The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended June 30, 2019 and 2018:

	Three months ended June 30, 2019			Three months ended June 30, 2018			Six months ended June 30, 2019			Six months ended June 30, 2018
Federal statutory rate		21.0	%		21.0	%		21.0	%		21.0	%
State statutory rate		7.0	%		7.0	%		7.0	%		7.0	%
Valuation allowance		(37.7	)%		(15.0	)%		(51.0	)%		(17.1	)%
Permanent difference *		9.7	%		(13.0	)%		23.0	%		(10.9	)%
Effective tax rate		0.0	%		0.0	%		0.0	%		0.0	%

*Represents 50% of meal and entertainment expenses and stock compensation expenses that are not deductible.

The Company uses the asset and 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. Deferred taxes are also recognized for net operating loss carry forwards which can be utilized to offset taxable income in the future. The cumulative net operating loss carryforwards that may be applied against future taxable income is approximately $6,805,000 for Federal and state income taxes as of June 30, 2019. The cumulative net operating loss carryforward that may be applied against future taxable income is approximately $7,817,000 for Federal and state as of December 31, 2018, and will expire in the years 2031 to 2038. 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.

The components of the deferred tax assets is as follows:

	June 30, 2019			December 31, 2018
	(Unaudited)
Allowance for doubtful accounts	$	3,116		$	-
Amortization of intangible assets		204,000			211,556
Net operating losses		1,697,071			1,975,889
Deferred tax assets		1,904,187			2,187,445
Valuation allowance		(1,904,187	)		(2,187,445	)
Deferred tax assets, net	$	-		$	-

Changes in the value allowance for deferred tax assets decreased by $283,258 from $2,187,445 at December 31, 2018 to $1,904,187 at June 30, 2019. During the six months ended June 30, 2019, the Company utilized $278,818 deferred tax assets from prior period.

As of June 30, 2019, federal tax returns filed for 2016 and 2017 remain subject to examination by the taxing authorities. As of June 30, 2019, California tax returns filed for 2015, 2016 and 2017 remain subject to examination by the taxing authorities.