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 the applicable fiscal:

	2015			2014
U.S. operations	$	(3,635,596	)	$	(6,722,696	)
Foreign operations		(109,090	)		(558,168	)
Loss from operations before tax		(3,744,686	)		(7,280,864	)
Income tax (benefit) expense provision		(160,505	)		(185,473	)
Net Loss	$	(3,584,181	)	$	(7,095,391	)

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

Current	2015			2014
Federal	$	(121,811	)	$	28,450
State		(38,694	)		702
Foreign		--			(214,625	)
Total Current		(160,505	)		(185,473	)
Deferred
Federal		--			--
State		--			--
Foreign		--			--
Total Deferred		--			--
Income tax benefit provision	$	(160,505	)	$	(185,473	)

Reconciliation between income taxes computed at the federal statutory rate for fiscal years ended March 31, 2015 and 2014 to the effective income tax rates applied to the net loss reported in the Consolidated Statements of Operations and Other Comprehensive Loss:

	2015		2014
Federal statutory income tax rate	34	%		34	%
State income tax, net of federal benefit	1	%		--	%
Change in valuation allowance	(32)	%		(32)	%
Stock based compensation	(2)	%		(1)	%
Other	3	%		2	%
Effective income tax rate	4	%		3	%

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

Current Deferred Tax Assets:	2015			2014
Compensation	$	152,265		$	32,965
Allowance for doubtful accounts		9,591			9,866
Loss on uncompleted contracts		958,682			1,272,070
Net operating loss carryforward		--			30,145
Foreign currency translation adjustment		5,455			95,479
Other liabilities not currently deductible		306,479			310,089
Valuation allowance		(605,775	)		(759,518	)
Total Current Deferred Tax Asset	$	826,697		$	991,096
Noncurrent Deferred Tax Asset (Liability):
Share based compensation awards		391,039			369,880
Net operating loss carryforward		5,013,024			3,315,221
Valuation allowance		(5,367,054	)		(3,647,070	)
Total Noncurrent Deferred Tax Assets	$	37,009		$	38,031
Accelerated depreciation		(863,706	)		(1,029,127	)
Net Noncurrent Deferred Tax Asset (Liability)	$	(826,697	)	$	(991,096	)
Net Deferred Tax Asset	$	--		$	--

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, 2015:

	Amount		Begins to Expire:
Federal net operating losses	$	9,579,845		2025
Federal alternative minimum tax credits	$	76,185	Indefinite
State net operating losses	$	26,866,174		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, 2015:

Unrecognized tax benefits at March 31, 2014	$	17,206
Increases based on tax positions related to 2015		--
Increases based on tax positions prior to 2015		357
Decreases from expiration of statute of limitations		8,465
Unrecognized tax benefits at March 31, 2015	$	9,098

In fiscal 2015 we recognized $357 of interest expense related to uncertain tax positions in the Consolidated Statements of Operations and Comprehensive 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 China, the foreign jurisdiction in which it is located. Tax years 2010 and forward remain open for examination. We recognize interest and penalties accrued related to income tax liabilities in selling, general and administrative expense in our Consolidated Statements of Operations and Comprehensive Loss.