NOTE F – INCOME TAXES

A reconciliation of the U.S. Federal statutory income tax rate to the effective income tax rate is as follows:

	Year Ended December 31, 2016			Year Ended December 31, 2015
Tax expense at federal statutory rate		34	%		34	%
State tax expense, net of federal tax effect		(1)	%		5	%
Permanent timing differences		0	%		0	%
Deferred income tax asset valuation allowance		(34)	%		(39)	%
Effective income tax rate		(1)	%		0	%

Significant components of the Company’s deferred income tax assets are as follows:

	December 31, 2016		December 31, 2015

Inventory	$	21,000	$	22,000
Inventory allowance		175,000		169,000
Allowance for doubtful accounts		19,000		19,000
Accrued compensation		32,000		38,000
Stock based compensation		230,000		236,000
Deferred wages payable		28,000		22,000
Depreciation – Property, Plant & Equipment		(12,000)		(15,000)
Sales tax reserve		5,000		15,000
Net operating loss carry-forward		4,704,000		4,560,000
Total gross deferred income tax assets		5,202,000		5,066,000
Less deferred income tax assets valuation allowance		(5,202,000)		(5,066,000)
Net deferred income tax assets	$	0	$	0

The valuation allowance for deferred income tax assets as of December 31, 2016 and December 31, 2015 was $5,202,000 and $5,066,000, respectively. The net change in the deferred income tax assets valuation allowance was $136,000 for Fiscal 2016. The net change in the deferred income tax assets valuation allowance was $330,000 for Fiscal 2015. The Company believes that it is more likely than not that the deferred tax assets will not be realized.

As of December 31, 2016, the prior three years remain open for examination by the federal or state regulatory agencies for purposes of an audit for tax purposes.

At December 31, 2016, the Company had Federal net operating loss carry-forwards for income tax purposes of approximately $4,704,000. The Company’s net operating loss carry-forwards begin to expire in 2019 and continue to expire through 2034. In assessing the realizability of deferred income tax assets, management considers whether or not it is more likely than not that some portion or all deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the projected future taxable income and tax planning strategies in making this assessment.

The Company’s ability to utilize the operating loss carry-forwards may be subject to an annual limitation in future periods pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, if future changes in ownership occur.

The Company recognizes potential interest and penalties related to income tax positions as a component of the provision for income taxes on operations. The Company does not anticipate that total unrecognized tax benefits will materially change in the next twelve months.