Annual report pursuant to Section 13 and 15(d)

Income taxes

v3.22.1
Income taxes
12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 10 – INCOME TAXES

 

The Company is governed by the Income Tax Law of the PRC and the U.S. Internal Revenue Code of 1986, as amended. Under the Income Tax Laws of PRC, Chinese companies are generally subject to an income tax at an effective rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. The Company has a cumulative deficit from its foreign subsidiaries of $2,591,758 as of December 31, 2021, which is included in the consolidated accumulated deficit.

 

The Company’s loss before income taxes includes the following components:

 

    Years Ended
December 31,
 
    2021     2020  
United States loss before income taxes   $ (8,504,426 )   $ (12,041,331 )
China loss before income taxes     (586,073 )     (638,107 )
Total loss before income taxes   $ (9,090,499 )   $ (12,679,438 )

 

Components of income taxes expense (benefit) consisted of the following:

 

    Years Ended
December 31,
 
    2021     2020  
Current:            
U.S. federal   $
-
    $
-
 
U.S. state and local    
-
     
-
 
China    
-
     
-
 
Total current income taxes expense   $
-
    $
-
 
Deferred:                
U.S. federal   $ (1,810,264 )   $ (2,333,680 )
U.S. state and local     (612,904 )     (790,117 )
China     (152,015 )     (132,578 )
Total deferred income taxes (benefit)   $ (2,575,183 )   $ (3,256,375 )
Change in valuation allowance     2,575,183       3,256,375  
Total income taxes expense   $
-
    $
-
 

 

The table below summarizes the differences between the U.S. statutory rate and the Company’s effective tax rate for the years ended December 31, 2021 and 2020:

 

    Years Ended
December 31,
 
    2021     2020  
U.S. federal rate     21.0 %     21.0 %
U.S. state rate     6.7 %     6.8 %
Non-US rate differential     0.3 %     0.2 %
Prior year true-up     4.9 %     0.0 %
U.S. valuation allowance     (32.9 )%     (28.0 )%
Total provision for income taxes     0.0 %     0.0 %

 

For the years ended December 31, 2021 and 2020, the Company did not incur any income taxes expense since it did not generate any taxable income in those periods. The Company’s foreign entities did not pay any income taxes during the years ended December 31, 2021 and 2020. The Company’s components of deferred taxes as of December 31, 2021 and 2020 were as follows:

 

    December 31,
2021
    December 31,
2020
 
Deferred tax assets                
Stock-based compensation   $ 3,696,463     $ 3,667,375  
Disallowed business interest deduction     103,567       33,384  
Accrued directors’ compensation     80,816      
-
 
Lease liability     23,156       40,291  
Net operating loss carryforward     11,441,503       9,079,127  
Total deferred tax assets, gross     15,345,505       12,820,177  
Valuation allowance     (15,224,188 )     (12,649,005 )
Total deferred tax assets, net   $ 121,317     $ 171,172  
Deferred tax liabilities                
Fixed assets and intangible assets book/tax basis difference     (101,534 )     (132,568 )
Right-of-use assets     (19,783 )     (38,604 )
Total deferred tax liabilities   $ (121,317 )   $ (171,172 )
Net deferred tax assets   $
-
    $
-
 

 

As of December 31, 2021 and 2020, the Company’s both federal and state net operating loss carryforwards amounted to $38,420,422 and $30,557,167, respectively. As of December 31, 2021, the Company has $35,932,868 of U.S. federal net operating loss carryovers that have no expiration date, and $2,487,554 of the federal net operating loss and state net operating loss carry-forwards begin to expire in 2034.

As of December 31, 2021, the Company had net operating loss carryforwards in China of $2,566,087 that begin to expire in 2022.

 

Additionally, as of December 31, 2021, $61,847 of the future utilization of the net operating loss carryforward to offset future taxable income is subject to special tax rules which may limit their usage under IRS Section 382 (Change of Ownership) and possibly the Separate Return Limitation Year (“SRLY”) rules.

 

A full valuation allowance has been provided against the Company’s deferred tax assets at December 31, 2021 as the Company believes it is more likely than not that sufficient taxable income will not be generated to realize these temporary differences.

 

The Company has been notified and assessed an IRS Section 6038 penalty of $10,000 for failure to file a foreign entity tax disclosure. The Company has appealed the penalty and awaits the Internal Revenue Service’s review of the appeal. There is no assurance such appeal will be successful.

 

The Company has not been audited by any jurisdiction since its inception. The Company is open for audit by the U.S. Internal Revenue Service and U.S. state tax jurisdictions from 2018 to 2021, and open for audit by the Chinese Ministry of Finance from 2017 to 2021.

 

There were no material uncertain tax positions as of December 31, 2021 and 2020. The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense, if any. The Company does not have any significant uncertain tax positions or events leading to uncertainty in a tax position.