NOTE 8—INCOME TAXES

The Company has $10,774,358 of net operating loss carry-forwards and $506,325 of research tax credit carry-forwards as of December 31, 2014. The net operating loss carry-forwards and research tax credit carry-forwards begin to expire in 2034 and will be utilized for tax purposes at such time the Company generates taxable income.

The components of the net deferred income tax asset at December 31, 2014 is as follows:

	2014
Deferred tax assets:
Net operating loss carry-forwards	$	4,797,498
Share-based compensation		588,860
Research and development credit carry-forwards		506,325

Gross deferred tax assets		5,892,683
Less valuation allowance		(5,892,683	)

Net deferred tax asset	$	—

In assessing the realizability of deferred tax assets, the Company considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences representing net future deductible amounts become deductible. After consideration of all the evidence, both positive and negative, the Company has recorded a full valuation allowance against their net deferred tax assets at December 31, 2014 because the Company has determine that it is more-likely-than-not that these assets will not be fully realized.

The Company reserves 100% of the deferred tax asset because under GAAP accounting rules this is required for all pre-revenue companies. In the event, the Company becomes profitable for a period of two or more years with future expectations at that time of profitability for future years prior to any significant change in our equity capitalization, the Company would have an opportunity to realize benefit from the deferred tax asset at such time in the future.

The Company did not have unrecognized tax benefits as of December 31, 2014, and do not expect this to change significantly over the next twelve months. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December 31, 2014, the Company has not accrued interest or penalties related to any uncertain tax positions.

A reconciliation of income tax expense (benefit) at the statutory Federal income tax rate and income taxes as reflected in the financial statements is as follows:

Federal income tax expense at statutory rate	(34.0	)%
State income tax, net of federal benefit	—
Permanent differences	0.1
Change in valuation allowance	33.9

Effective income tax rate	—	%

The Company has generated research credits but has not conducted a study to document the qualified activities. This study may result in an adjustment to research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position for these years. A full valuation allowance has been provided against research and development credits and, if an adjustment is required, this adjustment to the deferred tax asset established for the research and development credit carryforwards would be offset by an adjustment to the valuation allowance.

The Company files income tax returns in the U.S. Federal jurisdiction, and various state and local jurisdictions.