Entity information:
12
.
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