NOTES
TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
1.
Organization, Business Overview and Liquidity
AgeX
Therapeutics, Inc. (“AgeX”) was incorporated in January 2017 in the state of Delaware as a subsidiary of Lineage Cell
Therapeutics, Inc. (“Lineage,” formerly known as BioTime, Inc.), a publicly traded, clinical-stage biotechnology company.
AgeX
is a biotechnology company focused on the development and commercialization of novel therapeutics targeting human aging and degenerative
diseases. AgeX’s initial discovery and pre-clinical programs focus on utilizing brown adipose tissue (“brown fat”)
in targeting diabetes, obesity, and heart disease; and induced tissue regeneration (“iTR”) in utilizing the human
body’s own abilities to scarlessly regenerate tissue damaged from age or trauma. AgeX may also pursue other early-stage
pre-clinical programs. AgeX is an “emerging growth company” as defined in the Jumpstart our Business Startups Act
of 2012.
Lineage’s
sale of significant ownership interest in AgeX to Juvenescence – On August 30, 2018, Lineage consummated the sale of
14,400,000 shares of common stock of AgeX owned by Lineage to Juvenescence Limited (“Juvenescence”). Prior to the
transaction, Juvenescence owned 5.6% of AgeX’s issued and outstanding common stock. Upon completion of the transaction,
Lineage’s ownership in AgeX was reduced from 80.4% to 40.2% of AgeX’s issued and outstanding shares of common stock,
and Juvenescence’s ownership in AgeX was increased from 5.6% to 45.8% of AgeX’s issued and outstanding shares of common
stock. AgeX did not receive any proceeds from the transaction. As a result of that transaction, AgeX ceased to be a subsidiary
of Lineage because Lineage experienced a “loss of control” of a subsidiary, as defined by generally accepted accounting
principles in the U.S. (“GAAP”). Loss of control is deemed to have occurred when, among other things, a parent company
owns less than a majority of the outstanding common stock in the subsidiary, lacks a controlling financial interest in the subsidiary
and, is unable to unilaterally control the subsidiary through other means such as having, or being able to obtain, the power to
elect a majority of the subsidiary’s Board of Directors based solely on contractual rights or ownership of shares holding
a majority of the voting power of the subsidiary’s voting securities. All of these loss-of-control factors were present
with respect to Lineage’s ownership interest in AgeX as of August 30, 2018. Accordingly, Lineage deconsolidated AgeX’s
consolidated financial statements and results from its consolidated financial statements and results beginning on August 30, 2018.
On
November 28, 2018 (the “Distribution Date”), Lineage distributed to its shareholders, on a pro rata basis, 12,697,028
shares of the AgeX common stock it then held (the “Distribution”). Immediately after the Distribution, Lineage retained
1,718,972 shares of AgeX common stock, representing approximately 4.8% of the common stock then issued and outstanding. Following
the Distribution, AgeX common stock began publicly trading on the NYSE American under the symbol “AGE” (see Notes
4, 7 and 9).
Going
Concern and Liquidity
Since
inception, AgeX has financed its operations through contributions and advances from its former parent company, Lineage, the sale
of its common stock and warrants, exercises of warrants (see Notes 4 and 5), a loan facility from Juvenescence, and research grants.
Lineage provided AgeX with the use of Lineage facilities and services under a Shared Facilities and Services Agreement (the “Shared
Facilities Agreement”) through September 30, 2019, as described in Note 4. AgeX has incurred operating losses and negative
cash flows since inception and had an accumulated deficit of $89.4 million as of March 31, 2020. AgeX expects to continue to incur
operating losses and negative cash flows.
Based
on a strategic review of its operations, giving consideration to the status of its product development programs, human resources,
capital needs and resources, and current conditions in the capital markets, AgeX’s board of directors and management have
made certain adjustments to AgeX’s operating plans and budgets, including the staff reductions discussed in Note 10, to
reduce its projected cash expenditures to extend the period over which AgeX can continue its operations with its available cash
resources.
Notwithstanding
those adjustments, based on AgeX’s most recent projected cash flows AgeX believes that its cash and cash equivalents of
$0.5 million as of March 31, 2020 plus the loan facility by Juvenescence to advance up to $8.0 million to AgeX for operating capital
discussed in Note 4, would not be sufficient to satisfy AgeX’s anticipated operating and other funding requirements for
the next twelve months from the issuance of these condensed consolidated interim financial statements. These conditions raise
substantial doubt about AgeX’s ability to continue as a going concern. AgeX will need to obtain substantial additional funding
in connection with its continuing operations.
2.
Basis of Presentation and Summary of Significant Accounting Policies
The
unaudited condensed consolidated interim financial statements presented herein, and discussed below, have been prepared in accordance
with GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. In accordance
with those rules and regulations certain information and footnote disclosures normally included in comprehensive consolidated
financial statements have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2019 was derived
from the audited consolidated financial statements at that date but does not include all the information and footnotes required
by GAAP. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in AgeX’s Annual Report on Form 10-K for the year ended December 31, 2019.
The
accompanying condensed consolidated interim financial statements, in the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of AgeX’s financial condition and results of operations.
The condensed consolidated results of operations are not necessarily indicative of the results to be expected for any other interim
period or for the entire year.
Through
September 30, 2019, to the extent AgeX did not have its own employees or facilities for its operations, Lineage or Lineage commonly
controlled and consolidated subsidiaries provided certain employees for administrative or operational services, including laboratory
space and administrative facilities, as necessary, for the benefit of AgeX, under the Shared Facilities Agreement. Lineage allocated
expenses such as salaries and payroll related expenses incurred and paid on behalf of AgeX based on the amount of time that particular
employees devoted to AgeX affairs. Other expenses such as legal, accounting and financial reporting, marketing, and travel expenses
were allocated to AgeX to the extent that those expenses were incurred by or on behalf of AgeX. Lineage also allocated certain
overhead expenses such as rent and utilities, property taxes, insurance, laboratory expenses and supplies, telecommunications
and other indirect expenses. These allocations were made based upon activity-based allocation drivers such as time spent, percentage
of square feet of office or laboratory space used, headcount and percentage of personnel devoted to AgeX’s operations or
management. Management evaluated the appropriateness of the allocations on a periodic basis and believes that this basis for allocation
was reasonable. AgeX terminated the Shared Facilities Agreement effective September 30, 2019.
Juvenescence
also provides the services of certain of its employees to AgeX on a cost reimbursement basis.
Principles
of consolidation
AgeX’s
condensed consolidated interim financial statements include the accounts of its subsidiaries and certain research and development
departments. AgeX consolidated its direct and indirect wholly-owned or majority-owned subsidiaries because AgeX has the ability
to control their operating and financial decisions and policies through its ownership, and the noncontrolling interest is reflected
as a separate element of stockholders’ equity (deficit) on AgeX’s condensed consolidated balance sheets.
