Lineage Cell Therapeutics, Inc. 10-Q

Item 1. Financial Statements LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) September 30, 2021 (Unaudited) December 31, 2020 ASSETS CURRENT ASSETS Cash and cash equivalents $ 60,809 $ 32,585 Marketable equity securities 4,295 8,977 Trade accounts receivable, net 79 4 Prepaid expenses and other current assets 3,161 2,433 Total current assets 68,344 43,999 NONCURRENT ASSETS Property and equipment, net (Notes 6 and 15) 4,728 5,630 Deposits and other long-term assets 614 616 Goodwill 10,672 10,672 Intangible assets, net 46,854 47,032 TOTAL ASSETS $ 131,212 $ 107,949 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 6,705 $ 6,813 Lease liabilities, current portion (Note 15) 801 746 Financing lease, current portion (Note 15) 17 16 Deferred revenues 975 193 Liability classified warrants, current portion 293 1 Total current liabilities 8,791 7,769 LONG-TERM LIABILITIES Deferred tax liability 894 2,076 Lease liability, net of current portion (Note 15) 1,887 2,514 Financing lease, net of current portion (Note 15) 12 26 Liability classified warrants, net of current portion 39 437 TOTAL LIABILITIES 11,623 12,822 Commitments and contingencies (Note 15) - SHAREHOLDERS’ EQUITY Preferred shares, no par value, 2,000 shares authorized; none issued and outstanding as of September 30, 2021 and December 31, 2020 - - Common shares, no par value, 250,000 shares authorized; 168,465 and 153,096 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively 432,250 393,944 Accumulated other comprehensive loss ( 3,433 ) ( 3,667 ) Accumulated deficit ( 308,105 ) ( 294,078 ) Lineage Cell Therapeutics, Inc. shareholders’ equity 120,712 96,199 Noncontrolling deficit ( 1,123 ) ( 1,072 ) Total shareholders’ equity 119,589 95,127 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 131,212 $ 107,949 See accompanying notes to the condensed consolidated interim financial statements. 3 LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 REVENUES: Royalties $ 1,909 $ 342 $ 2,430 $ 607 Grant revenues 68 229 237 864 Collaboration revenues 293 - 506 - Total revenues 2,270 571 3,173 1,471 Cost of sales ( 985 ) ( 102 ) ( 1,222 ) ( 271 ) Gross profit 1,285 469 1,951 1,200 OPERATING EXPENSES: Research and development 2,811 3,566 9,136 9,710 General and administrative 5,317 3,628 13,788 12,055 Total operating expenses 8,128 7,194 22,924 21,765 Loss from operations ( 6,843 ) ( 6,725 ) ( 20,973 ) ( 20,565 ) OTHER INCOME/(EXPENSES): Interest income (expense), net 1 252 ( 1 ) 1,037 Gain on sale of marketable securities - 120 6,024 3,848 Unrealized loss on marketable equity securities ( 2,450 ) ( 2,003 ) ( 621 ) ( 7,487 ) Gain on extinguishment of debt - - 523 - Unrealized gain on warrant liability 53 55 105 84 Other income (expense), net 393 351 ( 318 ) 175 Total other income/(expense), net ( 2,003 ) ( 1,225 ) 5,712 ( 2,343 ) LOSS BEFORE INCOME TAXES ( 8,846 ) ( 7,950 ) ( 15,261 ) ( 22,908 ) Deferred income tax benefit 1,012 178 1,181 178 NET LOSS ( 7,834 ) ( 7,772 ) ( 14,080 ) ( 22,730 ) Net loss attributable to noncontrolling interest 11 12 51 49 NET LOSS ATTRIBUTABLE TO LINEAGE CELL THERAPEUTICS, INC. $ ( 7,823 ) $ ( 7,760 ) $ ( 14,029 ) $ ( 22,681 ) NET LOSS PER COMMON SHARE: BASIC $ ( 0.05 ) $ ( 0.05 ) $ ( 0.09 ) $ ( 0.15 ) DILUTED $ ( 0.05 ) $ ( 0.05 ) $ ( 0.09 ) $ ( 0.15 ) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: BASIC 167,624 149,973 163,120 149,868 DILUTED 167,624 149,973 163,120 149,868 See accompanying notes to the condensed consolidated interim financial statements. 4 LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (IN THOUSANDS) (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 NET LOSS $ ( 7,834 ) $ ( 7,772 ) $ ( 14,080 ) $ ( 22,730 ) Other comprehensive loss, net of tax: Foreign currency translation adjustment, net of tax ( 382 ) ( 335 ) 234 ( 140 ) COMPREHENSIVE LOSS ( 8,216 ) ( 8,107 ) ( 13,846 ) ( 22,870 ) Less: Comprehensive loss attributable to noncontrolling interest 11 12 51 49 COMPREHENSIVE LOSS ATTRIBUTABLE TO LINEAGE CELL THERAPEUTICS, INC. COMMON SHAREHOLDERS $ ( 8,205 ) $ ( 8,095 ) $ ( 13,795 ) $ ( 22,821 ) See accompanying notes to the condensed consolidated interim financial statements. 5 LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) Nine Months Ended September 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss attributable to Lineage Cell Therapeutics, Inc. $ ( 14,029 ) $ ( 22,681 ) Net loss allocable to noncontrolling interest ( 51 ) ( 49 ) Adjustments to reconcile net loss attributable to Lineage Cell Therapeutics, Inc. to net cash used in operating activities: Gain on sale of marketable securities ( 6,024 ) ( 3,848 ) Unrealized loss on marketable equity securities 621 7,487 Gain on extinguishment of debt ( 523 ) - Depreciation expense, including amortization of leasehold improvements 504 623 Amortization of right-of-use asset 19 47 Amortization of intangible assets 178 1,080 Stock-based compensation 2,601 1,733 Common stock issued for services 202 59 Change in unrealized gain on warrant liability ( 105 ) ( 84 ) Write-off of security deposit - 150 Deferred tax benefit ( 1,181 ) ( 178 ) Foreign currency remeasurement and other gain 300 ( 116 ) Gain on write-off and sales of assets ( 5 ) ( 154 ) Amortization of deferred license fee - ( 200 ) Changes in operating assets and liabilities: Accounts and grants receivable ( 104 ) 51 Accrued interest receivable - ( 1,008 ) Prepaid expenses and other current assets ( 1,229 ) 1,634 Accounts payable and accrued liabilities 354 1,342 Deferred revenue and other liabilities 784 - Net cash used in operating activities ( 17,688 ) ( 14,112 ) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sale of OncoCyte common shares 10,064 10,941 Proceeds from the sale of AgeX common shares - 1,196 Proceeds from the sale of HBL common shares 21 3 Purchase of equipment ( 208 ) ( 40 ) Proceeds from the sale of equipment 14 18 Other deposits - 18 Net cash provided by investing activities 9,891 12,136 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from employee options exercised 6,269 24,624 Common shares received and retired for employee taxes paid ( 41 ) ( 19 ) Repayment of financing lease liabilities ( 13 ) ( 24 ) Proceeds from Paycheck Protection Program (“PPP”) Loan (Note 8) - 523 Proceeds from sale of common shares 30,741 - Payments for offering costs ( 980 ) ( 53 ) Net cash provided by financing activities 35,976 25,051 Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 34 ) ( 36 ) NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 28,145 23,039 CASH, CASH EQUIVALENTS AND RESTRICTED CASH: At beginning of the period 33,183 10,096 At end of the period $ 61,328 $ 33,135 See accompanying notes to the condensed consolidated interim financial statements. 6 LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) 1. Organization and Business Overview Lineage Cell Therapeutics, Inc. (“Lineage,” “we,” “us,” or “our”) is a clinical-stage biotechnology company developing novel cell therapies for unmet medical needs. Our focus is to develop therapies for degenerative retinal diseases, neurological conditions associated with demyelination, and that aid the body in detecting and combating cancer. Specifically, Lineage is testing therapies to treat dry age-related macular degeneration, spinal cord injuries, and non-small cell lung 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. We have three allogeneic, or “off-the-shelf,” cell therapy programs in clinical development: ● OpRegen ® , 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”) (also known as, atrophic AMD). There are currently 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 60 in the developed world. ● OPC1 , an oligodendrocyte progenitor cell therapy currently in a Phase 1/2a multicenter clinical trial for subacute spinal cord injuries (“SCI”). This clinical trial has been partially funded by the California Institute for Regenerative Medicine (“CIRM”). ● VAC2 , 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. In 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. (“AgeX”). We continue to hold common stock in OncoCyte as of September 30, 2021. Though our principal focus is on advancing our three cell therapy programs currently in clinical development, we may seek to create additional value by initiating new programs using existing protocols or new protocols and cell lines, or through corporate transactions, as we have in the past. Asterias Merger On November 7, 2018, Lineage, Asterias Biotherapeutics, Inc. (“Asterias”) and Patrick Merger Sub, Inc., a wholly owned subsidiary of Lineage, entered into an Agreement and Plan of Merger (the “Merger Agreement”) whereby Lineage agreed to acquire all of the outstanding common stock of Asterias in a stock-for-stock transaction (the “Asterias Merger”). On March 7, 2019, the shareholders of each of Lineage and Asterias approved the Merger Agreement. Prior to the Asterias Merger, Lineage owned approximately 38 % of Asterias’ issued and outstanding common stock and accounted for Asterias as an equity method investment. On March 8, 2019, the Asterias Merger closed with Asterias surviving as a wholly owned subsidiary of Lineage. The former stockholders of Asterias (other than Lineage) received 0.71 common shares of Lineage for every share of Asterias common stock they owned. Lineage issued 24,695,898 common shares, including 58,085 shares issued in respect of restricted stock units issued by Asterias that immediately vested in connection with the closing of the Asterias Merger. The aggregate dollar value of such shares, based on the closing price of Lineage common shares on March 8, 2019, was $ 32.4 million. The total purchase price was $ 52.6 million. Lineage also assumed warrants to purchase shares of Asterias common stock. 7 The Asterias Merger was accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations , which requires, among other things, that the assets and liabilities assumed be recognized at their fair values as of the acquisition date. 2. Basis of Presentation, Liquidity and Summary of Significant Accounting Policies The unaudited condensed consolidated interim financial statements presented herein, and discussed below, have been prepared in accordance with generally accepted accounting principles in the United States (“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, 2020 was derived from the audited consolidated financial statements at that date. