NOTE 6. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Income tax expense (benefit) attributable to income from continuing operations differed from the amounts computed by applying the U.S. Federal income tax of 34% to pretax income from continuing operations as a result of the following:

	December 31, 2011			December 31, 2010
Statutory tax on book income	$	1,330,000		$	425,000
Nondeductible expenses		31,000			3,000
Nondeductible stock-based compensation		-			62,000
Net operating loss utilization		(1,361,000	)		(490,000	)
Reduction of valuation allowance		(1,823,000	)		-
Alternative minimum tax		-			20,797
Under accrual of prior year federal income tax		(18,813	)		-
Income tax (benefit) expense	$	(1,841,813	)	$	20,797

The components of income tax (benefit) expense for the years ended December 31, 2011 and 2010 are as follows:

	December 31, 2011			December 31, 2010
Current federal tax (benefit) expense	$	88,187		$	20,797
Deferred federal tax (benefit) expense		(1,930,000	)		-
Total federal tax (benefit) expense	$	(1,841,813	)	$	20,797

The cumulative tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2011 and 2010, are presented below:

	December 31, 2011			December 31, 2010
Deferred tax assets:
Alternative minimum tax credits	$	107,000		$	-
Temporary M-1 adjustments		199,000			-
Net operating loss carry forwards		12,056,000			13,540,000
Less valuation allowance		(10,356,000	)		(13,540,000	)
Net deferred tax assets	$	2,006,000		$	-

	December 31, 2011		December 31, 2010
Deferred tax liabilities:
Temporary M-1 adjustments	$	76,000	$	-
Net deferred tax liabilities	$	76,000	$	-

The Company has determined that a valuation allowance of approximately $10,356,000 at December 31, 2011 is necessary to reduce the deferred tax assets to the amount that will more than likely not be realized. The change in the valuation allowance for 2011 was approximately $3,184,000. Net operating losses utilized in 2010 were approximately $490,000. An adjustment for approximately $517,000 was made due to changes in 2009 estimates related to the use of the net operating loss carry forward for that year.

At December 31, 2011, the Company had federal net operating loss carry-forwards ("NOLs") of approximately $35.4 million acquired as part of the merger between World Waste and the Company. It is possible that the Company may be unable to use these NOLs in their entirety. The history of these NOLs and the related tax laws are complex and the Company is researching the facts and circumstances as to whether the Company will ultimately be able to utilize the benefit from these NOLs. The extent to which the Company will be able to utilize these carry-forwards in future periods is subject to limitations based on a number of factors, including the number of shares issued within a three-year look-back period, whether the merger is deemed to be a change in control, whether there is deemed to be a continuity of World Waste's historical business, and the extent of the Company's subsequent income.