Provisions for Income Taxes

12 Months Ended

Sep. 30, 2011

Income Tax Disclosure [Abstract]

Provisions for Income Taxes

9.         Provisions for Income Taxes

The provision for income taxes for fiscal 2011 and 2010 includes a current state expense of $800 and $2,900, respectively. The following summarizes the difference between the income tax expense and the amount computed by applying the Federal income tax rate of 34 percent in fiscal 2011 and 2010, to the loss before taxes:

		2011	2010
Federal income tax  benefit at statutory rate		$(363,700)	$(367,700)
Tax credit carryforwards originated in current year		(33,200)	(46,400)
State tax  benefit, net of federal tax benefit		(61,000)	(60,400)
Adjustment of prior year net operating loss
	carryforwards before valuation allowance	(50,900)	2,600
Valuation allowance		505,600	474,800
Other, net		4,000	–
		$800	$2,900

Deferred tax assets and liabilities comprise the following:

			September 30,	September 30,
			2011	2010
Deferred tax assets:
	Net operating loss carryforwards		$9,290,900	$8,783,000
	Tax credit carryforwards		722,000	735,300
	Other		53,900	–
		Gross deferred tax assets	10,066,800	9,518,300
Deferred tax liabilities:
	State tax benefit		(656,800)	(618,300)
	Other		(27,200)	(21,000)
		Gross deferred tax liabilities	(684,000)	(639,300)
			9,382,800	8,879,000
Valuation allowance			(9,382,800)	(8,879,000)
Net deferred taxes			$ –	$ –

The valuation allowance increased $503,800 from fiscal 2010 to fiscal 2011. This was the result of an increase in the net deferred tax assets, primarily net operating loss carryforwards (NOLs), partially offset by the increase in the state tax benefit liability. Because the Company's management is unable to determine whether it is more likely than not that the net deferred tax assets will be realized, the Company continues to record a 100 percent valuation against the net deferred tax assets.

As of September 30, 2011, the Company has Federal and State NOLs totaling approximately $22,865,400 and $17,156,600 respectively, available to offset future taxable income. These NOLs expire at various times through 2030 and 2020, respectively. The Company also has Federal and State research and development credit carryforwards totaling approximately $306,117 and $126,300, respectively, expiring at various times through 2030. The Company has state manufacturing tax credit carryforwards totaling approximately $289,600, which expire at various times through 2012.

Utilization of the Company’s net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration or elimination of the net operating loss and tax credit carryforwards before utilization.

The Company adopted authoritative guidance related to accounting for uncertain tax positions on October 1, 2007. As of the date of adoption, the Company had no unrecognized income tax benefits. Should the Company incur interest and penalties relating to tax uncertainties, such amounts would be classified as a component of interest expense and operating expense, respectively.

At September 30, 2011, the Company has no increase or decrease in unrecognized income tax benefits for the fiscal year and there was no accrued interest or penalties relating to tax uncertainties at September 30, 2011. Unrecognized income tax benefits are not expected to increase or decrease within the next 12 months.

The Company is subject to income taxation in the U.S. federal, State of California, and State of New Hampshire. The years still open to audit for the U.S. federal and State of New Hampshire are 2008 through 2010, while the State of California jurisdiction is still open to audit for the years 2007 through 2010. However, because the Company has net operating losses and credits carried forward in both these jurisdictions, certain items attributable to closed tax years are still subject to adjustment by applicable taxing authorities through an adjustment to tax attributes carried forward to open years.