Summary of Significant Accounting Policies and Balance Sheet Details

12 Months Ended

Dec. 31, 2011

Summary of Significant Accounting Policies and Balance Sheet Details [Abstract]

Summary of Significant Accounting Policies and Balance Sheet Details

2.	Summary of Significant Accounting Policies and Balance Sheet Details

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, income and expenses during the period. Actual results may differ from those estimates.

Cash and Cash Equivalents and Short and Long-term Investments

The Company considers all investment instruments purchased with an original maturity of three months or less to be cash equivalents. Investment securities with original maturities of more than three months but less than one year are considered short-term investments. Auction rate securities with original maturities of more than three months are considered short-term investments even if they are subject to re-pricing within three months. Investment securities held with the intent to reinvest or hold for longer than a year, or with remaining maturities of one year or more, are considered long-term investments. The Company was not invested in any short-term investments, auction rate securities or long-term investments as of December 31, 2011 and 2010. The Company's cash equivalents at December 31, 2011 and 2010 consisted of money market funds with original maturities of three months or less, and are therefore classified as cash and cash equivalents in the accompanying consolidated balance sheets.

Fair Value Measurements

The Company measures the fair value of financial instruments in accordance with Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable, or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In accordance with ASC 820, the following table represents the Company's fair value hierarchy for its financial assets (cash equivalents) as of December 31, 2011 and 2010 (in thousands):

	Fair Value	Level 1	Level 2		Level 3
Cash Equivalents:
Money market funds	$ 5	$ 5		$ -	$ -
Total cash equivalents	$ 5	$ 5		$ -	$ -

Significant Concentrations

A relatively small number of customers have accounted for a significant percentage of the Company's revenue for the years ended December 31, 2011, 2010 and 2009. Revenue from these customers as a percentage of total revenue for each fiscal year is as follows:

	2011			2010			2009
Customer A		39	%		*	%		*	%
Customer B		21	%		12	%		14	%
Customer C		15	%		*	%		*	%
Customer D			%		15	%		-	%
Customer E			%		56	%		-	%
Customer F			%		*	%		35	%
Customer G			%		*	%		19	%

-------

*	Less than 10%

Any change in the relationship with these customers could have a potentially adverse effect on the Company's financial position.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of temporary cash investments and trade receivables. The Company has cash and investment policies that limit the amount of credit exposure to any one financial institution, or restrict placement of these investments to financial institutions evaluated as highly credit worthy. As of December 31, 2011, the Company had cash and cash equivalents on deposit with a major financial institution that were above insured limits. Concentrations of credit risk with respect to trade receivables relate to those trade receivables from both United States and foreign entities. As of December 31, 2011, approximately 91% of our gross accounts receivable was concentrated with two customers, each of whom represented more than 10% of our gross accounts receivable. As of December 31, 2010, approximately 74% of our gross accounts receivable was concentrated with two customers, each of whom represented more than 10% of our gross accounts receivable. No other customer individually accounted for greater than 10% of total accounts receivable as of December 31, 2011 and 2010.

Allowance for Doubtful Accounts

The Company uses estimates in determining the allowance for doubtful accounts based on historical collection experience, historical write-offs, current trends and the credit quality of the Company's customer base, and the characteristics of accounts receivable by aging category. Accounts are generally considered delinquent when thirty days past due. Uncollectible accounts are written off directly to the allowance for doubtful accounts. If the allowance for doubtful accounts was understated, operating income could be significantly reduced. The impact of any such change or deviation may be increased by the Company's reliance on a relatively small number of customers for a large portion of its total revenue.

Fair Value of Financial Instruments

The carrying amounts of the Company's financial assets and liabilities, including cash and cash equivalents, accounts receivable, line of credit, and accounts payable at December 31, 2011 and 2010, approximate fair value because of the short maturity of these instruments.

The related party convertible debt was stated at cost at December 31, 2011 since there were no unamortized discounts and the Company did not elect to measure the instrument at fair value in accordance with ASC 825-10, Financial Instruments. As of December 31, 2011, the carrying amount of the convertible debt was $3.0 million and the estimated fair value was approximately $4.9 million. The fair value is estimated as the sum of the present value of future interest and principal payments of the debt based on rates available to the Company for debt with similar terms and remaining maturities, and the fair value of the conversion feature calculated based on the Black-Scholes-Merton valuation model. See Note 3 for further details on the terms of the related party convertible debt.

