NOTE H – INCOME TAXES

The Company files its income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. Deferred income tax assets and liabilities are computed and recognized for those differences that have future tax consequences and will result in net taxable or deductible amounts in future periods. Deferred tax expense or benefit is the result of changes in the net asset or liability for deferred taxes. The deferred tax liabilities and assets for the Company result primarily from net operating loss and tax credit carry forwards, reserves and accrued liabilities.

For the fiscal years ended March 31, 2015 and 2014, the Company generated net operating loss carryovers of approximately $2,568,000 and $1,040,000, respectively, that the Company may carry-forward to offset future taxable income. The Company generated no foreign tax credits for the years ended March 31, 2015 and 2014.

At March 31, 2015 and 2014, the Company has total net operating loss carry forwards of approximately $6,370,000 and $3,687,000, respectively, which expire in various amounts at dates from 2015 through 2031. There are certain limitations to the use and application of these deferred tax assets. Management reviews net operating loss carry forwards and income tax credit carry forwards to evaluate if those amounts are recoverable. Based on historical results and projections of future operations and taxable income, the Company established a full valuation allowance on its deferred tax asset to recognize that net operating losses and tax credits expiring in future fiscal years will likely not be realized.

The components of income tax expense (benefit) from continuing operations for the Company are as follows:

	2015		2014
Current (benefit) expense
U.S. Federal	$	(25,000)	$	-
U.S. State		-		-

Deferred (benefit) expense		-		2,310,835
Total income tax (benefit) expense	$	(25,000)	$	2,310,835

The reconciliation between the statutory federal income tax provision and the actual effective tax provision for continuing operations is as follows:

	Years ended March 31,
	2015		2014
Federal tax (benefit) at statutory rate (34%) before loss carry-forward	$	(1,193,309)	$	(749,936)
Non-repatriated loss (earnings) of Hong Kong Joint Venture		346,832		218,452
Permanent differences		32,713		26,281
State income tax expense – net of federal effect		(81,738)		(50,658)
True-up adjustments and allowance		870,502		2,866,696
Income tax (benefit) expense	$	(25,000)	$	2,310,835

The individual components of the Company’s deferred tax assets are as follows:

	March 31,
	2015		2014
Deferred tax assets:
Financial statement accruals and allowances	$	57,965	$	63,321
Inventory uniform capitalization		28,250		45,885
Net operating loss carry forward		2,389,602		1,433,185
Foreign tax credit carry forward		1,190,390		1,516,111
Research and development tax credit carry forward		61,701		61,701
Allowance for unrealizable deferred tax assets		(3,727,908)		(3,120,203)
Net deferred tax asset	$	-	$	-

The Company has adopted ASC 740-10 Accounting for Income Taxes and recorded a liability for an uncertain income tax position, tax penalties and any imputed interest thereon. The amount, recorded as a long-term obligation, is $0 at March 31, 2015 and is $25,000 at March 31, 2014.