5. Income Taxes

We account for income taxes under ASC 740, which requires the use of the liability method. ASC 740 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized.

Income tax provision (benefit) for income taxes is summarized below:

Years Ended	March 31, 2013			March 31, 2012
Current:
Federal	$	—		$	—
State	—			—
Total current	—			—
Deferred:
Federal	981,000			891,000
State	101,000			92,000
Total deferred	1,082,000			983,000
Valuation allowance	(1,082,000		)	(983,000		)
Total	$	—		$	—

The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes consists of the following:

Years Ended	March 31, 2013			March 31, 2012
Federal statutory rate	$	(219,000	)	$	(180,000	)
Effect of:
State taxes, net of federal tax benefit	(23,000		)	(19,000		)
Other	40,000			46,000
Valuation allowance	202,000			153,000
Total	$	—		$	—

The components of the deferred tax asset are as follows:

Years Ended	March 31, 2013			March 31, 2012
Credits and net operating loss carryforwards	$	2,838,000		$	3,877,000
Other	104,000			135,000
Gross deferred tax assets	2,942,000			4,012,000
Valuation allowance	(2,942,000		)	(4,012,000		)
Total deferred tax assets	$	—		$	—

We believe that based on all available evidence, it is more likely than not that the deferred tax assets will not be fully realized. Accordingly, a valuation allowance has been recorded against the deferred tax asset.

As of March 31, 2013, we had approximately $7.7 million of net operating loss carryovers for tax purposes. Additionally, we have approximately $168,000 of research and development tax credits available to offset future federal income taxes. The net operating loss and credit carryovers begin to expire in the fiscal year ended March 31, 2019. In fiscal years ended after March 31, 2019, net operating losses expire at various dates through March 31, 2033. Our net operating loss carryovers at March 31, 2013 include $582,000 in income tax deductions related to stock options which will be tax effected and the benefit will be reflected as a credit to additional paid-in capital when realized. As such, these deductions are not reflected in our deferred tax assets. The Internal Revenue Code contains provisions, which may limit the net operating loss carryforwards available to be used in any given year if certain events occur, including significant changes in ownership interests.