NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization, Basis of Presentation and Liquidity
General
–
BioTime is a clinical-stage biotechnology company developing new cellular therapies for degenerative retinal diseases,
neurological conditions associated with demyelination, and aiding the body in detecting and combating cancer. BioTime’s
programs are based on its proprietary cell-based therapy platform and associated development and manufacturing capabilities. With
this platform BioTime develops and manufactures specialized, terminally-differentiated human cells from our pluripotent and progenitor
cell starting materials. These differentiated cells are developed either to replace or support cells that are dysfunctional or
absent due to degenerative disease or traumatic injury, or administered as a means of helping the body mount an effective immune
response to cancer.
BioTime
has three cell therapy programs in clinical development:
|
●
|
OpRegen
®
,
a retinal pigment epithelium cell replacement therapy currently in a Phase I/IIa multicenter clinical trial for the treatment
of advanced dry-age-related macular degeneration (“dry-AMD”) with geographic atrophy. There currently are no therapies
approved by the U.S. Food and Drug Administration (“FDA”) for dry-AMD, which accounts for approximately 85-90%
of all AMD cases and is the leading cause of blindness in people over the age of 60.
|
|
|
|
|
●
|
OPC1
,
an oligodendrocyte progenitor cell therapy currently in a Phase I/IIa multicenter clinical trial for acute spinal cord injuries
(“SCI”). This clinical trial has been partially funded by the California Institute for Regenerative Medicine (“CIRM”).
|
|
|
|
|
●
|
VAC2
,
an allogeneic (non-patient-specific or “off-the-shelf”) cancer immunotherapy of antigen-presenting dendritic cells
currently in a Phase I clinical trial in non-small cell lung cancer. This clinical trial is being funded and conducted by
Cancer Research UK (“CRUK”), the world’s largest independent cancer research charity.
|
BioTime
also has cell/drug delivery programs that are based upon its proprietary
HyStem
®
cell and drug delivery
matrix technology.
HyStem
®
was designed to support the formulation, transfer, retention, and engraftment
of cellular therapies.
BioTime
is also enabling early-stage programs in other new technologies through its own research programs as well as through other subsidiaries,
affiliates or investees.
AgeX
Therapeutics, Inc. Deconsolidation and Distribution
- In 2017, BioTime formed AgeX Therapeutics, Inc. (“AgeX”)
to continue development of certain early-stage
programs relating to cell immortality, regenerative biology, aging, and age-related diseases. AgeX’s initial programs focus
on utilizing brown adipose tissue to target diabetes, obesity, and heart disease; and induced tissue regeneration technology utilizing
the human body’s own abilities to scarlessly regenerate tissues damaged from age or trauma.
On
August 17, 2017, AgeX completed an asset acquisition and stock sale pursuant to which it received certain assets from BioTime
for use in its research and development programs and raised $10.0 million in cash from investors to finance its operations.
As
discussed in Note 3,
on August 30, 2018, BioTime
entered into a Stock Purchase Agreement with Juvenescence Limited (“Juvenescence”) and AgeX pursuant to which BioTime
sold 14,400,000 shares of its shares of AgeX common stock to Juvenescence for $3.00 per share (the “Juvenescence Transaction”).
Prior to the Juvenescence Transaction, Juvenescence owned 5.6% of AgeX’s issued and outstanding common stock. Upon completion
of the Juvenescence Transaction, BioTime’s ownership in AgeX decreased from 80.4% to 40.2% of AgeX’s issued and outstanding
shares of common stock, and Juvenescence’s ownership in AgeX increased from 5.6% to 45.8% of AgeX’s issued and outstanding
shares of common stock.
As a result of the Juvenescence Transaction, as of August 30, 2018,
BioTime owned less than 50% of AgeX’s outstanding common stock and experienced a loss of control of AgeX in accordance with
accounting principles generally accepted in the United States (“GAAP”). Under GAAP, loss of control of a subsidiary
is deemed to have occurred when, among other things, a parent company owns less than a majority of the outstanding common stock
of the subsidiary, lacks a controlling financial interest in the subsidiary, and is unable to unilaterally control the subsidiary
through other means such as having the ability or being able to obtain the ability to elect a majority of the subsidiary’s
Board of Directors. BioTime determined that all of these loss of control factors were present with respect to AgeX on August 30,
2018. Accordingly, BioTime has deconsolidated AgeX’s consolidated financial statements and consolidated results of operations
from BioTime, effective August 30, 2018 (the “AgeX Deconsolidation”), in accordance with Accounting Standards Codification,
or ASC 810-10-40-4(c),
Consolidation
. Beginning on August 30, 2018 through November 28, 2018, BioTime accounted for the
AgeX common stock it holds using the equity method of accounting at fair value (see Note 4).
On
November 28, 2018, BioTime distributed 12.7 million shares of AgeX common stock owned by BioTime to holders of BioTime common
shares, on a pro rata basis, in the ratio of one share of AgeX common stock for every 10 BioTime common shares owned (the “AgeX
Distribution”) (see Note 4). Immediately following the distribution, BioTime owned 1.7 million shares of AgeX common stock,
all of which it still owns, and which represents approximately 4.8% of AgeX’s outstanding common stock as of December 31,
2018 and which shares BioTime holds as marketable equity securities
.
BioTime
also has significant equity holdings in two publicly traded companies, OncoCyte Corporation (“OncoCyte”) and Asterias
Biotherapeutics, Inc. (“Asterias”), which BioTime founded and, until recently, were majority-owned and consolidated
subsidiaries. OncoCyte (NYSE American: OCX) is developing confirmatory diagnostic tests for lung cancer utilizing novel liquid
biopsy technology. Asterias (NYSE American: AST) is presently focused on advancing three clinical-stage programs that have the
potential to address areas of very high unmet medical needs in the fields of neurology (spinal cord injury) and oncology (Acute
Myeloid Leukemia and lung cancer). See Note 19 for the definitive merger agreement entered into by BioTime and Asterias on November
7, 2018, for BioTime to acquire the remaining ownership interest in Asterias, which was completed on March 8, 2019 (the “Asterias
Merger”).
Beginning
on February 17, 2017, BioTime deconsolidated OncoCyte’s financial statements and results of operations from BioTime (the
“OncoCyte Deconsolidation”) (see Notes 5 and 6).
Beginning
on May 13, 2016, BioTime deconsolidated Asterias’ financial statements and results of operations from BioTime (the “Asterias
Deconsolidation”) (see Notes 5 and 7).
Use
of estimates -
The preparation of consolidated financial statements in conformity with accounting principles generally accepted
in the U.S. (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period with consideration given to materiality. Significant estimates
and assumptions which are subject to significant judgment include those related to going concern assessment of consolidated financial
statements, useful lives associated with long-lived assets, including evaluation of asset impairment, allowances for uncollectible
accounts receivables, loss contingencies, deferred income taxes and tax reserves, including valuation allowances related to deferred
income taxes, and assumptions used to value stock-based awards, debt or other equity instruments. Actual results could differ
materially from those estimates.
Principles
of consolidation
– BioTime’s consolidated financial statements include the accounts of its subsidiaries. The following
table reflects BioTime’s ownership, directly or through one or more subsidiaries, of the outstanding shares of its operating
subsidiaries as of December 31, 2018.
Subsidiary
|
|
Field
of Business
|
|
BioTime
Ownership
|
|
|
Country
|
Cell
Cure Neurosciences Ltd. (“Cell Cure”)
|
|
Products
to treat age-related macular degeneration
|
|
|
99%
(1)
|
|
|
Israel
|
ES
Cell International Pte. Ltd. (“ESI”)
|
|
Stem
cell products for research, including clinical grade cell lines produced under cGMP
|
|
|
100%
|
|
|
Singapore
|
OrthoCyte
Corporation (“OrthoCyte”)
|
|
Developing
bone grafting products for orthopedic diseases and injuries
|
|
|
99.8%
|
|
|
USA
|
(1)
|
Includes
shares owned by BioTime and ESI
|
All
material intercompany accounts and transactions have been eliminated in consolidation. As of December 31, 2018, BioTime consolidated
its direct and indirect wholly-owned or majority-owned subsidiaries because BioTime 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 shareholders’ equity on BioTime’s consolidated balance sheets.
Liquidity
–
Since inception, BioTime has incurred significant operating losses and has funded its operations primarily through
the issuance of equity securities, sale of common stock of a former subsidiary, receipt of research grants, royalties from product
sales, license revenues and sales of research products. At December 31, 2018, BioTime had an accumulated deficit of approximately
$261.9 million, working capital of $29.5 million and shareholders’ equity of $92.2 million. BioTime has evaluated
its projected cash flows and believes that its $30.7 million of cash, cash equivalents and marketable equity securities at December
31, 2018, plus the $2.1 million receivable from OncoCyte collected on February 15, 2019, provide
sufficient
cash, cash equivalents, and liquidity to carry out BioTime’s current operations through at least twelve months from the
issuance date of the consolidated financial statements included herein. BioTime also holds shares of OncoCyte common stock with
a value of $20.3 million at December 31, 2018. Although BioTime has no present plans to liquidate its holdings of OncoCyte shares,
if BioTime needs near term working capital or liquidity to supplement its cash and cash equivalents for its operations, BioTime
may sell some, or all, of its OncoCyte shares, as necessary.
The
AgeX Distribution was completed on November 28, 2018 and AgeX became a public company. BioTime will continue to hold a minor interest
in AgeX common stock that may be a source of additional liquidity to BioTime as a marketable equity security.
If
the Juvenescence Promissory Note discussed in Note 3 is converted to Juvenescence common stock prior to its maturity date, the
Juvenescence common stock may be a marketable security that BioTime may use to supplement its liquidity, as needed. If the Promissory
Note is not converted, it is payable in cash, plus accrued interest, at maturity. There can be no assurance that the Promissory
Note will be converted prior to maturity.
On
November 7, 2018, BioTime entered into a definitive agreement to acquire via merger the remaining 61% ownership interest in Asterias
that it did not own. The merger was completed effective March 8, 2019 and as of that date, Asterias became BioTime’s wholly-owned
subsidiary and BioTime will consolidate Asterias’ operations and results with its operations and results beginning on that
date (see Note 19). As we integrate Asterias’ operations into our own, we expect to make extensive reductions in headcount
and to reduce non-clinical related spend, in each case, as compared to Asterias’ operations before the acquisition.
BioTime’s
projected cash flows are subject to various risks and uncertainties, and the unavailability or inadequacy of financing to meet
future capital needs could force BioTime to modify, curtail, delay, or suspend some or all aspects of its planned operations.
BioTime’s determination as to when it will seek new financing and the amount of financing that it will need will be based
on BioTime’s evaluation of the progress it makes in its research and development programs, any changes to the scope and
focus of those programs, and projection of future costs, revenues, and rates of expenditure. For example, clinical trials being
conducted for our
OpRegen
®
program will be funded in part with funds from grants and not from cash on hand.
If BioTime were to lose grant funding or is unable to continue to provide working capital to the OpRegen program, BioTime may
be required to delay, postpone, or cancel clinical trials or limit the number of clinical trial sites, unless it is able to obtain
adequate financing from another source that could be used for clinical trials. In addition, BioTime
expects
to incur significant costs in connection with the acquisition of Asterias and with integrating its operations. BioTime may incur
additional costs to maintain employee morale and to retain key employees. BioTime will also incur significant fees and expenses
relating to legal, accounting and other transaction fees and other costs associated with the merger.
BioTime
cannot assure that adequate financing will be available on favorable terms, if at all. Sales of additional equity securities by
BioTime or its subsidiaries and affiliates could result in the dilution of the interests of present shareholders
.
2.
Summary of Significant Accounting Policies
Going
concern assessment –
BioTime assesses going concern uncertainty for its consolidated financial statements to determine
if BioTime has sufficient cash and cash equivalents on hand and working capital to operate for a period of at least one year from
the date the consolidated financial statements are issued or are available to be issued, which is referred to as the “look-forward
period” as defined by FASB’s ASU No. 2014-15. As part of this assessment, based on conditions that are known and reasonably
knowable to BioTime, BioTime will consider various scenarios, forecasts, projections, and estimates, and BioTime will make certain
key assumptions, including the timing and nature of projected cash expenditures or programs, and its ability to delay or curtail
those expenditures or programs, if necessary, among other factors. Based on this assessment, as necessary or applicable, BioTime
makes certain assumptions concerning its ability to curtail or delay research and development programs and expenditures within
the look-forward period in accordance with ASU No. 2014-15.
Cash
and cash equivalents
– BioTime considers all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. As of December 31, 2018 and 2017, BioTime had $20.4 million and $32.1 million in money
market funds, respectively, considered to be cash equivalents.
Restricted
cash
– BioTime has a certificate of deposit in the amount of $812,000 as required under the Alameda Lease and the Cell
Cure Lease discussed in Note 15, as BioTime is restricted from using the cash for working capital purposes. Of this amount, $346,000
is included in prepaids and other current assets and $466,000 is included in deposits and other long-term assets as of December
31, 2018. On January 24, 2019, the landlord for the Alameda Lease reduced the security deposit to $78,000 pursuant to the Alameda
Lease agreement and released the $346,000 to BioTime for general working capital purposes.
Trade
accounts and grants receivable, net –
Net trade receivables amounted to $51,000 and $139,000 and grants receivable amounted
to $716,000 and $641,000 as of December 31, 2018 and 2017, respectively. Net trade receivables include allowance for doubtful
accounts of approximately $100,000 and $422,000 as of December 31, 2018 and 2017, respectively, for those amounts deemed uncollectible
by BioTime. BioTime establishes an allowance for doubtful accounts based on the evaluation of the collectability of its receivables
on a variety of factors, including the length of time receivables are past due, significant events that may impair the customer’s
ability to pay, such as a bankruptcy filing or deterioration in the customer’s operating results or financial position,
and historical experience. If circumstances related to customers change, estimates of the recoverability of receivables would
be further adjusted.
Financing
receivable from Juvenescence
– BioTime accounts for the Promissory Note from Juvenescence as a financing receivable
under ASC 310-10,
Receivables
, since it both represents a contractual right to receive cash on a fixed date at maturity
and is recognized as an asset on BioTime’s consolidated balance sheet. Under ASC 310-10, the Promissory Note was issued
at fair value on the Juvenescence Transaction date and subsequently carried at amortized cost with accrued interest, subject to
impairment testing under ASC 310. Interest is accrued monthly under the provisions of the Promissory Note and all accrued interest,
along with the principal of the Promissory Note, is payable at maturity two years after the closing of the Juvenescence Transaction,
unless converted prior to that date (see Note 3). BioTime establishes an allowance for doubtful accounts based on the evaluation
of the collectability of the Promissory Note and accrued interest on a variety of factors, as applicable, including significant
events that may impair Juvenescence’s ability to pay, such as a bankruptcy filing or deterioration in Juvenescence’s
operating results or financial position, the length of time receivable is past due and historical experience.
Concentrations
of credit risk
– Financial instruments that potentially subject BioTime to significant concentrations of credit risk
consist primarily of cash and cash equivalents. BioTime limits the amount of credit exposure of cash balances by maintaining its
accounts in high credit quality financial institutions. Cash equivalent deposits with financial institutions may occasionally
exceed the limits of insurance on bank deposits; however, BioTime has not experienced any losses on such accounts.
Fair
Value Measurements
– Fair value is defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair
value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value (ASC 820-10-50),
Fair Value Measurements and Disclosures
:
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●
|
Level
1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active
markets.
|
|
|
|
|
●
|
Level
2 – Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, and
inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of
the financial instruments.
|
|
|
|
|
●
|
Level
3 – Inputs to the valuation methodology are unobservable; that reflect management’s own assumptions about the
assumptions market participants would make and significant to the fair value.
|
In
determining fair value, BioTime utilizes valuation techniques that maximize the use of observable inputs and minimize the use
of unobservable inputs to the extent possible, and also considers counterparty credit risk in its assessment of fair value. For
the periods presented, BioTime has no financial assets or liabilities recorded at fair value on a recurring basis, except for
cash and cash equivalents consisting of money market funds, shares BioTime holds in Asterias and OncoCyte, and the marketable
equity securities in AgeX and H
adasit Bio-Holdings Ltd. (“HBL”)
, which
are carried at fair value based on the applicable period-end quoted market prices as a Level 1 input. BioTime also has certain
liability classified warrants issued by Cell Cure which are carried at fair value based on Level 3 inputs (see Note 12).
The
fair value of BioTime’s assets and liabilities, which qualify as financial instruments under FASB guidance regarding disclosures
about fair value of financial instruments, approximate the carrying amounts presented in the accompanying consolidated balance
sheets. The carrying amounts of accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses
and other current liabilities approximate fair values because of the short-term nature of these items.
Equity
method investments at fair value –
BioTime uses the equity method of accounting
when it has the ability to exercise significant influence, but not control, as determined in accordance with GAAP, over the operating
and financial policies of a company. For equity method investments which BioTime has elected to measure at fair value, unrealized
gains and losses are reported in the consolidated statements of operations in other income and expenses, net.
As
further discussed in Notes 6 and 7, BioTime has elected to account for its OncoCyte and Asterias shares at fair value using the
equity method of accounting because beginning on February 17, 2017 and May 13, 2016, the respective dates on which BioTime deconsolidated
OncoCyte and Asterias, BioTime has not had control of OncoCyte and Asterias, as defined by GAAP, but continues to exercise significant
influence over those companies. Under the fair value method, BioTime’s value in shares of common stock it holds in OncoCyte
and Asterias is marked to market at each balance sheet date using the closing prices of OncoCyte and Asterias common stock on
the NYSE American multiplied by the number of shares of OncoCyte and Asterias held by BioTime, with changes in the fair value
of the OncoCyte and Asterias shares included in other income and expenses, net, in the consolidated statements of operations.
