SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Jun. 30, 2011

SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, WCMC and Ranor.  A variable interest entity (“VIE”), WM Realty was included in the fiscal 2011 financial statements.  WM Realty no longer has ongoing transactional involvement with the Company, and the entity has substantially liquidated its assets following the December 20, 2010 real estate sale to the Company.  Accordingly, we do not consolidate WM Realty in periods subsequent to March 31, 2011.  Intercompany transactions and balances have been eliminated in consolidation.

The accompanying consolidated balance sheet as of June 30, 2011, the consolidated statements of operations for the three-month periods ended June 30, 2011 and 2010 and the consolidated statements of cash flows for the three months ended June 30, 2011 and 2010 are unaudited, but in the opinion of management, include all adjustments that are necessary for a fair presentation of the Company’s financial statements for interim periods in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).  All adjustments are of a normal, recurring nature, except as otherwise disclosed.  The consolidated balance sheet as of March 31, 2011 was derived from audited financial statements.  Certain amounts in the consolidated financial statements have been reclassified between line items for comparative purposes.

The Notes to Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for Quarterly Reports on Form 10-Q.  Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.  These notes should be read in conjunction with the notes to consolidated financial statements of the Company in Item 8 of the Company’s Annual Report on Form 10-K for the year ended March 31, 2011.

Use of Estimates in the Preparation of Financial Statements

In preparing financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period.  Actual results could differ from those estimates.

Cash and cash equivalents

Holdings of highly liquid investments with original maturities of three months or less, when purchased, are considered to be cash equivalents.  The deposits are maintained in a large regional bank and the amount of federally insured cash deposits was $250,000 as of June 30, 2011 and March 31, 2011.  At June 30, 2011 and March 31, 2011, the Company had $207,093 and $350,357, respectively, on deposit in a large national Bank in China subject to PRC banking regulations.  

Accounts receivable

Trade accounts receivable are stated at the amount the Company expects to collect.  The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.  Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms.  If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required.  Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance.  Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.  Current earnings are also charged with an allowance for sales returns based on historical experience. There was no bad debt expense recorded for the three month periods ended June 30, 2011 and 2010.

Derivative Financial Instruments

The Company is exposed to various risks such as fluctuating interest rates, foreign exchange rates and increasing commodity prices.  To manage these market risks, we may periodically enter into derivative financial instruments such as interest rate swaps, options and foreign exchange contracts for periods consistent with and for notional amounts equal to or less than the related underlying exposures.  We do not purchase or hold any derivative financial instruments for speculation or trading purposes.  All derivatives are recorded on the balance sheet at fair value (see Note 7 to our Consolidated Financial Statements for information related to interest rate swaps).

Convertible Preferred Stock and Warrants

The Company has determined that the convertible preferred shares meet all conditions for classification as equity instruments.  The Company had a sufficient number of authorized shares and there is no required cash payment or net cash settlement requirement.  The holders of the Series A Convertible Preferred Stock have no right senior to the common stockholders other than the liquidation preference in the event of liquidation of the Company.  The certificate of designation relating to the Series A Convertible Preferred Stock does not require the Company to issue shares that are registered pursuant to the Securities Act of 1933, as amended.

Selling, General, and Administrative 

Selling expenses include business travel and advertising costs.  Advertising costs are expensed as incurred.  General and administrative expenses include items for Company’s administrative functions and include costs for items such as compensation, office supplies, insurance, telephone, payroll services, professional fees, and fees paid to the Board of Directors.

Share Based Compensation

Stock-based compensation represents the cost related to stock-based awards granted to employees and directors.  The Company measures stock-based compensation cost at grant date, based on the estimated fair value of the award and recognizes the cost as expense on a straight-line basis (net of estimated forfeitures) over the employee requisite service period.  The Company estimates the fair value of stock options using the Black-Scholes valuation model.

