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
mission is to apply its comprehensive experience in fundamental biological processes of human aging to a broad range of age-associated
medical conditions.
AgeX’s
proprietary technology, based on telomerase-mediated cellular immortality and regenerative biology, allows AgeX to utilize telomerase-expressing
regenerative pluripotent stem cells (“PSCs”) for the manufacture of cell-based therapies to regenerate tissues afflicted
with age-related chronic degenerative disease. AgeX’s main technology platforms and product candidates are:
|
●
|
PureStem®
PSC-derived clonal embryonic progenitor cell lines that may be capable of generating a broad range of cell types for use
in cell-based therapies;
|
|
|
|
|
●
|
UniverCyte™
which uses the HLA-G gene to suppress rejection of transplanted cells and tissues to confer low immune observability to cells;
|
|
|
|
|
●
|
AGEX-BAT1
using adipose brown fat cells for metabolic diseases such as Type II diabetes;
|
|
|
|
|
●
|
AGEX-VASC1
using vascular progenitor cells to treat tissue ischemia; and
|
|
|
|
|
●
|
Induced
tissue regeneration or iTR technology to regenerate or rejuvenate cells to treat a variety of degenerative diseases including those
associated with aging, as well as other potential tissue regeneration applications such as scarless wound repair.
|
Emerging
Growth Company
AgeX
is an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012.
Disposition
and deconsolidation of LifeMap Sciences
As
discussed in Note 3, On March 6, 2021, AgeX and its
majority-owned subsidiary LifeMap Sciences, Inc. (“LifeMap Sciences”) entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Atlas Capital Partners Limited, a British Virgin Islands company limited by shares (“Atlas”), and
GCLMS Acquisition Corporation (“GCLMS”), a Delaware corporation that was a wholly-owned subsidiary of Atlas. On March 15,
2021, the merger was completed pursuant to the terms of the Merger Agreement. As a result of the merger, GCLMS merged into LifeMap Sciences
and (a) the shares of LifeMap Sciences common stock outstanding at the time of the merger entitled the holders of those shares to receive
a pro rata portion of a $500,000 cash payment for all shares of LifeMap Sciences common stock in the aggregate (the “Merger Consideration”),
with each LifeMap Sciences shareholder’s pro rata portion of the Merger Consideration to be determined in accordance with the number
of shares of LifeMap Sciences common stock owned by such shareholder as a percentage of shares of LifeMap Sciences common stock outstanding
immediately before the effective date of the merger, and (b) the outstanding shares of GCLMS common stock were converted into shares
of LifeMap Sciences common stock so that Atlas is now the sole shareholder of LifeMap Sciences.
AgeX
received approximately $466,400 in cash as its pro rata share of the Merger Consideration in the merger. Prior to and as a condition
to the merger under the terms of the Merger Agreement, $1,761,296 of LifeMap Sciences’ indebtedness to AgeX was converted into
shares of LifeMap Sciences common stock. LifeMap Sciences also paid AgeX $250,000 in cash to pay off a portion of LifeMap Sciences’
indebtedness to AgeX that was not converted into shares of LifeMap Sciences common stock.
As
a result of the completion of the cash-out merger on March 15, 2021, LifeMap Sciences is no longer a subsidiary of AgeX. Accordingly,
AgeX has deconsolidated LifeMap Sciences’ consolidated financial statements and consolidated results of operations from AgeX, effective
March 15, 2021 (the “LifeMap Deconsolidation”), in accordance with Accounting Standards Codification, or ASC 810-10-40-4(c),
Consolidation. See Note 3 to AgeX’s consolidated financial statements included in this Quarterly Report on Form 10-Q for
additional information regarding the disposition and deconsolidation of LifeMap Sciences.
Going
Concern
AgeX
primarily finances its operations through sales of its common stock, loans from its largest stockholder Juvenescence Limited (“Juvenescence”),
and research grants. AgeX has incurred operating losses and negative cash flows since inception and had an accumulated deficit of $99.2
million as of March 31, 2021. 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 below, 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 $0.8 million
as of March 31, 2021 plus the loan facility by Juvenescence to advance up to an additional $4.5 million to AgeX for operating capital
discussed in Note 5, 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.
