(12)	Income Taxes

Components of income (loss) before income taxes in 2011, 2010, and 2009 are as follows:

	Years Ended December 31,
	2011			2010			2009
United States	$	(7,976	)	$	(31,282	)	$	(5,435	)
Foreign		6,110			6,120			5,585
	$	(1,866	)	$	(25,162	)	$	150

The provision for income taxes consists of the following in 2011, 2010, and 2009:

	Years Ended December 31,
	2011			2010			2009
Current:
Federal	$	(4,191	)	$	(111	)	$	(238	)
State		(287	)		320			65
Foreign		35			201			38
Total current		(4,443	)		410			(135	)
Deferred:
Federal		5,636			(2	)		-
State		425			-			-
Foreign		2,047			(14,054	)		-
Total deferred		8,108			(14,056	)		-
Total provision	$	3,665		$	(13,646	)	$	(135	)

Actual income taxes varied from the expected income taxes (computed by applying the statutory income tax rate of 35% for the years ended December 31, 2011 and 2010 and 34% for the year ended December 31, 2009 to income before income taxes) as a result of the following:

	Years Ended December 31,
	2011			2010			2009

Expected tax expense (benefit)	$	(653	)	$	(8,807	)	$	51
Total increase (decrease) in income taxes resulting from:
Change in valuation allowance allocated to income tax expense		10,641			(9,673	)		(377	)
Research and experimentation credit		-			(78	)		(63	)
Share-based compensation		24			83			168
Acquisition costs		(684	)		3,386			411
State and local income taxes, net of federal income tax benefit		(212	)		435			(296	)
Foreign income tax rate differential		(463	)		(212	)		24
Change in unrecognized tax benefits		(4,669	)		241			56
Other		(319	)		979			(109	)
Actual income tax expense (benefit)	$	3,665		$	(13,646	)	$	(135	)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2011 and 2010 are presented as follows:

	December 31,
	2011			2010
Deferred tax assets:
Accrued compensation	$	611		$	1,559
Depreciation		2,775			5,774
Research and experimentation credit carryforwards		7,324			7,051
Other credit carryforwards		1,476			2,260
Domestic loss carryforwards		113,459			120,493
Foreign loss carryforwards		9,652			10,799
Nonqualified stock options		3,450			2,112
Other		5,821			3,655
Total gross deferred tax assets		144,568			153,703
Less: asset valuation allowance		(105,743	)		(101,385	)
Net deferred tax asset		38,825			52,318
Deferred tax liabilities:
Software development costs and intangible assets		(8,439	)		(9,647	)
Intangibles-customer contracts & tradenames		(14,223	)		(18,013	)
Other		(5,452	)		(5,839	)
Total gross deferred liabilities		(28,114	)		(33,499	)
Net deferred tax asset	$	10,711		$	18,819
Included on balance sheet:
Current assets: deferred income taxes	$	3,393		$	2,545
Non–current asset: deferred income taxes		9,209			17,006
Current liabilities: deferred income taxes		-			(732	)
Non–current liabilities: deferred income taxes		(1,891	)		-
Net deferred income taxes	$	10,711		$	18,819

At December 31, 2011, we had U.S. federal net operating loss, capital loss, research credit, alternative minimum tax credit, and foreign tax credit carryforwards of $285,572, $3,605, $5,266, $977, and $297 respectively, state net operating loss, capital loss and research credit carryforwards of $241,512, $3,605 and $408, respectively, foreign federal and provincial net operating loss carryforwards of $33,862 and $29,310, respectively, foreign and provincial capital loss carryforwards of $6,451 and $6,444, respectively, and foreign federal and provincial research credit carryforwards of $2,025 and $202, respectively. The U.S. federal net operating loss, research credit and foreign tax credit carryforwards expire in varying amounts beginning in 2012 and continuing through 2030, 2030 and 2018, respectively. The state net operating loss carryforwards expire in varying amounts beginning in 2012, and continuing through 2031 and the credit carryforwards expire in varying amounts beginning 2012 and continuing through 2024. The U.S. federal and state capital loss carryforwards will expire in 2013. The foreign tax credits expire in varying amounts beginning in 2018, and continuing through 2024. The foreign federal and provincial net operating loss carryforwards expire in varying amounts beginning in 2012, and continuing through 2030. Foreign and provincial capital losses may be carried forward indefinitely.