The
following table reflects AgeX’s ownership, directly or through one or more subsidiaries, of the outstanding shares of its
operating subsidiaries as of March 31, 2020.
Subsidiary
|
|
Field of Business
|
|
AgeX Ownership
|
|
|
Country
|
|
ReCyte Therapeutics
|
|
Early stage pre-clinical research and development involved in stem cell-derived endothelial and cardiovascular related progenitor cells for the treatment of vascular disorders and ischemic conditions
|
|
|
94.8
|
%
|
|
|
USA
|
|
|
|
|
|
|
|
|
|
|
|
|
LifeMap Sciences (1)
|
|
Biomedical, gene, and disease databases and tools
|
|
|
81.7
|
%
|
|
|
USA
|
|
(1)
|
Includes
LifeMap Sciences, Inc. and its wholly-owned subsidiary LifeMap Sciences, Ltd., an Israeli company.
|
All
material intercompany accounts and transactions have been eliminated in consolidation.
Revenue
recognition
During
the first quarter of 2018, AgeX adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update
(“ASU”) ASU 2014-09, Revenues from Contracts with Customers (Topic 606), which created a single, principle-based
revenue recognition model that supersedes and replaces nearly all existing U.S. GAAP revenue recognition guidance. AgeX adopted
ASU 2014-09 using the modified retrospective transition method applied to those contracts which were not completed as of the adoption
date. Results for reporting periods beginning on January 1, 2018 and thereafter are presented under Topic 606. AgeX’s largest
source of revenue is currently sourced from subscription and advertisement revenues generated by its majority-owned subsidiary,
LifeMap Sciences, Inc. (“LifeMap Sciences”).
AgeX
recognizes revenue in a manner that depicts the transfer of control of a product or a service to a customer and reflects the amount
of the consideration it expects to receive in exchange for such product or service. In doing so, AgeX follows a five-step approach:
(i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction
price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) the customer
obtains control of the product or service. AgeX considers the terms of a contract and all relevant facts and circumstances when
applying the revenue recognition standard. AgeX applies the revenue recognition standard, including the use of any practical expedients,
consistently to contracts with similar characteristics and in similar circumstances.
Subscription
and advertisement revenues – LifeMap Sciences sells subscription-based products, including research databases and software
tools, for biomedical, gene, and disease research. LifeMap Sciences sells these subscriptions primarily through the internet to
biotech and pharmaceutical companies worldwide. LifeMap Sciences’ principal subscription product is the GeneCards®
Suite, which includes the GeneCards® human gene database, and the MalaCards™ human disease database.
LifeMap
Sciences’ performance obligations for subscriptions include a license of intellectual property related to its genetic information
packages and premium genetic information tools. These licenses are deemed functional licenses that provide customers with a “right
to access” to LifeMap Sciences’ intellectual property during the subscription period and, accordingly, revenue is
recognized over a period of time, which is generally the subscription period. Payments are typically received at the beginning
of a subscription period and revenue is recognized according to the type of subscription sold.
For
subscription contracts in which the subscription term commences before a payment is due, LifeMap Sciences records an accounts
receivable as the subscription is earned over time and bills the customer according to the contract terms. LifeMap Sciences continuously
monitors collections and payments from customers and maintains a provision for estimated credit losses and uncollectible accounts
based upon its historical experience and any specific customer collection issues that have been identified. Amounts determined
to be uncollectible are written off against the allowance for doubtful accounts. LifeMap Sciences has not historically provided
significant discounts, credits, concessions, or other incentives from the stated price in the contract as the prices are offered
on a fixed fee basis for the type of subscription package being purchased. LifeMap Sciences may issue refunds only if the packages
cease to be available for reasons beyond its control. In such an event, the customer will get a refund on a pro-rata basis. Both
the customer and LifeMap Sciences expect the subscription packages to be available during the entire subscription period, and
LifeMap Sciences has not experienced any significant issues with the availability of the product and has not issued any material
refunds. Using the most likely amount method for estimating refunds under Topic 606, including historical experience, LifeMap
Sciences determined that the single most likely amount of variable consideration for refunds is immaterial as LifeMap Sciences
does not expect to pay any refunds.
LifeMap
Sciences’ performance obligations for advertising are overall advertising services and represent a series of distinct services.
Contracts are typically less than a year in duration and the fees charged may include a combination of fixed and variable fees
with the variable fees tied to click throughs to the customer’s products on their website. LifeMap Sciences allocates the
variable consideration to each month the click through services occur and allocates the annual fee to the performance obligation
period of the initial term of the contract because those amounts correspond to the value provided to the customer each month.
For click-through advertising services, at the time the variable compensation is known and determinable, the service has been
rendered. Revenue is recognized at that time. The annual fee is recognized over the initial subscription period because this is
a service and the customers simultaneously receive and consume during the period of the subscription.
LifeMap
Sciences deferred subscription revenues primarily represent subscriptions for which cash payment has been received for the subscription
term, but the subscription term has not been completed as of the balance sheet date. For the three months ended March 31, 2020
and 2019, LifeMap Sciences recognized $338,000 and $345,000, respectively, in subscription and advertisement revenues. As of March
31, 2020, there was $407,000 included in deferred revenues in the condensed consolidated balance sheet which is expected to be
recognized as subscription revenue over the next twelve months.
LifeMap
Sciences has licensed from third parties the databases and software it commercializes and has a contractual obligation to pay
royalties to the licensor on subscriptions sold. These costs are included in cost of sales on the condensed consolidated statements
of operations when the cash is received, and the royalty obligation is incurred as the royalty payments do not qualify for capitalization
of costs to fulfill a contract under ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers.
Grant
revenues – In applying the provisions of Topic 606, AgeX has determined that government grants are out of the scope
of Topic 606 because the government entities do not meet the definition of a “customer”, as defined by Topic 606,
as there is not considered to be a transfer of control of good or services to the government entities funding the grant. AgeX
accounts for grants received to perform research and development services in accordance with ASC 730-20, Research and Development
Arrangements, which requires an assessment, at the inception of the grant, of whether the grant is a liability or a contract
to perform research and development services for others. If AgeX or a subsidiary receiving the grant is obligated to repay the
grant funds to the grantor regardless of the outcome of the research and development activities, then AgeX is required to estimate
and recognize that liability. Alternatively, if AgeX or a subsidiary receiving the grant is not required to repay, or if it is
required to repay the grant funds only if the research and development activities are successful, then the grant agreement is
accounted for as a contract to perform research and development services for others, in which case, grant revenue is recognized
when the related research and development expenses are incurred.