Staff
Reductions and Elimination of Laboratory Facilities Lease
During
April 2020, AgeX initiated staff layoffs that affected 11 research and development personnel. AgeX paid approximately $105,000 in accrued
payroll and unused paid time off and other benefits and recognized approximately $195,000 in restructuring charges in connection with
the reduction in staffing, consisting of contractual severance and other employee termination benefits. 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.
Following
the staff reductions, AgeX subleased out a significant portion of its leased laboratory space and did not renew its lease or enter into
a new lease for a replacement facility when its lease expired on December 31, 2020. Instead, AgeX entered into a lease for a smaller
office only space commencing January 1, 2021.
Liquidity
and impact of COVID-19
In
addition to general economic and capital market trends and conditions, AgeX’s ability to raise sufficient additional capital to
finance its operations from time to time will depend on a number of factors specific to AgeX’s operations such as operating expenses
and progress in development of its product candidates and technologies. The availability of financing may be adversely impacted by the
COVID-19 pandemic which could continue to depress national and international economies and disrupt capital
markets, supply chains, and aspects of AgeX’s operations. The extent to which the ongoing COVID-19
pandemic will ultimately impact AgeX’s business, results of operations, financial condition, or cash flows is highly uncertain
and difficult to predict because it will depend on many factors that are outside AgeX’s control. The unavailability or inadequacy
of financing to meet future capital needs could force AgeX to modify, curtail, delay, or suspend some or all aspects of planned operations.
Sales of additional equity securities could result in the dilution of the interests of its shareholders. AgeX cannot assure that adequate
financing will be available on favorable terms, if at all.
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, 2020 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, 2020.
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.
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’
deficit on AgeX’s condensed consolidated balance sheets.
AgeX’s
consolidated balance sheet at December 31, 2020, as reported, includes LifeMap Sciences’ consolidated assets and liabilities, after
intercompany eliminations. However, LifeMap Sciences’ consolidated assets and liabilities are not included in AgeX’s unaudited
condensed consolidated balance sheet at March 31, 2021, due to the deconsolidation of LifeMap Sciences on March 15, 2021. LifeMap
Sciences’ consolidated financial statements and consolidated results of operations include its wholly-owned and consolidated
subsidiary LifeMap Sciences, Ltd.
AgeX’s
unaudited consolidated statements of operations for the three months ended March 31, 2021 include LifeMap Sciences’ consolidated
results for the period through March 15, 2021 rather than the day immediately preceding the deconsolidation due to the conversion of
$1,761,296 of LifeMap Sciences’ indebtedness to AgeX into shares of LifeMap Sciences common stock on March 15, 2021 followed by
the completion of the cash-out merger on the same day. For the three months ended March 31, 2020, AgeX’s unaudited consolidated
results include LifeMap Sciences’ consolidated results for the full period presented.
AgeX
has one operating subsidiary, ReCyte Therapeutics, Inc. (“ReCyte”). ReCyte is an early stage pre-clinical research and development
company involved in stem cell-derived endothelial and cardiovascular related progenitor cells for the treatment of vascular disorders
and ischemic conditions. AgeX owns 94.8% of the outstanding capital stock of ReCyte. 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 was sourced from subscription
and advertisement revenues generated by LifeMap Sciences prior to the LifeMap Deconsolidation.
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 were deemed functional licenses that provide customers with a “right to access”
to LifeMap Sciences’ intellectual property during the subscription period and, accordingly, revenue was recognized over a period
of time, which was generally the subscription period. Payments were typically received at the beginning of a subscription period and
revenue was recognized according to the type of subscription sold. For subscription contracts in which the subscription term commenced
before a payment was due, LifeMap Sciences recorded an accounts receivable because the subscription was earned over time and billed the
customer according to the contract terms. LifeMap Sciences deferred subscription revenues primarily represented 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
reported.
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 were included in operating loss from discontinued operations on the 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.
For
the period three months ended March 31, 2021 and 2020, LifeMap Sciences recognized $267,000 and $338,000, respectively in subscription
and advertisement revenues which are included in operating loss from discontinued operations. The LifeMap Sciences revenues for the three
months ended March 31, 2021 are for revenues earned through March 15, 2021. As a result of the LifeMap Deconsolidation, AgeX does not
expect to earn subscription and advertising revenues in subsequent accounting periods. See Note 3 for further information on the disposition
and deconsolidation of LifeMap Sciences.
