NOTE 5 - INCOME TAXES

3 Months Ended

Jun. 30, 2011

Income Tax Disclosure [Text Block]

  
NOTE 5 - INCOME TAXES

The utilization of NOL and credit carryforwards is limited under the provisions of the IRC Section 382 and similar state provisions. Section 382 of the IRC of 1986 generally imposes an annual limitation on the amount of NOL carryforwards that may be used to offset taxable income where a corporation has undergone significant changes in stock ownership. In fiscal year 2009, the Company entered into the amended purchase agreement which resulted in a change in control. The Company conducted an analysis and determined that it is subject to significant IRC Section 382 limitations. For both Federal and State tax purposes, the Company's utilization of NOL and credit carryforwards is subject to significant IRC Section 382 limitations. The Company evaluates its ability to utilize the net operating losses each period with regard to the limitations imposed under IRC 382 and also considering the continuing expiration of statutes of limitation for prior years; and in the prior year determined that a portion of the federal and state net operating losses were no longer realizable, and removed from the schedule of deferreds those net operating losses in excess of the IRC 382 limitation and also considering prior years statutes now closed.

The difference between the reported income tax benefit and the amount computed by multiplying income before income tax benefit in the accompanying unaudited condensed consolidated statements of operations for the three months ended June 30, 2011 and 2010 by the statutory federal income tax rate primarily relates to the impact of a full valuation allowance reserving the net deferred assets, permanently nondeductible expenses, state and local income taxes, and variable interest entity.

The Company received QAF (Note 11) payments in the first quarter of the current fiscal year and expects additional payments in subsequent periods.  The application of FIN 18 requires the Company to compute the interim period income tax expense (benefit) by applying the estimated annual effective tax rate to the first quarter income (loss) from continuing operations, which resulted in the recognition of a tax benefit for the first quarter.

The Company evaluated its historical and projected sources of income to determine the extent to which the net deferred tax assets projected at June 30, 2011 could be realized, and based on this analysis the Company concluded that there was not sufficient positive evidence to support the realization of the net deferred tax assets, and therefore will continue to maintain a full valuation allowance against its net deferred assets for the three months ended June 30, 2011.

The Company’s California Enterprise Zone credits are currently under examination by the California taxing authority.  As a result of the examination, the Company recorded a liability of approximately $18.9 million for unrecognized tax benefits.  The Company's utilization of these credits is also subject to significant IRC Section 383 limitations, and these limitations have been incorporated into the tax provision calculation.

PCHI TAX STATUS - PCHI is a limited liability company. PCHI's taxable income or loss will flow through to its owners and be their separate responsibility. Accordingly, the accompanying unaudited condensed consolidated financial statements do not include any amounts for the income tax expense or benefit, or liabilities related to PCHI's income or loss.