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 90 Financial Statements: Consolidated Balance Sheets 92 Consolidated Statements of Operations 93 Consolidated Statements of Comprehensive Loss 94 Consolidated Statements of Shareholders Equity 95 Consolidated Statements of Cash Flows 96 See accompanying notes to consolidated financial statements. 89 | P a g e Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders Lineage Cell Therapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Lineage Cell Therapeutics, Inc. and Subsidiaries (collectively, the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, 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 audits. 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 audits 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 audits 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 audits 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 audits 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 audits provide a reasonable basis for our opinion. 90 | P a g e 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 recognition Description of the Matter The Company recorded deferred revenue of $36.6 million as of December 31, 2022 and revenue of $13.4 million for the year ended December 31, 2022 from a collaboration agreement. As described in Note 3, the Company has concluded that the grant of 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 represent a combined performance obligation for which the Company recognizes collaboration revenues as the services are performed over time. Auditing the Company’s accounting for revenues from this collaboration agreement was complex and required significant judgments, primarily in evaluating the period in which the performance obligation was satisfied and evaluating estimates of total expected inputs under the input method for revenue recognized over time. How We Addressed the Matter in Our Audit 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 agreement, 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 9, 2023 PCAOB ID Number 100 91 | P a g e LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) December 31, 2022 December 31, 2021 ASSETS CURRENT ASSETS Cash and cash equivalents $ 11,355 $ 55,742 Marketable securities (Notes 4 and 5) 46,520 2,616 Accounts and grants receivable, net (Note 3) 297 50,840 Prepaid expenses and other current assets 1,828 2,351 Total current assets 60,000 111,549 NONCURRENT ASSETS Property and equipment, net (Notes 6 and 14) 5,673 4,872 Deposits and other long-term assets 627 630 Goodwill 10,672 10,672 Intangible assets, net 46,692 46,822 TOTAL ASSETS $ 123,664 $ 174,545 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 8,608 $ 27,969 Lease liabilities, current portion (Note 14) 916 801 Financing lease, current portion (Note 14) 36 30 Deferred revenues (Note 3) 9,421 18,119 Liability classified warrants, current portion - 197 Total current liabilities 18,981 47,116 LONG-TERM LIABILITIES Deferred tax liability 2,076 2,076 Deferred revenues, net of current portion (Note 3) 27,725 32,454 Lease liability, net of current portion (Note 14) 2,860 1,941 Financing lease, net of current portion (Note 14) 84 30 Other long-term liabilities 2 30 TOTAL LIABILITIES 51,728 83,647 Commitments and contingencies (Note 14) - - SHAREHOLDERS’ EQUITY Preferred shares, no par value, authorized 2,000 shares; none issued and outstanding as of December 31, 2022 and 2021, respectively - - Common shares, no par value, authorized 250,000 shares; 170,093 and 169,477 shares issued and outstanding as of December 31, 2022 and 2021, respectively 440,280 434,529 Accumulated other comprehensive loss ( 3,571 ) ( 5,211 ) Accumulated deficit ( 363,370 ) ( 337,097 ) Lineage Cell Therapeutics, Inc. shareholders’ equity 73,339 92,221 Noncontrolling deficit ( 1,403 ) ( 1,323 ) Total shareholders’ equity 71,936 90,898 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 123,664 $ 174,545 See accompanying notes to the consolidated financial statements. 92 | P a g e LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) Year Ended December 31, 2022 2021 REVENUES: Collaboration revenues $ 13,367 $ 1,120 Royalties 1,336 2,776 Grant revenues - 445 Total revenues 14,703 4,341 Cost of sales 728 1,426 Gross profit 13,975 2,915 OPERATING EXPENSES: Research and development 13,987 33,914 General and administrative 22,508 18,212 Total operating expenses 36,495 52,126 Loss from operations ( 22,520 ) ( 49,211 ) OTHER INCOME (EXPENSES): Interest income, net 829 2 Gain on sale of marketable securities - 6,024 Unrealized loss on marketable equity securities ( 2,194 ) ( 2,299 ) Gain on extinguishment of debt - 523 Gain on revaluation of warrant liability 225 205 Other income (expense), net ( 2,152 ) 1,486 Total other income/(expense) ( 3,292 ) 5,941 LOSS BEFORE INCOME TAXES ( 25,812 ) ( 43,270 ) Income tax expense (Note 13) ( 541 ) - NET LOSS ( 26,353 ) ( 43,270 ) Net loss attributable to noncontrolling interest 80 251 NET LOSS ATTRIBUTABLE TO LINEAGE $ ( 26,273 ) $ ( 43,019 ) NET LOSS PER COMMON SHARE: BASIC AND DILUTED $ ( 0.15 ) $ ( 0.26 ) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: BASIC AND DILUTED 169,792 164,502 See accompanying notes to the consolidated financial statements. 93 | P a g e LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (IN THOUSANDS) Year Ended December 31, 2022 2021 NET LOSS $ ( 26,353 ) $ ( 43,270 ) Other comprehensive loss, net of tax: Foreign currency translation adjustments 1,790 ( 1,544 ) Unrealized loss on marketable debt securities ( 150 ) - COMPREHENSIVE LOSS ( 24,713 ) ( 44,814 ) Less: comprehensive loss attributable to noncontrolling interest 80 251 COMPREHENSIVE LOSS ATTRIBUTABLE TO LINEAGE COMMON SHAREHOLDERS $ ( 24,633 ) $ ( 44,563 ) See accompanying notes to the consolidated financial statements. 94 | P a g e LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (IN THOUSANDS) 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, 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 for retirement of stock warrants - - 20 2 - - - 2 Foreign currency translation 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 Balance - $ - 169,477 $ 434,529 $ ( 337,097 ) $ ( 1,323 ) $ ( 5,211 ) $ 90,898 Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes - - 20 ( 17 ) - - - ( 17 ) Stock-based compensation - - - 4,287 - - - 4,287 Shares issued upon exercise of stock options - - 596 490 - - - 490 Subsidiary warrant exercise, net - - - 991 - - - 991 Unrealized loss on marketable securities - - - - - - ( 150 ) ( 150 ) Foreign currency translation gain - - - - - - 1,790 1,790 NET LOSS - - - - ( 26,273 ) ( 80 ) - ( 26,353 ) BALANCE AT DECEMBER 31, 2022 - $ - 170,093 $ 440,280 $ ( 363,370 ) $ ( 1,403 ) $ ( 3,571 ) $ 71,936 B alance - $ - 170,093 $ 440,280 $ ( 363,370 ) $ ( 1,403 ) $ ( 3,571 ) $ 71,936 See accompanying notes to the consolidated financial statements. 