The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the years ended December 31, 2017 and 2016:

The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. The cumulative net operating loss carryforward that may be applied against future taxable income is approximately $6,386,000 for Federal and $5,338,000 for California as of December 31, 2017. The cumulative net operating loss carryforward that may be applied against future taxable income is approximately $9,466,000 for Federal and $8,501,000 for California as of December 31, 2016, and will expire in the years 2031 to 2037. During the years ended December 31, 2017 and 2016, the Company incurred a net loss. As deferred tax assets may not be fully realizable due to potential recurring losses, management has provided 100% valuation allowance for the deferred tax assets.

On December 22, 2017, the “Tax Cuts and Jobs Act” (“The Act”) was enacted. Under the provisions of the Act, the U.S. corporate tax rate decreased from 34% to 21% beginning in 2018. Accordingly, we have remeasure our deferred tax assets as of December 31, 2017. However, this remeasurment has no effect on the Company’s income tax expense as the Company has provided a 100% valuation allowance on its deferred tax assets.

The components of the deferred tax assets is as follows:

As of December 31, 2017, federal tax returns filed for 2014, 2015 and 2016 remain subject to examination by the taxing authorities. As of December 31, 2017, California tax returns filed for 2013, 2014, 2015 and 2016 remain subject to examination by the taxing authorities.