Note

Income Taxes

Income tax benefit (expense) for the years ended

March

31,

2018,

2017

and

2016

consisted of:

	2018			2017			2016
	(in thousands)
Current:
Federal	$	112		$	(2	)	$	(1	)
State		(2	)		(3	)		23
Total current benefit (expense)		110			(5	)		22
Deferred:
Federal		—			—			(3,027	)
State		—			—			(323	)
Total deferred expense		—			—			(3,350	)
Income tax benefit (expense)	$	110		$	(5	)	$	(3,328	)

December 22, 2017

H.R.

originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”) from

34%

21%

effective

January 1, 2018.

The Company computed its income tax expense for the

March 31, 2018

fiscal year using a blended Federal Tax Rate of

30.79%.

The

21%

Federal Tax Rate will apply to fiscal years ending

March 31, 2019

and each year thereafter.

December 22, 2017,

Staff Accounting Bulletin

No.

118

("SAB

118"

) was issued to address the application of US GAAP in situations when a registrant does

not

have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. Upon enactment of the Tax Act, as a result of the rate reduction, the Company re-measured its net deferred tax assets and liabilities using the Federal Tax Rate that will apply when those amounts are expected to reverse, resulting in a write-down of

$1.2

million. Because there is a full valuation allowance against these assets, the valuation allowance was reduced accordingly and there was

effect on the provision (benefit) for income taxes. The Company has completed the accounting for the income tax effects of the Tax Act as of

March 31, 2018

and has determined that the amount identified as provisional in the quarter ended

December 31, 2018

was a materially correct amount. As a result,

measurement period adjustments have been recorded.

The following table reconciles the amount of income taxes computed at the federal blended rate of

30.79%

for the year ended

March 31, 2018

and

34%

for the years ended

March 31, 2017

and

2016,

to the amount reflected in the Company’s consolidated statements of operations for the years ended

March

31,

2018,

2017

and

2016:

	2018			2017			2016
	(in thousands)
Tax provision at federal statutory income tax rate	$	(282	)	$	411		$	363
Stock based compensation		(11	)		(281	)		(128	)
Decrease (increase) in valuation allowance		1,565			(158	)		(3,564	)
State income taxes benefit (expense), net of federal income tax effect		(36	)		49			25
State rate adjustment		3			(1	)		1
AMT Credit		112			—			—
Tax Cuts and Jobs Act		(1,244	)		—			—
Other, net		3			(25	)		(25	)
Income tax benefit (expense)	$	110		$	(5	)	$	(3,328	)

The tax effects of temporary differences related to various assets, liabilities and carry forwards that give rise to deferred tax assets and deferred tax liabilities as of

March

31,

2018

and

2017

are as follows:

	2018			2017
	(in thousands)
Deferred tax assets:
Net operating loss carry forwards	$	2,903		$	4,325
Inventory		295			405
Compensation accrual		153			187
Tax credit carry forwards		36			147
Other		22			40
Gross deferred tax assets		3,409			5,104
Less valuation allowance		(2,158	)		(3,722	)
Net deferred tax assets		1,251			1,382
Deferred tax liability- Depreciation and amortization		(1,251	)		(1,382	)
Net deferred tax assets	$	—		$	—

In assessing the valuation allowance for deferred tax assets, management considers whether it is more likely than

not

that some portion or all of the deferred tax assets will

not

be realized. Ultimately, the realization of deferred tax assets will depend on the existence future taxable income during the periods. In making this assessment, management considers past operating results, the scheduled reversal of deferred tax liabilities, estimates of future taxable income and tax planning strategies.

In fiscal

2016,

the Company recorded a

$3,564,000

valuation allowance against deferred tax assets. The Company concluded that a valuation allowance was appropriate in light of the significant negative evidence, which was objective and verifiable, primarily the cumulative losses in recent years. While the Company’s long-term financial outlook remains positive, the Company concluded that its ability to rely on its long-term outlook as to future taxable income was limited due to the relative weight of the negative evidence from its recent cumulative losses. The Company’s conclusion regarding the need for a valuation allowance against its deferred tax assets could change in the future based on improvements in operating performance, which

may

result in the full or partial reversal of the valuation allowance.

March

31,

2018,

the Company has net operating loss carry forwards and tax credit carry forwards available to offset future federal income tax as follows (in thousands):

Expires March 31,	Net Operating Losses		Research and Experimentation Tax Credits
2020	$	—	$	8
2021		—		2
2022		2,839		—
2023		1,863		1
2026		159		—
2027		2,665		1
2028		1,612		16
2031		389		—
2032		44		—
2033		76		—
2034		392		—
2035		18		—
2037		1,681		—
Indefinite carryforward		266		—
	$	12,004	$	28

Under the Tax Act, the corporate Alternative Minimum Tax (AMT) was repealed. Taxpayers with AMT credit carryovers can use the credits to offset regular tax liability for any taxable year. In addition, the AMT credit is refundable in any taxable year beginning after

2017

and before

2022

in an amount equal to

50%

(

100%

in the case of taxable years beginning in

2021

) of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against regular tax liability. Thus, a taxpayers’ entire AMT credit carryforward amounts are fully refundable by

2022.

The Company has an AMT credit carryforward of

$120,000

as of

March 31, 2018.

The Company has reduced the AMT credit carryforward by applying the current

6.6%

sequestration rate. As a result,

$8,000

is still available to reduce future federal regular income taxes over an indefinite period. The Company will request the following refunds of

$112,000

for the tax years ended

March 31, 2018

through

March 31, 2022:

Tax Year Ended:	AMT Credit Refund Request
March 31, 2018	$	56,000
March 31, 2019		28,000
March 31, 2020		14,000
March 31, 2021		7,000
March 31, 2022		7,000
	$	112,000

March

31,

2018,

the Company has state tax net operating loss carry forwards available to offset future California state taxable income of

$746,000.

These carry forwards expire

March

31,

2030

through

2037.

March

31,

2018,

the Company has state tax net operating loss carry forwards available to offset future Hawaii state taxable income of

$6,532,000.

These carry forwards expire

March

31,

2030

through

2037.

The following represents the open tax years and jurisdictions that the Company used in its evaluation of tax positions:

Open tax years ending March 31,			Jurisdiction
2015	-	2018	U.S. Federal
2015	-	2018	State of Hawaii
2014	-	2018	State of California