NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization, Basis of Presentation and Liquidity
AgeX
Therapeutics, Inc. (“AgeX”) was incorporated in January 2017 in the state of Delaware as a subsidiary of Lineage Cell Therapeutics,
Inc. (“Lineage,” formerly known as BioTime, Inc.), a publicly traded, clinical-stage biotechnology company.
AgeX
is a biotechnology company focused on the development and commercialization of novel therapeutics targeting human aging and degenerative
diseases. AgeX’s mission is to apply its comprehensive experience in fundamental biological processes of human aging to a broad
range of age-associated medical conditions.
AgeX’s
proprietary technology, based on telomerase-mediated cellular immortality and regenerative biology, allows AgeX to utilize telomerase-expressing
regenerative pluripotant stem cells (“PSCs”) for the manufacture of cell-based therapies to regenerate tissues afflicted
with age-related chronic degenerative disease. AgeX’s main technology platforms and product candidates are:
| ● | PureStem®
PSC-derived clonal embryonic progenitor cell lines that may be capable of generating
a broad range of cell types for use in cell-based therapies; |
| ● | UniverCyte™
which uses the HLA-G gene to suppress rejection of transplanted cells and tissues to confer
low immune observability to cells; |
| ● | AGEX-BAT1
using adipose brown fat cells for metabolic diseases such as Type II diabetes and obesity; |
| ● | AGEX-VASC1
using vascular progenitor cells to treat tissue ischemia such as in peripheral vascular disease
and ischemic heart disease; and |
| ● | Induced
tissue regeneration or iTR technology to regenerate or rejuvenate cells to treat a variety
of degenerative diseases including those associated with aging, as well as other potential
tissue regeneration applications such as scarless wound repair. |
AgeX
is an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012.
Lineage’s
sale of significant ownership interest in AgeX to Juvenescence
On
August 30, 2018, Lineage consummated the sale of 14,400,000
shares of common stock of AgeX owned by Lineage
to Juvenescence Limited (“Juvenescence”). Prior to the transaction, Juvenescence owned 5.6%
of AgeX’s issued and outstanding common stock. Upon completion of the transaction, Lineage’s ownership in AgeX was reduced
from 80.4%
to 40.2%
of AgeX’s issued and outstanding shares of common stock, and Juvenescence’s ownership in AgeX was increased from 5.6%
to 45.8%
of AgeX’s issued and outstanding shares of common stock. AgeX did not receive any proceeds from the transaction. As a result of
that transaction, AgeX ceased to be a subsidiary of Lineage because Lineage experienced a “loss of control” of a subsidiary,
as defined by U.S. GAAP. Loss of control is deemed
to have occurred when, among other things, a parent company owns less than a majority of the outstanding common stock in the subsidiary,
lacks a controlling financial interest in the subsidiary and, is unable to unilaterally control the subsidiary through other means such
as having, or being able to obtain, the power to elect a majority of the subsidiary’s Board of Directors based solely on contractual
rights or ownership of shares holding a majority of the voting power of the subsidiary’s voting securities. All of these loss-of-control
factors were present with respect to Lineage’s ownership interest in AgeX as of August 30, 2018. Accordingly, Lineage deconsolidated
AgeX’s consolidated financial statements and results from its consolidated financial statements and results beginning on August
30, 2018.
On
November 28, 2018 (the “Distribution Date”), Lineage distributed to its shareholders, on a pro rata basis, 12,697,028 shares
of the AgeX common stock it then held (the “Distribution”). Immediately after the Distribution, Lineage retained 1,718,972
shares of AgeX common stock, representing approximately 4.8% of the common stock then issued and outstanding. Following the Distribution,
AgeX common stock began publicly trading on the NYSE American under the symbol “AGE” (see Notes 5 and 8).
Disposition
and Deconsolidation of LifeMap Sciences
On
March 6, 2021, AgeX and its then majority-owned subsidiary LifeMap Sciences, Inc. (“LifeMap Sciences”) entered into an Agreement
and Plan of Merger (the “Merger Agreement”) with Atlas Capital Partners Limited, a British Virgin Islands company limited
by shares (“Atlas”), and GCLMS Acquisition Corporation (“GCLMS”), a Delaware corporation that was a wholly-owned
subsidiary of Atlas. On March 15, 2021, the merger was completed pursuant to the terms of the Merger Agreement. As a result of the merger,
GCLMS merged into LifeMap Sciences and (a) the shares of LifeMap Sciences common stock outstanding at the time of the merger entitled
the holders of those shares to receive a pro rata portion of a $500,000 cash payment for all shares of LifeMap Sciences common stock
in the aggregate (the “Merger Consideration”), with each LifeMap Sciences shareholder’s pro rata portion of the Merger
Consideration to be determined in accordance with the number of shares of LifeMap Sciences common stock owned by such shareholder as
a percentage of shares of LifeMap Sciences common stock outstanding immediately before the effective date of the merger, and (b) the
outstanding shares of GCLMS common stock were converted into shares of LifeMap Sciences common stock so that Atlas is now the sole shareholder
of LifeMap Sciences.
AgeX
received approximately $466,400 in cash as its pro rata share of the Merger Consideration in the merger. Prior to and as a condition
to the merger under the terms of the Merger Agreement, $1,761,296 of LifeMap Sciences’ indebtedness to AgeX was converted into
shares of LifeMap Sciences common stock. LifeMap Sciences also paid AgeX $250,000 in cash to pay off a portion of LifeMap Sciences’
indebtedness to AgeX that was not converted into shares of LifeMap Sciences common stock.
As
a result of the completion of the cash-out merger on March 15, 2021, LifeMap Sciences is no longer a subsidiary of AgeX. Accordingly,
AgeX has deconsolidated LifeMap Sciences’ consolidated financial statements and consolidated results of operations from AgeX, effective
March 15, 2021 (the “LifeMap Deconsolidation”), in accordance with Accounting Standards Codification, or ASC 810-10-40, Consolidation.
See
Note 3 for additional information regarding the disposition and deconsolidation of LifeMap Sciences.
Going
Concern
AgeX
primarily finances its operations through sales of its common stock, loans from its largest stockholder
Juvenescence, and research grants. AgeX has incurred operating losses and negative cash flows since inception and had an accumulated
deficit of $105.7 million as of December 31, 2021. AgeX expects to continue to incur operating losses and negative cash flows.
Based
on a strategic review of its operations, giving consideration to the status of its product development programs, human resources, capital
needs and resources, and current conditions in the capital markets, AgeX’s board of directors and management have adopted operating
plans and budgets to extend the period over which AgeX can continue its operations with its available cash resources. Notwithstanding
those operating plans and budgets, based on AgeX’s most recent projected cash flows AgeX believes that its cash and cash equivalents
of $0.6 million as of December 31, 2021 plus the loan facilities provided by Juvenescence to advance up to an additional $5,000,000 for
operating capital discussed in Notes 5 and 10, and the proceeds we may receive from the sale of additional shares of our common stock
in “at-the-market” transactions through a Sales Agreement with Chardan Capital, LLC (“Chardan”) as a sales agent,
would not be sufficient to satisfy AgeX’s anticipated operating and other funding requirements for the next twelve months from
the issuance of these consolidated financial statements. These conditions raise substantial doubt about AgeX’s ability to continue
as a going concern. AgeX will need to obtain substantial additional funding in connection with its continuing operations.
Staff
Reductions and Elimination of Laboratory Facilities Lease
During
April 2020, AgeX initiated staff layoffs that affected 11 research and development personnel. AgeX paid approximately $105,000 in accrued
payroll and unused paid time off and other benefits and recognized approximately $195,000 in restructuring charges in connection with
the reduction in staffing, consisting of contractual severance and other employee termination benefits. The staff reductions followed
AgeX’s strategic review of its operations, giving consideration to the status of its product development programs, human resources,
capital needs and resources, and current conditions in the capital markets resulting from the COVID-19 pandemic.
Following
the staff reductions, AgeX subleased out a significant portion of its leased laboratory space and did not renew its lease or enter into
a new lease for a replacement facility when its lease expired on December 31, 2020. Instead, AgeX entered into a lease for a smaller
office only space commencing January 1, 2021.
Principles
of consolidation
The
consolidated financial statements of AgeX are presented in accordance with U.S. GAAP. AgeX’s consolidated financial statements
include the accounts of its subsidiaries and certain research and development departments. AgeX consolidated its direct and indirect
wholly-owned or majority-owned subsidiaries because AgeX has the ability to control their operating and financial decisions and policies
through its ownership, and the noncontrolling interest is reflected as a separate element of stockholders’ deficit on AgeX’s
consolidated balance sheets.
AgeX’s
consolidated balance sheet at December 31, 2020, as reported, includes LifeMap Sciences’ consolidated assets and liabilities, after
intercompany eliminations. However, LifeMap Sciences’ consolidated assets and liabilities are not included in AgeX’s consolidated
balance sheet at December 31, 2021, due to the deconsolidation of LifeMap Sciences on March 15, 2021. LifeMap Sciences’ consolidated
financial statements and consolidated results of operations include its wholly-owned and consolidated subsidiary LifeMap Sciences, Ltd.
AgeX’s
consolidated statements of operations for the year ended December 31, 2021 include LifeMap Sciences’ consolidated results for the
period through March 15, 2021 rather than the day immediately preceding the deconsolidation due to the conversion of $1,761,296 of LifeMap
Sciences’ indebtedness to AgeX into shares of LifeMap Sciences common stock on March 15, 2021 followed by the completion of the
cash-out merger on the same day. For the year ended December 31, 2020, AgeX’s consolidated results include LifeMap Sciences’
consolidated results for the full period presented.
AgeX
has one operating subsidiary, ReCyte Therapeutics, Inc. (“ReCyte”). ReCyte is an early stage pre-clinical research and development
company involved in stem cell-derived endothelial and cardiovascular related progenitor cells for the treatment of vascular disorders
and ischemic conditions. AgeX owns 94.8% of the outstanding capital stock of ReCyte.
All
material intercompany accounts and transactions between AgeX and its subsidiaries have been eliminated in consolidation.
Use
of estimates
The
preparation of consolidated financial statements in conformity with 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, allocations and adjustments necessary for carve-out basis of presentation, including the separate
return method for income taxes, 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 or other equity instruments. Actual results could differ materially
from those estimates. To the extent there are material differences between the estimates and actual results, AgeX’s future results
of operations will be affected.
Transactions
with noncontrolling interests of subsidiaries
AgeX
accounts for a change in ownership interests in its subsidiaries that does not result in a change of control of the subsidiary 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 U.S. GAAP, before and after the
transaction. Under this guidance, changes in a controlling stockholder’s ownership interest that do not result in a change of control,
as defined by U.S. GAAP, in the subsidiary are accounted for as equity transactions. Accordingly, if the controlling stockholder
retains control, no gain or loss is recognized in the statements of operations of the controlling stockholder. Similarly, the controlling
stockholder 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
stockholders occurs based on the respective ownership percentages.
Reclassifications
Certain
reclassifications have been made to the prior years’ consolidated financial statements to conform to current year presentation
of discontinued operations. Certain financial information is presented on a rounded basis, which may cause minor differences. See Note
3 for further information on discontinued operations.
Liquidity
and impact of COVID-19
In
addition to general economic and capital market trends and conditions, AgeX’s ability to raise sufficient additional capital to
finance its operations from time to time will depend on a number of factors specific to AgeX’s operations such as operating expenses
and progress in out-licensing its technologies and development of its product candidates. The availability of financing may be adversely
impacted by the COVID-19 pandemic which could depress national and international economies and disrupt capital markets, supply chains,
and aspects of AgeX’s operations. The extent to which the ongoing COVID-19 pandemic will ultimately impact AgeX’s business,
results of operations, financial condition, or cash flows is highly uncertain and difficult to predict because it will depend on many
factors that are outside AgeX’s control. The unavailability or inadequacy of financing to meet future capital needs could force
AgeX to modify, curtail, delay, or suspend some or all aspects of planned operations. Sales of additional equity securities could result
in the dilution of the interests of its stockholders. AgeX cannot assure that adequate financing will be available on favorable terms,
if at all.
2.
Summary of Significant Accounting Policies
Going
concern assessment
AgeX
assesses going concern uncertainty for its consolidated financial statements to determine if AgeX 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 Financial Accounting Standard
Board’s (“FASB”) ASU No. 2014-15. As part of this assessment, based on conditions that are known and reasonably knowable
to AgeX, AgeX will consider various scenarios, forecasts, projections, and estimates, and AgeX 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, AgeX 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.
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:
| ● | 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 liabilities,
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, AgeX 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,
AgeX has no financial assets or liabilities recorded at fair value on a recurring basis, except for cash and cash equivalents primarily
consisting of money market funds. These assets are measured at fair value using the period-end quoted market prices as a Level 1 input.