95 | P a g e LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) Year Ended December 31, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss attributable to Lineage $ ( 26,273 ) $ ( 43,019 ) Net loss attributable to noncontrolling interest ( 80 ) ( 251 ) Adjustments to reconcile net loss attributable to Lineage to net cash used in operating activities: Gain on sale of marketable equity securities - ( 6,024 ) Unrealized loss on marketable equity securities 2,194 2,299 Accretion of income on marketable debt securities ( 501 ) - Depreciation expense, including amortization of leasehold improvements 582 663 Change in right-of-use assets and liabilities ( 35 ) 14 Amortization of intangible assets 145 210 Stock-based compensation 4,287 3,519 Common stock issued for services - 202 Gain on revaluation of warrant liability ( 225 ) ( 205 ) Foreign currency remeasurement and other loss/(gain) 2,272 ( 1,566 ) Loss/(gain) on sale of assets ( 11 ) 24 Gain on extinguishment of debt - ( 523 ) Changes in operating assets and liabilities: Accounts and grants receivable (Note 3) 50,314 ( 857 ) Prepaid expenses and other current assets 446 ( 72 ) Accounts payable and accrued liabilities (Note 8) ( 18,702 ) 21,645 Deferred revenue and other liabilities (Note 3) ( 13,354 ) 380 Net cash provided by (used in) operating activities 1,059 ( 23,561 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable debt securities ( 53,412 ) - Maturities of marketable debt securities 7,666 - Purchases of property and equipment, net ( 413 ) ( 340 ) Proceeds from sale of OncoCyte common shares - 10,064 Proceeds from the sale of HBL common shares - 21 Net cash (used in) provided by investing activities ( 46,159 ) 9,745 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from employee options exercised 648 7,240 Common shares received and retired for employee taxes paid ( 17 ) ( 54 ) Proceeds from sale of common shares 148 30,865 Proceeds from exercise of subsidiary warrants, net 991 - Repayments of financing lease liabilities ( 32 ) ( 20 ) Payments for offering costs ( 106 ) ( 1,101 ) Net cash provided by financing activities 1,632 36,930 Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 873 ) ( 20 ) NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 44,341 ) 23,094 At beginning of year 56,277 33,183 At end of year $ 11,936 $ 56,277 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during year for interest $ 13 $ 13 SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES: Receivable from sale of common shares in at the market offering $ - $ 147 Receivable from exercise of stock options $ 32 $ 189 See accompanying notes to the consolidated financial statements. 96 | P a g e LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Organization, Basis of Presentation and Liquidity We are a clinical-stage biotechnology company developing novel cell therapies to address unmet medical needs. Our programs are based on our proprietary cell-based technology platform and associated development and manufacturing capabilities. From this platform, we design, develop, manufacture, and test specialized human cells with anatomical and physiological functions similar to, or identical to, cells found naturally in the human body. Cells which we manufacture are created by specific developmental biological differentiation protocols that we apply to established, well-characterized, and self-renewing pluripotent cell lines. These cells are transplanted into patients and are designed to (a) replace or support cells that are absent or dysfunctional due to degenerative disease, aging, or traumatic injury, and (b) restore or augment functional activity in the affected person. Our strategy is to efficiently leverage our technology platform and our development, formulation, delivery, and manufacturing capabilities to advance our programs internally, or in conjunction with strategic partners, to further enhance their value and probability of success. As one example, in December 2021 we entered into a Collaboration and License Agreement with F. Hoffmann-La Roche Ltd and Genentech, Inc., a member of the Roche Group, wherein we granted to Roche exclusive worldwide rights to develop and commercialize retinal pigment epithelium cell therapies, including our proprietary cell therapy program known as OpRegen ® , for the treatment of ocular disorders, including geographic atrophy (GA) secondary to age-related macular degeneration (AMD). Under the terms of the Roche Agreement, Lineage received a $ 50.0 million upfront payment and is eligible to receive up to $ 620.0 million in certain developmental, regulatory, and commercialization milestone payments. Lineage also is eligible to receive tiered double-digit percentage royalties on net sales of OpRegen in the U.S. and other major markets. See Note 14 (Commitments and Contingencies) to our consolidated financial statements included elsewhere in this Report for discussion on the Roche Agreement. As of December 31, 2022, we have five allogeneic, or “off-the-shelf,” cell therapy programs in development, of which three have reached clinical testing: Product Candidates ● OpRegen ® , an allogeneic retinal pigment epithelium cell replacement therapy currently in a Phase 2a multicenter clinical trial, being conducted by Genentech, for the treatment of geographic atrophy (GA) secondary to age-related macular degeneration (AMD), also known as atrophic or dry AMD. A previous Phase 1/2a trial conducted by Lineage enrolled twenty-four (24) individuals with dry AMD with GA. In December 2021, this program was partnered with Roche for further clinical development and commercialization. ● OPC1 , an allogeneic oligodendrocyte progenitor cell therapy currently in long-term follow-up from a Phase 1/2a multicenter clinical trial for cervical spinal cord injuries. To date, five (5) patients with thoracic spinal cord injuries and twenty-five (25) patients with cervical spinal cord injuries have been enrolled in clinical trials of OPC1. The clinical development of OPC1 has been partially funded by $ 14.3 million received under a grant from the California Institute for Regenerative Medicine. Additional clinical trials are being planned. ● VAC , an allogeneic cancer immunotherapy comprised 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. This clinical trial is being funded and conducted by Cancer Research UK, one of the world’s largest independent cancer research charities. An additional VAC-based product candidate is in preclinical development with our partner, Immunomic Therapeutics, Inc., for the treatment of glioblastoma multiforme. ● ANP1 , an allogeneic auditory neuron progenitor cell transplant currently in preclinical development for the treatment of debilitating hearing loss. ● PNC1, an allogeneic photoreceptor cell transplant currently in preclinical development for the treatment of vision loss due to photoreceptor dysfunction or damage. 97 | P a g e Other Programs We have additional undisclosed product candidates being considered for development, which cover a range of therapeutic areas and unmet medical needs. Generally, these product candidates are based on the same platform technology and employ a similar guided cell differentiation and transplant approach as the product candidates detailed above, but in some cases may also include genetic modifications designed to enhance efficacy and/or safety profiles. In addition to seeking to create value for shareholders by developing product candidates and advancing those candidates through clinical development, we also may seek to create value from our large patent estate and additional related technologies and capabilities, through partnering and/or strategic transactions. Use of estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. 