NOTES
TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(unaudited)
1.
Organization, Business Overview and Liquidity
AgeX
Therapeutics, Inc. (“AgeX”) was incorporated in January 2017 in the state of Delaware as a subsidiary of Lineage Cell Therapeutics,
Inc. (“Lineage,” formerly known as BioTime, Inc.), a publicly traded, clinical-stage biotechnology company.
AgeX
is a biotechnology company focused on the development and commercialization of novel therapeutics targeting human aging and degenerative
diseases. AgeX’s mission is to apply its comprehensive experience in fundamental biological processes of human aging to a broad
range of age-associated medical conditions.
AgeX’s
proprietary technology, based on telomerase-mediated cellular immortality and regenerative biology, allows AgeX to utilize telomerase-expressing
regenerative pluripotent stem cells (“PSCs”) for the manufacture of cell-based therapies to regenerate tissues afflicted
with age-related chronic degenerative disease. AgeX’s main technology platforms and product candidates are:
| ● | PureStem®
PSC-derived clonal embryonic progenitor cell lines that may be capable of generating
a broad range of cell types for use in cell-based therapies; |
| ● | UniverCyte™
which uses the HLA-G gene to suppress rejection of transplanted cells and tissues to confer
low immune observability to cells; |
| ● | AGEX-BAT1
using adipose brown fat cells for metabolic diseases such as Type II diabetes; |
| ● | AGEX-VASC1
using vascular progenitor cells to treat tissue ischemia; and |
| ● | Induced
tissue regeneration or iTR technology to regenerate or rejuvenate cells to treat a variety
of degenerative diseases including those associated with aging, as well as other potential
tissue regeneration applications such as scarless wound repair. |
Emerging
Growth Company
AgeX
is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012.
Disposition
and Deconsolidation of LifeMap Sciences
As
discussed in Note 3, on March 6, 2021, AgeX and its then majority-owned subsidiary LifeMap Sciences, Inc. (“LifeMap Sciences”)
entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Atlas Capital Partners Limited, a British Virgin
Islands company limited by shares (“Atlas”), and GCLMS Acquisition Corporation (“GCLMS”), a Delaware corporation
that was a wholly-owned subsidiary of Atlas. On March 15, 2021, the merger was completed pursuant to the terms of the Merger Agreement.
As a result of the merger, GCLMS merged into LifeMap Sciences and (a) the shares of LifeMap Sciences common stock outstanding at the
time of the merger entitled the holders of those shares to receive a pro rata portion of a $500,000 cash payment for all shares of LifeMap
Sciences common stock in the aggregate (the “Merger Consideration”), with each LifeMap Sciences shareholder’s pro rata
portion of the Merger Consideration to be determined in accordance with the number of shares of LifeMap Sciences common stock owned by
such shareholder as a percentage of shares of LifeMap Sciences common stock outstanding immediately before the effective date of the
merger, and (b) the outstanding shares of GCLMS common stock were converted into shares of LifeMap Sciences common stock so that Atlas
is now the sole shareholder of LifeMap Sciences.
AgeX
received approximately $466,400 in cash as its pro rata share of the Merger Consideration in the merger. Prior to and as a condition
to the merger under the terms of the Merger Agreement, $1,761,296 of LifeMap Sciences’ indebtedness to AgeX was converted into
shares of LifeMap Sciences common stock. LifeMap Sciences also paid AgeX $250,000 in cash to pay off a portion of LifeMap Sciences’
indebtedness to AgeX that was not converted into shares of LifeMap Sciences common stock.
As
a result of the completion of the cash-out merger on March 15, 2021, LifeMap Sciences is no longer a subsidiary of AgeX. Accordingly,
AgeX has deconsolidated LifeMap Sciences’ consolidated financial statements and consolidated results of operations from AgeX, effective
March 15, 2021 (the “LifeMap Deconsolidation”), in accordance with Accounting Standards Codification, or ASC 810-10-40, Consolidation.
See Note 3 to AgeX’s condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional
information regarding the disposition and deconsolidation of LifeMap Sciences.
Going
Concern
AgeX
primarily finances its operations through loans from its largest stockholder Juvenescence Limited (“Juvenescence”) and sales
of its common stock. AgeX has incurred operating losses and negative cash flows since inception and had an accumulated deficit of $113.5
million as of September 30, 2022. AgeX expects to continue to incur operating losses and negative cash flows.
Based
on a strategic review of its operations, giving consideration to the status of its product development programs, human resources, capital
needs and resources, and current conditions in the capital markets, AgeX’s board of directors and management have adopted operating
plans and budgets to extend the period over which AgeX can continue its operations with its available cash resources. Notwithstanding
those operating plans and budgets, based on AgeX’s most recent projected cash flows AgeX believes that its cash and cash equivalents
of $0.5 million as of September 30, 2022 plus the loan facilities provided by Juvenescence to advance up to an additional $2.0 million
to AgeX as of September 30, 2022 as discussed in Note 5, and the proceeds we may receive from the sale of additional shares of our common
stock in “at-the-market” transactions through a Sales Agreement with Chardan Capital, LLC (“Chardan”) as a sales
agent, would not be sufficient to satisfy AgeX’s anticipated operating and other funding requirements for the next twelve months
from the issuance of these condensed consolidated interim financial statements. These conditions raise substantial doubt about AgeX’s
ability to continue as a going concern. AgeX will need to obtain substantial additional funding in connection with its continuing operations.
Liquidity
and Impact of COVID-19
In
addition to general economic and capital market trends and conditions, AgeX’s ability to raise sufficient additional capital to
finance its operations from time to time will depend on a number of factors specific to AgeX’s operations such as operating expenses
and progress in out-licensing its technologies and development of its product candidates. Although AgeX has been able to reduce its operating
expenses by eliminating internal research and development activities and focusing instead on out-sourcing research and development and
seeking licensing arrangements for AgeX technologies, this approach has also made it more difficult for AgeX to make progress in developing
its target product candidates and technologies, which in turn may make it more difficult for AgeX to raise capital. The availability
of financing also may be adversely impacted by the COVID-19 pandemic which could depress national and international economies and disrupt
capital markets, supply chains, and aspects of AgeX’s operations. The extent to which the ongoing COVID-19 pandemic will ultimately
impact AgeX’s business, results of operations, financial condition, or cash flows is highly uncertain and difficult to predict
because it will depend on many factors that are outside AgeX’s control. The unavailability or inadequacy of financing to meet future
capital needs could force AgeX to modify, curtail, delay, or suspend some or all aspects of planned operations. Sales of additional equity
securities could result in the dilution of the interests of its stockholders. AgeX cannot assure that adequate financing will be available
on favorable terms, if at all.
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 accounting principles generally accepted in the United States of America (“U.S. 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, 2021 was derived from the audited consolidated financial statements at that date but does
not include all the information and footnotes required by U.S. 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, 2021.
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.
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’
deficit on AgeX’s condensed consolidated balance sheets.
AgeX’s
condensed consolidated balance sheet at December 31, 2021 and unaudited condensed consolidated balance sheet at September 30, 2022 do
not include LifeMap Sciences’ consolidated assets and liabilities due to the deconsolidation of LifeMap Sciences on March 15, 2021.
LifeMap Sciences’ consolidated financial statements and consolidated results of operations include its wholly-owned and consolidated
subsidiary LifeMap Sciences, Ltd.
AgeX’s
unaudited condensed consolidated statements of operations for the nine months ended September 30, 2021 include LifeMap Sciences’
consolidated results for the period through March 15, 2021 rather than the day immediately preceding the deconsolidation due to the conversion
of $1,761,296 of LifeMap Sciences’ indebtedness to AgeX into shares of LifeMap Sciences common stock on March 15, 2021 followed
by the completion of the cash-out merger on the same day.
AgeX
has two operating subsidiaries, Reverse Bioengineering, Inc. (“Reverse Bio”) and ReCyte Therapeutics, Inc. (“ReCyte”).
Reverse Bio is a wholly owned subsidiary of AgeX. AgeX plans to finance its iTRTM research and development through Reverse
Bio. To the extent that such financing is obtained through the sale of capital stock or other equity securities to investors or other
biopharma companies by Reverse Bio, AgeX’s equity interest in Reverse Bio and its iTRTM business would be diluted. ReCyte
is an early stage pre-clinical research and development company involved in stem cell-derived endothelial and cardiovascular related
progenitor cells for the treatment of vascular disorders and ischemic conditions. AgeX owns 94.8% of the outstanding capital stock of
ReCyte. All material intercompany accounts and transactions have been eliminated in consolidation.
Use
of estimates
The
preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.
See Note 6 for discussion on estimated unrealized loss on change in fair value of warrant liability.
Fair
value measurements of financial instruments
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. Fair value estimates discussed herein are based upon certain market assumptions and pertinent
information available to management as of the financial statement presentation date.
The
carrying value of cash equivalents, accounts receivable and accounts payable, are carried at, or approximate, fair value as of the reporting
date because of their short-term nature. The credit facility is reported at fair value as it bears market rates of interest. Fair values
for the AgeX’s warrant liabilities are estimated by utilizing valuation models that consider current and expected stock prices,
volatility, dividends, market interest rates, forward yield curves and discount rates. Such amounts and the recognition of such amounts
are subject to significant estimates that may change in the future.
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 (unadjusted) for identical
assets or liabilities in active markets. |
| ● | Level
2 – Inputs to the valuation methodology include quoted prices for similar assets or
liabilities in active markets, and inputs that are observable for the assets or liabilities,
either directly or indirectly, for substantially the full term of the financial instruments. |
| ● | 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. |
The
following table summarizes fair value measurements by level as of September 30, 2022 for liabilities measured at fair value on a recurring
basis (in thousands):
Schedule of Fair Value of Assets and Liabilities Measured on Recurring Basis
| | |
Level
1 | | |
Level
2 | | |
Level
3 | | |
Total | |
| Warrant liability | |
$ | - | | |
$ | - | | |
$ | 657 | | |
$ | 657 | |
There
were no warrant liabilities as of December 31, 2021.
In
determining fair value, AgeX 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,
AgeX has no financial assets recorded at fair value on a recurring basis, except for cash and cash equivalents primarily consisting of
money market funds. These assets are measured at fair value using the period-end quoted market prices as a Level 1 input.
The
carrying amounts of accounts receivable, net, prepaid expenses and other current assets, related party amounts due to affiliates, accounts
payable, accrued liabilities and other current liabilities approximate fair values because of the short-term nature of these items.
The
accounting guidance establishes a hierarchy which requires an entity to maximize the use of quoted market prices and minimize the use
of unobservable inputs. An asset or liability’s level is based on the lowest level of input that is significant to the fair value
measurement. Fair value estimates are reviewed at the origination date and again at each applicable measurement date and interim or annual
financial reporting dates, as applicable for the financial instrument, and are based upon certain market assumptions and pertinent information
available to management at those times.
The
methods and significant inputs and assumptions utilized in estimating the fair value of the warrant liabilities, as well as the respective
hierarchy designations are discussed further in Note 6 “Warrant Liability”. The warrant liability measurement is considered
a Level 3 measurement based on the availability of market data and inputs and the significance of any unobservable inputs as of the measurement
date.