Management has an obligation to review, at least annually, the components of our deferred tax assets. This review is to ascertain that, based upon the information available at the time of the preparation of financial statements, it is more likely than not, that we expect to utilize these future deductions and credits. In the event that management determines that it is more likely than not these future deductions, or credits, will not be utilized, a valuation allowance is recorded, reducing the deferred tax asset to the amount expected to be realized.

Management's analysis for 2011 resulted in a valuation allowance of $105,743 at December 31, 2011. Based on both quantitative and qualitative factors, the company records a valuation allowance for all jurisdictions except Canada. In 2010, we reversed $14,054 in valuation allowance related to almost all of the deferred tax assets of our Canadian operations. We considered the effect of U.S. Internal Revenue Code (Code) Section 382 on our ability to utilize existing U.S. net operating loss and tax credit carryforwards. Section 382 imposes limits on the amount of tax attributes that can be utilized where there has been an ownership change as defined under the Code. Almost all of our U.S. and state net operating loss, capital loss and credit carryforwards are subject to future limitation. The future limitation is in addition to any past limitations applicable to the net operating loss and credit carryforwards of previously acquired businesses. While application of Section 382 is complex, we currently estimate deferred tax assets of $26,779 related to U.S. net operating loss, capital loss and research tax credit carryforwards may be unrealizable due to Section 382 limitations We have recorded a full valuation reserve for these deferred tax assets. In addition, the acquired net operating loss and tax credit carryforwards of Ophthalmic Imaging Systems, Inc. will be subject to future limitation under Section 382 as a result of its being acquired by us. While we are presently evaluating the impact of Section 382 on the acquired deferred tax assets, the valuation allowance established as of December 31, 2011 is considered necessary to reduce our deferred tax assets to the amount expected to be realized, based upon all available information at such time.

The net increase in the valuation allowance in 2011, 2010, and 2009 was $4,358, $31,830, and $27,168, respectively. The 2011 increase was primarily attributable to valuation allowances established in connection with the net operating loss and credit carryforwards of acquired businesses.

There exist potential tax benefits for us associated with stock-based compensation. At December 31, 2011and 2010, we had $1,514 and $1,241, respectively, of excess tax benefits related to vesting of restricted stock awards, nonqualified stock option exercises and disqualifying dispositions of employee incentive stock options. The income tax benefit related to excess tax benefits of stock-based compensation will be credited to paid-in-capital, when recognized, by reducing taxes payable.

The total amount of unrecognized tax benefits as of December 31, 2011, 2010 and 2009 was $1,862, $6,703, and $6,506, respectively. We recognize interest and penalties in the provision for income taxes. Total accrued interest and penalties as of December 31, 2011 were $142 and $54, respectively. Total accrued interest and penalties as of December 31, 2010 were $254 and $57, respectively. Total interest included in tax expense in 2011, 2010 and 2009 were $(111), $40, and $36, respectively. Total penalties included in tax expense in 2011, 2010 and 2009 were $(3), $1 and $0 respectively.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits in 2011, 2010 and 2009:

	December 31,
	2011			2010		2009
Balance at January 1	$	6,703		$	6,506	$	6,485
Gross increases - tax positions in current year		-			19		21
Gross increases - tax positions in prior year		-			178		-
Gross decreases - tax positions in prior year		(12	)		-		-
Decreases due to statute expirations		(4,829	)		-		-
Balance at December 31	$	1,862		$	6,703	$	6,506

The total amount of unrecognized tax benefits at December 31, 2011 and December 31, 2010 that, if recognized, would affect the effective tax rate is $1,785 and $6,339, respectively. We do not expect a significant change in unrecognized tax benefits within the next twelve months.

We file income tax returns in the U.S., various states and foreign jurisdictions. We recently became notified of a taxing authority examination related to our Canadian return for the 2009 tax year. We are not currently under examination in the U.S. federal taxing jurisdictions for which years ending after 2007 remain subject to examination. Years prior to 2008 remain subject to examination to the extent net operating loss and tax credit carryforwards have been utilized after 2007, or remain subject to carryforward.

We have recorded income tax expense on all profits, except for undistributed profits of non-U.S. subsidiaries, which are considered indefinitely reinvested. Determination of the amount of unrecognized deferred tax liability related to indefinitely reinvested profits is not feasible.