Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

Income Taxes

3 Months Ended

Mar. 31, 2020

NOTE 11 - Income Taxes

Income tax expense for the three-month periods ended March 31, 2020 and 2019 consisted of the following:

	Three Months Ended March 31,
	2020		2019
Current:	(Unaudited)		(Unaudited)
Federal	$	-	$	-
State		1,600		1,600
Foreign		1,652		1,633
Total	$	3,252	$	3,233

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 periods ended March 31, 2020 and 2019.

	Three Months Ended March 31,
	2020			2019
	(Unaudited)			(Unaudited)
Tax benefit at statutory rate	$	(615,289	)	$	(605,770	)
Net operating loss carryforwards (NOLs)		237,659			209,242
Foreign investment losses		135,438			116,500
Stock-based compensation expense		97,600			65,700
Amortization expense		12,716			(12,800	)
Accrued payroll		45,100			107,600
Unrealized exchange losses		80,676			63,825
Others		9,352			58,936
Tax expense at effective tax rate	$	3,252		$	3,233

Deferred tax assets (liability) as of March 31, 2020 and December 31, 2019 consist approximately of:

	March 31, 2020			December 31, 2019
	(Unaudited)
Net operating loss carryforwards (NOLs)	$	6,888,000		$	6,388,000
Stock-based compensation expense		1,679,000			1,549,000
Accrued expenses and unpaid expense payable		110,000			53,000
Tax credit carryforwards		68,000			68,000
Excess of tax amortization over book amortization		(609,000	)		(619,000	)
Unrealized exchange losses		(15,000	)		(106,000	)
Others		(85,000	)		(104,000	)
Gross		8,036,000			7,229,000
Valuation allowance		(8,036,000	)		(7,229,000	)
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 $807,000 (unaudited) for the three months ended March 31, 2020.

As of March 31, 2020 and December 31, 2019, the Company had federal NOLs of approximately $8,243,000 available to reduce future federal taxable income, expiring in 2037, and additional federal NOLs of approximately $12,186,000 (unaudited) and $11,314,000, respectively, were generated and will be carried forward indefinitely to reduce future federal taxable income. As of March 31, 2020 and December 31, 2019, the Company had State NOLs of approximately $22,070,000 (unaudited) and $21,117,000 respectively, available to reduce future state taxable income, expiring in 2040.

As of March 31, 2020 and December 31, 2019, the Company has Japan NOLs of approximately $353,000 (unaudited) and $350,000, respectively, available to reduce future Japan taxable income, expiring in 2030.

As of March 31, 2020 and December 31, 2019, the Company has Taiwan NOLs of approximately $2,150,000 (unaudited) and $1,898,000, respectively, available to reduce future Taiwan taxable income, expiring in 2030.

As of March 31, 2020 and December 31, 2019, 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 March 31, 2020 and December 31, 2019, 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.