Lineage Cell Therapeutics, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to consolidated financial statements Independent Registered Public Accounting Firm - Audit Opinion 80 Financial Statements: Consolidated Balance Sheets 83 Consolidated Statements of Operations 84 Consolidated Statements of Comprehensive Loss 85 Consolidated Statements of Shareholders Equity 86 Consolidated Statements of Cash Flows 87 See accompanying notes to consolidated financial statements. 79 | P a g e Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Lineage Cell Therapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Lineage Cell Therapeutics, Inc. and Subsidiaries (collectively, the “Company”) as of December 31, 2021, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. The consolidated financial statements of the Company as of and for the year ended December 31, 2020 were audited by OUM & Co. LLP, who joined WithumSmith+Brown, PC on July 15, 2021, and rendered their opinion on such statements on March 11, 2021. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the Audit Committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements; and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Accounting for revenue and collaboration agreements 80 | P a g e Description of the Matter The Company recorded deferred revenue and revenue from collaboration agreements of $50.4 million and $1.1 million, respectively, as of and for the year ended December 31, 2021. As described in Note 2, the terms of the Company’s collaboration agreements may include licenses for the Company’s technology or programs, research and development services, and services or obligations in connection with participation in research or steering committees. Amounts received under these arrangements typically include nonrefundable upfront payments and license fees, research funding, milestone and other contingent payments for the achievement of defined collaboration objectives and certain preclinical, clinical, regulatory and sales-based events, as well as royalties on sales of any commercialized products. Auditing the Company’s accounting for revenues from collaboration arrangements was complex and required significant judgments primarily in identifying which elements represent revenue producing performance obligations, determining the measurement and allocation of arrangement consideration, and evaluating estimates of the total expected inputs under the input method for revenue recognized over time. How We Addressed the Matter in Our Audit To test the accounting treatment for revenue from collaboration arrangements, we evaluated, among other things, whether the identified performance obligations were properly determined, and the transaction price was properly measured and allocated to the identified performance obligations. To test the measurement of efforts toward satisfying the performance obligation, our audit procedures included, among others, reviewing management’s analysis for accuracy and completeness by agreeing data to the underlying contract, inspecting communications with the collaborative partner, evaluating the application of the input method for the recognition of revenue and testing the estimated total inputs and actual inputs incurred. /s/ WithumSmith+Brown, PC We have served as the Company’s auditor since 2014. San Francisco, California March 10, 2022 PCAOB ID Number 100 81 | P a g e Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Lineage Cell Therapeutics, Inc. Carlsbad, California Opinion on the Consolidated Financial Statements We have audited the consolidated balance sheet of Lineage Cell Therapeutics, Inc. and Subsidiaries (collectively, the “Company”) as of December 31, 2020, and the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of their operations and their cash flows for the year ended December 31, 2020 , in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ OUM & CO. LLP San Francisco, California March 11, 2021 We served as the Company’s auditor since 2014. PCAOB ID Number 252 82 | P a g e LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) December 31, 2021 December 31, 2020 ASSETS CURRENT ASSETS Cash and cash equivalents $ 55,742 $ 32,585 Marketable equity securities 2,616 8,977 Accounts and grants receivable, net (Note 3) 50,840 4 Prepaid expenses and other current assets 2,351 2,433 Total current assets 111,549 43,999 NONCURRENT ASSETS Property and equipment, net (Notes 6 and 14) 4,872 5,630 Deposits and other long-term assets 630 616 Goodwill 10,672 10,672 Intangible assets, net 46,822 47,032 TOTAL ASSETS $ 174,545 $ 107,949 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 27,969 $ 6,813 Lease liabilities, current portion (Note 14) 801 746 Financing lease, current portion (Note 14) 30 16 Deferred revenues (Note 3) 18,119 193 Liability classified warrants, current portion 197 1 Total current liabilities 47,116 7,769 LONG-TERM LIABILITIES Deferred tax liability 2,076 2,076 Deferred revenues, net of current portion (Note 3) 32,454 - Lease liability, net of current portion (Note 14) 1,941 2,514 Financing lease, net of current portion 30 26 Liability classified warrants and other long-term liabilities 30 437 TOTAL LIABILITIES 83,647 12,822 Commitments and contingencies (Note 14) SHAREHOLDERS’ EQUITY Preferred shares, no par value, authorized 2,000 shares; none issued and outstanding as of December 31, 2021 and 2020, respectively - - Common shares, no par value, authorized 250,000 shares; 169,477 and 153,096 shares issued and outstanding as of December 31, 2021 and 2020, respectively 434,529 393,944 Accumulated other comprehensive loss ( 5,211 ) ( 3,667 ) Accumulated deficit ( 337,097 ) ( 294,078 ) Lineage Cell Therapeutics, Inc. shareholders’ equity 92,221 96,199 Noncontrolling (deficit) ( 1,323 ) ( 1,072 ) Total shareholders’ equity 90,898 95,127 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 174,545 $ 107,949 See accompanying notes to the consolidated financial statements. 83 | P a g e LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) 2021 2020 Year Ended December 31, 2021 2020 REVENUES: Royalties $ 2,776 $ 773 Collaboration revenues 1,120 - Grant revenues 445 1,053 Total revenues 4,341 1,826 Cost of sales ( 1,426 ) ( 385 ) Gross profit 2,915 1,441 OPERATING EXPENSES: Research and development 33,914 12,317 General and administrative 18,212 15,571 Total operating expenses 52,126 27,888 Loss from operations ( 49,211 ) ( 26,447 ) OTHER INCOME, NET: Interest income, net 2 1,039 Gain on sale of marketable securities 6,024 4,560 Unrealized loss on marketable equity securities ( 2,299 ) ( 3,782 ) Gain on extinguishment of debt 523 - Unrealized gain (loss) on warrant liability 205 ( 174 ) Other income, net 1,486 2,880 Total other income, net 5,941 4,523 LOSS BEFORE INCOME TAXES ( 43,270 ) ( 21,924 ) Income tax benefit - 1,239 NET LOSS ( 43,270 ) ( 20,685 ) Net loss attributable to noncontrolling interest 251 36 NET LOSS ATTRIBUTABLE TO LINEAGE $ ( 43,019 ) $ ( 20,649 ) NET LOSS PER COMMON SHARE: BASIC AND DILUTED $ ( 0.26 ) $ ( 0.14 ) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: BASIC AND DILUTED 164,502 150,044 See accompanying notes to the consolidated financial statements. 84 | P a g e LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (IN THOUSANDS) 2021 2020 Year Ended December 31, 2021 2020 NET LOSS $ ( 43,270 ) $ ( 20,685 ) Other comprehensive loss, net of tax: Foreign currency translation adjustments, net of tax ( 1,544 ) ( 2,986 ) COMPREHENSIVE LOSS ( 44,814 ) ( 23,671 ) Less: comprehensive loss attributable to noncontrolling interest 251 36 COMPREHENSIVE LOSS ATTRIBUTABLE TO LINEAGE COMMON SHAREHOLDERS $ ( 44,563 ) $ ( 23,635 ) See accompanying notes to the consolidated financial statements. 85 | P a g e LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (IN THOUSANDS) Number of Shares Amount Number of Shares Amount Accumulated Deficit Interest/ (Deficit) Comprehensive Income/(Loss) Shareholders’ Equity Preferred Shares Common Shares Noncontrolling Accumulated Other Total Number of Shares Amount Number of Shares Amount Accumulated Deficit Interest/ (Deficit) Comprehensive Income/(Loss) Shareholders’ Equity BALANCE AT DECEMBER 31, 2019 - $ - 149,804 $ 387,062 $ ( 273,422 ) $ ( 1,712 ) $ ( 681 ) $ 111,247 Shares issued through ATM - - 3,095 5,404 - - - 5,404 Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes - - 47 ( 27 ) - - - ( 27 ) Shares issued for services - - 150 119 - - - 119 Stock-based compensation - - - 2,227 - - - 2,227 Shares issued upon exercise of stock options Shares issued upon exercise of stock options, shares Financing related fees - - - ( 209 ) - - - ( 209 ) Dissolution of BioTime Asia - - - ( 676 ) ( 7 ) 676 - ( 7 ) Hadasit non-cash warrant exercise - - - 44 - - - 44 Shares issued upon exercise of stock options Shares issued upon exercise of stock options, shares Foreign currency translation gain (loss) - - - - - - ( 2,986 ) ( 2,986 ) NET LOSS - - - - ( 20,649 ) ( 36 ) - ( 20,685 ) BALANCE AT DECEMBER 31, 2020 - $ - 153,096 $ 393,944 $ ( 294,078 ) $ ( 1,072 ) $ ( 3,667 ) $ 95,127 Shares issued through ATM - - 11,923 29,817 - - - 29,817 Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes - - 40 ( 54 ) - - - ( 54 ) Shares issued for services - - 78 202 - - - 202 Stock-based compensation - - - 3,519 - - - 3,519 Shares issued upon exercise of stock options - - 4,320 7,429 - - - 7,429 Financing related fees - - - ( 330 ) - - - ( 330 ) Shares issued upon exercise of stock options - - 20 2 - - - 2 Foreign currency translation gain (loss) - - - - - - ( 1,544 ) ( 1,544 ) NET LOSS - - - - ( 43,019 ) ( 251 ) - ( 43,270 ) BALANCE AT DECEMBER 31, 2021 - $ - 169,477 $ 434,529 $ ( 337,097 ) $ ( 1,323 ) $ ( 5,211 ) $ 90,898 See accompanying notes to the consolidated financial statements. 