The
carrying amounts of accounts receivable, net, prepaid expenses and other current assets, related party amounts due to affiliates, accounts
payable, accrued liabilities and other current liabilities approximate fair values because of the short-term nature of these items.
Cash
and cash equivalents
AgeX
considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of December
31, 2021 and 2020, AgeX’s cash balances totaled $0.6 million and $0.5 million, respectively, and consist entirely of bank account
deposits and amounts held in money market funds.
Concentrations
of credit risk
Financial
instruments that potentially subject AgeX to significant concentrations of credit risk consist primarily of cash and cash equivalents.
AgeX 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, AgeX
has not experienced any losses on such accounts.
Restricted
cash
In
accordance with ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, a reconciliation of AgeX’s cash and cash
equivalents in the consolidated balance sheets to cash, cash equivalents and restricted cash in the consolidated
statements of cash flows for all periods presented is as follows (in thousands):
Schedule
of Cash, Cash Equivalents and Restricted Cash
| |
| | |
| |
| |
Year
Ended December 31, | |
| |
2021 | | |
2020 | |
Cash
and cash equivalents | |
$ | 584 | | |
$ | 527 | |
Restricted
cash included in deposits | |
| 50 | | |
| 50 | |
Total
cash, cash equivalents, and restricted cash as shown in the consolidated statements of cash flows | |
$ | 634 | | |
$ | 577 | |
Restricted
cash entirely represents the deposit required to maintain AgeX’s corporate credit card program. All restricted cash was included
in deposits and other long-term assets in the consolidated balance sheets.
Accounts
receivable, net
AgeX
establishes an allowance for doubtful accounts based on the evaluation of the collectability of its receivables after considering 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. For subscription
contracts in which the subscription term commences before a payment was due, LifeMap Sciences recorded an accounts receivable as the
subscription was earned over time and billed the customer according to the contract terms. There were no amounts reserved for doubtful
accounts as of December 31, 2021 and 2020.
Equipment
and furniture, net
Equipment
and furniture is stated at cost and is being depreciated using the straight-line method over their estimated useful lives ranging from
3 to 10 years. Maintenance and repairs are expensed as incurred whereas significant renewals and betterments are capitalized. When assets
are retired or otherwise disposed of, the cost and the related accumulated depreciation are removed from the respective accounts and
any resulting gain or loss is reflected in AgeX’s consolidated results of operations.
Leases
On
January 1, 2019, AgeX adopted ASU 2016-02, Leases (Topic 842, “ASC 842”) and its subsequent amendments affecting AgeX:
(i) ASU 2018-10, Codification Improvements to Topic 842, Leases, and (ii) ASU 2018-11, Leases (Topic 842): Targeted improvements,
using the modified retrospective method.
AgeX
management determines if an arrangement is a lease at inception. Leases are classified as either financing or operating, with classification
affecting the pattern of expense recognition in the consolidated statements of operations. When determining whether a lease is a financing
lease or an operating lease, ASC 842 does not specifically define criteria to determine “major part of remaining economic life
of the underlying asset” and “substantially all of the fair value of the underlying asset.” For lease classification
determination, AgeX continues to use (i) 75% or greater to determine whether the lease term is a major part of the remaining economic
life of the underlying asset and (ii) 90% or greater to determine whether the present value of the sum of lease payments is substantially
all of the fair value of the underlying asset. Under the available practical expedients, and as applicable, AgeX accounts for the lease
and non-lease components as a single lease component. AgeX recognizes right-of-use (“ROU”) assets and lease liabilities for
leases with terms greater than twelve months in the consolidated balance sheet.
ROU
assets represent an entity’s right to use an underlying asset during the lease term and lease liabilities represent an entity’s
obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date
based on the present value of lease payments over the lease term. If the lease agreement does not provide an implicit rate in the contract,
an entity uses its incremental borrowing rate based on the information available at commencement date in determining the present value
of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The lease terms
may include options to extend or terminate the lease when it is reasonably certain that the entity will exercise that option. Lease expense
for lease payments is recognized on a straight-line basis over the lease term.
Upon
adoption of ASC 842 and based on the practical expedients available under that standard, AgeX did not reassess any expired or existing
contracts, reassess the lease classification for any expired or existing leases and reassess initial direct costs for exiting leases.
AgeX also elected not to capitalize leases that have terms of twelve months or less.
AgeX’s
sublease of its office and laboratory facility, which commenced on April 2, 2019 and ended on December 31, 2020, was subject to ASC 842.
AgeX recognized its lease as a right-of-use asset included in property and equipment, net and operating lease liability on its balance
sheet in accordance with ASC 842 up until the lease terminated on December 31, 2020 (see Note 9). During 2020, AgeX as a sublessor subleased
portions of its office and laboratory space to certain unaffiliated third parties. These subleases are not accounted for under ASC 842
as amounts are not material and or the sublease periods are under one year.
On
November 3, 2020, AgeX entered into a one year lease effective January 1, 2021 for office space only comprising 135 square feet in a
building in an office and research park at 1101 Marina Village Parkway, Suite 201, Alameda, California. Base monthly rent was $947 over
the lease term. AgeX has elected to not apply the recognition requirements under ASC 842 and instead recognizes the lease payments as
lease cost on a straight-line basis over the lease term as lease payments are not deemed material. AgeX has renewed this lease for another
12 months effective January 1, 2022 for base monthly rent of $1,074. AgeX has elected to not apply the recognition requirements under
ASC 842 for the renewed lease agreement under the guidance for similar reasons aforementioned.
Long-lived
intangible assets
Long-lived
intangible assets, consisting primarily of acquired patents, patent applications, and licenses to use certain patents, including acquired
in-process research and development (“IPR&D”) with alternative future uses, 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 (see Note 4).
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, AgeX 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. Through December 31, 2021, there have been no impairment losses.
Accounting
for warrants
AgeX
determines the accounting classification of warrants it issues, 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, 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 AgeX to settle the warrants or the underlying shares by paying cash or other assets, or warrants
that must or may require settlement by issuing a variable number of shares. If warrants do not meet liability classification under
ASC 480-10, AgeX 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, and in order to conclude equity
classification, AgeX also assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity
under ASC 815-40 or other applicable U.S. GAAP. After all relevant assessments, AgeX concludes whether the warrants are classified
as liability or equity. Liability classified warrants require fair value accounting at issuance and subsequent to initial issuance with
all changes in fair value after the issuance date recorded in the statements of operations. Equity classified warrants only require fair
value accounting at issuance with no changes recognized subsequent to the issuance date. AgeX does not have any liability classified
warrants as of any period presented See Notes 5 and 10 for additional information regarding warrants.
Stock-based
compensation
AgeX
recognizes compensation expense related to employee option grants and restricted stock grants, if any, in accordance with FASB ASC 718,
Compensation – Stock Compensation (“ASC 718”).
AgeX
estimates the fair value of employee stock-based payment awards on the grant-date and recognizes the resulting fair value, net of estimated
forfeitures for grants prior to 2017, over the requisite service period. Upon adoption of Accounting Standards Update (“ASU”)
2016-09 on January 1, 2017 as further discussed below, forfeitures 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.
AgeX
uses the Black-Scholes option pricing model for estimating the fair value of options granted under the Incentive Plan. The fair value
of each restricted stock grant, if any, is determined based on the value of the common stock granted or sold. AgeX has elected to treat
stock-based payment awards with time-based service conditions as a single award and recognizes stock-based compensation on a straight-line
basis over the requisite service period.
Compensation
expense for non-employee stock-based awards is recognized in accordance with ASC 718. Stock option awards issued to non-employees, principally
consultants or outside contractors, as applicable, are accounted for at fair value using the Black-Scholes option pricing model. Management
believes that the fair value of the stock options and restricted stock units can more reliably be measured than the fair value of services
received. AgeX records compensation expense based on the then-current fair values of the stock options and restricted stock units at
the grant date. Compensation expense for non-employee grants is recorded on a straight-line basis in the consolidated statements of operations.
The
Black-Scholes option pricing model requires AgeX to make certain assumptions including the fair value of the underlying common stock,
the expected term, the expected volatility, the risk-free interest rate and the dividend yield (see Note 7).
The
fair value of the shares of common stock underlying the stock options is determined in accordance with the Incentive Plan and is based
on prevailing market prices on the NYSE American where AgeX common stock is traded.
The
expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding.
AgeX estimates the expected term of options granted using the “simplified method” provided under Staff Accounting Bulletin,
Topic 14, or SAB Topic 14.
Because
AgeX’s common stock had no publicly traded history prior to November 29, 2018, for the years ended December 31, 2021 and 2020,
AgeX estimated the expected volatility using its own stock price volatility to the extent applicable or a combination of its stock price
volatility and the stock price volatility of peer companies, for a period equal to the expected term of the options. The peer companies
used include selected public companies within the biotechnology industry with comparable characteristics to AgeX, including similarity
in size, lines of business, market capitalization, revenue and financial leverage.
The
risk-free interest rate assumption is based upon observed interest rates on the United States government securities appropriate for the
expected term of AgeX’s stock options.
The
dividend yield assumption is based on AgeX’s history and expectation of dividend payouts. AgeX has never declared or paid any cash
dividends on its common stock, and AgeX does not anticipate paying any cash dividends in the foreseeable future.
All
excess tax benefits and tax deficiencies from stock-based compensation awards accounted for under ASC 718 are recognized as an income
tax benefit or expense, respectively, in the consolidated statements of operations. An excess income tax benefit arises when the tax
deduction of a share-based award for income tax purposes exceeds the compensation cost recognized for financial reporting purposes and,
a tax deficiency arises when the compensation cost exceeds the tax deduction.
Stock-based
compensation expense for the years ended December 31, 2021 and 2020 consists of stock-based compensation under the Incentive Plan (see
Note 7).
Certain
of AgeX’s consolidated subsidiaries have had their own share-based compensation plans however, there are no awards granted and
outstanding under those plans as of December 31, 2021 and 2020. For share-based compensation awards granted by those privately-held consolidated
subsidiaries under their respective equity plans, AgeX determines the fair value of the options granted under those plans using similar
methodologies and assumptions AgeX used for its stock options discussed above.
Although
the fair value of stock options and restricted stock units is determined in accordance with FASB guidance, changes in the assumptions
and allocations can materially affect the estimated value and therefore the amount of compensation expense recognized in the consolidated
financial statements.
Income
taxes
For
Federal and California purposes, AgeX’s activity through August 30, 2018 was included in Lineage’s federal consolidated and
California combined tax returns. However, the net operating losses and research and development credits generated before August 17, 2017,
the contribution date to AgeX, will remain as tax attributes of Lineage (see Note 8). In general, net operating losses and other tax
credit carryforwards generated by legal entities in a consolidated federal tax group or a combined state tax group, collectively “the
tax group”, are available to other members of the tax group depending on the nature of the transaction that a member may enter
into while still in the tax group. However, under the Tax Matters Agreement between Lineage and AgeX entered into on August 17, 2017,
any use of a member’s net operating loss and other tax credit carryforwards by the other member is subject to reimbursement by
the benefiting member for the actual tax benefit realized. Since the August 30, 2018 deconsolidation of AgeX and to date, neither Lineage
nor AgeX has used the tax attributes of the other.
AgeX
accounts for income taxes in accordance with ASC 740, which prescribes 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 enacted 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. AgeX’s judgments, estimates and projections regarding future taxable income may change
over time due to changes, among other factors, in market conditions, changes in tax laws, and tax planning strategies. If AgeX’s
assumptions and consequently its estimates change in the future, the valuation allowance may be increased or decreased, which may have
a material impact on AgeX’s consolidated financial statements.
The
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 those benefits to be recognized, a tax position must be more-likely-than-not
sustainable upon examination by taxing authorities. AgeX recognizes accrued interest and penalties related to unrecognized tax benefits
as income tax expense. No unrecognized tax benefits have been recorded and no amounts were accrued for the payment of interest and penalties
as of December 31, 2021 and 2020. AgeX does not expect that the total amount of unrecognized tax benefits will materially change over
the next twelve months. AgeX is currently unaware of any tax issues under review.
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, but not limited to, lowering the U.S. federal tax rates to a 21% flat
tax rate, eliminating the corporate alternative minimum tax (“AMT”), imposing additional limitations on the deductibility
of interest and net operating losses, allowing any net operating loss (“NOLs”) generated in tax years ending after December
31, 2017 to be carried forward indefinitely and generally repealing carrybacks, reducing the maximum deduction for NOL carryforwards
arising in tax years beginning after 2017 to a percentage of the taxpayer’s taxable income, and allowing for additional expensing
of certain capital expenditures. Future guidance from the Internal Revenue Service and other tax authorities may affect certain aspects
of the 2017 Tax Act, for example, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the Consolidated
Appropriations Act, 2021 (“CAA”) modified certain provisions of the 2017 Tax Act. In addition, it is uncertain if and to
what extent various states will conform to the 2017 Tax Act, the CARES Act or the CAA. The 2017 Tax Act also puts into effect a number
of changes impacting operations outside of the United States including, but not limited to, the imposition of a one-time tax “deemed
repatriation” on accumulated offshore earnings not previously subject to U.S. tax, and shifts the U.S taxation of multinational
corporations from a worldwide system of taxation to a territorial system. ASC 740 requires the effects of changes in tax rates and laws
on deferred tax balances (including the effects of the one-time transition tax) to be recognized in the period in which the legislation
is enacted (see Note 8).
