INCOME TAXES

9 Months Ended

Jun. 30, 2011

INCOME TAXES

7. INCOME TAXES

We use the asset and liability method of accounting for income taxes.  We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize the effect on deferred tax assets and liabilities of a change in tax rates in income in the period that includes the enactment date.  We record valuation allowances based on a determination of the expected realization of tax assets.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position. We measure the amount of the accrual for which an exposure exists as the largest amount of benefit determined on a cumulative probability basis that we believe is more likely than not to be realized upon ultimate settlement of the position.  At June 30, 2011 and September 30, 2010, we hada $30 liability for other uncertain income tax positions.

 We record interest and penalties related to income tax matters as a component of income tax expense.Over the next twelve months we do not expect the total amount of unrecognized tax benefits to change significantly.  Interest and penalties are included in the reserve.

We file income tax returns in the U.S., several U.S. States, and the United Kingdom.  We remain subject to examination by taxing authorities in the jurisdictions in which we have filed returns for years after 2006.

We have an accumulated net deficit in our UK subsidiary.Therefore, we continue to maintain a full valuation allowance on the UK subsidiary deferred income tax balance. Also, a valuation allowance was established in fiscal 2009 against the US deferred income tax balance.  Due to the utilization of operating loss carryforwards, we have a 0% effective tax rate for the three and nine months ended June 30, 2011.