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, 2022. Schedule of Lineage’s Ownership of Outstanding Shares of its Subsidiaries Subsidiary Field of Business Lineage Ownership Country Cell Cure Neurosciences Ltd Manufacturing of Lineage’s product candidates 94 % (1)(2) Israel ES Cell International Pte. Ltd. Research and clinical grade cell lines 100 % Singapore (1) Includes shares owned by Lineage and ES Cell International Pte. Ltd. (2) As of December 31, 2021 our ownership percentage of Cell Cure was approximately 99 %. In July 2022, Hadasit Bio-Holdings Ltd. exercised warrants to purchase 21,999 ordinary shares of Cell Cure. Lineage’s ownership percentage of Cell Cure decreased as a result of the warrant exercise. As of December 31, 2022, our ownership percentage of Cell Cure was approximately 94 %. All material intercompany accounts and transactions have been eliminated in consolidation. As of December 31, 2022, 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. 98 | P a g e Liquidity On December 31, 2022, we had $ 57.9 million of cash, cash equivalents and marketable securities. Based on our current operating plan, we believe that our cash, cash equivalents and marketable securities, together with our projected cash flows, will be sufficient to enable us to carry out our planned operations through at least twelve months from the issuance date of our consolidated financial statements. Capital Resources Since inception, we have incurred significant operating losses and have funded our operations primarily through the issuance of equity securities, the sale of common stock of our former subsidiaries, receipt of proceeds from research grants, revenues from collaborations, and royalties from product sales. As of December 31, 2022, $ 63.8 million remained available for sale under our at the market offering program. See Note 11 (Shareholders’ Equity) for additional information. We may use our marketable securities for liquidity as necessary and as market conditions allow. The market value of our marketable securities may not represent the amount that could be realized in a sale of such securities due to various market and regulatory factors, including trading volume, prevailing market conditions and prices at the time of any sale and subsequent sales of securities by the entities. In addition, the value of our marketable equity securities may be significantly and adversely impacted by deteriorating global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing pandemics, including the COVID-19 pandemic, geopolitical conflicts, rising inflation and interest rates, and other macroeconomic factors. Additional Capital Requirements Our financial obligations primarily consist of vendor contracts to provide research services and other purchase commitments with suppliers. In the normal course of business, we enter into services agreements with contract research organizations, contract manufacturing organizations and other third parties. Generally, these agreements provide for termination upon notice, with specified amounts due upon termination based on the timing of termination and the terms of the agreement. The amounts and timing of payments under these agreements are uncertain and contingent upon the initiation and completion of the services to be provided. Our commitments include obligations to our licensors under our in-license agreements, and obligations related to grants received from government entities. These obligations may require us to make future payments relating to sublicense fees, milestone fees, redemption fees, royalties and reimbursement of patent maintenance costs. Sublicense fees are payable to licensors when we sublicense underlying intellectual property to third parties; the fees are based on a percentage of the license fees we receive from sublicensees. Milestone payments are due to licensors upon our future achievement of certain development and regulatory milestones. Royalties are payable to licensors based on a percentage of net sales of licensed products. Patent maintenance costs are payable to licensors as reimbursement for the cost of maintaining license patents. Due to the contingent nature of these payments, the amounts may fluctuate significantly from period to period. As of December 31, 2022, we have not included these commitments on our consolidated balance sheet because the achievement and timing of these events is not fixed and determinable. 99 | P a g e 2. Significant Accounting Policies Marketable Debt Securities - Lineage accounts for its holdings of U.S. Treasury securities in accordance with Accounting Standards Codification (“ASC”) 320-10-50, Debt Securities . All marketable debt securities have been classified as “available-for-sale” and are carried at estimated fair value. Unrealized gains and losses are excluded from earnings and are included in other comprehensive income or loss and reported as a separate component of stockholders’ equity or deficit until realized. Realized gains or losses on available-for-sale debt securities are included in other income (expense), net. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion, together with interest on securities, are included in interest income on the Company’s consolidated statement of operations. In accordance with the Company’s investment policy, management invests in debt securities with high credit quality, including U.S. government securities. Lineage reviews all its investments for other-than-temporary declines in estimated fair value. Our review includes the consideration of the cause of the impairment, including the creditworthiness of the security issuers, the number of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether the Company has the intent to sell the security. If a credit loss does exist for available-for-sale debt securities and should be recognized, an allowance will be recorded rather than a write-down to the amortized costs basis. To date, no such credit losses have occurred or have been recorded. See Note 4 (Marketable Debt Securities) for additional information. 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. 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 - In December 2021, Lineage entered into the Roche Agreement for the development and commercialization of OpRegen. Under the terms of the Roche Agreement, Roche agreed to pay 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 to receive tiered double-digit percentage royalties on net sales of OpRegen. See Note 14 (Commitments and Contingencies) for additional information regarding this agreement. 100 | P a g e In April 2021, Lineage entered a worldwide license and collaboration agreement with Immunomic Therapeutics, Inc. for the development and commercialization of an allogeneic version of an immunomic oncology target utilizing the VAC platform. Under the terms of this agreement, Lineage is entitled to upfront licensing fees totaling up to $ 2.0 million, which we have received $ 1.0 million, and up to $ 67.0 million in development and commercial milestones across multiple indications. Lineage also will be eligible to receive royalties up to 10 % on net sales of future products. As of December 31, 2022, we recorded $ 36.3 million and $ 0.8 million of deferred revenue on the consolidated balance sheet, related to the collaboration agreements with each of Roche and Immunomic Therapeutics, Inc., respectively. For the twelve months ended December 31, 2022, we recognized $ 13.4 million of revenue on the consolidated statement of operations, related to the Roche Agreement. See Note 3 (Revenue) for additional information. 