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Income Taxes | 12 Months Ended
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Mar. 31, 2024
Income Taxes [Abstract] |
Income Taxes | 16. Income Taxes Domestic and foreign components of (loss) income before income taxes are as follows:
|  | Years Ended March 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
United States |  | $ | (29,661,000 | ) |  | $ | (14,470,000 | ) |  | $ | 6,021,000 |
Foreign |  |  | 16,593,000 |  |  |  | 11,361,000 |  |  |  | 7,128,000 |
(Loss) income before income taxes |  |  | (13,068,000 | ) |  |  | (3,109,000 | ) |  |  | 13,149,000 |
The income tax expense is as follows:
|  | Years Ended March 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
Current tax expense |  |  |  |  |  |  |  |  |
Federal |  | $ | 1,696,000 |  |  | $ | 2,483,000 |  |  | $ | 8,572,000 |
State |  |  | 363,000 |  |  |  | 396,000 |  |  |  | 1,478,000 |
Foreign |  |  | 4,553,000 |  |  |  | 3,426,000 |  |  |  | 3,180,000 |
Total current tax expense |  |  | 6,612,000 |  |  |  | 6,305,000 |  |  |  | 13,230,000 |
Deferred tax expense (benefit) |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 25,320,000 |  |  |  | (5,037,000 | ) |  |  | (6,411,000 | )
State |  |  | 4,249,000 |  |  |  | (705,000 | ) |  |  | (659,000 | )
Foreign |  |  | (5,000 | ) |  |  | 535,000 |  |  |  | (372,000 | )
Total deferred tax expense (benefit) |  |  | 29,564,000 |  |  |  | (5,207,000 | ) |  |  | (7,442,000 | )
Total income tax expense |  | $ | 36,176,000 |  |  | $ | 1,098,000 |  |  | $ | 5,788,000 |
Deferred income taxes consist of the following:
|  | March 31, 2024 |  |  | March 31, 2023 |
Assets |  |  |  |  |  |
Allowance for bad debts |  | $ | 44,000 |  |  | $ | 78,000 |
Customer allowances earned |  |  | 4,706,000 |  |  |  | 4,760,000 |
Allowance for stock adjustment returns |  |  | 3,620,000 |  |  |  | 2,391,000 |
Inventory adjustments |  |  | 7,419,000 |  |  |  | 7,817,000 |
Intangibles, net |  |  | 852,000 |  |  |  | 809,000 |
Stock options |  |  | 2,723,000 |  |  |  | 2,770,000 |
Operating lease liabilities |  |  | 21,251,000 |  |  |  | 23,408,000 |
Estimate for returns |  |  | 29,942,000 |  |  |  | 26,670,000 |
Accrued compensation |  |  | 2,600,000 |  |  |  | 2,718,000 |
Net operating losses |  |  | 4,670,000 |  |  |  | 5,351,000 |
Tax credits |  |  | 2,054,000 |  |  |  | 2,012,000 |
Capitalized research credits |  |  | 1,158,000 |  |  |  | - |
Plant and equipment, net |  |  | 1,010,000 |  |  |  | - |
Other |  |  | 6,588,000 |  |  |  | 5,046,000 |
Total deferred tax assets |  | $ | 88,637,000 |  |  | $ | 83,830,000 |
Liabilities |  |  |  |  |  |  |  |
Plant and equipment, net |  |  | - |  |  |  | (79,000 | )
Contract assets |  |  | (10,265,000 | ) |  |  | (12,357,000 | )
Operating lease assets |  |  | (23,845,000 | ) |  |  | (25,004,000 | )
Other |  |  | (6,663,000 | ) |  |  | (6,864,000 | )
Total deferred tax liabilities |  | $ | (40,773,000 | ) |  | $ | (44,304,000 | )
Less valuation allowance |  | $ | (45,399,000 | ) |  | $ | (7,619,000 | )
Total |  | $ | 2,465,000 |  |  | $ | 31,907,000 |
As of March 31, 2024, before tax effect, the Company had federal net operating loss carryforwards of $1,474,000 related to its January 2019 acquisition, state net operating loss carryforwards of $401,000 and foreign net operating loss carryforwards of $16,403,000. The federal net operating loss carryforwards expire beginning in fiscal year 2034, the state net operating loss carryforwards expire beginning in fiscal year 2033, and the foreign net operating loss carryforwards expire beginning in fiscal year 2038. As of March 31, 2024, the Company also had non-US tax credit carryforwards of $2,054,000, which will expire beginning in fiscal year 2034. A full valuation allowance was established on the federal and foreign net operating loss and tax credits carryforward as the Company believes it is more likely than not these tax attributes would not be realizable in the future. The net increase in the valuation allowance was $37,780,000 during the year ended March 31, 2024. One of the Company’s Canadian subsidiaries currently has a valuation allowance of approximately $4,500,000. During the year ended March 31, 2024, this Canadian subsidiary experienced improved performance, which could result in a material reduction in the valuation allowance on its deferred tax assets in the next 12 months if this trend continues. Realization of deferred tax assets is dependent upon the Company’s ability to generate sufficient future taxable income. Significant judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against the Company’s net deferred tax assets. The Company makes these estimates and judgments about its future taxable income