Note 9 - Income Taxes

9 Months Ended

Jun. 30, 2012

Income Tax Disclosure [Text Block]

Note 9.  Income Taxes

The Company recorded a provision for income taxes of approximately $65,000 and $46,000, for the three months ended June 30, 2012 and 2011, respectively.  The Company’s tax provision includes estimated current federal alternative minimum taxes and state franchise taxes, but is primarily related to deferred tax expense related to book and income tax basis difference in goodwill on prior asset acquisitions.  Our year-to-date net change in valuation allowance is $1,054,000.  This change consists of $1,116,000 of tax benefit as a result of a reduction in valuation allowance after considering current financial condition and potential future taxable income.  This reduction is partially offset by a $62,000 increase in valuation allowance from the current year AMT tax credit generated as its utilization does not meet the “more likely than not” criteria.

As of September 30, 2011 the Company had U.S. federal and state net operating loss (NOL) carry-forwards of approximately $27,239,000 and $22,245,000, respectively, which expire in fiscal years 2013 to 2028 if not utilized. In fiscal 2009, the Company completed an Internal Revenue Code Section 382 analysis of the loss carry-forwards and determined that all of its loss carry-forwards were utilizable and not restricted under Section 382.

Deferred taxes recognize the impact of temporary differences between the amounts of the assets and liabilities recorded for financial statement purposes and these amounts measured in accordance with tax laws. The Company’s realization of net operating loss carry-forward and other deferred tax temporary differences is contingent upon future taxable earnings. The Company reviewed its deferred tax asset for expected utilization using a “more likely than not” criteria by assessing the available positive and negative factors surrounding its recoverability.

During the fourth quarter of fiscal year 2011, the Company reversed a portion of its valuation allowance in consideration of all available positive and negative evidence, including its historical operating results, current financial condition, and potential future taxable income.  The reduction in the valuation allowance in the fourth quarter resulted in a non-cash income tax benefit of $2,481,000.  As of September 30, 2011, the Company had a remaining valuation allowance of approximately $6,042,000.

During the quarter ended September 30, 2011, the Company’s future taxable income was evaluated based primarily on anticipated operating results from fiscal years 2012 through 2014.  The Company determined that projecting operating results beyond 2014 involves substantial uncertainty and the Company discounted forecasts beyond 2014 as a basis to support its deferred tax assets.  Based upon the assessment of all available evidence, the Company reversed a portion of its valuation allowance for the quarter ended June 30, 2012 in an amount in which the tax benefit generated offsets the tax provision to be realized from current year estimated taxable income.  The Company will continue to assess the assumptions it uses to determine the amount of its valuation allowance and may adjust the valuation allowance in future periods based on changes in assumptions of estimated future taxable income and other factors. If the valuation allowance is reduced, the Company would record an income tax benefit in the period in which that determination is made. If the valuation allowance is increased, we would record additional income tax expense. For the three months ended June 30, 2012 and 2011, the Company has reduced its valuation allowance by approximately $607,000 and $321,000 respectively. As of June 30, 2012 the Company had a valuation allowance of approximately $4,988,000.

As of June 30, 2012, we do not have any unrecognized tax benefits.  It is the Company’s practice to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.  The Company does not expect any material changes in its unrecognized tax positions over the next 12 months.