The OncoCyte and Asterias shares are considered level 1 assets as defined by ASC 820,
Fair Value Measurements and Disclosures
.
On
August 30, 2018, BioTime consummated the sale of AgeX Shares to Juvenescence (see Note 3). Prior to the Juvenescence Transaction,
Juvenescence owned 5.6% of AgeX’s issued and outstanding common stock. Upon completion of the Juvenescence Transaction,
BioTime’s ownership in AgeX decreased from 80.4% to 40.2% of AgeX’s issued and outstanding shares of common stock,
and Juvenescence’s ownership in AgeX increased from 5.6% to 45.8% of AgeX’s issued and outstanding shares of common
stock. Accordingly, beginning on August 30, 2018, BioTime deconsolidated the financial statements and results of AgeX (see Note
4).
On
November 28, 2018, BioTime completed the AgeX Distribution whereby following the AgeX Distribution, BioTime retained
1.7
million shares of AgeX common stock as a marketable equity security discussed below, which represents approximately 4.8% of AgeX’s
issued and outstanding shares of common stock (see Note 4).
Beginning
on August 30, 2018 through November 28, 2018, the completion of the AgeX Distribution, BioTime held 40.2% of AgeX’s issued
and outstanding shares of common stock and therefore accounted for the AgeX shares in a manner similar to the accounting for Asterias
and OncoCyte shares held discussed above, using the equity method of accounting at fair value. For the period from August 30,
2018, through November 28, 2018, BioTime recorded an unrealized loss of $4.2 million due to the decrease in the AgeX stock price
from August 30, 2018 to the AgeX Distribution date of November 28, 2018.
Marketable
equity securities
– BioTime accounts for the shares it holds in foreign equity securities in HBL and the AgeX shares
of common stock it holds beginning on November 28, 2018, as marketable equity in accordance with ASC 320-10-25,
Investments
– Debt and Equity Securities
, as amended by Accounting Standards Update (“ASU”) 2016-01,
Financial Instruments–Overall:
Recognition and Measurement of Financial Assets and Financial Liabilities,
further discussed below
.
The
HBL shares have a readily determinable fair value quoted on the Tel Aviv Stock Exchange (“TASE”) (under trading symbol
“HDST”) where share prices are denominated in New Israeli Shekels (NIS). The AgeX shares have a readily determinable
fair value quoted on the NYSE American under trading symbol “AGE”. Accordingly, the marketable equity securities are
considered level 1 assets as defined by ASC 820. These securities are held principally to meet future working capital needs. These
securities are measured at fair value and reported as current assets on the consolidated balance sheets based on the closing trading
price of the security as of the date being presented.
Beginning
on January 1, 2018, with the adoption of ASU 2016-01 discussed below, the HBL securities are now called “marketable equity
securities” and unrealized holding gains and losses on these securities, including changes in foreign currency exchange
rates, are reported in the consolidated statements of operations in other income and expenses, net. Prior to January 1, 2018 and
the adoption of ASU 2016-01, the HBL securities were called “available-for-sale securities” and unrealized holding
gains and losses, including changes in foreign currency exchange rates, were reported in other comprehensive income or loss, net
of tax, and were a component of the accumulated other comprehensive income or loss on the consolidated balance sheet. Realized
gains and losses, and declines in value judged to be other-than-temporary related to marketable equity securities, are included
in other income and expenses, net, in the consolidated statements of operations.
On
January 1, 2018, in accordance with the adoption of ASU 2016-01, BioTime recorded a cumulative-effect adjustment for the HBL available-for-sale-securities
to reclassify the unrealized gain of $328,000 included in consolidated accumulated other comprehensive income to the consolidated
accumulated deficit balance.
For
the year ended December 31, 2018, BioTime recorded an unrealized gain of $677,000, included in other income and expenses, net,
due to the increase in fair market value of the HBL marketable equity securities from January 1, 2018 to December 31, 2018. For
the year ended December 31, 2018, BioTime recorded an unrealized gain of $481,000, included in other income and expenses, net,
due to the increase in fair market value of the AgeX marketable equity securities from November 28, 2018 to December 31, 2018.
Property
and equipment, net and
construction in progress
– Property and equipment
is stated at cost and is being depreciated using the straight-line method over their estimated useful lives ranging from 3 to
10 years. Leasehold improvements are amortized over the shorter of the useful life or the lease term.
Construction
in progress is not depreciated until the underlying asset is placed into service (see Note 15).
Long-lived
intangible assets
– Long-lived intangible assets, consisting primarily of acquired patents, patent applications, and
licenses to use certain patents are stated at acquired cost, less accumulated amortization. Amortization expense is computed using
the straight-line method over the estimated useful lives of the assets, generally over 10 years.
Impairment
of long-lived assets –
Long-lived assets, including long-lived intangible assets, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If
an impairment indicator is present, BioTime evaluates recoverability by a comparison of the carrying amount of the assets to future
undiscounted net cash flows expected to be generated by the assets. If the assets are impaired, the impairment recognized is measured
by the amount by which the carrying amount exceeds the estimated fair value of the assets.
Accounting
for warrants –
BioTime determines the accounting classification of warrants that it or its subsidiaries issue, as either
liability or equity, by first assessing whether the warrants meet liability classification in accordance with ASC 480-10,
Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and Equity
, and then in accordance with ASC 815-40,
Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock
. Under
ASC 480, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate the issuer to settle
the warrants or the underlying shares by paying cash or other assets, or warrants that must or may require settlement by issuing
variable number of shares. If warrants do not meet liability classification under ASC 480-10, BioTime assesses the requirements
under ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities
recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature.
If the warrants do not require liability classification under ASC 815-40, in order to conclude equity classification, BioTime
assesses whether the warrants are indexed to its common stock or its subsidiary’s common stock, as applicable, and whether
the warrants are classified as equity under ASC 815-40 or other applicable GAAP. After all relevant assessments are made, BioTime
concludes whether the warrants are classified as liability or equity. Liability classified warrants are required to be accounted
for at fair value both on the date of issuance and on subsequent accounting period ending dates, with all changes in fair value
after the issuance date recorded in the consolidated statements of operations as a gain or loss. Equity classified warrants are
accounted for at fair value on the issuance date with no changes in fair value recognized subsequent to the issuance date. In
2017, Cell Cure issued certain liability classified warrants (see Note 12).
Transactions
with noncontrolling interests of subsidiaries –
BioTime accounts for a change in ownership interests in its subsidiaries
that does not result in a change of control of the subsidiary by BioTime under the provisions of ASC
810-10-45-23,
Consolidation
–
Other Presentation Matters,
which prescribes the accounting for changes in ownership interest
that do not result in a change in control of the subsidiary, as defined by GAAP, before and after the transaction
. Under
this guidance, changes in a controlling shareholder’s ownership interest that do not result in a change of control, as defined
by GAAP, in the subsidiary are accounted for as equity transactions. Thus, if the controlling shareholder retains control, no
gain or loss is recognized in the statements of operations of the controlling shareholder. Similarly, the controlling shareholder
will not record any additional acquisition adjustments to reflect its subsequent purchases of additional shares in the subsidiary
if there is no change of control. Only a proportional and immediate transfer of carrying value between the controlling and the
noncontrolling shareholders occurs based on the respective ownership percentages.
Research
and development –
Research and development expenses consist of costs incurred for company-sponsored, collaborative and
contracted research and development activities. These costs include direct and research-related overhead expenses including compensation
and related benefits, stock-based compensation, consulting fees, research and laboratory fees, rent of research facilities, amortization
of intangible assets, and license fees paid to third parties to acquire patents or licenses to use patents and other technology.
Research and development are expensed as incurred. Research and development expenses incurred and reimbursed by grants from third
parties approximate the grant income recognized in the consolidated statements of operations.
General
and administrative
– General and administrative expenses consist of compensation and related benefits, including stock-based
compensation, for executive and corporate personnel; professional and consulting fees; and allocated overhead such as facilities
and equipment rent and maintenance, insurance costs allocated to general and administrative expenses, costs of patent applications,
prosecution and maintenance,
stock exchange-related costs, depreciation expense, marketing
costs, and other miscellaneous expenses which are allocated to general and administrative expense
.
Foreign
currency translation adjustments and other comprehensive income or loss –
In countries in which BioTime operates where
the functional currency is other than the U.S. dollar, assets and liabilities are translated using published exchange rates in
effect at the consolidated balance sheet date. Revenues and expenses and cash flows are translated using an approximate weighted
average exchange rate for the period. Resulting foreign currency translation adjustments are recorded as other comprehensive income
or loss, net of tax, in the consolidated statements of comprehensive income or loss and included as a component of accumulated
other comprehensive income or loss on the consolidated balance sheets. Foreign currency translation adjustments are primarily
attributable to Cell Cure and ESI, BioTime’s consolidated foreign subsidiaries. For the years ended December 31, 2018 and
2017, comprehensive income includes foreign currency translation adjustments, net of tax, of $1.3 million and $0.7 million, respectively.
Foreign
currency transaction gains and losses
– For transactions denominated in other than
the functional currency of BioTime or its subsidiaries, BioTime recognizes transaction gains and losses in the consolidated statements
of operations and classifies the gain or loss based on the nature of the item that generated it. The majority of BioTime’s
foreign currency transaction gains and losses are generated by Cell Cure’s intercompany debt due to BioTime (see Notes 11
and 12), which are U.S. dollar-denominated, while Cell Cure’s functional currency is the Israeli New Shekel (“NIS”).
At each balance sheet date, BioTime remeasures the intercompany debt using the current exchange rate at that date pursuant to
ASC 830,
Foreign Currency Matters.
These foreign currency remeasurement gains and losses are included in other income and
expenses, net.
Income
taxes –
BioTime accounts for income taxes in accordance with ASC 740,
Income
Taxes
, which prescribe the use of the asset and liability method, whereby deferred tax asset or liability account balances
are calculated at the balance sheet date using current tax laws and rates in effect. Valuation allowances are established when
necessary to reduce deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will
not be realized. ASC 740 guidance also prescribes a recognition threshold and a measurement attribute for the financial statement
recognition and measurement of tax positions taken or expected to be taken in a tax return. For benefits to be recognized, a tax
position must be more-likely-than-not sustainable upon examination by taxing authorities. BioTime files a U.S. federal income
tax return as well as various state and foreign income tax returns. BioTime’s judgments regarding future taxable income
may change over time due to changes in market conditions, changes in tax laws, tax planning strategies or other factors. If BioTime
assumptions, and consequently the estimates, change in the future with respect to BioTime’s own deferred tax assets and
liabilities, the valuation allowance may be increased or decreased, which may have a material impact on BioTime’s consolidated
financial statements.
BioTime recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as
income tax expense, however, no amounts were accrued for the payment of interest and penalties as of December 31, 2018 and 2017.
On
December 22, 2017, the United States enacted major federal tax reform legislation, Public Law No. 115-97, commonly referred to
as the 2017 Tax Cuts and Jobs Act (“2017 Tax Act”), which enacted a broad range of changes to the Internal Revenue
Code. Changes to taxes on corporations impacted by the 2017 Tax Act include, among others, lowering the U.S. federal tax rates
to a 21% flat tax rate, elimination of the corporate alternative minimum tax (“AMT”), imposing additional limitations
on the deductibility of interest and net operating losses, allowing any net operating loss (“NOLs”) generated in tax
years ending after December 31, 2017 to be carried forward indefinitely and generally repealing carrybacks, reducing the maximum
deduction for NOL carryforwards arising in tax years beginning after 2017 to a percentage of the taxpayer’s taxable income,
and allowing for the expensing of certain capital expenditures. The 2017 Tax Act also puts into effect a number of changes impacting
operations outside of the United States including, but not limited to, the imposition of a one-time tax “deemed repatriation”
on accumulated offshore earnings not previously subject to U.S. tax, and shifts the U.S taxation of multinational corporations
from a worldwide system of taxation to a territorial system. ASC 740 requires the effects of changes in tax rates and laws on
deferred tax balances (including the effects of the one-time transition tax) to be recognized in the period in which the legislation
is enacted (see Note 14).
For
2017, LifeMap Sciences included a deemed repatriation of $227,000 in accumulated foreign earnings not previously subject to U.S.
tax in federal income from LifeMap Sciences Ltd. The federal taxable income was offset by the LifeMap Sciences’ net operating
loss carryforwards resulting in no federal income tax due.
Beginning
in 2018, the 2017 Tax Act subjects a U.S. shareholder 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 by the Company’s pre-GILTI
U.S. income. For 2018, BioTime incurred a net loss from foreign activity, accordingly there was no GILTI inclusion in U.S. income.
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 only. BioTime has elected to account for GILTI as a current period expense
when incurred.
On
December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance for companies
that are not able to complete their accounting for the income tax effects of the 2017 Tax Act in the period of enactment. SAB
118 allows BioTime to record provisional amounts during a measurement period not to extend beyond one year of the enactment date
(see Note 14). BioTime applied the guidance in SAB 118 when accounting for the enactment-date effects of the 2017 Tax Act during
the years ended December 31, 2018 and 2017. As of December 31, 2018, BioTime completed its accounting for all the enactment-date
income tax effects of the 2017 Tax Act.
Income
tax benefit or expense for each year is allocated to continuing operations, other comprehensive income and the cumulative effects
of accounting changes, if any, recorded directly to shareholders’ equity. ASC 740-20-45
Income Taxes, Intraperiod Tax
Allocation, Other Presentation Matters
includes an exception to the general principle of intraperiod tax allocations. The
codification source states that the tax effect of pretax income or loss from continuing operations generally should be determined
by a computation that considers only the tax effects of items that are included in continuing operations. The exception to that
incremental approach is that all items, including items of other comprehensive income, be considered in determining the amount
of tax benefit that results from a loss from continuing operations, and that benefit should be allocated to continuing operations.
That is, when a company has a current period loss from continuing operations, management must consider income recorded in other
categories in determining the tax benefit that is allocated to continuing operations. This includes situations in which a company
has recorded a full valuation allowance at the beginning and end of the period, and the overall tax provision for the year is
zero. The intraperiod tax allocation is performed once the overall tax provision has been computed and allocates that provision
to continuing operations and other comprehensive income and balance sheet captions. While the intraperiod tax allocation does
not change the overall tax provision, it results in a gross-up of the individual components. Additionally, different tax jurisdictions
must be considered separately. For the year ended December 31, 2018, BioTime’s other comprehensive income is comprised entirely
of foreign currency translation adjustments primarily attributable to its majority-owned and consolidated Israeli subsidiary,
Cell Cure. For the year ended December 31, 2017, BioTime’s other comprehensive income or loss items were comprised of foreign
currency translation adjustments and available-for-sale securities (see discussion under section
Marketable equity securities
for adoption of ASU 2016-01 on January 1, 2018) (see Note 14).
Stock-based
compensation –
BioTime follows accounting standards governing share-based payments in accordance with ASC 718,
Compensation
– Stock Compensation
, which require the measurement and recognition of compensation expense for all share-based payment
awards made to directors and employees, including employee stock options, based on estimated fair values. Upon adoption of ASU
2016-09 on January 1, 2017, f
orfeitures are accounted for as they occur instead of based
on the number of awards that were expected to vest prior to adoption of ASU 2016-09. Based on the nature and timing of grants,
straight line expense attribution of stock-based compensation for the entire award and the relatively low forfeiture rates on
BioTime’s experience, the impact of adoption of ASU 2016-09 pertaining to forfeitures was not material to the consolidated
financial statements
. BioTime utilizes the Black-Scholes option pricing model for valuing share-based payment awards. BioTime’s
determination of fair value of share-based payment awards on the date of grant using that option-pricing model is affected by
BioTime’s stock price as well as by assumptions regarding a number of complex and subjective variables. These variables
include, but are not limited to, BioTime’s expected stock price volatility over the term of the awards; the expected term
of options granted, derived from historical data on employee exercises and post-vesting employment termination behavior; and a
risk-free interest rate based on the U.S. Treasury rates in effect during the corresponding period of grant.
Certain
of BioTime’s privately-held formerly consolidated subsidiaries have their own share-based compensation plans. For share-based
compensation awards granted by those privately-held consolidated subsidiaries under their respective equity plans, BioTime determines
the expected stock price volatility using historical prices of comparable public company common stock for a period equal to the
expected term of the options.
The expected term of privately-held subsidiary options is
based upon the “simplified method” provided under
Staff Accounting Bulletin, Topic 14
, or SAB Topic 14.
The fair value of the shares of common stock underlying the stock options of the privately-held formerly consolidated subsidiaries
is determined by the Board of Directors of those subsidiaries, as applicable, which is also used to determine the exercise prices
of the stock options at the time of grant.
Although
the fair value of employee stock options is determined in accordance with FASB guidance, changes in the assumptions can materially
affect the estimated value and therefore the amount of compensation expense recognized in the consolidated financial statements.
Basic
and diluted net loss per share attributable to common shareholders
– Basic earnings per share is calculated by dividing
net income or loss attributable to BioTime common shareholders by the weighted average number of common shares outstanding, net
of unvested restricted stock or restricted stock units, subject to repurchase by BioTime, if any, during the period. Diluted earnings
per share is calculated by dividing the net income or loss attributable to BioTime common shareholders by the weighted average
number of common shares outstanding, adjusted for the effects of potentially dilutive common shares issuable under outstanding
stock options and warrants, using the treasury-stock method, convertible preferred stock, if any, using the if-converted method,
and treasury stock held by subsidiaries, if any.
For
the years ended December 31, 2018 and 2017, b
ecause
BioTime reported a net loss attributable to common stockholders, all potentially dilutive common stock is antidilutive.