86 | P a g e LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) 2021 2020 Year Ended December 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss attributable to Lineage $ ( 43,019 ) $ ( 20,649 ) Net loss attributable to noncontrolling interest ( 251 ) ( 36 ) Adjustments to reconcile net loss attributable to Lineage to net cash used in operating activities: Gain on sale of marketable equity securities ( 6,024 ) ( 4,560 ) Unrealized loss on marketable equity securities 2,299 3,782 Deferred tax benefit - ( 1,239 ) Depreciation expense, including amortization of leasehold improvements 663 823 Amortization of right-of-use assets 14 72 Amortization of intangible assets 210 1,216 Stock-based compensation 3,519 2,227 Common stock issued for services 202 119 Change in unrealized (gain) loss on warrant liability ( 205 ) 174 Write-off of security deposit - 150 Amortization of deferred license fee - ( 200 ) Foreign currency remeasurement and other (gain) ( 1,566 ) ( 2,957 ) Loss (gain) on sale of assets 24 ( 20 ) Realized loss on warrant exercise - 44 Gain on extinguishment of debt ( 523 ) - Changes in operating assets and liabilities: Accounts and grants receivable ( 857 ) 287 Accrued interest receivable - ( 1,008 ) Receivables from affiliates, net of payables - 7 Prepaid expenses and other current assets ( 72 ) 1,575 Accounts payable and accrued liabilities 21,645 308 Deferred revenue and other liabilities 380 132 Net cash used in operating activities ( 23,561 ) ( 19,753 ) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of OncoCyte common shares 10,064 10,941 Proceeds from the sale of AgeX common shares - 1,290 Proceeds from the sale of HBL common shares 21 830 Purchase of property and equipment ( 354 ) ( 64 ) Proceeds from sale of assets 14 23 Security deposit paid and other - 18 Net cash provided by investing activities 9,745 13,038 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from employee options exercised 7,240 - Proceeds from payment of Juvenescence promissory note - 24,624 Common shares received and retired for employee taxes paid ( 54 ) ( 27 ) Proceeds from sale of common shares 30,865 5,127 Payments for offering costs ( 1,101 ) ( 356 ) Repayment of financing lease liabilities ( 20 ) ( 26 ) Proceeds from Paycheck Protection Program (“PPP”) Loan (Note 8) - 523 Net cash provided by financing activities 36,930 29,865 Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 20 ) ( 63 ) NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 23,094 23,087 At beginning of year 33,183 10,096 At end of year $ 56,277 $ 33,183 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during year for interest $ 13 $ 20 SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES: Receivable from sale of common shares in at the market offering $ 147 $ 269 Receivable from exercise of stock options $ 189 $ - See accompanying notes to the consolidated financial statements. 87 | P a g e LINEAGE CELL THERAPEUTICS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Organization, Basis of Presentation and Liquidity Lineage Cell Therapeutics, Inc. (“Lineage,” “we,” “us,” or “our”) is a clinical-stage biotechnology company developing novel cell therapies to address unmet medical needs. Our programs are based on our proprietary cell-based technology and associated development and manufacturing capabilities. From this platform, we design, develop, and manufacture specialized human cells with anatomical and physiological functions which are similar or identical to cells found naturally in the human body. These cells which we manufacture are created by developmental differentiation protocols applied to established and well-characterized, pluripotent, and self-renewing cell lines. These functional cells are transplanted into patients to either 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 or infectious diseases. Our strategy is to efficiently leverage our technology platform and manufacturing capabilities to develop and advance our programs internally or in conjunction with strategic partners to further enhance their value. As one example, on December 17, 2021, we entered into a Collaboration and License Agreement with F. Hoffmann-La Roche Ltd and Genentech, Inc., a member of the Roche Group (collectively, “Roche”), wherein Lineage granted to Roche exclusive worldwide rights to develop and commercialize retinal pigment epithelium cell therapies, including its proprietary cell therapy known as OpRegen®, for the treatment of ocular disorders, including advanced dry age-related macular degeneration with geographic atrophy. Roche has paid Lineage a $ 50.0 million upfront payment under this alliance and Lineage is eligible to receive up to an additional $ 620.0 million in certain developmental, regulatory, and commercialization milestone payments. Lineage also is eligible for tiered double-digit percentage royalties on net sales of OpRegen. Currently, Lineage is working with Roche in support of the dry age-related macular degeneration (OpRegen) program and is clinically testing therapies to treat spinal cord injuries and non-small cell lung cancer, as well as conducting research and preclinical development activities intended to advance our pipeline into other therapeutic indications and target tissues or organs. Product Candidates & Other Programs We have several allogeneic, or “off-the-shelf,” cell therapy programs in 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. As of December 17, 2021 this program has been partnered with Roche for further clinical development and commercialization. ● OPC1 , an oligodendrocyte progenitor cell therapy currently in long-term follow-up for a Phase 1/2a multicenter clinical trial for spinal cord injuries (“SCI”). This clinical trial has been partially funded by the California Institute for Regenerative Medicine (“CIRM”). ● VAC , an allogeneic cancer immunotherapy of antigen-presenting dendritic cells. One of the VAC product candidates, VAC2, is currently in a Phase 1 clinical trial in non-small cell lung cancer (“NSCLC”). This clinical trial is being funded and conducted by Cancer Research UK, one of the world’s largest independent cancer research charities. We also have another VAC-based product candidate in preclinical development with our partner, Immunomic Therapeutics, Inc. (“ITI”), for the treatment of glioblastoma multiforme (“GBM”). ● Other. We have other product candidates in preclinical development covering a range of therapeutic areas and target tissues or organs. Generally, these candidates are based on the same pluripotent platform technology and employ a similar guided cell differentiation and transplant approach as our current clinical-stage products. 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 December 31, 2021. During the year ended December 31, 2021, we received approximately $ 10.1 million in gross proceeds in connection with our sale of shares of OncoCyte. In August 2020, we also received $ 24.6 million from Juvenescence Limited (“Juvenescence”), representing principal and accrued interest under a promissory note we received in connection with our sale of AgeX shares to Juvenescence in August 2018. 88 | P a g e 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. 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. Use of estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period with consideration given to materiality. Significant estimates and assumptions which are subject to significant judgment include those related to going concern assessment of consolidated financial statements, useful lives associated with long-lived assets, including evaluation of asset impairment, allowances for uncollectible accounts receivables, loss contingencies, deferred income taxes and tax reserves, including valuation allowances related to deferred income taxes, and assumptions used to value stock-based awards, debt or other equity instruments. Actual results could differ materially from those estimates. Principles of consolidation Lineage’s consolidated financial statements include the accounts of its subsidiaries. The following table reflects Lineage’s ownership, directly or through one or more subsidiaries, of the outstanding shares of its operating subsidiaries as of December 31, 2021. 89 | P a g e Schedule of Lineage’s Ownership of Outstanding Shares of its Subsidiaries Subsidiary Field of Business Lineage Ownership Country Asterias BioTherapeutics, Inc. (1) Cell based therapeutics to treat neurological conditions and cancer 100 % USA Cell Cure Neurosciences Ltd (“Cell Cure”) Manufacturing of Lineage’s cell replacement platform technology 99 % (2) Israel ES Cell International Pte. Ltd. (“ESI”) (3) Research and clinical grade cell lines 100 % Singapore OrthoCyte Corporation (“OrthoCyte”) Research in orthopedic diseases and injuries 99.8 % USA (1) Asterias was acquired by Lineage in March 2019. (2) Includes shares owned by Lineage and ESI. (3) The operating activities and fields of business listed under these subsidiaries are conducted primarily by Lineage as the parent company. All material intercompany accounts and transactions have been eliminated in consolidation. As of December 31, 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. 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 offer and sell, from time to time, through Cantor Fitzgerald, common shares of Lineage (“ATM Shares”) having an aggregate offering price of up to $ 25.0 million. Lineage is not obligated to sell any ATM Shares. 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 ATM 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 ATM 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 ATM Shares 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 December 21, 2021, $ 14.1 million remained available for sale under the Sales Agreement. On December 21, 2021, Lineage filed a prospectus supplement with the SEC in connection with the offering and sale of up to $ 64.1 million of common shares (the “New Sales Agreement”), with Cantor Fitzgerald as the sales agent, no additional sales will be made under the Sales Agreement. The $ 64.1 million under the New Sales Agreement which may be issued are registered pursuant to Lineage’s effective shelf registration on Form S-3 (File No. 333-237975), as filed with the SEC on May 1, 2020 and declared effective on May 8, 2020 (the “May 2020 Registration Statement”), and Lineage’s effective shelf registration statement on Form S-3 (File No. 333-254167), which was filed with the SEC on March 5, 2021 and declared effective on March 19, 2021. As of December 31, 2021, under the Sales Agreement, 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. As of December 31, 2021, under the New Sales Agreement, Lineage had issued 108,200 common shares at a weighted average price per share of $ 2.55 for gross proceeds of $ 0.3 million (which includes $ 0.2 million of cash in transit related to a 2021 transaction that settled in early 2022). As a result, as of December 31, 2021, $ 63.9 million remained available for sale under the New Sales Agreement. 90 | P a g e As of December 31, 2021, Lineage had an accumulated deficit of approximately $ 337.1 million, working capital of $ 64.4 million and shareholders’ equity of $ 90.9 million. Lineage has evaluated its projected cash flows and believes that its $ 58.4 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 consolidated 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. In January 2022, Lineage received a $ 50.0 million upfront payment related to the Roche Agreement. Lineage made a subsequent payment of $ 12.1 million to the IIA, pursuant to Lineage’s obligations under the Innovation Law. Additionally, Lineage made a subsequent payment of $ 8.9 million to Hadasit, pursuant to Lineage’s obligations under the Second Amended and Restated License Agreement. See Note 14 for a description of the Roche Agreement and related payment obligations. 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. 2. Summary of Significant Accounting Policies 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. 91 | P a g e 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 . Deferred grant revenues represent grant funds received from the governmental funding agencies for which the allowable expenses have not yet been incurred as of the balance sheet date reported. 