Note 7 – Income Taxes

The Company accounts for income taxes in accordance with ASC 740 which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition. There were no unrecognized tax benefits as of December 31, 2011 and 2010.

The Company has identified its federal tax return and its state tax return in New York as “major” tax jurisdictions, as defined in ASC 740. Based on the Company's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company's financial statements. The Company's evaluation was performed for tax years ended 2008 through 2011, the only periods subject to examination. The Company believes that its income tax positions and deductions will be sustained upon audit and does not anticipate any adjustments that will result in a material change to its financial position. The Company has elected to classify interest and penalties incurred on income taxes, if any, as income tax expense. No interest or penalties on income taxes have been recorded during the years ended December 31, 2011 and 2010. The Company does not expect its unrecognized tax benefit position to change during the next twelve months. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

The following table summarizes components of the provision for current and deferred income taxes for the years ended December 31, 2011 and 2010:

	December 31,
	2011		2010
	(in thousands)
Current
Federal	$	30	$	30
State and other		15		11

Total Current		45		41

Deferred
Federal		1,564		--
State and other		276		--

Total Deferred		1,840		--

Provision for Income Taxes	$	1,885	$	41

The following table summarizes the significant differences between the U.S. Federal statutory tax rate and the Company's effective tax rate for financial statement purposes for the years ended December 31, 2011 and 2010:

	December 31,
	2011			2010

U.S. Federal Statutory Tax Rate		34	%		34	%
Permanent items		(3	) %		11	%
State taxes		2	%		8	%
Change in effective tax rate		(29	) %		--	%
Other		3	%		--	%
Decrease in valuation allowance		(251	) %		(49	) %

Totals		(244	) %		4	%

The tax effects of temporary differences that give rise to deferred tax assets and liabilities for the years ended December 31, 2011 and 2010 are summarized as follows:

	December 31,
	2011			2010
	(in thousands)
Deferred Tax Assets
Net operating loss carryforwards	$	13,521		$	18,194
Tax credit carryforwards		394			429
Fixed and intangible assets		22			45
Deferred revenue		--			28
Value of stock options and stock compensation		236			220
Unrealized loss on securities		--			544
Capital loss carryforward		517			--
Accruals		164			165
		14,854			19,625
Valuation Allowance		(13,827	)		(16,758	)

Deferred Tax Assets, Net	$	1,027		$	2,867

The change in the valuation allowance for deferred tax assets for the years ended December 31, 2011 and 2010 are summarized as follows:

	December 31,
	2011			2010

Beginning Balance	$	16,758		$	20,277
Change in Allowance		(2,931	)		(3,519	)

Ending Balance	$	13,827		$	16,758

At December 31, 2011, the Company has federal and state net operating loss carryforwards (“NOLs”) remaining of approximately $36 million and $30 million, respectively, which may be available to reduce taxable income, if any. Approximately $18 million and $8 million of Federal NOLs expired in 2011 and 2010, and approximately $9 million of Federal NOLs will expire in 2012 with the remaining $27 million expiring in 2019 through 2031. However, Internal Revenue Code Section 382 rules limit the utilization of NOLs upon a change in control of a company. During 2011, the Company performed an evaluation as to whether a change in control had taken place. Management believes that there has been no change in control as such applies to Section 382. However, if it is determined that a change in control has taken place, either historically or in the future, utilization of its NOLs could be subject to severe limitations, which could have the effect of eliminating substantially all of the future income tax benefits of the NOLs. The NOL carryforward as of December 31, 2011 included approximately $1,194,000 related to windfall tax benefits for which a benefit would be recorded in additional paid-in capital if and when realized.