Note 8. Income Taxes

The Company is included in the U.S. federal and state (California) tax returns with its Former Parent through the March 26, 2014 closing date of the IPO. Post-IPO, the Company filed separate, stand-alone tax returns. During the year ended March 31, 2015, following the deconsolidation, the Company adjusted its net operating loss (“NOL”) carry forward to reflect the value of the NOL available to the Company in future periods.

The following summarizes the income tax provision (benefit):

	For The Years Ended
	March 31,
	2015			2014
Federal
Current	$	-		$	-
Deferred		(1,754,000	)		(1,031,000	)

State and local
Current		-			-
Deferred		(309,000	)		(182,000	)
		(2,063,000	)		(1,213,000	)
Change in valuation allowance		2,063,000			1,213,000
Income tax provision (benefit)	$	-		$	-

The Company has the following net deferred tax assets:

	March 31,
	2015			2014

Net operating loss carryforwards	$	3,224,000		$	1,427,000
Stock-based compensation		262,000			-
Charitable donation carryforwards		4,000			-
Gross deferred tax assets		3,490,000			1,427,000
Valuation allowance		(3,490,000	)		(1,427,000	)

Net deferred tax assets	$	-		$	-

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

	For The Years Ended
	March 31,
	2015			2014
Expected federal statutory rate		(34.0	)%		(34.0	)%
State tax rate, net of federal benefit		(6.0	)%		(6.0	)%
Change in effective state tax rate		0.0	%		(0.3	)%
Permanent items - stock-based compensation		2.5	%		0.0	%
Permanent items - non-deductible merger expenses		0.4	%		0.0	%
Permanent items - other		0.1	%		1.3	%
Adjustment of NOL due to deconsolidation		6.2	%		0.0	%
Change in valuation allowance		30.8	%		39.0	%

Income tax provision (benefit)		0.0	%		0.0	%

For the years ended March 31, 2015 and 2014, the Company had approximately $8,059,000 and $2,539,000 of federal and state net operating loss carryovers (“NOLs”), respectively, which begin to expire in 2033. These net operating loss carryovers are subject to annual limitations under Internal Revenue Code Section 382 because there has been a greater than 50% ownership change following the March 26, 2014 closing of the IPO.

The Company, after considering all available evidence, fully reserved its deferred tax assets since it is more likely than not that such benefits will not be realized in future periods. The Company has incurred losses for both financial reporting and income tax purposes for the years ended March 31, 2015 and 2014. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s deferred tax assets satisfy the realization standards, the valuation allowance will be reduced accordingly.

The Company does not have any tax positions for which it is reasonably possible that the total amount of gross unrecognized tax benefits will increase or decrease within 12 months of March 31, 2015. The unrecognized tax benefits may increase or change during the next year for items that arise in the ordinary course of business. The Company has elected to reflect interest and penalties attributable to income taxes, to the extent they arise, as a component of its income tax provision or benefit.