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
provided funding for continued development of AgeX technologies for treating osteoporosis. Grant funds were made available by the NIH
as allowable expenses were incurred. For the three month ended 2020, AgeX incurred approximately $25,000, of allowable expenses under
the NIH grant and recognized a corresponding amount of grant revenues. As of March 31, 2020, AgeX expended the full amount available
under the grant.
On
April 8, 2020, 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, 2021 and 2020, AgeX incurred approximately $46,000 and $61,000, respectively, of allowable
expenses under the NIH grant and recognized a corresponding amount of grant revenues.
Arrangements
with multiple performance obligations – AgeX may enter into contracts with customers that include multiple performance obligations.
For such arrangements, AgeX will allocate revenue to each performance obligation based on its relative standalone selling price. AgeX
will determine or estimate standalone selling prices based on the prices charged, or that would be charged, to customers for that product
or service. As of March 31, 2021, AgeX did not have significant arrangements with multiple performance obligations.
Research
and development
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. 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 consist primarily of compensation and related benefits, including stock-based compensation, for executive
and corporate personnel, and professional and consulting fees.
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, 2021 and 2020, 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 (unaudited and in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Stock options
|
|
|
2,851
|
|
|
|
2,846
|
|
Warrants (1)
|
|
|
3,431
|
|
|
|
150
|
|
Restricted stock units
|
|
|
27
|
|
|
|
47
|
|
|
(1)
|
AgeX
issued Juvenescence warrants to purchase 3,512,098 shares of AgeX common stock as consideration for the line of credit under the
Loan Agreements discussed in Note 5.
|
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 office and laboratory facility, which commenced on April 2, 2019 and ended on December 31, 2020, was subject to ASC 842.
AgeX recognized its lease as a right-of-use asset included in property and equipment, net and operating lease liability on its balance
sheet in accordance with ASC 842 up until the lease terminated on December 31, 2020 (see Note 10). During 2020, AgeX as a sublessor subleased
portions of its office and laboratory space to certain unaffiliated third parties. These subleases are not accounted for under ASC 842
as amounts are not material and or the sublease periods are under one year.
On
November 3, 2020, AgeX entered into a one year lease effective January 1, 2021 for office space only comprising 135 square feet in a
building in an office and research park at 1101 Marina Village Parkway, Suite 201, Alameda, California. This lease is not subject to
ASC 842.
Reclassifications
Certain
reclassifications have been made to the prior years’ consolidated financial statements to conform to current year presentation
of discontinued operations. Certain financial information is presented on a rounded basis, which may cause minor differences.
Recently
adopted accounting pronouncement
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 years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption
permitted. AgeX adopted this standard as of January 1, 2021 and it 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, 2020.
On
August 5, 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The amendments in this update affect entities that issue convertible
instruments and/or contracts indexed to and potentially settled in an entity’s own equity. The new standard simplifies the accounting
for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in
equity. For AgeX, which qualifies as a smaller reporting company, the amendments in the new standard are effective for fiscal years beginning
after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal
years beginning after December 15, 2020, including interim periods within those fiscal years. AgeX adopted this standard as of January
1, 2021 and it is not expected to have a material impact on the consolidated financial statements.
CARES
Act
On
March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. The CARES
Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments,
net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations,
and technical corrections to tax depreciation methods for qualified improvement property. AgeX reviewed the provisions of the CARES Act,
but does not expect it to have a material impact to its tax provision or its condensed consolidated financial statements. As described
in Note 10, AgeX has obtained a loan under the Paycheck Protection Program under the CARES Act.
3.
Disposition and Deconsolidation of LifeMap Sciences
Discontinued
Operations
On
March 6, 2021, AgeX and LifeMap Sciences entered into the Merger Agreement with Atlas and GCLMS. On March 15, 2021, the merger was completed
pursuant to the terms of the Merger Agreement. As a result of the merger, GCLMS merged into LifeMap Sciences and (a) the shares of LifeMap
Sciences common stock outstanding at the time of the merger entitled the holders of those shares to receive a pro rata portion of the
$500,000 total Merger Consideration, with each LifeMap Sciences shareholder’s pro rata portion of the Merger Consideration determined
in accordance with the number of shares of LifeMap Sciences common stock owned by such shareholder as a percentage of shares of LifeMap
Sciences common stock outstanding immediately before the effective date of the merger, and (b) the outstanding shares of GCLMS common
stock were converted into shares of LifeMap Sciences common stock so that Atlas is now the sole shareholder of LifeMap Sciences.
