NOTE 14 - INCOME TAXES

Loss from continuing operations before provision for income taxes show below is based on the geographic locations to which such loss is attributed for the years ended April 30:

	2014		2013
Loss income before income taxes:

Domestic	$	(11,133,473)	$	(4,895,562)
Foreign		(26,565)		(172,099)

Totals	$	(11,160,038)	$	(5,067,661)

The provision for income taxes from continuing operations for the years ended April 30, 2014 and 2013 is summarized as follows:

	2014		2013
Current
Federal	$	-	$	-
State		2,127		13,859
Foreign		145,696		547,374
Totals		147,823		561,233
Deferred
Federal		(330,765)		(344,919)
State		-		-
Foreign		-		-
Totals		(330,765)		(344,919)
Total provision for income taxes (benefits)	$	(182,942)	$	216,314

The actual provision for income taxes from continuing operations reflected in the consolidated statements of operations for the years ended April 30, 2014 and 2013 differs from the provision computed at the federal statutory tax rates. The principal differences between the statutory income tax and the actual provision for income taxes are summarized as follows:

	2014		2013
Expected tax (benefit) provision at statutory rate (34%)	$	(3,798,248)	$	(1,723,004)
Rate differential between US statutory rate (34%) and foreign tax rates		178,019		605,886
Foreign Tax Deduction		(10,470)
State and local taxes, net of federal tax benefit		(392,424)		(230,928)
Valuation allowance		1,564,311		156,887
Non deductible financing costs		2,274,805		1,379,848
Non deductible change in fair value of acquisition-related contingent consideration				-
Other permanent differences		1,065		27,625
Totals	$	(182,942)	$	216,314

Deferred tax assets and liabilities are provided for the effects of temporary difference between tax basis of an asset or liability and its reported amount in the consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years.

The components of the Company’s deferred tax assets and liabilities are as follows:

	2014		2013
Deferred tax assets:

Allowance for doubtful accounts	$	55,140	$	70,902
Inventory markdown reserve		-		3,597
Reserve for loss on work-in-progress		-		4,453
Net operating loss carryforward		-		-
Bonus and other accruals		725,037		24,570
Non-qualified stock options		76,850		67,050
Foreign tax credit		265,600		132,800

Valuation allowance		(1,122,627)		(303,372)

Deferred tax assets-current		-		-

Intangible assets		3,068		8,893
Goodwill		35,639		39,210
Property and equipment		-		423,105
Net operating loss carryforward		11,717,526		10,580,984
Valuation allowance		(11,700,982)		(10,955,925)

Deferred tax assets-long term		55,251		96,267

Deferred tax liabilities:

Property and equipment		(55,251)		(90,748)
Intangible assets		-		(5,519)
Goodwill		-		-
Cumulative translation adjustments		-		-
Deferred tax liabilities-long term		(55,251)		(96,267)

Net deferred tax assets (liabilities)	$	-	$	-

At April 30, 2014, the Company has net operating loss carryforwards for Federal tax purposes approximating $27,872,000 expiring through 2034. The Company also has net operating loss carryforwards for state tax purposes approximating $30,230,000 expiring in varying amounts through 2034. However, the future use of some or all of such carried forward domestic losses may be limited by Sec. 382 of Internal Revenue Code in the event of an ownership change, which may have been incurred as a result of the Company’s financing activities and other transactions among the Company’s shareholders, such as the Hartford and Lakewood asset sales described in Note 17.

The Company considers past performance, expected future taxable income and prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. The Company’s forecast of expected future taxable income is based over such future periods that it believes can be reasonably estimated. Based on its analysis as of April 30, 2014, the Company increased its valuation allowance by approximately $1.6 million on its domestic and foreign deferred tax assets. Due to the uncertainty of recognizing a tax benefit on loss carryforwards, the Company has provided a valuation allowance of approximately $12,824,000 at April 30, 2014.

The tax change in the valuation allowance is listed below:

	2014		2013
Balance at beginning of the year	$	11,259,297	$	7,657,266

Charged (reversed) to costs and expenses		1,564,311		3,602,031

Balance at end of the year	$	12,823,608	$	11,259,297

In 2013, the valuation allowance was increased to offset the foreign net deferred tax assets as the Company determined it was not more likely that these assets would be realized. In 2013, the valuation allowance was increased to offset the foreign net deferred tax assets as the Company determined it was not more likely than not that these assets would be realized. At April 30, 2014, the Company’s net deferred tax assets are fully offset by a valuation allowance. The Company continues to analyze the reliability of its deferred tax assets on a regular basis.

Accounting for uncertainty in income taxes requires uncertain tax positions to be classified as non-current income tax liabilities unless they are expected to be paid within one year. The Company has concluded that there are no uncertain tax positions requiring recognition in its consolidated financial statements as of April 30, 2014 and 2013. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense. For the years ended April 30, 2014 and 2013 there was no interest expense relating to unrecognized tax benefits.

Deferred taxes have not been provided on the excess book basis in the shares of the Company’s foreign subsidiary because this basis difference is not expected to reverse in the foreseeable future. The basis difference could reverse through a sale of the subsidiaries, the receipt of dividends from the subsidiary, as well as various other events. It is not practical to calculate the residual income taxes that would result if this basis difference reversed due to the complexities of the income tax law and the hypothetical nature of these calculations.

The Company had no undistributed earnings of its foreign subsidiary for the years ended April 30, 2014 and 2013.

The Company and its domestic subsidiaries file a U.S. federal consolidated income tax return. The U.S. federal statute of limitations remains open for the years April 30, 2011 and thereafter. State income tax returns are generally subject to examination for a period of 3 to 5 years after filing the respective return. The Company is not currently under examination by any taxing authority.