NOTE 16 – Income Taxes

The Company has the following net deferred tax assets:

The income tax provision (benefit) is based on the following loss before income taxes, which are from domestic sources and foreign loss before income taxes: 

The Company’s income tax expense/(benefits) consist of the following:

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for continuing operations is as follows:

As of March 31, 2020, the Company had net operating loss carryforwards for Federal, California and Foreign income tax purposes of approximately $106,400,000, $42,300,000 and $3,100,000, respectively. Due to the Tax Cuts and Job Act, Federal net operating losses generated after March 31, 2018 have an indefinite life. Federal net operating loss generated on and before March 31, 2017 will begin to expire in 2024, if not utilized. State and Foreign net operating losses will begin to expire in the year 2029 and 2028, respectively, if not fully utilized. As of March 31, 2020, the Company had Federal and California research credit carryforward of approximately $1,000,000 and $790,000, respectively. The Federal research credits will begin to expire in 2024 while the California research credits have no expiration date. In addition, the Company has foreign tax credit of $50,000, which begin to expire in the fiscal year ending March 31, 2023 if not utilized.

Section 382 of the Internal Revenue Code limits the use of the Federal net operating losses in certain situations where changes occur in stock ownership of a company. If the Company should have an ownership change of more than 50% of the value of the Company’s capital stock, utilization of the carryforwards could be restricted. The Company is not aware of any changes in ownership that would result in a change in control under Internal Revenue Code Section 382. The Company, after considering all available evidence, fully reserved against all deferred tax assets since it is more likely than not such benefit will not be realized in future periods. The Company has incurred losses for financial reporting for the year ended March 31, 2020. However, for income tax purposes, the Company is in an income position. In the current year, there are certain non-recurring sales and significant temporary adjustments that will reverse in future years which contributed to the taxable loss. The Company anticipates losses in the future for both financial accounting and tax purposes. Accordingly, the Company is continuing to fully reserve for its deferred tax assets. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of its 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.

The Company only recognizes tax benefits from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. To date, the Company has not recognized such tax benefits in its consolidated financial statements.

The Company has identified its federal tax return and its state tax return in California as major tax jurisdictions. The Company also filed tax returns in foreign jurisdictions, principally Mexico and The Netherlands. The Company’s evaluation of uncertain tax matters was performed for tax years ended through March 31, 2020. Generally, the Company is subject to audit for the years ended March 31, 2019, 2018 and 2017 and may be subject to audit for amounts relating to net operating loss carryforwards generated in periods prior to March 31, 2019. The Company has elected to retain its existing accounting policy with respect to the treatment of interest and penalties attributable to income taxes, and continues to reflect interest and penalties attributable to income taxes, to the extent they arise, as a component of its income tax provision or benefit as well as its outstanding income tax assets and liabilities. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments, other than those identified above that would result in a material change to its financial position.

The Company does not have any tax positions for which it is reasonably possible the total amount of gross unrecognized tax benefits will increase or decrease within 12 months of March 31, 2020. The unrecognized tax benefits may increase or change during the next year for items that arise in the ordinary course of business.

On March 27, 2020 Congress approved and the President signed the Coronavirus Aid Relief, and Economic Security (“CARES”) Act. The CARES Act is an emergency economic stimulus package in response to the COVID-19 pandemic, which among other things contains numerous tax provisions. The Company considered the various potential income tax provisions and deemed that there were no material impacts to the income tax provision as of the year ended March 31, 2020.