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Income Taxes
 3 Months Ended
Dec. 31, 2011
Income Taxes  
Income Taxes

3. Income Taxes

 

The income tax benefit for the three months ended December 31, 2011 was $252,000 as compared to an expense of $64,000 for the three months ended December 31, 2010.  The income tax benefit for the three months ended December 31, 2011 was the result of the actual pre-tax loss for the quarter as compared to the actual pre-tax income from the same period in the prior year.

 

The effective tax rate for the three months ended December 31, 2011 was 42%.  The effective tax rate differs from the statutory rate for the three months ended December 31, 2011, due primarily to the current tax benefits resulting from the loss recorded, together with a decrease in the liability recorded for uncertain tax positions due to the lapse of applicable statutes of limitation.

 

The effective tax rate for the three months ended December 31, 2010 was 18%.  The effective tax rate differs from the statutory rate for the three months ended December 31, 2010, due primarily to the forecast benefits from the domestic production activities deduction and the projected utilization of research and development tax credit carry forwards.

 

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 the amounts paid or incurred from January 1, 2010 to December 31, 2011.  The Company recognized the entire impact of this retroactive extension in the first quarter ended December 31, 2010, as required by ASC Topic 740.  The R&D Tax Credit has not been extended beyond December 31, 2011.  The Company has recorded the impact of the R&D Tax Credit for the first quarter of fiscal year ended September 30, 2012.

 

As of December 31, 2011, the Company recognized a $132,000 current income tax asset that would result if current period taxable losses were carried back to the prior year to recover federal income tax paid.  The Company maintains a full valuation allowance against its net deferred tax assets, which may not be carried back to prior taxable years, and consist primarily of deductible temporary differences and other carry forward items.

 

As of December 31, 2011, the Company considered all available evidence, including the uncertainty as to the extent and timing of profitability in future periods. As a result of this analysis, the Company determined that the negative evidence, which relates primarily to the uncertainty over future profits, outweighed the positive evidence that exists currently and, therefore, concluded that it was appropriate to retain a full valuation allowance against its net deferred tax assets.  The Company will continue to maintain this valuation allowance until an appropriate level of profitability is sustained to warrant a conclusion that it is more likely than not that a portion of these net deferred tax assets will be realized in future periods. Future pre-tax income within the jurisdictions for which the Company maintains a valuation allowance may result in these tax benefits being realized; however, there is no assurance of future pre-tax income.