Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

Income Taxes

6 Months Ended

Jun. 30, 2019

NOTE 10 - Income Taxes

Income tax expense for the three-month and six-month periods ended June 30, 2019 and 2018 consisted of the following:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Current:	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Federal	$	-	$	-	$	-	$	-
State		-		-		1,600		2,400
Foreign		-		-		1,635		1,662
Total	$	-	$	-	$	3,235	$	4,062

The following table presents a reconciliation of the Company's income tax at statutory tax rate and income tax at effective tax rate for the three-month and six-month periods ended June 30, 2019 and 2018.

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Tax benefit at statutory rate	$	(409,180	)	$	(447,328	)	$	(1,014,950	)	$	(742,154	)
Net operating loss carryforwards (NOLs)		418,780			540,592			691,847			712,817
Foreign investment losses		67,200			14,649			183,700			14,649
Stock-based compensation expense		72,800			80,526			138,500			138,445
Amortization expense		(12,800	)		(1,700	)		(25,600	)		(3,400	)
Accrued R&D expense		-			(168,000	)		-			(168,000	)
Accrued payroll		(149,400	)		-			(41,800	)		-
Others		12,600			(18,739	)		71,538			51,705
Tax expense at effective tax rate	$	-		$	-		$	3,235		$	4,062

Deferred tax assets (liability) as of June 30, 2019 and December 31, 2018 consist approximately of:

	June 30, 2019			December 31, 2018
	(Unaudited)
Net operating loss carryforwards (NOLs)	$	6,689,000		$	5,632,000
Stock-based compensation expense		1,078,000			893,000
Accrued expenses and unpaid expense payable		249,000			184,000
Tax credit carryforwards		68,000			68,000
Excess of tax amortization over book amortization		(877,000	)		(818,000	)
Others		421,000			131,000
Gross		7,628,000			6,090,000
Valuation allowance		(7,628,000	)		(6,090,000	)
Net	$	-		$	-

Management does not believe the deferred tax assets will be utilized in the near future; therefore, a full valuation allowance is provided. The net change in deferred tax assets valuation allowance was an increase of approximately $1,538,000 (unaudited) the six months ended June 30, 2019.

As of December 31, 2017, the Company had federal NOLs of approximately $6,686,000 available to reduce future federal taxable income, expiring in 2037. As of June 30, 2019 and December 31, 2018, additional federal NOLs of approximately $15,045,000 (unaudited) and $12,515,000, respectively, were generated and will be carried forward indefinitely to reduce future federal taxable income. As of June 30, 2019 and December 31, 2018, the Company had State NOLs of approximately $23,886,000 (unaudited) and $21,049,000 respectively, available to reduce future state taxable income, expiring in 2039.

As of June 30, 2019 and December 31, 2018, the Company has Japan NOLs of approximately $333,000 (unaudited) and $319,000 available to reduce future Japan taxable income, expiring in 2029.

As of June 30,2019 and December 31, 2018, the Company has Taiwan NOLs of approximately $1,687,000 (unaudited) and $879,000 available to reduce future Taiwan taxable income, expiring in 2029.

As of June 30, 2019 and December 31, 2018, the Company had approximately $37,000 (unaudited) and $37,000 of federal research and development tax credit, available to offset future federal income tax. The credit begins to expire in 2034 if not utilized. As of June 30, 2019 and December 31, 2018, the Company had approximately $39,000 (unaudited) and $39,000 of California state research and development tax credit available to offset future California state income tax. The credit can be carried forward indefinitely.

The Company's ability to utilize its federal and state NOLs to offset future income taxes is subject to restrictions resulting from its prior change in ownership as defined by Internal Revenue Code Section 382. The Company does not expect to incur the limitation on NOLs utilization in future annual usage.