Income Taxes

12 Months Ended

Mar. 31, 2013

Notes

Income Taxes

G.      Income Taxes

As of March 31, 2013 and 2012, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required.

The Company may, from time to time, be assessed interest or penalties by major tax jurisdictions.  The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.  No interest and penalties have been recognized by the Company to date.

Tax years 2009 through 2013 are subject to examination by the federal and state taxing authorities.  There are no income tax examinations currently in process.

Reconciliation between the Company’s effective tax rate and the United States statutory rate is as follows:

	Year Ended March 31, 2013	Year Ended March 31, 2012
Expected federal tax rate	34.0%	34.0%
State income taxes, net of federal tax benefit	5.5%	-9.8%
Non-deductible expenses	-6.7%	-1.0%
Federal R&D tax credits, net	0.4%	0.8%
Expired federal operating loss carry forward	0.0%	0.0%
Adjustment of prior year excess tax benefit	-11.5%	-12.2%
Change in valuation allowance	-21.7%	-11.8%
	0.0%	0.0%

Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax basis of the assets and liabilities using the enacted tax rate in effect in the years in which the differences are expected to reverse.  A valuation allowance has been recorded against the deferred tax asset as it is more likely than not, based upon the analysis by the Company of all available evidence, that the tax benefit of the deferred tax asset will not be realized.

The following is a summary of the significant components of the Company’s deferred tax assets as of March 31, 2013 and 2012:

(in thousands)	March 31, 2013	March 31, 2012
Deferred Tax Assets:
Net operating loss carryforwards	$9,261	$8,976
Capital loss carry forward	3,576	3,576
Tax credit carry forward	270	258
Inventory and receivable allowances	66	88
Accrued expenses deductible when paid	71	70
Deferred tax assets	13,244	12,968
Deferred Tax Liabilities:
Depreciation and amortization	(150)	(203)
Deferred tax liabilities	(150)	(203)
Net deferred tax assets	13,094	12,765
Valuation allowance	(13,094)	(12,765)
Net deferred tax assets	$-	$-

A valuation allowance has been recorded to offset all deferred tax assets due to uncertainty of realizing the tax benefits of the underlying operating loss and tax credit carry forwards over their carry forward periods.  The Company had no significant deferred tax liabilities as of March 31, 2013 and 2012.

As of March 31, 2013, the Company has the following unused net operating loss and tax credit carryforwards available to offset future federal and state taxable income, both of which expire at various times as noted below:

	Net Operating Losses	Investment & Research Credits	Expiration Dates
Federal	$26,094	$123	2014 to 2033
State	$10,313	$223	2014 to 2018
Capital loss carryforward	$9,065		2015 to 2016

The Company’s net operating loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities.

Approximately $1,400,000 of the above Federal net operating loss carryforwards relate to stock compensation.  The related tax benefit of approximately $553,000 will be credited to additional paid-in capital upon realization.