INCOME TAXES

12 Months Ended

Dec. 31, 2011

INCOME TAXES

INCOME TAXES

NOTE 4 INCOME TAXES

        The income tax expense for the years ended December 31, 2011 and 2010 consists of the following:

	2011			2010
Current taxes—Federal	$	273,000		$	128,000
Current taxes—State		(13,000	)		(41,000	)
Current taxes—Foreign		23,000			19,000
Deferred taxes—Federal		223,000			253,000
Deferred taxes—State		55,000			16,000
Income tax expense	$	561,000		$	375,000

        The statutory rate reconciliation for the years ended December 31, 2011 and 2010 is as follows:

	2011			2010
Statutory federal tax provision	$	595,000		$	298,000
State income taxes		52,000			34,000
Effect of foreign operations		(6,000	)		(5,000	)
Income tax credits		(66,000	)		(95,000	)
NOL carryback true up		4,000			106,000
Other, including benefit of income taxed at lower rates		(18,000	)		37,000
Income tax expense	$	561,000		$	375,000

        Income from operations before income taxes was derived from the following sources:

	2011		2010
Domestic	$	1,666,000	$	820,000
Foreign		85,000		62,000
Total	$	1,751,000	$	882,000

        Deferred tax assets (liabilities) at December 31, 2011 and 2010, consist of the following:

	2011			2010
Allowance for uncollectable accounts	$	45,000		$	31,000
Inventories reserve		408,000			383,000
Accrued vacation		352,000			308,000
Health insurance reserve		—			13,000
Non-compete amortization		390,000			397,000
Stock-based compensation		69,000			59,000
Other		393,000			425,000
Deferred tax assets		1,657,000			1,616,000
Prepaid expenses		(200,000	)		(211,000	)
Property and equipment		(923,000	)		(592,000	)
Deferred tax liabilities		(1,123,000	)		(803,000	)
Net deferred tax assets	$	534,000		$	813,000

        The net deferred taxes summarized above have been classified on the accompanying consolidated balance sheets as follows:

Net current deferred tax assets	$	805,000		$	594,000
Net non-current deferred tax assets (liabilities)		(271,000	)		219,000
Net deferred tax assets	$	534,000		$	813,000

        We have determined that it is more likely than not that our deferred tax assets will be realized, principally through anticipated taxable income in future tax years. As a result, we have determined that establishing a valuation allowance on our deferred tax assets is not necessary.

        The tax effects from an uncertain tax position can be recognized in our consolidated financial statements, only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The following table sets forth changes in our total gross unrecognized tax benefit liabilities, excluding accrued interest, for the year ended December 31, 2011:

Balance as of December 31, 2009	$	115,000
Tax positions related to current year:
Additions		27,000
Reductions		(28,000	)
Balance as of December 31, 2010	$	114,000
Tax positions related to current year:
Additions		100,000
Reductions		(96,000	)
Balance as of December 31, 2011	$	118,000

        The $118,000 of unrecognized tax benefits as of December 31, 2011 includes amounts which, if ultimately recognized, will reduce our annual effective tax rate. It is included in Other Long-Term Liabilities on the accompanying consolidated balance sheets.

        Our policy is to accrue interest related to potential underpayment of income taxes within the provision for income taxes. The liability for accrued interest as of December 31, 2011 was not significant. Interest is computed on the difference between our uncertain tax benefit positions and the amount deducted or expected to be deducted in our tax returns.

        We are subject to income taxes in the U.S. federal jurisdiction and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply.

        With few exceptions, we are no longer subject to U.S. federal, state or local income tax examinations by tax authorities for the years before 2008.