4.	Income Taxes

At December 31, 2017, the Company has approximately $3,343,000 of operating loss carryforwards for federal that may be applied against future taxable income. The net operating loss carryforwards will begin to expire in the year 2021 if not utilized prior to that date, expiring during various year through 2037. There is no provision for income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets.

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 34% to 21%. The most significant impact of the legislation for the Company was a $242,000 reduction of the value of net deferred tax assets (which represent future tax benefits) as a result of lowering the U.S. corporate income tax rate from statutory rate of 34% to 21%.

The valuation allowance overall decreased by approximately $343,000 during the year ended 2017 and increased by approximately $651,000 during the year 2016, and was approximately $1,238,000 and $1,581,000 at December 31, 2017 and 2016, respectively. The Company has fully reserved the deferred tax asset resulting from available net operating loss carryforwards.

The tax effect of temporary differences that gave rise to significant portion of the deferred tax assets were as follows:

	December 31
	2017			2016

Net operating loss	$	848,000		$	1,344,000
Accounts receivable reserves		-			30,000
Inventory reserves		3,000			7,000
Stock compensation		387,000			200,000
Net deferred tax asset		1,238,000			(1,581,000	)
Valuation allowance		(1,238,000	)		(1,581,000	)
Total	$	-		$	-

The net operating loss carryforwards could be subject to limitation in any given year in the event of a change in ownership as defined by IRC Section 382.