UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 20182019

 

OR

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to ________

 

Commission file number1-12830

 

BioTime, Inc.

(Exact name of registrant as specified in its charter)

 

California94-3127919

(State or other jurisdiction

of
incorporation or organization)

(IRS Employer


Identification No.)

 

1010 Atlantic Avenue, Suite 102

Alameda, California 94501

(Address of principal executive offices)

Alameda, California

94501
(Address of principal executive offices)(Zip code)

 

(510) 521-3390

(Registrant’s telephone number, including area code)

Title of each classTrading SymbolName of exchange on which registered
Common StockBTXNYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐Accelerated filer ☒
Non-accelerated filer ☐ (Do not check if a smaller reporting company)Smaller reporting company ☐☒
Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate theThe number of common shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 126,877,327 common shares, no par value, as of July 23, 2018.August 6, 2019 was 149,642,861.

 

 

 

 

 

PART 1—I - FINANCIAL INFORMATION

 

Statements madeThis Report on Form 10-Q (this “Report”) contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Report thatare forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not historical facts may constitutelimited to, statements about:

●our plans to research, develop and commercialize our product candidates;
●the initiation, progress, success, cost and timing of our clinical trials and product development activities;
●the therapeutic potential of our product candidates, and the disease indications for which we intend to develop our product candidates;
●our ability and timing to advance our product candidates into, and to successfully initiate, conduct, enroll and complete, clinical trials;
●our ability to manufacture our product candidates for clinical development and, if approved, for commercialization, and the timing and costs of such manufacture;
●the performance of third parties in connection with the development and manufacture of our product candidates, including third parties conducting our clinical trials as well as third-party suppliers and manufacturers;
●the potential of our cell therapy platform, and our plans to apply our platform to research, develop and commercialize our product candidates;
●our ability to obtain funding for our operations, including funding necessary to initiate and complete clinical trials of our product candidates;
●the size and growth of the potential markets for our product candidates and our ability to serve those markets;
●the potential scope and value of our intellectual property rights;
●our ability, and the ability of our licensors, to obtain, maintain, defend and enforce intellectual property rights protecting our product candidates, and our ability to develop and commercialize our product candidates without infringing the proprietary rights of third parties;
●our ability to recruit and retain key personnel;
●our ability to successfully integrate the operations of Asterias Biotherapeutics, Inc. (“Asterias”) into BioTime; and
●other risks and uncertainties, including those described under Part II, Item 1A, “Risk Factors” of this Report and Part I, Item 1A, “Risk Factors” in our most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “Commission”) on March 14, 2019.

Any forward-looking statements in this Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that are subjectmay cause our actual results, performance or achievements to risks and uncertaintiesbe materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that couldmay cause actual results to differ materially from current expectations include, among other things, those discussed. Such risks and uncertainties include but are not limited to those discussed inlisted under Part II, Item 1A, “Risk Factors” of this Report underand Part I, Item 1 of1A, “Risk Factors” in our most recent Annual Report on Form 10-K filed with Commission on March 14, 2019. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the Notes to Condensed Consolidated Interim Financial Statements, and under Risk Factors in this Report. Words such as “expects,” “may,” “will,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions identify forward-looking statements.future.

References to “BioTime”, “we” and “our” means BioTime, Inc. and its subsidiaries and affiliates unless the context otherwise indicates.

 

The description or discussion, in this Form 10-Q,Report, of any contract or agreement is a summary only and is qualified in all respects by reference to the full text of the applicable contract or agreement.

Recent Transactions Affecting Our Corporate Organization

Asterias Merger

 

DeconsolidationOn March 8, 2019, we acquired the outstanding shares ofOncoCyte Corporation Effective February 17, 2017 common stock of Asterias Biotherapeutics, Inc. (“Asterias”) held by stockholders other than BioTime via merger. In the acquisition, the outstanding shares of Asterias common stock held by stockholders other than BioTime were converted into shares of our common stock at an exchange ratio of 0.71 BioTime shares for each Asterias share.

 

Effective February 17, 2017 BioTime deconsolidated OncoCyte Corporation (“OncoCyte”) financial statements and results of operations from those of BioTime under applicable generally accepted accounting principles due to the decrease in BioTime’s percentage ownership in OncoCyte below 50% as a result of OncoCyte issuing 625,000 shares of its common stock pursuant to warrant exercises by certain OncoCyte shareholders. Prior to that date, OncoCyteMay 13, 2016, Asterias was a majority-owned and consolidated subsidiary of BioTime. Since February 17, 2017,On May 13, 2016, BioTime’s percentage ownership decreased from 57.1% to 48.7% as a result of the sale of shares of common stock by Asterias in a public offering, resulting in BioTime’s loss of control of Asterias under generally accepted accounting principles in the U.S. (“GAAP”). Accordingly, BioTime hasdeconsolidated Asterias effective May 13, 2016. From May 13, 2016 until the consummation of the merger on March 8, 2019, BioTime accounted for OncoCyteits ownership in Asterias under the equity method of accounting, electing the fair value option, with the investment carried on the consolidated balance sheet at fair value and all subsequent changes in fair value included in BioTime’s consolidated statements of operations in other income and expenses, net. The deconsolidation of Asterias is sometimes referred to as the “Asterias Deconsolidation” in this Report.

AgeX Deconsolidation and Distribution

On August 30, 2018, we entered into a Stock Purchase Agreement with Juvenescence Limited (“Juvenescence”) and AgeX Therapeutics, Inc. (“AgeX”), under which we sold 14,400,000 of our shares of AgeX common stock to Juvenescence for $3.00 per share. The transaction resulted in over $43 million in non-dilutive financing for BioTime.

Upon completion of that transaction, our percentage ownership of AgeX’s outstanding shares of common stock decreased from 80.4% to 40.2%, and Juvenescence’s percentage ownership increased from 5.6% to 45.8%. As a result of the transaction, as of August 30, 2018, AgeX was no longer our subsidiary and effective that date, due to the decrease in our percentage ownership in AgeX to below 50%, we deconsolidated AgeX’s consolidated financial statements and consolidated results of operations from ours under GAAP. Prior to that date, AgeX was our majority-owned and consolidated subsidiary. Beginning on August 30, 2018 through November 28, 2018 (the date on which AgeX began trading as a public company as discussed below), we accounted for AgeX using the equity method of accounting, electing the fair value option, recording the retained interest in AgeX at fair value on August 30, 2018 with all subsequent changes in fair value included in BioTime’s unaudited condensedour consolidated statements of operations in other income and expenses, net. The deconsolidation of AgeX is sometimes referred to as the “AgeX Deconsolidation” in this Report.

On November 28, 2018, AgeX began trading as a public company on the NYSE American (under the symbol “AGE”) and, on that date, we distributed 12.7 million shares of AgeX common stock we owned to our shareholders, on a pro rata basis, in the ratio of one share of AgeX common stock for every 10 shares of our common stock they owned. This distribution was accounted for at fair value as a taxable, dividend-in-kind transaction in the aggregate amount of $34.4 million. Immediately following the distribution, we owned 1.7 million shares of AgeX common stock, all of which we still own, and which represents approximately 4.6% of AgeX’s outstanding common stock as of June 30, 2019. We hold the shares of AgeX common stock that we own as marketable equity securities. The distribution of AgeX common stock is sometimes referred to as the “AgeX Distribution” in this Report.

As of, and for each reporting period after February 17, 2017,August 30, 2018, the fair value of BioTime’sour ownership interest in OncoCyte isAgeX will be determined by multiplying the fair value of a share of AgeX common stock by the number of such shares of OncoCyte held by BioTime and the closing price of the OncoCyte common stock as quoted on NYSE American: OCX.we own.

 

OncoCyte’sAgeX’s consolidated assets and liabilities are not included in BioTime’s unaudited condensed consolidated balance sheetssheet at June 30, 20182019 and December 31, 20172018, due to the deconsolidation. The fair valuedeconsolidation of OncoCyte shares owned by BioTime is shownAgeX on BioTime’s condensed consolidated balance sheets as of JuneAugust 30, 2018 and December 31, 2017.2018.

 

OncoCyte’s results are not included in BioTime’s unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2018. BioTime’s unaudited condensed2019 do not include AgeX’s consolidated statements of operations forresults. For the three and six months ended June 30, 20172018, BioTime’s unaudited consolidated results include OncoCyte’s results for the period from January 1, 2017 through February 16, 2017, the day immediately preceding the deconsolidation.AgeX’s consolidated results.

 

For further discussion, see Notes to the Unaudited Condensed Consolidated Interim Financial Statements andManagement’s Discussion and Analysis of Financial Condition and Results of Operationsincluded elsewhere in this Report.

The deconsolidation of OncoCyte is sometimes referred to as the “OncoCyte Deconsolidation” in this Report.

2

Item 1. Financial Statements

 

BIOTIME, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

 

 June 30, 2018 (Unaudited) December 31, 2017 (Note 2)  June 30, 2019
(Unaudited)
(Notes 1 and 3)		  

December 31, 2018

(Notes 1 and 6)

 
ASSETS                
CURRENT ASSETS                
Cash and cash equivalents $27,207  $36,838  $8,210  $23,587 
Marketable equity securities  1,948   1,337   8,477   7,154 
Trade accounts and grants receivable, net  1,693   780   1,671   767 
Receivables from affiliates, net (Note 9)  2,076   2,266 
Receivables from affiliates, net (Note 10)  -   2,112 
Prepaid expenses and other current assets  1,571   1,402   2,101   2,738 
Total current assets  34,495   42,623   20,459   36,358 
                
Property, plant and equipment, net  5,014   5,533 
NONCURRENT ASSETS        
Property and equipment, net  8,720   5,835 
Deposits and other long-term assets  229   1,018   815   505 
Promissory note from Juvenescence (Note 5)  22,860   22,104 
Equity method investment in OncoCyte, at fair value (Note 4)  37,419   68,235   36,539   20,250 
Equity method investment in Asterias, at fair value (Note 5)  29,359   48,932 
Equity method investment in Asterias, at fair value (Note 3)  -   13,483 
Goodwill  12,977   - 
Intangible assets, net  5,735   6,900   49,321   3,125 
TOTAL ASSETS $112,251  $173,241  $151,691  $101,660 
                
LIABILITIES AND SHAREHOLDERS’ EQUITY                
CURRENT LIABILITIES                
Accounts payable and accrued liabilities $5,028  $5,718  $6,859  $6,463 
Capital lease and lease liabilities, current portion  225   212 
Financing lease and right of use lease liabilities, current portion  956   237 
Promissory notes, current portion  120   152   -   70 
Deferred license and subscription revenues  367   488 
Deferred grant revenues  103   309 
Deferred grant revenue  44   42 
Total current liabilities  5,843   6,879   7,859   6,812 
                
LONG-TERM LIABILITIES                
Deferred tax liability  7,334   - 
Deferred revenues, net of current portion  200   - 
Deferred rent liabilities, net of current portion  189   105   -   244 
Lease liability, net of current portion  915   1,019 
Capital lease, net of current portion  116   132 
Promissory notes, net of current portion  -   18 
Liability classified warrants and other long-term liabilities  437   825 
Right-of-use lease liability, net of current portion  3,825   1,854 
Financing lease, net of current portion  93   104 
Liability classified warrants, net of current portion, and other long-term liabilities  621   400 
TOTAL LIABILITIES  7,500   8,978   19,932   9,414 
                
Commitments and contingencies (Notes 13 and 14)        
Commitments and contingencies (Note 15)        
                
SHAREHOLDERS’ EQUITY                
Preferred shares, no par value, authorized 2,000 shares; none issued and outstanding as of June 30, 2018 and December 31, 2017  -   - 
Common shares, no par value, 250,000 shares authorized; 126,873 shares issued and outstanding as of June 30, 2018 and 126,866 shares issued and outstanding as of December 31, 2017  383,529   378,487 
Preferred shares, no par value, authorized 2,000 shares; none issued and outstanding as of June 30, 2019 and December 31, 2018  -   - 
Common shares, no par value, 250,000 shares authorized; 149,643 shares issued and outstanding as of June 30, 2019 and 127,136 shares issued and outstanding as of December 31, 2018  385,615   354,270 
Accumulated other comprehensive income  1,082   451   207   1,426 
Accumulated deficit  (283,630)  (216,297)  (252,435)  (261,856)
BioTime, Inc. shareholders’ equity  100,981   162,641   133,387   93,840 
Noncontrolling interest  3,770   1,622 
Noncontrolling interest (deficit)  (1,628)  (1,594)
Total shareholders’ equity  104,751   164,263   131,759   92,246 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $112,251  $173,241  $151,691  $101,660 

 

See accompanying notes to the condensed consolidated interim financial statements.

3

 

BIOTIME, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

 

Three Months Ended June 30,

  

Six Months Ended June 30,

  

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 
 2018 2017 2018 2017  2019  2018  2019  2018 
REVENUES:                         
Grant revenue $1,941  $-  $2,266  $11  $529  $1,941  $1,278  $2,266 
Royalties from product sales and license fees  91   81   227   191   140   91   226   227 
Subscription and advertisement revenues  333   300   572   564   -   333   -   572 
Sale of research products and services  182   -   182   5   110   182   203   182 
Total revenues  2,547   381   3,247   771   779   2,547   1,707   3,247 
                                
Cost of sales  (106)  (5)  (215)  (62)  (107)  (106)  (175)  (215)
                                
Gross profit  2,441   376   3,032   709   672   2,441   1,532   3,032 
                                
OPERATING EXPENSES:                                
Research and development  (6,358)  (6,271)  (12,293)  (12,765)  5,235   6,358   10,196   12,293 
Acquired in-process research and development (Note 9)  -   -   (800)  - 
Acquired in-process research and development  -   -   -   800 
General and administrative  (5,227)  (4,423)  (11,163)  (9,524)  6,258   5,227   14,918   11,163 
Total operating expenses  (11,585)  (10,694)  (24,256)  (22,289)  11,493   11,585   25,114   24,256 
Gain on sale of assets  -   1,754   -   1,754 
Loss from operations  (9,144)  (8,564)  (21,224)  (19,826)  (10,821)  (9,144)  (23,582)  (21,224)
OTHER INCOME/(EXPENSES):                                
Interest income (expense), net  52   (413)  105   (719)
Interest income, net  437   52   879   105 
Gain on sale of equity method investment in Ascendance  -   -   3,215   -   -   -   -   3,215 
Gain on deconsolidation of OncoCyte  -   -   -   71,697 
Gain (loss) on equity method investment in OncoCyte at fair value  6,603   (11,006)  (30,816)  5,136 
Gain (loss) on equity method investment in Asterias at fair value  (2,175)  3,262   (19,573)  (22,835)
Unrealized gain on marketable equity securities  397   -   612   - 
Other income (expense), net  (379)  617   (663)  1,344 
Total other income (expense), net  4,498   (7,540)  (47,120)  54,623 
INCOME (LOSS) BEFORE INCOME TAXES  (4,646)  (16,104)  (68,344)  34,797 
(Loss) gain on equity method investment in OncoCyte at fair value  (21,425)  6,603   16,288   (30,816)
(Loss) gain on equity method investment in Asterias at fair value  -   (2,175)  6,744   (19,573)
Unrealized (loss) gain on marketable equity securities  (607)  397   1,324   612 
Unrealized gain on warrant liability  234   460   271   351 
Other (expense) income, net  882   (839)  1,688   (1,014)
Total other (expense) income, net  (20,479)  4,498   27,194   (47,120)
(LOSS)/INCOME BEFORE INCOME TAXES  (31,300)  (4,646)  3,612   (68,344)
                                
Deferred income tax benefit  -   3,877   -   -   1,248   -   5,632   - 
                                
NET INCOME (LOSS)  (4,646)  (12,227)  (68,344)  34,797 
NET (LOSS)/INCOME  (30,052)  (4,646)  9,244   (68,344)
                                
Net loss attributable to noncontrolling interest  431   576   581   2,840   20   431   34   581 
                                
NET INCOME (LOSS) ATTRIBUTABLE TO BIOTIME, INC. $(4,215) $(11,651) $(67,763) $37,637 
NET (LOSS)/INCOME ATTRIBUTABLE TO BIOTIME, INC. $(30,032) $(4,215) $9,278  $(67,763)
                                
NET INCOME (LOSS) PER COMMON SHARE:                
NET (LOSS)/INCOME PER COMMON SHARE:                
BASIC $(0.03) $(0.11) $(0.53) $0.35  $(0.20) $(0.03) $0.07  $(0.53)
DILUTED $(0.03) $(0.11) $(0.53) $0.34  $(0.20) $(0.03) $0.07  $(0.53)
                                
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING:                                
BASIC  126,873   110,874   126,871   108,804   149,582   126,873   141,270   126,871 
DILUTED  126,873   110,874   126,871   109,296   149,582   126,873   141,270   126,871 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

45

 

BIOTIME, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME INCOME/(LOSS)

(IN THOUSANDS)

(UNAUDITED)

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  2018  2017  2018  2017 
NET INCOME (LOSS) $(4,646) $(12,227) $(68,344) $34,797 
Other comprehensive income (loss), net of tax:                
Foreign currency translation adjustment, net of tax  884   (440)  959   405 
Available-for-sale investments:                
Unrealized gain on available-for-sale securities, net of taxes  -   304   -   603 
COMPREHENSIVE INCOME (LOSS)  (3,762)  (12,363)  (67,385)  35,805 
Less: Comprehensive loss attributable to noncontrolling interest  431   576   581   2,840 
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO BIOTIME, INC. COMMON SHAREHOLDERS $(3,331) $(11,787) $(66,804) $38,645 
  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
  2019  2018  2019  2018 
NET (LOSS)/INCOME $(30,052) $(4,646) $9,244  $(68,344)
Other comprehensive income (loss), net of tax:                
Foreign currency translation adjustment, net of tax  (487)  884   (1,219)  959 
COMPREHENSIVE (LOSS)/INCOME  (30,539)  (3,762)  8,025   (67,385)
Less: Comprehensive loss attributable to noncontrolling interest  20   431   34   581 
COMPREHENSIVE (LOSS)/INCOME ATTRIBUTABLE TO BIOTIME, INC. COMMON STHAREHOLDERS $(30,519) $(3,331) $8,059  $(66,804)

 

See accompanying notes to the condensed consolidated interim financial statements.

5

BIOTIME, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

 

 Six Months Ended June 30,  Six Months Ended
June 30,		 
 2018 2017  2019  2018 
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net income (loss) attributable to BioTime, Inc. $(67,763) $37,637 
Net income/(loss) attributable to BioTime, Inc. $9,278  $(67,763)
Net loss allocable to noncontrolling interest  (581)  (2,840)  (34)  (581)
Adjustments to reconcile net income (loss) attributable to BioTime, Inc. to net cash used in operating activities:                
Gain on deconsolidation of OncoCyte  -   (71,697)
Gain on sale of equity method investment in Ascendance  (3,215)  -   -   (3,215)
Acquired in-process research and development  800   -   -   800 
Unrealized (gain) loss on equity method investment in OncoCyte at fair value  30,816   (5,136)  (16,288)  30,816 
Unrealized loss on equity method investment in Asterias at fair value  19,573   22,835 
Unrealized (gain) loss on equity method investment in Asterias at fair value  (6,744)  19,573 
Unrealized gain on marketable equity securities  (612)  -   (1,324)  (612)
Deferred income tax benefit  (5,632)  - 
Depreciation expense, including amortization of leasehold improvements  560   421   513   560 
Amortization of right-of-use asset  27   - 
Amortization of intangible assets  1,164   1,184   992   1,164 
Stock-based compensation  2,087   1,930   2,202   2,087 
Change in fair value of warrant liability  (351)  - 
Amortization of discount on related party convertible debt  -   640 
Change in fair value of liability classified warrants  (271)  (351)
Foreign currency remeasurement and other (gain) loss  1,137   (1,814)  (1,461)  1,137 
Gain on sale of assets  -   (1,754)
Changes in operating assets and liabilities:                
Accounts and grants receivable, net  (868)  299   (863)  (868)
Accrued interest receivable  (756)  - 
Receivables from affiliates, net of payables  180   332   2,185   180 
Prepaid expenses and other current assets  (259)  105   (1)  (259)
Accounts payable and accrued liabilities  (336)  841   (804)  (336)
Other liabilities  (70)  (144)
Deferred revenue and other liabilities  -   (70)
Net cash used in operating activities  (17,738)  (17,161)  (18,981)  (17,738)
                
CASH FLOWS FROM INVESTING ACTIVITIES:                
Deconsolidation of cash and cash equivalents of OncoCyte  -   (8,898)
Proceeds from the sale of equity method investment in Ascendance  3,215   -   -   3,215 
Purchase of in-process research and development  (800)  -   -   (800)
Cash and cash equivalents acquired in the Asterias Merger  3,117   - 
Purchase of equipment and other assets  (237)  (474)  (364)  (237)
Security deposit and other  (8)  (12)
Net cash provided by (used in) investing activities  2,170   (9,384)
Security deposit paid and other  (1)  (8)
Net cash provided by investing activities  2,752   2,170 
                
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from issuance of common shares  -   20,125 
Fees paid on sale of common shares  -   (1,669)
Proceeds deposited in escrow account  -   5,100 
Proceeds from exercises of stock options  -   29 
Common shares received and retired for employee taxes paid  (13)  (31)  (77)  (13)
Reimbursement from landlord on tenant improvements  744   - 
Repayment of principal portion of promissory notes  (70)  - 
Proceeds from sale of common shares of subsidiary  5,000   -   -   5,000 
Proceeds from sale of subsidiary warrants  737   -   (40)  737 
Repayment of lease liability and capital lease obligation  (151)  (31)
Reimbursement from landlord on construction in progress  -   198 
Proceeds from issuance of related party convertible debt  -   299 
Repayment of financing lease liabilities  (14)  (151)
Payment to repurchase subsidiary shares  (38)  -   -   (38)
Net cash provided by financing activities  5,535   24,020   543   5,535 
                
Effect of exchange rate changes on cash, cash equivalents and restricted cash  (21)  87   83   (21)
                
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH  (10,054)  (2,438)  (15,603)  (10,054)
                
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:                
At beginning of the period  37,685   22,935   24,399   37,685 
At end of the period $27,631  $20,497  $8,796  $27,631 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

67

 

BIOTIME, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

 

1. Organization and Business Overview

 

General –BioTime Inc. (“BioTime” or the “Company”) is a clinical-stage biotechnology company targetingdeveloping novel cell therapies for unmet medical needs. Our current focus is on therapies for degenerative diseases.retinal diseases, neurological conditions associated with demyelination, and aiding the body in detecting and combating cancer. BioTime’s programs are based on twoits proprietary core technology platforms: cell replacementcell-based therapy platform and cell/drug delivery.associated development and manufacturing capabilities. With the cell replacementthis platform BioTime is producing newdevelops and manufactures specialized, terminally-differentiated human cells and tissues withfrom its pluripotent and progenitor cell technologies.starting materials. These differentiated cells and tissues are developed either to replace thoseor support cells that are either rendered dysfunctional or lostabsent due to degenerative diseasesdisease or injuries. BioTime’straumatic injury, or administered as a means of helping the body mount an effective immune response to cancer.

BioTime has three cell therapy programs in clinical development:

●OpRegen®, a retinal pigment epithelium cell replacement therapy currently in a Phase I/IIa multicenter clinical trial for the treatment of advanced dry-age-related macular degeneration (“dry-AMD”) with geographic atrophy. There currently are no therapies approved by the U.S. Food and Drug Administration (“FDA”) for dry-AMD, which accounts for approximately 85-90% of all AMD cases and is a leading cause of blindness in people over the age of 65.
●OPC1, an oligodendrocyte progenitor cell therapy currently in a Phase I/IIa multicenter clinical trial for acute spinal cord injuries. This clinical trial has been partially funded by the California Institute for Regenerative Medicine.
●VAC2, an allogeneic (non-patient-specific or “off-the-shelf”) cancer immunotherapy of antigen-presenting dendritic cells currently in a Phase I clinical trial in non-small cell lung cancer. This clinical trial is being funded and conducted by Cancer Research UK, the world’s largest independent cancer research charity.

BioTime also has cell/drug delivery programs that are based upon its proprietary HyStem®HyStem® cell and drug delivery matrix technology. HyStem®HyStem was designed to provide forsupport the formulation, transfer, retention, and/orand engraftment of cell replacement therapies and to act as a device for localized drug delivery.cellular therapies.

BioTime’s lead cell replacement clinical product is OpRegen®, a retinal pigmented epithelium (RPE) cell replacement therapy, which is in a Phase I/IIa multicenter trial for the treatment of late-stage, dry age-related macular degeneration (dry-AMD). There are currently no FDA-approved therapies for dry-AMD, which accounts for approximately 90% of all age-related macular degeneration cases, and is the leading cause of blindness in people over the age of 60.

BioTime’s lead cell delivery clinical product, based on its proprietary HyStem® technology, is Renevia®, a potential treatment for facial lipoatrophy. “Lipoatrophy” means the loss of fat tissue, which can be caused by several factors, including trauma, aging, or drug side effects, such as those that cause HIV-associated lipoatrophy. BioTime is also developing HyStem® for the sustained delivery of therapeutic drugs and targeted cells to specific areas of the body.

In 2017, BioTime formed AgeX Therapeutics, Inc. (“AgeX”) to continue development of initial discovery and preclinical programs with a focus on utilizing brown adipose tissue (“brown fat”) in targeting diabetes, obesity, and heart disease; and induced tissue regeneration (“iTR”) in utilizing the human body’s own abilities to scarlessly regenerate tissues damaged from age or trauma. AgeX may also pursue other early-stage preclinical programs.

On August 17, 2017, AgeX completed an asset acquisition and stock sale pursuant to which it received certain assets from BioTime for use in its research and development programs and raised $10.0 million in cash from investors to finance its operations. This capitalization of AgeX has allowed BioTime to focus its resources on its clinical programs in its core therapeutic sectors. As of June 30, 2018, BioTime owned approximately 80.6% of the issued and outstanding shares of AgeX common stock (see Notes 10 and 14).

 

BioTime is also enabling early-stage programs in other new technologies through its own research programsprograms.

Asterias Merger

On November 7, 2018, BioTime, Asterias and Patrick Merger Sub, Inc., a wholly owned subsidiary of BioTime (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) whereby BioTime agreed to acquire all of the outstanding common stock of Asterias in a stock-for-stock transaction (the “Asterias Merger”).

On March 7, 2019, the shareholders of each of BioTime and Asterias approved the Merger Agreement. Prior to the consummation of the Merger Agreement, BioTime owned approximately 38% of Asterias’ issued and outstanding common stock and accounted for Asterias as wellan equity method investment.

On March 8, 2019, the Asterias merger closed with Asterias surviving as througha wholly owned subsidiary of BioTime. The former stockholders of Asterias (other than BioTime) received 0.71 shares of BioTime common stock for every share of Asterias common stock they owned. BioTime issued 24,695,898 shares of common stock, including 58,085 shares issued in respect of restricted stock units issued by Asterias that immediately vested in connection with the closing of the Asterias Merger. The aggregate dollar value of such shares, based on the closing price of BioTime common stock on March 8, 2019, was $32.4 million. BioTime also assumed warrants to purchase shares of Asterias common stock.

The Asterias Merger has been accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805,Business Combinations, which requires, among other subsidiaries or affiliates.things, that the assets and liabilities assumed be recognized at their fair values as of the acquisition date.

See Note 3 for a full discussion of the Asterias Merger.

8

Investment in OncoCyte

 

BioTime also has significant equity holdings in two publicly traded companies, Asterias Biotherapeutics, Inc. (“Asterias”) and OncoCyte Corporation (“OncoCyte”), a publicly traded company, which BioTime founded and, until recently, were majority-owned and consolidated subsidiaries. Asterias (NYSE American: AST) is presently focused on advancing three clinical-stage programs that have the potential to address areas of very high unmet medical needs in the fields of neurology (spinal cord injury) and oncology (Acute Myeloid Leukemia and lung cancer).past, was a majority-owned consolidated subsidiary. OncoCyte (NYSE American: OCX) is developing confirmatory diagnostic tests for lung cancer breast cancer, and bladder cancer utilizing novel liquid biopsy technology.

Beginning on February 17, 2017, As of June 30, 2019, BioTime deconsolidated OncoCyte’s financial statements and resultsowned 14.7 million shares of operations from BioTime (the “OncoCyte Deconsolidation”) (see Notes 3 and 4).

Beginning on May 13, 2016, BioTime deconsolidated Asterias’ financial statements and resultsOncoCyte common stock, or 28% of operations from BioTime (the “Asterias Deconsolidation”)its outstanding shares (see Note 5)16).

 

2. Basis of Presentation, Liquidity and Summary of Significant Accounting Policies

 

The unaudited condensed consolidated interim financial statements presented herein, and discussed below, have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”)GAAP for interim financial information and with the instructions to Form 10-Q and Article 108 of Regulation S-X of the Securities Exchange Commission (“SEC”).S-X. In accordance with those rules and regulations certain information and footnote disclosures normally included in comprehensive consolidated financial statements have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 20172018 was derived from the audited consolidated financial statements at that date, but does not include all the information and footnotes required by GAAP. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in BioTime’s Annual Report on Form 10-K as amended, for the year ended December 31, 2017,the audited annual consolidated financial statements of AgeX for the year ended December 31, 2017 and the AgeX unaudited condensed consolidated interim financial statements as of, and for the three months ended March 31, 2018 included in Amendment No. 1 to AgeX’s Registration Statement on Form 10 filed on July 19, 2018 with the SEC (see Note 14).2018.