AgeX
received approximately $466,400 in cash as its pro rata share of the Merger Consideration in the merger. Prior to and as a condition
to the merger under the terms of the Merger Agreement, $1,761,296 of LifeMap Sciences’ indebtedness to AgeX was converted into
shares of LifeMap Sciences common stock. LifeMap Sciences also paid AgeX $250,000 in cash to pay off a portion of LifeMap Sciences’
indebtedness to AgeX that was not converted into shares of LifeMap Sciences common stock.
The
results of operations and cash flows for LifeMap Sciences are reported as discontinued operations under US generally accepted accounting
principles in accordance with ASC 205-20 Discontinued Operations for all periods
presented in our consolidated financial statements. AgeX will not have any continuing involvement in LifeMap Sciences subsequent to the
consummation of the merger on March 15, 2021. The following table presents the operating results of LifeMap Sciences that have been treated
as discontinued operations for the periods presented (unaudited and in thousands):
|
|
Three Months Ended
|
|
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
277
|
|
|
$
|
426
|
|
Costs, operating and other expenses
|
|
|
(380
|
)
|
|
|
(615
|
)
|
Loss from discontinued operations
|
|
|
(103
|
)
|
|
|
(189
|
)
|
Net loss from discontinued operations attributable to noncontrolling interest
|
|
|
7
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations (1)
|
|
$
|
(96
|
)
|
|
$
|
(154
|
)
|
|
(1)
|
Does
not include $106,000 gain on the deconsolidation of LifeMap Sciences recognized by AgeX. When dispositions occur in the normal course
of business, gains or losses on the sale of such businesses or assets are recognized in the income statement line item Net (gain)
loss on sales of businesses and assets. There were no gains or losses resulting from the sale of businesses or assets that did
not meet the criteria for a discontinued operation during the three month periods ending March 31, 2021 and 2020.
|
Deconsolidation
As
a result of the completion of the cash-out merger on March 15, 2021, LifeMap Sciences is no longer a subsidiary of AgeX. Effective March
15, 2021, AgeX deconsolidated LifeMap Sciences’ consolidated financial statements and consolidated results of operations from those
of AgeX under US generally accepted accounting principles ASC 810-10-40-4 Deconsolidation of
a Subsidiary or Derecognition of a Group of Assets due to the disposition of LifeMap Sciences on that date.
AgeX’s
consolidated balance sheet at December 31, 2020, as reported, includes LifeMap Sciences’ consolidated assets and liabilities, after
intercompany eliminations. However, LifeMap Sciences’ consolidated assets and liabilities are not included in AgeX’s unaudited
condensed consolidated balance sheet at March 31, 2021, due to the LifeMap Deconsolidation
on March 15, 2021.
AgeX’s
unaudited consolidated statements of operations for the three months ended March 31, 2021 include LifeMap Sciences’ consolidated
results for the period through March 15, 2021 rather than the day immediately preceding the LifeMap Deconsolidation due to the conversion
of $1,761,296 of LifeMap Sciences’ indebtedness to AgeX into shares of LifeMap Sciences common stock on March 15, 2021 followed
by the completion of the cash-out merger on the same day. For the three months ended March 31, 2020, AgeX’s unaudited consolidated
results include LifeMap Sciences’ consolidated results for the full period presented.
AgeX
recognized a gain of $106,000 from the LifeMap Deconsolidation. The sale of LifeMap Sciences was a taxable transaction to AgeX, however
no income tax is due as the transaction resulted in a taxable loss primarily due to AgeX's tax basis in the subsidiary.
4.
Selected Balance Sheet Components
Property
and equipment, net
At
March 31, 2021 and December 31, 2020, property and equipment was comprised of the following (in thousands):
|
|
March 31, 2021 (unaudited)
|
|
|
December 31, 2020
|
|
Equipment, furniture and fixtures
|
|
$
|
381
|
|
|
$
|
381
|
|
Accumulated depreciation and amortization
|
|
|
(381
|
)
|
|
|
(381
|
)
|
Property and equipment, net
|
|
$
|
-
|
|
|
$
|
-
|
|
Depreciation
and amortization expense amounted to nil and $227,000 for the three months ended March 31, 2021 and 2020, respectively.