Cash,
cash equivalents, and restricted cash
In
accordance with ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, a reconciliation of AgeX’s cash and cash
equivalents in the condensed consolidated balance sheets to cash, cash equivalents and restricted cash in the condensed consolidated
statements of cash flows for all periods presented is as follows (in thousands):
Schedule of Cash, Cash Equivalents and Restricted Cash
| | |
September
30, 2022 | | |
December
31, 2021 | |
| | |
| (unaudited) | | |
| | |
| Cash and cash
equivalents | |
$ | 466 | | |
$ | 584 | |
| Restricted
cash (1) | |
| 50 | | |
| 50 | |
| Cash,
cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows | |
$ | 516 | | |
$ | 634 | |
| |
(1) |
Restricted cash entirely
represents the deposit required to maintain AgeX’s corporate credit card program. All restricted cash was included in deposits
in the condensed consolidated balance sheets. |
Long-lived
intangible assets, net
Long-lived
intangible assets, consisting primarily of acquired in-process research and development (“IPR&D”) and patents is stated
at acquired cost, less accumulated amortization. Amortization expense is computed using the straight-line method over the estimated useful
life of 10 years (see Note 4).
Impairment
of long-lived assets
AgeX
assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that such assets might be impaired
and the carrying value may not be recoverable. AgeX’s long-lived assets consists entirely of intangible assets. 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 carrying value
of the asset over its fair value, is recorded. As of September 30, 2022, there has been no impairment of long-lived assets.
Leases
AgeX
accounts for leases in accordance with ASU 2016-02, Leases (Topic 842, “ASC 842”) and its subsequent amendments affecting
AgeX: (i) ASU 2018-10, Codification Improvements to Topic 842, Leases, and (ii) ASU 2018-11, Leases (Topic 842): Targeted improvements,
using the modified retrospective method. 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. AgeX does not capitalize leases that have terms of twelve
months or less.
On
November 3, 2020, AgeX entered into a one year lease effective January 1, 2021 for office space only comprising 135 square feet in a
building in an office and research park at 1101 Marina Village Parkway, Suite 201, Alameda, California. Base monthly rent was $947
over the lease term. AgeX has elected to not
apply the recognition requirements under ASC 842 and instead recognizes the lease payments as lease cost on a straight-line basis over
the lease term as lease payments are not deemed material. AgeX has renewed this lease for another 12 months effective January 1, 2022
for base monthly rent of $1,074
and another 12 months for a different room
but in the same suite effective January 1, 2023 for base monthly rent of $844. AgeX has elected to not apply the recognition requirements
under ASC 842 for the renewed lease agreements under the guidance for similar reasons aforementioned.
Accounting
for warrants
AgeX
determines the accounting classification of warrants it issues, as either liability or equity, 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, then in accordance with ASC 815-40, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. Under ASC 480, warrants are considered
liability classified if the warrants are mandatorily redeemable, obligate AgeX to settle the warrants or the underlying shares by
paying cash or other assets, or warrants that must or may require settlement by issuing a variable number of shares. If warrants do
not meet liability classification under ASC 480-10, AgeX assesses the requirements under ASC 815-40, which states that contracts
that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the
likelihood of the transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability
classification under ASC 815-40, and in order to conclude equity classification, AgeX also assesses whether the warrants are indexed
to its common stock and whether the warrants are classified as equity under ASC 815-40 or other applicable U.S. GAAP. After all
relevant assessments, AgeX concludes whether the warrants are classified as liability or equity. Liability classified warrants
require fair value accounting at issuance and subsequent to initial issuance with all changes in fair value after the issuance date
recorded in the statements of operations. Equity classified warrants only require fair value accounting at issuance with no changes
recognized subsequent to the issuance date. AgeX has liability classified warrants as of September 30, 2022. There were no warrant
liabilities as of December 31, 2021. See Notes 5 and 6 for additional information regarding warrants.
Revenue
recognition
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 sold subscription-based products, including research databases and software tools,
for biomedical, gene, and disease research. LifeMap Sciences sold these subscriptions primarily through the internet to biotech and pharmaceutical
companies worldwide. LifeMap Sciences’ principal subscription product was the GeneCards® Suite, which includes the
GeneCards® human gene database, and the MalaCards™ human disease database. LifeMap Sciences’ performance obligations
for subscriptions included a license of intellectual property related to its genetic information packages and premium genetic information
tools. These licenses were deemed functional licenses that provide customers with a “right to access” to LifeMap Sciences’
intellectual property during the subscription period and, accordingly, revenue was recognized over a period of time, which was generally
the subscription period. Payments were typically received at the beginning of a subscription period and revenue was recognized according
to the type of subscription sold. For subscription contracts in which the subscription term commenced before a payment was due, LifeMap
Sciences recorded an account receivable because the subscription was earned over time and billed the customer according to the contract
terms. LifeMap Sciences deferred subscription revenues primarily represented subscriptions for which cash payment was received for the
subscription term, but the subscription term was not completed as of the balance sheet date reported.
LifeMap
Sciences licensed from third parties the databases and software it commercialized and had a contractual obligation to pay royalties to
the licensor on subscriptions sold. These costs were included in operating loss from discontinued operations on the consolidated statements
of operations when the cash was received and the royalty obligation was incurred as the royalty payments did not qualify for capitalization
of costs to fulfill a contract under ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers.
For
the nine months ended September 30, 2021, LifeMap Sciences recognized $267,000 in subscription and advertisement revenues which are included
in operating loss from discontinued operations. The LifeMap Sciences revenues for the nine months ended September 30, 2021 are for revenues
earned through March 15, 2021. No subscription and advertisement revenues were recognized for the three months ended September 30, 2021.
As a result of the LifeMap Deconsolidation, AgeX does not expect to earn subscription and advertising revenues in subsequent accounting
periods. See Note 3 for further information on the disposition and deconsolidation of LifeMap Sciences.
Grant
revenues – AgeX accounts for grants received to perform research and development services in accordance with ASC 730-20, Research
and Development Arrangements. At the inception of the grant, we perform an assessment as to whether the grant is a liability or a
contract to perform research and development services for others. If AgeX or a subsidiary receiving the grant is obligated to repay the
grant funds to the grantor regardless of the outcome of the research and development activities, then AgeX is required to estimate and
recognize that liability. Alternatively, if AgeX or a subsidiary receiving the grant is not required to repay, or if it is required to
repay the grant funds only if the research and development activities are successful, then the grant agreement is accounted for as a
contract to perform research and development services for others, in which case, grant revenue is recognized when the related research
and development expenses are incurred.
In
applying the provisions of Topic 606, AgeX has determined that government grants are out of the scope of Topic 606 because the government
entities do not meet the definition of a “customer”, as defined by Topic 606, as there is not considered to be a transfer
of control of good or services to the government entities funding the grant. In the absence of applicable guidance under U.S. GAAP, our
policy is to recognize grant revenue when the related costs are incurred, provided that the applicable conditions under the government
contracts have been met. Only costs that are allowable under the grant award, certain government regulations and the National Institutes
of Health’s supplemental policy and procedure manual may be claimed for reimbursement, and the reimbursements are subject to routine
audits from governmental agencies from time to time. Costs incurred are recorded in research and development expenses on the accompanying
condensed consolidated statements of operations.
On
April 8, 2020, AgeX was awarded a grant of up to approximately $386,000 from the National Institutes of Health (“NIH”). The
NIH grant provided funding for continued development of AgeX’s technologies for treating stroke. The grant funds were made available
by the NIH to AgeX as allowable expenses are incurred. For the three and nine months ended September 30, 2021, AgeX incurred approximately
$22,000 and $79,000, respectively, of allowable expenses under the NIH grant and recognized a corresponding amount of grant revenues.
AgeX recognized no grant revenues for the three and nine months ended September 30, 2022 as AgeX had expended the full amount available
under this grant as of December 31, 2021.
ESI
BIO Research Products – AgeX, through its ESI BIO research product division, markets a number of products related to human
pluripotent stem cells (“PSC lines”), including research-grade PSC lines and PSC lines produced under current good manufacturing
practices or “cGMP”. AgeX offers cells from PSC lines to customers under contracts that permit the customers to utilize PSC
lines for the research, development, and commercialization of cell-based therapies or other products in defined fields of application.
The compensation to AgeX for providing the PSC line cells under such contracts may include up-front payments, milestone payments related
to product development, regulatory matters, and commercialization, and the payment of royalties on sales of products developed from AgeX
PSC lines.
For
the three and nine months ended September 30, 2022, AgeX recognized $9,000 and $26,000, respectively from the sale of research products.
For the three and nine months ended September 30, 2021, AgeX recognized $2,000 and $38,000, respectively from the sale of research products.
Revenues from the sale of research products are included in other revenues.
Arrangements
with multiple performance obligations – AgeX may enter into contracts with customers that include multiple performance obligations.
For such arrangements, AgeX will allocate revenue to each performance obligation based on its relative standalone selling price. AgeX
will determine or estimate standalone selling prices based on the prices charged, or that would be charged, to customers for that product
or service. As of September 30, 2022 and December 31, 2021, AgeX did not have significant arrangements with multiple performance obligations.
Research
and development
Research
and development expenses consist primarily of personnel costs and related benefits, including stock-based compensation, amortization
of intangible assets, outside consultants and contractors, sponsored research agreements with certain universities, and suppliers, and
license fees paid to third parties to acquire patents or licenses to use patents and other technology. Research and development expenses
incurred and reimbursed by grants from third parties or governmental agencies if any and as applicable, approximate the respective revenues
recognized in the condensed consolidated statements of operations.
General
and administrative
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.
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, 2022 and 2021, 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):
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share
| | |
Three
Months Ended September
30, | | |
Nine
Months Ended September
30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Stock options | |
| 3,264 | | |
| 3,381 | | |
| 3,310 | | |
| 3,066 | |
| Warrants (1) | |
| 10,616 | | |
| 3,512 | | |
| 8,947 | | |
| 3,485 | |
| Restricted stock units | |
| 9 | | |
| 21 | | |
| 12 | | |
| 24 | |
| (1) | As
of September 30, 2022 and 2021, AgeX issued Juvenescence warrants to purchase 10,919,485
and 3,512,098 shares, respectively, of AgeX common stock as consideration for the loan
agreements discussed in Note 5. |
Reclassifications
Certain
reclassifications have been made to the prior period’s condensed consolidated interim financial statements to conform to current
year presentation in the investing and financing activities section in the condensed consolidated statements of cash flows. Certain financial
information is presented on a rounded basis, which may cause minor differences.
Recently
adopted accounting pronouncement
In
May 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-04,
Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation
(Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). The amendment in this update
addresses how an issuer should account for modifications made to equity-classified written call options. The guidance in the standard
requires the issuer to treat a modification of an equity-classified call option that does not cause the instrument to become liability-classified
as an exchange of the original call option for a new call option. This guidance applies whether the modification is structured as an
amendment to the terms and conditions of the call option or as termination of the original call option and issuance of a new call option.
