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Income Taxes
12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

9. Income Taxes

 

Net loss from operations before income taxes for the years ended December 31, 2023 and 2022 was approximately $14.8 million and $10.5 million, respectively.

 

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, 2023 and 2022 were as follows (in thousands):

 

         
   December 31, 
Deferred tax assets/(liabilities):  2023   2022 
Net operating loss carryforwards  $14,278   $12,408 
Capital loss carryforwards   3,120    3,120 
Research and development credit carryforwards   1,178    1,138 
Patents and fixed assets   975    879 
Stock-based compensation   676    643 
Capitalized research expenses   414    211 
Other, net   175    62 
Valuation allowance   (20,816)    (18,461)
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 (“NOL”) 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:

 

   2023   2022 
   December 31, 
   2023   2022 
Computed tax benefit at federal statutory rate   21%   21%
Research and development and other credits   -%   1%
State tax benefit, net of effect on federal income taxes   4%   (7)%
Permanent differences   (4)%   -%
Stock-based compensation   (1)%   (2)%
Debt finance equity costs   (5)%   (6)%
Return to provision and other adjustments   -%   (5)%
Change in valuation allowance   (15)%   (2)%
Income tax rate   -%   -%

 

AgeX has established an accrual for uncertain tax positions related to its U.S. research and development credits. As of December 31, 2023 and 2022, there was no accrued interest related to uncertain tax positions. AgeX does not believe it is reasonably possible that its unrecognized tax benefits will significantly change in the next twelve months. A reconciliation of beginning and ending balances for unrecognized tax benefits is as follows (in thousands):

 

   2023   2022 
   December 31, 
   2023   2022 
Balance at January 1  $379   $- 
Additions for tax positions related to the current year   14    23 
Additions for tax positions related to prior years   -    356 
Reductions for tax positions related to prior years   -    - 
Reductions related to settlements   -    - 
Reductions related to a lapse of statute   -    - 
Balance at December 31  $393   $379 

 

AgeX monitors proposed and issued tax law, regulations, and cases to determine the potential impact of uncertain income tax positions. At December 31, 2023, AgeX had not identified any potential subsequent events that would have a material impact on unrecognized income tax benefits within the next twelve months.

 

As of December 31, 2023, AgeX has net operating loss carryforwards of approximately $59.7 million for U.S. federal income tax purposes. 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.

 

As of December 31, 2023, AgeX has net operating losses of approximately $19.8 million for California purposes. 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. 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 2043.

 

As of December 31, 2023, AgeX has research and development tax credit carryforwards for federal and state tax purposes $0.7 million and $0.5 million, respectively. The federal tax credits expire between 2028 and 2043, while the state tax credits have no expiration date.

 

As of December 31, 2023, AgeX has capital loss carryforwards for federal and state tax purposes of $12.4 million and $5.9 million, respectively. The federal and California capital loss carryforwards will expire in 2026.

 

 

Effective for tax years beginning after December 31, 2021, taxpayers are required to capitalize any expenses incurred that are considered incidental to research and experimentation (“R&E”) activities under IRC Section 174. While taxpayers historically had the option of deducting these expenses under IRC Section 174, the December 2017 Tax Cuts and Jobs Act mandates capitalization and amortization of R&E expenses for tax years beginning after December 31, 2021. Expenses incurred in connection with R&E activities in the US must be amortized over a 5-year period if incurred, and R&E expenses incurred outside the US must be amortized over a 15-year period. R&E activities are broader in scope than qualified research activities considered under IRC Section 41 (relating to the research tax credit). For the year ended December 31, 2023, the Company performed an analysis based on available guidance and determined that it will continue to be in a loss position even after the required capitalization and amortization of its R&E expenses. We will continue to monitor this issue for future developments, but we do not expect R&E capitalization and amortization to require us to pay cash taxes now or in the near future.

 

For the year ended December 31, 2023, we experienced a loss; therefore, no income tax provision was recorded for the year ended December 31, 2023.

 

Other Income Tax Matters

 

Code Section 382 places a limitation (“Section 382 Limitation”) on the amount of taxable income that can be offset by 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. AgeX and its current subsidiaries are not subject to tax examination by federal tax authorities for tax years beginning before 2020 and for state tax authorities beginning before 2019. However, the tax 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.