The
following common share equivalents were excluded from the computation of diluted net income (loss) per common share for the periods
presented because including them would have been antidilutive (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Stock options and restricted stock units
|
|
|
14,269
|
|
|
|
7,983
|
|
Warrants
|
|
|
-
|
|
|
|
9,395
|
|
Treasury stock
|
|
|
-
|
|
|
|
81
|
|
Recently
adopted accounting pronouncements
Adoption
of ASU 2016-18
,
Statement of Cash Flows (Topic 230)
–
On January
1, 2018, BioTime adopted Financial Accounting Standards Board (“FASB”) ASU 2016-18,
Statement of Cash Flows (Topic
230): Restricted Cash
, which requires that the statement of cash flows explain the change during the period in the total of
cash, cash equivalents and restricted cash, and that restricted cash be included with cash and cash equivalents when reconciling
the beginning-of-period and end-of-period total amounts shown on the condensed consolidated statements of cash flows. The adoption
of ASU 2016-18 did not have a material effect on BioTime’s consolidated financial statements. However, prior period restricted
cash balances included in prepaid expenses and other current assets, and in deposits and other long-term assets, on the consolidated
balance sheets was added to the beginning-of-period and end-of-period total consolidated cash and cash equivalents in the consolidated
statements of cash flows to conform to the current presentation shown below.
The
following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance
sheet dates that comprise the total of the same such amounts shown in the consolidated statements of cash flows for all periods
presented herein and effected by the adoption of ASU 2016-18 (in thousands):
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Cash and cash equivalents
|
|
$
|
23,587
|
|
|
$
|
36,838
|
|
|
$
|
22,088
|
|
Restricted cash included in prepaid expenses and other current assets (see Note 15)
|
|
|
346
|
|
|
|
-
|
|
|
|
-
|
|
Restricted cash included in deposits and other long-term assets (see Note 15)
|
|
|
466
|
|
|
|
847
|
|
|
|
847
|
|
Total cash, cash equivalents, and restricted cash as shown in the consolidated statements of cash flows
|
|
$
|
24,399
|
|
|
$
|
37,685
|
|
|
$
|
22,935
|
|
Adoption
of ASU 2014-09
, Revenues from Contracts with Customers (Topic 606)
– In
May 2014, the FASB issued ASU 2014-09 (“Topic 606”)
Revenue from Contracts with Customers
which supersedes
the revenue recognition requirements in Topic 605
Revenue Recognition
(“Topic 605”). Topic 606 describes principles
an entity must apply to measure and recognize revenue and the related cash flows, using the following five steps: (i) identify
the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price;
(iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the
entity satisfies a performance obligation. Topic 606 core principle is that it requires entities to recognize revenue when control
of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity
expects to be entitled to in exchange for those goods or services.
BioTime
adopted Topic 606 as of January 1, 2018 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, while prior period amounts are not adjusted and continue to be reported in accordance with BioTime’s historical
revenue recognition accounting under Topic 605.
On
January 1, 2018, the adoption and application of Topic 606 resulted in an immaterial cumulative effect adjustment to BioTime’s
beginning consolidated accumulated deficit balance. In the applicable paragraphs below, BioTime has summarized its revenue recognition
policies for its various revenue sources in accordance with Topic 606.
Revenue
Recognition by Source and Geography
–
Revenues are recognized when control
of the promised goods or services is transferred to customers, or in the case of governmental entities funding a grant, when allowable
expenses are incurred, in an amount that reflects the consideration BioTime or a subsidiary, depending on which company has the
customer or the grant, expects to be entitled to in exchange for those goods or services. See further discussion under
Grant
Revenues
below.
The
following table presents BioTime’s consolidated revenues disaggregated by source (in thousands).
|
|
Year Ended December 31,
|
|
REVENUES:
|
|
2018
|
|
|
2017
(1)
|
|
Grant revenue
|
|
$
|
3,572
|
|
|
$
|
1,666
|
|
Royalties from product sales and license fees
|
|
|
392
|
|
|
|
389
|
|
Subscription and advertisement revenues
(2)
|
|
|
691
|
|
|
|
1,395
|
|
Sale of research products and services
|
|
|
333
|
|
|
|
8
|
|
Total revenues
|
|
$
|
4,988
|
|
|
$
|
3,458
|
|
(1)
|
Amounts
recognized prior to adoption of Topic 606 have not been adjusted under the Topic 606 modified retrospective transition method.
|
|
|
(2)
|
These
revenues were generated by LifeMap Sciences, which is a subsidiary of AgeX, are included in BioTime consolidated revenues
for the period from January 1, 2018 through August 29, 2018, the date immediately preceding the AgeX Deconsolidation. As a
result of the AgeX Deconsolidation on August 30, 2018, BioTime does not expect to recognize subscription and advertisement
revenues during subsequent accounting periods.
|
The
following table presents consolidated revenues, disaggregated by geography, based on the billing addresses of customers, or in
the case of grant revenues based on where the governmental entities that fund the grant are located (in thousands). See further
discussion under
Grant Revenues
below.
|
|
Year Ended December 31,
|
|
REVENUES:
|
|
2018
|
|
|
2017
(1)
|
|
United States
|
|
$
|
1,804
|
|
|
$
|
1,651
|
|
Foreign
(2)
|
|
|
3,184
|
|
|
|
1,807
|
|
Total revenues
|
|
$
|
4,988
|
|
|
$
|
3,458
|
|
(1)
|
Amounts
recognized prior to adoption of Topic 606 have not been adjusted under the Topic 606 modified retrospective transition method.
|
|
|
(2)
|
Foreign
revenues are primarily generated from grants in Israel.
|
Research
and development contracts with customers
–
In its agreements with customers,
BioTime’s performance obligations of research and development are completed as services are performed and control passes
to the customer, and accordingly revenues are recognized over time. BioTime generally receives a fee at the inception of an agreement,
with variable fees, if any, tied to certain milestones, if achieved. BioTime estimates this variable consideration using a single
most likely amount. Based on historical experience, there has been no variable consideration related to milestones included in
the transaction price due to the significant uncertainty of achieving contract milestones and milestones not being met. If a milestone
is met, subsequent changes in the single most likely amount may produce a different variable consideration, and BioTime will allocate
any subsequent changes in the transaction price on the same basis as at contract inception. Amounts allocated to a satisfied performance
obligation will be recognized as revenue in the period in which the transaction price changes with respect to variable consideration,
which could result in a reduction of revenue. Contracts of this kind are typically for a term greater than one year. For each
of the years ended December 31, 2018 and 2017, BioTime recognized $308,000 for such services included in the consolidated royalties
from product sales and license fees. There were no deferred revenues related to unsatisfied performance obligations in the consolidated
balance sheet as of December 31, 2018. As of December 31, 2018, BioTime had not met any milestones that would require adjustment
of the transaction price.
Royalties
from product sales and license fees
–
BioTime’s performance obligations
in agreements with certain customers is to provide a license to allow customers to make, import and sell company licensed products
or methods for pre-clinical studies and commercial use. Customers pay a combination of a license issue fee paid up front and a
sales-based royalty, if any, in some cases with yearly minimums. The transaction price is deemed to be the license issue fee stated
in the contract. The license offered by BioTime is a functional license with significant standalone functionality and provides
customers with the right to use BioTime’s intellectual property. This allows BioTime to recognize revenue on the license
issue fee at a point in time at the beginning of the contract, which is when the customer begins to have use of the license. Variable
consideration related to sales-based royalties is recognized only when (or as) the later of the following events occurs: (a) a
sale or usage occurs, or (b) the performance obligation to which some, or all, of the sales-based or usage-based royalty has been
allocated has been satisfied or partially satisfied. Due to the contract termination clauses, BioTime does not expect to receive
all of the minimum royalty payments throughout the term of the agreements. Therefore, BioTime fully constrains recognition of
the minimum royalty payments as revenues until its customers are obligated to pay, which is generally within 60 days prior to
beginning of each year the minimum royalty payments are due. For the years ended December 31, 2018 and 2017, royalty revenues
were immaterial.
Sale
of research products and services
–
Revenues from the sale of research
products and services shown in the table above are primarily derived from the sale of hydrogels and stem cell products for research
use and are recognized when earned. These revenues are recognized at a point-in-time when control of the product transfers to
the customer, which is typically upon shipment to the customer from the Alameda facility. Cost of sales from the sale of research
products include direct and indirect overhead expenses incurred to purchase and manufacture those products, including lab supplies,
personnel costs, freight, and royalties paid, if any, in accordance with the terms of applicable licensing agreements for those
products.
Revenues
from the sale of hydrogels and stem cell products, including the cost of sales related to those products, were immaterial for
all periods presented.
Subscription
and advertisement revenues
–
LifeMap Sciences, a direct majority-owned
subsidiary of AgeX, sells subscription-based products
, including research databases and
software tools,
for b
iomedical, gene, disease, and stem cell 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. 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. 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.
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 customer simultaneously receives and consumes the benefit of LifeMap Sciences’ performance.
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 reported. No revenues from subscription and
advertisement products have been recorded since August 29, 2018 because of the AgeX Deconsolidation. The LifeMap Sciences revenues
shown for the year ended December 31, 2018 are for revenues earned through August 29, 2018, the date immediately preceding the
AgeX Deconsolidation. As a result of the AgeX Deconsolidation, BioTime does not expect to earn subscription and advertising revenues
in subsequent accounting periods.
For
the years ended December 31, 2018 and 2017, LifeMap Sciences recognized $0.7 million and $1.4 million, respectively, in subscription
and advertisement revenues. As of December 31, 2018, there were no deferred revenues related to LifeMap Sciences included in the
consolidated balance sheets due to the AgeX Deconsolidation on August 30, 2018.
LifeMap
Sciences has licensed from a third party the databases 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, BioTime 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. BioTime has, and will continue to, account 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 BioTime
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 BioTime is required to estimate and recognize that liability. Alternatively, if BioTime 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
(see Note 15).
Deferred
grant revenues represent grant funds received from the governmental funding agencies for which the allowable expenses have not
yet been incurred as of the balance sheet date reported. As of December 31, 2018, deferred grant revenue was immaterial.
Arrangements
with multiple performance obligations
–
BioTime’s contracts with
customers may include multiple performance obligations. For such arrangements, BioTime allocates revenue to each performance obligation
based on its relative standalone selling price. BioTime 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, and for the year ended, December 31,
2018, BioTime did not have significant arrangements with multiple performance obligations.
Adoption
of ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities
–
Changes to the current GAAP model under ASU 2016-01 primarily affects the accounting
for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for
financial instruments. In addition, ASU 2016-01 clarified guidance related to the valuation allowance assessment when recognizing
deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting for other financial
instruments, such as loans, investments in debt securities, and financial liabilities is largely unchanged. The more significant
amendments are to equity investments in unconsolidated entities. In accordance with ASU No. 2016-01, all equity investments in
unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be measured at fair
value through earnings. There will no longer be an available-for-sale classification (changes in fair value reported in other
comprehensive income) for equity securities with readily determinable fair values.
As further discussed above under the
marketable equity securities
policy, BioTime adopted ASU 2016-01 on January 1, 2018.
Recently
Issued Accounting Pronouncements
– The following accounting standards, which are not yet effective, are presently being
evaluated by BioTime to determine the impact that they might have on its consolidated financial statements.
In
June 2018, the FASB issued ASU 2018-07,
Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting
, which simplifies the accounting for non-employee share-based payment transactions. The new standard expands
the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU 2018-07
is effective for fiscal years beginning after December 15, 2018 (including interim periods within that fiscal year), with early
adoption permitted. As BioTime does not have a significant number of nonemployee share-based awards, BioTime does not believe
that the application of the new standard will have a material impact on its consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which requires lessees to recognize assets and liabilities
for leases with lease terms greater than twelve months in the statement of financial position. Leases will be classified as either
finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 also
requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash
flows arising from leases. The update is effective for fiscal years beginning after December 15, 2018, including interim reporting
periods within that reporting period. Early adoption is permitted. In July 2018, the FASB issued ASU 2018-10 and ASU 2018-11.
ASU 2018-10 provides certain areas for improvement in ASU 2016-02 and ASU 2018-11 provides an additional optional transition method
by allowing entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment
to the opening balance of retained earnings in the period of adoption. BioTime is completing its assessment of the impact the
adoption of ASU 2016-02 will have on its consolidated financial statements. BioTime expects that most of its operating lease commitments
will be subject to the new standard and recognized as right-of-use assets and operating lease liabilities upon the adoption of
ASU 2016-02, which is expected to increase the total consolidated assets and total consolidated liabilities that it reports. BioTime
will adopt the new standard on January 1, 2019
and plans to use the optional transition method allowed by ASU 2018-11
.
3.
Sale of Significant Ownership Interest in AgeX to Juvenescence Limited
On
August 30, 2018, BioTime entered into a Stock Purchase Agreement with Juvenescence Limited and AgeX Therapeutics, Inc., pursuant
to which BioTime sold 14.4 million shares of the common stock of AgeX to Juvenescence for $3.00 per share, or an aggregate purchase
price of $43.2 million (the “Purchase Price”). Juvenescence paid $10.8 million of the Purchase Price at closing, issued
an unsecured convertible promissory note dated August 30, 2018 in favor of BioTime for $21.6 million (the “Promissory Note”),
and paid $10.8 million on November 2, 2018. The Stock Purchase Agreement contains customary representations, warranties and indemnities
from BioTime relating to the business of AgeX, including an indemnity cap of $4.3 million, which is subject to certain exceptions.
The
Promissory Note bears interest at 7% per annum, with principal and accrued interest payable at maturity two years after the closing
of the Juvenescence Transaction (August 30, 2020). The Promissory Note cannot be prepaid prior to maturity or conversion. On the
maturity date, if a “Qualified Financing” (as defined below) has not occurred, BioTime will have the right, but not
the obligation, to convert the principal balance of the Promissory Note and accrued interest then due into a number of Series
A Preferred Shares of Juvenescence at a conversion price of $15.60 per share. Upon the occurrence of a Qualified Financing on
or before the maturity date, the principal balance of the Promissory Note and accrued interest will automatically convert into
a number of shares of the class of equity securities of Juvenescence sold in the Qualified Financing, at the price per share at
which the Juvenescence securities are sold in the Qualified Financing; and, if AgeX common stock is listed on a national securities
exchange in the U.S., the number of shares of the class of equity securities issuable upon conversion may be increased depending
on the market price of AgeX common stock. A Qualified Financing is generally defined as an underwritten initial public offering
of Juvenescence equity securities in which gross proceeds are not less than $50.0 million. The Promissory Note is not transferable,
except in connection with a change of control of BioTime.
For
the year ended December 31, 2018, BioTime recognized $0.5 million in interest income on the Promissory Note. As of December 31,
2018, the Promissory Note principal and accrued interest balance was $22.1 million.
Shareholder
Agreement
As
provided in the Purchase Agreement, BioTime and Juvenescence entered into a Shareholder Agreement, dated August 30, 2018, setting
forth the governance, approval and voting rights of the parties with respect to their holdings of AgeX common stock, including
rights of representation on the AgeX Board of Directors, approval rights, preemptive rights, rights of first refusal and co-sale
and drag-along and tag-along rights for so long as either BioTime or Juvenescence continue to own at least 15% of the outstanding
shares of AgeX common stock. Pursuant to the Shareholder Agreement, Juvenescence and BioTime have the right to designate two persons
each to be appointed to the six-member AgeX Board of Directors, with the remaining two individuals to be independent of Juvenescence
and BioTime. The number of authorized directors of AgeX has been increased to accommodate those appointments. Additionally, following
Juvenescence’s payment of the second cash installment on November 2, 2018, Juvenescence has the right to designate an additional
member of the AgeX Board of Directors. The size of the AgeX Board of Directors will be correspondingly increased.
In
connection with the Juvenescence Transaction, the termination provision of the Shared Facilities Agreement (see Note 11) entitling
AgeX or BioTime to terminate the agreement upon six months advance written notice was amended. Pursuant to the amendment, following
the deconsolidation of AgeX from BioTime’s consolidated financial statements on August 30, 2018 (see Notes 4 and 11), each
party retains the right to terminate the Shared Facilities Agreement at any time by giving the other party six months advance
written notice, but BioTime may not do so prior to September 1, 2020.
Following
the Juvenescence Transaction, Juvenescence owns 16.4 million shares of AgeX common stock representing 45.8% of AgeX’s issued
and outstanding shares of common stock and, following the AgeX Distribution on November 28, 2018 (see Note 4),
BioTime
owns
1.7 million shares of AgeX common stock representing 4.8% of AgeX’s issued and outstanding shares of common
stock. Accordingly, in accordance with the Shareholder Agreement, beginning on the AgeX Distribution date, BioTime has no right
to designate any members to the AgeX Board of Directors.
4.
Deconsolidation and Distribution of AgeX
Deconsolidation
of AgeX
On
August 30, 2018, BioTime sold 14.4 million shares of the common stock of AgeX to Juvenescence (see Note 3). Immediately before
that sale, BioTime and Juvenescence owned 80.4% and 5.6%, respectively, of AgeX’s outstanding common stock. Immediately
following that sale, BioTime and Juvenescence owned 40.2% and 45.8%, respectively, of AgeX’s outstanding common stock. As
a result, on August 30, 2018, AgeX was no longer a subsidiary of BioTime and, as of that date, BioTime experienced a “loss
of control” of AgeX, as defined by 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 of a 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 representing a majority of the voting power of the subsidiary’s voting securities.
All of these loss-of-control factors were present with respect to BioTime’s ownership interest in AgeX as of August 30,
2018.
