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, 20222023

 

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 number 001-12830

 

Lineage Cell Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

California 94-3127919

(State or other jurisdiction of

of incorporation or organization)

 

(IRS Employer

Identification No.)

 

2173 Salk Avenue, Suite 200

Carlsbad, California92008

(Address of principal executive offices) (Zip code)

Carlsbad, California92008

(Address of principal executive offices) (Zip code)

 

(Registrant’s telephone number, including area code) (442) 287-8990

 

Securities registered pursuant to Section 12(b) of the Act

 

Title of each class Trading Symbol Name of exchange on which registered
Common shares no par valueLCTXNYSE 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 every Interactive Data File required to be submitted 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 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 filerSmaller 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 pursuant 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

 

The number of common shares outstanding as of August 5, 20224, 2023 was 169,755,487174,986,671.

 

 

 

 

 


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (this “Report”)report contains “forward-looking statements” (withinforward-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, as amended)amended (the “Exchange Act”), that involveare subject to substantial risks and uncertainties. The forward-looking statements are contained principally in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report, but are also continued elsewhere in this report. 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 Reportreport are forward-looking statements. In some cases, you can identify forward-looking statements by the words such as “anticipate,“may,“believe,“might,“contemplate,” “continue,“will,” “could,” “estimate,“would,” “should,” “expect,” “intend,” “may,” “plan,” “potential,“objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “seek,“potential,“should,” “target,” “will,” “would,“continue” and “ongoing,” or the negative of these wordsterms, or other comparable terminology. These forward-lookingterminology intended to identify statements about the future. Forward-looking statements in this report include, but are not limited to, statements relating to:about:

 

the Collaboration and License Agreement we entered into with F. Hoffmann-La Roche Ltd and Genentech, Inc., a member of the Roche Group, activities expected to occur thereunder, and the potential to receive the developmental, regulatory, and commercialization milestone and royalty payments thereunder;under our Collaboration and License Agreement with F. Hoffmann-La Roche Ltd and Genentech, Inc.;
  
our plans to research, develop and commercialize our product candidates;
  
the initiation, progress, success, cost and timing of our clinical trials and other 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 to successfully 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;platform;
  
our ability to obtain fundingexpectations and plans regarding existing and potential future collaborations with third parties such as pharmaceutical and biotechnology companies, government agencies, academic laboratories, and research institutes for our operations, including funding necessary to initiate and complete clinical trialsthe discovery, development, and/or commercialization of our product candidates;novel cell therapy products;
  
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; and
  
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;
the effects on our operations of pandemics, including the recent COVID-19 pandemic, the war in Ukraine,geopolitical conflicts, political and economic instability, and rising inflation and interest rates; and
other risks and uncertainties, including those described and referenced under Part II, Item 1A, “Risk Factors” of this Report.rates.

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Forward-looking statements reflect our current views with respect toand expectations as of the date of this report about future events or toand our future financial performance and condition, and involve known and unknown risks, uncertainties and other factors that may cause our actual activities, performance, results performance or achievementscondition to be materially different from any future results, performance or achievementsthose expressed or implied by the forward-looking statements. FactorsYou should refer to “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 10-K”) as filed with the Securities and Exchange Commission on March 9, 2023, for a discussion of important factors that may cause our actual activities, performance, results and condition to differ materially from current expectations include, among other things, those listed and referenced underexpressed or implied by our forward-looking statements. As a result of a variety of factors, including those discussed in Part II,I, Item 1A “Risk Factors” of this Report. Given these uncertainties,the 2022 10-K, our forward-looking statements may prove to be inaccurate, and the inaccuracy may be material. Accordingly, you should not place undue reliance on theseany forward-looking statements. Exceptstatement. We anticipate that subsequent events and developments may cause our current views and expectations to change. However, while we may elect to update the forward-looking statements in this report at some point in the future, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law, we assume no obligation to update or reviselaw. You should, therefore, not rely on these forward-looking statements foras representing our views as of any reason, even if new information becomes available indate after the future.date of this report.

You should read this report completely and with the understanding that our actual future performance, results and condition may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

MARKET DATA AND TRADEMARKS

This report may also contain market data, industry forecasts and other data made by independent parties and by us relating to market size and growth and other data about our industry. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. In addition, projections, assumptions and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk.

All brand names or trademarks appearing in this report are the property of their respective owners. Solely for convenience, the trademarks and trade names in this report are referred to without the symbols ® and TM, but such references should not be construed as any indication that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

******

Unless otherwise stated or the context requires otherwise, references in this report to “Lineage,” the “Company,” “our company,” “we,” “us,” and “our” refer collectively to Lineage Cell Therapeutics, Inc. and its consolidated subsidiaries.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

 

 June 30, 2023 December 31, 
 June 30, 2022 (Unaudited) December 31, 2021  (Unaudited)  2022 
ASSETS                
CURRENT ASSETS                
Cash and cash equivalents $70,857  $55,742  $33,886  $11,355 
Marketable equity securities  1,173   2,616 
Accounts and grants receivable, net (Note 3)  707   50,840 
Marketable securities  12,039   46,520 
Accounts receivable, net (Note 3)  443   297 
Prepaid expenses and other current assets  1,289   2,351   2,123   1,828 
Total current assets  74,026   111,549   48,491   60,000 
                
NONCURRENT ASSETS                
Property and equipment, net (Notes 6 and 14)  3,869   4,872   5,310   5,673 
Deposits and other long-term assets  598   630   588   627 
Goodwill  10,672   10,672   10,672   10,672 
Intangible assets, net  46,757   46,822   46,627   46,692 
TOTAL ASSETS $135,922  $174,545  $111,688  $123,664 
                
LIABILITIES AND SHAREHOLDERS’ EQUITY                
CURRENT LIABILITIES                
Accounts payable and accrued liabilities $8,684  $27,969  $4,685  $8,608 
Lease liabilities, current portion (Note 14)  593   801   933   916 
Financing lease, current portion (Note 14)  29   30   54   36 
Deferred revenues (Note 3)  15,785   18,119   10,379   9,421 
Liability classified warrants, current portion  -   197 
Other current liabilities  1   - 
Total current liabilities  25,091   47,116   16,052   18,981 
                
LONG-TERM LIABILITIES                
Deferred tax liability  2,076   2,076   273   2,076 
Deferred revenues, net of current portion (Note 3)  25,774   32,454   21,688   27,725 
Lease liability, net of current portion (Note 14)  1,459   1,941   2,304   2,860 
Financing lease, net of current portion (Note 14)  19   30   113   84 
Liability classified warrants and other long-term liabilities  4   30 
Other long-term liabilities  -   2 
TOTAL LIABILITIES  54,423   83,647   40,430   51,728 
                
Commitments and contingencies (Note 14)  -   -   -   - 
                
SHAREHOLDERS’ EQUITY                
Preferred shares, 0 par value, authorized 2,000 shares; NaN issued and outstanding as of June 30, 2022 and December 31, 2021  -   - 
Common shares, 0 par value, 250,000 shares authorized; 169,748 and 169,477 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively  437,151   434,529 
Preferred shares, no par value, authorized 2,000 shares; none issued and
outstanding as of June 30, 2023 and December 31, 2022
  -   - 
Common shares, no par value, 250,000 shares authorized; 174,439 and
170,093 shares issued and outstanding as of June 30, 2023 and
December 31, 2022, respectively
  448,249   440,280 
Accumulated other comprehensive loss  (3,357)  (5,211)  (2,611)  (3,571)
Accumulated deficit  (350,947)  (337,097)  (372,971)  (363,370)
Lineage Cell Therapeutics, Inc. shareholders’ equity  82,847   92,221   72,667   73,339 
Noncontrolling (deficit)  (1,348)  (1,323)
Noncontrolling deficit  (1,409)  (1,403)
Total shareholders’ equity  81,499   90,898   71,258   71,936 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $135,922  $174,545  $111,688  $123,664 

 

See accompanying notes to the condensed consolidated interim financial statements.

 


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LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 2022 2021 2022 2021  2023  2022  2023  2022 
 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

  Three Months ended June 30,  Six Months ended June 30, 
 2022 2021 2022 2021  2023  2022  2023  2022 
REVENUES:                         
Collaboration revenues $4,148  $213  $9,013  $213  $2,871  $4,148  $4,992  $9,013 
Royalties  405   228   777   521 
Grant revenues  -   71   -   169 
Royalties and license fees  354   405   619   777 
Total revenues  4,553   512   9,790   903   3,225   4,553   5,611   9,790 
                                
Cost of sales  (215)  (125)  (391)  (237)  (127)  (215)  (246)  (391)
                                
Gross profit  4,338   387   9,399   666   3,098   4,338   5,365   9,399 
                                
OPERATING EXPENSES:                                
Research and development  3,302   2,931   6,290   6,325   3,873   3,302   8,058   6,290 
General and administrative  5,270   4,536   13,739   8,471   4,249   5,270   8,973   13,739 
Total operating expenses  8,572   7,467   20,029   14,796   8,122   8,572   17,031   20,029 
Loss from operations  (4,234)  (7,080)  (10,630)  (14,130)  (5,024)  (4,234)  (11,666)  (10,630)
OTHER INCOME/(EXPENSES):                
Interest income (expense), net  51   (3)  51   (1)
Gain on sale of marketable securities  -   -   -   6,024 
Unrealized (loss) gain on marketable equity securities  (709)  590   (1,444)  1,830 
Gain on extinguishment of debt  -   523   -   523 
OTHER INCOME (EXPENSES):                
Interest income, net  382   51   792   51 
Unrealized loss on marketable equity securities, net  (150)  (709)  (110)  (1,444)
Gain on revaluation of warrant liability  2   35   223   52   -   2   1   223 
Other income (expense), net  (1,892)  970   (2,075)  (711)
Total other income/(expense), net  (2,548)  2,115   (3,245)  7,717 
Other expenses, net  (411)  (1,892)  (427)  (2,075)
Total other income (expenses), net  (179)  (2,548)  256   (3,245)
LOSS BEFORE INCOME TAXES  (6,782)  (4,965)  (13,875)  (6,413)  (5,203)  (6,782)  (11,410)  (13,875)
                                
Deferred income tax benefit  -   169   -   169   -   -   1,803   - 
                                
NET LOSS  (6,782)  (4,796)  (13,875)  (6,244)  (5,203)  (6,782)  (9,607)  (13,875)
                                
Net loss attributable to noncontrolling interest  19   8   25   40 
Net (income) loss attributable to noncontrolling interest  (26)  19   6   25 
                                
NET LOSS ATTRIBUTABLE TO LINEAGE CELL THERAPEUTICS, INC. $(6,763) $(4,788) $(13,850) $(6,204) $(5,229) $(6,763) $(9,601) $(13,850)
                                
NET LOSS PER COMMON SHARE:                                
BASIC $(0.04) $(0.03) $(0.08) $(0.04) $(0.03) $(0.04) $(0.06) $(0.08)
DILUTED $(0.04) $(0.03) $(0.08) $(0.04) $(0.03) $(0.04) $(0.06) $(0.08)
                                
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:                                
BASIC  169,731   162,914   169,689   160,831   170,592   169,731   170,361   169,689 
DILUTED  169,731   162,914   169,689   160,831   170,592   169,731   170,361   169,689 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

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LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(IN THOUSANDS)

(UNAUDITED)

  2022  2021  2022  2021 
  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
  2022  2021  2022  2021 
NET LOSS $(6,782) $(4,796) $(13,875) $(6,244)
Other comprehensive loss, net of tax:                
Foreign currency translation adjustment, net of tax  1,730   (960)  1,854   616 
COMPREHENSIVE LOSS  (5,052)  (5,756)  (12,021)  (5,628)
Less: Comprehensive loss attributable to noncontrolling interest  19   8   25   40 
COMPREHENSIVE LOSS ATTRIBUTABLE TO LINEAGE CELL THERAPEUTICS, INC. COMMON SHAREHOLDERS $(5,033) $(5,748) $(11,996) $(5,588)
  2023  2022  2023  2022 
  Three Months ended June 30,  Six Months ended June 30, 
  2023  2022  2023  2022 
NET LOSS $(5,203) $(6,782) $(9,607) $(13,875)
Other comprehensive income, net of tax:                
Foreign currency translation adjustment  446   1,730   819   1,854 
Unrealized gain on marketable debt securities  50   -   141   - 
COMPREHENSIVE LOSS  (4,707)  (5,052)  (8,647)  (12,021)
Less: Comprehensive (income) loss attributable to noncontrolling interest  (26)  19   6   25 
COMPREHENSIVE LOSS ATTRIBUTABLE TO LINEAGE COMMON SHAREHOLDERS $(4,733) $(5,033) $(8,641) $(11,996)

See accompanying notes to the condensed consolidated interim financial statements.

 

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LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

 2022 2021  2023  2022 
 

Six Months Ended

June 30,

  Six Months ended June 30, 
 2022 2021  2023  2022 
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss attributable to Lineage Cell Therapeutics, Inc. $(13,850) $(6,204) $(9,601) $(13,850)
Net loss allocable to noncontrolling interest  (25)  (40)  (6)  (25)
Adjustments to reconcile net loss attributable to Lineage Cell Therapeutics, Inc. to net cash provided by (used in) operating activities:        
Gain on sale of marketable securities  -   (6,024)
Unrealized loss (gain) on marketable equity securities  1,444   (1,830)
Gain on extinguishment of debt  -   (523)
Adjustments to reconcile net loss attributable to Lineage Cell Therapeutics, Inc. to net cash (used in) provided by operating activities:        
Accretion of income on marketable debt securities  (516)  - 
Unrealized loss on marketable equity securities, net  110   1,444 
Depreciation expense, including amortization of leasehold improvements  296   338   276   296 
Amortization of right-of-use asset  (7)  20 
Change in right-of-use assets and liabilities  81   (7)
Amortization of intangible assets  65   145   65   65 
Stock-based compensation  2,341   1,458   2,311   2,341 
Common stock issued for services  -   202 
Gain on revaluation of warrant liability  (223)  (53)  (1)  (223)
Deferred tax benefit  -   (169)
Deferred income tax benefit  (1,803)  - 
Foreign currency remeasurement and other gain  2,331   692   1,012   2,331 
Changes in operating assets and liabilities:                
Accounts and grants receivable (Note 3)  50,111   (353)
Accounts receivable, net (Note 3)  (147)  50,111 
Prepaid expenses and other current assets  594   34   (270)  594 
Accounts payable and accrued liabilities (Note 7)  (19,230)  (955)  (3,941)  (19,230)
Deferred revenue and other liabilities (Note 3)  (9,005)  422   (5,080)  (9,005)
Net cash provided by (used in) operating activities  14,842   (12,840)
Net cash (used in) provided by operating activities  (17,510)  14,842 
                
CASH FLOWS FROM INVESTING ACTIVITIES:                
Proceeds from the sale of OncoCyte common shares  -   10,064 
Proceeds from the sale of HBL common shares  -   21 
Purchases of marketable debt securities  (12,635)  - 
Maturities of marketable debt securities  47,664   - 
Purchase of equipment and other assets, net  (143)  (126)  (444)  (143)
Net cash (used in) provided by investing activities  (143)  9,959 
Net cash provided by (used in) investing activities  34,585   (143)
                
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from employee options exercised  388   5,348   80   388 
Common shares received and retired for employee taxes paid  (17)  (27)  (37)  (17)
Proceeds from exercise of subsidiary warrants, net  99   -   -   99 
Proceeds from sale of common shares  148   27,813   5,789   148 
Payments for offering costs  (57)  (877)  (174)  (57)
Repayment of lease liability  (15)  - 
Repayment of financing lease liability  (29)  (15)
Net cash provided by financing activities  546   32,257   5,629   546 
Effect of exchange rate changes on cash, cash equivalents and restricted cash  (161)  (43)  (192)  (161)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH  15,084   29,333   22,512   15,084 
        
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:                
At beginning of the period  56,277   33,183   11,936   56,277 
At end of the period $71,361  $62,516  $34,448  $71,361 
        
Reconciliation of cash, cash equivalents and restricted cash, end of period:        
Cash and cash equivalents $33,886  $70,857 
Restricted cash included in deposits and other long-term assets (see Note 14 (Commitments and Contingencies))  562   504 
Total cash, cash equivalents, and restricted cash $34,448  $71,361 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

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LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

 

1. Organization and Business Overview

 

Lineage Cell Therapeutics, Inc. (“Lineage,” “we,” “us,” or “our”) isWe are a clinical-stage biotechnology company developing novel allogeneic cell therapies to address unmet medical needs. Our programs are based on our proprietary cell-based technology platform and associated development and manufacturing capabilities. From this platform, we design, develop, manufacture, and manufacturetest specialized human cells with anatomical and physiological functions similar or identical to cells found naturally in the human body. TheseThe cells which we manufacture are created by applying developmental biological differentiation protocols that we apply to established, well-characterized, and self-renewing pluripotent cell lines. These functional cells are transplanted into patients and are designed to (a) replace or support cells that are dysfunctionalabsent or absentdysfunctional due to degenerative disease, aging, or traumatic injury, and (b) restore or (b) helpaugment the body mount a more robust and effective immune response to cancer or infectious diseases.patient’s functional activity.

 

Our strategy is to efficiently leverage our technology platform and our development, formulation, delivery, and manufacturing capabilities to develop and advance our cell therapy programs internally or in conjunction with strategic partners to further enhance their value.value and probability of success. As one example, in December 2021 we entered into a Collaboration and License Agreement (the “Roche Agreement”) with F. Hoffmann-La Roche Ltd and Genentech, Inc., a member of the Roche Group (collectively or individually, “Roche” or “Genentech”), wherein we granted to Roche exclusive worldwide rights to develop and commercialize retinal pigment epithelium (“RPE”) cell therapies, including our proprietary cell therapy program known as OpRegen®, for the treatment of ocular disorders, including geographic atrophy (GA) secondary to age-related macular degeneration (AMD). Under the terms of the Roche Agreement, Lineage received a $50.0 million upfront payment and Lineage is eligible to receive up to $620.0 million in certain developmental, regulatory, and commercialization milestone payments. Lineage also is eligible forto receive tiered double-digit percentage royalties on net sales of OpRegen in the U.SU.S. and other major markets. See Note 14 (Commitments and Contingencies) for additional information regarding the Roche Agreement.

