7. Income Taxes

Income tax (benefit) provision:

	Fiscal Year Ended
	March 31,			March 31,
	2017			2016
Current:
Federal	$	(1,018	)	$	52,123
State and local		1,500			1,500

Total current tax provision		482			53,623

Deferred:
Federal		2,643,357			796,500
State and local		276			1,845

Total deferred tax provision		2,643,633			798,345

Total provision	$	2,644,115		$	851,968

The approximate values of the components of the Company’s deferred taxes at March 31, 2017 and 2016 are as follows:

	March 31,			March 31,
	2017			2016
Deferred tax assets:
Net operating loss carryforwards	$	1,645,868		$	1,802,492
Tax credits		329,032			329,032
Charitable contributions		102			51
Legal damages		956,000			-
Allowance for doubtful accounts		2,561			2,550
Reserve for inventory obsolescence		112,671			98,614
Inventory capitalization		105,998			69,918
Deferred payroll		-			88,288
Vacation accrual		133,276			134,116
Warranty reserve		64,340			70,765
Deferred revenues		162,757			75,310
Stock options		25,494			23,544
Non-compete agreement		5,941			7,889
AMT credit		66,106			52,123
Depreciation		18,412			26,721
Deferred tax asset		3,628,558			2,781,413
Less valuation allowance		(3,628,558	)		(137,780	)

Deferred tax asset, net	$	-0-		$	2,643,633

The recognized deferred tax asset is based upon the expected utilization of its benefit from future taxable income. The Company has federal net operating loss (“NOL”) carryforwards of approximately $4,827,000 as of March 31, 2017. These carryforward losses are available to offset future taxable income, and begin to expire in the year 2027. New Jersey State NOL carryforwards approximate $3,357,000 as of March 31, 2017. New Jersey State NOL carryforwards expire in 20 years, and certain of these amounts begin to expire in 2030.

The foregoing amounts are management’s estimates, and the actual results could differ from those estimates. Future profitability in this competitive industry depends on continually obtaining and fulfilling new profitable sales agreements and modifying products. The inability to obtain new profitable contracts or the failure of the Company’s engineering development efforts could reduce estimates of future profitability, which could affect the Company’s ability to realize the deferred tax assets. It is management’s belief that the deferred tax assets is not more likely than not to be fully realized, and as a result, a valuation allowance of $3,628,558 was recorded at March 31, 2017.

A reconciliation of the income tax (benefit) provision at the statutory Federal tax rate of 34% to the income tax (benefit) provision recognized in the financial statements is as follows:

	March 31,			March 31,
	2017			2016

Income tax (benefit) provision – statutory rate	$	(711,344	)	$	631,081
Income tax expenses – state and local, net of federal benefit		(2,404	)		2,835
Permanent items		12,870			12,194
Change in value of warrants – permanent difference		(109,209	)		209,862
True-up of prior year’s deferred taxes		(25,178	)		(4,281	)
Valuation allowance		3,490,778			-
Rate changes		(7,776	)		-
Other		(3,622	)		277

Income tax provision (benefit)	$	2,644,115		$	851,968