v3.26.1
Income Taxes
 12 Months Ended
Mar. 31, 2026
Income Taxes [Abstract]  
Income Taxes
17. Income Taxes
 
Domestic and foreign components of income (loss) before income taxes are as follows:
 
Years Ended March 31,  
    2026     2025     2024  
Domestic and foreign components of (loss) income
              
United States
 $(7,708,000)   $(21,526,000)   $(29,661,000) 
Foreign
  27,977,000    5,839,000    16,593,000 
Income (loss) before income taxes
  20,269,000    (15,687,000)    (13,068,000) 
The income tax expense is as follows:
 
 
Years Ended March 31,  
    2026     2025     2024  
Current tax (benefit) expense
              
Federal
 $(181,000)   $1,177,000   $1,696,000 
State
  236,000    631,000    363,000 
Foreign
  7,272,000    3,780,000    4,553,000 
Total current tax expense
  7,327,000    5,588,000    6,612,000 
Deferred tax (benefit) expense
              
Federal
  (122,000)    (171,000)    25,320,000 
State
  173,000    (28,000)    4,249,000 
Foreign
  497,000    (1,606,000)    (5,000) 
Total deferred tax (benefit) expense
  548,000    (1,805,000)    29,564,000 
Total income tax expense
 $7,875,000   $3,783,000   $36,176,000 
 
Deferred income taxes consist of the following:
 
         
    March 31, 2026     March 31, 2025  
Assets
         
Allowance for bad debts
 $72,000   $48,000 
Customer allowances earned
  4,310,000    3,794,000 
Allowance for stock adjustment returns
  3,794,000    3,344,000 
Inventory adjustments
  7,925,000    8,497,000 
Intangibles, net
  722,000    729,000 
Stock options
  2,352,000    2,561,000 
Operating lease liabilities
  16,799,000    19,333,000 
Estimate for returns
  34,262,000    30,341,000 
Accrued compensation
  2,917,000    2,585,000 
Net operating losses
  3,883,000    3,426,000 
Tax credits
  1,858,000    2,857,000 
Capitalized research credits
  114,000    1,147,000 
Plant and equipment, net
  2,085,000    1,460,000 
Other
  5,996,000    4,639,000 
Total deferred tax assets
 $87,089,000   $84,761,000 
Liabilities
         
Contract assets
  (10,706,000)    (9,020,000) 
Operating lease assets
  (16,069,000)    (16,848,000) 
Other
  (2,035,000)    (2,453,000) 
Total deferred tax liabilities
 $(28,810,000)   $(28,321,000) 
Less: valuation allowance
 $(54,665,000)   $(52,233,000) 
Total deferred taxes
 $3,614,000   $4,207,000 
As of March 31, 2026, before tax effect, the Company had federal, state, and foreign net operating loss carryforwards. These net operating loss (“NOL”) carryforwards were generated in various tax years and have different expiration periods depending on the applicable laws at the time they were generated. As of March 31, 2026, the Company’s NOL carryforwards are as follows (i) $337,000 in federal NOL carryforwards, with limited carryforward, that were generated before January 1, 2018 and will expire beginning in fiscal year 2034, (ii) $1,442,000 in federal NOL carryforwards, with unlimited carryforward, that were generated after December 31, 2017 and can be carried forward indefinitely, subject to an annual limitation of 80% of taxable income, (iii) $123,000 in state NOL carryforwards, with limited carryforward, that were generated from states with various carryforward periods and will expire beginning in fiscal year 2032 with amounts and expiration periods varying by state, (iv) $50,000 in state NOL carryforwards, with unlimited carryforward, that were generated from states with indefinite carryforward, subject to specific annual limitations on utilization varying by state, and (v) $13,305,000 in Canadian NOL carryforwards, with limited carryforward, that can be carried forward for up to 20 years and expire beginning in fiscal year 2038. As of March 31, 2026, the Company also had non-US tax credit carryforwards of $1,687,000, which will expire beginning in fiscal year 2034.
 
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. The net increase in the valuation allowance was $2,432,000 during the year ended March 31, 2026. This net increase in the valuation allowance is primarily due to the increase in the Company’s U.S. federal and various state deferred tax assets and an increase in one of its Canadian subsidiary’s deferred tax assets resulting from current year activities. The Company will continue to monitor its position in future periods. Should the actual amount differ from the Company’s estimates, the amount of any valuation allowance could be impacted.
 
