Note 7 - Income Taxes (Restated)

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

7. INCOME TAXES (RESTATED)

Refer to Note 18 for an explanation of the reason for and impact of the restatement of certain items in this Note 7.

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

Year ended December 31,
(in thousands)	2014		2013
Current	$	26	$	43
Provision for uncertain tax positions		27		26
Total	$	53	$	69

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,	2014			2013
Statutory rate		35	%		35	%
Change in valuation allowance		(34	%)		(35	%)
Other – state		4	%		13	%
Effective rate		5	%		13	%

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

(in thousands)	2014			2013
Deferred tax assets:
Federal, state and foreign loss carryforwards	$	3,862		$	6,527
Capital loss carryforward		3,570			--
Capitalized research and development		--			475
Deferred revenue		71			77
Federal and state tax credits		520			1,762
Other		503			563
Total deferred tax asset		8,526			9,404
Less valuation allowance		(8,526	)		(9,404	)
Net deferred tax asset	$	--		$	--

Federal and state tax credits of $520,000 included in the above table expire at various dates between 2024 and 2034.

We had a deferred tax asset of approximately $8.5 million and $9.4 million December 31, 2014 and December 31, 2013, respectively. The deferred tax asset has been offset by a valuation allowance in 2014 and 2013 of $8.5 million and $9.4 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)	2014		2013
2019	$	--	$	2,901
2021		689		1,184
2022		849		1,083
2023		--		1,302
Thereafter		9,498		12,177
Total	$	11,036	$	18,647

Of the net operating losses detailed above, $1.5 million are related to net operating losses that CoreCard incurred prior to its acquisition by the company. These net operating losses are subject to Separate Return Limitation Year rules. These net operating loss carryforwards will begin to expire in years 2021 through 2022.

During the fourth quarter of 2014, we believe the stock of our VISaer subsidiary became worthless. We intend to take a $10.2 million worthless stock deduction on our consolidated U.S. Federal income tax return. The loss will be treated as a capital loss for income tax purposes. The capital loss will carryforward for five years and will expire as of December 31, 2019 if not offset by future capital gains.

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, 2014 and 2013, the company has recorded a liability of $212,000 and $185,000, respectively, in connection with unrecognized tax benefits related to uncertain tax positions. The liability includes $52,000 and $39,000 of interest and penalties as of December 31, 2014 and 2013, respectively. As of December 31, 2014, 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, 2014 and 2013, we recognized $10,000 and $8,000 in interest expense, respectively, and $3,000 and $2,000 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 2011.