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 milestones; (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 agreement, 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 considerations (e.g., milestone payments) must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price. Upfront fees - If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize collaboration revenues from the transaction price allocated to the license when the license is transferred to the licensee, and the licensee is able to use and benefit from the license. When the license is determined to be non-distinct, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time, and, if over time, the appropriate method of measuring progress for purposes of recognizing collaboration revenue from the allocated transaction price. For example, when we receive upfront fees for the performance of research and development services, or when research and development services are not considered to be distinct from a license, we recognize collaboration revenue for those units of account over time using a measure of progress. We evaluate the measure of progress at each reporting period and, if necessary, adjust the measure of performance and related revenue as a change in estimate. 101 | P a g e 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. 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, 2022 and 2021, respectively, Lineage reported a net loss attributable to common shareholders, and therefore, all potentially dilutive common shares were considered antidilutive for those periods. The following common share equivalents were excluded from the computation of diluted net income (loss) per common share for the periods presented because including them would have been antidilutive (in thousands): Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share Years Ended December 31, 2022 2021 Stock options 18,173 14,883 Restricted stock units 939 31 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. 102 | P a g e 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, 2022 December 31, 2021 Cash and cash equivalents $ 11,355 $ 55,742 Restricted cash included in long-term assets (see Note 14 (Commitments and Contingencies)) 581 535 Total cash, cash equivalents, and restricted cash as shown in the consolidated statements of cash flows $ 11,936 $ 56,277 Accounts and grants receivable, net – Net accounts receivables amounted to $ 0.3 million and $ 50.8 million as of December 31, 2022 and 2021, respectively. Net trade receivables include an allowance for doubtful accounts of approximately $ 0.1 million and $ 0.1 million as of December 31, 2022 and 2021, 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 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 assets in property and equipment; finance and lease liabilities are included in the current and long-term liabilities in the consolidated balance sheets. 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. 103 | P a g e 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, 2022 and 2021, Lineage had $ 4.1 million and $ 52.3 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, cash equivalents and marketable debt securities. 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 mitigates its credit exposure on marketable debt securities by investing in short term U.S. Treasuries securities. 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 (Property and Equipment, Net) for additional information. 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. 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. 104 | P a g e 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 employee and director compensation and related benefits, including stock-based compensation, for executive and corporate personnel; professional and consulting fees; and allocated overhead such as facilities rent 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. 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, 2022, comprehensive gain includes foreign currency translation adjustments, net of tax, of $ 1.8 million. For the years ended December 31, 2021, comprehensive loss includes foreign currency translation adjustments, net of tax, of $ 1.5 million. 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, 2022 and 2021. 105 | P a g e 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. See Note 13 (Income Taxes) for additional information. 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. 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 based on estimated fair values. For employee and director stock options, we utilize 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 the price of Lineage’s common shares 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 upon which to estimate expected term. The risk-free rate is based on the U.S. Treasury yield in effect at the time of grant for U.S. Treasury notes with maturities similar to the expected term of the awards. Stock option forfeitures are accounted for as they occur. For restricted stock unit awards (“RSUs”) subject to service and/or performance vesting conditions, the grant-date fair value is established based on the closing price of Lineage’s common shares on such date. Stock-based compensation expense for RSUs subject to only service conditions is recognized on a straight-line basis over the service period. Stock-based compensation expense for RSUs with both service and performance conditions is recognized on a graded basis only if it is probable that the performance condition will be achieved. Lineage accounts for forfeitures of RSUs as they occur in determining stock-based compensation expense. For RSUs subject to a market condition, the grant-date fair value is estimated using a Monte Carlo valuation model. The model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment. Lineage recognizes stock-based compensation expense for RSUs subject to market-based vesting conditions regardless of whether it becomes probable that the vesting conditions will be achieved, and stock-based compensation expense for such RSUs is not reversed if vesting does not actually occur. Although the fair value of employee stock options and RSUs are 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 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. 106 | P a g e 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. The Company plans to adopt ASU 2016-13, effective January 1, 2023, and does not anticipate this will have a material effect on the Company’s consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . This ASU provides optional guidance for a limited period of time to ease the burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. This would apply to companies meeting certain criteria that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This standard is effective for us immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. During 2022, the FASB. issued ASU 2022-06 Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. This ASU extended the sunset date of Topic 848 to December 31, 2024. We are currently assessing the impact the new guidance will have on our consolidated financial statements and disclosures. 3. Revenue Our disaggregated revenues were as follows (in thousands): Schedule of Disaggregated Revenues Year Ended December 31, 2022 2021 Royalties $ 1,336 $ 2,776 Grant revenues Israel Innovation Authority (“IIA”) $ - $ 445 Total grant revenues - 445 Revenues under collaborative agreements Upfront license fees 13,367 452 Event-based development milestones - 123 Reimbursements, cost-sharing payments - 545 Total revenues under collaborative agreements 13,367 1,120 Total revenue $ 14,703 $ 4,341 During the year ended December 31, 2022 we recognized $ 14.7 million in total revenue, of which $ 13.4 million was recognized in collaboration revenues related to the $ 50.0 million upfront payment from Roche, which was included in deferred revenues at December 31, 2021. 