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Lineage’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (the “Commission”) on March 11, 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 Lineage’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 any year. Principles of consolidation Lineage’s condensed consolidated interim financial statements include the accounts of its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. The following table reflects Lineage’s ownership, directly or through one or more subsidiaries, of the outstanding shares of its operating subsidiaries as of September 30, 2021. Schedule of Lineage's Ownership of Outstanding Shares of its Subsidiaries Subsidiary Field of Business Lineage Ownership Country Asterias BioTherapeutics, Inc. Cell therapy clinical development programs in spinal cord injury and oncology 100 % USA Cell Cure Neurosciences Ltd. (“Cell Cure”) Development and manufacturing of Lineage’s cell replacement platform technology 99 %(1) Israel ES Cell International Pte. Ltd. (“ESI”) Stem cell products for research, including clinical grade cell lines produced under cGMP 100 % Singapore OrthoCyte Corporation (“OrthoCyte”) Developing bone grafting products for orthopedic diseases and injuries 99.8 % USA (1) Includes shares owned by Lineage and ESI. As of September 30, 2021, Lineage consolidated its direct and indirect wholly owned or majority-owned subsidiaries because Lineage 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 shareholders’ equity on Lineage’s consolidated balance sheets. Liquidity Lineage has incurred significant operating losses and in recent years has funded its operations primarily through sale of common stock of AgeX and OncoCyte, both former subsidiaries, sale of common stock of Hadasit Bio-Holdings Ltd (“HBL”), receipt of research grants, royalties from product sales, license revenues, sales of research products and issuance of equity securities. 8 On May 1, 2020, Lineage entered into a Controlled Equity Offering SM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor Fitzgerald”), pursuant to which Lineage may, but is not obligated to, raise up to $ 25.0 million through the sale of common shares from time to time in at-the-market transactions under the Sales Agreement. On March 5, 2021, Lineage filed a prospectus supplement with the SEC in connection with the offer and sale of an additional $ 25.0 million of common shares under the Sales Agreement increasing the total offering to $ 50.0 million. As of June 30, 2021, Lineage had issued 13,859,776 common shares at a weighted average price per share of $ 2.39 for gross proceeds of $ 33.1 million. For the three months ended September 30, 2021, Lineage issued an additional 1,048,959 common shares at a weighted average price per share of $ 2.62 for gross proceeds of $ 2.7 million. As of September 30, 2021, Lineage had issued 14,908,735 common shares at a weighted average price per share of $ 2.41 for gross proceeds of $ 35.9 million under the Sales Agreement. As of September 30, 2021, Lineage had an accumulated deficit of approximately $ 308.1 million, working capital of $ 59.6 million and shareholders’ equity of $ 119.6 million. Lineage has evaluated its projected cash flows and believes that its $ 65.1 million of cash, cash equivalents and marketable equity securities are sufficient to fund Lineage’s planned operations for at least the next twelve months from the issuance date of the condensed consolidated interim financial statements included herein. If Lineage needs near term working capital or liquidity to supplement its cash and cash equivalents for its operations, Lineage may sell some, or all, of its marketable equity securities, as necessary. Lineage’s projected cash flows are subject to various risks and uncertainties, and the unavailability or inadequacy of financing to meet future capital needs could force Lineage to modify, curtail, delay, or suspend some or all aspects of its planned operations. Lineage’s determination as to when it will seek new financing and the amount of financing that it will need will be based on Lineage’s evaluation of the progress it makes in its research and development programs, any changes to the scope and focus of those programs, any changes in grant funding for certain of those programs, and projection of future costs, revenues, and rates of expenditure. Lineage’s ability to raise additional funds may be adversely impacted by deteriorating global economic conditions and the disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. Lineage may be required to delay, postpone, or cancel clinical trials or limit the number of clinical trial sites, unless it is able to obtain adequate financing. Lineage cannot assure that adequate financing will be available on favorable terms, if at all. Sales of additional equity securities by Lineage or its subsidiaries and affiliates could result in the dilution of the interests of current shareholders. Marketable Equity Securities Lineage accounts for the shares it holds in OncoCyte, and HBL as marketable equity securities in accordance with ASC 320-10-25, Investments – Debt and Equity Securities , as amended by Accounting Standards Update (“ASU”) 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities , further discussed below. OncoCyte shares have readily determinable fair values quoted on the NYSE American under trading symbol “OCX”. The HBL shares have a readily determinable fair value quoted on the Tel Aviv Stock Exchange (“TASE”) under the trading symbol “HDST” where share prices are denominated in New Israeli Shekels (NIS). Revenue Recognition Lineage recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) ASU 2014-09, Revenues from Contracts with Customers (Topic 606) , and 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 is entitled to receive in exchange for such product or service. In doing so, Lineage 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. Lineage considers the terms of a contract and all relevant facts and circumstances when applying the revenue recognition standard. Lineage applies the revenue recognition standard, including the use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances. In applying the provisions of ASU 2014-09, Lineage has determined that government grants are out of the scope of ASU 2014-09 because the government entities do not meet the definition of a “customer,” as defined by ASU 2014-09, as there is not considered to be a transfer of control of goods or services to the government entities funding the grant. In the absence of applicable guidance under U.S. GAAP, the Company’s policy is to recognize grant revenue when the related costs are incurred and the right to payment is realized. Costs incurred are recorded in research and development and general and administrative expenses on the accompanying statements of operations (see Note 15). 9 Deferred grant revenues currently represent grant funds received from the Israel Innovation Authority (“IIA”) for the development of Cell Cure’s OpRegen and our bio retina program, for which the allowable expenses have not yet been incurred as of the latest balance sheet date reported. As of September 30, 2021, deferred grant revenue was $ 82,200 , primarily comprised of remaining funds most recently received in July 2021, June 2021 and November 2020, for their respective programs. Royalties from product sales and license fees: For agreements that include sales-based royalties, including commercial milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, Lineage recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Lineage estimates and recognizes royalty revenues based on all available information, including estimates provided by the customer or licensee from which Lineage obtains such estimates directly for each reporting period. Actual revenues ultimately received may differ from those estimates recorded and are adjusted in the period when information to actuals is available to Lineage. For the three and nine months ended September 30, 2021, Lineage recorded additional royalty revenues of approximately $ 1.8 million from a certain customer, based on the customer’s updated communication to Lineage regarding royalties due. Consequently, Lineage also recorded a corresponding 50% of these additional royalties in cost of sales, as an accrued royalty payable to a separate royalty party. As of September 30, 2021, the $ 1.8 million is included as a receivable within prepaid expenses and other current assets. The customer paid these royalties to Lineage in October 2021. The additional royalty revenue for certain amounts relating to prior periods was not material to Lineage’s consolidated financial statements, taken as a whole, for any period presented. Collaboration Agreements On April 16, 2021, Lineage entered a worldwide license and development collaboration agreement with Immunomic Therapeutics, Inc. (“ITI”). Lineage is the sole and exclusive owner of the rights to the VAC platform and has licensed to ITI patents and materials for the development and commercialization of a novel cancer immunotherapy agent derived from this platform utilizing an antigen provided by ITI, for the treatment of glioblastoma multiforme. Under the terms of this agreement, Lineage is entitled to upfront licensing fees totaling $ 2.0 million paid over the first year, and up to $ 67.0 million in development and commercial milestones across multiple indications. Lineage will also be eligible to receive royalties up to 10 % on net sales of future products. We review collaborative agreements to determine if the accounting treatment falls under Accounting Standards Codification, Topic 606 , Revenue from Contracts with Customers (“ASC 606”) , or Accounting Standards Codification Topic 808, Collaborative Arrangements (“ASC 808”). While these agreements are typically within the scope of ASC 808, we may analogize to ASC 606 for some aspects of the agreements. The terms of our collaborative agreements typically include one or more of the following: (i) upfront fees; (ii) milestone payments related to achievement of development or commercial goals; (iii) royalties on net sales of licensed products; and (iv) reimbursement of cost-sharing of research and development (“R&D”) expenses. Each of these payments eventually result in collaboration revenues. When a portion of non-refundable upfront fees or other payments received are allocated to continuing performance obligations under the terms of a collaborative arrangement, they are recorded as deferred revenue and recognized as collaboration revenue when (or as) the underlying performance obligation is satisfied. As part of the accounting treatment for these arrangements, we must develop estimates and assumptions that require judgement to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligations. The following items are estimated in the calculation of the stand-alone selling price: forecasted revenues and development costs, development timelines, discount rates and probabilities of technical and regulatory success. We evaluate each