Note 8 - Income Taxes

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Text Block]

8.     INCOME TAXES

The income tax provision from continuing operations consists of the following:

Year ended December 31,
(in thousands)	2011		2010
Current	$	67	$	54
Provision for uncertain tax positions		26		76
Total	$	93	$	130

Following is a reconciliation of estimated income taxes at the statutory rate from continuing operations to estimated tax expense (benefit) as reported:

Year ended December 31,	2011			2010
Statutory rate		35	%		35	%
Change in valuation allowance		(35	%)		(35	%)
Other – state		11	%		45	%
Effective rate		11	%		45	%

Net deferred tax assets consist of the following at December 31:

(in thousands)	2011			2010
Deferred tax assets:
Federal, state and foreign loss carryforwards	$	6,893		$	6,736
Capitalized research and development		1,312			1,870
Deferred revenue		(153	)		(375	)
Federal and state tax credits		2,135			2,135
Other		219			292
Total deferred tax asset		10,405			10,658
Less valuation allowance		(10,405	)		(10,658	)
Net deferred tax asset	$	--		$	--

Federal and state tax credits of $2.1 million included in the above table expire at various dates between 2012 and 2027.

We have a deferred tax asset of approximately $10.4 million at December 31, 2011 and $10.7 million at December 31, 2010.  The deferred tax asset has been offset by a valuation allowance in 2011 and 2010 of $10.4 million and $10.7 million, respectively; because the company believes that it is more likely than not that the amount will not be realized.  No deferred taxes have been provided on temporary differences related to investments in foreign subsidiaries because these investments are considered to be permanent.

As of December 31, the following net operating loss carryforwards, if unused as offsets to future taxable income, will expire during the following years:

(in thousands)	2011		2010
2012	$	1,038	$	1,038
2019		2,901		2,901
2021		1,184		1,184
2022		1,083		1,083
2023		1,778		1,778
Thereafter		11,635		11,264
Total	$	19,619	$	19,248

Of the net operating losses detailed above, $12.3 million are related to net operating losses that VISaer and CoreCard incurred prior to their acquisition by the company.  These net operating losses are subject to Separate Return Limitation Year rules and may be restricted under IRC Section 382 to be utilized by the company.  These net operating loss carryforwards begin to expire in years 2012 through 2028.

We have recognized tax benefits from all tax positions we have taken, and there has been no adjustment to any carry forwards (net operating loss or research and development credits) in the past two years.  As of December 31, 2011 and 2010, the company has recorded a liability of $116,000 and $90,000, respectively, in connection with unrecognized tax benefits related to uncertain tax positions.  The liability includes $20,000 and $15,000 of interest and penalties as of December 31, 2011 and 2010, respectively.  As of December 31, 2011, management expects some incremental, but not significant, changes in the balance of unrecognized tax benefits over the next twelve months.

Our policy is to recognize accrued interest related to uncertain tax positions in interest expense and related penalties, if applicable, in general and administrative expense. During the year ended December 31, 2011 and 2010, we recognized $5,000 and $7,000 in interest expense, respectively, and $0 and $8,000 in penalties, respectively, related to the uncertain tax positions.

We file a consolidated U.S. federal income tax return for all subsidiaries in which our ownership equals or exceeds 80%, as well as individual subsidiary returns in various states and foreign jurisdictions.  With few exceptions we are no longer subject to U.S. federal, state and local or foreign income tax examinations by taxing authorities for years before 2008.