15. INCOME TAXES

Consolidated income (loss) before income taxes for the years ended December 31, 2014, 2013 and 2012 consisted of the following:

	2014		2013		2012
U.S. operations	$	(869,973)	$	(1,342,324)	$	(2,545,711)
Foreign operations		(2,657,479)		767		53,104
(Loss) before income tax	$	(3,527,452)	$	(1,341,557)	$	(2,492,607)

The income tax provision (benefit) for the years ended December 31, 2014, 2013 and 2012 consisted of the following:

	2014		2013		2012
Current:
Federal	$	-	$	-	$	-
State and local		28,959		34,514		31,495
Foreign		(80,956)		382,604		2,219
Total current provision (benefit)		(51,997)		417,118		33,714
Deferred:
Federal		-		-		-
State and local		-		-		-
Foreign		(674,177)		(815,562)		-
Total deferred provision (benefit)		(674,177)		(815,562)		-
Total income tax provision (benefit)	$	(726,174)	$	(398,444)	$	33,714

The following table provides a reconciliation of the federal statutory tax at 34% to the recorded tax provision (benefit) for the years ended December 31, 2014, 2013 and 2012, respectively:

	2014		2013		2012
Computed federal income taxes at the statutory rate (benefit)	$	(1,199,334)	$	(456,129)	$	(847,486)
State income taxes (net of federal benefit)		19,113		22,779		20,787
Permanent tax differences		(345,640)		48,905		38,256
Foreign tax rates and tax credits differing from USA		501,760		(144,999)		-
Change in enacted tax rates applied to foreign deferred taxes		-		(379,236)		-
Change in valuation allowance		297,927		510,236		822,157
Total income tax provision (benefit)	$	(726,174)	$	(398,444)	$	33,714

The Company accounts for income taxes under the asset-liability method. Deferred income taxes reflect the net 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. Valuation allowances are provided when it is “more likely than not” that the benefits of existing deferred tax assets will not be realized in a future period. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2014, 2013 and 2012, respectively, are as follows:

	2014		2013 (revised)
Deferred tax assets:
Net operating loss carryforwards	$	17,102,334	$	17,068,113
Property, plant and equipment		68,289		134,805
Contribution and other carryforwards		319,199		249,274
Inventory and accounts receivable reserves		354,484		398,593
Other		825,859		601,880
Valuation allowance		(18,553,658)		(18,255,731)
Deferred tax assets after valuation allowance		116,507		196,934

Deferred tax liabilities:
Intangible Assets		(5,212,570)		(6,108,826)
Total deferred tax liabilities		(5,212,570)		(6,108,826)

Net deferred tax liabilities	$	(5,096,063)	$	(5,911,892)

As of December 31, 2014 and 2013, the Company recorded a valuation allowance of $18.6 million and $18.3 million, respectively. During the years ended December 31, 2014, 2013 and 2012, the Company recorded a change in valuation allowance of $0.3 million, $0.5 million and $0.8 million, respectively. The Company has provided for a full valuation on existing deferred tax assets in the United States. As of December 31, 2014 and 2013 the Company’s deferred tax liability for USA purposes is approximately $2.8M and $2.8M, respectively related to basis differences for indefinite lived intangibles recorded for a prior US acquisition. As of December 31, 2014 and 2013 the Company’s net deferred tax liability for foreign purposes is approximately $2.3 and $3.1, respectively related to basis differences for assets recorded for a prior foreign acquisition. As of December 31, 2014, the Company has available federal and state net operating loss carry forwards of approximately $44.6 million and $44.7 million, respectively, which have various expiration dates beginning in 2018 through 2034.

The Company files consolidated income tax returns for federal and many state jurisdictions in addition to separate subsidiary income tax returns in Japan and the United Kingdom. As of December 31, 2014, the Company is not under examination by any income tax jurisdiction. The Company is no longer subject to examination for years prior to 2011.

The Company accounts for income tax uncertainties using a threshold of "more-likely-than-not" in accordance with the provisions of ASC Topic 740, Income Taxes ("ASC 740"). As of December 31, 2014, the Company has reviewed all of its tax filings and positions taken on its returns and has not identified any material current or future effect on its consolidated results of operations, cash flows or financial position. As such, the Company has not recorded any tax, penalties or interest on tax uncertainties. It is Company policy to record any interest on tax uncertainties as a component of income tax expense.

The Company has immaterial amounts of undistributed earnings of foreign subsidiaries at December 31, 2014 for which no deferred taxes have been provided. Such earnings are considered indefinitely invested outside of the United States. If these earnings were repatriated to the United States, the earnings would be subject to U.S. taxation. The amount of the unrecognized deferred tax liability associated with the undistributed earnings is immaterial as of December 31, 2014. Any unrecognized deferred tax liability would approximate the excess of the U.S. tax liability over the amount of creditable foreign taxes paid that would result from a full remittance of undistributed earnings.

During 2014, management identified an error related to the recognition of deferred tax temporary differences from a non-taxable acquisition of a business during 2008. Under ASC 850, fair value was allocated to the acquired assets, including identifiable intangibles, and liabilities with the excess of the purchase price over fair value recorded as goodwill. For tax purposes, the historical tax basis were retained from the acquisition thus creating temporary tax differences. Under ASC 750, deferred taxes were required to be recorded for tax temporary differences as a result of the acquisition.

During 2014, management identified a portion of the acquired identifiable indefinite-lived intangibles related to the 2008 acquisition for which no deferred tax liabilities were recognized. In addition, management identified an error in its tax filings since 2008 related to overstated tax deductions for amortization on acquired intangibles and goodwill for which no tax basis existed. Management determined that the deductions overstated net operating loss carryforwards and the associated valuation allowance, which had been previously disclosed.

Management determined that the unrecognized deferred tax liability on identifiable indefinite-lived intangibles related to the 2008 acquisition was approximately $2.8 million. Accordingly the Company has revised its consolidated balance sheet as of January 1, 2012 by recording the $2.8 million deferred tax liability with the offset increasing the Company’s accumulated deficit since the effect of the correction relates to years prior to 2012. The consolidated balance sheets for December 31, 2013 and 2012 presented in the accompanying consolidated financial statements reflect this change. The result of this correction did not affect the Company’s consolidated statements of operations, comprehensive income and loss or cash flows for the years ended December 31, 2013 and 2012. Accordingly, management believes that the effect of the correction represents an immaterial adjustment to the accompanying consolidated financial statements at December 31, 2013 and 2012. Management made the revisions to the accompanying consolidated financial statements because recording the correction in 2014 would have been material to the consolidated statement of operations for the year ended December 31, 2014.

In addition, the Company determined that no impact other than disclosure would result from the correction of the overstated net operating loss carryforwards which have been subject to a full valuation allowance. The reversal of the overstated deferred tax assets representing net operating loss carryforwards, would be completely offset by a reduction in existing valuation allowances for the same previous years. The Company has revised its income tax footnote disclosure as of January 1, 2012, to reflect these revisions to its deferred tax assets, valuation allowance and deferred tax liabilities with the corresponding impact flowing through in subsequent disclosures.