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. Collaborative agreements - On April 16, 2021, Lineage entered a worldwide license and collaboration agreement with ITI for the development and commercialization of the VAC platform. 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. On December 17, 2021, we entered into an exclusive worldwide collaboration and license agreement with Roche, for the development and commercialization of OpRegen. Roche paid a $ 50.0 million upfront payment and we are eligible to receive up to $ 620.0 million in additional development, approval, and sales milestone payments, in addition to tiered double-digit royalties. 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 may be 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. To identify the performance obligations within the collaboration agreements, we first identify all the promises in the contract (i.e. explicit and implicit), which may include a customer option to acquire additional goods or services for free or at a discount. We exclude any immaterial promises from the assessment of identifying performance obligations. When an option is identified as providing a customer with a material right, the option is identified as a performance obligation. A portion of the transaction price is then allocated to the option and recognized when (or as) the future goods or services related to the option are provided, or when the option expires. As part of the accounting treatment for these agreements, 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. 92 | P a g e 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. 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 consolidated statements of operations. As of December 31, 2021, we recorded $ 49.7 million and $ 0.8 million of deferred revenue on the consolidated balance sheet, related to the Roche and ITI collaboration agreements. For the year ended December 31, 2021, we recognized $ 0.3 million and $ 0.8 million of revenue on the statement of operations, related to the Roche and ITI collaboration agreements, respectively. Basic and diluted net income (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 years ended December 31, 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. 93 | P a g e The following common share equivalents were excluded from the computation of diluted net income (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 Years Ended December 31, 2021 2020 Stock options 14,883 16,215 Lineage Warrants - 1,090 Restricted stock units (1) 31 93 (1) On February 11, 2022, the Board of Directors of Lineage, approved restricted stock unit awards for an aggregate of 694,424 (see Note 12). 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 consolidated statements of cash flows. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet dates that comprise the total of the same such amounts shown in the consolidated statements of cash flows for all periods presented herein (in thousands): Schedule of Reconciliation of Cash, Cash Equivalents, and Restricted Cash December 31, 2021 December 31, 2020 Cash and cash equivalents $ 55,742 $ 32,585 Restricted cash included in deposits and other long-term assets (see Note 14) 535 520 Restricted cash included in prepaid expenses and other current assets (see Note 14) - 78 Total cash, cash equivalents, and restricted cash as shown in the consolidated statements of cash flows $ 56,277 $ 33,183 Accounts and grants receivable, net – Net accounts receivables amounted to $ 50,640,000 and $ 4,000 and grants receivable amounted to $ 200,000 and $ 61,000 as of December 31, 2021 and 2020, respectively. Net trade receivables include an allowance for doubtful accounts of approximately $ 74,000 and $ 44,000 as of December 31, 2021 and 2020, respectively, for those amounts deemed uncollectible by Lineage. Lineage establishes an allowance for doubtful accounts based on the evaluation of the collectability of its receivables on a variety of factors, including the length of time receivables are past due, significant events that may impair the customer’s ability to pay, such as a bankruptcy filing or deterioration in the customers operating results or financial position, and historical experience. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. Leases - We account for leases in accordance with ASC 842, Leases . We determine if an arrangement is a lease at inception. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition in the consolidated statements of operations. Under the available practical expedients for the adoption of ASC 842, we account for the lease and non-lease components as a single lease component. We recognize right-of-use (“ROU”) assets and lease liabilities for leases with terms greater than twelve months in the condensed consolidated balance sheet. ROU assets represent our right to use an underlying asset during the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating and finance lease ROU assets also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Lease expense for finance lease payments is recognized as amortization of ROU assets and related interest. Operating and finance leases are included as ROU assets in property and equipment, and ROU lease liabilities, current and long-term, in the consolidated balance sheets. 94 | P a g e Goodwill and IPR&D – Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill is tested for impairment in accordance with ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment . In-process research and development (“IPR&D”) assets are indefinite-lived intangible assets until the completion or abandonment of the associated research and development (“R&D”) efforts. Once the R&D efforts are completed or abandoned, the IPR&D will either be amortized over the asset’s estimated life as a finite-lived intangible asset or be impaired, respectively, in accordance with ASC 350, Intangibles – Goodwill and Other . In accordance with ASC 350, goodwill and acquired IPR&D are determined to have indefinite lives and, therefore, are not amortized. Instead, they are tested for impairment at least annually and between annual tests if we become aware of an event or a change in circumstances that would indicate the asset may be impaired. Going concern assessment – Lineage assesses going concern uncertainty for its consolidated financial statements to determine if Lineage has sufficient cash and cash equivalents on hand and working capital to operate for a period of at least one year from the date the consolidated financial statements are issued or are available to be issued, which is referred to as the “look-forward period” as defined by FASB’s ASU No. 2014-15. As part of this assessment, based on conditions that are known and reasonably knowable to Lineage, Lineage will consider various scenarios, forecasts, projections, and estimates, and Lineage will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, and its ability to delay or curtail those expenditures or programs, if necessary, among other factors. Based on this assessment, as necessary or applicable, Lineage makes certain assumptions concerning its ability to curtail or delay research and development programs and expenditures within the look-forward period in accordance with ASU No. 2014-15. Cash and cash equivalents – Lineage considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of December 31, 2021 and 2020, Lineage had $ 52.3 million and $ 28.8 million in money market funds, respectively, considered to be cash equivalents. Concentrations of credit risk and significant sources of supply – Financial instruments that potentially subject Lineage to significant concentrations of credit risk consist primarily of cash and cash equivalents. Lineage limits the amount of credit exposure of cash balances by maintaining its accounts in high credit quality financial institutions. Cash equivalent deposits with financial institutions may occasionally exceed the limits of insurance on bank deposits; however, Lineage has not experienced any losses on such accounts. Lineage relies on single-source, third-party suppliers for a few key components of our product candidates. If these single-source, third-party suppliers are unable to continue providing a key component, the initiation or progress of any clinical studies of its product candidates may be impeded. Property and equipment, net – Property and equipment is stated at cost and is being depreciated using the straight-line method over their estimated useful lives ranging from 3 to 10 years. Leasehold improvements are amortized over the shorter of the useful life or the lease term (see Note 6). Long-lived intangible assets – Long-lived intangible assets, consisting primarily of acquired patents, patent applications, and licenses to use certain patents are stated at acquired cost, less accumulated amortization. Amortization expense is computed using the straight-line method over the estimated useful lives of the assets, generally over 5 to 10 years. Impairment of long-lived assets – Long-lived assets, including long-lived intangible assets, are reviewed annually for impairment and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If an impairment indicator is present, Lineage evaluates recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If the assets are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the estimated fair value of the assets. 