Accordingly, BioTime has deconsolidated AgeX’s consolidated financial statements and consolidated results from
BioTime’s consolidated financial statements and consolidated results effective on August 30, 2018, in accordance with ASC,
810-10-40-4(c).
In
connection with the Juvenescence Transaction discussed in Note 3 and the AgeX Deconsolidation on August 30, 2018, in accordance
with ASC 810-10-40-5, BioTime recorded a gain on deconsolidation of $78.5 million, which includes a financial reporting gain on
the sale of the AgeX shares of $39.2 million (see Note 14), during the year ended December 31, 2018, included in other income
and expenses, net, in the consolidated statements of operations.
Distribution
of AgeX Shares
On
November 28, 2018, BioTime distributed 12.7 million shares of AgeX common stock owned by BioTime to holders of BioTime common
shares, on a pro rata basis, in the ratio of one share of AgeX common stock for every 10 BioTime common shares owned. The AgeX
Distribution was accounted for at fair value as a dividend-in-kind in the aggregate amount of $34.4 million. This
amount
was determined by valuing the 12.7 million shares of AgeX common stock distributed to BioTime shareholders at the $2.71 per share
closing price of AgeX common stock, as quoted on the NYSE American, on November 29, 2018, the first trading day of AgeX common
stock. Since BioTime has an accumulated deficit in its consolidated shareholders’ equity, the entire fair value of the AgeX
Distribution was charged against common stock equity included in the consolidated statements of changes in shareholders’
equity for the year ended December 31, 2018.
Immediately
following the distribution, BioTime owned 1.7 million shares of AgeX common stock, all of which it still owns, and which represents
approximately 4.8% of AgeX’s outstanding common stock as of December 31, 2018 and which shares BioTime holds as marketable
equity securities
(see Note 2).
5.
Deconsolidation of OncoCyte and Asterias
Deconsolidation
of OncoCyte
On
February 17, 2017, OncoCyte issued 625,000 shares of OncoCyte common stock to certain investors upon exercise of warrants. The
warrants were issued as part of OncoCyte’s financing on August 29, 2016. As a result of the issuance of the 625,000 shares,
beginning on February 17, 2017, BioTime owned less than 50% of OncoCyte’s outstanding common stock and experienced a loss
of control of OncoCyte under GAAP. Accordingly, BioTime deconsolidated OncoCyte’s financial statements and results of operations
from BioTime, effective February 17, 2017, in accordance with ASC, 810-10-40-4(c), referred to as the “OncoCyte Deconsolidation”.
For periods on and after February 17, 2017, BioTime is accounting for its retained noncontrolling
investment in OncoCyte under the equity method of accounting and has elected the fair value option under ASC 825-10,
Financial
Instruments
(see Note 6).
In
connection with the OncoCyte Deconsolidation and in accordance with ASC 810-10-40-5, BioTime recorded a gain on deconsolidation
of $71.7 million which is
included in other income
and expenses, net, in the consolidated statements of operations for the year ended December 31, 2017.
BioTime
held 14.7 million shares of OncoCyte common stock, or approximately 36.1% of OncoCyte outstanding common stock, as of December
31, 2018.
Deconsolidation
of Asterias
On
May 13, 2016,
BioTime’s percentage ownership of the outstanding common stock of Asterias
declined below 50% and
BioTime experienced a loss of control of Asterias under GAAP. A
ccordingly,
BioTime deconsolidated Asterias financial statements and results of operations from BioTime (the “Asterias Deconsolidation”),
effective May 13, 2016, in accordance with ASC, 810-10-40-4(c). For periods on and after May 13, 2016, BioTime is accounting for
the retained noncontrolling interest in Asterias under the equity method of accounting and has elected the fair value option under
ASC 825-10. (see Note 7)
In
connection with the Asterias Deconsolidation and in accordance with ASC 810-10-40-5, BioTime recorded a gain on deconsolidation
of
$49.0 million during the year December 31, 2016
included in other income and expenses,
net, in the consolidated statements of operations.
BioTime
held 21.7 million shares of Asterias common stock, or approximately 39.1% of Asterias outstanding common stock, as of December
31, 2018.
As
discussed in Note 19, on March 8, 2019, the Asterias Merger was completed and Asterias became a wholly owned subsidiary of BioTime.
BioTime will consolidate Asterias’ operations and results with its operations and consolidated results beginning on March
8, 2019.
6.
Equity Method of Accounting for Common Stock of OncoCyte, at Fair Value
BioTime
elected to account for its
14.7 million shares of OncoCyte common stock
at fair value
using the equity method of accounting beginning on February 17, 2017, the date of the OncoCyte Deconsolidation. The OncoCyte shares
had a fair value of $20.3 million as of December 31, 2018 and a fair value of $68.2 million as of December 31, 2017, based
on the $1.38 and $4.65 closing prices of OncoCyte common stock on the NYSE American on the applicable date.
All
share prices are
determined based on
the closing price of OncoCyte common stock on
the NYSE American on the applicable dates.
For
the year ended December 31, 2018, BioTime recorded an unrealized loss of $47.9 million on the OncoCyte shares due to the
decrease in OncoCyte stock price from December 31, 2017 to December 31, 2018.
The OncoCyte
shares had a fair value of $68.2 million as of December 31, 2017 and a fair value of $71.2 million as of February 17, 2017, based
on the $4.65 per share and $4.85 per share closing prices of OncoCyte common stock on those respective dates. For the year ended
December 31, 2017, BioTime recorded an unrealized loss of $2.9 million due to the decrease in the OncoCyte stock price from February
17, 2017 to December 31, 2017.
The
condensed results of operations and condensed balance sheet information of OncoCyte are summarized below (in thousands):
|
|
For the Period
January 1, 2017
through
February 16, 2017
(1)
|
|
Condensed Statement of Operations
(1)
|
|
|
|
|
Research and development expense
|
|
$
|
798
|
|
General and administrative expense
|
|
|
377
|
|
Sales and marketing expense
|
|
|
213
|
|
Loss from operations
|
|
|
(1,388)
|
|
Net loss
|
|
$
|
(1,392)
|
|
(1)
|
OncoCyte’s
condensed results of operations for the period from January 1, 2017 through February 16, 2017, the date immediately preceding
the OncoCyte Deconsolidation, for the year ended December 31, 2017, shown in the table below, is included in the consolidated
results of operations of BioTime, after intercompany eliminations, as applicable.
|
The
following table summarizes OncoCyte results of operations for the full years ended December 31, 2018 and 2017 (in thousands).
|
|
Year Ended December 31,
|
|
Condensed Statements of Operations
|
|
2018
|
|
|
2017
|
|
Research and development expense
|
|
$
|
6,506
|
|
|
$
|
7,174
|
|
General and administrative expense
|
|
|
6,153
|
|
|
|
9,232
|
|
Sales and marketing expense
|
|
|
1,681
|
|
|
|
2,443
|
|
Loss from operations
|
|
|
(14,340)
|
|
|
|
(18,849)
|
|
Net loss
|
|
$
|
(14,890)
|
|
|
$
|
(19,375)
|
|
|
|
December
31,
|
|
Condensed Balance Sheet information
(1)
|
|
2018
|
|
|
2017
|
|
Current
assets
|
|
$
|
8,642
|
|
|
$
|
8,528
|
|
Noncurrent
assets
|
|
|
876
|
|
|
|
1,688
|
|
|
|
$
|
9,518
|
|
|
$
|
10,216
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$
|
4,698
|
|
|
$
|
4,454
|
|
Noncurrent
liabilities
|
|
|
534
|
|
|
|
1,359
|
|
Stockholders’
equity
|
|
|
4,286
|
|
|
|
4,403
|
|
|
|
$
|
9,518
|
|
|
$
|
10,216
|
|
(1)
|
The
condensed balance sheet information of OncoCyte as of December 31, 2018 and 2017, is provided for informational and comparative
purposes only. OncoCyte was not included in BioTime’s consolidated balance sheet as of December 31, 2018 and 2017 due
to the OncoCyte Deconsolidation on February 17, 2017.
|
7.
Equity Method of Accounting for Common Stock of Asterias, at Fair Value
BioTime
elected to account for its
21.7 million shares of Asterias common stock
at fair value
using the equity method of accounting beginning on May 13, 2016, the date of the Asterias Deconsolidation. The Asterias shares
had a fair value of $13.5 million as of December 31, 2018 and a fair value of $48.9 million as of December 31, 2017, based on
the $0.62 and $2.25 closing prices of Asterias common stock on the NYSE American on the applicable date.
All
share prices are
determined based on
the closing price of Asterias common stock on
the NYSE American on the applicable dates.
For
the year ended December 31, 2018, BioTime recorded an unrealized loss of $35.4 million on the Asterias shares due to the decrease
in Asterias stock price from December 31, 2017 to December 31, 2018.
For the year ended
December 31, 2017, BioTime recorded an unrealized loss of $51.1 million on the Asterias shares due to the decrease in Asterias
stock price from December 31, 2016 to December 31, 2017.
The
following table summarizes Asterias results of operations for the full years ended December 31, 2018 and 2017 (in thousands).
|
|
Year Ended December 31,
|
|
Condensed Statements of Operations
|
|
2018
|
|
|
2017
|
|
Total revenue
|
|
$
|
812
|
|
|
$
|
4,042
|
|
Gross profit
|
|
|
588
|
|
|
|
3,877
|
|
Loss from operations
|
|
|
(21,605)
|
|
|
|
(33,251
|
)
|
Net loss
|
|
$
|
(21,820)
|
|
|
$
|
(28,372
|
)
|
|
|
December
31,
|
|
Condensed Balance Sheet information
(1)
|
|
2018
|
|
|
2017
|
|
Current
assets
|
|
$
|
8,793
|
|
|
$
|
22,716
|
|
Noncurrent
assets
|
|
|
13,481
|
|
|
|
20,376
|
|
|
|
$
|
22,274
|
|
|
$
|
43,092
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$
|
2,982
|
|
|
$
|
3,521
|
|
Noncurrent
liabilities
|
|
|
2,241
|
|
|
|
6,028
|
|
Stockholders’
equity
|
|
|
17,051
|
|
|
|
33,543
|
|
|
|
$
|
22,274
|
|
|
$
|
43,092
|
|
(1)
|
The
condensed balance sheet information of Asterias as of December 31, 2018 and 2017, is provided for informational and comparative
purposes only and was not included in BioTime’s consolidated balance sheet as of December 31, 2018 and 2017 due to the
Asterias Deconsolidation on May 13, 2016.
|
On
November 7, 2018, BioTime announced it entered into a definitive agreement to acquire the remaining ownership interest in Asterias
Biotherapeutics, Inc. that BioTime did not own in a stock-for-stock transaction pursuant to which Asterias shareholders will receive
0.71 shares of BioTime common stock for every share of Asterias common stock. As of December 31, 2018, BioTime owned approximately
39.1% of Asterias’ outstanding common stock.
As
discussed in Note 19, upon the completion of the Asterias Merger on March 8, 2019, Asterias ceased to exist as a public company,
BioTime owns all of the outstanding shares of Asterias’ common stock and BioTime will consolidate Asterias’ operations
and results with its operations and consolidated results beginning on March 8, 2019.
8.
Property and Equipment, Net
At
December 31, 2018 and 2017, property and equipment, net and construction in progress were comprised of the following (in thousands):
|
|
December 31,
|
|
|
|
2018
(1)
|
|
|
2017
|
|
Equipment, furniture and fixtures
|
|
$
|
3,842
|
|
|
$
|
4,255
|
|
Leasehold improvements
|
|
|
3,910
|
|
|
|
4,434
|
|
Accumulated depreciation and amortization
|
|
|
(3,185)
|
|
|
|
(3,156)
|
|
Property and equipment, net
|
|
|
4,567
|
|
|
|
5,533
|
|
Construction in progress
|
|
|
1,268
|
|
|
|
-
|
|
Property and equipment, net and construction in progress
|
|
$
|
5,835
|
|
|
$
|
5,533
|
|
(1)
|
Reflects
the effect of the AgeX Deconsolidation.
|
Property
and equipment at December 31, 2018 and 2017 includes $146,000 and $151,000 financed by capital leases, respectively. Depreciation
and amortization expense amounted to $1.1 million and $0.9 million for the years ended December 31, 2018 and 2017, respectively.
Construction
in progress
Construction
in progress of $1.3 million as of December 31, 2018 entirely relates to the leasehold improvements made at Cell Cure’s lease
facilities in Jerusalem, Israel, primarily financed by the landlord (see Note 15). The leasehold improvements were substantially
completed in December 2018 and the assets placed in service in January 2019.
9.
Intangible Assets, Net
At
December 31, 2018 and 2017, intangible assets, primarily consisting of acquired patents and accumulated amortization were as follows
(in thousands):
|
|
December 31,
|
|
|
|
2018
(1)
|
|
|
2017
|
|
Intangible assets
|
|
$
|
19,020
|
|
|
$
|
23,294
|
|
Accumulated amortization
|
|
|
(15,895)
|
|
|
|
(16,394)
|
|
Intangible assets, net
|
|
$
|
3,125
|
|
|
$
|
6,900
|
|
(1)
|
Reflects
the effect of the AgeX Deconsolidation.
|
BioTime
amortizes its intangible assets over an estimated period of 10 years on a straight-line basis. BioTime recognized $2.2 million
and $2.3 million in amortization expense of intangible assets during the years ended December 31, 2018 and 2017, respectively.
Amortization
of intangible assets for periods subsequent to December 31, 2018 is as follows (in thousands):
Year Ended December 31,
|
|
Amortization Expense
|
|
2019
|
|
$
|
1,911
|
|
2020
|
|
|
1,124
|
|
2021
|
|
|
90
|
|
Total
|
|
$
|
3,125
|
|
10.
Accounts Payable and Accrued Liabilities
At
December 31, 2018 and 2017, accounts payable and accrued liabilities consist of the following (in thousands):
|
|
December 31,
|
|
|
|
2018
(1)
|
|
|
2017
|
|
Accounts payable
|
|
$
|
2,359
|
|
|
$
|
938
|
|
Accrued liabilities
|
|
|
1,639
|
|
|
|
2,368
|
|
Accrued compensation
|
|
|
2,456
|
|
|
|
2,275
|
|
Other current liabilities
|
|
|
9
|
|
|
|
137
|
|
Total
|
|
$
|
6,463
|
|
|
$
|
5,718
|
|
(1)
|
Reflects
the effect of the AgeX Deconsolidation.
|
11.
Related Party Transactions
Shared
Facilities and Service Agreements with Affiliates
The
receivables from affiliates shown on the consolidated balance sheets as of December 31, 2018 and 2017 primarily represent amounts
owed to BioTime by OncoCyte and AgeX under separate and respective Shared Facilities and Service Agreements (each a “Shared
Facilities Agreement”), with amounts owed by OncoCyte comprising most of that amount. Under the terms of the Shared Facilities
Agreements, BioTime allows OncoCyte and AgeX to use BioTime’s premises and equipment located at BioTime’s headquarters
in Alameda, California for the purpose of conducting business. BioTime also provides accounting, billing, bookkeeping, payroll,
treasury, payment of accounts payable, and other similar administrative services to OncoCyte and AgeX. BioTime may also provide
the services of attorneys, accountants, and other professionals who may provide professional services to BioTime and its other
subsidiaries. BioTime also has provided OncoCyte and AgeX with the services of laboratory and research personnel, including BioTime
employees and contractors, for the performance of research and development work for OncoCyte and AgeX at the premises.
BioTime
charges OncoCyte and AgeX a “Use Fee” for services provided and for use of BioTime facilities, equipment, and supplies.
For each billing period, BioTime prorates and allocates to OncoCyte and AgeX costs incurred, including costs for services of BioTime
employees and use of equipment, insurance, leased space, professional services, software licenses, supplies and utilities. The
allocation of costs depends on key cost drivers, including actual documented use, square footage of facilities used, time spent,
costs incurred by BioTime for OncoCyte and AgeX, or upon proportionate usage by BioTime, OncoCyte and AgeX, as reasonably estimated
by BioTime. BioTime, at its discretion, has the right to charge OncoCyte and AgeX a 5% markup on such allocated costs. The allocated
cost of BioTime employees and contractors who provide services is based upon the number of hours or estimated percentage of efforts
of such personnel devoted to the performance of services.
The
Use Fee is determined and invoiced to OncoCyte and AgeX on a regular basis, generally monthly or quarterly. Each invoice is payable
in full within 30 days after receipt. Any invoice, or portion thereof, not paid in full when due will bear interest at the rate
of 15% per annum until paid, unless the failure to make a payment is due to any inaction or delay in making a payment by BioTime.
Through December 31, 2018, BioTime has not charged OncoCyte or AgeX any interest
.
In
addition to the Use Fee, OncoCyte or AgeX reimburse BioTime for any out of pocket costs incurred by BioTime for the purchase of
office supplies, laboratory supplies, and other goods and materials and services for the account or use of OncoCyte or AgeX. BioTime
is not obligated to purchase or acquire any office supplies or other goods and materials or any services for OncoCyte or AgeX,
and if any such supplies, goods, materials or services are obtained, BioTime may arrange for the suppliers to invoice OncoCyte
or AgeX directly
.
The
Shared Facilities Agreements remain in effect until a party gives the other party written notice that the Shared Facilities Agreement
will terminate on December 31 of that year, or unless it is otherwise terminated under another provision of the agreement. In
addition, BioTime and AgeX may each terminate their Shared Facilities Agreement prior to December 31 of the year by giving the
other party written six months’ notice to terminate, but BioTime may not do so prior to September 1, 2020
.