 

As of June 30, 2022,2023, we have five allogeneic, or “off-the-shelf,” cell therapy programs in development, of which three have reached human clinical testing:

Product Candidates

 

 OpRegen®, a retinal pigment epithelium (“RPE”)an allogeneic RPE cell replacement therapy currently in a Phase 1/2a multicenter clinical trial, being conducted by Roche, for the treatment of geographic atrophy (GA)GA secondary to age-related macular degeneration (AMD),AMD, also known as atrophic or dry AMD. There currently are no U.S. Food and Drug Administration (“FDA”) or European Medicines Agency (“EMA”) approved treatment options available for patients with GA. TheA previous Phase 1/2a trial we conducted enrolled 24 individuals with dry AMD andwith GA. In December 2021, this program was partnered with Roche for further clinical development and commercialization.
   
 OPC1, an allogeneic oligodendrocyte progenitor cell therapy currently in long-term follow-up forfrom a Phase 1/2a multicenter clinical trial for cervical spinal cord injuries (“SCI”). To date, five (5) patients with thoracic spinal cord injuries and twenty-five (25)25 patients with cervical spinal cord injuriesSCI have been enrolled in clinical trials of OPC1. We recently received a response from the U.S. Food and Drug Administration to our Type B meeting submission which will help guide our next regulatory interactions. The clinical development of OPC1 has been partially funded by $14.3 million received under a grant byfrom the California Institute for Regenerative Medicine (“CIRM”). Additional clinical trials are being planned.
   
 

ANP1, an allogeneic auditory neuron progenitor cell transplant currently in preclinical development for the treatment of debilitating hearing loss (“DHL”).

PNC1, an allogeneic photoreceptor cell transplant currently in preclinical development for the treatment of vision loss due to photoreceptor dysfunction or damage.
VAC, an allogeneic cancer immunotherapy comprised of antigen-presenting dendritic cells. One of the VAC product candidates, VAC2, is currently in aA Phase 1 clinical trial in non-small cell lung cancer (“NSCLC”). of one of the VAC product candidates, VAC2, was recently completed. This clinical trial is beingwas funded and conducted by Cancer Research UK (“CRUK”), one of the world’s largest independent cancer research charities. We also have anotherAnother VAC-based product candidate is in preclinical development with our partner, Immunomic Therapeutics, Inc. (“ITI”), for the treatment of glioblastoma multiforme (“GBM”).

ANP1, an auditory neuron progenitor cell therapy currently in preclinical development for the treatment of debilitating hearing loss (“DHL”).

 

PNC1, a photoreceptor neural cell transplant therapy currently in preclinical development for the treatment of vision loss due to photoreceptor dysfunction or damage.

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Other Programs

 

We have additional undisclosed product candidates being considered for development which covercovering a range of therapeutic areas and unmet medical needs. Generally, these product candidates are based on the same pluripotent platform technology and employ a similar guided cell differentiation and transplant approach as the five product candidates detaileddescribed above, but in some cases may also include edited genes.genetic modifications designed to enhance efficacy and/or safety profiles.

 

In addition to seeking to create value for shareholders by developing product candidates and other technologiesadvancing those candidates through our clinical development, programs, we also may seek to create value from our large patent estateintellectual property and additional related technologies and capabilities, through partnering and/or strategic transactions. We founded two companies based on Lineage’s intellectual property that later became publicly traded companies: OncoCyte Corporation (“OncoCyte”) and AgeX Therapeutics, Inc. (“AgeX”). We continue to hold common stock in OncoCyte as of June 30, 2022.

 

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

 

The accompanying unaudited condensed consolidated interim financial statements presented herein, and discussed below, have beenwere prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. In accordance with those rules and regulations, certain information and footnotesfootnote disclosures normally included in comprehensive consolidated financial statements have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 20212022 was derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by GAAP. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Lineage’s Annual Report on Form 10-K for the year ended December 31, 2021 ( “2021 10-K”), as filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2022.2022 10-K.

 

The accompanying unaudited 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 Lineage’sour 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

 

Lineage’sThe accompanying unaudited condensed consolidated interim financial statements include the accounts of itsour subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. The following table reflectssets out Lineage’s ownership, directly or through one or more subsidiariesindirectly, of the outstanding shares of its subsidiaries as of June 30, 2022.2023.

Schedule of Lineage'sLineage’s Ownership of Outstanding Shares of its Subsidiaries

Subsidiary Field of Business 

Lineage

Ownership

  Country 
Asterias BioTherapeutics, Inc.Cell based therapeutics to treat neurological conditions and cancer100%USA
Cell Cure Neurosciences Ltd. Manufacturing of Lineage’s product candidates  9994%(1)(2)  Israel 
ES Cell International Pte. Ltd. Research and clinical grade cell lines  100%  Singapore 
OrthoCyte CorporationResearch in orthopedic diseases and injuries99.8%USA

 

(1)

Includes shares owned by Lineage and ES Cell International Pte. Ltd.

 

(2)OnAs of December 31, 2021 our ownership percentage of Cell Cure Neurosciences Ltd. (“Cell Cure”) was approximately 99%. In July 6, 2022, Hadasit Bio-Holdings Ltd.Ltd exercised warrants to purchase 21,999 ordinary shares of Cell Cure. Following such transaction, Lineage’s ownership percentage of Cell Cure decreased from approximately 99% to 94%. See Note 15 (Subsequent Events) for additional information.as a result.

 

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As of June 30, 2022,2023, Lineage consolidated its direct and indirect wholly ownedwholly-owned or majority-owned subsidiaries because Lineage has the ability to control their operating and financial decisions and policies through its ownership, and the noncontrolling interest is reflected as a separate element of shareholders’ equity on Lineage’s condensed consolidated balance sheets.

 

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Liquidity

OnAt June 30, 2022,2023, we had $72.045.9 million of cash, cash equivalents and marketable equity securities. Based on our current operating plan, we believe that our cash, cash equivalents and marketable securities, together with our projected cash flows, will be sufficient to enable us to carry out our planned operations through at least twelve months from the issuance date of ourthe accompanying condensed consolidated interim financial statements included elsewhere in this Report.statements.

 

Capital Resources

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, OncoCyte and AgeX, receipt of proceeds from research grants, revenues from collaborations, royalties from product sales, and sales of research products and services.

Our projected cash flows are subject to various risks and uncertainties, including those described and referenced under Part II, Item 1A, “Risk Factors” of this Report. See the discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations under “Cash Flows” for additional information regarding our sources of cash during the reporting period.

As of June 30, 2022,2023, $63.858.0 million remained available for sale under our at the market offering program.program (“ATM”). See Note 1011 (Shareholders’ Equity) to the condensed consolidated interim financial statements included in this Report for additional information.

 

We may use our marketable equity securities for liquidity as necessary and as market conditions allow. The market value of our marketable equity securities may not represent the amount that could be realized in a sale of such securities due to various market and regulatory factors, including trading volume, prevailing market conditions and prices at the time of any sale and subsequent sales of securities by the entities. In addition, the value of our marketable equity securities may be significantly and adversely impacted by deteriorating global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoingrecent pandemics, including the COVID-19 pandemic, the conflict in Ukraine,geopolitical conflicts, rising inflation and interest rates, and other macroeconomic factors.

 

Additional Capital Requirements

 

Our financial obligations primarily consist of vendorobligations to licensors under license agreements, obligations related to grants received from government entities, including the Israel Innovation Authority (“IIA”), obligations under contracts towith vendors who provide research services and other purchase commitments with suppliers.

Our obligations to licensors under license agreements and our obligations related to grants received from government entities require us to make future payments, such as sublicense fees, milestone payments, redemption fees, royalties and patent maintenance costs. Sublicense fees are payable to licensors or government entities when we sublicense the applicable intellectual property to third parties; the fees are based on a percentage of the license fees we receive from sublicensees. Milestone payments, including those related to the Roche Agreement, are due to licensors or government entities upon achievement of commercial, development and regulatory milestones. Redemption fees due to the IIA under the Innovation Law are due upon receipt of milestone payments and royalties received under the Roche Agreement. See Note 14 (Commitment and Contingencies) for additional information. Royalties, including those related to royalties we may receive under the Roche Agreement, are payable to licensors or government entities based on a percentage of net sales of licensed products. Patent maintenance costs are payable to licensors as reimbursement for the cost of maintaining license patents. Due to the contingent nature of the payments, the amounts and timing of payments to licensors under our in-license agreements are uncertain and may fluctuate significantly from period to period. As of June 30, 2023, we have not included these commitments on our condensed consolidated balance sheet because the achievement of events that would trigger our payment obligations and the timing thereof are not fixed and determinable.

In the normal course of business, we enter into services agreements with contract research organizations, contract manufacturing organizations and other third parties. Generally, these agreements provide for termination upon notice, with specified amounts due upon termination based on the timing of termination and the terms of the agreement. The amounts and timing of payments under these agreements are uncertain and contingent upon the initiation and completion of the services to be provided.

Our commitments also include obligations to our licensors under our in-license agreements, which may include sublicense fees, milestones fees, royalties, and reimbursement of patent maintenance costs. Sublicense fees are payable to licensors when we sublicense underlying intellectual property to third parties; the fees are based on a percentage of the license fees we receive from sublicensees. Milestone payments are due to licensors upon our future achievement of certain development and regulatory milestones. Royalties are payable to licensors based on a percentage of net sales of licensed products. Patent maintenance costs are payable to licensors as reimbursement for the cost of maintaining of license patents. Due to the contingent nature of the payments, the amounts and timing of payments to licensors under our in-license agreements are uncertain and may fluctuate significantly from period to period.

 

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Significant Accounting Policies

 

Marketable Equity Securities

Lineage accounts forWe describe our significant accounting policies in Note 2 to the shares it holdsconsolidated financial statements in OncoCyte and Hadasit Bio-Holdings Ltd (“HBL”) as marketable equity securities in accordance with Accounting Standards Codification (“ASC”) 320-10-25, Investments – Debt and Equity Securities, as amended by Accounting Standards Update (“ASU”) 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, further discussed below.

The OncoCyte shares have a readily determinable fair values quoted on the NYSE American under trading symbol “OCX”. The HBL shares have a readily determinable fair value quoted on the Tel Aviv Stock Exchange (“TASE”) under the trading symbol “HDST” where share prices are denominated in New Israeli Shekels (NIS).

Revenue Recognition

Lineage recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) ASU 2014-09, Revenues from Contracts with Customers (Topic 606), and in a manner that depicts the transfer of control of a product or a service to a customer and reflects the amountItem 8 of the consideration it is entitled2022 10-K. There have been no changes to receive in exchange for such product or service. In doing so, Lineage follows a five-step approach: (i) identifyour significant accounting policies during the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue when (or as) the customer obtains control of the product or service. Lineage considers the terms of a contract and all relevant facts and circumstances when applying the revenue recognition standard. Lineage applies the revenue recognition standard, including the use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances.

In applying the provisions of ASU 2014-09, Lineage has determined that government grants are out of the scope of ASU 2014-09 because the government entities do not meet the definition of a “customer,” as defined by ASU 2014-09, as there is not considered to be a transfer of control of goods or services to the government entities funding the grant. In the absence of applicable guidance under GAAP, the Company’s policy is to recognize grant revenue when the related costs are incurred and the right to payment is realized. Costs incurred are recorded in research and development and general and administrative expenses on the accompanying statements of operations.

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 latest balance sheet date reported.

Royalties from Product Sales and License Fees

For agreements that include sales-based royalties, including commercial milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, Lineage recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Lineage estimates and recognizes royalty revenues based on all available information, including estimates provided by the customer or licensee from which Lineage obtains such estimates directly for each reporting period. Actual revenues ultimately received may differ from those estimates recorded and are adjusted in the period when information to actuals is available to Lineage.

Collaborative Agreements

In December 2021, Lineage entered into the Roche Agreement for the development and commercialization of OpRegen. Under the terms of the Roche Agreement, Roche agreed to pay Lineage a $50.0 million upfront payment and Lineage is eligible to receive up to an additional $620.0 million in certain developmental, regulatory and commercialization milestone payments. Lineage is also eligible to receive tiered double-digit percentage royalties on net sales of OpRegen. See Note 14 (Commitments and Contingencies) for additional information regarding this agreement.

In April 2021, Lineage entered a worldwide license and collaboration agreement with Immunomic Therapeutics, Inc. for the development and commercialization of an oncology asset utilizing the VAC platform. Under the terms of this agreement, Lineage is entitled to upfront licensing fees totaling up to $2.0 million, and up to $67.0 million in development and commercial milestones across multiple indications. Lineage also will be eligible to receive royalties up to 10% on net sales of future products.

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As of June 30, 2022, we recorded $40.7 million and $0.8 million of deferred revenue on the condensed consolidated balance sheet, related to the collaboration agreements with each of Roche and Immunomic Therapeutics, Inc., respectively. For the three and six months ended June 30, 2022, we recognized $4.1 million and $9.0 million of revenue, respectively, on the condensed statement of operations, related to the Roche Agreement.

We review collaborative agreements to determine if the accounting treatment falls under Accounting Standards Codification, Topic 606, Revenue from Contracts with Customers (“ASC 606”), or Accounting Standards Codification Topic 808, Collaborative Arrangements (“ASC 808”). While these agreements may be within the scope of ASC 808, we may analogize to ASC 606 for some aspects of the agreements.

The terms of our collaborative agreements typically include one or more of the following: (i) upfront fees; (ii) milestone payments related to achievement of development or commercial milestones; (iii) royalties on net sales of licensed products; and (iv) reimbursement of cost-sharing of research and development (“R&D”) expenses. Each of these payments eventually result in collaboration revenues. When a portion of non-refundable upfront fees or other payments received are allocated to continuing performance obligations under the terms of a collaborative agreement, they are recorded as deferred revenue and recognized as collaboration revenue when (or as) the underlying performance obligation is satisfied.

To identify the performance obligations within the collaboration agreements, we first identify all the promises in the contract (i.e. explicit and implicit), which may include a customer option to acquire additional goods or services for free or at a discount. We exclude any immaterial promises from the assessment of identifying performance obligations. When an option is identified as providing a customer with a material right, the option is identified as a performance obligation. A portion of the transaction price is then allocated to the option and recognized when (or as) the future goods or services related to the option are provided, or when the option expires.

As part of the accounting treatment for these agreements, we must develop estimates and assumptions that require judgement to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligations. The following items are estimated in the calculation of the stand-alone selling price: forecasted revenues and development costs, development timelines, discount rates and probabilities of technical and regulatory success. We evaluate each performance obligation to determine if they can be satisfied at a point in time or over time, and we measure the services delivered to our collaboration partners each reporting period, which is based on the progress of the related program. If necessary, we adjust the measure of performance and related revenue recognition. Any such adjustments are recorded on a cumulative catch-up basis which would affect revenue and net income (loss) in the period of adjustment. In addition, variable consideration (e.g., milestone payments) must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price.

Upfront Fees: If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize collaboration revenues from the transaction price allocated to the license when the license is transferred to the licensee, and the licensee is able to use and benefit from the license. When the license is determined to be non-distinct, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time, and, if over time, the appropriate method of measuring progress for purposes of recognizing collaboration revenue from the allocated transaction price. For example, when we receive upfront fees for the performance of research and development services, or when research and development services are not considered to be distinct from a license, we recognize collaboration revenue for those units of account over time using a measure of progress. We evaluate the measure of progress at each reporting period and, if necessary, adjust the measure of performance and related revenue as a change in estimate.

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Milestone Payments: At the inception of each collaboration agreement that includes milestone payments (variable consideration), we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our or the collaboration partner’s control, such as non-operational developmental and regulatory approvals, are generally not considered probable of being achieved until those approvals are received. At the end of each reporting period, we re-evaluate the probability of achievement of milestones that are within our or the collaboration partner’s control, such as operational developmental milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues and net income (loss) in the period of adjustment. Revisions to our estimate of the transaction price may also result in negative collaboration revenues and net income (loss) in the period of adjustment.

Royalties: For collaboration agreements that include sales-based royalties, including commercial milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Reimbursement, cost-sharing payments: Under certain collaborative agreements, we will receive reimbursement for a portion of our R&D expenses. Such reimbursements are reviewed for gross versus net reporting considerations and reflected either as a reduction of R&D expense or as reimbursement revenue in our consolidated statements of operations.

Accounts and Grants Receivable, net

Net accounts receivable amounted to $0.5 million and $50.6 million, and grants receivable amounted to $0.2 million and $0.2 million as of June 30, 2022 and December 31, 2021, respectively. Net accounts receivable include an allowance for doubtful accounts of approximately $0.1 million as of June 30, 2022 and December 31, 2021, for those amounts deemed uncollectible. Lineage establishes an allowance for doubtful accounts based on the evaluation of the collectability of its receivables on a variety of factors, including the length of time receivables are past due, significant events that may impair the customer’s ability to pay, such as a bankruptcy filing or deterioration in the customers operating results or financial position, and historical experience. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted.

Basic and diluted net income (loss) per share attributable to common shareholders

Basic earnings per share is calculated by dividing net income or loss attributable to Lineage common shareholders by the weighted average number of common shares outstanding, net of unvested restricted stock or restricted stock units, subject to repurchase by Lineage, if any, during the period. Diluted earnings per share is calculated by dividing the net income or loss attributable to Lineage 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, 2022 and 2021, respectively, Lineage reported a net loss attributable to common shareholders, and therefore, all potentially dilutive common shares were considered antidilutive for those periods.