95 | P a g e Accounting for warrants – Lineage determines the accounting classification of warrants that it or its subsidiaries issue, as either liability or equity, by first assessing whether the warrants meet liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity , and then in accordance with ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock . Under ASC 480-10, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate the issuer to settle the warrants or the underlying shares by paying cash or other assets, or warrants that must or may require settlement by issuing variable number of shares. If warrants do not meet liability classification under ASC 480-10, Lineage assesses the requirements under ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815-40, in order to conclude equity classification, Lineage assesses whether the warrants are indexed to its common stock or its subsidiary’s common stock, as applicable, and whether the warrants are classified as equity under ASC 815-40 or other applicable GAAP. After all relevant assessments are made, Lineage concludes whether the warrants are classified as liability or equity. Liability classified warrants are required to be accounted for at fair value both on the date of issuance and on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded in the consolidated statements of operations as a gain or loss. Equity classified warrants are accounted for at fair value on the issuance date with no changes in fair value recognized subsequent to the issuance date. Transactions with noncontrolling interests of subsidiaries - Lineage accounts for a change in ownership interests in its subsidiaries that does not result in a change of control of the subsidiary by Lineage under the provisions of ASC 810-10-45-23, Consolidation – Other Presentation Matters, which prescribes the accounting for changes in ownership interest that do not result in a change in control of the subsidiary, as defined by GAAP, before and after the transaction . Under this guidance, changes in a controlling shareholder’s ownership interest that do not result in a change of control, as defined by GAAP, in the subsidiary are accounted for as equity transactions. Thus, if the controlling shareholder retains control, no gain or loss is recognized in the statements of operations of the controlling shareholder. Similarly, the controlling shareholder will not record any additional acquisition adjustments to reflect its subsequent purchases of additional shares in the subsidiary if there is no change of control. Only a proportional and immediate transfer of carrying value between the controlling and the noncontrolling shareholders occurs based on the respective ownership percentages. Research and development expenses - Research and development expenses consist of costs incurred for company-sponsored, collaborative and contracted research and development activities. These costs include direct and research-related overhead expenses including compensation and related benefits, stock-based compensation, consulting fees, research and laboratory fees, rent of research facilities, amortization of intangible assets, and license fees paid to third parties to acquire patents or licenses to use patents and other technology. Research and development costs which have an alternative future use will be capitalized as tangible assets, and costs with no future benefit or alternative use will be expensed as incurred. Research and development expenses incurred and reimbursed by grants from third parties approximate the grant income recognized in the consolidated statements of operations. Royalty expenses or sublicensing fees are recorded as research and development costs, unless these costs are associated with royalties from product sales, which we classify as cost of sales on our consolidated statements of operations. General and administrative expenses - General and administrative expenses consist of compensation and related benefits, including stock-based compensation, for executive and corporate personnel; professional and consulting fees; and allocated overhead such as facilities and equipment rent and maintenance, insurance costs allocated to general and administrative expenses, costs of patent applications, prosecution and maintenance, stock exchange-related costs, depreciation expense, marketing costs, and other miscellaneous expenses which are allocated to general and administrative expense. Foreign currency translation adjustments and other comprehensive income or loss - In countries in which Lineage operates where the functional currency is other than the U.S. dollar, assets and liabilities are translated using published exchange rates in effect at the consolidated balance sheet date. Revenues and expenses and cash flows are translated using an approximate weighted average exchange rate for the period. Resulting foreign currency translation adjustments are recorded as other comprehensive income or loss, net of tax, in the consolidated statements of comprehensive income or loss and included as a component of accumulated other comprehensive income or loss on the consolidated balance sheets. Foreign currency translation adjustments are primarily attributable to Cell Cure and ESI, Lineage’s consolidated foreign subsidiaries. For the years ended December 31, 2021 and 2020, comprehensive loss includes foreign currency translation adjustments, net of tax, of $ 1.5 million and $ 3.0 million, respectively. 96 | P a g e Foreign currency transaction gains and losses - For transactions denominated in other than the functional currency of Lineage or its subsidiaries, Lineage recognizes transaction gains and losses in the consolidated statements of operations and classifies the gain or loss based on the nature of the item that generated it. The majority of Lineage’s foreign currency transaction gains and losses are generated by Cell Cure’s intercompany debt due to Lineage, which are U.S. dollar-denominated, while Cell Cure’s functional currency is the Israeli New Shekel (“ILS”). At each balance sheet date, Lineage remeasures the intercompany debt using the current exchange rate at that date pursuant to ASC 830, Foreign Currency Matters. These foreign currency remeasurement gains and losses are included in other income and expenses, net. Income taxes - Lineage accounts for income taxes in accordance with ASC 740, Income Taxes , which prescribe the use of the asset and liability method, whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect. Valuation allowances are established when necessary to reduce deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will not be realized. ASC 740 guidance also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For benefits to be recognized, a tax position must be more-likely-than-not sustainable upon examination by taxing authorities. Lineage files a U.S. federal income tax return as well as various state and foreign income tax returns. Lineage’s judgments regarding future taxable income may change over time due to changes in market conditions, changes in tax laws, tax planning strategies or other factors. If Lineage assumptions, and consequently the estimates, change in the future with respect to Lineage’s own deferred tax assets and liabilities, the valuation allowance may be increased or decreased, which may have a material impact on Lineage’s consolidated financial statements. Lineage recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense; however, no amounts were accrued for the payment of interest and penalties as of December 31, 2021 and 2020. On December 22, 2017, the United States enacted major federal tax reform legislation, Public Law No. 115-97, commonly referred to as the 2017 Tax Cuts and Jobs Act (“2017 Tax Act”), which enacted a broad range of changes to the Internal Revenue Code. Beginning in 2018, the 2017 Tax Act subjects a U.S. stockholder to tax on Global Intangible Low Tax Income (“GILTI”) earned by certain foreign subsidiaries. In general, GILTI is the excess of a U.S. shareholder’s total net foreign income over a deemed return on tangible assets. The provision further allows a deduction of 50% of GILTI, however this deduction is limited to the Company’s pre-GILTI U.S. income. For the year ended December 31, 2020, our foreign subsidiaries operated at a loss, as a result there was no income inclusion. For the year ended December 31, 2021, Lineage’s foreign subsidiaries generated income arising from an intercompany transaction. As a result, there was in inclusion of $ 15.0 million included in federal income for 2021. The income was fully offset by our federal net operating loss carryforwards Current interpretations under ASC 740 state that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense. We have elected to account for GILTI as a current period expense when incurred. On January 1, 2021, Lineage adopted 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. The Company’s adoption of ASU 2019-12 did not have a material impact on the Consolidated Financial Statements. 97 | P a g e Stock-based compensation - Lineage follows accounting standards governing share-based payments in accordance with ASC 718, Compensation – Stock Compensation , which require the measurement and recognition of compensation expense for all share-based payment awards made to directors and employees, including employee stock options, based on estimated fair values. Lineage utilizes the Black-Scholes option pricing model for valuing share-based payment awards. Lineage’s determination of fair value of share-based payment awards on the date of grant using that option-pricing model is affected by Lineage’s stock price as well as by assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and the expected term of options granted, which is derived using the simplified method, which is an average of the contractual term of the option and its vesting period, as we do not have sufficient historical exercise data. The risk-free rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities similar to the expected term of the awards. Forfeitures are accounted for as they occur. Although the fair value of employee stock options is determined in accordance with FASB guidance, changes in the assumptions can materially affect the estimated value and therefore the amount of compensation expense recognized in the consolidated financial statements. 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 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 it did not have a material impact on its consolidated financial statements. In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment , which simplifies the accounting for goodwill impairments by eliminating the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test referenced in ASC 350, Intangibles - Goodwill and Other . As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for smaller reporting companies for annual reporting periods beginning after December 15, 2022, including any interim impairment tests within those annual periods, with early application permitted. On January 1, 2021, we elected to early adopt ASU 2017-04, and the adoption had no impact on our consolidated financial statements. We will perform goodwill impairment tests in accordance with ASU 2017-04. Recently Issued Accounting Pronouncements Not Yet Adopted - The following accounting standards, which are not yet effective, are presently being evaluated by Lineage to determine the impact that they might have on its consolidated financial statements. 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 consolidated financial statements. 