In
the aggregate, BioTime charged Use Fees to OncoCyte and AgeX as follows (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Research and development
|
|
$
|
1,378
|
|
|
$
|
1,085
|
|
General and administrative
|
|
|
790
|
|
|
|
557
|
|
Total use fees
|
|
$
|
2,168
|
|
|
$
|
1,642
|
|
The
Use Fees charged to OncoCyte and AgeX shown above are not reflected in revenues, but instead BioTime’s general and administrative
expenses and research and development expenses are shown net of those charges in the consolidated statements of operations. As
of
December 31
, 2018 and 2017, BioTime has a $2.1 million receivable from OncoCyte
included in receivable from affiliates, net, on account of Use Fees incurred by OncoCyte under the Shared Facilities Agreement
(see Note 19). As of
December 31
, 2018, BioTime has an immaterial amount receivable
from AgeX included in receivable from affiliates, net, on account of Use Fees incurred by AgeX, while amounts owed to BioTime
as of December 31, 2017 were eliminated in consolidation with BioTime as of that date. Since these amounts are due and payable
within 30 days of being invoiced, the receivable is classified as a current asset.
BioTime
accounts for receivables from affiliates, net of payables to affiliates, if any, for similar shared services and other transactions
BioTime’s consolidated subsidiaries may enter into with nonconsolidated affiliates. BioTime and the affiliates record those
receivables and payables on a net basis since BioTime and the affiliates intend to exercise a right of offset of the receivable
and the payable and to settle the balances net by having the party that owes the other party pay the net balance owe
.
Related
Party Convertible Debt
Cell
Cure issued certain convertible promissory notes (the “Convertible Notes”) to Cell Cure shareholders other than BioTime.
The Convertible Notes bear a stated interest rate of 3% per annum. The total outstanding principal balance of the Convertible
Notes, with accrued interest, were due and payable on various maturity dates in July 2017 and September 2017, and in February
2019 through August 2019. The outstanding principal balance of the Convertible Notes with accrued interest was convertible into
Cell Cure ordinary shares at a fixed conversion price of $20.00 per share, at the election of the holder, at any time prior to
maturity. Any conversion of the Convertible Notes was required to be settled with Cell Cure ordinary shares and not with cash.
The conversion feature of the Convertible Notes issued was not accounted for as an embedded derivative under the provisions of
ASC 815,
Derivatives and Hedging
since it was not a freestanding financial instrument and the underlying Cell Cure ordinary
shares are not readily convertible into cash. Accordingly, the Convertible Notes were accounted for under ASC 470-20,
Debt
with Conversion and Other Options
(ASC 470-20)
.
Under ASC 470-20, BioTime determined that a beneficial conversion feature
(“BCF”) was present on the issuance dates of the Convertible Notes. A conversion feature is beneficial if, on the
issuance dates, the effective conversion price is less than the fair value of the issuer’s capital stock. Since the effective
conversion price of $20.00 per share is less than the estimated range of fair values from $28.00 per share to $40.00 per share
of Cell Cure ordinary shares on the dates the Convertible Notes were issued, a beneficial conversion feature, equal to the intrinsic
value ranging from $8 per share to $20 per share, was present. In accordance with ASC 470-20-30-8, if the intrinsic value of the
BCF is greater than the proceeds allocated to the convertible instrument, the amount of the discount assigned to the BCF is limited
to the amount of the proceeds allocated to the convertible instrument. The BCF was recorded as an addition to equity with a corresponding
debt discount on the Convertible Notes issuance date. This debt discount was amortized to interest expense using the effective
interest method over the term of the debt, generally three years, representing an approximate effective annual interest rate between
11% and 23%.
In
July 2017, BioTime purchased all of the outstanding Convertible Notes and Cell Cure ordinary shares held by HBL
,
a Cell Cure shareholder that owned substantially all the Convertible Notes and 21.2% of the outstanding Cell Cure ordinary shares
(see Note 12). BioTime purchased such
Convertible Notes
in exchange for
2,776,662
shares of BioTime common stock valued at $8.6 million, and
purchased such
Cell Cure
ordinary shares in exchange for 1,220,207 shares of BioTime common stock valued at $3.8 million. The value of the BioTime common
stock was determined
based on the closing price of BioTime common stock on the NYSE American
on July 10, 2017, or $3.09 per share (see Note 12).
The
purchase of the Convertible Notes from HBL was accounted for as an extinguishment of a convertible debt with a beneficial conversion
feature under ASC 470-50-40,
Debt – Modifications and Extinguishments
. This guidance requires an entity to recognize
the difference between the reacquisition price and the net carrying value of the extinguished debt, including any unamortized
discount relating to the BCF, as a gain or loss on extinguishment in the statement of operations. The entity must also calculate
the intrinsic value, if any, of the conversion option of the debt and charge this amount to equity and allocate the remainder
of the reacquisition price to the extinguishment of the debt and record a gain or loss on debt extinguishment by comparing the
reacquisition price allocated to the debt with the net carrying value amount of the debt.
In
connection with the purchase of the Convertible Notes from HBL, and in accordance with ASC 470-50-40, BioTime recorded a charge
to equity of $3.1 million representing the intrinsic value of the conversion option of the Convertible Notes, and a $2.8 million
noncash loss on debt extinguishment included in other income and expenses, net, during the year ended December 31, 2017.
Other
related party transactions
In
connection with the capitalization of AgeX in August 2017 (see Note 12), Alfred D. Kingsley, the Chairman of BioTime’s Board
of Directors, purchased 200,000 shares of AgeX common stock. The AgeX shares were sold to Mr. Kingsley on the same terms (including
price, $2.00 per share) as such shares were sold to other investors in that transaction.
In
August 2017, Mr. Kingsley acquired an additional 421,500 AgeX shares valued at $2.00 per share from BioTime in exchange for 300,000
BioTime common shares owned by Mr. Kingsley valued at $2.81 per share.
BioTime
currently pays $5,050 per month for the use of approximately 900 square feet of office space in New York City, which is made available
to BioTime on a month-by-month basis by one of its directors at an amount that approximates his cost.
12.
Shareholders’ Equity
Preferred
Shares
BioTime
is authorized to issue 2,000,000 shares of preferred stock. The preferred shares may be issued in one or more series as the board
of directors may by resolution determine. The board of directors is authorized to fix the number of shares of any series of preferred
shares and to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed on the preferred
shares as a class, or upon any wholly unissued series of any preferred shares. The board of directors may, by resolution, increase
or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series of preferred
shares subsequent to the issue of shares of that series. As of December 31, 2018, no shares of preferred stock were issued or
outstanding.
Common
Shares
At
December 31, 2018, BioTime was authorized to issue 250,000,000 common shares, no par value. As of December 31, 2018 and 2017,
BioTime had 127,135,774 and 126,865,634 issued and outstanding common shares, respectively (see Note 19).
During
the year ended December 31, 2018, BioTime issued 270,000 shares of common stock, net of shares withheld and retired for employee
taxes paid, for vested restricted stock units (see Note 13).
In
October 2017, BioTime completed a public offering of 11,057,693 common shares at a price of $2.60 per share, including the underwriters’
full exercise of their over-allotment option to purchase additional shares. The public offering generated net proceeds to BioTime
of approximately $26.7 million, after deducting underwriting discounts and commissions and other estimated offering expenses payable
by BioTime.
In
July 2017, BioTime issued 4,924,542 common shares valued at $15.2
million to purchase outstanding
Convertible Notes and Cell Cure ordinary shares from HBL as further described in Note 11 and
Transactions with
Noncontrolling
Interests of Cell Cure
section below, respectively.
In
April 2017, BioTime entered into a Controlled Equity Offering
SM
Sales Agreement (the “Sales Agreement”)
with Cantor Fitzgerald & Co., as sales agent (“Cantor Fitzgerald”), pursuant to which BioTime may offer and sell,
from time to time, through Cantor Fitzgerald, shares of BioTime common stock having an aggregate offering price of up to $25,000,000.
BioTime is not obligated to sell any shares under the Sales Agreement. Subject to the terms and conditions of the Sales Agreement,
Cantor Fitzgerald will use commercially reasonable efforts, consistent with its normal trading and sales practices, applicable
state and federal law, rules and regulations, and the rules of the NYSE American, to sell the shares from time to time based upon
BioTime’s instructions, including any price, time or size limits specified by BioTime. Under the Sales Agreement, Cantor
Fitzgerald may sell the shares by any method deemed to be an “at-the-market” offering as defined in Rule 415(a)(4)
under the Securities Act of 1933, as amended, or by any other method permitted by law, including in privately negotiated transactions.
Cantor Fitzgerald’s obligations to sell the shares under the Sales Agreement are subject to satisfaction of certain conditions,
including the continued effectiveness of BioTime’s Registration Statement on Form S-3 which became
effective
on May 5, 2017. As of December 31, 2018, $24.2 million remained available for sale through the Sales Agreement under the Registration
Statement.
BioTime
will pay Cantor Fitzgerald a commission of 3.0% of the aggregate gross proceeds from each sale of shares, reimburse legal fees
and disbursements and provide Cantor Fitzgerald with customary indemnification and contribution rights. The Sales Agreement may
be terminated by Cantor Fitzgerald or BioTime at any time upon notice to the other party, or by Cantor Fitzgerald at any time
in certain circumstances, including the occurrence of a material and adverse change in BioTime’s business or financial condition
that makes it impractical or inadvisable to market the shares or to enforce contracts for the sale of the shares.
In
connection with the capitalization of AgeX in August 2017, BioTime acquired 300,000 BioTime common shares from Alfred D. Kingsley
in exchange for 421,500 shares of AgeX common stock owned by BioTime, as discussed in Note 11, and BioTime sold 300,000 common
shares under the Sales Agreement to an unaffiliated and existing BioTime investor for $2.81 per share. The BioTime common shares
received from Mr. Kingsley were immediately retired as authorized but unissued shares (see Note 11). Although the transaction
between Mr. Kingsley and BioTime was an exchange of shares, the proceeds from the sale of BioTime shares to the unrelated investor
and the BioTime shares acquired from Mr. Kingsley are presented gross as separate cash items on the Consolidated Statements of
Cash Flows for the year ended December 31, 2017, in accordance with ASC 230-10-45,
Statement of Cash Flows – Other Presentation
Matters
.
In
February 2017, BioTime sold 7,453,704 common shares in an underwritten public offering. The offering price to the public was $2.70
per share and net proceeds to BioTime were approximately $18.5 million, after deducting underwriting discounts, commissions and
expenses related to the financing.
BioTime
Warrants
BioTime
has issued equity-classified warrants to purchase its common shares. Activity related to warrants in 2018 and 2017 is presented
in the table below (in thousands, except price per share):
|
|
Number of Warrant Shares
|
|
|
Per Share Exercise Price
|
|
|
Weighted Average Exercise Price
|
|
Outstanding, January 1, 2017
|
|
|
9,395
|
|
|
$
|
4.55
|
|
|
$
|
4.55
|
|
Expired in 2017
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2017
|
|
|
9,395
|
|
|
$
|
4.55
|
|
|
$
|
4.55
|
|
Expired in 2018
|
|
|
(9,395)
|
|
|
|
4.55
|
|
|
|
|
|
Outstanding, December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Transactions
with Noncontrolling Interests of AgeX Therapeutics, Inc.
AgeX
was incorporated in January 2017 for the purpose of acquiring and developing BioTime technology relating to cell immortality and
regenerative biology by developing products for the treatment of aging and age-related diseases. Initial product development plans
included: pluripotent stem cell-derived brown adipocytes (AGEX-BAT1); vascular progenitors (AGEX-VASC1); and induced Tissue Regeneration
(iTR). Initial planned indications for these products are type II diabetes, cardiac ischemia, and cancer, respectively.
In
August 2017, AgeX received its initial assets and cash from BioTime and certain investors. BioTime contributed certain assets
and cash to AgeX in exchange for 28,800,000 shares of AgeX common stock pursuant to an Asset Contribution and Separation Agreement.
BioTime and AgeX also entered into a License Agreement pursuant to which BioTime licensed or sublicensed to AgeX, and AgeX granted
to BioTime an option to license back, certain patent rights. Concurrently with the BioTime’s contribution of assets to AgeX,
AgeX sold 4,950,000 shares of its common stock for $10.0 million in cash primarily to investors, which included the Chairman of
BioTime’s Board of Directors (see Note 11). At the close of the financing and as of December 31, 2017, BioTime owned 85.4%
of the outstanding shares of AgeX common stock.
In
June 2018, AgeX sold 2.0 million shares of common stock to Juvenescence for $2.50 per share for aggregate cash proceeds to AgeX
of $5.0 million. As of the completion of this financing, BioTime owned 80.6% of the
outstanding
shares of AgeX common stock and retained a controlling interest in
AgeX. In August 2018 and prior to the AgeX Deconsolidation,
AgeX issued 80,000 shares of AgeX common stock valued at $0.2 million for certain assets AgeX acquired from a third party, decreasing
BioTime’s ownership interest to 80.4% of the outstanding shares of AgeX common stock. In connection with these transactions,
BioTime recorded a $3.8 million net proportional equity transfer, at carrying value, from noncontrolling interests in AgeX to
BioTime in accordance with ASC 810-10-45-23, included in consolidated shareholders’ equity for the year ended December 31,
2018.
In
August 2018, BioTime sold 14,400,000 shares of AgeX common stock it owned to Juvenescence. Immediately after that sale, BioTime
owned 40.2% of the outstanding shares of AgeX common stock, resulting in the AgeX Deconsolidation (see Notes 3 and 4).
Transactions
with Noncontrolling Interests of Cell Cure
On
July 10, 2017, BioTime purchased all of the outstanding Cell Cure Convertible Notes and Cell Cure ordinary shares held by HBL
,
a former Cell Cure shareholder that owned 21.2% of the issued and outstanding Cell Cure ordinary shares and substantially all
of the Cell Cure Convertible Notes issued by Cell Cure shareholders other than BioTime (see Note 11)
. On the same date,
BioTime also purchased all of the Cell Cure ordinary shares owned by Teva Pharmaceutical Industries, Ltd. (“Teva”),
a former Cell Cure shareholder that owned 16.1% of the issued and outstanding Cell Cure ordinary shares. Teva did not have any
Cell Cure Convertible Notes.
To acquire the Cell Cure ordinary shares from HBL and Teva,
BioTime issued 1,220,207 and 927,673 common shares, valued at $3.8
million and $2.8
million, to HBL and Teva, respectively, based on the closing price of BioTime common shares on the NYSE American. Prior to the
consummation of the transactions with HBL and Teva, BioTime held 62.5% of the issued and outstanding Cell Cure ordinary shares
and upon the consummation of the transactions BioTime held 99.8%. Accordingly, BioTime recorded a corresponding charge to equity
of $10.1 million and a proportional transfer of carrying value of $3.5 million for purchase of noncontrolling interests in Cell
Cure, included in the consolidated statement of shareholders’ equity for the year ended December 31, 2017, in accordance
with
ASC 810-10-45-23.
In
October 2017, an unaffiliated third party exercised stock options to purchase 4,400 Cell Cure ordinary shares, reducing BioTime’s
ownership from 99.8% to 98.8% of outstanding Cell Cure ordinary shares.
In
May 2018, BioTime purchased 937 shares of Cell Cure ordinary shares for $40.5359 per share,
the
same Cell Cure price per ordinary share paid by BioTime to each of HBL and Teva discussed above
,
resulting in an increase in BioTime’s ownership from 98.8% to 99.0%.
Accordingly,
BioTime
recorded a $1.9 million net proportional equity transfer, at carrying value, from noncontrolling interests in Cell Cure to BioTime
included in consolidated shareholders’ equity for the year ended December 31, 2018, in accordance with
ASC 810-10-45-23.
Cell
Cure Warrants – Liability Classified
In
July 2017, as an inducement to HBL to sell their Cell Cure ordinary shares to BioTime, Cell Cure issued warrants to HBL (the “HBL
Warrants”) to purchase up to 24,566 Cell Cure ordinary shares at an exercise price of $40.5359 per share, payable in U.S.
dollars, the same Cell Cure price per ordinary share paid by BioTime to each of HBL and Teva for the purchase of their Cell Cure
ordinary shares discussed above. No warrants were issued to Teva. The HBL Warrants are immediately exercisable and expire on the
earliest of the lapse of 5 years from the issuance date or immediately prior to the closing of a Corporate Transaction or an initial
public offering, as defined in the HBL Warrant Agreement. For the year ended December 31, 2017, Cell Cure recorded a noncash expense
of $0.6 million included in general and administrative expenses in connection with the issuance of the HBL Warrants.
Cell
Cure also has issued warrants to purchase up to 13,738 Cell Cure ordinary shares at exercise prices ranging from $32.02 to $40.00
per share, payable in U.S. dollars, to consultants (the “Consultant Warrants”), expiring in October 2020 and January
2024. The HBL Warrants and the Consultant Warrants are collectively referred to as the “Cell Cure Warrants”.
ASC
815 requires freestanding financial instruments, such as warrants, with exercise prices denominated in currencies other than the
functional currency of the issuer to be accounted for as liabilities at fair value, with all subsequent changes in fair value
after the issuance date to be recorded as gains or losses in the consolidated statements of operations. Because the exercise price
of the Cell Cure Warrants is U.S. dollar-denominated and settlement is not expected to occur in the next twelve months, Cell Cure
classified the Cell Cure Warrants as a long-term liability in accordance with ASC 815.
The
fair value of the Cell Cure Warrants at the time of issuance was determined by using the Black-Scholes option pricing model using
the respective contractual term of the warrants. In applying this model, the fair value is determined by applying Level 3 inputs,
as defined by ASC 820; these inputs are based on certain key assumptions including the fair value of the Cell Cure ordinary shares,
adjusted for lack of marketability, as appropriate, and the expected stock price volatility over the term of the Cell Cure Warrants.
