Entity information:

NOTE 8 - Income Taxes

 

Income tax expense (benefit) for the years ended December 31, 2017, 2016 and 2015 consisted of the following:

 

   2017  2016  2015 
 Current:         
 Federal $3,033  $(884,000) $884,000 
 State  800   800   800 
 Foreign  4,686   -   - 
 Total $8,519  $(883,200) $884,800 

 

The following table presents a reconciliation of the income tax at statutory tax rate and the Company’s income tax at effective tax rate for the years ended December 31, 2017, 2016 and 2015.

 

   2017  2016  2015 
 Tax expense (benefit) at statutory rate $(2,292,820) $(1,158,300) $987,000 
 Prepayment from related parties  -   (286,300)  286,300 
 Net operating loss carryforwards (NOLs)  1,760,600   717,600   (345,000)
 Stock-based compensation expense  594,800   8,000   - 
 Amortization expense  (11,200)  (168,300)  (28,100)
 Others  (42,861)  4,100   (15,400)
 Tax (benefit) at effective tax rate $8,519  $(883,200) $884,800 

 

Deferred tax assets (liability) as of December 31, 2017 and 2016 consist of:

 

   2017  2016 
 Net operating loss carryforwards (NOLs) $2,057,000  $519,000 
 Stock-based compensation expense  489,000   8,000 
 Accrued expenses and unpaid payable  443,000   35,000 
 Tax credit carryforwards  68,000   63,000 
 Excess of tax amortization over book amortization  (658,000)  (230,000)
    2,399,000   395,000 
 Valuation allowance  (2,399,000)  (395,000)
 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 $2,004,000, $9,000 and $371,000 for the years ended December 31, 2017, 2016 and 2015, respectively. As a result of the Tax Cuts and Jobs Act signed into law in December 2017, the U.S. federal corporate income tax rate is reduced to 21 percent, effective January 1, 2018. Consequently, the Company has recorded a decrease related to its deferred tax assets of $48,000. Since the Company reserved full valuation allowance to its deferred tax assets, there was no impact on income tax expense for the year ended December 31, 2017.

 

As of December 31, 2017, the Company had federal NOLs and State NOLs of approximately $6,686,000 and $7,897,000, respectively, available to reduce future federal and state taxable income, expiring in 2037.

 

As of December 31, 2016, the Company has Japan NOLs of approximately $326,000 available to reduce future Japan taxable income, expiring in 2019.

 

As of December 31, 2017, the Company had approximately $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 December 31, 2017, the Company had approximately $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.