7

 

The accompanying condensed consolidated interim financial statements, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of BioTime’s financial condition and results of operations. The condensed consolidated results of operations are not necessarily indicative of the results to be expected for any other interim period or for the entire year.

 

Principles of consolidation –

BioTime’s condensed consolidated interim financial statements presentinclude the operating results of allaccounts of its wholly-ownedsubsidiaries. The following table reflects BioTime’s ownership, directly or through one or more subsidiaries, of the outstanding shares of its operating subsidiaries as of June 30, 2019.

SubsidiaryField of BusinessBioTime
Ownership		Country
Asterias BioTherapeutics, Inc.Cell therapy clinical development programs in spinal cord injury and oncology100%USA
Cell Cure Neurosciences Ltd. (“Cell Cure”)Products to treat age-related macular degeneration99%(1)Israel
ES Cell International Pte. Ltd. (“ESI”)Stem cell products for research, including clinical grade cell lines produced under cGMP100%Singapore
OrthoCyte Corporation (“OrthoCyte”)Developing bone grafting products for orthopedic diseases and injuries99.8%USA

(1)Includes shares owned by BioTime and majority-owned subsidiaries that it consolidatesESI.

For the three and six months ended June 30, 2018, BioTime’s unaudited consolidated results include AgeX’s consolidated results for the full period presented. As a result of the AgeX Deconsolidation, beginning on August 30, 2018 (a) AgeX’s consolidated financial statements and consolidated results are no longer a part of BioTime’s condensed consolidated interim financial statements and results, and (b) the fair value of AgeX common stock held by BioTime is now reflected on BioTime’s condensed consolidated balance sheet and the changes in the fair value of those shares during the applicable reporting period are reflected as required under GAAP. gains or losses in BioTime’s condensed consolidated statements of operations included in other income and expenses, net.

All material intercompany accounts and transactions have been eliminated in consolidation. As of June 30, 2019, BioTime consolidated Cell Cure Neurosciences, Ltd (“Cell Cure”), OrthoCyte Corporation (“OrthoCyte”), ES Cell International, Pte Ltd (“ESI”), BioTime Asia, Limited (“BioTime Asia”), AgeX Therapeutics, Inc. (“AgeX”), ReCyte Therapeutics, Inc. (“ReCyte”), LifeMap Sciences, Inc. (“LifeMap Sciences”)its direct and LifeMap Sciences, Ltd., asindirect wholly owned or majority-owned subsidiaries because BioTime has the ability to control their operating and financial decisions and policies through its stock ownership, or representation on the board of directors, and the noncontrolling interest is reflected as a separate element of shareholders’ equity on BioTime’s condensed consolidated balance sheets.

See Note 14 regarding the filing ofAmendment No. 1 to AgeX’s registration on Form 10with the SEC in connection with BioTime’s planned distribution of shares of AgeX common stock owned by BioTime to holders of BioTime common shares, on a pro rata basis.

Beginning on February 17, 2017 and May 13, 2016, respectively, OncoCyte and Asterias financial statements and results are no longer a part of BioTime’s condensed consolidated interim financial statements and results. The market value of OncoCyte and Asterias common stock, as of those respective dates, held by BioTime is now reflected on BioTime’s condensed consolidated balance sheet and the subsequent changes in the market value of those shares is reflected in BioTime’s condensed consolidated balance sheet and condensed consolidated statements of operations, allowing BioTime shareholders to evaluate the value of the respective OncoCyte and Asterias’ portion of BioTime’s business.

OncoCyte’s results are not included in BioTime’s condensed consolidated statements of operations for the three and six months ended June 30, 2018, and the three months ended June 30, 2017. BioTime’s condensed consolidated statements of operations for the six months ended June 30, 2017 include OncoCyte’s results for the period from January 1, 2017 through February 16, 2017, the day immediately preceding the OncoCyte Deconsolidation.

 

Liquidity –

Since inception, BioTime has incurred significant operating losses and has funded its operations primarily through the issuance of equity securities, payments fromsale of common stock of AgeX, a former subsidiary, receipt of research grants, royalties from product sales, license revenues and sales of research productsproducts. Additionally, BioTime raised $4.2 million in a sale of a portion of its OncoCyte holdings and services.$1.2 million in sales of a portion of its Hadasit Bio-Holdings Ltd. (“Hadasit”) holdings in July 2019 (see Note 16). At June 30, 2018,2019, BioTime had an accumulated deficit of $283.6approximately $252.4 million, working capital of $28.7$12.6 million and shareholders’ equity of $104.8$131.8 million. BioTime has evaluated its projected cash flows and believes that its $16.7 million of cash, cash equivalents and marketable equity securities of $29.2 million at June 30, 20182019, plus the $4.2 million in net proceeds from the sale of OncoCyte shares of common stock in July 2019 and the value of its remaining equity investment in OncoCyte (which was approximately $21.7 million based on the closing price of OncoCyte common stock of $1.75 per share on August 6, 2019), providesufficient cash, cash equivalents, and liquidity to carry out BioTime’s current planned operations through at least twelve months from the issuance date of thecondensedconsolidated interim financial statements included in this Report. BioTime also holds shares of Asterias and OncoCyte common stock with a combined market value of $66.8 million at June 30, 2018.Although BioTime has no present plans to liquidate its holdings of Asterias or OncoCyte shares, ifherein. If BioTime needs near term working capital or liquidity to supplement its cash and cash equivalents for its operations, BioTime may sell some, or all, of its Asterias or OncoCyte shares,investments, as necessary.

The AgeX Distribution was completed on November 28, 2018 when AgeX became a publicly traded company (see Note 6). BioTime continues to hold a minority interest in AgeX that may be a source of additional liquidity to BioTime as a marketable equity security.

 

If the promissory note issued by Juvenescence in favor of BioTime discussed in Note 5 is converted into equity securities of Juvenescence prior to its maturity date, the Juvenescence equity securities may be marketable securities that BioTime may use to supplement its liquidity, as needed. If such promissory note is not converted, it is payable in cash, plus accrued interest, at maturity on August 30, 2020.

On March 8, 2019, with the consummation of the Asterias Merger, Asterias became BioTime’s wholly owned subsidiary. BioTime began consolidating Asterias’ operations and results with its operations and results beginning on March 8, 2019 (see Note 3). As BioTime integrates Asterias’ operations into its own, BioTime expects to make extensive reductions in headcount and to reduce non-clinical related spend, in each case, as compared to Asterias’ operations before the Asterias Merger.

BioTime’s projected cash flows are subject to various risks and uncertainties, and the unavailability or inadequacy of financing to meet future capital needs could force itBioTime to modify, curtail, delay, or suspend some or all aspects of its planned operations. BioTime’s determination as to when it will seek new financing and the amount of financing that it will need will be based on itsBioTime’s evaluation of the progress it makes in its research and development programs, any changes to the scope and focus of those programs, any changes in grant funding for certain of those programs, and projection of future costs, revenues, and rates of expenditure. For example, clinical trials being conducted for its OpRegen® program will be funded in part with funds from grants and not from cash on hand. If BioTime were to lose grant funding or is unable to continue to provide working capital to the OpRegen® program, it may be required to delay, postpone, or cancel the clinical trials or limit the number of clinical trial sites, unless BioTimeit is able to obtain adequate financing from another source that could be used forfinancing. In addition, BioTime has incurred and expects to continue incurring significant costs in connection with the clinical trials.acquisition of Asterias and with integrating its operations. BioTime may incur additional costs to maintain employee morale and to retain key employees. BioTime cannot assure that adequate future financing will be available on favorable terms, if at all, when needed.all. Sales of additional equity securities by BioTime or its subsidiaries and affiliates could result in the dilution of the interests of presentcurrent shareholders.

Business Combinations

 

As discussedBioTime accounts for business combinations, such as the Asterias Merger completed in Note 14, on July 19, 2018, AgeX filed Amendment No. 1March 2019, in accordance with ASC Topic 805, which requires the purchase price to its Registration Statement on Form 10 withbe measured at fair value. When the SEC in connection with BioTime’s planned distributionpurchase consideration consists entirely of shares of AgeXBioTime’s common stock, ownedBioTime calculates the purchase price by BioTime to holdersdetermining the fair value, as of BioTime commonthe acquisition date, of shares on a pro rata basis (the “AgeX Distribution”). If the AgeX Distribution is completed, AgeX will become a public company and will incur costs associated with audits and interim reviews of its consolidated financial statements, filing annual, quarterly, and other periodic reports with the SEC, holding annual shareholder meetings, and public relations and investor relations. These costs incurred by AgeX will be in addition to those incurred by BioTime for similar purposes.

Furthermore, as discussed in Note 14, the planned AgeX Distribution will be a taxable event to BioTime. The amount of income tax obligation, if any, that BioTime may incurissued in connection with the AgeX Distribution is not estimable at this time since the tax obligation depends on numerous factors and contingencies including, but not limited to, the completionclosing of the distribution, the amount and availability of U.S. net operating losses generated byacquisition. BioTime to offset any taxable gain as a resultrecognizes estimated fair values of the AgeX Distribution,tangible assets and intangible assets acquired, including in-process research and development (“IPR&D”), and liabilities assumed as of the acquisition date, and records as goodwill any amount of the fair value of AgeX common stock on the distribution date.tangible and intangible assets acquired and liabilities assumed in excess of the purchase price.

8

 

Equity method accounting for Asterias and OncoCyte,investments at fair value –

BioTime uses the equity method of accounting when it has the ability to exercise significant influence, but not control, as determined in accordance with GAAP, over the operating and financial policies of a company. For equity method assetsinvestments which BioTime has elected to measure at fair value, unrealized gains and losses are reported in the condensed consolidated statements of operations in other income and expenses, net.

 

As further discussed in NotesNote 4, and 5, BioTime has elected to account for its OncoCyte and Asterias shares at fair value using the equity method of accounting because beginning on February 17, 2017, and May 13, 2016, the respective datesdate on which BioTime deconsolidated OncoCyte, and Asterias, BioTime has not had control of OncoCyte, and Asterias, as defined by GAAP, but continues to exercise significant influence over OncoCyte and Asterias.this company. Under the fair value method, BioTime’s value in shares of common stock it holds in OncoCyte and Asterias is marked to market at each balance sheet date using the closing pricesprice of OncoCyte and Asterias common stock on the NYSE American multiplied by the number of shares of OncoCyte and Asterias held by BioTime, with changes in the fair value of the OncoCyte and Asterias shares included in other income and expenses, net, in the condensed consolidated statements of operations. The OncoCyte and Asterias shares are considered level 1 assets as defined by ASC 820,Fair Value Measurements and Disclosures.

 

Marketable equity securitiesPrior to the Asterias Merger completed on March 8, 2019 discussed in foreign investments –Note 3, BioTime accountsaccounted for theits Asterias shares it holds in foreign equity securities as marketable equity in accordance with ASC 320-10-25, Investments – Debt and Equity Securities, as amended by Accounting Standards Update (“ASU”) 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, further discussed below, as the shares have a readily determinable fair value quoted on the Tel Aviv Stock Exchange (“TASE”) (under trading symbol “HDST”) where share prices are denominated in New Israeli Shekels (NIS). These securities are held principally to meet future working capital needs. The securities are measured at fair value, and reported as current assets onusing the condensed consolidated balance sheets based on the closing trading priceequity method of the security as of the date being presented. Beginning on January 1, 2018, with the adoption of ASU 2016-01 discussed below, these securities are now called “marketable equity securities” and unrealized holding gains and losses on these securities, including changes in foreign currency exchange rates, are reported in the condensed consolidated statements of operations in other income and expenses, net. Prior to January 1, 2018 and the adoption of ASU 2016-01, these securities were called “available-for-sale securities” and unrealized holding gains and losses, including changes in foreign currency exchange rates, were reported in other comprehensive income or loss, net of tax, and were a component of the accumulated other comprehensive income or loss on the consolidated balance sheet. Realized gains and losses, and declines in value judged to be other-than-temporary related to marketable equity securities, are included in other income and expenses, net, in the condensed consolidated statements of operations.

On January 1, 2018, in accordance with the adoption of ASU 2016-01, BioTime recorded a cumulative-effect adjustment for these available-for-sale-securities to reclassify the unrealized gain of $328,000 included in consolidated accumulated other comprehensive income to the consolidated accumulated deficit balance. For the three and six months ended June 30, 2018, BioTime recorded an unrealized gain of $397,000 and $612,000, respectively, included in other income and expenses, net, due to the increase in fair market value of the marketable equity securities from December 31, 2017 to June 30, 2018.

accounting.

Basic and diluted net income (loss) per share attributable to common shareholdersRevenue Recognition – Basic earnings per share is calculated by dividing net income or loss attributable to BioTime common shareholders by the weighted average number of common shares outstanding, net of unvested restricted stock or restricted stock units, subject to repurchase by BioTime, if any, during the period. Diluted earnings per share is calculated by dividing the net income or loss attributable to BioTime common shareholders by the weighted average number of common shares outstanding, adjusted for the effects of potentially dilutive common shares issuable under outstanding stock options and warrants, using the treasury-stock method, convertible preferred stock, if any, using the if-converted method, and treasury stock held by subsidiaries, if any.

For the three and six months ended June 30, 2018, there were no potentially dilutive common share equivalents due to the net loss reported for the periods presented. For the three months ended June 30, 2017, there were no potentially dilutive common share equivalents due to the net loss reported for this period presented.The primary components of weighted average shares of potentially dilutive common shares used to compute diluted net income per common share for the six months ended June 30, 2017 were 164,000 shares of treasury stock and 328,000 restricted stock units and outstanding stock options (see Note 11).

9

The following common share equivalents were excluded from the computation of diluted net income (loss) per common share for the periods presented because including them would have been antidilutive (in thousands):

  

Three Months Ended June 30,

(unaudited)

  

Six Months Ended June 30,

(unaudited)

 
  2018  2017  2018  2017 
Stock options  8,990   5,035   8,990   4,459 
Warrants  8,795   9,395   8,795   9,395 
Restricted stock units  535   -   535   - 

Recently Adopted Accounting Pronouncements

AdoptionDuring the first quarter of ASU 2016-18,Statement of Cash Flows (Topic 230). On January 1, 2018, BioTime adopted Financial Accounting Standards Board (“FASB”) ASU 2016-18,Accounting Standards Update (“ASU”)Statement of Cash Flows (Topic 230): Restricted Cash, which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash, and that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the condensed consolidated statements of cash flows. The adoption of ASU 2016-18 did not have a material effect on BioTime’s consolidated financial statements. However, prior period restricted cash balances included in prepaid expenses and other current assets, and in deposits and other long-term assets, on the consolidated balance sheets was added to the beginning-of-period and end-of-period total consolidated cash and cash equivalents in the condensed consolidated statements of cash flows to conform to the current presentation shown below.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheet dates that comprise the total of the same such amounts shown in the condensed consolidated statements of cash flows for all periods presented herein and effected by the adoption of ASU 2016-18 (in thousands):

  

June 30, 2018

(unaudited)

  

December 31, 2017

  

June 30, 2017

(unaudited)

  

December 31, 2016

 
Cash and cash equivalents $27,207  $36,838  $14,550  $22,088 
Restricted cash equivalents in escrow  -   -   5,100   - 
Restricted cash included in prepaid expenses and other current assets (see Note 13)  346   -   -   - 
Restricted cash included in deposits and other long-term assets (see Note 13)  78   847   847   847 
Total cash, cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows $27,631  $37,685  $20,497  $22,935 

Adoption of ASU 2014-09,, Revenues from Contracts with Customers (Topic 606).In May 2014, the FASB issued, which created a single, principle-based revenue recognition model that supersedes and replaces nearly all existing U.S. GAAP revenue recognition guidance. BioTime adopted ASU 2014-09 (“Topic 606”)Revenue from Contracts with Customers which supersedes the revenue recognition requirements in Topic 605Revenue Recognition(“Topic 605”). Topic 606 describes principles an entity must apply to measure and recognize revenue and the related cash flows, using the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Topic 606 core principle is that it requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.

BioTime adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method applied to those contracts which were not completed as of the adoption date. Results for reporting periods beginning on January 1, 2018 and thereafter are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with BioTime’s historical revenue recognition accounting under Topic 605.

 

On January 1, 2018,BioTime recognizes revenue in a manner that depicts the adoption and applicationtransfer of Topic 606 resulted in an immaterial cumulative effect adjustment to BioTime’s beginning consolidated accumulated deficit balance. In the applicable paragraphs below, BioTime has summarized its revenue recognition policies for its various revenue sources in accordance with Topic 606.

Revenue Recognition by Source and Geography. Revenues are recognized when control of the promised goodsa product or services is transferreda service to customers, or in the case of governmental entities funding a grant, when allowable expenses are incurred, in an amount thatcustomer and reflects the amount of the consideration BioTime or a subsidiary, depending on which company has the customer or the grant, expects to beit is entitled to receive in exchange for those goodssuch product or services. See further discussion underGrant Revenues below.

10

The following table presents BioTime’s unaudited consolidated revenues disaggregated by source (in thousands).

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  2018  2017(1)  2018  2017(1) 
REVENUES:                
Grant revenue $1,941  $-  $2,266  $11 
Royalties from product sales and license fees  91   81   227   191 
Subscription and advertisement revenues  333   300   572   564 
Sale of research products and services  182   -   182   5 
Total revenues $2,547  $381  $3,247  $771 

(1)Amounts recognized prior to adoption of Topic 606 have not been adjusted under the Topic 606 modified retrospective transition method.

The following table presents unaudited consolidated revenues, disaggregated by geography, based onservice. In doing so, BioTime follows a five-step approach: (i) identify the billing addresses of customers, orcontract with a customer, (ii) identify the performance obligations in the case of grant revenues based on where the governmental entities that fund the grant are located. Amounts shown are in thousands. See further discussion underGrant Revenues below.

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  2018  2017(1)  2018  2017(1) 
REVENUES:                
United States $631  $187  $1,137  $359 
Foreign  1,916   194   2,110   412 
Total revenues $2,547  $381  $3,247  $771 

(1)Amounts recognized prior to adoption of Topic 606 have not been adjusted under the Topic 606 modified retrospective transition method.

Research and development contracts with customers. In its agreements with customers, BioTime’s performance obligations of research and development are completed as services are performed and control passes to the customer, and accordingly revenues are recognized over time. BioTime generally receives a fee at the inception of an agreement, with variable fees, if any, tied to certain milestones, if achieved. BioTime estimates this variable consideration using a single most likely amount. Based on historical experience, there has been no variable consideration related to milestones included incontract, (iii) determine the transaction price, due to the significant uncertainty of achieving contract milestones and milestones not being met. If a milestone is met, subsequent changes in the single most likely amount may produce a different variable consideration, and BioTime will(iv) allocate any subsequent changes in the transaction price onto the same basis as at contract inception. Amounts allocated to a satisfied performance obligation will be recognized as revenue in the period in which the transaction price changes with respect to variable consideration, which could result in a reduction of revenue. Contracts of this kind are typically for a term greater than one year. For each of the three months ended June 30, 2018 and 2017, BioTime recognized $77,000 for such services included in the consolidated royalties from product sales and license fees. The aggregate amount of the transaction price, excluding payments related to any milestones, allocated to performance obligations, that are unsatisfied, or partially unsatisfied, as of June 30, 2018 was $154,000, included in deferred revenues in the consolidated balance sheets. BioTime expects toand (v) recognize revenue of $77,000 per quarter through the year ending December 31, 2018. As of June 30, 2018, BioTime had not met any milestones that would require adjustment of the transaction price.

Royalties from product sales and license fees.BioTime’s performance obligations in agreements with certain customers is to provide a license to allow customers to make, import and sell company licensed products or methods for pre-clinical studies and commercial use. Customers pay a combination of a license issue fee paid up front and a sales-based royalty, if any, in some cases with yearly minimums. The transaction price is deemed to be the license issue fee stated in the contract. The license offered by BioTime is a functional license with significant standalone functionality and provides customers with the right to use BioTime’s intellectual property. This allows BioTime to recognize revenue on the license issue fee at a point in time at the beginning of the contract, which is when the customer begins to have use of the license. Variable consideration related to sales-based royalties is recognized only when (or as) the latercustomer obtains control of the following events occurs: (a)product or service. BioTime considers the terms of a sale or usage occurs, or (b)contract and all relevant facts and circumstances when applying the performance obligationrevenue recognition standard. BioTime applies the revenue recognition standard, including the use of any practical expedients, consistently to which some, or all, of the sales-based or usage-based royalty has been allocated has been satisfied or partially satisfied. Due to the contract termination clauses, BioTime does not expect to receive all of the minimum royalty payments throughout the term of the agreements. Therefore, BioTime fully constrains recognition of the minimum royalty payments as revenues until its customers are obligated to pay, which is generally within 60 days prior to beginning of each year the minimum royalty payments are due. For the threecontracts with similar characteristics and six months ended June 30, 2018 and 2017, royalty revenues were immaterial.

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Sale of research products and services.Revenues from the sale of research products and services shown in the table above are primarily derived from the sale of hydrogels and stem cell products for research use and are recognized when earned.similar circumstances.

 

Subscription and advertisement revenues. LifeMap Sciences, a direct majority-owned subsidiaryBioTime’s largest source of AgeX, sells subscription-based products, including research databases and software tools, for biomedical, gene, disease, and stem cell research. LifeMap Sciences sells these subscriptions primarily through the internet to biotech and pharmaceutical companies worldwide. LifeMap Sciences’ principal subscription productrevenue is the GeneCards® Suite, which includes the GeneCards® human gene database, and the MalaCards™ human disease database.

LifeMap Sciences’ performance obligations for subscriptions include a license of intellectual propertycurrently related to its genetic information packages and premium genetic information tools. These licenses are deemed functional licenses that provide customers with a “right to access” to LifeMap Sciences’ intellectual property during the subscription period and, accordingly, revenue is recognized over a period of time, which is generally the subscription period. Payments are typically received at the beginning of a subscription period and revenue is recognized according to the type of subscription sold.

For subscription contracts in which the subscription term commences before a payment is due, LifeMap Sciences records an accounts receivable as the subscription is earned over time and bills the customer according to the contract terms. LifeMap Sciences continuously monitors collections and payments from customers and maintains a provision for estimated credit losses and uncollectible accounts based upon its historical experience and any specific customer collection issues that have been identified. Amounts determined to be uncollectible are written off against the allowance for doubtful accounts. LifeMap Sciences has not historically provided significant discounts, credits, concessions, or other incentives from the stated price in the contract as the prices are offered on a fixed fee basis for the type of subscription package being purchased. LifeMap Sciences may issue refunds only if the packages cease to be available for reasons beyond its control. In such an event, the customer will get a refund on a pro-rata basis. Using the most likely amount method for estimating refunds under Topic 606, including historical experience, LifeMap Sciences determined that the single most likely amount of variable consideration for refunds is immaterial as LifeMap Sciences does not expect to pay any refunds. Both the customer and LifeMap Sciences expect the subscription packages to be available during the entire subscription period, and LifeMap Sciences has not experienced any significant issues with the availability of the product and has not issued any material refunds.

LifeMap Sciences performance obligations for advertising are overall advertising services and represent a series of distinct services. Contracts are typically less than a year in duration and the fees charged may include a combination of fixed and variable fees with the variable fees tied to click throughs to the customer’s products on their website. LifeMap Sciences allocates the variable consideration to each month the click through services occur and allocates the annual fee to the performance obligation period of the initial term of the contract because those amounts correspond to the value provided to the customer each month. For click-through advertising services, at the time the variable compensation is known and determinable, the service has been rendered. Revenue is recognized at that time. The annual fee is recognized over the initial subscription period because this is a service and the customer simultaneously receives and consumes the benefit of LifeMap Sciences’ performance.

LifeMap Sciences deferred subscription revenues primarily represent subscriptions for which cash payment has been received for the subscription term, but the subscription term has not been completed as of the balance sheet date reported. For the three months ended June 30, 2018 and 2017, LifeMap Sciences recognized $333,000 and $300,000 in subscription and advertisement revenues. For the six months ended June 30, 2018 and 2017, LifeMap Sciences recognized $572,000 and $564,000 in subscription and advertisement revenues. As of June 30, 2018, there was $214,000 included in deferred revenues in the condensed consolidated balance sheets which is expected to be recognized as subscription revenue over the next twelve months.

LifeMap Sciences has licensed from a third party the databases it commercializes and has a contractual obligation to pay royalties to the licensor on subscriptions sold. These costs are included in cost of sales on the condensed consolidated statements of operations when the cash is received and the royalty obligation is incurred as the royalty payments do not qualify for capitalization of costs to fulfill a contract under ASC 340-40,Other Assets and Deferred Costs – Contracts with Customers.

Grant Revenues.government grants. In applying the provisions of Topic 606,ASU 2014-09, BioTime has determined that government grants are out of the scope of Topic 606ASU 2014-09 because the government entities do not meet the definition of a “customer”, as defined by Topic 606,ASU 2014-09, as there is not considered to be a transfer of control of good or services to the government entities funding the grant. BioTime has, and will continue to, account for grants received to perform research and development services in accordance with ASC 730-20,Research and Development Arrangements, which requires an assessment, at the inception of the grant, of whether the grant is a liability or a contract to perform research and development services for others. If BioTime or a subsidiary receiving the grant is obligated to repay the grant funds to the grantor regardless of the outcome of the research and development activities, then BioTime is required to estimate and recognize that liability. Alternatively, if BioTime or a subsidiary receiving the grant is not required to repay, or if it is required to repay the grant funds only if the research and development activities are successful, then the grant agreement is accounted for as a contract to perform research and development services for others, in which case, grant revenue is recognized when the related research and development expenses are incurred (see Note 13)15).

12

 

Deferred grant revenues represent grant funds received from the governmental funding agencies for which the allowable expenses have not yet been incurred as of the balance sheet date reported. As of June 30, 20182019, deferred grant revenue was $103,000immaterial.

Basic and is expecteddiluted net income (loss) per share attributable to be recognized as revenue over the next twelve months.common shareholders

 

Arrangements with Multiple Performance Obligations. BioTime’s contracts with customers may include multiple performance obligations. For such arrangements,Basic earnings per share is calculated by dividing net income or loss attributable to BioTime allocates revenuecommon shareholders by the weighted average number of common shares outstanding, net of unvested restricted stock or restricted stock units, subject to each performance obligation based on its relative standalone selling price.repurchase by BioTime, generally determinesif any, during the period. Diluted earnings per share is calculated by dividing the net income or estimates standalone selling prices based onloss attributable to BioTime common shareholders by the prices charged, or that would be charged, to customers for that product or service. Asweighted average number of andcommon shares outstanding, adjusted for the sixeffects of potentially dilutive common shares issuable under outstanding stock options and warrants, using the treasury-stock method, convertible preferred stock, if any, using the if-converted method, and treasury stock held by subsidiaries, if any.

For the three months ended June 30, 2018, BioTime did not have significant arrangements with multiple performance obligations.

Adoption of ASU 2016-01, Financial Instruments–Overall: Recognition2019, and Measurement of Financial Assets and Financial Liabilities.Changes to the current GAAP model under ASU 2016-01 primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, ASU 2016-01 clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities is largely unchanged. The more significant amendments are to equity investments in unconsolidated entities. In accordance with ASU No. 2016-01, all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be measured at fair value through earnings. There will no longer be an available-for-sale classification (changes in fair value reported in other comprehensive income) for equity securities with readily determinable fair values.As further discussed above under themarketable equity securities in foreign investmentspolicy, BioTime adopted ASU 2016-01 on January 1, 2018.

Reclassification –Gain on sale of assets of $1.8 million generated during the three and six months ended June 30, 20172018, BioTime reported a net loss attributable to common shareholders, and therefore, all potentially dilutive common stock was considered antidilutive for those periods. For the six months ended June 30, 2019, BioTime reported in othernet income attributable to common shareholders, and therefore, performed an analysis of common share equivalents to determine their impact on diluted net income, and expenses,determined that none of the common share equivalents were dilutive.

The following weighted average common share equivalents were excluded from the computation of diluted net onincome (loss) per common share for the consolidated statementsperiods presented because including them would have been antidilutive (in thousands):

  

Three Months Ended

June 30,

(unaudited)

  

Six Months Ended

June 30,

(unaudited)

 
  2019  2018  2019  2018 
Stock options  15,374   8,990   15,103   8,990 
Warrants(1)  -   8,795   -   8,795 
BioTime Warrants(2) (Note 3)  1,296   -   917   - 
Restricted stock units  271   535   275   535 

(1)The warrants expired on October 1, 2018.
(2)Although the BioTime Warrants are classified as liabilities, these warrants are considered for dilutive earnings per share calculations in accordance with ASC 260,Earnings Per Share, and determined to be anti-dilutive for the period presented.