Property and Equipment

Property and equipment are stated at cost and are depreciated using the straight line method over the estimated useful lives (three or five years) of the assets. Effective on January 1, 2011, the Company and its subsidiary changed their depreciation method from double declining balance method to the straight line method. The Company believes that the straight line method better reflects the pattern of consumption of the future benefits to be derived from those assets being depreciated. Under the provisions of ASC 250, Accounting Changes and Error Corrections, a change in depreciation method is treated on a prospective basis as a change in estimate and prior period results have not been restated. This did not result in a material change to depreciation expense for the year ended December 31, 2011. Depreciation expense was approximately $105,000, $191,000, and $245,000 for the years ended December 31, 2011, 2010, and 2009, respectively. Repairs and maintenance are expensed as incurred. Property and equipment consisted of the following (in thousands):

		December 31,
		2011		2010
Computer equipment	$	1,076	$	1,756
Computer software		204		417
Furniture, fixtures and equipment		225		254
Leasehold improvements		200		201
Total property and equipment, at cost		1,705		2,628
Less: accumulated depreciation		(1,554)		(2,444)
Total property and equipment, net	$	151	$	184

Accrued Liabilities and Other

Accrued liabilities and other consisted of the following (in thousands):

		December 31,
		2011		2010
Accrued consulting and professional fees	$	456	$	334
Accrued payroll and related benefits		355		346
Deferred rent payable		100		151
Accrued loss on subleases		19		104
Other		107		113
Total accrued and other liabilities	$	1,037	$	1,048

Patents Costs

Due to uncertainties about the estimated future economic benefits and lives of the Company's patents and patent applications, all related outside patent costs have been expensed as incurred. Outside patent costs were approximately $14,000, $191,000, and $941,000 for 2011, 2010 and 2009, respectively, and are reflected in general and administrative expenses in the accompanying consolidated statements of operations.

Revenue Recognition, Deferred Revenue and Customer Deposits

The Company recognizes product and services revenue in accordance with ASC 985-605, Revenue Recognition – Software (“ASC 985-605”), or ASC 605-25, Revenue Recognition – Multiple-Element Arrangements. The Company derives its product revenue primarily from the sale and licensing of a suite of desktop (endpoint) and infrastructure software products that combine to form an Avistar video-enabled visual communication and collaboration solution. Services revenue includes revenue from post-contract customer support, training and professional services such as software implementation and enhancement. The fair value of all product, post-contract customer support and training offered to customers is determined based on the price charged when such products or services are sold separately.

Arrangements that include multiple product and service elements may include software products, professional services, post-contract customer support and training. Pursuant to ASC 985-605, the Company recognizes revenue when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectibility is probable. The Company applies these criteria as discussed below:

Persuasive evidence of an arrangement exists. The Company requires a written contract, signed by both the customer and Avistar, or a purchase order from those customers that have previously negotiated a standard end-user license arrangement or volume purchase agreement, prior to recognizing revenue on an arrangement.

·	Delivery has occurred. The Company delivers software and hardware to customers either electronically or physically and have no further obligations with respect to the agreement. The standard delivery terms are FOB shipping point.

The fee is fixed or determinable. The Company's determination that an arrangement fee is fixed or determinable depends principally on the arrangement's payment terms. The Company's standard terms generally require payment within 30 to 90 days of the date of invoice. Where these terms apply, the Company regards the fee as fixed or determinable, and recognizes revenue upon delivery (assuming other revenue recognition criteria are met). If the payment terms do not meet this standard, but rather, involve “extended payment terms”, the fee may not be considered to be fixed or determinable, and the revenue would then be recognized when customer installments are due and payable.

Collectibility is probable. To recognize revenue, the Company judges collectibility of the arrangement fees on a customer-by-customer basis pursuant to a credit review policy. The Company typically sells to customers which have had a history of successful collections. For new customers, the Company evaluates the customer's financial position and ability to pay. If the Company determines that collectibility is not probable based upon the credit review process or the customer's payment history, revenue is recognized when cash is collected.

If there are any undelivered elements, the Company defers revenue for those elements, as long as vendor specific objective evidence (“VSOE”) of fair value exists for the undelivered elements. Payment for product is due upon shipment, subject to specific payment terms. Payment for professional services is due either upon or in advance of providing the services, subject to specific payment terms. Reimbursements received for out-of-pocket expenses and shipping costs, which have not been significant to date, are recognized as revenue in accordance with ASC 605-45, Revenue Recognition– Principal Agent Considerations.

