The Company has identified its federal tax return and its state returns in Pennsylvania and California as “major” tax jurisdictions. Based on the Company’s evaluation, it concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The Company’s evaluation was performed for tax years ended 2013 through 2016, the only periods subject to examination. The Company believes that its income tax positions and deductions will be sustained on a tax authority audit and does not anticipate any adjustments that will result in a material change to its financial position.

The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of income before income taxes. Penalties are recorded in general and administrative expenses and interest paid or received is recorded in interest expense or interest income, respectively, in the consolidated statement of operations. For the years ended December 31, 2016 and 2015, there were no interest or penalties related to uncertain tax positions.

Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial statement carrying amounts for assets and liabilities versus the tax bases of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, operating loss and tax credit carryforwards. Deferred liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the year that the change is enacted. The provision (benefit) for income taxes is as follows:

Pre-tax income (loss) for domestic locations for the years ended December 31, 2016 and 2015 was $957,000 and ($2,898,000), respectively. Foreign locations had pre-tax loss of ($510,000) and ($1,779,000) in 2016 and 2015, respectively.

The approximate income tax effect of each type of temporary difference is as follows:

Realization of deferred tax assets is primarily dependent on future taxable income, the amount and timing of which is uncertain. The valuation allowance is adjusted on a periodic basis to reflect management’s estimate of the realizable value of the net deferred tax assets. A valuation allowance has been recorded for the net deferred tax asset for all jurisdictions with the exception of a $41,000 deferred tax liability recorded for the Company’s subsidiary located in Israel.

Taxable income for the Israeli subsidiary was $412,000 and $367,000 for the years ended December 31, 2016 and 2015, respectively. The Israeli subsidiary has a tax provision of $37,000 and $41,000 for the years ended December 31, 2016 and 2015, respectively.

As of December 31, 2016, the Company had net operating loss carryforwards for United States federal income tax purposes of approximately $29,369,000. Included in the aggregate net operating loss carryforward is $8,900,000 of tax deductions related to equity transactions, the benefit of which will be credited to stockholders’ equity, if and when realized after the other tax deductions in the carryforwards have been realized. The net operating loss carryforwards expire between 2019 through 2035.

The Company does not provide for federal income taxes or tax benefits on the undistributed earnings or losses of its international subsidiaries because earnings are reinvested and, in the opinion of management, will continue to be reinvested indefinitely. At December 31, 2016, the Company had not provided federal income taxes on cumulative earnings of individual international subsidiaries. Should these earnings be distributed in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes and withholding taxes in various international jurisdictions. Determination of the related amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation. As noted above, the Company has significant net operating loss carryforwards for U.S. federal income taxes purposes, which are available to offset the potential tax liability if the earnings were to be distributed.

The extent to which the loss carryforward can be used to offset future taxable income and tax liabilities, respectively, may be limited, depending on the extent of ownership changes within any three-year period.

The effective tax rate differed from the statutory U.S. federal income tax rate as follows:

	Year ended December 31,
	2016		2015
Statutory tax rate	34.0	%	34.0	%
State taxes	-	%	1.5	%
Permanent differences	6.7	%	(0.9	%)
Difference between statutory and foreign rates	(10.5	%)	(3.0	%)
Other	10.7	%	0.5	%
Valuation allowance	(32.6	%)	(25.4	%)

	8.3	%	6.7	%