United States and foreign components of income before income taxes were as follows:

		For the Three Months Ended March 31,
		2018			2017
United States		$	(2,059,485)		$	51,583
Foreign			547,253			531,597
(Loss) income before income taxes		$	(1,512,232)		$	583,180

Fergco was a Subchapter S pass-through entity for income tax purposes prior to the acquisition by Xspand on September 30, 2017. Accordingly, Fergco was not subject to income taxes prior to the acquisition and therefore the tax provision related to the United States income is only for the period from January 1, 2018 to March 31, 2018.

 

The Company’s foreign entity is SRM, which is an entity subject to the Hong Kong, China tax regime. The Hong Kong tax returns remain subject to examination by local taxing authorities beginning with the tax year ended December 31, 2011.

 

The tax effects of temporary differences that give rise to deferred tax assets or liabilities are presented below:

		March 31,			December 31,
		2018			2017
Deferred tax assets:
Net operating loss carryforwards		$	501,543		$	50,524
Less: valuation allowance			(501,543)			(50,524)
Net deferred tax assets			-			-
Deferred tax liabilities:
Property and equipment			34,209			34,209
Deferred tax liabilities			34,209			34,209
Net deferred tax liabilities		$	34,209		$	34,209

The income tax provision consists of the following:

		For the Three Months Ended March 31,
		2018			2017
Current:
Federal		$	18,741		$	-
Foreign			41,044			43,739
State and local			5,288			-
Income tax provision		$	65,073		$	43,739

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is a follows:

		For the Three Months Ended March 31,
		2018			2017
Tax at federal rate			21.0	%		34.0	%
U.S. income attributable to pass-through entity			0.0	%		-3.0	%
U.S. income subject to valuation allowance			-29.8	%		0.0	%
State and local income taxes			-0.3	%		0.0	%
Foreign income not subject to U.S. federal tax			7.6	%		-31.0	%
Foreign tax			-2.7	%		7.5	%
Effective income tax rate			-4.3	%		7.5	%