The fair value of the Cell Cure ordinary shares is determined by Cell Cure’s Board of Directors, which may engage a valuation
specialist to assist it in estimating the fair value, or may use recent transactions in Cell Cure shares, if any, as a reasonable
approximation of fair value, or may apply other reasonable methods to determining the fair value, including a discount for lack
of marketability. BioTime determines the stock price volatility using historical prices of comparable public company common stock
for a period equal to the remaining term of the Cell Cure Warrants. The Cell Cure Warrants are revalued each reporting period
using the same methodology described above, with changes in fair value included as gains or losses in other income and expenses,
net, in the consolidated statements of operations. Changes in any of the key assumptions used to value the Cell Cure Warrants
could materially impact the fair value of the Cell Cure Warrants and BioTime’s consolidated financial statements.
For
the year ended December 31, 2018, BioTime recorded a noncash gain of $0.4 million for the decrease in the fair value of the Cell
Cure Warrants included in other income and expenses, net. The decrease in the fair value of the Cell Cure Warrants was mainly
attributable to the reduced remaining life of the warrants from the prior period, and management’s assumption on the lack
of marketability discount adjustment on the fair value of Cell Cure ordinary shares. As of
December
31, 2018 and 2017, the Cell Cure Warrants, valued at $0.4 million and $0.8 million, respectively, were included in long-term
liabilities on the consolidated balance sheets.
Transactions
with Noncontrolling Interests of Other Subsidiaries
In
June 2017, BioTime increased its ownership in LifeMap Sciences from 78% to 82% and obtained a direct 100% ownership interest in
LifeMap Solutions, of which 78% was previously indirectly owned by BioTime through LifeMap Sciences, for settlement and cancellation
of certain intercompany debt owed by LifeMap Sciences.
In
2017, certain OrthoCyte
option holders exercised stock options to purchase 51,000 shares
of OrthoCyte common stock, reducing BioTime’s ownership from 100% to 99.8% of the outstanding shares of OrthoCyte common
stock.
In
A
ugust 2017, pursuant to the Asset Contribution
Agreement between BioTime and AgeX discussed above, BioTime contributed its direct ownership in ReCyte Therapeutics and LifeMap
Sciences to AgeX, and after the contribution BioTime owned these subsidiaries indirectly through its ownership of AgeX (which
was 85.4% as of December 31, 2017).
The
above described transactions were between entities under common control and the changes in ownership interests did not result
in a change of control under GAAP. Accordingly,
BioTime recorded a $5.5 million net proportional
equity transfer, at carrying values, from noncontrolling interests in these subsidiaries to BioTime included in consolidated shareholders’
equity for the year ended December 31, 2017, in accordance with
ASC 810-10-45-23.
13.
Stock-Based Awards
During
December 2012, BioTime’s Board of Directors approved the 2012 Equity Incentive Plan (the “2012 Plan”), which
was amended during 2017, under which BioTime has reserved 16,000,000 common shares for the grant of stock options or the sale
of restricted stock or other equity awards. No options may be granted under the 2012 Plan more than ten years after the date upon
which the 2012 Plan was adopted by the Board of Directors, and no options granted under the 2012 Plan may be exercised after the
expiration of ten years from the date of grant. Under the 2012 Plan, options to purchase common shares may be granted to employees,
directors and certain consultants at prices not less than the fair market value at date of grant, subject to certain limited exceptions
for options granted in substitution of other options. Options may be fully exercisable immediately or may be exercisable according
to a schedule or conditions specified by the Board of Directors or the Compensation Committee of the Board of Directors. The 2012
Plan also permits BioTime to award restricted stock for services rendered or to sell common shares to employees subject to vesting
provisions under restricted stock agreements that provide for forfeiture of unvested shares upon the occurrence of specified events
under a restricted stock award agreement. BioTime may permit employees or consultants, but not officers or directors, who purchase
stock under restricted stock purchase agreements, to pay for their shares by delivering a promissory note that is secured by a
pledge of their shares.
BioTime
may also grant stock appreciation rights (“SARs”) and hypothetical units issued with reference to BioTime common shares
(“RSUs”) under the 2012 Plan. A SAR is the right to receive, upon exercise, an amount payable in cash or shares or
a combination of cash and shares, as determined by the Board of Directors or the Compensation Committee, equal to the number of
shares subject to the SAR that is being exercised multiplied by the excess of (a) the fair market value of a BioTime common share
on the date the SAR is exercised, over (b) the exercise price specified in the SAR award agreement.
The
terms and conditions of a grant of RSUs will be determined by the Board of Directors or Compensation Committee. No shares of stock
will be issued at the time an RSU is granted, and BioTime will not be required to set aside a fund for the payment of any such
award. RSU recipients have no voting rights with respect to the shares underlying the RSU. Upon the expiration of the restrictions
applicable to an RSU, BioTime will either issue to the recipient, without charge, one common share per RSU or cash in an amount
equal to the fair market value of one common share. RSUs granted from the 2012 Plan reduce the shares available for grant by two
shares for each RSU granted.
The
following table summarizes consolidated stock-based compensation expense, including equity awards by privately-held consolidated
subsidiaries, related to stock options and other equity awards for the years ended December 31, 2018 and 2017, which was allocated
as follows (in thousands):
|
Year
Ended December 31,
|
|
|
2018
|
|
2017
|
|
Research
and development
|
$
|
785
|
|
$
|
932
|
|
General
and administrative
|
|
4,617
|
|
|
3,000
|
|
Total
stock-based compensation expense
|
$
|
5,402
|
|
$
|
3,932
|
|
As
of December 31, 2018, total unrecognized compensation costs related to unvested stock options under BioTime’s 2002 Plan
and 2012 Plan
was $6.3 million,
which is expected to be recognized as expense over
a weighted average period of
approximately 2.6 years
.
The
weighted-average estimated fair value of stock options granted under the 2012 Plan and other stock option awards granted outside
of the 2012 Plan, during the years ended December 31, 2018 and 2017 was $1.24 and $1.65 per share respectively, using the Black-Scholes
option pricing model with the following weighted-average assumptions:
|
Year
Ended December 31,
|
|
|
2018
|
|
2017
|
|
Expected
life (in years)
|
|
5.56
|
|
|
5.55
|
|
Risk-free
interest rates
|
|
2.76%
|
|
|
1.83%
|
|
Volatility
|
|
56.07%
|
|
|
58.76%
|
|
Dividend
yield
|
|
-%
|
|
|
-%
|
|
Options
and RSU Adjustment
In
connection with the AgeX Distribution discussed in Note 4 and in accordance with the provisions of the 2012 Plan and awards granted
outside of the 2012 Plan, BioTime awards issued and outstanding as of November 28, 2018 were adjusted to maintain the intrinsic
value of those awards immediately prior to and following the AgeX Distribution shown below. The adjustments to the number of shares
subject to each RSU, stock option and the option exercise prices were based on the relative market capitalization of BioTime and
AgeX as of the AgeX Distribution date. Since the adjustments were done to maintain intrinsic value of the BioTime options and
RSUs in accordance with the 2012 Plan and awards issued outside of the 2012 Plan, there was no modification in accordance with
ASC 718.
General
Option Information
A
summary of the 2012 Plan activity and other stock option awards granted outside of the 2012 Plan related information is as follows
(in thousands except weighted average exercise price):
|
|
Shares
Available
for
Grant
|
|
|
Number
of
Options
Outstanding
|
|
|
Number
of
RSUs
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
January
1, 2017
|
|
|
2,894
|
|
|
|
6,958
|
|
|
|
100
|
|
|
$
|
3.60
|
|
Increase
to option pool
|
|
|
6,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Temporary
restriction by Board on available pool
(1)
|
|
|
(5,000)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Granted
under 2012 Plan
|
|
|
(1,954)
|
|
|
|
1,954
|
|
|
|
|
|
|
|
3.04
|
|
Exercised
|
|
|
-
|
|
|
|
(9)
|
|
|
|
|
|
|
|
2.66
|
|
Forfeited/cancelled/expired
under 2012 Plan
|
|
|
545
|
|
|
|
(860)
|
|
|
|
|
|
|
|
4.43
|
|
RSU
vesting
|
|
|
-
|
|
|
|
-
|
|
|
|
(38)
|
|
|
|
|
|
December
31, 2017
|
|
|
2,485
|
|
|
|
8,043
|
|
|
|
62
|
|
|
$
|
3.38
|
|
Board
mandated restriction restored
(1)
|
|
|
5,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exchange
of options with Cell Cure
(2)
|
|
|
(866)
|
|
|
|
866
|
|
|
|
|
|
|
|
2.16
|
|
Restricted
stock units granted
(3)
|
|
|
(1,586)
|
|
|
|
-
|
|
|
|
793
|
|
|
|
n/a
|
|
Inducement
option grant
(4)
|
|
|
-
|
|
|
|
1,500
|
|
|
|
|
|
|
|
2.31
|
|
Granted
under 2012 Plan
|
|
|
(1,559)
|
|
|
|
1,559
|
|
|
|
|
|
|
|
2.84
|
|
Forfeited/cancelled/expired
under 2012 Plan
|
|
|
731
|
|
|
|
(750)
|
|
|
|
|
|
|
|
3.33
|
|
Adjustment
due to the AgeX Distribution
(5)
|
|
|
(2,294)
|
|
|
|
2,294
|
|
|
|
|
|
|
|
n/a
|
|
Adjustment
to inducement options due to the AgeX Distribution
(5)
|
|
|
-
|
|
|
|
355
|
|
|
|
|
|
|
|
|
|
Adjustment to restricted stock units due to the AgeX Distribution
(5)
|
|
|
(272)
|
|
|
|
|
|
|
|
136
|
|
|
|
n/a
|
|
Restricted
stock units vested
|
|
|
-
|
|
|
|
|
|
|
|
(466)
|
|
|
|
n/a
|
|
Restricted
stock units expired unvested
|
|
|
246
|
|
|
|
|
|
|
|
(123)
|
|
|
|
n/a
|
|
December
31, 2018
|
|
|
1,885
|
|
|
|
13,867
|
|
|
|
402
|
|
|
$
|
2.44
|
|
The
disclosures below regarding share-based awards that were granted on or before November 28, 2018 are before the applicable adjustments
made to such awards to maintain intrinsic value before and after the AgeX Distribution, as discussed above.
(1)
On
October 13, 2017, BioTime’s Board of Directors determined to temporarily set a 5.0 million total share limit on shares available
for the grant of share-based awards pursuant to the 2012 Plan. As of December 31, 2017, the total 2.5 million shares available
for grant was net of this 5.0 million share restriction. On May 4, 2018, BioTime’s Board of Directors removed this restriction,
thereby increasing shares available for the grant of share-based awards pursuant to the 2012 Plan.
(2)
On July 9, 2018, BioTime’s Board of Directors terminated the Cell Cure Equity Incentive Plan (the “Cell Cure
Plan”), under which Cell Cure employees and certain consultants (“Cell Cure Option Holders”) held outstanding
options to purchase shares of common stock in Cell Cure, and BioTime granted the Cell Cure Option Holders BioTime options of equivalent
value under the 2012 Plan in exchange for their Cell Cure options (the “BioTime Exchange”). The BioTime Exchange resulted
in 866,000 grants of BioTime stock options under the 2012 Plan, all issued with an exercise price of $2.16 per share to the Cell
Cure Option Holders, based on BioTime’s closing stock price on July 9, 2018. Of the total options granted under the BioTime
Exchange, 275,000 are subject to continued service-based vesting from the original terms under the Cell Cure Plan, and 591,000
were immediately vested on the exchange date to reflect the fact that the Cell Cure Options Holders held prior to the exchange
were already vested. Equivalent value of the BioTime Exchange was determined using the Black-Scholes option pricing model. The
BioTime Exchange was accounted for as a modification under ASC 718, and BioTime recorded a noncash stock-based compensation expense
of $298,000 for the year ended December 31, 2018 included in consolidated stock-based compensation expense.
(3)
On
May 24, 2018 and August 10, 2018, BioTime granted 485,000 and 8,000 RSUs, respectively, to employees. The RSUs vest in increments
upon the attainment of specified performance conditions, as determined by BioTime’s Board of Directors, including the completion
of the AgeX Distribution and certain clinical milestones in the development of OpRegen
®
and Renevia
®
.
Stock-based compensation expense for these performance-based RSUs is recognized when it is probable that the respective milestone
will be achieved, as determined by BioTime’s Board of Directors. On October 4, 2018, BioTime’s Board of Directors
determined that BioTime had achieved the AgeX Distribution performance condition and as a result 25%, or 123,250, of the RSUs
granted in May and August 2018 vested. On December 18, 2018, BioTime’s Board of Directors determined that BioTime had achieved
other milestones related to the RSUs and as a result an additional 50%, or 246,500, of the RSUs granted in May and August 2018
vested. The remaining 25%, or 123,250 RSUs, expired unvested on December 31, 2018.
On
September 17, 2018, BioTime granted BioTime’s new President and Chief Executive Officer, Brian M. Culley, two RSU awards
under the 2012 Plan: (1) an award of 200,000 restricted stock units (“RSU Award No. 1”) and (2) an award of 100,000
restricted stock units (“RSU Award No. 2” and together with RSU Award No. 1, the “RSU Awards”). Subject
to Mr. Culley’s continued service with BioTime, 25% of the shares subject to RSU Award No. 1 will vest on the first anniversary
of the date of grant, and the balance of the shares subject to RSU Award No. 1 will vest in 12 equal quarterly installments at
the end of each quarter thereafter. RSU Award No. 2 vested in full on January 1, 2019.
(4)
On
September 17, 2018 (the “Start Date”), Brian M. Culley became President and Chief Executive Officer of BioTime. In
connection with Mr. Culley’s employment, BioTime granted Mr. Culley an inducement option to purchase 1,500,000 of BioTime’s
common shares (the “Culley Option”). The exercise price of the Culley Option is $2.31 per share, which was the closing
stock price on September 17, 2018. This grant was made outside of the 2012 Plan and was approved by the independent members of
the Board of Directors. Subject to Mr. Culley’s continued service with BioTime on the applicable vesting date, the Culley
Option will vest and become exercisable with respect to 25% of the shares on the first anniversary of the Start Date, and the
balance of the Culley Option will vest and become exercisable in 36 equal monthly installments thereafter.
(5)
Reflects the equitable adjustment to the exercise prices and number of outstanding stock options, and to restricted stock
units, necessary to maintain the intrinsic value of those awards immediately prior to and following the AgeX Distribution.
In connection with
the vested RSUs during the year ended December 31, 2018, BioTime paid $0.2 million in minimum employee withholding taxes in exchange
for 134,000 vested shares of BioTime common stock issuable to the employees and immediately retired those shares. For the year
ended December 31, 2018, BioTime recorded a noncash stock-based compensation expense of $1.2 million, which includes $1.0 million
related to the performance-based awards discussed above, in connection with the vested RSUs, included in consolidated stock-based
compensation expense.
As
of December 31, 2018, additional information regarding options outstanding under the 2012 Plan and options outstanding outside
of the 2012 Plan, is as follows (in thousands except exercise prices and weighted average exercise price):
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of
Exercise Prices
(1)
|
|
Number
Outstanding
(1)
|
|
|
Weighted
Average Remaining
Contractual Life (years)
|
|
|
Weighted
Average
Exercise
Price
(1)
|
|
|
Number
Exercisable
(1)
|
|
|
Weighted
Average
Exercise
Price
(1)
|
|
$1.67 - $3.20
|
|
|
12,803
|
|
|
|
7.12
|
|
|
$
|
2.38
|
|
|
|
6,810
|
|
|
$
|
2.56
|
|
$3.25 - $4.01
|
|
|
1,064
|
|
|
|
2.33
|
|
|
$
|
3.46
|
|
|
|
1,046
|
|
|
$
|
3.42
|
|
$2.04 - $6.94
|
|
|
13,867
|
|
|
|
6.75
|
|
|
$
|
2.44
|
|
|
|
7,856
|
|
|
$
|
2.67
|
|
(1)
After adjustment to the applicable exercise prices, number of outstanding and exercisable stock options necessary to maintain
the intrinsic value of those awards immediately prior to and following the AgeX Distribution.
14.
Income Taxes
U.S.
Federal Income Tax Reform
On
December 22, 2017, in response to the enactment of the 2017 Tax Act (see Note 2), the SEC staff issued SAB 118 that allows companies
to record provisional amounts during a measurement period not to extend beyond one year from the enactment date. The repatriation
tax is based primarily on LifeMap Sciences Ltd, an Israeli subsidiary of LifeMap Sciences, accumulated foreign earnings and profits
that BioTime previously excluded from U.S. income taxes. As a result, LifeMap Sciences included $227,000 in foreign earnings in
federal income for the year ended December 31, 2017. The federal taxable income was offset by the LifeMap Sciences’ net
operating loss carryforwards resulting in no federal income tax due.
In
addition, for the year ended December 31, 2017, BioTime remeasured certain deferred tax assets and liabilities based on the enacted
tax rate at which they are expected to reverse in the future. The estimated tax effected amount related to the remeasurement of
these balances was a reduction of BioTime’s net deferred tax assets by $8.9 million with a corresponding decrease in the
valuation allowance by the same amount, recognized as of December 31, 2017, discussed below. BioTime applied the guidance in SAB
118 when accounting for the enactment-date effects of the 2017 Tax Act for the years ended December 31, 2018 and 2017. As of December
31, 2018, BioTime completed its accounting for all the enactment-date income tax effects of the 2017 Tax Act.
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. As of December 31, 2017, the federal portion of the deferred
tax assets and liabilities for 2017 were re-rated from 34% to 21% pursuant to the 2017 Tax Act.