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Lease accounting and impact of operations has been reclassifiedadoption of the new lease standard

On January 1, 2019, BioTime adopted ASU 2016-02,Leases (Topic 842, “ASC 842”) and its subsequent amendments affecting BioTime: (i) ASU 2018-10,Codification Improvements to be included in loss from operationsTopic 842, Leases, and (ii) ASU 2018-11,Leases (Topic 842): Targeted improvements, using the modified retrospective method (see Note 15).

BioTime 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 operationsoperations. When determining whether a lease is a finance 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, BioTime continues to use (i) greater to or equal to 75% to determine whether the lease term is a major part of the remaining economic life of the underlying asset and (ii) greater to or equal to 90% to determine whether the present value of the sum of lease payments is substantially the fair value of the underlying asset. Under the available practical expedients, BioTime accounts for the same periods shownlease and non-lease components as a single lease component. BioTime recognizes right-of-use (“ROU”) assets and lease liabilities for leases with terms greater than twelve months in the condensed consolidated balance sheet.

ROU assets represent BioTime’s right to properly reflectuse an underlying asset during the nature oflease term and lease liabilities represent BioTime’s obligation to make lease payments arising from the gain. This reclassification had no impactlease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of BioTime’s leases do not provide an implicit rate, BioTime uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. BioTime uses the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. BioTime’s lease terms may include options to extend or terminate the lease when it is reasonably certain that BioTime will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Operating leases are included as right-of-use assets in property and equipment (see Note 15), and ROU lease liabilities, current and long-term, in the condensed consolidated balance sheets. Financing leases are included in property and equipment, and in financing lease liabilities, current and long-term, in BioTime’s condensed consolidated balance sheets.

In connection with the adoption on ASC 842 on January 1, 2019, BioTime derecognized net income or loss, no impactbook value of leasehold improvements and corresponding lease liabilities of $1.9 million and $2.0 million, respectively, which was the carrying value of certain operating leases as of December 31, 2018, included in property and equipment and lease liabilities, respectively, recorded pursuant to build to suit lease accounting under the previous ASC 840 lease standard. The derecognition of these amounts from the superseded ASC 840 lease standard was offset by a cumulative effect adjustment of $0.1 million as a reduction of BioTime’s accumulated deficit on consolidated cash flowsJanuary 1, 2019. These build to suit leases were primarily related to the Alameda and the Cell Cure Leases described in Note 15. ASC 842 requires build to suit leases recognized on BioTime’s consolidated balance sheets as of December 31, 2018 to be derecognized upon the adoption of the new lease standard and be recognized in accordance with the new standard on January 1, 2019.

The adoption of ASC 842 had a material impact in BioTime’s consolidated balance sheets, with the most significant impact resulting from the recognition of ROU assets and lease liabilities for anyoperating leases with remaining terms greater than twelve months on the adoption date (see Note 15). BioTime’s accounting for financing leases (previously referred to as “capital leases”) remained substantially unchanged.

Other recently adopted accounting pronouncements

Adoption of ASU 2016-18,Statement of Cash Flows (Topic 230) - On January 1, 2018, BioTime adopted ASU 2016-18,Statement of Cash Flows (Topic 230): Restricted Cash, which requires that the statement of cash flows explain the change during the period presented.in the total of cash, cash equivalents and restricted cash, and that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the condensed consolidated statements of cash flows. The adoption of ASU 2016-18 did not have a material effect on BioTime’s condensed consolidated financial statements. However, prior period restricted cash balances included in prepaid expenses and other current assets, and in deposits and other long-term assets, on the condensed consolidated balance sheets was added to the beginning-of-period and end-of-period total consolidated cash and cash equivalents in the condensed consolidated statements of cash flows to conform to the current presentation shown below.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheet dates that comprise the total of the same such amounts shown in the condensed consolidated statements of cash flows for all periods presented herein and effected by the adoption of ASU 2016-18 (in thousands):

  

June 30,

2019

  

 

December 31,

2018

  

June 30,

2018

  

 

December 31,

2017

 
   (unaudited)       (unaudited)     
Cash and cash equivalents $8,210  $23,587  $27,207  $36,838 
Restricted cash included in prepaid expenses and other current assets (see Note 15)  -   346   346   - 
Restricted cash included in deposits and other long-term assets (see Note 15)  586   466   78   847 
Total cash, cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows $8,796  $24,399  $27,631  $37,685 

Adoption of ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting - In June 2018, the FASB issued ASU 2018-07,Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for non-employee share-based payment transactions. The new standard expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018 (including interim periods within that fiscal year). BioTime adopted ASU 2018-07 on January 1, 2019. As BioTime does not have a significant number of nonemployee share-based awards, the application of the new standard did not have a material impact on its consolidated financial statements.

 

Recently Issued Accounting Pronouncements Not Yet Adopted –- The recently issued accounting pronouncements applicable to BioTime that are not yet effective should be read in conjunction with the recently issued accounting pronouncements, as applicable and disclosed in BioTime’s Annual Report on Form 10-K as amended, for the year ended December 31, 2017.2018.

 

In February 2016,August 2018, the FASB issued ASU 2016-02, “Leases2018-13,Fair Value Measurement (Topic 842)”820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which requires lessees to recognize assets and liabilitiesmodifies certain disclosure requirements for leases with lease terms greater than twelve months in the statement of financial position. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.reporting fair value measurements. ASU 2016-02 also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The update2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, including interim reporting periods within that reporting period.2019. Early adoption is permitted.BioTime will adopt this standard on January 1, 2020 and is currently evaluating the disclosure requirements and its effect on the consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This standard will be effective for interim and annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for annual periods beginning after December 15, 2018. BioTime has not yet completed its assessment of the impact of the adoption of ASU 2016-02 will havenew standard on its consolidated financial statements. BioTime expects that most of its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and operating lease liabilities upon the adoption of ASU 2016-02, which will increase the total consolidated assets and total consolidated liabilities that it reports.

 

3. Deconsolidation of OncoCyteAsterias Merger

 

On February 17, 2017, OncoCyte issued 625,000March 8, 2019, the Asterias Merger closed with Asterias surviving as a wholly owned subsidiary of BioTime. The former stockholders of Asterias (other than BioTime) received 0.71 shares of OncoCyteBioTime common stock to certain investors who exercised OncoCyte(the “Merger Consideration”) for every share of Asterias common stock purchase warrants. As a resultthey owned (the “Merger Exchange Ratio”). BioTime issued 24,695,898 shares of this exercise andcommon stock, including 58,085 shares issued in respect of restricted stock units issued by Asterias that immediately vested in connection with the issuanceclosing of the Asterias Merger. The fair value of such shares, based on the closing price of OncoCyteBioTime common stock beginning on February 17, 2017, BioTime owned less than 50% of the OncoCyte outstanding common stock and experienced a loss of control of the OncoCyte subsidiary. Under GAAP, loss of control of a subsidiary is deemed to have occurred when, among other things, a parent company owns less than a majority of the outstanding common stock of the subsidiary, lacks a controlling financial interest in the subsidiary, and is unable to unilaterally control the subsidiary through other means such as having the ability or being able to obtain the ability to elect a majority of the subsidiary’s Board of Directors. BioTime determined that all of these loss of control factors were present with respect to OncoCyte on February 17, 2017. Accordingly, BioTime has deconsolidated OncoCyte’s financial statements and results of operations from BioTime, effective February 17, 2017, in accordance with ASC, 810-10-40-4(c),Consolidation, referred to as the “OncoCyte Deconsolidation.”March 8, 2019, was $32.4 million.

 

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Beginning on February 17, 2017, BioTime is accounting for its retained noncontrolling investment in OncoCyte under the equity method of accounting and has elected the fair value option under ASC 825-10,Financial Instruments (see Note 4).In connection with the OncoCyte Deconsolidationclosing of the Asterias Merger, BioTime assumed outstanding warrants to purchase shares of Asterias common stock, as further discussed below and in accordance with ASC 810-10-40-5,Note 11, and assumed sponsorship of the Asterias 2013 Equity Incentive Plan (see Note 12). All stock options to purchase shares of Asterias common stock outstanding immediately prior to the closing of the Asterias Merger were canceled at the closing for no consideration.

As of June 30, 2019, the assets and liabilities of Asterias have been included in the condensed consolidated balance sheet of BioTime. The results of operations of Asterias from March 8, 2019 through June 30, 2019 have been included in the condensed consolidated statement of operations of BioTime recorded a gain on deconsolidation of $71.7 million duringfor the six months ended June 30, 2017,2019.

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Calculation of the purchase price

The calculation of the purchase price for the Asterias Merger and the Merger Consideration transferred on March 8, 2019 was as follows (in thousands, except for share and per share amounts):

  BioTime
(38% ownership
interest)		  Shareholders
other than
BioTime
(approximate
62% ownership
interest)		  Total 
Outstanding Asterias common stock as of March 8, 2019  21,747,569   34,783,333(1)  56,530,902(1)
Exchange ratio  0.710   0.710   0.710 
             
BioTime common stock issuable  15,440,774(2)  24,695,898(3)  40,136,672 
Per share price of BioTime common stock as of March 8, 2019 $1.31  $1.31  $1.31 
Purchase price (in $000s) $20,227(2) $32,353  $52,580 

(1)Includes 81,810 shares of Asterias restricted stock unit awards that immediately vested on March 8, 2019 and converted into the right to receive shares of BioTime common stock based on the Merger Exchange Ratio, resulting in 58,085 shares of BioTime common stock issued on March 8, 2019 as part of the Merger Consideration. These restricted stock units were principally attributable to pre-combination services and included as part of the purchase price in accordance with ASC 805. See Note 12 for Asterias restricted stock units that vested on the closing of the Asterias Merger attributable to post-combination services that were recorded outside of the purchase price as an immediate charge to stock-based compensation expense.
(2)Estimated fair value for BioTime’s previously held 38% ownership interest in Asterias common stock is part of the total purchase price of Asterias for purposes of the purchase price allocation under ASC 805 and for BioTime’s adjustment of its 38% interest to fair value at the effective date of the Asterias Merger and immediately preceding the consolidation of Asterias’ results with BioTime. No actual shares of BioTime common stock were issued to BioTime in connection with the Asterias Merger.
(3)Net of a de minimis number of fractional shares which were paid in cash.

Estimated purchase price allocation

BioTime allocated the acquisition consideration to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The fair value of the acquired tangible and identifiable intangible assets were determined based on inputs that are unobservable and significant to the overall fair value measurement. It is also based on estimates and assumptions made by management at the time of the acquisition. As such, this was classified as Level 3 fair value hierarchy measurements and disclosures.

The Merger Consideration allocation below is preliminary and as additional information becomes available, BioTime may further revise the preliminary acquisition consideration allocation. BioTime expects to finalize the acquisition consideration allocation by the end of 2019. Any such revisions or changes may be material.

The following table sets forth a preliminary allocation of the purchase price to Asterias’ tangible and identifiable intangible assets acquired and liabilities assumed on the closing of the Asterias Merger, with the excess recorded as goodwill (in thousands):

Assets acquired:   
Cash and cash equivalents $3,117 
Prepaid expenses and other assets, current and noncurrent  660 
Machinery and equipment  369 
Long-lived intangible assets - royalty contracts  650 
Acquired in-process research and development (“IPR&D”)  46,540 
     
Total assets acquired  51,336 

Liabilities assumed:   
Accrued liabilities and accounts payable  1,136 
Liability classified warrants  867 
Deferred license revenue  200 
Long-term deferred income tax liability  12,965 
     
Total liabilities assumed  15,168 
     
Net assets acquired, excluding goodwill (a)  36,168 
     
Fair value of BioTime common stock held by Asterias (b)  3,435 
     
Total purchase price (c)  52,580 
     
Estimated goodwill (c-a-b) $12,977 

The valuation of identifiable intangible assets and their estimated useful lives are as follows (in thousands, except for useful life):

  Preliminary Estimated Asset Fair Value  

Useful Life

(Years)

 
  (in thousands, except for useful life) 
In process research and development (“IPR&D”) $46,540   n/a 
Royalty contracts  650   5 
  $47,190     

The following is a discussion of the valuation methods used to determine the fair value of Asterias’ significant assets and liabilities in connection with the Asterias Merger:

Acquired In-Process Research and Development (“IPR&D”) and Deferred Income Tax Liability - The fair value of identifiable acquired in-process research and development intangible assets consisting of $31.7 million pertaining to the AST-OPC1 program that is currently in a Phase 1/2a clinical trial for spinal cord injuries (“SCI”), which has been partially funded by the California Institute for Regenerative Medicine and $14.8 million pertaining to the AST-VAC2 program, which is a non-patient-specific (“off-the-shelf”) cancer immunotherapy derived from pluripotent stem cells for which a clinical trial in non-small cell lung cancer is being funded and sponsored by Cancer Research UK. The identification of these intangible assets are based on consideration of historical experience and a market participant’s view further discussed below; collectively, the AST-OPC1 and the AST-VAC2 are referred to as the “AST-Clinical Programs”. These intangible assets are valued primarily through the use of a probability weighted discounted cash flow method under the income approach further discussed below. BioTime considered the AST-VAC1 program, an autologous product candidate, manufactured from cells that come from the patient, and due to significant risks, substantial costs and limited opportunities in its current state associated with the AST-VAC1 program, BioTime management considered this program to have de minimis value.

BioTime determined that the estimated aggregate fair value of the AST-Clinical programs was $46.5 million as of the acquisition date using a probability weighted discounted cash flow method for each respective program. This approach estimates the probability of the AST-Clinical Programs achieving successful completion of remaining clinical trials and related approvals into the valuation technique.

To calculate fair value of the AST-Clinical programs under the discounted cash flow method, BioTime used probability-weighted, projected cash flows discounted at a rate considered appropriate given the significant inherent risks associated with cell therapy development by clinical-stage companies. Cash flows were calculated based on estimated projections of revenues and expenses related to each respective program. Cash flows were assumed to extend through a seven-year market exclusivity period for the AST-OPC1 program from the date of market launch. Revenues from commercialization of the AST-Clinical Programs were based on estimated market potential for the indication of each program. The resultant cash flows were then discounted to present value using a weighted-average cost of capital for companies with profiles substantially similar to that of BioTime, which BioTime believes represents the rate that market participants would use to value the assets. BioTime compensated for the phase of development of the program by applying a probability factor to its estimation of the expected future cash flows. The projected cash flows were based on significant assumptions, including the indications in which BioTime will pursue development of the AST-Clinical programs, the time and resources needed to complete the development and regulatory approval, estimates of revenue and operating profit related to the program considering its stage of development, the life of the potential commercialized product, market penetration and competition, and risks associated with achieving commercialization, including delay or failure to obtain regulatory approvals to conduct clinical studies, failure of clinical studies, delay or failure to obtain required market clearances, and intellectual property litigation.

These IPR&D assets are indefinite-lived intangible assets until the completion or abandonment of the associated research and development (“R&D”) efforts. Once the R&D efforts are completed or abandoned, the IPR&D will either be amortized over the asset life as a finite-lived intangible asset or be impaired, respectively, in accordance with ASC 350,Intangibles - Goodwill and Other. In accordance with ASC 350, goodwill and acquired IPR&D are determined to have indefinite lives and, therefore, are not amortized. Instead, they are tested for impairment at least annually and between annual tests if BioTime becomes aware of an event or a change in circumstances that would indicate the asset may be impaired.

Because the IPR&D (prior to completion or abandonment of the R&D) is considered an indefinite-lived asset for accounting purposes, the fair value of the IPR&D on the acquisition date creates a deferred income tax liability (“DTL”) in accordance with ASC 740,Income Taxes (see Note 13). This DTL is computed using the fair value of the IPR&D assets on the acquisition date multiplied by BioTime’s federal and state income tax rates. While this DTL would reverse on impairment or sale or commencement of amortization of the related intangible assets, those events are not anticipated under ASC 740 for purposes of predicting reversal of a temporary difference to support the realization of deferred tax assets, except for certain deferred tax assets and credit carryforwards that are also indefinite in nature as of the closing of the Asterias Merger, which may be considered for reversal under ASC 740 as further discussed in Note 13.

Royalty contracts - Asterias has certain royalty revenues for “research only use” culture media for pre-clinical research applications under certain, specific patent families under contracts which preclude the customers to sell for commercial use or for clinical trials. These royalty cash flows are generated under certain specific patent families which Asterias previously acquired from Geron Corporation (“Geron”). Asterias pays Geron a royalty for all royalty revenues received from these contracts. Because these patents are a subset of the clinical programs discussed above, are expected to continue to generate revenues for Asterias and are not to be used in the AST-OPC1 or the AST-VAC2 programs, these patents are considered to be separate long-lived intangible assets under ASC 805. These intangible assets are also valued primarily through the use of the discounted cash flow method under the income approach, and will be amortized over their useful life, estimated to be 5 years. The discounted cash flow method estimated the amount of net royalty income that can be expected under the contracts in future years. The amounts were based on observed historical trends in the growth of these revenue streams, and were estimated to terminate in approximately five years, when the key patents under these contracts will begin to expire. The resulting cash flows were discounted to the valuation date based on a rate of return that recognizes a lower level of risk associated with these assets as compared to the AST-Clinical programs discussed above.

Deferred license revenue - In September 2018, Asterias and Novo Nordisk A/S (“Novo Nordisk”) entered into an option for Novo Nordisk or its designated U.S. affiliate to license, on a non-exclusive basis, certain intellectual property related to culturing pluripotent stem cells, such as hES cells, in suspension. Under the terms of the option, Asterias received a one-time upfront payment of $1.0 million, in exchange for a 24-month period option to negotiate a non-exclusive license during which time Asterias has agreed to not grant any exclusive licenses inconsistent with the Novo Nordisk option. This option is considered a performance obligation as it provides Novo Nordisk with a material right that it would not receive without entering into the contract.

For business combination purposes under ASC 805, the fair value of this performance obligation to BioTime, from a market participant perspective, is the estimated costs BioTime may incur, plus a normal profit margin for the level of effort required to perform under the contract after the acquisition date, assuming Novo Nordisk exercised its option, including, but not limited to, negotiation costs, legal fees, arbitration, if any, and other related costs. Management has estimated those costs, plus a normal profit margin, to be approximately $200,000 in the estimated purchase price allocation.

Liability classified warrants - On May 13, 2016, in connection with a common stock offering, Asterias issued warrants to purchase 2,959,559 shares of Asterias common stock (the “Asterias Warrants”) with an exercise price of $4.37 per share that expire in five years from the issuance date, or May 13, 2021. As of the closing of the Asterias Merger, there were 2,813,159 Asterias Warrants outstanding. The Asterias Warrants contain certain provisions in the event of a Fundamental Transaction, as defined in the warrant agreement governing the Asterias Warrants (“Warrant Agreement”), that Asterias or any successor entity will be required to purchase, at a holder’s option, exercisable at any time concurrently with or within thirty days after the consummation of the fundamental transaction, the Asterias Warrants for cash in an amount equal to the calculated value of the unexercised portion of such holder’s warrants, determined in accordance with the Black-Scholes option pricing model with significant inputs as specified in the Warrant Agreement. The Asterias Merger was a Fundamental Transaction for purposes of the Asterias Warrants.

The fair value of the Asterias Warrants was determined by using Black-Scholes option pricing models which take into consideration the probability of the fundamental transaction, which for purposes of the above valuation was assumed to be at 100% and net cash settlement occurring, using the contractual remaining term of the warrants. In applying these models, these inputs included key assumptions including the per share closing price of BioTime common stock on March 8, 2019, volatility computed in accordance with the provisions of the Warrant Agreement and, to a large extent, assumptions based on discussions with a majority of the holders of the Asterias Warrants since the closing of the Asterias Merger to settle the Asterias Warrants in cash or in shares of BioTime common stock. Based on such discussions, BioTime believes the fair value of the Asterias Warrants as of the closing of the Asterias Merger is not subject to change significantly, however, to the extent any Asterias Warrants that were not settled in cash or in BioTime common stock discussed below, were automatically converted to BioTime warrants 30 days after the closing of the Asterias Merger. In April 2019, Asterias Warrants representing approximately $372,000 in fair value were settled: $332,000 in fair value was settled in exchange for 251,835 shares of BioTime common stock, and $40,000 in fair value was settled in exchange for cash. The Asterias Warrants settled in exchange for shares of BioTime common stock were held by Broadwood Partners, L.P., an Asterias and BioTime shareholder. The Asterias Warrants settled in exchange for cash were held by other parties. The remaining Asterias Warrants (representing approximately $495,000 in fair value as of March 31, 2019) were converted into warrants to purchase shares of BioTime common stock using the Merger Exchange Ratio (the “BioTime Warrants”).

As of June 30, 2019, the total number of shares of BioTime common stock subject to warrants that were assumed by BioTime in connection with the Asterias Merger was 1,089,900, with similar terms and conditions retained under the BioTime Warrants as per the original Warrant Agreements. The BioTime Warrants have an exercise price of $6.15 per warrant share and expire on May 13, 2021. BioTime is accounting for the outstanding BioTime Warrants as a liability at fair value, with subsequent changes to the fair value of the BioTime Warrants at each reporting period thereafter included in other incomethe consolidated statement of operations (see Note 11).

Fair value of BioTime common stock held by Asterias - As of March 8, 2019, Asterias held 2,621,811 shares of BioTime common stock as marketable securities on its standalone financial statements. The fair value of those shares acquired by BioTime from Asterias is determined based on the $1.31 per share closing price of BioTime common stock on March 8, 2019. Although treasury shares are not considered an asset and expenses, net,were retired upon BioTime’s acquisition of Asterias, the fair value of those shares is a part of the purchase price allocation shown in the tables above. These BioTime shares were retired at the completion of the Asterias Merger.

Goodwill -Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized but is tested for impairment at least annually, or more frequently if circumstances indicate potential impairment.

Depending on the structure of a particular acquisition, goodwill and identifiable intangible assets may not be deductible for tax purposes. Goodwill recorded in the Asterias Merger is not expected to be deductible for tax purposes (see Note 13).

During the three and six months ended June 30, 2019, BioTime incurred $0.9 million and $4.4 million, respectively, in acquisition related costs which were recorded in general and administrative expenses in the accompanying condensed consolidated statements of operations.

Prior to the Asterias Merger being consummated in March 2019, BioTime elected to account for its 21.7 million shares of Asterias common stock at fair value using the equity method of accounting. The fair value of the Asterias shares was approximately $20.2 million as of March 8, 2019, the closing date of the Asterias Merger, based on $0.93 per share, which was calculated by multiplying (a) $1.31, the closing price of BioTime common stock on such date by (b) the Merger Exchange Ratio. The fair value of the Asterias shares was approximately $13.5 million as of December 31, 2018, based on the closing price of Asterias common stock of $0.62 per share on such date. Accordingly, BioTime recorded an unrealized gain of $6.7 million for the six months ended June 30, 2019, representing the change in fair value of Asterias common stock from December 31, 2018 to March 8, 2019. For the six months ended June 30, 2018, BioTime recorded an unrealized loss of $19.6 million on the Asterias shares due to the decrease in Asterias’ stock price from December 31, 2017 to June 30, 2018 from $2.25 per share to $1.35 per share. All share prices were determined based on the closing price of BioTime or Asterias common stock on the NYSE American on the applicable dates.

Asterias Merger Related Litigation - See Note 15 Commitments and Contingencies for discussion regarding litigation related to the Asterias Merger.

 

4. Equity Method Accounting for Common Stock of OncoCyte, at Fair Value

 

BioTime elected to account for its14.7 million shares of OncoCyte common stock at fair value using the equity method of accounting beginning on February 17, 2017, the date of the OncoCyte Deconsolidation. The OncoCyte shares had a fair value of $37.4$36.5 million as of June 30, 20182019 and a fair value of $68.2$20.3 million as of December 31, 2017,2018, based on the closing price of OncoCyte common stock on the NYSE American of $2.55$2.49 per share and $4.65$1.38 per share on those respective dates.

For the three months ended June 30, 2019, BioTime recorded an unrealized loss of $21.4 million due to the decrease in OncoCyte’s stock price from $3.95 per share at March 31, 2019 to $2.49 per share at June 30, 2019. For the three months ended June 30, 2018, BioTime recorded an unrealized gain of $6.6 million due to the increase in OncoCyte’s stock price from $2.10 per share at March 31, 2018 to June 30, 2018, from $2.10 per share to $2.55 per share. at June 30, 2018.

For the six months ended June 30, 2019, BioTime recorded an unrealized gain of $16.3 million due to the increase in OncoCyte’s stock price from $1.38 per share at December 31, 2018 to $2.49 per share at June 30, 2019. For the six months ended June 30, 2018, BioTime recorded an unrealized loss of $30.8 million on the OncoCyte shares due to the decrease in OncoCyte’s stock price from $4.65 per share at December 31, 2017 to $2.55 per share at June 30, 2018 noted above.2018.

All share priceswere are determined based on the closing price of OncoCyte common stock on the NYSE American on the applicable dates.

Fordates, or the three months ended June 30, 2017, BioTime recorded an unrealized losslast day of $11.0 million due to the decrease in OncoCyte’s stock price from March 31, 2017 to June 30, 2017 from $5.95 per share to $5.20 per share. For the six months ended June 30, 2017, BioTime recorded an unrealized gaintrading of $5.1 million on the OncoCyte shares due to the increase in OncoCyte’s stock price from February 17, 2017 to June 30, 2017 from $4.85 per share to $5.20 per share. All share prices were determined based the closing price of Asterias common stock on the NYSE American on the applicable dates.quarter, if the last day of a quarter fell on a weekend.

 

OncoCyte’s unaudited condensed results of operations for the three and six months ended June 30, 2018 and 2017periods presented are summarized below (in thousands):

 

  

Three Months Ended June 30,

(unaudited)

  

Six Months Ended June 30,

(unaudited)

  

January 1, 2017 to

February 16, 2017

 
  2018  2017  2018  2017  (unaudited) 
Condensed Statements of Operations(1):                    
Research and development expense $1,697  $1,997  $3,158  $3,831  $798 
General and administrative expense  1,335   1,115   3,122   3,158   377 
Sales and marketing expense  569   477   1,227   1,132   213 
Loss from operations  (3,601)  (3,589)  (7,507)  (8,121)  (1,388)
Net loss $(3,880) $(3,804) $(7,658) $(8,509) $(1,392)

(1)The condensed unaudited statements of operations information included in the table above for the period January 1, 2017 through February 16, 2017 reflects OncoCyte results of operations included in BioTime’s consolidated statement of operations for the six months ended June 30, 2017, after intercompany eliminations. The information for OncoCyte shown for three and six months ended June 30, 2018 is not included in BioTime’s condensed consolidated statement of operations for those periods.
  Three Months Ended June 30, (unaudited)  

Six Months Ended June 30,

(unaudited)

 
  2019  2018  2019  2018 
Condensed Statement of Operations:                
Research and development expense $1,508  $2,322  $2,851  $3,784 
General and administrative expense  3,636   1,335   6,085   3,122 
Sales and marketing expense  318   569   523   1,227 
Loss from operations  (5,462)  (4,226)  (9,459)  (8,133)
Net loss $(5,384) $(4,505) $(9,248) $(8,284)

 

5. Equity Method Accounting for Common StockSale of Asterias, at Fair ValueSignificant Ownership Interest in AgeX to Juvenescence Limited

 

On August 30, 2018, BioTime electedentered into a Stock Purchase Agreement with Juvenescence Limited and AgeX, pursuant to account for its21.7which BioTime sold 14.4 million shares of Asterias common stock at fair value using the equity method of accounting beginning on May 13, 2016, the dateAgeX to Juvenescence for $3.00 per share, or an aggregate purchase price of $43.2 million (the “Purchase Price”). Juvenescence paid $10.8 million of the Asterias Deconsolidation. The Asterias shares had a fair value of $29.4 million as of JunePurchase Price at closing, issued an unsecured convertible promissory note dated August 30, 2018 in favor of BioTime for $21.6 million (the “Promissory Note”), and paid $10.8 million on November 2, 2018. The Stock Purchase Agreement contains customary representations, warranties and indemnities from BioTime relating to the business of AgeX, including an indemnity cap of $4.3 million, which is subject to certain exceptions. The transactions contemplated by the Stock Purchase Agreement are referred to as the Juvenescence Transaction in this Report.

The Promissory Note bears interest at 7% per annum, with principal and accrued interest payable at maturity on August 30, 2020. The Promissory Note cannot be prepaid prior to maturity or conversion. On the maturity date, if a fair value“Qualified Financing” (as defined below) has not occurred, BioTime will have the right, but not the obligation, to convert the principal balance of $48.9 million asthe Promissory Note and accrued interest then due into Series A preferred shares of December 31, 2017, basedJuvenescence at a conversion price of $15.60. Upon the occurrence of a Qualified Financing on or before the maturity date, the principal balance of the Promissory Note and accrued interest will automatically convert into a number of shares of the class of equity securities of Juvenescence sold in the Qualified Financing, at the price per share at which the Juvenescence securities are sold in the Qualified Financing; and, if AgeX common stock is listed on a national securities exchange in the U.S., the number of shares of the class of equity securities issuable upon conversion may be increased depending on the closing pricesmarket price of AsteriasAgeX common stock on the NYSE Americanstock. A Qualified Financing is generally defined as an underwritten initial public offering of $1.35 per share and $2.25 per share on those respective dates.Juvenescence equity securities in which gross proceeds are not less than $50.0 million. The Promissory Note is not transferable, except in connection with a change of control of BioTime.

