Income Taxes

12 Months Ended

Sep. 30, 2012

Income Taxes

Income Taxes

8. Income Taxes

        Deferred income taxes are due to temporary differences between the carrying values of certain assets and liabilities for financial reporting and income tax purposes, in addition to certain tax carryforwards. Significant components of deferred income taxes are as follows:

	September 30,
	2012			2011
Deferred income tax assets:
Allowance for doubtful accounts	$	29,000		$	15,000
Inventory reserves		44,000			57,000
Inventory capitalization		289,000			450,000
Accrued expenses		127,000			94,000
Nonqualified option expense		1,824,000			1,648,000
Restricted stock expense		109,000			17,000
Capital loss carryforward		174,000			39,000
Charitable contributions		59,000			58,000
Research and development credits		136,000			71,000
Net operating loss		606,000			1,095,000
ASC 320 unrealized loss		—			202,000
Valuation allowance		(216,000	)		(42,000	)
Total income tax deferred assets		3,181,000			3,704,000
Deferred income tax liability:
Depreciation and amortization		1,957,000			1,684,000
Net deferred income tax assets	$	1,224,000		$	2,020,000

        The deferred tax amounts above have been classified in the accompanying balance sheets as follows:

	September 30,
	2012			2011
Current assets	$	1,287,177		$	1,618,495
Noncurrent assets		1,030,994			1,242,010
Noncurrent liabilities		(1,093,717	)		(840,512	)
	$	1,224,454		$	2,019,993

        The Company records a valuation allowance to reduce the carrying value of its net deferred tax assets to the amount that is more likely than not to be realized. For fiscal 2012, the Company recorded a valuation allowance of $216,000 related to Minnesota R&D credit and U.S. federal capital loss carryovers as the Company believes it is more likely than not that these deferred tax assets will not be utilized in future years. The Company has not recorded a valuation allowance on any other net deferred tax assets because there is sufficient future projected income to sustain that the deferred tax assets will more likely than not be able to be realized.

        The income (loss) before taxes and the provision (benefit) for taxes for the years ended September 30, 2012, 2011, and 2010 consist of the following:

	September 30,
	2012		2011			2010
Income (loss) before taxes:
U.S.	$	257,703	$	(3,565,971	)	$	584,963
Non-U.S.		2,824,585		1,627,505			(314,634	)
Total income (loss) before taxes		3,082,288		(1,938,466	)		270,329
Provision (benefit) for taxes:
U.S.
Current tax expense (benefit)		163,335		(142,766	)		551,779
Deferred tax expense (benefit)		242,852		(946,530	)		609
Total U.S.		406,187		(1,089,296	)		552,388
Non-U.S.
Current tax expense		229,998		425,820			—
Deferred tax expense (benefit)		395,619		40,314			(28,524	)
Total Non-U.S.		625,617		466,134			(28,524	)
Total provision (benefit) for taxes	$	1,031,804	$	(623,162	)	$	523,864

        The reconciliation between the statutory federal income tax rate and the effective income tax rate for the years ended September 30, 2012, 2011 and 2010 is as follows:

	2012			2011			2010
Statutory federal income tax rate		34	%		34	%		34	%
Increase (decrease) in taxes resulting from:
State taxes		6			3			4
Foreign taxes		(12	)		11			31
Meals and entertainment		2			(2	)		6
Acquisition costs		—			(9	)		—
Incentive stock options		4			(9	)		66
Change in valuation allowance and utilization of net operating loss carryforward		4			—			17
R&D credits		(2	)		1			(15	)
Return to provision and true up adjustments		1			(2	)		46
Change in reserves		(1	)		1			(4	)
Rate adjustment on deferred taxes		(2	)		7			18
DPAD		—			—			(10	)
Other		—			(3	)		1
Effective income tax rate		34	%		32	%		194	%

        On October 1, 2007, the Company adopted amendments to ASC 740, Income Taxes, which clarify the accounting for uncertainty in tax positions recognized in the financial statements. These provisions create a single model to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. ASC 740 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. At the adoption date, October 1, 2007, the Company did not have a material liability under ASC 740 for unrecognized tax benefits. As of September 30, 2012, the Company has recognized approximately $43,000 for unrecognized tax benefits. If the Company were to prevail on all unrecognized tax benefits recorded at September 30, 2012, the total gross unrecognized tax benefit totaling approximately $43,000 would benefit the Company's effective tax rate if recognized.

        It is the Company's practice to recognize penalties and/or interest to income tax matters in income tax expenses. As of September 30, 2012, the Company did not have a material amount of accrued interest or penalties related to unrecognized tax benefits.

        A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:

Balance at October 1, 2010	$	46,327
Increases/(decreases) as a result of tax positions taken during a prior period		1,846
Increases/(decreases) as a result of tax positions taken during the current period (including interest)		7,729
Balance at October 1, 2011		55,902
Increases/(decreases) as a result of tax positions taken during a prior period		3,997
Increases/(decreases) as a result of expiration of jurisdiction statutes of limitations		(21,444	)
Increases/(decreases) as a result of tax positions taken during the current period (including interest)		5,040
Balance at September 30, 2012	$	43,495

        The Company is subject to income tax examinations in the U.S. Federal jurisdiction, as well as in the United Kingdom, the Netherlands and various state jurisdictions.