Intangible
assets, net
At
March 31, 2021 and December 31, 2020, intangible assets, primarily consisting of acquired in-process research and development and patents,
and accumulated amortization were as follows (in thousands):
|
|
March 31, 2021 (unaudited) (1)
|
|
|
December 31, 2020
|
|
Intangible assets
|
|
$
|
1,312
|
|
|
$
|
5,586
|
|
Accumulated amortization
|
|
|
(344
|
)
|
|
|
(3,994
|
)
|
Total intangible assets, net
|
|
$
|
968
|
|
|
$
|
1,592
|
|
AgeX
recognized $33,000 in amortization expense of intangible assets, included in research and development expenses, for the three months
ended March 31, 2021 and 2020. Amortization expense of intangible assets for discontinued operations for the three months ended March
31, 2021 and 2020 amounted to $89,000 and $107,000.
|
(1)
|
Reflects
the effect of the LifeMap Deconsolidation. See Note 3.
|
Accounts
payable and accrued liabilities
At
March 31, 2021 and December 31, 2020, accounts payable and accrued liabilities were comprised of the following (in thousands):
|
|
March 31, 2021 (unaudited) (1)
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
370
|
|
|
$
|
761
|
|
Accrued compensation
|
|
|
212
|
|
|
|
228
|
|
Accrued vendors and other expenses
|
|
|
616
|
|
|
|
667
|
|
Total accounts payable and accrued liabilities
|
|
$
|
1,198
|
|
|
$
|
1,656
|
|
|
(1)
|
Reflects
the effect of the LifeMap Deconsolidation. See Note 3.
|
5.
Related Party Transactions
Transactions
with Juvenescence
On
March 30, 2020, AgeX and Juvenescence entered into a new Secured Convertible Facility Agreement (the “2020 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 2020 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 issued to Juvenescence 28,500 shares of AgeX common stock when AgeX borrowed an aggregate of $3
million under the 2020 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 2020 Loan Agreement will be March 30, 2023, (f) AgeX agreed to enter into a Security and Pledge Agreement (the
“Security Agreement”) 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 agreed to guarantee AgeX’s obligations under the 2020 Loan Agreement, and (h) Juvenescence has the
right to convert the principal amount of outstanding loans under the 2020 Loan Agreement into shares of AgeX common stock at the Market
Price as defined in the 2020 Loan Agreement. Further, in addition to the Events of Default described herein, additional Events of Default
will arise under the 2020 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 2020 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 2020 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.
On
July 21, 2020, AgeX and Juvenescence entered into an amendment to the 2020 Loan Agreement that waived (i) certain provisions requiring
that, as a condition to the funding of a third draw of funds, AgeX and the Guarantor Subsidiaries execute a Security Agreement and related
documents pledging certain assets as collateral, and (ii) certain provisions providing that the Guarantor Subsidiaries would guarantee
AgeX’s obligations under the 2020 Loan Agreement, in each case subject to an acknowledgement by AgeX and the Guarantor Subsidiaries
that Juvenescence may, in its discretion, condition any advances under the 2020 Loan Agreement subsequent to the third draw of funds
on the receipt of such collateral agreements and guarantees. In addition, the 2020 Loan Agreement and the related Warrant Agreement were
amended to place certain limits on the number of shares that may be issued to Juvenescence upon conversion of outstanding loan amounts
or exercise of the warrants, in order to comply with applicable NYSE American listing requirements.
During
January 2021, AgeX borrowed an additional $2.0 million under the 2020 Loan Agreement with Juvenescence. Through
March 31, 2021, AgeX drew a total of $7.5 million against the $8.0 million line of credit. AgeX may draw additional funds from time to
time subject to Juvenescence’s discretion, prior to the Repayment Date on March 30, 2023. The outstanding principal balance
of the loans under the 2020 Loan Agreement will become due and payable on the Repayment Date.
AgeX
may not draw down funds if an “Event of Default” under the 2020 Loan Agreement has occurred and is continuing and AgeX may
not draw down more than $1.0 million in any single draw.
On
August 13, 2019, AgeX and Juvenescence entered into a Loan Facility Agreement (the “2019 Loan Agreement”) pursuant to which
Juvenescence has provided to AgeX a $2.0 million line of credit for a period of 18 months. As of March 31, 2021, AgeX had drawn the full
$2.0 million line of credit.
