The Company’s effective tax rate was 123.28% and 41.31% for the three and nine months ended December 31, 2016, respectively. For the three and nine months ended December 31, 2015, the effective tax rates were 0%. The change in the effective tax rates from continuing operations for the three and nine months ended December 31, 2016 compared to the same period last year is primarily due to the intra-period allocation of total tax expense between continuing operations and discontinued operations from the sale to Invekra.

The Company accounts for the tax effects of discontinued operations as a discrete item and therefore recognizes the full tax effects of discontinued operations in the same period that the pretax income or loss from discontinued operations is recognized. In accordance with the intra-period allocation rules, as a result of having a full valuation allowance on deferred income taxes on the Company’s entire operations, a tax benefit is recorded in continuing operations for the benefit of the utilization of the deferred tax assets resulting from the income from discontinued operations.

During the three and nine months ended December 31, 2016, the Company recorded income tax expense of $4,581,000 within discontinued operations.   This income tax expense was recognized in connection with the gain on sale of the IP and territory rights and the operations through the sale date, associated with the Latin American operations. The Company was able to utilize certain net operating loss carryovers (“NOLs”) of approximately $4,040,000 in order to reduce the amount of its income tax obligations. The Company had previously established a full valuation allowance against the deferred income tax assets, which included these NOLs. During the three and nine months ended December 31, 2016, the Company recorded an income tax benefit of $4,040,000 within its continuing operations, representing the release of the valuation allowance for the NOLs utilized to offset the gain and income reflected in discontinued operations. The NOLs in certain jurisdictions did not fully offset the income tax obligations incurred. As a result, as of December 31, 2016, the Company recorded current income tax payable of $229,000 and deferred income tax liability of $312,000.

The Company has completed a study to assess whether or not a change in control for income tax purposes has occurred. The Company has determined, based on the results of the study, that no such change in control has occurred for purposes of Internal Revenue Code section 382 and as a result, the Company’s income tax net operating loss carryforwards were not limited under such provision. The Company incurred losses for both financial reporting and income tax purposes for the year ended March 31, 2016 and through September 30, 2016. The Company, after weighing both positive and negative evidence, had fully reserved its deferred tax assets since it was more likely than not that such benefits would not be realized in future periods. Except as disclosed below in connection with the utilization of net operating loss carryforwards in connection with the gain on the sale to Invekra, as of December 31, 2016, the Company has fully reserved its deferred tax assets. The Company will evaluate its deferred tax assets in future periods in order to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s deferred income tax assets satisfy the realization standards, the valuation allowance will be reduced accordingly.

As a result of certain realization requirements of Accounting Standards Codification Topic 718, the Company’s deferred tax assets and liabilities do not include certain deferred tax assets at December 31, 2016 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting purposes. Equity will be increased by approximately $533,000 if and when such deferred tax assets are ultimately realized.