Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

7. Income Taxes

Net loss from continuing operations before provision for income taxes are as follows:

	December 31,
	2020			2019
Domestic	$	(9,358	)		(13,051	)
Foreign		(1,768	)		815
Net loss before income tax provision	$	(11,126	)		(12,236	)

The provision (benefit) for income taxes consisted of the following (in thousands):

	December 31,
	2020			2019
Current tax provision:
U.S. federal	$	-		$	-
State		-			-
Foreign		(150	)		148
Total current provision		(150	)		148
Deferred tax provision (benefit):
U.S. federal		-			-
State		-			-
Foreign		-			-
Total deferred provision (benefit)		-			-
Provision (benefit) for income taxes	$	(150	)	$	148

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The primary components of the net deferred tax assets and liabilities as of December 31, 2020 and 2019 were as follows (in thousands):

	December 31,
Deferred tax assets/(liabilities):	2020			2019
Net operating loss carryforwards	$	13,958		$	12,402
Research and development credit carryforwards		2,306			2,069
Patents and fixed assets		693			454
Stock-based compensation		687			659
Operating lease liability		-			428
Other, net		184			124
Operating lease ROU assets		-			(424	)
Valuation allowance		(17,828	)		(15,712	)
Total net deferred tax assets	$	-		$	-

A valuation allowance is provided when it is more likely than not that all or some portion of the deferred tax assets will not be realized. AgeX established a full valuation allowance for all periods presented due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets.

Income taxes differed from the amounts computed by applying the U.S. federal income tax rate indicated to pretax losses from operations as a result of the following:

	December 31,
	2020		2019
Computed tax benefit at federal statutory rate		21%		21%
Research and development and other credits		1%		1%
State tax benefit, net of effect on federal income taxes		2%		5%
Permanent differences		(2)%		-%
Tax effect attributable to foreign operations		(2)%		-%
Change in valuation allowance		(19)%		(28)%
		1%		(1)%

As of December 31, 2020, AgeX has net operating loss carryforwards of approximately $49.2 million for U.S. federal income tax purposes. Of this amount, $8.9 million is attributable to LifeMap Sciences, which includes $2.7 million in NOLs generated while it was included in the consolidated tax group and would be available to offset income of AgeX in the future. The remaining LifeMap Sciences’ NOLs of $6.2 million are attributable to NOLs generated for the tax years during which LifeMap Sciences filed a separate federal income tax return and, accordingly, those NOLs are available only to LifeMap Sciences’ taxable income within AgeX in future years. In general, NOLs and other tax credit carryforwards generated by legal entities in a consolidated federal tax group are available to other members of the tax group depending on the nature of the transaction that a member may enter into while still in the consolidated federal tax group. However, under the Tax Matters Agreement between Lineage and AgeX, any use of a member’s NOLs and other tax credit carryforwards by the other member is subject to reimbursement by the benefiting member for the actual tax benefit realized. Since the August 30, 2018 deconsolidation of AgeX and to date, neither Lineage nor AgeX has used the tax attributes of the other.

On March 23, 2018, Ascendance was acquired by a third party in a merger through which AgeX received approximately $3.2 million in cash for its shares of Ascendance common stock. For financial reporting purposes, AgeX recognized a $3.2 million gain on the sale of its equity method investment in Ascendance. The sale was a taxable transaction to AgeX generating a taxable gain of approximately $2.2 million. AgeX had sufficient current year losses from operations to offset the entire gain resulting in no income taxes due. At the close of the merger, $955,000 of cash that otherwise would have been payable to the Ascendance stockholders on a pro rata basis based on share ownership was deposited into an escrow account where it was held through the term of the escrow, which expired in June 2019. The funds were held in the escrow account to cover certain potential indemnity payments and other obligations that might arise after the merger. During 2019, the escrow funds were paid to the former Ascendance shareholders and AgeX received $354,000 as its pro rata share of the funds as additional proceeds from the sale of its Ascendance investment included in other income (expense), net, for the year ended December 31, 2019. AgeX has sufficient current year losses from operations to offset this gain resulting in no income taxes due.

