11. INCOME TAXES

The breakout of the loss from continuing operations before income taxes between domestic and foreign operations is below:

The Income Tax (benefit) provision from continuing operations consists of the following:

The (benefit) provision for income tax, from continuing operations, using statutory U.S. federal tax rate of 34% is reconciled to the company’s effective tax rate as follows:

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for tax purposes. Major components of deferred tax assets for continuing operations at December 31, 2016 and 2015 were:

Excluded from the above table of deferred tax assets are approximately $2,940,000 and $3,213,000 for net operating loss carryforwards and related valuation allowances for discontinued operations at December 31, 2016 and 2015, respectively.

As of December 31, 2016 and 2015, the company has U.S. federal and state net operating loss carryovers of approximately $32,893,000 and $29,635,000 respectively, which will expire at various dates beginning in 2031 through 2036, if not utilized. As of December 31, 2016 and 2015 the company has foreign net operating loss carryovers of approximately $1,352,000 (for South Africa) and $2,284,000 ($701,000 for Hungary, $1,175,000 for South Africa, and $408,000 for Australia) respectively. Depending on the jurisdiction, some of these net operating loss carryovers will begin to expire within 5 years, while other net operating losses can be carried forward indefinitely as long as the company is trading. The company has a capital loss carryforward of $407,000 which expires between 2016 and 2017 if not utilized. In accordance with Section 382 of the internal revenue code, deductibility of the company’s U.S. net operating loss carryovers may be subject to an annual limitation in the event of a change of control as defined under the Section 382 regulations. Quarterly ownership changes for the past 3 years were analyzed and it was determined that there was no change of control as of December 31, 2016.

In assessing the realization of deferred tax assets, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, Management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance. For the years ended December 31, 2016 and December 31, 2015 the change in valuation allowance related to continuing operations was approximately $1,858,543 and $2,013,749, respectively.

The company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in their financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the company has taken or expects to take in its return. For those benefits to be recognized, a tax position must be more-likely-than- not to be sustained upon examination by taxing authorities. Differences between two positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits”. A liability is recognized for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing-authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.

Interest related to uncertain tax positions are required to be calculated, if applicable, and would be classified as “interest expense” in the two statements of operations. Penalties would be recognized as a component of “general and administrative expenses”. As of December 31, 2016 and 2015 no interest or penalties were required to be reported.

No provision was made for U.S. or foreign taxes on approximately $1,267,000 of undistributed earnings of the Company as such earnings are considered to be permanently reinvested. Such earnings have been, and will continue to be, reinvested, but could become subject to additional tax if they were remitted as dividends, loaned to the Company, or if the Company should sell its interests in the foreign entities. It is not practicable to determine the amount of additional tax, if any, that might be payable on the undistributed earnings or on any book-tax basis differences. Earnings from the U.K. subsidiary are no longer considered to be permanently reinvested. Therefore, for deferred tax purposes only, the company has deemed the earnings to be repatriated to the parent company as a dividend. This deemed dividend is fully offset by the company’s net operating losses, so there is no deferred tax expense on the deemed repatriation.