 

For the three months ended June 30, 2018, BioTime recorded an unrealized loss of $2.2 million on the Asterias shares due to the decrease in Asterias’ stock price from March 31, 2018 to June 30, 2018 from $1.45 per share to $1.35 per share. For the six months ended June 30, 2018, BioTime recorded an unrealized lossof $19.6 millionon the Asterias shares due to the decrease in Asterias’ stock price from December 31, 2017 to June 30, 2018 noted above. All share priceswere determined based on the closing price of Asterias common stock on the NYSE American on the applicable dates.

14

For the three months ended June 30, 2017, BioTime recorded an unrealized gain of $3.3 million on the Asterias shares due to the increase in Asterias’ stock price from March 31, 2017 to June 30, 2017 from $3.40 per share to $3.55 per share. For the six months ended June 30, 2017, BioTime recorded an unrealized loss of $22.8 million on the Asterias shares due to the decrease in Asterias’ stock price from December 31, 2016 to June 30, 2017 from $4.60 per share to $3.55 per share. All share priceswere determined based on the closing price of Asterias common stock on the NYSE American on the applicable dates.

Asterias’ unaudited condensed results of operations for the three and six months ended June 30, 20182019, BioTime recognized $378,000 and 2017 are summarized below (in thousands):$756,000, respectively, in interest income on the Promissory Note. As of June 30, 2019, the principal and accrued interest balance of the Promissory Note was $22.9 million.

Shareholder Agreement

 

  

Three Months Ended June 30,
(unaudited)

  

Six Months Ended June 30, (unaudited)

 
  2018  2017  2018  2017 
Condensed Statements of Operations(1):                
Total revenue $109  $316  $587  $2,326 
Gross profit  52   298   467   2,256 
Loss from operations  (5,552)  (8,533)  (10,675)  (17,640)
Net loss $(6,982) $(8,728) $(9,294) $(15,015)

BioTime and Juvenescence entered into a Shareholder Agreement, dated August 30, 2018, setting forth the governance, approval and voting rights of the parties with respect to their holdings of AgeX common stock, including rights of representation on the AgeX Board of Directors, approval rights, preemptive rights, rights of first refusal and co-sale and drag-along and tag-along rights for so long as either BioTime or Juvenescence continue to own at least 15% of the outstanding shares of AgeX common stock. Under the Shareholder Agreement, Juvenescence and BioTime each had the right to designate two persons to a six-member AgeX Board of Directors, with the remaining two individuals to be independent of Juvenescence and BioTime. Following Juvenescence’s payment of $10.8 million on November 2, 2018 under the Stock Purchase Agreement, Juvenescence had the right to designate an additional member of the AgeX Board of Directors. As of July 30, 2019, Juvenescence has not exercised such right. Immediately following the AgeX Distribution on November 28, 2018 (see Note 6), BioTime owned 1.7 million shares of AgeX common stock, representing 4.8% of AgeX’s then issued and outstanding shares of common stock. Accordingly, in accordance with the Shareholder Agreement, as of November 28, 2018, BioTime had no right to designate any member to the AgeX Board of Directors.

In connection with the Juvenescence Transaction, the termination provision of the Shared Facilities Agreement (see Note 10) entitling AgeX or BioTime to terminate the agreement upon six months advance written notice was amended. Pursuant to the amendment, following the deconsolidation of AgeX from BioTime’s consolidated financial statements on August 30, 2018 (see Notes 6 and 10), each party retains the right to terminate the Shared Facilities Agreement at any time by giving the other party six months advance written notice, but BioTime may not do so prior to September 1, 2020.

 

(1)The condensed unaudited statements of operations information included in the table above reflect Asterias’ results of operations and were not included in BioTime’s condensed consolidated statements of operations.

On May 7, 2019, AgeX provided written notice that it will terminate its use of BioTime’s office and laboratory facilities as of July 31, 2019. On July 3, 2019, AgeX provided written notice that the remaining shared services would terminate as of September 30, 2019.

 

6. Deconsolidation and Distribution of AgeX

Deconsolidation of AgeX

On August 30, 2018, BioTime sold 14.4 million shares of the common stock of AgeX to Juvenescence (see Note 5). Immediately before that sale, BioTime and Juvenescence owned 80.4% and 5.6%, respectively, of AgeX’s outstanding common stock. Immediately following that sale, BioTime and Juvenescence owned 40.2% and 45.8%, respectively, of AgeX’s outstanding common stock. As a result, on August 30, 2018, AgeX was no longer a subsidiary of BioTime and, as of that date, BioTime experienced a “loss of control” of AgeX, as defined by GAAP. Loss of control is deemed to have occurred when, among other things, a parent company owns less than a majority of the outstanding common stock of a subsidiary, lacks a controlling financial interest in the subsidiary, and is unable to unilaterally control the subsidiary through other means such as having, or being able to obtain, the power to elect a majority of the subsidiary’s Board of Directors based solely on contractual rights or ownership of shares representing a majority of the voting power of the subsidiary’s voting securities. All of these loss-of-control factors were present with respect to BioTime’s ownership interest in AgeX as of August 30, 2018. Accordingly, BioTime deconsolidated AgeX’s consolidated financial statements and consolidated results from BioTime’s unaudited condensed consolidated financial statements and consolidated results effective on August 30, 2018, in accordance with ASC, 810-10-40-4(c).

In connection with the Juvenescence Transaction discussed in Note 5 and the AgeX Deconsolidation on August 30, 2018, in accordance with ASC 810-10-40-5, BioTime recorded a gain on deconsolidation of $78.5 million, which includes a financial reporting gain on the sale of the AgeX shares of $39.2 million, during the year ended December 31, 2018, included in other income and expenses, net, in the consolidated statements of operations.

Distribution of AgeX Shares

On November 28, 2018, BioTime distributed 12.7 million shares of AgeX common stock owned by BioTime to holders of BioTime common stock, on a pro rata basis, in the ratio of one share of AgeX common stock for every 10 shares of BioTime common stock owned. The AgeX Distribution was accounted for at fair value as a dividend-in-kind in the aggregate amount of $34.4 million, which was determined by multiplying (a) the 12.7 million shares distributed to BioTime shareholders by (b) $2.71, the closing price of AgeX common stock on the NYSE American on November 29, 2018, the first trading day of AgeX common stock.

Because BioTime has an accumulated deficit in its consolidated shareholders’ equity, the entire fair value of the AgeX Distribution was charged against common stock equity included in the consolidated statements of changes in shareholders’ equity for the year ended December 31, 2018.

Immediately following the AgeX Distribution, BioTime owned 1.7 million shares of AgeX common stock, all of which it still owns, and which represents approximately 4.6% of AgeX’s outstanding common stock as of June 30, 2019 and which shares BioTime holds as marketable equity securities.

19

7. Property Plant and Equipment, Net

 

At June 30, 20182019 and December 31, 2017,2018, property plant and equipment was comprised of the following (in thousands):

 

 

June 30,

2019

 

December 31,

2018

 
 

June 30, 2018

(unaudited)

 

December 31,2017

  (unaudited)   
Equipment, furniture and fixtures $3,949  $4,255  $4,563  $3,842 
Leasehold improvements  3,982   4,434   2,790   3,910 
Right-of-use assets(1)  5,065   - 
Accumulated depreciation and amortization  (2,917)  (3,156)  (3,698)  (3,185)
Property, plant and equipment, net $5,014  $5,533 
Property and equipment, net  8,720   4,567 
Construction in progress  -   1,268 
Property and equipment, net, and construction in progress $8,720  $5,835 

(1)BioTime adopted ASC 842 on January 1, 2019. For additional information on this standard and right-of-use assets and liabilities see Notes 2 and 15.

 

Property and equipment at both June 30, 2019 and December 31, 2018 includes $146,000 in financing leases. Depreciation expense, includingand amortization of leasehold improvements,expense amounted to $279,000$244,000 and $205,000$279,000 for the three months ended June 30, 2019 and 2018, and 2017,$513,000 and $560,000 and $421,000 for the six months ended June 30, 2019 and 2018, respectively.

Construction in progress

Construction in progress of $1.3 million as of December 31, 2018 entirely relates to the leasehold improvements made at Cell Cure’s leased facilities in Jerusalem, Israel, primarily financed by the landlord. The leasehold improvements were substantially completed in December 2018 and 2017, respectively. During the six months ended June 30, 2018, BioTime wrote off $0.7 millionassets placed in fully depreciated propertyservice in January 2019 (see adoption of ASC 842 impact discussed in Notes 2 and equipment with a corresponding adjustment to accumulated depreciation and amortization.15).

 

7.8. Goodwill and Intangible Assets, Net

 

At June 30, 20182019 and December 31, 2017,2018, goodwill and intangible assets,primarily consisting net consisted of acquired patents, and accumulated amortization were as followsthe following (in thousands):

 

 

June 30, 2018

(unaudited)

  December 31, 2017  

June 30,

2019

 

December 31,

2018

 
Intangible assets $23,294  $23,294 
 (unaudited)   
Goodwill(1) $12,977  $- 
        
Intangible assets:        
Acquired IPR&D - OPC1 (from the Asterias Merger)(2) $31,700  $- 
Acquired IPR&D - VAC2 (from the Asterias Merger)(2)  14,840   - 
Intangible assets subject to amortization:        
Acquired patents  19,010   19,010 
Acquired royalty contracts(2)  650     
Other  10   10 
Total intangible assets  66,210   19,020 
Accumulated amortization  (17,559)  (16,394)  (16,889)  (15,895)
Intangible assets, net $5,735  $6,900  $49,321  $3,125 

(1)Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired and liabilities assumed in the Asterias Merger (see Note 3).
(2)See Note 3 for information on the Asterias Merger which was consummated on March 8, 2019.

 

BioTime recognized in research and development expenses $0.6 million$475,000 and $581,000 of amortization expense in each of the three months ended June 30, 2019 and 2018, and 2017,$949,000 and $1.2 million of amortization expense duringin the six months ended June 30, 20182019 and 2017,2018, respectively.

 

1520

 

8.9. Accounts Payable and Accrued Liabilities

 

At June 30, 20182019 and December 31, 2017,2018, accounts payable and accrued liabilities consisted of the following (in thousands):

 

 

June 30, 2018

(unaudited)

  December 31, 2017  

June 30,

2019

 

December 31,

2018

 
Accounts payable $1,181  $938 
Accrued liabilities  1,918   2,368 
 (unaudited)   
Accounts payable(1) $2,778  $2,359 
Accrued compensation(2)  1,827   2,275   1,970   2,456 
Accrued liabilities(3)  2,035   1,639 
Other current liabilities  102   137   76   9 
Total $5,028  $5,718  $6,859  $6,463 

(1)Includes $0.8 million of transaction costs related to the Asterias Merger (see Note 3) recorded outside of the business combination.
(2)Includes $0.3 million of change of control and related transaction costs related to the Asterias Merger (see Note 3) recorded outside of the business combination.
(3)Includes $0.3 million of transaction costs related to the Asterias Merger (see Note 3) recorded outside of the business combination.

In connection with the Asterias Merger, several Asterias employees were terminated as of the Asterias Merger date. Three of these employees had employment agreements with Asterias which entitled them to change in control and separation payments in the aggregate of $2.0 million, which such conditions were met on the Asterias Merger date. Accordingly, $2.0 million was accrued and recorded in general and administrative expenses on the merger date and paid in April 2019.

 

9.Additionally, BioTime entered into a plan of termination with substantially all other previous employees of Asterias with potential separation payments in the aggregate of $0.5 million. Termination dates for these individuals ranged from May 31, 2019 to June 28, 2019. These employees were required to provide services related to the transition and be an employee of the combined company as of their date of termination in order to receive separation benefits. Since the employees were required to render future services after the merger date, BioTime recorded the aggregate liability ratably over their respective service periods from the Asterias Merger date through the above termination dates, in accordance with ASC 420,Exit or Disposal Cost Obligations. As of June 30, 2019, a total of $0.3 million was accrued for these separation payments which represents the portion of the payments earned through June 30, 2019. This amount was paid in July 2019.

In connection with the planned relocation of BioTime’s corporate headquarters to Carlsbad, California, discussed in Note 15, in June 2019, BioTime entered into a plan of termination with certain BioTime employees with potential separation payments in the aggregate of $0.5 million. Termination dates for these individuals range from August 9, 2019 to September 30, 2019. These employees must provide services related to the transition of services and activities in connection with the relocation and be an employee of BioTime as of their date of termination in order to receive separation benefits. BioTime will record the aggregate liability ratably over their respective service periods from June through the above termination dates, in accordance with ASC 420.

As of June 30, 2019, a total of $0.2 million was accrued for these BioTime employee separation payments which represents the portion of the payments earned through June 30, 2019.

10. Related Party Transactions

Shared Facilities and Service Agreements with Affiliates

 

The receivables from affiliates shown on the condensed consolidated balance sheet as of June 30, 2018 and December 31, 2017,2018, primarily represent amounts owed to BioTime fromby OncoCyte and other affiliatesAgeX under certainseparate Shared Facilities and Service Agreements (each a “Shared Facilities Agreement”)., with amounts owed by OncoCyte comprising most of that amount. These outstanding amounts were paid in full in the first quarter of 2019. Under the terms of athe Shared Facilities Agreement,Agreements, BioTime allows OncoCyte and AgeX to use BioTime’s premises and equipment located at BioTime’s headquarters in Alameda, California for the sole purpose of conducting business. BioTime also provides accounting, billing, bookkeeping, payroll, treasury, payment of accounts payable, and other similar administrative services to OncoCyte.OncoCyte and AgeX. BioTime may also provide the services of attorneys, accountants, and other professionals who may provide professional services to BioTime and its other subsidiaries. BioTime also has provided OncoCyte and AgeX with the services of laboratory and research personnel, including BioTime employees and contractors, for the performance of research and development work for OncoCyte and AgeX at the premises.

BioTime charges OncoCyte and AgeX a “Use Fee” for services provided and usagefor use of BioTime facilities, equipment, and supplies. For each billing period, BioTime prorates and allocates to OncoCyte and AgeX costs incurred, including costs for services of BioTime employees and use of equipment, insurance, leased space, professional services, software licenses, supplies and utilities. The allocation of costs depends on key cost drivers, including actual documented use, square footage of facilities used, time spent, costs incurred by BioTime for OncoCyte and AgeX, or upon proportionate usage by BioTime, OncoCyte and OncoCyte,AgeX, as reasonably estimated by BioTime. BioTime, at its discretion, has the right to charge OncoCyte and AgeX a 5% markup on such allocated costs. The allocated cost of BioTime employees and contractors who provide services is based upon records of the number of hours or estimated percentage of efforts of such personnel devoted to the performance of services.

 

The Use Fee is determined and invoiced to OncoCyte and AgeX on a calendar quarterly basis. If the Shared Facilities Agreement terminates prior to the last day of a billing period, the Use Fee will be determined for the number of days in the billing period elapsed prior to the termination of the Shared Facilities Agreement.regular basis, generally monthly or quarterly. Each invoice will beis payable in full by OncoCyte within 30 days after receipt. Any invoice, or portion thereof, not paid in full when due will bear interest at the rate of 15% per annum until paid, unless the failure to make a payment is due to any inaction or delay in making a payment by BioTime employees from OncoCyte funds available for such purpose, rather than from the unavailability of sufficient funds legally available for payment or from an act, omission, or delay by any employee or agent of OncoCyte.BioTime. Through June 30, 2018,2019, BioTime has not charged OncoCyte or AgeX any interest.

 

In addition to the Use Fees,Fee, OncoCyte willand AgeX reimburse BioTime for any out of pocket costs incurred by BioTime for the purchase of office supplies, laboratory supplies, and other goods and materials and services for the account or use of OncoCyte provided that invoices documenting such costs are delivered to OncoCyte with each invoice for the Use Fee.or AgeX. BioTime will have no obligationis not obligated to purchase or acquire any office supplies or other goods and materials or any services for OncoCyte or AgeX, and if any such supplies, goods, materials or services are obtained, for OncoCyte, BioTime may arrange for the suppliers to invoice OncoCyte or AgeX directly.

 

The Shared Facilities Agreement willAgreements remain in effect unless eitheruntil a party gives the other party written notice stating that the Shared Facilities Agreement will terminate on December 31 of that year, or unless the agreementit is otherwise terminated under another provision of the agreement. In addition, BioTime and AgeX may each terminate their Shared Facilities Agreement prior to December 31 of the year by giving the other party written six months’ notice to terminate, but BioTime may not do so prior to September 1, 2020.

 

16

On May 7, 2019, AgeX provided written notice that it will terminate its use of BioTime’s office and laboratory facilities as of July 31, 2019. On July 3, 2019, AgeX provided written notice that the remaining shared services would terminate as of September 30, 2019. On July 30, 2019, OncoCyte provided written notice that it planned to terminate shared services effective as of September 30, 2019, except for the use of shared facilities, which remains in force.

 

In the aggregate, BioTime charged such Use Fees to OncoCyte and AgeX as follows (in thousands):

 

 

Three Months Ended June 30,

(unaudited)

 

Six Months Ended June 30,

(unaudited)

  Three Months Ended
June 30, (unaudited)		  

Six Months Ended
June 30, (unaudited)

 
 2018  2017  2018  2017  2019  2018  2019  2018 
Research and development $217  $312  $437  $629  $491  $217  $984  $437 
General and administrative  175   78   346   157   179   175   411   346 
Total use fees $392  $390  $783  $786  $670  $392  $1,395  $783 

 

The Use Fees charged to OncoCyte and AgeX shown above are not reflected in revenues, but instead BioTime’s general and administrative expenses and research and development expenses are shown net of those charges in the condensed consolidated statementstatements of operations.As of June 30, 2018 and December 31, 2017, BioTime has a $2.1 million receivable from OncoCyte included in receivable from affiliates, net, on account of Use Fees incurred by OncoCyte under the Shared Facilities Agreement. Since these amounts are due and payable within 30 days of being invoiced, the receivable is classified as a current asset.

BioTime has a similar Shared Facilities Agreement with Asterias under which BioTime and Asterias each may provide use of their respective facilities, utilities, and personnel to the other party on terms similar to the terms of the Shared Facilities Agreement between BioTime and OncoCyte. As of June 30, 2018 and December 31, 2017, there was a net payable to Asterias of $23,000 and $33,000, respectively.

 

BioTime accounts for receivables from affiliates, net of payables to affiliates, if any, for similar shared services and other transactions BioTime’s consolidated subsidiaries may enter into with nonconsolidated affiliates. BioTime and the affiliates record those receivables and payables on a net basis since BioTime and the affiliates intend to exercise a right of offset of the receivable and the payable and to settle the balances net by having the party that owes the other party pay the net balance owed.

 

Transactions with Ascendance Biotechnology, Inc.

 

On March 21, 2018, AgeX and Ascendance Biotechnology, Inc. (“Ascendance”), an equity method investee of AgeX and former equity method investee of BioTime, entered into an Asset Purchase Agreement (the “Asset Agreement”) in which AgeX purchased for $800,000 in cash certain assets consisting in value primarily of in-process research and development assets related to stem cell derived cardiomyocytes (heart muscle cells) to be developed by AgeX. The transaction was considered an asset acquisition rather than a business combination in accordance with ASC 805-50,Business Combinations.805. Accordingly, the $800,000 purchase price was expensed on the acquisition date as acquired in-process research and development as those assets have no alternative future use. Also, on March 21, 2018, BioTime received $0.2 million from Ascendance as settlement of its accounts receivable from Ascendance.

 

22

Disposition of Ownership Interestownership interest in Ascendance

 

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. AgeX recognized a $3.2 million gain as aon the sale of its equity method investment in Ascendance, which is included in other income and expenses, net, for the six months ended June 30, 2018. At the close of the merger, $955,000 of cash that otherwise would have been payable to the Ascendance stockholders was deposited into an escrow account where it may be held for a term of up to fifteen months. Funds held in the escrow account may be paid to the acquirer to cover indemnity payments and other obligations that may arise after the merger. After the expiration of the term of the escrow, any funds remaining in the escrow account will be disbursed, on a pro-rata basis, to the former Ascendance stockholders. As of June 30, 2018, no amounts have been recorded in the BioTime condensed consolidated interim financial statements for any funds held in the escrow account.

 

Other related party transactiontransactions

 

In February 2018,Alfred D. Kingsley, the Chairman of BioTime’s Board of Directors and a former officer and director of AgeX, purchased AgeX stock purchase warrants entitling him to purchase 248,600 shares of AgeX common stock at an exercise price of $2.50 per share. AgeX received $124,300, or $0.50 per warrant, from Mr. Kingsley. See Note 10.The warrants were sold to Mr. Kingsley on the same terms as other warrants were sold by AgeX to other unaffiliated investors.

 

BioTime currently pays $5,050 per month for the use of approximately 900 square feet of office space in New York City, which is made available to BioTime on a month-by-month basis by one of its directors at an amount that approximates his cost.cost (see Note 15).

 

17

In April 2019, BioTime issued 251,835 shares of BioTime common stock to Broadwood Partners, L.P., an Asterias and BioTime shareholder, in exchange for the settlement of Asterias Warrants in connection with the Asterias Merger (see Note 3).

 

In connection with the putative shareholder class action lawsuit filed in February 2019 challenging the Asterias Merger (see Note 15), BioTime has agreed to pay for the legal defense of Neal Bradsher, director, and Broadwood Partners, L.P., a shareholder of BioTime, and Broadwood Capital, Inc., which manages Broadwood Partners, L.P., all of which were named in the lawsuit. Through June 30, 2019, BioTime has incurred a total of $140,000 in legal expenses on behalf of the director, shareholder, and the manager of the shareholder.

 

10.11. Shareholders’ Equity

 

Preferred Shares

 

BioTime is authorized to issue 2,000,000 preferred shares. The preferred shares may be issued in one or more series as the board of directors may determine by resolution. The board of directors is authorized to fix the number of shares of any series of preferred shares and to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed on the preferred shares as a class, or upon any wholly unissued series of any preferred shares. The board of directors may, by resolution, increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series of preferred shares subsequent to the issue of shares of that series. There are no preferred shares issued and outstanding.

 

Common Shares

 

At June 30, 2018,2019, BioTime was authorized to issue 250,000,000 common shares, no par value. As of June 30, 2018,2019, and December 31, 2017,2018, BioTime had 126,873,228149,642,861 and 126,865,634127,135,774 issued and outstanding common shares, respectively.

 

OnIn April 6, 2017, BioTime entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor Fitzgerald”), pursuant to which BioTime may offer and sell, from time to time, through Cantor Fitzgerald, shares of BioTime common stock no par value per share, having an aggregate offering price of up to $25,000,000. BioTime is not obligated to sell any shares under the Sales Agreement. Subject to the terms and conditions of the Sales Agreement, Cantor Fitzgerald will use commercially reasonable efforts, consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations, and the rules of the NYSE American, to sell the shares from time to time based upon BioTime’s instructions, including any price, time or size limits specified by BioTime. Under the Sales Agreement, Cantor Fitzgerald may sell the shares by any method deemed to be an “at-the-market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, or by any other method permitted by law, including in privately negotiated transactions. Cantor Fitzgerald’s obligations to sell the shares under the Sales Agreement are subject to satisfaction of certain conditions, including the continued effectiveness of BioTime’s Registration Statement on Form S-3, which became effective on May 5, 2017. As of June 30, 2018,2019, $24.2 million remained available for sale through the Sales Agreement under the Registration Statement.Agreement.

 

BioTime willagreed to pay Cantor Fitzgerald a commission of 3.0% of the aggregate gross proceeds from each sale of shares, reimburse legal fees and disbursements and provide Cantor Fitzgerald with customary indemnification and contribution rights. The Sales Agreement may be terminated by Cantor Fitzgerald or BioTime at any time upon notice to the other party, or by Cantor Fitzgerald at any time in certain circumstances, including the occurrence of a material and adverse change in BioTime’s business or financial condition that makes it impractical or inadvisable to market the shares or to enforce contracts for the sale of the shares.

Transactions with Noncontrolling Interests of AgeX Therapeutics, Inc.

AgeX was formed by BioTime to continue the development of BioTime’s technology relating to cell immortality and regenerative biology by developing products for the treatment of aging and age-related diseases. On August 17, 2017, AgeX received its initial assets and cash from BioTime and certain outside investors. BioTime contributed certain assets and cash to AgeX in exchange for 28,800,000 shares of AgeX common stock pursuant to an Asset Contribution and Separation Agreement (the “Asset Contribution Agreement”). BioTime and AgeX also entered into a License Agreement pursuant to which BioTime licensed or sublicensed to AgeX, and AgeX granted to BioTime an option to license back, certain patent rights. Concurrently with the acquisition of assets from BioTime under the Asset Contribution Agreement, AgeX sold 4,950,000 shares of its common stock for $10.0 million in cash primarily to outside investors, which included the Chairman of BioTime’s Board of Directors. At the close of the financing on August 17, 2017, BioTime owned 85.4% of the issued and outstanding shares of AgeX common stock.

On June 7, 2018, AgeX sold 2.0 million shares of common stock to an outside investor for $2.50 per share for aggregate cash proceeds to AgeX of $5.0 million. As of the completion of this financing on June 7, 2018, BioTime owns 80.6% of theissued and outstanding shares of AgeX common stock and retains a controlling interest in AgeX (see Note 14).

BioTime accounts for a change in ownership interests in any subsidiary that does not result in a change of control of the subsidiary by BioTime under the provisions of ASC810-10-45-23,which prescribes the accounting for changes in ownership interest that do not result in a change in control of the subsidiary, as defined by GAAP as a result of a transaction. Under this guidance, changes in a controlling shareholder’s ownership interest that do not result in a change of control, as defined by GAAP, in the subsidiary are accounted for as equity transactions. Thus, if the controlling interest of a shareholder increases or decreases due to a sale or acquisition of the subsidiary’s equity securities, no gain or loss is recognized in the statement of operations of the controlling shareholder if it retains control of the subsidiary. Similarly, the controlling shareholder will not record any additional acquisition adjustments to reflect its subsequent purchases of additional shares in the subsidiary by the controlling shareholder if there is no change of control. Only a proportional and immediate transfer of carrying value between the controlling and the noncontrolling shareholders occurs based on the respective ownership percentages. Accordingly, because the June 7, 2018 additional cash investment made by the outside investor did not result in a change of control of AgeX, this transaction resulted in a$3.6 million proportional equity transfer, at carrying value, from noncontrolling interests in AgeX to BioTime recorded in consolidated shareholders’ equity as of June 30, 2018.

