Annual report pursuant to Section 13 and 15(d)

16. Income Taxes

16. Income Taxes
12 Months Ended
Mar. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 16 – Income Taxes


The Company has the following net deferred tax assets:


    March 31,  
    2021     2020  
Deferred tax assets:                
Net operating loss carryforwards   $ 25,687,000     $ 27,948,000  
Research and development tax credit carryforwards     1,850,000       1,850,000  
Stock-based compensation     3,120,000       3,803,000  
Allowances and accruals     659,000       1,099,000  
Other deferred tax assets     398,000       731,000  
State income taxes           1,000  
Basis difference in assets           6,000  
Lease liability     78,000       226,000  
Gross deferred tax assets   $ 31,792,000     $ 35,664,000  
Less valuation allowance     (31,528,000 )     (35,297,000 )
Total deferred tax assets   $ 264,000     $ 367,000  
Deferred tax liabilities:                
Fixed assets     (3,000 )     (5,000 )
Prepaid expenses     (186,000 )     (143,000 )
Right of Use asset     (75,000 )     (219,000 )
Gross deferred tax liabilities     (264,000 )     (367,000 )
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:


    Year Ended March 31,  
    2021     2020  
Domestic   $ 2,052,000     $ 1,425,000  
Foreign     1,467,000       227,000  
    $ 3,519,000     $ 1,652,000  


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


    Year Ended March 31,  
    2021     2020  
State   $ 1,000     $ 3,000  
Foreign     941,000       118,000  
      942,000       121,000  
    $ 942,000     $ 121,000  


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


    Year Ended March 31,  
    2021     2020  
Expected federal statutory rate     21.0%       21.0%  
State income taxes     2.1%       11.0%  
Foreign earnings taxed at different rates     3.6%       0.6%  
Foreign tax true-up     (12.4% )        
Effect of state net operating loss expiration     (0.0% )     (0.1% )
Effect of permanent differences     (9.5% )     (14.0% )
Effect of intercompany interest permanent differences     (17.9% )     5.6%  
True-up of state deferred assets     (120.7% )     (19.9% )
GILTI income     (0.0% )     (1.4% )
      (133.8% )     2.8%  
Change in valuation allowance     107.1%       (10.1% )
Totals     (26.7% )     (7.3% )


As of March 31, 2021, we had net operating loss carryforwards for Federal, State and Foreign income tax purposes of approximately $105.1 million, $38.1 million and $1.1 million, respectively. Due to the Tax Cuts and Job Act, Federal NOL generated after March 31, 2018 have an indefinite life. Federal NOL generated on and before March 31, 2017 will begin to expire 2024, if not utilized. State and Foreign NOLs will either begin to in the year 2029 and 2028, respectively, if not utilized.


As of March 31, 2021, we had Federal and California research credit carryforward of approximately $1 million 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, we have foreign tax credit of $50,000, which begins to expire in the year 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 benefits will not be realized in future periods. The Company has incurred losses for financial reporting for the year ended March 31, 2021. However, for income tax purposes, the Company is in 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 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.


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 financial statements.


The Company has identified its federal tax return and its state tax returns in California and Georgia as major tax jurisdictions. The Company also filed tax returns in foreign jurisdictions, principally Mexico and The Netherlands. The Company does not consider itself indefinitely invested in its foreign subsidiaries. The Company has accrued taxes, where necessary, related to the U.S. investment and intercompany transactions between the parties. The Company’s evaluation of uncertain tax matters was performed for tax years ended through March 31, 2021. Generally, the Company is subject to audit for the years ended March 31, 2020, 2019 and 2018 and may be subject to audit for amounts relating to net operating loss carryforwards generated in periods prior to March 31, 2020. 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.


On March 27, 2021 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 income tax provisions. On December 27, 2020, the President signed The Consolidated Appropriations Act, 2021 (the "Act") which included a number of tax provisions to extend and further provide relief to those impacted by the COVID-19 pandemic. The Company considered the various potential income tax provisions and deemed that there were no material impacts to the income tax provision as of year-end March 31, 2021.