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.
On
February 10, 2021, AgeX entered into an amendment (the “Amendment”) to the 2019 Loan Agreement. The Amendment extends the
maturity date of loans under the 2019 Loan Agreement to February 14, 2022 and increases the amount of the loan facility by $4.0 million.
All loans in excess of the initial $2.0 million under the 2019 Loan Agreement that AgeX previously borrowed are subject to Juvenescence’s
discretion. Additional loans, if made, will be in denominations of $1.0 million. No withdrawals
were made against the $4.0 million as of March 31, 2021.
The
Amendment also grants Juvenescence the right to convert the principal amount of outstanding loans under the 2019 Loan Agreement, as amended,
into shares of AgeX common stock at the Market Price as defined in the Amendment. The Amendment places certain limits on the number of
shares that may be issued upon conversion of outstanding loan amounts by Juvenescence, or by AgeX under AgeX’s loan conversion
rights, if under the rules of the NYSE American or any other national securities exchange on which AgeX common stock may be listed, approval
by AgeX stockholders would be required in connection with the issuance of the shares. Under those limits (a) the number of shares of
common stock that may be issued upon conversion of any loan advance, at a conversion price that is lower than the market price of AgeX
common stock at the time of funding the applicable advance being converted, may not exceed 19.9% of the shares outstanding at August
13, 2019, and (b) no advances may be converted into common stock in an amount that would cause Juvenescence’s ownership of AgeX
common stock to equal or exceed 50% of the number of shares of AgeX common stock then outstanding.
AgeX
will pay Juvenescence an Origination Fee in the amount of $160,000 upon the earlier of the repayment of the loan by AgeX or the conversion
of the loan balance into AgeX common stock by Juvenescence or by AgeX. The Origination Fee will be paid in shares of AgeX common stock
rather than cash if AgeX exercises its right to convert the loan into shares of common stock, or if Juvenescence elects to convert the
loan in shares of common stock and elects to receive the Origination Fee in AgeX common stock.
AgeX
has entered into a Registration Rights Agreement, as amended, to use commercially reasonable efforts to register the shares issuable
under the Loan Agreement and New Loan Agreement, the warrants issued pursuant to the 2019 Loan Agreement, the New Warrants, and the shares
issuable upon the exercise of those warrants, and shares issuable upon conversion of the loans under the 2019 Loan Agreement and 2020
Loan Agreement into common stock (collectively, the “Registrable Securities”) 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. During January 2021 AgeX registered
Registrable Securities consisting of 19,695,746 shares of AgeX common stock.
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, 2021 and December 31, 2020, AgeX had approximately $71,000 payable to Juvenescence for COO services rendered,
included in related party payables, net, on the condensed consolidated balance sheets.
6.
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, 2021 there were no preferred shares
issued and outstanding.
Common
Stock
AgeX
has 100,000,000 shares of $0.0001 par value common stock authorized. At March 31, 2021 and December 31, 2020, there were 37,935,088 and
37,691,047 shares of AgeX common stock issued and outstanding, respectively.
Issuance
and Sale of Warrants by AgeX
Through
March 31, 2021, as consideration for $7.5 million in loans made to AgeX under the 2020 Loan Agreement, AgeX issued to Juvenescence warrants
to purchase 3,362,098 shares of AgeX common stock. AgeX also issued 28,500 shares of AgeX common stock upon receipt of funds from the
loan draw made on July 27, 2020. See Note 5.
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 loan 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 5.
At-the-Market
Offering Facility
On
January 8, 2021, AgeX entered into a sales agreement with Chardan Capital Markets LLC (“Chardan”), relating to the sale of
shares of AgeX common stock, par value $0.0001 per share, through an at-the-market (“ATM”) offering as described in the prospectus
supplement filed with the Form S-3 which was declared effective by the SEC on January 29, 2021. In accordance with the terms of the sales
agreement, AgeX may offer and sell shares of AgeX common stock having an aggregate offering price of up to $12.6 million from time to
time through Chardan, acting as the sales agent. Through March 31, 2021, AgeX raised approximately $496,000 in gross proceeds through
the sale of shares of common stock under the ATM.