 

1823

 

SaleReconciliation of Warrants by AgeXChanges in Shareholders’ Equity

 

On February 28,The following table documents the changes in shareholders’ equity for the three and six months ended June 30, 2019 (unaudited and in thousands):

  Preferred Shares  Common Shares     Noncontrolling  

Accumulated

Other

  Total 
  

Number

of Shares

  Amount  

Number

of Shares

  Amount  

Accumulated

Deficit

  

Interest/

(Deficit)

  

Comprehensive

Income

  

Shareholders’

Equity

 
BALANCE AT DECEMBER 31, 2018  -  $-   127,136  $354,270  $(261,856) $(1,594) $1,426  $92,246 
Shares issued in connection with the Asterias Merger  -   -   24,696   32,353   -   -   -   32,353 
Shares retired in connection with the Asterias Merger  -   -   (2,622)  (3,435)  -   -   -   (3,435)
Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes  -   -   118   (75)  -   -   -   (75)
Stock-based compensation  -   -   -   1,361   -   -   -   1,361 
Stock-based compensation for shares issued upon vesting of Asterias restricted stock units attributable to post combination services  -   -   60   79   -   -   -   79 
Adjustment upon adoption of leasing standard  -   -   -   -   143   -   -   143 
Foreign currency translation loss  -   -   -   -   -   -   (732)  (732)
NET INCOME/(LOSS)  -   -   -   -   39,310   (14)  -   39,296 
BALANCE AT MARCH 31, 2019  -  $-   149,388  $384,553  $(222,403) $(1,608) $694  $161,236 
Shares issued for settlement of BioTime Warrants  -   -   252   302   -   -   -   302 
Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes  -   -   3   (2)  -   -   -   (2)
Stock-based compensation  -   -   -   762   -   -   -   762 
Foreign currency translation loss  -   -   -   -   -   -   (487)  (487)
NET LOSS  -   -   -   -   (30,032)  (20)  -   (30,052)
BALANCE AT JUNE 30, 2019  -  $-   149,643  $385,615  $(252,435) $(1,628) $207  $131,759 

The following table documents the changes in shareholders’ equity for the three and six months ended June 30, 2018 AgeX sold warrants to purchase 1,473,600 shares(unaudited and in thousands):

  Preferred Shares  Common Shares     Noncontrolling  Accumulated Other  Total 
  

Number
of Shares

  Amount  

Number

of Shares

  Amount  

Accumulated

Deficit

  

Interest/

(Deficit)

  

Comprehensive

Income

  

Shareholders’

Equity

 
BALANCE AT DECEMBER 31, 2017  -  $-   126,866  $378,487  $(216,297) $1,622  $451  $164,263 
Cumulative-effect adjustment for adoption of ASU 2016-01 on January 1, 2018  -   -   -   -   328   -   (328)  - 
Cumulative-effect adjustment for adoption of Accounting Standard Codification, Topic 606, on January 1, 2018  -   -   -   -   101   -   -   101 
Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes  -   -   3   (7)  -   -   -   (7)
Stock-based compensation  -   -   -   809   -   -   -   809 
Stock-based compensation in subsidiaries  -   -   -   -   -   175   -   175 
Sale of subsidiary warrants in AgeX  -   -   -   -   -   737   -   737 
Subsidiary financing transactions with noncontrolling interests - AgeX  -   -   -   (103)  -   103   -   - 
Foreign currency translation adjustments  -   -   -   -   -   -   75   75 
NET LOSS  -   -   -   -   (63,548)  (150)  -   (63,698)
BALANCE AT MARCH 31, 2018  -  $-   126,869  $379,186  $(279,416) $2,487  $198  $102,455 
Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes  -   -   5   (5)  -   -   -   (5)
Stock-based compensation  -   -   -   825   -   -   -   825 
Stock-based compensation of subsidiaries  -   -   -   -   -   278   -   278 
Additional adjustment for ASC Topic 606  -   -   -   -   1   -   -   1 
Sale of subsidiary shares in AgeX  -   -   -   -   -   5,000   -   5,000 
Subsidiary financing transactions with noncontrolling interests - AgeX  -   -   -   3,634   -   (3,634)  -   - 
Subsidiary financing and other transactions with noncontrolling interests – Cell Cure  -   -   -   (111)  -   70   -   (41)
Foreign currency translation adjustments  -   -   -   -   -   -   884   884 
NET LOSS  -   -   -   -   (4,215)  (431)  -   (4,646)
BALANCE AT JUNE 30, 2018          126,874   383,529  $(283,630) $3,770  $1,082  $104,751 

Warrants

BioTime (previously Asterias) Warrants - Liability Classified

In March 2019, in connection with the closing of AgeX common stock (the “AgeX Warrants”) for $0.50 per warrant for aggregate cash proceeds to AgeXthe Asterias Merger, BioTime assumed outstanding Asterias Warrants. As of $736,800. The AgeX Warrants are exercisable at $2.50 per share and expireJune 30, 2019, the earliest to occur of (i) February 28, 2021, (ii) on or after January 31, 2019, after notice from AgeX, if the AgeX shares are publicly traded and the price of AgeX common stock exceeds $3.75 per share for 20 trading days (on a volume weighted average price basis, as defined), and (iii) a change of control, as defined in warrant agreement. If the AgeX shares are not publicly traded, the AgeX Warrants may be exercised only during the period commencing ten business days prior to the expiration date, as defined in the warrant agreement.The AgeX Warrants are classified as equity since, among other factors, they are not redeemable, cannot be settled in cash or other assets and require settlement by issuing a fixedtotal number of shares of BioTime common stock subject to warrants that were assumed by BioTime in connection with the Asterias Merger was 1,089,900 (representing approximately $289,000 in fair value as of AgeX.June 30, 2019), which were converted to BioTime Warrants 30 days after the closing of the Asterias Merger, with similar terms and conditions retained under the BioTime Warrants as per the original Warrant Agreements. The AgeXBioTime Warrants were soldhave an exercise price of $6.15 per warrant share and expire on May 13, 2021. BioTime is accounting for the outstanding BioTime Warrants as a liability at fair value, determinedwith subsequent changes to the fair value of the BioTime Warrants at each reporting period thereafter included in the consolidated statement of operations (see Note 3).

For the three and six months ended months ended June 30, 2019, BioTime recorded an unrealized gain of $0.2 million due to the decline in the fair value of the BioTime Warrants from the Asterias Merger date through June 30, 2019. As of June 30, 2019, the fair value of the BioTime Warrants was $0.3 million included in long-term liabilities on the Binomial Lattice option pricing model on the issuance date, with certain management assumptions, which included the timing of an initial public offering of AgeX common stock, peer-group volatility, term to maturity, price cap and AgeX current and future stock prices. See Note 14.condensed consolidated balance sheets.

Cell Cure Warrants –- Liability Classified

 

On July 10, 2017, BioTime purchased all of the outstanding Cell Cure convertible promissory notes and Cell Cure ordinary shares held byHadasit Bio-Holdings, Ltd. (“HBL”), a former Cell Cure shareholder that owned 21.2%has two sets of the issued and outstanding Cell Cure ordinary shares and substantially all of the Cell Cure convertible promissory notes issued by Cell Cure to shareholders other than BioTime. As an inducement to HBL to sell its Cell Cure ordinary shares to BioTime, Cell Cure issued 24,566 warrants to HBL (the “HBL Warrants”)warrants. Warrants to purchase 24,566 Cell Cure ordinary shares at an exercise price of $40.5359 per warrant share, payablewere issued to Hadasit in U.S. dollars. The exercise price of the HBLJuly 2017. These warrants expire in July 2022. Warrants is the same price per ordinary share paid by BioTime to HBL for the purchase of the Cell Cure ordinary shares held by HBL. The HBL Warrants are immediately exercisable and expire on the earliest of the lapse of 5 years from the issuance date or immediately prior to the closing of a Corporate Transaction or an initial public offering, as defined in the HBL Warrant Agreement.

Cell Cure has also issued and outstanding 13,738 warrants to purchase 13,738 Cell Cure ordinary shares at exercise prices ranging from $32.02 to $40.00 per warrant share payable in U.S. dollars,have been issued to consultants (the “Consultant Warrants”), expiringconsultants. These warrants expire in October 2020 and January 2024. The HBL Warrants and the Consultant Warrants are collectively referred to as the “Cell Cure Warrants”.

 

Because the exercise price of the Cell Cure Warrants is U.S. dollar-denominated and settlement is not expected to occur in the next twelve months, Cell Cure classified the Cell Cure Warrants as a long-term liability in accordance with ASC 815,Derivatives and Hedging. ASC 815 requires freestanding financial instruments, such as warrants, with exercise prices denominated in currencies other than the functional currency of the issuer to be accounted for as liabilities at fair value, with all subsequent changes in fair value after the issuance date to be recorded as gains or losses in the consolidated statements of operations.

 

The fairAs of June 30, 2019 and December 31, 2018, the total value of theall warrants issued by Cell Cure Warrants at the time of issuance was determined by using the Black-Scholes option pricing model using the respective contractual term of the warrants. In applying this model, the fair value is determined by applying Level 3 inputs, as defined by ASC 820; these inputs are based on certain key assumptions including the fair value of the Cell Cure ordinary shares, adjusted for lack of marketability, as appropriate, and the expected stock price volatility over the term of the Cell Cure Warrants. The fair value of the Cell Cure ordinary shares is determined by Cell Cure’s Board of Directors, which may engage a valuation specialist to estimate the fair value, or may use recent transactions in Cell Cure shares, if any, as a reasonable approximation of fair value, or may apply other reasonable methods to determining the fair value, including a discount for lack of marketability. BioTime determines the stock price volatility using historical prices of comparable public company common stock for a period equal to the remaining term of the Cell Cure Warrants. The Cell Cure Warrants are revalued each reporting period using the same methodology described above, with changes in fair value included in other income and expenses, net, in the consolidated statements of operations. Changes in any of the key assumptions used to value the Cell Cure Warrants could materially impact the fair value of the Cell Cure Warrants and BioTime’s consolidated financial statements.

For the three and six months ended June 30, 2018, BioTime recorded a noncash gain of $0.5$0.3 million and $0.4 million, respectively, for the decrease in the fair value of the Cell Cure Warrants included in other income and expenses, net. The decrease in the fair value of the Cell Cure Warrants was mainly attributable to the reduced remaining life of therespectively. Such warrants from the prior period, and management’s assumption on the lack of marketability discount adjustment on the fair value of Cell Cure ordinary shares. As of June 30, 2018 and December 31, 2017, the Cell Cure Warrants, valued at $0.4 million and $0.8 million, respectively, were included inare classified as long-term liabilities on the condensed consolidated balance sheets.

12. Stock-Based Awards

19

 

11. Stock Option PlansEquity Incentive Plan Awards

 

BioTime adopted thea 2012 Equity Incentive Plan (the “2012 Plan”), under which a maximum of 16,000,000 BioTime common shares are available for the grant of stock options, restricted stock, restricted stock units and stock appreciation rights. As of June 30, 2019, a maximum of 16,000,000 common shares were available for grant; this amount was increased to 24,000,000 common shares on July 30, 2019 when shareholder approval was obtained.

 

A summary of BioTime’s 2012 Plan activity and other stock option awards granted outside of the 2012 Plan related information is as follows (in thousands, except per share amounts):

 

  

Shares

Available

for Grant

  

Number

of Options

Outstanding

  

Number

of RSUs

Outstanding

  

Weighted

Average Exercise

Price of Options

 
December 31, 2017(1)  2,485   8,043   62  $3.38 
Board mandated restriction restored  5,000   -   -   - 
Options granted  (1,239)  1,239   -   2.58 
Options exercised  -   -   -   - 
Options forfeited/cancelled  272   (292)  -   4.00 
Restricted stock units granted  (970)  -   485   - 
Restricted stock units vested  -   -   (12)  - 
June 30, 2018  5,548   8,990   535  $3.25 
Options exercisable at June 30, 2018      5,155      $3.47 
  

Shares

Available

for Grant

  

Number

of Options

Outstanding

  

Number

of RSUs

Outstanding

  

Weighted

Average

Exercise Price

 
December 31, 2018  1,885   13,867   402  $2.44 
AgeX distribution adjustment  117   (2)  3   - 
Restricted stock units vested  -   -   (135)  - 
Options granted  (2,337)  2,337   -   1.14 
Options exercised  -   -   -   - 
Options expired/forfeited/cancelled  1,264   (1,264)  -   2.09 
June 30, 2019  929   14,938   270  $2.27 
Options exercisable at June 30, 2019      9,213      $2.59 

(1)On October 13, 2017, BioTime’s BoardAt the effective time of Directorsthe Asterias Merger, BioTime assumed sponsorship of the Asterias 2013 Equity Incentive Plan (the “Board”“Asterias Equity Plan”) determined, with references to temporarily set a 5.0 million total share limit onAsterias and Asterias common stock therein to be deemed references to BioTime and BioTime common stock. There were 7,309,184 shares available forunder the grantAsterias Equity Plan immediately before the closing of share-based awards pursuant to the 2012 Plan. As of December 31, 2017,Asterias Merger, which became 5,189,520 shares immediately following the total 2.5 millionAsterias Merger. The shares available under the Asterias Equity Plan will be for grant was netawards granted to those former Asterias employees who continued as BioTime employees upon consummation of this 5.0 millionthe Asterias Merger. A summary of activity under the Asterias Equity Plan from the closing date of the Asterias Merger through June 30, 2019 is as follows (in thousands, except per share restriction. On May 4, 2018, the Board removed this restriction, thereby increasing shares available for the grant of share-based awards pursuant to the 2012 Plan.amounts):

 

  

Shares

Available

for Grant

  

Number

of Options

Outstanding

  

Number

of RSUs

Outstanding

  

Weighted

Average

Exercise Price

 
March 8, 2019  5,190   -   -  $- 
Options granted  (490)  490   -   1.59 
Options exercised  -   -   -   - 
Options forfeited  105   (105)  -   1.63 
June 30, 2019  4,805   385   -   1.58 
Options exercisable at June 30, 2019      -      $- 

On May 24, 2018, BioTime granted 485,000 restricted stock units (“RSU”) to employees. The RSU will vest in increments upon the attainment of specified performance conditions, as determined by the Board of Directors. Unvested RSUs will expire on December 31, 2018. The conditions include the completion of the planned distribution of AgeX common stock to BioTime shareholders (see Note 14), and certain clinical milestones in the development of OpRegen® and Renevia®.As of June 30, 2018, none of the RSU vesting conditions were met and, accordingly, no stock-based

Stock-based compensation expense was recorded during the three and six months ended June 30, 2018.

Stock-Based Compensation Expense

 

The fair value of each option award is estimated on the date of grant using a Black-Scholes option pricing model applying the weighted-average assumptions noted in the following table:table:

 

 

Six Months Ended June 30,

  

Six Months Ended

June 30, (unaudited)

 
 2018  2017  2019  2018 
Expected life (in years)  5.87   6.08   6.06   5.87 
Risk-free interest rates  2.63%  1.92%  2.5%  2.6%
Volatility  56.09%  59.80%  60.2%  56.1%
Dividend yield  -%  -%  -%  -%

 

Operating expenses include stock-based compensation expense as follows (in thousands):

 

 

Three Months Ended June 30,

(unaudited)

 

Six Months Ended June 30,

(unaudited)

  Three Months Ended June 30, (unaudited)  

Six Months Ended June 30,

(unaudited)

 
 2018  2017  2018  2017  2019  2018  2019  2018 
Research and development $188  $166  $381  $496  $161  $188  $283  $381 
General and administrative  915   739   1,706   1,434   601   915   1,919   1,706 
Total stock-based compensation expense $1,103  $905  $2,087  $1,930  $762  $1,103  $2,202  $2,087 

 

20

The expense related to 84,940 shares of Asterias restricted stock unit awards that immediately vested on the closing of the Asterias Merger and converted into the right to receive shares of BioTime common stock based on the Merger Exchange Ratio, resulting in 60,304 shares of BioTime common stock issued on March 8, 2019, which were included in stock-based compensation expense for the six months ended June 30, 2019. The expense was not included as part of the purchase price of the Asterias Merger because these awards were principally attributable to post-combination services.

 

12.13. Income Taxes

 

The provision for income taxes for interim periods is generally determined using an estimated annual effective tax rate as prescribed by ASC 740-270,Income Taxes, Interim Reporting. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as valuation allowances and changes in valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, if any, and changes in or the interpretation of tax laws in jurisdictions where BioTime conducts business. ASC 740-270 also states that if an entity is unable to reliably estimate some or a part of its ordinary income or loss, the income tax provision or benefit applicable to the item that cannot be estimated shall be reported in the interim period in which the item is reported.

 

For items that BioTime cannot reliably estimate on an annual basis (principally unrealized gains or losses generated by changes in the market prices of the AsteriasOncoCyte, and OncoCyteAgeX shares of common stock BioTime holds, and prior to March 8, 2019, Asterias shares BioTime holds)held), BioTime uses the actual year to date effective tax rate rather than an estimated annual effective tax rate to determine the tax effect of each item, including the use of all available net operating losses and other credits or deferred tax assets.

Although the deconsolidation of Asterias and OncoCyte werewas not a taxable transactionstransaction to BioTime and did not create a current income tax payment obligation to BioTime, the market value of the shares of Asterias and OncoCyte common stock BioTime holds creates a deferred tax liability to BioTime based on the closing prices of the shares, less BioTime’s tax basis in the shares. The deferred tax liability generated by the Asterias and OncoCyte shares that BioTime holds as of June 30, 2018,2019, is asource of future taxable income to BioTime, as prescribed by ASC 740-10-30-17, that will more likely than not result in the realization of its deferred tax assets to the extent of the deferred tax liability.This deferred tax liability is determined based on the closing prices of the Asterias and OncoCyte shares as of June 30, 2018.2019. Due to the inherent unpredictability of future prices of those shares, BioTime cannot reliably estimate or project those deferred tax liabilities on an annual basis. Therefore, the deferred tax liability pertaining to Asterias and OncoCyte shares, determined based on the actual closing prices on the last stock market trading day of the applicable accounting period, and the related impacts to the valuation allowance and deferred tax asset changes, are recorded in the accounting period in which they occur.

 

Prior to the Asterias Merger discussed in Note 3, the Asterias shares of common stock BioTime held generated similar deferred tax liabilities to BioTime as the OncoCyte shares discussed above. As of the Asterias Merger date and due to Asterias becoming a wholly owned subsidiary of BioTime, the Asterias deferred tax liabilities were eliminated with a corresponding adjustment to BioTime’s valuation allowance, resulting in no tax provision or benefit from this adjustment.

On March 23, 2018, Ascendance was acquired by a third party in a merger through which AgeX received approximately $3.2 million in cash for its shares of Ascendance common stock. For financial reporting purposes, AgeX recognized a $3.2 million gain as a sale of its equity method investment in Ascendance (see Note 9).Ascendance. The sale was a taxable transaction to AgeX generating a taxable gain of approximately $2.2 million. BioTime hashad sufficient current year losses from operations to offset the entire gain resulting in no income taxes due.

The income tax consequences of the AgeX Deconsolidation are discussed below.

The Juvenescence Transaction discussed in Note 5 was a taxable event for BioTime that resulted in a gross taxable gain of approximately $29.4 million, which BioTime fully offset with available net operating losses (“NOL”) and NOL carryforwards, resulting in no net income taxes due. Although the AgeX Deconsolidation on August 30, 2018 was not a taxable transaction to BioTime and did not result in a current tax payment obligation, the unrealized financial reporting gain (see Note 6) on the AgeX Deconsolidation generated a deferred tax liability in accordance with ASC 740, primarily representing BioTime’s difference between book and tax basis of AgeX common stock on the AgeX Deconsolidation date. This deferred tax liability was fully offset by a corresponding release of BioTime’s valuation allowance on deferred tax assets, resulting in no income tax provision or benefit from the AgeX Deconsolidation. The deferred tax liabilities on BioTime’s investments in OncoCyte, Asterias and AgeX are considered to be sources of taxable income as prescribed by ASC 740-10-30-17 that will more likely than not result in the realization of its deferred tax assets to the extent of those deferred tax liabilities, thereby reducing the need for a valuation allowance.

The distribution of AgeX shares of common stock to BioTime shareholders (see Note 6) on November 28, 2018 was a taxable event for BioTime that resulted in a gross taxable gain of approximately $26.4 million, which was fully offset by NOL carryforwards, resulting in no income taxes due.

In connection with the Asterias Merger, a deferred tax liability of $13.0 million was recorded as part of the acquisition accounting (see Note 3). The deferred tax liability (“DTL”) is related to fair value adjustments for the assets and liabilities acquired in the Asterias Merger, principally consisting of IPR&D. This estimate of deferred taxes was determined based on the excess of the estimated fair values of the acquired assets and liabilities over the tax basis of the assets and liabilities acquired. The statutory tax rate was applied, as appropriate, to the adjustment based on the jurisdiction in which the adjustment is expected to occur. This estimate of deferred income tax liabilities is preliminary and is subject to change based upon BioTime’s final determination of the fair value of assets acquired and liabilities assumed. Because the IPR&D (prior to completion or abandonment of the R&D) is considered an indefinite-lived asset for accounting purposes, the fair value of the IPR&D on the acquisition date creates a deferred income tax liability in accordance with ASC 740. This DTL is computed using the fair value of the IPR&D assets on the acquisition date multiplied by BioTime’s respective federal and state income tax rates. While this DTL would reverse on impairment or sale or commencement of amortization of the related intangible assets, those events are not anticipated under ASC 740 for purposes of predicting reversal of a temporary difference to support the realization of deferred tax assets, except for certain deferred tax assets and credit carryforwards that are also indefinite in nature as of the Asterias Merger date, which may be considered for reversal under ASC 740 as further discussed below.

 

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. For federal and state income tax purposes, as a result of the deconsolidation of AgeX, Asterias and OncoCyte and the deferred tax liabilities generated from the market values of AgeX, Asterias and OncoCyte shares from the respective deconsolidation dates, including the changes to those deferred tax liabilities due to changes in the AgeX, Asterias and OncoCyte stock prices, BioTime’s deferred tax assets exceeded its deferred tax liabilities as of June 30, 2018 and December 31, 2017.2018. As a result, BioTime established a full valuation allowance as of June 30, 2018 and December 31, 20172018 due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets.

For the three and six months ended June 30, 2019, BioTime reversed a portion of its valuation allowance. The partial reversal of the historical valuation allowance is related to BioTime’s deferred tax assets and credit carryforwards and is due to the acquired taxable temporary differences, primarily consisting of the acquired IPR&D discussed above and in Notes 3 and 8. ASC 740 allows for deferred tax assets and credit carryforwards, that are both available and indefinite in nature, to be used against similar deferred tax liabilities as a source of income to support the realization of those deferred tax assets and credit carryforwards. Any benefit recognized from such a reversal of the valuation allowance is recorded outside of the acquisition accounting. Accordingly, the $1.2 million and $5.6 million valuation allowance release and the corresponding tax benefits were primarily related to state research and development credits, including current year federal net operating losses generated for the three and six months ended June 30, 2019, respectively, both of which are available and indefinite in nature.

BioTime did not record any provision or benefit for income taxes for the three and six months ended June 30, 2018.

As of June 30, 2017, for federal income tax purposes,2018 as BioTime establishedhad a full valuation allowance on its deferred tax assets as it is not more likely than not thatfor the deferred tax assets will be realized. Consequently,periods presented.

14. Supplemental Cash Flow Information

Non-cash investing and financing transactions presented separately from the $3.9 million tax provision recognized in the first quartercondensed consolidated statements of 2017 was reversed in the second quarter of 2017, resulting in no tax provision or benefitcash flows for the six months ended June 30, 2017.2019 and 2018 are as follows (in thousands):

 

For state income tax purposes, BioTime has a full valuation allowance on its state deferred tax assets for all periods presented and, accordingly, no state tax provision or benefit was recorded for any period presented.

See Note 14 regarding the planned AgeX Distribution.

  

Six Months Ended

June 30, (unaudited)

 
  2019  2018 
Supplemental disclosures of non-cash investing and financing activities:      
Issuance of common stock for the Asterias Merger (Note 3) $32,353  $- 
Assumption of liabilities in the Asterias Merger (Note 3)  1,136   - 
Assumptions of warrants in the Asterias Merger (Note 3)  867   - 

 

13.15. Commitments and Contingencies

 

Alameda Lease

 

OnIn December 10, 2015, BioTime entered into a lease for approximately 30,795 square feet of office and laboratoryrentable space in two buildings located in an office park in Alameda, California (the “Alameda Lease”). The term of the Alameda Lease is seven yearscommenced effective February 1, 2016 and expires on January 31, 2023, unless BioTime has anexercises its option to renew the termlease for an additional five years. BioTime moved into the facility and the term of the Alameda Lease commenced effective February 1, 2016.

 

Base rent under the Alameda Lease beginning on February 1, 2018 was $68,6732019 is $70,521 per month and will increase by approximately 3% annually on every February 1 thereafter during the lease term. The

Prior to the adoption of ASC 842 on January 1, 2019 (see Note 2), the lease payments allocated to the lease liability for leasehold improvements reimbursed by the landlord arewere amortized as debt service on that liability using the effective interest method over the lease term.

 

21

See Note 2 for discussion of the impact of adoption of ASC 842 on January 1, 2019, and below for the ROU assets and liabilities recorded in connection with the adoption of ASC 842 as of, and during the six months ended June 30, 2019 for the Alameda Lease.

 

In addition to base rent, BioTime will pay a pro rata portion of increases in certain expenses, including real property taxes, utilities (to the extent not separately metered to the leased space) and the landlord’s operating expenses, over the amounts of those expenses incurred by the landlord. As security for the performance of its obligations under the Alameda Lease, BioTime provided the landlord with an initiala security deposit of approximately $847,000,$424,000, which was reduced to $78,000 on January 24, 2019 in accordance with the terms of the lease. The security deposit amount is considered restricted cash and $78,000 is included in deposits and other long-term assets as of June 30, 2019 (see Note 2).

Carlsbad Lease

In May 2019, BioTime entered into a lease for approximately 8,841 square feet of rentable space in an office park in Carlsbad, California (the “Carlsbad Lease”). The term of the Carlsbad Lease commenced on August 1, 2019 and expires on October 31, 2022.

Base rent under the Carlsbad Lease beginning on August 1, 2019 is $17,850 per month and will increase by $423,0003% annually on Februaryevery August 1 2018 pursuant tothereafter during the lease agreement, and will be further reduced by an additional $346,000 afterterm. Base rent for the first thirty-sixtwenty-four months of the lease term,is based upon a deemed rentable area of 7,000 square feet. Base rent is abated for months two through five of the lease.

In addition to base rent, BioTime will pay a pro rata portion of increases in certain expenses, including real property taxes, utilities (to the extent not separately metered to the leased space) and the landlord’s operating expenses, over the amounts of those expenses incurred by applying those amounts to future rent paymentthe landlord. As security for the performance of its obligations under the lease, if BioTime is not in default under the Lease. The security deposit amount under the Alameda Lease, is considered restricted cash (see Note 2).BioTime provided the landlord with a security deposit of approximately $17,850.

29

New York Leased Office Space

 

BioTime currently pays $5,050 per month for the use of approximately 900 square feet of office space in New York City, which is made available to BioTime for use in conducting meetings and other business affairs, on a month-by-month basis, by one of its directors at an amount that approximates his cost. This lease was not in the scope of ASC 842 because it is a month to month lease (see Note 2).

 

Cell Cure Lease

 

Cell Cure has leased 1,128leases 728.5 square meters (approximately 12,1427,842 square feet) of office and laboratory space in Jerusalem, Israel under a lease that expires between May 30, 2019 and December 31, 2020, with two additional options to extend the lease for 5 years each. Base monthly rent is NIS 63,40237,882 (approximately U.S. $18,247US $11,000 per month)month using the December 31, 2018 exchange rate). In addition to base rent, Cell Cure pays a pro rata share of real property taxes and certain costs related to the operation and maintenance of the building in which the leased premises are located.

 

On January 28, 2018, Cell Cure entered into another lease agreement with its current landlord for an additional 934 square meters (approximately 10,054 square feet) of office space in the same facility in Jerusalem, Israel under a lease that expires on December 31, 2025, with two additional options to extend the lease for 5 years each (the “January 2018 Lease”). The January 2018 Lease commenced on April 1, 2018 and includesincluded a leasehold improvement construction allowance of up to NIS 4,000,000 (approximately up to $1.2 million)$1.1 million using the December 31, 2018 exchange rate) from the landlord. The leasehold improvements are expected to bewere completed by September 30, 2018. Combinedin December 2018 and the entire allowance was used. Beginning on January 1, 2019, combined base rent and construction allowance payments assuming the full allowance is utilized, for the January 2018 Lease will beare NIS 93,47093,827 per month (approximately $27,000$26,000 per month) beginning.

Prior to the adoption of ASC 842 on OctoberJanuary 1, 2018.2019, Cell Cure was considered the owner of the tenant improvements under construction under ASC 840-40-55 as Cell Cure, among other things, had the primary obligation to pay for construction costs and Cell Cure retains exclusive use of the leased facilities for its office, research and cGMP manufacturing facility requirements after construction was completed (“build to suit” lease). In accordance with the ASC 840 guidance, amounts expended by Cell Cure for construction was reported as construction in progress, and the proceeds received from the landlord, if any, are reported as a lease liability. As of June 30,December 31, 2018, no amountsapproximately $1.1 million under the January 2018 Lease was incurred and recorded as leasehold improvement construction in progress (see Note 7), with a corresponding amount included in long term lease liability representing the full amount utilized from the landlord’s leasehold improvement construction allowance. By March 2019, the landlord paid the complete leasehold improvement construction allowance had been utilized.and the property was placed in service.

See Note 2 discussion of the impact of adoption of ASC 842 on January 1, 2019, and below for the ROU assets and liabilities recorded in connection with the adoption of ASC 842 as of, and during the six months ended June 30, 2019 for the Cell Cure and January 2018 Leases above (the “Cell Cure Leases”).

In December 2018, Cell Cure made a $388,000 deposit required under the January 2018 Lease, which amount is included in deposits and other long-term assets on the consolidated balance sheet as of December 31, 2018, to be held as restricted cash during the term of the January 2018 Lease.

 

Adoption of ASC 842

The below tables provide the amounts recorded in connection with the adoption of ASC 842 as of, and during the six months ended June 30, 2019, for BioTime’s operating and financing leases, as applicable.