Beginning
in 2018, the 2017 Tax Act subjects a U.S. stockholder to tax on Global Intangible Low Tax Income “GILTI” earned by certain
foreign subsidiaries. In general, GILTI is the excess of a U.S. stockholder’s total net foreign income over a deemed return on
tangible assets. The provision further allows a deduction of 50%
of GILTI, however this deduction is limited to the company’s pre-GILTI U.S. income. For the year ended December 31, 2020, AgeX’s
foreign entity operated at a book loss. However, for GILTI purposes, US tax laws are applied to the foreign activity and as a result
there was an immaterial amount included in income for 2020. For the year ended December 31, 2021, AgeX’s foreign entity operated
at an immaterial loss; therefore, no GILTI was included in 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. We have elected
to account for GILTI as a current period expense when incurred.
Revenue
recognition
During
the first quarter of 2018, AgeX adopted FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which created a single,
principle-based revenue recognition model that supersedes and replaces nearly all existing U.S. GAAP revenue recognition guidance. AgeX
adopted ASU 2014-09 using the modified retrospective transition method applied to those contracts which were not completed as of the
adoption date. Results for reporting periods beginning on January 1, 2018 and thereafter are presented under Topic 606. AgeX’s
largest source of revenue was subscription and advertising revenues generated by LifeMap Sciences prior to the LifeMap Deconsolidation.
AgeX
recognizes revenue in a manner that depicts the transfer of control of a product or a service to a customer and reflects the amount of
the consideration it expects to receive in exchange for such product or service. In doing so, AgeX follows a five-step approach: (i)
identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price,
(iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) the customer obtains control
of the product or service. AgeX considers the terms of a contract and all relevant facts and circumstances when applying the revenue
recognition standard. AgeX applies the revenue recognition standard, including the use of any practical expedients, consistently to contracts
with similar characteristics and in similar circumstances.
In
the applicable paragraphs below, AgeX 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
AgeX 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.
The
following table presents AgeX’s consolidated revenues disaggregated by source for continuing operations (in thousands).
Schedule
of Disaggregated Revenues
| |
| | |
| |
| |
Year
Ended December 31, | |
REVENUES: | |
2021 | | |
2020 | |
Grant
revenues | |
$ | 104 | | |
$ | 307 | |
Other
revenues | |
| 40 | | |
| 54 | |
Total
revenues | |
$ | 144 | | |
$ | 361 | |
The
following table presents consolidated revenues for continuing operations (in thousands), disaggregated by geography, based on the billing
addresses of customers.
Schedule
of Disaggregated Geographical Revenue
| |
| | |
| |
| |
Year
Ended December 31, | |
REVENUES: | |
2021 | | |
2020 | |
United
States | |
$ | 107 | | |
$ | 323 | |
Foreign | |
| 37 | | |
| 38 | |
Total
revenues | |
$ | 144 | | |
$ | 361 | |
Subscription
and advertisement revenues: LifeMap Sciences sold subscription-based products, including research databases and software tools, for
biomedical, gene, and disease research. LifeMap Sciences sold these subscriptions primarily through the internet to biotech and pharmaceutical
companies worldwide. LifeMap Sciences’ principal subscription product was the GeneCards® Suite, which includes the
GeneCards® human gene database, and the MalaCards™ human disease database. LifeMap Sciences’ performance obligations
for subscriptions included a license of intellectual property related to its genetic information packages and premium genetic information
tools. These licenses were deemed functional licenses that provide customers with a “right to access” to LifeMap Sciences’
intellectual property during the subscription period and, accordingly, revenue was recognized over a period of time, which was generally
the subscription period. Payments were typically received at the beginning of a subscription period and revenue was recognized according
to the type of subscription sold. For subscription contracts in which the subscription term commenced before a payment was due, LifeMap
Sciences recorded an account receivable because the subscription was earned over time and billed the customer according to the contract
terms. LifeMap Sciences deferred subscription revenues primarily represented subscriptions for which cash payment was received for the
subscription term, but the subscription term was not completed as of the balance sheet date reported.
LifeMap
Sciences’ deferred subscription revenues primarily represent subscriptions for which cash payment was received for the subscription
term, but the subscription term was not completed as of the balance sheet date reported. LifeMap Sciences recognized $0.3 million and
$1.3 million in subscription and advertisement revenues for the years ended December 31, 2021 and 2020, respectively. Deferred revenues
in the consolidated balance sheets amounted to $0.3 million as of December 31, 2020, however as of December 31, 2021, there was no deferred
revenues due to the LifeMap Deconsolidation (see Note 3).
LifeMap
Sciences licensed from third parties the databases and software it commercialized and had a contractual obligation to pay royalties to
the licensor on subscriptions sold. These costs were included in operating loss from discontinued operations on the consolidated statements
of operations when the cash was received and the royalty obligation was incurred as the royalty payments did not qualify for capitalization
of costs to fulfill a contract under ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers.
Grant
revenues: AgeX accounts for grants received to perform research and development services in accordance with ASC 730-20, Research
and Development Arrangements. At the inception of the grant, we perform an assessment as to whether the grant
is a liability or a contract to perform research and development services for others. If AgeX or a subsidiary receiving the grant is
obligated to repay the grant funds to the grantor regardless of the outcome of the research and development activities, then AgeX is
required to estimate and recognize that liability. Alternatively, if AgeX or a subsidiary receiving the grant is not required to repay,
or if it is required to repay the grant funds only if the research and development activities are successful, then the grant agreement
is accounted for as a contract to perform research and development services for others, in which case, grant revenue is recognized when
the related research and development expenses are incurred.
In
applying the provisions of Topic 606, AgeX has determined that government grants are out of the scope of Topic 606 because the government
entities do not meet the definition of a “customer”, as defined by Topic 606, as there is not considered to be a transfer
of control of good or services to the government entities funding the grant. In the absence of applicable guidance under U.S.
GAAP, AgeX’s policy is to recognize grant revenue when the related costs are incurred, provided that the applicable conditions
under the government contracts have been met. Only costs that are allowable under the grant award, certain government regulations and
the National Institutes of Health’s supplemental policy and procedure manual may be claimed for reimbursement, and the reimbursements
are subject to routine audits from governmental agencies from time to time. Costs incurred are recorded in research and development expenses
on the accompanying consolidated statements of operations.
AgeX
believes the recognition of revenue as costs are incurred and amounts become realizable is analogous to the concept of transfer of control
of a service over time under ASC 606.
In
September 2018, AgeX was awarded a grant of up to approximately $225,000 from the National Institutes of Health (NIH). The NIH grant
provided funding for continued development of AgeX technologies for treating osteoporosis. Grant funds were made available by the NIH
as allowable expenses were incurred. For the year ended December 31, 2020, AgeX incurred approximately $25,000 of allowable expenses
under the NIH grant and recognized a corresponding amount of grant revenues. As of March 31, 2020, AgeX expended the full amount available
under this grant.
On
April 8, 2020, AgeX was awarded a grant of up to approximately $386,000 from the NIH. The NIH grant provides funding for continued development
of AgeX’s technologies for treating stroke. The grant funds will be made available by the NIH to AgeX as allowable expenses are
incurred. As of December 31, 2021, AgeX incurred approximately $104,000 of allowable expenses under the NIH grant and recognized a corresponding
amount of grant revenues.
Arrangements
with multiple performance obligations – AgeX may enter into contracts with customers that include multiple performance obligations.
For such arrangements, AgeX will allocate revenue to each performance obligation based on its relative standalone selling price. AgeX
will determine or estimate standalone selling prices based on the prices charged, or that would be charged, to customers for that product
or service. As of and for the year ended December 31, 2021, AgeX did not have significant arrangements with multiple performance obligations.
Research
and development
Research
and development expenses consist primarily of personnel costs and related benefits, including stock-based compensation, amortization
of intangible assets, outside consultants and suppliers, and license fees paid to third parties to acquire patents or licenses to use
patents and other technology. Research and development expenses incurred and reimbursed by grants from third parties or governmental
agencies, including service revenues from co-development projects with customers, if any and as applicable, approximate the respective
revenues recognized in the consolidated statements of operations.
General
and administrative
General
and administrative expenses consist primarily of compensation and related benefits, including stock-based compensation, for executive
and corporate personnel, and professional and consulting fees.
Foreign
currency translation and other comprehensive income or loss, foreign currency transaction gains and losses
In
countries in which AgeX 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, net of tax, in the consolidated statements of comprehensive loss and included as a component of accumulated other
comprehensive income on the consolidated balance sheets. Foreign currency translation adjustments are immaterial for all periods presented.
For
transactions denominated in other than the functional currency of AgeX or its subsidiaries, AgeX 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 AgeX’s foreign currency transaction gains and losses were generated by LifeMap Sciences Ltd.’s intercompany payable due
to LifeMap Sciences, Inc., which are U.S. dollar-denominated, while LifeMap Sciences Ltd.’s functional currency is the Israeli
New Shekel (“NIS”). Accordingly, foreign currency remeasurement gains and losses related to this intercompany payable are
included in other income (expense), net.
Segments
AgeX’s
executive management team, as a group, represents the entity’s chief operating decision makers. To date, AgeX’s executive
management team has viewed AgeX’s operations as one segment that includes the research and development of regenerative medicine
technologies targeting the diseases of aging and metabolic disorders, oncology, and neurological diseases and disorders, blood and vascular
system diseases and disorders, and pluripotent cell technologies. As a result, the financial information disclosed materially represents
all of the financial information related to AgeX’s sole operating segment.
Basic
and diluted net loss per share attributable to common stockholders
Basic
loss per share is calculated by dividing net loss attributable to AgeX common stockholders by the weighted average number of shares of
common stock outstanding, net of unvested restricted stock or restricted stock units, subject to repurchase by AgeX, if any, during the
period. Diluted loss per share is calculated by dividing the net income attributable to AgeX common stockholders, if any, by the weighted
average number of shares of common stock outstanding, adjusted for the effects of potentially dilutive common stock issuable under outstanding
stock options, warrants, and restricted stock units, using the treasury-stock method, and convertible preferred stock, if any, using
the if-converted method, and treasury stock held by subsidiaries, if any.
For
the years ended December 31, 2021 and 2020, because AgeX reported a net loss attributable to common stockholders, all potentially dilutive
common stock, comprised of stock options, restricted stock units and warrants, is antidilutive.
The
following weighted average common stock equivalents were excluded from the computation of diluted net loss per share of common stock
for the periods presented because including them would have been antidilutive (in thousands):
Schedule
of Anti-dilutive securities Excluded from Computation of Earning Per Share
| |
| | |
| |
| |
Year
Ended December 31, | |
| |
2021 | | |
2020 | |
Stock
options | |
| 3,145 | | |
| 2,875 | |
Warrants | |
| 3,492 | | |
| 1,473 | |
Restricted
stock units | |
| 23 | | |
| 37 | |
Recently
adopted accounting pronouncements
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which modifies
ASC 740 to simplify the accounting for income taxes. The new standard removes certain exceptions for recognizing deferred taxes for investments,
performing intraperiod allocation and calculating income taxes in interim periods. The new standard also adds guidance to reduce complexity
in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU
2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption
permitted. AgeX adopted the new guidance effective January 1, 2021, and determined the adoption did not have a material impact on its
consolidated financial statements.
In
August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The amendments in this update affect entities that issue convertible
instruments and/or contracts indexed to and potentially settled in an entity’s own equity. The new standard simplifies the accounting
for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in
equity. For AgeX, which qualifies as a smaller reporting company, the amendments in the new standard are effective for fiscal years beginning
after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal
years beginning after December 15, 2020, including interim periods within those fiscal years. AgeX adopted the new guidance effective
January 1, 2021, and determined the adoption did not have a material impact on its consolidated financial statements.
Recently
issued accounting pronouncements not yet adopted
In
May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic
470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity
(Subtopic 815-40). The amendment in this update addresses how an issuer should account for modifications made to equity-classified
written call options. The guidance in the standard requires the issuer to treat a modification of an equity-classified call option that
does not cause the instrument to become liability-classified as an exchange of the original call option for a new call option. This guidance
applies whether the modification is structured as an amendment to the terms and conditions of the call option or as termination of the
original call option and issuance of a new call option. The Emerging Issues Task Force (EITF) concluded that the recognition of the modification
depends on the nature of the transaction in which a warrant is modified. If there is more than one element in a transaction (for example,
if the modification involves both a debt modification and an equity issuance), then the guidance requires the issuer to allocate the
effect of the option modification to each element. The amendments in the new standard are effective for fiscal years beginning after
December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications
or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption
in an interim period. If an entity elects to early adopt the amendments in this ASU in an interim period, the guidance should be applied
as of the beginning of the fiscal year that includes that interim period. AgeX is currently evaluating the timing and effect the new
guidance will have on its consolidated financial statements.