In
September 2018, AgeX was awarded a grant of up to approximately $225,000 from the National Institutes of Health (NIH). The
NIH grant provides funding for continued development of AgeX technologies for treating osteoporosis. The grant funds will be made
available by the NIH as allowable expenses are incurred. For the three months ended March 31, 2020 and 2019,
AgeX incurred approximately $25,000 and $15,000, respectively, of allowable expenses under the NIH grant and recognized a corresponding
amount of grant revenues.
On
April 5, 2018, AgeX was awarded a grant of up to approximately $386,000 from the NIH. The NIH grant provides funding for continued
development of AgeX’s technologies for treating stroke. The grant funds will be made available by the NIH to AgeX as allowable
expenses are incurred. For the three months ended March 31, 2020 and 2019,
AgeX incurred approximately $61,000 and nil, respectively, of allowable expenses under the NIH grant and recognized a corresponding
amount of grant revenues.
Arrangements
with multiple performance obligations – AgeX’s contracts with customers may include multiple performance obligations.
For such arrangements, AgeX allocates revenue to each performance obligation based on its relative standalone selling price. AgeX
generally determines or estimates standalone selling prices based on the prices charged, or that would be charged, to customers
for that product or service. As of March 31, 2020, AgeX did not have significant arrangements with multiple performance obligations.
Research
and development
Research
and development expenses include both direct expenses incurred by AgeX or its subsidiaries and indirect overhead costs allocated
by Lineage that benefit or support AgeX’s research and development functions. Direct research and development expenses consist
primarily of personnel costs and related benefits, including stock-based compensation, amortization of intangible assets, outside
consultants and suppliers, and license fees paid to third parties to acquire patents or licenses to use patents and other technology.
Indirect research and development expenses allocated by Lineage to AgeX under the Shared Facilities Agreement (see Note 4), were
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 expenses incurred
and reimbursed by grants from third parties or governmental agencies, including service revenues from co-development projects
with customers, if any and as applicable, approximate the respective revenues recognized in the condensed consolidated statements
of operations.
General
and administrative
General
and administrative expenses include both direct expenses incurred by AgeX and indirect overhead costs allocated by Lineage that
benefited or supported AgeX’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 Lineage to AgeX under the Shared Facilities Agreement
during 2019 (see Note 4) were 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.
Basic
and diluted net loss per share attributable to common stockholders
Basic
loss per share is calculated by dividing net loss attributable to AgeX common stockholders by the weighted average number of shares
of common stock outstanding, net of unvested restricted stock or restricted stock units, subject to repurchase by AgeX, if any,
during the period. Diluted loss per share is calculated by dividing the net income attributable to AgeX common stockholders, if
any, by the weighted average number of shares of common stock outstanding, adjusted for the effects of potentially dilutive common
stock issuable under outstanding stock options, warrants, and restricted stock units, using the treasury-stock method, and convertible
preferred stock, if any, using the if-converted method, and treasury stock held by subsidiaries, if any.
For
the three months ended March 31, 2020 and
2019, because AgeX reported a net loss attributable to common stockholders, all potentially dilutive common stock, comprised
of stock options, restricted stock units and warrants, is antidilutive.
The
following weighted average common stock equivalents were excluded from the computation of diluted net loss per share of common
stock for the periods presented because including them would have been antidilutive (in thousands):
|
|
Three Months Ended
March 31, (Unaudited)
|
|
|
|
2020
|
|
|
2019
|
|
Stock options
|
|
|
2,846
|
|
|
|
2,401
|
|
Warrants (1)
|
|
|
150
|
|
|
|
-
|
|
Restricted stock units
|
|
|
47
|
|
|
|
12
|
|
(1)
|
AgeX
issued Juvenescence warrants to purchase 150,000 shares of AgeX common stock as consideration for the line of credit under
the Loan Agreement discussed in Note 4.
|
Leases
On
January 1, 2019, AgeX adopted ASU 2016-02, Leases (Topic 842, “ASC 842”) and its subsequent amendments affecting
AgeX: (i) ASU 2018-10, Codification Improvements to Topic 842, Leases, and (ii) ASU 2018-11, Leases (Topic 842): Targeted
improvements, using the modified retrospective method.
AgeX
management determines if an arrangement is a lease at inception. Leases are classified as either financing or operating, with
classification affecting the pattern of expense recognition in the consolidated statements of operations. When determining whether
a lease is a financing lease or an operating lease, ASC 842 does not specifically define criteria to determine “major part
of remaining economic life of the underlying asset” and “substantially all of the fair value of the underlying asset.”
For lease classification determination, AgeX continues to use (i) 75% or greater to determine whether the lease term is a major
part of the remaining economic life of the underlying asset and (ii) 90% or greater to determine whether the present value of
the sum of lease payments is substantially all of the fair value of the underlying asset. Under the available practical expedients,
and as applicable, AgeX accounts for the lease and non-lease components as a single lease component. AgeX recognizes right-of-use
(“ROU”) assets and lease liabilities for leases with terms greater than twelve months in the consolidated balance
sheet.
ROU
assets represent an entity’s right to use an underlying asset during the lease term and lease liabilities represent an entity’s
obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement
date based on the present value of lease payments over the lease term. If the lease agreement does not provide an implicit rate
in the contract, an entity uses its incremental borrowing rate based on the information available at commencement date in determining
the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives.
The lease terms may include options to extend or terminate the lease when it is reasonably certain that the entity will exercise
that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Upon
adoption of ASC 842 and based on the practical expedients available under that standard, AgeX did not reassess any expired or
existing contracts, reassess the lease classification for any expired or existing leases and reassess initial direct costs for
exiting leases. AgeX also elected not to capitalize leases that have terms of twelve months or less.
AgeX’s
sublease of its current office and laboratory facility, which commenced on April 2, 2019, is subject to ASC 842. AgeX recognized
its lease as a right-of-use asset included in property and equipment, net (see Note 3) and operating lease liability on its balance
sheet in accordance with ASC 842 as of March 31, 2020 and December 31, 2019 (see Note 9). During 2019, AgeX as a sublessor subleased
portions of its office and laboratory space to certain unaffiliated third parties. These subleases are not subject to ASC 842.
Reclassifications
A
reclassification was made from amounts included in Grant and other revenues to conform to current period presentation.
Recently
adopted accounting pronouncements
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure
Requirements for Fair Value Measurement, which modifies certain disclosure requirements for reporting fair value measurements.
ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. AgeX
adopted this standard effective January 1, 2020 which did not have a material impact on its consolidated financial statements.