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

Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share

  

Six Months Ended

June 30,

(unaudited)

 
  2022  2021 
Stock options  18,832   17,176 
Restricted stock units  967   62 

Restricted Cash

In accordance with ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, Lineage explains the change during the period in the total of cash, cash equivalents and restricted cash, and includes restricted cash in 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 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 (in thousands):

Schedule of Reconciliation of Cash, Cash Equivalents, and Restricted Cash

  

June 30,

2022

  

December 31,

2021

 
  (unaudited)    
Cash and cash equivalents $70,857  $55,742 
Restricted cash included in deposits and other long-term assets (see Note 14 (Commitments and Contingencies))  504   535 
Total cash, cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows $71,361  $56,277 

Stock-Based Compensation

Lineage follows accounting standards governing share-based payments in accordance with ASC 718, Compensation – Stock Compensation, which require the measurement and recognition of compensation expense for all share-based payment awards made to directors and employees based on estimated fair values.

For employee and director stock options, we utilize the Black-Scholes option pricing model for valuing share-based payment awards. Lineage’s determination of fair value of share-based payment awards on the date of grant using that option-pricing model is affected by the price of Lineage’s common shares as well as by assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and the expected term of options granted, which is derived using the simplified method, which is an average of the contractual term of the option and its vesting period, as we do not have sufficient historical exercise data upon which to estimate expected term. The risk-free rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities similar to the expected term of the awards. Stock option forfeitures are accounted for as they occur.

For restricted stock unit awards (“RSUs”) subject to service and/or performance vesting conditions, the grant-date fair value is established based on the closing price of Lineage’s common shares on such date. Stock-based compensation expense for RSUs subject to only service conditions is recognized on a straight-line basis over the service period. Stock-based compensation expense for RSUs with both service and performance conditions is recognized on a graded basis only if it is probable that the performance condition will be achieved. Lineage accounts for forfeitures of RSUs as they occur in determining stock-based compensation expense. For RSUs subject to a market condition, the grant-date fair value is estimated using a Monte Carlo valuation model. The model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment. Lineage recognizes stock-based compensation expense for RSUs subject to market-based vesting conditions regardless of whether it becomes probable that the vesting conditions will be achieved, and stock-based compensation expense for such RSUs is not reversed if vesting does not actually occur.

Although the fair value of employee stock options and RSUs are determined in accordance with FASB guidance, changes in the assumptions can materially affect the estimated value and therefore the amount of compensation expense recognized in the condensed consolidated interim financial statements.

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2023.

 

Recently Issued and Recently Adopted Accounting Pronouncements Not Yet Adopted

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. The following recently issued accounting pronouncement that is not yet effective should be read in conjunction with theCompany has evaluated recently issued accounting pronouncements discussed in the 2021 10-K.

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. ASU 2016-13 is effective for Lineage beginning January 1, 2023. Lineage hasdoes not yet completed its assessment of the impact of the new standard on its condensed consolidated interim financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional guidance for a limited period of time to ease the burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. This would apply to companies meeting certain criteria that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This standard is effective for us immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. In April 2022, the FASB proposed extending the sunset date of this guidance to December 31, 2024. We are currently assessing the impact the new guidancebelieve any will have a material impact on ourthe Company’s condensed consolidated financial statements andor related financial statement disclosures.

 

3. Revenue

 

Our disaggregated revenues were as follows for the periods presented (in thousands):

 Schedule of Disaggregated Revenues

  

Three Months Ended

June,

  

Six Months Ended

June 30,

 
  2022  2021  2022  2021 
Royalties $405  $228  $777  $521 
                 
Grant revenues                
Israel Innovation Authority (“IIA”)  -   71   -   169 
Total grant revenues  -   71   -   169 
                 
Revenues from collaborative agreements                
Upfront license fees  4,148   36   9,013   36 
Reimbursements, cost-sharing payments  -   177   -   177 
Total revenues from collaborative agreements  4,148   213   9,013   213 
                 
Total revenue $4,553  $512  $9,790  $903 

  2023  2022  2023  2022 
  Three Months ended June 30,  Six Months ended June 30, 
  2023  2022  2023  2022 
Royalties and license fees $354  $405  $619  $777 
                 
Revenues under collaborative agreements                
Upfront license fees $2,871  $4,148  $4,992  $9,013 
Total revenues under collaborative agreements $2,871  $4,148  $4,992  $9,013 
                 
Total revenue $3,225  $4,553  $5,611  $9,790 

 

During the three and six months ended June 30, 2022,2023, we recognized $4.63.2 million and $5.6 million in total revenue, respectively, of which $4.12.9 million and $5.0 million, respectively, was recognized in collaboration revenues related to the $50.0 million upfront licensing payment from Roche, which was included in deferred revenues at December 31, 2021.2022.

 

During the three and six months ended June 30, 2022, we recognized $4.6 million and $9.8 million in total revenue, respectively, of which $4.1 million and $9.0 million, respectively, was recognized in collaboration revenues related to the $50.0 million upfront payment from Roche, which was included in deferred revenues at December 31, 2021.

 

UnderWe are recognizing the $50.0 million upfront payment under the Roche Agreement we are recognizing the upfront payment utilizing an input method of costs incurred over total estimated costs to be incurred.

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At each reporting period, we update our total estimated collaboration costs, and any resulting adjustments are recorded on a cumulative basis which would affect revenue and net income (loss) in the period of adjustment. We believe the input methodology represents the most appropriate measure of progress towards satisfaction of the identified performance obligations.

 

Accounts receivable and other receivable, net, and deferred revenues (contract liabilities) from contracts with customers, including collaboration partners, consisted of the following (in thousands):

 Schedule of Contract with Customer Contract Liability and Receivable

  

June 30,

2022

  

December 31,

2021

 
  (unaudited)    
Accounts receivable and other receivable, net (1)(2) $532  $50,640 
Deferred revenues (2)  41,500   50,500 

  

June 30,

2023

  December 31, 2022 
Accounts receivable, net (1) $406  $297 
Deferred revenues  32,067   37,146 

 

(1)Accounts receivable and other receivable, net, decreased primarily due to the receipt of the $50.0 million upfront payment under the Roche Agreement, received in January 2022. See Note 14 (Commitments and Contingencies).
(2)Excludes government grants as Lineage has determined government grants are outside the scope of ASU 2014-09 – Revenue from Contracts with Customers (Topic 606).

 

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As of June 30, 2022,2023, the amounts included in the transaction price of our contracts with customers (ASU 2014-09 – Revenue from Contracts with Customers (Topic 606)), including collaboration partners, and allocated goods and services not yet provided were $43.133.7 million, of which $41.532.1 million has been collected and is reported as deferred revenues, and $1.6 million relates to unfulfilled commitments related to the ITI collaboration (see Note 14 (Commitments and Contingencies) for additional information), the latter is currently estimated to be delivered by the end of the second quarter of 2023.2024. Of the total deferred revenues of $41.532.1 million, approximately $15.710.4 million is expected to be recognized within the next 12 months.

 

4. Marketable Debt Securities

The following tables are a summary of available-for-sale debt securities in cash and cash equivalents or marketable securities in the Company’s condensed consolidated balance sheet as of June 30, 2023 and December 31, 2022 (in thousands):

Summary of Available for Sale Debt Securities

  June 30, 2023 (Unaudited) 
Financial Assets: Amortized Cost  Unrealized Gaines  Unrealized Losses  Fair Value 
U.S. Treasury securities $11,735  $-  $(8) $11,727 
Total $11,735  $-  $(8) $11,727 

  December 31, 2022 
Financial Assets: Amortized Cost  Unrealized Gaines  Unrealized Losses  Fair Value 
U.S. Treasury securities $46,247  $2  $(152) $46,097 
Total $46,247  $2  $(152) $46,097 

The Company has not recognized an allowance for credit losses on any securities in an unrealized loss position as of June 30, 2023. We believe that the individual unrealized losses represent temporary declines resulting from changes in interest rates, and we intend to hold these marketable securities to their maturity. The Company currently does not intend to sell these securities prior to maturity and does not consider these investments to be other-than-temporarily impaired at June 30, 2023.

As of June 30, 2023, the amortized cost and estimated fair value of the Company’s available-for-sale debt securities by contractual maturity are shown below (in thousands):

Schedule of Amortized cost And Estimated fair Value

Available-for-sale debt securities maturing: Amortized Cost  Estimated Fair Value 
In one year or less $11,735  $11,727 
Total available-for-sale debt securities $11,735  $11,727 

We did not have any marketable debt securities classified as cash equivalents on the condensed consolidated balance sheets as of June 30, 2023 or December 31, 2022.

5. Marketable Equity Securities

 

As of June 30, 2023, Lineage owned 1.1 million shares of OncoCyte common stock, which had a fair value of $0.3 million as of that date, based on the closing price of OncoCyte common stock of $0.23 per share on that date.

As of December 31, 2022, Lineage owned 1.1 million shares of OncoCyte common stock, which had a fair value of $1.00.4 million as of that date, based on the closing price of OncoCyte common stock of $0.90 per share on that date.

As of December 31, 2021, Lineage owned 1.1 million shares of OncoCyte common stock, which had a fair value of $2.4 million as of that date, based on the closing price of OncoCyte common stock of $2.170.32 per share on that date.

 

For the three and six months ended June 30, 2023, Lineage recorded a net unrealized loss on marketable equity securities of $150,000 and $110,000, respectively, primarily related to changes in the fair market value of OncoCyte common stock price during the respective periods.

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For the three and six months ended June 30, 2022, Lineage recorded a net unrealized loss on marketable equity securities of $0.7 million and $1.4million, respectively, related to changes in fair market value of OncoCyte common stock price during the quarter.

For the three months ended June 30, 2021, Lineage recorded a net unrealized gain on marketable equity securities of $0.6 million related to changes in fair market value of OncoCyte’s common stock price during the quarter.

For the six months ended June 30, 2022, Lineage recorded a net unrealized loss on marketable equity securities of $1.4 million related to changes in fair market value of OncoCyte common stock price during the period.

For the six months ended June 30, 2021, Lineage recorded a realized gain of $6.0 million due to sales of OncoCyte shares in the period. Lineage also recorded a net unrealized gain on marketable equity securities of $1.8 million related to changes in fair market value of OncoCyte’s common stock price during the period.respective periods.

 

All share prices are determined based on the closing price of OncoCyte common stock on the NYSE American on the last day of the applicable quarter, or the last trading day of trading of the applicable quarter, if the last day of a quarter fell on a weekend.day that was not a trading day.

 

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5.6. Property and Equipment, Net

 

At June 30, 20222023 and December 31, 2021,2022 property and equipment, net was comprised of the following (in thousands):

 Schedule of Property and Equipment, Net

 

June 30,

2022

  

December 31,

2021

  June 30, 2023 December 31, 
 (unaudited)    (Unaudited)  2022 
Equipment, furniture and fixtures $3,254  $3,472  $3,421  $3,264 
Leasehold improvements  2,341   2,539   2,266   2,150 
Right-of-use assets  3,819   4,163   6,006   6,109 
Accumulated depreciation and amortization  (5,545)  (5,302)  (6,383)  (5,850)
Property and equipment, net $3,869  $4,872  $5,310  $5,673 

 

Property and equipment net atfor financing leases was $196,000 and $121,000 on June 30, 20222023 and December 31, 2021, includes $79,000 in financing leases, which were fully amortized.2022, respectively.

 

Depreciation and amortization expense amounted towas $146,000138,000 and $165,000146,000 for the three months ended June 30, 20222023 and 2021,2022, respectively, and $296,000276,000 and $338,000296,000 for the six months ended June 30, 20222023 and 2021,2022, respectively.

 

6.7. Goodwill and Intangible Assets, Net

 

At June 30, 20222023 and December 31, 2021,2022 goodwill and intangible assets, net consisted of the following (in thousands):

 Schedule of Goodwill and Intangible Assets Net

 

June 30,

2022

  

December 31,

2021

  June 30, 2023 December 31, 
 (unaudited)    (Unaudited)  2022 
Goodwill (1) $10,672  $10,672  $10,672  $10,672 
                
Intangible assets:                
Acquired IPR&D – OPC1 (from the Asterias Merger) (2) $31,700  $31,700  $31,700  $31,700 
Acquired IPR&D – VAC (from the Asterias Merger) (2)  14,840   14,840   14,840   14,840 
Intangible assets subject to amortization:                
Acquired patents  18,953   18,953   18,953   18,953 
Acquired royalty contracts (3)  650   650   650   650 
Total intangible assets  66,143   66,143   66,143   66,143 
Accumulated amortization (4)  (19,386)  (19,321)  (19,516)  (19,451)
Intangible assets, net $46,757  $46,822  $46,627  $46,692 

 

(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, (seesee Note 14 (Commitments(Commitment and Contingencies) for additional informationfurther discussion on the Asterias Merger).Merger.

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(2)

Asterias had two in-process research and development (“IPR&D”) intangible assets that were valued at $46.5 million as part of the purchase price allocation that was performed in connection with the Asterias Merger. The fair value of these assets consisted of $31.7 million pertaining to the OPC1 program and $14.8 million pertaining to the VAC platform.

(3)

Asterias had royalty cash flows under certain specific patent families it acquired from Geron Corporation.Corporation (“Geron”). Such patentspatent families are expected to continue to generate revenue, are not used in the OPC1 or the VAC platform, and are considered to be separate long-lived intangible assets under ASC 805.Accounting Standards Codifications (“ASC”) Topic 805, Business Combinations.

(4)As of June 30, 20222023 acquired patents were fully amortized and the acquired royalty contracts had a remaining unamortized balance of approximately $217,00087,000.

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Lineage amortizes its intangible assets over an estimated period of 5 to 10 years on a straight-line basis. Lineage recognized approximately $32,000 and $33,000 in amortization expense of intangible assets during each of the three months ended June 30, 2023 and 2022, and 2021, respectively, and $65,000 and $145,000 during each of the six months ended June 30, 20222023 and June 30, 2021, respectively.2022.

 

Amortization of intangible assets for periods subsequent to June 30, 20222023 is as follows (in thousands):

 Schedule of Intangible Assets Future Amortization Expenses

Year Ended December 31, 

Amortization

Expense

 
2022  $65 
Year Ending December 31, Amortization Expense 
2023   130  $65 
2024   22   22 
Total  $217  $87 

 

7.

8. Accounts Payable and Accrued Liabilities

 

At June 30, 20222023 and December 31, 2021,2022 accounts payable and accrued liabilities consisted of the following (in thousands):

 Schedule of Accounts Payable and Accrued Liabilities

 

June 30,

2022

 

December 31,

2021

  June 30, 2023 December 31, 
 (unaudited)    (Unaudited)  2022 
Accounts payable $2,589  $3,543  $2,187  $2,393 
Accrued compensation  1,590   2,162   1,917   2,382 
Accrued liabilities (1)  4,495   22,086   581   3,833 
Other current liabilities  10   178 
Total $8,684  $27,969  $4,685  $8,608 

 

(1)The decrease in accrued liabilities was primarily due to a $21.0 million payment by Lineagemade in accordanceconnection with its obligationsthe settlement of litigation in February 2023 related to the Roche Agreement (seeAsterias Merger. See Note 14 (Commitments(Commitment and Contingencies)), offset with accrual of litigation settlement amount of $3.5 million (see Note 14 (Commitments and Contingencies)). for additional information.

 

8.9. Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value (ASC 820-10-50), Fair Value Measurements and Disclosures:

 

 Level 1 – Inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
   
 

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

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 Level 3 – Inputs to the valuation methodology are unobservable; that reflect management’s own assumptions about the assumptions market participants would make and significant to the fair value.

 

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We have not transferred any instruments between the three levels of the fair value hierarchy.

 

We measure our money market fund, marketable equity securities and our liability classified warrants at fair value on a recurring basis. The fair values of such assets and liabilities were as follows atfor June 30, 20222023 and December 31, 20212022 (in thousands):

 Schedule of Fair Value of Assets and Liabilities Valued on Recurring Basis

   Fair Value Measurements Using     Fair Value Measurements Using 
 

Balance at

June 30, 2022

 

Quoted Prices in Active Markets for Identical Assets

(Level 1)

 

Significant Other

Observable Inputs

(Level 2)

  

Significant

Unobservable

Inputs

(Level 3)

  Balance at June 30, 2023  

Quoted Prices in Active Markets for Identical Assets

(Level 1)

 

Significant Other Observable Inputs

(Level 2)

 

Significant Unobservable Inputs

(Level 3)

 
Assets:                                         
Money market fund (1) $67,684  $67,684  $-  $-  $25,641  $25,641  $-  $- 
Marketable debt securities  11,727   11,727   -   - 
Marketable equity securities  1,173   1,173   -   -   312   312   -   - 
Total assets measured at fair value $37,680  $37,680  $-  $- 
Liabilities:                                
Warrants to purchase Cell Cure ordinary shares  4   -   -   4 
Warrants to purchase Cell Cure ordinary shares (2) $1  $-  $-  $1 
Total liabilities measured at fair value $1  $-  $-  $1 

 

     Fair Value Measurements Using 
  

Balance at

December 31,

2021

  

Quoted Prices in Active Markets for Identical Assets

(Level 1)

  

Significant Other

Observable Inputs

(Level 2)

  

Significant

Unobservable

Inputs

(Level 3)

 
Assets:            
Money market fund (1) $52,324  $52,324  $-  $- 
Marketable equity securities  2,616   2,616   -   - 
Liabilities:                
Warrants to purchase Cell Cure ordinary shares  227   -   -   227 

     Fair Value Measurements Using 
  Balance at December 31, 2022  

Quoted Prices in Active Markets for Identical Assets

(Level 1)

  

Significant Other Observable Inputs

(Level 2)

  

Significant Unobservable Inputs

(Level 3)

 
Assets:                
Money market fund (1) $4,102  $4,102  $-  $- 
Marketable debt securities  46,097   46,097   -   - 
Marketable equity securities  423   423   -   - 
Total assets measured at fair value $50,622  $50,622  $-  $- 
Liabilities:                
Warrants to purchase Cell Cure ordinary shares (2) $2  $-  $-  $2 
Total liabilities measured at fair value $2  $-  $-  $2 

 

(1)Included in cash and cash equivalents in the accompanying condensed consolidated balance sheet.