The Emerging Issues Task Force (EITF) concluded that the recognition of the modification depends on the nature of the transaction in
which a warrant is modified. If there is more than one element in a transaction (for example, if the modification involves both a debt
modification and an equity issuance), then the guidance requires the issuer to allocate the effect of the option modification to each
element. Amendments in the new standard are effective for fiscal years beginning after December 15, 2021, including interim periods within
those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective
date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to
early adopt the amendments in this ASU in an interim period, the guidance should be applied as of the beginning of the fiscal year that
includes that interim period. AgeX adopted this standard as of January 1, 2022 and it did not have a material impact on the condensed
consolidated interim financial statements.
In
November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government
Assistance. The amendments in this update require disclosures about transactions with a government that have been accounted for by
analogizing to a grant or contribution accounting model to increase transparency about (1) the types of transactions, (2) the accounting
for the transactions, and (3) the effect of the transactions on an entity’s financial statements. The amendments are effective
for all entities within their scope, which excludes not-for-profit entities and employee benefit plans, for financial statements issued
for annual periods beginning after December 15, 2021. Early application of the amendment is permitted. AgeX adopted this standard as
of January 1, 2022 and it did not have a material impact on the condensed consolidated interim financial statements.
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, 2021.
In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments and subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-10,
which amends the current approach to estimate credit losses on certain financial assets. This ASU requires immediate recognition of management’s
estimates of current expected credit losses. Under the prior model, losses were recognized only as they were incurred, which FASB has
noted delayed recognition of expected losses that might not yet have met the threshold of being probable. The standard is applicable
to all financial assets (and net investment in leases) that are not accounted for at fair value through net income, such as trade receivables,
loans, debt securities, and net investment in leases, thereby bringing consistency in accounting treatment across different types of
financial instruments and requiring consideration of a broader range of variables when forming loss estimates. Subsequent changes in
the valuation allowance are recorded in current earnings and reversal of previous losses are permitted. ASU 2016-13 is effective for
AgeX beginning January 1, 2023 and is not expected to have a material impact on the condensed consolidated interim financial statements.
In
March 2022, the FASB issued ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings
and Vintage Disclosures, which amends the accounting for credit losses on financial instruments. This amendment eliminates the recognition
and measurement guidance on troubled debt restructurings for creditors that have adopted the new credit losses guidance in Accounting
Standards Codification 326 (“ASC 326”) and requires enhanced disclosures about loan modifications for borrowers experiencing
financial difficulty. The new guidance also requires public business entities to present gross write-offs by year of origination in their
vintage disclosures. The guidance is effective for AgeX on January 1, 2023, including interim periods. Early adoption is permitted, and
the amendment applied prospectively, except for the recognition and remeasurement of troubled debt restructurings. Entities can elect
to adopt the guidance on troubled debt restructurings using either a prospective or modified retrospective transition. If an entity elects
to apply a modified retrospective transition, it will record a cumulative effect adjustment to retained earnings in the period of adoption.
AgeX does not expect the adoption of this guidance to have a material impact on the condensed consolidated interim financial statements.
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 interim financial statements. As
described in Note 11, AgeX has obtained a loan under the Paycheck Protection Program under the CARES Act, the repayment of which was
forgiven in February 2021.
3.
Disposition and Deconsolidation of LifeMap Sciences
Discontinued
Operations
On
March 6, 2021, AgeX and LifeMap Sciences entered into the Merger Agreement with Atlas and GCLMS. On March 15, 2021, the merger was completed
pursuant to the terms of the Merger Agreement. As a result of the merger, GCLMS merged into LifeMap Sciences and (a) the shares of LifeMap
Sciences common stock outstanding at the time of the merger entitled the holders of those shares to receive a pro rata portion of the
$500,000 total Merger Consideration, with each LifeMap Sciences shareholder’s pro rata portion of the Merger Consideration determined
in accordance with the number of shares of LifeMap Sciences common stock owned by such shareholder as a percentage of shares of LifeMap
Sciences common stock outstanding immediately before the effective date of the merger, and (b) the outstanding shares of GCLMS common
stock were converted into shares of LifeMap Sciences common stock so that Atlas is now the sole shareholder of LifeMap Sciences.
AgeX
received approximately $466,400 in cash as its pro rata share of the Merger Consideration in the merger. Prior to and as a condition
to the merger under the terms of the Merger Agreement, $1,761,296 of LifeMap Sciences’ indebtedness to AgeX was converted into
shares of LifeMap Sciences common stock. LifeMap Sciences also paid AgeX $250,000 in cash to pay off a portion of LifeMap Sciences’
indebtedness to AgeX that was not converted into shares of LifeMap Sciences common stock.
The
results of operations and cash flows for LifeMap Sciences are reported as discontinued operations under U.S. GAAP in accordance with
ASC 205-20 Discontinued Operations for all periods presented in our consolidated financial statements. AgeX will not have any
continuing involvement in LifeMap Sciences subsequent to the consummation of the merger on March 15, 2021. The following table presents
the operating results of LifeMap Sciences that have been treated as discontinued operations for the periods presented (unaudited and
in thousands):
Schedule
of Discontinued Operations
| | |
Nine
Months Ended September
30, 2021 | |
| Net revenues | |
$ | 277 | |
| Costs,
operating and other expenses | |
| (380 | ) |
| Loss from discontinued operations | |
| (103 | ) |
| Net
loss from discontinued operations attributable to noncontrolling interest | |
| 7 | |
| Loss
from discontinued operations (1) | |
$ | (96 | ) |
| (1) | Does
not include $106,000 gain on the deconsolidation of LifeMap Sciences recognized by AgeX.
When dispositions occur in the normal course of business, gains or losses on the sale of
such businesses or assets are recognized in the income statement. The gain on the
sale of LifeMap Sciences is presented in the line item Gain on deconsolidation of LifeMap
Sciences. There were no gains or losses resulting from the sale of businesses or assets
that did not meet the criteria for a discontinued operation during the nine months ended
September 30, 2021. |
Deconsolidation
As
a result of the completion of the cash-out merger on March 15, 2021, LifeMap Sciences is no longer a subsidiary of AgeX. Effective March
15, 2021, AgeX deconsolidated LifeMap Sciences’ consolidated financial statements and consolidated results of operations from those
of AgeX under U.S. GAAP ASC 810-10-40-4 Deconsolidation of a Subsidiary or Derecognition of a Group of Assets due to the disposition
of LifeMap Sciences on that date.
AgeX’s
consolidated balance sheet at December 31, 2021 and unaudited condensed consolidated balance sheet at September 30, 2022 do not include
LifeMap Sciences’ consolidated assets and liabilities due to the deconsolidation of LifeMap Sciences on March 15, 2021.
AgeX’s
unaudited condensed consolidated statements of operations for the nine months ended September 30, 2021 include LifeMap Sciences’
consolidated results for the period through March 15, 2021 rather than the day immediately preceding the LifeMap Deconsolidation due
to the conversion of $1,761,296 of LifeMap Sciences’ indebtedness to AgeX into shares of LifeMap Sciences common stock on March
15, 2021 followed by the completion of the cash-out merger on the same day.
AgeX
recognized a gain of $106,000 from the LifeMap Deconsolidation. The sale of LifeMap Sciences was a taxable transaction to AgeX, however
no income tax is due as the transaction resulted in a taxable loss primarily due to AgeX’s tax basis in the subsidiary.
4.
Selected Balance Sheet Components
Intangible
assets, net
At
September 30, 2022 and December 31, 2021, intangible assets, primarily consisting of acquired IPR&D and patents, and accumulated
amortization were as follows (in thousands):
Schedule of Intangible Assets, Net
| | |
September
30, 2022 (unaudited) | | |
December
31, 2021 | |
| Intangible assets | |
$ | 1,312 | | |
$ | 1,312 | |
| Accumulated
amortization | |
| (541 | ) | |
| (442 | ) |
| Total
intangible assets, net | |
$ | 771 | | |
$ | 870 | |
AgeX
recognized $33,000 and
$99,000 in
amortization expense of intangible assets for continuing operations, included in research and development expenses, for the three and
nine months ended September 30, 2022. Amortization expense of intangible assets for continuing operations for the three and nine months
ended September 30, 2021 amounted to $32,000
and $98,000,
respectively.
Amortization
expense of intangible assets for discontinued operations for the nine months ended September 30, 2021 amounted to $89,000. See Note 3
for discussion of discontinued operations.
Amortization
of intangible assets for periods subsequent to September 30, 2022 is as follows (in thousands):
Schedule of Amortization Assets
| Year
Ending December 31, | |
Amortization Expense | |
| 2022 | |
$ | 32 | |
| 2023 | |
| 131 | |
| 2024 | |
| 131 | |
| 2025 | |
| 132 | |
| Thereafter | |
| 345 | |
| Total | |
$ | 771 | |
Accounts
payable and accrued liabilities
At
September 30, 2022 and December 31, 2021, accounts payable and accrued liabilities were comprised of the following (in thousands):
Schedule of Accounts Payable and Accrued Liabilities
| | |
September
30, 2022 (unaudited) | | |
December
31, 2021 | |
| Accounts payable | |
$ | 351 | | |
$ | 193 | |
| Accrued compensation | |
| 180 | | |
| 212 | |
| Accrued
vendors and other expenses | |
| 261 | | |
| 366 | |
| Total
accounts payable and accrued liabilities | |
$ | 792 | | |
$ | 771 | |
5.
Related Party Transactions
2019
Loan Agreement
On
August 13, 2019, AgeX and Juvenescence entered into a Loan Facility Agreement (the “2019 Loan Agreement”) pursuant to which
Juvenescence has provided to AgeX a $2.0 million line of credit for a period of 18 months. On February 10, 2021, AgeX entered into an
amendment (the “First Amendment”) to the 2019 Loan Agreement. The First Amendment extended the maturity date of loans under
the 2019 Loan Agreement to February 14, 2022 (the “Extended Repayment Date”) and increased the amount of the loan facility
by $4.0 million. On November 8, 2021, AgeX entered into Amendment No. 2 (the “Second Amendment”) to the 2019 Loan Agreement.
The Second Amendment increased the amount of the loan facility by another $1.0 million. As of December 31, 2021, AgeX had borrowed all
of the $7.0 million total line of credit under the 2019 Loan Agreement, as amended. Concurrent with the first draw down of funds under
the 2019 Loan Agreement, AgeX issued to Juvenescence 19,000 shares of AgeX common stock, with an approximate value of $56,000. On February
14, 2022, AgeX refinanced the $7.0 million outstanding principal amount of the loans and a $160,000 origination fee due under the 2019
Loan Agreement, as amended. See discussion regarding 2022 Secured Convertible Promissory Note within this Note 5.
As
consideration for the line of credit under the 2019 Loan Agreement, AgeX issued to Juvenescence warrants to purchase 150,000 shares of
AgeX common stock. The exercise price of the warrants is $2.60 per share, which was the volume weighted average price on the NYSE American
(VWAP) of AgeX common stock over the twenty trading days prior to the date the warrants were issued. The warrants will expire at 5:00
p.m. New York time three years after the date of issue. The number of shares issuable upon exercise of the warrants and the exercise
price per share are subject to adjustment upon the occurrence of certain events such as a stock split or reverse split or combination
of the common stock, stock dividend, recapitalization or reclassification of the common stock, and similar events. The estimated value
of these warrants was $236,000 which was determined in accordance with the Black-Scholes option pricing model with inputs as specified
in the relevant warrant agreement.
