provision for income taxes is determined using an estimated annual effective tax rate. The effective tax rate may be subject to
fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective
tax rate, including factors such as valuation allowances against deferred tax assets, the recognition or de-recognition of tax
benefits related to uncertain tax positions, if any, and changes in or the interpretation of tax laws in jurisdictions where Asterias
believes that the Asterias net operating losses generated during the nine months ended September 30, 2018 will result in no income
tax benefit or provision in the current year due to the full valuation allowance on its net deferred tax assets for the year ended
December 31, 2017 and a full valuation allowance expected on its net deferred tax assets for the year ending December 31, 2018.
state income tax purposes, Asterias has a full valuation allowance on its state deferred tax assets as of September 30, 2018 and
December 31, 2017. Accordingly, no state tax provision or benefit was recorded for any period presented.
December 22, 2017 the Tax Cuts and Jobs Act (the “Act”) was signed into law. Among other provisions, the Act reduces
the federal statutory corporate income tax rate to 21%. This rate reduction has a significant impact on Asterias’ net deferred
tax assets as of December 31, 2017, resulting in a one-time revaluation of its deferred tax assets and liabilities to reflect
the new lower rate. However, because Asterias maintains a full valuation allowance against its deferred taxes, the impact of the
change is fully offset by the valuation allowance.
License and Royalty Obligations
Agreement with Cell Therapy Catapult Services Limited
October 2015, Asterias entered into a Services Agreement (the “Services Agreement”) with Cell Therapy Catapult Services
Limited (“Catapult”), a research organization specializing in the development of technologies which speed the growth
of the cell and gene therapy industry. Under the Services Agreement, Catapult will license to Asterias, certain background intellectual
property and will develop a scalable manufacturing and differentiation process for Asterias’ human embryonic stem cell derived
dendritic cell cancer vaccine development program. In consideration for the license and Catapult’s performance of services,
at the time of the Services Agreement Asterias agreed to make aggregate payments of up to GBP £4,350,000 over the period
from October 2015 through January 2020 (approximately $5.7 million based on the foreign currency exchange rate on September 30,
2018). At the option of Asterias, up to GBP £3,600,000 (approximately $4.7 million based on the foreign currency exchange
rate on September 30, 2018) of such payments historically may have been settled in shares of Asterias Series A common stock instead
of cash. Commencing January 1, 2018, all payments due will be made in shares of Asterias Series A common stock. If Catapult is
unable to sell the stock in the market within 60 days of issuance, after reasonable and diligent efforts through its broker, Catapult
may request that the unsold portion of the stock payment, if any, be paid by Asterias in cash at a value equal to approximately
91% of the total amount that was issued in stock. This right by Catapult to have unsold shares redeemed by to Asterias for cash
expires upon the earlier to occur of the sale of the stock in the market or after 60 days of issuance.
payments for research and development services to be performed by Catapult are deferred and recognized as research and development
expense ratably as the services are performed. Advance payments related to licenses are expensed when paid due to the experimental
nature of the project. Pursuant to the Services Agreement, if there are any issued, but unsold Asterias stock, to Catapult for
payment of services and the 60-day put right has not expired as of the period end being reported on, Asterias will present that
amount as “temporary” equity in accordance with ASC 480-10-S99. Once the put right expires or the shares are sold
by Catapult, the temporary equity amount will be reclassified by Asterias to permanent equity without adjustment to the carrying
value of the stock.
the nine months ended September 30, 2018 and 2017 Asterias paid $643,000 and $1.2 million, respectively, for services pursuant
to the Services Agreement. Asterias paid $295,000 in cash for these services for the nine months ended September 30, 2017 and
the remainder was paid with Asterias Series A common stock. Asterias issued Series A common stock to pay for services for the
nine months ended September 30, 2018. For the nine months ended September 30, 2018 and 2017 Asterias issued 364,727 and 217,193
shares of Asterias Series A common stock, respectively, with fair values of $643,000 and $858,000, respectively, at the time of
issuance which Asterias subsequently reclassified into permanent equity.