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Income Taxes: | 12 Months Ended
--- | ---
Sep. 30, 2012
Income Taxes: |
Income Taxes: |
10. Income Taxes: Income taxes are recorded in accordance with ASC Topic 740 "Income Taxes", which utilizes a balance sheet approach to provide for income taxes. Under this method, the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company's assets, liabilities, and expected benefits of utilizing net operating loss and tax credit carry-forwards. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled, and are reflected in the consolidated financial statements in the period of enactment. The components of income taxes are as follows:
|  | For the Fiscal Year Ended September 30, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
Current provision (benefit): |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 46,792 |  | $ | 183,527 |  | $ | (33,770 | )
State |  |  | (9,476 | ) |  | (518 | ) |  | (64,243 | )
Total current provision (benefit) |  |  | 37,316 |  |  | 183,009 |  |  | (98,013 | )
Deferred (benefit) provision: |  |  |  |  |  |  |  |  |  |
Federal |  |  | (2,435,049 | ) |  | — |  |  | — |
State |  |  | 670 |  |  | 751 |  |  | (11,081 | )
Total deferred (benefit) provision |  |  | (2,434,379 | ) |  | 751 |  |  | (11,081 | )
Total current and deferred (benefit) provision |  | $ | (2,397,063 | ) | $ | 183,760 |  | $ | (109,094 | )
Following is a reconciliation of the statutory federal rate to the Company's effective income tax rate:
|  | For the Fiscal Year Ended September 30, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
U.S. Federal statutory tax rate |  |  | 34.0 | % |  | 34.0 | % |  | 34.0 | %
State income taxes, net of federal benefit |  |  | 6.5 | % |  | (7.1 | )% |  | 13.8 | %
Permanent items |  |  | (1.8 | )% |  | (0.4 | )% |  | 1.3 | %
Research and development tax credits |  |  | (3.6 | )% |  | (27.5 | )% |  | (20.7 | )%
Valuation allowance |  |  | (433.5 | )% |  | 14.2 | % |  | (38.7 | )%
Change in unrecognized tax benefits |  |  | (13.5 | )% |  | 7.2 | % |  | (6.8 | )%
Effective income tax rate |  |  | (411.9 | )% |  | 20.4 | % |  | (17.1 | )%
In December of 2010, Congress enacted a two-year extension of the Research and Development Tax Credit ("R&D Tax Credit"), which retroactively reinstated and extended the federal R&D Tax Credit for amounts paid or incurred from January 1, 2010 to December 31, 2011. The Company recognized the entire impact of this retroactive extension in the quarter ended December 31, 2010, as required by ASC Topic 740. The Company's effective tax rate for the year ended September 30, 2011 reflects the benefit of the R&D Tax Credit generated over the period January 1, 2010 through September 30, 2011. The amount reported above for the year ended September 30, 2012 reflects R&D Tax Credits generated from October 1, 2011 through December 31, 2011. The deferred tax effect of temporary differences giving rise to the Company's deferred tax assets and liabilities consists of the components below.
|  | As of September 30, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |
|  | Current |  | Non Current |  | Current |  | Non Current |
Deferred tax assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Deferred revenue |  | $ | — |  | $ | — |  | $ | 3,058 |  | $ | — |
Reserves and accruals |  |  | 1,514,711 |  |  | 240,390 |  |  | 1,677,183 |  |  | 238,179 |
Research and development credits |  |  | 80,000 |  |  | 774,318 |  |  | 80,000 |  |  | 848,669 |
NOL carryforwards—state |  |  | — |  |  | 1,236,554 |  |  | — |  |  | 1,226,649 |
Stock options |  |  | — |  |  | 614,087 |  |  | — |  |  | 503,978 |
Other |  |  | — |  |  | 6,304 |  |  | — |  |  | 12,973 |
|  |  | 1,594,711 |  |  | 2,871,653 |  |  | 1,760,241 |  |  | 2,830,448 |
Less: Valuation allowance |  |  | (6,549 | ) |  | (1,448,177 | ) |  | (1,307,517 | ) |  | (2,696,113 | )
Total deferred tax assets |  |  | 1,588,162 |  |  | 1,423,476 |  |  | 452,724 |  |  | 134,335 |
Deferred tax liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Depreciation |  |  | — |  |  | (705,587 | ) |  | — |  |  | (701,298 | )
Other |  |  | — |  |  | — |  |  | (14,089 | ) |  | — |
Total deferred tax liabilities |  |  | — |  |  | (705,587 | ) |  | (14,089 | ) |  | (701,298 | )
Net deferred tax asset (liability) |  | $ | 1,588,162 |  | $ | 717,889 |  | $ | 438,635 |  | $ | (566,963 | )
