Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Sep. 30, 2011
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]
NOTE 14 —
INCOME TAXES
 
The income tax (provision) benefits consist of the following:
 
   
2011
    
2010
  
             
Federal:
            
Current
   $ -     $ -  
Deferred
     1,162       1,780  
                 
Total federal
     1,162       1,780  
                 
State:
                
Current
     -       -  
Deferred
     215       204  
                 
Total state
     215       204  
                 
Foreign:
                
Current
     18       (18 )
Deferred
     87       171  
                 
      105       153  
                 
      1,481       2,137  
Change in valuation allowance
     (1,522 )     (2,200 )
                 
Total provision
   $ (41 )   $ (63 )
 
A reconciliation of the statutory federal income tax rate to our effective tax rate follows:
 
   
For the
    
For the
  
   
year ended
    
year ended
  
   
September 30,
    
September 30,
  
   
2011
    
2010
  
             
Tax benefit at statutory rate
     34.0 %     34.0 %
State income taxes, net of federal benefit
     3.9       3.9  
Foreign income taxes
     (0.8 )     (0.1 )
Non-deductible meals & entertainment
     (5.8 )     (17.1 )
Increase in valuation allowance
     (32.2 )     (21.3 )
                 
Effective income tax rate
     (0.9 ) %     (0.6 ) %
  
The components of deferred tax assets and liabilities are as follows:
 
   
As of
    
As of
  
   
September 30,
    
September 30,
  
   
2011
    
2010
  
             
Deferred tax assets
            
Capitalized start up and organization costs
   $ 37     $ 41  
Other intangibles amortization
     186       176  
Accrued expenses
     90       67  
Bad debt reserve
     156       99  
Inventory obsolescence reserve
     27       57  
Share based payments
     1,205       824  
Sale of business unit
     248       -  
Net operating loss carryforwards
     6,560       5,723  
                 
Total deferred tax assets
     8,509       6,987  
Less valuation allowance
     (8,509 )     (6,987 )
                 
Net deferred tax assets
     -       -  
                 
Deferred tax liabilities
                
Tax-deductible goodwill
     (212 )     (153 )
                 
Total deferred tax liabilities
     (212 )     (153 )
                 
Total net deferred tax liability
   $ (212 )   $ (153 )
 
As of September 30, 2011, we have $16,637 of Federal and state net operating loss carryforwards available to offset future taxable income, if any. These carryforwards expire in 2016 through 2031. As of September 30, 2011, we have $944 of foreign net operating loss carryforwards available to offset future taxable income, which relates to our operations in Ireland. These losses may be carried forward indefinitely. As of September 30, 2011, we have $113 of foreign net operating loss carryforwards available to offset future taxable income, which relates to our operations in Czech Republic. These losses may be carried forward 5 years. This carryforward expires in 2016.
 
No provision was made for U.S. or foreign taxes on undistributed earnings of foreign subsidiaries, as the foreign subsidiaries have cumulative losses. Any future cumulative earnings will be permanently reinvested but could become subject to additional tax if they are remitted as dividends, or are loaned to the Company or a U.S. affiliate, or if the Company should sell is stock in the foreign subsidiaries.
 
After considering all available evidence, we established a 100% valuation allowance for our net deferred tax asset since it is currently more likely than not that the benefits of such deferred tax assets will not be realized in future periods. Deferred tax liabilities represent the difference between the financial reporting and income tax bases of tax deductible goodwill, which is an asset with an indefinite life and therefore cannot be used to offset net deferred tax assets for purposes of establishing a valuation allowance.
 
No provision was made for U.S. or foreign taxes on undistributed earnings of foreign subsidiaries, as the foreign subsidiaries have cumulative losses. Any future cumulative earnings will be permanently reinvested but could become subject to additional tax if they are remitted as dividends, or are loaned to the Company or a U.S. affiliate, or if the Company should sell is stock in the foreign subsidiaries.
 
We periodically evaluate whether or not we have undergone any ownership changes for income tax purposes that could trigger annual limitations on the use of our net operating losses under section 382 of the Internal Revenue Code and similar state income tax regulations. As of September 30, 2011 we had not triggered any significant limitations on the use of our Net Operating Losses. We adopted ASC 740 “Income Taxes” effective June 6, 2007 (date of inception). ASC 740 requires companies to recognize the impact of a tax position in their financial statements if that position is more likely than not of not being sustained on audit based on the technical merits of the position. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 provides guidance on de-recognition, classification, interest, and penalties, accounting in interim periods, and disclosure. The company is subject to audits by federal and state income tax authorities for reporting periods ending in 2008 through 2011 and by foreign tax authorities for 2009 through 2011. For the years ended September 30, 2011 and 2010, we had no material unrecognized tax positions. Significant tax jurisdictions that we file tax returns in include the Commonwealth of Kentucky and the State of Ohio. We record penalties and interest if it is more likely than not that a tax position will not be sustained on audit based on the technical merits of the position. We record penalties in selling, general and administrative expenses and interest as interest expense when such expenses are incurred.