2020
Loan Agreement
On
March 30, 2020, AgeX and Juvenescence entered into a new Secured Convertible Facility Agreement (the “2020 Loan Agreement”)
pursuant to which Juvenescence provided to AgeX an $8.0 million line of credit for a period of 18 months. AgeX issued to Juvenescence
28,500 shares of AgeX common stock as an arrangement fee for the loan facility when AgeX borrowed an aggregate of $3.0 million under
the 2020 Loan Agreement, and AgeX issued to Juvenescence warrants to purchase a total of 3,670,663 shares of AgeX common stock (“2020
Warrants”). The number of 2020 Warrants issued was determined by the warrant formula described below. The repayment date for outstanding
principal balance of the loan under the 2020 Loan Agreement will be March 30, 2023. Events of Default under the 2020 Loan Agreement include:
(i) AgeX fails to pay any amount in the manner and at the time provided in the 2020 Loan Agreement and the failure to pay is not remedied
within 10 business days; (ii) AgeX fails to perform any of its obligations under the 2020 Loan Agreement and if the failure can be remedied
it is not remedied to the satisfaction of Juvenescence within 10 business days after notice to AgeX; (iii) other indebtedness for money
borrowed in excess of $100,000 becomes due and payable or can be declared due and payable prior to its due date or if indebtedness for
money borrowed in excess of $25,000 is not paid when due; (iv) AgeX stops payment of its debts generally or discontinues its business
or becomes unable to pay its debts as they become due or enters into any arrangement with creditors generally, (v) AgeX becoming insolvent
or in liquidation or administration or other insolvency procedures, or a receiver, trustee or similar officer is appointed in respect
of all or any part of its assets and such appointment continues undischarged or unstayed for sixty days, (vi) it becomes illegal for
AgeX to perform its obligations under the 2020 Loan Agreement or any governmental permit, license, consent, exemption or similar requirement
for AgeX to perform its obligations under the 2020 Loan Agreement or to carry out its business is not obtained or ceases to remain in
effect; (vii) the issuance or levy of any judgment, writ, warrant of attachment or execution or similar process against all or any material
part of the property or assets of AgeX if such process is not released, vacated or fully bonded within sixty calendar days after its
issue or levy; (viii) any injunction, order or judgement of any court is entered or issued which in the opinion of Juvenescence materially
and adversely affects the ability of AgeX to carry out its business or to pay amounts owed to Juvenescence under the 2020 Loan Agreement,
(ix) there is a change in AgeX’s financial condition that in the opinion of Juvenescence materially and adversely affects, or is
likely to so affect, its ability to perform any of its obligations under the 2020 Loan Agreement; (x) AgeX or a designated subsidiary
sells, leases, licenses, consigns, transfers, or otherwise disposes of a material part of their assets other than inventory in the ordinary
course of business or certain intercompany transactions, or certain other limited permitted transactions, unless Juvenescence approves,
(xi) AgeX or a designated subsidiary contests the validity of its obligations under the 2020 Loan Agreement or other related agreement
with Juvenescence, (xii) any representation, warranty, or other statement made by AgeX or a designated subsidiary under the 2020 Loan
Agreement is incomplete, untrue, incorrect, or misleading, or (xiii) AgeX or a designated subsidiary suspends or ceases to carry on all
or a material part of its business or threatens to do so.
Through
September 30, 2022, AgeX had drawn the full $8.0 million line of credit. The outstanding principal balance of the loans under the 2020
Loan Agreement will become due and payable on March 30, 2023.
Under
the terms of the 2020 Loan Agreement, each time AgeX received an advance of funds under the 2020 Loan Agreement, AgeX issued to Juvenescence
a number of 2020 Warrants equal to 50% of the number determined by dividing the amount of the advance by the applicable Market Price.
The Market Price set each 2020 Warrant when issued was the closing price per share of AgeX common stock on the NYSE American on the date
of the applicable notice from AgeX requesting a draw of funds that triggered the obligation to issue the 2020 Warrant. The exercise price
of the 2020 Warrants is the applicable Market Price. The 2020 Warrants will expire at 5:00 p.m. New York time three years after the date
of issue. As of September 30, 2022, AgeX had issued to Juvenescence 2020 Warrants to purchase 3,670,663 shares of AgeX common stock.
The exercise prices of the 2020 Warrants issued through September 30, 2022 range from $0.70 per share to $1.895 per share representing
the market closing price on the NYSE American of AgeX common stock on the one day prior to delivery of the drawdown notices. The number
of shares issuable upon exercise of the warrants and the exercise price per share are subject to adjustment upon the occurrence of certain
events such as a stock split or reverse split or combination of the common stock, stock dividend, recapitalization or reclassification
of the common stock, and similar events.
2022
Secured Convertible Promissory Note and Security Agreement
On
February 14, 2022, AgeX and Juvenescence entered into a Secured Convertible Promissory Note (the “Secured Note”) pursuant
to which Juvenescence has agreed to provide to AgeX a $13,160,000 line of credit for a period of 12 months. AgeX drew an initial $8,160,000
of the line of credit and used $7,160,000 to refinance the outstanding principal and the loan origination fees under its 2019 Loan Agreement
with Juvenescence. During the three months ended September 30, 2022, AgeX borrowed an additional $1.0 million under the Secured Note.
AgeX has now borrowed $11,160,000 of the line of credit under the Secured Note. The remaining $2.0 million of the line of credit may
be drawn down from time to time until February 14, 2023 subject to Juvenescence’s discretion to approve each loan draw. AgeX may
not draw more than $1.0 million in any subsequent single draw. The outstanding principal balance of the Secured Note will become due
and payable on February 14, 2024 (the “Repayment Date”).
As
an arrangement fee for the Secured Note, AgeX will pay Juvenescence an Origination Fee in an amount equal to 4% of the amount each draw
of loan funds, which will accrue as each draw is funded, and an additional 4% of all the total amount of funds drawn that will accrue
following the end of the 12 month period during which funds may be drawn from the line of credit. The Origination Fee will become due
and payable on the Repayment Date or in a pro rata amount with any prepayment of in whole or in part of the outstanding principal balance
of the Secured Note.
2022
Warrants – Upon each draw down of funds under the Secured Note, AgeX will issue to Juvenescence warrants to purchase shares
of AgeX common stock (“2022 Warrants”). The 2022 Warrants will be governed by the terms of a Warrant Agreement between AgeX
and Juvenescence. The number of 2022 Warrants to be issued will be equal to 50% of the number determined by dividing the amount of the
applicable loan draw by the applicable Market Price. The Market Price will be the last closing price per share of AgeX common stock on
the NYSE American or other national securities exchange preceding the delivery of the notice from AgeX requesting a draw of funds that
triggers the obligation to issue 2022 Warrants; provided, however that if AgeX common stock is not traded on a national securities exchange
the Market Price shall be determined with reference to closing prices quoted or bid and asked prices on an interdealer quotation system
averaged over twenty consecutive trading days. The exercise price of the 2022 Warrants will be the applicable Market Price. The 2022
Warrants will expire at 5:00 p.m. New York time three years after the date of issue.
The
Warrant Agreement governing the 2022 Warrants contains a “change of control blocker” provision intended to prevent an exercise
of 2022 Warrants that would violate the Change in Control Rule. The exercise price of the 2022 Warrants is set with reference to the
market price of AgeX common stock so the 20% Rule would have no effect on the exercise of 2022 Warrants. Under the terms of the Secured
Note, AgeX has agreed to seek the vote of AgeX stockholders to approve the ability of Juvenescence to exercise its 2022 Warrants if the
exercise would cause Juvenescence’s ownership of AgeX common stock to equal or exceed 50% of the outstanding AgeX common stock.
As
of September 30, 2022, AgeX had issued to Juvenescence 2022 Warrants to purchase 7,248,822 shares of AgeX common stock. The exercise
prices of the 2022 Warrants issued through September 30, 2022 range from $0.67 per share to $0.88 per share representing the market closing
price of AgeX common stock on the NYSE American on the one day prior to delivery of the drawdown notices. The number of shares issuable
upon exercise of the warrants and the exercise price per share are subject to adjustment upon the occurrence of certain events such as
a stock split or reverse split or combination of the common stock, stock dividend, recapitalization or reclassification of the common
stock, and similar events.
Conversion
of Loan Amounts to Common Stock – In lieu of repayment of funds borrowed, AgeX may convert the loan balance and any accrued
but unpaid Origination Fees (collectively the “Outstanding Amount”) into AgeX common stock or “units” (a “Borrower
Conversion”) if AgeX consummates a “Qualified Offering” which means a sale of common stock (or common stock paired
with warrants or other convertible securities in “units”) in which the gross sale proceeds are at least $10.0 million. The
conversion price per share or units shall be the lowest price at which shares or units are sold in the Qualified Offering before deducting
underwriting commissions and discounts, placement agent commissions and fees, and other expenses of the Qualified Offering. In the case
of sales of shares of common stock by AgeX from time to time in an “at the market offering” a Qualified Offering shall be
deemed to have occurred if and when such proceeds of the sales reaches $10.0 million.
Juvenescence
may convert the Outstanding Amount in whole or in part into AgeX common stock (a “Lender Conversion”) at any time at Juvenescence’s
election at the closing price per share of AgeX common stock on the NYSE American or other national securities exchange on the date prior
to the date Juvenescence gives AgeX notice Juvenescence’s election to convert the Outstanding Amount or a portion thereof into
common stock.
Any
Borrower Conversion or Lender Conversion is subject to certain restrictions to comply with applicable requirements of the NYSE American
(the “Exchange”) where AgeX common stock is listed. Section 713 of the Exchange Company Guide requires listed companies to
obtain stockholder approval as a prerequisite to Exchange listing approval before: (i) issuing additional shares in a transaction involving
the sale, issuance, or potential issuance by the issuer of common stock (or securities convertible into common stock) equal to 20% or
more of stock outstanding (determined as of the date of the particular transaction agreement) for less than the greater of book or market
value of the Exchange listed common stock (the “20% Rule”) and (ii) issuing shares that will result in a change of control
of the company (the “Change of Control Rule”). While the Exchange has not defined “change of control”, the Exchange
considers any issuance of stock to be subject to the Change of Control Rule if the issuance of stock would result in a stockholder holding
50% or more of a company’s outstanding stock. The Secured Note contains a “19.9 % blocker” provision and a “change
of control blocker” provision intended to prevent a conversion of the Outstanding Amount that would violate the 20% Rule or the
Change of Control Rule.
The
19.9% blocker provides that any conversion of the Secured Note into common stock must either (i) not involve the issuance of more than
19.9% of the common stock outstanding on the date of the Secured Note at a price lower than the applicable market price (as further explained
below) so that stockholder approval under the 20% Rule would not be required, or (ii) be approved by the AgeX stockholders. Under the
Secured Note, AgeX may borrow funds from Juvenescence in period installments or “tranches” and the market price of AgeX common
stock is determined for each such tranche. Each tranche market price is based on the closing price of AgeX common stock on the date of
the drawdown notice from AgeX to Juvenescence requesting funding of the loan tranche. Upon Borrower Conversion, which can take place
only in connection with a Qualified Offering by AgeX, only shares of common stock issuable upon the conversion of a tranche with a tranche
market price greater than the applicable conversion price would be aggregated (along with any other common stock that might be issued
to Juvenescence in connection with the Qualified Offering) for the purpose of determining the applicability of the 19.9% blocker. Upon
Lender Conversion, only shares issuable upon the conversion of a tranche with a tranche market price that is lower than the market price
on the date prior to the date the Juvenescence delivers a conversion notice to AgeX are aggregated for the purposes of determining the
applicability of the 19.9% blocker. The change of control blocker provision provides that without the prior approval of AgeX stockholders
a Borrower Conversion or a Lender Conversion may not take place if it would cause Juvenescence’s ownership to equal or exceed 50%
of the outstanding shares of AgeX common stock.
