The components of the provision for income tax expense are as follows:
| Year Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Current: | ||||||||
| Federal | $ | – | $ | – | ||||
| State | 37,070 | 14,875 | ||||||
| Foreign | 5,458 | 6,691 | ||||||
| 42,528 | 21,566 | |||||||
| Deferred: | ||||||||
| Federal | – | 77,428 | ||||||
| State | – | 4,075 | ||||||
| – | 81,503 | |||||||
| Total provision (benefit) for income taxes | $ | 42,528 | $ | 103,069 | ||||
The Company is subject to United States federal and state income taxes at an approximate rate of 38.25%. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows:
| Year Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Statutory tax rate | 38.25 | % | 38.25 | % | ||||
| Permanent differences | (.03 | )% | (3.00 | )% | ||||
| Stock options | (44.30 | )% | 0.00 | % | ||||
| Foreign tax rate differential | 0.00 | % | 0.10 | % | ||||
| Prior year true up | (0.01 | )% | (0.15 | )% | ||||
| Valuation allowance | 5.93 | % | (37.49 | )% | ||||
| Total | (.16 | )% | (2.29 | )% | ||||
Deferred tax assets consist of the following at:
| Year Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforward | $ | 679,797 | $ | 339,052 | ||||
| Temporary differences | 63,172 | 5,679 | ||||||
| Stock-based compensation | – | 1,715,623 | ||||||
| Total gross deferred tax assets | 742,969 | 2,060,354 | ||||||
| Less: valuation allowance | (742,969 | ) | (2,060,354 | ) | ||||
| Net deferred tax assets | $ | – | $ | – | ||||
At December 31, 2016, the Company had federal net operating losses of approximately $1.113 million which will begin to expire in 2029 and could be subject to certain limitations under section 382 of the Internal Revenue Code.
The Company has provided a valuation allowance at December 31, 2016 and 2015 of $742,969 and $2,060,354 respectively for its net deferred tax assets as it cannot conclude it is more likely than not all of the estimated net deferred tax assets will be realized. The valuation allowance decreased by $1,317,385 and increased $1,676,214 in 2016 and 2015, respectively.
As of December 31, 2016 and 2015, the Company did not have any unrecognized tax benefits. The Company's policy is to recognize interest and penalties related to income tax matters in income tax expense. The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its inception.