What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-13 compared with 2020-11-04 · 188 added, 327 removed, 180 unchanged (74% of the section changed)

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the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,

including statements about any of the following:

any projections of earnings, revenue, gross profit, cash, effective tax rate,

use of net operating losses, or any other financial items;

the plans, strategies and objectives of management for future operations

or prospects for achieving such plans;

and any statements of assumptions underlying any of the foregoing.

Any statements contained

herein that are not statements of historical fact may be deemed to be forward-looking statements.

Without limiting the foregoing,

the words “believes,” “anticipates,” “plans,” “expects,” “seeks,”

“estimates,” and similar expressions are intended to identify forward-looking statements.

While Lineage may elect

to update forward-looking statements in the future, it specifically disclaims any obligation to do so, even if Lineage’s

estimates change, and readers should not rely on those forward-looking statements as representing Lineage’s views as of

any date subsequent to the date of the filing of this Report.

Although we believe that the expectations reflected in these forward-looking

statements are reasonable, such statements are inherently subject to risks and Lineage can give no assurances that its expectations

will prove to be correct.

Actual results could differ materially from those described in this Report because of numerous factors,

many of which are beyond the control of Lineage.

A number of important factors could cause the results of the Company to differ

materially from those indicated by such forward-looking statements, including those detailed in Part II, Item IA, “Risk

Factors” of this Report and in Part I, Item 1A, “Risk Factors” in our most recent Annual Report on Form 10-K

filed with the U.S.

Securities and Exchange Commission (the “Commission” ) on March 12, 2020.

as amended, (the “Exchange Act”) including statements about any of the following:

any projections of earnings, revenue,

gross profit, cash, effective tax rate, use of net operating losses, or any other financial items;

the plans, strategies and objectives

of management for future operations or prospects for achieving such plans;

and any statements of assumptions underlying any of

the foregoing.

Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking

Without limiting the foregoing, the words “believes,” “anticipates,” “plans,”

“expects,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking

While Lineage may elect to update forward-looking statements in the future, it specifically disclaims any obligation

to do so, even if Lineage’s estimates change, and readers should not rely on those forward-looking statements as representing

Lineage’s views as of any date subsequent to the date of the filing of this Report.

Although we believe that the expectations

reflected in these forward-looking statements are reasonable, such statements are inherently subject to risks and Lineage can

give no assurances that its expectations will prove to be correct.

Actual results could differ materially from those described

in this Report because of numerous factors, many of which are beyond the control of Lineage.

A number of important factors could

cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those

detailed in Part II, Item IA, “Risk Factors” of this Report.

following discussion should be read in conjunction with Lineage condensed consolidated interim financial statements and the related

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and Business Overview

is a clinical-stage biotechnology company developing novel cell therapies for unmet medical needs.

are a clinical-stage biotechnology company developing novel cell therapies for unmet medical needs.

Our focus is to develop therapies

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and non-small cell lung cancer.

Lineage’s programs are based on our proprietary cell-based therapy platform and associated

development and manufacturing capabilities.

From this platform, Lineage develops and manufactures specialized, terminally or partially

differentiated human cells from established and well-characterized pluripotent cell lines.

These differentiated cells are transplanted

into a patient either to replace or support cells that are dysfunctional or absent due to degenerative disease or traumatic

injury, or are administered as a means of helping the body mount an effective immune response to cancer.

Our programs are based on our proprietary cell-based technology platform and associated development

and manufacturing capabilities.

From this platform, we develop and manufacture specialized, terminally or functionally differentiated

human cells from established and well-characterized pluripotent cell lines.

These differentiated cells are transplanted into a

patient either to replace or support cells that are dysfunctional or absent due to degenerative disease or traumatic injury, or

are administered as a means of helping the body mount a more robust and effective immune response to cancer.

have three allogeneic, or “off-the-shelf,” cell therapy programs in clinical development:

a retinal pigment epithelium cell replacement therapy currently in a Phase 1/2a multicenter clinical trial for the treatment

of advanced dry age-related macular degeneration (“AMD”) with geographic atrophy.

There currently are no therapies

approved by the U.S.

Food and Drug Administration (“FDA”) for dry AMD, which accounts for approximately 85-90%

of all AMD cases and is the leading cause of blindness in people over the age of 60.

a retinal pigment epithelium (“RPE”) cell replacement therapy currently in a Phase 1/2a multicenter clinical trial

for the treatment of advanced dry age-related macular degeneration (“AMD”) with geographic atrophy (“GA”).

There currently are no therapies approved by the U.S.