performance obligation to determine if they can be satisfied at a point in time or over time, and we measure the services delivered to our collaboration partners each reporting period, which is based on the progress of the related program. If necessary, we adjust the measure of performance and related revenue recognition. Any such adjustments are recorded on a cumulative catch-up basis which would affect revenue and net income (loss) in the period of adjustment. In addition, variable consideration (e.g., milestone payments) must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price. Upfront Fees: If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize collaboration revenues from the transaction price allocated to the license when the license is transferred to the licensee, and the licensee is able to use and benefit from the license. When the license is determined to be non-distinct, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time, and, if over time, the appropriate method of measuring progress for purposes of recognizing collaboration revenue from the allocated transaction price. For example, when we receive upfront fees for the performance of research and development services, or when research and development services are not considered to be distinct from a license, we recognize collaboration revenue for those units of account over time using a measure of progress. We evaluate the measure of progress at each reporting period and, if necessary, adjust the measure of performance and related revenue as a change in estimate. Milestone Payments: At the inception of each collaboration agreement that includes milestone payments (variable consideration), we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our or the collaboration partner’s control, such as non-operational developmental and regulatory approvals, are generally not considered probable of being achieved until those approvals are received. At the end of each reporting period, we re-evaluate the probability of achievement of milestones that are within our or the collaboration partner’s control, such as operational developmental milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues and net income (loss) in the period of adjustment. Revisions to our estimate of the transaction price may also result in negative collaboration revenues and net income (loss) in the period of adjustment. 10 Royalties: For collaboration agreements that include sales-based royalties, including commercial milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Reimbursement, cost-sharing payments: Under certain collaborative agreements, we will receive reimbursement for a portion of our R&D expenses. Such reimbursements are reviewed for gross versus net reporting considerations and reflected either as a reduction of R&D expense or as reimbursement revenue in our condensed consolidated statements of operations. As of September 30, 2021 we had $ 856,000 of deferred revenue on the consolidated balance sheet related to the ITI collaboration agreement, and for the three and nine months ended September 30, 2021, we recognized $ 293,000 and $ 506,000 of revenue, respectively, related to the ITI collaboration agreement. Basic and diluted net loss per share attributable to common shareholders Basic earnings per share is calculated by dividing net income or loss attributable to Lineage common shareholders by the weighted average number of common shares outstanding, net of unvested restricted stock or restricted stock units, subject to repurchase by Lineage, if any, during the period. Diluted earnings per share is calculated by dividing the net income or loss attributable to Lineage common shareholders by the weighted average number of common shares outstanding, adjusted for the effects of potentially dilutive common shares issuable under outstanding stock options and warrants, using the treasury-stock method, 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, 2021 and 2020, respectively, Lineage reported a net loss attributable to common shareholders, and therefore, all potentially dilutive common shares were considered antidilutive for those periods. The following common share equivalents were excluded from the computation of diluted net loss per common share for the periods presented because including them would have been antidilutive (in thousands): Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share Nine Months Ended September 30, (unaudited) 2021 2020 Stock options 17,207 16,560 Lineage Warrants (1) - 1,090 Restricted stock units 46 108 (1) Although the Lineage Warrants (as defined below) are classified as liabilities, the Lineage Warrants are considered for dilutive earnings per share calculations in accordance with ASC 260, Earnings Per Share, and determined to be antidilutive for the period presented. Restricted Cash In accordance with ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash , Lineage explains the change during the period in the total of cash, cash equivalents and restricted cash, and includes restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the condensed consolidated statements of cash flows. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheet dates that comprise the total of the same such amounts shown in the condensed consolidated statements of cash flows for all periods presented herein (in thousands): Schedule of Reconciliation of Cash, Cash Equivalents, and Restricted Cash September 30, 2021 December 31, 2020 (unaudited) Cash and cash equivalents $ 60,809 $ 32,585 Restricted cash included in deposits and other long-term assets (see Note 15) 519 520 Restricted cash included in prepaid expenses and other current assets (see Note 15) - 78 Total cash, cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows $ 61,328 $ 33,183 11 Recently Adopted Accounting Pronouncements In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement , which modifies certain disclosure requirements for reporting fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Lineage adopted this standard on January 1, 2020 and it did not have a significant impact on its condensed consolidated financial statements. In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes . The ASU enhances and simplifies various aspects of the income tax accounting guidance in ASC 740 and removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years with early adoption permitted. Lineage adopted this standard as of January 1, 2021 and did not have a material impact on its condensed consolidated financial statements. Recently Issued Accounting Pronouncements Not Yet Adopted The recently issued accounting pronouncements applicable to Lineage that are not yet effective should be read in conjunction with the recently issued accounting pronouncements, as applicable and disclosed in Lineage’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Commission on March 11, 2021. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . ASU 2016-13 is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for Lineage beginning January 1, 2023. Lineage has not yet completed its assessment of the impact of the new standard on its condensed consolidated financial statements. 3. Revenue Our disaggregated revenues were as follows (in thousands): Disaggregation of Revenue Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Royalties $ 1,909 $ 342 $ 2,430 $ 607 Grant revenues Israel Innovation Authority (“IIA”) $ 68 $ 216 $ 237 $ 477 National Institutes of Health (“NIH”) - 13 - 387 Total grant revenues 68 229 237 864 Revenues under collaborative agreements Upfront license fees 36 - 72 - Event-based development milestones 72 - 72 - Reimbursements, cost-sharing payments 185 - 362 - Total revenues under collaborative agreements 293 - 506 - Total revenue $ 2,270 $ 571 $ 3,173 $ 1,471 12 During the three months ended September 30, 2021 we recognized $ 2.3 million in total revenue. There was no revenue related to new license agreements granted during the period. Revenues recognized during the current period which had been included in deferred revenues at December 31, 2020 were not material. During the nine months ended September 30, 2021 we recognized $ 3.2 million in total revenue. We recognized $ 0.5 million in revenues from new license agreements granted in the period, which were recorded as revenues under collaboration agreements. We recognized revenue of $ 0.1 million during the period which had been included in deferred revenues at December 31, 2020. Accounts receivable and other receivable, net, and deferred revenues (contract liabilities) from contracts with customers, including collaboration partners, consisted of the following: Schedule of Contract with Customer Contract Liability and Receivable September 30, 2021 December 31, 2020 (unaudited) Accounts receivable and other receivable, net (1) $ 2,122 $ 242 Deferred revenues (1) 893 - (1) Excludes government grants as Lineage has determined government grants are outside the scope of ASU 2014-09 - Revenue from Contracts with Customers (Topic 606). As of September 30, 2021, the amounts in the transaction price of our contracts with customers, including collaboration partners, and allocated good and services not yet provided were $ 3.0 million, of which $ 2.1 million relates to unfulfilled commitments and $ 0.9 million has been collected and is reported as deferred revenues. The unfulfilled commitments are estimated to be delivered by the end of the second quarter of 2022. Of the total deferred revenues of $ 0.9 million, substantially all is expected to be recognized within the next 12 months. 4. Marketable Equity Securities As of September 30, 2021, Lineage owned approximately 1.1 million shares of OncoCyte common stock. These shares had a fair value of approximately $ 4.0 million, based on the closing price of OncoCyte of $ 3.56 per share on September 30, 2021. As of December 31, 2020, Lineage owned approximately 3.6 million shares of OncoCyte common stock. These shares had a fair value of approximately $ 8.7 million, based on the closing price of OncoCyte of $ 2.39 per share on December 31, 2020. For the three months ended September 30, 2021, Lineage recorded a net unrealized loss on marketable equity securities of $ 2.5 million related to changes in fair market value of OncoCyte’s common stock price during the quarter. For the three months ended September 30, 2020, Lineage recorded an unrealized loss of $ 1.9 million related to changes in the fair market value of OncoCyte’s common stock price during the quarter. For the nine months ended September 30, 2021, Lineage recorded a realized gain of $ 6.0 million due to sales of OncoCyte shares in the period. Lineage also recorded a net unrealized loss on marketable equity securities of $ 0.6 million related to changes in fair market value of OncoCyte’s common stock price during the period. For the nine months ended September 30, 2020, Lineage recorded a realized gain of $ 3.1 million due to sales of OncoCyte shares in the period. Lineage also recorded a net unrealized loss on marketable equity securities of $ 6.1 million related to changes in fair market value of OncoCyte’s common stock price in the period. All share prices are determined based on the closing price of OncoCyte common stock on the NYSE American on the applicable dates, or the last day of trading of the applicable quarter, if the last day of a quarter fell on a weekend. We account for the shares we hold in HBL as marketable equity securities as of September 30, 2021. These securities were carried at fair market value on our consolidated balance sheets, and the accounting transactions for the three and nine months ended were not material. For the three and nine months ended September 30, 2021, we did not hold any marketable securities related to AgeX. 