In
November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government
Assistance. The amendments in this update require disclosures about transactions with a government that have been accounted for by
analogizing to a grant or contribution accounting model to increase transparency about (1) the types of transactions, (2) the accounting
for the transactions, and (3) the effect of the transactions on an entity’s financial statements. The amendments are effective
for all entities within their scope, which excludes not-for-profit entities and employee benefit plans, for financial statements issued
for annual periods beginning after December 15, 2021. Early application of the amendment is permitted. AgeX is currently evaluating the
timing and effect the new guidance will have on its consolidated financial statements.
CARES
Act
On
March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. The CARES
Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments,
net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations,
and technical corrections to tax depreciation methods for qualified improvement property. AgeX reviewed the provisions of the CARES Act
but does not expect it to have a material impact to its tax provision or its consolidated financial statements. As described in Note
9, AgeX has obtained a loan under the Paycheck Protection Program under the CARES Act, the repayment of which was forgiven in February
2021.
3.
Disposition and Deconsolidation of LifeMap Sciences
Discontinued
Operations
On
March 6, 2021, AgeX and LifeMap Sciences entered into the Merger Agreement with Atlas and GCLMS. On March 15, 2021, the merger was completed
pursuant to the terms of the Merger Agreement. As a result of the merger, GCLMS merged into LifeMap Sciences and (a) the shares of LifeMap
Sciences common stock outstanding at the time of the merger entitled the holders of those shares to receive a pro rata portion of the
$500,000 total Merger Consideration, with each LifeMap Sciences shareholder’s pro rata portion of the Merger Consideration determined
in accordance with the number of shares of LifeMap Sciences common stock owned by such shareholder as a percentage of shares of LifeMap
Sciences common stock outstanding immediately before the effective date of the merger, and (b) the outstanding shares of GCLMS common
stock were converted into shares of LifeMap Sciences common stock so that Atlas is now the sole shareholder of LifeMap Sciences.
AgeX
received approximately $466,400 in cash as its pro rata share of the Merger Consideration in the merger. Prior to and as a condition
to the merger under the terms of the Merger Agreement, $1,761,296 of LifeMap Sciences’ indebtedness to AgeX was converted into
shares of LifeMap Sciences common stock. LifeMap Sciences also paid AgeX $250,000 in cash to pay off a portion of LifeMap Sciences’
indebtedness to AgeX that was not converted into shares of LifeMap Sciences common stock.
The
following table presents the major classes of assets and liabilities of LifeMap Sciences included in AgeX’s consolidated balance
sheet as of December 31, 2020 (in thousands).
Schedule of Discontinued Operations
| |
December
31, 2020 | |
Cash
and cash equivalents | |
$ | 391 | |
Accounts
and grants receivable, net | |
| 173 | |
Prepaid
expenses and other current assets | |
| 7 | |
Total
current assets | |
| 571 | |
| |
| | |
Intangible
assets, net | |
| 591 | |
| |
| | |
Accounts
payable and accrued liabilities | |
| 161 | |
Deferred
revenues | |
| 275 | |
Insurance
premium and other current liabilities | |
| 1,995 | |
Total
current liabilities | |
| 2,431 | |
| |
| | |
Deferred
revenues, net of current portion | |
| 64 | |
| |
| | |
Net
liabilities of discontinued operations | |
$ | (1,333 | ) |
The
results of operations and cash flows for LifeMap Sciences are reported as discontinued operations under U.S. GAAP in accordance
with ASC 205-20, Discontinued Operations, for all periods presented in our consolidated financial statements. AgeX will not have
any continuing involvement in LifeMap Sciences subsequent to the consummation of the merger on March 15, 2021. The following table presents
the operating results of LifeMap Sciences that have been treated as discontinued operations for the periods presented:
| |
| | |
| |
| |
Year
Ended December 31, | |
| |
2021 | | |
2020 | |
Net
revenues | |
$ | 277 | | |
$ | 1,507 | |
Costs,
operating and other expenses | |
| (380 | ) | |
| (2,234 | ) |
Loss
from discontinued operations | |
| (103 | ) | |
| (727 | ) |
Income
tax provision | |
| - | | |
| 150 | |
Net
loss from discontinued operations attributable to noncontrolling interest | |
| 7 | | |
| 106 | |
Loss
from discontinued operations (1) | |
$ | (96 | ) | |
$ | (471 | ) |
(1) | Does
not include $106,000 gain on the deconsolidation of LifeMap Sciences recognized by AgeX.
When dispositions occur in the normal course of business, gains or losses on the sale of
such businesses or assets are recognized in the income statement. The gain on the sale of
LifeMap Sciences is presented in the line item Gain on deconsolidation of LifeMap Sciences.
There were no gains or losses resulting from the sale of businesses or assets that did not
meet the criteria for a discontinued operation during the years ended December 31, 2021 and
2020. |
Deconsolidation
As
a result of the completion of the cash-out merger on March 15, 2021, LifeMap Sciences is no longer a subsidiary of AgeX. Effective March
15, 2021, AgeX deconsolidated LifeMap Sciences’ consolidated financial statements and consolidated results of operations from those
of AgeX under U.S. GAAP ASC 810-10-40-4, Deconsolidation of a Subsidiary or Derecognition of a Group of Assets, due to
the disposition of LifeMap Sciences on that date.
AgeX’s
consolidated balance sheet at December 31, 2020, as reported, includes LifeMap Sciences’ consolidated assets and liabilities, after
intercompany eliminations. However, LifeMap Sciences’ consolidated assets and liabilities are not included in AgeX’s unaudited
consolidated balance sheet at December 31, 2021 due to the LifeMap Deconsolidation on March 15, 2021.
AgeX’s
consolidated statements of operations for the year ended December 31, 2021 include LifeMap Sciences’ consolidated results for the
period through March 15, 2021 rather than the day immediately preceding the LifeMap Deconsolidation due to the conversion of $1,761,296
of LifeMap Sciences’ indebtedness to AgeX into shares of LifeMap Sciences common stock on March 15, 2021 followed by the completion
of the cash-out merger on the same day. For the year ended December 31, 2020, AgeX’s consolidated results include LifeMap Sciences’
consolidated results for the full period presented.
AgeX
recognized a gain of $106,000 from the LifeMap Deconsolidation. The sale of LifeMap Sciences was a taxable transaction to AgeX, however
no income tax is due as the transaction resulted in a taxable loss primarily due to AgeX’s tax basis in the subsidiary.
4.
Selected Balance Sheet Components
Property
and equipment, net
At
December 31, 2020, property and equipment in the amount of $381,000
were fully depreciated. No capital assets were
acquired during 2021. Depreciation and amortization expenses for equipment and leasehold improvements from continuing operations amounted
to $699,000 for
the year ended December 31, 2020. This included $210,000
accelerated depreciation expense for laboratory
machinery placed in storage upon lease termination as of December 31, 2020 (see Note 9).
Intangible
assets, net
Intangible
assets, net are primarily comprised of acquired licenses and other rights by LifeMap Sciences from a third party for certain databases
it commercializes. On March 15, 2021, LifeMap Sciences was acquired by a third party in a cash-out merger (see Note 3).
On
August 13, 2018, AgeX entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Escape Therapeutics, Inc.
(“Escape”) pursuant to which AgeX acquired certain patents and patent applications related primarily to methods of modifying
cells and tissues and certain pluripotent stem cell lines so as to reduce their risk of being rejected when transplanted. This technology
is called “UniverCyte™”. AgeX paid Escape $1,072,436 in cash and issued 80,000 shares of AgeX common stock, with an
approximate value of $240,000, for aggregate acquisition cost of $1.3 million for the UniverCyte™ assets. The Purchase Agreement
was considered an asset acquisition rather than a business combination in accordance with ASC 805-50, Business Combinations.
ASC
730-10-25(c), Research and Development – Intangible Assets Purchased from Others, provides guidance for acquisition and
capitalization of the cost of intangible assets purchased from others in an asset acquisition that have alternative future uses in other
research and development projects. These intangible assets are referred to as acquired in-process research and development (“IPR&D”)
with alternative future uses and are accounted for as intangible assets and amortized to research and development over their useful life.
Acquired IPR&D in an asset acquisition that does not have any alternative future uses is expensed under the same guidance. As an
initial focus, AgeX intends to use the UniverCyte™ technology in the development of its two lead products, AGEX-BAT1 and AGEX-VASC1
for the treatment of Type II diabetes and cardiovascular aging, respectively. Accordingly, AgeX recorded the UniverCyte™ technology
acquired from Escape as IPR&D intangible assets with alternative future uses in accordance with ASC 730-10-25(c) and is amortizing
those assets to research and development expense over their estimated 10 year useful life.
In
addition to the purchase price, AgeX will pay Escape a royalty of less than 1% on net sales of products, processes and services under
the acquired patents, if the assets are commercialized. Additional shares of AgeX common stock totaling up to $4.3 million of market
value will also be issued to Escape upon the attainment of development and regulatory approval milestones by AgeX for each product covered
by the acquired patents. Contingent consideration in an asset acquisition is generally recorded when probable and estimable in accordance
with ASC 450, Contingencies. Accordingly, none of the milestone payments have been accrued since the attainment of any milestone
in the Purchase Agreement was not probable as of December 31, 2021.
AgeX
has also agreed to engage Escape’s chief executive officer as a consultant for a period of up to three years to assist AgeX in
utilizing the acquired patents. AgeX paid $200,000 per year in consulting fees as services were performed included in research and development
expenses up until the agreement expired in August 2021.
AgeX
estimated the future undiscounted cash flows expected to be received from the assets developed through the use of the UniverCyte™
technology when commercialized. The estimate of the future undiscounted cash flows considered AgeX’s financial condition and the
royalties that may become payable to Escape.
At
December 31, 2021 and 2020, intangible assets, primarily consisting of acquired in-process research and development and patents, and
accumulated amortization were as follows (in thousands):
Schedule
of Intangible Assets, Net
| |
| | |
| |
| |
December
31, | |
| |
2021
(1) | | |
2020 | |
Intangible
assets | |
$ | 1,312 | | |
$ | 5,586 | |
Accumulated
amortization | |
| (442 | ) | |
| (3,994 | ) |
Total
intangible assets, net | |
$ | 870 | | |
$ | 1,592 | |
(1) | Reflects
the effect of the LifeMap Deconsolidation. See Note 3. |
AgeX
recognized $131,000 and $132,000 in amortization expense of intangible assets for continuing operations, included in research and development
expenses, for the years ended December 31, 2021 and 2020, respectively.
Amortization
expense of intangible assets for discontinued operations for the years ended December 31, 2021 and 2020 amounted to $89,000 and $427,000,
respectively.
Amortization
of intangible assets for periods subsequent to December 31, 2021 is as follows (in thousands):
Schedule
of Amortization Assets
Year
ending December 31, | |
Amortization | |
2022 | |
$ | 131 | |
2023 | |
| 131 | |
2024 | |
| 131 | |
2025 | |
| 132 | |
Thereafter | |
| 345 | |
Total | |
$ | 870 | |
Accounts
payable and accrued liabilities
At
December 31, 2021 and 2020, accounts payable and accrued liabilities were comprised of the following (in thousands):
Schedule
of Accounts Payable and Accrued Liabilities
| |
| | |
| |
| |
December
31, | |
| |
2021
(1) | | |
2020 | |
Accounts
payable | |
$ | 193 | | |
$ | 761 | |
Accrued
compensation | |
| 212 | | |
| 228 | |
Accrued
vendors and other expenses | |
| 366 | | |
| 667 | |
Total
accounts payable and accrued liabilities | |
$ | 771 | | |
$ | 1,656 | |
(1) | Reflects
the effect of the LifeMap Deconsolidation. See Note 3. |
5.
Related Party Transactions
Transactions
with Juvenescence
2019
Loan Agreement
On
August 13, 2019, AgeX and Juvenescence entered into a Loan Facility Agreement (the “2019 Loan Agreement”) pursuant to which
Juvenescence has provided to AgeX a $2.0 million line of credit for a period of 18 months. On February 10, 2021, AgeX entered into an
amendment (the “First Amendment”) to the 2019 Loan Agreement. The First Amendment extended the maturity date of loans under
the 2019 Loan Agreement to February 14, 2022 (the “Extended Repayment Date”) and increased the amount of the loan facility
by $4.0 million. On November 8, 2021, AgeX entered into Amendment No. 2 (the “Second Amendment”) to the 2019 Loan Agreement.