Food and Drug Administration (“FDA”) for dry AMD, which

accounts for approximately 85-90% of all AMD cases and is one of the leading causes of blindness in people over the age of

an oligodendrocyte progenitor cell therapy currently in a Phase 1/2a multicenter clinical trial for acute spinal cord injuries

This clinical trial has been partially funded by the California Institute for Regenerative Medicine.

an allogeneic (non-patient-specific or “off-the-shelf”) cancer immunotherapy of antigen-presenting dendritic cells

currently in a Phase 1 clinical trial in non-small cell lung cancer.

This clinical trial is being funded and conducted by

Cancer Research UK, the world’s largest independent cancer research charity.

also is seeking to create value from additional assets, such as from patents or non-clinical candidates, including seeking to

identify a commercialization or development partner for Renevia ® .

Renevia is a proprietary three-dimensional scaffold

designed to support adipose tissue transplants that was granted a Conformité Européenne (“CE”) Mark

in September 2019.

completed our merger (the “Asterias Merger”) with Asterias Biotherapeutics, Inc.

(“Asterias”) on March

8, 2019, which incorporated OPC1 and VAC2 into our cell therapy product portfolio.

addition to seeking to create value for shareholders by developing product candidates and other technologies through our

clinical development programs, we also seek to create value from our technologies through partnering and strategic

transactions.

We founded two companies that later became publicly traded companies:

OncoCyte Corporation

(“OncoCyte”) and AgeX Therapeutics, Inc.

We no longer hold any common stock in AgeX.

value of our OncoCyte holdings as of November 3, 2020, was approximately $5.6 million, based on the closing

price of their common stock on that date.

In this Report, see Part II, Item 1A, “Risk Factors—Risks Related to

Our Business Operations and Capital Requirements—The value of our investments in public companies fluctuates based on

their respective stock prices and could be negatively affected by poor business performance.”

our principal focus is on advancing our three cell therapy programs in clinical development, we may seek to create additional

value through corporate transactions, as we have in the past.

Our securities holdings also may be a significant source of capital

to fund our operations as an alternative to issuing additional Lineage securities.

This clinical trial has been partially funded by the California Institute for Regenerative Medicine (“CIRM”).

an allogeneic cancer immunotherapy of antigen-presenting dendritic cells currently in a Phase 1 clinical trial in non-small

cell lung cancer.

This clinical trial is being funded and conducted by Cancer Research UK, one of the world’s largest

independent cancer research charities.

addition to seeking to create value for shareholders by developing product candidates and other technologies through our clinical

development programs, we also seek to create value from our technologies through partnering and strategic transactions.

two companies that later became publicly traded companies:

OncoCyte Corporation (“OncoCyte”) and AgeX Therapeutics,

We continue to hold common stock in OncoCyte.

our principal focus is on advancing our three cell therapy programs currently in clinical development, we may seek to create additional

value through corporate transactions, as we have in the past, or by initiating new programs using existing protocols or new protocols

and cell lines.

Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses and analyzes data in our

unaudited Condensed Consolidated Interim Financial Statements, which we have prepared in accordance with GAAP.

Preparation of

these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities,

revenue and expenses, and related disclosure of contingent assets and liabilities.

Management bases its estimates on historical

experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form

the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our board

of directors.

Actual conditions may differ from our assumptions and actual results may differ from our estimates.

unaudited Condensed Consolidated Interim Financial Statements, which we have prepared in accordance with generally accepted accounting

principles in the United States.

Preparation of these financial statements requires management to make estimates and assumptions

that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and

Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable

under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities

that are not readily apparent from other sources.

Senior management has discussed the development, selection and disclosure of

these estimates with the Audit Committee of our board of directors.

Actual conditions may differ from our assumptions and actual

results may differ from our estimates.

accounting policy is deemed critical if it requires an accounting estimate to be made based on assumptions about matters that

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Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended

December 31, 2019, except as follows:

December 31, 2020 as filed with the Securities and Exchange Commission (the “Commission”) on March 11, 2021, except

account for business combinations, such as the Asterias Merger completed in March 2019, in accordance with Accounting Standards

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Lease expense for lease payments is recognized on a straight-line basis over the lease term.

leases are included as right-of-use assets in property and equipment, and ROU lease liabilities, current and long-term, in the

condensed consolidated balance sheets.

Financing leases are included in property and equipment, and in financing lease liabilities,

current and long-term, in the condensed consolidated balance sheets.

leases are included as ROU assets in property and equipment, and ROU lease liabilities, current and long-term, in the condensed

consolidated balance sheets.

Financing leases are included in property and equipment, and in financing lease liabilities, current

and long-term, in the condensed consolidated balance sheets.

