Income Taxes

12 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

9. 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,
	2011			2010
Deferred income tax assets:
Allowance for doubtful accounts	$	15,000		$	18,000
Inventory reserves		57,000			42,000
Inventory capitalization		450,000			481,000
Accrued expenses		94,000			98,000
Nonqualified option expense		1,648,000			1,217,000
Restricted stock expense		17,000			147,000
Capital loss carryforward		39,000			37,000
Charitable contributions		58,000			41,000
Research and development credits		71,000			47,000
Net operating loss		1,095,000			545,000
ASC 320 unrealized loss		202,000			147,000
Valuation allowance		(42,000	)		(47,000	)
Total income tax deferred assets		3,704,000			2,773,000
Deferred income tax liability:
Depreciation and amortization		2,353,000			723,000
Net deferred income tax assets	$	1,351,000		$	2,050,000

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

	September 30,
	2011			2010
Current assets	$	1,618,495		$	872,849
Noncurrent assets		1,242,010			1,175,052
Noncurrent liabilities		(1,509,862	)		—
	$	1,350,643		$	2,047,901

Of the deferred tax assets listed above, approximately $120,000 of foreign net operating losses is related to other comprehensive income and will not impact the tax provision when utilized.

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 2011, the Company recorded a valuation allowance of $42,000 related to Minnesota R&D credit carryovers as the Company believes it is more likely than not that the deferred tax asset 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, 2011, 2010, and 2009 consist of the following:

	September 30,
	2011			2010			2009
Income (loss) before taxes:
U.S.	$	(3,565,971	)	$	584,963		$	1,155,518
Non-U.S.		1,627,505			(314,634	)		(681,104	)
Total income (loss) before taxes		(1,938,466	)		270,329			474,414
Provision (benefit) for taxes:
U.S.
Current tax expense (benefit)		(142,766	)		551,779			622,512
Deferred tax expense (benefit)		(946,530	)		609			(163,393	)
Total U.S.		(1,089,296	)		552,388			459,119
Non-U.S.
Current tax expense		425,820			—			1,857
Deferred tax expense (benefit)		40,314			(28,524	)		(95,234	)
Total Non-U.S.		466,134			(28,524	)		(93,377	)
Total provision (benefit) for taxes	$	(623,162	)	$	523,864		$	365,742

The reconciliation between the statutory federal income tax rate and the effective income tax rate for the years ended September 30, 2011, 2010 and 2009 is as follows:

	2011			2010			2009
Statutory federal income tax rate		34	%		34	%		34	%
Increase (decrease) in taxes resulting from:
State taxes		3			4			6
Foreign taxes		11			31			29
Meals and entertainment		(2	)		6			9
Acquisition costs		(9	)		—			—
Incentive stock options		(9	)		66			28
Change in valuation allowance and utilization of net operating loss carryforward		—			17			—
R&D credits		1			(15	)		(38	)
Return to provision & true up adjustments		(2	)		46			—
Change in reserves		1			(4	)		(2	)
Rate adjustment on deferred taxes		7			18			—
DPAD		—			(10	)		8
Other		(3	)		1			3
Effective income tax rate		32	%		194	%		77	%

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, 2011, the Company has recognized approximately $56,000 for unrecognized tax benefits. If the Company were to prevail on all unrecognized tax benefits recorded at September 30, 2011, the total gross unrecognized tax benefit totaling approximately $56,000 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, 2011, 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, 2009	$	55,889
Increases/(decreases) as a result of tax positions taken during a prior period		(22,495	)
Increases/(decreases) as a result of tax positions taken during the current period (including interest)		12,933
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 September 30, 2011	$	55,902

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. The Internal Revenue Service completed an examination of our income tax return for the fiscal year ended September 30, 2007, and a settlement was reached in September 2009. The Company reduced its reserves during the year ended September 30, 2009 in accordance with ASC 740, Income Taxes for unrecognized tax benefits as a result of the settlement reached with the IRS.