INCOME TAX

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Note 11. INCOME TAX

The provision for income tax expense (benefit) is compromised of the following:

	2011			2010
Current tax, federal	$	852,316		$	604,340
Current tax, state		293,850			165,840
Current tax, foreign		-			-
Current tax, total		1,146,166			770,180
Deferred income tax, federal		(20,000	)		(80,000	)
Deferred income tax, state		-			-
Deferred income tax, foreign		-			-
Deferred income tax, total		(20,000	)		(80,000	)
Total	$	1,126,166		$	690,180

Income taxes vary from the amount that would be computed by applying the U.S. statutory federal income tax rate (34%) to income (loss) before income tax expense (benefit):

	2011			2010
Income before taxes, domestic	$	2,682,495		$	1,864,781
Income before taxes, foreign		(1,373,873	)		(1,364,681	)
Income before taxes, total	$	1,308,622		$	500,100
Expense (recovery) for income taxes at statutory rate (34%)	$	444,931		$	170,034
Impact of lower statutory rates on foreign subsidiary		114,131			280,972
Non-deductible expenses		82,340			40,303
Other items		(116,981	)		(131,450	)
Change in valuation allowance		311,357			330,321
Income tax expense (recovery)	$	835,785		$	690,180

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s deferred tax assets are consisting of the following:

	US			Foreign			Total 2011			Total 2010
Non-capital loss carry forwards	$	-		$	1,741,452		$	1,741,452		$	1,507,733
Property and equipment		219,000			(53,287	)		165,713			137,605
Stock based compensation		114,400			-			114,400			44,862
Valuation allowance		(114,400	)		(1,688,165	)		(1,802,565	)		(1,491,200	)
Net deferred tax assets	$	219,000		$	-		$	219,000		$	199,000

A valuation allowance of $1,822,450 has been recorded as of December 31, 2011 (2010 - $1,491,200). Due to uncertainties related to Company’s ability to utilize some of the deferred income tax assets, primarily consisting of the foreign operations in Canada. The valuation allowance is based on the estimates of taxable income in the various jurisdictions in which the company operates and the period over which deferred income tax assets will be recoverable. The realization of net deferred income tax assets of $219,000 as of December 31, 2011 (2010 - $199,000) is primarily dependent upon the ability to generate future taxable income in the U.S.

The Company's foreign subsidiary in Canada carried losses for foreign income tax purposes of $6,965,807 (2010 - $6,030,934), which may be carried forward to apply against future income tax in Canada, expiring between 2014 and 2031. The deferred tax benefit of these loss carry-forwards has been offset with a full valuation allowance, due to uncertainties related to the foreign subsidiary to utilize those deferred tax assets before they expire. These losses expire as follows:

2014	447,873
2025	711,791
2026	918,978
2027	825,269
2028	739,475
2029	1,018,577
2030	1,063,777
2031	1,240,066

Accounting for uncertainty for Income Tax

Effective January 1, 2009, the Company adopted the interpretation for accounting for uncertainty in income taxes which was an interpretation of the accounting standard accounting for income taxes. This interpretation created a single model to address accounting for uncertainty in tax positions. This interpretation clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.

As at December 31, 2011 and 2010, the Company’s consolidated balance sheets did not reflect a liability for uncertain tax positions, nor any accrued penalties or interest associated with income tax uncertainties. The Company is subject to income taxation at the federal and state levels. The Company is subject to US federal tax examinations for the tax years 2008 through 2011. Loss carryforwards generated or utilized in years earlier than 2008 are also subject to examination and adjustment. The Company has no income tax examinations in process.

The operating income shown in the income statement is on a consolidated basis. As shown in the income tax reconciliation in Note 11, net income and net loss has been segregated so that the financial statement reader can see that the company has a significant net income before tax in the United States, and a significant loss before tax in 'foreign' jurisdictions. On a consolidated basis, the net income earned in the States is being offset by the losses in Canada.