Organization and Significant Accounting Policies | 1. Organization and Significant Accounting Policies Business Combination and Corporate Restructure BTHC III, Inc. (“BTHC III” or the “Company”) was organized in Delaware in June 2005 as a shell company to effect the reincorporation of BTHC III, LLC, a Texas limited liability company. On December 28, 2006, the Company effected a Share Exchange pursuant to which it acquired all of the stock of International Stem Cell Corporation, a California corporation (“ISC California”). After giving effect to the Share Exchange, the stockholders of ISC California owned 93.7% of issued and outstanding shares of common stock. As a result of the Share Exchange, ISC California is now the wholly-owned subsidiary, though for accounting purposes it was deemed to have been the acquirer in a “reverse merger.” In the reverse merger, BTHC III is considered the legal acquirer and ISC California is considered the accounting acquirer. On January 29, 2007, the Company changed its name from BTHC III, Inc. to International Stem Cell Corporation. Lifeline Cell Technology, LLC (“LCT”) was formed in the State of California on August 17, 2001. LCT is in the business of developing and manufacturing purified primary human cells and optimized reagents for cell culture. LCT’s scientists have used a technology, called basal medium optimization, to systematically produce products designed to culture specific human cell types and to elicit specific cellular behaviors. These techniques also produce products that do not contain non-human animal proteins, a feature desirable to the research and therapeutic markets. LCT distinguishes itself in the industry by having in place scientific and manufacturing staff with the experience and knowledge to set up systems and facilities to produce a source of consistent, standardized, non-human animal protein free cell products, some of which are suitable for FDA approval. On July 1, 2006, LCT entered into an agreement among LCT, ISC California and the holders of membership units and warrants. Pursuant to the terms of the agreement, all the membership units in LCT were exchanged for 133,334 shares of ISC California Common Stock and for ISC California’s assumption of LCT’s obligations under the warrants. LCT became a wholly-owned subsidiary of ISC California. Lifeline Skin Care, Inc. (“LSC”) was formed in the State of California on June 5, 2009 and is a wholly-owned subsidiary of ISC California. LSC develops, manufactures and markets cosmetic products, utilizing an extract derived from the Company’s human parthenogenetic stem cell and the Company’s proprietary targeted small molecule technology. Cyto Therapeutics Pty. Ltd. (“Cyto Therapeutics”) was registered in the state of Victoria, Australia, on December 19, 2014 and is a limited proprietary company and a wholly-owned subsidiary of the Company. Cyto Therapeutics is a research and development company for the Therapeutic Market, which is conducting clinical trials in Australia for the use of human parthenogenetic stem cell (hpSCs) in the treatment of Parkinson’s disease. Going Concern The Company has sustained recurring losses and needs to raise additional working capital. The timing and degree of any future capital requirements will depend on many factors. Currently, the Company’s burn rate is approximately $90,000 per month, excluding capital expenditures and patent costs averaging $55,000 per month. There can be no assurance that the Company will be successful in maintaining its normal operating cash flow and raising additional funds, and that such cash flows will be sufficient to sustain the Company’s operations through at least one year from the date the financial statements are available to be issued. Based on the above, there is substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements were prepared assuming that the Company will continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Management’s plans in regard to these matters are focused on managing its cash flow, the proper timing of its capital expenditures, and raising additional capital or financing in the future. Basis of Presentation The Company is a biotechnology company focused on therapeutic and clinical product development with multiple long-term therapeutic opportunities and two revenue-generating subsidiaries with potential for increased future revenues. The Company has generated product revenues from the two commercial businesses of $11,089,000 and $7,456,000 for the years ended December 31, 2018 and 2017, respectively. The Company currently has no revenue generated from its principal operations in therapeutic and clinical product development through research and development efforts. Principles of Consolidation The Company’s consolidated financial statements include the accounts of International Stem Cell Corporation and its subsidiaries after intercompany balances and transactions have been eliminated. Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. There were no cash equivalents as of December 31, 2018 and 2017. Inventory Inventory is accounted for using the average cost and first-in, first-out (FIFO) methods for Lifeline Cell Technology (LCT) cell culture media and reagents, average cost and specific identification methods for Lifeline Skin Care (LSC) products, and specific identification method for LCT products. Inventory balances are stated at the lower of cost or net realizable value. Laboratory supplies used in the research and development process are expensed as consumed. Inventory is reviewed periodically for product expiration and obsolescence and is adjusted accordingly. The value of the inventory that is not expected to be sold within twelve months of the year end is classified as non-current inventory on the consolidated balance sheets. Accounts Receivable Trade accounts receivable are recorded at the net invoice value and are not interest bearing. Accounts receivable primarily consist of trade accounts receivable from the sales of LCT’s products, timing of cash receipts by the Company related to LSC credit card sales to customers, as well as LSC trade receivable amounts related to spa and distributor sales. The Company considers receivables past due based on the contractual payment terms. The Company reviews its exposure to accounts receivable and reserves specific amounts if collectability is no longer reasonably assured. As of December 31, 2018 and 2017, the Company had an allowance for doubtful accounts totaling $12,000. Property and Equipment Property and equipment are stated at cost. The provision for depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, generally over three to five years. The costs of major remodeling and leasehold improvements are capitalized and amortized over the shorter of the remaining term of the lease or the estimated life of the asset. Intangible Assets Intangible assets consist of acquired research and development rights used in research and development, and capitalized legal fees related to the acquisition, filing, maintenance, and defense of patents and trademarks. Patent or patent license amortization only begins once a patent license is acquired or a patent is issued by the appropriate authoritative bodies. In the period in which a patent application is rejected or efforts to pursue the patent are abandoned, all the related accumulated costs are expensed. Patents and other intangible assets are recorded at cost of $3,632,000 and $3,763,000 at December 31, 2018 and 2017, respectively, and are amortized on a straight-line basis over the shorter of the lives of the underlying patents or the estimated useful life of the license. Amortization expense for the years ended December 31, 2018 and 2017 amounted to $117,000 and $139,000, respectively, and is included in research and development expense. Accumulated amortization as of December 31, 2018 and 2017 was $958,000 and $841,000, respectively. Additional information regarding patents and patent licenses is included in Note 4. The Company recognized $607,000 and $1.2 million of impairment losses on its intangible assets during the years ended December 31, 2018 and 2017, respectively, due to abandonment of efforts to pursue certain patents or patented technologies. Long-Lived Asset Impairment The Company reviews long-lived assets for impairment when events or changes in business conditions indicate that their carrying value may not be recovered, and at least annually. The Company considers assets to be impaired and writes them down to estimated fair value if expected associated undiscounted cash flows are less than the carrying amounts. Fair value is the present value of the associated cash flows. Revenue Recognition Pursuant to the issuance by the Financial Accounting Standards Board (“FASB”) of Accounting Standards Codification (“ASC”), Revenue Recognition 1. Identify the contract with the customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract 5. Recognize revenue when (or as) each performance obligation is satisfied Under ASC 606, the Company recognizes revenue when it satisfies a performance obligation by transferring control of the promised goods or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The following table presents the Company’s revenue disaggregated by segment, product and geography, based on management’s assessment of available data (in thousands): Biomedical Market: Year Ended December 31, 2018 U.S. OUS* Total Revenues % of Total Revenues Biomedical products Cells $ 1,002 $ 405 $ 1,407 15 % Media 7,336 516 7,852 85 % Other 18 — 18 0 % Total $ 8,356 $ 921 $ 9,277 100 % *Outside the United States Year Ended December 31, 2017 U.S. OUS* Total Revenues % of Total Revenues Biomedical products Cells $ 1,181 $ 510 $ 1,691 33 % Media 2,967 533 3,500 67 % Other 9 — 9 0 % Total $ 4,157 $ 1,043 $ 5,200 100 % *Outside the United States Cosmetic Market: Year Ended December 31, 2018 Year Ended December 31, 2017 Total Revenues % of Total Revenues Total Revenues % of Total Revenues Cosmetic sales channels ecommerce $ 976 54 % $ 1,098 49 % Professional 836 46 % 1,153 51 % International — 0 % 5 0 % Total $ 1,812 100 % $ 2,256 100 % The Company's revenue consists primarily of sales of products from its two revenue-generating operating segments, the cosmetics products and biomedical products business segments. The cosmetic market segment markets and sells a line of luxury skincare products sold through three sales channels: ecommerce, professional, and