Income Taxes

Loss before income tax benefits was comprised of

$9,934,000

from US and

$150,000

from foreign jurisdictions for the year ended

December 31, 2019

and

$45,458,000

from US and

$212,000

from foreign jurisdictions for the year ended

December 31, 2018.

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,
	2019			2018
Statutory federal income tax benefit	$	(2,118,000	)	$	(9,591,000	)
Intangible assets		673,000			3,119,000
Change in valuation allowance		(681,000	)		(2,084,000	)
Expiration of net operating losses		1,187,000			1,271,000
United States tax reform rate change		--			--
Disallowed financing costs		1,119,000			240,000
State and local taxes		(205,000	)		2,344,000
Other		25,000			(29,000	)
Total income tax benefit	$	--		$	(4,730,000	)

For the year ended

December 31, 2019,

the Company had

tax expense compared to

$4,730,000

of tax benefit for the year ended

December 31, 2018.

The income tax expense in

2019

is due to state minimum taxes. The income tax benefit for the year ended

December 31, 2018

was due to the impairment of the indefinite lived intangible assets for the clinical protocols and goodwill. The Company’s deferred tax liability is tied to the intangible assets and goodwill.

December

31,

2019,

we had federal net operating loss carryforwards of approximately

$121,195,000

to offset future federal taxable income, with

$109,293,000

available through

2037

and

$11,902,000

available indefinitely. We also had state net operating loss carryforwards of approximately

$43,870,000

that

may

offset future state taxable income through

2039.

We also had foreign net operating loss carryforwards of approximately

$2,495,000

that

may

offset future foreign taxable income through

2027.

December 31, 2019,

the Company has research and experimentation credit carryforwards of

$1,591,000

for federal tax purposes that expire in various years between

2020

and

2039,

and

$1,476,000

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:

	Year Ended December 31,
	2019			2018
Deferred tax assets:
Net operating loss carryforwards	$	26,758,000		$	27,312,000
Income tax credit carryforwards		2,757,000			2,769,000
Stock compensation		384,000			850,000
Lease Obligation		185,000			--
Deferred Revenue		419,000			--
Other		943,000			1,027,000
Total deferred tax assets		31,446,000			31,958,000

Deferred tax liabilities
Indefinite lived intangible assets		--			--
Depreciation and amortization		(408,000	)		(419,000	)
Lease asset		(180,000	)		--
Total deferred tax liabilities		(588,000	)		(419,000	)
Valuation allowance		(30,858,000	)		(31,539,000	)
Net deferred taxes	$	--		$	--

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

$681,000

and

$2,266,000

during the years ended

December 31, 2019

and

2018,

respectively.

The transition tax is based on total post-

1986

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

December 31, 2019,

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 periods after

2016

which could limit our utilization of losses and credits generated in the years

2016

–

2019.