NOTE 10: INCOME TAXES

The Company has not identified or quantified any significant temporary differences between the Company’s tax and financial bases of assets and liabilities that result in deferred tax assets, except for the Company’s net operating loss carry-forwards amounting to approximately $13,629,000 at December 31, 2011 (2010 - $12,217,000), which may be available to reduce future year’s taxable income. These carry forwards begin to expire, if not utilized, commencing in 2012. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization does not meet a more likely than not test and accordingly, the Company has recorded a 100% valuation allowance for the potential deferred tax asset relating to these tax loss carry forwards.

The Company reviews its valuation allowance requirements on an annual basis based on management’s expectations of future operations. Should circumstances change resulting in a change in management’s judgment about the recoverability of future tax assets, the impact of the change on the valuation allowance would be reflected in current operations and disclosures.

The Company’s policy is to accrue amounts for known or likely interest and penalties related to unrecognized tax charges or likely penalties and interest in its provision for income taxes. Additionally, ASC 740-10 requires that a company recognize in its financial statements the impact of a tax position that is more likely than not to be sustained upon examination based on the technical merits of the position. The Company has incurred taxable losses for all tax years since inception and accordingly, no provision for taxes has been recorded for the current or any prior fiscal year.

The actual income tax provisions differ from the expected amounts calculated by applying the combined federal and state corporate income tax rates to the Company’s loss before income taxes and other temporary adjusted as appropriate for temporary and permanent tax basis differences. The components of these differences are as follows:

	Year Ended			(Restated) Year Ended
	December 31, 2011			December 31, 2010

Loss before income taxes	$	(2,028,941	)	$	(3,532,623	)
Corporate tax rate		35.00	%		35.00	%
Expected tax recovery		(710,129	)		(1,236,418	)

Increase (decrease) resulting from:
Permanent differences		152,458			586,509
Other items		(3,908	)		(3,908	)
Change in valuation allowance		561,579			653,817
Income tax recovery	$	-		$	-

The Company’s estimated deferred tax assets are as follows:

	Year Ended			Year Ended
	December 31, 2011			December 31, 2010

Deferred tax assets:
Stock option expense	$	2,730,750		$	2,730,750
Loss carry-forwards and tax pools		7,985,278			7,423,699
Valuation allowance		(10,716,028	)		(10,154,449	)
Net deferred income tax assets	$	-		$	-

As the criteria for recognizing future income tax assets have not been met due to the uncertainty of realization, a valuation allowance of 100% has been recorded for the current and prior year.

The Company has not filed income tax returns for several years for the US entities within the consolidated group of companies. Canadian corporate tax returns to the end of 2007 have been filed. Both taxing authorities prescribe penalties for failing to file certain tax returns and supplemental disclosures. Upon filing and/or review there could be penalties and interest assessed. Such penalties vary by jurisdiction and by assessing practices and authorities. As the Company has incurred losses since inception anticipated risk for exposure to penalties for income tax liability is determined to be low. However, certain jurisdictions may assess penalties for failing to file returns and other disclosures and for failing to file other supplementary information associated with foreign ownership, debt and equity positions. Inherent uncertainties arise over tax positions taken, or expected to be taken, with respect to transfer pricing, inter-company charges and allocations, financing charges, fees, related party transactions, tax credits, tax based incentives and stock based transactions.

Management has considered the likelihood and significance of possible penalties associated with its current and intended filing positions and has determined, based on their assessment, that such penalties, if any, would not be expected to be material.