NOTE 10 - INCOME TAXES

Following is a summary of the components giving rise to the income tax provision (benefit) for the years ended December 31:

	2013			2012
Currently payable:
Federal	$	-		$	-
State		-			-
Total currently payable		-			-
Deferred:
Federal		(2,217,527	)		(1,351,316	)
State		(528,872	)		(322,185	)
Total deferred		(2,746,399	)		(1,673,501	)
Less: (decrease) increase in allowance		(8,202,476	)		1,692,449
Net deferred		(10,948,875	)		18,948
Total income tax provision (benefit)	$	(10,948,875	)	$	18,948

Individual components of deferred taxes are as follows:

	2013			2012
Deferred tax assets:
Net operating loss carry forwards	$	15,960,340		$	14,079,414
Equity issued for services		721,934			603,785
Goodwill and other intangibles		218,896			0
Other		338,087			422,998
Gross deferred tax assets		17,239,257			15,106,197

Deferred tax liabilities:
Goodwill and other intangibles	$	9,827,201		$	234,822
Depreciation and amortization		286,520			922,706
Investment in pass-through entity		2,414,716			-
Gross deferred tax liabilities	$	12,528,437		$	1,157,528

Less valuation allowance		(5,851,944	)		(14,076,344	)

Net deferred tax liabilities	$	(1,141,124	)	$	(127,675	)

The Company recognized a $10,962,000 deferred tax benefit in 2013 as a result of the acquisition of DSS Technology Management, Inc. on July 1, 2013. Due to the acquisition, a temporary difference between the book fair value and the tax basis of the other intangible assets acquired created an approximately $11,962,000 deferred tax liability and additional goodwill. With the increase in the deferred tax liability, the Company reduced the deferred tax asset valuation allowance by the amount of net operating loss that could offset the amortization of the deferred tax liability associated with the value of the patents acquired and recognized a deferred tax benefit of approximately $10,962,000.

The Company has approximately $42,516,000 in net operating loss carryforwards ("NOLs") available to reduce future taxable income, which will expire at various dates from 2022 through 2033. Due to the uncertainty as to the Company's ability to generate sufficient taxable income in the future and utilize the NOLs before they expire, the Company has recorded a valuation allowance accordingly.

The excess tax benefits associated with stock option exercises are recorded directly to stockholders' equity only when realized. As a result, the excess tax benefits available in net operating loss carryforwards but not reflected in deferred tax assets was approximately $1,019,000. These carryforwards expire at various dates from 2022 through 2030. The excess tax benefits associated with stock option exercises are recorded directly to stockholders' equity only when realized. In addition, a portion of the valuation allowance amounting to approximately $407,000 will be recorded as a reduction to additional paid in capital in the event that it is determined that a valuation allowance is no longer considered necessary.

The differences between the United States statutory federal income tax rate and the effective income tax rate in the accompanying consolidated statements of operations are as follows:

	2013			2012

Statutory United States federal rate		34.0	%		34.0	%
State income taxes net of federal benefit		4.2			5.0
Permanent differences		(4.5	)		(0.8	)
Other		(0.8	)		1.0
Change in valuation reserves		98.1			(39.6	)

Effective tax rate		131.0	%		(0.4	)%

At December 31, 2013 and 2012, the total unrecognized tax benefits of $446,000 have been netted against the related deferred tax assets.

The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2013 and 2012 the Company recognized no interest and penalties.

The Company files income tax returns in the U.S. federal jurisdiction and various states. The tax years 2010-2013 generally remain open to examination by major taxing jurisdictions to which the Company is subject.