NOTE S – INCOME TAXES

As of December 31, 2011, we had consolidated income tax net operating loss ("NOL") carryforwards for federal income tax purposes of approximately $123,000,000. The federal NOL carryforward will expire in various years 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 $76 million of the NOL will expire.

The components of the provision for income taxes (benefits) are attributable to continuing operations as follows:

12 Month
Period Ended
December 31,
2011

12 Month
Period Ended
December 31,
2010

12 Month
Period Ended
December 31,
2009

Current

Federal

—

State

—

Deferred

Federal

—

State

—

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 carryforwards	$	44,047,299
Accrued expenses		62,829
Reserve for accounts receivable		2,748,005
Reserve for inventory return		137,663
Stock option and restricted stock awards		1,383,376
Start-up costs		107,422
Excess of book over tax depreciation		1,078,584
Investment – unconsolidated entity		3,117,958
Less: valuation allowance		(52,515,797	)

		167,339

Deferred tax liability:
Prepaid expenses		97,854
Property and equipment basis		69,485

		167,339

Net deferred tax asset	$	—

As reflected above, we have recorded a net deferred tax asset of $0 at December 31, 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 realizable without the recovery and rights of ownership or salvage rights of high value shipwrecks and thus a valuation allowance has been recorded as of December 31, 2011.

The change in the valuation allowance is as follow:


December 31, 2011	$	52,515,797	December 31, 2010	$	45,983,926
December 31, 2010	$	45,983,926	December 31, 2009	$	39,693,015

Change in valuation allowance	$	6,531,871	Change in valuation allowance	$	6,290,911

Income taxes for the twelve month periods ended December 31, 2011, 2010 and 2009 differ from the amounts computed by applying the effective income tax rate of 34.0% to income taxes as a result of the following:


	12 Month Period Ended December 31, 2011			12 Month Period Ended December 31, 2010			12 Month Period Ended December 31, 2009
Expected benefit	$	(5,516,605	)	$	(7,936,643	)	$	(6,333,587	)
Effects of:
State income taxes net of federal benefits		(205,521	)		(190,311	)		(277,292	)
Nondeductible expenses		17,657			15,606			17,428
Stock options and restricted stock awards		833,749			627,684			4,584
Derivatives		(1,693,247	)		1,367,186			—
Change in valuation allowance		6,531,871			6,290,911			6,483,692
Change in net operating loss		3,564			—			—
Inventory capitalization		—			—			—
Change in rate estimate		23,798			(174,913	)		105,267
Other, net		4,734			480			(92	)

Income tax provision (benefit)	$	—		$	—		$	—

During the twelve-month periods ended December 31, 2011 and 2010, we recognized certain tax benefits and (liabilities), prior to any valuation allowances, related to stock option plans in the amount of $860,721 and $(647,841), respectively. If we did not have a full valuation allowance, such benefits would be recorded as an increase in the deferred tax asset and an increase in additional paid-in capital.

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

The earliest tax year still subject to examination by a major taxing jurisdiction is 2008.