Recently
issued accounting pronouncements not yet adopted
The
recently issued accounting pronouncements applicable to AgeX that are not yet effective should be read in conjunction with the
recently issued accounting pronouncements, as applicable and disclosed in AgeX’s Annual Report on Form 10-K for the year
ended December 31, 2019.
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,
which modifies ASC 740 to simplify the accounting for income taxes. The new standard removes certain exceptions for recognizing
deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The new standard
also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating
taxes to members of a consolidated group. ASU 2019-12 is effective for fiscal year, and interim periods within those fiscal
years, beginning after December 15, 2020, with early adoption permitted. AgeX does not plan to early adopt this guidance and
does not anticipate that the adoption of the new standard will have a material impact on its consolidated financial statements.
CARES
Act
On
March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. In
accordance with ASC 740, a company accounts for the income tax effects of a change in the tax rates or tax law, including the
CARES Act in the period that includes the date of enactment. Accordingly, AgeX will account for and report the effect of
the CARES Act, if any, in the second quarter of 2020. AgeX is currently evaluating the impact of the CARES Act, but does
not expect the provisions of the CARES Act to have a material impact.
3.
Selected Balance Sheet Components
Property
and equipment, net
At
March 31, 2020 and December 31, 2019, property and equipment was comprised of the
following (in thousands):
|
|
March 31, 2020
(unaudited)
|
|
|
December 31,
2019
|
|
Equipment, furniture and fixtures
|
|
$
|
864
|
|
|
$
|
954
|
|
Right-of-use assets (1)
|
|
|
726
|
|
|
|
726
|
|
Accumulated depreciation and amortization
|
|
|
(692
|
)
|
|
|
(554
|
)
|
Property and equipment, net
|
|
$
|
898
|
|
|
$
|
1,126
|
|
|
(1)
|
AgeX
adopted ASC 842 on January 1, 2019. For additional information on this standard and right-of-use
assets and liabilities see Notes 2 and 9.
|
Depreciation
and amortization expense amounted to $227,000 and $10,000 for the three months ended March
31, 2020 and 2019, respectively. Accumulated depreciation and amortization also reflects $89,000 adjustment for the write
off of office furniture and equipment with the shutdown of our subsidiary’s office in Israel.
Intangible
assets, net
As
of March 31, 2020 and December 31, 2019, intangible assets, primarily consisting
of acquired in-process research and development and patents, and accumulated amortization were as follows (in thousands):
|
|
March 31, 2020
(unaudited)
|
|
|
December 31,
2019
|
|
Intangible assets
|
|
$
|
5,586
|
|
|
$
|
5,586
|
|
Accumulated amortization
|
|
|
(3,575
|
)
|
|
|
(3,435
|
)
|
Total intangible assets, net
|
|
$
|
2,011
|
|
|
$
|
2,151
|
|
AgeX
recognized $140,000 and $139,000 in amortization expense of intangible assets, included in research and development expenses,
for the three months ended March 31, 2020 and 2019, respectively.
Accounts
payable and accrued liabilities
As
of March 31, 2020 and December 31, 2019, accounts payable and accrued liabilities
were comprised of the following (in thousands):
|
|
March 31, 2020
(unaudited)
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,086
|
|
|
$
|
420
|
|
Accrued compensation
|
|
|
298
|
|
|
|
263
|
|
Accrued vendors and other expenses
|
|
|
800
|
|
|
|
899
|
|
Total accounts payable and accrued liabilities
|
|
$
|
2,184
|
|
|
$
|
1,582
|
|
4.
Related Party Transactions
Shared
Facilities and Service Agreement
On
August 17, 2017, AgeX and Lineage executed the Shared Facilities Agreement. The Shared Facilities Agreement was terminated by
AgeX effective September 30, 2019. Under the terms of the Shared Facilities Agreement, Lineage agreed to permit AgeX to use Lineage’s
Alameda, California office and laboratory facilities and certain equipment for the purpose of conducting business. Lineage also
provided accounting, billing, bookkeeping, payroll, treasury, payment of accounts payable, and other administrative services to
AgeX.
Lineage
charged AgeX a “Use Fee” for services received and usage of facilities, equipment, and supplies. For each billing
period, Lineage prorated and allocated costs incurred as a Use Fee to AgeX. Such costs generally included services of Lineage
employees, consultants, and contractors; equipment use, insurance, lease expense, fees for services of accountants, lawyers, and
other professionals; software; supplies; and utilities. Allocation depended on key cost drivers including actual documented use,
square footage of facilities used, time spent, costs incurred by or for AgeX, or upon proportionate usage by Lineage and AgeX,
as reasonably estimated by Lineage. Lineage charged AgeX a 5% markup on such allocated costs under the terms of the Shared Facilities
Agreement. The allocated cost of Lineage employees and contractors who provided services was based upon records maintained of
the number of hours or percentage of time of such personnel devoted to the performance of services. The Use Fee was determined
and invoiced to AgeX on a monthly basis for each calendar month of each calendar year. In addition to the Use Fees, AgeX reimbursed
Lineage for any out of pocket costs incurred by Lineage for the purchase of office supplies, laboratory supplies, and other goods
and materials and services for the account or use of AgeX.
The
Shared Facilities Agreement was not considered a lease under the provisions of ASC 842 discussed in Note 2, because, among other
factors, a significant part of the Shared Facilities Agreement is a contract for services, not a tangible asset, and is cancelable
by either party without penalty.
In
aggregate, Lineage charged such Use Fees to AgeX and subsidiaries as follows during the three months ended March 31, 2019 when
the Shared Facilities Agreement was in effect (in
thousands):
|
|
Three Months
Ended
March 31, 2019 (unaudited)
|
|
Research and development
|
|
$
|
286
|
|
General and administrative
|
|
|
114
|
|
Total Use Fees
|
|
$
|
400
|
|
AgeX
has accounted for payables to an affiliate, net of receivables from that affiliate, if any, for shared services and other transactions
that AgeX has entered into with that affiliate. AgeX recorded those payables and receivables on a net basis where AgeX and the
affiliate intended to exercise a right of offset of the payable and the receivable and to settle the balances net by having the
party that owes the other party pay the net balance owed. AgeX has treated Lineage and Juvenescence as affiliates for this purpose.
AgeX
had $40,000 and ($7,000) in related party payable
to (receivable from) to Lineage, included in related party payables, net on the condensed
consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively.