The Second Amendment increased the amount of the loan facility by another $1.0 million. As of December 31, 2021, AgeX had borrowed all
of the $7.0 million total line of credit under the 2019 Loan Agreement, as amended. In lieu of accrued interest, AgeX issued to Juvenescence
19,000 shares of AgeX common stock, with an approximate value of $56,000, concurrently with the first draw down of funds under the 2019
Loan Agreement. On February 14, 2022, AgeX refinanced the $7.0 million outstanding principal amount of the loans and a $160,000 origination
fee due under the 2019 Loan Agreement, as amended (see Note 10).
As
consideration for the line of credit under the 2019 Loan Agreement, AgeX issued to Juvenescence warrants to purchase 150,000 shares of
AgeX common stock. The exercise price of the warrants is $2.60 per share, which was the volume weighted average price on the NYSE American
(VWAP) of AgeX common stock over the twenty trading days prior to the date the warrants were issued. The warrants will expire at 5:00
p.m. New York time three years after the date of issue. The number of shares issuable upon exercise of the warrants and the exercise
price per share are subject to adjustment upon the occurrence of certain events such as a stock split or reverse split or combination
of the common stock, stock dividend, recapitalization or reclassification of the common stock, and similar events. The estimated value
of these warrants was $236,000 which was determined in accordance with the Black-Scholes option pricing model with inputs as specified
in the relevant warrant agreement.
2020
Loan Agreement
On
March 30, 2020, AgeX and Juvenescence entered into a new Secured Convertible Facility Agreement (the “2020 Loan Agreement”)
pursuant to which Juvenescence provided to AgeX an $8.0 million line of credit for a period of 18 months. In lieu of accrued interest,
AgeX issued to Juvenescence 28,500 shares of AgeX common stock when AgeX borrowed an aggregate of $3 million under the 2020 Loan Agreement,
and AgeX issued to Juvenescence warrants to purchase a total of 3,670,663 shares of AgeX common stock (“2020 Warrants”).
The number of 2020 Warrants issued was determined by the warrant formula described below. The Repayment Date for outstanding principal
balance of the loan under the 2020 Loan Agreement will be March 30, 2023 Events of Default under the 2020 Loan Agreement include: (i)
AgeX fails to pay any amount in the manner and at the time provided in the 2020 Loan Agreement and the failure to pay is not remedied
within 10 business days; (ii) AgeX fails to perform any of its obligations under the 2020 Loan Agreement and if the failure can be remedied
it is not remedied to the satisfaction of Juvenescence within 10 business days after notice to AgeX; (iii) other indebtedness for money
borrowed in excess of $100,000 becomes due and payable or can be declared due and payable prior to its due date or if indebtedness for
money borrowed in excess of $25,000 is not paid when due; (iv) AgeX stops payment of its debts generally or discontinues its business
or becomes unable to pay its debts as they become due or enters into any arrangement with creditors generally, (v) AgeX becoming insolvent
or in liquidation or administration or other insolvency procedures, or a receiver, trustee or similar officer is appointed in respect
of all or any part of its assets and such appointment continues undischarged or unstayed for sixty days, (vi) it becomes illegal for
AgeX to perform its obligations under the 2020 Loan Agreement or any governmental permit, license, consent, exemption or similar requirement
for AgeX to perform its obligations under the 2020 Loan Agreement or to carry out its business is not obtained or ceases to remain in
effect; (vii) the issuance or levy of any judgment, writ, warrant of attachment or execution or similar process against all or any material
part of the property or assets of AgeX if such process is not released, vacated or fully bonded within sixty calendar days after its
issue or levy; (viii) any injunction, order or judgement of any court is entered or issued which in the opinion of Juvenescence materially
and adversely affects the ability of AgeX to carry out its business or to pay amounts owed to Juvenescence under the 2020 Loan Agreement,
(ix) there is a change in AgeX’s financial condition that in the opinion of Juvenescence materially and adversely affects, or is
likely to so affect, its ability to perform any of its obligations under the 2020 Loan Agreement; (x) AgeX or a designated subsidiary
sells, leases, licenses, consigns, transfers, or otherwise disposes of a material part of their assets other than inventory in the ordinary
course of business or certain intercompany transactions, or certain other limited permitted transactions, unless Juvenescence approves,
(xi) AgeX or a designated subsidiary contests the validity of its obligations under the 2020 Loan Agreement or other related agreement
with Juvenescence, (xii) any representation, warranty, or other statement made by AgeX or a designated subsidiary under the 2020 Loan
Agreement is incomplete, untrue, incorrect, or misleading, or (xiii) AgeX or a designated subsidiary suspends or ceases to carry on all
or a material part of its business or threatens to do so.
Through
December 31, 2021, AgeX had drawn a total of $7.5 million against the $8.0 million line of credit and drew the remaining $0.5 million
during January 2022. The outstanding principal balance of the loans under the 2020 Loan Agreement will become due and payable on March
30, 2023.
Under
the terms of the 2020 Loan Agreement, each time AgeX received an advance of funds under the 2020 Loan Agreement, AgeX issued to Juvenescence
a number of 2020 Warrants equal to 50% of the number determined by dividing the amount of the advance by the applicable Market Price.
The Market Price set each New Warrant when issued was the closing price per share of AgeX common stock on the NYSE American on the date
of the applicable notice from AgeX requesting a draw of funds that triggered the obligation to issue the New Warrant. The exercise price
of the 2020 Warrants is the applicable Market Price. The 2020 Warrants will expire at 5:00 p.m. New York time three years after the date
of issue. As of December 31, 2021 AgeX had issued to Juvenescence 2020 Warrants to purchase 3,362,098 shares of AgeX common stock. The
exercise prices of the 2020 Warrants issued through December 31, 2021 range from $0.70 per share to $1.895 per share representing the
market closing price on the NYSE American of AgeX common stock on the one day prior to delivery of the drawdown notices. The number of
shares issuable upon exercise of the warrants and the exercise price per share are subject to adjustment upon the occurrence of certain
events such as a stock split or reverse split or combination of the common stock, stock dividend, recapitalization or reclassification
of the common stock, and similar events.
Registration
Rights
AgeX
entered into certain Registration Rights Agreements pursuant to which it has agreed to register for sale under the Securities Act of
1933, as amended (the “Securities Act”) all shares of AgeX common stock presently held by Juvenescence or that may be acquired
by Juvenescence through the exercise of common stock purchase warrants that they hold or that they may acquire pursuant to the 2020 Loan
Agreement, and shares that they may acquire through the conversion of the loans into AgeX common stock. AgeX has filed a registration
statement on Form S-3, which has become effective under the Securities Act, for offerings on a delayed or continuous basis covering 16,447,500
shares of our common stock held by Juvenescence and 3,248,246 shares of AgeX common stock that may be issued upon the exercise of warrants
held by Juvenescence. Juvenescence retains the right to require AgeX to register additional shares of common stock that Juvenescence
may acquire through the exercise of warrants or the conversion of loans. AgeX is obligated to pay the fees and expenses of each registered
offering under such registration rights agreement except for underwriting discounts and commissions. AgeX and Juvenescence will indemnify
each other from certain liabilities in connection the registration, offer, and sale of securities under a registration statement, including
liabilities arising under the Securities Act.
Related
party payables
Since
October 2018, AgeX’s Chief Operating Officer (“COO”), who is also an employee of Juvenescence, has been devoting a
majority of his time to AgeX’s operations. AgeX reimburses Juvenescence for his services on an agreed-upon fixed annual amount
of approximately $280,000. As of December 31, 2021 and 2020, AgeX had approximately $70,000 and $71,000, respectively payable to Juvenescence
for COO services rendered, included in related party payables, net of certain expenses owed by Juvenescence to AgeX, on the consolidated
balance sheets.
6.
Stockholders’ Equity (Deficit)
Preferred
Stock
AgeX
is authorized to issue up to 5,000,000 shares of $0.0001 par value preferred stock. At December 31, 2021 and 2020, there were no preferred
shares issued and outstanding.
Common
Stock
AgeX
has 100,000,000 shares of $0.0001 par value common stock authorized. The holders of AgeX’s common stock are entitled to receive
ratably dividends when, as, and if declared by the Board of Directors out of funds legally available. Upon liquidation, dissolution,
or winding up, the holders of AgeX common stock are entitled to receive ratably the net assets available after the payment of all debts
and other liabilities and subject to the prior rights of AgeX outstanding preferred shares, if any.
The
holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of AgeX stockholders. The holders
of common stock have no preemptive, subscription, or redemption rights. The outstanding shares of common stock are fully paid and non-assessable.
As
of December 31, 2021 and 2020, there were 37,941,220 and 37,691,047 shares of AgeX common stock issued and outstanding, respectively.
Issuance
and Sale of Warrants by AgeX
Through
December 31, 2021, as consideration for $7.5 million in loans made to AgeX under the 2020 Loan Agreement, AgeX issued to Juvenescence
warrants to purchase 3,362,098 shares of AgeX common stock. AgeX also issued 28,500 shares of AgeX common stock upon receipt of funds
from the loan draw made on July 27, 2020 (see Note 5).
On
August 13, 2019, in lieu of accrued interest under the 2019 Loan Agreement, AgeX issued to Juvenescence 19,000 shares of AgeX common
stock concurrently with the first draw down of loan funds. Furthermore, as consideration for the line of credit under the 2019 Loan Agreement,
AgeX issued to Juvenescence warrants to purchase 150,000 shares of AgeX common stock (see Note 5).
At-the-Market
Offering Facility
On
January 8, 2021, AgeX entered into a sales agreement with Chardan Capital Markets, LLC (“Chardan”), relating to the sale
of shares of AgeX common stock, par value $0.0001 per share, through an at-the-market (“ATM”) offering as described in the
prospectus supplement filed with the Form S-3 which was declared effective by the SEC on January 29, 2021. In accordance with the terms
of the sales agreement, AgeX may offer and sell shares of AgeX common stock having an aggregate offering price of up to $12.6 million
from time to time through Chardan, acting as the sales agent. Through December 30, 2021, AgeX raised approximately $496,000 in gross
proceeds through the sale of shares of common stock under the ATM.
7.
Stock-Based Awards
Equity
Incentive Plan
Under
the 2017 Equity Incentive Plan, as amended (the “Incentive Plan”), AgeX has reserved 4,500,000 shares of common stock for
the grant of stock options or the sale of restricted stock (“Restricted Stock”) or for the settlement of restricted stock
units which are hypothetical units issued with reference to common stock (“Restricted Stock Units” or “RSUs”).
AgeX may also grant stock appreciation rights (“SARs”) under the Incentive Plan. The Plan also permits AgeX to issue such
other securities as its Board of Directors (the “Board”) or the Compensation Committee (the “Committee”) administering
the Incentive Plan may determine. Awards of stock options, Restricted Stock, SARs, and RSUs (“Awards”) may be granted under
the Incentive Plan to AgeX employees, directors, and consultants.
Awards
may vest and thereby become exercisable or have restrictions on forfeiture lapse on the date of grant or in periodic installments or
upon the attainment of performance goals, or upon the occurrence of specified events.
No
person shall be granted, during any one year period, options to purchase, or SARs with respect to, more than 1,000,000 shares in the
aggregate, or any Awards of Restricted Stock or RSUs with respect to more than 500,000 shares in the aggregate. If an Award is to be
settled in cash, the number of shares on which the Award is based shall not count toward the individual share limit.
No
Awards may be granted under the Incentive Plan more than ten years after the date upon which the Incentive Plan was adopted by the Board,
and no options or SARS granted under the Incentive Plan may be exercised after the expiration of ten years from the date of grant.
Stock
Options
Options
granted under the Incentive Plan may be either “incentive stock options” within the meaning of Section 422(b) of the Internal
Revenue Code of 1986, as amended (the “Code”), or “non-qualified” stock options that do not qualify incentive
stock options. Incentive stock options may be granted only to AgeX employees and employees of subsidiaries. The exercise price of stock
options granted under the Incentive Plan must be equal to the fair market of AgeX common stock on the date the option is granted. In
the case of an optionee who, at the time of grant, owns more than 10% of the combined voting power of all classes of AgeX stock, the
exercise price of any incentive stock option must be at least 110% of the fair market value of the common stock on the grant date, and
the term of the option may be no longer than five years. The aggregate fair market value of common stock (determined as of the grant
date of the option) with respect to which incentive stock options become exercisable for the first time by an optionee in any calendar
year may not exceed $100,000.
The
exercise price of an option may be payable in cash or in common stock having a fair market value equal to the exercise price, or in a
combination of cash and common stock, or other legal consideration for the issuance of stock as the Board or Committee may approve.
Generally,
options will be exercisable only while the optionee remains an employee, director or consultant, or during a specific period thereafter,
but in the case of the termination of an employee, director, or consultant’s services due to death or disability, the period for
exercising a vested option shall be extended to the earlier of 12 months after termination or the expiration date of the option.