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. For the three and nine months ended September 30, 2020, we recorded unrealized losses of $ 0.1 million and $ 1.4 million, respectively, due to changes in fair market value of AgeX’s common stock price during the period. 13 5. Sale of Significant Ownership Interest in AgeX to Juvenescence Limited On August 30, 2018, Lineage entered into a Stock Purchase Agreement with Juvenescence Limited (“Juvenescence”) and AgeX, pursuant to which Lineage sold 14.4 million shares of common stock of AgeX to Juvenescence for $ 3.00 per share, or an aggregate purchase price of $ 43.2 million (the “Purchase Price”). Juvenescence paid $ 10.8 million of the Purchase Price at closing, issued an unsecured convertible promissory note dated August 30, 2018 in favor of Lineage for $ 21.6 million (the “Promissory Note”), and paid $ 10.8 million on November 2, 2018. The Stock Purchase Agreement contains customary representations, warranties and indemnities from Lineage relating to the business of AgeX, including an indemnity cap of $ 4.3 million, which is subject to certain exceptions. In connection with the sale, Lineage also entered into a Shared Facilities Agreement with AgeX. The Promissory Note bore interest at 7 % per annum, with principal and accrued interest payable at maturity on August 30, 2020. The Promissory Note was paid in full on August 28, 2020 . 6. Property and Equipment, Net At September 30, 2021 and December 31, 2020, property and equipment, net was comprised of the following (in thousands): Schedule of Property and Equipment, Net September 30, 2021 December 31, 2020 (unaudited) Equipment, furniture and fixtures $ 3,626 $ 3,628 Leasehold improvements 2,462 2,472 Right-of-use assets 3,833 3,845 Accumulated depreciation and amortization ( 5,193 ) ( 4,315 ) Property and equipment, net $ 4,728 $ 5,630 Property and equipment at September 30, 2021 and December 31, 2020 includes $ 79,000 in financing leases. In September 2020, Lineage terminated its leases in Alameda and entered into a new lease for a reduced amount of square footage. This resulted in a reduction to right-of-use assets of approximately $ 1.4 million. See additional information in Note 15. Depreciation and amortization expense amounted to $ 165,000 and $ 200,000 for the three months ended September 30, 2021 and 2020, and $ 504,000 and $ 623,000 for the nine months ended September 30, 2021 and 2020, respectively. During the nine months ended September 30, 2021, Lineage sold non-capitalized assets for a net gain of $ 30,000 , which was included in research and development expenses on the condensed consolidated statements of operations. During the nine months ended September 30, 2021, Lineage sold equipment with a net book value of $ 9,000 and recognized a gain of $ 5,000 . During the three and nine months ended September 30, 2020, Lineage sold equipment with a net book value of $ 39,000 and $ 52,000 , respectively, and recognized losses of $ 32,000 and $ 34,000 , respectively. During the nine months ended September 30, 2020, Lineage sold non-capitalized assets for a net gain of $ 67,000 , which was included in research and development expenses on the condensed consolidated statements of operations. 14 7. Goodwill and Intangible Assets, Net At September 30, 2021 and December 31, 2020, goodwill and intangible assets, net consisted of the following (in thousands): Schedule of Goodwill and Intangible Assets, Net September 30, 2021 December 31, 2020 (unaudited) Goodwill (1) $ 10,672 $ 10,672 Intangible assets: Acquired IPR&D - OPC1 (from the Asterias Merger) (2) $ 31,700 $ 31,700 Acquired IPR&D - VAC2 (from the Asterias Merger) (2) 14,840 14,840 Intangible assets subject to amortization: Acquired patents 18,953 18,953 Acquired royalty contracts (3) 650 650 Total intangible assets 66,143 66,143 Accumulated amortization (4) ( 19,289 ) ( 19,111 ) Intangible assets, net $ 46,854 $ 47,032 (1) Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired and liabilities assumed in the Asterias Merger. (2) Asterias had two in-process research and development (“IPR&D”) intangible assets that were valued at $ 46.5 million as part of the purchase price allocation that was performed in connection with the Asterias Merger. The fair value of these assets consisted of $ 31.7 million pertaining to the OPC1 program and $ 14.8 million pertaining to the VAC2 program. (3) Asterias had royalty cash flows under certain specific patent families that Asterias previously acquired from Geron Corporation (“Geron”). The Geron patents are expected to continue to generate revenue and are not used in the OPC1 or the VAC2 program, these patents are considered to be separate long-lived intangible assets under ASC 805. (4) As of September 30, 2021 the acquired patents were fully amortized and the acquired royalty contracts had a remaining unamortized balance of $ 314,000 . Amortization expenses was $ 33,000 and $ 250,000 for the three months ended September 30, 2021 and 2020, and $ 178,000 and $ 1,080,000 for the nine months ended September 30, 2021, and 2020, respectively. Future aggregate approximate amortization expense for the Company’s intangible assets are as follows (in thousands): Schedule of Intangible Assets Future Amortization Expense Year Ending December 31, 2021 $ 32 2022 130 2023 130 2024 22 2025 - Thereafter - Total $ 314 15 8. Accounts Payable and Accrued Liabilities At September 30, 2021 and December 31, 2020, accounts payable and accrued liabilities consisted of the following (in thousands): Schedule of Accounts Payable and Accrued Liabilities September 30, 2021 December 31, 2020 (unaudited) Accounts payable $ 3,457 $ 2,611 Accrued compensation 1,639 1,959 Accrued liabilities 1,540 1,711 PPP loan payable - 523 Other current liabilities 69 9 Total $ 6,705 $ 6,813 PPP Loan Payable In April 2020, Lineage received a loan for $ 523,000 from Axos Bank under the PPP contained within the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The PPP loan had a term of two years, was unsecured, and was guaranteed by the U.S. Small Business Administration (“SBA”). The loan carried a fixed interest rate of one percent per annum, of which the first six months of interest was deferred. Under the CARES Act and Paycheck Protection Program Flexibility Act, Lineage was eligible to apply for forgiveness of all loan proceeds used to pay payroll costs, rent, utilities and other qualifying expenses during the 24-week period following receipt of the loan, provided that Lineage maintains its employment and compensation within certain parameters during such period. Not more than 40 % of the forgiven amount may be for non-payroll costs. If the conditions outlined in the PPP loan program were adhered to by Lineage, all or part of such loan could be forgiven. Lineage applied for forgiveness of the PPP loan on September 30, 2020, and on May 13, 2021, received notice that the entire PPP loan principal balance and interest charges were forgiven in full, which the Company recorded as a gain on debt extinguishment in the condensed consolidated statements of operations. The PPP loan forgiveness amount was excluded from Lineage’s taxable income for federal and California purposes. However, for California income taxes, public companies cannot deduct expenses from loan proceeds which were forgiven. 9. Fair Value Measurements 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 for identical assets or liabilities in active markets. ● Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. ● 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. We measure cash and cash equivalents, marketable equity securities and our liability classified warrants at fair value on a recurring basis. The fair values of such assets were as follows for September 30, 2021 and December 31, 2020 (in thousands): 16 Schedule of Fair Value of Assets and Liabilities Valued on Recurring Basis Fair Value Measurements Using Balance at September 30, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Cash and cash equivalents $ 60,809 $ 60,809 $ - $ - Marketable equity securities 4,295 4,295 - - Liabilities: Cell Cure Warrants 332 - - 332 Fair Value Measurements Using Balance at December 31, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Cash and cash equivalents $ 32,585 $ 32,585 $ - $ - Marketable equity securities 8,977 8,977 - - Liabilities: Lineage Warrants 1 - - 1 Cell Cure Warrants 437 - - 437 We have not transferred any instruments between the three levels of the fair value hierarchy. In determining fair value, Lineage utilizes a Black-Scholes pricing model that maximizes 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. The significant unobservable inputs used in the fair value measurement of the Company’s Level 3 Cell Cure warrant liabilities are volatility and share value. A significant increase or decrease in these Level 3 inputs could result in a significantly higher or lower fair value measurements. The following table sets forth the establishment of the Company’s Level 3 liabilities, as well as a summary of the changes in the fair value and other adjustments: Schedule of Changes in Fair Value and Other Adjustments of Warrants (Dollars in thousands) Cell Cure Warrants Lineage Warrants Total Balance as of December 31, 2020 $ 437 $ 1 $ 438 Change in fair value and other adjustments ( 105 ) - ( 105 ) Expiration of warrants - ( 1 ) ( 1 ) Balance as of September 30, 2021 $ 332 $ - $ 332 Marketable equity securities include our positions in OncoCyte, and HBL. Both of these securities have readily determinable fair values quoted on the NYSE American or TASE stock exchanges. These securities are measured at fair value and reported as current assets on the condensed consolidated balance sheets based on the closing trading price of the security as of the date being presented. The fair value of Lineage’s assets and liabilities, which qualify as financial instruments under FASB guidance regarding disclosures about fair value of financial instruments, approximate the carrying amounts presented in the accompanying consolidated balance sheets. The carrying amounts of accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate fair values because of the short-term nature of these items. 