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6. INCOME TAXES | 12 Months Ended
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Mar. 31, 2021
INCOME TAXES |
NOTE 6 - INCOME TAXES | NOTE 6—INCOME TAXES Income (loss) before income taxes and the provision for income taxes consists of the following:
|  | Year Ended March 31, |
|  | 2021 |  | 2020 |  | 2019 |
|  | (In thousands) |
Income (loss) before income taxes: |  |  |  |  |  |  |  |  |  |
U.S. |  | $ | (10,775) |  | $ | (8,574) |  | $ | (5,487) |
Foreign |  |  | (10,395) |  |  | (1,516) |  |  | 5,755 |
|  | $ | (21,170) |  | $ | (10,090) |  | $ | 268 |
Current income tax expense (benefit): |  |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | (379) |  | $ | (39) |  | $ | (28) |
Foreign |  |  | 714 |  |  | 274 |  |  | 121 |
State |  |  | (1) |  |  | 1 |  |  | 1 |
|  |  | 334 |  |  | 236 |  |  | 94 |
Deferred income tax expense (benefit): |  |  |  |  |  |  |  |  |  |
U.S. federal |  |  | 1 |  |  | 12 |  |  | 13 |
State |  |  | — |  |  | (1) |  |  | (2) |
|  |  | 1 |  |  | 11 |  |  | 11 |
Provision for income taxes |  | $ | 335 |  | $ | 247 |  | $ | 105 |
The provision for income tax differs from the amount of income tax determined by applying the applicable U.S. statutory income tax rate to pre-tax loss as follows:
|  | Year Ended March 31, |
|  | 2021 |  | 2020 |  | 2019 |
|  | (In thousands) |
U.S. Federal taxes at statutory rate |  | $ | (4,446) |  | $ | (2,120) |  | $ | 56 |
State taxes, net of federal benefit |  |  | (1) |  |  | — |  |  | (2) |
Settlement of uncertain tax positions |  |  | 524 |  |  | — |  |  | — |
Stock-based compensation |  |  | 482 |  |  | (58) |  |  | (124) |
Tax credits |  |  | (509) |  |  | (494) |  |  | (536) |
Foreign tax rate differential |  |  | 2,419 |  |  | 593 |  |  | 117 |
Tax exempt interest |  |  | (5) |  |  | (16) |  |  | (4) |
Non-deductible expenses and other |  |  | (2) |  |  | 38 |  |  | 17 |
|  |  | (1,538) |  |  | (2,057) |  |  | (476) |
Valuation allowance |  |  | 1,873 |  |  | 2,304 |  |  | 581 |
|  | $ | 335 |  | $ | 247 |  | $ | 105 |
Deferred tax assets and deferred tax liabilities consist of the following:
|  | March 31, |
|  | 2021 |  | 2020 |
|  | (In thousands) |
Deferred tax assets: |  |  |  |  |  |  |
Tax credits |  | $ | 6,975 |  | $ | 5,512 |
Net operating losses |  |  | 2,980 |  |  | 1,245 |
Stock-based compensation |  |  | 1,180 |  |  | 950 |
Property and equipment |  |  | 807 |  |  | 731 |
Other reserves and accruals |  |  | 1,267 |  |  | 976 |
Total deferred tax assets |  |  | 13,209 |  |  | 9,414 |
Less valuation allowance |  |  | (13,017) |  |  | (9,389) |
Deferred tax assets, net |  |  | 192 |  |  | 25 |
Deferred tax liabilities: |  |  |  |  |  |  |
Leased assets |  |  | (186) |  |  | — |
Unrecognized gains |  |  | (15) |  |  | (32) |
Total deferred tax liabilities |  |  | (201) |  |  | (32) |
Net deferred tax liability |  | $ | (9) |  | $ | (7) |
The Company currently intends to indefinitely reinvest earnings in operations outside the United States. No provision has been made for state income taxes that might be payable upon remittance of such earnings, nor is it practicable to determine the amount of such potential liability. The long-term portion of the Company’s unrecognized tax benefits at March 31, 2021 and 2020 was $0 and $613,000, respectively, of which the timing of the resolution is uncertain. As of March 31, 2021 and 2020, $3.3 million and $2.7 million, respectively, of unrecognized tax benefits had been recorded as a reduction to net deferred tax assets. As of March 31, 2021, the Company’s net deferred tax assets of $13.0 million are subject to a valuation allowance of $13.0 million. It is possible, however, that some months or years may elapse before an uncertain position for which the Company has established a reserve is resolved. A reconciliation of unrecognized tax benefits is as follows:
|  | Year Ended March 31, |
|  | 2021 |  | 2020 |  | 2019 |
|  | (In thousands) |
Unrecognized tax benefits, beginning of period |  | $ | 3,321 |  | $ | 3,102 |  | $ | 2,735 |
Additions based on tax positions related to current year |  |  | 233 |  |  | 394 |  |  | 371 |
Additions based on tax positions related to prior years |  |  | — |  |  | — |  |  | 13 |
Settlements during the period |  |  | (203) |  |  | — |  |  | — |
Reductions based on tax positions related to prior years |  |  | (78) |  |  | (158) |  |  | (17) |
Lapses during the current year applicable to statutes of limitations |  |  | — |  |  | (17) |  |  | — |
Unrecognized tax benefits, end of period |  | $ | 3,273 |  | $ | 3,321 |  | $ | 3,102 |