Reconciliation
of Changes in Stockholders’ Equity (Deficit)
The
following tables provide the activity in stockholders’ equity (deficit) for the three months ended March 31, 2021 and 2020 (unaudited
and in thousands):
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
Number of
Shares
|
|
|
Par
Value
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Deficit
|
|
|
Noncontrolling
Interest
|
|
|
Other
Comprehensive
Income
|
|
|
Stockholders’
Equity
(Deficit)
|
|
BALANCE AT DECEMBER 31, 2020
|
|
|
37,691
|
|
|
$
|
4
|
|
|
$
|
91,810
|
|
|
$
|
(97,073
|
)
|
|
$
|
(280
|
)
|
|
$
|
143
|
|
|
$
|
(5,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
242
|
|
|
|
-
|
|
|
|
475
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
475
|
|
Issuance of common stock upon vesting of restricted
stock units, net of shares retired to pay employee’s taxes
|
|
|
2
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
Issuance of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
757
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
757
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
182
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
182
|
|
Transactions with noncontrolling interests –
LifeMap Sciences
|
|
|
-
|
|
|
|
-
|
|
|
|
(269
|
)
|
|
|
-
|
|
|
|
269
|
|
|
|
-
|
|
|
|
-
|
|
Deconsolidation of LifeMap Sciences
|
|
|
-
|
|
|
|
-
|
|
|
|
143
|
|
|
|
-
|
|
|
|
(22
|
)
|
|
|
(143
|
)
|
|
|
(22
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,088
|
)
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
(2,096
|
)
|
BALANCE AT MARCH 31, 2021
|
|
|
37,935
|
|
|
$
|
4
|
|
|
$
|
93,095
|
|
|
$
|
(99,161
|
)
|
|
$
|
(41
|
)
|
|
$
|
-
|
|
|
$
|
(6,103
|
)
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
Number of
Shares
|
|
|
Par
Value
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Deficit
|
|
|
Noncontrolling
Interest
|
|
|
Other
Comprehensive
Income
|
|
|
Stockholders’
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
|
)
|
7.
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, 2020
|
|
|
1,046
|
|
|
|
2,854
|
|
|
|
28
|
|
|
$
|
2.51
|
|
Options forfeited
|
|
|
14
|
|
|
|
(14
|
)
|
|
|
-
|
|
|
|
3.00
|
|
Restricted stock units vested
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
-
|
|
March 31, 2021
|
|
|
1,060
|
|
|
|
2,840
|
|
|
|
25
|
|
|
$
|
2.51
|
|
Options exercisable at March 31, 2021
|
|
|
|
|
|
|
2,035
|
|
|
|
|
|
|
$
|
2.61
|
|
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 including expected life, risk-free interest rates, volatility, and dividend yield. No stock options were granted under the
Plan during the three months ended March 31, 2021 and 2020.
Operating
expenses include stock-based compensation expense as follows (unaudited and in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Research and development
|
|
$
|
16
|
|
|
$
|
33
|
|
General and administrative
|
|
|
162
|
|
|
|
220
|
|
Total stock-based compensation expense – continued operations
|
|
$
|
178
|
|
|
$
|
253
|
|
Stock-based
compensation expense recognized under discontinued operations for the three months ended March 31, 2021 and 2020 amounted to $4,000 and
$7,000, respectively. See Note 3.
8.
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.
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, 2020, AgeX’s foreign entity operated at
a book loss, however, for GILTI, US tax laws are applied to the foreign activity, as a result there was an immaterial inclusion amount.
For the three months ended March 31, 2021, AgeX’s foreign entity operated at a loss, therefore no GILTI was included in income
for the first quarter of 2021. 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. We have elected to account for GILTI as a current period expense
when incurred.
For
the three months ended March 31, 2021, 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, 2021.
The
sale of LifeMap Sciences was a taxable transaction to AgeX, however no income tax is due as the transaction resulted in a taxable loss
primarily due to AgeX's tax basis in the subsidiary.
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.
9.
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, 2021 and 2020 are as follows (unaudited and in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Supplemental disclosures of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
7
|
|
|
$
|
7
|
|
Issuance of common stock upon vesting of restricted stock units (Note 6)
|
|
$
|
6
|
|
|
$
|
11
|
|
Issuance of warrants for debt issuance
|
|
$
|
757
|
|
|
$
|
-
|
|
10.
