Income Taxes

12 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

9. Income Taxes

For the year ended March 31, income (loss) before income taxes consisted of the following:

(In thousands)		2022		2021			2020
Income (loss) before income taxes
United States	$	1,598	$	(26,272	)	$	(36,373	)
Foreign		4,913		5,063			2,507
Total income (loss) before income taxes	$	6,511	$	(21,209	)	$	(33,866	)

For the year ended March 31, income tax expense (benefit) consisted of the following:

(In thousands)		2022			2021			2020
Income tax expense (benefit)
Current:
Federal	$	62		$	9		$	59
State and local		21			30			21
Foreign		853			731			463
Deferred:
Federal		12			12			11
State and local		7			32			7
Foreign		(922	)		(1,022	)		(360	)
Total income tax expense (benefit)	$	33		$	(208	)	$	201

The following table presents the principal components of the difference between the effective tax rate and the U.S. federal statutory income tax rate for the years ended March 31:

(In thousands)	2022			2021			2020
Income tax expense (benefit) at the US Federal statutory rate	$	1,368		$	(4,454	)	$	(7,112	)
Benefit for state taxes		(65	)		(803	)		(856	)
Impact of foreign operations		(819	)		(841	)		(514	)
Indefinite life assets		19			43			19
Change in valuation allowance		(2,623	)		7,271			8,406
Change in liability for unrecognized tax benefits		25			26			22
Share-based compensation		(2,018	)		(2,232	)		(312	)
Global intangible low-taxed income		971			985			460
Deferred adjustments		(260	)		(478	)		—
Provision to return		3,438			278			(35	)
Other		(3	)		(3	)		123
Total income tax expense (benefit)	$	33		$	(208	)	$	201

We have elected to account for global intangible low-taxed income (GILTI) inclusions in the period in which they are incurred.

Our tax provision includes a provision for income taxes in certain foreign jurisdictions where subsidiaries are profitable, but only a minimal benefit is reflected related to U.S. and certain foreign tax losses due to the uncertainty of the ultimate realization of future benefits from these losses. The fiscal 2022 tax provision results primarily from foreign tax benefit. The fiscal 2022 tax provision differs from the statutory rate primarily due to adjustments to deferred tax assets and the recording of net operating losses in a number of foreign jurisdictions offset by current year expense in other foreign jurisdictions.

The fiscal 2021 tax provision results primarily from foreign tax benefit. The fiscal 2021 tax provision differs from the statutory rate primarily due to adjustments to deferred tax assets and the recording of net operating losses in a number of foreign jurisdictions offset by current year expense in other foreign jurisdictions.

Deferred tax assets and liabilities as of March 31, are as follows:

(In thousands)	2022			2021
Deferred tax assets:
Accrued liabilities	$	7,574		$	9,141
Allowance for expected credit losses and doubtful accounts		83			279
Federal losses and credit carryforwards		50,612			51,856
Foreign losses and credit carryforwards		2,793			2,103
State losses and credit carryforwards		11,179			11,642
Deferred revenue		193			464
Property and equipment and software amortization		416			171
Operating lease liabilities		1,489			2,694
Goodwill and other intangible assets		607			1,889
Other		163			90
		75,109			80,329
Less: valuation allowance		(69,515	)		(74,631	)
Total		5,594			5,698
Deferred tax liabilities:
Operating lease right-of-use assets		(1,269	)		(2,312	)
Goodwill and other intangible assets		(2,575	)		(2,514	)
Other		(15	)		7
Total		(3,859	)		(4,819	)
Total deferred tax assets, net	$	1,735		$	879

At March 31, 2022, we had $196.3 million of federal net operating loss carryforwards that expire, if unused, in fiscal years 2031 to 2038, and $42.8 million of federal net operating loss carryforwards that can be carried forward indefinitely. Our Hong Kong, Malaysia, Singapore and Australia subsidiaries have $0.4 million, $0.1 million, $0.2 million and $0.1 million of net operating loss carryforwards, respectively. The losses for Hong Kong, Malaysia, Singapore and Australia can be carried forward indefinitely. Our

India subsidiary operates in a “Special Economic Zone (“SEZ”)”. One of the benefits associated with the SEZ is that the India subsidiary is not subject to regular India income taxes during its first 5 years of operations which includes fiscal 2018 through fiscal 2022. The India subsidiary is then subject to 50% of regular India income taxes during the second five years of operations which includes fiscal 2023 through fiscal 2027. The aggregate value of the benefit of the SEZ during the current fiscal year is $2.6 million as of March 31, 2022. The Company has paid minimum alternative taxes during the period of regular tax relief resulting in a credit of $2.0 million as of March 31, 2022.

