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Income Taxes | 12 Months Ended
--- | ---
Mar. 31, 2025
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows (in thousands):
| March 31,
| 2025 |  | 2024
Deferred tax assets: |  |  |
Accrued sales tax liability | $ | 5,101 |  |  | $ | 5,126 |
Other accrued expenses | 200 |  |  | 225 |
Deferred stock compensation | 425 |  |  | 680 |
Deferred revenue | — |  |  | 31 |
Bad debt and inventory reserves | 227 |  |  | 440 |
Capitalized research and development costs | 3,201 |  |  | 317 |
Lease liabilities | 250 |  |  | 375 |
Net operating loss carryforward | 3,431 |  |  | 3,001 |
Total deferred tax assets | 12,835 |  |  | 10,195 |
Deferred tax liabilities: |  |  |
Tax accounting method change | (349) |  |  | (541) |
Intangible assets | (1,921) |  |  | (2,627) |
Property and equipment | (3,181) |  |  | (1,041) |
Right of use assets | (242) |  |  | (376) |
Total deferred tax liabilities | (5,693) |  |  | (4,585) |
Valuation allowance | (7,405) |  |  | (624) |
Total net deferred tax (liability) asset | $ | (263) |  |  | $ | 4,986 |
As of March 31, 2025, the Company had $13.6 million of federal net operating loss carryforwards which begin to expire in fiscal 2026. The Company also had $11.1 million in state net operating loss carryforwards which begin to expire in fiscal 2026. In fiscal 2024 the Company acquired PetCareRx, a loss corporation. The tax attributes acquired are subject to Internal Revenue Code Section 382 which limits the utilization annually. Outlined below are the tax attributes acquired and the balances remaining as of March 31, 2025 and March 31, 2024 (in thousands).
PetCareRx Tax Attributes Acquired |  | Total |  | Sec. 382 limited utilization |  | Attributes for which a deferred tax asset is recorded | Expiration
Federal net operating losses - limited carryover |  | $ | 85,454 |  |  | $ | 83,300 |  |  | $ | 2,154 |  | Beginning in FY 2024
Federal net operating losses - unlimited carryover |  | $ | 10,501 |  |  | $ | — |  |  | $ | 10,501 |  | None
Disallowed business interest expense carryover |  | $ | 1,855 |  |  | $ | — |  |  | $ | 1,855 |  | None
State net operating losses |  | $ | 11,040 |  |  | $ | 2,066 |  |  | $ | 8,974 |  | Beginning in FY 2026
Tax Attributes as of March 31, 2024 |  | Total |  | Sec. 382 limited utilization |  | Attributes for which a deferred tax asset is recorded | Expiration
Federal net operating losses - limited carryover |  | $ | 84,114 |  |  | $ | 83,300 |  |  | $ | 814 |  | Beginning in FY 2025
Federal net operating losses - unlimited carryover |  | $ | 10,501 |  |  | $ | — |  |  | $ | 10,501 |  | None
Disallowed business interest expense carryover |  | $ | — |  |  | $ | — |  |  | $ | — |  | None
State net operating losses |  | $ | 11,040 |  |  | $ | 2,066 |  |  | $ | 8,974 |  | Beginning in FY 2026
Tax Attributes as of March 31, 2025 |  | Total |  | Sec. 382 limited utilization |  | Attributes for which a deferred tax asset is recorded | Expiration
Federal net operating losses - limited carryover |  | $ | 77,052 |  |  | $ | 76,238 |  |  | $ | 814 |  | Beginning in FY 2026
Federal net operating losses - unlimited carryover |  | $ | 12,739 |  |  | $ | — |  |  | $ | 12,739 |  | None
Disallowed business interest expense carryover |  | $ | — |  |  | $ | — |  |  | $ | — |  | None
State net operating losses |  | $ | 11,884 |  |  | $ | 832 |  |  | $ | 11,052 |  | Beginning in FY 2026
The Company has evaluated the positive and negative evidence bearing upon the realizability of its net deferred tax assets, which are composed primarily of net operating losses and capitalized research and development costs. Management has considered the Company’s cumulative net losses in recent years and limited evidence of sustainable taxable income in future periods, and concluded that it is more likely than not that the Company will not recognize the benefits of deferred tax assets. As a result, a full valuation allowance has been established against the Company’s net deferred tax assets as of March 31, 2025. As of March 31, 2025, the Company recorded a deferred tax liability of $263 thousand, primarily attributable to acquired indefinite-lived intangibles with no corresponding tax basis. For accounting purposes, the intangible assets will not be amortized and subject to impairment review and testing. A portion of these deferred tax liabilities are not available as a source of income to support the realization of deferred tax assets because they are not expected to reverse in the same period as deferred tax assets. As a result, the Company has recorded a deferred tax liability for the portion of the liability that cannot be offset with indefinite lived deferred tax assets. Management reevaluates the positive and negative evidence at each reporting period. The valuation allowance increased by $6.8 million and $0.6 million during the fiscal years ended March 31, 2025 and 2024, respectively. Changes in the valuation allowance were as follows:
