Note 9 - Income Taxes

12 Months Ended

Jan. 31, 2014

9.	Income Taxes

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

	Years Ended January 31,
	2014		2013
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,
	2014						2013
	Amount			Percent Pretax Income			Amount			Percent Pretax Income
Loss from continuing operations before income taxes and discontinued operations	$	(2,056	)		100	%	$	(5,590	)		100	%

Computed “expected” income tax benefit on loss from continuing operations before income taxes	$	(699	)		(34	)%	$	(1,901	)		(34	)%
State tax, net of federal benefit		2			0	%		(301	)		(5	)%
Tax credits		—			0	%		(80	)		(2	)%
Change in valuation allowance		(1,074	)		(52	)%		619			11	%
Permanent differences		(93	)		(5	)%		969			17	%
Return to provision adjustments		—			0	%		681			12	%
Change in state tax rate		1,866			91	%
Other, net		—			0	%		15			—
Income tax expense	$	2			—		$	2			—

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at January 31, 2014 and 2013 are as follows (in thousands):

	January 31,
	2014			2013
Deferred tax assets:
Inventory		—			277
Property and equipment, principally due to differing depreciation methods		134			206
Accruals and reserves		124			184
Net research and manufacturer investment credit carryforwards		2,308			2,563
Net operating losses		13,904			14,322
AMT credit carryforwards		110			126
Stock based compensation		93			69
Other		2			2
Total gross deferred tax assets		16,675			17,749
Less: valuation allowance		(16,675	)		(17,749	)
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 $40.7 million for federal and $33.6 million for state, which expire through 2033. We are reviewing whether a Section 382 ownership change may have occurred as a result of the Elkhorn transaction in fiscal 2014 (Note 7). If this transaction results in an ownership change, it would substantially limit our research and experimentation credits and net operating loss carryforwards.

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, 2014, an decrease of $1.1 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, 2013	$	777
Additions based on tax positions related to the current year		—
Reductions due to lapses of statute of limitations		—
Reductions for tax positions of prior years		—
Balance at January 31, 2014	$	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 2009 in those jurisdictions where returns have been filed.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References+ Details