Concern Assessment

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of Operations

of Three and Nine Months Ended September 30, 2020 and 2019

of Three Months Ended March 31, 2021 and 2020

and Cost of Sales

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Three Months Ended

September 30, (unaudited)

Grant revenue

Royalties from product sales and license fees

Sale of research products and services

Total revenues

Cost of sales

Nine Months Ended

September 30, (unaudited)

March 31, (unaudited)

Grant revenue

Royalties from product sales and license fees

Sale of research products and services

Total revenues

Cost of sales

total revenues increased by $4,000 for the three months ended September 30, 2020 as compared to the same period in the prior year,

primarily reflecting a $178,000 increase in royalties from product sales and license fees, offset by a $121,000 decrease in grant

revenues due to less grant-related activities and a $53,000 decrease in the sale of research products and services due to the

cessation of such sales.

total revenues decreased by $803,000 for the nine months ended September 30, 2020 as compared to the same period in the prior

year, primarily reflecting a $764,000 decrease in grant revenues due to less grant-related activities and a $256,000 decrease

in the sale of research products and services due to the cessation of such sales, offset by a $217,000 increase in royalties from

product sales and license fees.

total revenues decreased by $0.1 million for the three months ended March 31, 2021 as compared to the same period in the prior

year, due to a $0.2 million decrease in grant revenues due to less grant-related activities during the period, offset by a

$0.1 million increase in royalties from product sales.

grant revenues are generated primarily by our subsidiary Cell Cure Neurosciences Ltd.

(“Cell Cure”) from the Israel

Innovation Authority (“IIA”) for the development of OpRegen ® and from a Small Business Innovation

Research grant from the National Institutes of Health for our vision restoration program (the “NIH grant”).

related activities were completed in the third quarter of 2020.

revenues generated by Cell Cure from the IIA for the development of OpRegen amounted to $216,000 and $477,000 for the three and

nine months ended September 30, 2020 and $277,000 and $1,193,000 for the three and nine months ended September 30, 2019, respectively.

revenues generated by the NIH grant amounted to $13,000 and $387,000 for the three and nine months ended September 30,

2020 and $72,000 and $435,000 for the three and nine months ended September 30, 2019, respectively.

from product sales and license fees for the three and nine months ended September 30, 2020 included $200,000 recognized in September

2020 related to the expiration of an option granted by Asterias to Novo Nordisk A/S (“Novo Nordisk”) in September

2018 to license certain intellectual property.

This amount was originally recorded as deferred revenue and subsequently recognized

as revenue in September 2020, when the option period expired.

Innovation Authority (“IIA”) for the development of OpRegen and our bio retina program, and from a Small Business

Innovation Research grant from the National Institutes of Health for our vision restoration program (the “NIH grant”).

decrease in our grant revenues for the three months ended March 31, 2021 as compared to the same period in the period year, were primarily

due to less U.S.

based grant-related activities during the period.

Grant revenues generated by Cell Cure from the IIA for the development

of OpRegen and our bio retina program was $0.1 million both for the three months ended March 31, 2021 and 2020.

Grant revenues generated

by the NIH grant were $0.2 million for the three months ended March 31, 2020.

NIH grant related activities were completed in the

third quarter of 2020.

amounts in the tables below are our consolidated operating expenses for the periods presented (in thousands).

Three Months Ended

September 30 (unaudited)

Research and development expenses

General and administrative expenses

Nine Months Ended

September 30 (unaudited)

March 31 (unaudited)

Research and development expenses

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projects for the periods presented (in thousands).

Three Months Ended September 30,

Percent of Total

OpRegen ® and other ophthalmic applications

Renevia and all other

Total research and development expenses

Nine Months Ended September 30,

Three Months Ended March 31,

Percent of Total

OpRegen ® and other ophthalmic applications

Renevia and all other

All other programs

Total research and development expenses

decrease of $0.7 million in total research and development expenses for the three months ended September 30, 2020 as compared

to the same period in the prior year is mainly attributable to the following:

decrease of $1.5 million in OpRegen and other ophthalmic application expenses, attributable primarily to a decrease

in manufacturing activities in 2020 as compared to 2019,

decrease of $0.8 million in OPC1 related expenses, primarily related to a return of unspent project funds of approximately

$0.8 million from a former Asterias service provider,

decrease of $0.2 million in Renevia and other related expenses as Renevia received a CE Mark in September 2019 and we are

spending less on research activities as we are actively looking for a commercialization partner in Europe, offset by

increase of $1.8 million in VAC program expenses, primarily related to the accrual of the signature fee of £1.25 million

($1.6 million) to Cancer Research UK related to our license agreement and our early exercise of the option to acquire data

generated in the Phase 1 clinical trial of VAC2 in non-small cell lung cancer.

