| Basis of Presentation and Summary of Significant Accounting Policies | 2. Basis of Presentation and Summary of
Significant Accounting Policies The unaudited condensed
consolidated interim financial statements presented herein, and discussed below, have been prepared in accordance with 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 footnote disclosures normally included in comprehensive consolidated financial statements
have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2019 was derived from the audited consolidated
financial statements at that date but does not include all the information and footnotes required by GAAP. These condensed consolidated
interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto
included in AgeX’s Annual Report on Form 10-K for the year ended December 31, 2019. The accompanying condensed
consolidated interim financial statements, in the opinion of management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of AgeX’s financial condition and results of operations. The condensed consolidated
results of operations are not necessarily indicative of the results to be expected for any other interim period or for the entire
year. Through September 30, 2019,
to the extent AgeX did not have its own employees or facilities for its operations, Lineage or Lineage commonly controlled and
consolidated subsidiaries provided certain employees for administrative or operational services, including laboratory space and
administrative facilities, as necessary, for the benefit of AgeX, under the Shared Facilities Agreement. Lineage allocated expenses
such as salaries and payroll related expenses incurred and paid on behalf of AgeX based on the amount of time that particular employees
devoted to AgeX affairs. Other expenses such as legal, accounting and financial reporting, marketing, and travel expenses were
allocated to AgeX to the extent that those expenses were incurred by or on behalf of AgeX. Lineage also allocated certain overhead
expenses such as rent and utilities, property taxes, insurance, laboratory expenses and supplies, telecommunications and other
indirect expenses. These allocations were made based upon activity-based allocation drivers such as time spent, percentage of square
feet of office or laboratory space used, headcount and percentage of personnel devoted to AgeX’s operations or management.
Management evaluated the appropriateness of the allocations on a periodic basis and believes that this basis for allocation was
reasonable. AgeX terminated the Shared Facilities Agreement effective September 30, 2019. Juvenescence also provides the services of certain
of its employees to AgeX on a cost reimbursement basis. Principles of consolidation AgeX’s condensed
consolidated interim financial statements include the accounts of its subsidiaries and certain research and development departments.
AgeX consolidated its direct and indirect wholly-owned or majority-owned subsidiaries because AgeX has the ability to control their
operating and financial decisions and policies through its ownership, and the noncontrolling interest is reflected as a separate
element of stockholders’ equity (deficit) on AgeX’s condensed consolidated balance sheets. The following table reflects
AgeX’s ownership, directly or through one or more subsidiaries, of the outstanding shares of its operating subsidiaries as
of September 30, 2020.
Subsidiary Field of Business AgeX Ownership Country
ReCyte Therapeutics Early stage pre-clinical research and development involved in stem cell-derived endothelial and cardiovascular related progenitor cells for the treatment of vascular disorders and ischemic conditions 94.8% USA
LifeMap Sciences (1) Biomedical, gene, and disease databases and tools 81.7% USA
(1) Includes LifeMap Sciences, Inc. and its wholly-owned subsidiary LifeMap Sciences, Ltd., an Israeli company. All material intercompany
accounts and transactions have been eliminated in consolidation. Revenue recognition During the first quarter
of 2018, AgeX adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) ASU
2014-09, Revenues from Contracts with Customers (Topic 606) AgeX recognizes revenue
in a manner that depicts the transfer of control of a product or a service to a customer and reflects the amount of the consideration
it expects to receive in exchange for such product or service. In doing so, AgeX follows a five-step approach: (i) identify the
contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv)
allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) the customer obtains control
of the product or service. AgeX considers the terms of a contract and all relevant facts and circumstances when applying the revenue
recognition standard. AgeX applies the revenue recognition standard, including the use of any practical expedients, consistently
to contracts with similar characteristics and in similar circumstances. Subscription and advertisement
revenues ® ® LifeMap Sciences’
performance obligations for subscriptions include a license of intellectual property related to its genetic information packages
and premium genetic information tools. These licenses are deemed functional licenses that provide customers with a “right
to access” to LifeMap Sciences’ intellectual property during the subscription period and, accordingly, revenue is recognized
over a period of time, which is generally the subscription period. Payments are typically received at the beginning of a subscription
period and revenue is recognized according to the type of subscription sold. For subscription contracts
in which the subscription term commences before a payment is due, LifeMap Sciences records an accounts receivable as the subscription
is earned over time and bills the customer according to the contract terms. LifeMap Sciences continuously monitors collections
and payments from customers and maintains a provision for estimated credit losses and uncollectible accounts based upon its historical
experience and any specific customer collection issues that have been identified. Amounts determined to be uncollectible are written
off against the allowance for doubtful accounts. LifeMap Sciences has not historically provided significant discounts, credits,
concessions, or other incentives from the stated price in the contract as the prices are offered on a fixed fee basis for the type
of subscription package being purchased. LifeMap Sciences may issue refunds only if the packages cease to be available for reasons
beyond its control. In such an event, the customer will get a refund on a pro-rata basis. Both the customer and LifeMap Sciences
expect the subscription packages to be available during the entire subscription period, and LifeMap Sciences has not experienced
any significant issues with the availability of the product and has not issued any material refunds. Using the most likely amount
method for estimating refunds under Topic 606, including historical experience, LifeMap Sciences determined that the single most
likely amount of variable consideration for refunds is immaterial as LifeMap Sciences does not expect to pay any refunds. LifeMap Sciences’
performance obligations for advertising are overall advertising services and represent a series of distinct services. Contracts
are typically less than a year in duration and the fees charged may include a combination of fixed and variable fees with the variable
fees tied to click throughs to the customer’s products on their website. LifeMap Sciences allocates the variable consideration
to each month the click through services occur and allocates the annual fee to the performance obligation period of the initial
term of the contract because those amounts correspond to the value provided to the customer each month. For click-through advertising
services, at the time the variable compensation is known and determinable, the service has been rendered. Revenue is recognized
at that time. The annual fee is recognized over the initial subscription period because this is a service and the customers simultaneously
receive and consume during the period of the subscription. LifeMap Sciences’
deferred subscription revenues primarily represent subscriptions for which cash payment has been received for the subscription
term, but the subscription term has not been completed as of the balance sheet date. For the three months ended September 30, 2020
and 2019, LifeMap Sciences recognized $309,000 and $278,000, respectively, in subscription and advertisement revenues. For the
nine months ended September 30, 2020 and 2019, LifeMap Sciences recognized $945,000 and $898,000, respectively, in subscription
and advertisement revenues. As of September 30, 2020, there was $255,000 included in deferred revenues in the condensed consolidated
balance sheet which is expected to be recognized as subscription revenue over the next twelve months. LifeMap Sciences has licensed
from third parties the databases and software it commercializes and has a contractual obligation to pay royalties to the licensor
on subscriptions sold. These costs are included in cost of sales on the condensed consolidated statements of operations when the
cash is received, and the royalty obligation is incurred as the royalty payments do not qualify for capitalization of costs to
fulfill a contract under ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers LifeMap has not been able
to generate sufficient revenues to meet its operating expenses. LifeMap has entered into an agreement terminating the license under
which it had marketed its TGex software services and is exploring potential opportunities to sell the company or its assets. Grant revenues – Research and Development Arrangements In September 2018, AgeX
was awarded a grant of up to approximately $225,000 from the National Institutes of Health (NIH). The NIH grant provides funding
for continued development of AgeX technologies for treating osteoporosis. Grant funds were made available by the NIH as allowable
expenses were incurred. For the three months ended September 30, 2020 and 2019, AgeX incurred approximately nil and $ 41 103 On April 8, 2020, AgeX
was awarded a grant of up to approximately $386,000 from the NIH. The NIH grant provides funding for continued development of AgeX’s
technologies for treating stroke. The grant funds will be made available by the NIH to AgeX as allowable expenses are incurred.
For the three and nine months ended September 30, 2020, AgeX incurred approximately $40,000, and $137,000, respectively, of allowable
expenses under the NIH grant and recognized a corresponding amount of grant revenues. Arrangements with multiple
performance obligations – Research and development Research and development
expenses include both direct expenses incurred by AgeX or its subsidiaries and indirect overhead costs allocated by Lineage that
benefit or support AgeX’s research and development functions. Direct research and development expenses consist primarily
of personnel costs and related benefits, including stock-based compensation, amortization of intangible assets, outside consultants
and suppliers, and license fees paid to third parties to acquire patents or licenses to use patents and other technology. Indirect
research and development expenses allocated by Lineage to AgeX under the Shared Facilities Agreement (see Note 4), were 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. Research and development expenses incurred and reimbursed
by grants from third parties or governmental agencies, including service revenues from co-development projects with customers,
if any and as applicable, approximate the respective revenues recognized in the condensed consolidated statements of operations. General and administrative General and administrative
expenses include both direct expenses incurred by AgeX and indirect overhead costs allocated by Lineage that benefited or supported
AgeX’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 Lineage to AgeX under the Shared Facilities Agreement during 2019
(see Note 4) were primarily based on headcount or space occupied, as applicable, and include costs for financial reporting and
compliance, rent and utilities, common area maintenance, telecommunications, property taxes and insurance. Basic and diluted net loss per share attributable
to common stockholders Basic loss per share is
calculated by dividing net loss attributable to AgeX common stockholders by the weighted average number of shares of common stock
outstanding, net of unvested restricted stock or restricted stock units, subject to repurchase by AgeX, if any, during the period.
Diluted loss per share is calculated by dividing the net income attributable to AgeX common stockholders, if any, by the weighted
average number of shares of common stock outstanding, adjusted for the effects of potentially dilutive common stock issuable under
outstanding stock options, warrants, and restricted stock units, using the treasury-stock method, and convertible preferred stock,
if any, using the if-converted method, and treasury stock held by subsidiaries, if any. For the three and nine
months ended September 30, 2020 and 2019, because AgeX reported a net loss attributable to common stockholders, all potentially
dilutive common stock, comprised of stock options, restricted stock units and warrants, is antidilutive. The following weighted
average common stock equivalents were excluded from the computation of diluted net loss per share of common stock for the periods
presented because including them would have been antidilutive (unaudited and in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2020 2019 2020 2019
Stock options 2,892 2,847 2,882 2,697
Warrants (1) 2,036 79 1,029 26
Restricted stock units 34 50 39 37
(1) AgeX issued Juvenescence warrants to purchase 2,638,401 shares of AgeX common stock as consideration for the line of credit under the Loan Agreements discussed in Note 4. Leases On January 1, 2019, AgeX
adopted ASU 2016-02, Leases Codification Improvements to Topic 842, Leases, Leases (Topic 842):
Targeted improvements, AgeX management determines
if an arrangement is a lease at inception. Leases are classified as either financing or operating, with classification affecting
the pattern of expense recognition in the consolidated statements of operations. When determining whether a lease is a financing
lease or an operating lease, ASC 842 does not specifically define criteria to determine “major part of remaining economic
life of the underlying asset” and “substantially all of the fair value of the underlying asset.” For lease classification
determination, AgeX continues to use (i) 75% or greater to determine whether the lease term is a major part of the remaining economic
life of the underlying asset and (ii) 90% or greater to determine whether the present value of the sum of lease payments is substantially
all of the fair value of the underlying asset. Under the available practical expedients, and as applicable, AgeX accounts for the
lease and non-lease components as a single lease component. AgeX recognizes right-of-use (“ROU”) assets and lease liabilities
for leases with terms greater than twelve months in the consolidated balance sheet. ROU assets represent an
entity’s right to use an underlying asset during the lease term and lease liabilities represent an entity’s obligation
to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based
on the present value of lease payments over the lease term. If the lease agreement does not provide an implicit rate in the contract,
an entity uses its incremental borrowing rate based on the information available at commencement date in determining the present
value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The
lease terms may include options to extend or terminate the lease when it is reasonably certain that the entity will exercise that
option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Upon adoption of ASC 842
and based on the practical expedients available under that standard, AgeX did not reassess any expired or existing contracts, reassess
the lease classification for any expired or existing leases and reassess initial direct costs for exiting leases. AgeX also elected
not to capitalize leases that have terms of twelve months or less. AgeX’s sublease of
its current office and laboratory facility, which commenced on April 2, 2019, is subject to ASC 842. AgeX recognized its lease
as a right-of-use asset included in property and equipment, net (see Note 3) and operating lease liability on its balance sheet
in accordance with ASC 842 as of September 30, 2020 and December 31, 2019 (see Note 9). During 2019, AgeX as a sublessor subleased
portions of its office and laboratory space to certain unaffiliated third parties. Reclassifications A reclassification was
made from amounts included in Subscription and advertisement revenues to Other revenues to conform to current period presentation. Recently adopted accounting pronouncements In August 2018, the FASB
issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements
for Fair Value Measurement Recently issued accounting pronouncements
not yet adopted The recently issued accounting
pronouncements applicable to AgeX that are not yet effective should be read in conjunction with the recently issued accounting
pronouncements, as applicable and disclosed in AgeX’s Annual Report on Form 10-K for the year ended December 31, 2019. In December 2019, the FASB
issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes On August 5, 2020, the
FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging
- Contracts in Entity’s Own Equity (Subtopic 815-40) CARES Act On March 27, 2020, the
Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. The CARES Act, among
other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments,
net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations,
and technical corrections to tax depreciation methods for qualified improvement property. AgeX reviewed the provisions of the
CARES Act, but does not expect it to have a material impact to its tax provision or its condensed consolidated financial statements.
As described in Note 9, AgeX has obtained a loan under the Paycheck Protection Program under the CARES Act. |