international. The ecommerce channel sells direct to customers through online orders, while the professional sales are to spas, salons and other skincare providers. International sales are primarily through distributors. The biomedical market segment markets and sells primary human cell research products with two product categories, cells and media, both sold within and outside the United States. Contract terms for unit price, quantity, shipping and payment are governed by sales agreements, invoices or online order forms which the Company considers to be a customer's contract in all cases. The unit price is considered the observable stand-alone selling price for the arrangements. Any promotional or volume sales discounts are applied evenly to the units sold for purposes of calculating standalone selling price. Product sales generally consist of a single performance obligation that the Company satisfies at a point in time. The Company recognizes product revenue when the following events have occurred: (a) the Company has transferred physical possession of the products, (b) the Company has a present right to payment, (c) the customer has legal title to the products, and (d) the customer bears significant risks and rewards of ownership of the products. For LSC products, ecommerce sales are primarily paid through credit card charges, while professional and international sales are invoiced. The professional sales and biomedical products' standard payment terms for its customers are generally 30 days after the Company satisfies the performance obligations. For cosmetic products, the Company honors a 30-days return policy, but historical returns have been minimal and as such, the estimated allowance for sales returns was none and $10,000 as of December 31, 2018 and December 31, 2017 respectively. The Company elects to account for shipping and handling as activities to fulfill the promise to transfer the goods. As a result, no consideration is allocated to shipping and handling. Rather, the Company accrues the cost of shipping and handling upon shipment of the product, and all contract revenue is recognized at the same time. Variable Consideration The Company records revenue from customers in an amount that reflects the transaction price it expects to be entitled to after transferring control of those goods or services. From time to time, the Company offers sales promotions on its skincare products such as discounts and free product offers. Variable consideration is estimated at contract inception only to the extent that it is probable that a significant reversal of revenue will not occur and updated at the end of each reporting period as additional information becomes available. Contract Balances The Company records a receivable when it has an unconditional right to receive consideration after the performance obligations are satisfied. As of December 31, 2018 and December 31, 2017, accounts receivable, net, totaled $651,000 and $465,000, respectively. For the year ended December 31, 2018, the Company did not incur material impairment losses with respect to its receivables. Practical Expedients The Company has elected the practical expedient not to determine whether contracts with customers contain significant financing components. The Company pays commissions on certain sales for its biomedical and cosmetic market(s) once the customer payment has been received, which are accrued at the time of the sale. The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses. In addition, the Company has elected to exclude sales taxes in consideration of the transaction price. Allowance for Sales Returns The Company’s cosmetic products have a 30-day product return guarantee and based on historical rate of returns from the years ended December 31, 2015 through 2017, the Company determined that there is a low probability that returns will occur. The returns that have historically occurred have not been significant and have been recognized as they occur as a reduction of revenue that is recognized as performance obligations are met. As of December 31, 2018, the Company has no allowance for sales returns compared to the prior year of $10,000. Cost of Sales Cost of sales consists primarily of salaries and benefits associated with employee efforts expended directly on the production of the Company’s products and include related direct materials, general laboratory supplies and allocation of overhead. Certain of the agreements under which the Company has licensed technology will require the payment of royalties based on the sale of its future products. Such royalties will be recorded as a component of cost of sales. Additionally, the amortization of license fees or milestone payments related to developed technologies used in the Company’s products will be classified as a component of cost of sales to the extent such payments become due in the future. Research and Development Costs Research and development costs, which are expensed as incurred, are primarily comprised of costs and expenses for salaries and benefits associated with research and development personnel, overhead and occupancy, contract services, and amortization of license costs for technology used in research and development