98 | P a g e 3. Revenue Our disaggregated revenues were as follows (in thousands): Schedule of Disaggregated Revenues Year Ended December 31, 2021 2020 Royalties $ 2,776 $ 773 Grant revenues Israel Innovation Authority (“IIA”) $ 445 $ 666 National Institutes of Health (“NIH”) - 387 Total grant revenues 445 1,053 Revenues under collaborative agreements Upfront license fees 452 - Event-based development milestones 123 - Reimbursements, cost-sharing payments 545 - Total revenues under collaborative agreements 1,120 - Total revenue $ 4,341 $ 1,826 During the year ended December 31, 2021 we recognized $ 4.3 million in total revenue. We recognized $ 1.1 million in revenues from new license agreements granted in the period, which were recorded as revenues under collaboration agreements. This amount represents upfront license fees and reimbursement revenues earned in the current year, as well as $ 0.1 million of variable consideration where development milestones were achieved. We also recognized revenue of $ 0.1 million during the period for grant revenues 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 (in thousands): Schedule of Contract With Customer Asset and Liability December 31, 2021 December 31, 2020 (unaudited) Accounts receivable and other receivable, net (1 )(2) $ 50,640 $ 242 Deferred revenues (1) (2) 50,500 - (1) Increase in accounts receivable due to accrual of $ 50.0 million upfront payment related to Roche Agreement, offset to deferred revenues. (2) 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 December 31, 2021, the amounts in the transaction price of our contracts with customers, including collaboration partners, and allocated good and services not yet provided were $ 52.1 million, of which $ 0.8 million has been collected and is reported as deferred revenues, $ 49.7 million was accrued to deferred revenues, and $ 1.7 million relates to unfulfilled commitments. The unfulfilled commitments are estimated to be delivered by the end of the fourth quarter of 2022. Of the total deferred revenues of $ 50.5 million, approximately $ 18.0 million is expected to be recognized within the next 12 months. 99 | P a g e The following table presents amounts under our collaboration agreements included in the transaction price (i.e., cumulative amounts triggered or probable) as of December 31, 2021 (in thousands): Schedule of Collaboration Agreements Upfront (1) Development (2) Reimbursements (3) Total Collaboration partner and agreement date: ITI (April 2021) (4) $ 500 $ 500 $ 2,220 $ 3,220 Roche (December 2021) (5) 50,000 - - 50,000 Total amounts under our collaboration agreements included in the transaction price $ 50,500 $ 500 $ 2,220 $ 53,220 (1) Upfront license fees. (2) Event-based development and regulatory milestones amounts. (3) Reimbursements and costs-sharing payments. (4) Regarding the accounting treatment for the collaborative agreement, the license and related development deliverables were determined to be highly interdependent and interrelated and have been combined as one performance obligation. Delivery is determined to be over time and revenue will be recognized utilizing an input method of costs incurred over total estimated costs in the work plan. The regulatory milestones are variable consideration that are fully constrained until the uncertainty of each milestone has been resolved. Sales-based milestones and royalties are variable consideration that will not be included in the transaction price until the related commercialization and sales have occurred. The cost reimbursements are considered variable consideration and are included in the transaction price. Revenues related to the cost reimbursements are presented gross on the consolidated statement of operations instead of a reduction to the costs being reimbursed. We currently estimate the unsatisfied performance obligations within the contract to be completed by December 31, 2022. (5) Regarding the accounting treatment for the collaborative agreement, the license, technology transfer and related clinical deliverables were determined to be highly interdependent and interrelated and have been combined as one performance obligation. Delivery is determined to be over time and revenue will be recognized utilizing an input method of costs incurred over total estimated costs to complete the performance obligation. A material customer option for additional goods and services was included in the transaction price, and $ 12.0 million of the transaction price was allocated to the second performance obligation. The option will be recognized when the customer exercises the option or when the option expires. Regulatory and development milestones are variable consideration that are fully constrained until the uncertainty of each milestone has been resolved. Sales-based milestones and royalties are variable consideration that will not be included in the transaction price until the related commercialization milestones and sales targets have occurred. We currently estimate the unsatisfied performance obligations within the contract to be completed by December 31, 2026. 4. Marketable Equity Securities As of December 31, 2021, Lineage owned approximately 1.1 million shares of OncoCyte common stock. These shares had a fair value of approximately $ 2.4 million, based on the closing price of OncoCyte of $ 2.17 per share on December 31, 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 year ended December 31, 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 $ 2.2 million related to changes in fair market value of OncoCyte’s common stock price during the period. For the year ended December 31, 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 $ 2.5 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 December 31, 2021. These securities were carried at fair market value on our consolidated balance sheets, and the accounting transactions for the year ended December 31, 2021 were not material. For the year ended December 31, 2021, we did not hold any marketable securities related to AgeX. For the year ended December 31, 2020, Lineage recorded realized gains of $ 0.8 million, due to sales of AgeX shares in the period. For the year ended December 31, 2020, we recorded unrealized losses of $ 1.3 million, respectively, due to changes in fair market value of AgeX’s common stock price during the period. 100 | P a g e 5. Sale of Significant Ownership Interest in AgeX to Juvenescence Limited On August 30, 2018, Lineage entered into a Stock Purchase Agreement with 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 December 31, 2021 and 2020, property and equipment, net were comprised of the following (in thousands): Schedule of Property and Equipment, Net December 31, 2021 2020 Equipment, furniture and fixtures $ 3,472 $ 3,628 Leasehold improvements 2,539 2,472 Right-of-use assets 4,163 3,845 Accumulated depreciation and amortization ( 5,302 ) ( 4,315 ) Property and equipment, net $ 4,872 $ 5,630 Property and equipment at December 31, 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 14. Depreciation and amortization expense amounted to $ 663,000 and $ 823,000 for the years ended December 31, 2021 and 2020, respectively. During the year ended December 31, 2021, Lineage sold non-capitalized assets for a net gain of $ 30,000 , which was included in R&D expenses on the consolidated statements of operations. During the year ended December 31, 2021, Lineage sold equipment with a net book value of $ 9,000 and recognized a gain of $ 5,000 . Additionally, Lineage wrote off assets with a net book value of $ 29,000 . During the year ended December 31, 2020, Lineage sold equipment with a net book value of $ 32,000 and recognized a loss of $ 9,000 . Lineage also wrote off assets with a net book value of $ 156,000 , with $ 104,000 of this amount related to the termination of its leases in Alameda. Additionally, Lineage sold non-capitalized assets for a net gain of $ 72,000 . 101 | P a g e 7. Goodwill and Intangible Assets, Net At December 31, 2021 and 2020, goodwill and intangible assets, net consisted of the following: (in thousands): Schedule of Goodwill and Intangible Assets, Net December 31, 2021 2020 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) ( 19,321 ) ( 19,111 ) Intangible assets, net $ 46,822 $ 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 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 VAC platform, these patents are considered to be separate long-lived intangible assets under ASC 805. (4) As of December 31, 2021 the acquired patents were fully amortized and the acquired royalty contracts had a remaining unamortized balance of $ 282,000 . Lineage amortizes its intangible assets over an estimated period of 5 to 10 years on a straight-line basis. Lineage recognized $ 0.2 million and $ 1.2 million in amortization expense of intangible assets during the years ended December 31, 2021 and 2020, respectively. Amortization of intangible assets for periods subsequent to December 31, 2021 is as follows (in thousands): Schedule of Intangible Assets Future Amortization Expense Year Ended December 31, Amortization Expense 2022 $ 130 2023 130 2024 22 Total $ 282 102 | P a g e 8. Accounts Payable and Accrued Liabilities At December 31, 2021 and 2020, accounts payable and accrued liabilities consist of the following (in thousands): Schedule of Accounts Payable and Accrued Liabilities 2021 2020 December 31, 2021 2020 Accounts payable $ 3,543 $ 2,611 Accrued compensation 2,162 1,959 Accrued liabilities (1) 22,086 1,711 PPP loan payable - 523 Other current liabilities 178 9 Total $ 27,969 $ 6,813 (1) Includes $ 21.0 million of royalty and redemption fee expense to Hadasit and the IIA, respectively, pursuant to Lineage’s financial obligations related to the Roche Agreement (see Note 14) . PPP Loan Payable In April 2020, Lineage received a loan for $ 523,000 from Axos Bank under the Paycheck Protection Program (“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 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. 103 | P a g e We measure cash, cash equivalents, marketable securities and our liability classified warrants at fair value on a recurring basis. The fair values of such assets were as follows for December 31, 2021 and 2020 (in thousands): Schedule of Fair Value of Assets and Liabilities Valued on Recurring Basis Fair Value Measurements Using Balance at December 31, 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 $ 55,742 $ 55,742 $ - $ - Marketable securities 2,616 2,616 - - Liabilities: Lineage Warrants - - - - Cell Cure Warrants 227 - - 227 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 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. 104 | P a g e 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 (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 ( 210 ) - ( 210 ) Expiration of warrants - ( 1 ) ( 1 ) Balance as of December 31, 2021 $ 227 $ - $ 227 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 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. 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 14). 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 14), 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 December 31, 2021, Lineage has incurred a total of $ 593,782 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 shares of preferred stock. The preferred shares may be issued in one or more series as the board of directors may by resolution determine. The 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. The 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. As of December 31, 2021, no shares of preferred stock were issued or outstanding. Common Shares At December 31, 2021, Lineage was authorized to issue 250,000,000 common shares, no par value. As of December 31, 2021 and 2020, Lineage had 169,477,347 and 153,095,883 issued and outstanding common shares, respectively. During the years ended December 31, 2021 and 2020, Lineage issued 40,000 and 47,000 common shares, net of shares withheld and retired for employee taxes paid, respectively, for vested restricted stock units (see Note 12). 