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 entered into during the period, which were recorded as revenues under collaboration agreements. This amount represents upfront license fees and reimbursement revenues earned during the period 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. We are recognizing the $ 50.0 million upfront payment under the Roche Agreement utilizing an input method of costs incurred over total estimated costs to be incurred. At each reporting period, we update our total estimated collaboration costs, and any resulting adjustments are recorded on a cumulative basis which would affect revenue and net income (loss) in the period of adjustment. We believe the input methodology represents the most appropriate measure of progress towards satisfaction of the identified performance obligations. 107 | P a g e 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 Contract Liability and Receivable December 31, 2022 December 31, 2021 Accounts receivable and other receivable, net (1)(2)(3) $ 297 $ 50,640 Deferred revenues (1)(2)(3) 37,146 50,500 (1) Accounts receivable and other receivable, net, decreased primarily due to the receipt of the $ 50.0 million upfront payment under the Roche Agreement received in January 2022, offset to deferred revenues. See Note 14 (Commitments and Contingencies). (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). (3) As of January 1, 2021, our accounts receivable and other receivable, net was $ 0.2 million, and no deferred revenue was recorded for our contracts with customers. As of December 31, 2022, the amounts in the transaction price of our contracts with customers, including collaboration partners, and allocated goods and services not yet provided were $ 38.7 million, of which $ 37.1 million has been collected and is reported as deferred revenues, and $ 1.6 million relates to unfulfilled commitments for the ITI collaboration (see Note 14 (Commitments and Contingencies)). The unfulfilled commitments are estimated to be delivered by the end of the fourth quarter of 2023. Of the total deferred revenues of $ 37.1 million, approximately $ 9.4 million is expected to be recognized within the next 12 months. 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, 2022 (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 considerations that are fully constrained until the uncertainty of each milestone has been resolved. Sales-based milestones and royalties are variable considerations 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, 2023. (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 this option expires. Regulatory and development milestones are variable considerations that are fully constrained until the uncertainty of each milestone has been resolved. Sales-based milestones and royalties are variable considerations 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. 108 | P a g e 4. Marketable Debt Securities The following table is a summary of available-for-sale debt securities in cash and cash equivalents or marketable securities in the Company’s consolidated balance sheet as of December 31, 2022 (in thousands): Summary of Available for Sale Debt Securities December 31, 2022 Financial Assets: Amortized Cost Unrealized Gains Unrealized Losses Fair Value U.S. Treasury securities $ 46,247 $ 2 $ ( 152 ) $ 46,097 Total 46,247 2 ( 152 ) 46,097 The Company has not recognized an allowance for credit losses on any securities in an unrealized loss position as of December 31, 2022. We believe that the individual unrealized losses represent temporary declines resulting from changes in interest rates, and we intend to hold these marketable securities to their maturity. As of December 31, 2022, the amortized cost and estimated fair value of the Company’s available-for-sale debt securities by contractual maturity are shown below (in thousands): Schedule of Amortized cost And Estimated fair Value Amortized Cost Estimated Fair Value Available-for-sale debt securities maturing: In one year or less $ 46,247 $ 46,097 Total available-for-sale debt securities 46,247 46,097 The Company currently does not intend to sell these securities prior to maturity and does not consider these investments to be other-than-temporarily impaired at December 31, 2022. As of December 31, 2022 we did not have any marketable debt securities which were classified as cash equivalents on the consolidated balance sheet. As of December 31, 2021 the Company did not have any marketable debt securities. 5. Marketable Equity Securities As of December 31, 2022, Lineage owned approximately 1.1 million shares of OncoCyte common stock. These shares had a fair value of approximately $ 0.4 million, based on the closing price of OncoCyte of $ 0.32 per share on December 31, 2022. 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. For the year ended December 31, 2022, Lineage recorded a net unrealized loss on marketable equity securities of $ 2.1 million related to changes in fair market value of OncoCyte’s common stock price during the period. 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 for 2021 on marketable equity securities of $ 2.2 million related to changes in fair market value of OncoCyte’s common stock price during 2021. 109 | P a g e All share prices are determined based on the closing price of OncoCyte common stock under the trading symbol (“OCX”) on the NYSE American on the applicable dates, for 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, 2022. These securities were carried at fair market value on our consolidated balance sheets, and the accounting transactions for the years ended December 31, 2022 and 2021 were not material. 6. Property and Equipment, Net At December 31, 2022 and 2021, property and equipment, net were comprised of the following (in thousands): Schedule of Property and Equipment, Net 2022 2021 December 31, 2022 2021 Equipment, furniture and fixtures $ 3,264 $ 3,472 Leasehold improvements 2,150 2,539 Right-of-use assets 6,109 4,163 Accumulated depreciation and amortization ( 5,850 ) ( 5,302 ) Property and equipment, net $ 5,673 $ 4,872 Property and equipment for financing leases was $ 121,000 , and $ 118,000 on December 31, 2022 and 2021, respectively. Depreciation and amortization expense amounted to $ 582,000 and $ 663,000 for the years ended December 31, 2022 and 2021, respectively. 