There are no current and deferred Federal and state income tax benefits for the years ended December 31, 2017 and 2016.
On December 22, 2017, the U.S. government enacted comprehensive tax reform legislation in the form of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"). The Tax Act establishes new tax laws that affect 2017 and beyond. One of the principal new tax laws effective January 1, 2018, is the reduction of the U.S. Federal corporate income tax rate from 35% to 21%. As a result of the reduction in the Federal income tax rate, we have revalued our net deferred tax assets as of December 31, 2017.
A reconciliation of U.S. Federal income taxes computed at the statutory rate to income taxes shown in the statement of operations for the years ended December 31, 2017 and 2016 follows:
| 2017 | 2016 | |||||||
| Income tax benefit at the statutory rate | $ | (2,540,040 | ) | $ | (2,498,893 | ) | ||
| State income taxes, net of Federal effect | (33,130 | ) | (39,714 | ) | ||||
| R&D and other tax credits | (106,772 | ) | (110,155 | ) | ||||
| Federal rate change | 5,897,964 | — | ||||||
| Change in valuation allowance | (4,997,595 | ) | 1,190,841 | |||||
| Other | 34,132 | 33,854 | ||||||
| Income tax benefit from continuing operations | $ | (1,745,441 | ) | $ | (1,424,067 | ) | ||
Deferred income tax assets and (liabilities) at December 31 relate to:
| 2017 | 2016 | |||||||
| Inventories | $ | 106,537 | $ | 131,672 | ||||
| Warranty accrual | 22,185 | 48,293 | ||||||
| Allowance for doubtful accounts | 66,903 | 87,475 | ||||||
| Tax credits | 1,172,824 | 1,066,052 | ||||||
| Deferred gain on sale and leaseback | — | 32,052 | ||||||
| Restricted stock | 938,157 | 1,405,001 | ||||||
| Net operating loss carryforwards | 9,531,339 | 13,684,331 | ||||||
| Other | 258,822 | 715,845 | ||||||
| 12,096,767 | 17,170,721 | |||||||
| Prepaid expenses | (31,170 | ) | (112,719 | ) | ||||
| Fixed assets | (504,106 | ) | (498,916 | ) | ||||
| Deferred income tax assets and liabilities | 11,561,491 | 16,559,086 | ||||||
| Valuation allowance | (11,561,491 | ) | (16,559,086 | ) | ||||
| Net deferred income tax assets and liabilities | $ | — | $ | — | ||||
The Company has performed the required analysis of both positive and negative evidence regarding the realization of its deferred income tax assets, including our past results of operations, recent cumulative losses, and our forecast for future taxable income. The assessment required the use of assumptions about future sales and pre-tax income, making allowance for uncertainties surrounding the rate of adoption of its products in the marketplace, competitive influences, and the investments required to increase market share in certain markets for its products. As of December 31, 2017, we have concluded that it is more likely than not that such deferred income tax assets will not be realized and, accordingly, have established a deferred income tax asset valuation allowance in the amount of $11,561,491.
The Company's Federal net operating loss carryforward of $42,343,000 is scheduled to expire beginning in 2031. State net operating loss carryforwards of $9,867,000 are scheduled to expire between 2027 and 2037. The amount of the net operating loss carryforwards that may be utilized annually to offset future taxable income and tax liabilities may be limited as a result of certain ownership changes pursuant to Section 382 of the Internal Revenue Code as well as limitations imposed by the Tax Act. The Company has not completed a study to determine if there have been one or more ownership changes due to the costs associated with such study.
The Company does not believe that there are unrecognized income tax benefits for December 31, 2017 or 2016, and expects no significant changes in 2018.