decrease of $4.8 million in total research and development expenses for the nine months ended September 30, 2020 as compared to

the same period in the prior year is mainly attributable to the following:

decrease of $5.0 million in OpRegen and other ophthalmic application expenses, attributable primarily to a decrease

in manufacturing activities in 2020 as compared to 2019,

decrease of $1.0 million in OPC1 related expenses, primarily related to return of unspent project funds of approximately

$0.8 million from a former Asterias service provider,

decrease of $0.7 million in Renevia and other related expenses as Renevia received a CE Mark in September 2019 and we are

spending less on research activities as we are actively looking for a commercialization partner in Europe, offset by

increase of $1.9 million in VAC program expenses, primarily related to the accrual of the signature fee of £1.25 million

($1.6 million) to Cancer Research UK.

increase of $0.1 million in total research and development expenses for the three months ended March 31, 2021 as compared to the

same period in the prior year is mainly attributable to the following:

net decrease of $0.8 million in OpRegen and other ophthalmic application expenses, attributable primarily to

a decrease in manufacturing activities in 2021 as compared to 2020,

increase of $0.4 million in OPC1-related expenses, primarily related to an increase in manufacturing and development activities

for this program,

increase of $0.5 million in VAC program expenses, primarily related to manufacturing improvement activities.

and administrative expenses

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costs, legal and accounting costs, and other miscellaneous expenses which are allocated to general and administrative expense.

The total net decrease

of $1.0 million in general and administrative expenses for the three months ended September 30, 2020 compared to the same period

in 2019, was primarily attributable to a $0.9 million reduction in compensation expenses, a $0.2 million reduction in Asterias

Merger related expenses, a $0.1 million reduction in travel expenses, a $0.1 million reduction in accounting expenses and

a $0.1 million reduction in office related expenses, offset by a $0.3 million increase in patent and legal expenses and a

$0.2 million increase related to the cessation of shared services reimbursements.

total net decrease of $7.5 million in general and administrative expenses for the nine months ended September 30, 2020 compared

to the same period in 2019, was primarily attributable to a $5.2 million reduction in Asterias Merger related expenses, a $1.9

million reduction in compensation costs, a $0.7 million reduction in accounting expenses, a $0.4 million reduction in travel

expenses and a $0.3 million reduction in rent expenses, a $0.2 million reduction in office related expenses and a $0.1 million

reduction in investor and public relations expenses, offset by a $0.9 million increase in legal and patent expenses and a $0.6

million increase related to the cessation of shared services reimbursements.

income and expenses, net

following table shows the amount of other income and expenses, net, for the periods presented (in thousands):

30, (unaudited)

income and expenses, net

on sale of marketable securities

loss on marketable equity securities

on sale of equity method investment in OncoCyte

loss on equity method investment in OncoCyte at fair value

gain on warrant liability

other expense, net

30, (unaudited)

total net decrease of $0.6 million in general and administrative expenses for the three months ended March 31, 2021 compared to

the same period in 2020, was primarily attributable to a $0.4 million reduction in Asterias Merger-related expenses, a $0.1 million

reduction in legal and patent expenses, a $0.2 million reduction in rent and utilities expenses, and a $0.1 million reduction

in compensation expenses, offset by a $0.2 million increase in investor relations expenses.

income and (expenses), net

on sale of marketable securities

loss on marketable equity securities

on sale of equity method investment in OncoCyte

gain on equity method investment in OncoCyte at fair value

gain on equity method investment in Asterias at fair value

gain on warrant liability

other (expense), income, net

income, net – During the three and nine months ended September 30, 2020, we earned $0.3 million and $1.0 million of

interest income, respectively, from our promissory note with Juvenescence Limited (“Juvenescence”).

During the three

and nine months ended September 30, 2019, we earned $0.4 million and $1.1 million of interest income, respectively, from the same

on equity method investment in Asterias – Prior to the closing of the Asterias Merger on March 8, 2019, we owned 21.7

million shares of common stock of Asterias, which we accounted for at fair value using the equity method of accounting.

value of our Asterias shares was approximately $20.2 million as of March 8, 2019, the closing date of the Asterias Merger, based

on $0.93 per share, which was calculated by multiplying:

(i) $1.31, the closing price of our common shares on such date;

the Merger Exchange Ratio.

The fair value of our Asterias shares was approximately $13.5 million as of December 31, 2018, based

on the closing price of Asterias common stock of $0.62 per share on such date.

Accordingly, we recorded an unrealized gain of

$6.7 million for the year ended December 31, 2019, representing the change in fair value of Asterias common stock from December

31, 2018 to March 8, 2019.

on equity method investment in OncoCyte – Prior to September 11, 2019, Lineage elected to account for its shares of

OncoCyte common stock at fair value using the equity method of accounting.

Lineage sold 2.25 million shares of OncoCyte common

stock for net proceeds of $4.2 million in July 2019.

Accordingly, Lineage’s ownership in OncoCyte was reduced from 28% to

Lineage sold an additional 4.0 million shares of OncoCyte common stock for net proceeds of $6.5 million on September 11,

Lineage’s ownership in OncoCyte was further reduced to 16% at this time.

Effective September 11, 2019, Lineage began

accounting for its shares of OncoCyte common stock as marketable equity securities.

of December 31, 2019, Lineage had 8.4 million shares of OncoCyte common stock.

following table shows the amount of other income and (expense), net, for the periods presented (in thousands):

Three Months Ended

March 31, (unaudited)

Other income (expenses), net

Interest income, net

Gain on sale of marketable equity securities

Unrealized gain (loss) on marketable equity securities

Unrealized gain on warrant liability

Other expenses, net

Total other income (expenses), net

income, net – During the three months ended March 31, 2020, we earned $0.4 million of interest income, from our promissory

note with Juvenescence.

In August 2020, Lineage received $24.6 million from Juvenescence, representing the outstanding principal

and accrued interest on the promissory note.

on investment in OncoCyte - As of March 31, 2021, Lineage owned 1.1 million shares of OncoCyte common stock.

had a fair value of $5.8 million, based on the closing price of OncoCyte common stock of $5.19 per share on March 31, 2021.

of December 31, 2020, Lineage owned 3.6 million shares of OncoCyte common stock.

These shares had a fair value of $8.7 million,

based on the closing price of OncoCyte common stock of $2.39 per share on December 31, 2020.

of September 30, 2020, Lineage owned 3.6 million shares of OncoCyte common stock.

These shares had a fair value of $5.0 million,

based on the closing price of OncoCyte common stock of $1.39 per share on September 30, 2020.

the three months ended September 30, 2020, Lineage recorded an unrealized loss of $1.9 million related to the shares remaining

at September 30, 2020 and the decrease in OncoCyte’s stock price from $1.91 at June 30, 2020 to $1.39 at September 30, 2020.

For the three months ended September 30, 2019, Lineage recorded a realized gain of $0.6 million due to sales of OncoCyte shares

in the period.

Lineage also recorded an unrealized loss of $8.7 million due to the decrease in OncoCyte’s stock price from

$2.49 per share at June 30, 2019 to $2.10 per share at September 30, 2019.

$8.3 million of the unrealized loss was recorded as

an unrealized loss on an equity method investment as it was prior to September 11, 2019;

the remaining $0.4 million was recorded

as an unrealized loss on marketable equity securities.

the nine months ended September 30, 2020, Lineage recorded a realized gain of $3.1 million due to sales of OncoCyte shares in

In the same period, Lineage also recorded an unrealized loss of $6.1 million related to its OncoCyte shares.

The unrealized

loss is comprised of $3.7 million related to the difference between the book cost basis of OncoCyte shares sold in the period

versus the applicable prior month’s ending OncoCyte stock price and an additional $2.4 million related to the shares remaining

at September 30, 2020 and the decrease in OncoCyte’s stock price from $2.25 at December 31, 2019 to $1.39 at September 30,

For the nine months ended September 30, 2019, Lineage recorded a realized gain of $0.6 million due to sales of OncoCyte

shares in the period.

Lineage also recorded an unrealized gain of $7.6 million due to the increase in OncoCyte’s stock price

from $1.38 per share at December 31, 2018 to $2.10 per share at September 30, 2019.

$8.0 million of the unrealized gain was recorded

as an unrealized gain on an equity method investment as it was prior to September 11, 2019;

the remaining $0.4 million

was recorded as an unrealized loss on marketable equity securities.

the three months ended March 31, 2021, Lineage recorded a realized gain of $6.0 million due to sales of OncoCyte shares in the

Lineage also recorded a net unrealized gain on marketable equity securities of $1.2 million related to changes in fair

market value of OncoCyte’s common stock price during the quarter.

the three months ended March 31, 2020, Lineage recorded a realized gain of $1.1 million due to sales of OncoCyte shares in the

Lineage also recorded a net unrealized loss on marketable equity securities of $0.3 million related to changes in fair

market value of OncoCyte’s common stock price during the quarter.

share prices are determined based on the closing price of OncoCyte common stock on the NYSE American on the applicable dates,

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of operations for each period.

equity securities - We also account for the shares we held in Hadasit Bio-Holdings (“HBL”) and AgeX as of September

30, 2020 as marketable equity securities, carried at fair market value on our consolidated balance sheets.

