Note 11. Income Taxes.

The Company provides for income taxes under ASC 740. Under ASC 740, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The Company has not recorded a current or deferred income tax expense or benefit since its inception.

The Company’s loss before income taxes was $15,206,781, $2,751,127, $5,601,438, $11,726,818, and $2,660,677 for the year ended March 31, 2017, three months ended March 31, 2016 and 2015 (unaudited), and year ended December 31, 2015 and 2014, respectively, and was generated entirely in the United States.

Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The significant components of the Company’s deferred tax assets are comprised of the following:

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on the Company’s history of operating losses since inception, the Company has concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of March 31, 2017. The valuation allowance increased by $5,214,621 for the period April 1, 2016 through March 31, 2017 due primarily to the generation of net operating losses during the period and filing in additional jurisdictions.

A reconciliation of income tax benefit computed at the statutory federal income tax rate to income taxes as reflected in the financial statements is as follows:

As of March 31, 2017, the Company had U.S. federal net operating loss carryforwards of $16,904,097 net of uncertain tax positions, which may be available to offset future income tax liabilities and will begin to expire at various dates starting in 2033. As of March 31, 2017, none of the Company’s state net operating losses have value due to the apportionment rule in the states where state income tax returns are currently filed.  . As of March 31, 2017, the Company had federal research and development tax credit carryforwards of $310,727, available to reduce future tax liabilities which will begin to expire at various dates starting in 2030.

Under the provisions of the Internal Revenue Code, the NOL carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions. This could limit the amount of NOLs that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has completed several financing transactions since its inception which may have resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code, or could result in a change in control in the future.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

As of March 31, 2017, the Company had $617,233 of unrecognized tax benefits, which were offset with the net operating loss and valuation allowance on the consolidated balance sheet. None of the gross unrecognized tax benefits would affect the effective tax rate at March 31, 2017, if recognized. In addition, the Company did not record any penalties or interest related to uncertain tax positions for the periods presented in these consolidated financial statements.

The Company files income tax returns in the United States, and various state jurisdictions. The federal and state income tax returns are generally subject to tax examinations for the period January 1, 2016 through March 31, 2016, the years ended December 31, 2015 and 2014, and the period July 26, 2013 to December 31, 2013. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period.