(7)

Income Taxes

The components of loss before income taxes for the years ended December 31, 2011 and 2010 were as follows:


	2011			2010
	(in thousands)
United States	$	(2,363	)	$	(5,064	)
Foreign		1,917			2,279

	$	(446	)	$	(2,784	)

The components of the provision (benefit) for income taxes by taxing authority for the years ended December 31, 2011 and 2010 were as follows:


	2011		2010
	(in thousands)
Current provision:
Federal	$	—	$	16
Foreign		104		—
States		—		45

Total current provision		104		61

Deferred provision (benefit):
Federal		4,897		(1,058	)
Foreign		—		—
States		441		(93	)

Total deferred provision (benefit):		5,338		(1,151	)

	$	5,442	$	(1,090	)

Significant components of the Company's deferred federal income taxes were as follows:


	At December 31,
	2011						2010
	Current			Non-Current			Current		Non-Current
	(in thousands)						(in thousands)
Deferred tax assets:
Accrued liabilities	$	196		$	—		$	169	$	—
Deferred compensation		—			244			—		261
Allowance for doubtful accounts		105			—			240		—
Inventory		440			—			193		—
Long-term contracts		153			—			54		—
Net operating loss		—			4,747			—		3,349
Intangible assets		—			85			—		87
Foreign tax credit carryforward		—			789			—		719
Valuation Allowance		(894	)		(5,811	)

Deferred tax assets		—			54			656		4,416

Deferred tax liabilities:
Equity in foreign investments		—			(2,041	)		—		(1,593	)
Property and equipment		—			(45	)		—		(128	)
Intangible assets		—			(9	)		—		(9	)
Translation gain		—			(392	)		—		(357	)

Deferred tax liabilities		—			(2,487	)		—		(2,087	)

Net deferred assets (liabilities)	$	—		$	(2,433	)	$	656	$	2,329

The (provision for) benefit from income taxes for the year ended December 31, 2011 was a non-cash expense of $5.4 million which reflects the valuation allowance $6.7 million related to the Company's net deferred tax assets for its U.S. operations. The deferred tax asset was primarily related to the net operating loss carry forwards of $9.8 million generated by American Access Technologies, Inc., ("AAT") prior to the Company's merger in 2007. Subsequently, the Company generated additional net operating losses and foreign tax credit carry forwards. It was determined in the fourth quarter of 2011 that due to the Internal Revenue's Section 382 limitations on our ability to utilize the net operating losses and due to three years of cumulative losses, a full valuation allowance was warranted and as such, an expense was recorded.

The Company's net operating loss carry forwards of approximately $13.2 million which includes the net operating loss carry forwards of $9.8 million acquired from AAT are subject to the utilization limitation under Section 382 of the Internal Revenue Code. The Company recorded a valuation allowance on the net operating loss carry forwards as well as the foreign tax carry forward. These tax carry forwards are available to offset future taxable income and expire if unused, during the federal tax years ending December 31, 2019 through 2030. The Company's 2008 U.S. federal income tax return was examined by the Internal Revenue Service ("IRS"). In the fourth quarter 2011, the IRS concluded its audit which adjusted the annual net operating loss carry forward limitation related to AAT's net operating loss carry forwards to $299,000 per year through 2027.

The difference between the effective income tax rate reflected in the provision for income taxes and the amounts, which would be determined by applying the statutory income tax rate of 34%, is summarized as follows:


	2011			2010
	(in thousands)
(Provision for) benefit from U.S Federal statutory rate	$	151		$	947
Effect of state income taxes		13			37
Non-deductible business meals and entertainment expenses		(22	)		(22	)
Foreign income taxes included in equity in earnings		98			98
Adjustment of net operating loss carry forwards based on IRS audit, accrual to return adjustments and other		1,023			30
Change in valuation allowance		(6,705	)		—

	$	(5,442	)	$	1,090

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions.