| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting
Policies Basis of presentation The
financial statements presented herein have been prepared on a separate, stand-alone basis. The financial statements are presented
in accordance with U.S. generally accepted accounting principles (“GAAP”). Prior to February 17, 2017, BioTime consolidated
the results of OncoCyte into BioTime’s consolidated results based on BioTime’s ability to control OncoCyte’s
operating and financial decisions and policies through its majority ownership of OncoCyte common stock. BioTime owned 51.1% of
the outstanding common stock of OncoCyte at December 31, 2016. Beginning on February 17, 2017, BioTime’s percentage ownership
of the outstanding OncoCyte common stock declined below 50%, resulting in a loss of “control” of OncoCyte under GAAP
and, as a result, BioTime deconsolidated OncoCyte’s financial statements from BioTime’s consolidated financial statements.
As a result of this deconsolidation, OncoCyte is no longer considered a subsidiary of BioTime under GAAP with effect from February
17, 2017. OncoCyte remains an affiliate of BioTime based on BioTime’s retained share ownership in OncoCyte, which is sufficient
to allow BioTime to exert significant influence over the operations and management of OncoCyte. To the extent OncoCyte
does not have its own employees or human resources for its operations, BioTime or BioTime subsidiaries provide certain employees
for administrative or operational services, as necessary, for the benefit of OncoCyte (see Note 4). Accordingly, BioTime allocates
expenses such as salaries and payroll related expenses incurred and paid on behalf of OncoCyte based on the amount of time that
particular employees devote to OncoCyte affairs. Other expenses such as legal, accounting, human resources, marketing, travel,
and entertainment expenses are allocated to OncoCyte to the extent that those expenses are incurred by or on behalf of OncoCyte.
BioTime also allocates certain overhead expenses such as facilities rent and utilities, property taxes, insurance, internet and
telephone expenses based on a percentage determined by management. These allocations are made based upon activity-based allocation
drivers such as time spent, percentage of square feet of office or laboratory space used, and percentage of personnel devoted to
OncoCyte’s operations or management. Management evaluates the appropriateness of the percentage allocations on a periodic
basis and believes that this basis for allocation is reasonable. Use of estimates The preparation
of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates estimates
which are subject to significant judgment, including those related to the going concern assessments of OncoCyte financial statements,
allocation of direct and indirect expenses, useful lives associated with long-lived intangible assets, equipment and furniture,
loss contingencies, valuation allowances related to deferred income taxes, and assumptions used to value stock-based awards, debt
or other equity instruments. Actual results could differ materially from those estimates. Going concern assessment With the implementation
of FASB’s standard on going concern, Accounting Standard Update, or ASU No. 2014-15, OncoCyte assesses going concern uncertainty
in its financial statements to determine if it has sufficient cash, cash equivalents and working capital on hand, including marketable
equity securities, and any available borrowings on loans, to operate for a period of at least one year from the date the financial
statements are issued, which is referred to as the “look-forward period” as defined by ASU No. 2014-15. As part of
this assessment, based on conditions that are known and reasonably knowable to OncoCyte, it will consider various scenarios, forecasts,
projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or
programs, and its ability to delay or curtail expenditures or programs, if necessary, among other factors. Based on this assessment,
as necessary or applicable, OncoCyte makes certain assumptions around implementing curtailments or delays in the nature and timing
of programs and expenditures to the extent OncoCyte deems probable those implementations can be achieved and it has the proper
authority to execute them within the look-forward period in accordance with ASU No. 2014-15. Fair value measurements OncoCyte accounts
for fair value measurements in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 820, Fair Value Measurements
● Level 1
● Level 2
● Level 3 In determining fair
value, OncoCyte utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs
to the extent possible, and also considers counterparty credit risk in its assessment of fair value. For the periods presented,
OncoCyte has no financial assets or liabilities recorded at fair value on a recurring basis, except for cash and cash equivalents
consisting of money market funds and marketable equity securities of BioTime and AgeX common stock held by OncoCyte described below.
