INCOME TAXES

9 Months Ended

Sep. 30, 2013

Income Taxes

Note 10. INCOME TAXES

The provision for income taxes as at September 30, are set forth below:

	2013			2012
	(Unaudited)			(Unaudited)
Current
Federal	$	922,000		$	778,000
State		277,000			258,000
Prior year overaccruals
Federal		(206,000	)		-
State		(244,000	)		-
Total Expense		749,000			1,036,000
Deferred Tax Benefit		(1,625,000	)		-
Net (Benefit) Expense for Income Taxes	$	(876,000	)	$	1,036,000

The components of net deferred tax assets as of September 30, 2013 and December 31 2012 are set forth below:

	September 30,			December 31,
	2013			2012
	(Unaudited)
Deferred tax assets:
Capital loss carry forwards	$	1,088,000		$	1,088,000
Section 1231 loss carry forward		4,000			86,000
Bad debts		395,000			282,000
Stock based compensation - options and restricted stock		512,000			506,000
Capitalized engineering costs		483,000			447,000
Account payable, accrued expenses and reserves		9,000			9,000
Deferred rent		445,000			423,000
Amortization - NTW Transaction		312,000			138,000
Inventory - 263A adjustment		785,000			569,000
Lease Impairment		59,000			85,000
Deferred gain on sale of real estate		198,000			209,000
Total deferred tax assets before valuation allowance		4,290,000			3,842,000
Valuation allowance		(1,092,000	)		(2,269,000	)
Total deferred tax assets after valuation allowance		3,198,000			1,573,000
Deferred tax liabilities:
Property and equipment		(1,044,000	)		(997,000	)
Goodwill - NTW Transaction		(4,000	)		-
Amortization - Welding Transaction		(525,000	)		(576,000	)
Total Deferred Tax Liability		(1,573,000	)		(1,573,000	)
Net deferred tax asset	$	1,625,000		$	-

During the three and nine months ended September 30, 2013, the Company determined that it no longer needed to provide a valuation allowance on the net deferred tax assets except for the capital loss and section 1231 loss carryforwards.  This was based upon the fact that management believes that the realizability of the net deferred tax assets is more likely than not to be realized.  The valuation allowance at September 30, 2013 and December 31, 2012 was $1,092,000 and $2,269,000, respectively.

The Company has a capital loss carry forward from the sale of Sigma of $2,719,000 which will expire in fiscal 2015.