Annual report [Section 13 and 15(d), not S-K Item 405]

Income Taxes

v3.26.1
Income Taxes
 12 Months Ended
Mar. 31, 2026
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 14 – Income Taxes

 

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

           
    Year Ended March 31,  
    2026     2025  
Domestic   $ 1,026,000     $ (158,000 )
Foreign     (4,445,000 )     (2,749,000 )
Totals   $ (3,419,000 )   $ (2,907,000 )

 

The federal, state and foreign income tax provisions are summarized as follows:

           
    Year Ended March 31,  
    2026     2025  
Current:            
State   $ (26,000 )   $ (2,000 )
                 
Deferred:                
Foreign     270,000       (548,000 )
Total income tax benefit (expense)   $ 244,000     $ (550,000 )

 

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,  
    2026     2025  
Expected federal statutory rate   $ (717,000 )     21.0%     $ (611,000 )     21.0%  
State income taxes, net of federal benefit     26,000       (0.7% )     3,000       (0.1% )
Foreign tax:                                
Foreign earnings taxed at different rates:                                
Mexico     (370,000 )     10.9%       (152,000 )     5.2%  
Netherlands     (13,000 )     0.4%       (43,000 )     1.5%  
Effect of intercompany interest permanent differences:                                
Mexico     703,000       (20.7% )     738,000       (25.3% )
Netherlands     141,000       (4.1% )     142,000       (4.9% )
Annual inflation adjustment:                                
Mexico     191,000       (5.6% )     180,000       (6.2% )
Other deferred true-ups:                                
Mexico     (22,000 )     0.6%       227,000       (7.8% )
Other non-deductible expenses:                                
Mexico     33,000       (1.0% )     31,000       (1.1% )
Netherlands     1,000       (0.0% )     1,000       (0.0% )
Other non-taxable and non-deductible expenses     3,000       (0.1% )     3,000       (0.1% )
Total     (24,000 )     0.7%       519,000       (17.8% )
Change in valuation allowance     (220,000 )     6.4%       31,000       (1.1% )
Provision for income taxes and effective income tax rate   $ (244,000 )     7.1%     $ 550,000       (18.9% )

 

 

The tax effects of temporary differences that give rise to significant components of our deferred tax assets and liabilities consist of:

           
    March 31,  
    2026     2025  
Deferred tax assets:                
Net operating loss carryforwards   $ 24,171,000     $ 26,456,000  
Research and development tax credit carryforwards     1,696,000       1,749,000  
Stock-based compensation     987,000       879,000  
Reserves and accruals     638,000       618,000  
Other deferred tax assets     33,000       41,000  
Lease liability     21,000       10,000  
Gross deferred tax assets     27,546,000       29,753,000  
                 
Less valuation allowance     (26,551,000 )     (29,062,000 )
                 
Total deferred tax assets     995,000       691,000  
                 
Deferred tax liabilities:                
Fixed assets     (6,000 )     (6,000 )
Prepaid expenses     (84,000 )     (86,000 )
Right of use asset     (21,000 )     (10,000 )
Gross deferred tax liabilities     (111,000 )     (102,000 )
Net deferred tax assets   $ 884,000     $ 589,000  

 

As of March 31, 2026, we have net operating loss (“NOL”) carryforwards for federal, state and foreign income tax purposes of approximately $95,500,000, $42,500,000 and $1,800,000, 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 began to expire in 2024, if not utilized. State NOLs will begin to expire in the year 2026, if not utilized. Foreign NOLs will carry forward for 10 years.

 

As of March 31, 2026, we had federal and California research and development credit carryforward of approximately $905,000 and $790,000, respectively. The federal research and development credits began to expire in 2024 while the California research and development credits have no expiration date.

 

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 in the U.S. 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, 2026. Generally, the Company is subject to audit for the years ended March 31, 2025, 2024 and 2023. 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.

 

On July 4, 2025, the One Big Beautiful Bill Act as enacted, making permanent and expanding several corporate tax provisions originally introduced under the Tax Cuts and Jobs Act of 2017. The key changes include, immediate expensing of research and experimentation costs, restoration of EBITDA-based interest deductibility under §163(j), and extension of 100% bonus depreciation through 2030. The Company has evaluated the impact of these provisions and determined there will be no impact on near-term cash flows.

 

During the year ended March 31, 2026 and 2025, the Company made income tax prepayments in the amount of $1,120,000 and $19,000, respectively.