NOTE 10 - INCOME TAXES

12 Months Ended

Apr. 30, 2020

Notes

NOTE 10 - INCOME TAXES

NOTE 10 - INCOME TAXES

We account for income taxes under ASC 740, "Accounting For Income Tax". ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. ASC 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets.

On December 22, 2017, the Tax Cuts and Jobs Act (the TCJA), which significantly modified U.S. corporate income tax law, was signed into law by President Trump. The TCJA contains significant changes to corporate income taxation, including but not limited to the reduction of the corporate income tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and generally eliminating net operating loss carrybacks, allowing net operating losses to carryforward without expiration, one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits (including changes to the orphan drug tax credit and changes to the deductibility of research and experimental expenditures that will be effective in the future). Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain, including to what extent various states will conform to the newly enacted federal tax law.

The Company has not recorded the necessary provisional adjustments in the financial statements in accordance with its current understanding of the TCJA and guidance currently available as of this filing. But is reviewing the TCJA's potential ramifications.

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act or Act below). (References to the Code below are references to the Internal Revenue Code of 1986, as amended. Section references below are references to sections of the Act.), provisions relevant to the Company:

Section 2303. Modifications for net operating losses (NOL): Under Code Section 172(a) the amount of the NOL deduction is equal to the lesser of (a) the aggregate of the NOL carryovers to such year and NOL carrybacks to such year, or (b) 80% of taxable income computed without regard to the deduction allowable in this section. Thus, NOLs are currently subject to a taxable-income limitation and cannot fully offset income. The Act temporarily removes the taxable income limitation to allow an NOL to fully offset income.

Code Section 172(b)(1) provides that, except for farming losses and losses of property and casualty insurance companies, an NOL for any tax year is carried forward to each tax year following the tax year of the loss but isn’t carried back to any tax year preceding the tax year of the loss. The Act provides that NOLs arising in a tax year beginning after Dec. 31, 2018, and before Jan. 1, 2021 can be carried back to each of the five tax years preceding the tax year of such loss.

Section 2306. Modifications of limitation on business interest: The 2017 Tax Cuts and Jobs Act of 2017 (TCJA) generally limited the amount of business interest allowed as a deduction to 30% of adjusted taxable income. The Act temporarily and retroactively increases the limitation on the deductibility of interest expense under Code Section 163(j)(1) from 30% to 50% for tax years beginning in 2019 and 2020. (Code Section 163(j)(10)(A)(i) as amended by Act Section 2306(a)).

The Company has not recorded the necessary provisional adjustments in the financial statements in accordance with its current understanding of the CARES Act and guidance currently available as of this filing. But is reviewing the CARES Act potential ramifications.

Our subsidiaries in the PRC are governed by the Income Tax Law of the People's Republic of China concerning Foreign Investment Enterprises and Foreign Enterprises and local income tax laws (the PRC Income Tax Law"). Pursuant to the PRC Income Tax Law, our PRC subsidiaries are subject to tax at a maximum statutory rate of 25% (inclusive of state and local income taxes).

The components of loss before income tax consisted of the following:

	Fiscal Years Ended April 30,
	2020	2019
U.S. Operations	$(346,336)	$(820,123)
Chinese Operations	(1,036,348)	(4,088,237)
Total	$(1,382,684)	$(4,908,360)

The Effective Tax Rate reconciliation is a follows:

	April 30, 2020	April 30, 2019
U.S. Federal and state tax rate	21.0%	38.0%
Stock- based compensation	0	(4.8)%
Difference in US / China statutory rate	(9.7)%	(9.5)%
Valuation allowance	(11.3)%	(23.7)%
Total provision for income taxes	0.0%	0.0%

The table below summarizes the reconciliation of our income tax provision (benefit) computed at the statutory U.S. Federal rate and the actual tax provision:

	Fiscal Years Ended April 30,
	2020	2019
Income tax benefit at federal statutory rate	$(197,092)	$(1,333,706)
State income taxes, net of federal benefit	(134,725)	(531,471)
Valuation allowances	331,818	1,865,177
Tax provision	$0	$0

We have a net operating loss ("NOL") carry forward for U.S. income tax purposes aggregating approximately $9,595,069 as of April 30, 2020 expiring through the tax year 2038, subject to the Internal Revenue Code Section 382/383, which places a limitation on the amount of taxable income that can be offset by net operating losses after a change in ownership. In addition, to U.S. NOL's, we have a PRC NOL for our Chinese operations as of April 30, 2020 of approximately $30,205,687 that expires in 2025.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Included in the deferred tax asset is the aforementioned NOL and the tax benefit associated with the issuance of stock-based compensation. The realization of the deferred tax assets is dependent on future taxable income, in addition to the exercise of stock options; we are not able to predict if such future taxable income will be more likely than not sufficient to utilize the benefit. As such, we do not believe the benefit is more likely than not to be realized and we recognize a full valuation allowance for those deferred tax assets. Our deferred tax assets as of April 30, 2020 and 2019 are as follows:

	Fiscal Years Ended April 30,
	2020	2019
Deferred tax assets from NOL carry forwards	$9,566,386	$10,229,723
Total deferred tax asset	9,566,386	10,229,723
Valuation allowance	(9,566,386)	(10,229,723)
Deferred tax asset, net of allowance	$0	$0

    The decrease in total deferred tax asset is attributable to the U.S. TCJA Federal tax rate reduction from 35% to a flat rate of 21% in year end 4/30/2019.