NOTE 10 - INCOME TAXES

We account for income taxes under the provisions of FASB ASC 740, Income Taxes. The tax provision for interim periods is determined using the estimated annual effective consolidated tax rate, based on the current estimate of full-year earnings before taxes, adjusted for the impact of discrete quarterly items. The provision for income taxes was $287,635 and $9,453 and the effective tax rate was 40.4% and 2.1%, for the three months ended June 30, 2017 and 2016, respectively. For the three months ended June 30, 2016, the effective tax rate was 2.1% as a result of the utilization of net operating losses and the associated reduction in the valuation allowance which had been provided for this deferred tax asset. The 2016 tax provision was an accrual for the alternative minimum tax.

The valuation allowance on deferred tax assets at June 30, 2017 and March 31, 2017 was approximately $1.5 million. We believe that it is more likely than not that the benefit from certain state and foreign NOL carryforwards and other deferred tax assets will not be realized. In recognition of this risk, we continue to provide a valuation allowance on these items. In the event future taxable income is below management’s estimates or is generated in tax jurisdictions different than projected, the Company could be required to increase the valuation allowance for deferred tax assets. This would result in an increase in the Company’s effective tax rate.

We regularly assess the effects of various factors to determine the adequacy of our provision for income taxes. For example, our future effective tax rate would be affected if earnings were lower than anticipated in tax jurisdictions where we have lower statutory rates and higher than anticipated in tax jurisdictions where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof.