8. Income Taxes

The components of the provision (benefit) for income taxes for the years ended December 31, 2011 and 2010 consisted of the following:

Current	2011		2010
Federal	$	-	$	-
State		-		-
Foreign		2,400		3,200
	$	2,400	$	3,200
Deferred
Federal	$	-	$	-
State		-		-
Foreign		-		-
		-		-
Total	$	2,400	$	3,200

The following table summarizes the differences between income tax expense and the amount computed applying the federal income tax rate of 34% for the years ended December 31, 2011 and 2010:

	2011			2010
Federal income tax (benefit) at statutory rate	$	(596,200	)	$	(287,400	)
Foreign taxes		2,400			3,200
Temporary differences		292,700			104,500
Federal net operating loss not utilized		376,500			182,300
Warrant liability		(75,700	)		-
Meals and entertainment (50%)		4,400			3,800
Other items		(1,700	)		(3,200	)
Provision (benefit) for income tax	$	2,400		$	3,200

Deferred income taxes and benefits result from temporary timing differences in the recognition of certain expense and income items for tax and financial reporting purposes. The following table sets forth those differences as of December 31, 2011 and 2010:

	2011			2010
Net operating loss carryforwards	$	15,815,000		$	15,251,000
Tax credit carryforwards		1,059,000			1,059,000
Depreciation and amortization		64,000			92,000
Compensation expense – non-qualified stock options		441,000			329,000
Deferred revenue and maintenance service contracts		1,329,000			1,075,000
Reserves and other		89,000			90,000
Total deferred tax assets		18,797,000			17,896,000
Deferred tax liability – patent amortization		-			(16,000	)
Deferred tax liability – capitalized software		(121,000	)		(95,000	)
Net deferred tax asset		18,676,000			17,785,000
Valuation allowance		(18,676,000	)		(17,785,000	)
Net deferred tax asset	$	-		$	-

For financial reporting purposes, with the exception of the year ended December 31, 2007, the Company has incurred a loss in each year since inception. Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company has provided a full valuation allowance against its net deferred tax assets at December 31, 2011 and 2010. The net change in the valuation allowance was $891,000 and $168,000 for the years ended December 31, 2011 and 2010, respectively.

At December 31, 2011, the Company had approximately $44 million of federal net operating loss carryforwards and approximately $16 million of California state net operating loss carryforwards available to reduce future taxable income. The federal loss carry forward will begin to expire in 2018 and the California state loss carry forward will began to expire in 2013.

During the years ended December 31, 2011 and 2010, the Company did not utilize any of its federal or California net operating losses. Under the Tax Reform Act of 1986, the amounts of benefits from net operating loss carryforwards may be impaired or limited if the Company incurs a cumulative ownership change of more than 50%, as defined, over a three-year period.

At December 31, 2011, the Company had approximately $1 million of federal research and development tax credits that will begin to expire in 2012.