For the three and nine

months ended September 30, 2020, Lineage recorded realized gains of $0.1 million and $0.7 million, respectively, due to sales

of AgeX shares in the period.

Sales of HBL securities were negligible.

For the three and nine months ended September 30, 2019,

Lineage recorded a realized gain of $2.0 million due to sales of HBL and AgeX shares in the period.

the three and nine months ended September 30, 2020, we recorded unrealized losses of $0.1 million and $1.4 million, respectively.

For the three months ended September 30, 2020, a majority of the unrealized loss was related to the difference between the book

cost basis of AgeX shares sold in the period versus the applicable prior month’s ending AgeX stock price.

For the nine months

ended September 30, 2020, $0.5 million of the unrealized loss was related to the difference between the book cost basis of AgeX

shares sold in the period versus the applicable prior month’s ending AgeX share price and an additional $0.8 million was

related to the AgeX shares remaining at September 30, 2020 and the decrease in AgeX’s stock price from $1.82 at December

31, 2019 to $0.81 at September 30, 2020.

the three and nine months ended September 30, 2019, we recorded an unrealized loss of $4.0 million and $2.7 million, respectively,

due to changes in fair market value of these marketable equity securities from June 30, 2019 to September 30, 2019 and December

31, 2018 to September 30, 2019.

income (expense), net - Other income (expense), net, in 2020 and 2019 consist primarily of net foreign currency transaction

equity securities - We also account for the shares we held in Hadasit Bio-Holdings (“HBL”) and AgeX as marketable

equity securities as of March 31, 2021 and 2020.

These securities were carried at fair market value on our consolidated balance

For the three months ended March 31, 2021, we did not hold any marketable securities related to AgeX, and the accounting

transactions for HBL were not material.

the three months ended March 31, 2020 Lineage recorded a realized gain of $0.2 million due to sales of AgeX shares in the period,

and an unrealized loss of $1.0 million due to the changes in fair market value of these marketable securities from December 31,

2019 to March 31, 2020.

expenses, net - Other expenses, net, in 2021 and 2020 consist primarily of net foreign currency transaction

gains and losses recognized by our subsidiaries Cell Cure and ES Cell International Pte.

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shares, less our tax basis in the shares.

The deferred tax liability generated by the OncoCyte shares that we hold as of September

The deferred tax liability generated by the OncoCyte shares that we hold as of March

31, 2021, is a source of future taxable income to us, as prescribed by ASC 740-10-30-17, that will more likely than not result

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This deferred tax liability is determined

based on the closing prices of the OncoCyte shares as of September 30, 2020.

based on the closing prices of the OncoCyte shares as of March 31, 2021.

Due to the inherent unpredictability of future prices

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connection with the Asterias Merger, a deferred tax liability of $10.8 million was recorded as part of the acquisition accounting.

(see Note 3).

The deferred tax liability (“DTL”) is related to fair value adjustments for the assets and liabilities

acquired in the Asterias Merger, principally consisting of IPR&D.

This estimate of deferred taxes was determined based on

the excess of the estimated fair values of the acquired assets and liabilities over the tax basis of the assets and liabilities

The statutory tax rate was applied, as appropriate, to the adjustment based on the jurisdiction in which the adjustment

is expected to occur.

Because the IPR&D (prior to completion or abandonment of the R&D) is considered an indefinite-lived

asset for accounting purposes, the fair value of the IPR&D on the acquisition date creates a deferred income tax liability

in accordance with ASC 740.

This DTL is computed using the fair value of the IPR&D assets on the acquisition date multiplied

by Lineage’s respective federal and state income tax rates.

While this DTL would reverse on impairment or sale or commencement

of amortization of the related intangible assets, those events are not anticipated under ASC 740 for purposes of predicting reversal

of a temporary difference to support the realization of deferred tax assets, except for certain deferred tax assets and credit

carryforwards that are also indefinite in nature as of the Asterias Merger date, which may be considered for reversal under ASC

740 as further discussed below.

The deferred tax liability (“DTL”) is related to fair value adjustments for the assets and liabilities acquired in

the Asterias Merger, principally consisting of IPR&D.

This estimate of deferred taxes was determined based on the excess of

the estimated fair values of the acquired assets and liabilities over the tax basis of the assets and liabilities acquired.

statutory tax rate was applied, as appropriate, to the adjustment based on the jurisdiction in which the adjustment is expected

Because the IPR&D (prior to completion or abandonment of the R&D) is considered an indefinite-lived asset for

accounting purposes, the fair value of the IPR&D on the acquisition date creates a deferred income tax liability in accordance

with ASC 740.