For the years ended March 31, 2026, 2025, and 2024, the primary components of the Company’s income tax expense were (i) federal income taxes, (ii) state income taxes, (iii) change in realizable deferred tax items, (iv) foreign income taxed at rates that are different from the federal statutory rate, (v) impact of the non-deductible executive compensation under Internal Revenue Code Section 162(m), and (vi) impact of an excess tax benefit from share-based compensation.
The difference between income tax expense at the federal statutory rate and the Company’s effective tax rate, as required under ASU 2023-09, is as follows:
 
             
 
Year Ended March 31,  
 
2026  
Statutory federal income tax rate
 $4,256,000     21.0 %
State and local income taxes, net of federal income tax effect (1)
  347,000     1.7 %
Foreign tax effects
           
Mexico
           
Tax rate differential
  1,505,000     7.4 %
Change in valuation allowance
 (696,000 )   (3.4 )%
Canada
           
Tax rate differential
 (235,000 )   (1.1 )%
Change in valuation allowance
  1,315,000     6.5 %
Other
  15,000     0.1 %
Effect of changes in tax laws or rates enacted in the current period
  -     - %
Effect of cross-border tax laws
  609,000     3.0 %
Tax credits
           
Research and development credit
 (256,000 )   (1.3 )%
Change in valuation allowance
  1,366,000     6.8 %
Nontaxable or nondeductible items
           
Non-deductible executive compensation
  524,000     2.6 %
Excess tax benefit from share-based compensation
 (374,000 )   (1.9 )%
Other
  90,000     0.4 %
Change in unrecognized tax benefits
 (405,000 )   (2.0 )%
Other adjustments
 (186,000 )   (0.9 )%
             
   $7,875,000     38.9 %
(1)
State taxes in California, Illinois, and Pennsylvania made up the majority (greater than 50%) of the tax effect in this category
 
The difference between the income tax expense at the federal statutory rate and the Company’s effective tax rate, prior to the adoption of ASU 2023-09, is as follows:
 
             
 
Years Ended March 31,  
 
2025 
2024 
Statutory federal income tax rate
  21 %   21 %
State income tax rate, net of federal benefit
  1.5 %   10.8 %
Excess tax benefit from share-based compensation
  (1.3 )%   (4.8 )%
Foreign income taxed at different rates
  (3.8 )%   (9.8 )%
Non-deductible debt costs
  (1.2 )%   - %
Non-deductible executive compensation
  (2.5 )%   (2.6 )%
Change in valuation allowance
  (40.1 )%   (289.1 )%
Uncertain tax positions
  2.6 %   0.9 %
Research and development credit
  0.6 %   0.7 %
Other
  (0.9 )%   (3.9 )%
    (24.1 )%   (276.8 )%
Cash paid for income taxes by jurisdiction, net of refunds received, as required under ASU 2023-09, is as follows:
 
     Year Ended March 31,  
     2026  
Cash paid for income taxes:
    
Federal
$1,810,000 
State
  174,000 
Foreign
    
Mexico
  5,824,000 
Other jurisdictions
  272,000 
Total cash paid for income taxes
 $8,080,000 
 
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, 2026, the Company remains subject to examination for fiscal years ended March 31, 2023 and forward. At March 31, 2026, the Company is under examination in the U.S. by the Internal Revenue Service for fiscal year 2024. The Company is not under examination in any another jurisdiction. 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,  
    2026     2025     2024  
Balance at beginning of period
 $1,362,000   $1,784,000   $1,964,000 
Additions based on tax positions related to the current year
  12,000    53,000    15,000 
Additions for tax positions of prior year
  -    43,000    15,000 
Reductions for tax positions of prior year
  (461,000)    (518,000)    (210,000) 
Balance at end of period
 $913,000   $1,362,000   $1,784,000 
 
At March 31, 2026, 2025 and 2024, there are $725,000, $1,112,000, and $1,475,000, respectively, of unrecognized tax benefits that if recognized would affect the annual effective tax rate.
 
The Company recognizes interest and penalties related to unrecognized tax benefits as part of income tax expense. During the years ended March 31, 2026, 2025, and 2024, the Company recognized interest and penalties of approximately $44,000, $49,000, and $21,000, respectively. The Company had approximately $184,000 and $203,000 for the payment of interest and penalties accrued at March 31, 2026 and 2025, 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.