Income Taxes:

12 Months Ended

Sep. 30, 2011

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, applied to the years during which temporary differences are expected to be settled, 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,
		2011			2010			2009
Current provision (benefit):
	Federal	$	183,527		$	(33,770	)	$	134,560
	State		(518	)		(64,243	)		(38,362	)
Total current provision (benefit)			183,009			(98,013	)		96,198
Deferred provision (benefit):
	Federal		—			—			—
	State		751			(11,081	)		138,658
Total deferred provision (benefit)			751			(11,081	)		138,658
Total current and deferred provision (benefit)		$	183,760		$	(109,094	)	$	234,856

        Following is a reconciliation of the statutory federal rate to the Company's effective income tax rate:

		For the Fiscal Year Ended September 30,
		2011			2010			2009
U.S. Federal statutory tax rate			34.0	%		34.0	%		34.0	%
State income taxes, net of federal benefit			(7.1	)%		13.8	%		(0.1	)%
Research and development tax credits			(27.5	)%		(20.7	)%		(13.1	)%
Valuation allowance			14.2	%		(38.7	)%		(14.1	)%
Change in unrecognized tax benefits			6.8	%		(5.5	)%		(2.2	)%
	Effective income tax rate		20.4	%		(17.1	)%		4.5	%

        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 first 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. In October 2008, the Emergency Economic Stabilization Act of 2008 was enacted, which retroactively reinstated and extended the federal R&D Tax Credit from January 1, 2008 to December 31, 2009. The impact of this retroactive extension was recognized in the first quarter of the fiscal year ending September 30, 2009 as required by ASC Topic 740; accordingly the Company's effective income tax rate for that year reflected the benefit of the R&D Tax Credit generated over the period January 1, 2008 through September 30, 2009.

        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,
		2011						2010
		Current			Non Current			Current			Non Current
Deferred tax assets:
	Deferred revenue	$	3,058		$	—		$	18,180		$	3,031
	Reserves and accruals		1,677,183			238,179			1,609,142			256,645
	Research and development credit		80,000			848,669			655,214			208,384
	NOL carryforwards—state		—			1,226,649			—			1,189,643
	Stock options		—			503,978			—			628,640
	Other		—			12,973			—			11,437
			1,760,241			2,830,448			2,282,536			2,297,780
	Less: Valuation allowance		(1,307,517	)		(2,696,113	)		(1,760,184	)		(2,291,087	)
Total deferred tax assets			452,724			134,335			522,352			6,693
Deferred tax liabilities:
	Depreciation		—			(701,298	)		—			(656,622	)
	Other		(14,089	)		—			—			—
Total deferred tax liabilities			(14,089	)		(701,298	)		—			(656,622	)
Net deferred tax asset (liability)		$	438,635		$	(566,963	)	$	522,352		$	(649,929	)

        During the fiscal year ended September 30, 2010, the Company generated a federal net operating loss ("NOL") of $127,000. The Company carried back this NOL to a previous tax year, such that a refund of $43,000 was received. As of September 30, 2011, the Company has state NOL carryforwards of $21.0 million, which begins 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 $721,000, 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.

        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 that are both prudent and feasible. ASC Topic 740 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.

        As of September 30, 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 at September 30, 2011. The valuation allowance decreased by $48,000 and $510,000 for the year ended September 30, 2011 and 2010, respectively, primarily because of net reversals of deductible temporary differences. 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.

        If realization of deferred tax assets in the future is considered more likely than not, a reduction to the valuation allowance related to deferred tax assets would increase net income in the period such determination is made. The amount of deferred tax assets considered realizable is based on significant estimates, and it is possible that changes in these estimates could materially affect the financial condition and results of operations. The Company's effective tax rate may vary from period to period based on changes in estimated taxable income or loss, changes to the valuation allowance, changes to federal or state tax laws, and as a result of acquisitions and changes in uncertain tax positions, if any.

        Following is a reconciliation of beginning and ending balances of total amounts of gross unrecognized tax benefits:

	For the Fiscal Year Ended September 30,
	2011			2010			2009
Balance at beginning of year	$	425,000		$	474,000		$	324,000
Unrecognized tax benefits related to prior years		—			—			—
Unrecognized tax benefits related to current year		67,000			34,000			191,000
Settlements		—			—			—
Decrease in unrecognized tax benefits due to the lapse of applicable statute of limitations		(1,000	)		(83,000	)		(41,000	)
Balance at end of year	$	491,000		$	425,000		$	474,000

        The total liabilities associated with the unrecognized tax benefits that, if recognized, would impact the Company's effective tax rate were $491,000, $425,000 and $474,000 at September 30, 2011, 2010 and 2009, respectively. The Company's gross unrecognized tax benefits recorded at September 30, 2011 may be decreased in the future as a result of the expiration of the statute of limitation related to the Company's federal income tax returns for a previous tax year.

        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 $12,000 and $8,000 for the payment of interest, net of tax benefits, at September 30, 2011 and 2010, respectively. There is no accrual recorded for penalties.

        For the fiscal year ended September 30, 2011, 2010 and 2009, the Company recognized expense (benefit) of $4,000, ($10,000) and ($2,000), 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, 2008 and thereafter are open years subject to examination by the Internal Revenue Service. The Company also files income tax returns in various state jurisdictions, as appropriate, with varying statutes of limitation. There are no state income tax examinations in process at this time.