Income Taxes

12 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 10 - INCOME TAXES

The Company files separate tax returns in the United States and in Macau. The Macau Subsidiary has received approval from the Macau government to operate its business as a Macau Offshore Company (MOC), and is exempt from the Macau income tax. For the fiscal years ended March 31, 2020 and 2019, the Macau Subsidiary recorded no tax provision.

The U.S. Federal net operating loss carryforward is subject to an IRS Section 382 limitation. As of March 31, 2020 and 2019, the Company had net deferred tax assets of approximately $1.3 million and $0.8 million, respectively. For the fiscal year ended March 31, 2020 we determined our effective tax rate to be approximately 18.1% and we recorded a tax benefit of approximately $0.6 million which was net of a valuation reserve of approximately $0.1 million for deferred tax assets that will most likely expire prior to the Company’s ability to realize them. For the fiscal year ended March 31, 2019 we determined our effective tax rate to be approximately 20.1% and we recorded a tax provision of approximately $0.2 million. The Company also recorded an income tax receivable of approximately $0.1 million due to the availability of net operating loss carrybacks and alternative minimum tax credits that were realized for the year ended March 31, 2020. The income tax receivable was included as a component of prepaid expenses and other current assets on the accompanying consolidated balance sheet as of March 31, 2020.

The income tax(benefit) provision for federal, foreign, and state income taxes in the consolidated statements of income consisted of the following components for 2020 and 2019:

	2020			2019
Income tax benefit:
Current:
Federal	$	(104,437	)	$	(19,289	)
State		-			-
Total current Federal and State tax benefit	$	(104,437	)	$	(19,289	)
Deferred:
Federal	$	(521,776	)	$	159,881
State	$	(15,601	)	$	18,888
Total Deferred Federal and State	$	(537,377	)	$	178,769
Total income tax (benefit) provision	$	(641,814	)	$	159,480

The United States and foreign components of income (loss) before income taxes are as follows:

	2020			2019
United States	$	(3,765,272	)	$	607,652
Foreign		266,458			183,375
	$	(3,498,814	)	$	791,027

The actual tax provision differs from the “expected” tax expense for the years ended March 31, 2020 and 2019 (computed by applying the U.S. Federal Corporate tax rate of 21 percent to income before taxes) as follows:

	2020			2019
Expected tax (benefit) expense	$	(734,751	)	$	166,506
State income taxes, net of Federal income tax (benefit) provision		(175,245	)		13,478
Permanent differences		9,977			8,282
Deemed dividend from foreign subsidiary		-			20,813
Tax rate differential on foreign earnings		-			(20,813	)
Change in valuation allowance		87,842			-
Effect of IRC §382 on NOL		100,966			-
Tax rate differential on NOL carryback		16,263			-
Correction of state rate		83,803			-
Other		(30,669	)		(28,786	)
Actual tax (benefit) provision	$	(641,814	)	$	159,480

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows:

	2020			2019
NOL Federal Carryforward	$	312,430		$	236,476
State NOL Carryforward		157,967			272,758
AMT credit carryforward		-			19,289
General business credit		14,196			-
Inventory differences		303,529			176,967
Stock option compensation expense		128,220			109,464
Stock warrants		-			23,018
Allowance for doubtful accounts		143,748			11,599
Insurance contingency		220,425			-
Reserve for estimated returns		112,537			67,439
Accrued vacation		42,928			7,945
Business interest deduction		55,978			-
		1,491,958			924,955
Less: valuation allowance		(87,842	)		-
	$	1,404,116		$	924,955
Depreciable and amortizable assets		(82,512	)		(108,707	)
Prepaid expenses		(35,883	)		(57,882	)
Net deferred tax liability		(118,395	)		(166,589	)
Net deferred tax asset	$	1,285,721		$	758,366

The Company performed an analysis in accordance with the provisions of ASC 740, which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. The analysis performed to assess the realizability of the deferred tax assets included an evaluation of the pattern and timing of the reversals of temporary differences and the length of carryback and carryforward periods available under the applicable federal and state laws; and the amount and timing of future taxable income. At March 31, 2020, the Company evaluated the realizability of its deferred tax assets in accordance with GAAP and concluded that a $87,842 valuation allowance against deferred tax assets was necessary. The recognition of the remaining net deferred tax asset and corresponding tax benefit is based upon the Company’s conclusions regarding, among other considerations, the Company’s history of earnings and projected earnings for fiscal year 2021 and in the future.

At March 31, 2020, the Company has federal tax net operating loss carryforwards in the amount of approximately $1.7 million that begin to expire in the year 2025. $1.1 million of the net operating loss carryforward is subject to an IRS Section 382 limitation that limits the amount available to use beginning in Fiscal 2020 to approximately $0.15 million per year. In addition the Company has state tax net operating loss carryforwards of approximately $2.0 million that will begin to expire beginning in 2024.

The Company is no longer subject to income tax examinations for fiscal years before 2017.