Supplemental cash flow information related to leases was as follows (in thousands):

  

Six Months Ended

June 30, 2019

 
Cash paid for amounts included in the measurement of lease liabilities:    
Operating cash flows from operating leases $670 
Operating cash flows from financing leases  17 
Financing cash flows from financing leases  14 
     
Right of use assets obtained in exchange for lease obligations:    
Operating leases  89 
Financing leases  - 

Supplemental balance sheet information related to leases was as follows (in thousands, except lease term and discount rate):

  June 30, 2019 
Operating leases    
Right-of-use assets, net $4,554 
     
Right-of-use lease liabilities, current  923 
Right-of-use lease liabilities, noncurrent  3,825 
Total operating lease liabilities $4,748 
     
Financing leases    
Property and equipment, gross $146 
Accumulated depreciation  (35)
Property and equipment, net $111 
     
Current liabilities  33 
Long-term liabilities  93 
Total finance lease liabilities $126 
     
Weighted average remaining lease term    
Operating leases  4.7 years 
Finance leases  3.9 years 
Weighted average discount rate    
Operating leases  9.0%
Finance leases  10.0%

Future minimum lease commitments are as follows (in thousands):

  Operating
Leases		  Finance
Leases		 
Year Ending December 31,        
2019 $720  $22 
2020  1,459   43 
2021  1,365   36 
2022  1,268   36 
2023  393   15 
Thereafter  1,015   - 
         
Total lease payments $6,220  $152 
Less imputed interest  (1,472)  (26)
Total $4,748  $126 

Research and Option Agreement

On January 5, 2019, BioTime and Orbit Biomedical Limited (“Orbit”) entered into a Research and Option Agreement (the “Orbit Agreement”) for an exclusive partnership to assess Orbit’s vitrectomy-free subretinal injection device as a means of delivering OpRegen in BioTime’s ongoing Phase I/IIa clinical trial. The term of the Orbit Agreement is for one year unless certain research activities and related data specified in the Orbit Agreement is obtained sooner. The access fees payable by BioTime to Orbit for its technology and the injection device are $2.5 million in the aggregate, of which $1.25 million was paid in January 2019 upon execution of the Orbit Agreement and the remaining $1.25 million payment is due on the earlier of (i) six months from the Orbit Agreement date or, (ii) upon completion of certain collaborative research activities using the Orbit technology for the OpRegen Phase I/IIa clinical trial, as specified in the Orbit Agreement. In addition to the access fees, BioTime will pay Orbit for costs of consumables, training services, travel costs and other out of pocket expenses incurred by Orbit for performing services under the Orbit Agreement. BioTime has exclusive rights to the Orbit technology and its injection device for the treatment of dry-AMD during the term of the Orbit Agreement and may extend the term for an additional three months by paying Orbit a cash fee of $500,000. For the three and six months ended June 30, 2019, BioTime amortized $0.6 million and $1.25 million of the upfront payment fee included in research and development expenses. As of June 30, 2019, BioTime had not incurred the remaining $1.25 million access fee. In July 2019, BioTime completed the collaborative research activities referred to above and the second $1.25 million payment will be made in August 2019.

Litigation – General

 

BioTime will be subject to various claims and contingencies in the ordinary course of its business, including those related to litigation, business transactions, employee-related matters, and others. When BioTime is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, BioTime will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, BioTime will disclose the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. BioTime is not aware of any claims likely to have a material adverse effect on its financial condition or results of operations.

 

On February 19, 2019, a putative shareholder class action lawsuit was filed (captionedLampe v. Asterias Biotherapeutics, Inc. et al., Case No. RG19007391) in the Superior Court of the State of California, County of Alameda challenging the Asterias Merger. On March 1, 2019, Asterias made certain amendments and supplements to its public disclosures regarding the Asterias Merger (the “Supplemental Disclosures”). On May 3, 2019, an amended class action complaint (the “Amended Complaint”) was filed. The Amended Complaint names BioTime, Patrick Merger Sub, Inc., the Asterias board of directors, one member of BioTime’s board of directors, and certain stockholders of both BioTime and Asterias. The action was brought by two purported stockholders of Asterias, on behalf of a putative class of Asterias stockholders, and asserts breach of fiduciary duty and aiding and abetting claims under Delaware law. The Amended Complaint alleges, among other things, that the process leading up to the Asterias Merger was conflicted and inadequate, and that the proxy statement filed by Asterias with the Securities and Exchange Commission omitted certain material information, which allegedly rendered the information disclosed materially misleading. The Amended Complaint seeks, among other things, that a class be certified, the recovery of monetary damages, and attorneys’ fees and costs.

On June 3, 2019, defendants filed demurrers to the Amended Complaint. Plaintiffs’ counsel subsequently indicated that, after reviewing the demurrers and analyzing certain documents produced by defendants, Plaintiffs wished to voluntarily dismiss the action with prejudice as to themselves, and without prejudice as to the unnamed putative class members. Plaintiffs’ counsel also indicated that, independent of their decision to voluntarily dismiss the action, Plaintiffs believe they have a claim for attorneys’ fees and expenses in connection with the purported benefit conferred on Asterias stockholders by the Supplemental Disclosures (the “Fee Claim”). On July 26, 2019, the parties entered into a stipulation to stay the briefing schedule on the demurrers and to take the hearing on the demurrers off calendar so that the parties could discuss the Fee Claim (the “Stipulation”). On July 29, 2019, the Court entered the Stipulation as an order, took the demurrer hearing off calendar, and set a case management conference for September 17, 2019. Thereafter, the parties began negotiating the Fee Claim and, on August 5, 2019, agreed in principle to resolve the Fee Claim for $200,000. The parties intend to submit a stipulation to the Court seeking dismissal of the action with prejudice as to the named Plaintiffs and without prejudice as to the unnamed putative class members, and seeking approval of the negotiated Fee Claim. BioTime continues to believe that the claims and allegations in the action lack merit, but believes that it is in BioTime’s shareholders’ best interest for the action to be dismissed and to resolve the Fee Claim in a timely manner without additional costly litigation expenses.

Employment Contractscontracts

 

BioTime has entered into employment agreements with certain executive officers. Under the provisions of the agreements, BioTime may be required to incur severance obligations for matters relating to changes in control, as defined in the agreements, and involuntary terminations.

 

Indemnification

 

In the normal course of business, BioTime may provide indemnifications of varying scope under BioTime’s agreements with other companies or consultants, typically BioTime’s clinical research organizations, investigators, clinical sites, suppliers and others. Pursuant to these agreements, BioTime will generally agree to indemnify, hold harmless, and reimburse the indemnified parties for losses and expenses suffered or incurred by the indemnified parties arising from claims of third parties in connection with the use or testing of BioTime’s products and services. Indemnification provisions could also cover third party infringement claims with respect to patent rights, copyrights, or other intellectual property pertaining to BioTime products and services. Other indemnification obligations may arise from agreements disposing of assets. The term of these indemnification agreements will generally continue in effect after the termination or expiration of the particular research, development, services, or license agreement to which they relate. The potential future payments BioTime could be required to make under these indemnification agreements will generally not be subject to any specified maximum amount. Historically, BioTime has not been subject to any claims or demands for indemnification. BioTime also maintains various liability insurance policies that limit BioTime’s financial exposure.provide BioTime with insurance against claims or demands for indemnification in specified circumstances. As a result, BioTime believes the fair value of these indemnification agreements is minimal. Accordingly, BioTime has not recorded any liabilities for these agreements as of June 30, 20182019 and December 31, 2017.2018.

22

 

Royalty obligations and license fees

 

BioTime and its subsidiaries or affiliates are parties to certain licensing agreements with research institutions, universities and other parties for the rights to use those licenses and other intellectual property in conducting research and development activities. These licensing agreements provide for the payment of royalties by BioTime or the applicable party to the agreement on future product sales, if any. In addition, in order to maintain these licenses and other rights during the product development, BioTime or the applicable party to the contract must comply with various conditions including the payment of patent related costs and annual minimum maintenance fees. Annual minimum maintenance fees are approximately $135,000 to $150,000 per year. The research and development risk for these products is significant. License fees and related expenses under these agreements were immaterial for the periods presented in the condensed consolidated interim financial statements provided herein.

 

32

Grants

 

Under the terms of athe grant agreement between Cell Cure andIsrael Innovation Authority (“IIA”) (formerly the Office of the Chief Scientist of Israel) of the Ministry of Economy and Industry, for the development ofOpRegen® OpRegen®, Cell Cure will be required to pay royalties on future product sales, if any, up to the amounts received from the IIA, plus interest indexed to LIBOR. Cell Cure’s research and product development activities under the grant are subject to substantial risks and uncertainties and performed on a best efforts basis. As a result, Cell Cure is not required to make any payments under the grant agreement unless it successfully commercializesOpRegen®. OpRegen. Accordingly, pursuant to ASC 730-20, the Cell Cure grant is considered a contract to perform research and development services for others and grant revenue will beis recognized as the related research and development expenses are incurred (see Note 2).

 

Israeli law pertaining to such government grants contain various conditions, including substantial penalties and restrictions on the transfer of intellectual property, or the manufacture, or both, of products developed under the grant outside of Israel, as defined by the IIA.

 

14.16. Subsequent Events

 

OnIn July 10, 2018, AgeX2019, BioTime sold additional AgeX Warrants to purchase 526,4002,250,000 shares of common stock of OncoCyte for $0.50 per warrant for aggregate net cash proceeds to AgeX of $263,200. See Note 10.$4.2 million and recorded a realized loss on sale of $1.4 million, including commissions and fees. Following the completion of the sale, BioTime owns approximately 23.9% or 12.4 million shares of OncoCyte’s outstanding common stock.

 

OnIn July 19, 2018, AgeX filed Amendment No. 1 to its Registration Statement on Form 10 with the SEC in connection with the planned AgeX Distribution. BioTime’s Board2019, BioTime sold 647,397 shares of Directors set July 31, 2018 as the record date for determining BioTime shareholders entitled to receive AgeX common stock inof Hadasit for net proceeds of approximately $1.2 million and recorded a realized gain on sale of $0.3 million, including commissions and fees. Following the AgeX Distribution. However, if a BioTime shareholder sells their BioTime common shares after the record date and before the datecompletion of the AgeX Distribution, they will also be selling their right to receivesale, BioTime owns approximately 8.1% or 0.9 million shares of AgeXHadasit’s outstanding common stock in the AgeX Distribution with respect to the BioTime common shares sold.stock.

 

On July 30, 2018, BioTime’s Board of Directors determined that on2019, BioTime conducted its annual shareholder meeting and received shareholder approval to increase the date on which the AgeX Distribution takes place (the “Distribution Date”), BioTime shareholders will receive one share of AgeX common stock for every 10 BioTimemaximum common shares held onavailable for grant under the record date (the “Distribution Ratio”). The AgeX Distribution, if completed, will be a taxable event2012 Equity Incentive Plan from 16,000,000 common shares to BioTime. The amount of income tax obligation, if any, that BioTime may incur in connection with the AgeX Distribution is not estimable at this time since the tax obligation depends on numerous factors and contingencies including but not limited to, the completion of the AgeX Distribution, the amount and availability of U.S. net operating losses generated by BioTime to offset any taxable gain as a result of the AgeX Distribution, and the value of AgeX24,000,000 common stock on the distribution date.

BioTime’s Board of Directors has not yet determined the Distribution Date.Completion of the AgeX Distribution is subject to the satisfaction of certain conditions, including AgeX’s Registration Statement on Form 10 being declared effective by the SEC. BioTime reserves the right to amend or modify the Distribution Ratio and other terms of the AgeX Distribution, or to abandon or terminate the AgeX Distribution, at any time prior to the Distribution Date.

shares.

 

2333

On August 1, 2018, BioTime entered into a binding letter agreement (the “Letter Agreement”) with Juvenescence Limited (“Juvenescence,” and together with BioTime, the “Parties”) pursuant to which the Parties agreed to negotiate final terms for the sale of 14,400,000 shares of common stock of AgeX (the “AgeX Shares”) currently owned by BioTime to Juvenescence for $3.00 per share (the “Transaction”). Juvenescence currently owns 5.6% of AgeX’s issued and outstanding common stock. The closing of the Transaction is subject to the Parties’ entry into a definitive stock purchase agreement (the “Purchase Agreement”), a shareholders agreement (the “Shareholders Agreement”), and other associated documents, and shall be subject to customary closing conditions for a transaction of this type.

The Letter Agreement provides for a total purchase price of the AgeX Shares of $43.2 million (the “Purchase Price”), of which $10.8 million will be paid upon the closing of the Transaction and $10.8 million will be paid on November 5, 2018, with the remaining $21.6 million to be paid under the terms of an unsecured Convertible Note. Juvenescence’s obligation to make the two $10.8 million payments will be secured by a pledge of 25% of the AgeX Shares. The Convertible Note, bearing interest at 7% per annum, with principal and accrued interest is payable at maturity two years after the closing of the Transaction. On the maturity date, if a “Qualified Financing” has not occurred, BioTime shall have the right, but not the obligation, to convert the principal balance of the Convertible Note and accrued interest then due into a number of Series A Preferred Shares of Juvenescence at a conversion price of $15.60 per share. Upon the occurrence of a “Qualified Financing” on or before the maturity date, the principal balance of the Convertible Note and accrued interest on the Convertible Note will automatically convert into a number of shares of the class of equity securities of Juvenescence sold in the Qualified Financing, at the price per share at which the Juvenescence securities are sold in the Qualified Financing; and, if AgeX common stock is listed on a national securities exchange in the U.S., the number of shares of the class of equity securities issuable upon conversion may be increased depending on the market price of AgeX common stock. A Qualified Financing means an underwritten initial public offering of Juvenescence equity securities in which gross proceeds are not less than $50.0 million. The Convertible Note will not be transferable, except in connection with a change of control of BioTime.

Pursuant to the Letter Agreement, the Parties have agreed to negotiate and enter into a Purchase Agreement setting forth the final terms, conditions and closing mechanics related to the Transaction. The Purchase Agreement will contain customary representations, warranties and indemnities from BioTime relating to the business of AgeX, subject to an indemnity cap of $4.3 million subject to certain exceptions.

In addition to the Purchase Agreement, the parties will enter into a Shareholder Agreement setting forth the governance, approval and voting rights of the Parties with respect to their holdings of AgeX common stock, including rights of representation on the AgeX Board of Directors, approval rights, preemptive rights, rights of first refusal and co-sale and drag-along and tag-along rights for so long as a Party maintains certain specified ownership levels of AgeX common stock.

Following the Transaction, until such time as the AgeX Distribution is completed, BioTime will continue to own 14,416,000 shares, or 40.3%, of AgeX’s issued and outstanding common stock. There can be no assurance that BioTime and Juvenescence will reach final agreement on the terms of the Transaction documents, or the timing of the entry into the Transaction. The Transaction is expected to close on or about August 30, 2018, subject to the closing conditions of the Purchase Agreement.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The matters addressed in this Item 2 that are not historical information constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, including statements about any of the following: any projections of earnings, revenue, gross profit, cash,cash, effective tax rate, use of net operating losses, or any other financial items; the plans, strategies and objectives of management for future operations or prospects for achieving such plans; and any statements of assumptions underlying any of the foregoing. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. While BioTime may elect to update forward-looking statements in the future, it specifically disclaims any obligation to do so, even if BioTime’s estimates change, and readers should not rely on those forward-looking statements as representing BioTime’s views as of any date subsequent to the date of the filing of this Quarterly Report. Although we believe that the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risks and BioTime can give no assurances that its expectations will prove to be correct. Actual results could differ materially from those described in this Quarterly Report because of numerous factors, many of which are beyond the control of BioTime. A number of important factors could cause the results of the company to differ materially from those indicated by such forward-looking statements, including those detailed under the heading “Risk Factors” in Part I, Item 1A of BioTime’s Form 10-K as amended, for the year ended December 31, 2017.2018.

 

The following discussion should be read in conjunction with BioTime condensed consolidated interim financial statements and the related notes provided under “Item 1- Financial Statements” above.

 

Company and Business Overview

 

We areBioTime is a clinical-stage biotechnology company targetingdeveloping novel cell therapies for unmet medical needs. Our current focus is on therapies for degenerative diseases. Ourretinal diseases, neurological conditions associated with demyelination, and aiding the body in detecting and combating cancer. BioTime’s programs are based on twoour proprietary core technology platforms: cell replacementcell-based therapy platform and cell/drug delivery.associated development and manufacturing capabilities. With the cell replacementthis platform, we are producing newBioTime develops and manufactures specialized, terminally-differentiated human cells and tissues withfrom our pluripotent and progenitor cell technologies.starting materials. These differentiated cells and tissues are developed either to replace thoseor support cells that are either rendered dysfunctional or lostabsent due to degenerative diseasesdisease or injuries. Ourtraumatic injury, or are administered as a means of helping the body mount an effective immune response to cancer.

We have three cell therapy programs in clinical development:

●OpRegen®, a retinal pigment epithelium cell replacement therapy currently in a Phase I/IIa multicenter clinical trial for the treatment of advanced dry age-related macular degeneration (“dry-AMD”) with geographic atrophy (“OpRegen trial”). Dry-AMD accounts for approximately 85-90% of all age-related macular degeneration cases and is a leading cause of blindness in people over the age of 65. There currently are no therapies approved by the U.S. Food and Drug Administration (“FDA”) for dry-AMD.

●OPC1, an oligodendrocyte progenitor cell therapy currently in a Phase I/IIa multicenter clinical trial for acute spinal cord injuries. This clinical trial has been partially funded by the California Institute for Regenerative Medicine.

●VAC2, an allogeneic (non-patient-specific or “off-the-shelf”) cancer immunotherapy of antigen-presenting dendritic cells currently in a Phase I clinical trial in non-small cell lung cancer. This clinical trial is being funded and conducted by Cancer Research UK, the world’s largest independent cancer research charity.

We also have cell/drug delivery programs are based upon our proprietary HyStem®HyStem® cell and drug delivery matrix technology. HyStem®HyStem was designed to provide forsupport the formulation, transfer, retention, and/orand engraftment of cell replacement therapiescellular therapies. We also established and support multiple collaborations with both academic and for-profit partners to act as a devicedevelop HyStem for localized drug delivery.additional therapeutic uses, and we sell both research and GMP-grade HyStem to support additional external research and development activities.

 

Our lead cell replacement clinical product is OpRegen®, a retinal pigmented epithelium (RPE) cell replacement therapy, which is in a Phase I/IIa multicenter trial for the treatment of late-stage, dry age-related macular degeneration (dry-AMD). There are currently no FDA-approved therapies for dry-AMD, which accounts for approximately 90% of all age-related macular degeneration cases, and is the leading cause of blindness in people over the age of 60.

Our lead cell delivery clinical product, based on its proprietary HyStem® technology,program is Renevia®Renevia®, a potentialmedical device developed as a replacement for whole adipose tissue in cell assisted lipotransfer (CAL) procedures. In a European pivotal clinical trial in patients with HIV-associated facial lipoatrophy, the primary endpoint of change in hemifacial volume at 6 months in treated patients compared to patients in the delayed treatment arm as measured by three-dimensional photographic volumetric assessment was met. In 2018, we submitted a design dossier for facial lipoatrophy. “Lipoatrophy” means the loss of fat tissue, which can be caused by several factors, including trauma, aging, or drug side effects, such as those that cause HIV-associated lipoatrophy. We are also developing HyStem®EU market clearance (CE Mark) for the sustained deliveryuse of therapeutic drugs and targeted cellsRenevia as a device to specific areas of the body.

In 2017, we formed AgeX Therapeutics, Inc. (“AgeX”)to continue development of initial discovery and preclinical programs focusing on the development ofregenerative medicine technologies targeting the diseases of aging and metabolic disorders.AgeX’s initial programs focus on utilizing brownaid in transferring a patient’s own adipose tissue (“brown fat”)to treat certain forms of facial lipoatrophy, or fat loss. We have ongoing discussions with our European notified body and are currently awaiting notification as to its status. We expect to receive a decision from the notified body in targeting diabetes, obesity, and heart disease; and induced tissue regeneration (“iTR”) in utilizing the human body’s own abilities to scarlessly regenerate tissues damaged from age or trauma. AgeX may also pursue other early-stage programs.We own approximately 80.6%second half of the issued and outstanding shares of AgeX common stock.2019.

Our principal consolidated subsidiaries are AgeX, Cell Cure Neurosciences, Ltd (“Cell Cure”), ES Cell International, Pte Ltd (“ESI”), LifeMap Sciences, Inc. (“LifeMap Sciences”), OrthoCyte Corporation (“OrthoCyte”), and ReCyte Therapeutics, Inc. (“ReCyte”).

 

We alsocompleted our acquisition of the remaining ownership interests in Asterias Biotherapeutics, Inc. on March 8, 2019. We added OPC1 and VAC2 to our cell therapy product portfolio as a result of that acquisition.

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We have significant equity holdings in two publicly traded companies, Asterias Biotherapeutics, Inc. (“Asterias”), andcompanies: OncoCyte Corporation (“OncoCyte”), which we (approximately 24% ownership) and AgeX Therapeutics, Inc. (“AgeX”) (approximately 5% ownership). We founded both companies and which, until recently,they were our majority-owned and consolidated subsidiaries. Asterias (NYSE American: AST) is presently focused on advancing three clinical-stage programs that have the potential to address areas of very high unmet medical needs in the fields of neurology (spinal cord injury) and oncology (Acute Myeloid Leukemia and lung cancer). OncoCyte (NYSE American: OCX) is developing confirmatory diagnostic tests for lung cancer breast cancer, and bladder cancer utilizing novel liquid biopsy technology. Beginningtechnology, and AgeX (NYSE American: AGE) is focused on May 13, 2016the development of early-stage programs relating to cell immortality, regenerative biology, aging, and February 17, 2017, we deconsolidated the financial statements and results of operations of Asterias and OncoCyte, respectively, from BioTime. As of June 30, 2018, we owned 14,674,244 shares of OncoCyte common stock with a value of approximately $37.4 million and 21,747,569 shares of Asterias common stock with a value of approximately $29.4 million.age-related diseases.

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Critical Accounting Policies

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses and analyzes data in our unaudited Condensed Consolidated Interim Financial Statements, which we have prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).GAAP. Preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual conditions may differ from our assumptions and actual results may differ from our estimates.

 

An accounting policy is deemed critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. Management believes that there have been no significant changes during the three and six months ended June 30, 20182019 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K as amended, for the year ended December 31, 2017,2018, except as follows:

 

Adoption of ASU 2014-09, Revenues from Contracts with Customers (Topic 606).LeasesDuring May 2014, the FASB issued ASU 2014-09 (“Topic 606”)Revenue from Contracts with Customers which supersedes the revenue recognition requirements in Topic 605Revenue Recognition(“Topic 605”). Topic 606 describes principles an entity must apply to measure and recognize revenue and the related cash flows, using the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Topic 606 core principle is that it requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.

 

BioTime adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method applied to those contracts which were not completed as of the adoption date. ResultsWe account for reporting periods beginning on January 1, 2018 and thereafter are presented under Topic 606, while prior period amounts are not adjusted and continue to be reportedleases in accordance with BioTime’s historic revenueAccounting Standards Codification, (“ASC”) 842,Leases. We determine if an arrangement is a lease at inception. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition accounting under Topic 605.in the consolidated statements of operations. Under the available practical expedients for the adoption of ASC 842, we account for the lease and non-lease components as a single lease component. We recognize right-of-use (“ROU”) assets and lease liabilities for leases with terms greater than twelve months in the condensed consolidated balance sheet.

 

On January 1, 2018,ROU assets represent our right to use an underlying asset during the adoptionlease term and applicationlease liabilities represent our 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 Topic 606 resultedlease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in an immaterial cumulative effect adjustmentdetermining the present value of BioTime’s beginninglease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Operating leases are included as right-of-use assets in property and equipment, and ROU lease liabilities, current and long-term, in the condensed consolidated accumulated deficit balance. Inbalance sheets. Financing leases are included in property and equipment, and in financing lease liabilities, current and long-term, in the applicable paragraphs below, BioTime has summarized its revenue recognition policies for its various revenue sources in accordance with Topic 606.condensed consolidated balance sheets.

 

ResearchBusiness Combinations

We account for business combinations, such as the Asterias Merger completed in March 2019, in accordance with ASC Topic 805,Business Combinations , which requires the purchase price to be measured at fair value. When the purchase consideration consists entirely of shares of our common stock, we calculate the purchase price by determining the fair value, as of the acquisition date, of shares issued in connection with the closing of the acquisition. We recognize estimated fair values of the tangible assets and development contracts with customers. In its agreements with customers, BioTime’s performance obligations ofintangible assets acquired, including in-process research and development are completed(“IPR&D”), and liabilities assumed as services are performed and control passes to the customer, and accordingly revenues are recognized over time. BioTime generally receives a fee at the inception of an agreement, with variable fees, if any, tied to certain milestones, if achieved. BioTime estimates this variable consideration using a single most likely amount. Based on historical experience, there has been no variable consideration related to milestones included in the transaction price due to the significant uncertainty of achieving contract milestones and milestones not being met. If a milestone is met, subsequent changes in the single most likely amount may produce a different variable consideration, and BioTime will allocate any subsequent changes in the transaction price on the same basis as at contract inception. Amounts allocated to a satisfied performance obligation will be recognized as revenue in the period in which the transaction price changes with respect to variable consideration, which could result in a reduction of revenue. Contracts of this kind are typically for a term greater than one year. For each of the three months ended June 30, 2018acquisition date, and 2017, BioTime recognized $77,000 for such services included in consolidated royalties from product sales and license fees. The aggregatewe record as goodwill any amount of the transaction price, excluding payments related to any milestones, allocated to performance obligations that are unsatisfied, or partially unsatisfied, as of June 30, 2018 was approximately $154,000, included in deferred revenues in the consolidated balance sheets. BioTime expects to recognize revenue of $77,000 per quarter through the year ending December 31, 2018. As of June 30, 2018, BioTime had not met any milestones that would require adjustmentfair value of the transactiontangible and intangible assets acquired and liabilities assumed in excess of the purchase price.

 

Royalties from product salesGoodwill and license fees.IPR&DBioTime’s performance obligations in agreements with certain customers

Goodwill is to provide a license to allow customers to make, import and sell company licensed products or methods for pre-clinical studies and commercial use. Customers pay a combination of a license issue fee paid up front and a sales-based royalty, if any, in some cases with yearly minimums. The transaction price is deemed to becalculated as the license issue fee stated indifference between the contract. The license offered by BioTime is a functional license with significant standalone functionality and provides customers with the right to use BioTime’s intellectual property. This allows BioTime to recognize revenue on the license issue fee at a point in time at the beginningacquisition date fair value of the contract, whichconsideration transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill is whennot amortized but is tested for impairment at least annually, or more frequently if circumstances indicate potential impairment.

IPR&D assets are indefinite-lived intangible assets until the customer begins to have usecompletion or abandonment of the license. Variable consideration related to sales-based royalties is recognized only when (or as) the later of one or more of the following events occur: (a) a sale or usage occurs, or (b) the performance obligation to which some, or all, of the sales-based or usage-based royalty that has been allocated and has been satisfied or partially satisfied. Due to the contract termination clauses, BioTime does not expect to receive all of the minimum royalty payments throughout the term of the agreements. Therefore, BioTime fully constrains recognition of the minimum royalty payments as revenues until its customers are obligated to pay, which is generally within 60 days prior to the beginning of each year the minimum royalty payments are due. For the three and six months ended June 30, 2018 and 2017, royalty revenues were immaterial.

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Sale of research products and services.Revenues from the sale of research products and services are primarily derived from the sale of hydrogels and stem cell products for research use and are recognized when earned.

Subscription and advertisement revenues. LifeMap Sciences, a direct majority-owned subsidiary of AgeX, sells subscription-based products, including research databases and software tools, for biomedical, gene, disease, and stem cell research. LifeMap Sciences sells these subscriptions primarily through the internet to biotech and pharmaceutical companies worldwide. LifeMap Sciences’ principal subscription product is the GeneCards® Suite, which includes the GeneCards® human gene database, and the MalaCards™ human disease database.

LifeMap Sciences’ performance obligations for subscriptions include a license of intellectual property related to its genetic information packages and premium genetic information tools. These licenses for genetic information packages are deemed functional licenses that provide customers with a “right to access” to LifeMap Sciences’ intellectual property during the subscription period and, accordingly, revenue is recognized over a period of time, which is generally the subscription period. Payments are typically received at the beginning of a subscription period and revenue is recognized according to the type of subscription sold.

For subscription contracts in which the subscription term commences before a payment is due, LifeMap Sciences records an accounts receivable as the subscription is earned over time and bills the customer according to the contract terms. LifeMap Sciences continuously monitors collections and payments from customers and maintains a provision for estimated credit losses and uncollectible accounts based upon its historical experience and any specific customer collection issues that have been identified. Amounts determined to be uncollectible are written off against the allowance for doubtful accounts. LifeMap Sciences has not historically provided significant discounts, credits, concessions, or other incentives from the stated price in the contract as the prices are offered on a fixed fee basis for the type of subscription package being purchased. LifeMap Sciences may issue refunds only if the packages cease to be available for reasons beyond its control. In such an event, the customer will get a refund on a pro-rata basis. Using the most likely amount method for estimating refunds under Topic 606, including historical experience, LifeMap Sciences determined that the single most likely amount of variable consideration for refunds is immaterial as LifeMap Sciences does not expect to pay any refunds. Both the customer and LifeMap Sciences expect the subscription packages to be available during the entire subscription period, and LifeMap Sciences has not experienced any significant issues with the availability of the product and has not issued any material refunds.

LifeMap Sciences performance obligations for advertising are overall advertising services and represent a series of distinct services. Contracts are typically less than a year in duration and the fees charged may include a combination of fixed and variable fees with the variable fees tied to click throughs to the customer’s products on their website. LifeMap Sciences allocates the variable consideration to each month the click through services occur and allocates the annual fee to the performance obligation period of the initial term of the contract because those amounts correspond to the value provided to the customer each month. For click-through advertising services, at the time the variable compensation is known and determinable, the service has been rendered. Revenue is recognized at that time. The annual fee is recognized over the initial subscription period because this is a service and the customer simultaneously receives and consumes the benefit of LifeMap Sciences’ performance.

