Note 7 - Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Text Block]

7.    INCOME TAXES

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

Year ended December 31,
(in thousands)	2012		2011
Current	$	57	$	67
Provision for uncertain tax positions		23		26
Total	$	80	$	93

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,	2012				2011
Statutory rate		35		%		35		%
Change in valuation allowance		(35	)	%		(35	)	%
Other – state		(58	)	%		12		%
Effective rate		(58	)	%		12		%

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

(in thousands)	2012			2011
Deferred tax assets:
Federal, state and foreign loss carryforwards	$	6,852		$	6,893
Capitalized research and development		753			1,312
Deferred revenue		(76	)		(153	)
Federal and state tax credits		1,773			2,135
Other		346			219
Total deferred tax asset		9,648			10,405
Less valuation allowance		(9,648	)		(10,405	)
Net deferred tax asset	$	--		$	--

Federal and state tax credits of $1.8 million included in the above table expire at various dates between 2018 and 2027.

We had a deferred tax asset of approximately $9.6 million and $10.4 million at December 31, 2012 and December 31, 2011, respectively.  The deferred tax asset has been offset by a valuation allowance in 2012 and 2011 of $9.6 million and $10.4 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)	2012		2011
2012	$	--	$	1,038
2019		2,901		2,901
2021		1,184		1,184
2022		1,083		1,083
2023		1,778		1,778
Thereafter		12,631		11,635
Total	$	19,577	$	19,619

Of the net operating losses detailed above, $11.3 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 will begin to expire in years 2019 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, 2012 and 2011, the company has recorded a liability of $148,000 and $116,000, respectively, in connection with unrecognized tax benefits related to uncertain tax positions.  The liability includes $28,000 and $20,000 of interest and penalties as of December 31, 2012 and 2011, respectively.  As of December 31, 2012, 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, 2012 and 2011, we recognized $7,000 and $5,000 in interest expense, respectively, and $2,000 and $0 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 2009.