Deferred
 
 
 
 
 
 
 
 
U.S. Federal
 
 
(83
 )
 
 
-
 
State and Local
 
 
-
 
 
 
-
 
Foreign (credit)
 
 
-
 
 
 
-
 
Total deferred tax expense
 
 
(83
 )
 
 
-
 
 
 
 
 
 
 
 
 
Total income tax expense (benefit)
 
$
(83
 )
 
$
-
 
 
The income tax expense (benefit) for the years ended March 31, 2013 and 2012 differed from the amounts computed by applying the statutory U.S. federal income tax rate as  follows (in thousands):

Year ended March 31,
 
2013
 
 
2012
 
 
 
 
 
 
 
Federal tax expense (benefit) at U.S. Statutory Rate
 
$
(1,335
 )
 
$
(486
 )
State tax expense (benefit) net of federal tax effect
 
 
(246
 )
 
 
(90
 )
Change in valuation allowance
 
 
4,572
 
 
 
26
 
Tax effect of acquired net operating loss carryforwards
 
 
(3,123
 )
 
 
-
 
Other items
 
 
 49
 
 
 
550
 
Total income tax benefit
 
$
(83
 )
 
$
-
 
 
Components of deferred taxes are as follows (in thousands):

Year ended March 31,
 
2013
 
 
2012
 
 
 
 
 
 
 
Accruals, reserves and other
 
$
1,740
 
 
$
1,566
 
Net operating loss carryforwards
 
 
43,446
 
 
 
38,140
 
Credit carryforward
 
 
2,237
 
 
 
2,233
 
Uniform cap adjustment
 
 
-
 
 
 
-
 
Impairment on investment
 
 
-
 
 
 
548
 
Other
 
 
484
 
 
 
848
 
 
 
 
 
 
 
 
 
Gross deferred tax assets
 
 
47,907
 
 
 
43,335
 
Valuation allowance
 
 
(47,907
 )
 
 
(43,335
 )
Net deferred tax asset
 
$
-
 
 
$
-
 
 
The Company adopted FASB Interpretation No. 48, "Accounting for Uncertainty in Taxes", (ASC Topic 740), on January 1, 2007. As a result of the implementation of ASC Topic 740, the Company did not recognize any adjustment to the liability for uncertain tax positions and therefore did not record any adjustment to the beginning balance of accumulated deficit on the consolidated balance sheet. As of the date of adoption, the Company recorded a $1.4 million reduction to deferred tax assets for unrecognized tax benefits, all of which is currently offset by a full valuation allowance and therefore did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet at that time.

Tabular Reconciliation of Unrecognized Tax Benefits
 
 
 
 
 
 
Ending Balance at March 31, 2011
 
$
844
 
 
 
 
 
Increase/(Decrease) of unrecognized tax benefits taken in prior years
 
 
-
 
Increase/(Decrease) of unrecognized tax benefits related to current year
 
 
3
 
Increase/(Decrease) of unrecognized tax benefits related to settlements
 
 
-
 
Reductions to unrecognized tax benefits related to lapsing statute of limitations
 
 
(14
 )
Ending Balance at March 31, 2012
 
 
833
 
Increase/(Decrease) of unrecognized tax benefits taken in prior years
 
 
-
 
Increase/(Decrease) of unrecognized tax benefits related to current year
 
 
2
 
Increase/(Decrease) of unrecognized tax benefits related to settlements
 
 
-
 
Reductions to unrecognized tax benefits related to lapsing statute of limitations
 
 
(13
 )
Ending Balance at March 31, 2013
 
$
822
 
 
There are no positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date.

Because the statute of limitations does not expire until after the net operating loss and credit carryforwards are actually used, the statues are still open on fiscal years ended March 31, 1995 forward for federal purposes, and for fiscal years ended March 31, 2002 forward for state purposes.  For the years prior to March 31, 2008 for federal purposes and prior to March 31, 2007 for state purposes, any adjustments would be limited to reduction in the net operating loss and credit carryforwards.

Total interest and penalties included in the statement of operations for the year ended March 31, 2013 is zero.  It is the Company's policy to include interest and penalties related to uncertain tax positions in tax expense.

We have recorded no net deferred tax assets for the years ended March 31, 2013 and 2012, respectively.  The Company has provided a valuation allowance of $48.0 million and $43.0 million at March 31, 2013 and 2012, respectively.  The valuation allowance fully reserves all net operating loss carryforwards, credits and non-deductible accruals and reserves, for which realization of future benefit is uncertain.  The realization of net operating losses may be limited due to change of ownership rules.  The valuation allowance increased by $5.0 million in fiscal 2013 and increased by $0.4 million during fiscal 2012.

At March 31, 2013, the Company has net operating loss carryforwards of approximately $111.8 million and $64.9 million for federal and state tax purposes, respectively.  The federal net operating loss carryforward will begin to expire in the year ended March 31, 2020 and the state of California began to expire as of March 31, 2013.

At March 31, 2013, the Company also has research and experimentation credit carryforwards of $1.3 million and $0.8 million for federal and state income tax purposes, respectively.  A portion of the federal credit began to expire in the year ended March 31, 2012 and the state of California will never expire under current law.

The Tax Reform Act of 1986 limits the use of net operating loss and tax credit carryforwards in certain situations where changes occur in the stock ownership of a corporation during a certain time period.  In the event the Company had incurred a change in ownership, utilization of the carryforwards could be significantly restricted