17 10. Related Party Transactions Lineage incurred costs of $ 5,050 per month for the use of approximately 900 square feet of office space in New York City, which was made available to Lineage on a month-by-month basis by one of its directors at an amount that approximates his cost (see Note 15). In March 2021 , Lineage terminated without penalty its leasing term related to the New York City office lease. In connection with the putative shareholder class action lawsuits filed in February 2019 and October 2019 challenging the Asterias Merger (see Note 15), Lineage has agreed to pay for the legal defense of Neal Bradsher, director, Broadwood Partners, L.P., a shareholder of Lineage, and Broadwood Capital, Inc., which manages Broadwood Partners, L.P., all of which were named in the lawsuits. Through September 30, 2021, Lineage has incurred a total of $ 657,000 in legal expenses on behalf of the director, shareholder and the manager of the shareholder. As part of financing transactions in which there were multiple other purchasers, Broadwood Partners, L.P. purchased 623,090 shares of OncoCyte common stock from Lineage in January 2020. 11. Shareholders’ Equity Preferred Shares Lineage is authorized to issue 2,000,000 preferred shares. The preferred shares may be issued in one or more series as our board of directors may determine by resolution. Our board of directors is authorized to fix the number of shares of any series of preferred shares and to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed on the preferred shares as a class, or upon any wholly unissued series of any preferred shares. Our board of directors may, by resolution, increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series of preferred shares subsequent to the issue of shares of that series. There are no preferred shares issued and outstanding. Common Shares At September 30, 2021, Lineage was authorized to issue 250,000,000 common shares, no par value. As of September 30, 2021, and December 31, 2020, Lineage had 168,465,000 and 153,095,883 issued and outstanding common shares, respectively. At-The-Market Offering On May 1, 2020, Lineage entered into the Sales Agreement, pursuant to which Lineage may offer and sell, from time to time, through Cantor Fitzgerald, common shares of Lineage having an aggregate offering price of up to $ 25.0 million. Lineage is not obligated to sell any shares under the Sales Agreement. Subject to the terms and conditions of the Sales Agreement, Cantor Fitzgerald will use commercially reasonable efforts, consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations, and the rules of the NYSE American, to sell the shares from time to time based upon Lineage’s instructions, including any price, time or size limits specified by Lineage. Under the Sales Agreement, Cantor Fitzgerald may sell the shares by any method deemed to be an “at-the-market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, or by any other method permitted by law, including in privately negotiated transactions. Cantor Fitzgerald’s obligations to sell the shares under the Sales Agreement are subject to satisfaction of certain conditions, including the continued effectiveness of Lineage’s Registration Statement on Form S-3 (File No. 333-237975), which was filed with the Commission on May 1, 2020 and was declared effective on May 8, 2020. The Sales Agreement replaced the previous sales agreement with Cantor that had been entered into in April 2017. On March 5, 2021, Lineage filed a prospectus supplement with the SEC in connection with the offer and sale of an additional $ 25.0 million of common shares under the Sales Agreement increasing the total offering to $ 50.0 million. As of June 30, 2021, Lineage had issued 13,859,776 common shares at a weighted average price per share of $ 2.39 for gross proceeds of $ 33.1 million. For the three months ended September 30, 2021, Lineage issued an additional 1,048,959 common shares at a weighted average price per share of $ 2.62 for gross proceeds of $ 2.7 million. As of September 30, 2021, Lineage had issued 14,908,735 common shares at a weighted average price per share of $ 2.41 for gross proceeds of $ 35.9 million under the Sales Agreement. Lineage agreed to pay Cantor Fitzgerald a commission of 3.0 % of the aggregate gross proceeds from each sale of shares, reimburse legal fees and disbursements and provide Cantor Fitzgerald with customary indemnification and contribution rights. The Sales Agreement may be terminated by Cantor Fitzgerald or Lineage at any time upon notice to the other party, or by Cantor Fitzgerald at any time in certain circumstances, including the occurrence of a material and adverse change in Lineage’s business or financial condition that makes it impractical or inadvisable to market the shares or to enforce contracts for the sale of the shares. 18 Reconciliation of Changes in Shareholders’ Equity The following tables document the changes in shareholders’ equity for the three and nine months ended September 30, 2021 and 2020 (unaudited and in thousands): Schedule of Shareholders' Equity of Shares Amount of Shares Amount Deficit (Deficit) Income/(Loss) Equity Preferred Shares Common Shares Noncontrolling Accumulated Other Total Number Number Accumulated Interest/ Comprehensive Shareholders’ of Shares Amount of Shares Amount Deficit (Deficit) Income/(Loss) Equity BALANCE AT DECEMBER 31, 2020 - $ - 153,096 $ 393,944 $ ( 294,078 ) $ ( 1,072 ) $ ( 3,667 ) $ 95,127 Shares issued through ATM - - 7,941 19,008 - - - 19,008 Shares issued for services - - 78 202 - - - 202 Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes - - 10 ( 12 ) - - - ( 12 ) Shares issued upon exercise of stock options - - 942 1,751 1,751 Shares issues for retirement of stock warrants Shares issues for retirement of stock warrants, shares Dissolution of BioTime Asia Financing related fees - - - ( 173 ) - - - ( 173 ) Stock-based compensation - - - 539 - - - 539 Foreign currency translation gain - - - - - - 1,576 1,576 NET LOSS - - - - ( 1,416 ) ( 32 ) - ( 1,448 ) BALANCE AT MARCH 31, 2021 - $ - 162,067 $ 415,259 $ ( 295,494 ) $ ( 1,104 ) $ ( 2,091 ) $ 116,570 Shares issued through ATM - - 2,824 7,874 - - - 7,874 Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes - - 10 ( 15 ) - - - ( 15 ) Shares issued upon exercise of stock options - - 2,116 4,033 - - - 4,033 Financing related fees - - - ( 26 ) - - - ( 26 ) Stock-based compensation - - - 919 - - - 919 Shares issues for retirement of stock warrants - - 20 2 2 Foreign currency translation loss - - - - - - ( 960 ) ( 960 ) NET LOSS - - - - ( 4,788 ) ( 8 ) - ( 4,796 ) BALANCE AT JUNE 30, 2021 - $ - 167,037 $ 428,046 $ ( 300,282 ) $ ( 1,112 ) $ ( 3,051 ) $ 123,601 Shares issued through ATM - - 1,049 2,667 - - - 2,667 Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes - - 10 ( 13 ) - - - ( 13 ) Shares issued upon exercise of stock options - - 369 485 - - - 485 Financing related fees - - - ( 79 ) - - - ( 79 ) Stock-based compensation - - - 1,144 - - - 1,144 Foreign currency translation loss - - - - - - ( 382 ) ( 382 ) NET LOSS - - - - ( 7,823 ) ( 11 ) - ( 7,834 ) BALANCE AT SEPTEMBER 30, 2021 - $ - 168,465 $ 432,250 $ ( 308,105 ) $ ( 1,123 ) $ ( 3,433 ) $ 119,589 19 Preferred Shares Common Shares Noncontrolling Accumulated Other Total Number Number Accumulated Interest/ Comprehensive Shareholders’ of Shares Amount of Shares Amount Deficit (Deficit) Income/(Loss) Equity BALANCE AT DECEMBER 31, 2019 - $ - 149,804 $ 387,062 $ ( 273,422 ) $ ( 1,712 ) $ ( 681 ) $ 111,247 Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes - - 14 ( 2 ) - - - ( 2 ) Stock-based compensation - - - 626 - - - 626 Foreign currency translation gain - - - - - - 1,315 1,315 NET LOSS - - - - ( 8,399 ) ( 29 ) - ( 8,428 ) BALANCE AT MARCH 31, 2020 - $ - 149,818 $ 387,686 $ ( 281,821 ) $ ( 1,741 ) $ 634 $ 104,758 Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes - - 13 ( 11 ) - - - ( 11 ) Stock-based compensation - - - 606 - - - 606 Financing related fees - - - ( 10 ) - - - ( 10 ) Foreign currency translation loss - - - - - - ( 1,120 ) ( 1,120 ) NET LOSS - - - - ( 6,522 ) ( 8 ) - ( 6,530 ) BALANCE AT JUNE 30, 2020 - $ - 149,831 $ 388,271 $ ( 288,343 ) $ ( 1,749 ) $ ( 486 ) $ 97,693 Beginning balance - $ - 149,831 $ 388,271 $ ( 288,343 ) $ ( 1,749 ) $ ( 486 ) $ 97,693 Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes - - 10 ( 6 ) - - - ( 6 ) Shares issued for services - - 150 119 - - - 119 Dissolution of BioTime Asia - - - ( 679 ) - 679 - - Stock-based compensation - - - 501 - - - 501 Financing related fees - - - ( 16 ) - - - ( 16 ) Foreign currency translation loss - - - - - - ( 335 ) ( 335 ) Foreign currency translation gain (loss) - - - - - - ( 335 ( 335 NET LOSS - - - - ( 7,760 ) ( 12 ) - ( 7,772 ) BALANCE AT SEPTEMBER 30, 2020 - $ - 149,991 $ 388,190 $ ( 296,103 ) $ ( 1,082 ) $ ( 821 ) $ 90,184 Ending balance - $ - 149,991 $ 388,190 $ ( 296,103 ) $ ( 1,082 ) $ ( 821 ) $ 90,184 20 Warrants Lineage (previously Asterias) Warrants - Liability Classified In March 2019, in connection with the closing of the Asterias Merger, Lineage assumed outstanding Asterias Warrants (the “Lineage Warrants”). The total number of common shares of Lineage subject to warrants that were assumed by Lineage in connection with the Asterias Merger was 1,089,900 , which were converted to Lineage Warrants 30 days after the closing of the Asterias Merger, with similar terms and conditions retained under the Lineage Warrants as per the original Warrant Agreements. The Lineage Warrants had an exercise price of $ 6.15 per share and expired on May 13, 2021 . Cell Cure Warrants - Liability Classified Cell Cure has two sets of issued warrants (the “Cell Cure Warrants”). Warrants to purchase 24,566 Cell Cure ordinary shares at an exercise price of $ 40.5359 per share were issued to HBL in July 2017. These warrants expire in July 2022 . Warrants to purchase 13,738 Cell Cure ordinary shares at exercise prices ranging from $ 32.02 to $ 40.00 per share have been issued to consultants. Of these warrants, 11,738 were cashless exercised in October 2020. The remaining 2,000 warrants have an exercise price of $ 40.00 per share and expire in January 2024 . 