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Note 12. Income Taxes
 12 Months Ended
Sep. 30, 2012
Income Tax Disclosure [Text Block]
12.   Income Taxes

The provisions of ASC 740-10 “Accounting for Uncertain Income Tax Positions”, requires that the impact of tax positions be recognized in the financial statements if they are more  likely than not of being sustained upon examination, based on the technical merits of the position. There was no impact to the Company as a result of adopting ASC 740-10 as the Company’s management has determined that the Company has no uncertain tax positions requiring recognition under ASC 740-10 as of September 30, 2012 and 2011.

The Company’s income tax provision was computed based on the federal statutory rate and average state statutory rates, net of related federal benefit. The provision differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes.

The sources, all domestic, and tax effects of the differences are as follows:

   
Year Ended September 30,
 
   
2012
   
2011
 
Income tax benefit at the federal statutory rate of 34%
  $ (356 )   $ (239 )
Permanent differences, net
    204       341  
State income tax expense (benefit)
    (51 )     (34 )
Change in valuation allowance attributable to operations
    227       (54 )
Foreign Taxes
    46       -  
Other
    (2 )     10  
Total
  $ 68     $ 24  

As of September 30, 2012, the Company has a federal net operating loss (NOL) carryforward of approximately $6 million that expires on various dates through 2032. Internal Revenue Code Section 382 places a limitation on the amount of taxable income which can be offset by NOL carryforwards after a change in control of a loss corporation. Generally, after a change in control, a loss corporation cannot deduct NOL carryforwards in excess of the Section 382 Limitation. Due to these “change of ownership” provisions, utilization of NOL carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods. The Company has not performed a Section 382 analysis. However, if performed, Section 382 may be found to limit potential future utilization of the Company’s NOL carryforwards.

The Company has net operating loss carryforwards and other deferred tax benefits that are available to offset future taxable income. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. Accordingly, the Company has established a full valuation allowance against its deferred tax asset at September 30, 2012 and 2011. For the year ended September 30, 2012 the valuation allowance for deferred tax assets increased $1,205 which was mainly due to the increase in the net operating loss.  For the year ended September 30, 2011, the valuation allowance for deferred tax assets increased $227 thousand which was mainly due to the decreases in certain allowances, intangibles and reserves.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense. Penalties, if incurred, are recognized as a component of tax expense.

The Company is subject to U.S. federal income tax as well as income tax of certain state jurisdictions. The Company has not been audited by the Internal Revenue Service (IRS) or any states in connection with income taxes. The tax periods from 2009 – 2012 generally remain open to examination by the IRS and state authorities. 

Significant components of the Company’s deferred tax assets and liabilities are as follows:

   
September 30,
 
   
2012
   
2011
 
Deferred tax assets:
           
Current:
           
Bad debt reserve
  $ 76     $ 112  
Deferred revenue
    332       454  
Long-term
               
AMT carryforward
    9       15  
Net operating loss carryforwards
    2,618       1,741  
Intangibles
    104       -  
Total deferred tax assets
    3,139       2,322  
Deferred tax liabilities:
               
Long-term:
               
Intangibles
    -       (396 )
Depreciation
    (259 )     (251 )
Total deferred tax liabilities
    (259 )     (647 )
Total deferred tax assets, net, before valuation allowance
    2,880       1,675  
Valuation allowance
    (2,880 )     (1,675 )
Net deferred tax assets
  $ -     $ -  

Undistributed earnings of the Company’s foreign subsidiary amounted to approximately $492 thousand and $474 thousand at September 30, 2012 and 2011, respectively. These earnings are considered to be indefinitely reinvested; accordingly, no provision for US federal and state income taxes has been provided thereon. Upon repatriation of those earnings, in the form of dividends of otherwise, the Company would be subject to both US income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the applicable foreign tax authority. Determination of the amount of unrecognized deferred US income tax liability is not material and the detailed calculations have not been performed. As of September 30, 2012, there would be minimal withholding taxes upon remittance of all previously unremitted earnings.