NOTE 12 - 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:

	2013		2012
Loss from continuing operations before income taxes:

Domestic	$	(4,186,354)	$	(14,245,758)
Foreign		(3,037,790)		(569,023)

Totals	$	(7,224,144)	$	(14,814,781)

The provision for income taxes from continuing operations for the years ended April 30, 2013 and 2012 is summarized as follows:

	2013		2012
Current
Federal	$	-	$	-
State		13,859		53,218
Foreign		192,736		266,216
Totals		206,595		319,434
Deferred
Federal		-		1,618,303
State		-		237,388
Foreign		551,549		(298,649)
Totals		551,549		1,557,042
Total provision for income taxes	$	758,144	$	1,876,476

The actual provision for income taxes from continuing operations reflected in the consolidated statements of operations for the years ended April 30, 2013 and 2012 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:

	2013		2012
Expected tax (benefit) provision at statutory rate (34%)	$	(2,456,209)	$	(5,037,026)
Rate differential between US statutory rate (34%) and foreign tax rates		1,777,133		161,035
State and local taxes, net of federal tax benefit		(230,928)		(870,784)
Valuation allowance		259,196		7,578,992
Non deductible financing costs		1,379,848		-
Non deductible change in fair value of acquisition-related contingent consideration		-		28,434
Other permanent differences		29,104		15,825
Totals	$	758,144	$	1,876,476

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:

	2013		2012
Deferred tax assets:

Allowance for doubtful accounts	$	226,998	$	246,238
Inventory markdown reserve		3,597		-
Reserve for loss on work-in-progress		8,610		648,096
Net operating loss carryforward		484,827		180,741
Bonus and vacation accruals		148,282		86,120
Non-qualified stock options		67,050		51,712
Federal benefit for foreign tax credit		132,800		132,800
Valuation allowance		(966,902)		(972,884)
Deferred tax assets-current		105,262		372,823

Intangible assets		3,375		3,682
Goodwill		39,210		42,782
Property and equipment		355,489		355,489
Net operating loss carryforward		8,551,386		6,889,345
Valuation allowance		(8,853,193)		(6,586,769)
Deferred tax assets-long-term		96,267		704,529

Deferred tax liabilities:

Deferred revenue		(13,888)		(65,273)
Deferred tax liabilities-current		(13,888)		(65,273)

Property and equipment		(111,801)		(134,661)
Intangible assets		(75,840)		(118,107)
Cumulative translation adjustments		-		(207,762)
Deferred tax liabilities-long-term		(187,641)		(460,530)

Net deferred tax assets	$	-	$	551,549

At April 30, 2013, the Company has net operating loss carryforwards for Federal tax purposes approximating $24,469,000 expiring through 2033. The Company also has net operating loss carryforwards for state tax purposes approximating $27,864,000 expiring in varying amounts through 2033. 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, 2013, the Company increased its valuation allowance by approximately $2,260,000 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 $9,820,000 at April 30, 2013. However, the future use of some or all of such carried forward domestic losses may be limited by Sec. 382 of the 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 or transaction among the Company’s shareholders, such as the Hartford and Lakewood asset sales described in Note 16.

The tax change in the valuation allowance is listed below:

	2013		2012
Balance at beginning of the year	$	7,559,653	$	1,221,800

Charged to costs and expenses		2,260,442		6,545,615
Reversed to gross tax assets and other accounts		-		(207,762)

Balance at end of the year	$	9,820,095	$	7,559,653

In 2012, an additional valuation allowance was established against the remaining domestic 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, 2013, the Company’s net deferred tax assets are fully offset by a valuation allowance. The Company continues to analyze the realizability of its deferred tax assets on a regular basis.

Deferred taxes have not been provided on the excess book basis in the shares of the Company’s Australia subsidiaries because these basis differences are not expected to reverse in the foreseeable future. These basis differences could reverse through a sale of the subsidiaries, the receipt of dividends from the subsidiaries, as well as various other events. It is not practical to calculate the residual income taxes that would result if these bases differences 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 Australia subsidiaries for the years ended April 30, 2013 and 2012. Deferred taxes have not been provided on any basis differences in the shares of the Company’s Australia subsidiaries as such differences are not expected to reverse in the foreseeable future. These basis differences could reverse through a sale of the subsidiaries, the receipt of dividends from the subsidiaries, as well as various other events. It is not practical to calculate the residual income taxes that would result if these bases differences reversed.