These assets are measured at fair value using the period-end quoted market prices as a Level 1 input. The carrying amounts
of cash equivalents, prepaid expenses and other current assets, amounts due to BioTime and other affiliates, accounts payable,
accrued expenses and other current liabilities approximate fair values because of the short-term nature of these items. The carrying amount
of the Loan Payable to Silicon Valley Bank approximates fair value because the loan bears interest at a floating market rate (see
Note 5). Cash and cash equivalents Cash equivalents
typically consisted of highly liquid investments, with maturities of three months or less when purchased. At December 31, 2018
and 2017, OncoCyte’s cash balances totaled $8.0 million and $7.6 million, respectively. Financial instruments
that potentially subject OncoCyte to credit risk consist principally of cash and cash equivalents. OncoCyte maintains cash and
cash equivalent balances at financial institutions in excess of amounts insured by United States government agencies. OncoCyte
places its cash and cash equivalents with high credit quality financial institutions. Accounting for BioTime and AgeX shares
of common stock OncoCyte
accounts for the BioTime shares it holds, including the AgeX shares of common stock received as a dividend-in-kind on November
28, 2018, as marketable equity securities in accordance with ASC 320-10-25, Investments – Debt and Equity Securities Financial Instruments–Overall: Recognition and
Measurement of Financial Assets and Financial Liabilities Beginning
on January 1, 2018, with the adoption of ASU 2016-01 discussed below, these securities are now called “marketable equity
securities” and unrealized holding gains and losses on these securities are reported in the statements of operations in other
income and expenses, net. Prior to January 1, 2018 and the adoption of ASU 2016-01, the BioTime shares held were called “available-for-sale
securities” and unrealized holding gains and losses were reported in other comprehensive income or loss, net of tax, and
were a component of the accumulated other comprehensive income or loss on the balance sheet. Realized gains and losses are included
in other income and expenses, net, in the statements of operations. On
January 1, 2018, in accordance with the adoption of ASU 2016-01, OncoCyte recorded a cumulative-effect adjustment for the BioTime
shares as available-for-sale-securities to reclassify the unrealized loss of $888,000 included in accumulated other comprehensive
loss to the accumulated deficit balance. On
November 28, 2018, BioTime distributed shares of AgeX common stock owned by BioTime to holders of BioTime common shares, on a pro
rata basis, in the ratio of one share of AgeX common stock for every ten BioTime common shares owned. As a shareholder of BioTime
common stock, OncoCyte received 35,326 shares of AgeX common stock as its pro rata share and recorded a $96,000 dividend in other
income and expenses for the year ended December 31, 2018. For
the year ended December 31, 2018, OncoCyte recorded an unrealized loss of $427,000, included in other income and expenses, net,
due to the decrease in fair market value of the BioTime shares from January 1, 2018 to December 31, 2018, and the decrease in the
fair market value of the AgeX shares from November 28, 2018 to December 31, 2018. In
2017, OncoCyte sold 266,442 shares of BioTime common stock for net proceeds of $934,000 and recognized a $309,000 loss from the
sale of the BioTime shares included in other income and expenses, net. The proceeds were used to pay down amounts owed to BioTime
and affiliates (see Note 4). As of December 31,
2018, OncoCyte held 353,264 and 35,326 shares of common stock of Long-lived intangible assets Long-lived intangible
assets, primarily consisting of acquired patents, patent applications, and licenses to use certain patents are stated at acquired
cost, less accumulated amortization (see Note 3). Amortization expense is computed using the straight-line method over the estimated
useful lives of the assets over a period of 10 years. Machinery and equipment Machinery and equipment
are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful
lives of the assets, generally over a period of 3 to 10 years. For equipment purchased under capital leases, OncoCyte depreciates
the equipment based on the shorter of the useful life of the equipment or the term of the lease, ranging from 3 to 5 years, depending
on the nature and classification of the capital lease. Maintenance and repairs are expensed as incurred whereas significant renewals
and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation
are removed from the respective accounts and any resulting gain or loss is reflected in OncoCyte’s results of operations. Impairment of long-lived assets OncoCyte assesses
the impairment of long-lived assets, which consist primarily of long-lived intangible assets, machinery and equipment, whenever
events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. If
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted
future cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss equal to the excess
of the asset’s carrying value over its fair value is recorded. As part of OncoCyte’s
impairment assessment of its intangible assets, OncoCyte determined that certain intangible assets, for therapeutic uses that OncoCyte no longer plans to develop or
commercialize, were impaired as of June 30, 2018 and, accordingly, OncoCyte recorded a noncash charge of $625,000 representing
the net book value of those assets as of that date, and included that charge in research and development expenses for the year
ended December 31, 2018. Accounting for warrants OncoCyte determines
the accounting classification of warrants it issues, as either liability or equity classified, by first assessing whether the warrants
meet liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company’s Own Stock Income taxes OncoCyte has filed
a standalone U.S. federal income tax return since its inception. For California purposes, OncoCyte activity for 2016 and for the
period from January 1, 2017 through February 16, 2017, the date immediately before BioTime owned less than 50% of OncoCyte outstanding
common stock, was included in BioTime’s California combined tax return. For periods beginning on February 17, 2017 and thereafter,
OncoCyte filed or will file a standalone California income tax return. The provision for state income taxes has been determined
as if OncoCyte had filed separate tax returns for the periods presented. Accordingly, the effective tax rate of OncoCyte in future
years could vary from its historical effective tax rates depending on the future legal structure of OncoCyte and related tax elections.
