INCOME TAXES

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

NOTE 7. INCOME TAXES

The provision for income taxes on the statements of operations consists of $-0- and $-0- for the years ended December 31, 2012 and 2011, respectively. Deferred tax assets are comprised of the following at December 31:

	2012			2011
Net operating loss carryforward	$	10,100,000		$	9,552,000
Temporary differences		5,621,000			5,277,000
Less valuation allowance		(15,721,000	)		(14,829,000	)
Deferred tax asset, net		-			-

Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial reporting purposes. At December 31, 2012 and 2011, management determined that realization of these benefits is not assured and has provided a valuation allowance for the entire amount of such benefits. At December 31, 2012 and 2011, net operating loss carryforwards were approximately $39,518,000 and $37,428,000, respectively, for federal tax purposes that expire at various dates from 2012 through 2031 and for state tax purposes expire in 2012 through 2022.

Utilization of net operating loss carryforwards may be subject to substantial annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986, as amended, and similar state regulations. The annual limitation may result in the expiration of substantial net operating loss carryforwards before utilization.

For December 31, 2012 and 2011, the provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (34% in 2012 and 2011) to income taxes as follows:

	2012			2011
Tax benefit computed at 34%	$	344,000		$	615,000
Change in valuation allowance		(892,000	)		(970,000	)
Change in carryovers and tax attributes		548,000			355,000
Income tax provision		-			-