Income Taxes

Loss before income tax benefits was comprised of

$45,458,000

from US and

$212,000

from foreign jurisdictions for the year ended

December 31, 2018,

$4,551,000

from US and

$457,000

from foreign jurisdictions for the

six

months ended

December 31, 2017

and

$29,005,000

from US and

$763,000

from foreign jurisdictions for the year ended

June 30, 2017.

The reconciliation of federal income tax attributable to operations computed at the federal statutory tax rate to income tax benefit is as follows for the:

	Year Ended December 31,			Six Months Ended December 31,			Year Ended June 30,
	2018			2017			2017
Statutory federal income tax benefit	$	(9,591,000	)	$	(1,703,000	)	$	(10,121,000	)
Intangible assets		3,119,000			--			--
Change in valuation allowance		(2,084,000	)		--			--
Expiration of net operating losses		1,271,000			(14,427,000	)		2,281,000
United States tax reform rate change		--			13,658,000			--
Disallowed financing costs		240,000			149,000			6,959,000
State and local taxes		2,344,000			60,000			88,000
Other		(29,000	)		25,000			120,000
Total income tax benefit	$	(4,730,000	)	$	(2,238,000	)	$	(673,000	)

The income tax benefit for the year ended

December 31, 2018

$4,730,000

is due to the write-off of indefinite life intangible assets acquired in the Totipotent transaction, which had deferred tax liabilities recorded for them at that time as they had

basis for income tax purposes.

The deferred income tax benefit for the

six

months ended

December 31, 2017

$2,238,000

is primarily due to the Tax Cuts & Jobs Act (TCJA) which was enacted on

December 22, 2017.

As a result of the TCJA, the federal income tax rate for all corporations was permanently changed to

21%

from

35%

a difference of

14%.

Since the law was enacted on

December 22, 2017,

the Company’s deferred are required to be measured using the new enacted tax rate. As a result of the re-measurement, the Company’s deferred tax assets decreased by (

$13,658,000

). However, since the Company has a full valuation allowance, there is

impact to income tax expense. The Company’s deferred tax liability related to indefinite life intangible assets was re-measured at the

21%

rate.

The deferred income tax benefit of

$673,000

for the year ended

June 30, 2017

is due to changes in the state tax rate over the last several years. Approximately

$559,000

of the benefit relates to state rate changes prior to fiscal

2017,

which was all recognized in the current year, of which

$157,000

relates to fiscal

2016

and

$402,000

relates to years prior to fiscal

2016.

The Company believes these amounts are quantitatively and qualitatively immaterial to the balance sheets as of

June 30, 2015

and

June 30, 2016,

as well as the statements of operations and comprehensive loss for the years then ended, and to fiscal

2017.

A valuation allowance is provided when it is more likely than

not

that some portion of the deferred tax assets will

not

be realized.

December 31, 2018,

the Company had net operating loss carryforwards for federal and state income tax purposes of

$125,578,000

and

$37,520,000,

respectively that are available to offset future income. The federal and state loss carryforwards expire in various years between

2019

and

2038.

December 31, 2018

the Company had foreign net operating loss carryforwards of

$2,430,000

that are available to offset future income. The foreign net operating loss carryforwards expire in various years between

2019

and

2026.

December 31, 2018,

the Company has research and experimentation credit carryforwards of

$1,604,000

for federal tax purposes that expire in various years between

2019

and

2038,

and

$1,475,000

for state income tax purposes that do

not

have an expiration date.

Significant components of the Company’s deferred tax assets and liabilities for federal and state income taxes are as follows:

	December 31,			December 31,
	2018			2017
Deferred tax assets:
Net operating loss carryforwards	$	27,312,000		$	29,682,000
Income tax credit carryforwards		2,769,000			2,667,000
Stock compensation		850,000			751,000
Other		1,027,000			831,000
Total deferred tax assets		31,958,000			33,931,000

Deferred tax liabilities
Indefinite lived intangible assets		--			(4,730,000	)
Depreciation and amortization		(419,000	)		(126,000	)
Total deferred tax liabilities		(419,000	)		(4,856,000	)
Valuation allowance		(31,539,000	)		(33,805,000	)
Net deferred taxes	$	--		$	(4,730,000	)

ASC

740

requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is "more likely than

not."

Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period. Because of the Company's recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently

not

likely to be realized and, accordingly, has provided a valuation allowance.

The valuation allowance decreased by (

$2,266,000

) during the year ended

December 31, 2018,

decreased by (

$14,296,000

) during the

six

months ended

December 31, 2017

and increased

$2,209,000

for the year ended

June 30, 2017.

The transition tax is based on total post-

1986

earnings and profits which were previously deferred from U.S. income taxes. At

December 31, 2018,

the Company did

not

have any undistributed earnings of our foreign subsidiaries. As a result,

additional income or withholding taxes have been provided for. The Company does

not

anticipate any impacts of the global intangible low taxed income (“GILTI”) and base erosion anti-abuse tax (“BEAT”) and as such, the Company has

not

recorded any impact associated with either GILTI or BEAT.

August 2016,

the conversion of the Boyalife Debentures effected an “ownership change” as defined under the provisions of the Tax Reform Act of

1986.

As a result, any net operating loss and credit carryovers existing at that date will be subject to an annual limitation regarding their utilization against taxable income in future periods. Additionally, before the conversion of the debentures, it is possible that “ownership changes” occurred, which could create additional limitations on the use of our net operating losses and credit carryovers. Additionally, ownership changes

may

have occurred in the period ended

December 31, 2018,

which could limit our utilization of losses and credits generated this year.