LifeMap Sciences deferred subscription revenues primarily represent subscriptions for which cash payment has been received for the subscription term but the subscription term has not been completed as of the balance sheet date reported. As of June 30, 2018, there was $214,000 included in deferred revenues in the condensed consolidated balance sheets which is expected to be recognized as subscription revenue over the next twelve months.

LifeMap Sciences has licensed from a third party the databases it commercializes and has a contractual obligation to pay royalties to the licensor on subscriptions sold. These costs are included in cost of sales on the condensed consolidated statements of operations when the cash is received and the royalty obligation is incurred as the royalty payments do not qualify for capitalization of costs to fulfill a contract under ASC 340-40,Other Assets and Deferred Costs – Contracts with Customers.

Grant Revenues. In applying the provisions of Topic 606, BioTime has determined that government grants are out of the scope of Topic 606 because the government entities do not meet the definition of a “customer”, as defined by Topic 606, as there is not considered to be a transfer of control of good or services to the government entities funding the grant. BioTime has, and will continue to, account for grants received to performassociated research and development services(“R&D”) efforts. Once the R&D efforts are completed or abandoned, the IPR&D will either be amortized over the asset life as a finite-lived intangible asset or be impaired, respectively, in accordance with ASC 730-20,350,ResearchIntangibles - Goodwill and Development ArrangementsOther, which requires. In accordance with ASC 350, goodwill and acquired IPR&D are determined to have indefinite lives and, therefore, are not amortized. Instead, they are tested for impairment at least annually and between annual tests if we become aware of an assessment, at the inception of the grant, of whether the grant is a liabilityevent or a contract to perform research and development services for others. If BioTime or a subsidiary receiving the grant is obligated to repay the grant funds to the grantor regardless of the outcome of the research and development activities, then BioTime is required to estimate and recognize that liability. Alternatively, if BioTime or a subsidiary receiving the grant is not required to repay, or if it is required to repay the grant funds only if the research and development activities are successful, then the grant agreement is accounted for as a contract to perform research and development services for others,change in which case, grant revenue is recognized when the related research and development expenses are incurred.

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Deferred grant revenues represent grant funds received from the governmental funding agencies for which the allowable expenses have not yet been incurred as of the balance sheet date reported.

Arrangements with Multiple Performance Obligations. BioTime’s contracts with customers may include multiple performance obligations. For such arrangements, BioTime allocates revenue to each performance obligation based on its relative standalone selling price. BioTime generally determines or estimates standalone selling prices based on the prices charged, orcircumstances that would indicate the asset may be charged, to customers for that product or service. As of, and for the six months ended, June 30, 2018, BioTime did not have significant arrangements with multiple performance obligations.impaired.

 

Results of Operations

 

Comparison of Three and Six Months Ended June 30, 20182019 and 20172018

 

Revenues and Cost of Sales

 

The amounts in the tabletables below show BioTime’sour consolidated revenues, by source, and cost of sales for the periods presented (in thousands).

 

 

Three Months Ended June 30,

(unaudited)

  $ Increase/  % Increase/  

Three Months Ended

June 30, (unaudited)

  $ Increase/  % Increase/ 
 2018  2017  (Decrease)  (Decrease)  2019  2018  (Decrease)  (Decrease) 
Grant revenue $1,941  $-  $1,941   *%  $529  $1,941  $(1,412)  (73)%
Royalties from product sales and license fees  91   81   10   12.3%  140   91   49   54%
Subscription and advertisement revenues  333   300   33   11.0%  -   333   (333)  (100)%
Sale of research products and services  182   -   182   *%   110   182   (72)  (40)%
Total revenues $2,547  $381  $2,166   568.5%  779   2,547   (1,768)  (69)%
                
Cost of sales $(106) $(5) $101  *%   (107)  (106)  1   1%
Gross profit $672  $2,441  $(1,769)  (72)%

 

 

Six Months Ended June 30,

(unaudited)

  $ Increase/  % Increase/  

Six Months Ended

June 30, (unaudited)

  $ Increase/  % Increase/ 
 2018  2017  (Decrease)  (Decrease)  2019  2018  (Decrease)  (Decrease) 
Grant revenue $2,266  $11  $2,255   *%  $1,278  $2,266  $(988)  (44)%
Royalties from product sales and license fees  227   191   36   18.8%  226   227   (1)  (0)%
Subscription and advertisement revenues  572   564   8   1.4%  -   572   (572)  (100)%
Sale of research products and services  182   5   177   *%   203   182   21   12%
Total revenues $3,247  $771  $2,476   321.1%  1,707   3,247   (1,540)  (47)%
                
Cost of sales $(215) $(62) $153   246.8%  (175)  (215)  (40)  (19)%
Gross profit $1,532  $3,032  $(1,500)  (49)%

 

*      Not meaningful.

BioTimeOur total revenues increaseddecreased by $2.2 million and $2.5$1.8 million for the three and six months ended June 30, 20182019 as compared to the same periodsperiod in the prior year, primarily reflecting $1.9a $1.4 million and $2.3 million increasesdecrease in grant revenues. The increaserevenues and a $0.3 million decrease in our grantsubscriptions and advertisement revenues.

Our total revenues was primarily due to $1.6 million and $1.7decreased by $1.5 million for the three and six months ended June 30, 2018 respectively,2019 as compared to the same period in the prior year, primarily reflecting a $1.0 million decrease in grant revenues and a $0.6 million decrease in subscriptions and advertisement revenues.

Our grant revenues are generated primarily by Cell Cure from the IIA for the development ofOpRegen® OpRegen®and $0.3 million and $0.6 million, for the three and six months ended June 30, 2018 respectively, generated by BioTime from a Small Business Innovation Research grant from the National Institutes of Health for our vision restoration program.

Our subscriptionprogram (the “NIH grant”). The decreases in our grant revenues for the three and advertisingsix months ended June 30, 2019 as compared to the same periods in the prior year, were primarily due to timing of grant payments. Grant revenues generated by Cell Cure from the IIA for the development of OpRegen amounted to $0.3$0.5 million and $0.6$0.9 million for the three and six months ended June 30, 2018, relatively unchanged as compared2019, respectively, and grant revenues generated by the NIH grant amounted to $0.1 million and $0.4 million for the same periods in the prior year. Thosethree and six months ended June 30, 2019, respectively.

Our subscription and advertising revenues, including certain service revenues, were generated entirely fromby LifeMap Sciences, AgeX’s majority-owned subsidiary and are included in our revenues prior to the AgeX Deconsolidation. As a result, the decrease in those revenues is due to the AgeX Deconsolidation on August 30, 2018. Due to the AgeX Deconsolidation, we do not expect to earn subscription and advertising through LifeMap Sciences’ online database business primarily related to its GeneCards® database.

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revenues in future periods.

Revenues from the sale of research products and services are primarily derived from service revenues and the sale of hydrogels and stem cell products.

 

Cost of sales increased for the three and six months ended June 30, 2018 mainly attributable to an increase in the royalty rate effective January 1, 2018 for LifeMap Sciences, timing of cash received and the related royalty obligation incurred, and cost of sales incurred from the sale of hydrogels and stem cell products.

Operating expenses

 

The amounts in the tables below are BioTime’sour consolidated operating expenses for the periods presented (in thousands).

 

  

Three Months Ended June 30,

(unaudited)

  $ Increase/  % Increase/ 
  2018  2017  (Decrease)  (Decrease) 
Research and development expenses $6,358  $6,271  $87   1.4%
General and administrative expenses  5,227   4,423   804   18.2%

 

Six Months Ended June 30,

(unaudited)

  $ Increase/  % Increase/  

Three Months Ended

June 30 (unaudited)

  $ Increase/  % Increase/ 
 2018  2017  (Decrease)  (Decrease)  2019  2018  (Decrease)  (Decrease) 
Research and development expenses $12,293  $12,765  $(472)  (3.7%) $5,235  $6,358  $(1,123)  (18)%
Acquired in-process research and development  800   -   800   *% 
General and administrative expenses  11,163   9,524   1,639   17.2%  6,258   5,227   1,031   20%

 

*      Not meaningful.

  

Six Months Ended

June 30 (unaudited)

  $ Increase/  % Increase/ 
  2019  2018  (Decrease)  (Decrease) 
Research and development expenses $10,196  $12,293  $(2,097)  (17)%
Acquired in-process research and development  -   800   (800)  (100)%
General and administrative expenses  14,918   11,163   3,755   34%

 

Research and development expenses

 

The following tables show the amount of our total research and development expenses allocated to our primary research and development projects, by respective entity conducting the research and development, duringfor the three and six months ended June 30, 2018 and 2017periods presented (in thousands).

 

    

Three Months Ended June 30,

(unaudited)

 
    Amount(1)  Percent of Total 
Company Program 2018  2017  2018  2017 
BioTime and subsidiaries other than AgeX(2) OpRegen® and Renevia® and other HyStem® products and PureStem® progenitor cell lines for orthopedic applications $4,974  $4,969   

 

78.2

%  79.2%
AgeX including ReCyte(3) PureStem®progenitor cell lines, brown adipose fat, iTR technology, and pre-clinical cardiovascular therapy research and development  967   896   15.2%  14.3%
LifeMap Sciences(5) Biomedical, gene, disease, and stem cell databases and tools  417   342   6.6%  5.5%
LifeMap Solutions, Inc.(6) Mobile health software application  -   64   -%   1.0%
Total research and development expenses   $6,358  $6,271   100.0%  100.0%

29

    

Six Months Ended June 30,

(unaudited)

 
    Amount(1)  Percent of Total 
Company Program 2018  2017  2018  2017 
BioTime and subsidiaries other than AgeX(2) OpRegen® and Renevia® and other HyStem® products and PureStem® progenitor cell lines for orthopedic applications $9,318  $8,968   71.2%  70.3%
AgeX including ReCyte(3) PureStem®progenitor cell lines, brown adipose fat, iTR technology, and pre-clinical cardiovascular therapy research and development  2,179   1,829   16.6%  14.3%
AgeX(4) Acquired in-process research and development  800   -   6.1%  -% 
LifeMap Sciences(5) Biomedical, gene, disease, and stem cell databases and tools  796   684   6.1%  5.4%
LifeMap Solutions, Inc.(6) Mobile health software application  -   486   -%   3.8%
OncoCyte(7) Cancer diagnostics  -   798   -%   6.2%
Total research and development expenses   $13,093  $12,765   100.0%  100.0%
    

Three Months Ended June 30,

(unaudited)

 
    Amount(1)  Percent of Total 
Company Program 2019  2018  2019  2018 
BioTime and subsidiaries other than AgeX (2) OpRegen®, OPC1, VAC2, Renevia® and other HyStem® products, and PureStem® progenitor cell lines for orthopedic applications $5,235  $4,974   100%  78%
AgeX including ReCyte(3) PureStem®progenitor cell lines, brown adipose fat, iTR technology, and pre-clinical cardiovascular therapy research and development  -   967   0%  15%
AgeX(4) Acquired in-process research and development  -   -   0%  0%
LifeMap Sciences(5) Biomedical, gene, and disease databases and tools  -   417   0%  7%
Total research and development expenses   $5,235  $6,358   100%  100%
    

Six Months Ended June 30,

(unaudited)

 
    Amount(1)  Percent of Total 
Company Program 2019  2018  2019  2018 
BioTime and subsidiaries other than AgeX (2) OpRegen®, OPC1, VAC2, Renevia® and other HyStem® products, and PureStem® progenitor cell lines for orthopedic applications $10,196  $9,318   100%  71%
AgeX including ReCyte(3) PureStem®progenitor cell lines, brown adipose fat, iTR technology, and pre-clinical cardiovascular therapy research and development  -   2,179   0%  17%
AgeX(4) Acquired in-process research and development  -   800   0%  6%
LifeMap Sciences(5) Biomedical, gene, and disease databases and tools  -   796   0%  6%
Total research and development expenses   $10,196  $13,093   100%  100%

 

(1)Amount includes research and development expenses incurred directly by BioTime or the named subsidiaryentity and certain general research and development expenses, such as lab supplies, lab expenses, rent and insurance allocated to research and development expenses, incurred directly by BioTime on behalf of the subsidiary and allocated to the subsidiary.
 
(2)BioTime includes Cell Cure, ESI, and OrthoCyte.
 
(3)Although AgeX was capitalized during August 2017 by the contribution of assets from BioTime and cash from outside investors, for comparative purposes in the table, AgeX related researchinvestors. Research and development expenses that were previously included in BioTime have been reclassified to AgeXshown for the 2017 periods presented.presented in 2018 are prior to the AgeX Deconsolidation.
 
(4)On March 23, 2018, AgeX purchased certain in-process research and development assets, primarily related to stem cell derived cardiomyocytes (heart muscle cells) to be developed by AgeX, for a total cash consideration of $800,000. The transaction was considered an asset acquisition rather than a business combination. Accordingly, the $800,000 was expensed on the acquisition date as acquired in-process research and development as those assets have no alternative future use. See Note 9 to our condensed consolidated interim financial statements included elsewhere in this Report.
 
(5)LifeMap Sciences is a subsidiary of AgeX.
(6)During July 2017, LifeMap Solutions ceased conducting its mobile health software Research and development application business and was dissolved on February 9, 2018.
(7)Six months ended June 30, 2017 includesexpenses shown for the period from January 1, 2017 through February 16, 2017, the dateperiods presented in 2018 are prior to the OncoCyteAgeX Deconsolidation.

 

The decrease of $1.1 million in total research and development expenses for the three months ended June 30, 2019 as compared to the same period in the prior year is mainly attributable to the following: decreases of $1.4 million in AgeX related programs, including LifeMap Sciences, due to the AgeX Deconsolidation on August 30, 2018, offset by a net increase of $0.3 million in BioTime programs primarily related to: (1) an increase of $1.7 million in OPC1 and VAC2 expenses (these programs were acquired in the Asterias Merger), offset by (2) decreases of $1.4 million in Renevia, HyStem and PureStem related expenses.

The decrease of $2.9 million in total research and development expenses for the six months ended June 30, 20182019 as compared to the same period in the prior yearis mainly attributable to the following: an increasedecreases of $1.2$3.0 million in AgeX related programs, including LifeMap Sciences, due to the AgeX Deconsolidation on August 30, 2018, and $0.8 million related to AgeX programs, consisting primarilythe absence of a nonrecurring $0.8 million nonrecurringexpense incurred by AgeX on March 23, 2018 with respect to certain acquired in-process research and development expenseassets that have no alternative future uses, offset by a net increase of $0.9 million in BioTime programs primarily related to assets acquired by AgeX in March 2018,to: (1) an increase of $0.4$2.3 million in BioTime related programOPC1 and VAC2 expenses and(these programs were acquired in the Asterias Merger), (2) an increase of $0.1$0.8 million in OpRegen related to LifeMap Sciences. Those increases wereexpenses, offset by a decrease(3) decreases of $0.8 million from the nonrecognition of OncoCyte research and development expenses incurred after February 17, 2017, as a result of the OncoCyte Deconsolidation, and a decrease of $0.5$2.3 million in LifeMap Solutions expenses resulting from the cessation ofits mobile health software development application business in July 2017.

30

Renevia, HyStem and PureStem related expenses.

General and administrative expenses

 

The following tables showtable shows the amount of general and administrative expenses of BioTime and named subsidiaries duringfor the three and six months ended June 30, 2018 and 2017periods presented (in thousands):

 

 

Three Months Ended June 30,

(unaudited)

  

Three Months Ended

June 30, (unaudited)

 
 Amount(1)  Percent  Amount(1)  Percent of Total 
Company 2018  2017  2018  2017  2019  2018  2019  2018 
BioTime and subsidiaries other than AgeX(2) $4,157  $3,011   79.5%  68.1% $6,258  $4,157   100%  80%
AgeX including ReCyte(3)  897   709   17.2%  16.0%  -   897   0%  17%
LifeMap Sciences(4)  173   199   3.3%  4.5%  -   173   0%  3%
LifeMap Solutions, Inc.(5)  -   504   -   11.4%
Total general and administrative expenses $5,227  $4,423   100.0%  100.0% $6,258  $5,227   100%  100%

 

 

Six Months Ended June 30,

(unaudited)

  

Six Months Ended

June 30, (unaudited)

 
 Amount(1)  Percent  Amount(1)  Percent of Total 
Company 2018  2017  2018  2017  2019  2018  2019  2018 
BioTime and subsidiaries other than AgeX(2) $8,803  $6,152   78.9%  64.6% $14,918  $8,803   100%  79%
AgeX including ReCyte(3)  1,979   1,575   17.7%  16.5%  -   1,979   0%  18%
LifeMap Sciences(4)  381   370   3.4%  3.9%  -   381   0%  3%
LifeMap Solutions, Inc.(5)  -   837   -%   8.8%
OncoCyte(6)  -   590   -%   6.2%
Total general and administrative expenses $11,163  $9,524   100.0%  100.0% $14,918  $11,163   100%  100%

 

(1)Amount includes general and administrative expenses incurred directly by the named subsidiary and allocations from BioTime for certain general overhead expenses to the subsidiary.
 
(2)BioTime includes Cell Cure, ESI, and OrthoCyte.
 
(3)Although AgeX was capitalized during August 2017 by the contribution of assets from BioTime and cash from outside investors, for comparative purposes in the tables above, AgeX related generalinvestors. General and administrative expenses that were previously included in BioTime have been reclassified to AgeXshown for the 2017 periods presented.presented in 2018 are prior to the AgeX Deconsolidation.
 
(4)LifeMap Sciences is a subsidiary of AgeX.
(5)During July 2017, LifeMap Solutions ceased conducting its mobile health software application business General and was dissolved on February 9, 2018.
(6)Six months ended June 30, 2017 includesadministrative expenses shown for the period from January 1, 2017 through February 16, 2017, the dateperiods presented in 2018 are prior to the OncoCyteAgeX Deconsolidation.

 

The total net increase of $0.8$1.0 million in general and administrative expense for the three months ended June 30, 20182019 compared to the three months ended June 30, 2017same period in 2018, was primarily attributable to the following: a $0.3$1.9 million increase in licenseseverance, legal, accounting and patentother expenses related fees for patent prosecution and patent fees, a $0.2 million increase in noncash stock-based compensation expense primarily due to new stock option grants by AgeX, a $0.3 million increase in legal and compliance fees for the planned distribution of AgeX stock to BioTime shareholders, a $0.4 million increase in consulting, personnel and related costs, and a $0.1 million increase in facilities and maintenance. These increases wereAsterias Merger which was offset primarily by a $1.1 million decrease of $0.5 millionin AgeX related to LifeMap Solutions whichresulted from the cessation ofits mobile health software development application business in July 2017.general and administrative expenses.

 

The total net increase of $1.6$3.8 million in general and administrative expensesexpense for the six months ended June 30, 20182019 compared to the six months ended June 30, 2017same period in 2018, was primarily attributable to the following: a $0.9$5.8 million increase in severance, legal, auditaccounting and compliance costs forother expenses related to the planned distribution of AgeX stock to BioTime shareholders,Asterias Merger, a $0.5 million increase in noncashBioTime stock-based compensation expense primarilyexpenses due to stock option grants by AgeX,new equity awards granted in 2019 and a $0.8$0.3 million increase in consulting, personnel andrent expense which is primarily related costs, a $0.6 million increase in license and related fees for patent prosecution and patent fees, and $0.2 million increase in facilities and maintenance. Theseto the adoption of new lease guidance; these increases were partially offset by a $2.4 million decrease of $1.4 million in combinedAgeX related general and administrative expenses related to OncoCyte and LifeMap Solutions, showna $0.5 million decrease in the table above.legal and accounting fees.

31

 

General and administrative expenses include employee and director compensation allocated to general and administrative expenses, consulting fees other than those paid for science or research related consulting, facilities and equipment rent and maintenance related expenses, insurance costs allocated to general and administrative expenses, stock exchange-related costs, depreciation expense, marketing costs, legal, compliance and accounting costs, and other miscellaneous expenses which are allocated to general and administrative expense.

Other income and expenses, net

 

The following table shows the amount of other income and expenses, net, duringfor the three and six months ended June 30, 2018 and 2017periods presented (in thousands):

 

  

Three Months Ended June 30,

(unaudited)

  

Six Months Ended June 30,

(unaudited)

 
  2018  2017  2018  2017 
Other income and expenses, net                
Interest income (expense), net $52  $(413) $105  $(719)
Gain on sale of equity method investment in Ascendance  -   -   3,215   - 
Gain on deconsolidation of OncoCyte  -   -   -   71,697 
Gain (loss) on equity method investment in OncoCyte at fair value  6,603   (11,006)  (30,816)  5,136 
Gain (loss) on equity method investment in Asterias at fair value  (2,175)  3,262   (19,573)  (22,835)
Unrealized gain on marketable equity securities  397   -   612   - 
Other income (expense), net  (379)  617   (663)  1,344 
Total other income (expenses), net $4,498  $(7,540) $(47,120) $54,623 
  

Three Months Ended

June 30, (unaudited)

 
  2019  2018 
Other income and expenses, net        
Interest income, net $437  $52 
Gain (loss) on equity method investment in OncoCyte at fair value  (21,425)  6,603 
Loss on equity method investment in Asterias at fair value  -   (2,175)
Unrealized (loss) gain on marketable equity securities  (607)  397 
Unrealized gain on warrant liability  234   460 
Other income (expense), net  882   (839)
Total other income (expense), net $(20,479) $4,498 

  

Six Months Ended

June 30, (unaudited)

 
  2019  2018 
Other income and expenses, net        
Interest income, net $879  $105 
Gain on sale of equity method investment in Ascendance  -   3,215 
Gain (loss) on equity method investment in OncoCyte at fair value  16,288   (30,816)
Gain (loss) on equity method investment in Asterias at fair value  6,744   (19,573)
Unrealized gain on marketable equity securities  1,324   612 
Unrealized gain on warrant liability  271   351 
Other income (expense), net  1,688   (1,014)
Total other income (expense), net $27,194  $(47,120)

 

Unrealized gainGain (loss) on equity method investment in OncoCyte shares –We own As of June 30, 2019, we owned 14.7 million shares of common stock of OncoCyte. We elected to account for our shares in OncoCyte at fair value using the equity method of accounting beginning on February 17, 2017, the date of the OncoCyte Deconsolidation. Our OncoCyte shares had a fair value of $37.4$36.5 million, $58.0 million and $68.2$20.3 million as of June 30, 3019, March 31, 2019 and December 31, 2018, respectively, based on the closing price of OncoCyte common stock on the NYSE American of $2.49 per share, $3.95 per share and $1.38 per share, respectively, on those dates or the last trading day of the applicable quarter. Accordingly, we recorded an unrealized loss of $21.4 million and an unrealized gain of $16.3 million for the three and six months ended June 30, 2019, respectively. Our OncoCyte shares had a fair value of $37.4 million, $30.8 million and $68.2 million as of June 30, 2018, March 31, 2018 and December 31, 2017, respectively, based on the closing price of OncoCyte common stock on the NYSEAmericanof $2.55 per share, and $4.65$2.10 per share and $4.65 per share, respectively, on those respective dates. Fordates or the three months ended June 30, 2018,last trading day of the quarter. Accordingly, we recorded an unrealized gain of $6.6 million on our OncoCyte shares due to the increase in OncoCyte stock price from March 31, 2018 to June 30, 2018from $2.10 per share to $2.55per share as of those respective dates. For the six months ended June 30, 2018, we recordedand an unrealized loss of $30.8 million on the OncoCyte shares due to the decrease in OncoCyte’s stock price from December 31, 2017 to June 30, 2018 from $4.65 per share to $2.55per share as of those respective dates. Forfor the three months ended June 30, 2017, we recorded an unrealized loss of $11 million on our OncoCyte shares due to the decrease in OncoCyte’s stock price from March 31, 2017 to June 30, 2017 from $5.95 per share to $5.20 per share as of those respective dates. For theand six months ended June 30, 2017, we recorded an unrealized gain of $5.1 million on the OncoCyte shares due to the increase in OncoCyte’s stock price from February 17, 2017 to June 30, 2017 from $4.85 per share to $5.20 per share as of those respective dates. All share prices were determined based on the closing price of OncoCyte common stock on the NYSE American on the applicable dates.2018.

 

Unrealized lossGain (loss) on equity method investment in Asterias shares –- We ownPrior to the closing of the Asterias Merger on March 8, 2019, where we acquired 100% of its outstanding shares, we owned 21.7 million shares of common stock of Asterias. We elected to account for our shares in Asterias at fair value using the equity method of accounting beginning on May 13, 2016, the date of the Asterias Deconsolidation. The fair value of our Asterias shares was approximately $20.2 million as of March 8, 2019, the closing date of the Asterias Merger, based on $0.93 per share, which was calculated by multiplying (a) $1.31, the closing price of our common stock on such date by (b) the Merger Exchange Ratio. The fair value of our Asterias shares was approximately $13.5 million as of December 31, 2018, based on the closing price of Asterias common stock of $0.62 per share on such date. Accordingly, we recorded an unrealized gain of $6.7 million for both the three and six months ended June 30, 2019, representing the change in fair value of Asterias common stock from December 31, 2018 to March 8, 2019. Our Asterias shares had a fair value of approximately $29.4 million, $31.5 million and$48.9 $48.9 million as of June 30, 2018, March 31, 2018 and December 31, 2017, respectively, based on the closing price of Asterias common stock on theNYSE Americanof $1.35 per share, $1.45 per share and $2.25 per share, respectively, on those respective dates. Fordates or the three months ended June 30, 2018,last trading day of the quarter. Accordingly, we recorded an unrealized loss of $2.2 million onand $19.6 million, respectively, for the Asterias shares due to the decrease in Asterias’ stock price fromMarch 31, 2018 to June 30, 2018 from $1.45 per share to $1.35per share as of those respective dates. For thethree and six months ended June 30, 2018, we recorded an unrealized loss of $19.6 millionon our Asterias shares due to the decrease in Asterias’ stock price from December 31, 2017 to June 30, 2018 from $2.25 per share to $1.35per share as of those respective dates. For the three months ended June 30, 2017, we recorded an unrealized gain of $3.3 million on our Asterias shares due to the increase in Asterias’ stock price from March 31, 2017 to June 30, 2017 from $3.40 per share to $3.55 per share as of those respective dates. For the six months ended June 30, 2017, we recorded an unrealized loss of $22.8 million on the Asterias shares due to the decrease in Asterias’ stock price from December 31, 2016 to June 30, 2017 from $4.60 per share to $3.55 per share as of those respective dates. All share prices were determined based on the closing price of Asterias common stock on the NYSE American on the applicable dates.2018.

 

We expect our other income and expenses, net, to continue to fluctuate each reporting period based on the changes in the market pricesprice of our Asterias and OncoCyte shares, which could significantly impact our net income or loss reported in our condensed consolidated statements of operations for each period.

32

Marketable equity securities in foreign investments –- We account for the shares we hold in foreign equity securities as marketable equity securities, carried at fair market value on our consolidated balance sheets. Prior to January 1, 2018 and the adoption of ASU 2016-01 discussed in Note 2 to our condensed consolidated interim financial statements elsewhere in this Report, these securities were called “available-for-sale securities” and unrealized holding gains and losses, including changes in foreign currency exchange rates, were reported in other comprehensive income or loss, net of tax, and were a component of the accumulated other comprehensive income or loss on the consolidated balance sheets. Beginning on January 1, 2018, in accordance with our adoption of ASU 2016-01, all gains and losses we generate each period due to changes in fair market value, including changes in foreign currency exchange rates, from these securities are included in other income and expenses, net, in our condensed consolidated statements of operations.

For the three and six months ended June 30, 2018,2019, we recorded an unrealized loss of $0.6 million and a gain of $397,000 and $612,000,$1.3 million, respectively, due to the increasechanges in fair market value of the marketable equity securities from DecemberMarch 31, 20172019 to June 30, 2018.2019 and December 31, 2018 to June 30, 2019.

Gain on sale of equity method investment in Ascendance –- On March 23, 2018, Ascendance, AgeX’s equity method investee and BioTime’s former equity method investee, was acquired by a third party in a merger. AgeX received $3.2 million in cash for its Ascendance common stock from which we recognized a gain on sale for the same amount during the sixthree months ended June 30,March 31, 2018.

 

Other income (expense), net, interest income, (expense), net –- Other income and expenses, net, in 20182019 and 20172018 consist primarily of net foreign currency transaction gains and losses recognized by Cell Cure and ESI, changes in the fair value of the Cell Cure Warrants, and interest expensedividend income and interest income, net. Foreign currency transaction gains and losses for the periods presented are principally related to the remeasurement of the US dollar denominated notes payable by Cell Cure to BioTime and other Cell Cure shareholders.

In July 2017, we purchased all of the outstanding Cell Cure convertible promissory notes held by other Cell Cure shareholders. Accordingly, net interest expense decreased substantially for the three and six months ended June 30, 2018 as compared to the three and six months ended June 30, 2017, as a significant portion of our consolidated interest expense was incurred from Cell Cure convertible promissory notes held by other Cell Cure shareholders prior to our purchase. Interest income is primarily attributed to interest earned on money market funds during the periods presented.For the three and six months ended June 30, 2018, we recorded a noncash gain of $0.5 million and $0.4 million, respectively, for the decrease in the fair value of the Cell Cure Warrants.