Consequently,
without the approval of AgeX stockholders the Outstanding Amount may not be converted into AgeX common stock under the Borrower Conversion
provisions or the Lender Conversion provisions of the Secured Note in an amount that would (a) equal or exceed 19.9% of the outstanding
common stock (measured at the date of the Secured Note) at a conversion price less than the greater of the book value or the applicable
tranche market value of AgeX common stock, or (b) cause Juvenescence’s ownership to equal or exceed 50% of the outstanding shares
of AgeX common stock.
Under
the terms of the Secured Note, AgeX has agreed to seek the vote of AgeX stockholders to approve the ability of AgeX and Juvenescence
to convert the Outstanding Amount into shares of AgeX common stock under the Borrower Conversion and Lender Conversion provisions of
the Secured Note even if the Borrower Conversion or Lender Conversion, as applicable, would result in (a) Juvenescence receiving additional
shares in excess of 19.9% of the AgeX common stock outstanding as of the date of the Secured Note for less than the greater of book value
or the applicable tranche market values of AgeX common stock, or (b) Juvenescence owning more than 50% of AgeX outstanding common stock.
Default
Provisions – The Outstanding Amount may become immediately due and payable prior to the Repayment Date if an Event of Default
as defined in the Secured Note occurs. Events of Default under the Secured Note include: (a) AgeX fails to pay any principal amount payable
by it in the manner and at the time provided under and in accordance with the Secured Note, (b) AgeX fails to pay any other amount payable
by it in the manner and at the time provided under and in accordance with the Secured Note or the Security Agreement described below
or any other agreement executed in connection with the Secured Note (the “Loan Documents”) and the failure is not remedied
within three business days; (c) AgeX fails to perform any of its covenants or obligations or fail to satisfy any of the conditions under
the Secured Note or any other Loan Document and, such failure (if capable of remedy) remains unremedied to the satisfaction of Juvenescence
(in its sole discretion) for 10 business days after the earlier of (i) notice requiring its remedy has been given by Juvenescence to
AgeX and (ii) actual knowledge of the failure by senior officers of AgeX; (d) if any indebtedness of AgeX in excess of $100,000 becomes
due and payable, or a breach or other circumstance arises thereunder such that Juvenescence is entitled to declare such indebtedness
due and payable, prior to its due date, or any indebtedness of AgeX in excess of $25,000 is not paid on its due date; (e) AgeX stops
payment of its debts generally or ceases or threatens to cease to carry on its business or is unable to pay its debts as they fall due
or is deemed by a court of competent jurisdiction to be unable to pay its debts as they fall due, or enters into any arrangements with
its creditors generally; (f) if (i) an involuntary proceeding (other than a proceeding instituted by Juvenescence or an affiliate of
Juvenescence) shall be commenced or an involuntary petition shall be filed seeking liquidation, reorganization or other relief in respect
of AgeX and any subsidiary, or of all or a substantial part of its assets, under any federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) an involuntary appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for AgeX or a subsidiary or for a substantial part of its assets occurs (other than in a proceeding instituted
by Juvenescence or an affiliate of Juvenescence), and, in any such case, such proceeding shall continue undismissed and unstayed for
sixty (60) consecutive days without having been dismissed, bonded or discharged or an order of relief is entered in any such proceeding;
(g) it becomes unlawful for AgeX to perform all or any of its obligations under the Secured Note or any authorization, approval, consent,
license, exemption, filing, registration or other requirement of any governmental, judicial or public body or authority necessary to
enable AgeX to comply with its obligations under the Secured Note or to carry on its business is not obtained or, having been obtained,
is modified in a manner that precludes AgeX or its subsidiaries from conducting their business in any material respect, or is revoked,
suspended, withdrawn or withheld or fails to remain in full force and effect; (h) the issuance or levy of any judgment, writ, warrant
of attachment or execution or similar process against all or any material part of the property or assets of AgeX or a subsidiary if such
process is not released, vacated or fully bonded within 60 calendar days after its issue or levy; (i) any injunction, order, judgment
or decision of any court is entered or issued which, in the opinion of Juvenescence, materially and adversely affects, or is reasonably
likely so to affect, the ability of AgeX or a subsidiary to carry on its business or to pay amounts owed to Juvenescence under the Secured
Note; (j) AgeX, whether in a single transaction or a series of related transactions, sells, leases, licenses, consigns, transfers or
otherwise disposes of any material portion of its assets (with any such disposition with respect to any asset or assets with a fair value
of at least $250,000 being deemed material), other than (i) certain permitted investments (ii) sales, transfers and dispositions of inventory
in the ordinary course of business, (iii) any termination of a lease of real or personal property that is not necessary in the ordinary
course of the AgeX’s business, could not reasonably be expected to have a material adverse effect and does not result from AgeX’s
default, and (iv) any sale, lease, license, consignment, transfer or other disposition of assets that are no longer necessary in the
ordinary course of business or which has been approved in writing by Juvenescence; (k) any of the following shall occur: (i) the security
and/or liens created by the Security Agreement or any other Loan Document shall at any time cease to constitute valid and perfected security
and/or liens on any material portion of the collateral intended to be covered thereby; (ii) except for expiration in accordance with
its terms, the Security Agreement or any other Loan Document pursuant to which a lien is granted by AgeX in favor of Juvenescence shall
for whatever reason be terminated or shall cease to be in full force and effect; (iii) the enforceability of the Security Agreement or
any other Loan Document pursuant to which a lien is granted by AgeX in favor of Juvenescence shall be contested by AgeX or a subsidiary,
(iv) AgeX shall assert that its obligations under the Secured Note or any other Loan Document shall be invalid or unenforceable, or (v)
a loss, theft, damage or destruction occurs with respect to a material portion of the collateral; (l) there is any change in the financial
condition of AgeX and its subsidiaries which, in the opinion of Juvenescence, materially and adversely affects, or is reasonably likely
so to affect, the ability of AgeX to perform any of its obligations under the Secured Note; and (m) any representation, warranty or statement
made, repeated or deemed made or repeated by AgeX in the Secured Note, or pursuant to the Loan Documents, is incomplete, untrue, incorrect
or misleading in any material respect when made, repeated or deemed made.
Restrictive
Covenants – The Secured Note includes certain covenants that among other matters such as financial reporting: (i) impose financial
restrictions on AgeX while the Secured Note remains unpaid, including restrictions on the incurrence of additional indebtedness by AgeX
and its subsidiaries, except that AgeX’s subsidiary Reverse Bio will be permitted to incur debt convertible into equity not guaranteed
or secured by the assets of AgeX or any other AgeX subsidiary, and the restrictions on the incurrence of indebtedness applicable to Reverse
Bio will end if it raises more than $15.0 million in debt or equity financing within 12 months from the date of the Secured Note; (ii)
require that AgeX use loan proceeds and funds that may be raised through certain equity offerings only for research and development work,
professional and administrative expenses, for general working capital, and for repayment of all or a portion of AgeX’s indebtedness
to Juvenescence; and (iii) prohibit AgeX from making additional investments in subsidiaries, unless AgeX obtains the written consent
of Juvenescence to a transaction that otherwise would be prohibited or restricted.
Security
Agreement – AgeX has entered into a Security Agreement granting Juvenescence a security interest in substantially all of the
assets of AgeX, including a security interest in shares of AgeX subsidiaries that hold certain assets, as collateral for AgeX’s
loan obligations. If an Event of Default occurs, Juvenescence will have the right to foreclose on the assets pledged as collateral.
Registration
Rights
AgeX
entered into certain Registration Rights Agreements pursuant to which it has agreed to register for sale under the Securities Act of
1933, as amended (the “Securities Act”) all shares of AgeX common stock presently held by Juvenescence or that may be acquired
by Juvenescence through the exercise of common stock purchase warrants that they hold or that they may acquire pursuant to the 2020 Loan
Agreement, and shares that they may acquire through the conversion of the loans into AgeX common stock. AgeX has filed a registration
statement on Form S-3, which has become effective under the Securities Act, for offerings on a delayed or continuous basis covering 16,447,500
shares of our common stock held by Juvenescence and 3,248,246 shares of AgeX common stock that may be issued upon the exercise of warrants
held by Juvenescence. Juvenescence retains the right to require AgeX to register additional shares of common stock that Juvenescence
may acquire through the exercise of warrants or the conversion of loans. AgeX is obligated to pay the fees and expenses of each registered
offering under such registration rights agreement except for underwriting discounts and commissions. AgeX and Juvenescence will indemnify
each other from certain liabilities in connection the registration, offer, and sale of securities under a registration statement, including
liabilities arising under the Securities Act.
AgeX
entered into an amendment to its Registration Rights Agreement with Juvenescence to include the 2022 Warrants and underlying shares and
any shares issuable upon the conversion of the Secured Note into common stock as registrable securities under the Registration Rights
Agreement.
Debt
Issuance Costs
In
accordance with ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, all debt issuance costs are recorded as a discount
on the debt and amortized to interest expense over the term of the loan agreement using the effective interest method. Direct debt issuance
costs include but are not limited to legal fees, debt origination fees, estimated fair market value of common stock and warrants issued
in connection with the loan agreements, and NYSE American additional listing fees for the underlying shares of warrants issued with each
draw down of funds.
The
following table summarizes the debt issuance costs and the debt balances net of debt issuance costs by loan agreement as of September
30, 2022 (in thousands):
Summary of Debt Issuance Costs and Debt Balances
| | |
Draw
Down of Funds | | |
Origination
Fee | | |
Amount
Refinanced | | |
Total
Debt | | |
Debt
Issuance Costs | | |
Amortization
of Debt Issuance Costs | | |
Total
Debt, Net | |
| 2019
Loan Agreement | |
$ | 7,000 | | |
$ | 160 | | |
$ | (7,160 | ) | |
$ | - | | |
$ | (494 | ) | |
$ | 494 | | |
$ | - | |
| 2020
Loan Agreement | |
| 8,000 | | |
| - | | |
| - | | |
| 8,000 | | |
| (2,806 | ) | |
| 2,103 | | |
| 7,298 | |
| 2022
Secured Note | |
| 11,160 | | |
| 568 | | |
| - | | |
| 11,728 | | |
| (4,660 | ) | |
| 1,280 | | |
| 8,348 | |
| | |
$ | 26,160 | | |
$ | 728 | | |
$ | (7,160 | ) | |
$ | 19,728 | | |
$ | (7,960 | ) | |
$ | 3,877 | | |
$ | 15,646 | |
Related
party payables
Since
October 2018, AgeX’s Chief Operating Officer (“COO”), who is also an employee of Juvenescence, is devoting a majority
of his time to AgeX’s operations. AgeX reimburses Juvenescence for his services on an agreed-upon fixed annual amount of approximately
$280,000. As of September 30, 2022 and December 31, 2021, AgeX had approximately $59,000 and $70,000, respectively, payable to
Juvenescence primarily for COO services rendered, included in related party payables, net, on the condensed consolidated balance sheets.
