Income Taxes

12 Months Ended

Sep. 30, 2012

Income Taxes [Abstract]

Income Taxes

6. Income Taxes

The provision for income taxes consists of the following (in thousands):

	Years Ended September 30,
	2012		2011
Current tax benefit	$	—	$	(29	)
Deferred income tax expense		240		240
Provision for income taxes	$	240	$	211

The reconciliation of income tax expense (benefit) computed at the U.S. federal statutory rate to income tax expense (benefit) is as follows (in thousands):

	Years Ended September 30,
	2012			2011
Income tax expense (benefit) at U.S. statutory rate of 34%	$	135		$	(11	)
Federal income tax refundable research credit		—			(29	)
State income tax expense (benefit)		105			(2	)
Permanent differences, net		93			158
Adjustment of temporary differences to income tax returns		264			212
Change in valuation allowance		(357	)		(117	)
Income tax expense	$	240		$	211

The significant components of the deferred tax accounts recognized for financial reporting purposes are as follows (in thousands):

	September 30,
	2012			2011
Deferred tax assets:
Net operating loss and other carryforwards	$	34,352		$	34,444
Common stock warrants		519			460
Allowance for doubtful accounts		33			35
Other		175			249
Total deferred tax assets		35,079			35,188
Valuation allowance		(35,079	)		(35,188	)
Goodwill amortization		(1,970	)		(1,730	)
Deferred tax liability for goodwill amortization	$	(1,970	)	$	(1,730	)

At September 30, 2012, the Company had net operating loss carryforwards of approximately $88 million for U.S. Federal and $51 million for state tax purposes. For Federal tax purposes, the carryforwards expire in varying amounts between 2019 and 2032. For state tax purposes, the carryforwards expire in varying amounts between 2013 and 2031. Utilization of the Company’s net operating loss may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss carryforwards before utilization. In addition, the Company has research and development tax credit carryforwards of approximately $500 thousand, which expire in varying amounts between 2017 and 2020.

Deferred income taxes are provided for temporary differences between financial reporting and income tax basis of assets and liabilities, and are measured using currently enacted tax rates and laws. Deferred income taxes also arise from the future benefits of net operating loss carryforwards. A valuation allowance equal to 100% of the net deferred tax assets has been recognized due to uncertainty regarding future realization, as a result of the Company’s past history of losses.

Beginning with an acquisition in fiscal year 2002, the Company has amortized Goodwill for tax purposes over a 15 year life. Goodwill is not amortized for book purposes. Annual impairment tests are performed for book purposes and the balance of goodwill is to be written down if impairment occurs. The impairment tests have not indicated any goodwill impairment.

The difference between the book and tax balance of Goodwill creates a Deferred Tax Liability and an annual tax expense. Because of the long term nature of the goodwill timing difference, tax planning strategies cannot be applied related to the Deferred Tax Liability. The balance of the Deferred Tax Liability at September 30, 2012 was $1.97 million and $1.73 million at September 30, 2011.

In accordance with accounting guidance for uncertainty in income taxes, the Company has concluded that a reserve for income tax contingencies is not necessary. The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accruals for interest and penalties on the Company's consolidated balance sheets at September 30, 2012 and 2011, and has not recognized any interest or penalties in the consolidated statement of operations for the years ended September 30, 2012 or 2011. The Company’s tax rate differs from the expected tax rate each reporting period as a result of the aforementioned items.

The Company is subject to taxation in the U.S. and various state jurisdictions. All of the Company's tax years are subject to examination by the U.S. and state tax authorities due to the carryforward of unutilized net operating losses.