| Year Ended March 31,
| 2025 |  | 2024 |  | 2023
Valuation allowance at beginning of year | (624) |  |  | — |  | —
Increases recorded | (6,781) |  |  | (624) |  |  | —
Valuation allowance at end of year | $ | (7,405) |  |  | $ | (624) |  |  | —
The components of the income tax provision consist of the following (in thousands):
| Year Ended March 31,
| 2025 |  | 2024 |  | 2023
Current taxes |  |  |  |  |
Federal | $ | 343 |  |  | $ | 490 |  |  | $ | 2,622 |
State | 93 |  |  | 408 |  |  | 1,312 |
Total current income tax provision | 436 |  |  | 898 |  |  | 3,934 |
Deferred income tax provision (benefit) |  |  |  |  |
Federal | 4,448 |  |  | 412 |  |  | (453) |
State | 800 |  |  | (119) |  |  | (1,176) |
Total deferred taxes | 5,248 |  |  | 293 |  |  | (1,629) |
Total income tax provision | $ | 5,684 |  |  | $ | 1,191 |  |  | $ | 2,305 |
The reconciliation of income tax provision computed at the U.S. federal statutory tax rates to income tax expense is as follows (in thousands):
| Year Ended March 31,
| 2025 |  | 2024 |  | 2023
Income taxes at federal statutory rates | $ | (123) |  |  | $ | (1,317) |  |  | $ | 1,563 |
State income taxes, net of federal tax benefit | (264) |  |  | 304 |  |  | 107 |
Non-deductible executive compensation | (1,771) |  |  | 1,771 |  |  | — |
Other permanent differences | (56) |  |  | 105 |  |  | 340 |
Restricted stock shortfall adjustment | 373 |  |  | 281 |  |  | 171 |
Deferred tax adjustments | 369 |  |  | 47 |  |  | — |
Taxes payable adjustments | 363 |  |  | — |  |  | — |
Valuation allowance | 6,781 |  |  | — |  |  | — |
Other | 12 |  |  | — |  |  | 124 |
Total income tax provision | $ | 5,684 |  |  | $ | 1,191 |  |  | $ | 2,305 |
In fiscal 2025 the Company recorded income tax expense of $5.7 million which was primarily related to the increase in the Company's valuation allowance against its net deferred tax assets, partially offset with the benefit related to the cancellation of the former CEO’s performance stock units. In fiscal 2024, the Company recognized non-deductible executive stock compensation of approximately $1.8 million. This included adjusting the deferred tax assets by a cumulative $1.0 million to account for future limitations under Sec. 162(m). This limits deductions for compensation of covered executives to $1.0 million per individual. In fiscal 2023, the Company recognized a stock compensation shortfall charge of approximately $171 thousand, and recognized a one-time charge of approximately $124 thousand, related to a return to provision true up from the fiscal 2022 income tax provision. The differences between the effective income tax rate and the statutory U.S. federal income tax rate are as follows:
| Year Ended March 31,
| 2025 |  | 2024 |  | 2023
Federal rate on income before taxes | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State income taxes, net of federal tax benefit | 45.0 | % |  | (4.9) | % |  | 1.4 | %
Non-deductible executive compensation | 301.7 | % |  | (28.2) | % |  | — | %
Other permanent differences | 9.5 | % |  | (1.7) | % |  | 4.6 | %
Restricted stock shortfall adjustment | (63.5) | % |  | (4.4) | % |  | 2.3 | %
Deferred tax adjustments | (62.9) | % |  | (0.8) | % |  | — | %
Taxes payable adjustments | (61.9) | % |  | — | % |  | — | %
Valuation allowance | (1155.2) | % |  | — | % |  | — | %
Other | (2.0) | % |  | — | % |  | 1.7 | %
Total effective tax rate | (968.3) | % |  | (19.0) | % |  | 31.0 | %
The Company's effective tax rate of (968.3)% differs from the U.S. statutory rate primarily due to the increase of valuation allowance against its net deferred tax assets, partially offset with the benefit related to the cancellation of the former CEO’s performance stock units during the period ended March 31, 2025. The pre-tax loss in fiscal 2024 caused unfavorable items to decrease the rate instead of increasing it. The primary driver is related to the non-deductible executive compensation. The primary drivers for the increase in effective tax rate for the fiscal 2023 is due to the recognition of permanent differences related to one-time acquisition costs and a non-deductible portion of restricted stock compensation.

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