In determining the fair value of the warrants to purchase ordinary shares of Cell Cure, Lineage utilizes a Black-Scholes pricing model that maximizes the use of observable inputs and minimizes the use of unobservable inputs to the extent possible, and also considers counterparty credit risk in its assessment of fair value. The significant unobservable inputs used in the fair value measurement of such warrants are volatility and share value. A significant increase or decrease in these inputs could result in a significantly higher or lower fair value measurements.

(2)18 | PageIncluded in other current liabilities and/or long-term liabilities in the accompanying condensed consolidated balance sheet.

The following table sets forth the establishment of the fair value of these warrants, as well as a summary of the changes in the fair value and other adjustments (in thousands):

Schedule of Changes in Fair Value

  Cell Cure Warrants 
Balance as of December 31, 2021 $227 
Change in fair value and other adjustments  (223)
Expiration of warrants  - 
Balance as of June 30, 2022 $4 

 

Lineage’s marketable equity securities includes the shares of stock of OncoCyte and HBL.Hadasit Bio-Holdings Ltd (“HBL”). Both of these securities have readily determinable fair values quoted on the NYSE American or TASE. These securitiesand are measured at fair value and reported as current assets on the accompanying condensed consolidated balance sheets based on the closing trading price of the security as of the date being presented.

 

The faircarrying value of Lineage’s assetscash, restricted cash, accounts receivable, accounts payable, and accrued liabilities which qualify as financial instruments under FASB guidance regarding disclosures aboutapproximate their respective fair value of financial instruments, approximate the carrying amounts presented in the accompanying consolidated balance sheets.values due to their relative short maturities.

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9.10. Related Party Transactions

 

In connection with the putative shareholder class action lawsuits filed in February 2019 and October 2019 challenging the Asterias Merger (see Note 14 (Commitments and Contingencies))14), Lineage agreed to pay the expenses for the legal defense of Neal Bradsher, a member of the Lineage board of directors, Broadwood Partners, L.P., a shareholder of Lineage, and Broadwood Capital, Inc., which serves as the general partner of Broadwood Partners, L.P., all of which were named defendants in the lawsuits, prior to being dismissed. Through June 30, 2022,2023, Lineage has incurred a total of approximately $620,000625,000 in legal expenses on behalf of the foregoing parties.

10.11. Shareholders’ Equity

 

Preferred Shares

Lineage is authorized to issue 2,000,000 preferred shares, 0no par value. The preferred shares may be issued in one or more series as the Lineage board of directors may determine by resolution. The Lineage 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 Lineage board of directors may, by resolution, increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series of preferred shares subsequent to the issue of shares of that series. As of June 30, 20222023 and December 31, 2021,2022, there were 0no preferred shares issued or outstanding.

 

Common Shares

 

Lineage is authorized to issue 250,000,000 common shares, 0no par value. As of June 30, 20222023 and December 31, 2021,2022, there were 169,748,493174,439,434 and 169,477,347170,093,114 common shares issued and outstanding, respectively.

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At The Market Offering Program

 

In May 2020, Lineage entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor Fitzgerald”), pursuant to which Lineage may sell its common shares from time to time through an “at the market offering” (“ATM”) program under the Sales Agreement.

 

In March 2021, Lineage filed a prospectus supplement with the SEC in connection with the offer and sale of $25.0 million of common shares through the ATM program under the Sales Agreement (“March 2021 Prospectus Supplement”).

 

In December 2021, Lineage filed a prospectus supplement with the SEC in connection with the offer and sale of up to $64.1 million of common shares (which included $14.1 million of its common shares which then remained unsold under the March 2021 Prospectus Supplement) through the ATM program under the Sales Agreement (“December 2021 Prospectus Supplement”). NoFollowing the filing of the December 2021 Prospectus Supplement, no further sales were made or will be made under the March 2021 Prospectus Supplement. The December 2021 Prospectus Supplement was updated, amended and supplemented by a prospectus supplement filed with the SEC on May 18, 2023.

 

As of June 30, 2022,2023, Lineage had sold 108,2004,345,596 common shares under the December 2021 Prospectus Supplement at a weighted average price per share of $2.551.41 for gross proceeds of $0.36.1 million. As of June 30, 2022,2023, $63.858.0 million remained available for sale under the December 2021 Prospectus Supplement. During the three months ended June 30, 2023, 4,237,396 shares were sold under the December 2021 Prospectus Supplement for gross proceeds of $5.8 million and net proceeds of $5.7 million. No shares were sold in the three months ended March 31, 2023, or the six months ended June 30, 2022.

 

The shares offered under the December 2021 Prospectus Supplement are registered pursuant to Lineage’s effective shelf registration statement on Form S-3 (File No. 333-237975), which was filed with the SEC on May 1, 2020 and declared effective on May 8, 2020, and Lineage’s effective shelf registration statement on Form S-3 (File No. 333-254167), which was filed with the SEC on March 5, 2021 and declared effective on March 19, 2021.

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Lineage agreed to pay Cantor Fitzgerald a commission of 3.0% of the aggregate gross proceeds from the sale of shares under the Sales Agreement, reimburse its legal fees and disbursements, and provide Cantor Fitzgerald with customary indemnification and contribution rights. The Sales Agreement may be terminated by Cantor Fitzgerald or Lineage 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 Lineage’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.

 

Reconciliation of Changes in Shareholders’ Equity

 

The following tables document the changes in shareholders’ equity for the three and six months ended June 30, 20222023 and 20212022 (unaudited and in thousands):

Schedule of Shareholder’s Equity 

                                 
  Preferred Shares  Common Shares     Noncontrolling  Accumulated Other  Total 
  Number     Number     Accumulated  Interest/  Comprehensive  Shareholders’ 
  of Shares  Amount  of Shares  Amount  Deficit  (Deficit)  Income/(Loss)  Equity 
BALANCE AT DECEMBER 31, 2021  -  $-   169,477  $434,529  $(337,097) $(1,323) $(5,211) $90,898 
Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes  -   -   10   (8)  -   -   -   (8)
Shares issued upon exercise of stock options  -   -   240   189   -   -   -   189 
Subsidiary warrant exercise  -   -   -   2   -   -   -   2 
Shares issued through ATM                                
Shares issued through ATM, shares                                
Shares issued for services                                
Shares issued for services, shares                                
Financing related fees                                
Shares issued for retirement of stock warrants                                
Shares issues for retirement of stock warrants, shares                                
Stock-based compensation  -   -   -   1,106   -   -   -   1,106 
Foreign currency translation gain  -   -   -   -   -   -   124   124 
NET LOSS  -   -   -   -   (7,087)  (6)  -   (7,093)
BALANCE AT MARCH 31, 2022  -  $-   169,727  $435,818  $(344,184) $(1,329) $(5,087) $85,218 
Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes  -   -   10   (9)  -   -   -   (9)
Shares issued upon exercise of stock options  -   -   11   10   -   -   -   10 
Subsidiary warrant exercise, net  -   -   -   97   -   -   -   97 
Stock-based compensation  -   -   -   1,235   -   -   -   1,235 
Foreign currency translation gain  -   -   -   -   -   -   1,730   1,730 
NET LOSS  -   -   -   -   (6,763)  (19)  -   (6,782)
BALANCE AT JUNE 30, 2022  -  $-   169,748  $437,151  $(350,947) $(1,348) $(3,357) $81,499 
  Shares  Amount  Shares  Amount  Deficit  Deficit  Income / (Loss)  Equity 
                    Accumulated    
  Preferred  Common        Other  Total 
  Shares  Shares  Accumulated  Noncontrolling  Comprehensive  Shareholders’ 
  Shares  Amount  Shares  Amount  Deficit  Deficit  Income / (Loss)  Equity 
BALANCE - December 31, 2022  -  $-   170,093  $440,280  $(363,370) $(1,403) $(3,571) $71,936 
Shares issued upon vesting of
restricted stock units, net of shares
retired to pay employees’ taxes
  -   -   53   (37)  -   -   -   (37)
Shares issued upon exercise of
stock options
  -   -   28   25   -   -   -   25 
Stock-based compensation  -   -   -   1,031   -   -   -   1,031 
Unrealized gain on marketable securities  -   -   -   -   -   -   91   91 
Foreign currency translation gain  -   -   -   -   -   -   373   373 
Net loss  -   -   -   -   (4,372)  (32)  -   (4,404)
BALANCE - March 31, 2023  -   -   170,174   441,299   (367,742)  (1,435)  (3,107)  69,015 
Shares issued through ATM  -   -   4,237   5,841   -   -   -   5,841 
Financing related fees  -   -   -   (193)  -   -   -   (193)
Shares issued upon exercise of
stock options
  -   -   28   22   -   -   -   22 
Stock-based compensation  -   -   -   1,280   -   -   -   1,280 
Unrealized gain on marketable securities  -   -   -   -   -   -   50   50 
Foreign currency translation gain  -   -   -   -   -   -   446   446 
Net income (loss)  -   -   -   -   (5,229)  26   -   (5,203)
BALANCE - June 30, 2023  -  $-   174,439  $448,249  $(372,971) $(1,409) $(2,611) $71,258 

 

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  Preferred Shares  Common Shares     Noncontrolling  Accumulated Other  Total 
  Number     Number     Accumulated  Interest/  Comprehensive  Shareholders’ 
  of Shares  Amount  of Shares  Amount  Deficit  (Deficit)  Income/(Loss)  Equity 
BALANCE AT DECEMBER 31, 2020  -  $-   153,096  $393,944  $(294,078) $(1,072) $(3,667) $95,127 
Shares issued through ATM  -   -   7,941   19,008   -   -   -   19,008 
Shares issued for services  -   -   78   202   -   -   -   202 
Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes  -   -   10   (12)  -   -   -   (12)
Shares issued upon exercise of stock options  -   -   942   1,751               1,751 
Financing related fees  -   -   -   (173)  -   -   -   (173)
Stock-based compensation  -   -   -   539   -   -   -   539 
Foreign currency translation gain  -   -   -   -   -   -   1,576   1,576 
NET LOSS  -   -   -   -   (1,416)  (32)  -   (1,448)
BALANCE AT MARCH 31, 2021  -  $-   162,067  $415,259  $(295,494) $(1,104) $(2,091) $116,570 
BALANCE  -  $-   162,067  $415,259  $(295,494) $(1,104) $(2,091) $116,570 
Shares issued through ATM  -   -   2,824   7,874   -   -   -   7,874 
Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes  -   -   10   (15)  -   -   -   (15)
Shares issued upon exercise of stock options  -   -   2,116   4,033               4,033 
Financing related fees  -   -   -   (26)  -   -   -   (26)
Stock-based compensation  -   -   -   919   -   -   -   919 
Shares issued for retirement of stock warrants  -   -   20   2   -   -   -   2 
Foreign currency translation gain  -   -   -   -   -   -   (960)  (960)
NET LOSS  -   -   -   -   (4,788)  (8)  -   (4,796)
BALANCE AT JUNE 30, 2021  -  $-   167,037  $428,046  $(300,282) $(1,112) $(3,051) $123,601 
BALANCE  -  $-   167,037  $428,046  $(300,282) $(1,112) $(3,051) $123,601 
                    Accumulated    
  Preferred  Common        Other  Total 
  Shares  Shares  Accumulated  Noncontrolling  Comprehensive  Shareholders’ 
  Shares  Amount  Shares  Amount  Deficit  Deficit  Income / (Loss)  Equity 
BALANCE - December 31, 2021  -  $-   169,477  $434,529  $(337,097) $(1,323) $(5,211) $90,898 
Shares issued upon vesting of
restricted stock units, net of shares retired to pay employees’ taxes
  -   -   10   (8)  -   -   -   (8)
Shares issued upon exercise of
stock options
  -   -   240   189   -   -   -   189 
Subsidiary warrant exercise  -   -   -   2   -   -   -   2 
Stock-based compensation  -   -   -   1,106   -   -   -   1,106 
Foreign currency translation gain  -   -   -   -   -   -   124   124 
Net loss  -   -   -   -   (7,087)  (6)  -   (7,093)
BALANCE - March 31, 2021  -   -   169,727   435,818   (344,184)  (1,329)  (5,087)  85,218 
Shares issued upon vesting of
restricted stock units, net of shares
retired to pay employees’ taxes
  -   -   10   (9)  -   -   -   (9)
Shares issued upon exercise of
stock options
  -   -   11   10   -   -   -   10 
Subsidiary warrant exercise, net  -   -   -   97   -   -   -   97 
Stock-based compensation  -   -   -   1,235   -   -   -   1,235 
Foreign currency translation gain  -   -   -   -   -   -   1,730   1,730 
Net loss  -   -   -   -   (6,763)  (19)  -   (6,782)
BALANCE - June 30, 2022  -  $-   169,748  $437,151  $(350,947) $(1,348) $(3,357) $81,499 

 

Warrants

Cell Cure Warrants – Liability Classified

In July 2017, Cell Cure issued to HBL a warrant to purchase 24,566 ordinary shares at an exercise price of $40.54 per share which expire in July 2022. In March 2022, HBL was issued 50 shares following its cash exercise for those shares, and an additional 50 shares were transacted as a net exercise. In April 2022, HBL was issued 2,467 shares followings its cash exercise for those shares. In July 2022, HBL cash exercised the remaining outstanding warrant to purchase 21,999 shares (see Note 15 (Subsequent Events) for additional information).

An additional warrant to purchase 2,000 ordinary shares issued to Cell Cure consultants is outstanding as of June 30, 2022, the warrant has an exercise price of $40.00 which expire in January 2024.

11.12. Stock-Based Awards

 

Equity Incentive Plan Awards

 

In September 2021, our shareholders approved the Lineage Cell Therapeutics, Inc. 2021 Equity Incentive Plan (the “2021 Plan”), which became effective upon such approval. The 2021 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, RSUs,restricted stock units (“RSUs”), and other stock awards. All of our employees (including those of our affiliates), non-employee directors and consultants are eligible to participate in the 2021 Plan.

 

Subject to adjustment for certain changes in our capitalization, the aggregate number of our common shares that may be issued under the 2021 Plan will not exceed the sum of (i) 15,000,000 shares and (ii) the number of shares subject to awards granted under the Lineage Cell Therapeutics Inc. 2012 Equity Incentive Plan (the “2012 Plan”) that were outstanding when the 2021 Plan became effective and are not issued because such awards expire or otherwise terminate. As of June 30, 2022,2023, there were 10,492,1076,269,022 shares available for grant under the 2021 Plan.

 

As a result of the approval of the 2021 Plan by our shareholders, no additional awards will be granted under the 2012 Plan or the Asterias 2013 Equity Incentive Award (the “Asterias Equity Plan”).Plan.

 

21 18 | Page

 

 

A summary of activity under the 2021 Plan is as follows (in thousands, except per share amounts):

Schedule of Share-based Compensation, Employee Stock Purchase Plan, Activity 

  

Number

of Options

Outstanding

  

Number

of RSUs

Outstanding

  

Weighted

Average

Exercise Price

 
December 31, 2021 -  -  $- 
Options granted  5,731   -   1.39 
Options expired/forfeited/cancelled  (496)  -   1.40 
RSUs granted (1)  -   994   - 
RSUs forfeited  -   (27)  - 
June 30, 2022  5,235   967  $1.39 
Options exercisable at June 30, 2022  -      $- 
  

Number

of Options

Outstanding

  

Weighted

Average

Exercise Price

 
Balance at December 31, 2022  6,001  $1.40 
Options granted  5,271  $1.46 
Options expired/forfeited/cancelled  (160) $1.43 
Balance at June 30, 2023  11,112  $1.43 
Options exercisable at June 30, 2023  1,373  $1.39 

 

(1)

On February 11,Number

of RSUs

Outstanding

Balance at December 31, 2022 Lineage granted 694,424939
RSUs to certain employees, including the Company’s executive officers, to further align management with the achievement of certain development milestones under the Roche Agreement. For each RSU, half of the common shares subject to the RSU will vest in four equal annual installments beginning on the first anniversary of the grant date. The other half of the common shares will vest in connection with the achievement of certain development milestones set forth in the Roche Agreement. Additionally, on March 10, 2022, Lineage granted 300,000forfeited(100)
RSUs to Brian Culley, its Chief Executive Officer. 100,000 of these RSUs will vest on or prior to March 9,vested(80)
Balance at June 30, 2023 and 100,000 will vest on each of the second and third anniversaries of such date, upon the achievement of certain per share performance targets, calculated based on the trailing 20-day volume weighted average price of the Company’s common shares as of the date of determination.759

 

A summary of activity of the 2012 Plan, and the 2018 inducement option (issued(which was issued to a Lineage executive outside of all equity plans), is as follows (in thousands, except per share amounts):

 Schedule of Share-based Compensation, Employee Stock Purchase Plan, Activity

  

Number

of Options

Outstanding

  

Number

of RSUs

Outstanding

  

Weighted

Average

Exercise Price

 
December 31, 2021  14,643   31  $1.84 
RSUs vested  -   (31)  - 
Options exercised  (251)  -   0.79 
Options expired/forfeited/cancelled  (795)  -   1.84 
June 30, 2022  13,597   -  $1.86 
Options exercisable at June 30, 2022  8,027      $1.75 

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Number

of Options

Outstanding

  

Weighted

Average

Exercise Price

 
December 31, 2022  12,172  $1.83 
Options exercised  (56) $0.84 
Options expired/forfeited/cancelled  (382) $1.83 
June 30, 2023  11,734  $1.83 
Options exercisable at June 30, 2023  9,437  $1.79 

 

A summary of activity under the Asterias Equity Plan is as follows (in thousands, except per share amounts):

Schedule of Share-based Compensation, Employee Stock Purchase Plan, Activity

  

Number

of Options

Outstanding

  

Weighted

Average

Exercise

Price

 
December 31, 2021  241  $1.57 
Options forfeited  (241)  1.57 
June 30, 2022  -  $- 
Options exercisable at June 30, 2022  -  $- 

Stock-based compensation expense

 

The fair value of each stock 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:

Schedule of Weighted Average Assumptions to Calculate Fair Value of Stock Options

 

Six Months Ended

June 30, (unaudited)

  Six Months ended June 30, (unaudited) 
 2022  2021  2023  2022 
Expected life (in years)  6.25   6.24   6.25   6.25 
Risk-free interest rates  2.03%  1.06%  4.2%  2.0%
Volatility  73.4%  73.1%  74.5%  73.4%
Dividend yield  0%  0%  -   - 

 

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

 

Schedule of Stock Based Compensation Expense

 

Three Months Ended

June 30, (unaudited)

  

Six Months Ended

June 30, (unaudited)

  Three Months ended June 30, (unaudited)  

Six Months ended

June 30, (unaudited)

 
 2022 2021 2022 2021  2023  2022  2023  2022 
Research and development $141  $243  $356  $377  $264  $141  $469  $356 
General and administrative  1,094   676   1,985   1,081   1,016   1,094   1,842   1,985 
Total stock-based compensation expense $1,235  $919  $2,341  $1,458  $1,280  $1,235  $2,311  $2,341 

 

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As of June 30, 2022,2023, total unrecognized compensation costs related to unvested stock options and unvested RSUs under all equity plans (including the 2018 inducement option), were $10.911.5 million, which is expected to be recognized as expense over a weighted average period of approximately 2.9 years.