At March 31, 2022 we also had $166.8 million of state net operating loss carryforwards that expire, if unused, in fiscal years 2023 through 2041.

We recorded valuation allowances related to certain deferred income tax assets due to the uncertainty of the ultimate realization of the future benefits from those assets. At March 31, 2022, the total valuation allowance against deferred tax assets of $69.5 million was comprised of $68.6 million for federal and state deferred tax assets, and $0.9 million associated with deferred tax assets in Hong Kong, Malaysia, Singapore, the Philippines and Australia. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some, or all, of the deferred tax assets will not be realized. We have recorded a valuation allowance offsetting substantially all of our deferred tax assets. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax assets, we will need to generate future taxable income before the expiration of the deferred tax assets governed by the tax code. Because of our losses in recent periods, management believes that it is more-likely-than-not that we will not realize the benefits of these deductible differences. The amount of the valuation allowance, however, could be reduced in the near term. The exact timing will be based on the level of profitability that we are able to achieve and our visibility into future results. Our recorded tax rate may increase in subsequent periods following a valuation release. Any valuation allowance release will not affect the amount of cash paid for income taxes.

The undistributed earnings of our foreign subsidiaries are not subject to U.S. federal and state income taxes unless such earnings are distributed in the form of dividends or otherwise to the extent of current and accumulated earnings and profits. The undistributed earnings of foreign subsidiaries are permanently reinvested and totaled $17.1 million and $8.4 million as of March 31, 2022 and 2021, respectively. We made the determination of permanent reinvestment on the basis of sufficient evidence that demonstrates we will invest the undistributed earnings overseas indefinitely for use in working capital, as well as foreign acquisitions and expansion. The determination of the amount of the unrecognized deferred U.S. income tax liability related to the undistributed earnings is not practicable.

We recorded a liability for uncertain tax positions. The aggregate changes in the balance of our uncertain tax positions were as follows for the years ended March 31:

(In thousands)	2022		2021		2020
Balance at April 1	$	575	$	575	$	580
Reductions relating to lapse in statute		—		—		(5	)
Balance at March 31	$	575	$	575	$	575

As of March 31, 2022, we had a liability of $0.6 million related to uncertain tax positions, the recognition of which would affect our effective income tax rate.

Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next 12 months an immaterial reduction in unrecognized tax benefits may occur as a result of the expiration of various statutes of limitations. We are consistently subject to tax audits; due to the nature of examinations in multiple jurisdictions, changes could occur in the amount of gross unrecognized tax benefits during the next 12 months which cannot be estimated at this time.

We recognize interest accrued on any uncertain tax positions as a component of income tax expense. Penalties are recognized as a component of general and administrative expenses. We recognized interest and penalty expense of less than $0.1 million for the years ended March 31, 2022, 2021 and 2020. As of March 31, 2022 and 2021, we had approximately $1.2 million and $1.0 million, respectively, of interest and penalties accrued in other non-current liabilities on our Consolidated Balance Sheets.

In the U.S. we file consolidated federal and state income tax returns where statutes of limitations generally range from three to five years. Although we have resolved examinations with the IRS through tax year ended March 31, 2010, U.S. federal tax years are open from 2006 forward due to attribute carryforwards. The statute of limitations is open from fiscal year 2015 forward in certain state

jurisdictions. We also file income tax returns in international jurisdictions where statutes of limitations generally range from three to seven years. Years beginning after 2011 are open for examination by certain foreign taxing authorities.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

The CARES Act provides, among other provisions, for the deferral of the employer-paid portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2022.