Transactions
with Juvenescence
On
March 30, 2020, AgeX and Juvenescence entered into a new Secured Convertible Facility Agreement (the “New Loan Agreement”)
pursuant to which Juvenescence has agreed to provide to AgeX an $8.0 million line of credit for a period of 18 months on substantially
the same terms as the Loan Agreement described below, except that (a) all loans to AgeX under the New Loan Agreement in excess
of an initial $500,000 advance are subject to Juvenescence’s discretion, (b) AgeX may not draw more than $1 million in any
single draw, (c) in lieu of accrued interest, AgeX will issue to Juvenescence 28,500 shares of AgeX common stock when AgeX has
borrowed an aggregate of $3 million under the New Loan Agreement, (d) AgeX will issue to Juvenescence warrants to purchase shares
of AgeX common stock (“New Warrants”) in amounts determined by the warrant formula described below, (e) the Repayment
Date for outstanding principal balance of the loan under the New Loan Agreement will be March 30, 2023, (f) if AgeX requests additional
loans after making the first two draws of funds (which are expected to total $1 million) under the New Loan Agreement, a Security
and Pledge Agreement (the “Security Agreement”) will go into effect granting Juvenescence a security interest in all
of the assets of AgeX and AgeX’s subsidiaries ReCyte Therapeutics and Reverse Bioengineering, Inc. (the “Guarantor
Subsidiaries” or each a “Guarantor Subsidiary”) (g) the Guarantor Subsidiaries will guarantee AgeX’s obligations
under the New Loan Agreement if AgeX makes more than two draws of funds under the New Loan Agreement and (h) Juvenescence has
the right to convert the principal amount of outstanding loans under the New Loan Agreement into shares of AgeX common stock at
the Market Price as defined in the New Loan Agreement. Further, in addition to the Events of Default described in Note 4, additional
Events of Default will arise under the New Loan Agreement if (i) AgeX or any of the Guarantor Subsidiaries sells, leases, licenses,
consigns, transfers, or otherwise disposes of a material part of its assets other than inventory in the ordinary course of business
or certain intercompany transactions, or certain other limited permitted transactions, unless Juvenescence approves, (ii) the
security interests under the Security Agreement, if in effect, are not valid or perfected, or AgeX or a Guarantor Subsidiary contests
the validity of its obligations under the New Loan Agreement or Security Agreement or other related agreement with Juvenescence,
or there is a loss, theft, damage or destruction of a material portion of the collateral, (iii) any representation, warranty,
or other statement made by AgeX or a Guarantor Subsidiary under the New Loan Agreement is incomplete, untrue, incorrect, or misleading,
or (iv) AgeX or a Guarantor Subsidiary suspends or ceases to carry on all or a material part of its business or threatens to do
so.
Each
time AgeX receives an advance of funds under the New Loan Agreement, AgeX will issue to Juvenescence a number of New Warrants
equal to 50% of the number determined by dividing the amount of the advance by the applicable Market Price. The Market Price will
be the closing price per share of AgeX common stock on the NYSE American or other national securities exchange on the date of
the applicable notice from AgeX requesting a draw of funds that triggers the obligation to issue New Warrants; provided, however
that if AgeX common stock is not traded on a national securities exchange the Market Price shall be determined with reference
to closing prices quoted or bid and asked prices on the OTC Bulletin Board or similar quotation system averaged over twenty consecutive
trading days. The exercise price of the New Warrants will be the applicable Market Price. The New Warrants will expire at 5:00
p.m. New York time three years after the date of issue.
AgeX
has entered into an amendment to its Registration Rights Agreement described above and include the 28,500 shares issuable under
the New Loan Agreement and the New Warrants and underlying shares as registrable securities under the Registration Rights Agreement.
On
August 13, 2019, AgeX and Juvenescence entered into a Loan Facility Agreement (the “Loan Agreement”) pursuant to which
Juvenescence has provided to AgeX a $2.0 million line of credit for a period of 18 months. Through March 31, 2020, AgeX drew $2.0
million of the line of credit. AgeX may not draw down funds after the Repayment Date in February 2021 or if an “Event of
Default” under the Loan Agreement has occurred and is continuing and AgeX may not draw down more than $700,000 during any
30 day period.
In
lieu of accrued interest, AgeX issued to Juvenescence 19,000 shares of AgeX common stock, with an approximate value of $56,000,
concurrently with the first draw down of funds under the Loan Agreement. However, if AgeX fails to repay the loan when due, interest
at the rate of 10% per annum, compounded daily, will accrue on the unpaid balance from the date the payment was due.
In
lieu of repayment of funds borrowed, AgeX or Juvenescence may convert the loan balance (including principal and accrued interest,
if any) into AgeX common stock or “units” if AgeX consummates a “Qualified Offering” which means a sale
of common stock (or common stock paired with warrants or other convertible securities in “units”) in which the gross
sale proceeds are at least $7.5 million.
Events
of Default under the Loan Agreement include: (i) AgeX fails to pay any amount in the manner and at the time provided in the Loan
Agreement and the failure to pay is not remedied within 10 business days; (ii) AgeX fails to perform any of its obligations under
the Loan Agreement and if the failure can be remedied it is not remedied to the satisfaction of Juvenescence within 10 business
days after notice to AgeX; (iii) other indebtedness for money borrowed in excess of $100,000 becomes due and payable or can be
declared due and payable prior to its due date or if indebtedness for money borrowed in excess of $25,000 is not paid when due;
(iv) AgeX stops payment of its debts generally or discontinues its business or becomes unable to pay its debts as they become
due or enters into any arrangement with creditors generally, (v) AgeX becoming insolvent or in liquidation or administration or
other insolvency procedures, or a receiver, trustee or similar officer is appointed in respect of all or any part of its assets
and such appointment continues undischarged or unstayed for sixty days, (vi) it becomes illegal for AgeX to perform its obligations
under the Loan Agreement or any governmental permit, license, consent, exemption or similar requirement for AgeX to perform its
obligations under the Loan Agreement or to carry out its business is not obtained or ceases to remain in effect; (vii) the issuance
or levy of any judgment, writ, warrant of attachment or execution or similar process against all or any material part of the property
or assets of AgeX if such process is not released, vacated or fully bonded within sixty calendar days after its issue or levy;
(viii) any injunction, order or judgement of any court is entered or issued which in the opinion of Juvenescence materially and
adversely affects the ability of AgeX to carry out its business or to pay amounts owed to Juvenescence under the Loan Agreement,
and (ix) there is a change in AgeX’s financial condition that in the opinion of Juvenescence materially and adversely affects,
or is likely to so affect, its ability to perform any of its obligations under the Loan Agreement.
As
consideration for the line of credit under the Loan Agreement, AgeX issued to Juvenescence warrants to purchase 150,000 shares
of AgeX common stock. The exercise price of the warrants is $2.60 per share, which was the volume weighted average price on the
NYSE American (VWAP) of AgeX common stock over the twenty trading days prior to the date the warrants were issued. The warrants
will expire at 5:00 p.m. New York time three years after the date of issue. The number of shares issuable upon exercise of the
warrants and the exercise price per share are subject to adjustment upon the occurrence of certain events such as a stock split
or reverse split or combination of the common stock, stock dividend, recapitalization or reclassification of the common stock,
and similar events. The estimated value of these warrants was $236,000 which was determined in accordance with the Black-Scholes
option pricing model with inputs as specified in the relevant warrant agreement.