At September 30, 2012, the Company had state net operating losses ("NOL") carryforwards of $21.1 million, which begin to expire in varying amounts after fiscal year ending September 30, 2026. In addition, the Company has federal R&D Tax Credit carryforwards of approximately $646,000, which begin to expire in varying amounts after fiscal year ending September 30, 2028, and state R&D Tax Credit carryforwards of $208,000 (net of federal impact), which begin to expire in varying amounts after fiscal year ending September 30, 2023. Deferred tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. Significant weight is given to evidence that can be verified objectively, and significant management judgment is required in determining any valuation allowances recorded against net deferred tax assets. The Company evaluates deferred income taxes on a quarterly basis to determine if valuation allowances are required by considering available evidence, including historical and projected taxable income and tax planning strategies which are both prudent and feasible. ASC Topic 740 "Income Taxes" requires the consideration of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Significant management judgment is required in determining any valuation allowance recorded against net deferred tax assets. At September 30, 2012, the Company considered all available evidence, including the recent history of income before income taxes, together with projections of profitability in future periods. As a result of this analysis, the Company determined that the positive evidence, which relates primarily to the recent history of income before income taxes, and projections of future profits, was sufficient to conclude that it was appropriate to reverse the valuation allowances previously recorded against its net federal deferred tax assets. The valuation allowance decreased by $2.4 million for the year ended September 30, 2012 primarily because of the reversal of certain valuation allowances described above. The valuation allowance decreased by $48,000 for the year ended September 30, 2011 primarily because of net reversals of deductible temporary differences. The current balance of the deferred tax valuation allowance relates principally to net operating losses ("NOL") of certain state taxing jurisdictions. In the event the Company were to determine that it would be able to realize these deferred tax assets in the future, an adjustment would be made to the valuation allowance which would reduce the provision for income taxes. The Company will continue to maintain the balance of the valuation allowance until an appropriate level of profitability is sustained to warrant a conclusion that it is no longer more likely than not that a portion of these net deferred tax assets will not be realized in future periods. There is currently no assurance of such future income before taxes. The Company believes that its estimate of future taxable income is inherently uncertain, and if its current or future operations generate losses, further adjustments to the valuation allowance are possible. Following is a reconciliation of beginning and ending balances of total amounts of gross unrecognized tax benefits:
|  | For the Fiscal Year Ended September 30, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
Balance at beginning of year |  | $ | 491,000 |  | $ | 425,000 |  | $ | 474,000 |
Unrecognized tax benefits related to prior years |  |  | — |  |  | — |  |  | — |
Unrecognized tax benefits related to current year |  |  | 12,000 |  |  | 67,000 |  |  | 34,000 |
Settlements |  |  | — |  |  | — |  |  | — |
Decrease in unrecognized tax benefits due to the lapse of applicable statute of limitations |  |  | (100,000 | ) |  | (1,000 | ) |  | (83,000 | )
Balance at end of year |  | $ | 403,000 |  | $ | 491,000 |  | $ | 425,000 |
The total liabilities associated with the unrecognized tax benefits that, if recognized, would impact the Company's effective tax rate were $403,000, $491,000 and $425,000 at September 30, 2012, 2011 and 2010, respectively. It is not anticipated that the balance of unrecognized tax benefits at September 30, 2012 will change significantly over the next twelve months. The Company's policy is to recognize interest accrued and, if applicable, penalties related to unrecognized tax benefits in income tax expense for all periods presented. The Company has accrued approximately $4,000 and $12,000 for the payment of interest, net of tax benefits, at September 30, 2012 and 2011, respectively. There is no accrual recorded for penalties. For the fiscal year ended September 30, 2012, 2011 and 2010, the Company recognized expense (benefit) of $(8,000), $4,000 and ($10,000), respectively, for interest (net of federal impact) within income tax expense. The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of related tax laws and regulations and require significant judgment to apply. The Company's federal income tax returns for the fiscal years ended September 30, 2009 and thereafter are open years subject to examination by the Internal Revenue Service ("IRS"). The Company also files income tax returns in various state jurisdictions, as appropriate, with varying statutes of limitation. During fiscal year 2012, the IRS examined the Company's income tax return for the year ended September 30, 2010; no adjustments resulted from this examination. There are no state income tax examinations in process at this time.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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