Note 7 - Income Taxes

12 Months Ended

Mar. 31, 2012

Income Tax Disclosure [Text Block]

7.             Income Taxes

The provision for income taxes consists of the following:

	Years Ended March 31,
	2012			2011
Current:
Federal	$	-		$	5,870
State		(50,000	)		1,869
Deferred		396,000			(71,000	)
	$	346,000		$	(63,261	)

A reconciliation of the provision for income taxes at the statutory rates to the reported income tax provision is as follows:

	Years Ended March 31,
	2012			2011
Statutory income tax rate		34.0	%		34.0	%
State taxes, net of federal benefit		3.3			(0.9	)
Other permanent differences		(6.1	)		(1.7	)
Establishment of valuation allowances		(40.4	)		-
Other		0.1			1.5
		(9.1	) %		32.9	%

A summary of deferred tax assets and liabilities is as follows:

	March 31,
	2012			2011
Deferred tax assets:
Accounts receivable	$	9,000		$	21,000
Accrued expenses		9,000			10,000
Deferred rent		270,000			213,000
Net operating loss carryforwards		1,637,000			479,000
Alternative minimum tax credit		235,000			235,000
		2,160,000			958,000
Deferred tax liabilities:
Prepaid expenses		(3,000	)		(36,000	)
Depreciation and amortization		(192,000	)		(104,000	)
		(195,000	)		(140,000	)
Net deferred tax asset before valuation allowance		1,965,000			818,000
Valuation allowance		(1,965,000	)		(422,000	)
Net deferred tax asset	$	-		$	396,000

Management evaluates the Company’s deferred tax assets on a regular basis to determine if a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not” standard.  In making such judgments, management must weigh both positive and negative evidence that can be objectively verified.  A cumulative loss in recent years is significant negative evidence in considering whether deferred tax assets are realizable, and also limits projections of future taxable income to that which can be estimated over a reasonable amount of time.  Management’s ability to accurately forecast should be evaluated against recent results, and the reliability of such forecasting inherently decreases as the duration of such forecasting increases.

The Company has reported pre-tax losses for five consecutive quarters, and six of the past seven quarters.  After considering evidence including historical results, industry and general economic trends, and current forecasts on future operating results, management increased the valuation allowance to fully reserve for the Company’s net deferred tax assets.  The annual impact on the year ended March 31, 2012 was deferred tax expense of $396,000; however, the actual charge recorded as income tax expense in the Company’s fourth quarter ended March 31, 2012 was $1,543,000 due to deferred tax assets recognized during the first three quarters of fiscal 2012.  The Company’s valuation allowance at March 31, 2012 and 2011 includes $422,000 for net operating loss carryforwards in certain states where management is not currently anticipating any income being generated.

At March 31, 2012, the Company had approximately $3,239,000 in federal net operating loss carryforwards to reduce future taxable income.  These carryforwards begin to expire in our fiscal year ending March 31, 2025.  The Company also has a federal alternative minimum tax credit carryforward of $235,000 which does not expire.The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions.  Currently, no jurisdictions are under examination.  No liability was recorded for interest or penalties related to uncertain tax positions at March 31, 2012 or 2011.

For federal purposes, tax years 2009-2011 remain open to examination.  Prior to 2009, the statute of limitations remains open for three years subsequent to the utilization of the net operating losses that were generated in those years.  For state purposes, the statute of limitations remains open in a similar manner.  Management does not anticipate any significant increases or decreases in unrecognized tax benefits within the next twelve months.