The
primary components of the deferred tax assets and liabilities at December 31, 2018 and 2017 were as follows (in thousands):
Deferred tax assets/(liabilities):
|
|
2018
|
|
|
2017
|
|
Net operating loss carryforwards
|
|
$
|
37,761
|
|
|
$
|
55,608
|
|
Research and development and other credits
|
|
|
5,288
|
|
|
|
6,548
|
|
Patents and licenses
|
|
|
1,080
|
|
|
|
910
|
|
Equity method investments and marketable securities at fair value
|
|
|
(7,848)
|
|
|
|
(23,946)
|
|
Stock options
|
|
|
2,062
|
|
|
|
713
|
|
Other, net
|
|
|
174
|
|
|
|
812
|
|
Total
|
|
|
38,517
|
|
|
|
40,645
|
|
Valuation allowance
|
|
|
(38,517)
|
|
|
|
(40,645)
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
A valuation allowance
is provided when it is more likely than not that all or some portion of the deferred tax assets will not be realized. BioTime
established a full valuation allowance for all periods presented due to the uncertainty of realizing future tax benefits from
its net operating loss carryforwards and other deferred tax assets, including foreign net operating losses generated by its subsidiaries.
Income
taxes differed from the amounts computed by applying the indicated current U.S. federal income tax rate to pretax losses from
operations as a result of the following:
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Computed tax benefit at federal statutory rate
|
|
|
21%
|
|
|
|
34%
|
|
Research and development and other credits
|
|
|
1%
|
|
|
|
2%
|
|
Re-rate of federal net deferred tax assets
|
|
|
-
|
|
|
|
(38%)
|
|
Permanent differences
|
|
|
(3%)
|
|
|
|
(8%)
|
|
Change in valuation allowance
|
|
|
4%
|
|
|
|
(32%)
|
|
Establish deferred tax liability for AgeX/OncoCyte shares at deconsolidation
|
|
|
8%
|
|
|
|
17%
|
|
Deconsolidation of AgeX and subsidiaries net deferred tax assets
|
|
|
(28%)
|
|
|
|
-
|
|
State tax benefit, net of effect on federal income taxes
|
|
|
-
|
|
|
|
27%
|
|
Foreign rate differential
|
|
|
(2%)
|
|
|
|
(2%)
|
|
Income tax benefit
|
|
|
1%
|
|
|
|
-%
|
|
BioTime recorded a
federal current income tax benefit of $0.3 million for the year ended December 31, 2018 due to intraperiod allocation discussed
below (see Note 2). No income tax provision or benefit was recorded for the year ended December 31, 2017 due to a full valuation
allowance on the deferred tax assets.
As
of December 31, 2018, BioTime has gross net operating loss carryforwards of approximately $93.8 million for federal purposes.
As a result of the deconsolidation of AgeX on August 30, 2018 (Notes 3 and 4), AgeX and its subsidiaries will not be included
in the federal consolidated and state combined tax returns of BioTime after that date. Accordingly, AgeX and its subsidiaries
will file their own separate federal consolidated and state combined tax returns. In addition, AgeX and its subsidiaries will
keep their separate tax attributes, consisting primarily of net operating loss carryforwards and research and development credits
which will not be available to offset the taxable income of BioTime and not be included in the schedule of deferred tax assets
and liabilities at December 31, 2018. As of December 31, 2018, BioTime’s foreign subsidiaries have net operating loss carryforwards
of approximately $72.9 million which carryforward indefinitely.
As
of December 31, 2018, BioTime has net operating losses of $43.1 million for state tax purposes. Historically, the activities
of OncoCyte, AgeX, ReCyte, LifeMap Sciences and OncoCyte have been included in the combined California tax return with BioTime.
As a result of the OncoCyte Deconsolidation on February 17, 2017, (see Note 5), OncoCyte will file a separate California return
for tax years 2018 and 2017. As a result of the AgeX Deconsolidation on August 30, 2018, AgeX and its subsidiaries, ReCyte, LifeMap
Sciences Inc. and LifeMap Sciences Ltd (the “AgeX Group”) will file a separate California return after that date.
Accordingly, the California net operating loss carryforwards and research and development credits attributable to the AgeX Group
will not be available to BioTime and not included in the schedule of deferred tax assets and liabilities at December 31, 2018.
Federal net operating losses generated on or prior to December 31, 2017, expire in varying amounts between 2028 and 2037, while
federal net operating losses generated after December 31, 2017, carryforward indefinitely. The state net operating losses expire
in varying amounts between 2030 and 2037.
As
of December 31, 2018, BioTime has research tax credit carryforwards for federal and state tax purposes of $2.5 million
and $2.8 million, respectively. As noted above, as a result of the AgeX Deconsolidation, these tax credits reflect the
amounts for BioTime and OrthoCyte as of December 31, 2018. For federal purposes, the credits generated each year have
a carryforward period of 20 years. The federal tax credits expire in varying amounts between 2019 and 2038, while the state tax
credits have no expiration period.
On
March 23, 2018, 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 as a sale
of its equity method investment in Ascendance.
The
sale was a taxable transaction to AgeX generating a taxable gain of approximately $2.2 million. BioTime has sufficient net
operating losses to offset the entire gain resulting in no income taxes due.
The
Juvenescence Transaction discussed in
Note 3
was a taxable event for BioTime that resulted in a gross taxable gain of approximately $29.4
million, which BioTime expects to be fully offset with available net operating losses (“NOL”) and NOL carryforwards,
resulting in no net income taxes due.
Although the AgeX Deconsolidation on August 30, 2018 was not a taxable transaction
to BioTime and did not result in a current tax payment obligation, the unrealized financial reporting gain (see Note 4) on the
AgeX Deconsolidation generated a deferred tax liability in
accordance with ASC 740, primarily
representing BioTime’s difference between book and tax basis of AgeX common stock on the AgeX Deconsolidation date. BioTime
expects this deferred tax liability to be fully offset by a corresponding release of BioTime’s valuation allowance on deferred
tax assets, resulting in no income tax provision or benefit from the AgeX Deconsolidation. The deferred tax liabilities on BioTime’s
investments in OncoCyte, Asterias and AgeX are considered to be sources of taxable income as prescribed by ASC 740-10-30-17 that
will more likely than not result in the realization of its deferred tax assets to the extent of those deferred tax liabilities,
thereby reducing the need for a valuation allowance.
The
distribution of AgeX shares of common stock to BioTime shareholders (see Note 4) on November 28, 2018 was a taxable event for
BioTime that resulted in a gross taxable gain of approximately $26.4 million, which BioTime expects to be fully offset with available
net operating losses, resulting in no income taxes due.
Although
the OncoCyte Deconsolidation on February 17, 2017 was not a taxable transaction to BioTime and did not result in a tax payment
obligation, the $71.7 million unrealized gain on the OncoCyte Deconsolidation generated a deferred tax liability that was fully
offset by BioTime’s net operating losses. Subsequent to the OncoCyte Deconsolidation, an unrealized loss of $2.9 million
was recorded on the OncoCyte shares during the year ended December 31, 2017, which was fully offset by a corresponding increase
in BioTime’s valuation allowance. An unrealized loss of $48.0 million was recorded on the OncoCyte shares during the year
ended December 31, 2018, which was fully offset by a corresponding increase in BioTime’s valuation allowance.
Similarly,
the Asterias Deconsolidation on May 13, 2016 was not a taxable transaction to BioTime and did not result in a tax payment obligation,
the $49.0 million gain on the Asterias Deconsolidation generated a deferred tax liability that was fully offset by BioTime’s
net operating losses. Subsequent to the Asterias Deconsolidation, an unrealized gain of $34.3 million was recorded on the Asterias
shares during the year ended December 31, 2016, which was fully offset by available net operating losses and the corresponding
release of BioTime’s valuation allowance on deferred tax assets. Unrealized losses of $35.4 million and $51.1 million were
recorded on the Asterias shares during the years ended December 31, 2018 and 2017, respectively,
which
were fully offset by a corresponding increase in BioTime’s valuation allowance
.
In
connection with the deconsolidation of OncoCyte and Asterias (see Notes 5, 6 and 7), the market value of the respective shares
BioTime holds creates a deferred tax liability to BioTime based on the closing price of the security, less the tax basis of the
security BioTime has in such shares. The deferred tax liability generated by OncoCyte and Asterias shares that BioTime holds as
of December 31, 2018, is a source of future taxable income to BioTime, as prescribed by ASC 740-10-30-17, that will more likely
than not result in the realization of its deferred tax assets to the extent of those deferred tax liabilities. This deferred tax
liability is determined based on the closing price of those securities as of December 31, 2018.
On
June 6, 2017, BioTime and LifeMap Sciences entered into a Debt Conversion Agreement whereby BioTime acquired additional stock
in LifeMap Sciences (see Note 12) and other assets, including intellectual property in exchange for intercompany indebtedness
of approximately $8.7 million owed to BioTime. This transaction had no financial reporting impact, except for transactions between
noncontrolling interests of LifeMap Sciences discussed in Note 12. BioTime and LifeMap Sciences recorded the tax effect of the
transactions in equity instead of the tax provision in accordance with ASC 740-20-45-11(g), which requires that the tax effects
of all changes in tax bases of assets and liabilities caused by transactions among or with shareholders be included in equity.
In connection with the June 2017 transactions, LifeMap Sciences utilized approximately $3.3 million in net operating loss carryforwards
with a corresponding release of the valuation allowance recorded through equity in accordance with ASC 740-20-45-11(g).
For
income tax purposes, the purchase by BioTime of LifeMap Sciences’ intellectual property and other assets resulted in a taxable
gain to LifeMap Sciences of $3.7 million for the year ended December 31, 2017. Although LifeMap Sciences had sufficient current
year operating losses and regular net operating loss carryforwards to offset the entire gain, it incurred a federal alternative
minimum tax payable of $22,000 as of December 31, 2017. As previously noted under the 2017 Tax Act, corporations are no longer
subject to the AMT, effective for taxable years beginning after December 31, 2017. To the extent a company has an AMT credit from
a prior year, the company can carry the credit forward to offset regular tax. To the extent the company does not have a federal
tax liability, a portion of the AMT credit is refundable each year starting in 2018, with any remaining balance fully refundable
in 2021. As LifeMap Sciences will ultimately receive a full refund of the current AMT payable, fully offsetting the current provision,
there is no tax provision or benefit recorded for the year ended December 31, 2017.
For
the year ended December 31, 2018, because BioTime experienced a loss from continuing operations and generated other comprehensive
income attributable to foreign currency translation adjustments, BioTime allocated income tax expense against the component of
foreign currency translation adjustment in 2018 using a 21% tax rate. Income tax benefit related to continuing operations
for the year ended December 31, 2018 includes a tax benefit of $0.3 million due to the required intraperiod tax allocation (see
Note 2). Conversely, other comprehensive income attributable to foreign currency translation adjustments for the year ended December
31, 2018 is net of an income tax expense of $0.3 million.
Other
Income Tax Matters
Internal
Revenue Code Section 382 places a limitation (“Section 382 Limitation”) on the amount of taxable income that can be
offset by NOL carryforwards after a change in control (generally greater than 50% change in ownership within a three-year period)
of a loss corporation. California has similar rules. Generally, after a change in control, a loss corporation cannot deduct NOL
carryforwards in excess of the Section 382 Limitation. Due to these “change in ownership” provisions, utilization
of the NOL and tax credit carryforwards may be subject to an annual limitation regarding their utilization against taxable income
in future periods.
BioTime
files a U.S. federal income tax return as well as various state and foreign income tax returns. In general, BioTime is no longer
subject to tax examination by major taxing authorities for years before 2014. Although the statute is closed for purposes of assessing
additional income and tax in these years, the taxing authorities may still make adjustments to the NOL and credit carryforwards
used in open years. Therefore, the statute should be considered open as it relates to the NOL and credit carryforwards used in
open years.
BioTime
may be subject to potential examination by U.S. federal, U.S. states or foreign jurisdiction authorities in the areas of income
taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various
tax jurisdictions and compliance with U.S. federal, U.S. state and foreign tax laws. BioTime’s management does not expect
that the total amount of unrecognized tax benefits will materially change over the next twelve months.
BioTime’s
practice is to recognize interest and penalties related to income tax matters in tax expense. As of December 31, 2018 and 2017,
BioTime has no accrued interest and penalties.
15.
Commitments and Contingencies
Alameda
Lease
In
December 2015, BioTime entered into a lease for approximately 30,795 square feet of rentable space in two buildings located in
an office park in Alameda, California (the “Alameda Lease”). The term of the Alameda Lease is seven years and BioTime
has an option to renew the term for an additional five years. The term of the Alameda Lease commenced effective February 1, 2016
and expires on January 31, 2023, unless the renewal option is exercised.
Base
rent under the Alameda Lease beginning on February 1, 2019 is $70,521 per month and will increase by approximately 3% annually
on every February 1 thereafter during the lease term. The lease payments allocated to the lease liability for leasehold improvements
reimbursed by the landlord are amortized as debt service on that liability using the effective interest method over the lease
term.
In
addition to base rent, BioTime will pay a pro rata portion of increases in certain expenses, including real property taxes, utilities
(to the extent not separately metered to the leased space) and the landlord’s operating expenses, over the amounts of those
expenses incurred by the landlord. As security for the performance of its obligations under the Alameda Lease, BioTime provided
the landlord with a security deposit of approximately $424,000, which was reduced to $78,000 on January 24, 2019 in accordance
with the terms of the lease. The security deposit amount is considered restricted cash (see Note 2).
New
York Leased Office Space
BioTime
currently pays $5,050 per month for the use of approximately 900 square feet of office space in New York City, which is made available
to BioTime for use in conducting meetings and other business affairs, on a month-by-month basis, by one of its directors at an
amount that approximates his cost.
Cell
Cure Leases
Cell
Cure has leased 728.5 square meters (approximately 7,842 square feet) of office and laboratory space in Jerusalem, Israel under
a lease that expires December 31, 2020, with two additional options to extend the lease for 5 years each. Base monthly rent is
NIS 37,882 (approximately US $11,000 per month using the December 31, 2018 exchange rate).
On
January 28, 2018, Cell Cure entered into another lease agreement for an additional 934 square meters (approximately 10,054 square
feet) of office space in the same facility in Jerusalem, Israel under a lease that expires on December 31, 2025, with two additional
options to extend the lease for 5 years each (the “January 2018 Lease”). The January 2018 Lease commenced on April
1, 2018 and included a leasehold improvement construction allowance of up to NIS 4,000,000 (approximately up to $1.1 million using
the December 31, 2018 exchange rate) from the landlord.
Cell
Cure is considered the owner of the tenant improvements under construction under ASC 840-40-55 as Cell Cure, among other things,
has the primary obligation to pay for construction costs and Cell Cure will retain exclusive use of the leased facilities for
its office, research and cGMP manufacturing facility requirements after construction is completed. In accordance with this guidance,
amounts expended by Cell Cure for construction is reported as construction in progress, and the proceeds received from the landlord,
if any, are reported as a lease liability. As of December 31, 2018, approximately $0.8 million in reimbursable amounts due to
Cell Cure but not yet paid by the landlord are recorded as a landlord receivable with a corresponding increase to the lease liability
since Cell Cure has contractually earned the right to receive that payment. Upon the property being placed in service, Cell Cure
will depreciate the property (see Note 8) and the lease payments attributable to the lease liability will be accounted for as
debt service payments
using the effective interest
method over a ten year amortization period beginning on October 1, 2018
.
As
of December 31, 2018, approximately $1.1 million under the January 2018 Lease was incurred and recorded as leasehold improvement
construction in progress (see Note 8), with a corresponding amount included in long term lease liability representing the full
amount utilized from the landlord’s leasehold improvement construction allowance. Amounts incurred above the construction
allowance are paid by Cell Cure. The leasehold improvements were substantially completed in December 2018 and the assets placed
in service in January 2019. Combined base rent and construction allowance payments for the January 2018 Lease are NIS 93,827 per
month (approximately $26,000 per month) beginning on October 1, 2018.
In
December 2018, Cell Cure made a $388,000 deposit required under the January 2018 Lease, which amount is included in deposits and
other long-term assets on the consolidated balance sheet as of December 31, 2018, to be held as restricted cash during the term
of the January 2018 Lease.
In
addition to base rents, Cell Cure pays a pro rata share of real property taxes and certain costs related to the operation and
maintenance of the building in which the leased premises are located.
Annual
Rent Expense and Future Minimum Lease Payments
Rent
expense totaled $1.2 million and $1.1 million for the years ended December 31, 2018 and 2017, respectively, included in the consolidated
statements of operations.
Future
minimum annual lease payments under the various operating leases, including the Alameda Lease and the landlord lease liability,
Cell Cure leases noted above, and capital leases, for the years ending after December 31, 2018 are as follows (in thousands):
Year Ending December 31,
|
|
Minimum
Operating Lease
Payments
|
|
|
Capital Lease
Payments
|
|
2019
|
|
$
|
1,421
|
|
|
$
|
36
|
|
2020
|
|
|
1,339
|
|
|
|
36
|
|
2021
|
|
|
1,245
|
|
|
|
36
|
|
2022
|
|
|
1,251
|
|
|
|
36
|
|
2023
|
|
|
393
|
|
|
|
15
|
|
Thereafter
|
|
|
1,015
|
|
|
|
-
|
|
Total minimum lease payments
|
|
$
|
6,664
|
|
|
$
|
159
|
|
Less amounts representing interest
|
|
|
|
|
|
|
(31)
|
|
Present value of net minimum lease payments
|
|
|
|
|
|
$
|
128
|
|
Litigation
– General
BioTime
will be 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 BioTime 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, BioTime will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably
estimated, BioTime discloses the claim if the likelihood of a potential loss is reasonably possible and the amount involved could
be material (see Note 19).