The price charged for maintenance and/or support is defined in the contract, and is based on a fixed price for the product components as stipulated in the customer agreement. Customers have the option to renew the maintenance and/or support arrangement in subsequent periods at the same or similar rate as paid in the initial year subject to contractual adjustments for inflation in some cases. Revenue from maintenance and support services is deferred and recognized pro-rata over the maintenance and/or support term, which is typically one year in length. Payments for services made in advance of the provision of services are recorded as deferred revenue and customer deposits in the accompanying consolidated balance sheets. Training services are offered independently of the purchase of product. The value of these training services is determined based on the price charged when such services are sold separately. Training revenue is recognized upon performance of the service.

The Company recognizes revenue from software implementation and enhancement contracts in accordance with ASC 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. Product and service revenue related to contracts for software implementation and enhancement is recognized using the percentage of completion method, in accordance with the “Input Method”, when all of the following conditions are met: a contract exists with the customer at a fixed price, the Company expects to fulfill all of its material contractual obligations to the customer for each deliverable of the contract, a reasonable estimate of the costs to complete the contract can be made, and collection of the receivable is probable. The amount of revenue recognized is based on the total project fee under the agreement and the percentage of completion achieved. The percentage of completion is measured by monitoring progress using records of actual time incurred to date in the project compared to the total estimated project requirements, which corresponds to the costs related to the earned revenues. Changes in estimates are recognized in the periods affected by the changes. Any anticipated losses on contracts in progress are charged to earnings when identified. The amounts billed to customers in excess of revenue recognized to date are deferred and recorded as deferred revenue and customer deposits in the accompanying consolidated balance sheets. The amount of revenue recognized in excess of billings is recorded as unbilled accounts receivable.

The Company recognizes revenue from the licensing or sale of its intellectual property portfolio according to ASC 985-605, based on the terms of the royalty, partnership, cross-licensing and purchase agreements involved.

In July 2006, the Company entered into a Patent License Agreement with Sony Corporation (“Sony”) and Sony Computer Entertainment, Inc. (“SCEI”). Under the license agreement, the Company granted Sony and its subsidiaries, including SCEI, a license to all of the Company's patents with a filing date on or before January 1, 2006 for a specific field of use relating to video conferencing. The license covers Sony's video conferencing apparatus as well as other products, including video-enabled personal computer products and certain SCEI PlayStation products. Future royalties under this license are being recognized as estimated royalty-based sales occur in accordance with ASC 985-605. The Company uses historical and forward looking sales forecasts provided by SCEI and third party sources, in conjunction with past actual royalty reports provided periodically by SCEI directly to the Company, to develop an estimate of royalties recognized for each quarterly reporting period. The royalty reports the Company receives directly from SCEI are delayed beyond the period in which the actual royalties are generated, and thus the estimate of current period royalties requires significant management judgment and is subject to corrections in a future period once actual royalties become known.

On September 8, 2008 and on September 9, 2008, the Company entered into a Licensed Works Agreement, Licensed Works Agreement Statement of Work and a Patent License Agreement with International Business Machines Corporation, or IBM, under which the Company agreed to integrate the Company's bandwidth management technology and related intellectual property into future Lotus Unified Communications offerings by IBM, and to provide maintenance support services, for an initial non-refundable fee of $6.0 million of which $3.0 million, $1.5 million and $1.5 million were paid to the Company in 2008, 2009 and 2010, respectively. The Company determined the value of maintenance based on VSOE and allocated the residual portion of the initial $6.0 million to the integration project. The residual portion was recognized under the percentage of completion method, in accordance with the “Input Method”, and the maintenance revenue was recognized over the maintenance service period. As the Company believed there were no future deliverables associated with the intellectual property patent licenses, no additional provision for this element was made. The integration project was fully completed and delivered as of September 2010, with maintenance support services being the only undelivered element that was recognized as maintenance revenue over the service period through September 2011. The Company recognized approximately $536,000 in maintenance revenue for the year ended December 31, 2011. For the year ended December 31, 2010, the Company recognized approximately $545,000 in product revenue and $310,000 in service, maintenance and support revenue. For the year ended December 31, 2009, the Company recognized $2.4 million in product revenue and $655,000 in service revenue. In addition, under the agreements, IBM has agreed to make future royalty payments to the Company equal to two percent of the world-wide net revenue derived by IBM from Lotus Unified Communications products sold that exceeds a contractual base amount, and maintenance payments received from existing customers, which incorporate the Company's technology. No royalty revenue was recognized by the Company for the year ended December 31, 2011. The agreements have a six year term and are non-cancelable except upon material default by either party. The agreements convey to IBM a non-exclusive world-wide license to the Company's patent portfolio existing at the time of the agreements and for all subsequent patents issued with an effective filing date of up to five years from the date of the agreements. The agreements also provide for a release of each party for any and all claims of past infringement.