6.
Warrant Liability
AgeX
determines the accounting classification of warrants it issues, as either liability or equity, 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, then in accordance with ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock. Under ASC 480, Distinguishing Liabilities from Equity, warrants are considered
liability classified if the warrants are mandatorily redeemable, obligate AgeX to settle the warrants or the underlying shares by paying
cash or other assets, or warrants that must or may require settlement by issuing a variable number of shares. If warrants do not meet
liability classification under ASC 480-10, AgeX assesses the requirements under ASC 815-40, which states that contracts that require
or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the
transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC
815-40, and in order to conclude equity classification, AgeX also assesses whether the warrants are indexed to its common stock and whether
the warrants are classified as equity under ASC 815-40 or other applicable U.S. GAAP.
As
a condition of each amount drawn from the $13,160,000 Secured Note, on receipt of each amount drawn AgeX shall grant to Juvenescence
a number of warrants equal to 50% of the gross value of the relevant advance made. The gross value is the quotient of the drawdown amount
and the exercise price. The exercise price is based on the market closing price of AgeX’s common stock on the NYSE American on
the one day preceding the delivery of the relevant drawdown notice. (See Note 5)
Given
AgeX’s history, it is AgeX’s judgement that it is more-likely-than-not that AgeX will utilize the full credit available under
the Secured Note and accordingly warrants will be issued for each of the advances made within the credit availability period consisting
of the 12 month period starting February 14, 2022. After all relevant assessments, AgeX determined that the warrants issued under the
Secured Note require classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. In accordance
with the accounting guidance, the number of warrants that would have been issued if the $13,160,000 was drawn in full is measured at
the inception date at fair value and recognized as a warrant liability on the balance sheet, adjusted for the fair value of warrants
actually issued upon each advance, and subsequently the number of warrants that may be issued for the remaining credit available is re-measured
at each reporting period with changes being recorded as a component of net other expense in the condensed consolidated statements of
operations.
The
fair value of the warrant liabilities was measured using a Black-Scholes option pricing model. Significant inputs into the model at the
inception, date when warrants were issued upon receipt of amounts drawn during the period, and as of the reporting period end remeasurement
dates are as follows:
Schedule
of Warrants Liabilities And Stock Option Awards using a Black-Scholes Option-Pricing Model
| Black-Scholes
Assumptions | |
Inception
Date 14-Feb-22 | | |
Issuance Date 14-Feb-22 | | |
Issuance Date 15-Feb-22 | | |
Period Ended 31-Mar-22 | | |
Issuance Date 04-Apr-22 | | |
Issuance Date 06-Jun-22 | | |
Period Ended 30-Jun-22 | | |
Issuance Date 16-Aug-22 | | |
Period Ended 30-Sep-22 | |
| Exercise
Price (1) | |
$ | 0.780 | | |
$ | 0.780 | | |
$ | 0.780 | | |
$ | 0.940 | | |
$ | 0.880 | | |
$ | 0.711 | | |
$ | 0.600 | | |
$ | 0.670 | | |
$ | 0.610 | |
| Warrant
Expiration Date (2) | |
| 13-Feb-25 | | |
| 13-Feb-25 | | |
| 14-Feb-25 | | |
| 30-Mar-25 | | |
| 03-Apr-25 | | |
| 05-Jun-25 | | |
| 29-Jun-25 | | |
| 15-Aug-25
| | |
| 29-Sep-25
| |
| Stock
Price (3) | |
$ | 0.691 | | |
$ | 0.691 | | |
$ | 0.747 | | |
$ | 0.854 | | |
$ | 0.819 | | |
$ | 0.800 | | |
$ | 0.576 | | |
$ | 0.640 | | |
$ | 0.562 | |
| Interest
Rate (annual) (4) | |
| 1.80 | % | |
| 1.80 | % | |
| 1.80 | % | |
| 2.45 | % | |
| 2.61 | % | |
| 2.94 | % | |
| 2.99 | % | |
| 3.19 | % | |
| 4.25 | % |
| Volatility
(annual) (5) | |
| 122.99 | % | |
| 122.99 | % | |
| 123.28 | % | |
| 123.28 | % | |
| 123.31 | % | |
| 122.62 | % | |
| 122.21 | % | |
| 121.37 | % | |
| 121.49 | % |
| Time
to Maturity (Years) | |
| 3 | | |
| 3 | | |
| 3 | | |
| 3 | | |
| 3 | | |
| 3 | | |
| 3 | | |
| 3 | | |
| 3 | |
| Calculated
fair value per share | |
$ | 0.486 | | |
$ | 0.486 | | |
$ | 0.535 | | |
$ | 0.607 | | |
$ | 0.585 | | |
$ | 0.592 | | |
$ | 0.413 | | |
$ | 0.457 | | |
$ | 0.401 | |
| (1) | Based
on the market closing price of AgeX’s common stock on the NYSE American on the one
day prior to the debt inception date and each presented period ending date and also the market
closing price of AgeX’s common stock on the NYSE American one day preceding the delivery
of the relevant drawdown notice in accordance with terms per the Secured Note. |
| (2) | Warrants
are exercisable over a three-year period from each issuance date. |
| (3) | Based
on the market price of AgeX’s common stock on the NYSE American as of each date presented. |
| (4) | Interest
rate for U.S. Treasury Bonds, as of each date presented, as published by the U.S. Federal
Reserve. |
| (5) | Based
on the historical daily volatility of AgeX Therapeutics, Inc. as of each date presented. |
The
warrants outstanding and fair values at each of the respective valuation dates are summarized below:
Schedule of Warrant Outstanding and Fair Values
| Warrant
Liability | |
Amount (in
thousands) | | |
Warrants | | |
Fair
Value per
Share | | |
Fair
Value (in
thousands) | |
| Fair value as of January
1, 2022 | |
$ | - | | |
| - | | |
$ | - | | |
$ | - | |
| Fair value at
initial measurement date of 2/14/2022 | |
| 13,160 | (1) | |
| 8,435,897 | (2) | |
| 0.4864 | | |
| 4,103 | |
| Fair value of warrants issued
on 2/14/2022 | |
| (7,160 | )(3) | |
| (4,589,743 | )(4) | |
| 0.4864 | | |
| (2,232 | ) |
| Fair value of warrants issued
on 2/15/2022 | |
| (1,000 | )(3) | |
| (641,025 | )(4) | |
| 0.5349 | | |
| (343 | ) |
| Fair value of warrants issued
on 4/4/2022 | |
| (1,000 | )(3) | |
| (568,440 | )(4) | |
| 0.5854 | | |
| (333 | ) |
| Fair value of warrants issued
on 6/6/2022 | |
| (1,000 | )(3) | |
| (703,234 | )(4) | |
| 0.5924 | | |
| (417 | ) |
| Fair value of warrants issued
on 8/16/2022 | |
| (1,000 | )(3) | |
| (746,380 | )(4) | |
| 0.4569 | | |
| (341 | ) |
| Unrealized
loss on change in fair value of warrant liability | |
| - | | |
| - | | |
| - | | |
| 220 | |
| Fair
value as of September 30, 2022 | |
$ | 2,000 | (1) | |
| 1,639,344 | (2) | |
$ | 0.4008 | | |
$ | 657 | |
| (1) | Amount
of credit available under the Secured Note on date of inception and as of each period end
date. |
| (2) | Number
of warrants issuable if the amount of credit available were drawn for measurement as of inception
date and subsequently for remeasurement as of each period end date. |
| (3) | Amount
of drawdown as of each date presented. |
| (4) | Number
of warrants issued upon receipt of amounts drawn against the Secured Note as of each date
presented. |
During
the three months ended September 30, 2022, AgeX recorded a gain on changes in fair value of warrant liability of $35,000. During the
nine months ended September 30, 2022, AgeX recorded a loss on changes in fair value of warrant liability of $220,000. There were no warrant
liabilities or corresponding changes in valuation during the same period in 2021.
The
warrant liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair value includes various
assumptions about future activities and AgeX’s stock prices and historical volatility as inputs. During the nine months ended September
30, 2022, none of the warrants issued were exercised.
7.
Stockholders’ Deficit
Preferred
Stock
AgeX
is authorized to issue up to 5,000,000 shares of $0.0001 par value preferred stock. At September 30, 2022 and December 31, 2021, there
were no preferred shares issued and outstanding.
Common
Stock
AgeX
has 100,000,000 shares of $0.0001 par value common stock authorized. At September 30, 2022 and December 31, 2021, there were 37,947,152
and 37,941,220 shares of AgeX common stock issued and outstanding, respectively.
Issuance
and Sale of Warrants by AgeX
In
connection with the $11,160,000 of drawdowns of loan funds from Juvenescence under the Secured Note during the nine months ended September
30, 2022, AgeX has issued to Juvenescence 2022 Warrants to purchase 7,248,822 shares of AgeX common stock. See Note 5.
As
consideration for $8.0 million in loans made to AgeX under the 2020 Loan Agreement, AgeX issued to Juvenescence warrants to purchase
3,670,663 shares of AgeX common stock. See Note 5.
At-the-Market
Offering Facility
On
January 8, 2021, AgeX entered into a sales agreement with Chardan Capital Markets LLC (“Chardan”), relating to the sale of
shares of AgeX common stock, par value $0.0001 per share, through an at-the-market (“ATM”) offering as described in the prospectus
supplement filed with the Form S-3 which was declared effective by the SEC on January 29, 2021. In accordance with the terms of the sales
agreement, AgeX may offer and sell shares of AgeX common stock having an aggregate offering price of up to $12.6 million from time to
time through Chardan, acting as the sales agent. During the nine months ended September 30, 2022 and 2021, AgeX raised nil and $496,000,
respectively, in gross proceeds through the sale of shares of common stock under the ATM.
