NOTE 12: INCOME TAXES

The Company accounts for income taxes using the asset and liability method, under which deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

The Company did not record an income tax benefit for its losses incurred in 2015 or 2014 due to uncertainty regarding utilization of its net operating loss carryforwards and due to its history of losses. The benefit for income taxes differs from the benefit computed by applying the federal statutory rate to loss before income taxes as follows:

	Year Ended December 31,
	2015		2014
Expected federal income tax benefit	$	(6,015,321)	$	(4,983,700)
Share-based compensation		194,676		36,100
Other permanent items		17,947		9,000
Effect of change in valuation allowance		5,788,496		4,938,600
Other		14,202		-
Actual federal income tax benefit	$	-	$	-

The components of net deferred tax assets are as follows:

	As of December 31,
	2015		2014
Deferred tax assets, current:
Allowance for doubtful accounts	$	-	$	191,900
Accrued bonuses		165,642		228,100
Obsolete inventory		35,426		48,400
Accrued vacation		31,896		30,400
Deferred rent		-		900
Valuation allowance, current		(232,964)		(499,700)
Net deferred tax asset, current		-		-

Deferred tax assets, long term:
Net operating loss carryforwards		15,840,922		9,772,300
Intangible assets, net		768,232		841,800
Share-based compensation		851,521		732,400
Allowance for loss on fixed assets		53,819		53,800
Contribution, carryforward		272		300
Valuation allowance, long term		(17,481,629)		(11,397,400)
Deferred tax asset, long term		33,137		3,200

Deferred tax liabilities
Other		(33,137)		(3,200)
Net deferred tax asset, long term		-		-
Net deferred tax asset	$	-	$	-

The Company has incurred net operating losses from inception. At December 31, 2015, the Company had domestic federal net operating loss carryforwards of approximately $46,590,946 which are available to reduce future taxable income. These federal net operating loss carryforwards, expire at various dates beginning in 2029 through 2035. The Company recorded a valuation allowance against all of its net deferred tax assets of $17,481,629 and $11,397,400 as of December 31, 2015 and 2014, respectively.

Based on an assessment of all available evidence including, but not limited to the Company’s limited operating history in its core business and lack of profitability, uncertainties of the commercial viability of its technology, the impact of government regulation and healthcare reform initiatives, and other risks normally associated with biotechnology companies, the Company has concluded that it is more likely than not that these net operating loss carryforwards and credits will not be realized and, as a result, a full valuation allowance has been recorded against the Company’s deferred income tax assets.

The Company files income tax returns in the U.S. The Company is subject to tax examinations for the 2011 tax year and beyond. The Company has no unrecognized tax positions and does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The Company has not incurred any interest or penalties related to unrecognized tax positions. In the event that the Company is assessed interest or penalties at some point in the future, they will be classified in the financial statements as general and administrative expense.