Income Taxes

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets are as follows:

 

 

The following summarizes the difference between the income tax expense and the amount computed by applying the statutory federal income tax rate of to income before income tax. The items comprising these differences consisted of the following for the fiscal years ended and

 

The increase in valuation allowance from to was

 

As of the Company had pre-tax federal net operating loss carryforwards of million and state net operating loss carryforwards of million available to reduce future taxable income.   The federal and state net operating loss carryforwards begin to expire from fiscal through and from through respectively.  Utilization of net operating loss carryforwards be subject to annual limitations due to certain ownership change limitations as required by Internal Revenue Code Section   The federal income tax credits begin to expire from through and state income tax credit carryforwards are carried forward indefinitely.

 

The Company has recorded a valuation allowance to reflect the estimated amount of deferred tax assets, which be realized. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income during the periods in which those temporary differences become deductible. Management considers both positive and negative evidence and tax planning strategies in making this assessment.

 

As of the Company recorded unrecognized tax benefits of related to uncertain tax positions. The unrecognized tax benefit is netted against the non-current deferred tax asset on the Consolidated Balance Sheet. The Company has recorded a liability for any penalties or interest related to the unrecognized tax benefits.

 

The Company files U.S federal and California state tax returns. The Company is generally longer subject to tax examinations for years prior to the fiscal year for federal purposes and fiscal year for California purposes, except in certain limited circumstances. The Company does have a California Franchise Tax Board audit that is currently in process. The Company is working with the California Franchise Tax Board to resolve all audit issues and does believe any material taxes or penalties are due. However, as a result of the ongoing examination, the Company eliminated certain income tax credit carryovers. The write-off of these income tax credit carryovers had impact on total income tax expense as the majority had an uncertain tax position reserve with the balance having a full valuation allowance against the deferred tax asset.

 

A reconciliation of the beginning and ending amount of the liability for uncertain tax positions, excluding potential interest and penalties, is as follows:

 

 

 

The total amount of interest and penalties related to unrecognized tax benefits at is material. The amount of tax benefits that would impact the effective rate, if recognized, is expected to be material. The Company does anticipate any significant changes with respect to unrecognized tax benefits within next () months.