Note 15. Income Taxes

The Company provides for income taxes based upon management’s estimate of taxable income or loss for each respective period. The Company recognizes an asset or liability for the deferred tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. These temporary differences would result in deductible or taxable amounts in future years, when the reported amounts of the assets are recovered or liabilities are settled, respectively.

In each period since inception, the Company has recorded a valuation allowance for the full amount of its net deferred tax assets, as the realization of the net deferred tax assets is uncertain. As a result, the Company has not recorded any federal or state income tax benefit in the statements of operations; however, state income tax expense has been recorded for state minimum taxes.

The Company periodically reviews its filing positions for all open tax years in all U.S. Federal, state and international jurisdictions where the Company is or might be required to file tax returns or other required reports.

The Company applies a two-step approach to recognizing and measuring uncertain tax positions. The Company evaluates the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation process, if any. The term “more likely than not” means a likelihood of more than 50 percent. If the tax position is not more likely than not to be sustained on audit, the Company may not recognize any of the potential tax benefit associated with the position. The Company recognizes a benefit for a tax position that meets the “more likely than not” criterion at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon its effective resolution. Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect the Company’s results of operations, financial position and cash flows. The Company has not identified any uncertain tax positions at December 31, 2015 or December 31, 2014.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at December 31, 2015 and 2014, respectively, and has not recognized interest or penalties during the years ended December 31, 2015 and 2014, respectively, since there are no material unrecognized tax benefits. Management believes no material change to the amount of unrecognized tax benefits will occur within in the next 12 months.

The components of income tax expense are as follows:

	Years Ended December 31,
	2015		2014
Current:
Federal	$	—	$	—
State		10,189		—
Total current income tax expense	$	10,189	$	—

Deferred:
Federal	$	—	$	—
State		—		—
Total deferred income tax expense	$	—	$	—
Total income tax expense	$	10,189	$	—

The Company’s actual income tax expense for the years 2015 and 2014 differ from the expected amount computed by applying the statutory federal income tax rate of 34% to loss before income taxes as follows:

	Years Ended December 31,
	2015			2014
Computed tax (benefit) at 34%	$	(7,271,785	)	$	(4,745,859	)
State taxes, net of federal benefit		(918,079	)		(233,632	)
Stock-based compensation		102,699			59,119
Expiring state net operating loss ("NOL") carryforwards		(20,086	)		131,342
Return to provision		(27,934	)		(4,269	)
Other		44,679			37,969
Research and development tax credit - state		(300,213	)		(20,720	)
Research and development tax credit - federal		(342,681	)		(11,224	)
Change in valuation reserve		8,743,589			4,787,274
	$	10,189		$	—

Deferred tax assets and liabilities comprise the following:

	Years Ended December 31,
	2015			2014
Deferred tax assets:
Net operating loss carryforwards	$	28,795,562		$	20,977,060
Research and development credits		1,435,314			796,328
Deferred revenue		17,396			15,166
Inventory reserve		104,182			19,953
Fixed assets and intangibles		50,128			53,822
Change in fair value of warrant liability		111,993			3,541
Accrued NuvoGen liability		3,282,756			3,190,603
Capitalized research and development		27,583			55,354
Other		115,792			85,290
		33,940,706			25,197,117
Valuation allowance		(33,940,706	)		(25,197,117	)
Deferred tax asset, net	$	—		$	—

As of December 31, 2015, the Company has estimated federal and state NOL carryforwards of approximately $78,496,747 and $52,447,023 for federal and state income tax purposes, respectively. The Company’s federal NOLs are scheduled to expire from 2021 through 2035. The Company’s state NOLs are scheduled to expire from 2016 through 2035. The Company’s federal and state tax credit carryforwards begin expiring in 2021 and 2016, respectively. The Company’s federal NOL carryforwards have the following expiration dates:

	Year of Expiration	Carryforwards
Federal NOL carryforwards
	2021	$	211,806
	2023		1,635,651
	2024		1,217,290
	2025		1,409,498
	2026		1,175,594
	2027		1,676,458
	2028		3,037,785
	2029		3,753,314
	2030		623,235
	2031		5,435,312
	2032		10,913,787
	2033		12,095,966
	2034		14,190,409
	2035		21,120,642
		$	78,496,747

For financial reporting purposes, valuation allowances of $33,940,706 and $25,197,117 at December 31, 2015 and 2014, respectively, have been established to offset deferred tax assets relating mainly to NOLs and research and development credits. The increase in the valuation allowance of $8,743,589 for the year ended December 31, 2015 was due primarily to increased operating losses. The Company has established a valuation allowance against the entire tax asset. As a result, the Company does not recognize any tax benefit until it is in a taxpaying position and, therefore, more likely to realize the tax benefit. Past and subsequent equity offerings by the Company, and other transactions that have an impact on the Company’s ownership structure, may trigger Sections 382 and 383 provisions of the Internal Revenue Code on special limitations on net operating losses and credits following ownership change. Such limitations may limit or eliminate the potential future tax benefit to be realized by the Company from its accumulated NOLs and research and development credits.

The Company files income tax returns in the United States, Arizona, California, Texas and various other state jurisdictions, with varying statutes of limitations. As of December 31, 2015, the earliest year subject to examination is 2012 for US federal tax purposes. The earliest year subject to examination is 2011 for Arizona, California and Texas, and 2013 for the remaining state jurisdictions. However, the Company’s net operating loss carryforwards for periods ending December 31, 2001 and thereafter remain subject to examination by the United States and certain states.