As further discussed in Note 1, on August 30, 2018, Lineage consummated the sale of 14,400,000 shares of AgeX common stock to Juvenescence. AgeX received no proceeds from that transaction because the shares sold were owned by Lineage. Prior to the transaction, Juvenescence owned 5.6% of AgeX’s issued and outstanding common stock. Upon completion of the transaction, Lineage’s ownership in AgeX was reduced from 80.4% to 40.2% of AgeX’s issued and outstanding shares of common stock, and Juvenescence’s ownership in AgeX was increased from 5.6% to 45.8% of AgeX’s issued and outstanding shares of common stock. Accordingly, since August 31, 2018, AgeX has not been included in Lineage’s consolidated federal and state income tax returns and AgeX has filed its own, standalone income tax returns with its subsidiaries.

As of December 31, 2020, AgeX has net operating losses of approximately $41.0 million for California purposes. As AgeX and its subsidiaries have been included in the combined California tax return with Lineage, up to the date of deconsolidation on August 30, 2018, those state net operating losses will remain with AgeX. In general, NOLs and other tax credit carryforwards generated by legal entities in a combined state tax group are available to other members of the tax group depending on the nature of the transaction that a member may enter into while still in the combined state tax group. However, under the Tax Matters Agreement between Lineage and AgeX, any use of a member’s NOLs and other tax credit carryforwards by the other member is subject to reimbursement by the benefiting member for the actual tax benefit realized. Federal net operating losses generated on or prior to December 31, 2017, expire in varying amounts between 2028 and 2037, while federal net operating losses generated after December 31, 2017, carryforward indefinitely. The state net operating losses expire in varying amounts between 2028 and 2040.

As of December 31, 2020, AgeX has research and development tax credit carryforwards for federal and state tax purposes of $1.3 million and $1.0 million, respectively. Although this LifeMap Sciences credit has been included as part of the AgeX credit carryforwards, LifeMap Sciences filed a separate federal income tax return prior to January 1, 2018 and its prior research credit carryforwards may not be used to offset federal taxable income of AgeX. As AgeX and its subsidiaries were included in the California combined return with Lineage, these credits noted above will remain with AgeX. The federal tax credits expire between 2028 and 2040, while the state tax credits have no expiration date.

Beginning in 2018, the 2017 Tax Act subjects a U.S. stockholder to tax on Global Intangible Low Tax Income “GILTI” earned by certain foreign subsidiaries. In general, GILTI is the excess of a U.S. shareholder’s total net foreign income over a deemed return on tangible assets. The provision further allows a deduction of 50% of GILTI, however this deduction is limited to the company’s pre-GILTI U.S. income. For the year ended December 31, 2019, our foreign income inclusion was immaterial. For the year ended December 31, 2020, AgeX’s foreign entity operated at a book loss. However, for GILTI purposes, US tax laws are applied to the foreign activity and as a result there was an immaterial amount included in income for 2020. Current interpretations under ASC 740 state that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense. We have elected to account for GILTI as a current period expense when incurred.

For the year ended December 31, 2020, we experienced a domestic loss from continuing operations and a foreign loss. Although we did not record a domestic provision or benefit, we did record a foreign benefit for income taxes, due to an adjustment in the prior year's foreign tax provision reported.

Other Income Tax Matters

Internal Revenue Code Section 382 places a limitation (“Section 382 Limitation”) on the amount of taxable income that can be offset by net operating loss (“NOL”) carryforwards after a change in control (generally greater than 50% change in ownership within a three-year period) of a loss corporation. California has similar rules. Generally, after a control change, a loss corporation cannot deduct NOL carryforwards in excess of the Section 382 Limitation. Due to these “change in ownership” provisions, utilization of the NOL and tax credit carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods.

AgeX and its subsidiaries may be subject to potential income tax examination by U.S. federal or states authorities. These potential examinations may include inquiries regarding the timing and amount of deductions, and compliance with U.S. federal and state tax laws. AgeX filed its first consolidated federal tax return in 2018. For AgeX subsidiaries that did operate and filed separate tax returns prior to 2018, those entities are not subject to tax examination by major taxing authorities for tax years before 2016. However, the taxing authorities may still make adjustments to the net operating loss and credit carryforwards used in open years by AgeX or any of its subsidiaries. Any potential examinations may include inquiries regarding the timing and amount of deductions, and compliance with U.S. federal and state tax laws.