AgeX
has entered into a Registration Rights Agreement to use commercially reasonable efforts to register the 19,000 shares issuable
under the Loan Agreement and the 150,000 warrants and underlying shares for resale under the Securities Act of 1933, as amended
(the “Securities Act”), upon request of Juvenescence if Form S-3 is available to AgeX. Juvenescence will also have
“piggy-back” registration rights if AgeX files a registration statement for the sale of shares for itself or other
stockholders. AgeX will bear the expenses of the registration statement but not underwriting or broker’s commissions related
to the sale of warrants or shares. AgeX and Juvenescence will indemnify each other from certain liabilities in connection the
registration, offer, and sale of securities under a registration statement, including liabilities arising under the Securities
Act.
Since
October 2018, AgeX’s Chief Operating Officer (“COO”), who is also an employee of Juvenescence, is devoting a
majority of his time to AgeX’s operations. AgeX reimburses Juvenescence for his services on an agreed-upon fixed annual
amount of approximately $280,000. As of March 31, 2020 and December 31, 2019, AgeX had approximately
$141,000 and $71,000, respectively, payable to Juvenescence for COO services rendered, included in related party payables, net,
on the condensed consolidated balance sheets.
Sale
and exercise of AgeX warrants
In
February 2018, AgeX sold warrants, as described in Note 5, to certain investors, including to Alfred
D. Kingsley, who was at the time AgeX’s Executive Chairman and the Chairman of BioTime’s Board of Directors. On March
18, 2019, Mr. Kingsley purchased a total of 248,600 shares of AgeX common stock through the exercise of his warrants at an exercise
price of $2.50 per share and paid a total purchase price of $621,500.
5.
Stockholders’ Equity (Deficit)
Preferred
Stock
AgeX
is authorized to issue up to 5,000,000 shares of $0.0001 par value preferred stock. At March 31, 2020 no preferred shares were
issued and outstanding.
Common
Stock
AgeX
has 100,000,000 shares of $0.0001 par value common stock authorized. At
March 31, 2020 and December 31, 2019, there were 37,656,415 and 37,649,000 shares
of AgeX common stock issued and outstanding, respectively.
See
Note 4 for related party transactions with Lineage that impacted AgeX’s condensed consolidated statements of stockholders’
equity (deficit).
Sale
of Warrants by AgeX
On
February 28, 2018, AgeX sold Warrants to purchase 1,473,600 shares of AgeX common stock for $0.50 per Warrant for aggregate cash
proceeds to AgeX of $736,800, which included $124,300 from Alfred D. Kingsley, AgeX’s then Executive Chairman and the Chairman
of Lineage’s Board of Directors. On July 10, 2018, AgeX sold additional Warrants to purchase 526,400 shares of common stock
for $0.50 per warrant for aggregate net cash proceeds to AgeX of $263,200. The Warrants were exercisable at $2.50 per share. On
March 18, 2019, holders of the Warrants purchased a total of 1,800,000 shares of AgeX common stock through the exercise of Warrants
at an exercise price of $2.50 per share, for total proceeds to AgeX of $4.5 million. Any unexercised Warrants expired on that
date.
On
August 13, 2019, in lieu of accrued interest under the Loan Agreement, AgeX issued to Juvenescence 19,000 shares of AgeX common
stock concurrently with the first draw down of funds. Furthermore, as consideration for the line of credit under the Loan Agreement,
AgeX issued to Juvenescence warrants to purchase 150,000 shares of AgeX common stock. See Note 4.
Reconciliation
of Changes in Stockholders’ Equity (Deficit)
The
following tables provide the activity in stockholders’ equity (deficit) for the three months ended March
31, 2020 and 2019 (unaudited and in thousands):
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Accumulated
Other
|
|
|
Total
Stockholders’
|
|
|
|
Number
of
Shares
|
|
|
Par
Value
|
|
|
Paid-In
Capital
|
|
|
Accumulated
Deficit
|
|
|
Noncontrolling
Interest
|
|
|
Comprehensive
Income
|
|
|
Equity
(Deficit)
|
|
BALANCE AT DECEMBER 31, 2019
|
|
|
37,649
|
|
|
$
|
4
|
|
|
$
|
88,353
|
|
|
$
|
(86,208
|
)
|
|
$
|
399
|
|
|
$
|
69
|
|
|
$
|
2,617
|
|
Issuance of common stock upon vesting of restricted stock units,
net of shares retired to pay employee’s taxes
|
|
|
7
|
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5
|
)
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
260
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
260
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(25
|
)
|
|
|
(25
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,187
|
)
|
|
|
(35
|
)
|
|
|
-
|
|
|
|
(3,222
|
)
|
BALANCE AT MARCH 31, 2020
|
|
|
37,656
|
|
|
$
|
4
|
|
|
$
|
88,608
|
|
|
$
|
(89,395
|
)
|
|
$
|
364
|
|
|
$
|
44
|
|
|
$
|
(375
|
)
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Accumulated
Other
|
|
|
Total
|
|
|
|
Number
of
Shares
|
|
|
Par
Value
|
|
|
Paid-In
Capital
|
|
|
Accumulated
Deficit
|
|
|
Noncontrolling
Interest
|
|
|
Comprehensive
Income/(Loss)
|
|
|
Stockholders’
Equity
|
|
BALANCE AT DECEMBER 31, 2018
|
|
|
35,830
|
|
|
$
|
4
|
|
|
$
|
81,499
|
|
|
$
|
(74,054
|
)
|
|
$
|
784
|
|
|
$
|
(2
|
)
|
|
$
|
8,231
|
|
Issuance of common stock from exercise of warrants
|
|
|
1,800
|
|
|
|
-
|
|
|
|
4,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,500
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
481
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
481
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26
|
|
|
|
26
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,133
|
)
|
|
|
(78
|
)
|
|
|
-
|
|
|
|
(3,211
|
)
|
BALANCE AT MARCH 31, 2019
|
|
|
37,630
|
|
|
$
|
4
|
|
|
$
|
86,480
|
|
|
$
|
(77,187
|
)
|
|
$
|
706
|
|
|
$
|
24
|
|
|
$
|
10,027
|
|
6.