110 | P a g e 7. Goodwill and Intangible Assets, Net At December 31, 2022 and 2021, goodwill and intangible assets, net consisted of the following (in thousands): Schedule of Goodwill and Intangible Assets Net December 31, 2022 2021 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) ( 19,451 ) ( 19,321 ) Intangible assets, net $ 46,692 $ 46,822 (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, 2022 the acquired patents were fully amortized and the acquired royalty contracts had a remaining unamortized balance of $ 152,000 . Lineage amortizes its intangible assets over an estimated period of 5 to 10 years on a straight-line basis. Lineage recognized approximately $ 0.1 million and $ 0.2 million in amortization expense of intangible assets during the years ended December 31, 2022 and 2021, respectively. Amortization of intangible assets for periods subsequent to December 31, 2022 is as follows (in thousands): Schedule of Intangible Assets Future Amortization Expenses Year Ended December 31, Amortization Expense 2023 $ 130 2024 22 Total $ 152 111 | P a g e 8. Accounts Payable and Accrued Liabilities At December 31, 2022 and 2021, accounts payable and accrued liabilities consist of the following (in thousands): Schedule of Accounts Payable and Accrued Liabilities 2022 2021 December 31, 2022 2021 Accounts payable $ 2,393 $ 3,543 Accrued compensation 2,382 2,162 Accrued liabilities (1) 3,833 22,086 Other current liabilities - 178 Total $ 8,608 $ 27,969 (1) The decrease in accrued liabilities was primarily due to a $ 21.0 million payment by Lineage to Hadasit and IIA in accordance with its obligations to such parties related to the Roche Agreement (see Note 14 (Commitments and Contingencies)), offset with accrual of litigation settlement amount of $ 3.5 million (see Note 14 (Commitments and Contingencies) and Note 19 (Subsequent Events)) . 9. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value (ASC 820-10-50), Fair Value Measurements and Disclosures : ● Level 1 – Inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. ● Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. ● Level 3 – Inputs to the valuation methodology are unobservable; that reflect management’s own assumptions about the assumptions market participants would make and significant to the fair value. We have not transferred any instruments between the three levels of the fair value hierarchy. 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, 2022 and 2021 (in thousands): Schedule of Fair Value of Assets and Liabilities Valued on Recurring Basis Fair Value Measurements Using Balance at December 31, 2022 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Money market fund (1) $ 4,102 $ 4,102 $ - $ - Marketable debt securities 46,097 46,097 - - Marketable equity securities 423 423 - - Liabilities: Warrants to purchase Cell Cure ordinary shares 2 - - 2 112 | P a g e 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: Money market fund (1) $ 52,324 $ 52,324 $ - $ - Marketable equity securities 2,616 2,616 - - Liabilities: Warrants to purchase Cell Cure ordinary shares 227 - - 227 (1) Included in cash and cash equivalents in the accompanying consolidated balance sheet. In determining fair value of liability classified warrants, Lineage utilizes a Black-Scholes pricing model that maximizes the use of observable inputs and minimizes the use of unobservable inputs to the extent possible, and also considers counterparty credit risk in its assessment of fair value. The significant unobservable inputs used in the fair value measurement of the Company’s Level 3 Cell Cure warrant liabilities are volatility and share value. A significant increase or decrease in these Level 3 inputs could result in a significantly higher or lower fair value measurements. The following table sets forth the establishment of the fair value of the Cell Cure warrants, as well as a summary of the changes in the fair value and other adjustments (in thousands): Schedule of Changes in Fair Value Cell Cure Warrants Balance as of December 31, 2021 $ 227 Change in fair value and other adjustments ( 225 ) Balance as of December 31, 2022 $ 2 Lineage’s marketable equity securities includes the shares of stock of OncoCyte and HBL. Both securities have readily determinable fair values quoted on the NYSE American or TASE. These securities are measured at fair value and reported as current assets on the accompanying 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. 10. Related Party Transactions In connection with the putative shareholder class action lawsuits filed in February 2019 and October 2019 challenging the Asterias Merger (see Note 14 (Commitments and Contingencies)), Lineage agreed to pay the expenses for the legal defense of Neal Bradsher, a member of the Lineage board of directors, Broadwood Partners, L.P., a shareholder of Lineage, and Broadwood Capital, Inc., which serves as the general partner of Broadwood Partners, L.P., all of which were named defendants in the lawsuits, prior to being dismissed. As of December 31, 2022, and 2021, Lineage had incurred a cumulative total of approximately $ 620,000 and $ 594,000 , respectively, in legal expenses on behalf of the foregoing parties. 113 | P a g e 11. Shareholders’ Equity Preferred Shares Lineage is authorized to issue 2,000,000 preferred shares, no par value. The preferred shares may be issued in one or more series as the Lineage board of directors may determine by resolution. The Lineage 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 Lineage 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, 2022 and December 31, 2021, there were no preferred shares issued or outstanding. Common Shares Lineage is authorized to issue 250,000,000 common shares, no par value. As of December 31, 2022 and December 31, 2021, there were 170,093,114 and 169,477,347 common shares issued and outstanding, respectively. At The Market Offering Program In May 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 sell its common shares from time to time through an “at the market offering” program under the Sales Agreement. In March 2021, Lineage filed a prospectus supplement with the SEC in connection with the offer and sale of $ 25.0 million of common shares through the ATM program under the Sales Agreement (“March 2021 Prospectus Supplement”). In December 2021, Lineage filed a prospectus supplement with the SEC in connection with the offer and sale of up to $ 64.1 million of common shares (which included $ 14.1 million of its common shares which then remained unsold under the March 2021 Prospectus Supplement) through the ATM program under the Sales Agreement (“December 2021 Prospectus Supplement”). No further sales will be made under the March 2021 Prospectus Supplement. As of December 31, 2022, Lineage had sold 108,200 common shares under the December 2021 Prospectus Supplement at a weighted average price per share of $ 2.55 for gross proceeds of $ 0.3 million. As of December 31, 2022, $ 63.8 million remained available for sale under the December 2021 Prospectus Supplement. During the year ended December 31, 2022, no shares were sold through the ATM program. The shares offered under the December 2021 Prospectus Supplement are registered pursuant to Lineage’s effective shelf registration statement on Form S-3 (File No. 333-237975), which was filed with the SEC on May 1, 2020 and declared effective on May 8, 2020, 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. Lineage agreed to pay Cantor Fitzgerald a commission of 3.0 % of the aggregate gross proceeds from the sale of shares under the Sales Agreement, reimburse its 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. 114 | P a g e Warrants Cell Cure Warrants – Liability Classified In July 2017, Cell Cure issued to HBL a warrant to purchase 24,566 ordinary shares of Cell Cure at an exercise price of $ 40.54 per share with an expiration date in July 2022 . In March 2022, HBL was issued 50 shares following its cash exercise of a portion of that warrant, and an additional 50 shares were transacted as a net exercise. In April 2022, HBL was issued 2,467 shares following its cash exercise of a portion of that warrant, which resulted in net proceeds to Cell Cure of $ 0.1 million. In July 2022, HBL was issued 21,999 shares following its cash exercise of the remaining portion of that warrant, which resulted in net proceeds to Cell Cure of $ 0.9 million. A warrant to purchase 2,000 ordinary shares issued to Cell Cure consultants with an exercise price of $ 40.00 per share and which expires in January 2024 is outstanding as of December 31, 2022. 