The Company has experienced losses since its inception. As a result, it has incurred no Federal income tax. The Company can carry forward operating losses (NOL's) to apply against future profits for a period of twenty years in the U.S. and 80% of NOL can be carryover for nine years in Japan. The available NOL's totaled approximately $3.9 million in the U.S. and $1 million in Japan at December 31, 2016 which will expire in the years 2017 through 2036.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all of the deferred tax asset relating to NOLs for every period because it is more likely than not that all of the deferred tax asset will not be realized.

The tax return for the years 2013, 2014, 2015 and 2016 are subject to audit by the Internal Revenue Service.

The reconciliation of income tax rate at the U.S. statutory rate of 34% to the Company’s effective tax rate is as follows:

The tax effects of temporary differences that give rise to the Company’s net deferred tax assets as of December 31, 2016 are as follows:

The tax effects of temporary differences that give rise to the Company’s net deferred tax assets as of December 31, 2015 are as follows: