December 22, 2017, the United States enacted major federal tax reform legislation, Public Law No. 115-97, commonly referred to
as the 2017 Tax Cuts and Jobs Act (“2017 Tax Act”), which enacted a broad range of changes to the Internal Revenue
Code. Changes to taxes on corporations impacted by the 2017 Tax Act include, among others, lowering the U.S. federal tax rates
to a 21 percent flat tax rate, eliminating the corporate alternative minimum tax (“AMT”), imposing additional limitations
on the deductibility of interest and net operating losses, allowing any net operating loss (“NOLs”) generated in tax
years ending after December 31, 2017 to be carried forward indefinitely and generally repealing carrybacks, reducing the maximum
deduction for NOL carryforwards arising in tax years beginning after 2017 to a percentage of the taxpayer’s taxable income,
and allowing for the expensing of certain capital expenditures. The 2017 Tax Act also puts into effect a number of changes impacting
operations outside of the United States including, but not limited to, the imposition of a one-time tax “deemed repatriation”
on accumulated offshore earnings not previously subject to U.S. tax, and shifts the U.S taxation of multinational corporations
from a worldwide system of taxation to a territorial system. ASC 740 requires the effects of changes in tax rates and laws on
deferred tax balances (including the effects of the one-time transition tax) to be recognized in the period in which the legislation
is enacted (see Note 8).
December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance for companies
that are not able to complete their accounting for the income tax effects of the 2017 Tax Act in the period of enactment. SAB
118 allows OncoCyte to record provisional amounts during a measurement period not to extend beyond one year of the enactment date
(see Note 8).
and development expenses
and development expenses include both direct expenses incurred by OncoCyte and indirect overhead costs allocated by BioTime that
benefit or support OncoCyte’s research and development functions. Direct research and development expenses consist primarily
of personnel costs and related benefits, including stock-based compensation, outside consultants and suppliers. Indirect research
and development expenses allocated by BioTime to OncoCyte under the Shared Facilities Agreement (see Note 4), are primarily based
on headcount or space occupied, as applicable, and include laboratory supplies, laboratory expenses, rent and utilities, common
area maintenance, telecommunications, property taxes and insurance.
Research and development costs are expensed as incurred.
and administrative expenses
and administrative expenses include both direct expenses incurred by OncoCyte and indirect overhead costs allocated by BioTime
that benefit or support OncoCyte’s general and administrative functions. Direct general and administrative expenses consist
primarily of compensation and related benefits, including stock-based compensation, for executive and corporate personnel, and
professional and consulting fees. Indirect general and administrative expenses allocated by BioTime to OncoCyte under the Shared
Facilities Agreement (see Note 4) are primarily based on headcount or space occupied,
as applicable, and include costs for financial reporting and compliance, rent and utilities, common area maintenance, telecommunications,
property taxes and insurance.
and marketing expenses
and marketing expenses consist primarily of personnel costs and related benefits, including stock-based compensation, trade shows
and booths, branding and positioning, and outside consultants. Indirect sales and marketing expenses allocated by BioTime, primarily
based on OncoCyte’s headcount or space occupied, as applicable, include costs for rent and utilities, common area maintenance,
telecommunications, property taxes and insurance, incurred by BioTime and allocated to us under the Shared Facilities Agreement.
recognizes compensation expense related to employee option grants and restricted stock grants, if any, in accordance with FASB
ASC 718, Compensation – Stock Compensation (“ASC 718”).
March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax
consequences, forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash
flows. OncoCyte adopted ASU 2016-09 beginning on January 1, 2017.
connection with the adoption of ASU 2016-09, OncoCyte changed its accounting policies including how it accounts for excess tax
benefits and deficiencies, if any, and forfeitures, as applicable. All excess tax benefits and tax deficiencies from stock based
compensation awards accounted for under ASC 718 are recognized as income tax benefit or expense, respectively, in the statements
of operations. Prior to the adoption of ASU 2016-09, OncoCyte recognized excess tax benefits, if any, in additional paid-in capital
only if the tax deduction reduced cash income taxes payable and, excess tax deficiencies were recognized either as an offset to
accumulated excess tax benefits, if any, on OncoCyte’s statements of operations. An excess income tax benefit arises when
the tax deduction of a share-based award for income tax purposes exceeds the compensation cost recognized for financial reporting
purposes and, a tax deficiency arises when the compensation cost exceeds the tax deduction. Because OncoCyte has a full valuation
allowance for all periods presented (see Note 8) and an insignificant number of stock option exercises during the current quarter,
there was no impact to OncoCyte statements of operations for any excess tax benefits or deficiencies, as any excess benefit or
deficiency would be offset by the change in the valuation allowance.