v2.4.0.6
Note 9 - Income Taxes
 12 Months Ended
Jan. 31, 2013
Income Tax Disclosure [Text Block]
9.            Income Taxes

Income tax expense on a consolidated basis consists of the following amounts (in thousands):

   
Years Ended January 31,
 
   
2013
   
2012
 
Federal:
           
Current
  $ —     $ —  
Deferred
    —       —  
State:
               
Current
    2       2  
Deferred
    —       —  
Foreign:
               
Current
    —       —  
    $ 2     $ 2  

The effective income tax rate on loss from continuing operations differs from the United States statutory income tax rates for the reasons set forth in the table below (in thousands, except percentages).

   
Years Ended January 31,
 
   
2013
   
2012
 
   
Amount
   
Percent Pretax Income
   
Amount
   
Percent Pretax Income
 
Loss from continuing operations before income taxes and discontinued operations
  $ (5,590 )     100 %   $ (5,287 )     100 %
                                 
Computed “expected” income tax benefit on loss from continuing operations before income taxes
  $ (1,901 )     (34 %)   $ (1,798 )     (34 %)
State tax, net of federal benefit
    (301 )     (5 %)     (192 )     (4 %)
Tax credits
    (80 )     (2 %)     (157 )     (3 %)
Change in valuation allowance
    619       11 %     2,009       38 %
Permanent differences
    969       17 %     3       —  
Return to provision adjustments
    681       12 %     116       2 %
Other, net
    15       —       21       —  
Income tax benefit
  $ 2       —     $ 2       —  

The total income tax expense) recorded for the years ended January 31, 2013 and 2012 was as follows (in thousands):

   
January 31,
 
   
2013
   
2012
 
Tax expense from continuing operations
  $ 2     $ 2  
Tax expense from discontinued operations
    —       —  
    $ 2     $ 2  

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at January 31, 2013 and 2012 are as follows (in thousands):

   
January 31,
 
   
2013
   
2012
 
Deferred tax assets:
           
Inventory
    277       748  
Property and equipment, principally due to differing depreciation methods
    206       671  
Accruals and reserves
    184       300  
Net research and manufacturer investment credit carryforwards
    2,563       2,576  
Net operating losses
    14,322       11,894  
AMT credit carryforwards
    126       126  
Stock based compensation
    69       796  
Other
    2       19  
Total gross deferred tax assets
    17,749       17,130  
Less: valuation allowance
    (17,749 )     (17,130 )
Net deferred tax assets
  $ —     $ —  

We have federal and state research and experimentation credit carryforwards of $1.7 million and $2.1 million, respectively, which expire through 2032. We have a net operating loss carryforward of $37.6 million for federal and $36.2 million for state, which expire through 2032. Based upon a preliminary review, it appears that a Section 382 ownership change may have occurred during fiscal 2014.  The effect of this ownership change may limit the utilization of our net operating loss carryforwards and research and experimentation credits to an annual amount of approximately $40,000.

In assessing the probability that deferred tax assets will benefit future periods, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. There was a full valuation allowance for deferred tax assets as of January 31, 2013, an increase of $0.6 million during the fiscal year, based on management’s overall assessment of risks and uncertainties related to our future ability to realize, and hence utilize, the deferred tax assets.

A reconciliation of the beginning balance of our unrecognized tax benefits and the ending amount of unrecognized tax benefit is as follows (in thousands):

   
Unrecognized Tax Benefits
 
Balance at February 1, 2012
  $ 760  
Additions based on tax positions related to the current year
    17  
Reductions due to lapses of statute of limitations
    —  
Reductions for tax positions of prior years
    —  
Balance at January 31, 2013
  $ 777  

The unrecognized tax benefits recorded above, if reversed, would not impact our effective tax rate since we maintain a full valuation allowance against our deferred tax asset. We recognize interest and penalties associated with unrecognized tax benefits in the income tax expense line item of the consolidated statement of operations.

We and our subsidiary, CWT, file income tax returns in the U.S. federal jurisdiction and in certain state jurisdictions. With few exceptions, we are no longer subject to U.S. federal examinations or state income tax examinations by tax authorities for years before 2007 in those jurisdictions where returns have been filed.