Reconciliation
of Changes in Stockholders’ Deficit
The
following tables provide the activity in stockholders’ deficit for the three and nine months ended September 30, 2022 and 2021
(unaudited and in thousands):
Summary of Reconciliation Changes in Stockholders' Equity
| | |
Number of
Shares | | |
Par Value | | |
Paid-In
Capital | | |
Accumulated
Deficit | | |
Noncontrolling Interest | | |
Comprehensive
Income | | |
Stockholders’
Deficit | |
| | |
Common
Stock | | |
Additional | | |
| | |
| | |
Accumulated
Other | | |
Total | |
| | |
Number of
Shares | | |
Par Value | | |
Paid-In Capital | | |
Accumulated Deficit | | |
Noncontrolling Interest | | |
Comprehensive Income | | |
Stockholders’ Deficit | |
| BALANCE AT JUNE
30, 2022 | |
| 37,945 | | |
$ | 4 | | |
$ | 97,850 | | |
$ | (111,072 | ) | |
$ | (44 | ) | |
$ | - | | |
$ | (13,262 | ) |
| Balance | |
| 37,945 | | |
$ | 4 | | |
$ | 97,850 | | |
$ | (111,072 | ) | |
$ | (44 | ) | |
$ | - | | |
$ | (13,262 | ) |
| Issuance
of common stock upon vesting of restricted stock units, net of shares retired to pay employee’s taxes | |
| 2 | | |
| - | | |
| (1 | ) | |
| - | | |
| - | | |
| - | | |
| (1 | ) |
| Fair value
of liability classified warrants issued | |
| - | | |
| - | | |
| 341 | | |
| - | | |
| - | | |
| - | | |
| 341 | |
| Fair
value of warrants issued | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock-based
compensation | |
| - | | |
| - | | |
| 209 | | |
| - | | |
| - | | |
| - | | |
| 209 | |
| Issuance
of common stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance
of common stock, shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Transactions
with noncontrolling interests – LifeMap Sciences | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Deconsolidation
of LifeMap Sciences | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
loss | |
| - | | |
| - | | |
| - | | |
| (2,435 | ) | |
| (1 | ) | |
| - | | |
| (2,436 | ) |
| BALANCE
AT SEPTEMBER 30, 2022 | |
| 37,947 | | |
$ | 4 | | |
$ | 98,399 | | |
$ | (113,507 | ) | |
$ | (45 | ) | |
$ | - | | |
$ | (15,149 | ) |
| Balance | |
| 37,947 | | |
$ | 4 | | |
$ | 98,399 | | |
$ | (113,507 | ) | |
$ | (45 | ) | |
$ | - | | |
$ | (15,149 | ) |
| | |
Common
Stock | | |
Additional | | |
| | |
| | |
Accumulated
Other | | |
Total | |
| | |
Number of
Shares | | |
Par Value | | |
Paid-In Capital | | |
Accumulated Deficit | | |
Noncontrolling Interest | | |
Comprehensive Income | | |
Stockholders’ Deficit | |
| BALANCE AT DECEMBER
31, 2021 | |
| 37,941 | | |
$ | 4 | | |
$ | 93,912 | | |
$ | (105,748 | ) | |
$ | (43 | ) | |
$ | - | | |
$ | (11,875 | ) |
| Balance | |
| 37,941 | | |
$ | 4 | | |
$ | 93,912 | | |
$ | (105,748 | ) | |
$ | (43 | ) | |
$ | - | | |
$ | (11,875 | ) |
| Issuance
of common stock upon vesting of restricted stock units, net of shares retired to pay employee’s taxes | |
| 6 | | |
| - | | |
| (3 | ) | |
| - | | |
| - | | |
| - | | |
| (3 | ) |
| Fair value of warrants issued | |
| - | | |
| - | | |
| 178 | | |
| - | | |
| - | | |
| - | | |
| 178 | |
| Fair value
of liability classified warrants issued | |
| - | | |
| - | | |
| 3,666 | | |
| - | | |
| - | | |
| - | | |
| 3,666 | |
| Stock-based
compensation | |
| - | | |
| - | | |
| 646 | | |
| - | | |
| - | | |
| - | | |
| 646 | |
| Net
loss | |
| - | | |
| - | | |
| - | | |
| (7,759 | ) | |
| (2 | ) | |
| - | | |
| (7,761 | ) |
| BALANCE
AT SEPTEMBER 30, 2022 | |
| 37,947 | | |
$ | 4 | | |
$ | 98,399 | | |
$ | (113,507 | ) | |
$ | (45 | ) | |
$ | - | | |
$ | (15,149 | ) |
| Balance | |
| 37,947 | | |
$ | 4 | | |
$ | 98,399 | | |
$ | (113,507 | ) | |
$ | (45 | ) | |
$ | - | | |
$ | (15,149 | ) |
| | |
Common
Stock | | |
Additional | | |
| | |
| | |
Accumulated
Other | | |
Total | |
| | |
Number of
Shares | | |
Par Value | | |
Paid-In Capital | | |
Accumulated Deficit | | |
Noncontrolling Interest | | |
Comprehensive Income | | |
Stockholders’ Deficit | |
| BALANCE AT JUNE
30, 2021 | |
| 37,937 | | |
$ | 4 | | |
$ | 93,379 | | |
$ | (101,635 | ) | |
$ | (42 | ) | |
$ | - | | |
$ | (8,294 | ) |
| Balance | |
| 37,937 | | |
$ | 4 | | |
$ | 93,379 | | |
$ | (101,635 | ) | |
$ | (42 | ) | |
$ | - | | |
$ | (8,294 | ) |
| Issuance
of common stock upon vesting of restricted stock units, net of shares retired to pay employee’s taxes | |
| 2 | | |
| - | | |
| (1 | ) | |
| - | | |
| - | | |
| - | | |
| (1 | ) |
| Stock-based
compensation | |
| - | | |
| - | | |
| 272 | | |
| - | | |
| - | | |
| - | | |
| 272 | |
| Net
loss | |
| - | | |
| - | | |
| - | | |
| (1,955 | ) | |
| - | | |
| - | | |
| (1,955 | ) |
| BALANCE
AT SEPTEMBER 30, 2021 | |
| 37,939 | | |
$ | 4 | | |
$ | 93,650 | | |
$ | (103,590 | ) | |
$ | (42 | ) | |
$ | - | | |
$ | (9,978 | ) |
| Balance | |
| 37,939 | | |
$ | 4 | | |
$ | 93,650 | | |
$ | (103,590 | ) | |
$ | (42 | ) | |
$ | - | | |
$ | (9,978 | ) |
| | |
Common
Stock | | |
Additional | | |
| | |
| | |
Accumulated
Other | | |
Total | |
| | |
Number of
Shares | | |
Par Value | | |
Paid-In Capital | | |
Accumulated Deficit | | |
Noncontrolling Interest | | |
Comprehensive Income | | |
Stockholders’ Deficit | |
| BALANCE
AT DECEMBER 31, 2020 | |
| 37,691 | | |
$ | 4 | | |
$ | 91,810 | | |
$ | (97,073 | ) | |
$ | (280 | ) | |
$ | 143 | | |
$ | (5,396 | ) |
| Balance | |
| 37,691 | | |
$ | 4 | | |
$ | 91,810 | | |
$ | (97,073 | ) | |
$ | (280 | ) | |
$ | 143 | | |
$ | (5,396 | ) |
| Issuance
of common stock | |
| 242 | | |
| - | | |
| 475 | | |
| - | | |
| - | | |
| - | | |
| 475 | |
| Issuance
of common stock upon vesting of restricted stock units, net of shares retired to pay employee’s taxes | |
| 6 | | |
| - | | |
| (6 | ) | |
| - | | |
| - | | |
| - | | |
| (6 | ) |
| Fair value of warrants issued | |
| - | | |
| - | | |
| 757 | | |
| - | | |
| - | | |
| - | | |
| 757 | |
| Stock-based
compensation | |
| - | | |
| - | | |
| 740 | | |
| - | | |
| - | | |
| - | | |
| 740 | |
| Transactions
with noncontrolling interests – LifeMap Sciences | |
| - | | |
| - | | |
| (269 | ) | |
| - | | |
| 269 | | |
| - | | |
| - | |
| Deconsolidation
of LifeMap Sciences | |
| - | | |
| - | | |
| 143 | | |
| - | | |
| (22 | ) | |
| (143 | ) | |
| (22 | ) |
| Net
loss | |
| - | | |
| - | | |
| - | | |
| (6,517 | ) | |
| (9 | ) | |
| - | | |
| (6,526 | ) |
| BALANCE
AT SEPTEMBER 30, 2021 | |
| 37,939 | | |
$ | 4 | | |
$ | 93,650 | | |
$ | (103,590 | ) | |
$ | (42 | ) | |
$ | - | | |
$ | (9,978 | ) |
| Balance
| |
| 37,939 | | |
$ | 4 | | |
$ | 93,650 | | |
$ | (103,590 | ) | |
$ | (42 | ) | |
$ | - | | |
$ | (9,978 | ) |
8.
Stock-Based Awards
Equity
Incentive Plan Awards
AgeX
has an Equity Incentive Plan (the “Plan”) under which a maximum of 4,500,000 shares of common stock are available for the
grant of stock options, the sale of restricted stock, the settlement of restricted stock units, and the grant of stock appreciation rights.
The Plan also permits AgeX to issue such other securities as its Board of Directors or the Compensation Committee administering the Plan
may determine.
A
summary of AgeX stock option activity under the Plan and related information follows (in thousands, except weighted average exercise
price):
Summary of Stock Option Activity
| | |
Shares Available for
Grant | | |
Number of
Options Outstanding | | |
Number of
RSUs Outstanding | | |
Weighted Average Exercise
Price | |
| Balance at December 31, 2021 | |
| 1,035 | | |
| 3,365 | | |
| 16 | | |
$ | 2.32 | |
| Options granted | |
| (105 | ) | |
| 105 | | |
| - | | |
| 0.79 | |
| Options forfeited, cancelled
or expired | |
| 209 | | |
| (209 | ) | |
| - | | |
| 2.82 | |
| Restricted
stock units vested | |
| - | | |
| - | | |
| (10 | ) | |
| - | |
| Balance at September
30, 2022 | |
| 1,139 | | |
| 3,261 | | |
| 6 | | |
$ | 2.25 | |
| Options exercisable at
September 30, 2022 | |
| | | |
| 2,827 | | |
| | | |
$ | 2.38 | |
There
have been no exercises of stock options to date.
Stock-based
Compensation Expense
Operating
expenses include stock-based compensation expense as follows (unaudited and in thousands):
Schedule of Stock Based Compensation Expense
| | |
Three
Months Ended September
30, | | |
Nine
Months Ended September
30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Research and development | |
$ | 8 | | |
$ | 17 | | |
$ | 25 | | |
$ | 48 | |
| General
and administrative | |
| 201 | | |
| 255 | | |
| 621 | | |
| 688 | |
| Total
stock-based compensation expense – continuing operations | |
$ | 209 | | |
$ | 272 | | |
$ | 646 | | |
$ | 736 | |
Stock-based
compensation expense recognized under discontinued operations for the nine months ended September 30, 2021 amounted to $4,000. See Note
3.
The
fair value of each option award is estimated on the date of grant using a Black-Scholes option pricing model applying the weighted-average
assumptions including expected life, risk-free interest rates, volatility, and dividend yield. The assumptions that were used to calculate
the grant date fair value of employee and non-employee stock option grants for the nine months ended September 30, 2022 and 2021 were
as follows:
Schedule of Weighted Average Assumptions to Calculate Fair Value of Stock Options
| | |
Nine
Months Ended September
30, | |
| | |
2022 | | |
2021 | |
| Grant Price | |
$ | 0.79 | | |
$ | 1.46 | |
| Market Price | |
$ | 0.79 | | |
$ | 1.46 | |
| Expected life (in years) | |
| 5.58 | | |
| 5.71 | |
| Volatility | |
| 130.71 | % | |
| 102.34 | % |
| Risk-free interest rates | |
| 1.74 | % | |
| 0.99 | % |
| Dividend yield | |
| - | % | |
| - | % |
There
were no stock options granted under the Plan during the three months ended September 30, 2022 and 2021.