with alternative future uses. Stock-Based Compensation The Company recognized stock-based compensation expense associated with stock options and other stock-based awards in accordance with the authoritative guidance for stock-based compensation. The cost of a stock-based award is measured at the grant date based on the estimated fair value of the award, and is recognized as expense on a straight-line basis, net of estimated forfeitures over the requisite service period of the award. The fair value of stock options is estimated using the Black-Scholes option valuation model, which requires the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest rate, dividend yield, and expected life of the option. The fair value of restricted stock awards is based on the market value of the Company’s common stock on the date of grant. Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The table below sets forth a summary of the Company’s liabilities which are measured at fair value on a recurring basis as of December 31, 2018 (in thousands). Total Level 1 Level 2 Level 3 LIABILITIES: Warrants to purchase common stock $ 1,745 $ — $ — $ 1,745 The table below sets forth a summary of the Company’s liabilities which are measured at fair value on a recurring basis as of December 31, 2017 (in thousands). Total Level 1 Level 2 Level 3 LIABILITIES: Warrants to purchase common stock $ 3,113 $ — $ — $ 3,113 The following table displays the rollforward activity of liabilities with inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity) (in thousands): Warrants common stock Beginning balance at December 31, 2016 $ 2,045 Adjustments to estimated fair value 1,068 Ending balance at December 31, 2017 3,113 Adjustments to estimated fair value (1,368 ) Ending balance at December 31, 2018 $ 1,745 Income Taxes The Company accounts for income taxes in accordance with applicable authoritative guidance, which requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carryforwards. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Significant estimates include patent life (remaining legal life versus remaining useful life), inventory carrying values, allowance for excess and obsolete inventories, allowance for sales returns and doubtful accounts, and transactions using the Black-Scholes option pricing model, e.g., warrants and stock options, as well as the Monte-Carlo valuation method for certain warrants. Actual results could differ from those estimates. Fair Value of Financial Instruments The Company believes that the carrying value of its cash and cash equivalents, receivables, accounts payable, accrued liabilities, and related party payable as of December 31, 2018 and 2017 approximate their fair values because of the short-term nature of those instruments. The fair value of certain warrants was determined at each issuance and reporting date and other applicable re-measurement dates in 2018 and 2017 using the Monte-Carlo valuation methodology. Income (Loss) Per Common Share The computation of net loss per common share is based on the weighted average number of shares outstanding during each period. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period plus the common stock equivalents, which would arise from the exercise of stock options and warrants outstanding using the treasury stock method and the average market price per share during the period. At December 31, 2018, there were 1,824,885 vested and 2,542,457 non-vested stock options outstanding and 3,951,052 warrants outstanding; and at December 31, 2017, there were 4,001,469 warrants, and 1,011,590 vested and 1,284,489 non-vested stock options outstanding. These stock options, warrants, and convertible preferred stock were not included in the diluted loss per share calculation because the effect would have been anti-dilutive. Refer to Note 6 for convertible preferred stock. Comprehensive Income Comprehensive income or loss includes all changes in stockholders’ equity except those resulting from investments by owners and distributions to owners. The Company did not have any items of comprehensive income or loss other than net loss from operations for the years ended December 31, 2018 and 2017. Recent Accounting Pronouncements I n August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-13, “Fair Value Measurement (Topic 820), “Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13), which removes the valuation processes for Level 3 fair value measurements and adds the disclosure for the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The updated standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact of the adoption of this accounting standard update. In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting.” I n July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivatives and Hedging (Topic 815 ). ASU 2017-11 changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features and requires entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down round feature when triggered with the effect treated as a dividend and as a reduction of income available to common shareholders in basic EPS. The updated standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In February 2016, the FASB issued ASU No. 2016-02, Leases |