12. Stock-Based Awards Equity Incentive Plan Awards On September 13, 2021, the shareholders of Lineage approved the 2021 Equity Incentive Plan (the “2021 Plan”), and the plan became effective. The 2021 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units awards (“RSUs”), and other stock awards. All of our employees (including our affiliates’), non-employee directors and consultants are eligible to participate in the 2021 Plan. Subject to adjustment for certain changes in our capitalization, the aggregate number of our common shares that may be issued under the 2021 Plan will not exceed the sum of (i) 15,000,000 shares and (ii) the Prior Plan Returning Shares (“Prior Plan Returning Shares”). The Prior Plan Returning Shares are defined as an award granted under the Lineage Cell Therapeutics Inc. 2012 Equity Incentive Plan (the “2012 Plan”), which were outstanding when the 2021 Plan became effective, and are not issued because such Prior Plan Award or any option thereof expires or otherwise terminates without all of the shares covered by such Prior Plan Award having been issued. Given the approval of the 2021 Plan, no additional awards will be granted from the 2012 Plan or the Asterias 2013 Equity Incentive Award (the “Asterias Equity Plan”). As of September 30, 2021, there were no outstanding equity awards issued under the 2021 Plan. A summary of Lineage’s 2012 Equity Incentive Plan activity and other stock option awards granted outside of the 2012 Plan related information is as follows (in thousands, except per share amounts): Schedule of Share-based Compensation, Employee Stock Purchase Plan, Activity Number of Options Outstanding Number of RSUs Outstanding Weighted Average Exercise Price December 31, 2020 15,865 93 $ 1.57 Restricted stock units vested - ( 47 ) - Options granted 6,245 - 2.50 Options exercised ( 3,427 ) - 1.83 Options expired/forfeited/cancelled ( 1,826 ) - 2.18 September 30, 2021 16,857 46 $ 1.80 Options exercisable at September 30, 2021 6,806 $ 1.66 At the effective time of the Asterias Merger, Lineage assumed sponsorship of the Asterias 2013 Equity Incentive Plan, with references to Asterias and Asterias common stock therein to be deemed references to Lineage and Lineage common shares. 21 A summary of activity under the Asterias Equity Plan is as follows (in thousands, except per share amounts): Schedule of Share-based Compensation, Employee Stock Purchase Plan, Activity Number of Options Outstanding Weighted Average Exercise Price December 31, 2020 350 $ 1.57 Options granted - - Options exercised - - Options forfeited - September 30, 2021 350 $ 1.57 Options exercisable at September 30, 2021 219 $ 1.57 Stock-based compensation expense 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 noted in the following table: Schedule of Weighted Average Assumptions to Calculate Fair Value of Stock Options Nine Months Ended September 30, (unaudited) 2021 2020 Expected life (in years) 6.19 6.21 Risk-free interest rates 1.05 % 0.8 % Volatility 73.2 % 67.7 % Dividend yield - % - % Operating expenses include stock-based compensation expense as follows (in thousands): Schedule of Stock Based Compensation Expense Three Months Ended September 30, (unaudited) Nine Months Ended September 30, (unaudited) 2021 2020 2021 2020 Research and development $ 235 $ 126 $ 613 $ 343 General and administrative 909 375 1,988 1,390 Total stock-based compensation expense $ 1,144 $ 501 $ 2,601 $ 1,733 13. Income Taxes The provision for income taxes for interim periods is generally determined using an estimated annual effective tax rate as prescribed by 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 and changes in 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 Lineage conducts business. ASC 740-270 also states that if an entity is unable to reliably estimate some or a part of its ordinary income or loss, the income tax provision or benefit applicable to the item that cannot be estimated shall be reported in the interim period in which the item is reported. For items that Lineage cannot reliably estimate on an annual basis (principally unrealized gains or losses generated by changes in the market prices of OncoCyte shares), Lineage uses the actual year to date effective tax rate rather than an estimated annual effective tax rate to determine the tax effect of each item, including the use of all available net operating losses and other credits or deferred tax assets. The market value of the shares of OncoCyte common stock Lineage holds creates a deferred tax liability to Lineage based on the closing prices of the shares, less Lineage’s tax basis in the shares. The deferred tax liability generated by the OncoCyte shares that Lineage holds as of September 30, 2021, is a source of future taxable income to Lineage, as prescribed by ASC 740-10-30-17, that will more likely than not result in the realization of its deferred tax assets to the extent of the deferred tax liability. This deferred tax liability is determined based on the closing prices of the OncoCyte shares as of September 30, 2021. Due to the inherent unpredictability of future prices of those shares, Lineage cannot reliably estimate or project those deferred tax liabilities on an annual basis. Therefore, the deferred tax liability pertaining to OncoCyte shares, determined based on the actual closing prices on the last stock market trading day of the applicable accounting period, and the related impacts to the valuation allowance and deferred tax asset changes, are recorded in the accounting period in which they occur. 22 In connection with the Asterias Merger, a deferred tax liability of $ 10.8 million was recorded as part of the acquisition accounting. 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. 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 created 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. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. Lineage established a full valuation allowance as of December 31, 2018 due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets, including foreign net operating losses generated by its subsidiaries. During the year ended December 31, 2020, a portion of the valuation allowance was released as it relates to Lineage’s indefinite lived assets that can be used against the indefinite lived liabilities. The amount of the valuation allowance released was $ 1.2 million; as new indefinite lived deferred tax assets are generated, we will continue to book provision benefits until the deferred tax liability position is exhausted, barring any new developments. For the three and nine months ended September 30, 2021, Lineage recorded a $ 1.0 million and $ 1.2 million deferred tax benefit, respectively, that was primarily related to federal net operating losses generated for the three and nine months ended September 30, 2021, which was available and indefinite in nature. For the three and nine months ended September 30, 2020, Lineage recorded a $ 0.2 million deferred tax benefit for income taxes. 14. Supplemental Cash Flow Information Supplemental disclosure of cash flow information for the nine months ended September 30, 2021 and 2020 is as follows (in thousands): Schedule of Supplemental Cash Flow Information Nine Months Ended September 30, (unaudited) 2021 2020 Cash paid during period for interest $ 12 $ 19 15. Commitments and Contingencies Carlsbad Lease In May 2019, Lineage entered into a lease for approximately 8,841 square feet of rentable space in an office park in Carlsbad, California (the “Carlsbad Lease”). The term of the Carlsbad Lease commenced on August 1, 2019 and expires on October 31, 2022 . Base rent under the Carlsbad Lease, beginning on August 1, 2021, is $ 23,959 per month and increases by 3 % on August 1, 2022. Base rent for the first twenty-four months of the lease was based upon a deemed rentable area of 7,000 square feet. Base rent was abated for months two through five of the lease. In addition to base rent, Lineage pays a pro rata portion of increases in certain expenses, including real property taxes, utilities (to the extent not separately metered to the leased space) and the landlord’s operating expenses, over the amounts of those expenses incurred by the landlord. As security for the performance of its obligations under the Carlsbad Lease, Lineage provided the landlord with a security deposit of $ 17,850 . 23 Alameda Leases and Alameda Sublease In December 2015, Lineage entered into leases of office and laboratory space located in two buildings in Alameda, California (the “Alameda Leases”) comprised of 22,303 square feet (the “1010 Atlantic Premises”) and 8,492 square feet (the “1020 Atlantic Premises”). Base rent under the Alameda Leases beginning on February 1, 2020 was $ 72,676 per month with annual increases of approximately 3 %. In addition to base rent, Lineage paid a pro rata portion of increases in certain expenses, including real property taxes, utilities (to the extent not separately metered to the leased space) and the landlord’s operating expenses, over the amounts of those expenses incurred by the landlord. As security for its obligations, Lineage provided the landlord with a security deposit of approximately $ 424,000 , which was reduced to $ 78,000 on January 24, 2019 in accordance with the terms of the lease. The security deposit was returned to Lineage in March 2021. In April 2020, Lineage entered into a sublease with Industrial Microbes, Inc. (“Industrial Microbes”) for the use of 10,000 square feet in the 1010 Atlantic Premises (the “Industrial Microbes Sublease”). Base rent under the Industrial Microbes Sublease was $ 28,000 per month with annual increases of approximately 3 %. Base rent for the first month was abated. In addition to base rent and utilities, Industrial Microbes paid a pro-rata portion of increases in operating expenses, after an abatement period of one year. On September 11, 2020, Lineage entered into a Lease Termination Agreement with the landlord terminating the Alameda Leases effective as of August 31, 2020 for the 1020 Atlantic Premises and September 30, 2020 for the 1010 Atlantic Premises. In consideration for the termination of the leases, Lineage paid a termination fee of $ 130,000 and other amounts due under the terms of the Alameda Leases through the applicable effective termination dates, except that no rent was due with respect to the 1020 Atlantic Premises after July 31, 2020. Lineage’s security deposit was received in March 2021. Lineage paid a separate termination fee of $ 30,000 to Industrial Microbes in connection with the termination of the Industrial Microbes Sublease and returned the $ 56,000 security deposit paid by Industrial Microbes. For the period of sublease from mid-April 2020 through September 2020, Lineage received $ 119,000 in rental income from Industrial