On January 19, 2010, the Company entered into a patent license agreement with Springboard Group S.A.R.L. (SKYPE). Under the agreement, the Company granted to SKYPE for the lives of the patents, a royalty-free, irrevocable, non-exclusive license under certain patents to make, have made (subject to certain limitations), use, import or export, offer to sell, sell, lease, license, or otherwise transfer or distribute certain licensed products. These granted rights and license include rights for authorized entities and end users of SKYPE to form combinations with other products for certain authorized purposes. As consideration for the license, the Company received a payment of $3.0 million from SKYPE on January 25, 2010 and recognized $3.0 million as revenue from licensing and sale of patents during the year ended December 31, 2010.

On January 21, 2010, the Company completed the sale of substantially all of our U.S. patents and patent applications, and related foreign patents and patent applications to Intellectual Ventures Fund 61 LLC (Intellectual Ventures) related to an agreement that was entered into on December 18, 2009. The Company retained royalty rights under its existing patent license agreements, and also obtained a full grant-back royalty-free, irrevocable license to the patent portfolio from Intellectual Ventures to make, use and sell any current and future Avistar product or service covered by the patents sold. The Company received the purchase price of $11.0 million from Intellectual Ventures on January 21, 2010 and recognized $11.0 million as revenue from licensing and sale of patents during the year ended December 31, 2010.

On September 20, 2011, the Company entered into a modification of the Original Equipment Manufacturing and License Agreement dated July 31, 2008 (the “Original LifeSize Agreement”) with LifeSize Communications, Inc. (“LifeSize”). Under the terms of the Original LifeSize Agreement, LifeSize was required to pay the Company a fixed quarterly minimum license and maintenance fee and based on its quarterly royalty report, an additional fee for units of the licensed products sold by LifeSize in excess of the quarterly minimum quantity and the maintenance sold by LifeSize beyond the first year of use. In the modification, LifeSize agreed to pay the Company an upfront license and maintenance fee of $3.4 million for (i) up to a certain number of licensed products sold by LifeSize in lieu of the license and maintenance fees and minimum purchase requirements for the remaining term from July 2011 through June 2014 set forth in the Original LifeSize Agreement , (ii) a paid-up license to Avistar's patents licensed under the original agreement, and (iii) two years of maintenance services commencing on September 20, 2011. In the event that LifeSize sells more than the quantity of licensed products covered by the upfront fee, LifeSize shall pay the Company for the excess units at a stated unit license and annual maintenance fee. As of the effective date of the modification of the Original LifeSize Agreement, maintenance service was the only undelivered element, as the licensed products were previously delivered pursuant to the initial terms of the Original LifeSize Agreement. The Company believes there are no future deliverables associated with the intellectual property patent licenses and thus no additional provision has been made. The Company determined the value of maintenance based on VSOE of fair value and allocated the residual portion of the total $3.4 million proceeds to the license products. Based on the VSOE allocation, the Company recognized $2.5 million in product revenue and $125,000 in maintenance revenue for the year ended December 31, 2011. The remaining amount of $775,000 allocated to maintenance and support services has been included in deferred revenue and will be recognized over the remaining maintenance and support period. The Company received the license and maintenance fee payment of $3.4 million from LifeSize on September 27, 2011.