that are based on assumptions that are consistent with the Company’s future plans. A valuation allowance is established when the Company believes it is not more likely than not all or some deferred tax assets will be realized. In evaluating the Company’s ability to recover deferred tax assets within the jurisdiction in which they arise, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, past financial performance, and tax planning strategies. Deferred tax assets arising primarily as a result of non-US net operating loss carry-forwards and non-US research and development credits in connection with the Company’s Canadian operations have been offset completely by a valuation allowance due to the uncertainty of their utilization in future periods. During the year ended March 31, 2024, the Company recorded a discrete non-cash valuation allowance of $38,009,000 on U.S. federal and various state deferred tax assets that is considered not more likely than not to be realized under U.S. GAAP. For the years ended March 31, 2024, 2023, and 2022, the primary components of the Company’s income tax expense were (i) federal income taxes, (ii) state income taxes, (iii) foreign income taxed at rates that are different from the federal statutory rate, (iv) impact of the non-deductible executive compensation under Internal Revenue Code Section 162(m), and (v) change in valuation allowance. In addition, for the year ended March 31, 2024, the Company’s income tax expense included the impact of an excess tax benefit from share-based compensation. The difference between the income tax expense at the federal statutory rate and the Company’s effective tax rate is as follows:
|  | Years Ended March 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
Statutory federal income tax rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
State income tax rate, net of federal benefit |  |  | 10.8 | % |  |  | 3.5 | % |  |  | 4.1 | %
Excess tax benefit from share-based compensation |  |  | (4.8 | )% |  |  | - | % |  |  | - | %
Foreign income taxed at different rates |  |  | (9.8 | )% |  |  | (28.7 | )% |  |  | 4.9 | %
Non-deductible executive compensation |  |  | (2.6 | )% |  |  | (9.0 | )% |  |  | 7.2 | %
Change in valuation allowance |  |  | (289.1 | )% |  |  | (25.8 | )% |  |  | 5.0 | %
Uncertain tax positions |  |  | 0.9 | % |  |  | (1.0 | )% |  |  | 6.1 | %
Research and development credit |  |  | 0.7 | % |  |  | 2.7 | % |  |  | (0.9 | )%
Net operating loss carryback |  |  | - | % |  |  | - | % |  |  | (0.4 | )%
Other |  |  | (3.9 | )% |  |  | 2.0 | % |  |  | (3.0 | )%
|  |  | (276.8 | )% |  |  | (35.3 | )% |  |  | 44.0 | %
The Company and its subsidiaries file income tax returns for the U.S. federal, various state, and foreign jurisdictions with varying statutes of limitations. At March 31, 2024, the Company is under examination by the State of California for fiscal years ended March 31, 2020, 2021, and 2022 and remains subject to examination from the fiscal years ended March 31, 2020 and forward. The Company believes no significant changes in the unrecognized tax benefits will occur within the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|  | Years Ended March 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
Balance at beginning of period |  | $ | 1,964,000 |  |  | $ | 1,975,000 |  |  | $ | 1,104,000 |
Additions based on tax positions related to the current year |  |  | 15,000 |  |  |  | 53,000 |  |  |  | 352,000 |
Additions for tax positions of prior year |  |  | 15,000 |  |  |  | - |  |  |  | 581,000 |
Reductions for tax positions of prior year |  |  | (210,000 | ) |  |  | (64,000 | ) |  |  | (62,000 | )
Balance at end of period |  | $ | 1,784,000 |  |  | $ | 1,964,000 |  |  | $ | 1,975,000 |
At March 31, 2024, 2023 and 2022, there are $1,475,000, $1,616,000, and $1,632,000, respectively, of unrecognized tax benefits that if recognized would affect the annual effective tax rate before the impact of changes in the valuation allowance. The Company recognizes interest and penalties related to unrecognized tax benefits as part of income tax expense. During the years ended March 31, 2024, 2023, and 2022, the Company recognized interest and penalties of approximately $21,000, $59,000, and $112,000, respectively. The Company had approximately $250,000 and $229,000 for the payment of interest and penalties accrued at March 31, 2024 and 2023, respectively. The Company intends to indefinitely reinvest its undistributed earnings from foreign subsidiaries in foreign operations, with the exception of earnings from its Singapore subsidiary. No incremental U.S. federal tax or withholding taxes have been provided for these earnings.

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