Income Taxes

Loss before income tax benefits was comprised of

$29,005,000

from US and

$763,000

from foreign jurisdictions in

2017

and

$17,789,000

from US and

$799,000

from foreign jurisdictions in

2016.

The reconciliation of federal income tax attributable to operations computed at the federal statutory tax rate of

34%

to income tax benefit is as follows for the years ended

June 30:

	2017			2016
Statutory federal income tax benefit	$	(10,121,000	)	$	(6,300,000	)

Unbenefited net operating losses and credits		2,281,000			3,391,000
Disallowed financing costs		6,959,000			2,607,000
State and local taxes		88,000			69,000
Other		120,000			233,000

Total income tax benefit	$	(673,000	)	$	--

The deferred income tax benefit of

$673,000

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.

June 30, 2017,

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

$118,956,000

and

$42,922,000

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

2018

and

2037.

June 30, 2017,

the Company has research and experimentation credit carryforwards of

$1,458,000

for federal tax purposes that expire in various years between

2019

and

2037,

and

$1,456,000

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:

	June 30, 2017			June 30, 2016
Deferred tax assets:
Net operating loss carryforwards	$	43,687,000		$	41,023,000
Income tax credit carryforwards		2,419,000			2,367,000
Stock compensation		1,047,000			874,000
Other		1,124,000			1,858,000
Total deferred tax assets		48,277,000			46,122,000

Deferred tax liabilities
Indefinite lived intangible assets		(6,968,000	)		(7,641,000	)
Depreciation and amortization		(176,000	)		(230,000	)
Total deferred tax liabilities		(7,144,000	)		(7,871,000	)
Valuation allowance		(48,101,000	)		(45,892,000	)
Net deferred taxes	$	(6,968,000	)	$	(7,641,000	)

The valuation allowance increased by

$2,209,000

2017.

As of

June 30, 2017,

the Company has a benefit of

$215,000

related to stock option deductions, which will be credited to paid-in capital when realized.

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 imitations on the use of our net operating losses and credit carryovers.