On September 22, 2011, the Company entered into a License and OEM Agreement (the “Citrix Agreement”) with Citrix Systems, Inc. (“Citrix”). Under the Citrix Agreement, the Company is required to create customized versions of Avistar's voice and video software products that Citrix will have the rights to commercialize as bundled with Citrix's products. Citrix will also have the right to receive support and maintenance services from Avistar in connection with such products. The initial term of the agreement commences on September 22, 2011 and ends four years after Citrix's commercial release of a Citrix product that includes the Avistar product or technology, and Citrix has the right to renew the agreement for an additional four year term. Citrix has agreed to pay the Company a $7.7 million initial license fee for the technology deliverables and $1.0 million per year for maintenance and support fees for the initial term of the Citrix Agreement. In the event that Citrix renews the Citrix Agreement for a second four year term, it will pay a $2.0 million renewal fee for the license, and $1.25 million per year for maintenance and support fees. Under the initial term of the Citrix Agreement, the Company is required to deliver the technology deliverables associated with its products to Citrix in successive phases. The initial license fee and the first year maintenance and support fee totaling $8.7 million is payable in various installments subject to Citrix's acceptance of the technology deliverables and refund provisions at each phase, whereby all or part of the previously paid license fee is refundable following a final rejection of the deliverable by Citrix and/or termination of the agreement depending on the project phase. The Company has determined the value of maintenance based on VSOE of fair value and allocated the residual portion of the initial $8.7 million to the development and customization of the technology deliverables. The residual portion is recognizable under the percentage of completion method, in accordance with the “Input Method”, limited to the non-refundable portion of the fee associated with the accepted milestones. The Company did not recognize any revenue related to the Citrix Agreement for the year ended December 31, 2011 as all of the revenue recognition criteria were not met. As of December 31, 2011, a total of $5.0 million in license, service and maintenance fee, of which $4.75 million is subject to refund provisions, was billed and collected from Citrix and recorded as deferred revenue and customer deposits in the accompanying consolidated balance sheet for project phases that have been delivered to and accepted by Citrix.

Deferred revenue and customer deposits consisted of the following (in thousands):

		December 31,
		2011		2010
Current:
Deferred revenue	$	2,448	$	2,612
Customer deposits		4,750		-
Total current	$	7,198	$	2,612

Non-current:
Deferred revenue	$	360	$	-
Total non-current	$	360	$	-

Income from Settlement and Patent Licensing

The Company recognizes the proceeds from settlement and patent licensing agreements based on the terms involved. When litigation has been filed prior to a settlement and patent licensing agreement, and insufficient historical evidence exists for the determination of fair value of the patents licensed to support the segregation of the proceeds between a gain on litigation settlement and patent license revenues, the Company reports all proceeds in “income from settlement and patent licensing” within operating costs and expenses. The gain portion of the proceeds, when sufficient historical evidence exists to segregate the proceeds, would be reported according to ASC 450, Contingencies. When a patent license agreement is entered into prior to the commencement of litigation, the Company reports the proceeds of such transaction as licensing revenue in the period in which such proceeds are received, subject to the revenue recognition criteria described above.

On November 12, 2004, the Company entered into a settlement and a patent cross-license agreement with Polycom Inc., thus ending litigation against Polycom, Inc. for patent infringement. As part of the settlement and patent cross-license agreement with Polycom, Inc, the Company granted Polycom, Inc. a non-exclusive, fully paid-up license to its entire patent portfolio. The settlement and patent cross-license agreement includes a five-year capture period from the date of the settlement, adding all new patents with a priority date extending up to five years from the date of execution of the agreement. Polycom, Inc, as part of the settlement and patent cross-licensing agreement, made a one-time payment to the Company of $27.5 million and the Company paid $6.4 million in contingent legal fees to the Company's litigation counsel upon completion of the settlement and patent cross-licensing agreement. The contingent legal fees were payable only in the event of a favorable outcome from the litigation with Polycom, Inc. The Company recognized the gross proceeds of $27.5 million from the settlement and patent cross-license agreement as income from settlement and patent licensing within operations over the five-year capture period, due to a lack of evidence necessary to apportion the proceeds between an implied punitive gain element in the settlement of the litigation, and software license revenues from the cross-licensing of the Company's patented technologies for prior and future use by Polycom, Inc. Additionally, the $6.4 million in contingent legal fees was deferred and was amortized to income from settlement and patent licensing over the five year capture period, resulting in a net of $21.1 million being recognized as income within operations over the five year capture period. As of December 31, 2009, the deferred net income from settlement and patent licensing with Polycom, Inc. was fully recognized.

Taxes Collected from Customers and Remitted to Governmental Authorities

Taxes collected from customers and remitted to governmental authorities are recognized on a net basis in the accompanying consolidated statements of operations.

Warranty

The Company's software license contracts typically include an industry-standard software performance warranty provision. Historically, the Company has experienced no warranty claims. As such, the Company did not record a warranty accrual as of December 31, 2011 and 2010.