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 “Alameda 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 served as AgeX’s principal offices and research
laboratory. Base monthly rent was $35,866.50 for the initial 12 months of the sublease term and then increased to $36,942.50. In addition,
AgeX paid real property taxes, insurance and operating expenses pertaining to the building in which the Alameda Facility is located.
The AgeX Lease expired on December 31, 2020.
In
connection with the AgeX Lease, as of December 31, 2019, AgeX incurred $436,000 in tenant improvement expenses that it funded and completed
in November 2019. This amount was fully amortized and written off upon lease termination as of December 31, 2020.
Subleases
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 Alameda Facility. The first Sublessee paid AgeX $3,088.50 per month
and the second Sublessee paid AgeX $15,405.40 per month for the first twelve months of the AgeX Sublease and $16,311.60 per month for
the remaining duration of the AgeX Subleases. The AgeX Subleases expired on December 31, 2020.
Office
Lease Agreement
Effective
January 1, 2021, AgeX relocated its principal offices to 1101 Marina Village Parkway, Suite 201, Alameda, California following the December
31, 2020 expiration of the Alameda Lease. AgeX’s new office occupies 135 square feet of leased space in a building located in an
office and research park. Base monthly rent is $947 for the one year lease term and also covers office furniture rental, janitorial services,
utilities and internet service.
ASC
842
AgeX
adopted ASC 842 in 2019. 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 right-of-use asset and right-of-use lease
liability were fully amortized and written off as of December 31, 2020 upon termination of the AgeX Lease.
There
were no future minimum lease commitments as of March 31, 2021.
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. Office and laboratory leases will also generally indemnify the lessor with respect to certain matters that may arise during
the term of the lease. The sales agreement between AgeX and Chardan also includes indemnification provisions pursuant to which the parties
have agreed to indemnify each other from certain liabilities that could arise from the offer and sale of AgeX common stock through the
ATM facility, including liabilities under the Securities Act. 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 to date.
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 was subject to forgiveness under the PPP to the extent of PPP loan proceeds that were used to pay expense
permitted by the PPP, including payroll, rent, and utilities during the time frame permitted by the PPP. On February 19, 2021, the PPP
loan was forgiven in full.
On
December 27, 2020, the Consolidated Appropriations Act, 2021 (CAA) was signed into law, retroactively allowing a federal deduction of
the expenses that gave rise to the PPP loan forgiveness. California does not allow a deduction for these expenses for publicly traded
companies. An analysis has been performed through March 31, 2021 and the appropriate expenses have been disallowed for California
income tax purposes, as a result, we do not expect any material changes.
Notice
of Delisting
On
June 1, 2020, AgeX received a letter (the “Deficiency Letter”) from the staff of the NYSE American (the “Exchange”)
indicating that AgeX does not meet certain of the Exchange’s continued listing standards as set forth in Section 1003(a)(i) of
the Exchange Company Guide in that AgeX has stockholders equity of less than $2,000,000 and has incurred losses from continuing operations
and/or net losses during its two most recent fiscal years. Pursuant to Section 1009 of the Exchange Company Guide and as provided in
the Deficiency Letter AgeX provided the Exchange staff with a plan (the “Compliance Plan”) advising the Exchange staff of
action AgeX has taken and will take that would bring AgeX into compliance with the Exchange’s continued listing standards by December
1, 2021. The Exchange staff has accepted the Compliance Plan.
On
April 15, 2021 AgeX regained compliance with all of the Exchange’s continued listing standards set forth in Part 10 of the Exchange
Company Guide. Specially, the Exchange has resolved the continued listing deficiency with respect to Section 1003(a)(i) of the Exchange
Company Guide. AgeX however will be subject to normal continued listing monitoring. If AgeX is again determined to be below any of the
continued listing standards within 12 months of April 15, 2021, the Exchange may take action, including truncating the compliance procedures
described in Section 1009 of the Exchange Company Guide or immediately initiating delisting proceedings.
AgeX
intends to make arrangements to have its common stock quoted on the OTC Bulletin Board if its common stock is delisted from the Exchange.
11.
Subsequent Events
Additional
Draws under the 2019 Loan Agreement as Amended in February 2021
On
April 23, 2021, AgeX borrowed an additional $500,000 under the Amended 2019 Loan Agreement with Juvenescence. The outstanding principal
balance of the loans under the Amended 2019 Loan Agreement will become due and payable on the Repayment Date on February 14, 2022.