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INCOME TAXES
12 Months Ended
Dec. 31, 2012
INCOME TAXES  
INCOME TAXES

NOTE 4 INCOME TAXES

        The income tax expense for the years ended December 31, 2012 and 2011 consists of the following:

 
  2012   2011  

Current taxes—Federal

  $ 384,000   $ 273,000  

Current taxes—State

    (15,000 )   (13,000 )

Current taxes—Foreign

    25,000     23,000  

Deferred taxes—Federal

    (109,000 )   223,000  

Deferred taxes—State

    13,000     55,000  
           

Income tax expense

  $ 298,000   $ 561,000  
           

The statutory rate reconciliation for the years ended December 31, 2012 and 2011 is as follows:

 
  2012   2011  

Statutory federal tax provision

  $ 315,000   $ 595,000  

State income taxes

    28,000     52,000  

Effect of foreign operations

    (11,000 )   (6,000 )

Income tax credits

    (14,000 )   (66,000 )

Permanent differences

    24,000     1,000  

Other

    (44,000 )   (15,000 )
           

Income tax expense

  $ 298,000   $ 561,000  
           

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

 
  2012   2011  

Domestic

  $ 770,440   $ 1,666,281  

Foreign

    156,998     84,649  
           

Total

  $ 927,438   $ 1,750,930  
           

        Deferred tax assets (liabilities) at December 31, 2012 and 2011, consist of the following:

 
  2012   2011  

Allowance for uncollectable accounts

  $ 57,000   $ 45,000  

Inventories reserve

    537,000     408,000  

Accrued vacation

    353,000     352,000  

Non-compete amortization

    335,000     390,000  

Stock-based compensation

    68,000     69,000  

State Tax NOL

    139,000     157,000  

Other

    175,000     236,000  
           

Deferred tax assets

    1,664,000     1,657,000  
           

Prepaid expenses

    (192,000 )   (200,000 )

Property and equipment

    (842,000 )   (923,000 )
           

Deferred tax liabilities

    (1,034,000 )   (1,123,000 )
           

Net deferred tax assets

  $ 630,000   $ 534,000  
           

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

Net current deferred tax assets

  $ 857,000   $ 805,000  

Net non-current deferred tax liabilities

    (227,000 )   (271,000 )
           

Net deferred tax assets

  $ 630,000   $ 534,000  
           

        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 years ended December 31, 2012 and 2011:

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  

Tax positions related to current year:

       

Additions

    22,000  

Reductions

    0  
       

Balance as of December 31, 2012

  $ 140,000  
       

        The $140,000 of unrecognized tax benefits as of December 31, 2012 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, 2012 and 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 2009.