Gain on deconsolidation of OncoCyte – During the six months ended June 30, 2017, we recorded an unrealized gain of $71.7 million in connection with the OncoCyte Deconsolidation on February 17, 2017.BioTime.

 

Income Taxes

 

The deconsolidationFor items that we cannot reliably estimate on an annual basis (principally unrealized gains or losses generated by changes in the market prices of the OncoCyte and AgeX shares of common stock we hold, and prior to March 8, 2019, Asterias shares we held), we use the actual year to date effective tax rate rather than an estimated annual effective tax rate to determine the tax effect of each item, including the use of all available net operating losses and OncoCyte financial statements from BioTime were not taxable transactions and did not create a current incomeother credits or deferred tax payment obligation. assets.

The market valuesvalue of the Asterias andshares of OncoCyte sharescommon stock we hold createcreates a deferred tax liability to us based on the closing market prices of the shares, less our tax basis in the shares. The deferred tax liability generated by the Asterias and OncoCyte shares that we hold as of June 30, 2019, is asource of future taxable income to us, as prescribed by ASC 740-10-30-17, that will more likely than not result in the realization of our deferred tax assets to the extent of those deferred tax liabilities. Becausethe deferred tax liabilities areliability. This deferred tax liability is determined based on the closing prices of thosethe OncoCyte shares and, dueas of June 30, 2019. Due to the inherent unpredictability of future prices of those shares, we cannot reliably estimate or project those deferred tax liabilities on an annual basis. Therefore, the deferred tax liabilitiesliability pertaining to Asterias and OncoCyte shares, measured asdetermined based on the actual closing prices on the last stock market trading day of the applicable accounting period, end being reported, and the related impacts to the valuation allowance changes and deferred tax assets,asset changes, are recorded in the interimaccounting period in which they occur.

 

On March 23, 2018, Ascendance was acquired by a third party in a merger though which AgeX received approximately $3.2 million in cash for its shares of Ascendance common stock. For financial reporting purposes, AgeX recognized a $3.2 million gain as a sale of its equity method investment in Ascendance.The sale was a taxable transaction to AgeX generating a taxable gain of approximately $2.2 million. We havemillion, for which we had sufficient current year losses from operations to offset the entire gain resulting in no income taxes due.

 

The Juvenescence Transaction was a taxable event for us that resulted in a gross taxable gain of approximately $29.4 million, which was fully offset with available current year net operating losses (NOL) and NOL carryforwards, resulting in no net income taxes due. Although the AgeX Deconsolidation on August 30, 2018 was not a taxable transaction to us and did not result in a current tax payment obligation, the financial reporting gain on the AgeX Deconsolidation generated a deferred tax liability, primarily representing the difference between book and tax basis of AgeX common stock on the AgeX Deconsolidation date. We expect this deferred tax liability to be fully offset by a corresponding release of our valuation allowance on deferred tax assets, resulting in no income tax provision or benefit from the AgeX Deconsolidation. The deferred tax liabilities on our investments in OncoCyte and Asterias, combined with the estimated deferred tax liability generated by the fair value of our retained noncontrolling investment in AgeX, are considered to be sources of taxable income that will more likely than not result in the realization of its deferred tax assets to the extent of those deferred tax liabilities, thereby reducing the need for a valuation allowance.

The distribution of AgeX shares of common stock to our shareholders on November 28, 2018 was a taxable event for us that resulted in a gross taxable gain of approximately $26.4 million, which we fully offset with available NOL Carryforwards, resulting in no income taxes due.

In connection with the Asterias Merger, a deferred tax liability of $13.0 million was recorded as part of acquisition accounting. This liability is related to fair value adjustments for the assets and liabilities acquired in the Asterias Merger, principally consisting of IPR&D. This estimate of deferred taxes was determined based on the excess of the estimated fair values of the acquired assets and liabilities over the tax basis of the assets and liabilities acquired. The statutory tax rate was applied, as appropriate, to the adjustment based on the jurisdiction in which the adjustment is expected to occur. This estimate of deferred income tax liabilities is preliminary and is subject to change based upon our final determination of the fair value of assets acquired and liabilities assumed.

A valuation allowance is provided when it is more likely than not that some portion of ourthe deferred tax assets will not be realized. For federal and state income tax purposes, as a result of the deconsolidation of AgeX, Asterias and OncoCyte and the deferred tax liabilities generated from the market values of AgeX, Asterias and OncoCyte shares from the respective deconsolidation dates, including the changes to those deferred tax liabilities due to changes in the Asterias and OncoCyte stock prices, our deferred tax assets exceeded our deferred tax liabilities as of June 30, 2018 and December 31, 2017. We2018. As a result, we established a full valuation allowance as of June 30, 2018 and December 31, 20172018 due to the uncertainty of realizing future tax benefits from our net operating loss carryforwards and other deferred tax assets.

Because the IPR&D (prior to completion or abandonment of the R&D) is considered an indefinite-lived asset for accounting purposes, the fair value of the IPR&D on the acquisition date creates a deferred income tax liability in accordance with ASC 740. This DTL is computed using the fair value of the IPR&D assets on the acquisition date multiplied by our respective federal and state income tax rates. While this DTL would reverse on impairment or sale or commencement of amortization of the related intangible assets, those events are not anticipated under ASC 740 for purposes of predicting reversal of a temporary difference to support the realization of deferred tax assets, except for certain deferred tax assets and credit carryforwards that are also indefinite in nature as of the Asterias Merger date, which may be considered for reversal.

For the three and six months ended June 30, 2019, we reversed a portion of our valuation allowance. The partial reversal of the historical valuation allowance is related to our deferred tax assets and credit carryforwards and is due to the acquired taxable temporary differences, primarily consisting of the acquired IPR&D discussed in Note 13 to condensed consolidated financial statements included elsewhere in this Report. ASC 740 allows for deferred tax assets and credit carryforwards that are both available and indefinite in nature to be used against similar deferred tax liabilities as a source of income to support the realization of those deferred tax assets and credit carryforwards. Any benefit recognized from such a reversal of the valuation allowance is recorded outside of the acquisition accounting. Accordingly, wethe $1.2 million and $5.6 million valuation allowance release and the corresponding tax benefit was primarily related to state research and development credits, including current year federal net operating losses generated for the three and six months ended June 30, 2019, both of which are available and indefinite in nature.

We did not record any provision or benefit for income taxes for the three and six months ended June 30, 2018.

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As of June 30, 2017, our federal deferred tax assets exceeded our deferred tax liabilities reflecting the Asterias and OncoCyte deferred tax liabilities generated on and after the respective dates of the Asterias Deconsolidation and the OncoCyte Deconsolidation, and changes to those deferred tax liabilities due to changes in the Asterias and OncoCyte stock prices through June 30, 2017. Accordingly,2018 as of June 30, 2017, we establishedhave a full valuation allowance on our deferred tax assets and reversed the $3.9 income tax provision we had recorded in the first quarter of 2017, resulting in no income tax provision or benefit for the six months ended June 30, 2017.

For state income tax purposes, we established a full valuation allowance on our state deferred tax assets for all periods presented and, accordingly, no state tax provision or benefit was recorded for any period presented.

 

We expect that deferred income tax expense or benefit we record each reporting period, if any, will vary depending on the change in the closing stock prices of AsteriasOncoCyte and OncoCyteAgeX shares, from period to period and the related changes in those deferred tax liabilities and our deferred tax assets and other credits, including changes in the valuation allowance, for each period. We also expect that if we continue to generate deferred tax assets and other credits that are indefinite in nature, we may be able to release our valuation allowance with a corresponding tax benefit to the extent of our deferred tax liability which is also indefinite in nature, principally related to our acquired IPR&D.

 

Liquidity and Capital Resources

 

At June 30, 2018,2019, we had $29.2$16.7 million of cash, cash equivalents and marketable equity securities on hand,hand. Additionally, we raised $4.2 million in a sale of which $11.4a portion of our OncoCyte holdings and $1.2 million in sales of cash was held by AgeX and its subsidiaries.a portion of our Hadasit Bio-Holdings Ltd holdings in July 2019. We also hold Asterias shares valued at approximately $29.412.4 million and OncoCyte shares valued at $37.4(which had a market value of $21.7 million as of June 30, 2018,August 6, 2019 based on the closing price of OncoCyte common stock on that date) that we may use for liquidity, as necessary, and as market conditions allow. BioTime has no present plan to liquidate its holdings of Asterias or OncoCyte shares. The market values shownvalue may not represent the amountsamount that could be realized in a sale of Asterias or OncoCyte shares due to various market and regulatory factors, including trading volume or market depth factors and volume and manner of sale restrictions under Federal securities laws, prevailing market conditions and prices at the time of any sale, and subsequent sales of securities by the subsidiaries.

 

As further discussed in Note 14 to our consolidated condensed interim financial statements, BioTime has entered into a binding letter agreement with Juvenescence Limited (“Juvenescence,”) for the sale of 14,400,000 shares of common stock of AgeX currently owned by BioTime to Juvenescence for $3.00 per share (the “Transaction”). If the Transaction is completed, BioTime would receive $43.2 million, $10.8 million of which would be paid upon the closing of the Transaction, expected to occur on August 30, 2018, and $10.8 million of which would be paid on November 5, 2018. The balance of $20.6 million would be paid under the terms of an unsecured Convertible Note bearing interest at a rate of 7% per annum, with principal and accrued interest payable at maturity two years from the date of the closing of the Transaction. On the maturity date, if a “Qualified Financing” has not occurred, BioTime shall have the right, but not the obligation, to convert the principal balance of the Convertible Note and accrued interest then due into a number of Series A Preferred Shares of Juvenescence at a conversion price of $15.60 per share. Upon the occurrence of a “Qualified Financing” the principal balance of the Convertible Note and accrued interest will automatically convert into shares of the class of equity securities of Juvenescence sold in the Qualified Financing, at the price per share at which Juvenescence shares are sold in the Qualified Financing; and if AgeX common stock is listed on a national securities exchange in the U.S., the number of shares of the class of equity securities issuable upon conversion may be increased depending on the market price of AgeX common stock. A Qualified Financing means an underwritten initial public offering of Juvenescence equity securities in which gross proceeds are not less than $50.0 million. The Convertible Note will not be transferable, except in connection with a change of control of BioTime. The closing of the Transaction shall be subject to BioTime and Juvenescence entering into a definitive stock purchase agreement, a shareholders agreement, and other associated documents, and shall be subject to customary closing conditions for a transaction of this type.

Since inception, we have incurred significant operating losses and have funded our operations primarily through the issuance of equity securities, the sale of common stock of our former subsidiaries, AgeX and OncoCyte, payments from research grants, royalties from product sales and sales of research products and services. At June 30, 2018,2019, we had a consolidatedan accumulated deficit of $283.6$252.4 million, working capital of $28.7$12.6 million and consolidated shareholders’ equity of $104.8$131.8 million. We have evaluated the projected cash flows for BioTime and our subsidiaries, and we believe that our $29.2$16.7 million in cash, cash equivalents and marketable equity securities at June 30, 2019, plus the $4.2 million raised in July 2019, and the combined value of $66.8 millionour remaining investment in Asterias and OncoCyte, shares, as of June 30, 2018, providesufficient cash, cash equivalents, and liquidity to carry out our current planned operations through at least twelve months from the issuance date of theour condensed consolidated interim financial statements included elsewhere in this Report. If we need near term working capital or liquidity to supplement our cash and cash equivalents for our operations, we may sell some, or all, of our investments, as necessary.

 

On March 8, 2019, the Asterias Merger closed and Asterias became our wholly owned subsidiary. We began consolidating Asterias’ operations and results with our operations and results beginning on March 8, 2019. As we integrate Asterias’ operations into our own, we have made extensive reductions in headcount and reduced non-clinical related spend, in each case, as compared to Asterias’ operations before the merger.

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Weexpect to spend $14 million to $15 million in the second half of 2019. We anticipate that cash spend in 2020 will range from $24 million to $28 million, a reduction from 2019 spending levels of $32 million to $34 million due to corporate simplification and cost savings initiatives implemented in 2019, and a significant reduction from 2018 spending levels of $43 million for BioTime and Asterias combined.

Our projected cash flows are subject to various risks and uncertainties, and the unavailability or inadequacy of financing to meet future capital needs could force us to modify, curtail, delay, or suspend some or all aspects of our current planned operations. Our determination as to when we will seek new financing and the amount of financing that we will need will be based on our evaluation of the progress we make in our research and development programs, any changes to the scope and focus of those programs, any changes in grant funding for certain of those programs, and projectionsprojection of future costs, revenues, and rates of expenditure. For example, clinical trials being conducted for ourOpRegen®program will be funded in part with funds from grants and not from cash on hand. If we were to lose our grant funding or we are unable to continue to provide working capital to theOpRegen®program, weWe may be required to delay, postpone, or cancel our clinical trials or limit the number of clinical trial sites, unless we are able to obtain adequate financing from another source that could be used for our clinical trials.financing. In addition, we have incurred and expect to continue incurring significant costs in connection with the acquisition of Asterias and with integrating its operations. We may incur additional costs to maintain employee morale and to retain key employees. We cannot assure that adequate future financing will be available on favorable terms, if at all, when needed.all. Sales of additional equity securities by us or our subsidiaries and affiliates could result in the dilution of the interests of present shareholders.

As discussed in Note 14 to our condensed consolidated interim financial statements included elsewhere in this Report, on July 19, 2018, AgeX filed Amendment No. 1 to its Registration Statement on Form 10 with the SEC in connection with the planned distribution of shares of AgeX common stock owned by us to holders of our common shares, on a pro rata basis (the “AgeX Distribution”). If the AgeX Distribution is completed, AgeX will become a public company and will incur costs associated with audits and interim reviews of its consolidated financial statements, filing annual, quarterly, and other periodic reports with the SEC, holding annual shareholder meetings, and public relations and investor relations. These costs incurred by AgeX will be in addition to those incurred by BioTime for similar purposes. Furthermore, as discussed in Note 14 to our condensed consolidated interim financial statements, the AgeX Distribution will be a taxable event to us. The amount of income tax obligation, if any, that we may incur in connection with the AgeX Distribution is not estimable at this time since the tax obligation depends on numerous factors and contingencies, including, but not limited to, the completion of the AgeX Distribution, the amount and availability of U.S. net operating losses generated by us to offset any taxable gain as a result of the AgeX Distribution, and the value of AgeX common stock on the distribution date.current shareholders.

 

Cash flows used in operating activities

 

DuringNet cash used in operating activities of $19.0 million for the six months ended June 30, 2019 primarily reflects the loss from operations of $23.6 million, offset primarily by non-cash expenses of $2.2 million for stock-based compensation and $1.5 million of depreciation and amortization. The unrealized gains on equity method investments and marketable securities and deferred tax benefit are non-cash items that had no effect on cash flows.

Net cash used in operating activities of $17.7 million for the six months ended June 30, 2018 our total researchprimarily reflects the loss from operations of $21.2 million plus the changes in assets and developmentliabilities of $1.4 million. These items were offset primarily by non-cash expenses including $0.8 million in nonrecurring acquired in-process research and development expenses, were $13.1 million and our general and administrative expenses were $11.2 million.Net loss attributable to BioTime for thesix months ended June 30,2018 amounted to $67.8 million. Net cash used in operating activities during the six months ended June 30, 2018 amounted to $17.7 million. The difference between the net loss attributable to us and net cash used in operating activities during the six months ended June 30, 2018 was primarily attributable to the following noncash items: $30.8 million unrealized loss on our equity method investment in OncoCyte at fair value, $19.6 million unrealized loss on our equity method investment in Asterias at fair value, stock-based compensation expense of $2.1 million for stock-based compensation and $1.7 million of depreciation and amortization expense of $1.7 million, $0.8 million for acquired in-process research and development, a $3.2 million gain on the disposition of AgeX’s Ascendance common stock, and $1.0 million inamortization. The unrealized gains combined from the decrease in fair value of the Cell Cure Warrantson equity method investments and increase in the fair market value of our marketable equity securities. Changes in working capital impacted oursecurities are non-cash items that had no effect on cash used in operations by $1.4 million as a net use of cash.flows.

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Cash flows provided by investing activities

 

DuringCash provided by investing activities of $2.8 million for the six months ended June 30, 2019 was associated primarily with the receipt of $3.1 million of cash that Asterias had on the closing date of the Asterias Merger, offset by $0.4 million in purchases of equipment and other assets. Cash provided by investing activities of $2.2 million for the six months ended June 30, 2018 we generatedwas associated primarily with proceeds of $3.2 million related to the sale of the equity method investment in cash proceeds from the disposition of AgeX’s Ascendance, common stock, which was partially offset by a $0.8 million payment to Ascendance for the acquisitionpurchase of in-process research and development assets, and $0.2 million used to purchasein purchases of equipment and other fixed assets, resulting in $2.2 million of net cash from investing activities during the quarter.assets.

 

Cash flows provided by financing activities

 

DuringCash provided by financing activities of $0.5 million for the six months ended June 30, 2019 was associated primarily with $0.7 million in landlord reimbursements for tenant improvements, offset by $0.1 million in common shares received and retired for employee taxes paid. Cash provided by financing activities of $5.5 million for the six months ended June 30, 2018 we generated $5.7 million in cash from financing activities. The primary components werewas associated primarily with $5.0 million in proceeds from the sale of common shares of AgeX,subsidiary stock and $0.7 million in proceeds from the sale of AgeX warrants. These amounts were partiallysubsidiary warrants, offset by $0.2 million infor repayment of lease liability and capital lease obligation repayments, resulting in $5.5 million of net cash from financing activities during the quarter.obligation.

 

Off-Balance Sheet Arrangements

 

As of June 30, 20182019 and December 31, 2017,2018, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

There have been no material changes in our qualitativeUnder SEC rules and quantitative market risk sinceregulations, as a smaller reporting company, we are not required to provide the disclosures in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2017, except as follows:information required by this item.

Equity Method Accounting for Asterias and OncoCyte shares at fair value

We account for our Asterias and OncoCyte shares using the equity method of accounting fair value option. The value of those shares is subject to changes in the stock prices. Asterias and OncoCyte common stock trade on the NYSE American under the ticker symbols “AST” and “OCX”, respectively. As of June 30, 2018, the 52-week high/low closing stock price per share range for Asterias was $1.25 to $3.70, and for OncoCyte was $1.25 to $7.55.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

It is management’s responsibility to establish and maintain adequate internal control over all financial reporting pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (“Exchange Act”). Our management, including our principal executive officersofficer and our principal financial officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.Report. Following this review and evaluation, management collectively determined that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) is accumulated and communicated to management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.Proceedings

 

From time to time, we are subject to legal proceedings and claims in the ordinary course of business. While management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our subsidiaries may be involvedfinancial position, cash flows, or overall trends in results of operations, legal proceedings are subject to inherent uncertainties, and unfavorable rulings or outcomes could occur that have individually or in aggregate, a material adverse effect on our business, financial condition or operating results. Except as described below, we are not currently subject to any pending material litigation, other than ordinary routine litigation incidental to our business, as described above.

On February 19, 2019, a putative class action lawsuit challenging the conductAsterias merger was filed on behalf of Asterias shareholders in the Superior Court of the State of California, County of Alameda. On March 1, 2019, Asterias made certain amendments and supplements to its public disclosures regarding the Asterias Merger (the “Supplemental Disclosures”). On May 3, 2019, an amended class action complaint (the “Amended Complaint”) was filed. The Amended Complaint brings claims under Delaware law for breaches of fiduciary duty against the Asterias board of directors and claims for aiding and abetting against BioTime, Neal Bradsher, Broadwood Capital, Inc. and Broadwood Partners, L.P. The Amended Complaint alleges, among other things, that the process leading up to the Asterias Merger was conflicted and inadequate, and that the proxy statement filed by Asterias with the Securities and Exchange Commission omitted certain material information, which allegedly rendered the information disclosed materially misleading. The Amended Complaint seeks, among other things, that a class be certified, the recovery of monetary damages, and attorneys’ fees and costs.

On June 3, 2019, defendants filed demurrers to the Amended Complaint. Plaintiffs’ counsel subsequently indicated that, after reviewing the demurrers and analyzing certain documents produced by defendants, Plaintiffs wished to voluntarily dismiss the action with prejudice as to themselves, and without prejudice as to the unnamed putative class members. Plaintiffs’ counsel also indicated that, independent of their decision to voluntarily dismiss the action, Plaintiffs believe they have a claim for attorneys’ fees and expenses in connection with the purported benefit conferred on Asterias stockholders by the Supplemental Disclosures (the “Fee Claim”). On July 26, 2019, the parties entered into a stipulation to stay the briefing schedule on the demurrers and to take the hearing on the demurrers off calendar so that the parties could discuss the Fee Claim (the “Stipulation”). On July 29, 2019, the Court entered the Stipulation as an order, took the demurrer hearing off calendar, and set a case management conference for September 17, 2019. Thereafter, the parties began negotiating the Fee Claim and, on August 5, 2019, agreed in principle to resolve the Fee Claim for $200,000. The parties intend to submit a stipulation to the Court seeking dismissal of the action with prejudice as to the named Plaintiffs and without prejudice as to the unnamed putative class members, and seeking approval of the negotiated Fee Claim. We continue to believe that the claims and allegations in the action lack merit, but believe that it is in our business. We are not presentlyshareholders’ best interest for the action to be dismissed and to resolve the Fee Claim in a party to any pending litigation.timely manner without additional costly litigation expenses.

 

Item 1A. Risk Factors

 

This Quarterly Report on Form 10-Q contains forward-looking information based on our current expectations. Because our actualOur business, financial condition, results may differ materially from any forward-looking statements made by or on behalf of us, this section includes a discussionoperations and future growth prospects are subject to various risks, including those described in Item 1A “Risk Factors” of important factors that could affect our actual future results, including our proposed operations, business prospects and financial condition. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. In addition to the risks described below and the risk factors found in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2017, you should carefully consider all of the other information included in this Report and in that Annual Report, as well as our other publicly available filingsfiled with the SEC, including AgeX’s Registration StatementSecurities and Exchange Commission on March 14, 2019 (the “2018 Form 10, as amended.

We10-K”), which we encourage you to review. There have incurred operating losses since inception and we do not know if we will attain profitability.

Our operating losses forbeen no material changes from the six months ended June 30, 2018 and for the fiscal years ended December 31, 2017 and 2016, were $21.2 million, $38.9 million and $59.0 million, respectively, and we had an accumulated deficit of $283.6 million as of June 30, 2018. We primarily finance our operations through the sale of equity securities, licensing fees, royalties on product sales by our licensees, research grants, and subscription fees and advertising revenue from database products. Ultimately, our ability to generate sufficient operating revenue to earn a profit depends upon our and our subsidiaries’ success in developing and marketing or licensing products and technology.

We will spend a substantial amount of our capital on research and development, but we might not succeed in developing products and technologies that are useful in medicine.

We are attempting to develop new medical products and technology. None of our experimental products and technologies has received regulatory approval for commercialization. These new products and technologies might not prove to be safe and efficaciousrisk factors disclosed in the human medical applications for which they are being developed. The experimentation we are doing is costly, time consuming, and uncertain as to its results. We incurred research and development expenses amounting to $13.1 million during the six months ended June 30, 2018 and $24.0 million and $36.1 million during the fiscal years ended December 31, 2017 and 2016, respectively. If we are successful in developing a new technology or products, refinement of the new technology or product and definition of the practical applications and limitations of the technology or product may take years and require the expenditure of large sums of money. Clinical trials of new therapeutic products, particularly those products that are regulated as biologics, drugs, or devices, will be very expensive and will take years to complete. We may not have the financial resources to fund clinical trials on our own and we may have to enter into licensing or collaborative arrangements with other companies. Any such arrangements may be dilutive to our ownership or economic interest in the products we develop, and we might have to accept royalty payments on the sale of products rather than receiving the gross revenues from product sales. In addition, we may discontinue one or more of the research or product development programs. Other programs slated for development including those we consolidate in a new subsidiary, AgeX, may be delayed or discontinued should adequate funding on acceptable terms not be available.Form 10-K.

The amount and pace of research and development work that we and our subsidiaries can do or sponsor, and our ability to commence and complete clinical trials required to obtain regulatory approval to market our therapeutic and medical device products, depends upon the amount of money we have.

At June 30, 2018, we had $29.2 million of cash, cash equivalents and marketable equity securities on hand, which includes $11.4 million of cash held by AgeX and its subsidiaries. Although BioTime and subsidiaries combined have raised a total of approximately $6.0 million of net proceeds through the sale of their equity securities and warrants, and $3.2 million in cash from the cash-out merger of Ascendance, there can be no assurance that we or our subsidiaries will be able to raise additional funds on favorable terms or at all, or that any funds raised will be sufficient to permit us or our subsidiaries to develop and market our products and technology. Unless we and our subsidiaries are able to generate sufficient revenue or raise additional funds when needed, it is likely that we will be unable to continue our planned activities, even if we make progress in our research and development projects. We may have to postpone or limit the pace of our research and development work and planned clinical trials of our product candidates unless our cash resources increase through a growth in revenues or additional equity investment or borrowing.

37

If we or our subsidiaries issue additional common shares or preferred shares, investors in our common shares may experience dilution of their ownership interests.

We and our subsidiaries may issue additional common shares or other securities that are convertible into or exercisable for common shares in order to raise additional capital, or in connection with hiring or retaining employees or consultants, or in connection with future acquisitions of licenses to technology or rights to acquire products, or in connection with future business acquisitions or mergers, or for other business purposes. The future issuance of any such additional common shares or other securities may be dilutive to our current shareholders and may create downward pressure on the trading price of our common shares.

We are currently authorized to issue an aggregate of 252,000,000 shares of capital stock consisting of 250,000,000 common shares and 2,000,000 “blank check” preferred shares. As of June 30, 2018, there were 126,873,228 issued and outstanding common shares, 8,990,242 common shares reserved for issuance upon the exercise of outstanding options under our employee stock option plans; 535,000 common shares reserved for issuance upon the lapse of restricted stock units (RSUs) under our Equity Incentive Plan; and 8,795,358 shares reserved for issuance upon the exercise of common share purchase warrants.

The operation of some of our subsidiaries has been financed in part through the sale of capital stock and warrants in those subsidiaries to private investors. Sales of additional subsidiary shares could reduce our ownership interest in the subsidiaries, and correspondingly dilute our shareholder’s ownership interests in our consolidated enterprise. Our subsidiaries also have their own stock option plans and the exercise of subsidiary stock options or the sale of restricted stock under those plans would also reduce our ownership interest in the subsidiaries, with a resulting dilutive effect on the ownership interest of our shareholders in our consolidated enterprise.

We may also issue preferred shares having rights, preferences, and privileges senior to the rights of our common shares with respect to dividends, rights to share in distributions of our assets if we liquidate our company, or voting rights. Any preferred shares may also be convertible into common shares on terms that would be dilutive to holders of common shares. Our subsidiaries may also issue their own preferred shares with a similar dilutive impact on our ownership of the subsidiaries.

We could incur income tax payment obligations if we complete the AgeX Distribution as planned.

The AgeX Distribution, if completed, will be a taxable event to BioTime. The amount of income tax obligation, if any, that we may incur in connection with the AgeX Distribution is not estimable at this time since the tax obligation depends on numerous factors and contingencies, including, but not limited to, the completion of the AgeX Distribution, the amount and availability of U.S. net operating losses generated by us to offset any taxable gain as a result of the AgeX Distribution, and the value of AgeX common stock on the distribution date. If the amount of net operating losses available to us is not sufficient to fully offset any taxable gain from the AgeX Distribution, we will be obligated to pay income tax on the gain in excess of available net operating losses. Any tax payments will reduce the amount of cash we have available for use to finance our operations.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Not applicable.

 

Item 3. Default Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

None.

38

 

Item 6. Exhibits

 

Exhibit

Numbers

 Description
3.1 Restated Articles of Incorporation, as amended (1)
3.2 By-Laws, as amended (2)
31.1* Certification of Chief Executive Officer pursuant to Form of Rule 13a-14(a), as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002, dated May 9, 2019
3131.2* Certification of Chief Financial Officer pursuant to Form of Rule 13a-14(a)/15d-14(a) Certification*, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002, dated May 9, 2019
3232.1* Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, Certification*as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 9, 2019
101 Interactive Data Files
101.INS XBRL Instance Document*
101.SCH XBRL Taxonomy Extension Schema*
101.CAL XBRL Taxonomy Extension Calculation Linkbase*
101.DEF XBRL Taxonomy Extension Definition Document*
101.LAB XBRL Taxonomy Extension Label Linkbase*
101.PRE XBRL Taxonomy Extension Presentation Linkbase*

 

(1)Incorporated by reference to BioTime’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 10, 2018.
(2)Incorporated by reference to BioTime’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 7, 2017.

* Filed herewith

39

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 BIOTIME, INC.
  
Date: August 2, 20188, 2019/s/ Michael D. WestBrian M. Culley
 Michael D. West, Ph.D.Brian M. Culley
 Co-ChiefChief Executive Officer

 

Date: August 2, 20188, 2019/s/ Aditya MohantyBrandi L. Roberts
 Aditya Mohanty

Co-Chief Executive Officer

Date: August 2, 2018/s/ RussellBrandi L. Skibsted
Russell L. SkibstedRoberts
 Chief Financial Officer

40