Restricted
Stock and RSUs
In
lieu of granting options, AgeX may enter into purchase agreements with employees under which they may purchase or otherwise acquire Restricted
Stock or RSUs subject to such vesting, transfer, and repurchase terms, and other restrictions. The price at which Restricted Stock may
be issued or sold will be not less than 100% of fair market value. Employees or consultants, but not executive officers or directors,
who purchase Restricted Stock may be permitted to pay for their shares by delivering a promissory note or an installment payment agreement
that may be secured by a pledge of their Restricted Stock. Restricted Stock may also be issued for services actually performed by the
recipient prior to the issuance of the Restricted Stock. Unvested Restricted Stock for which AgeX has not received payment may be forfeited,
or AgeX may have the right to repurchase unvested shares upon the occurrence of specified events, such as termination of employment.
Subject
to the restrictions set with respect to the particular Award, a recipient of Restricted Stock generally shall have the rights and privileges
of a stockholder, including the right to vote the Restricted Stock and the right to receive dividends; provided that, any cash dividends
and stock dividends with respect to the Restricted Stock shall be withheld for the recipient’s account, and interest may be credited
on the amount of the cash dividends withheld. The cash dividends or stock dividends so withheld and attributable to any particular share
of Restricted Stock (and earnings thereon, if applicable) shall be distributed to the recipient in cash or, at the discretion of the
Board or Committee, in shares of common stock having a fair market value equal to the amount of such dividends, if applicable, upon the
release of restrictions on the Restricted Stock and, if the Restricted Stock is forfeited, the recipient shall have no right to the dividends.
The
terms and conditions of a grant of RSUs shall be determined by the Board or Committee. No shares of common stock shall be issued at the
time a RSU is granted. A recipient of RSUs shall have no voting rights with respect to the RSUs. Upon the expiration of the restrictions
applicable to a RSU, AgeX will either issue to the recipient, without charge, one share of common stock per RSU or cash in an amount
equal to the fair market value of one share of common stock.
At
the discretion of the Board or Committee, each RSU (representing one share of common stock) may be credited with cash and stock dividends
paid in respect of one share (“Dividend Equivalents”). Dividend Equivalents shall be withheld for the recipient’s account,
and interest may be credited on the amount of cash Dividend Equivalents withheld. Dividend Equivalents credited to a recipient’s
account and attributable to any particular RSU (and earnings thereon, if applicable) shall be distributed in cash or in shares of common
stock having a fair market value equal to the amount of the Dividend Equivalents and earnings, if applicable, upon settlement of the
RSU. If a RSU is forfeited, the recipient shall have no right to the related Dividend Equivalents.
SARs
A
SAR is the right to receive, upon exercise, an amount payable in cash or shares, or a combination of shares and cash, 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 common stock on the
date the SAR is exercised, over (b) the exercise price specified in the SAR Award agreement. SARs may be granted either as free standing
SARs or in tandem with options. No SAR may be exercised later than 10 years after the date of grant.
The
exercise price of a SAR shall not be less than 100% of the fair market value of one share of common stock on the date of grant. A SAR
granted in conjunction with an option shall have the same exercise price as the related option, shall be transferable only upon the same
terms and conditions as the related option, and shall be exercisable only to the same extent as the related option; provided, however,
that the SAR by its terms shall be exercisable only when the fair market value per share exceeds the exercise price per share of the
SAR or related option. Upon any exercise of a SAR granted in tandem with an option, the number of shares for which the related option
shall be exercisable shall be reduced by the number of shares for which the SAR has been exercised. The number of shares for which a
SAR issued in tandem with an option shall be exercisable shall be reduced by the number of shares for which the related option has been
exercised.
Equity
Incentive Plan Awards
A
summary of the Incentive Plan activity and related information follows (in thousands except weighted average exercise price):
Summary
of Stock Option Activity
| |
Shares Available for
Grant | | |
Number of
Options Outstanding | | |
Number of
RSUs Outstanding | | |
Weighted Average Exercise
Price | |
January
1, 2020 | |
| 1,054 | | |
| 2,846 | | |
| 50 | | |
$ | 2.74 | |
Options
granted | |
| (303 | ) | |
| 303 | | |
| - | | |
| 0.74 | |
Options
expired/forfeited | |
| 295 | | |
| (295 | ) | |
| - | | |
| 2.89 | |
Restricted
stock units vested | |
| - | | |
| - | | |
| (22 | ) | |
| - | |
December
31, 2020 | |
| 1,046 | | |
| 2,854 | | |
| 28 | | |
| 2.51 | |
Increase
option pool | |
| 500 | | |
| - | | |
| - | | |
| - | |
Options
granted | |
| (568 | ) | |
| 568 | | |
| - | | |
| 1.46 | |
Options
forfeited, cancelled or expired | |
| 57 | | |
| (57 | ) | |
| - | | |
| 2.56 | |
Restricted
stock units vested | |
| - | | |
| - | | |
| (12 | ) | |
| - | |
December
31, 2021 | |
| 1,035 | | |
| 3,365 | | |
| 16 | | |
$ | 2.32 | |
Options
exercisable at December 31, 2021 | |
| | | |
| 2,543 | | |
| | | |
$ | 2.48 | |
There
were no exercises of stock options during the years ended December 31, 2021 and 2020. Total proceeds if all options granted and outstanding
as of December 31, 2021 were exercised would be approximately $7.8 million.
At
December 31, 2021, AgeX had approximately $1.1 million of total unrecognized compensation expense related to the Incentive Plan that
will be recognized over a weighted-average period of 1.75 years.
The
aggregate intrinsic value of options outstanding was $107,000 and options exercisable was $42,000 as of December 31, 2021.
Stock-based
Compensation Expense
AgeX
recorded stock-based compensation expense in the following categories on the accompanying consolidated statements of operations for the
years ended December 31, 2021 and 2020 (in thousands):
Schedule
of Stock Based Compensation Expense
| |
| | | |
| | |
| |
Year
Ended December 31, | |
| |
2021 | | |
2020 | |
Research
and development | |
$ | 62 | | |
$ | 82 | |
General
and administrative | |
| 941 | | |
| 851 | |
Total
stock-based compensation expense | |
$ | 1,003 | | |
$ | 933 | |
The
weighted-average estimated fair value of stock options granted during the years ended December 31, 2021 and 2020 was $1.15 per share
and $0.53 per share, respectively, using the Black-Scholes option pricing model with the following weighted-average assumptions:
Schedule
of Weighted Average Assumptions to Calculate Fair Value of Stock Options
| |
Year
Ended December 31, | |
| |
2021 | | |
2020 | |
Expected
life (in years) | |
| 5.71 | | |
| 6.08 | |
Risk-free
interest rates | |
| 0.99 | | |
| 0.45 | |
Volatility | |
| 102.34% | | |
| 87.86% | |
Dividend
yield | |
| -% | | |
| -% | |
The
determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and
assumptions requiring the use of judgment. If AgeX had made different assumptions, its stock-based compensation expense and net loss
for the years ended December 31, 2021 and 2020 may have been significantly different. See Note 2 for a discussion of the factors used
in determining these assumptions.
AgeX
does not recognize deferred income taxes for incentive stock option compensation expense and records a tax deduction only when a disqualified
disposition has occurred.
8.
Income Taxes
Net
loss from operations before income taxes are as follows:
Schedule
of Net Loss from Continuing Operations Before Income Taxes
| |
| | | |
| | |
| |
December
31, | |
| |
2021 | | |
2020 | |
Domestic | |
$ | (8,685 | ) | |
| (9,358 | ) |
Foreign | |
| - | | |
| (1,768 | ) |
The
provision (benefit) for income taxes consisted of the following (in thousands):
Schedule
of Current and Deferred Tax Provision (Benefit) for Income Taxes
| |
| | | |
| | |
| |
December
31, | |
| |
2021 | | |
2020 | |
Current
tax provision (benefit): | |
| | | |
| | |
U.S.
federal | |
$ | - | | |
$ | - | |
State | |
| - | | |
| - | |
Foreign | |
| - | | |
| (150 | ) |
Total
current provision (benefit) | |
| - | | |
| (150 | ) |
Deferred
tax provision (benefit): | |
| | | |
| | |
U.S.
federal | |
| - | | |
| - | |
State | |
| - | | |
| - | |
Foreign | |
| - | | |
| - | |
Total
deferred provision (benefit) | |
| - | | |
| - | |
Provision
(benefit) for income taxes | |
$ | - | | |
$ | (150 | ) |
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.
The
primary components of the net deferred tax assets and liabilities as of December 31, 2021 and 2020 were as follows (in thousands):
Schedule
of Components of Deferred Tax Assets and Liabilities
| |
| | | |
| | |
| |
December
31, | |
Deferred
tax assets/(liabilities): | |
2021 | | |
2020 | |
Net
operating loss carryforwards | |
$ | 12,000 | | |
$ | 13,958 | |
Capital
loss carryforwards | |
| 3,120 | | |
| - | |
Research
and development credit carryforwards | |
| 1,426 | | |
| 2,306 | |
Patents
and fixed assets | |
| 901 | | |
| 693 | |
Stock-based
compensation | |
| 690 | | |
| 687 | |
Other,
net | |
| 80 | | |
| 184 | |
Valuation
allowance | |
| (18,217 | ) | |
| (17,828 | ) |
Total
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.
AgeX 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.
Income
taxes differed from the amounts computed by applying the U.S. federal income tax rate indicated to pretax losses from operations as a
result of the following:
Schedule
of Income Tax Rate Reconciliation
| |
| | | |
| | |
| |
December
31, | |
| |
2021 | | |
2020 | |
Computed
tax benefit at federal statutory rate | |
| 21 | % | |
| 21 | % |
Research
and development and other credits | |
| 1 | % | |
| 1 | % |
State
tax benefit, net of effect on federal income taxes | |
| 14 | % | |
| 2 | % |
Permanent
differences | |
| (1 | )% | |
| (2 | )% |
Loss
and deconsolidation of LifeMap | |
| (31 | )% | |
| - | % |
Tax
effect attributable to foreign operations | |
| - | % | |
| (2 | )% |
Change
in valuation allowance | |
| (4 | )% | |
| (19 | )% |
Income
tax rate | |
| - | % | |
| 1 | % |
As
of December 31, 2021, AgeX has net operating loss carryforwards of approximately $48.6 million for U.S. federal income tax purposes.
In general, NOLs and other tax credit carryforwards generated by legal entities in a consolidated federal tax group are available to
other members of the tax group depending on the nature of the transaction that a member may enter into while still in the consolidated
federal tax group. However, under the Tax Matters Agreement between Lineage and AgeX, any use of a member’s NOLs and other tax
credit carryforwards by the other member is subject to reimbursement by the benefiting member for the actual tax benefit realized. Since
the August 30, 2018 deconsolidation of AgeX and to date, neither Lineage nor AgeX has used the tax attributes of the other.
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 on the 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.
AgeX had sufficient current year losses from operations to offset the entire gain resulting in no income taxes due. At the close of the
merger, $955,000 of cash that otherwise would have been payable to the Ascendance stockholders on a pro rata basis based on share ownership
was deposited into an escrow account where it was held through the term of the escrow, which expired in June 2019. The funds were held
in the escrow account to cover certain potential indemnity payments and other obligations that might arise after the merger. During 2019,
the escrow funds were paid to the former Ascendance stockholders and AgeX received $354,000 as its pro rata share of the funds as additional
proceeds from the sale of its Ascendance investment included in other income (expense), net, for the year ended December 31, 2019. AgeX
has sufficient current year losses from operations to offset this gain resulting in no income taxes due.
As
further discussed in Note 1, on August 30, 2018, Lineage consummated the sale of 14,400,000 shares of AgeX common stock to Juvenescence.
AgeX received no proceeds from that transaction because the shares sold were owned by Lineage. Prior to the transaction, Juvenescence
owned 5.6% of AgeX’s issued and outstanding common stock. Upon completion of the transaction, Lineage’s ownership in AgeX
was reduced from 80.4% to 40.2% of AgeX’s issued and outstanding shares of common stock, and Juvenescence’s ownership in
AgeX was increased from 5.6% to 45.8% of AgeX’s issued and outstanding shares of common stock. Accordingly, since August 31, 2018,
AgeX has not been included in Lineage’s consolidated federal and state income tax returns and AgeX has filed its own, standalone
income tax returns with its subsidiaries.
As
of December 31, 2021, AgeX has net operating losses of approximately $20.4
million for California purposes. As AgeX and
its subsidiaries have been included in the combined California tax return with Lineage, up to the date of deconsolidation on August 30,
2018, those state net operating losses will remain with AgeX. In general, NOLs and other tax credit carryforwards generated by legal
entities in a combined state tax group are available to other members of the tax group depending on the nature of the transaction that
a member may enter into while still in the combined state tax group. However, under the Tax Matters Agreement between Lineage and AgeX,
any use of a member’s NOLs and other tax credit carryforwards by the other member is subject to reimbursement by the benefiting
member for the actual tax benefit realized. 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
2028 and 2041.