Microbes. Lineage continues to occupy approximately 2,432 square feet of the 1010 Atlantic Premises under a new sublease agreement (the “Alameda Sublease”). The term of the Alameda Sublease is from October 1, 2020 through January 31, 2023 . Base rent under the Alameda Sublease is $ 14,592 per month with annual increases of 3 % each October 1 thereafter during the lease term. Base rent for the first month was abated. Lineage paid a security deposit of $ 16,000 under the Alameda Sublease; this amount is included in deposits and other long-term assets as of September 30, 2021 (see Note 2). Based on the smaller footprint, and after taking into consideration the fees disclosed above, Lineage has reduced its contractual obligations by approximately $ 780,000 over the remaining life of the original leases through January 31, 2023. New York Leased Office Space Lineage incurred costs of $ 5,050 per month for the use of approximately 900 square feet of office space in New York City, which was made available to Lineage for use in conducting meetings and other business affairs, on a month-by-month basis, by one of its directors at an amount that approximates his cost. In March 2021, Lineage terminated without penalty its leasing term related to the New York City office lease. The lease was not in the scope of ASC 842 because it is a month-to-month lease. Cell Cure Leases Cell Cure leases 728.5 square meters (approximately 7,842 square feet) of office and laboratory space in Jerusalem, Israel under a lease that expires December 31, 2025 , with an option to extend the lease for five years each (the “Original Cell Cure Lease”). Base monthly rent is NIS 39,776 (approximately US $ 12,200 per month using the December 7, 2020 exchange rate). In addition to base rent, Cell Cure pays a pro-rata share of real property taxes and certain costs related to the operation and maintenance of the building in which the leased premises are located. On January 28, 2018, Cell Cure entered into another lease agreement for an additional 934 square meters (approximately 10,054 square feet) of office space in the same facility in Jerusalem, Israel under a lease that expires on December 31, 2025 , with two options to extend the lease for five years each (the “January 2018 Lease”). The January 2018 Lease commenced on April 1, 2018 and included a leasehold improvement construction allowance of up to NIS 4,000,000 (approximately up to US $ 1.1 million using the December 31, 2018 exchange rate) from the landlord. The leasehold improvements were completed in December 2018 and the entire allowance was used. Beginning on January 1, 2019, combined base rent and construction allowance payments for the January 2018 Lease are NIS 93,827 per month (approximately $ 26,000 per month). 24 In December 2018, Cell Cure made a $ 420,000 deposit required under the January 2018 Lease, which is included in deposits and other long-term assets on the consolidated balance sheet as of September 30, 2021, to be held as restricted cash during the term of the January 2018 Lease. The below table provides supplemental cash flow information related to leases as follows (in thousands): Schedule of Supplemental Cash Flow Information Related to Leases 2021 2020 Nine Months Ended September 30, 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 687 $ 1,157 Operating cash flows from financing leases 12 19 Financing cash flows from financing leases 13 24 Right-of-use assets obtained in exchange for lease obligations: Operating leases 32 29 Supplemental balance sheet information related to leases is as follows (in thousands, except lease term and discount rate): Schedule of Supplemental Balance Sheet Information Related to Leases September 30, 2021 December 31, 2020 Operating leases Right-of-use assets, net $ 2,327 $ 2,916 Lease liabilities, current $ 801 $ 746 Lease liabilities, noncurrent 1,887 2,514 Total operating lease liabilities $ 2,688 $ 3,260 Financing leases Property and equipment, gross $ 79 $ 79 Accumulated depreciation ( 76 ) ( 65 ) Property and equipment, net $ 3 $ 14 Current liabilities $ 17 $ 16 Long-term liabilities 12 26 Total finance lease liabilities $ 29 $ 42 Weighted average remaining lease term Operating leases 3.7 years 4.2 years Finance leases 1.7 years 2.4 years Weighted average discount rate Operating leases 8.0 % 8.0 % Finance leases 10.0 % 10.0 % Future minimum lease commitments are as follows as of September 30, 2021 (in thousands): Schedule of Future Minimum Lease Commitments Operating Leases Finance Leases Year Ending December 31, 2021 $ 248 $ 5 2022 913 19 2023 489 8 2024 460 - 2025 442 - Thereafter 586 - Total lease payments $ 3,138 $ 32 Less imputed interest ( 450 ) ( 3 ) Total $ 2,688 $ 29 25 Research and Option Agreement On January 5, 2019, Lineage and Orbit Biomedical Limited (“Orbit”) entered into a Research and Option Agreement, which was assigned by Orbit to Gyroscope Therapeutics Limited (“Gyroscope”) and amended on May 7, 2019, January 30, 2020, May 1, 2020 and September 4, 2020 (the “Gyroscope Agreement”). As amended, the Gyroscope Agreement provided Lineage access to Gyroscope’s vitrectomy-free subretinal injection device (the “Orbit Device”) as a means of delivering OpRegen in Lineage’s ongoing Phase 1/2a clinical trial through the earlier of: (i) December 1, 2020; or (ii) or treatment of three additional patients with the Orbit Device between September 4, 2020 and December 1, 2020 (the “Access Period”). Following the Access Period, Lineage also had an exclusive right to negotiate a definitive agreement to distribute and sell the Orbit Device for the subretinal delivery of RPE cells for the treatment of dry AMD (the “Option Period”), which was initially set to expire in February 2021. Pursuant to the terms of the Gyroscope Agreement, Lineage paid access fees totaling $ 2.5 million: (i) $ 1.25 million in January 2019 upon execution of the Gyroscope Agreement; and (ii) $ 1.25 million in August 2019 upon completion of certain collaborative research activities using the Gyroscope technology for the OpRegen Phase 1/2a clinical trial. These access fees of $ 2.5 million were amortized on a straight-line basis throughout 2019 and included in research and development expenses. Lineage also agreed to reimburse Gyroscope for costs of consumables, training services, travel costs and other out of pocket expenses incurred by Gyroscope for performing services under the Gyroscope Agreement. In January 2020, Lineage agreed to pay an additional $ 0.5 million to extend the Access Period to July 5, 2020, $ 0.2 million of which was paid in February 2020 and $ 0.3 million of which was paid in November 2020. The Access Period was subsequently extended two additional times at no cost and ended in accordance with the terms of the Gyroscope Agreement in November 2020. In February 2021, Lineage exercised its right to extend the initial Option Period for $ 0.5 million. During the extended Option Period, Lineage determined not to pursue a definitive agreement to distribute and sell the Orbit Device, and the Gyroscope Agreement terminated on May 11, 2021 upon expiration of the Option Period. Litigation Lineage 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 Lineage 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, Lineage will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, Lineage will disclose the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. Lineage is not aware of any claims likely to have a material adverse effect on its financial condition or results of operations. On February 19, 2019, a putative shareholder class action lawsuit was filed (captioned Lampe v. Asterias Biotherapeutics, Inc. et al ., Case No. RG19007391) in the Superior Court of the State of California, County of Alameda challenging the Asterias Merger. On March 1, 2019, Asterias made certain amendments and supplements to its public disclosures regarding the Asterias Merger (the “Supplemental Disclosures”). On May 3, 2019, an amended class action complaint (the “Amended Complaint”) was filed. The Amended Complaint named Lineage, Patrick Merger Sub, Inc., the Asterias board of directors, one member of Lineage’s board of directors, and certain stockholders of both Lineage and Asterias. The action was brought by two purported stockholders of Asterias, on behalf of a putative class of Asterias stockholders, and asserted breach of fiduciary duty and aiding and abetting claims under Delaware law. The Amended Complaint alleged, among other things, that the process leading up to the Asterias Merger was conflicted and inadequate, and that the proxy statement filed by Asterias with the Commission omitted certain material information, which allegedly rendered the information disclosed materially misleading. The Amended Complaint sought, among other things, that a class be certified, the recovery of monetary damages, and attorneys’ fees and costs. On June 3, 2019, defendants filed demurrers to the Amended Complaint. On August 13, 2019, the parties submitted a stipulation to the court seeking dismissal of the action with prejudice as to the named Plaintiffs and without prejudice as to the unnamed putative class members, and disclosed to the court the parties’ agreement to resolve, for $ 200,000 , Plaintiffs’ claim for an award of attorneys’ fees and expenses in connection with the purported benefit conferred on Asterias stockholders by the Supplemental Disclosures. Lineage believed that the claims and allegations in the action lacked merit, but believed that it was in Lineage’s shareholders’ best interest for the action to be dismissed and to resolve the fee claim in a timely manner without additional costly litigation expenses. The court granted the stipulation and dismissed the action on August 14, 2019. On October 14, 2019, another putative class action lawsuit was filed challenging the Asterias Merger. This action (captioned Ross v. Lineage Cell Therapeutics, Inc., et al. , C.A. No. 2019-0822) was filed in Delaware Chancery Court and names Lineage, the Asterias board of directors, one member of Lineage’s board of directors, and certain stockholders of both Lineage and Asterias as defendants. The action was brought by a purported stockholder of Asterias, on behalf of a putative class of Asterias stockholders, and asserts breach of fiduciary duty and aiding and abetting claims under Delaware law. The complaint alleges, among other things, that the process leading up to the Asterias Merger was conflicted, that the Asterias Merger consideration was inadequate, and that the proxy statement filed by Asterias with the Commission omitted certain material information, which allegedly rendered the information disclosed materially misleading. The complaint seeks, among other things, that a class be certified, the recovery of monetary damages, and attorneys’ fees and costs. On December 20, 2019, the defendants moved to dismiss the complaint. On February 10, 2020, the plaintiff filed an opposition. Defendants filed their replies on March 13, 2020. On June 23, 2020, a hearing on the motions to dismiss occurred. On September 21, 2020, the Chancery Court denied the motion to dismiss as to Lineage and certain members of the Asterias board of directors, and it granted the motion to dismiss as to all other defendants. On October 30, 2020, the remaining defendants filed an answer to the complaint. The parties are currently engaged in discovery. A five-day trial before the Chancery Court is currently scheduled for October 17-21, 2022. 