Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.2
Income Taxes
 12 Months Ended
Mar. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 15 – Income Taxes

 

The Company has the following net deferred tax assets:

               
    March 31,  
    2022     2021  
Deferred tax assets:                
Net operating loss carryforwards   $ 28,224,000     $ 25,687,000  
Research and development tax credit carryforwards     1,850,000       1,850,000  
Stock-based compensation     309,000       3,120,000  
Allowances and accruals     1,336,000       659,000  
Other deferred tax assets     –       398,000  
Lease liability     63,000       78,000  
Gross deferred tax assets   $ 31,782,000     $ 31,792,000  
                 
Less valuation allowance     (30,613,000 )     (31,528,000 )
                 
Total deferred tax assets   $ 1,169,000     $ 264,000  
                 
Deferred tax liabilities:                
Fixed assets     (17,000 )     (3,000 )
Prepaid expenses     (260,000 )     (186,000 )
Right of Use asset     (63,000 )     (75,000 )
Gross deferred tax liabilities     (340,000 )     (264,000 )
Net deferred tax assets   $ 829,000     $ –  

 

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,  
    2022     2021  
Domestic   $ (3,516,000)     $ (2,052,000)  
Foreign     (1,883,000)       (1,467,000)  
    $ (5,399,000)     $ (3,519,000)  

  

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

               
    Year Ended March 31,  
    2022     2021  
Current:            
State   $ 8,000     $ 1,000  
Foreign     469,000       941,000  
Current Income Tax Expense     477,000       942,000  
Deferred:                
Federal     –       –  
State     –       –  
Foreign     (809,000)       –  
Total deferred income tax   $ (332,000)     $ 942,000  

 

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,  
    2022     2021  
Expected federal statutory rate     21.0%       21.0%  
State income taxes     5.7%       2.1%  
Foreign earnings taxed at different rates     3.7%       3.6%  
Foreign tax true-up     –       (12.4% )
Effect of permanent differences     (3.0% )     (9.5% )
Effect of intercompany interest permanent differences     (12.3% )     (17.9% )
True-up of state deferred assets     (25.6% )     (120.7% )
Total effective rate     (10.5% )     (133.8% )
Change in valuation allowance     16.7%       107.1%  
Totals     (6.2% )     (26.7% )

 

As of March 31, 2022, the Company had net operating loss carryforwards for Federal, State and Foreign income tax purposes of approximately $115.3 million, $44 million and $541,000, respectively. Due to the Tax Cuts and Job Act, Federal NOLs 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 begin to expire in the year 2029 and 2024, respectively, if not utilized.

 

As of March 31, 2022, the Company had Federal and California research credit carryforwards 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, the Company has foreign tax credits of $50,000, which begin 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 released the valuation allowance recorded against its Mexico deferred tax assets as of March 31, 2022. Given its recent history of earnings, current earnings and anticipated future earnings, the Company concluded that there is sufficient positive evidence available to reach a conclusion that the valuation allowance is no longer needed in Mexico. The release of the valuation allowance resulted in the recognition of deferred tax assets of $829,000. The Company, after considering all available evidence, fully reserved against all deferred tax assets in the U.S. and Netherlands since it is more likely than not such benefits will not be realized in future periods. 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.

 

The Company has filed tax returns for federal, state and foreign jurisdictions. The Company’s evaluation of uncertain tax matters was performed for tax years ended through March 31, 2022. Generally, the Company is subject to audit for the years ended March 31, 2021, 2020 and 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 to result in a material change to its financial position.