The
determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and
assumptions requiring the use of judgment. If AgeX had made different assumptions, its stock-based compensation expense and net loss
for the three and nine months ended September 30, 2022 and 2021 may have been significantly different.
AgeX
does not recognize deferred income taxes for incentive stock option compensation expense and records a tax deduction only when a disqualified
disposition has occurred.
9.
Income Taxes
The
provision for income taxes for interim periods is determined using an estimated annual effective tax rate in accordance with 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 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 AgeX conducts business.
Beginning
in 2018, the 2017 Tax Cuts and Jobs Act (“2017 Tax Act”) subjects a U.S. stockholder to tax on Global Intangible Low Tax
Income “GILTI” earned by certain foreign subsidiaries. In general, GILTI is the excess of a U.S. shareholder’s total
net foreign income over a deemed return on tangible assets. The provision further allows a deduction of 50% of GILTI, however this deduction
is limited to the company’s pre-GILTI U.S. income. For the year ended December 31, 2021, AgeX’s foreign entity operated at
a loss; therefore, no GILTI was included in income. For the nine months ended September 30, 2022, there was no income or loss related
to foreign activity as the entity deconsolidated from AgeX on March 15, 2021. Current interpretations under ASC 740 state that an entity
can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI
in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense. We have elected
to account for GILTI as a current period expense when incurred.
For
the three and nine months ended September 30, 2022, AgeX experienced a domestic loss from continuing operations; therefore, no income
tax provision was recorded for the three and nine months ended September 30, 2022.
The
sale of LifeMap Sciences in 2021 was a taxable transaction to AgeX, however, no income tax is due as the transaction resulted in a taxable
loss primarily due to AgeX’s tax basis in the subsidiary.
Due
to losses incurred for all periods presented, AgeX did not record a domestic provision or benefit for income taxes. A valuation allowance
is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. AgeX established a full
valuation allowance for all of its domestic deferred tax assets for all periods presented due to the uncertainty of realizing future
tax benefits from its net operating loss carryforwards and other deferred tax assets.
10.
Supplemental Cash Flow Information
Non-cash
investing and financing transactions presented separately from the condensed consolidated statements of cash flows for the nine months
ended September 30, 2022 and 2021 are as follows (unaudited and in thousands):
Schedule Non-cash Investing and Financing Transactions
| | |
2022 | | |
2021 | |
| | |
Nine
Months Ended September
30, | |
| | |
2022 | | |
2021 | |
| Supplemental disclosures of non-cash investing and
financing activities: | |
| | |
| |
| Cash paid during
the period for interest | |
$ | 14 | | |
$ | 13 | |
| Issuance of common stock upon
vesting of restricted stock units (Note 7) | |
$ | 6 | | |
$ | 14 | |
| Issuance of warrants for debt
issuance under the 2020 Loan Agreement | |
$ | 178 | | |
$ | 757 | |
| Issuance of warrants for debt
issuance under the Secured Note (Note 6) | |
$ | 3,666 | | |
$ | - | |
| Debt refinanced with new debt
(Note 5) | |
$ | 7,160 | | |
$ | - | |
11.
Commitments and Contingencies
Office
Lease Agreement
Effective
January 1, 2021, AgeX relocated its principal offices to 1101 Marina Village Parkway, Suite 201, Alameda, California following the December
31, 2020 expiration of the lease at 965 Atlantic Avenue, Alameda, California. AgeX’s new office occupies 135 square feet of leased
space in a building located in an office and research park. Base monthly rent was $947 for the first one year lease term. In September
2021, AgeX extended its office lease for another year, effective January 1, 2022, at a monthly rent of $1,074. In October 2022,
AgeX entered into a new one year office lease for a different room but in the same suite, effective January 1, 2023, at a monthly rent
of $844. The lease also includes office furniture rental, janitorial services, utilities, and internet service.
ASC
842
For
the office lease, AgeX has elected to not apply the recognition requirements under ASC 842 as lease cost on a straight-line basis over
the lease term because the amount of the lease payments is not deemed material.
There
were no future minimum lease commitments as of September 30, 2022.
Litigation
– General
AgeX
is subject to various claims and contingencies in the ordinary course of its business, including those related to litigation, business
transactions, employee-related matters, and others. When AgeX is aware of a claim or potential claim, it assesses the likelihood of any
loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, AgeX will record
a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, AgeX discloses the claim
if the likelihood of a potential loss is reasonably possible and the amount involved could be material. AgeX is not aware of any claims
likely to have a material adverse effect on its financial condition or results of operations.
Tax
Filings
AgeX
tax filings are subject to audit by taxing authorities in jurisdictions where it conducts business. These audits may result in assessments
of additional taxes that are subsequently resolved with the authorities or potentially through the courts. Management believes AgeX has
adequately provided for any ultimate amounts that are likely to result from these audits; however, final assessments, if any, could be
significantly different than the amounts recorded in the unaudited condensed consolidated interim financial statements.
Employment
Contracts
AgeX
has entered into employment contracts with certain executive officers. Under the provisions of the contracts, AgeX may be required to
incur severance obligations for matters relating to changes in control, as defined, and involuntary terminations.
Indemnification
In
the normal course of business, AgeX may provide indemnifications of varying scope under AgeX’s agreements with other companies
or consultants, typically for AgeX’s research and development programs. Pursuant to these agreements, AgeX will generally agree
to indemnify, hold harmless, and reimburse the indemnified parties for losses and expenses suffered or incurred by the indemnified parties
arising from claims of third parties in connection with AgeX’s research and development. Indemnification provisions could also
cover third-party infringement claims with respect to patent rights, copyrights, or other intellectual property licensed from AgeX to
third parties. Office and laboratory leases will also generally indemnify the lessor with respect to certain matters that may arise during
the term of the lease. The sales agreement between AgeX and Chardan also includes indemnification provisions pursuant to which the parties
have agreed to indemnify each other from certain liabilities that could arise from the offer and sale of AgeX common stock through the
ATM facility, including liabilities under the Securities Act. Similarly, the Registration Rights Agreement between Juvenescence and AgeX
includes indemnification provisions pursuant to which the parties will indemnify each other from certain liabilities in connection with
the registration, offer, and sale of securities under a registration statement, including liabilities arising under the Securities Act.
The term of these indemnification obligations will generally continue in effect after the termination or expiration of the particular
license, lease, or agreement to which they relate. The potential future payments AgeX could be required to make under these indemnification
agreements will generally not be subject to any specified maximum amount. Historically, AgeX has not been subject to any claims or demands
for indemnification. AgeX also maintains various liability insurance policies that limit AgeX’s financial exposure. As a result,
AgeX believes the fair value of these indemnification agreements is minimal. Accordingly, AgeX has not recorded any liabilities for these
agreements to date.
Paycheck
Protection Program Loan
On
April 13, 2020, AgeX obtained a loan in the amount of $432,952 from Axos Bank (the “Bank”) under the Paycheck Protection
Program (the “PPP Loan”). The PPP Loan bore interest at a rate of 1% per annum. No payments were due on the PPP Loan during
a six month deferral period commencing on the date of the promissory note. Commencing one month after the expiration of the deferral
period, and continuing on the same day of each month thereafter until the maturity date of the PPP Loan, monthly payments of principal
and interest became due, in an amount required to fully amortize the principal amount outstanding on the PPP Loan by the maturity date.
The maturity date was April 13, 2022. The principal amount of the PPP Loan was subject to forgiveness under the Paycheck Protection Program
(the “Program”) to the extent of PPP Loan proceeds that were used to pay expense permitted by the Program, including payroll,
rent, and utilities during the time frame permitted by the Program. On February 19, 2021, the PPP Loan was forgiven in full.
On
December 27, 2020, the Consolidated Appropriations Act of 2021 was signed into law, retroactively allowing a federal deduction of the
expenses that gave rise to the PPP Loan forgiveness. California does not allow a deduction for these expenses for publicly traded companies.
Notice
of Delisting
On
June 1, 2020, AgeX received a letter (the “Deficiency Letter”) from the staff of the NYSE American (the “Exchange”)
indicating that AgeX does not meet certain of the Exchange’s continued listing standards as set forth in Section 1003(a)(i) of
the Exchange Company Guide in that AgeX has stockholders equity of less than $2,000,000 and has incurred losses from continuing operations
and/or net losses during its two most recent fiscal years. Pursuant to Section 1009 of the Exchange Company Guide and as provided in
the Deficiency Letter AgeX provided the Exchange staff with a plan (the “Compliance Plan”) advising the Exchange staff of
action AgeX has taken and will take that would bring AgeX into compliance with the Exchange’s continued listing standards by December
1, 2021. The Exchange staff has accepted the Compliance Plan.
On
April 15, 2021, AgeX regained compliance with all of the Exchange’s continued listing standards set forth in Part 10 of the Exchange
Company Guide. Specially, the Exchange has resolved the continued listing deficiency with respect to Section 1003(a)(i) of the Exchange
Company Guide. AgeX however will be subject to normal continued listing monitoring. If AgeX is again determined to be below any of the
continued listing standards within 12 months of April 15, 2021, the Exchange may take action, including truncating the compliance procedures
described in Section 1009 of the Exchange Company Guide or immediately initiating delisting proceedings.
On
November 17, 2021, we received a second deficiency letter (2021 Deficiency Letter) from the staff of the Exchange indicating that AgeX
does not meet certain of the Exchange’s continued listing standards as set forth in Section 1003(a)(i) and (ii) of the Exchange
Company Guide in that we have stockholders equity of less than $2,000,000
and have incurred losses from continuing operations
and/or net losses during our two most recent fiscal years, and that we have stockholders equity of less than $4,000,000
and have incurred losses from continuing operations
and/or net losses during three out of four of our most recent fiscal years. Pursuant to Section 1009 of the Exchange Company Guide and
as provided in the 2021 Deficiency Letter AgeX provided the Exchange staff with an updated plan (the “2021 Plan”) advising
the Exchange staff of action we have taken and will take that would bring AgeX into compliance with the Exchange’s continued listing
standards. We submitted the 2021 Plan on December 16, 2021, which the Exchange staff accepted. The Exchange staff will review AgeX’s
compliance with the Plan on a quarterly basis and if AgeX does not show progress consistent with the 2021 Plan or is not in compliance
with the Exchange’s continued listing standards by November 17, 2022, the Exchange may either extend the compliance deadline or
commence delisting procedures. AgeX is currently awaiting a response from the Exchange on its application for an extension which if
approved would defer the cure date by six months.
AgeX
intends to make arrangements to have its common stock quoted on an interdealer quotation system if its common stock is delisted from
the Exchange.
12.
Subsequent Event
On
October 21, 2022, AgeX borrowed an additional $500,000 under the Secured Note. AgeX has now borrowed $11,660,000 of the line of credit
under the Secured Note. The remaining $1,500,000 of the line of credit may be drawn down from time to time through the first anniversary
date subject to Juvenescence’s discretion to approve each loan draw. AgeX may not draw more than $1.0 million in any single draw.
The outstanding principal balance of the Secured Note will become due and payable on February 14, 2024.
In
connection with AgeX’s October 21, 2022 draw of loan funds under the Secured Note, AgeX issued to Juvenescence warrants to purchase
362,318 shares of AgeX common stock at an exercise price of $0.69 per share.