5. INCOME TAXES

12 Months Ended

Mar. 31, 2013

Income Tax Disclosure [Abstract]

NOTE 5 - INCOME TAXES

NOTE 5 - INCOME TAXES

The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amount of tax-related assets and liabilities and income tax provisions. The Company assesses the recoverability of the deferred tax assets on an ongoing basis. In making this assessment the Company is required to consider all available positive and negative evidence to determine whether, based on such evidence, it is more likely than not that some portion or all of the net deferred assets will be realized in future periods. This assessment requires significant judgment. In addition, the Company has made significant estimates involving current and deferred income taxes, tax attributes relating to the interpretation of various tax laws, historical bases of tax attributes associated with certain tangible and intangible assets and limitations surrounding the realization of the deferred tax assets. The Company does not recognize current and future tax benefits until it is deemed more likely than not that certain tax positions will be sustained.

The income tax provision (benefit) consisted of the following:

	Year ended March 31,
	2013			2012
Income tax provision (benefit):
Current:
Federal	$	655		$	(136	)
State		247			(3	)
		902			(139	)
Deferred:
Federal		(4,853	)		–
State		(1,855	)		–
		(6,708	)		–
Income tax provision (benefit)	$	(5,806	)	$	(139	)

A reconciliation between the amount of reported income tax expense (benefit) and the amount computed by multiplying income before income tax provision (benefit) by the statutory federal income tax rate is as follows:

	Year ended March 31,
	2013			2012
U.S. federal statutory income taxes	$	(7,584	)	$	2,654
State and local income taxes, net of federal benefits		(1,245	)		406
Change in valuation allowance		1,366			(2,975	)
Warrants		1,085			516
Variable interest entity		237			(172	)
Deferred tax adjustments		295			(593	)
Other		40			25
Income tax provision (benefit)	$	(5,806	)	$	(139	)

Deferred income taxes reflect the tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. The following table discloses those significant components of deferred tax assets and liabilities, including the valuation allowance at March 31:

	2013			2012
Deferred tax assets (liabilities):
Allowance for doubtful accounts	$	449		$	1,457
Accrued vacation		2,982			2,813
Net operating losses		7,961			1,023
State taxes		(1,235	)		(532	)
Accrued insurance		3,755			3,445
Legal		1,257			–
Property and equipment		661			(212	)
Other		281			43
		16,111			8,037
Valuation allowance		(9,403	)		(8,037	)
Net deferred tax assets	$	6,708		$	–

The result of the allocation of the valuation allowance between short term and long term deferred tax assets before netting the deferred tax liabilities results in net deferred tax assets consisting of short term deferred tax assets of $6.3 million (net of valuation allowance) and long term deferred tax assets of $380. The valuation allowances above were recorded based on an assessment of the realization of deferred tax assets as described below.

● Cumulative losses in recent years

● Income/losses expected in future years

● Unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels

● The availability, or lack thereof, of taxable income in prior carryback periods that would limit realization of tax benefits

● The carryforward period associated with the deferred tax assets and liabilities

The Company assesses the realization of deferred tax assets to determine whether an income tax valuation allowance is required. The Company recorded a partial valuation allowance on its net deferred tax assets based on income from near-term projections resulting from government subsidies.

ASU 2009-06, “Income Taxes (Topic 740),” prescribes a consistent financial reporting recognition threshold and measurement standard, as well as criteria for subsequently recognizing, derecognizing and measuring tax positions taken or expected to be taken in a tax return. ASU 2009-06 also requires certain disclosures with respect to the uncertainty in income taxes. A reconciliation of the change in the amount of gross unrecognized income tax benefits is a follows:

	March 31,
	2013		2012
Gross unrecognized income tax benefits at the beginning of the year	$	21,814	$	18,900
Changes based on tax positions related to current year		–		2,914
Increases for tax positions related to prior years		–		–
Gross unrecognized income tax benefits at the end of the year	$	21,814	$	21,814

As of March 31, 2013, approximately $21.8 million of unrecognized income tax benefits would affect the fiscal 2013 effective tax rate if released into income due to the impact of the valuation allowance.

The Company’s net operating losses of $17.1 million for federal and $22.4 million for state expire through 2033. The utilization of net operating losses and credit carryforwards are 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 an 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 period 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.

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