 

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Basic and diluted net income (loss) per share attributable to common shareholders

Basic earnings per share is calculated by dividing net income or loss attributable to Lineage common shareholders by the weighted average number of common shares outstanding, net of unvested restricted stock or RSUs, subject to repurchase by Lineage, if any, during the period. Diluted earnings per share is calculated by dividing the net income or loss attributable to Lineage 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, restricted stock awards 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, 2023 and 2022, respectively, Lineage reported a net loss attributable to common shareholders, and therefore, all potentially dilutive common shares were considered antidilutive for those periods.

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

Schedule Of Computation Of Diluted Net Loss Per Common Share

  Three Months ended June 30,  Six Months ended June 30, 
  2023  2022  2023  2022 
Stock options  22,846   18,832   22,846   18,832 
Restricted stock units  759   967   759   967 

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 Lineage 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 Lineage cannot reliably estimate on an annual basis, (principally unrealized gains or losses generated by changes in the market price of OncoCyte common stock), Lineage 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.

 

The market value of the shares of OncoCyte common stock Lineage holds createsUnder ASC 740, a deferred tax liability (“DTL”) to Lineage based on the closing prices of the shares, less Lineage’s tax basis in the shares. The DTL generated by the OncoCyte shares that Lineage holds as of June 30, 2022 is a source of future taxable income to Lineage, 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 DTL. This DTL is determined based on the closing price of the OncoCyte common stock on June 30, 2022. Due to the inherent unpredictability of future prices of those shares, Lineage cannot reliably estimate the DTL on an annual basis. Therefore, the DTL pertaining to OncoCyte shares, determined based on the actual closing prices on the last 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.

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. Lineage established a full valuation allowance as of December 31, 2018 due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets, including foreign net operating losses generated by its subsidiaries.

 

InFor the tax years beginning on or after January 1, 2022, Lineage received the $50.0 million upfront payment due under the Roche Agreement (see additional information in Note 14 (Commitments and Contingencies)).

During December 2021, in an intercompany transaction, Lineage acquired the economic rights to Cell Cure’s interest in certain intellectual property. This transaction generated a gain to Cell Cure of $31.7 million which was fully offset by net operating loss carryforwards in Israel. For book and California income tax purposes, this transaction is eliminated in consolidation. For federal income tax purposes, the activities of Lineage’s foreign subsidiaries are not included in the consolidated tax return. However, under the regulations related to global intangible low-taxed income (“GILTI”), the profits of Lineage’s foreign subsidiaries may be included. See further discussion below.

Beginning in 2018, the Tax Cuts and Jobs Act of 2017 (the “2017(“TCJA”) eliminated the option to currently deduct research and development expenses and requires taxpayers to capitalize and amortize them over five years for research activities performed in the United States and 15 years for research activities performed outside the United States pursuant to IRC Section 174. Although Congress is considering legislation that would repeal or defer this capitalization and amortization requirement, it is not certain that this provision will be repealed or otherwise modified. If the requirement is not repealed or replaced, it will decrease our tax deduction for research and development expenses in future years.

The 2017 Tax Act”)Act subjects a U.S. stockholder to GILTIGlobal Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries. In general, GILTI is the excess of a U.S. stockholder’s total net foreign income over a deemed return on tangible assets. The provision further allows a deduction of 50%50% of GILTI,GILTI: however, this deduction is limited to the company’s pre-GILTI U.S. income. ForLineage incurred GILTI income during the year ended December 31,years 2021 Lineage’s combined foreign entities generated a profit arising from intercompany transactions, resulting in $24.8 million of GILTI. The resulting net income for federal income tax purposes was fully offset by the federal net operating loss carryforwards of the foreign entities.

For years beginning after December 31, 2021, the 2017 Tax Act requires companies to capitalize their research and experimentation expenditures as defined under Section 174 and amortize those expenditures on a straight-line bases over a period of 5 years (15 years for foreign entities). Previously the Company was able to immediately expense such costs. We believe the Company has sufficient federal net operating loss carryforwards to offset the impact of this regulation.

2022. For the three and six months ended June 30, 2022, Lineage did 0t record a deferred2023, no GILTI income was included in the Company’s tax benefit.provision.

 

24 20 | Page

 

 

For

Lineage recorded a $1.8 million deferred tax benefit for the six months ended June 30, 2023, due to the ability to offset certain deferred tax assets against the deferred tax liability associated with IPR&D, and the related release of the valuation allowance. It was determined that a portion of the deferred tax liability related to the indefinite lived assets may be realized prior to the expiration of certain pre 2018 net operating losses. Lineage did not record a deferred tax benefit for the three months ended June 30, 2023, and did not record a deferred tax benefit for the three and six months ended June 30, 2021, Lineage recorded a $169,000 deferred tax benefit that was primarily related to federal net operating losses generated from the three and six months ended June 30, 2021, which was available and indefinite in nature.2022.

13. Supplemental Cash Flow Information

Supplemental disclosure of cash flow information for the six months ended June 30, 2022, and 2021 is as follows (in thousands):

Schedule of Supplemental Cash Flow Information

  Six Months Ended June 30, (unaudited) 
  2022  2021 
Cash paid during period for interest $9  $9 

14. Commitments and Contingencies

 

Real Property Leases

Carlsbad Lease

 

In May 2019, Lineage entered into a lease for approximately 8,841 square feet of rentable space in an office park in Carlsbad, CaliforniaCalifornia. The lease was amended in December 2022 and the term was extended for a term that commencedperiod of thirty-seven months (the “Extended Term”) commencing on AugustMarch 1, 2019 and2023 (the “Extended Term Commencement Date”). The lease expires on OctoberMarch 31, 20222026, and rent was abated for months two through four of the Extended Term. The monthly base rent was $24,666 through the Extended Term Commencement Date, after which it increased to $25,197. As security for the performance of its obligations under the lease, Lineage provided the landlord with a security deposit of $17,850.

Base rent was abated for months two through five, which is included in deposits and other long-term assets on the condensed consolidated balance sheet as of the lease. Base rent through August 1, 2019 was based upon a deemed rentable area of 7,000 square feet. Since August 1, 2021, base rent has been $23,959 per month and increases by 3% on August 1, 2022.June 30, 2023.

 

In addition to base rent, Lineage pays a pro ratapro-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. These pro-rata charges are expensed as incurred and excluded from the calculation of the ROU assets and lease liabilities.

 

Alameda Leases and AlamedaCarlsbad Sublease

 

In December 2015,September 2022, Lineage entered into leases of office and laboratory space located ina sublease for approximately two buildings4,500 in Alameda, California (the “Alameda Leases”) comprised of 22,303 square feet (the “1010 Atlantic Premises”)of rentable industrial space in Carlsbad, California for a term that commenced on October 1, 2022 and expires on 8,492 March 31, 2024square feet (the “1020 Atlantic Premises”). As security for the performance of its obligations under the Alameda Leases,sublease, Lineage provided the landlord with a security deposit of approximately $424,000, which was reduced to $78,000 in January 2019 in accordance with the terms of the Alameda Leases, and which was returned in full to Lineage in March 2021.

Base rent under the Alameda Leases beginning on February 1, 2020 was $72,676 per month with annual increases of approximately 3%. In addition to base rent, Lineage pays 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.

In April 2020, Lineage subleased 10,000 square feet in the 1010 Atlantic Premises. Base rent under the sublease was $28,000 per month with annual increases of approximately 3%. Base rent for the first month was abated. In addition to base rent and utilities, the sublessee is responsible for a pro-rata portion of increases in operating expenses.

In September 11, 2020, the lease for the 1020 Atlantic Premises was terminated effective as of August 31, 2020, and the lease for the 1010 Atlantic Premises was terminated effective as of September 30, 2020. In connection with the termination of the Alameda Leases, Lineage entered into a sublease for approximately 2,432 square feet of the 1010 Atlantic Premises for a term that commenced on October 1, 2020 and ends on January 31, 202322,500. Base rent is $14,59222,500 per month with annual increases of 3% each October 1 duringuntil the term. Base rent for the first month was abated. Lineage paid a security deposit of $16,000; this amount is included in deposits and other long-term assets as of June 30, 2022.sublease expires.

 

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Cell Cure Leases

 

Cell Cure leases 728.5square meters (approximately 7,842square feet) of office and laboratory space in Jerusalem, Israel under a lease that expires December 31, 20252027, with an option to extend the lease for five years(the “Original Cell Cure Lease”).years. Base monthly rent is NIS 39,776(approximately (approximately $12,200per month). 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. These pro-rata charges are expensed as incurred and excluded from the calculation of the ROU assets and lease liabilities.

 

In January 2018, Cell Cure entered into anothera lease for an additional 934 square meters (approximately 10,054 square feet) of office space in the same facility that expires on December 31, 2025,2027, with an two five-yearoption to extend the lease for five years extension options (the “January 2018 Lease”). Base rent and construction allowance payments are NIS 93,827 per month (approximately $26,000 per month). Cell Cure providedhas a $420,000 security deposit todenominated in NIS with the landlord to be held as restricted cash during the term of the January 2018 Lease,its facility lease. The value of this security deposit in USD fluctuates based upon currency exchange rates and was $439,000 as of June 30, 2023, which is included in deposits and other long-term assets on the condensed consolidated balance sheet as of June 30, 2022.sheet.

 

In November 2021, Cell Cure entered into a lease for an additional 133 square meters (approximately 1,432square feet) of office space in the same facility that commenced on December 1, 2021, and expires on December 31, 2025,2027, with an oneoption to extend the lease for five year and one approximate three-year extension options.years. The base monthly rent iswas NIS 111,8801,880 (approximately US $3,757) through October 31, 2022 and increasesincreased to NIS 12,494 (approximately US $3,951) on November 1, 2022.

See Note 15 (Subsequent Events) for additional information regarding a newIn August 2022, Cell Cure Leaseentered into a lease for 300 square meters (approximately 3,229 square feet) of office and modificationslaboratory space in Jerusalem, Israel that expires on December 31, 2027, with an option to extend the existing leases.lease for five years. Base monthly rent is 16,350 NIS (approximately $4,800 per month). When executing this lease, Cell Cure modified the expiration dates and options terms for the leases identified above to align with this lease.

Supplemental Information – Leases

 

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

Schedule of Supplemental Cash Flow Information Related to Leases

              
 

Six Months Ended

June 30,

  Six Months ended June 30, 
 2022 2021  2023  2022 
Cash paid for amounts included in the measurement of lease liabilities:                
Operating cash flows from operating leases $508  $

438

  $538  $508 
Operating cash flows from financing leases  9   9  $5  $9 
Financing cash flows from financing leases  15   -  $29  $15 
                
Right-of-use assets obtained in exchange for lease obligations:                
Operating leases  33   

32

  $-  $33 
Finance leases $79  $- 

21 | Page

 

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

Schedule of Supplemental Balance Sheet Information Related to Leases

  

June 30,

2022

  

December 31,

2021

 
Operating leases        
Right-of-use assets, net $1,759  $2,372 
         
Right-of-use lease liabilities, current $593  $801 
Right-of-use lease liabilities, noncurrent  1,459   1,941 
Total operating lease liabilities $2,052  $2,742 
         
Financing leases        
Right-of-use assets, net $22  $36 
         
Lease liabilities, current $13  $13 
Lease liabilities, noncurrent  19   23 
Total finance lease liabilities $32  $36 
         
Other current liabilities $16  $17 
Long-term liabilities  -   7 
Total finance lease liabilities $16  $24 
         
Weighted average remaining lease term        
Operating leases  3.3 years   3.5 years 
Finance leases  1.8 years   2.2 years 
Weighted average discount rate        
Operating leases  7.8%  7.7%
Finance leases  5.3%  5.7%

26 | Page

  June 30, 2023  December 31, 
  (Unaudited)  2022 
Operating leases        
Right-of-use assets, net $2,940  $3,517 
         
Right-of-use lease liabilities, current $933  $916 
Right-of-use lease liabilities, noncurrent  2,304   2,860 
Total operating lease liabilities $3,237  $3,776 
         
Financing leases        
Right-of-use assets, net $157  $105 
         
Lease liabilities, current $54  $29 
Lease liabilities, noncurrent  113   84 
Total finance lease liabilities  167   113 
         
Other current liabilities  -   7 
Total finance lease liabilities $167  $120 
         
Weighted average remaining lease term        
         
Operating leases  3.9 years   

4.3 years

 
Finance leases  3.4 years   4.1 years 
Weighted average discount rate        
Operating leases  6.4%  6.3%
Finance leases  6.8%  6.9%

 

Future minimum lease commitments are as follows as of June 30, 20222023 (in thousands):

Schedule of Future Minimum Lease Commitments

 (Unaudited) 
  

Operating

Leases

 

Finance

Leases

  Operating
Leases
  Finance
Leases
 
Year Ending December 31,                 
2022  $450  $16 
2023   531   22  $564  $32 
2024   508   12   942   61 
2025   486   -   872   50 
2026   407   -   637   26 
         
2027  675   19 
Total lease payments  $2,382  $50   3,690   188 
Less imputed interest   (330)  (2)  (453)  (21)
Total  $2,052  $48  $3,237  $167 

 

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Collaboration Agreements

Collaborations

Roche Agreement

 

In December 2021, Lineage entered into the Roche Agreement, wherein Lineage granted to Roche exclusive worldwide rights to develop and commercialize RPE cell therapies, including Lineage’s proprietary cell therapy known as OpRegen, for the treatment of ocular disorders, including GA secondary to AMD.

 

Under the terms of the Roche Agreement, Roche paid Lineage a $50.0 million upfront payment and Lineage is eligible to receive up to an additional $620.0 million in certain developmental, regulatory and commercialization milestone payments. Lineage also is eligible for tiered double-digit percentage royalties on net sales of OpRegen in the U.S and other major markets. All regulatory and commercial milestone payments and royalty payments are subject to the existence of certain intellectual property rights that cover OpRegen at the time such payments would otherwise become due, and the royalty payments on net sales of OpRegen are subject to financial offsets based on the existence of competing products. Roche assumed responsibility for further clinical development and commercialization of OpRegen. Lineage is responsible for completing activities related to the ongoing clinical study, for which enrollment is complete, and performing certain manufacturing and process development activities.

 

Unless earlier terminated by either party, the Roche Agreement will expire on a product-by-product and country-by-country basis upon the expiration of all of Roche’s payment obligations under the agreement. Roche may terminate the agreement in its entirety, or on a product-by-product or country-by-country basis, at any time with advance written notice. Either party may terminate the agreement in its entirety with written notice for the other party’s material breach if such party fails to cure the breach or upon certain insolvency events involving the other party.

 

In January 2022, Lineage received the $50.0 million upfront payment from Roche. Subsequently, Lineage, via Cell Cure, paid $12.1 million to the Israel Innovation Authority (“IIA”),IIA, and $8.9 million to Hadasit Medical Research Services and Development Ltd. (“Hadasit”Hadasit’). Such payments were made in accordance with obligations under the Innovation Law (as discussed below) and under the terms of Cell Cure’s agreements with Hadasit (as discussed below.below). The payment to Hadasit was reduced by $1.9 million in accordance with the provisions of such agreements discussed below that reduce the sublicensing fee payable to Hadasit for costs related to Lineage’s performance obligations under the Roche Agreement. To the extent such costs are not incurred within five years after the execution of the Roche Agreement, Cell Cure will be required to pay Hadasit 21.5% of the amount of costs not incurred.

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ITI Collaboration Agreement

 

Under Lineage’s collaborative agreement with Immunomic Therapeutics, Inc. (“ITI”), Lineage agreed to perform up to approximately $2.2 million worth of certain research, development, manufacturing, and oversight activities related to athe development of an allogeneic VAC-CMV product candidate. ITI will reimburse Lineage for these costs and full-time employee costs for the manufacturing of the VAC-CMV product candidate. As of June 30, 2023, Lineage has a remaining performance obligation of approximately $1.6 million for the aforementioned activities. Upon execution of the agreement in April 2021, $0.5 million was paid by ITI to Lineage. Upon delivery of research-grade VAC-CMV product generated by Lineage, ITI paid an additional $0.5 million in August 2021. ITI is currently evaluating its next step under the agreement.

 

Agreements with Hadasit and IIA

 

The OpRegen program has beenwas supported in part with licenses to technology obtained from Hadasit, the technology transfer company of Hadassah Medical Center, and through a series of research grants from the IIA, an independent agency created to address the needs of global innovation ecosystems. A subset of the intellectual property underlying OpRegen was originally generated at Hadassah Medical Center and licensed to Cell Cure for further development.

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Under the Encouragement of Research, Development and Technological Innovation in the Industry Law 5744, and the regulations, guidelines, rules, procedures and benefit tracks thereunder (collectively, the “Innovation Law”), annual research and development programs that meet specified criteria and were approved by a committee of the IIA were eligible for grants. The grants awarded were typically up to 50% of the project’s expenditures, as determined by the IIA committee and subject to the benefit track under which the grant was awarded.