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. 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 each of the years ended December 31, 2022 and 2021, Lineage recorded a noncash gain of $ 0.2 million for the 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, 2022 and 2021, the Cell Cure Warrants, were included in current and/or long-term liabilities on the consolidated balance sheets. 12. Stock-Based Awards Equity Incentive Plan Awards In September 2021, our shareholders approved the Lineage Cell Therapeutics, Inc. 2021 Equity Incentive Plan (the “2021 Plan”), which became effective upon such approval. The 2021 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, RSUs, and other stock awards. All of our employees (including those of 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 number of shares subject to awards granted under the Lineage Cell Therapeutics Inc. 2012 Equity Incentive Plan (the “2012 Plan”) that were outstanding when the 2021 Plan became effective and are not issued because such awards expire or otherwise terminate. As of December 31, 2022, there were 10,847,914 shares available for grant under the 2021 Plan. As a result of the approval of the 2021 Plan by our shareholders, no additional awards will be granted under the 2012 Plan or the Asterias 2013 Equity Incentive Award (the “Asterias Equity Plan”). 115 | P a g e A summary of activity under the 2021 Plan 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, 2021 - - $ - Options granted 7,298 - 1.39 Options expired/forfeited/cancelled ( 1,297 ) - 1.38 RSUs granted (1) - 994 - RSUs forfeited - ( 55 ) - December 31, 2022 6,001 939 $ 1.40 Options exercisable at December 31, 2022 - $ - (1) On February 11, 2022, Lineage granted 694,424 RSUs to certain employees, including the Company’s executive officers, to further align management with the achievement of certain development milestones under the Roche Agreement. For each RSU, half of the common shares subject to the RSU will vest in four equal annual installments beginning on the first anniversary of the grant date. The other half of the common shares will vest in connection with the achievement of certain development milestones set forth in the Roche Agreement. Additionally, on March 10, 2022, Lineage granted 300,000 RSUs to Brian Culley, its Chief Executive Officer. 100,000 of these RSUs will vest on or prior to March 9, 2023, and 100,000 will vest on or prior to each of the second and third anniversaries of such date, in each case upon the achievement of certain per share performance targets, calculated based on the trailing 20-day volume weighted average price of the Company’s common shares as of the date of determination. If such per share performance targets are not achieved by the applicale vesting date, then such RSUs will be forfeited. A summary of activity of the 2012 Plan, and the 2018 inducement option (which was issued to a Lineage executive outside of all equity plans), 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, 2021 14,643 31 $ 1.84 RSUs vested - ( 31 ) - Options exercised ( 596 ) - 0.82 Options expired/forfeited/cancelled ( 1,875 ) - 2.25 December 31, 2022 12,172 - $ 1.83 Options exercisable at December 31, 2022 8,861 $ 1.80 A summary of activity under the Asterias Equity Plan is as follows (in thousands, except per share amounts): Schedule of Share-based Compensation, Employee Stock Purchase Plan, Activity Number of Options Outstanding Weighted Average Exercise Price December 31, 2021 241 $ 1.57 Options forfeited ( 241 ) 1.57 December 31, 2022 - $ - Options exercisable at December 31, 2022 - $ - 116 | P a g e 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, 2022 2021 Expected life (in years) 6.21 6.20 Risk-free interest rates 2.4 % 1.0 % Volatility 73.7 % 73.2 % Dividend yield - % - % Operating expenses include stock-based compensation expense as follows (in thousands): Schedule of Stock Based Compensation Expense Year Ended December 31, 2022 2021 Research and development $ 747 $ 833 General and administrative 3,540 2,686 Total stock-based compensation expense $ 4,287 $ 3,519 As of December 31, 2022, total unrecognized compensation costs related to unvested stock options and unvested RSUs under all equity plans (including the 2018 inducement option), were $ 8.7 million, which is expected to be recognized as expense over a weighted average period of approximately 2.6 years. 13. Income Taxes For the year ended December 31, 2022, Lineage recorded a withholding tax for the amount of $ 0.5 million on interest expense deemed paid to Lineage from Cell Cure on the purchase of intellectual property pursuant to the U.S. Israeli tax treaty. For the years ended December 31, 2022 and 2021, respectively, Lineage did not record a tax provision or deferred tax benefit. The domestic and foreign breakout of loss before net income tax benefit was as follows: Schedule of Income before Income Tax, Domestic and Foreign 2022 2021 December 31, 2022 2021 Domestic $ ( 22,961 ) $ ( 16,998 ) Foreign ( 2,851 ) ( 26,272 ) Loss before net income tax benefit $ ( 25,812 ) $ ( 43,270 ) 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 2022 2021 Year Ended December 31, 2022 2021 Computed tax benefit at federal statutory rate 21 % 21 % Research and development and other credits 3 % 1 % Withholding tax ( 2 )% - % Permanent differences ( 2 )% ( 1 )% Change in valuation allowance ( 28 )% ( 16 )% State tax benefit 7 % 8 % GILTI inclusion ( 1 )% ( 12 )% Foreign rate differential and other - % ( 1 )% Income tax benefit ( 2 )% - % 117 | P a g e The primary components of the deferred tax assets and liabilities at December 31, 2022 and 2021 were as follows (in thousands): Schedule of Components of Deferred Tax Assets and Liabilities Deferred tax assets/(liabilities): 2022 2021 December 31, Deferred tax assets/(liabilities): 2022 2021 Net operating loss carryforwards $ 58,816 $ 68,766 Research and development and other credits 10,463 9,466 Patents and licenses 1,500 1,403 Stock options 2,308 1,717 Operating lease liability - 134 Capitalized research expense 3,066 - Other 2,555 1,608 Total deferred tax assets 78,708 83,094 Valuation allowance ( 78,209 ) ( 70,967 ) Deferred assets, net of valuation allowance 499 12,127 Operating lease ROU assets ( 4 ) ( 115 ) Intangibles ( 2,464 ) ( 13,299 ) Equity method investments and marketable securities at fair value ( 107 ) ( 789 ) Total deferred tax liabilities ( 2,575 ) ( 14,203 ) Net deferred tax liabilities $ ( 2,076 ) $ ( 2,076 ) Under ASC 740, 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. As of December 31, 2022, Lineage has gross net operating loss carryforwards, of approximately $ 150.6 million for federal purposes. As of December 31, 2022, Lineage’s foreign subsidiaries have net operating loss carryforwards of approximately $ 66.6 million which carryforward indefinitely. As of December 31, 2022, Lineage has net operating losses of $ 160.2 million for state tax purposes. As of December 31, 2022, Lineage has research tax credit carryforwards for federal and state tax purposes of $ 4.5 million and $ 6.0 million, respectively. These tax credits reflect the amounts for Lineage and its’ subsidiaries as of December 31, 2022. For federal purposes, the credits generated each year have a carryforward period of 20 years . The federal tax credits expire in varying amounts between 2022 and 2042 , while the state tax credits have no expiration period. 