105 | P a g e At-the-Market (“ATM”) 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 (“ATM Shares”) having an aggregate offering price of up to $ 25.0 million. Lineage is not obligated to sell any ATM Shares. 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 ATM 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 ATM 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 ATM Shares 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 December 21, 2021, $ 14.1 million remained available for sale under the Sales Agreement. On December 21, 2021, Lineage filed a prospectus supplement with the SEC in connection with the New Sales Agreement, with Cantor Fitzgerald as the sales agent, and no additional sales will be made under the Sales Agreement. The $ 64.1 million under the New Sales Agreement which may be issued are registered pursuant to the May 2020 Registration Statement, and Lineage’s effective shelf registration statement on Form S-3 (File No. 333-254167), which was filed with the SEC on March 5, 2021 and declared effective on March 19, 2021. As of December 31, 2021, under the Sales Agreement, 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. As of December 31, 2021, under the New Sales Agreement, Lineage had issued 108,200 common shares at a weighted-average price per share of $ 2.55 for gross proceeds of $ 0.3 million (which includes $ 0.2 million of cash in transit related to a 2021 transaction that settled in early 2022). As a result, as of December 31, 2021, $ 63.9 million remained available for issuance under the New 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. 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 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 warrant 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 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 were issued to consultants. 11,738 of these warrants were cashless exercised in October 2020. The expense related to the cashless exercise was approximately $ 44,000 and it was recorded as other income/(expense), net on the statements of operations. The remaining 2,000 warrants have an exercise price of $ 40.00 and expire in January 2024. 106 | P a g e ASC 815 requires freestanding financial instruments, such as warrants, with exercise prices denominated in currencies other than the functional currency of the issuer to be accounted for as liabilities at fair value, with all subsequent changes in fair value after the issuance date to be recorded as gains or losses in the consolidated statements of operations. Because the exercise price of the Cell Cure Warrants is U.S. dollar-denominated and settlement is not expected to occur in the next twelve months, Cell Cure classified the Cell Cure Warrants as a long-term liability in accordance with ASC 815. The fair value of the Cell Cure Warrants at the time of issuance was determined by using the Black-Scholes option pricing model using the respective contractual term of the warrants. In applying this model, the fair value is determined by applying Level 3 inputs, as defined by ASC 820; these inputs are based on certain key assumptions including the fair value of the Cell Cure ordinary shares, adjusted for lack of marketability, as appropriate, and the expected stock price volatility over the term of the Cell Cure Warrants. The fair value of the Cell Cure ordinary shares is determined by Cell Cure’s Board of Directors, which may engage a valuation specialist to assist it in estimating the fair value, or may use recent transactions in Cell Cure shares, if any, as a reasonable approximation of fair value, or may apply other reasonable methods to determining the fair value, including a discount for lack of marketability. In connection with the cashless exercise in October 2020, Cell Cure had an independent third-party update the fair value of the Cell Cure shares. Lineage determines the stock price volatility using historical prices of comparable public company common stock for a period equal to the remaining term of the Cell Cure Warrants. The Cell Cure Warrants are revalued each reporting period using the same methodology described above, with changes in fair value included as gains or losses in other income and expenses, net, in the consolidated statements of operations. For the years ended December 31, 2021 and 2020, Lineage recorded a noncash gain of $ 0.2 million and a noncash loss of $ 0.2 million, respectively, for the increase/decrease in the fair value of the Cell Cure Warrants included in other income and expenses, net for each period. The decrease in the fair value of the Cell Cure Warrants was mainly attributable to the time premium amortization, due to the shorter duration of the warrants. As of December 31, 2021 and 2020, the Cell Cure Warrants, valued at $ 0.2 million and $ 0.4 million, respectively, were included in current and long-term liabilities on the consolidated balance sheets. 12. Stock-Based Awards Equity Incentive Plan Award s 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 December 31, 2021, there were no outstanding equity awards issued under the 2021 Plan. As of December 31, 2021, there were 16,382,385 shares available for grant under the 2021 Plan. On February 11, 2022, the Board of Directors at Lineage, approved restricted stock unit awards for an aggregate amount of 694,424 . The awards were issued under the 2021 Plan, which defines restricted stock units as a full value award, which reduce the Plan’s common shares available for grant by 1.50 shares for each share issued. 107 | P a g e A summary of Lineage’s 2012 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, 2019 14,710 166 $ 2.17 Options granted 5,256 - 0.71 Options forfeited ( 4,101 ) - 2.61 Restricted stock units vested - ( 73 ) - December 31, 2020 15,865 93 $ 1.57 Options granted 6,245 - 2.50 Options exercises ( 4,321 ) - 1.72 Options forfeited ( 3,146 ) - 1.99 Restricted units vested - ( 62 ) - December 31, 2021 14,643 31 $ 1.84 Options exercisable at December 31, 2021 6,391 $ 1.68 As of December 31, 2021, options outstanding and options exercisable under the 2012 Plan have a weighted-average remaining contractual term of 7.3 years and 5.3 years, respectively, and intrinsic value of $ 9.6 million and $ 5.2 million, respectively. In connection with the vested RSUs during the year ended December 31, 2021, Lineage paid $ 54,000 in minimum employee withholding taxes in exchange for 21,000 vested Lineage common shares issuable to the employees and immediately retired those shares. For the year ended December 31, 2021, Lineage recorded a noncash stock-based compensation expense of $ 0.1 million, in connection with the vested RSUs, included in consolidated stock-based compensation expense. In connection with the vested RSUs during the year ended December 31, 2020, Lineage paid $ 27,000 in minimum employee withholding taxes in exchange for 26,000 vested Lineage common shares issuable to the employees and immediately retired those shares. For the year ended December 31, 2020, Lineage recorded a noncash stock-based compensation expense of $ 0.1 million, in connection with the vested RSUs, included in consolidated stock-based compensation expense. 108 | P a g e A summary of activity under the Asterias Equity Plan from the closing date of the Asterias Merger through December 31, 2021 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, 2019 350 - $ 1.57 Options granted - - - Options forfeited - - - December 31, 2020 350 - $ 1.57 Options granted - - - Options forfeited ( 109 ) - 1.57 December 31, 2021 241 - $ 1.57 Options exercisable at December 31, 2021 241 $ 1.57 As of December 31, 2021, options outstanding and options exercisable under the Asterias Equity Plan both have a weighted-average remaining contractual term of 0.3 years and intrinsic value of $ 212,000 and $ 212,000 , respectively. 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 Year Ended December 31, 2021 2020 Expected life (in years) 6.2 6.2 Risk-free interest rates 1.0 % 0.8 % Volatility 73.2 % 67.7 % Dividend yield - % - % The weighted-average estimated fair value of stock options granted under the 2012 Plan and other stock option awards granted outside of the 2012 Plan, during the years ended December 31, 2021 and 2020 was $ 1.62 and $ 0.43 per share, respectively. Operating expenses include stock-based compensation expense as follows (in thousands): Schedule of Stock Based Compensation Expense 2021 2020 Year Ended December 31, 2021 2020 Research and development $ 833 $ 464 General and administrative 2,686 1,763 Total stock-based compensation expense $ 3,519 $ 2,227 As of December 31, 2021, total unrecognized compensation costs related to unvested stock options under Lineage’s 2012 Plan and the Asterias Equity Plan was $ 8.5 million, which is expected to be recognized as expense over a weighted average period of approximately 2.5 years. 109 | P a g e 13. Income Taxes For the year ended December 31, 2021, Lineage did no t record a tax provision or deferred tax benefit. For the year ended December 31, 2020, Lineage recorded a $ 1.2 million deferred tax benefit for income taxes. The domestic and foreign breakout of loss before net income tax benefit was as follows: Schedule of Income before Income Tax, Domestic and Foreign 2021 2020 December 31, 2021 2020 Domestic $ ( 16,998 ) ( 17,500 ) Foreign ( 26,272 ) ( 4,424 ) Loss before net income tax benefit $ ( 43,270 ) ( 21,924 ) Income taxes differed from the amounts computed by applying the indicated current U.S. federal income tax rate to pretax losses from operations as a result of the following: Schedule of Income Tax Rate Reconciliation 2021 2020 Year Ended December 31, 2021 2020 Computed tax benefit at federal statutory rate 21 % 21 % Research and development and other credits 1 % 1 % Permanent differences ( 1 )% - % Change in valuation allowance ( 16 )% ( 17 )% State tax benefit 8 % 3 % GILTI inclusion ( 12 )% - % Foreign rate differential and other ( 1 )% ( 2 )% Income tax benefit - % 6 % The primary components of the deferred tax assets and liabilities at December 31, 2021 and 2020 were as follows (in thousands): Schedule of Components of Deferred Tax Assets and Liabilities Deferred tax assets/(liabilities): 2021 2020 December 31, Deferred tax assets/(liabilities): 2021 2020 Net operating loss carryforwards $ 68,766 $ 63,941 Research and development and other credits 9,466 8,878 Patents and licenses 1,403 1,178 Stock options 1,717 2,131 Operating lease liability 134 242 Other 1,608 1,523 Total deferred tax assets 83,094 77,893 Valuation allowance ( 70,967 ) ( 64,069 ) Deferred assets, net of valuation allowance 12,127 13,824 Operating lease ROU assets ( 115 ) ( 215 ) Intangibles ( 13,299 ) ( 13,226 ) Equity method investments and marketable securities at fair value ( 789 ) ( 2,459 ) Total deferred tax liabilities ( 14,203 ) ( 15,900 ) Net deferred tax liabilities $ ( 2,076 ) $ ( 2,076 ) 110 | P a g e 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, 2021, Lineage had taxable income and therefore did not generate any indefinite lived deferred tax assets as tax provision benefit. 