NOTE 9 - INCOME TAXES

We account for income taxes under the provisions of FASB ASC 740, Income Taxes. The following table reflects loss from continuing operations by location, and the provision and benefit for income taxes and the effective tax rate for fiscal:

	2013		2012
U.S. operations	$(1,796,789	)	$(3,554,842	)
Foreign operations	(142,817	)	(37,482	)
Loss from operations before tax	(1,939,606	)	(3,592,324	)
Income tax expense (benefit) provision	472,331		(1,469,218	)
Net Loss	$(2,411,937	)	$(2,123,106	)
Effective tax rate	(24	)%	41	%

The provision (benefit) for income taxes consists of the following as of March 31:

	2013			2012
Current
Federal	$	(332,580	)	$	(1,072,138	)
State	12,987			—
Foreign	96,162			127,093
Total Current	(223,431		)	(945,045		)
Deferred
Federal	606,757			35,423
State	(47,458		)	(423,133		)
Foreign	136,463			(136,463		)
Total Deferred	695,762			(524,173		)
Income tax expense (benefit) provision	$	472,331		$	(1,469,218	)

A reconciliation between income taxes computed at the federal statutory rate for fiscal years ended March 31, 2013 and 2012 to the effective income tax rates applied to the net loss reported in the Consolidated Statements of Operations and Other Comprehensive Loss is presented as follows:

	2013		2012
Federal statutory income tax rate	34	%	34	%
State income tax, net of federal benefit	1	%	13	%
Change in valuation allowance	(53	)%	(2	)%
Stock based compensation	(6	)%	(3	)%
Other	—	%	(1	)%
Effective income tax rate	(24	)%	41	%

The following table summarizes the components of deferred income tax assets and liabilities are as follows:

	2013			2012
Current Deferred Tax Assets:
Compensation	$	177,703		$	311,003
Allowance for doubtful accounts	9,824			9,865
Loss on uncompleted contracts	106,123			350,058
Net operating loss carry-forward	30,145			63,040
Interest rate swaps	152,792			148,120
Other liabilities not currently deductible	341,726			198,896
Valuation allowance	(562,548		)	(60,774		)
Total Current Deferred Tax Asset	$	255,765		$	1,020,208
Noncurrent Deferred Tax Asset (Liability):
Share based compensation awards	323,734			302,201
Net operating loss carry-forward	1,662,848			956,921
Valuation allowance	(1,062,741		)	(371,807		)
Total Noncurrent Deferred Tax Assets	$	923,841		$	887,315
Accelerated depreciation	(1,179,606		)	(769,310		)
Net Noncurrent Deferred Tax Asset (Liability)	$	(255,765	)	$	118,005
Net Deferred Tax Asset	$	—		$	1,138,213

In assessing the recoverability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. We have 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 an increase in deferred tax assets if they become realizable.

The following table summarizes carryforwards of net operating losses and tax credits as of March 31, 2013:

	Amount		Begins to Expire:
Federal net operating losses	$	2,274,497	2025
Federal alternative minimum tax credits	$	76,185	Indefinite
State net operating losses	$	13,735,586	2032

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

The following table provides a reconciliation of our unrecognized tax benefits as of March 31, 2013:

Unrecognized tax benefits at March 31, 2012	$	16,532
Increases based on tax positions related to 2013	—
Increases based on tax positions prior to 2013	674
Decreases from expiration of statute of limitations	—
Unrecognized tax benefits at March 31, 2013	$	17,206

We recognized $674 in interest expense related to uncertain tax positions in the tax provision (benefit) on the Consolidated Statements of Operations and Other Comprehensive Income (Loss). We have not accrued any penalties with respect to uncertain tax positions.

We file income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. Our foreign subsidiary files separate income tax returns in the foreign jurisdiction in which it is located. Tax years 2009 and forward remain open for examination. We recognize interest and penalties accrued related to income tax liabilities in selling, general and administrative expense in its Consolidated Statements of Operations.