Employment
Contracts
BioTime
has entered into employment agreements with certain executive officers. Under the provisions of the agreements, BioTime may be
required to incur severance obligations for matters relating to changes in control, as defined in the agreements, and involuntary
terminations.
Indemnification
In
the normal course of business, BioTime may provide indemnifications of varying scope under BioTime’s agreements with other
companies or consultants, typically BioTime’s clinical research organizations, investigators, clinical sites, suppliers
and others. Pursuant to these agreements, BioTime 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 the use or testing of BioTime’s products and services. Indemnification provisions could also cover third party infringement
claims with respect to patent rights, copyrights, or other intellectual property pertaining to BioTime products and services.
The term of these indemnification agreements will generally continue in effect after the termination or expiration of the particular
research, development, services, or license agreement to which they relate. The potential future payments BioTime could be required
to make under these indemnification agreements will generally not be subject to any specified maximum amount. Historically, BioTime
has not been subject to any claims or demands for indemnification. BioTime also maintains various liability insurance policies
that limit BioTime’s financial exposure. As a result, BioTime believes the fair value of these indemnification agreements
is minimal. Accordingly, BioTime has not recorded any liabilities for these agreements as of December 31, 2018 and 2017.
Second
Amended and Restated License Agreement
On
June 15, 2017, Cell Cure entered into a Second Amended and Restated License Agreement (the “License Agreement”) with
Hadasit Medical Research Services and Development Ltd. (“Hadasit”), the commercial arm and a wholly-owned subsidiary
of Hadassah Medical Organization. Pursuant to the License Agreement, Hadasit granted Cell Cure an exclusive, worldwide, royalty
bearing license (with the right to grant sublicenses) in its intellectual property portfolio of materials and technology related
to human stem cell derived photoreceptor cells and retinal pigment epithelial cells (the “Licensed IP”), to use, commercialize
and exploit any part thereof, in any manner whatsoever in the fields of the development and exploitation of (i) human stem cell
derived photoreceptor cells, solely for use in cell therapy for the diagnosis, amelioration, prevention and treatment of eye disorders,
and (ii) human stem cell derived retinal pigment epithelial cells, solely for use in cell therapy for the diagnosis, amelioration,
prevention and treatment of eye disorders.
As
consideration for the Licensed IP, Cell Cure will pay a small one-time lump sum payment, a royalty in the mid-single digits of
net sales from sales of Licensed IP by any invoicing entity, and
a
royalty of 21.5% of sublicensing receipts
. In addition, Cell Cure will pay Hadasit an annual
minimal non-refundable royalty, which will become due and payable the first January 1 following the completion of services to
Cell Cure by a research laboratory.
Cell
Cure will pay Hadasit non-refundable milestone payments upon the recruitment of the first patient for the first Phase IIB clinical
trial, upon the enrollment of the first patient in the first Phase III clinical trials, upon delivery of the report for the first
Phase III clinical trials, upon the receipt of an NDA or marketing approval in the European Union, whichever is the first to occur,
and upon the first commercial sale in the United States or European Union, whichever is the first to occur. Such milestones, in
the aggregate, may be up to $3.5 million. As of December 31, 2018, Cell Cure had not accrued any milestone payments under the
License Agreement.
The
License Agreement terminates upon the expiration of Cell Cure’s obligation to pay royalties for all licensed products, unless
earlier terminated. In addition to customary termination rights of both parties, Hadasit may terminate the License Agreement if
Cell Cure fails to continue the clinical development of the Licensed IP or fails to take actions to commercialize or sell the
Licensed IP over any consecutive 12 month period. The License Agreement also contains mutual confidentiality obligations of Cell
Cure and Hadasit, and indemnification obligations of Cell Cure.
Royalty
obligations and license fees
BioTime
and its subsidiaries or affiliates are parties to certain licensing agreements with research institutions, universities and other
parties for the rights to use those licenses and other intellectual property in conducting research and development activities.
These licensing agreements provide for the payment of royalties by BioTime or the applicable party to the agreement on future
product sales, if any. In addition, in order to maintain these licenses and other rights during the product development, BioTime
or the applicable party to the contract must comply with various conditions including the payment of patent related costs and
annual minimum maintenance fees. Annual minimum maintenance fees are approximately $135,000 to $150,000 per year. The research
and development risk for these products is significant. License fees and related expenses under these agreements were $133,000
and $221,000 for the years ended December 31, 2018 and 2017, respectively.
Grants
Under
the terms of the grant agreement between Cell Cure and
Israel Innovation Authority (“IIA”)
(formerly the Office of the Chief Scientist of Israel) of the Ministry of Economy and Industry, for the development of
OpRegen
®
,
Cell Cure will be required to pay royalties on future product sales, if any, up to the amounts received from the IIA, plus interest
indexed to LIBOR. Cell Cure’s research and product development activities under the grant are subject to substantial risks
and uncertainties and performed on a best efforts basis. As a result, Cell Cure is not required to make any payments under the
grant agreement unless it successfully commercializes
OpRegen
®
.
Accordingly,
pursuant to ASC 730-20, the Cell Cure grant is considered a contract to perform research and development services for others and
grant revenue is recognized as the related research and development expenses are incurred (see Note 2).
Israeli
law pertaining to such government grants contain various conditions, including substantial penalties and restrictions on the transfer
of intellectual property, or the manufacture, or both, of products developed under the grant outside of Israel, as defined by
the IIA.
16.
Segment Information
BioTime’s
executive management team, as a group, represents the entity’s chief operating decision makers. BioTime’s executive
management team views BioTime’s operations as one segment that includes, the research and development of therapeutic products
for retinal, orthopedics, oncology, and neurological diseases and disorders, blood and vascular system diseases and disorders,
blood plasma volume expansion, diagnostic products for the early detection of cancer, and hydrogel products that may be used in
surgery, and products for pluripotent cell technologies. As a result, the financial information disclosed materially represents
all of the financial information related to BioTime’s sole operating segment.
17.
Enterprise-Wide Disclosures
Geographic
Area Information
The
following table presents consolidated revenues, including license fees, royalties, grant income, and other revenues, disaggregated
by geography, based on the billing addresses of customers, or in the case of grant revenues based on where the governmental entities
that fund the grant are located (in thousands).
|
|
Year
Ended December 31,
|
Geographic
Area
|
|
2018
|
|
2017
(1)
|
|
United
States
|
|
$
|
1,804
|
|
$
|
1,651
|
|
Foreign
(2)
|
|
|
3,184
|
|
|
1,807
|
|
Total
revenues
|
|
$
|
4,988
|
|
$
|
3,458
|
|
(1)
|
Amounts
recognized prior to adoption of Topic 606 have not been adjusted under the Topic 606 modified retrospective transition method.
|
|
|
(2)
|
Foreign
revenues are primarily generated from grants in Israel.
|
The
composition of BioTime’s long-lived assets, consisting of plant and equipment, net, between those in the United States and
in foreign countries, as of December 31, 2018 and 2017, is set forth below (in thousands):
|
|
December 31,
|
|
|
|
2018
(1)
|
|
|
2017
|
|
Domestic
|
|
$
|
2,038
|
|
|
$
|
2,746
|
|
Foreign
(2)
|
|
|
3,797
|
|
|
|
2,787
|
|
Total
|
|
$
|
5,835
|
|
|
$
|
5,533
|
|
(1)
|
Reflects
the effect of the AgeX Deconsolidation.
|
|
|
(2)
|
Assets
in foreign countries principally include laboratory equipment and leasehold improvements in Israel.
|
Major
Sources of Revenues
The
following table presents BioTime’s consolidated revenues disaggregated by source (in thousands).
|
|
Year
Ended December 31,
|
|
REVENUES:
|
|
2018
|
|
2017
(1)
|
|
Grant
revenue
|
|
$
|
3,572
|
|
$
|
1,666
|
|
Royalties
from product sales and license fees
|
|
|
392
|
|
|
389
|
|
Subscription
and advertisement revenues
(2)
|
|
|
691
|
|
|
1,395
|
|
Sale
of research products and services
|
|
|
333
|
|
|
8
|
|
Total
revenues
|
|
$
|
4,988
|
|
$
|
3,458
|
|
(1)
|
Amounts
recognized prior to adoption of Topic 606 have not been adjusted under the Topic 606 modified retrospective transition method.
|
|
|
(2)
|
These
revenues were generated by LifeMap Sciences, a subsidiary of AgeX. The revenues shown for 2018 are for the period January
1, 2018 through August 29, 2018. As a result of the AgeX Deconsolidation on August 30, 2018, BioTime does not expect to recognize
this type of revenue in subsequent accounting periods.
|
The
following table shows BioTime’s major sources of revenues, as a percentage of total revenues, that were recognized during
the years ended December 31, 2018, 2017, and 2016:
|
|
Year
Ended December 31,
|
|
Sources
of Revenues
|
|
2018
|
|
2017
|
|
NIH
grant income
(1)
|
|
|
21.2%
|
|
|
5.0%
|
|
IIA
(formerly OCS) grant income (Cell Cure, Israel)
|
|
|
50.4%
|
|
|
43.2%
|
|
Subscriptions,
advertising, licensing and other (various customers)
(2)
|
|
|
20.5%
|
|
|
49.4%
|
|
Sale
of research products
|
|
|
4.2%
|
|
|
-%
|
|
Other
|
|
|
3.7%
|
|
|
2.4%
|
|
(1)
|
Reflects
income from grants to BioTime from the National Institutes of Health (NIH).
|
|
|
(2)
|
For
2018 and 2017, one individual customer represents greater than 5% of total revenues.
|
Between
January 1, 2018 through August 29, 2018, LifeMap Sciences received $0.7 million and recognized $0.5 million (net of $0.2 million
in royalty and commission fees included in cost of sales) in net subscription and advertisement revenues from LifeMap Sciences’
online database business primarily related to its
GeneCards
®
database. During 2017, LifeMap Sciences received
$1.4 million and recognized $1.2 million (net of $168,000 in royalty and commission fees included in cost of sales) in net subscription
and advertisement revenues from LifeMap Sciences’ online database business primarily related to its
GeneCards
®
database.
18.
Selected Quarterly Financial Information (UNAUDITED, in thousands, except per share data)
BioTime
has derived this data from the unaudited consolidated interim financial statements that, in BioTime’ s opinion, have been
prepared on substantially the same basis as the audited consolidated financial statements contained herein and include all normal
recurring adjustments necessary for a fair presentation of the financial information for the periods presented. These unaudited
consolidated quarterly results should be read in conjunction with the consolidated financial statements and notes thereto included
herein. The consolidated operating results in any quarter are not necessarily indicative of the consolidated results that may
be expected for any future period.
Year Ended December 31, 2018
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
Revenues, net
|
|
$
|
701
|
|
|
$
|
2,547
|
|
|
$
|
982
|
|
|
$
|
758
|
|
Operating expenses
|
|
|
12,779
|
|
|
|
11,585
|
|
|
|
11,304
|
|
|
|
10,813
|
|
Loss from operations
|
|
|
(12,187)
|
|
|
|
(9,144)
|
|
|
|
(10,357)
|
|
|
|
(10,107)
|
|
Net income (loss) attributable to BioTime
|
|
|
(63,548)
|
|
|
|
(4,215)
|
|
|
|
66,725
|
|
|
|
(44,952)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
(0.50)
|
|
|
$
|
(0.03)
|
|
|
$
|
0.53
|
|
|
$
|
(0.36)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net
|
|
$
|
333
|
|
|
$
|
376
|
|
|
$
|
1,636
|
|
|
$
|
945
|
|
Operating expenses
|
|
|
11,595
|
|
|
|
10,694
|
|
|
|
11,149
|
|
|
|
10,508
|
|
Loss from operations
|
|
|
(11,262)
|
|
|
|
(8,564)
|
|
|
|
(9,513)
|
|
|
|
(9,563)
|
|
Net income (loss) attributable to BioTime
|
|
|
49,288
|
|
|
|
(11,651)
|
|
|
|
14,321
|
|
|
|
(71,934)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
0.46
|
|
|
$
|
(0.11)
|
|
|
$
|
0.12
|
|
|
$
|
(0.58)
|
|
Quarterly
and year-to-date computations of net income (loss) per share amounts are calculated using the respective period weighted average
shares outstanding. Therefore, the sum of the per share amounts for the quarters may not agree with the per share amounts for
the year.
19.
Subsequent Events
Research
and Option Agreement
On
January 5, 2019, BioTime and Orbit Biomedical Limited (“Orbit”) entered into a Research and Option Agreement (the
“Orbit Agreement”) for an exclusive partnership to assess Orbit’s vitrectomy-free subretinal injection device
as a means of delivering OpRegen in the ongoing Phase I/IIa study. The term of the Orbit Agreement is for one year unless certain
research activities and related data specified in the Orbit Agreement is obtained sooner. The access fees payable by BioTime to
Orbit for its technology and the injection device are $2.5 million in the aggregate, of which $1.25 million was paid in January
2019 upon execution of the Orbit Agreement and the remaining $1.25 million payment is due on the earlier of (i) six months from
the Orbit Agreement date or, (ii) upon completion of certain collaborative research activities using the Orbit technology for
the OpRegen clinical trial, as specified in the Orbit Agreement. In addition to the access fees, BioTime will pay Orbit for costs
of consumables, training services, travel costs and other out of pocket expenses incurred by Orbit for performing services under
the Orbit Agreement. BioTime will have exclusive rights to the Orbit technology and its injection device for the treatment of
dry-AMD during the term of the Orbit Agreement and may extend the term for an additional three months by paying Orbit a cash fee
of $500,000.
Option
Grants
In
January and February 2019, BioTime granted stock options to purchase 1.7 million common shares with exercise prices ranging from
$1.08 per share to $1.14 per share to its employees, including to its new Chief Financial Officer hired in January 2019, under
the 2012 Plan. These grants are subject to the customary vesting terms and conditions in accordance with the 2012 Plan.
Payment
of Receivable from OncoCyte
On
February 15, 2019, OncoCyte paid the $2.1 million in shared services due to BioTime (see Note 11) as of December 31, 2018.
Asterias
Merger
On
November 7, 2018, BioTime, Asterias and Patrick Merger Sub, Inc., a wholly owned subsidiary of BioTime (“Merger Sub”),
entered into an Agreement and Plan of Merger (the “Merger Agreement”) whereby BioTime will acquire all of the outstanding
common stock of Asterias in a stock-for-stock transaction of 0.71 shares of BioTime common shares for every share of Asterias
common stock (the “Asterias Merger”).
On
February 19, 2019, a putative shareholder class action lawsuit was filed (captioned
Lampe v. Asterias Biotherapeutics, Inc.
et al
., Case No. RG19007391) in the Superior Court of the State of California, County of Alameda challenging the Asterias
Merger. The complaint names BioTime, Asterias, Patrick Merger Sub, Inc., the Asterias board of directors, one member of BioTime’s
board of directors, and certain stockholders of both BioTime and Asterias. The action was brought by a purported stockholder of
Asterias, on behalf of a putative class of Asterias stockholders, and asserts breach of fiduciary duty and aiding and abetting
claims under Delaware law. The complaint alleges, among other things, that the process leading up to the Asterias Merger was conflicted
and inadequate, and that the proxy statement filed by Asterias with the Securities and Exchange Commission omits certain material
information, which allegedly renders the information disclosed materially misleading. The complaint seeks, among other things,
to enjoin the Asterias Merger, or in the event the Asterias Merger is consummated, to recover monetary damages.
BioTime
believes that the allegations lack merit and intends to vigorously defend all claims asserted.
It
is impossible at this time to assess whether the outcome of this proceeding will have a material adverse effect on BioTime’s
consolidated results of operations, cash flows or financial position. Therefore,
in accordance
with ASC 450,
Contingencies
,
BioTime has not recorded any accrual for a contingent liability associated with this
legal proceeding based on its belief that a liability, while possible, is not probable nor estimable, and any range of potential
contingent liability amounts cannot be reasonably estimated at this time. BioTime records legal expenses as incurred.
On
March 7, 2019, the shareholders of each of BioTime and Asterias approved the Merger Agreement. As discussed in Note 7, prior to
the consummation of the Merger Agreement, BioTime owned approximately 39% of Asterias’ issued and outstanding common stock
and accounts for Asterias as an equity method investment.
On
March 8, 2019, the Asterias merger closed and the Merger Sub merged with and into Asterias with Asterias surviving the Asterias
Merger as a wholly-owned subsidiary of BioTime. Pursuant to the terms of the Merger Agreement, at the closing of the merger on
March 8, 2019, Asterias became a wholly owned subsidiary of BioTime and the previous stockholders of Asterias (other than BioTime)
received 0.71 shares of BioTime common share for every share of Asterias common stock (the “Merger Consideration”).
In the Merger Consideration, BioTime issued 24,729,516 number of shares of common stock, which included 91,703 shares
issued for all Asterias restricted stock units that immediately vested in connection with the Asterias Merger, for aggregate Merger
Consideration of $32.4 million. BioTime also assumed 1,997,342 of Asterias warrants and the Asterias option pool which
includes 5,189,520 shares.
The
Asterias Merger will be accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification
Topic 805 (“ASC 805”),
Business Combinations
, which requires, among other things, that the assets and liabilities
assumed be recognized at their fair values as of the acquisition date. The acquisition related disclosures required by ASC 805
cannot be made as the initial accounting for the Asterias Merger is incomplete. Key financial data such as the determination of
the fair value of the assets acquired and liabilities assumed is not yet available.