 

The terms of the grants under the Innovation Law generally require that the products developed as part of the programs under which the grants were given be manufactured in Israel. The know-how developed thereunder may not be transferred outside of Israel unless prior written approval is received from the IIA. Transfer of IIA-funded know-how outside of Israel is subject to approval and payment of a redemption fee to the IIA calculated according to formulas provided under the Innovation Law. In November 2021, the IIA research committee approved an application made by Cell Cure with respect to the grant of an exclusive license and transfer of the technological know-how for OpRegen to Roche. Under the provisions for the redemption fee, Lineage is obligated to pay the IIA approximately 24.3% of the upfront, milestone, and royalty payments which may be received under the Roche Agreement, up to an aggregate cap on all payments, such cap growing over time via interest accrual until paid in full. As of June 30, 2022,2023, the aggregate cap amount was approximately $90.692.1 million.

 

Pursuant to the Second Amended and Restated License Agreement, dated June 15, 2017, between Cell Cure and Hadasit, and a certain letter agreement entered into on December 17, 2021, Hadasit was entitled to, and was paid, a sublicensing fee of 21.5% of the $50.0 million upfront payment under the Roche Agreement (subject to certain reductions, including for costs related to Lineage’s performance obligations under the Roche Agreement) and of any milestone payments, and up to 50% of all royalty payments (subject to a maximum payment of 5% of net sales of products), Lineage receives under the Roche Agreement. The letter agreement generally terminates upon the termination of the Roche Agreement.

Second Amendment to Clinical Trial and Option Agreement and License Agreement with Cancer Research UK

 

In May 2020, Lineage and Asterias entered into a Second Amendment to Clinical Trial and Option Agreement (the “CTOA Amendment”) with Cancer Research UK (“CRUK”)CRUK and Cancer Research Technology Limited (“CRT”), which amends the Clinical Trial and Option Agreement entered into between Asterias, CRUK and CRT dated September 8, 2014, as amended September 8, 2014. Pursuant to the CTOA Amendment, Lineage assumed all obligations of Asterias and exercised early its option to acquire data generated in the Phase 1 clinical trial of VAC2 in non-small cell lung cancer being conducted by CRUK. CRUK will continue conducting the VAC2 study.

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Lineage and CRT effectuated the option by simultaneously entering into a license agreement (the “CRT License Agreement”) pursuant to which Lineage agreed to pay the previously agreedpaid a signature fee of £1,250,000 (approximately $1.6 million). For the primary licensed product for the first indication, the CRT License Agreement provides for milestone fees of up to £8,000,000 based upon initiation of a Phase 3 clinical trial and the filing for regulatory approval and up to £22,500,000 in sales-based milestones payments. Additional milestone fees and sales-based milestone payments would be payable for other products or indications, and mid-single-digit royalty payments are payable on sales of commercial products.Notproducts.

 

Either party may terminate the CRT License Agreement for the uncured material breach of the other party. CRT may terminate the CRT License Agreement in the case of Lineage’s insolvency or if Lineage ceases all development and commercialization of all products under the CRT License Agreement.

Other Contingent Obligations

We have obligations under license agreements and grants received from government entities to make future payments to third parties, which become due and payable on the achievement of certain development, regulatory and commercial milestones or on the sublicense of our rights to another party. These commitments include sublicense fees, milestone payments, redemption fees and royalties. Sublicense fees are payable to licensors or government entities when we sublicense underlying intellectual property to third parties; the fees are based on a percentage of the license fees we receive from sublicensees. Milestone payments are due to licensors or government entities upon the future achievement of certain development and regulatory milestones. Redemption fees due to the IIA under the Innovation Law are due upon receipt of any milestone and royalties received under the Roche Agreement. Royalties are payable to licensors or government entities based on a percentage of net sales of licensed products. As of June 30, 2023, we have not included these commitments on our condensed consolidated balance sheet because the achievement and timing of these events are not fixed and determinable.

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Litigation – General

 

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 financial 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, weWe are not currently subject to any pending material litigation, other than ordinary routine litigation incidental to our business, as described above.business.

Asterias Merger

 

In November 2018, Lineage, Asterias Biotherapeutics, Inc. (“Asterias”), and Patrick Merger Sub, Inc., a wholly owned subsidiary of Lineage, entered into an Agreement and Plan of Merger (the “Merger Agreement”) wherebypursuant to which Lineage 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 Lineage and Asterias approved the Merger Agreement. On March 8, 2019, theThe Asterias Merger closed with Asterias surviving as a wholly owned subsidiary of Lineage. Lineage issued 24,695,898 common shares, including 58,085 shares issued in respect of RSUs 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 Lineage common shares on March 8, 2019, was $32.4 million. The total purchase price was $52.6 million, inclusive of liabilities assumed by Lineage.

2019. In October 2019, a putative class action lawsuit was filed against the company and certain other named defendants challenging the Asterias Merger. This action (captioned

In February 2023, the court approved a Stipulation and Agreement of Compromise and Settlement pursuant to which, Lineage and certain insurers of the defendants paid $10.65 million (the “Settlement Amount”) into a fund created for the benefit of the purported class and in consideration for the full and final release, settlement and discharge of all claims. Approximately $7.12 million of the Settlement Amount was funded by certain insurers and approximately $3.53 million was paid by Lineage in cash.

Lineage and all defendants have denied, and continue to deny, the claims alleged in the lawsuit and the settlement does not reflect or constitute any admission, concession, presumption, proof, evidence or finding of any liability, fault, wrongdoing or injury or damages, or of any wrongful conduct, acts or omissions on the part any defendant.

RossPremvia Litigation Settlement

In July 2019, the Company, along with other named defendants, was sued in the Superior Court of the State of California in a matter captioned Gonzalez v. Lineage Cell Therapeutics, Inc.Aronowitz, M.D., et al.al. The plaintiff asserted medical negligence and product liability causes of action relating to the 2017 and 2018 use in a clinical trial of a product candidate, Premvia, that the Company is no longer developing and has no plans to pursue, and that is not related to the cell therapy candidates the Company currently is developing. In February 2023, the Company and the other defendants each entered into settlement agreements with the plaintiff pursuant to which the defendants without admitting any liability, which the defendants expressly denied, each agreed to pay specified amounts to the plaintiff in exchange for a full settlement and release and discharge of claims. The Company’s insurance covered the full amount paid by the Company excluding the $25,000 insurance deductible.

HBL Books and Records Request

On April 17, 2023, Cell Cure Neurosciences Ltd. (“Cell Cure”), C.A. No. 2019-0822)Lineage’s subsidiary, received a motion for disclosure of documents pursuant to Section 198A of the Israeli Companies Law 5759-1999. The motion was filed in Delaware Chancery Courtthe district court in Tel Aviv-Yafo by HBL Hadasit Bio-Holdings Ltd. (“HBL”), currently an approximately 5% shareholder of Cell Cure. According to the motion, the requested production of documents is intended to allow HBL to examine the possibility of pursuing a derivative action related to, among other things, the validity of an intercompany Collaboration and names Lineage, the Asterias board of directors, one member of Lineage’s board of directors, and certain stockholders of bothLicense Agreement (the “Intercompany Agreement”) entered into between Lineage and Asterias as defendants. The action was brought by a purported stockholderCell Cure pursuant to which Cell Cure conveyed certain rights and other assets to Lineage, and Lineage agreed to undertake certain liabilities and obligations 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 complaintCell Cure relating to the OpRegen® program. In its motion, HBL alleges, among other things, that the process leading up to the Asterias Merger was conflicted, that the consideration was inadequate,Lineage, in its capacity as Cell Cure’s controlling shareholder, and that the proxy statement filed by Asterias with the SEC in connection with the Asterias Merger was materially misleading because it omitted certain material information. The complaint seeks, among other things, that a class be certified, the recovery of monetary damages, and attorneys’ fees and costs. In December 2019, the defendants moved to dismiss the complaint. In September 2020, the Chancery Court denied the motion to dismiss as to Lineage and certain members of the AsteriasCell Cure’s board of directors caused damage to Cell Cure because the Intercompany Agreement was an interested party transaction that was not fairly priced and it grantedexploits Cell Cure’s resources for the benefit of Lineage. The motion seeks an order to compel Cell Cure to disclose and deliver to HBL the documents described in the motion, to dismisssuch additional, cumulative, or alternative relief as to all other defendants. In October 2020, the remaining defendantscourt deems appropriate, and reimbursement of HBL’s expenses, including attorneys’ fees. Cell Cure filed an answeropposition to the complaint.motion on July 9, 2023. It is impossible at this time to assess whether the outcome of this proceeding will have a material adverse effect on Lineage’s consolidated results of operations, cash flows or financial position. Therefore, in accordance with ASC 450, Contingencies, Lineage has not recorded any accrual for a contingent liability associated with this legal proceeding based on its belief that a liability, while possible, is not probable nor estimable, and any range of potential contingent liability amounts cannot be reasonably estimated at this time. Lineage records legal expenses as incurred.

In April 2022, the parties reached an agreement in principle to settle this litigation, which would result in payment to the putative class of approximately $10.7 million and dismissal of the lawsuit with prejudice and without any admission of liability or fault by defendants. Of such amount, Lineage expects to contribute approximately $3.5 million, with the balance to be paid by insurance. The proposed settlement is subject to the negotiation and execution of a settlement agreement and court approval thereof. Although the parties have reached an agreement in principle to settle, there is no assurance that a final settlement will be achieved and approved by the court. If the litigation is not settled, then Lineage will continue to vigorously defend the lawsuit and trial is currently scheduled to begin in October 2022.

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In accordance with ASC 450-20-25-2, Contingencies, Lineage has recorded an accrual for a liability associated with the proposed settlement, acknowledging that a liability is probable, and the amount of the loss is estimable.

Employment Contracts

 

Lineage has entered into employment agreements with certainall of its executive officers. Under the provisions of the agreements, Lineage 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, Lineage may agree to indemnify and reimburse other parties, typically Lineage’s clinical research organizations, investigators, clinical sites, and suppliers, 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 Lineage’s products and services. Indemnification could also cover third party infringement claims with respect to patent rights, copyrights, or other intellectual property pertaining to Lineage products and services. The term of these indemnification agreements 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 Lineage could be required to make under these indemnification agreements will generally not be subject to any specified maximum amount. Generally, Lineage has not been subject to any material claims or demands for indemnification. Lineage maintains liability insurance policies that limit its financial exposure under the indemnification agreements. Accordingly, Lineage has not recorded any liabilities for these agreements as of June 30, 20222023 or December 31, 2021.2022.

 

Royalty Obligations and License Fees

 

We have licensing agreements with research institutions, universities and other parties providing us with certain rights to use intellectual property in conducting research and development activities in exchange for the payment of royalties on future product sales, if any. In addition, in order to maintain these licenses and other rights, we must comply with various conditions including the payment of patent related costs and annual minimum maintenance fees.

 

As part of the Asterias Merger, Lineage acquired certain royalty revenues for cash flows generated under certain patent families that Asterias acquired from Geron Corporation. Lineage continues to make royalty payments to Geron forfrom royalties generated from these patents.

15. Subsequent Events

HBL Warrant Exercise

On July 6, 2022, HBL exercised warrants to purchase 21,999 ordinary shares of Cell Cure resulting in proceeds to Cell Cure of approximately $890,000. As a result of this transaction, Lineage’s ownership percent of Cell Cure decreased from approximately 99% to 94%.

Cell Cure Leases

On August 1, 2022, Cell Cure entered into a new lease for 300 square meters (approximately 3,229 square feet) of office and laboratory space in Jerusalem, Israel that expires December 31, 2027, with an option to extend the lease for five years. Base monthly rent is 16,350 NIS (approximately $4,800 per month). Upon execution of the new lease, Cell Cure amended the three existing Cell Cure Leases covering a total of 1,796 square meters (identified in Note 14 (Commitments and Contingencies)), extending their lease termination dates from December 31, 2025 to December 31, 2027, with no additional increase in monthly base rents. As a result of these transactions, our financial obligations for total rent payments for the facilities in which Cell Cure operates increased from $2.2 million to $3.5 million (as discussed below in the section Future Funding Requirements within Management’s Discussion and Analysis of Financial Condition and Results of Operations).

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

 

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated interim financial statements and notes thereto included in this Reportreport and our audited financial statements and notes thereto for the year ended December 31, 20212022 included in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 10-K”), filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2022.2022 10-K. Past operating results are not necessarily indicative of results that may occur in future periods.

 

The following discussion includes forward-looking statements. See “Special Note Regarding Forward-Looking Statements,” above. Forward-looking statements are not guarantees of future performance and our actual results may differ materially from those currently anticipated and from historical results depending upon a variety of factors, including, but not limited to, those discussed in Part I, Item 1A. Risk Factors of our 20212022 10-K, and in our subsequent filings with the SEC, including any discussed in Part II, Item 1A of this Reportreport under the heading “Risk Factors.”

 

In this report, “we,” “us,” “our,” “Lineage” or the “Company” refer collectively to Lineage Cell Therapeutics, Inc. and its wholly owned or majority owned subsidiaries, unless otherwise stated or the context otherwise requires. All information presented in this report is based on our fiscal year. Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years ending December 31 and the associated quarters, months and periods of those fiscal years.

 

Company and Business Overview

 

We are a clinical-stage biotechnology company developing novel allogeneic cell therapies to address unmet medical needs. Our programs are based on our proprietary cell-based technology platform and associated development and manufacturing capabilities. From this platform, we design, develop, manufacture, and manufacturetest specialized human cells with anatomical and physiological functions similar or identical to cells found naturally in the human body. TheseThe cells which we manufacture are created by applying developmental biological differentiation protocols that we apply to established, well-characterized, and self-renewing pluripotent cell lines. These functional cells are transplanted into patients and are designed to (a) replace or support cells that are dysfunctionalabsent or absentdysfunctional due to degenerative disease, aging, or traumatic injury, and (b) restore or (b) helpaugment the body mount a more robust and effective immune response to cancer or infectious diseases.patient’s functional activity.

 

Our strategy is to efficiently leverage our technology platform and our development, formulation, delivery, and manufacturing capabilities to develop and advance our cell therapy programs internally or in conjunction with strategic partners to further enhance their value.value and probability of success. As one example, in December 2021 we entered into a Collaboration and License Agreement (the “Roche Agreement”) with F. Hoffmann-La Roche Ltd and Genentech, Inc., a member of the Roche Group (collectively or individually, “Roche” or “Genentech”), wherein we granted to Roche exclusive worldwide rights to develop and commercialize retinal pigment epithelium (“RPE”) cell therapies, including our proprietary cell therapy program known as OpRegen®, for the treatment of ocular disorders, including geographic atrophy (GA) secondary to age-related macular degeneration (AMD). Under the terms of the Roche Agreement, Lineage received a $50.0 million upfront payment and Lineage is eligible to receive up to $620.0 million in certain developmental, regulatory, and commercialization milestone payments. Lineage also is eligible forto receive tiered double-digit percentage royalties on net sales of OpRegen in the U.SU.S. and other major markets. See Note 14 (Commitments and Contingencies) for additional information regarding the Roche Agreement.

 

As of the date of this filing,June 30, 2023, we have five allogeneic, or “off-the-shelf,” cell therapy programs in development, of which three have reached human clinical testing:

Product Candidates

 

 OpRegen®, a retinal pigment epithelium (“RPE”)an allogeneic RPE cell replacement therapy currently in a Phase 1/2a multicenter clinical trial, being conducted by Roche, for the treatment of geographic atrophy (GA)GA secondary to age-related macular degeneration (AMD),AMD, also known as atrophic or dry AMD. There currently are no U.S. Food and Drug Administration (“FDA”) or European Medicines Agency (“EMA”) approved treatment options available for patients with GA. TheA previous Phase 1/2a trial we conducted enrolled 24 individuals with dry AMD andwith GA. In December 2021, this program was partnered with Roche for further clinical development and commercialization.

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OPC1, an allogeneic oligodendrocyte progenitor cell therapy currently in long-term follow-up forfrom a Phase 1/2a multicenter clinical trial for cervical spinal cord injuries (“SCI”). To date, five (5) patients with thoracic spinal cord injuries and twenty-five (25)25 patients with cervical spinal cord injuriesSCI have been enrolled in clinical trials of OPC1. We recently received a response from the U.S. Food and Drug Administration to our Type B meeting submission which will help guide our next regulatory interactions. The clinical development of OPC1 has been partially funded by $14.3 million received under a grant byfrom the California Institute for Regenerative Medicine (“CIRM”). Additional clinical trials are being planned.

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ANP1, an allogeneic auditory neuron progenitor cell transplant currently in preclinical development for the treatment of debilitating hearing loss (“DHL”).
   
 

PNC1, an allogeneic photoreceptor cell transplant currently in preclinical development for the treatment of vision loss due to photoreceptor dysfunction or damage.

VAC, an allogeneic cancer immunotherapy comprised of antigen-presenting dendritic cells. One of the VAC product candidates, VAC2, is currently in aA Phase 1 clinical trial in non-small cell lung cancer (“NSCLC”). of one of the VAC product candidates, VAC2, was recently completed. This clinical trial is beingwas funded and conducted by Cancer Research UK (“CRUK”), one of the world’s largest independent cancer research charities. We also have anotherAnother VAC-based product candidate is in preclinical development with our partner, Immunomic Therapeutics, Inc. (“ITI”), for the treatment of glioblastoma multiforme (“GBM”).

ANP1, an auditory neuron progenitor cell therapy currently in preclinical development for the treatment of debilitating hearing loss (“DHL”).

PNC1, a photoreceptor neural cell transplant therapy currently in preclinical development for the treatment of vision loss due to photoreceptor dysfunction or damage.

Other Programs

 

We have additional undisclosed product candidates being considered for development which covercovering a range of therapeutic areas and unmet medical needs. Generally, these product candidates are based on the same pluripotent platform technology and employ a similar guided cell differentiation and transplant approach as the five product candidates detaileddescribed above, but in some cases may also include edited genes.genetic modifications designed to enhance efficacy and/or safety profiles.