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. As of December 31, 2021, Lineage has gross net operating loss carryforwards of approximately $ 155.6 million for federal purposes. As of December 31, 2021, Lineage’s foreign subsidiaries have net operating loss carryforwards of approximately $ 60.2 million which carryforward indefinitely. As of December 31, 2021, Lineage has net operating losses of $ 151.8 million for state tax purposes. As of December 31, 2021, Lineage has research tax credit carryforwards for federal and state tax purposes of $ 3.7 million and $ 5.8 million, respectively. These tax credits reflect the amounts for Lineage, Asterias and OrthoCyte as of December 31, 2021. For federal purposes, the credits generated each year have a carryforward period of 20 years . The federal tax credits expire in varying amounts between 2021 and 2041 , while the state tax credits have no expiration period. On August 5, 2020, Lineage began the liquidation of its foreign subsidiary BioTime Asia. At the time of the liquidation, BioTime Asia had an intercompany payable due to Lineage. For book purposes, the corresponding balances eliminate in consolidation. For federal purposes, the activities of their foreign subsidiaries are not included in the consolidated tax return. Accordingly, the payable was written off for tax purposes by Lineage, creating a $ 3.6 million bad debt deduction increasing its NOL carryover. For California, the activities of its foreign subsidiaries, including BioTime Asia, are included in the combined tax return. As such, the corresponding intercompany balances are eliminated. On December 17, 2021, Lineage and its subsidiary, Cell Cure, entered into a Collaboration and License Agreement with Roche, wherein Lineage granted to Roche exclusive worldwide rights to develop and commercialize RPE cell therapies. Under the agreement Roche will pay Lineage a $ 50.0 million upfront payment. This payment was received in January of 2022 (see further discussion at Note 14). During December 2021, in an intercompany transaction, Lineage acquired the economic rights to Cell Cure’s interest in certain intellectual property. This transaction generated a gain to Cell Cure of $ 31.7 million which was fully offset by net operating loss carryforwards in Israel. For book and California income tax purposes, this transaction eliminates in consolidation. For federal income tax purposes, the activities of our foreign subsidiaries are not included in the consolidated tax return. However, under the provisions of GILTI the profits of our foreign subsidiaries may be included, see further discussion below. Beginning in 2018, the 2017 Tax Act subjects a U.S. stockholder to GILTI earned by certain foreign subsidiaries. In general, GILTI is the excess of a U.S. shareholder’s total net foreign income over a deemed return on tangible assets. The provision further allows a deduction of 50 % of GILTI, however this deduction is limited to the company’s pre-GILTI U.S. income. For the year ended December 31, 2020, our foreign subsidiaries generated losses, as a result there was no inclusion. For the year ended December 31, 2021, Lineage’s combined foreign entities generated a profit arising from intercompany transactions. As a result, there was an inclusion of $ 24.8 million for GILTI purposes for 2021. The resulting net income for federal income tax purposes was fully offset by their federal net operating loss carryforwards. Other Transactions and Related Impact on Income Taxes The market value of the respective shares Lineage holds in OncoCyte and Asterias (through the merger date of March 8, 2019) creates a deferred tax liability to Lineage based on the closing price of the security, less the tax basis of the security Lineage has in such shares. The deferred tax liability generated by shares that Lineage holds as of December 31, 2021 and 2020, 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 those deferred tax liabilities. This deferred tax liability is determined based on the closing price of those securities as of December 31, 2021 and 2020. 111 | P a g e Other Income Tax Matters Internal Revenue Code Section 382 places a limitation (“Section 382 Limitation”) on the amount of taxable income that can be offset by NOL carryforwards after a change in control (generally greater than 50 % change in ownership within a three-year period) of a loss corporation. California has similar rules. Generally, after a change in control, a loss corporation cannot deduct NOL carryforwards in excess of the Section 382 Limitation. Due to these “change in ownership” provisions, utilization of the NOL and tax credit carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods. Lineage files a U.S. federal income tax return as well as various state and foreign income tax returns. In general, Lineage is no longer subject to tax examination by major taxing authorities for years before 2016. Although the statute is closed for purposes of assessing additional income and tax in these years, the taxing authorities may still make adjustments to the NOL and credit carryforwards used in open years. Therefore, the statute should be considered open as it relates to the NOL and credit carryforwards used in open years. Lineage may be subject to potential examination by U.S. federal, U.S. states or foreign jurisdiction authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with U.S. federal, U.S. state and foreign tax laws. Based on Lineage’s assessment, no liabilities for uncertain tax positions should be recorded as of December 31, 2021 and 2020. Lineage’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months. Lineage’s practice is to recognize interest and penalties related to income tax matters in tax expense. As of December 31, 2021 and 2020, Lineage has no accrued interest and penalties. 14. 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 . 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. 112 | P a g e 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 $ 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 five-year extension options (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). 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 December 31, 2021, to be held as restricted cash during the term of the January 2018 Lease. 113 | P a g e On November 30, 2021, Cell Cure entered into a lease agreement for an additional 133 square meters (approximately 1,432 square feet) of office space in the same facility in Jerusalem, Israel under a lease that expires on December 31, 2025 , with one five year and one approximate three-year extension options (the “November 2021 Lease”). The November 2021 Lease commenced on December 1, 2021, with a twelve-month base rent of NIS 11,880 (approximately US $ 3,757 using the November 30, 2021 exchange rate). On November 1, 2022, the base monthly rent increases to NIS 12,494 (approximately US $ 3,951 using the November 30, 2021 exchange rate). Adoption of ASC 842 The below tables provide the amounts recorded in connection with the adoption of ASC 842 as of, and for the years ended December 31, 2021 and 2020, for Lineage’s operating and financing leases, as applicable. Supplemental cash flow information related to leases was as follows (in thousands): Schedule of Supplemental Cash Flow Information Related to Leases 2021 2020 Year Ended December 31, 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 935 $ 1,356 Operating cash flows from financing leases 13 20 Financing cash flows from financing leases 20 26 Right-of-use assets obtained in exchange for lease obligations: Operating leases 213 1,047 Financing leases 39 - Supplemental balance sheet information related to leases was as follows (in thousands, except lease term and discount rate): Schedule of Supplemental Balance Sheet Information Related to Leases 2021 2020 December 31, 2021 2020 Operating leases Right-of-use assets, net $ 2,372 $ 2,916 Right-of-use lease liabilities, current $ 801 $ 746 Right-of-use lease liabilities, noncurrent 1,941 2,514 Total operating lease liabilities $ 2,742 $ 3,260 Financing leases Right-of-use assets, net $ 36 $ - Property and equipment, gross $ 79 $ 79 Accumulated depreciation ( 79 ) ( 65 ) Property and equipment, net $ - $ 14 Lease liabilities, current $ 13 $ - Lease liabilities, noncurrent 23 - Total finance lease liabilities $ 36 $ - Other current liabilities $ 17 $ 16 Long-term liabilities 7 26 Total finance lease liabilities $ 24 $ 42 Weighted average remaining lease term Operating leases 3.5 years 4.2 years Finance leases 2.2 years 2.4 years Weighted average discount rate Operating leases 7.7 % 8.0 % Finance leases 5.7 % 10.0 % 114 | P a g e Future minimum lease commitments are as follows (in thousands): Schedule of Future Minimum Lease Commitments Operating Leases Finance Leases Year Ending December 31, 2022 $ 1,042 $ 33 2023 583 22 2024 551 10 2025 532 - 2026 447 - Total lease payments $ 3,155 $ 65 Less imputed interest ( 413 ) ( 5 ) Total $ 2,742 $ 60 Roche Collaboration Agreement On December 17, 2021, Lineage and its subsidiary, Cell Cure, entered into the Roche Agreement, wherein Lineage granted to Roche exclusive worldwide rights to develop and commercialize RPE cell therapies, including its proprietary cell therapy known as OpRegen. Roche paid Lineage a $ 50.0 million upfront payment and Lineage is eligible to receive up to an additional $ 620.0 million in certain developmental, regulatory and commercialization milestone payments. Lineage is also eligible for tiered double-digit percentage royalties on net sales of OpRegen. All regulatory and commercial milestone payments, and royalty payments, are subject to the existence of certain intellectual property rights related to OpRegen once such payments become due. The OpRegen program has been supported in part with contributions made by Hadasit, the technology transfer company of Hadassah Medical Center, and the IIA, an independent agency created to address the needs of global innovation ecosystems. A significant portion of early development on the OpRegen program occurred at Cell Cure. Cell Cure was established by the Hadassah Medical Center, where the intellectual property underlying the differentiation and manufacture of RPE cells originated. In addition, significant monetary support for the OpRegen program was provided by the IIA through a series of separate research grants, beginning in 2007. Under the Encouragement of Research, Development and Technological Innovation in the Industry Law 5744, and the regulations, guidelines, rules, procedures and benefit tracks thereunder (collectively, the “Innovation Law”), annual research and development programs that meet specified criteria and were approved by a committee of the IIA which were eligible for grants. The grants awarded were typically up to 50 % of the project’s expenditures, as determined by the IIA committee and subject to the benefit track under which the grant was awarded. The terms of the grants under the Innovation Law generally require that the products developed as part of the programs under which the grants were given be manufactured in Israel. The know-how developed thereunder may not be transferred outside of Israel unless prior written approval is received from the IIA. Transfer of IIA-funded know-how outside of Israel is subject to approval and payment of a redemption fee, to the IIA calculated according to the relevant formulas provided under the Innovation Law. In November 2021, an application made by Cell Cure to the research committee of the IIA, was approved granting an exclusive license and transfer of the technological know-how for OpRegen to Roche. Under the provisions for the redemption fee, Lineage is obligated to pay the IIA a portion of the upfront, milestone, and royalty payments which may be received under the Agreement. Lineage is obligated to pay approximately 24.3 % of the upfront, milestone, and royalty payments it receives from Roche to the IIA, up to an aggregate cap on all payments. As of December 31, 2021, the IIA cap amount was calculated to be approximately $ 102.7 million. 