The historical deferred tax assets, including the operating losses and credit carryforwards generated by OncoCyte, will remain
with OncoCyte. OncoCyte accounts for income taxes in accordance with ASC 740, Income Taxes The guidance also
prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions
taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not
sustainable upon examination by taxing authorities. OncoCyte will recognize accrued interest and penalties related to unrecognized
tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties as of December 31, 2018 and
2017. OncoCyte is not aware of any uncertain tax positions that could result in significant additional payments, accruals, or other
material deviation for the years ended December 31, 2018 and 2017. OncoCyte is currently unaware of any tax issues under review. On December 22,
2017, the United States enacted major federal tax reform legislation, Public Law No. 115-97, commonly referred to as the 2017 Tax
Cuts and Jobs Act (“2017 Tax Act”), which enacted a broad range of changes to the Internal Revenue Code. Changes to
taxes on corporations impacted by the 2017 Tax Act include, but are not limited to, lowering the U.S. federal tax rates to a 21%
flat tax rate, eliminating the corporate alternative minimum tax (“AMT”), imposing additional limitations on the deductibility
of interest and net operating losses, allowing any net operating loss (“NOLs”) generated in tax years ending after
December 31, 2017 to be carried forward indefinitely and generally repealing carrybacks, reducing the maximum deduction for NOL
carryforwards arising in tax years beginning after 2017 to a percentage of the taxpayer’s taxable income, and allowing for
additional expensing of certain capital expenditures. The 2017 Tax Act also puts into effect a number of changes impacting operations
outside of the United States including, but not limited to, the imposition of a one-time tax “deemed repatriation”
on accumulated offshore earnings not previously subject to U.S. tax, and shifts the U.S taxation of multinational corporations
from a worldwide system of taxation to a territorial system. ASC 740 requires the effects of changes in tax rates and laws on deferred
tax balances (including the effects of the one-time transition tax) to be recognized in the period in which the legislation is
enacted (see Note 8). On December 22,
2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance for companies that are
not able to complete their accounting for the income tax effects of the 2017 Tax Act in the period of enactment. SAB 118 allows
OncoCyte to record provisional amounts during a measurement period not to extend beyond one year of the enactment date (see Note
8). OncoCyte applied the guidance in SAB 118 when accounting for the enactment-date effects of the 2017 Tax Act during the years
ended December 31, 2018 and 2017. As of December 31, 2018, OncoCyte completed its accounting for all the enactment-date income
tax effects of the 2017 Tax Act. Research and development expenses Research
and development expenses include both direct expenses incurred by OncoCyte and indirect overhead costs allocated by BioTime that
benefit or support OncoCyte’s research and development functions. Direct research and development expenses consist primarily
of personnel costs and related benefits, including stock-based compensation, outside consultants and suppliers. Indirect research
and development expenses allocated by BioTime to OncoCyte under the Shared Facilities Agreement (see Note 4), are primarily based
on headcount or space occupied, as applicable, and include laboratory supplies, laboratory expenses, rent and utilities, common
area maintenance, telecommunications, property taxes and insurance General and administrative expenses General and administrative
expenses include both direct expenses incurred by OncoCyte and indirect overhead costs allocated by BioTime that benefit or support
OncoCyte’s general and administrative functions. Direct general and administrative expenses consist primarily of compensation
and related benefits, including stock-based compensation, for executive and corporate personnel, and professional and consulting
fees. Indirect general and administrative expenses allocated by BioTime to OncoCyte under the Shared Facilities Agreement ( see
Note 4 Sales and
marketing expenses Sales
and marketing expenses consist primarily of personnel costs and related benefits, including stock-based compensation, trade shows
and booths, branding and positioning, and outside consultants. Indirect sales and marketing expenses allocated by BioTime, primarily
based on OncoCyte’s headcount or space occupied, as applicable, include costs for rent and utilities, common area maintenance,
telecommunications, property taxes and insurance, incurred by BioTime and allocated to us under the Shared Facilities Agreement. Stock-based compensation OncoCyte recognizes
compensation expense related to employee option grants and restricted stock grants, if any, in accordance with FASB ASC 718, Compensation
– Stock Compensation In March 2016, the
FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, In connection with
the adoption of ASU 2016-09, OncoCyte changed its accounting policies including how it accounts for excess tax benefits and deficiencies,
if any, and forfeitures, as applicable. All excess tax benefits and tax deficiencies from stock-based compensation awards accounted
for under ASC 718 are recognized as income tax benefit or expense, respectively, in the statements of operations. Prior to the
adoption of ASU 2016-09, OncoCyte recognized excess tax benefits, if any, in additional paid-in capital only if the tax deduction
reduced cash income taxes payable and, excess tax deficiencies were recognized either as an offset to accumulated excess tax benefits,
if any, on OncoCyte’s statements of operations. An excess income tax benefit arises when the tax deduction of a share-based
award for income tax purposes exceeds the compensation cost recognized for financial reporting purposes and, a tax deficiency arises
when the compensation cost exceeds the tax deduction. Because OncoCyte has a full valuation allowance for all periods presented
(see Note 8) and an insignificant number of stock option exercises during the current quarter, there was no impact to OncoCyte
statements of operations for any excess tax benefits or deficiencies, as any excess benefit or deficiency would be offset by the
change in the valuation allowance. Forfeitures are
accounted for as they occur instead of based on the number of awards that were expected to vest. Based on the nature and timing
of OncoCyte’s grants, straight line expense attribution of stock-based compensation for the entire award and the relatively
low forfeiture rate on OncoCyte’s experience, the impact of the adoption of ASU 2016-09 pertaining to forfeitures was not
significant to OncoCyte’s financial statements. OncoCyte estimates
the fair value of employee stock-based payment awards on the grant-date and recognizes the resulting fair value over the requisite
service period. For stock-based awards that vest only upon the attainment of one or more performance goals set by OncoCyte at the
time of the grant, compensation cost is recognized if and when OncoCyte determines that it is probable that the performance condition
or conditions will be, or have been, achieved. OncoCyte uses the Black-Scholes option pricing model for estimating the fair value
of options granted under OncoCyte’s equity plans. The fair value of each restricted stock grant, if any, is determined based
on the value of the common stock granted or sold. OncoCyte has elected to treat stock-based payment awards with graded vesting
schedules and time-based service conditions as a single award and recognizes stock-based compensation on a straight-line basis
over the requisite service period. Compensation expense
for non-employee stock-based awards is recognized in accordance with ASC 718 and FASB ASC 505-50, Equity-Based Payments to Non-Employees Recent Accounting Pronouncements The Black-Scholes
option pricing model requires OncoCyte to make certain assumptions including the expected option term, the expected volatility,
the risk-free interest rate and the dividend yield (see Note 7). The expected term
of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. OncoCyte
estimates the expected term of options granted based on its own experience and, in part, based on upon the “simplified method”
provided under Staff Accounting Bulletin, Topic 14 Net loss per common share Basic net loss per
common share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding for the period.
Diluted net loss per share reflects the weighted-average number of shares of common stock outstanding plus the potential effect
of dilutive securities or contracts which are exercisable to common stock, such as stock options and warrants (using the treasury
stock method) and shares issuable in future periods, except in cases where the effect would be anti-dilutive. Because OncoCyte
reported net losses for all periods presented, all potentially dilutive common stock are antidilutive for those periods. The following common
stock equivalents were excluded from the computation of diluted net loss per common share of common stock for the years ended December
31, 2018 and 2017 because including them would have been antidilutive (in thousands):
Year Ended December 31,
2018 2017
Stock options 3,578 1,125
Warrants 4,035 2,779 Segments OncoCyte’s
executive management team, as a group, represents the entity’s chief operating decision makers. To date, OncoCyte’s
executive management team has viewed OncoCyte’s operations as one segment that includes, the research and development of
diagnostic tests for the detection of cancer. As a result, the financial information disclosed materially represents all of the
financial information related to OncoCyte’s sole operating segment. Recent accounting pronouncements The following accounting
standards, which are not yet effective, are presently being evaluated by OncoCyte to determine the impact that they might have
on its financial statements. In June 2018, the
FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, . |