Earnings per Share of Common Stock

Basic net income per common share is calculated by dividing net income or loss by the weighted average number of shares outstanding during the period.  Diluted net income per common share is calculated by dividing net income or loss by diluted weighted-average shares.  Diluted weighted-average shares include weighted-average shares outstanding plus the dilutive effect of potential common stock issuable with respect to convertible preferred stock and share-based compensation using the treasury stock method.

Revenue Recognition and Costs Incurred

Revenue is recognized when it is both realized and earned.  Revenue and costs are recognized on the units of delivery method.  This method recognizes as revenue the contract price of units of the product delivered during each period and the costs allocable to the delivered units as the cost of earned revenue.  As units are delivered, title to and the risk of loss on those units transfer to the customer, whose acceptance of the items indicates that they meet the contractual specifications.  When the sales agreements provide for separate billing of engineering services, the revenues for those services are recognized when the services are rendered.  Costs allocable to undelivered units are reported in the balance sheet as costs incurred on uncompleted contracts.  Amounts in excess of agreed upon contract price for customer directed changes, constructive changes, customer delays or other causes of additional contract costs are recognized in contract value if it is probable that a claim for such amounts will result in additional revenue and the amounts can be reasonably estimated.  Revisions in cost and profit estimates are reflected in the period in which the facts requiring the revision become known and are estimable.  The unit of delivery method requires the existence of a contract to provide the persuasive evidence of an arrangement and determinable seller’s price, delivery of the product and reasonable collection prospects.  The Company has written agreements with its customers that specify contract prices and delivery terms.  The Company recognizes revenues only once all revenue recognition criteria have been met.

Adjustments to cost estimates are made periodically, and losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined and are reflected as reductions of the carrying value of the costs incurred on uncompleted contracts.  Costs incurred on uncompleted contracts consist of labor, overhead, and materials.  Work in process is stated at the lower of cost or market and reflect accrued losses, if required, on uncompleted contracts.

We also enter into contracts to build molds and dies used for the production of finished products.  The molds and dies are used to build custom designed finished units for the same customer.  These contracts represent a separate earnings process that provides value to the customer on a standalone basis and are built to specifications under a separate purchase order.  The revenue recognized is based on the selling price.

Income Taxes

The Company uses the asset and liability method of financial accounting and reporting for income taxes required by FASB ASC 740, Income Taxes.  Under FASB ASC 740, deferred income taxes reflect the tax impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes.  Temporary differences giving rise to deferred income taxes consist primarily of the reporting of losses on uncompleted contracts, the excess of depreciation for tax purposes over the amount for financial reporting purposes, share based compensation, and accrued expenses accounted for differently for financial reporting and tax purposes, and net operating loss carry-forwards.  Interest and penalties are included in general and administrative expenses.

Recent Accounting Pronouncements

Recently Issued Accounting Standards Adopted

On April 1, 2011, we adopted ASU No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements – a consensus of the FASB Emerging Issues Task Force, which provides guidance for identifying separate deliverables in revenue-generating transactions where multiple deliverables exist.  This guidance is applied prospectively to new arrangements and its implementation did not have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

Recently Issued Accounting Standards Not Yet Adopted

In June 2011, the FASB issued ASU No. 2011-05 Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“Update”).  The Update is intended to increase the prominence of other comprehensive income in financial statements.  The main provisions of this Update provide that an entity that reports items of other comprehensive income has the option to present comprehensive income in either one or two consecutive financial statements:  1) a single statement presenting the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income, and 2) in a two-statement approach, presenting the components of net income and total net income in the first statement.  That statement must be immediately followed by a financial statement that presents the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income.  The option in current U.S. GAAP that permits the presentation of other comprehensive income in the statement of changes in equity has been eliminated.  The amendments in this Update should be applied retrospectively for fiscal periods beginning after December 15, 2011.  The Company has evaluated ASU 2010-05 and does not expect its adoption will have a material impact on the Company’s consolidated results of operations, financial position or cash flows.