NOTE G – INCOME TAXES

As of March 31, 2012, the Company had consolidated income tax net operating loss ("NOL") carryforwards for federal tax purposes of approximately $126 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 $80 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	$	45,318,788
Capital loss carryforward		387,247
Accrued expenses		63,007
Reserve for accounts receivable		2,452,059
Reserve for inventory		134,028
Start-up costs		107,727
Excess of book over tax depreciation		1,123,010
Stock option and restricted stock award expense		1,273,367
Investment in unconsolidated entity		3,126,804
Less: valuation allowance		(53,824,658	)

	$	161,379


Deferred tax liability:
Property and equipment basis	$	69,681
Prepaid expenses		91,698

	$	161,379

Net deferred tax asset	$	—

As reflected above, we have recorded a net deferred tax asset of $0 at March 31, 2012. 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 March 31, 2012.

The change in the valuation allowance is as follows:


March 31, 2012	$	53,824,658
December 31, 2011		52,515,797

Change in valuation allowance	$	1,308,861

Income taxes for the three-month periods ended March 31, 2012 and 2011 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:


	March 31, 2012			March 31, 2011

Expected (benefit)	$	(1,869,034	)	$	(1,759,172	)
State income taxes net of federal benefits		(74,736	)		(53,471	)
Nondeductible expense		4,094			3,277
Stock options and restricted stock awards		240,763			188,855
Derivatives		188,191			438,323
Change in valuation allowance		1,308,861			1,002,352
Effects of:
Change in apportionment estimate		35,026			180,373
Change in net operating loss estimate		860,527			—
Change in capital loss carryover estimate		(682,459	)		—
Other, net		(11,233	)		(537	)

	$	—		$	—

During the three-month periods ended March 31, 2012 and 2011 the Company recognized certain tax benefits and (liabilities), prior to any valuation allowances, related to stock option plans in the amounts of $249,256 and ($197,802), respectively. If we did not have a full valuation allowance, such benefits would be recorded as an increase to the deferred tax asset and increase in additional paid in capital.

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 2008.