6. INCOME TAXES

12 Months Ended

Mar. 31, 2022

INCOME TAXES

NOTE 6 - INCOME TAXES

NOTE 6—INCOME TAXES

Loss before income taxes and the provision for income taxes consists of the following:

	Year Ended March 31,
	2022		2021		2020
	(In thousands)
Loss before income taxes:
U.S.	$	(11,132)	$	(10,775)	$	(8,574)
Foreign		(5,281)		(10,395)		(1,516)
	$	(16,413)	$	(21,170)	$	(10,090)
Current income tax expense (benefit):
U.S. federal	$	—	$	(379)	$	(39)
Foreign		(48)		714		274
State		1		(1)		1
		(47)		334		236
Deferred income tax expense (benefit):
U.S. federal		2		1		12
State		—		—		(1)
		2		1		11
Provision (benefit) for income taxes	$	(45)	$	335	$	247

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,
	2022		2021		2020
	(In thousands)
U.S. Federal taxes at statutory rate	$	(3,447)	$	(4,446)	$	(2,120)
State taxes, net of federal benefit		1		(1)		—
Settlement of uncertain tax positions		—		524		—
Stock-based compensation		605		482		(58)
Tax credits		(497)		(509)		(494)
Foreign tax rate differential		1,277		2,419		593
Tax exempt interest		—		(5)		(16)
Tax remeasurement		(220)		—		—
Non-deductible expenses and other		4		(2)		38
		(2,277)		(1,538)		(2,057)
Valuation allowance		2,232		1,873		2,304
	$	(45)	$	335	$	247

Deferred tax assets and deferred tax liabilities consist of the following:

	March 31,
	2022		2021
	(In thousands)
Deferred tax assets:
Tax credits	$	7,861	$	6,975
Net operating losses		5,207		2,980
Stock-based compensation		1,171		1,180
Property and equipment		771		807
Other reserves and accruals		1,384		1,267
Total deferred tax assets		16,394		13,209
Less valuation allowance		(16,183)		(13,017)
Deferred tax assets, net		211		192
Deferred tax liabilities:
Leased assets		(244)		(186)
Unrecognized gains		22		(15)
Total deferred tax liabilities		(222)		(201)
Net deferred tax liability	$	(11)	$	(9)

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, 2022 and 2021 was $0 for both years, of which the timing of the resolution is uncertain. As of March 31, 2022 and 2021, $3.5 million and $3.3 million, respectively, of unrecognized tax benefits had been recorded as a reduction to net deferred tax assets. Due to historical losses in the U.S., the Company has a full valuation allowance on its U.S. federal and state deferred tax assets. As of March 31, 2022 and 2021, the Company’s net deferred tax assets of $16.2 and $13.0 million, respectively, were subject to a valuation allowance of $16.2 and $13.0 million, respectively. Management continues to evaluate the realizability of deferred tax assets and the related valuation allowance. 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,
	2022		2021		2020
	(In thousands)
Unrecognized tax benefits, beginning of period	$	3,273	$	3,321	$	3,102
Additions based on tax positions related to current year		229		233		394
Settlements during the period		—		(203)		—
Reductions based on tax positions related to prior years		—		(78)		(158)
Lapses during the current year applicable to statutes of limitations		—		—		(17)
Unrecognized tax benefits, end of period	$	3,502	$	3,273	$	3,321

There is no unrecognized tax benefit balance as of March 31, 2022 that would affect the Company’s effective tax rate if recognized. At March 31, 2022, due to the Company’s valuation allowance in the United States, there was no net income tax effect related to Global intangible low-taxed income (“GILTI”) in the Company’s fiscal year ended March 31, 2022.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted. The CARES Act, along with the Consolidated Appropriations Act (“CAA”) and the American Rescue Plan Act of 2021 (“ARPA”) is an emergency economic stimulus package passed in response to the COVID-19 global pandemic that includes aid to small businesses in the form of loans and grants and other efforts to stabilize the U.S. economy. Also included in the CARES Act are numerous income tax provisions including changes to the net operating loss rule. 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 has not filed for funding related to the CARES Act, CAA and ARPA.

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 $17.8 and $21.0 million, respectively, at March 31, 2022. 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 $4.1 million and $4.7 million respectively, at March 31, 2022. The Company's federal tax credit carryforwards expire beginning in 2033. The Company's state tax credit carryforwards have no expiration date. Utilization of the Company’s net operating loss carryforwards and research tax credit carryforwards may be subject to substantial annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. The annual limitation could result in the expiration of the net operating loss carryforwards and research tax credit carryforwards before utilization. The Company has not performed an analysis to determine if a limitation applies and whether the limitation would cause the net operating losses to expire unutilized.

As of March 31, 2022 and 2021, the Company maintained a valuation allowance of $16.2 million and $13.0 million, respectively. The net valuation allowance increased by $3.2 million and $3.6 million in fiscal 2022 and 2021, respectively. As of March 31, 2022 and 2021, the Company’s net deferred tax liabilities were $11,000 and $9,000, respectively. The deferred tax assets consist primarily of the federal and state net operating losses. Realization of deferred tax assets is dependent upon future taxable income, if any, the amount and timing of which are uncertain. In assessing the realizability of deferred tax assets, management determined that it is more likely than

not that no deferred tax assets will be realized. Therefore, the Company has provided a full valuation allowance against these deferred tax assets.

The Company is subject to taxation in the United States and various state and foreign jurisdictions. Fiscal years 2013 through 2022 remain open to examination by the federal tax authorities and fiscal years 2012 through 2022 remain open to examination by the state of California. Fiscal years 2020, 2021 and 2022 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.