115 | P a g e In addition, pursuant to the Second Amended and Restated License Agreement, dated June 15, 2017, between Cell Cure and Hadasit, as amended, and a certain letter agreement entered into on December 17, 2021, by and between Cell Cure and Hadasit, Cell Cure is obligated to pay to Hadasit a sublicensing fee of 21.5% of the upfront payment (subject to certain reductions) and any milestone payments, and up to 50% of all royalty payments (subject to a maximum payment of 5% of net sales of products) , Lineage receives from Roche. The letter agreement generally terminates upon the termination of the Agreement. In January 2022, Lineage received the $ 50.0 million upfront payment from Roche. Lineage made a subsequent payment of $ 12.1 million to the IIA, pursuant to Lineage’s obligations under the Innovation Law. Additionally, Lineage made a subsequent payment of $ 8.9 million to Hadasit, pursuant to Lineage’s obligations under the Second Amended and Restated License Agreement. Lineage reduced the Hadasit payment by $ 1.9 million, due to a $ 8.6 million budgetary commitment under the Agreement. Lineage is required to pay Hadasit 21.5% of any portion of the commitment not incurred within five years after the execution of the Agreement . Both the IIA and Hadasit payments were accrued as research and development expenses incurred, upon the execution of the Agreement within the company’s year-end consolidated statement of operations. Unless earlier terminated by either party, the Agreement will expire on a product-by-product and country-by-country basis upon the expiration of all of Roche’s payment obligations under the Agreement. Roche may terminate the Agreement in its entirety, or on a product-by-product or country-by-country basis, at any time with advance written notice. Either party may terminate the Agreement in its entirety with written notice for the other party’s material breach if such party fails to cure the breach. Either party also may terminate the Agreement in its entirety upon certain insolvency events involving the other party. ITI Collaboration Agreement 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 $ 2.2 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. 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. 116 | P a g e 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 – General From time to time, we are subject to legal proceedings and claims in the ordinary course of business. While management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, cash flows, or overall trends in results of operations, legal proceedings are subject to inherent uncertainties, and unfavorable rulings or outcomes could occur that have individually or in aggregate, a material adverse effect on our business, financial condition or operating results. Except as described below, we are not currently subject to any pending material litigation, other than ordinary routine litigation incidental to our business, as described above. On October 14, 2019, a 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. 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. 117 | P a g e 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 limit Lineage’s financial exposure. 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 December 31, 2021 and 2020. 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. 15. Employee Benefit Plan We have a defined contribution 401(k) plan for all employees. Under the terms of the plan, employees may make voluntary contributions as a percentage or defined amount of compensation. We provide a safe harbor contribution of up to 5.0 % of the employee’s compensation, not to exceed eligible limits, and subject to employee participation. For the years ended December 31, 2021 and 2020, we incurred approximately $ 164,000 and $ 149,000 , respectively, in expenses related to the safe harbor contribution. 16. Segment Information Lineage’s executive management team, as a group, represents the entity’s chief operating decision makers. Lineage’s executive management team views Lineage’s operations as one segment that includes the research and development of therapeutic products for retinal diseases, neurological diseases and disorders and oncology. As a result, the financial information disclosed materially represents all the financial information related to Lineage’s sole operating segment. 118 | P a g e 17. Enterprise-Wide Disclosures Geographic Area Information The following table presents consolidated revenues, including license fees, royalties, grant income, and other revenues, disaggregated by geography, based on the billing addresses of customers, or in the case of grant revenues based on where the governmental entities that fund the grant are located (in thousands). Schedule of Geographic Area Information Geographic Area 2021 2020 Year Ended December 31, Geographic Area 2021 2020 United States $ 3,895 $ 1,160 Foreign (1) 446 666 Total revenues $ 4,341 $ 1,826 (1) Foreign revenues are primarily generated from grants in Israel. The composition of Lineage’s long-lived assets, consisting of plant and equipment, net, between those in the United States and in foreign countries, as of December 31, 2021 and 2020, is set forth below (in thousands): 2021 2020 December 31, 2021 2020 Domestic $ 548 $ 1,035 Foreign (1) 4,324 4,595 Total $ 4,872 $ 5,630 (1) Assets in foreign countries principally include laboratory equipment and leasehold improvements in Israel. Major Sources of Revenues The following table presents Lineage’s consolidated revenues disaggregated by source (in thousands). Schedule of Revenues Disaggregated by Source 2021 2020 Year Ended December 31, 2021 2020 REVENUES: Royalties $ 2,776 $ 773 Collaboration revenues 1,120 - Grant revenues 445 1,053 Total revenues $ 4,341 $ 1,826 Prepaid expenses and other current assets at December 31, 2021 includes $ 0.1 million of receivables related to cash in transit for sales of ATM Shares in 2021 that settled in 2022, and $ 0.2 million of receivables related to cash in transit for the exercise of stock options in 2021 that settled in 2022. The following table shows Lineage’s major sources of revenues, as a percentage of total revenues, that were recognized during the years ended December 31, 2021 and 2020: Schedule of Sources of Revenues Sources of Revenues 2021 2020 Year Ended December 31, Sources of Revenues 2021 2020 Royalties 63.9 % 42.3 % Collaboration revenues 25.8 % - % Grant revenues 10.3 % 57.7 % 119 | P a g e 18. Selected Quarterly Financial Information (UNAUDITED, in thousands, except per share data) Lineage has derived this data from the unaudited consolidated interim financial statements that, in Lineage’ s opinion, have been prepared on substantially the same basis as the audited consolidated financial statements contained herein and include all normal recurring adjustments necessary for a fair presentation of the financial information for the periods presented. These unaudited consolidated quarterly results should be read in conjunction with the consolidated financial statements and notes thereto included herein. The consolidated operating results in any quarter are not necessarily indicative of the consolidated results that may be expected for any future period. Schedule of Selected Quarterly Financial Information Year Ended December 31, 2021 First Quarter Second Quarter Third Quarter Fourth Quarter Revenues, net $ 391 512 2,270 1,168 Operating expenses 7,329 7,467 8,128 29,202 Loss from operations ( 7,050 ) ( 7,080 ) ( 6,843 ) ( 28,238 ) Net loss attributable to Lineage ( 1,416 ) ( 4,788 ) ( 7,823 ) ( 28,992 ) Basic net income (loss) per share $ ( 0.01 ) $ ( 0.03 ) $ ( 0.05 ) $ ( 0.17 ) Year Ended December 31, 2020 Revenues, net $ 514 386 571 355 Operating expenses 7,858 6,713 7,194 6,123 Loss from operations ( 7,438 ) ( 6,402 ) ( 6,725 ) ( 5,882 ) Net income (loss) attributable to Lineage ( 8,399 ) ( 6,522 ) ( 7,760 ) 2,032 Basic net income (loss) per share $ ( 0.06 ) $ ( 0.04 ) $ ( 0.05 ) $ 0.01 Quarterly and year-to-date computations of net income (loss) per share amounts are calculated using the respective period weighted average shares outstanding. Therefore, the sum of the per share amounts for the quarters may not agree with the per share amounts for the year. 19. Subsequent Events Receipt of Roche Upfront Payment In January 2022, Lineage received a $ 50.0 million upfront payment related to the Roche Agreement. Lineage made a subsequent payment of $ 12.1 million to the IIA, pursuant to Lineage’s obligations under the Innovation Law. Additionally, Lineage made a subsequent payment of $ 8.9 million to Hadasit, pursuant to Lineage’s obligations under the Hadasit License. Lineage reduced the Hadasit payment by $ 1.9 million, due to a $ 8.6 million budgetary commitment under the Roche Agreement. Lineage is required to pay Hadasit 21.5% of any portion of the commitment not incurred within five years after the execution of the Roche Agreement . The IIA and Hadasit payments were expensed on the consolidated statement of operations as of December 31, 2021, offset with an accrued liability on the consolidated balance sheet. Restricted Stock Unit Awards On February 11, 2022, the Board of Directors at Lineage, approved restricted stock unit awards for an aggregate amount of 694,424 . The awards were issued under the 2021 Plan, which defines restricted stock units as a full value award, which reduce the Plan’s common shares available for grant by 1.50 shares for each share issued. As of December 31, 2021, there were 16,382,385 shares available for grant under the 2021 Plan. 120 | P a g e ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.