 

In addition to seeking to create value for shareholders by developing product candidates and other technologiesadvancing those candidates through our clinical development, programs, we also may seek to create value from our large patent estateintellectual property and additional related technologies and capabilities, through partnering and/or strategic transactions. We founded two companies based on Lineage intellectual property that later became publicly traded companies: OncoCyte Corporation (“OncoCyte”) and AgeX Therapeutics, Inc. (“AgeX”). We continue to hold common stock in OncoCyte as of June 30, 2022.

 

Critical Accounting 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. See Part II, Item 7 – Critical Accounting Estimates and our consolidated financial statements and related notes in Part II, Item 8 of our 20212022 10-K for accounting policies and related estimates we believe are the most critical to understanding our condensed consolidated interim financial statements, financial condition and results of operations and which require complex management judgment and assumptions or involve uncertainties. There have not been any changes to our significant accounting policies or their application since we filed our 20212022 10-K.

 

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Results of Operations

 

Comparison of Three and Six Months Ended June 30, 20222023 and 20212022

 

Revenues and Cost of Sales

 

The tablesamounts in the table below show our 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)       
 2022 2021 (Decrease) (Decrease)  2023  2022  $ change  % change 
Collaboration revenues $4,148  $213  $3,935   1,847% $2,871  $4,148  $(1,277)  (31)%
Royalties  405   228   177   78%
Grant revenues  -   71   (71)  (100)%
Royalties and license fees  354   405   (51)  (13)%
Total revenues  4,553   512   4,041   789%  3,225   4,553   (1,328)  (29)%
Cost of sales  (215)  (125)  (90)  72%  (127)  (215)  88   (41)%
Gross profit $4,338  $387  $3,951   1,021% $3,098  $4,338  $(1,240)  (29)%

 

  

Six Months Ended

June 30, (unaudited)

  $ Increase/  

%

Increase/

 
  2022  2021  (Decrease)  (Decrease) 
Collaboration revenues $9,013  $213  $8,800   4,131%
Royalties  777   521   256   49%
Grant revenues  -   169   (169)  (100)%
Total revenues  9,790   903   8,887   984%
Cost of sales  (391)  (237)  (154)  65%
Gross profit $9,399  $666  $8,733   1,311%
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  Six Months ended June 30, (unaudited)       
  2023  2022  $ change  % change 
Collaboration revenues $4,992  $9,013  $(4,021)  (45)%
Royalties and license fees  619   777   (158)  (20)%
Total revenues  5,611   9,790   (4,179)  (43)%
Cost of sales  (246)  (391)  145   (37)%
Gross profit $5,365  $9,399  $(4,034)  (43)%

 

For the three months ended June 30, 2022,2023, the $4.0$1.3 million increasedecrease in total revenues was due to a $3.9$1.3 million increasedecrease in collaboration revenues related to theless current quarterperiod recognition of the $50.0 million upfront licensing payment under thefrom Roche, Agreement, whichresulting from an updated collaboration forecast. The collaboration revenue was included in deferred revenues at December 31, 20212022 (see Note 3 (Revenue) for additional information) and a $0.2 million increase in royalties, offset by a $0.1 million decrease in grant revenues due to no grant-related activities incurred during the current quarter.further discussion).

 

For the six months ended June 30, 2022,2023, the $8.9$4.2 million increasedecrease in total revenues was primarily due to a $8.8$4.0 million increasedecrease in collaboration revenues related to theless current period recognition of the $50.0 million upfront licensing payment under thefrom Roche, Agreement, whichresulting from an updated collaboration forecast. The collaboration revenue was included in deferred revenues at December 31, 20212022 (see Note 3 (Revenue) for additional information) and a $0.3 million increase in royalties, offset by a $0.2 million decrease in grant revenues due to no grant-related activities incurred during the current year period.further discussion).

Operating expenses

 

Our operating expenses consist of research and development expenses and general and administrative expenses.

 

Research and development expenses. These expenses consist of costs incurred for company-sponsored, collaborative and contracted research and development activities. These costs include direct expenses and indirect research-related overhead expenses including compensation and related benefits, stock-based compensation, consulting fees, research and laboratory fees, rent of research facilities, amortization of intangible assets, and license fees paid to third parties to acquire patents or licenses to use patents and other technology. Research and development expenses that have an alternative future use will be capitalized as tangible assets, and costs with no future benefit or alternative use will be expensed as incurred. Research and development expenses incurred and reimbursed by grants from third parties approximate the grant income recognized in our consolidated statements of operations. Royalties and sublicensing fees are recorded as research and development expenses, unless they are associated with royalties from product sales, which we classify as cost of sales in our consolidated statements of operations.We expect our total research and development expenses to fluctuate each reporting period based on several factors including (i) the stage of development for each cell therapy program, (ii) the availability of resources to work on each program, and (iii) the timing of contractual obligations.

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General and administrative expenses. These expenses include employee and director compensation and related benefits, including stock-based compensation, for executive and corporate personnel, professional and consulting fees, other than those paid for science-related consulting,and allocated overhead such as facilities rent and equipment rent and maintenance, related expenses, insurance costs allocated to general and administrative expenses, costs of patent applications, prosecution and maintenance, stock exchange-related costs, depreciation expense, marketing costs, legal and accounting costs, and other miscellaneous expenses allocated to general and administrative expense.miscellaneous.

 

The tablesamounts in the table below showare our consolidated operating expenses for the periods presented (in thousands).

 

  Three Months Ended June 30 (unaudited)  $ Increase/  

%

Increase/

 
  2022  2021  (Decrease)  (Decrease) 
Research and development expenses $3,302  $2,931  $371   13%
General and administrative expenses  5,270   4,536   734   16%
  Three Months ended June 30, (unaudited)       
  2023  2022  $ change  % change 
Research and development $3,873  $3,302  $571   17%
General and administrative  4,249   5,270   (1,021)  (19)%
Total $8,122  $8,572  $(450)  (5)%

 

  

Six Months Ended

June (unaudited)

  $ Increase/  

%

Increase/

 
  2022  2021  (Decrease)  (Decrease) 
Research and development expenses $6,290  $6,325  $(35)  (1)%
General and administrative expenses  13,739   8,471   5,268   62%
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  Six Months ended June 30, (unaudited)       
  2023  2022  $ change  % change 
Research and development $8,058  $6,290  $1,768   28%
General and administrative  8,973   13,739   (4,766)  (35)%
Total $17,031  $20,029  $(2,998)  (15)%

 

The tables belowfollowing table shows the amount of our total research and development expenses by program for the periods presented (in thousands).

 

 Three Months Ended June 30, (unaudited)  Three Months ended June 30, (unaudited) 
 Amount Percent of Total  Amount  Percent of Total 
Program 2022 2021 2022 2021 
OpRegen® and other ophthalmic applications $1,137  $1,030   34%  35%
 2023  2022  2023  2022 
OpRegen® $1,580  $1,137   41%  34%
OPC1  1,139   1,461   35%  50%  1,432   1,139   36%  35%
VAC platform  703   424   21%  14%
ANP1  173   -   5%  -%  697   173   18%  5%
PNC1  130   -   4%  -%  75   130   2%  4%
VAC platform  20   703   1%  21%
All other programs  20   16   1%  1%  69   20   2%  1%
Total research and development expenses $3,302  $2,931   100%  100% $3,873  $3,302   100%  100%

 

  Six Months Ended June 30, (unaudited) 
  Amount  Percent of Total 
Program 2022  2021  2022  2021 
OpRegen® and other ophthalmic applications $2,290  $2,127   36%  34%
OPC1  2,065   3,127   33%  49%
VAC platform  1,430   1,011   23%  16%
ANP1  235   -   4%  -%
PNC1  245   -   4%  -%
All other programs  25   60   -%  1%
Total research and development expenses $6,290  $6,325   100%  100%

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  Six Months ended June 30, (unaudited) 
  Amount  Percent of Total 
  2023  2022  2023  2022 
OpRegen® $3,100  $2,290   38%  36%
OPC1  2,833   2,065   35%  33%
ANP1  1,140   235   14%  4%
PNC1  233   245   3%  4%
VAC platform  306   1,430   4%  23%
All other programs  446   25   6%  0%
Total research and development expenses $8,058  $6,290   100%  100%

 

Research and development expenses. For the three months ended June 30, 2022,2023, the $0.4$0.6 million increase in total research and development expenses is mainly attributable to: (i) a $0.1$0.4 million net increase in expenses related to our OpRegen program, attributable primarily to development activities related to the Roche Agreement;program; (ii) a $0.3 million net decreaseincrease in expenses related to our OPC1 program, primarily related to a decrease in manufacturing activities for the program;nonclinical activities; (iii) a $0.3 million increase in expenses related to our VAC program, primarily related to manufacturing improvement activities; (iv) a $0.2$0.5 million increase in expenses related to our ANP1 program, primarily related to manufacturing activities for the new auditory neuron cell therapy program; and (v)nonclinical development activities. These increases were partially offset by a $0.1$0.7 million increasedecrease in expensesexpense related to our PNC1VAC program, primarily related to research and development activities for the new photoreceptor neural cell transplant therapy program.reduced manufacturing activities.

 

For the six months ended June 30, 2022,2023, the $1.8 million increase in total research and development expenses were relatively unchanged, with the following programs having offsetting variances:is mainly attributable to: (i) a $0.2$0.8 million net increase in expenses related to our OpRegen program, attributable primarily to development activities related towhich includes the work being performed on the Roche Agreement;collaboration; (ii) a $1.0$0.8 million net decreaseincrease in expenses related to our OPC1 program, primarily related to a decrease in licensing fees, and manufacturing activities for the program;nonclinical activities; (iii) a $0.4 million increase in expenses related to our VAC program, primarily related to manufacturing improvement activities; (iv) a $0.2$0.9 million increase in expenses related to our ANP1 program, primarily related to manufacturing activities for the new auditory neuron cell therapy program;nonclinical development activities; and (v)(iv) a $0.2$0.4 million increase in expenses related to other programs. These increases were partially offset by a $1.1 million decrease in expense related to our PNC1VAC program, primarily related to research and development activities for the new photoreceptor neural cell transplant therapy program.reduced manufacturing activities.

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General and administrative expenses. For the three months ended June 30, 2022,2023, the $0.7$1.0 million increaseyear-over-year decrease in general and administrative expenses was primarily attributable to $0.4 million increase in employee salaries and benefits and(i) a $0.5 million increasedecrease in legal and litigation expense, primarily related to the Asterias litigation settlement, and an (ii) overall reduction in costs incurred for services provided by third parties, consulting costs and stock-based compensation related expenses (see Note 11 (Stock-Based Awards) for additional information on stock-based compensation), partially offset by $0.2 million in lower investor relation expenses.expense.

 

For the six months ended June 30, 2022,2023, the $5.3$4.8 million increaseyear-over-year decrease in general and administrative expenses was primarily attributable to an accrual for(i) a non-recurring legal settlement in principle of $3.5 million as described in Note 14 (Commitments and Contingencies), a $0.7 million increase in employee salaries and benefits, a $0.9 million increase in stock-based compensation related expenses (see Note 11 (Stock Based-Awards) for additional information on stock-based compensation), and a $0.4 million increase in expenses for audit and tax services, partially offset by a $0.3$4.0 million decrease in patentlegal and litigation expense, primarily related costs.to the Asterias litigation settlement, and an (ii) overall reduction in costs incurred for services provided by third parties, consulting costs and stock-based compensation expense.

 

Other income and (expenses), net

 

The tables below show ourfollowing table shows the amount of other income and (expense), net, for the periods presented (in thousands):

 

  Three Months Ended June 30, (unaudited) 
  2022  2021 
Other income (expenses), net        
Interest income (expenses), net $51  $(3)
Gain on extinguishment of debt  -   523 
Unrealized (loss) gain on marketable equity securities  (709)  590 

Gain on revaluation of warrant liability

  2   35 
Other income (expenses), net  (1,892)  970 
Total other income (expenses), net $(2,548) $2,115 
  Three Months ended June 30, (unaudited)       
Other income (expenses), net 2023  2022  $ change  % change 
Interest income, net $382  $51  $331   649%
Unrealized loss on marketable
equity securities, net
  (150)  (709)  559   (79)%
Gain on revaluation of warrant liability  -   2   (2)  (100)%
Other expenses, net  (411)  (1,892)  1,481   (78)%
Total $(179) $(2,548) $2,369   (93)%

 

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  Six Months Ended June 30, (unaudited) 
  2022  2021 
Other income (expenses), net        
Interest income (expenses), net $51  $(1)
Gain on sale of marketable equity securities  -   6,024 
Gain on extinguishment of debt  -   523 
Unrealized (loss) gain on marketable equity securities  (1,444)  1,830 

Gain on revaluation of warrant liability

  223   52 
Other expenses, net  (2,075)  (711)
Total other income (expenses), net $(3,245) $7,717 
  Six Months ended June 30, (unaudited)       
Other income (expenses), net 2023  2022  $ change  % change 
Interest income, net $792  $51  $741   1453%
Unrealized loss on marketable
equity securities, net
  (110)  (1,444)  1,334   (92)%
Gain on revaluation of warrant liability  1   223   (222)  (100)%
Other expenses, net  (427)  (2,075)  1,648   (79)%
Total $256  $(3,245) $3,501   (108)%

 

Marketable equityInterest income, net. During the third quarter of 2022, we began to invest our excess cash in short-term U.S. Treasury securities. resulting in an increase in interest income. See Note 4 (Marketable EquityDebt Securities) to theour condensed consolidated interim financial statements included in this Reportreport for additional information regarding our marketable equitydebt securities.

 

Unrealized loss on marketable equity securities, net. We expect our total other income (expenses), net, to fluctuate each reporting period based on the changes in the market price of OncoCytethe common stock of OncoCyte Corporation (“OncoCyte”), which could significantly impact our net income or loss reported in our condensed consolidated statements of operations for a particular reporting period.

We also account for the shares we hold in Hadasit Bio-HoldingsHBL as marketable equity securities. These shares are carried at fair market value on our consolidated balance sheets. The accounting transactions for these shares were not material for either of the three and six months ended June 30, 20222023. The accounting transactions for these shares were $0.7 million and 2021.$1.4 million for the three and six months ended June 30, 2022. See Note 5 (Marketable Equity Securities) to our condensed consolidated interim financial statements included in this report for additional information regarding our marketable equity securities.

 

Other income and (expenses),expenses, net. Other expenses, net, for each of the three and six months ended June 30, 2023 and 2022 and 2021 consisted primarily of net foreign currency transaction gains and losses recognized by our subsidiaries Cell Cure and ES Cell International Pte. Ltd., changes in the fair value of warrants issued by Cell Cure,Ltd and interest income, net.an employee retention credit payroll tax refund (discussed below). Foreign currency transaction gains and losses for the periods presented are principally related to the remeasurement of the U.S. dollar denominated notes payable (net) byand notes receivable between Cell Cure and Lineage.

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Under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Company is eligible for an employee retention credit subject to Lineage.certain criteria. The employee retention credit is a payroll tax refund per employee, which was designed by the U.S. Treasury Department to assist businesses that retained employees during the COVID pandemic. For the six months ended June 30, 2023, we recorded an employee retention credit of $0.5 million, due to a decline in the quarterly revenue during 2020 and 2021 as compared to the same quarterly period in 2019. We recorded the transaction within other expenses, net on the condensed consolidated statement of operations and as a receivable within prepaid expenses and other current assets on the condensed consolidated balance sheet. We accounted for the employee retention credit by analogy to International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance, of International Financial Reporting Standards (IFRS).

 

Income Taxes

 

The market value of the shares of OncoCyte common stock we hold createsUnder ASC 740, Income Taxes, a deferred tax liability based on the closing price of OncoCyte common stock, less our tax basis in the shares. The deferred tax liability (“DTL”) generated by the OncoCyte shares we hold as of June 30, 2022, is a source 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 the deferred tax liability. This DTL is determined based on the closing price of the OncoCyte common stock as of June 30, 2022. Due to the inherent unpredictability of future price of OncoCyte common stock, we cannot reliably estimate the DTL on an annual basis. Therefore, the DTL pertaining to the OncoCyte shares we own, determined based on the actual closing price on the last 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.

We concluded that an ownership change of Asterias occurred when we acquired Asterias, and the net operating loss carryforwards we acquired in connection with the acquisition are subject to limitation under Section 382 of the Internal Revenue Service Code. We will be able to utilize only $52.8 million and $41.9 million of Asterias’ federal and California net operating losses, respectively.

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. We established a full valuation allowance as of December 31, 2018, due to the uncertainty of realizing future tax benefits from the net operating loss carryforwards and other deferred tax assets, including foreign net operating losses generated by its subsidiaries.

 

For the three and six months ended June 30, 2022,2023, Lineage recorded a $1.8 million deferred tax benefit due to the ability to offset certain deferred tax assets against the deferred tax liability associated with IPR&D, and the related release of the valuation allowance. It was determined that a portion of the deferred tax liability related to the indefinite lived assets may be realized prior to the expiration of certain pre 2018 net operating losses. Lineage did not record a deferred tax benefit.

Forbenefit for the three months ended June 30, 2023, and did not record a deferred tax benefit for the three and six months ended June 30, 2021 Lineage recorded a $169,000 deferred tax benefit that was primarily related2022. See Note 13 (Income Taxes) to federal net operating losses generated from the three and six months ended June 30, 2021, which was available and indefiniteour condensed consolidated interim financial statements included in nature.this report for additional information.

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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 price of OncoCyte common stock from period to period and the related changes in the DTLs and our deferred tax assets and other credits, including changes in the valuation allowance, for each period.

 

Liquidity and Capital Resources

 

Sources of Liquidity

At June 30, 2022, we had $72.0 million of cash, cash equivalents and marketable equity securities.

Capital Resources

Since inception weWe have incurred significant operating losses and havehistorically funded our operations primarily through proceeds from the issuancesale of equity securities,shares of our common stock, the sale of common stock of our former subsidiaries, OncoCyte and AgeX, receipt of proceeds from research grants, revenues from collaborations, and royalties from product sales and sales of research products and services.

