Note 12. Income taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income taxes

At December 31, 2012, we had fully utilized our federal net operating loss carryforward.  At the date of acquisition, August 22, 2013, PIR had $748,000 of federal net operating losses, all of which are fully reserved.

The provision (benefit) for income taxes consisted of the following components for the years ended December 31:

	2013			2012
Current:
Federal	$	590,000		$	221,000
State		103,000			39,000
Foreign		73,000			-
Total Current		766,000			260,000
Deferred:
Federal		(213,000	)		(8,000	)
State		24,000			(1,000	)
		(21,000	)
Total Deferred		(210,000	)		(9,000	)
Total provision for income taxes	$	556,000		$	251,000

Reconciliation between the statutory rate and the effective tax rate is as follows at December 31:

	2013			2012
Federal statutory tax rate		34.0	%		34.0	%
State tax rate		4.2	%		6.0	%
Permanent difference  - transaction costs		10.1	%		-
Permanent difference - Other		2.9	%		5.6	%
Other		(4.3	) %		(0.5	) %
		46.9	%		45.1	%
Change in valuation allowance		-			-
Total		46.9	%		45.1	%

Components of net deferred income tax assets, including a valuation allowance, are as follows at December 31:

	2013			2012			Change
Assets:
Net operating loss	$	583,000		$	-		$	364,000
Deferred revenue		10,000			45,000			(35,000	)
Allowance for doubtful accounts		140,000			47,000			93,000
Stock options		154,000			107,000			47,000
Basis difference in intangible assets		136,000			46,000			91,000
Accrued accounting fees		15,000			-			16,000
Rent expense		26,000			-			26,000
Foreign tax credits carryforward		1,181,000			-			1,181,000
Other		2,000			-			3,000
Total deferred tax asset		2,247,000			245,000			1,786,000
Less:  Valuation allowance		(1,762,000	)		-			(1,545,000	)
Total net deferred tax asset		485,000			245,000			241,000
Liabilities
Prepaid expenses		(16,000	)		(15,000	)		(1,000	)
Basis difference in fixed assets		(100,000	)		(22,000	)		(78,000	)
Debt discount - convertible note payable		(761,000	)		-			(761,000	)
Purchase of intangibles		(1,233,000	)		-			(1,233,000	)
Total deferred tax liability		(2,110,000	)		(37,000	)		(2,073,000	)
Total net deferred tax asset / (liability)	$	(1,625,000	)	$	208,000		$	(1,832,000	)

The Company has $1,545,000 of total valuation allowance for deferred tax assets as of December 31, 2013.  The valuation allowance relates to PIR federal net operating losses, state net operating losses, and foreign tax credit carryforwards. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment.  It has been determined that it is more likely than not that the deferred tax assets will not be realized, as it has been deemed unlikely that there will be generation of taxable income for the subsidiaries that carry these losses or that sufficient foreign source income would be generated to use the foreign tax credits.

The Company is subject to income taxation by both federal and state taxing authorities. Income tax returns for the years ended December 31, 2013, 2012, 2011, 2010, and 2009 are open to audit by federal and state taxing authorities. The Company has reviewed its tax positions and has determined that it has no significant uncertain positions as of December 31, 2013 or 2012.

The Company has not recorded deferred income taxes applicable to undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations. Generally, such earnings become subject to U.S. tax upon the remittance of dividends and under certain other circumstances. It is not practical to estimate the amount of deferred tax liabilities on such undistributed earnings. Undistributed earnings are insignificant as of December 31, 2013 and 2012.