As
of December 31, 2021, AgeX has research and development tax credit carryforwards for federal and state tax purposes of $0.8 million and
$0.6 million, respectively. The federal tax credits expire between 2028 and 2041, while the state tax credits have no expiration date.
As
of December 31, 2021, AgeX has capital loss carryforwards for federal and state tax purposes of $12.4
million and $5.9
million, respectively. The
federal and California capital loss carryforwards will expire in 2026.
Beginning
in 2018, the 2017 Tax Act subjects a U.S. stockholder to tax on Global Intangible Low Tax Income “GILTI” earned by certain
foreign subsidiaries. In general, GILTI is the excess of a U.S. stockholder’s total net foreign income over a deemed return on
tangible assets. The provision further allows a deduction of 50%
of GILTI, however this deduction is limited to the company’s pre-GILTI U.S. income. For the year ended December 31, 2020, AgeX’s
foreign entity operated at a book loss. However, for GILTI purposes, US tax laws are applied to the foreign activity and as a result
there was an immaterial amount included in income for 2020. For the year ended December 31, 2021, AgeX’s foreign entity operated
at an immaterial loss; therefore, no GILTI was included in 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. We have elected
to account for GILTI as a current period expense when incurred.
For
the year ended December 31, 2021, we experienced a domestic loss from continuing operations and a foreign loss; therefore, no income
tax provision was recorded for the year ended December 31, 2021.
The
sale of LifeMap Sciences was a taxable transaction to AgeX, however no income tax is due as the transaction resulted in a taxable loss
primarily due to AgeX’s tax basis in the subsidiary.
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 net operating loss (“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 control change, 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.
AgeX
and its subsidiaries may be subject to potential income tax examination by U.S. federal or states authorities. These potential examinations
may include inquiries regarding the timing and amount of deductions, and compliance with U.S. federal and state tax laws. AgeX filed
its first consolidated federal tax return in 2018. For AgeX subsidiaries that did operate and filed separate tax returns prior to 2018,
those entities are not subject to tax examination by major taxing authorities for tax years before 2017. However, the taxing authorities
may still make adjustments to the net operating loss and credit carryforwards used in open years by AgeX or any of its subsidiaries.
Any potential examinations may include inquiries regarding the timing and amount of deductions, and compliance with U.S. federal and
state tax laws.
9.
Commitments and Contingencies
Lease
Agreement
On
April 2, 2019, the term of a sublease that AgeX entered into during March 2019 (the “AgeX Lease”) went into effect for an
office and research facility (the “Alameda Facility”) comprising approximately 23,911 square feet of space in a building
in an office and research park at 965 Atlantic Avenue, Alameda, California that served as AgeX’s principal offices and research
laboratory.
Base
monthly rent was $35,866.50 for the initial 12 months of the sublease term and then increased to $36,942.50. In addition, AgeX paid real
property taxes, insurance and operating expenses pertaining to the building in which the Alameda Facility is located. The AgeX Lease
expired on December 31, 2020.
In
connection with the AgeX Lease, as of December 31, 2019 AgeX incurred $436,000 in tenant improvement expenses that it funded and completed
in November 2019. This amount was fully amortized and written off upon lease termination as of December 31, 2020.
Subleases
During
2019, AgeX, as a sublessor, entered into sublease agreements (the “AgeX Subleases”) with unrelated parties (the “Sublessees”)
to lease approximately 11,121 square feet of space at AgeX’s Alameda Facility. The first Sublessee paid AgeX $3,088.50 per month
and the second Sublessee paid AgeX $15,405.40 per month for the first twelve months of the AgeX Sublease and $16,311.60 per month for
the remaining duration of the AgeX Subleases. The AgeX Subleases expired on December 31, 2020.
Office
Lease Agreement
Effective
January 1, 2021, AgeX relocated its principal offices to 1101 Marina Village Parkway, Suite 201, Alameda, California following the December
31, 2020 expiration of the AgeX Lease. AgeX’s new office occupies 135 square feet of leased space in a building located in an office
and research park. Base monthly rent was $947 for the first one year lease term. In September 2021, AgeX extended its office lease for
another year, effective January 1, 2022, at a monthly rent of $1,074. The lease also includes office furniture rental, janitorial services,
utilities, and internet service.
ASC
842
AgeX
adopted ASC 842 in 2019. AgeX recorded a right-of-use asset of $726,000 and a right-of-use liability for the same amount for the AgeX
Lease in April 2019, which is considered a noncash investing activity. The right-of-use asset and right-of-use lease liability were fully
amortized and written off as of December 31, 2020 upon termination of the AgeX Lease.
There
were no future minimum lease commitments as of December 31, 2021.
Litigation
– General
AgeX
is subject to various claims and contingencies in the ordinary course of its business, including those related to litigation, business
transactions, employee-related matters, and others. When AgeX is aware of a claim or potential claim, it assesses the likelihood of any
loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, AgeX will record
a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, AgeX discloses the claim
if the likelihood of a potential loss is reasonably possible and the amount involved could be material. AgeX is not aware of any claims
likely to have a material adverse effect on its financial condition or results of operations.
Employment
Contracts
AgeX
has entered into employment contracts with certain executive officers. Under the provisions of the contracts, AgeX may be required to
incur severance obligations for matters relating to changes in control, as defined, and involuntary terminations.
Indemnification
In
the normal course of business, AgeX may provide indemnifications of varying scope under AgeX’s agreements with other companies
or consultants, typically for AgeX’s pre-clinical programs. Pursuant to these agreements, AgeX will generally agree to indemnify,
hold harmless, and reimburse the indemnified parties for losses and expenses suffered or incurred by the indemnified parties arising
from claims of third parties in connection with AgeX’s pre-clinical programs. Indemnification provisions could also cover third-party
infringement claims with respect to patent rights, copyrights, or other intellectual property pertaining to AgeX’s pre-clinical
programs. Office and laboratory leases will also generally indemnify the lessor with respect to certain matters that may arise during
the term of the lease. The sales agreement between AgeX and Chardan also includes indemnification provisions pursuant to which the parties
have agreed to indemnify each other from certain liabilities that could arise from the offer and sale of AgeX common stock through the
ATM facility, including liabilities under the Securities Act. Similarly, the Registration Rights Agreement between Juvenescence and AgeX
includes indemnification provisions pursuant to which the parties will indemnify each other from certain liabilities in connection
with the registration, offer, and sale of securities under a registration statement, including liabilities arising under the Securities
Act. The term of these indemnification obligations will generally continue in effect after the termination or expiration of the particular
license, lease, or agreement to which they relate. The potential future payments AgeX could be required to make under these indemnification
agreements will generally not be subject to any specified maximum amount. Historically, AgeX has not been subject to any claims or demands
for indemnification. AgeX also maintains various liability insurance policies that limit AgeX’s financial exposure. As a result,
AgeX believes the fair value of these indemnification agreements is minimal. Accordingly, AgeX has not recorded any liabilities for these
agreements as of December 31, 2021 and 2020.
Paycheck
Protection Program Loan
On
April 13, 2020, AgeX obtained a loan in the amount of $432,952 from Axos Bank (the “Bank”) under the Paycheck Protection
Program (the “PPP Loan”). The PPP Loan bore interest at a rate of 1% per annum. No payments were due on the PPP Loan during
a six month deferral period commencing on the date of the promissory note. Commencing one month after the expiration of the deferral
period, and continuing on the same day of each month thereafter until the maturity date of the PPP Loan, monthly payments of principal
and interest became due, in an amount required to fully amortize the principal amount outstanding on the PPP Loan by the maturity date.
The maturity date was April 13, 2022. The principal amount of the PPP Loan was subject to forgiveness under the PPP to the extent of
PPP Loan proceeds that were used to pay expense permitted by the PPP, including payroll, rent, and utilities during the time frame permitted
by the PPP. On February 19, 2021, the PPP Loan was forgiven in full.
On
December 27, 2020, the Consolidated Appropriations Act of 2021 was signed into law, retroactively allowing a federal deduction of the
expenses that gave rise to the PPP Loan forgiveness. California does not allow a deduction for these expenses for publicly traded companies.
Notice
of Delisting
On
June 1, 2020, AgeX received a letter (the “Deficiency Letter”) from the staff of the NYSE American (the “Exchange”)
indicating that AgeX does not meet certain of the Exchange’s continued listing standards as set forth in Section 1003(a)(i) of
the Exchange Company Guide in that AgeX has stockholders’ equity of less than $2,000,000 and has incurred losses from continuing
operations and/or net losses during its two most recent fiscal years. Pursuant to Section 1009 of the Exchange Company Guide and as provided
in the Deficiency Letter AgeX provided the Exchange staff with a plan (the “Compliance Plan”) advising the Exchange staff
of action AgeX has taken and will take that would bring AgeX into compliance with the Exchange’s continued listing standards by
December 1, 2021. The Exchange staff accepted the Compliance Plan.
On
April 15, 2021, AgeX regained compliance with all of the Exchange’s continued listing standards set forth in Part 10 of the Exchange
Company Guide. Specially, the Exchange has resolved the continued listing deficiency with respect to Section 1003(a)(i) of the Exchange
Company Guide. However, as a result of the subsequent decline in the market price of AgeX common stock, the total value of market capitalization
or “market cap” of AgeX common stock fell below the $50 million level that provided an exemption from meeting the stockholder’s
equity requirement of the Exchange’s continued listing standards. The Exchange staff will continue to monitor AgeX’s market
cap over the next few months and may take action, including truncating the compliance procedures described in Section 1009 of the Exchange
Company Guide or immediately initiating delisting proceedings if we do not regain compliance.
On
November 17, 2021 we received a second deficiency letter (2021 Deficiency Letter) from the staff of the Exchange indicating that AgeX
does not meet certain of the Exchange’s continued listing standards as set forth in Section 1003(a)(i) and (ii) of the Exchange
Company Guide in that we have stockholders equity of less than $2,000,000 and have incurred losses from continuing operations and/or
net losses during our two most recent fiscal years, and that we have stockholders equity of less than $4,000,000 and have incurred losses
from continuing operations and/or net losses during three out of four of our most recent fiscal years. Pursuant to Section 1009 of the
Exchange Company Guide and as provided in the 2021 Deficiency Letter AgeX provided the Exchange staff with an updated plan (the “2021
Plan”) advising the Exchange staff of action we have taken and will take that would bring AgeX into compliance with the Exchange’s
continued listing standards by June 17, 2023. We submitted the 2021 Plan on December 16, 2021 which the Exchange staff accepted. The
Exchange staff will review AgeX’s compliance with the Plan on a quarterly basis and if AgeX does not show progress consistent with
the 2021 Plan or is not in compliance with the Exchange’s continued listing standards by June 17, 2023, the Exchange will commence
delisting procedures.
AgeX
intends to make arrangements to have its common stock quoted on an interdealer quotation system if its common stock is delisted from
the Exchange.
10.
Subsequent Events
Additional
Draws under the 2020 Loan Agreement
During
January 2022, AgeX borrowed an additional $0.5
million under the 2020 Loan Agreement with Juvenescence.
The outstanding principal balance of the loans under the 2020 Loan Agreement will become due and payable on the Repayment Date on March
30, 2023.
2022
Secured Convertible Promissory Note and Security Agreement
On
February 14, 2022, AgeX and Juvenescence entered into a Secured Convertible Promissory Note (the “Secured Note”) pursuant
to which Juvenescence has agreed to provide to AgeX a $13,160,000 line of credit for a period of 12 months. AgeX drew an initial $8,160,000
of the line of credit and used $7,160,000 to pay the outstanding principal and other amounts due as loan origination fees under its 2019
Loan Agreement with Juvenescence. The remaining $5 million of the line of credit may be drawn down from time to time over the next 12
months subject to Juvenescence’s discretion to approve each loan draw. AgeX may not draw more than $1 million in any subsequent
single draw. The outstanding principal balance of the Secured Note will become due and payable on February 14, 2024 (the “Repayment
Date”).
In
lieu of accrued interest, AgeX will pay Juvenescence an Origination Fee in an amount equal to 4% of the amount each draw of loan funds,
which will accrue as each draw is funded, and an additional 4% of all the total amount of funds drawn that will accrue following the
end of the 12 month period during which funds may be drawn from the line of credit. The Origination Fee will become due and payable on
the Repayment Date or in a pro rata amount with any prepayment of in whole or in part of the outstanding principal balance of the Secured
Note.
