INCOME TAXES

3 Months Ended

Jun. 30, 2012

INCOME TAXES

INCOME TAXES

NOTE 9 — INCOME TAXES

For the three months ended June 30, 2012 and 2011, the Company recorded an income tax benefit of $267,257 and income tax expense of $256,046, respectively. At the end of each interim period, the Company makes an estimate of its annual U.S. and PRC expected effective tax rates and applies these rates to its respective year-to-date taxable income or loss.

In assessing the recoverability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The Company has determined that it is more likely than not that certain future tax benefits may not be realized.  Accordingly, a valuation allowance has been recorded against deferred tax assets that are unlikely to be realized.  Realization of the remaining deferred tax assets will depend on the generation of sufficient taxable income in the appropriate jurisdiction, the reversal of deferred tax liabilities, tax planning strategies and other factors prior to the expiration date of the carryforwards.  A change in the estimates used to make this determination could require a reduction in deferred tax assets if they are no longer considered realizable.

As of June 30, 2012, the Company’s federal net operating loss carry-forward was approximately $1.5 million. If not utilized, the federal net operating loss carry-forward will begin to expire in 2025. Under Section 382 of the Internal Revenue Code, we are substantially limited with regard to the amount of certain net operating loss carry forward that we may use in any given year in the future due to prior changes in our ownership.

The Internal Revenue Code provides for a limitation on the annual use of net operating loss carryforwards following certain ownership changes that could limit the Company’s ability to utilize these carryforwards on a yearly basis. The Company experienced an ownership change in connection with the acquisition of Ranor. Accordingly, the Company’s ability to utilize the aforementioned carryforwards is limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. Therefore, the Company may not be able to take full advantage of these carryforwards for Federal or state income tax purposes.

The Company files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. The Company’s foreign subsidiary files separate income tax returns in the foreign jurisdiction in which it is located.  Tax years 2008 and forward remain open for examination.  The Company recognizes interest and penalties accrued related to income tax liabilities in selling, general and administrative expense in its Consolidated Statements of Operations and Comprehensive Income (Loss).