Annual report pursuant to Section 13 and 15(d)

NOTE P - INCOME TAXES

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NOTE P - INCOME TAXES
 12 Months Ended
Dec. 31, 2011
Income Tax Disclosure [Text Block]
NOTE P – INCOME TAXES

The Company has adopted ASC 740, Subtopic 10 (formerly, FASB No. 109, Accounting for Income Taxes) which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

A reconciliation of tax expense computed at the statutory federal tax rate on loss from operations before income taxes to the actual income tax expense is as follows:

         
Restated
 
   
2011
   
2010
 
Tax provision (benefits) computed at the statutory rate
 
$
(626,361
)
 
$
(740,866
)
State Taxes
   
(101,323
) 
   
(119,846
) 
Book expenses not deductible for tax purposes
   
14,070
     
16,494
 
Other
   
(46,061
)
   
-
 
     
(759,675)
     
(844,218)
 
Increase in valuation allowance for deferred tax assets
   
819,675
     
(844,218)
 
Income tax expense
 
$
60,000
   
$
--
 

Deferred income taxes include the net tax effects of net operating loss (NOL) carry forwards and 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 are as follows:

         
Restated
 
   
2011
   
2010
 
Deferred Tax Assets:
           
Net operating loss carry forwards
 
$
36,302,104
   
$
37,026,021
 
Intangibles
   
776,291
     
-
 
Credits
   
20,000
     
-
 
Other
   
1,355,849
     
766,132
 
Total deferred tax assets
   
38,454,244
     
37,792,153
 
                 
Deferred Tax Liabilities:
               
Intangibles
   
-
     
(114,641
) 
Other
   
(30,442)
     
(73,385
) 
Total deferred tax liabilities
   
(30,442)
     
(188,026
) 
Valuation allowance
   
(38,423,802
) 
   
(37,604,127
) 
Net deferred tax assets
 
$
--
   
$
--
 

The Company has provided a valuation reserve against the full amount of the net deferred tax assets, because in the opinion of management, it is more likely than not that these tax assets will not be realized.

At December 31, 2011 the Company had net operating loss carry forwards of approximately $86,000,000 for federal income tax purposes which will expire at various dates from 2022 through 2030.

The Company’s NOL and tax credit carryovers may be significantly limited under Section 382 of the Internal Revenue Code (IRC). NOL and tax credit carryovers are limited under Section 382 when there is a significant “ownership change” as defined in the IRC. During 2005 and in prior years, the Company may have experienced such ownership changes that could have imposed such limitations.

The limitation imposed by Section 382 would place an annual limitation on the amount of NOL and tax credit carryovers that can be utilized. When the Company completes the necessary studies, the amount of NOL carryovers available may be reduced significantly. However, since the valuation allowance fully reserves for all available carryovers, the effect of the reduction would be offset by a reduction in the valuation allowance.

The Company files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions.  The Company is generally no longer subject to U.S. federal income tax examinations by tax authorities for years before 2007 and various states before 2006.

The Company follows the provisions of uncertain tax positions as addressed in FASB Accounting Standards Codification 740-10-65-1.  The Company recognized no increase in the liability for unrecognized tax benefits.  The Company has no tax position at December 31, 2011 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.  The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.  No such interest or penalties were recognized during the periods presented.  The Company had no accruals for interest and penalties at December 31, 2011.  The Company’s utilization of any net operating loss carry forward may be unlikely due to its’ continuing losses.