INCOME TAXES

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 11 – INCOME TAXES

The components of the Company’s loss before the provision for income taxes for the years ended December 31, 2016 and 2016 consisted of the following:

	2016			2015
United States of America	$	(11,816,521	)	$	(5,219,066	)
Total	$	(11,816,521	)	$	(5,219,066	)

A reconciliation of the statutory U.S. federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2016 and 2015 is as follows:

	2016			2015
Tax, computed at the federal statutory rate		34.00	%		34.00	%
State taxes, net of federal tax benefit		6.94	%		8.83	%
Nondeductible interest on convertible debt		(3.95	)%		0.00	%
Loss on derivative liability		(6.15	)%		0.00	%
Change in derivative liability value		2.87	%		0.00	%
Other permanent differences		(0.08	)%		(0.04	)%
Change in valuation allowance		(33.63	)%		(42.79	)%
Provision for income taxes		0.00	%		0.00	%

Significant components of deferred income tax assets and liabilities for the years ended December 31, 2016 and 2015 is as follows:

	2016			2015
Stock based compensation	$	2,456,636		$	654,360
Net operating losses		3,529,664			1,595,546
Accruals and reserves		317,900			80,823
Gross deferred tax assets		6,304,200			2,330,728
Less:  Valuation allowance		(6,293,979	)		(2,320,506	)
Total deferred tax assets		10,221			10,221
Property and equipment		(10,221	)		(10,221	)
Total deferred tax liabilities		(10,221	)		(10,221	)
Net deferred tax assets	$	0		$	0

Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company has evaluated the available positive and negative evidence supporting the realization of its gross deferred tax assets, including the Company’s cumulative losses, and the amount and timing of future taxable income, and has determined it is more likely than not that the federal and state deferred tax assets will not be realized. Accordingly, the Company recorded a full valuation allowance against its federal and state deferred tax assets as of December 31, 2016.

The change in the valuation allowance for the years ended December 31, 2016 and 2015 is as follows

	2016		2015
Valuation allowance, beginning of year	$	2,320,506	$	87,469
Increase in valuation allowance		3,973,473		2,233,037
Valuation allowance, end of year		6,293,979		2,320,506

As of December 31, 2016, the Company had U.S federal and California income tax net operating loss carryforwards of approximately $8.2 million and $8.2 million, respectively. The federal and California net operating loss carryforwards will begin to expire in 2034 and 2034, respectively unless previously utilized.

Pursuant to Internal Revenue Code Section 382, use of the Company's federal and California net operating loss carryforwards may be limited if a cumulative change in ownership of more than 50% has occurred within a three-year period. The Company is in the process of determining whether or not an ownership change has occurred and any amount of net operating losses that may not be realized. Due to its valuation allowance position, the Company does not believe the ultimate determination will have a material impact on the consolidated financial statements.

The Company adopted the provisions in ASC 740-10 which clarifies the accounting for uncertain tax positions. The guidance requires that the Company recognize the impact of a tax position in the financial statements if the position is more likely than not to be sustained upon examination by the tax authorities with full knowledge of all relevant information, based solely on the technical merits of the position. If it is not more likely than not that a position will be sustained, then the effect of the position must be measured. The Company must determine the probable outcomes of each position, the likelihood of each outcome, and the amount of the outcome with a cumulative likelihood of more than 50%. As of December 31, 2016, no reserve for unrecognized tax benefits was recorded.

The Company does not anticipate any material change in the total amount of unrecognized tax benefits will occur within the next twelve months. The Company’s practice 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 on the Company’s balance sheets as of December 31, 2016, and has not recognized interest and/or penalties in the consolidated statements of operations for the years ended December 31, 2016 and 2015.

The Company is subject to taxation in the United States and California. The Company's federal and California tax returns are open for examination for tax years 2013 and forwards.