This DTL is computed using the fair value of the IPR&D assets on the acquisition date multiplied by Lineage’s

respective federal and state income tax rates.

While this DTL would reverse on impairment or sale or commencement of amortization

of the related intangible assets, those events are not anticipated under ASC 740 for purposes of predicting reversal of a temporary

difference to support the realization of deferred tax assets, except for certain deferred tax assets and credit carryforwards

that are also indefinite in nature as of the Asterias Merger date, which may be considered for reversal under ASC 740 as further

discussed below.

valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized.

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the deferred tax liability position is exhausted, barring any new developments.

the three and nine months ended September 30, 2019, Lineage recorded a $1.0 million and $6.6 million valuation allowance release

and corresponding benefit for income taxes.

the three and nine months ended September 30, 2020, Lineage recorded a $0.2 million deferred tax benefit for income taxes.

the three months ended March 31, 2021 and 2020, Lineage did not record any provision or benefit for income taxes, as Lineage had

taxable income related to a gain on the sale of OncoCyte shares in both periods.

This taxable income was offset by net operating

loss carryforwards.

expect that deferred income tax expense or benefit we record each reporting period, if any, will vary depending on the change

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and our deferred tax assets and other credits, including changes in the valuation allowance, for each period.

Note 3 to our consolidated financial statements included elsewhere in this Report for a description of the Asterias Merger that

was completed on March 8, 2019.

We have concluded that an ownership change did occur after the Asterias Merger, and the acquired

operating loss carryforwards are subject to limitation under Section 382 of the Internal Revenue Service Code;

Lineage will only

be able to utilize $52.8 million of these operating loss carryforwards.

Note 3 to our condensed consolidated interim financial statements included elsewhere in this Report for a description of the Asterias

Merger that was completed on March 8, 2019.

We have concluded that an ownership change did occur after the Asterias Merger, and

the acquired operating loss carryforwards are subject to limitation under Section 382 of the Internal Revenue Service Code;

will only be able to utilize $52.8 million of these operating loss carryforwards.

and Capital Resources

September 30, 2020, we had $38.0 million of cash, cash equivalents and marketable equity securities on hand, which includes our

investments in HBL, AgeX and OncoCyte.

We may use our marketable equity securities for liquidity, as necessary, and as market

conditions allow.

The market value may not represent the amount that could be realized in a sale of investment shares due to various

market and regulatory factors, including trading volume or market depth factors and volume and manner of sale restrictions under

Federal securities laws, prevailing market conditions and prices at the time of any sale, and subsequent sales of securities by

the entities.

In addition, the value of our marketable equity securities may be significantly and adversely impacted by deteriorating

global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States

and worldwide resulting from the ongoing COVID-19 pandemic.

March 31, 2021, we had $62.4 million of cash, cash equivalents and marketable equity securities on hand, which includes our investments

in OncoCyte and HBL.

We may use our marketable equity securities for liquidity, as necessary, and as market conditions allow.

The market value may not represent the amount that could be realized in a sale of investment shares due to various market and

regulatory factors, including trading volume or market depth factors and volume and manner of sale restrictions under Federal

securities laws, prevailing market conditions and prices at the time of any sale, and subsequent sales of securities by the entities.

In addition, the value of our marketable equity securities may be significantly and adversely impacted by deteriorating global

economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and

worldwide resulting from the ongoing COVID-19 pandemic.

inception, we have incurred significant operating losses and have funded our operations primarily through the issuance of equity

securities, the sale of common stock of our former subsidiaries, AgeX and OncoCyte, payments from research grants, royalties from

securities, the sale of common stock of our former subsidiaries, OncoCyte and AgeX, payments from research grants, royalties from

product sales and sales of research products and services.

At September 30, 2020, we had an accumulated deficit of $296.1 million,

At March 31, 2021, we had an accumulated deficit of $295.5 million,

working capital of $58.0 million and shareholders’ equity of $116.6 million.

We evaluated the projected cash flows

for Lineage and our subsidiaries, and we believe that our $38.0 million in cash, cash equivalents and marketable equity securities

provide sufficient cash, cash equivalents, and liquidity to carry out our current planned operations through at least twelve months

from the issuance date of our condensed consolidated interim financial statements included elsewhere in this Report.

near term working capital or liquidity to supplement our cash and cash equivalents for our operations, we may sell some, or all,

of our investments, as necessary.

March 8, 2019, the Asterias Merger closed and Asterias became our wholly owned subsidiary.

We began consolidating Asterias’

operations and results with our operations and results beginning on March 8, 2019.

We have made extensive reductions in headcount

and reduced non-clinical related spend, in each case, as compared to Asterias’ operations before the merger.

