INCOME TAXES

3 Months Ended

Mar. 31, 2012

INCOME TAXES

NOTE 10. INCOME TAXES

We have recognized no income tax provision for the three months ended March 31, 2012 or the year ended December 31, 2011, since we have net operating loss carryforwards to offset current taxable income.

Deferred tax assets consist of the following at March 31, 2012 and December 31, 2011:

	March 31,			December 31,
	2012			2011
Benefit from net operating loss carryforwards	$	2,230,459		$	2,414,324
Less:  valuation allowance		(2,230,459	)		(2,414,324	)
	$	-		$	-

Due to uncertainties surrounding our ability to generate future taxable income to realize these assets, a full valuation has been established to offset the net deferred income tax asset. Based on our assessment, utilizing an effective combined tax rate for federal and state taxes of approximately 37%, we have determined that it is not currently more likely than not that a deferred income tax asset of approximately $2,230,459 and $2,414,324 attributable to the future utilization of the approximate $5,989,242 and $6,525,200 in eligible net operating loss carryforwards as of March 31, 2012 and December 31, 2011, respectively, will be realized. We will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carryforwards will begin to expire in varying amounts from year 2018 to 2032.

Current income tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, amounts available to offset future taxable income may be limited under Section 382 of the Internal Revenue Code.

Following is a reconciliation of the (provision) benefit for federal income taxes as reported in the accompanying Statements of Operations, to the expected amount at the 34% federal statutory rate:

	Three Months Ended March 31,
	2012			2011
Income tax (provision) benefit at the 34% statutory rate	$	(163,649	)	$	(101,370	)
Non-deductible meals and entertainment		(1,112	)		-
Effect of state income taxes		(3,526	)		(8,944	)
Non-deductible interest expense		(15,578	)		(5,607	)
Less change in valuation allowance		183,865			115,921
Income tax (provision) benefit	$	-		$	-

We are subject to taxation in the United States and certain state jurisdictions. Our tax years for 2002 and forward are subject to examination by the United States and applicable state tax authorities due to the carryforwards of unutilized net operating losses and the timing of tax filings.