Our projected cash flowsthat are subjectunrelated to various risks and uncertainties, including those described and referenced under Part II, Item 1A, “Risk Factors” of this Report. See the discussion below under the “Cash Flows” for additional information regarding our sources of cash during the reporting period.current cell therapy product candidates.

 

As of June 30, 2022, $63.82023, $58.0 million remained available for sale under our at the market offering program.program and we owned marketable securities with a fair value of $12.0 million based on the closing price of such securities on that date. See Note 104 (Marketable Debt Securities), Note 5 (Marketable Equity Securities) and Note 11 (Shareholders’ Equity) to theour condensed consolidated interim financial statements included in this Reportreport for additional information.

information regarding the marketable securities we own and our at the market offering program, respectively. We may usesell shares of our common stock and the marketable equity securities we own for liquidity as necessaryliquidity. However, when we can effect such sales and asthe amount of shares we can sell depends on a variety of factors to be determined by us from time to time, including, among others, market conditions, allow.the trading price and volume of our common stock and of the marketable securities we own. The market value of our marketable equity securities we own may not represent the amount that could be realized in a sale of such securities due to various market and regulatory factors, including trading volume, prevailing market conditions and prices at the time of any sale and subsequent sales of securities by the entities.sale. In addition, the market value of our marketable equity securities we own may be significantly and adversely impacted by deteriorating global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoingrecent pandemics, including the COVID-19 pandemic, the conflict in Ukraine,geopolitical conflicts, rising inflation and interest rates, and other macroeconomic factors.

Additional Capital Requirements

Our financial obligations primarily consist of vendor contracts to provide research services and other purchase commitments with suppliers. In the normal course of business, we enter into services agreements with contract research organizations, contract manufacturing organizations and other third parties. Generally, these agreements provide for termination upon notice, with specified amounts due upon termination based on the timing of termination and the terms of the agreement. The amounts and timing of payments under these agreements are uncertain and contingent upon the initiation and completion of the services to be provided.

Our commitments also include obligations to our licensors under our in-license agreements, which may include sublicense fees, milestones fees, redemption fees, royalties and reimbursement of patent maintenance costs. Sublicense fees are payable to licensors when we sublicense underlying intellectual property to third parties; the fees are based on a percentage of the license fees we receive from sublicensees. Redemption fees due to the Israel Innovation Authority (the “IIA”) under the Innovation Law are due upon receipt of any milestone and royalties received under the Roche Agreement (see Note 14 (Commitments and Contingencies) for additional information). Milestone payments are due to licensors upon our future achievement of certain development and regulatory milestones. Royalties are payable to licensors based on a percentage of net sales of licensed products. Patent maintenance costs are payable to licensors as reimbursement for the cost of maintaining of license patents. Due to the contingent nature of the payments, the amounts and timing of payments to licensors under our in-license agreements are uncertain and may fluctuate significantly from period to period.

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Cash Flows

 

Cash flows (used in) provided by (used in) operating activities

Net cash used in operating activities was $17.5 million for the six months ended June 30, 2023, which primarily reflects the loss from operations of $11.7 million plus the changes in operating assets and liabilities of $9.4 million. These items were offset by the non-cash expenses of $2.3 million for stock-based compensation and $0.3 million for depreciation and amortization. The unrealized loss on marketable securities, foreign currency remeasurement and deferred tax benefit had no effect on cash flows.

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Net cash provided by operating activities was $14.8 million for the six months ended June 30, 2022, which primarily reflects the net changes in assets and liabilities of $22.5 million, plus the $2.7 million in non-cash expenses for stock-based compensation and depreciation and amortization, less the loss from operations of $10.6 million. The change in assets and liabilities was impacted by the receipt of the $50.0 million upfront payment under the Roche Agreement, and subsequent related payments to the IIA and Hadasit (see Note 14 (Commitments and Contingencies) to the condensed consolidated interim financial statements included in this Reportreport for further explanation)additional information), partially offset by the accrual of the litigation settlement also as described in Note 14 (Commitments and Contingencies). to the condensed consolidated interim financial statements included in this report. The unrealized loss on marketable equity securities and foreign currency remeasurement had no effect on the cash flows.

 

Net cash used in operatingCash flows provided by (used in) investing activities of $12.8 million

Cash provided by investing activities for the six months ended June 30, 2021 primarily reflects2023 was $34.6 million and consisted of $47.7 million in U.S. Treasury securities which matured during the loss from operations of $14.1period, partially offset by $12.6 million plus the changes in assetsused to purchase U.S. Treasury securities and liabilities of $0.9 million. These items were offset primarily by non-cash expenses of $1.5$0.4 million for stock-based compensation and $0.5 million of depreciation and amortization. The unrealized gain on marketable equity securities, foreign currency remeasurement, and deferred tax benefit had no effect on cash flows.

Cash flows used (provided) by investing activitiesto purchase equipment.

 

Cash used by investing activities for the six months ended June 30, 2022 wasconsisted of $0.1 million and relatedused to the purchase of equipment.

Cash provided by investing activities of $10.0 million for the six months ended June 30, 2021 was associated primarily of $10.1 million of proceeds from sales of a portion of our OncoCyte holdings, offset by purchases of equipment of $0.1 million.

 

Cash flows provided by financing activities

Cash provided by financing activities for the three months ended June 30, 2023 was $5.6 million and primarily consisted of net proceeds from the sale of our common shares under our at the market offering program.

 

Cash provided by financing activities for the six months ended June 30, 2022 was $0.5 million and consisted of $0.4 million of proceeds from the exercise of employee stock options, $0.1 million of proceeds from the sale of our common shares under our at the market offering program, and $0.1 million of proceeds from the exercise of warrants to purchase shares of Cell Cure,Cure. These proceeds were partially offset by $0.1 million in financing costs.

Cash provided by financing activitiesFinancial Obligations

Our financial obligations primarily consist of $32.3 millionobligations to our licensors under license agreements, obligations related to grants received from government entities, including the IIA, obligations under vendor contracts to provide research services and other purchase commitments with suppliers.

Our obligations to licensors under license agreements and related to grants received from government entities require us to make future payments relating to sublicense fees, milestone payments, redemption fees, royalties and patent maintenance costs. Sublicense fees are payable to licensors or government entities when we sublicense underlying intellectual property to third parties; the fees are based on a percentage of the license fees we receive from sublicensees. Milestone payments, including those related to the Roche Agreement, are due to licensors or government entities upon future achievement of certain commercial, development and regulatory milestones. Redemption fees due to the IIA under the Innovation Law are due upon receipt of any milestone and royalties received under the Roche Agreement, see Note 14 (Commitment and Contingencies) for additional information. Royalties, including those related to royalties we may receive under the Roche Agreement, are payable to licensors or government entities based on a percentage of net sales of licensed products. Patent maintenance costs are payable to licensors as reimbursement for the six months endedcost of maintaining license patents. Due to the contingent nature of the payments, the amounts and timing of payments to licensors under our in-license agreements are uncertain and may fluctuate significantly from period to period. As of June 30, 2021 consisted primarily2023, we have not included these commitments on our consolidated balance sheet because the achievement and timing of $26.9 million of net proceedsthese events are not fixed and determinable.

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As discussed above, we have received grants under the Innovation Law and are required to pay royalties to the IIA from the revenues generated from the sale of common sharesproduct candidates and $5.3related services developed, in whole or in part pursuant to, or as a result of, a research and development program funded by the IIA. Under the Innovation Law, we are also required to pay redemption fees to the IIA. To date, through a series of separate grants beginning in 2007, Cell Cure has received a total of $15.4 million from the IIA to support the OpRegen program. We are obligated to pay approximately 24.3% of any future payments received under the Roche Agreement to the IIA, up to an aggregate cap on all payments to IIA, such cap growing over time via interest accrual until paid in full, which was approximately $92.1 million as of June 30, 2023. Redemption fees due to the IIA under the Innovation Law are due upon receipt of any milestone payments and royalties received under the Roche Agreement. As of June 30, 2023, we have not included any future financial obligations due to the IIA under the Innovation Law in our consolidated balance sheet because the achievement and timing of the events that would require future payments to the IIA under the Innovation Law is not fixed and determinable. See Note 14 (Commitments and Contingencies) to our condensed consolidated interim financial statements included in this report for additional information.

Under the terms of the leases for the facilities from which Cell Cure and Lineage operate, a total of $3.8 million of proceeds fromrent payments will become due, of which $0.6 million will become due in 2023.

In the exercisenormal course of employee stock options.business, we enter into services agreements with contract research organizations, contract manufacturing organizations and other third parties. Generally, these agreements provide for termination upon notice, with specified amounts due upon termination based on the timing of termination and the terms of the agreement. The amounts and timing of payments under these agreements are uncertain and contingent upon the initiation and completion of the services to be provided.

 

Future Funding Requirements

At June 30, 2022,2023, we had an accumulated deficit of approximately $350.9$373.0 million. We expect to continue to incur losses for at least the next several years. We expect that our operating expenses will continue to increase for the foreseeable future as we continue the development of, and seek regulatory approval for, our product candidates. As a result, we will need significant additional capital to fund our operations. Our determination as to when we will seek additional capital and the amount of additional capital that we will need will be based on our evaluation of the progress we make in our research and development programs, changes to the scope and focus of those programs, changes in grant funding for certain of those programs, and projection of future costs, revenues, and rates of expenditure. If we are unable to raise additional capital when and as needed, we may be required to delay, postpone, or cancel our clinical trials or limit the number of clinical trial sites.

 

We may seek to obtain the additional capital we may need through one or more equity offerings, debt financings or other third-party funding, including potential strategic alliances and licensing or collaboration agreements. We cannot assure that adequate additional capital will be available on favorable terms, if at all. The issuance of additional securities, whether equity or debt, or the possibility of such issuance, may cause the market price of our common shares to decline, and the issuance of additional equity securities could result in the dilution of the interests of our current shareholders. If we obtain additional capital through strategic alliances and licensing or collaboration agreements, we may be required to relinquish rights to our intellectual property, our product candidates or otherwise agree to terms unfavorable to us. The unavailability or inadequacy of additional capital to meet future capital needs could force us to modify, curtail, delay, or suspend some or all aspects of our current planned operations. Our ability to raise additional capital may be adversely impacted by deteriorating global economic conditions and the disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoingrecent pandemics, including the COVID-19 pandemic, the conflict in Ukraine, rising inflation and interest rates, and other macroeconomic factors.

 

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We evaluated our projected cash flows, and we believe that our $72.0$45.9 million in cash, cash equivalents and marketable equity securities at June 30, 2022,2023, provide sufficient liquidity to carry out our current planned operations (including our estimated financial obligation under the potential settlement of litigation discussed in Note 14 (Commitments and Contingencies)), through at least twelve months from the issuance date of our condensed consolidated interim financial statements included elsewhere in this Report.report. We believe we will meet our longer-term expected future cash requirements and obligations with our current cash and cash equivalents, milestone and other payments we expect to receive under our collaborativecollaboration agreements, and proceeds we receive from sales of our common shares under our at the market offering program. Under the terms of the operating leases for the facilities from which Cell Cure operates, a total of $2.2 million of rent payments will become due, of which $0.3 million will become due in 2022. See Note 14 (Commitments and Contingencies) and Note 15 (Subsequent Events) to the condensed consolidated interim financial statements included in this Report for additional information regarding our contractual obligations for rent payments related to the facilities in which Cell Cure operates.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Under SEC rules and regulations, as a smaller reporting company, we are not required to provide the information required by this item.

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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 Exchange Act. Our management, including our Chief Executive Officer and interimour Chief Financial Officer, 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 arewere effective as of the end of the period covered by this report 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 Reportreport 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

 

The information required by this Item is incorporated herein by referenceWe are not currently a party to the disclosure under the heading “Litigation” in Note 14 (Commitments and Contingencies) to the condensed consolidated interim financial statements included in this Report in Part I, Item 1 of this Report.

any material legal proceedings. From time-to-time we may be involved in a variety of claims or litigationlegal proceedings. Such proceedings may initially be viewed as immaterial but could later prove to be material. LitigationLegal proceedings are inherently unpredictable and excessive verdicts do occur. Given the inherent uncertainties in litigation, even when we can reasonably estimate the amount of possible loss or range of loss and reasonably estimable loss contingencies, the actual outcome may change in the future due to new developments or changes in approach. In addition, such claims or litigationlegal proceedings could involve significant expense and diversion of management’s attention and resources from other matters. For a discussion of legal proceedings in which we are involved, see Note 14 (Commitments and Contingencies) in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

 

Item 1A. Risk Factors

 

An investment in our common shares involves a high degree of risk. You should carefully consider the risks and uncertainties described in Part I, Item 1A. Risk Factors in our 2021the 2022 10-K, in addition to other information in this Report,report, when evaluating our business and before investing indeciding whether to purchase, hold or sell our common shares. The occurrence of anyEach of these risks and uncertainties, as well as additional risks and uncertainties not presently known to us or that we currently consider immaterial, could have a material adverse effect onharm our business, financial condition, results of operations andand/or growth prospects. In these circumstances,prospects, as well as adversely affect the market price of our common shares, could decline, andin which case you may lose all or part of your investment. Except as described below, thereThere have been no material changes from the risk factors disclosed in Part I, Item 1A. Risk Factors in our 2021 10-Kthe 2022 10-K.

Geopolitical risks associated with the ongoing military conflict between Russia and Ukraine could have an adverse impact on our business, financial condition and results of operations, including our clinical trials.

Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence. The war in Ukraine and the uncertain nature, magnitude, and duration of the conflict and the potential effect of sanctions and other measures being imposed in response thereto have contributed to increased levels of economic and political uncertainty, which could have an adverse impact on macroeconomic factors that affect the financial markets, the global economy and our business and operations. Additionally, the ongoing conflict in Ukraine may disrupt the ability of third parties on which we rely to perform in accordance with our expectations, including on commercial research organizations to conduct clinical trials. Moreover, enrollment and retention of clinical trial participants may be adversely affected. We cannot be certain what the overall impact of this conflict will be on our ability to conduct and complete our clinical trials on schedule. However, interruptions of our clinical trials could significantly delay our clinical development plans and potential authorization or approval of our product candidates, which could increase our costs and jeopardize our ability to successfully commercialize our product candidates.

We may be adversely affected by the effects of inflation and other macroeconomic factors.

Inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure. The existence of inflation in the economy has resulted in, and may continue to result in, higher interest rates and capital costs, supply shortages, increased costs of labor, components, manufacturing and shipping, as well as weakening exchange rates and other similar effects. As a result of inflation, we may experience cost increases. Changes in other economic conditions, including rising interest rates, ongoing pandemics, including the COVID-19 pandemic, lower consumer confidence, volatile equity capital markets and ongoing supply chain disruptions and the impacts of the war in Ukraine, may also affect our business. Although we may take measures to mitigate the effects of economic conditions, if these measures are not effective, our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when the benefits of such measures and the effects of such conditions impact our results of operations. Given these economic considerations, among other potential consequences, cost increases may outpace our expectations, causing us to use our cash and other liquid assets faster than forecasted. If this happens, we may need to raise additional capital to fund our operations sooner than expected, which may not be available in sufficient amounts or on reasonable terms, if at all. See also the risk factor titled “We will need to issue additional equity or debt securities in order to raise additional capital needed to pay our operating expenses” in our 2021 10-K. In addition, if the risks described in this paragraph materialize, the possibility of other risks described in our 2021 10-K materializing and/or the impact thereof may increase.

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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.

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Item 5. Other Information

 

(a) None.

(b) None.

(c) Under SEC rules and regulations, as a smaller reporting company, we are not required to provide the information required by this item in this report

 

Item 6. Exhibits

 Incorporation by Reference Incorporation by Reference

Exhibit

Number

 Description 

Exhibit

Number

 Filing 

Filing

Date

 File No. Description 

Exhibit

Number

 Filing Filing Date File No.
3.1 Restated Articles of Incorporation, as amended 3.1 10-Q May 10, 2018 001-12830 Restated Articles of Incorporation, as amended 3.1 10-Q May 10, 2018 001-12830
3.2 Certificate of Ownership 3.1 8-K August 12, 2019 001-12830 Certificate of Ownership 3.1 8-K August 12, 2019 001-12830
3.3 Amended and Restated Bylaws 3.2 8-K August 12, 2019 001-12830 Amended and Restated Bylaws 3.2 8-K August 12, 2019 001-12830
10.1*+ Form of Indemnification Agreement for directors and executive officers of the registrant 
31.1* Certification of Chief Executive Officer and Interim Chief Financial Officer pursuant to Form of Rule 13a-14(a), as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002  Certification of Chief Executive Officer and Chief Financial Officer pursuant to Form of Rule 13a-14(a), as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 
32.1# Certification of Chief Executive Officer and Interim Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 
101* Interactive Data File  Interactive Data File 
101.INS* XBRL Instance Document  XBRL Instance Document 
101.SCH* XBRL Taxonomy Extension Schema  XBRL Taxonomy Extension Schema 
101.CAL* XBRL Taxonomy Extension Calculation Linkbase  XBRL Taxonomy Extension Calculation Linkbase 
101.DEF* XBRL Taxonomy Extension Definition Document  XBRL Taxonomy Extension Definition Document 
101.LAB* XBRL Taxonomy Extension Label Linkbase  XBRL Taxonomy Extension Label Linkbase 
101.PRE* XBRL Taxonomy Extension Presentation Linkbase  XBRL Taxonomy Extension Presentation Linkbase 
104* Cover Page Interactive Data File (embedded within the Inline XBRL document)  Cover Page Interactive Data File (embedded within the Inline XBRL document) 

 

* Filed herewith

+ Management contract or compensatory plan

# Furnished herewith

 

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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.

 

 LINEAGE CELL THERAPEUTICS, INC.
  
Date: August 11, 202210, 2023/s/ Brian M. Culley
 Brian M. Culley
 

Chief Executive Officer

Date: August 10, 2023/s/ Jill Ann Howe
Jill Ann Howe
Chief Financial Officer

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