INCOME TAXES

A reconciliation of the provision (recovery) of income taxes to the statutory federal income tax rate is as follows:

	201 7			201 6			201 5

Income (Loss) Before Provision for (Recovery of) Income Taxes	$	2,188,760		$	1,333,248		$	(122,377	)
Statutory rate		34	%		34	%		34	%
Tax at statutory rate		744,178			453,304			(41,608	)
Permanent differences		5,465			1,000			900
Research and development and other credits - net		(77,220	)		(47,400	)		(48,500	)
Valuation allowance		-			(3,681,100	)		82,200
State Tax		130,560			-			-
State Net Operating Loss		(174,223	)		-			-
Transaction Costs		95,849			-			-
Other		55,755			(25,404	)		7,008
Provision for ( recovery of) income taxes	$	780,364		$	(3,299,600	)	$	-

Deferred tax assets (liabilities) as of

September 30

consist of the following:

	201 7			201 6
Inventories	$	291,338		$	302,600
Bad debts		21,171			3,400
Accrued liabilities		88,817			77,700
Prepaid expense		(73,120	)		(8,900	)
Depreciation and amortization		220,967			93,000
Research and development and other credit carryforwards		2,179,462			2,019,700
Net operating loss carryforward		520,087			1,303,000
Directors stock option plan		41,537			40,100
Net deferred tax asset		3,290,259			3,830,600
Valuation allowance		(500,000	)		(500,000	)
Total	$	2,790,259		$	3,330,600

The Company did

not

incur any material impact to its financial condition or results of operations due to the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

Valuation Reserve

The valuation reserve remained at

$0.5

million at

September 30, 2017,

due to the likelihood that the Company will be profitable enough to utilize the majority of the net operating loss and research and development and other credit carryforwards.

Because of the uncertainties involved with this significant estimate, it is reasonably possible that the Company’s estimate

may

change in the near term.

Net Operating Loss Carryforwards:

The Company has federal and state net operating loss (NOL) and research and development (R&D) and other credit carryforwards for tax purposes which expire as follows:

Tax Year Expires	NOLS		R& D & Other Credits
2018	$	-	$	44,980
2019		-		166,019
2020		-		190,072
2021		-		126,620
2022		-		48,573
2023		-		107,172
2024		-		156,392
2025		-		155,394
2026		-		139,885
2027		-		154,991
2028		-		152,732
2029		-		68,676
2030		-		31,081
2031		302,190		44,712
2032		999,973		59,085
2033		1,155,716		71,062
2034		472,315		73,198
2035		99,688		76,429
2036		-		73,315
2037		-		117,000
2 038 and beyond		-		114,074
	$	3,029,882	$	2,179,462