NOTE 6 - INCOME TAXES

The provision for income tax benefit consists of:


	Year Ended September 30,
	2011			2010
Current:
Federal	$	87,000		$	(614,000	)
State		207,000			(2,000	)

Total current		294,000			(616,000	)

Deferred
Federal		(1,328,000	)		6,000
State		(1,724,000	)		—

Total deferred		(3,052,000	)		6,000


Income tax (benefit)	$	(2,758,000	)	$	(610,000	)

A reconciliation of the federal statutory tax rate to the total tax provision is as follows:


	Year Ended September 30,
	2011			2010
Federal income taxes computed at the statutory rate		34.0	%		34.0	%
State income taxes, net of federal benefit		(8.2	%)		—
Tax exempt interest income and unrealized gains/losses		20.3	%		(16.7	%)
Reversal of unrecognized tax benefits		68.0	%		—
Non-taxable stock transaction		—			(10.6	%)
Benefit of federal refund		—			(33.7	%)
Other, net		(5.3	%)		1.1	%

		108.8	%		(25.9	%)

Deferred tax assets and liabilities consist of the following:


	Year Ended September 30,
	2011			2010
Deferred Tax Assets:
Accrued liabilities and reserves	$	636,000		$	868,000
Allowance for doubtful accounts		217,000			672,000
Inventory		496,000			427,000
Net operating loss carry forward		498,000			—
Unrealized loss on investments		1,413,000			—
Other		28,000			28,000

Gross Deferred Tax Assets		3,288,000			1,995,000

Deferred and Other Tax Liabilities:
Unrealized gain on investments		—			(1,191,000	)
Percentage of completion		(768,000	)		(144,000	)
Property, plant and equipment		(1,021,000	)		(501,000	)
Unrecognized tax benefits		(300,000	)		(2,024,000	)
Other		(12,000	)		—

Gross Deferred and Other Tax Liabilities		(2,101,000	)		(3,860,000	)

Net Deferred Income and Other Tax Assets (Liabilities)	$	1,187,000		$	(1,865,000	)

Total income taxes paid in 2011 were $226,000. There were no income taxes paid in 2010. The Company's net operating loss carry forward expires in 2030. The deferred tax asset of $498,000 associated with the net operating loss carry forward is included in other long-term assets on the consolidated balance sheet at September 30, 2011.

Generally Accepted Accounting Principles ("GAAP") prescribes a comprehensive model for the financial recognition, measurement, classification, and disclosure of uncertain tax positions. GAAP contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognitions by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, based on the technical merits of the position. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

Significant judgment is required in evaluating the Company's uncertain tax position and determining the Company's provision for taxes. Although the Company believes the reserves of unrecognized tax benefits ("UTB") are reasonable, no assurance can be given that the final outcome of these matters will not be different from that which is reflected in the Company's historical income tax provision and accruals. The Company adjusts these reserves in light of changing facts and circumstances. As of September 30, 2011 and 2010 the Company had UTB of $300,000 and $2,024,000, respectively. The decrease in UTB in fiscal 2011 was the result of the conclusion of examinations by a state taxing authority. These amounts have been included in deferred and other income taxes in the accompanying consolidated balance sheets. There were no additional accruals of UTB during fiscal years ended September 30, 2011 and 2010.

The Company recognizes interest and penalties accrued related to UTB as a component of income tax expense. There were no additional accruals of interest expense nor penalties during fiscal years ended September 30, 2011 and 2010. It is reasonably possible that the amount of the UTB with respect to certain unrecognized tax positions will increase or decrease during the next 12 months. The Company does not expect the change to have a material effect on its results of operations or its financial position. The only expected potential reason for change would be the normal expiration of the statute of limitations or the ultimate results stemming from any examinations by taxing authorities. If recognized, the entire UTB would have an impact on the Company's effective tax rate.

The Company files U.S. federal income tax returns, as well as, income tax returns in various states. The Company's U.S. federal income tax returns and most state returns, filed for tax years prior to fiscal year ended September 30, 2008 are no longer subject to examination by taxing authorities due to the expiration of the statute of limitations.