Research and Development

Research and development costs include engineering expenses, such as salaries and related benefits, depreciation, professional services and overhead expenses related to the general development of Avistar's products, and are expensed as incurred. Software development costs are capitalized beginning when a product's technological feasibility has been established and ending when a product is available for general release to customers. Avistar has not capitalized any software development costs since the period between establishing technological feasibility and general release of the product is relatively short, and these costs have not been significant.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation (“ASC 718”) which establishes accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the employee's service period.

Stock-based compensation expense for fiscal 2009 included compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provision of ASC 718. Stock-based compensation expense for all stock-based compensation awards granted after January 1, 2006 is based on the grant-date fair value estimated in accordance with the revised provisions of ASC 718. The Company recognizes compensation expense on a straight-line basis over the requisite service period of the award.

The effect of recording stock-based compensation for the years ended December 31, 2011, 2010 and 2009 was as follows (in thousands):

		Year Ended December 31,
		2011		2010		2009
Stock-based compensation expense by type of award:
Employee stock options	$	582	$	798	$	1,846
Employee restricted stock units		570		389		16
Non-employee stock options		112		-		9
Non-employee restricted stock units		94		31		-
Employee stock purchase plan		43		50		18
Total stock-based compensation		1,401		1,268		1,889
Tax effect of stock-based compensation		-		-		-
Net effect of stock-based compensation on net income (loss)	$	1,401	$	1,268	$	1,889

Income Taxes

Income taxes are accounted for using an asset and liability approach in accordance with ASC 740, Income Taxes (“ASC 740”), which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company's financial statements. The measurement of current and deferred tax liabilities and assets are based on the provisions of enacted tax law. The effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.

Deferred tax assets and liabilities are determined based on the difference between the financial statement and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are provided if based upon the weight of available evidence, it is considered more likely than not that some or all of the deferred tax assets will not be realized. The Company accounts for uncertain tax positions according to the provisions of ASC 740. ASC 740 contains a two-step approach for recognizing and measuring uncertain tax positions. Tax positions are evaluated for recognition by determining if the weight of available evidence indicates that it is probable that the position will be sustained on audit, including resolution of related appeals or litigation. Tax benefits are then measured as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. No material changes have occurred in the Company's tax positions taken as of December 31, 2010 during the year ended December 31, 2011.

Comprehensive Income (Loss)

ASC 220, Comprehensive Income establishes standards for the reporting and the display of comprehensive income (loss) and its components. This standard defines comprehensive income (loss) as the changes in equity of an enterprise, except those resulting from stockholder transactions. Accordingly, comprehensive income (loss) includes certain changes in equity that are excluded from the net income or loss. For the years ended December 31, 2011, 2010, and 2009, the Company's comprehensive income (loss) is the same as net income (loss). There were no other components of comprehensive income (loss) for the years ended December 31, 2011, 2010 and 2009.

Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-13, Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issue Task Force (“ASU 2009-13”), and ASU No. 2009-14, Software (Topic 985) – Certain Revenue Arrangements That Include Software Elements (“ASU 2009-14”). ASU 2009-13 requires companies to allocate revenue in multiple-element arrangements based on an element's estimated selling price if vendor-specific or other third party evidence of value is not available. ASU 2009-14 modifies the software revenue recognition guidance to exclude from its scope tangible products that contain both software and non-software components that function together to deliver a product's essential functionality. Both statements are effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company adopted these statements on January 1, 2011. The adoption of these statements did not have a material impact on the Company's financial condition and results of operations.

In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements (“ASU-2010-06”). This ASU requires new disclosures and clarifies certain existing disclosure requirements about fair value measurements. ASU 2010-06 requires a reporting entity to disclose significant transfers in and out of Level 1 and Level 2 fair value measurements, to describe the reasons for the transfers and to present separately information about purchases, sales, issuances and settlements for fair value measurements using significant unobservable inputs. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements, which is effective for interim and annual reporting periods beginning after December 15, 2010; early adoption is permitted. The Company adopted this statement on January 1, 2010. The adoption of this statement did not have a material impact on the Company's financial condition and results of operations. The adoption of this statement, on January 1, 2011, relating to disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements did not have a material impact on the Company's financial condition and results of operations.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This statement was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards (“IFRS”). ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This statement is effective for reporting periods beginning on or after December 15, 2011, with early adoption prohibited. The new guidance will require prospective application. The Company adopted this statement on January 1, 2012. The adoption of this statement is not expected to have a material impact on the Company's financial condition and results of operations.

- Definition

The entire disclosure for all significant accounting policies of the reporting entity.

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AVISTAR COMMUNICATIONS CORP 10-K