11. Income Taxes

We compute income taxes using the asset and liability method in accordance with ASC Topic 740. Under the asset and liability method, we determine deferred income tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities and measured using currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. In our opinion, realization of our net operating loss carry forward is not reasonably assured as of December 31, 2013 or 2012, and valuation allowances of $4,149,000 and $2,433,000, respectively, have been provided against deferred tax assets in excess of deferred tax liabilities in the accompanying consolidated financial statements.

The components of net deferred taxes are as follows:


	As of December 31,
	2013			2012
Deferred tax assets (liabilities):
Net operating loss	$	4,212,000			1,029,000
Stock-based compensation		2,103,000			1,177,000
Accrued interest expense		150,000			155,000
Allowance for doubtful accounts		47,000			22,000
Deferred lease liability		70,000			50,000

Total deferred tax assets		6,582,000			2,433,000
Less: valuation allowance		(6,582,000	)		(2,433,000	)

Net deferred taxes	$	—		$	—

The reconciliation between the income tax expense (benefit) calculated by applying statutory rates to net loss and the income tax benefit reported in the accompanying consolidated financial statements is as follows:


	Years Ended December 31,
	2013			2012
U.S. federal statutory rate applied to pretax income	$	(6,051,780	)	$	(11,713,000	)
Permanent differences		2,739,048			10,344,000
State taxes and other		1,597,415			(123,000	)
Change in valuation allowance		1,715,317			2,433,000

	$	—		$	941,000

As of December 31, 2013, we had federal income tax net operating loss carry forwards of approximately $4,212,000, which expire at various dates beginning in 2032. We are subject to limitations existing under Internal Revenue Code Section 382 (Change of Control) relating to the availability of the operating loss.

As of December 31, 2013, we did not recognize any assets or liabilities relative to uncertain tax positions, nor do we anticipate any significant unrecognized tax benefits will be recorded during 2014. It is our policy to classify interest and penalties on income taxes as interest expense or penalties expense.

Tax positions are positions taken in a previously filed tax return or positions expected to be taken in a future tax return that are reflected in measuring current or deferred income tax assets and liabilities reported in the financial statements. Tax positions include the following:

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an allocation or shift of income between taxing jurisdictions;

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the characterization of income or a decision to exclude reportable taxable income in a tax return; or

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a decision to classify a transaction, entity or other position in a tax return as tax exempt.

We are potentially subject to tax audits for federal and state tax returns for tax years ended 2013 to 2011. Tax audits by their very nature are often complex and can require several years to complete. Prior to July 13, 2010, as a limited liability company, we were not a tax paying entity for federal and state income tax purposes. Accordingly, our taxable income or loss was allocated to our members in accordance with their respective percentage ownership.