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Note 14 - Income Taxes
 12 Months Ended
Mar. 31, 2025
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

14. Income Taxes

 

(Loss) income before income taxes for the fiscal years ended March 31, 2025, and 2024 are provided in the table as follows (in thousands):

 

  

Fiscal years ended March 31,

 
  

2025

  

2024

 

Income/(Loss) before income tax expense:

        

U.S.

 $1,882  $(11,503)

Foreign

  484   701 

Total

 $2,366  $(10,802)

 

The components of income tax expense (benefit) consist of the following (in thousands):

 

  

Fiscal years ended March 31,

 
  

2025

  

2024

 

Current

        

Federal

 $305  $150 

State

  222   — 

Foreign

  110   94 

Total current

  637   244 
         

Deferred

        

Federal

  (4,259)  56 

State

  (13)  — 

Foreign

  (32)  9 

Total deferred

  (4,304)  65 
         

Income tax expense (benefit)

 $(3,667) $309 

   

The reconciliation between the statutory federal income tax rate and the Company’s effective income tax rate is shown below.

 

  

Fiscal years ended March 31,

 
  

2025

  

2024

 

Statutory federal income tax rate

  (21)%  (21)%

State income taxes, net of federal benefit

  (35)  (7)

Foreign income tax rate differential

  (2)  (2)

Stock options

  (54)  — 

Research and development tax credit

  —   (4)

Mark to market adjustment on contingent consideration

  59   (10)

Nondeductible expenses

  12   — 

True-up of NOLs

  10   (58)

Withholding Tax

  16   — 

162(m)

  43   — 

Other

  4   (4)

Valuation allowance

  (231)  60 

Effective income tax rate

  155%  3%

 

The following is a summary of the principal components of the Company’s deferred tax assets and liabilities (in thousands):

 

  

March 31, 2025

  

March 31, 2024

 

Deferred tax assets:

        

Net operating loss carryforwards

 $150,703  $155,714 

Research and development and other tax credit carryforwards

  12,605   12,790 

Capitalized research and development costs

  5,787   3,514 

Accruals and reserves

  8,148   6,522 

Fixed assets and intangible assets

  398   639 

Other

  2,459   1,665 

Gross deferred tax assets

  180,100   180,844 

Valuation allowance

  (171,674)  (177,112)

Total deferred tax assets

  8,426   3,732 
         

Deferred tax liabilities:

        

Amortization

  (7,127)  (1,492)

Other

  (1,716)  (1,421)

Total deferred tax liabilities

  (8,843)  (2,913)

Net deferred tax assets (liabilities)

 $(417) $819 

 

Under the Tax Cuts and Jobs Act of 2017, taxpayers are required to capitalize and amortize expenses related for research and experimental as classified under Section 174 beginning in 2022. Amortization recovery for such costs are five years for domestic expenditures and fifteen for foreign expenditures. As of  March 31, 2025, the Company had approximately $31.9 million of research and experimental expenses that had been capitalized under Section 174 with a remaining basis of $24.4 million.

 

The Company has provided a full valuation allowance against its net deferred income tax assets in the U.S., Romania and Poland since it is more likely than not that its deferred tax assets will not be realizable. After consideration of all the available evidence, both positive and negative, the Company has determined that a $171.7 million valuation allowance at  March 31, 2025 is necessary to reduce the deferred tax assets to the amount that will more likely than not be realized which is a $5.4 million decrease from the $177.1 million valuation allowance as of March 31, 2024.

 

At March 31, 2025, the Company had aggregate net operating loss carryforwards in the U.S. for federal and state income tax purposes of approximately $655.7 million and $185.6 million, respectively, which expire in the years ending March 31, 2026 through 2040. For U.S. federal tax purpose, approximately $103.1 million of federal net operating losses have an indefinite carryforward period. Included in the U.S. net operating loss are $3.5 million of acquired losses from Power Quality Systems, Inc. and $0.3 million of acquired losses from Infinia Technology Corporation. Research and development and other tax credit carryforwards amounting to approximately $10.6 million and $2.5 million are available to offset federal and state income taxes, respectively, and will expire in the years ending 2026 through 2041.

 

As of March 31, 2025, AMSC Romania has aggregate net operating loss carryforwards of approximately $0.4 million, which will begin to expire at March 31, 2028 and NWL Poland has aggregate net operating loss carryforwards of approximately $0.4 million, which will begin to expire at March 31, 2030.  

 

Section 382 of the U.S. Internal Revenue Code of 1986, as amended (the “IRC”), provides limits on the extent to which a corporation that has undergone an ownership change (as defined) can utilize any net operating loss ("NOL") and general business tax credit carryforwards it may have. The Company updated its study in fiscal 2024 to determine whether Section 382 could limit the use of its carryforwards in this manner. After completing this study, the Company has concluded that the limitation will not have a material impact on its ability to utilize its NOL carryforwards.  If there were material ownership changes subsequent to the study, such changes could limit the Company's ability to utilize its NOL carryforwards.

 

The total amount of undistributed foreign earnings available to be repatriated at  March 31, 2025 was $3.1 million resulting in the recording of a $0.4 million deferred tax liability for foreign withholding taxes.

 

The Company has not recorded a deferred tax asset for the temporary difference associated with the excess of the tax greater than the book basis in its Romanian and Poland subsidiaries as the future tax benefit is not expected to reverse in the foreseeable future.

 

Accounting for income taxes requires a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if, based on the technical merits, it is more likely than not that the position will be sustained upon audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company reevaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Any changes in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision. The Company did not identify any uncertain tax positions at March 31, 2025. The Company did not have any gross unrecognized tax benefits at  March 31, 2025 or 2024.

 

There were no reversals of uncertain tax positions in the fiscal years ended  March 31, 2025 and 2024.

 

The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes. Any unrecognized tax benefits, if recognized, would favorably affect its effective tax rate in any future period. The Company does not expect that the amounts of unrecognized benefits will change significantly within the next twelve months.

 

The Company conducts business globally and, as a result, its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. Major tax jurisdictions include the U.S. and Austria. All U.S. income tax filings for fiscal years ended March 31, 1997 through 2024 remain open and subject to examination.

 

All fiscal years from the fiscal year ended March 31, 2023 through 2025 remain open and subject to examination in Austria. Tax filings in Romania for the fiscal years ended March 31, 2020 through 2025 remain open and subject to examination. Tax filings in Poland for tax years 2021 through March 31, 2025 remain open and subject to examination.