We have implemented

significant cost savings initiatives and anticipate reduced operational spend in 2020 compared to prior periods.

We evaluated the projected cash flows for Lineage

and our subsidiaries, and we believe that our $62.4 million in cash, cash equivalents and marketable equity securities provide

sufficient cash, cash equivalents, and liquidity to carry out our current planned operations through at least twelve months from

the issuance date of our condensed consolidated interim financial statements included elsewhere in this Report.

If we need near

term working capital or liquidity to supplement our cash and cash equivalents for our operations, we may sell some, or all, of

our investments, as necessary.

COVID-19 pandemic has impacted patient enrollment in our OpRegen Phase 1/2a multicenter clinical trial and the VAC2 Phase 1 multicenter

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patients for any of our current or future clinical trials could result in significant delays.

may increase spending later in the year to accelerate clinical trial activities and try to mitigate the impact

of the COVID-19 related enrollment delays.

projected cash flows are subject to various risks and uncertainties, and the unavailability or inadequacy of financing to meet

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flows used in operating activities

cash used in operating activities of $14.1 million for the nine months ended September 30, 2020 primarily reflects the loss from

operations of $20.6 million less the changes in assets and liabilities of $2.0 million.

These items were offset

primarily by non-cash expenses of $1.8 million of depreciation and amortization and $1.7 million for stock-based compensation.

The unrealized loss on marketable securities and deferred tax benefit are non-cash items that had no effect on cash flows.

cash used in operating activities of $26.4 million for the nine months ended September 30, 2019 primarily reflects the loss from

operations of $32.0 million less the changes in assets and liabilities of $1.3 million.

These items were offset primarily by non-cash

expenses of $3.0 million for stock-based compensation and $2.3 million of depreciation and amortization.

The unrealized gains

on equity method investments and marketable securities and deferred tax benefit are non-cash items that had no effect on cash

cash used in operating activities of $7.4 million for the three months ended March 31, 2021 primarily reflects the loss from operations

of $7.1 million plus the changes in assets and liabilities of $1.3 million.

These items were offset primarily by non-cash expenses

of $0.5 million for stock-based compensation and $0.3 million of depreciation and amortization.

The unrealized gain on marketable

equity securities had no effect on cash flows.

cash used in operating activities of $5.0 million for the three months ended March 31, 2020 primarily reflects the loss from operations

of $7.4 million less the changes in assets and liabilities of $0.6 million.

These items were offset primarily by non-cash expenses of

$0.7 million of depreciation and amortization and $0.6 million for stock-based compensation.

The unrealized loss on marketable securities had no effect on cash flows.

flows provided by investing activities

provided by investing activities of $12.1 million for the nine months ended September 30, 2020 was associated primarily with receipts

of $10.9 million from sales of a portion of our OncoCyte holdings and $1.2 million in sales of a portion of our AgeX holdings.

provided by investing activities of $16.2 million for the nine months ended September 30, 2019 was associated primarily with receipts

of $10.7 million from sales of a portion of our OncoCyte holdings, $1.6 million in sales of a portion of our AgeX holdings and

$1.2 million in sales of a portion of our HBL holdings as well as the receipt of $3.1 million of cash that Asterias had on the

closing date of the Asterias Merger, offset by $0.4 million in purchases of equipment and other assets.

provided by investing activities of $10.1 million for the three months ended March 31, 2021 was associated primarily with receipts

of $10.1 million from sales of a portion of our OncoCyte holdings.

provided by investing activities of $5.3 million for the three months ended March 31, 2020 was associated primarily with receipts

of $5.0 million from sales of a portion of our OncoCyte holdings and $0.3 million from sales of a portion of our AgeX holdings.

flows provided by financing activities

provided by financing activities of $25.1 million for the nine months ended September 30, 2020 was associated primarily with proceeds

of $24.6 million from payment of the Juvenescence promissory note and proceeds of $0.5 million from a Paycheck Protection Program

(“PPP”) loan under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.

provided by financing activities of $0.6 million for the nine months ended September 30, 2019 was associated primarily with $0.7

million in landlord reimbursements for tenant improvements, offset by $0.1 million in common shares received and retired for employee

provided by financing activities of $21.0 million for the three months ended March 31, 2021 was associated primarily with net

proceeds of $19.3 million from the sale of common shares and proceeds of $1.7 million from the exercise of employee stock options.

used in financing activities for the three months ended March 31, 2020 was $10,000.

Sheet Arrangements

of September 30, 2020 and December 31, 2019, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii)

of March 31, 2021 and December 31, 2020, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii)

of Commission Regulation S-K.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis