NOTE

. INCOME TAXES

The components of income (loss) before income tax provision are as follows:

	December 31,			December 31,
	2019			2018
United States		(5,350,774	)		(11,214,581	)
Foreign		26,125			7,206,912
		(5,324,649	)		(4,007,669	)

There was

current U.S. income tax or deferred income tax provision for years ended

December 31, 2019

and

December 31, 2018.

There were current foreign tax provisions of

$69,811

and

$67,002

for the years ended

December 31, 2019

and

December 31, 2018

respectively.

The following is a reconciliation of the effective income tax rate with the U.S. federal statutory income tax rate at:

	December 31,			December 31,
	2019			2018
U. S. Federal statutory income tax rate		21.00	%		21.00	%
State income tax, net of federal tax benefit		4.37	%		5.10	%
Currency translation adjustment		0.00	%		5.20	%
Foreign income tax		(1.31	)%		1.70	%
Difference in foreign tax rates		0.00			(2.10	)%
Change in valuation allowance		(25.39	)%		(29.20	)%
Change in tax rates		-			-
Effective income tax rate		(1.31	)%		1.70	%

The effective tax rate on operations of negative (

1.31

)% at

December 31, 2019

varied from the statutory rate of

21%,

primarily due to the permanent difference related to difference in foreign tax rates and the increase in our valuation allowance. The effective rate on operations of

1.70%

December 31, 2018

varied from the statutory rate of

21%

primarily due to the permanent difference related to difference in foreign tax rates and the increase in our valuation allowance.

December 22, 2017,

President Trump signed into law the “Tax Cuts and Jobs Act” (TCJA) that significantly reformed the Internal Revenue Code of

1986,

as amended. The TCJA, among other things, reduces the corporate tax rate to

percent beginning with years starting

January 1, 2018.

Because a change in tax law is accounted for in the period of enactment, the deferred tax assets and liabilities have been adjusted to the newly enacted U.S. corporate rate, and the related impact to the tax expense has been recognized in the current year.

A new federal tax on Global Intangible Low – Taxed Income (GILTI) was enacted for the tax year beginning after

December 31, 2017.

The GILTI rules require US corporations to include in taxable income current year net earnings of their foreign subsidiaries that are controlled foreign corporations.

Significant components of our deferred tax assets and liabilities are as follows:

	December 31,			December 31,
	2019			2018
Deferred tax assets:
Net operating loss carry forwards		18,234,015			15,657,776
Stock based compensation		162,199			(356,049	)
Basis difference in goodwill		829,009			1,161,577
Basis difference in fixed assets		3,786			-
Basis difference in intangible assets		1,968,335			1,564,483
Allowance for bad debt (US)		-			-
Stock price guarantee adjustment		-			-
Valuation allowance for deferred tax assets		(21,197,343	)		(18,027,787	)
Total deferred tax assets		-			-

Deferred tax liabilities:
Basis difference in goodwill		-			-
Basis difference in fixed assets		-			-
Basis difference in intangible assets		-			-
Total deferred tax liabilities		-			-

Net deferred taxes		-			-

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 of assets and liabilities used for income tax purposes. According to the GILTI rules, the income from foreign corporations reduce the net operating losses (‘NOLs”). At

December 31, 2019,

we had cumulative federal and state NOLs carry forwards of approximately

$73.8

million. At

December 31, 2018,

we had cumulative federal and state NOLs carry forwards of approximately

$67.3

million. We also have

$1.9

million and

$6.8

million in foreign NOLs as of

December 31, 2019

and

2018,

respectively. The valuation allowance was increased by

$3.1

million in fiscal year

2019.

The fiscal

2019

increase was primarily related to additional operating loss incurred, and difference in tax and book basis of goodwill and other intangible assets. We have considered all the evidence, both positive and negative, that the NOLs and other deferred tax assets

may

not

be realized and have recorded a valuation allowance for

$21.2

million. The NOLs arising in the tax year beginning before

January 1, 2018

can be carried back

two

years and forward

twenty

years. The NOLs arising in the tax year beginning after

December 31, 2017

can only offset

80%

of taxable income in any given tax year, but the remaining can be carried forward indefinitely.

The timing and manner in which we will be able to utilize some of its NOLs is limited by Section

382

of the Internal Revenue Code of

1986,

as amended (IRC). IRC Section

382

imposes limitations on a corporation’s ability to use its NOLs when it undergoes an “ownership change.” Generally, an ownership change occurs if

one

or more shareholders, each of whom owns

or more in value of a corporation’s stock, increase their percentage ownership, in the aggregate, by more than

50%

over the lowest percentage of stock owned by such shareholders at any time during the preceding

three

-year period. Because on

June 10, 2014,

we underwent an ownership change as defined by IRC Section

382,

the limitation applies to us. The losses generated prior to the ownership change date (pre-change losses) are subject to the Section

382

limitation. The pre-change losses

may

only become available to be utilized by the Company at the rate of

$2.4

million per year. Any unused losses can be carried forward, subject to their original carryforward limitation periods. In the year

2018,

approximately

$2.4

million in the pre-change losses was released from the Section

382

loss limitation. Since the ownership change, the cumulative amount of NOLs released from Section

382

was approximately

13.3

million.

The Company can still fully utilize the NOLs generated after the change of the ownership, which was approximately

$34.1

million. Thus, the total of approximately

$47.4

million as of

December 31, 2019

is available to offset future income.

The open United States tax years subject to examination with respect to our operations are

2016,

2017

and

2018.