26 Lineage believes the allegations in the action lack merit and intends to vigorously defend the claims asserted. It is impossible at this time to assess whether the outcome of this proceeding will have a material adverse effect on Lineage’s consolidated results of operations, cash flows or financial position. Therefore, in accordance with ASC 450, Contingencies, Lineage has not recorded any accrual for a contingent liability associated with this legal proceeding based on its belief that a liability, while possible, is not probable nor estimable, and any range of potential contingent liability amounts cannot be reasonably estimated at this time. Lineage records legal expenses as incurred. Employment contracts Lineage has entered into employment agreements with certain executive officers. Under the provisions of the agreements, Lineage may be required to incur severance obligations for matters relating to changes in control, as defined in the agreements, and involuntary terminations. Indemnification In the normal course of business, Lineage may provide indemnifications of varying scope under Lineage’s agreements with other companies or consultants, typically Lineage’s clinical research organizations, investigators, clinical sites, suppliers and others. Pursuant to these agreements, Lineage 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 the use or testing of Lineage’s products and services. Indemnification provisions could also cover third party infringement claims with respect to patent rights, copyrights, or other intellectual property pertaining to Lineage products and services. The term of these indemnification agreements will generally continue in effect after the termination or expiration of the particular research, development, services, or license agreement to which they relate. The potential future payments Lineage could be required to make under these indemnification agreements will generally not be subject to any specified maximum amount. Historically, Lineage has not been subject to any claims or demands for indemnification. Lineage also maintains various liability insurance policies that provide Lineage with insurance against claims or demands for indemnification in specified circumstances. As a result, Lineage believes the fair value of these indemnification agreements is minimal. Accordingly, Lineage has not recorded any liabilities for these agreements as of September 30, 2021 and December 31, 2020. Second Amendment to Clinical Trial and Option Agreement and License Agreement with Cancer Research UK On May 6, 2020, Lineage and its wholly owned subsidiary Asterias entered into a Second Amendment to Clinical Trial and Option Agreement (the “CTOA Amendment”) with Cancer Research UK (“CRUK”) and Cancer Research Technology Limited (“CRT”), which amends the Clinical Trial and Option Agreement entered into between Asterias, CRUK and CRT dated September 8, 2014, as amended September 8, 2014. Pursuant to the CTOA Amendment, Lineage assumed all obligations of Asterias and exercised early its option to acquire data generated in the Phase 1 clinical trial of VAC2 in non-small cell lung cancer being conducted by CRUK. CRUK will continue conducting the VAC2 study. Lineage and CRT effectuated the option by simultaneously entering into a license agreement (the “License Agreement”) pursuant to which Lineage agreed to pay the previously agreed signature fee of £ 1,250,000 (approximately $ 1.6 million). In consideration of Lineage’s agreement to exercise the option prior to completion of the study, the parties agreed to defer the signature fee as follows: £ 500,000 in September 2020, £ 500,000 in February 2021 and £ 250,000 in April 2021. For the primary licensed product for the first indication, the License Agreement provides for milestone fees of up to £ 8,000,000 based upon initiation of a Phase 3 clinical trial and the filing for regulatory approval and up to £ 22,500,000 in sales-based milestones payments. Additional milestone fees and sales-based milestone payments would be payable for other products or indications, and mid-single-digit royalty payments are payable on sales of commercial products. Either party may terminate the License Agreement for the uncured material breach of the other party. CRT may terminate the License Agreement in the case of Lineage’s insolvency or if Lineage ceases all development and commercialization of all products under the License Agreement. 27 Second Amended and Restated License Agreement On June 15, 2017, Cell Cure entered into a Second Amended and Restated License Agreement (the “License Agreement”) with Hadasit Medical Research Services and Development Ltd. (“Hadasit”), the commercial arm and a wholly owned subsidiary of Hadassah Medical Organization. Pursuant to the License Agreement, Hadasit granted Cell Cure an exclusive, worldwide, royalty bearing license (with the right to grant sublicenses) in its intellectual property portfolio of materials and technology related to human stem cell derived photoreceptor cells and retinal pigment epithelial cells (the “Licensed IP”), to use, commercialize and exploit any part thereof, in any manner whatsoever in the fields of the development and exploitation of: (i) human stem cell derived photoreceptor cells, solely for use in cell therapy for the diagnosis, amelioration, prevention and treatment of eye disorders; and (ii) human stem cell derived retinal pigment epithelial cells, solely for use in cell therapy for the diagnosis, amelioration, prevention and treatment of eye disorders. As consideration for the Licensed IP, Cell Cure will pay a small one-time lump sum payment, a royalty in the mid-single digits of net sales from sales of Licensed IP by any invoicing entity, and a royalty of 21.5 % of sublicensing receipts. In addition, Cell Cure will pay Hadasit an annual minimal non-refundable royalty, which will become due and payable the first January 1 following the completion of services to Cell Cure by a research laboratory. Cell Cure will pay Hadasit non-refundable milestone payments upon the recruitment of the first patient for the first Phase 2b clinical trial, upon the enrollment of the first patient in the first Phase 3 clinical trials, upon delivery of the report for the first Phase 3 clinical trials, upon the receipt of an NDA or marketing approval in the European Union, whichever is the first to occur, and upon the first commercial sale in the United States or European Union, whichever is the first to occur. Such milestones, in the aggregate, may be up to $ 3.5 million. As of September 30, 2021, Cell Cure had not accrued any milestone payments under the License Agreement. The License Agreement terminates upon the expiration of Cell Cure’s obligation to pay royalties for all licensed products, unless earlier terminated. In addition to customary termination rights of both parties, Hadasit may terminate the License Agreement if Cell Cure fails to continue the clinical development of the Licensed IP or fails to take actions to commercialize or sell the Licensed IP over any consecutive 12 month period. The License Agreement also contains mutual confidentiality obligations of Cell Cure and Hadasit, and indemnification obligations of Cell Cure. Royalty obligations and license fees Lineage and its subsidiaries or affiliates are parties to certain licensing agreements with research institutions, universities and other parties for the rights to use those licenses and other intellectual property in conducting research and development activities. These licensing agreements provide for the payment of royalties by Lineage or the applicable party to the agreement on future product sales, if any. In addition, in order to maintain these licenses and other rights during the product development, Lineage or the applicable party to the contract must comply with various conditions including the payment of patent related costs and annual minimum maintenance fees. Annual minimum maintenance fees are expected to be approximately $ 30,000 to $ 60,000 per year. As part of the Asterias Merger, Lineage acquired certain royalty revenues for cash flows that were generated under certain specific patent families that Asterias previously acquired from Geron. Asterias paid Geron a royalty for all royalty revenues received from these contracts. Lineage continues to make royalty payments to Geron for royalties generated from these patents. Grants Under the terms of the grant agreement between Cell Cure and Israel Innovation Authority (“IIA”) (formerly the Office of the Chief Scientist of Israel) of the Ministry of Economy and Industry, for the development of OpRegen, Cell Cure will be required to pay royalties on future product sales, if any, up to the amounts received from the IIA, plus interest indexed to interest rate benchmark. Cell Cure’s research and product development activities under the grant are subject to substantial risks and uncertainties and performed on a best-efforts basis. As a result, Cell Cure is not required to make any payments under the grant agreement unless it successfully commercializes OpRegen. Accordingly, the grant is considered a contract to perform research and development services for others and grant revenue is recognized as the related research and development expenses are incurred (see Note 2). Israeli law pertaining to such government grants contain various conditions, including substantial additional payment obligations in the event of any transfer outside of Israel of intellectual property related to, or the manufacture, or both, of products developed under the grant, as defined by the IIA. Collaboration Agreements Under our collaborative agreement with ITI we agreed to perform certain research, development, manufacturing, and oversight activities related to a VAC-CMV product up to a budgeted amount of approximately $ 2.5 million. ITI will reimburse the Company for material costs and full-time employee costs with no markup related to the manufacturing of the VAC-CMV product. 28