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INCOME TAXES | 12 Months Ended
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Mar. 31, 2020
INCOME TAXES |
INCOME TAXES | NOTE 5 - INCOME TAXES We account for income taxes under the provisions of FASB ASC 740, Income Taxes. The following table reflects income from continuing operations by location, and the provision for income taxes for the applicable fiscal years ended March 31:
|  | 2020 |  | 2019
U.S. operations |  | $ | (403,419) |  | $ | 1,390,485
Foreign operations |  |  | (11,191) |  |  | 133,548
(Loss) income before income taxes |  |  | (414,610) |  |  | 1,524,033
Income tax (benefit) expense |  |  | (73,041) |  |  | 423,357
Net (loss) income |  | $ | (341,569) |  | $ | 1,100,676
The income tax expense consists of the following as of March 31:
|  | 2020 |  | 2019
Current: |  |  |  |  |  |
Total Current |  | $ | — |  | $ | —
Deferred: |  |  |  |  |  |
Federal |  |  | (26,328) |  |  | 252,482
State |  |  | (46,713) |  |  | 170,875
Total Deferred |  | $ | (73,041) |  | $ | 423,357
Income tax (benefit) expense |  | $ | (73,041) |  | $ | 423,357
Our fiscal 2020 and 2019 taxes were measured at the new lower U.S. statutory income tax rate of 21%. For the year ended March 31, 2020, the Company's tax benefit was driven by operating losses and certain permanent differences. A reconciliation between income taxes computed at the U.S. federal statutory rate to the actual tax expense for income taxes reported in the Consolidated Statements of Operations and Comprehensive (Loss) Income follows for fiscal years ended March 31:
|  | 2020 |  | 2019 |
U.S. statutory income tax |  | $ | (87,068) |  | $ | 320,047 |
State income tax, net of federal benefit |  |  | (35,969) |  |  | 63,933 |
Stock based compensation |  |  | (17,587) |  |  | 30,497 |
Change in valuation allowance |  |  | 9,340 |  |  | (32,642) |
Global intangible income tax |  |  | 28,045 |  |  | — |
Other |  |  | 30,198 |  |  | 41,522 |
Income tax (benefit) expense |  | $ | (73,041) |  | $ | 423,357 |
Effective tax rate* |  |  | 17.6 | % |  | 27.8 | %
*Effective tax rate is calculated by dividing the income tax expense by income before income taxes. The following table summarizes the components of deferred income tax assets and liabilities at March 31:
|  | 2020 |  | 2019
Deferred Tax Assets: |  |  |  |  |  |
Compensation |  | $ | 341,900 |  | $ | 334,090
AMT tax credits |  |  | 76,186 |  |  | 60,841
Other items not currently deductible |  |  | 88,090 |  |  | 94,207
Stock based compensation awards |  |  | 213,854 |  |  | 224,975
Depreciation |  |  | 68,486 |  |  | —
Net operating loss carryforward |  |  | 3,704,185 |  |  | 3,814,321
Valuation allowance |  |  | (1,710,616) |  |  | (1,701,276)
Total Deferred Tax Assets |  | $ | 2,782,085 |  | $ | 2,827,158
Deferred Tax Liabilities: |  |  |  |  |  |
Contract accounting methods |  | $ | (666,605) |  | $ | (751,723)
Depreciation |  |  | — |  |  | (71,089)
Total Deferred Tax Liabilities |  | $ | (666,605) |  | $ | (822,812)
Net Deferred Tax Asset |  | $ | 2,115,480 |  | $ | 2,004,346
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 jurisdictions, 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 valuation allowance on deferred tax assets was approximately $1.7 million at March 31, 2020 and 2019. 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 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. The following table summarizes carryforwards of net operating losses as of March 31, 2020:
|  |  |  |  | Begins to
|  | Amount |  | Expire:
Federal net operating losses |  | $ | 7,501,833 |  | 2026
State net operating losses |  | $ | 27,392,814 |  | 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 in 2006. Accordingly, our ability to utilize certain carryforwards relating to 2006 and prior is limited. Our remaining pre‑2006 net operating losses total approximately $0.4 million. As such, at March 31, 2020, we have approximately $7.1 million of post‑2006 losses available for carryforward, without limitation. 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. 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 U.S. state jurisdictions. Our foreign subsidiary files separate income tax returns in China, the foreign jurisdiction in which it is located. Tax years 2017 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) Income.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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