Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Mar. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Pre-tax loss reflected in the consolidated statements of operations for the years ended March 31, 2022, 2021 and 2020 is as follows (in thousands):
Year Ended March 31,
2022 2021 2020
U.S. $ (31,489) $ (36,648) $ (6,318)
Foreign 550  1,428  1,911 
Total $ (30,939) $ (35,220) $ (4,407)

Income tax provision consists of the following (in thousands):
Year Ended March 31,
2022 2021 2020
Current tax expense
   Federal $ —  $ (76) $ (115)
   State 477  339  106 
   Foreign 1,381  747  1,271 
      Total current tax expense 1,858  1,010  1,262 
Deferred tax expense
   Federal 9  (577) — 
   State 22  9  33 
   Foreign (548) (203) (492)
      Total deferred tax expense (benefit) (517) (771) (459)
Income tax provision $ 1,341  $ 239  $ 803 

The income tax provision differs from the amount computed by applying the federal statutory rate of 21% to loss before income taxes as follows (in thousands):
For the year ended March 31,
2022 2021 2020
Expense at the federal statutory rate $ (6,493) $ (7,396) $ (925)
Expiration of attributes 18,345  9,862  11,679 
Valuation allowance (4,899) 5,444  (2,639)
Permanent items 1,941  1,295  914 
Equity compensation 195  345  280 
Debt forgiveness (2,100) —  — 
Foreign taxes 1,761  (129) 1,612 
State income taxes (402) (969) (20)
Research and development credits (2,094) (1,829) (1,566)
Uncertain tax positions (6,349) (6,695) (8,654)
Other 1,436  311  122 
Income tax provision $ 1,341  $ 239  $ 803 
Significant components of deferred tax assets and liabilities are as follows (in thousands):
As of March 31,
2022 2021
Deferred tax assets
Loss carryforwards $ 59,636  $ 76,153 
Deferred revenue 29,485  21,839 
Tax credits 16,085  16,574 
Disallowed interest 12,296  12,132 
Other accruals and reserves not currently deductible for tax purposes 4,450  8,192 
Capitalized research and development 16,289  7,811 
Lease obligations 2,514  1,747 
Inventory 1,701  1,374 
Accrued warranty expense 447  569 
Acquired intangibles 853  454 
Gross deferred tax assets 143,756  146,845 
Valuation allowance (138,365) (143,263)
   Total deferred tax assets, net of valuation allowance $ 5,391  $ 3,582 
Deferred tax liabilities
Depreciation $ (1,921) $ (1,440)
Lease assets (2,439) (1,670)
Other (1,048) (1,013)
   Total deferred tax liabilities $ (5,408) $ (4,123)
           Net deferred tax assets (liabilities) $ (17) $ (541)

The valuation allowance decreased by $4.9 million during the year ended March 31, 2022, increased by $5.4 million during the year ended March 31, 2021, and decreased by $2.5 million during the year ended March 31, 2020.

A reconciliation of the gross unrecognized tax benefits is as follows (in thousands):
For the year ended March 31,
2022 2021 2020
Beginning Balance $ 101,119  $ 107,282  $ 116,032 
Increase in balances related to tax positions in current period 2,785  2,560  2,275 
Increase in balances related to tax positions in prior period 4,881  —  144 
Increase in balances related to acquisitions —  511  — 
Decrease in balances related to tax positions in prior period (1,020) (522) (4)
Decrease in balances due to lapse in statute of limitations (8,162) (8,712) (11,165)
Ending balance $ 99,603  $ 101,119  $ 107,282 

During fiscal 2022, excluding interest and penalties, there was a $1.5 million change in the Company's unrecognized tax benefits. Including interest and penalties, the total unrecognized tax benefit at March 31, 2022 was $100.8 million, of which $92.2 million, if recognized, would favorably affect the effective tax rate. At March 31, 2022, accrued interest and penalties totaled $1.2 million. The Company's practice is to recognize interest and penalties related to income tax matters in the income tax provision in the consolidated statements of operations. As of March 31, 2022, $93.5 million of unrecognized tax benefits were recorded as a contra deferred tax asset in other long-term assets in the consolidated balance sheets and $7.3 million (including interest and penalties) were included in other long-term liabilities in the consolidated balance sheets.
The Company files its tax returns as prescribed by the laws of the jurisdictions in which it operates. The Company's U.S. tax returns have been audited for years through 2002 by the Internal Revenue Service. In other major jurisdictions, the Company is generally open to examination for the most recent three to five fiscal years. During the next 12 months, it is reasonably possible that approximately $11.0 million of tax benefits, inclusive of interest and penalties, that are currently unrecognized could be recognized as a result of the expiration of applicable statutes of limitations.
As of March 31, 2022, the Company had federal net operating loss and tax credit carryforwards of approximately $258.1 million and $52.5 million, respectively. The net operating loss and tax credit carryforwards expire in varying amounts beginning in fiscal year 2022 if not previously utilized, and $12.8 million are indefinite-lived net operating loss carryforwards. These carryforwards include $11.1 million of acquired net operating losses and $8.0 million of acquired credits, the utilization of which is subject to various limitations due to prior changes in ownership.
Certain changes in stock ownership could result in a limitation on the amount of both acquired and self-generated net operating loss and tax credit carryovers that can be utilized each year. If the Company has previously undergone, or should it experience in the future, such a change in stock ownership, it could severely limit the usage of these carryover tax attributes against future income, resulting in additional tax charges.
Due to its history of net losses and the difficulty in predicting future results, Quantum believes that it cannot rely on projections of future taxable income to realize the deferred tax assets. Accordingly, it has established a full valuation allowance against its U.S. and certain foreign net deferred tax assets. Significant management judgement is required in determining the Company's deferred tax assets and liabilities and valuation allowances for purposes of assessing its ability to realize any future benefit from its net deferred tax assets. The Company intends to maintain this valuation allowance until sufficient positive evidence exists to support the reversal of the valuation allowance. The Company's income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, its valuation allowance.