NOTE G - INCOME TAXES

As of September 30, 2011, the Company had consolidated income tax net operating loss ("NOL") carryforwards for federal tax purposes of approximately $114 million. The NOL will expire in various years beginning in 2017 and ending through the year 2031. From 2017 through 2021, approximately $4 million of the NOL will expire, from 2022 through 2026, approximately $42 million of the NOL will expire and from 2027 through 2031, approximately $68 million of the NOL will expire.

Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:


Deferred tax assets:
Net operating loss and capital loss carryforwards	$	41,218,046
Accrued expenses		62,815
Reserve for accounts receivable		2,310,617
Reserve for inventory		164,803
Start-up costs		107,398
Excess of book over tax depreciation		1,481,861
Stock option and restricted stock award expense		1,676,011
Investment in unconsolidated entity		3,031,274
Less: valuation allowance		(49,894,003	)

	$	158,822

Deferred tax liability:
Property and equipment basis	$	69,469
Prepaid expenses		89,353

	$	158,822

Net deferred tax asset	$	—

As reflected above, we have recorded a net deferred tax asset of $0 at September 30, 2011. As required by the Accounting for Income Taxes topic in the ASC, we have evaluated whether it is more likely than not that the deferred tax assets will be realized. Based on the available evidence, we have concluded that it is more likely than not that those assets would not be realized without the recovery and rights of ownership or salvage rights of high-value shipwrecks and thus a valuation allowance has been recorded as of September 30, 2011. While we have recovered more than 17 tons of silver coins and hundreds of gold coins and other artifacts from the "Black Swan" project, we do not have the ability to monetize the recovered cargo unless and until we are awarded title or a salvage award by the court or otherwise reach a settlement of the matter.

The change in the valuation allowance is as follows:


September 30, 2011	$	49,894,003
December 31, 2010		45,983,926

Change in valuation allowance	$	3,910,077

Income taxes for the nine-month periods ended September 30, 2011 and 2010 differ from the amounts computed by applying the effective federal income tax rate of 34.0% to income (loss) before income taxes as a result of the following:


	September 30, 2011			September 30, 2010

Expected (benefit)	$	(4,162,479	)	$	(2,691,886	)
State income taxes net of federal benefits		(122,296	)		(87,926	)
Nondeductible expense		12,474			12,327
Stock options and restricted stock awards		729,241			—
Derivatives		(396,232	)		—
Change in valuation allowance		3,910,077			2,931,393
Effects of:
Change in apportionment estimate		—			(164,387	)
Other, net		29,215			479

	$	—		$	—

We have not recognized a material adjustment in the liability for unrecognized tax benefits and have not recorded any provisions for accrued interest and penalties related to uncertain tax positions.

The earliest tax year still subject to examination by a major taxing jurisdiction is 2007.