Stock-Based Awards
Equity
Incentive Plan Awards
AgeX
has an Equity Incentive Plan (the “Plan”) under which a maximum of 4,000,000 shares of common stock are available
for the grant of stock options, the sale of restricted stock, the settlement of restricted stock units, and the grant of stock
appreciation rights. The Plan also permits AgeX to issue such other securities as its Board of Directors or the Compensation Committee
administering the Plan may determine.
A
summary of AgeX stock option activity under the Plan and related information follows (in thousands, except weighted average exercise
price):
|
|
Shares
Available
for Grant
|
|
|
Number
of Options Outstanding
|
|
|
Number
of RSUs Outstanding
|
|
|
Weighted
Average Exercise Price
|
|
December 31, 2019
|
|
|
1,054
|
|
|
|
2,846
|
|
|
|
50
|
|
|
$
|
2.74
|
|
Restricted stock
units vested
|
|
|
-
|
|
|
|
-
|
|
|
|
(13
|
)
|
|
|
-
|
|
March 31, 2020
|
|
|
1,054
|
|
|
|
2,846
|
|
|
|
37
|
|
|
$
|
2.74
|
|
Options exercisable at March 31,
2020
|
|
|
|
|
|
|
1,819
|
|
|
|
|
|
|
$
|
2.60
|
|
There
have been no exercises of stock options to date.
Stock-based
Compensation Expense
The
fair value of each option award is estimated on the date of grant using a Black-Scholes option pricing model applying the weighted-average
assumptions noted in the following table:
|
|
Three
Months Ended
March
31, (unaudited)
|
|
|
|
2020(1)
|
|
|
2019
|
|
Expected life (in years)
|
|
|
-
|
|
|
|
5.7
|
|
Risk-free interest rates
|
|
|
-
|
|
|
|
2.44
|
%
|
Volatility
|
|
|
-
|
|
|
|
78.45
|
%
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
%
|
(1)
No stock options were granted under the Plan during the three months ended March 31, 2020.
Operating
expenses include stock-based compensation expense as follows (in thousands):
|
|
Three
Months Ended
March
31, (unaudited)
|
|
|
|
2020
|
|
|
2019
|
|
Research and development
|
|
$
|
35
|
|
|
$
|
27
|
|
General and administrative
|
|
|
225
|
|
|
|
454
|
|
Total stock-based
compensation expense
|
|
$
|
260
|
|
|
$
|
481
|
|
7.
Income Taxes
The
provision for income taxes for interim periods is determined using an estimated annual effective tax rate in accordance with ASC
740-270, Income Taxes, Interim Reporting. 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 AgeX conducts business.
On
March 23, 2018, Ascendance Biotechnology, Inc. (“Ascendance”) was acquired by a third party in a merger through which
AgeX received approximately $3.2 million in cash for its shares of Ascendance common stock. For financial reporting purposes,
AgeX recognized a $3.2 million gain on the sale of its equity method investment in Ascendance (see Note 4). The sale was a taxable
transaction to AgeX generating a taxable gain of approximately $2.2 million. AgeX had sufficient current year losses from operations
to offset the entire gain resulting in no income taxes due. At the close of the merger, $955,000 of cash that otherwise would
have been payable to the Ascendance stockholders on a pro rata basis based on share ownership was deposited into an escrow account
where it was held through the term of the escrow, which expired in June 2019. The funds were held in the escrow account to cover
certain potential indemnity payments and other obligations that might arise after the merger. During 2019, the escrow funds were
paid to the former Ascendance shareholders and AgeX received $354,000 as its pro rata share of the funds as additional proceeds
from the sale of its Ascendance investment (see Note 4). AgeX has sufficient current year losses from operations to offset this
gain resulting in no income taxes due.
As
further discussed in Note 1, on August 30, 2018, Lineage consummated the sale of 14,400,000 shares of AgeX common stock to Juvenescence.
AgeX received no proceeds from that transaction because the shares sold were owned by Lineage. Prior to the transaction, Juvenescence
owned 5.6% of AgeX’s issued and outstanding common stock. Upon completion of the transaction, Lineage’s ownership
in AgeX was reduced from 80.4% to 40.2% of AgeX’s issued and outstanding shares of common stock, and Juvenescence’s
ownership in AgeX was increased from 5.6% to 45.8% of AgeX’s issued and outstanding shares of common stock. Accordingly,
since August 31, 2018, AgeX has not been included in Lineage’s consolidated federal and state income tax returns and AgeX
has filed its own, standalone income tax returns with its subsidiaries.
Beginning
in 2018, the 2017 Tax Cuts and Jobs Act (“2017 Tax Act”) subjects a U.S. stockholder to tax on Global Intangible Low
Tax Income “GILTI” earned by certain foreign subsidiaries. In general, GILTI is the excess of a U.S. shareholder’s
total net foreign income over a deemed return on tangible assets. The provision further allows a deduction of 50% of GILTI, however
this deduction is limited to the company’s pre-GILTI U.S. income. For the year ended December 31, 2019, AgeX’s foreign
income inclusion was less than the deemed return on tangible assets, therefore no GILTI was included in income for 2019. For the
three months ended March 31, 2020, AgeX’s foreign entity operated at a loss, therefore no GILTI was included in income for
the first quarter of 2020. Current interpretations under ASC 740 state that an entity can make an accounting policy election to
either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for
the tax expense related to GILTI in the year the tax is incurred as a period expense. AgeX has elected to account for GILTI as
a current period expense when incurred.
For
the three months ended March 31, 2020, AgeX experienced a domestic loss from continuing operations and a foreign loss, therefore
no income tax provision was recorded for the three months ended March 31, 2020.
Due
to losses incurred for all periods presented, AgeX did not record a domestic provision or benefit for income taxes. A valuation
allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. AgeX
established a full valuation allowance for all of its domestic deferred tax assets for all periods presented due to the uncertainty
of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets.
8.
Supplemental Cash Flow Information
Non-cash
investing and financing transactions presented separately from the condensed consolidated statements of cash flows for the three
months ended March 31, 2020 and 2019 are as follows (in thousands):
|
|
Three
Months Ended
March
31, (unaudited)
|
|
|
|
2020
|
|
|
2019
|
|
Supplemental disclosures of non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Cash paid during the period
for interest
|
|
$
|
7
|
|
|
$
|
8
|
|
Issuance of common stock upon vesting
of restricted stock units (Note 5)
|
|
$
|
11
|
|
|
$
|
-
|
|
9.
Commitments and Contingencies
Lease
Agreement
On
April 2, 2019, the term of a sublease that AgeX entered into during March 2019 (the “AgeX Lease”) went into effect
for an office and research facility (the “New Facility”) comprising approximately 23,911 square feet of space in a
building in an office and research park at 965 Atlantic Avenue, Alameda, California that serves as AgeX’s principal offices
and research laboratory.