Conversion
of Loan Amounts to Common Stock
In
lieu of repayment of funds borrowed, AgeX may convert the loan balance and any accrued but unpaid Origination Fees (collectively the
“Outstanding Amount”) into AgeX common stock or “units” (a “Borrower Conversion”) if AgeX consummates
a “Qualified Offering” which means a sale of common stock (or common stock paired with warrants or other convertible securities
in “units”) in which the gross sale proceeds are at least $10 million. The conversion price per share or units shall be the
lowest price at which shares or units are sold in the Qualified Offering before deducting underwriting commissions and discounts, placement
agent commissions and fees, and other expenses of the Qualified Offering. In the case of sales of shares of common stock by AgeX from
time to time in an “at the market offering” a Qualified Offering shall be deemed to have occurred if and when such proceeds
of the sales reaches $10 million.
Juvenescence
may convert the Outstanding Amount in whole or in part into AgeX common stock (a “Lender Conversion”) at any time at Juvenescence’s
election at the closing price per share of AgeX common stock on the NYSE American or other national securities exchange on the date prior
to the date Juvenescence gives AgeX notice Juvenescence’s election to convert the Outstanding Amount or a portion thereof into
common stock.
Any
Borrower Conversion or Lender Conversion is subject to certain restrictions to comply with applicable requirements of the NYSE American
(the “Exchange”) where AgeX common stock is listed. Section 713 of the Exchange Company Guide requires listed companies to
obtain stockholder approval as a prerequisite to Exchange listing approval before: (i) issuing additional shares in a transaction involving
the sale, issuance, or potential issuance by the issuer of common stock (or securities convertible into common stock) equal to 20% or
more of stock outstanding (determined as of the date of the particular transaction agreement) for less than the greater of book or market
value of the Exchange listed common stock (the “20% Rule”) and (ii) issuing shares that will result in a change of control
of the company (the “Change of Control Rule”). While the Exchange has not defined “change of control”, the Exchange
considers any issuance of stock to be subject to the Change of Control Rule if the issuance of stock would result in a stockholder holding
50% or more of a company’s outstanding stock. The Secured Note contains a “19.9 % blocker” provision and a “change
of control blocker” provision intended to prevent a conversion of the Outstanding Amount that would violate the 20% Rule or the
Change of Control Rule.
The
19.9% blocker provides that any conversion of the Secured Note into common stock must either (i) not involve the issuance of more than
19.9% of the common stock outstanding on the date of the Secured Note at a price lower than the applicable market price (as further explained
below) so that stockholder approval under the 20% Rule would not be required, or (ii) be approved by the AgeX stockholders. Under the
Secured Note, AgeX may borrow funds from Juvenescence in period installments or “tranches” and the market price of AgeX common
stock is determined for each such tranche. Each tranche market price is based on the closing price of AgeX common stock on the date of
the drawdown notice from AgeX to Juvenescence requesting funding of the loan tranche. Upon Borrower Conversion, which can take place
only in connection with a Qualified Offering by AgeX, only shares of common stock issuable upon the conversion of a tranche with a tranche
market price greater than the applicable conversion price would be aggregated (along with any other common stock that might be issued
to Juvenescence in connection with the Qualified Offering) for the purpose of determining the applicability of the 19.9% blocker. Upon
Lender Conversion, only shares issuable upon the conversion of a tranche with a tranche market price that is lower than the market price
on the date prior to the date the Juvenescence delivers a conversion notice to AgeX are aggregated for the purposes of determining the
applicability of the 19.9% blocker. The change of control blocker provision provides that without the prior approval of AgeX stockholders
a Borrower Conversion or a Lender Conversion may not take place if it would cause Juvenescence’s ownership to equal or exceed 50%
of the outstanding shares of AgeX common stock.
Consequently,
without the approval of AgeX stockholders the Outstanding Amount may not be converted into AgeX common stock under the Borrower Conversion
provisions or the Lender Conversion provisions of the Secured Note in an amount that would (a) equal or exceed 19.9% of the outstanding
common stock (measured at the date of the Secured Note) at a conversion price less than the greater of the book value or the applicable
tranche market value of AgeX common stock, or (b) cause Juvenescence’s ownership to equal or exceed 50% of the outstanding shares
of AgeX common stock.
Under
the terms of the Secured Note, AgeX has agreed to seek the vote of AgeX stockholders to approve the ability of AgeX and Juvenescence
to convert the Outstanding Amount into shares of AgeX common stock under the Borrower Conversion and Lender Conversion provisions of
the Secured Note even if the Borrower Conversion or Lender Conversion, as applicable, would result in (a) Juvenescence receiving additional
shares in excess of 19.9% of the AgeX common stock outstanding as of the date of the Secured Note for less than the greater of book value
or the applicable tranche market values of AgeX common stock, or (b) Juvenescence owning more than 50% of AgeX outstanding common stock.
Default
Provisions
The
Outstanding Amount may become immediately due and payable prior to the Repayment Date if an Event of Default as defined in the Secured
Note occurs. Events of Default under the Secured Note include: (a) AgeX fails to pay any principal amount payable by it in the manner
and at the time provided under and in accordance with the Secured Note, (b) AgeX fails to pay any other amount payable by it in the manner
and at the time provided under and in accordance with the Secured Note or the Security Agreement described below or any other agreement
executed in connection with the Secured Note (the “Loan Documents”) and the failure is not remedied within three business
days; (c) AgeX fails to perform any of its covenants or obligations or fail to satisfy any of the conditions under the Secured Note or
any other Loan Document and, such failure (if capable of remedy) remains unremedied to the satisfaction of Juvenescence (in its sole
discretion) for 10 business days after the earlier of (i) notice requiring its remedy has been given by Juvenescence to AgeX and (ii)
actual knowledge of the failure by senior officers of AgeX; (d) if any indebtedness of AgeX in excess of $100,000 becomes due and payable,
or a breach or other circumstance arises thereunder such that Juvenescence is entitled to declare such indebtedness due and payable,
prior to its due date, or any indebtedness of AgeX in excess of $25,000 is not paid on its due date; (e) AgeX stops payment of its debts
generally or ceases or threatens to cease to carry on its business or is unable to pay its debts as they fall due or is deemed by a court
of competent jurisdiction to be unable to pay its debts as they fall due, or enters into any arrangements with its creditors generally;
(f) if (i) an involuntary proceeding (other than a proceeding instituted by Juvenescence or an affiliate of Juvenescence) shall be commenced
or an involuntary petition shall be filed seeking liquidation, reorganization or other relief in respect of AgeX and any subsidiary,
or of all or a substantial part of its assets, under any federal, state or foreign bankruptcy, insolvency, receivership or similar law
now or hereafter in effect or (ii) an involuntary appointment of a receiver, trustee, custodian, sequestrator, conservator or similar
official for AgeX or a subsidiary or for a substantial part of its assets occurs (other than in a proceeding instituted by Juvenescence
or an affiliate of Juvenescence), and, in any such case, such proceeding shall continue undismissed and unstayed for sixty (60) consecutive
days without having been dismissed, bonded or discharged or an order of relief is entered in any such proceeding; (g) it becomes unlawful
for AgeX to perform all or any of its obligations under the Secured Note or any authorization, approval, consent, license, exemption,
filing, registration or other requirement of any governmental, judicial or public body or authority necessary to enable AgeX to comply
with its obligations under the Secured Note or to carry on its business is not obtained or, having been obtained, is modified in a manner
that precludes AgeX or its subsidiaries from conducting their business in any material respect, or is revoked, suspended, withdrawn or
withheld or fails to remain in full force and effect; (h) the issuance or levy of any judgment, writ, warrant of attachment or execution
or similar process against all or any material part of the property or assets of AgeX or a subsidiary if such process is not released,
vacated or fully bonded within 60 calendar days after its issue or levy; (i) any injunction, order, judgment or decision of any court
is entered or issued which, in the opinion of Juvenescence, materially and adversely affects, or is reasonably likely so to affect, the
ability of AgeX or a subsidiary to carry on its business or to pay amounts owed to Juvenescence under the Secured Note; (j) AgeX, whether
in a single transaction or a series of related transactions, sells, leases, licenses, consigns, transfers or otherwise disposes of any
material portion of its assets (with any such disposition with respect to any asset or assets with a fair value of at least $250,000
being deemed material), other than (i) certain permitted investments (ii) sales, transfers and dispositions of inventory in the ordinary
course of business, (iii) any termination of a lease of real or personal property that is not necessary in the ordinary course of the
AgeX’s business, could not reasonably be expected to have a material adverse effect and does not result from AgeX’s
default, and (iv) any sale, lease, license, consignment, transfer or other disposition of assets that are no longer necessary in the
ordinary course of business or which has been approved in writing by Juvenescence; (k) any of the following shall occur: (i) the security
and/or liens created by the Security Agreement or any other Loan Document shall at any time cease to constitute valid and perfected security
and/or liens on any material portion of the collateral intended to be covered thereby; (ii) except for expiration in accordance with
its terms, the Security Agreement or any other Loan Document pursuant to which a lien is granted by AgeX in favor of Juvenescence shall
for whatever reason be terminated or shall cease to be in full force and effect; (iii) the enforceability of the Security Agreement or
any other Loan Document pursuant to which a lien is granted by AgeX in favor of Juvenescence shall be contested by AgeX or a subsidiary,
(iv) AgeX shall assert that its obligations under the Secured Note or any other Loan Document shall be invalid or unenforceable, or (v)
a loss, theft, damage or destruction occurs with respect to a material portion of the collateral; (l) there is any change in the financial
condition of AgeX and its subsidiaries which, in the opinion of Juvenescence, materially and adversely affects, or is reasonably likely
so to affect, the ability of AgeX to perform any of its obligations under the Secured Note; and (m) any representation, warranty or statement
made, repeated or deemed made or repeated by AgeX in the Secured Note, or pursuant to the Loan Documents, is incomplete, untrue, incorrect
or misleading in any material respect when made, repeated or deemed made.
Restrictive
Covenants
The
Secured Note includes certain covenants that among other matters such as financial reporting: (i) impose financial restrictions on AgeX
while the Secured Note remains unpaid, including restrictions on the incurrence of additional indebtedness by AgeX and its subsidiaries,
except that AgeX’s subsidiary Reverse Bio will be permitted to incur debt convertible into equity not guaranteed or secured by
the assets of AgeX or any other AgeX subsidiary, and the restrictions on the incurrence of indebtedness applicable to Reverse Bio will
end if it raises more than $15 million in debt or equity financing within 12 months from the date of the Secured Note; (ii) require that
AgeX use loan proceeds and funds that may be raised through certain equity offerings only for research and development work, professional
and administrative expenses, for general working capital, and for repayment of all or a portion of AgeX’s indebtedness to Juvenescence;
and (iii) prohibit AgeX from making additional investments in subsidiaries, unless AgeX obtains the written consent of Juvenescence to
a transaction that otherwise would be prohibited or restricted.
Security
Agreement
AgeX
has entered into a Security Agreement granting Juvenescence a security interest in substantially all of the assets of AgeX, including
a security interest in shares of AgeX subsidiaries that hold certain assets, as collateral for AgeX’s loan obligations. If an Event
of Default occurs, Juvenescence will have the right to foreclose on the assets pledged as collateral.
2022
Warrants
Upon
each draw down of funds under the Secured Note, AgeX will issue to Juvenescence warrants to purchase shares of AgeX common stock (“2022
Warrants”). The 2022 Warrants will be governed by the terms of a Warrant Agreement between AgeX and Juvenescence. The number of
2022 Warrants to be issued will be equal to 50% of the number determined by dividing the amount of the applicable loan draw by the applicable
Market Price. The Market Price will be the last closing price per share of AgeX common stock on the NYSE American or other national securities
exchange preceding the delivery of the notice from AgeX requesting a draw of funds that triggers the obligation to issue 2022 Warrants;
provided, however that if AgeX common stock is not traded on a national securities exchange the Market Price shall be determined with
reference to closing prices quoted or bid and asked prices on an interdealer quotation system averaged over twenty consecutive trading
days. The exercise price of the 2022 Warrants will be the applicable Market Price. The 2022 Warrants will expire at 5:00 p.m. New York
time three years after the date of issue.
The
Warrant Agreement governing the 2022 Warrants contains a “change of control blocker” provision intended to prevent an exercise
of 2022 Warrants that would violate the Change in Control Rule. The exercise price of the 2022 Warrants is set with reference to the
market price of AgeX common stock so the 20% Rule would have no effect on the exercise of 2022 Warrants. Under the terms of the Secured
Note, AgeX has agreed to seek the vote of AgeX stockholders to approve the ability of Juvenescence to exercise its 2022 Warrants if the
exercise would cause Juvenescence’s ownership of AgeX common stock to equal or exceed 50% of the outstanding AgeX common stock.
Registration
Rights
AgeX
has entered into an amendment to its Registration Rights Agreement with Juvenescence to include as registrable securities under the Registration
Rights Agreement the 2022 Warrants and underlying shares and any shares issuable upon the conversion of the Secured Note into common
stock.