Income taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 8 – INCOME TAXES

The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. As of December 31, 2021, the Company has generated approximately $9,965,487 and approximately $2,063,797 of federal and state net operating loss (“NOL”) carry forwards, respectively, which will begin to expire in 2024. Internal Revenue Code section 382 (“Section 382”) restricts the use of these net operating losses in future periods if the Company has a “substantial change in ownership” as defined by Section 382. The Company has had significant equity transactions in prior periods. Due to this equity activity and the restrictions resulting under Section 382, a portion of the Company’s NOLs may not be available to offset future taxable income. Therefore, the Company has fully reserved the deferred tax asset resulting from the net operating loss carry forwards.

Deferred tax asset consisted primarily of the following:

	December 31,
	2021			2020
Net operating loss carry forward	$	2,591,027		$	2,172,545
Bad debt reserves		-			17,160
Intangible assets		206,712			515,104
Valuation allowance	$	(2,797,739	)	$	(2,704,809	)
Balance, end of year	$	-		$	-

Tax expense consisted primarily of the following:

	December 31,
	2021		2020
Federal	$	-	$	-
State		1,806		5,108
Foreign		-		60,255
Deferred		-		-
Total	$	1,806	$	65,363

The Company’s tax expense does not reflect the statutory rate since the Company’s deferred tax asset is fully offset by a valuation allowance. Reconciliation between the effective tax rate on income from continuing operations and the statutory rate for the year ended December 31, 2021 is as follows:

	Tax			Percentage
Book income before taxes	$	(872,129	)		21.00	%
State taxes, net		1,427			(0.03	)
Tax exempt income – grant and/or SBA		(4,375	)		0.11
Meals and entertainment		873			(0.02	)
Warrant expense		242,530			(5.84	)
Stock based compensation		402,362			(9.69	)
Loss on conversion of debt		64,167			(1.55	)
Valuation allowance		75,059			(1.81	)
Derivative valuation adjustment		101,069			(2.43	)
Other		(9,177	)		0.22
Total	$	1,806
Effective tax rate					(0.04	)%

The statute of limitations is open for the tax years ending December 31, 2018 and thereafter.

The Company’s foreign tax expense reflects the tax withheld by the foreign jurisdiction on royalty income received by the Company and not exempt under the United States tax treaty, if any, with the respective foreign jurisdiction. In 2021, the Company was not subject to foreign source withholding tax. In 2020, the Company was subject to foreign source withholding tax of 20.4% in Japan.