Base
monthly rent is $35,866.50 for the initial 12 months of the sublease term and then will increase to $36,942.50. In addition, AgeX
will pay real property taxes, insurance and operating expenses pertaining to the building in which the New Facility is located.
The AgeX Lease will expire on December 31, 2020.
AgeX
is responsible for the maintenance and repair of the New Facility, including electrical, plumbing, HVAC and other systems serving
the New Facility but excluding structural and other external portions of the building in which the New Facility is located, and
other external areas such as parking, landscaping and walkways associated with the building.
In
connection with the AgeX Lease, as of March 31, 2020, AgeX incurred $436,000 in tenant improvement expenses that it funded and
completed in November 2019. This amount is being amortized over the remaining lease term.
Sublease
During
2019, AgeX, as a sublessor, entered into sublease agreements (the “AgeX Subleases”) with unrelated parties (the “Sublessees”)
to lease approximately 11,121 square feet of space at AgeX’s New Facility. The first Sublessee will pay AgeX $3,088.50 per
month and the second Sublessee will pay AgeX $15,405.40 per month for the first twelve months of the AgeX Sublease and $16,311.60
per month for the duration of the AgeX Subleases. The AgeX Subleases which will expire on December 31, 2020. The Sublessee will
also be responsible to reimburse AgeX for Sublessees’ pro rata portion of the maintenance and repair of the New Facility.
ASC
842
AgeX
adopted ASC 842 in 2019. The tables below provide the amounts recorded following the adoption of ASC 842 as of, and during, the
three months ended March 31, 2020, for the AgeX Lease. AgeX recorded a right-of-use asset of $726,000 and a right-of-use liability
for the same amount for the AgeX Lease in April 2019, which is considered a noncash investing activity.
The
following table presents supplemental cash flow information related to the AgeX Lease for the three months ended March 31, 2020
(in thousands):
Cash paid for amounts included in the
measurement of lease liabilities:
|
|
|
|
Operating cash flows for
operating lease
|
|
$
|
108
|
|
The
following table presents supplemental balance sheet information related to the AgeX Lease as of March 31, 2020 (in thousands,
except lease term and discount rate):
Operating lease
|
|
|
|
|
Right-of-use
asset, net
|
|
$
|
320
|
|
|
|
|
|
|
Right-of-use
lease liability
|
|
$
|
325
|
|
Weighted average remaining lease term
|
|
|
|
|
Operating lease
|
|
|
0.75
years
|
|
Weighted average discount rate
|
|
|
|
|
Operating lease
|
|
|
6
|
%
|
The
following table presents future minimum lease commitments as of March 31, 2020 (in thousands):
|
|
Operating
Lease
Payments
|
|
Year Ending December 31, 2020
|
|
$
|
333
|
|
Less imputed
interest
|
|
|
(8
|
)
|
Total
|
|
$
|
325
|
|
Litigation
– General
AgeX
is subject to various claims and contingencies in the ordinary course of its business, including those related to litigation,
business transactions, employee-related matters, and others. When AgeX is aware of a claim or potential claim, it assesses the
likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated,
AgeX will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated,
AgeX discloses the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material.
AgeX is not aware of any claims likely to have a material adverse effect on its financial condition or results of operations.
Employment
Contracts
AgeX
has entered into employment contracts with certain executive officers. Under the provisions of the contracts, AgeX may be required
to incur severance obligations for matters relating to changes in control, as defined, and involuntary terminations.
Indemnification
In
the normal course of business, AgeX may provide indemnifications of varying scope under AgeX’s agreements with other companies
or consultants, typically for AgeX’s pre-clinical programs. Pursuant to these agreements, AgeX will generally agree to indemnify,
hold harmless, and reimburse the indemnified parties for losses and expenses suffered or incurred by the indemnified parties arising
from claims of third parties in connection with AgeX’s pre-clinical programs. Indemnification provisions could also cover
third-party infringement claims with respect to patent rights, copyrights, or other intellectual property pertaining to AgeX’s
pre-clinical programs. AgeX has also agreed to indemnify the sublessor and owner of the New Facility with respect to certain matters
that may arise during the term of the AgeX Lease. The term of these indemnification obligations will generally continue in effect
after the termination or expiration of the particular research, development, services, license, or lease agreement to which they
relate. The potential future payments AgeX could be required to make under these indemnification agreements will generally not
be subject to any specified maximum amount. Historically, AgeX has not been subject to any claims or demands for indemnification.
AgeX also maintains various liability insurance policies that limit AgeX’s financial exposure. As a result, AgeX believes
the fair value of these indemnification agreements is minimal. Accordingly, AgeX has not recorded any liabilities for these agreements
as of March 31, 2020 and December 31, 2019.
10.
Subsequent Events
Draw
under New Loan Agreement
On
April 1, 2020 AgeX drew $500,000 against the $8.0 million line of credit, and may draw additional funds from time to time subject
to Juvenescence’s discretion, prior to the Repayment Date on March 30, 2023. AgeX may not draw down funds if an “Event
of Default” under the New Loan Agreement has occurred and is continuing and AgeX may not draw down more than $1 million
in any single draw.
PPP
Loan
On
April 13, 2020, AgeX obtained a loan in the amount of $432,952 from Axos Bank (the “Bank”) under the Paycheck Protection
Program (the “PPP Loan”). The PPP loan will bear interest at a rate of 1% per annum. No payments will be due on the
PPP loan during a six month deferral period commencing on the date of the promissory note. Commencing one month after the expiration
of the deferral period, and continuing on the same day of each month thereafter until the maturity date of the PPP loan, monthly
payments of principal and interest will be due, in an amount required to fully amortize the principal amount outstanding on the
PPP loan by the maturity date. The maturity date is April 13, 2022.
The
principal amount of the PPP loan is subject to forgiveness under the PPP to the extent that PPP loan proceeds are used to pay
expense permitted by the PPP, including payroll, rent, and utilities (collectively, “Qualifying Expenses”), during
the time frame permitted by the PPP. AgeX intends to use the PPP loan amount for Qualifying Expenses. However, no assurance is
provided that AgeX will obtain forgiveness of the loan in whole or in part.
Staff
Reductions
During
April 2020, AgeX initiated staff layoffs that affected 12 employees, primarily research and development personnel. AgeX has paid
approximately $105,000 in accrued payroll and unused paid time off and other benefits and expects to recognize approximately $194,800
in restructuring charges in connection with the reduction in staffing, consisting of contractual severance and other employee
termination benefits, substantially all of which are expected to be settled in cash. The staff reductions followed AgeX’s
strategic review of its operations, giving consideration to the status of its product development programs, human resources, capital
needs and resources, and current conditions in the capital markets resulting from the COVID-19 pandemic.