There is no unrecognized tax benefit balance as of March 31, 2021 that would affect the Company’s effective tax rate if recognized. Following the enactment of the “Tax Cuts and Jobs Act” ("H.R. 1") on December 22, 2017, the SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the H.R. 1 enactment date for companies to complete the accounting under ASC 740. H.R. 1 includes significant changes to the U.S. corporate income tax system, including a reduction in the corporate income tax rate from 35% to 21%, limitations on the deductibility of interest expense and executive compensation and the transition of U.S. international taxation from a worldwide tax system to a territorial tax system. We re-measured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. The re-measurement of our deferred tax balance of $1.1 million was offset by application of our valuation allowance. We calculated our best estimate of the impact of H.R. 1 in the fiscal 2018 year-end income tax provision, including the impact of the one-time transition tax, in accordance with our understanding of H.R. 1 and guidance available as of the date of this filing and recorded a tax expense of $367,000 in the year ended March 31, 2018 related to the transition tax associated with deemed repatriation of foreign earnings. Pursuant to Staff Accounting Bulletin No. 118, adjustments to the provisional amounts recorded by the Company that are identified within a subsequent measurement period of up to one year from the enactment date will be included as an adjustment to tax expense from continuing operations in the period the amounts are determined. During the year ended March 31, 2019, the Company completed its assessment of the impact of H.R. 1 and recorded an immaterial additional liability that is included in Income Taxes Payable in the Consolidated Balance Sheet as of March 31, 2019. At March 31, 2021, due to the Company’s valuation allowance in the United States, there was no net income tax effect related to GILTI in the Company’s fiscal year ended March 31, 2021. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted. The CARES Act is an approximate $2 trillion emergency economic stimulus package passed in response to the COVID-19 global pandemic. The CARES Act includes aid to small businesses in the form of loans and grants and other efforts to stabilize the U.S. economy. The CAA Act which was signed into law in 2020 extended some of the CARES Act programs along with adding new stimulus provisions. In March 2021, ARPA Act was also passed which further extended several CARES Act relief programs and other assistance. The Company has not filed, and does not intend to file, for funding related to the CARES Act, the CAA or ARPA due to its strong balance sheet and liquidity position with $59.7 million in cash and cash equivalents, short-term investments and long-term investments and no debt outstanding as of March 31, 2021. The Company currently has no plans to defer payroll taxes, to layoff or furlough employees or to modify leases and stock compensation plans. Also included in the CARES Act are numerous income tax provisions including changes to the net operating loss rules. During fiscal year 2021, the Company recorded a $378,000 tax benefit resulting from the carryback of the Company’s fiscal year 2020 federal net operating loss to fiscal year 2018 due to the five-year net operating loss carryback provision from the March 2020 CARES Act. The Company believes that the CAA and ARPA will not have a significant impact on it. Management believes that within the next twelve months the Company will have no material reduction in uncertain tax benefits, including interest and penalties, as a result of the lapse of statute of limitations. The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes in the Consolidated Statements of Operations. The Company's federal and state net operating loss carryforwards for income tax purposes are approximately $9.6 and $14.5 million, respectively, at March 31, 2021. The Company's state tax net operating loss carryforwards expire beginning in 2034. The Company's federal and state tax credit carryforwards for income tax purposes are approximately $3.7 million and $4.2 million respectively, at March 31, 2021. The Company's federal tax credit carryforwards expire beginning in 2033. The Company's state tax credit carryforwards have no expiration date. The Company is subject to taxation in the United States and various state and foreign jurisdictions. As of March 31, 2021, the Company maintained a valuation allowance of $13.0 million, which increased $3.6 million from the prior year, for deferred tax assets that are not expected to be utilized in future years. Fiscal years 2012 through 2021 remain open to examination by the federal tax authorities and fiscal years 2011 through 2021 remain open to examination by the state of California. Fiscal years 2020 and 2021 are subject to audit by the Israeli tax authorities. During the quarter ended June 30, 2020, the Company settled an income tax audit in Israel for fiscal years 2016 through 2019 that resulted in a discrete tax provision of $479,000 and a tax liability of $713,000 as of June 30, 2020 that was paid in the quarter ended September 30, 2020.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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