Income Taxes

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Income Taxes

7.  Income Taxes
The amounts of income tax expense (benefit) reflected in operations is as follows:
	2011			2010
Current:
Federal	$	756,126		$	103,040
State		88,741			11,312
Foreign		532,827			594,110
		1,377,694			708,462
Deferred:
Federal		(142,281	)		(8,160	)
State		(18,802	)		(356,950	)
Foreign		(1,784	)		(5,469	)
		(162,867	)		(370,579	)
	$	1,214,827		$	337,883

The current state tax provision was comprised of taxes on income, the minimum capital tax and other franchise taxes related to the jurisdictions in which the Company's facilities are located.

A summary of United States and foreign income before income taxes follows:

	2011		2010
United States	$	1,901,905	$	12,481
Foreign		2,124,115		2,898,366
	$	4,026,020	$	2,910,847

As discussed in Note 10 below, for segment reporting, Direct Import sales are included in the United States segment. However, the revenues are earned by our Asian subsidiary and income taxes are paid in Hong Kong.  As such, income of the Asian subsidiary is included in the foreign income before taxes.

The following schedule reconciles the amounts of income taxes computed at the United States statutory rates to the actual amounts reported in operations.

	2011			2010
Federal income
taxes at
34% statutory rate	$	1,368,847		$	989,688
State and local
taxes, net of
federal income
tax effect		46,160			3,322
Permanent items		7,149			24,316
Charitable Donations		-			(350,672	)
Foreign tax rate difference		(308,250	)		(383,179	)
Change in deferred income tax
valuation allowance		100,921			54,358
Provision for income taxes	$	1,214,827		$	337,833

The following summarizes deferred income tax assets and liabilities:

	2011			2010
Deferred income tax liabilities:
Plant, property
and equipment	$	322,604		$	383,875
		322,604			383,875
Deferred income tax assets:
Asset valuations		426,429			372,774
Contribution carryforward		296,802			309,818
Operating loss
carryforwards and credits		2,148,208			2,047,287
Pension		467,087			522,903
Foreign tax credit		48,847			-
Other		418,938			328,718
		3,806,311			3,581,500
Net deferred
income tax asset before valuation allowance		3,483,707			3,197,625
Valuation
allowance		(2,148,208	)		(2,047,287	)
Net deferred
income tax asset	$	1,335,499		$	1,150,338

In 2011, the Company evaluated its tax positions for years which remain subject to examination by major tax jurisdictions, in accordance with the requirements of ASC 740 and as a result concluded no adjustment was necessary. The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company’s evaluation of uncertain tax positions was performed for the tax years ended December 31, 2008 and forward, the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2011.

In accordance with the Company’s accounting policies, any interest and penalties related to uncertain tax positions are recognized as a component of income tax expense.

The Company provides deferred income taxes on foreign subsidiary earnings, which are not considered permanently reinvested.  Earnings permanently reinvested would become taxable upon the sale or liquidation of a foreign subsidiary or upon the remittance of dividends.  During 2011, the Company repatriated $650,000 of foreign earnings from its Canadian subsidiary. U.S. income taxes on those repatriated earnings have been partially offset by foreign tax credits. The Company plans to continue to repatriate future earnings of its Canadian subsidiary and will provide for U.S. income taxes accordingly.  Foreign subsidiary earnings of $9,855,053 and $8,616,398 are considered permanently reinvested as of December 31, 2011 and 2010, respectively, and no deferred income taxes have been provided on these foreign earnings.

Due to the uncertain nature of the realization of the Company's deferred income tax assets based on past performance and carry forward expiration dates, the Company has recorded a valuation allowance for the amount of deferred income tax assets which are not expected to be realized.  This valuation allowance is subject to periodic review, and if the allowance is reduced, the tax benefit will be recorded in future operations as a reduction of the Company's tax expense.

At December 31, 2011, the Company had tax operating loss carry forwards aggregating $6,952,423, all of which were applicable to Germany, and can be carried forward indefinitely.