Income Taxes

The provision for income taxes for the years ended June 30, 2012 and 2011 consists of the following:



	2012			2011
Current income tax (benefit) provision
Federal, (alternative minimum tax refund)	$	—		$	(239,879	)
State	—			—
	—			(239,879		)
Deferred income tax provision
Federal	(419,527		)	868,724
State	(98,407		)	203,774
Change in valuation allowance	517,934			(1,072,498		)
	—			—
Income tax (benefit) expense	$	—		$	(239,879	)

During the year ended June 30, 2011, the alternative minimum tax refund was applied for by the Company in connection with the change in certain federal tax laws.

Income taxes (benefit) as a percentage of income (loss) for the years ended June 30, 2012 and 2011 differ from statutory federal income tax rate due to the following:



	2012		2011
Statutory federal income tax rate	(34.00	)%	(34.00	)%
Increase in deductable timing differences	11.70	%	0.00	%
Net operating loss carryforward	22.30	%	27.20	%
Nondeductable permanent difference (Goodwill)	0.00	%	6.80	%
Alternative minimum tax refund	0.00	%	(4.20	)%
Effective income tax rate	0.00	%	(4.20	)%

As of June 30, 2012, the Company had deferred income tax assets of $12,393,721. The deferred income tax assets have a valuation allowance of $12,363,776. The valuation allowance is based on uncertainty with respect to the ultimate realization of net operating loss carryforwards.

The components of the net deferred income tax assets and liabilities as of June 30, 2012 and 2011 are as follows:



	2012			2011
Deferred income tax assets:
Net operating loss carryforward	$	10,105,598		$	9,098,323
Executive post retirement costs	354,366			335,275
General business credit	207,698			207,698
Allowance for doubtful accounts	232,009			252,914
Accrued vacation	155,012			154,114
Inventory reserve	187,330			663,871
Accrued lease termination costs	114,969			—
Accrued interest and other current liabilities	118,942			—
Accelerated amortization on goodwill and other intangible assets	892,544			1,101,794
Warranty reserve	25,253			57,363
Total deferred income tax assets	12,393,721			11,871,352
Valuation allowance	(12,363,776		)	(11,845,843		)
	29,945			25,509
Deferred income tax liabilities:
Accelerated depreciation	(29,945		)	(25,509		)
Total deferred income tax liabilities	(29,945		)	(25,509		)
	$	—		$	—

As of June 30, 2012, the Company has a valuation allowance of $12,363,776, which primarily relates to the federal net operating loss carryforwards. The valuation allowance is a result of management evaluating its estimates of the net operating losses available to the Company as they relate to the results of operations of acquired businesses subsequent to their being acquired by the Company. The Company evaluates a variety of factors in determining the amount of the valuation allowance, including the Company’s earnings history, the number of years the Company’s operating loss and tax credits can be carried forward, the existence of taxable temporary differences, and near-term earnings expectations. Future reversal of the valuation allowance will be recognized either when the benefit is realized or when it has been determined that it is more likely than not that the benefit will be realized through future earnings. Any tax benefits related to stock options that may be recognized in the future through reduction of the associated valuation allowance will be recorded as additional paid-in capital. The Company has available federal and state net operating loss carry forwards of approximately $28,957,000 and $3,376,000, respectively, of which $1,547,000 and $253,000, respectively, will expire over the next 10 years, and $27,410,000 and $3,123,000, respectively, will expire in years 11 through twenty-four. Approximately $1,521,000 of federal net operating losses expired June 30, 2012. Not included in the $28,957,000 federal net operating loss is approximately $8.2 million federal NOL carry forward at June 30, 2012 which represents amounts that were transferred to the Company as a result of the acquisition of Drew. Use of this transferred NOL could be limited under Section 382 and can only be used against future Drew taxable income. Any tax benefit realized from such use would first reduce acquired goodwill.

The Company continues to monitor the realization of its deferred tax assets based on changes in circumstances, for example, recurring periods of income for tax purposes following historical periods of cumulative losses or changes in tax laws or regulations. The Company’s income tax provision and management’s assessment of the realizability of the Company’s deferred tax assets involve significant judgments and estimates. If taxable income expectations change, in the near term the Company may be required to reduce the valuation allowance which would result in a material benefit to the Company’s results of operations in the period in which the benefit is determined by the Company.

Effective July 1, 2007, the Company adopted the FASB authoritative guidance which prescribes a model for the recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest, penalties, disclosure and transition. Implementation of the FASB authoritative guidance did not result in a cumulative effect adjustment to retained earnings. With few exceptions, the Company is no longer subject to audits by tax authorities for tax years prior to 2008. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss amount. At June 30, 2012, the Company did not have any significant unrecognized tax positions.

The Company has provided what it believes to be an appropriate amount of tax for items that involve interpretation to the tax law. However, events may occur in the future that will cause the Company to reevaluate the current provision and may result in an adjustment to the liability for taxes.