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 paid Lineage a $ 50.0 million upfront payment, which was received in January of 2022. See Note 14 (Commitments and Contingencies) for additional information. For the tax years beginning on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminates the option to currently deduct research and development expenses and requires taxpayers to capitalize and amortize them over five years for research activities performed in the United States and 15 years for research activities performed outside the United States pursuant to IRC Section 174. Although Congress is considering legislation that would repeal or defer this capitalization and amortization requirement, it is not certain that this provision will be repealed or otherwise modified. If the requirement is not repealed or replaced, it will decrease our tax deduction for research and development expense in future years. 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 regulations related to global intangible low-taxed income (“GILTI”), the profits of our foreign subsidiaries may be included, see further discussion below. 118 | P a g e 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. stockholder’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 years ended December 31, 2022 and 2021, Lineage’s combined foreign entities generated a profit arising from intercompany transactions. As a result, there was an inclusion of $ 1.7 million and $ 24.8 million for GILTI purposes for 2022 and 2021, respectively. The resulting net income for federal income tax purposes was fully offset by their federal net operating loss carryforwards. 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 a California combined and foreign income tax returns. In general, Lineage is no longer subject to tax examination by major taxing authorities for years before 2018. 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, 2022 and 2021. 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, 2022 and 2021, Lineage has no accrued interest and penalties. 14. Commitments and Contingencies Real Property Leases 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 lease was amended in December 2022 and the term was extended for a period of thirty-seven months (the “Extended Term”) commencing on the later of (i) the date of substantial completion of the landlord’s work or (ii) March 1, 2023 (the “Extended Term Commencement Date”). The lease expires on March 31, 2026 , and rent was abated for months two through four of the Extended Term. The monthly base rent will be $ 24,666 through the Extended Term Commencement Date, at which time it will increase to $ 25,197 . As security for the performance of its obligations under the lease, Lineage provided the landlord a security deposit of $ 17,850 , this amount is included in deposits and other long-term assets on the consolidated balance sheet as of December 31, 2022. 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. These pro-rata charges are expensed as incurred and excluded from the calculation of the ROU assets and lease liabilities. 119 | P a g e Carlsbad Sublease In September 2022, Lineage, as sublessee, entered into a sublease for approximately 4,500 square feet of rentable industrial space in Carlsbad, California for a term that commenced on October 1, 2022 and expires on March 31, 2024 . As security for the performance of its obligations under the sublease, Lineage provided the landlord with a security deposit of $ 22,500 , this amount is included in deposits and other long-term assets on the consolidated balance sheet as of December 31, 2022. Base rent is $ 22,500 per month until the lease expires. 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”). In April 2020, Lineage, as sublessor, subleased 10,000 square feet in the 1010 Atlantic Premises. On September 11, 2020, the lease for the 1020 Atlantic Premises was terminated effective as of August 31, 2020, and the lease for the 1010 Atlantic Premises was terminated effective as of September 30, 2020. In connection with the termination of the Alameda Leases, Lineage, as sublessee, entered into a sublease for approximately 2,432 square feet of the 1010 Atlantic Premises for a term that commenced on October 1, 2020 . Base rent was initially $ 14,592 per month with annual increases of 3 % each October 1 during the term. Base rent for the first month was abated. Lineage paid a security deposit of $ 16,000 , this amount is included in deposits and other long-term assets on the consolidated balance sheet as of December 31, 2022. On January 31, 2023, the sublease expired. 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, 2027 , with an option to extend the lease for five years (the “Original Cell Cure Lease”). Base monthly rent is NIS 39,776 (approximately $ 12,200 per month). 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. These pro-rata charges are expensed as incurred and excluded from the calculation of the ROU assets and lease liabilities. In January 2018, Cell Cure entered into a lease for an additional 934 square meters (approximately 10,054 square feet) of office space in the same facility that expires on December 31, 2027 , with an option to extend the lease for five years (the “January 2018 Lease”). Base rent and construction allowance payments are NIS 93,827 per month (approximately $ 26,000 per month). Cell Cure has provided a $ 458,000 security deposit to the landlord to be held as restricted cash during the term of its facility lease, which is included in deposits and other long-term assets on the consolidated balance sheet as of December 31, 2022. In November 2021, Cell Cure entered into a lease for an additional 133 square meters (approximately 1,432 square feet) of office space in the same facility that commenced on December 1, 2021, and expires on December 31, 2027, with an option to extend the lease for five years . The base monthly rent is NIS 11,880 (approximately US $ 3,757 ) and increased to NIS 12,494 (approximately US $ 3,951 ) on November 1, 2022. In August 2022, Cell Cure entered into a new lease for 300 square meters (approximately 3,229 square feet) of office and laboratory space in Jerusalem, Israel that expires December 31, 2027 , with an option to extend the lease for five years . Base monthly rent is 16,350 NIS (approximately $ 4,800 per month) on August 1, 2022. When executing the new lease, Cell Cure modified the expiration dates and options terms for the leases identified above to align with the new lease. The adjustment to the right-of-use asset and lease liability to reflect the lease modification for the 2-year extension was $ 0.7 million, while the additional right-of-use asset and lease liability recorded for the new lease was $ 0.2 million. 120 | P a g e Supplemental Information – Leases Supplemental cash flow information related to leases is as follows (in thousands): Schedule of Supplemental Cash Flow Information Related to Leases 2022 2021 Twelve Months Ended December 31, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 1,047 $ 935 Operating cash flows from financing leases 3 13 Financing cash flows from financing leases 32 20 Right-of-use assets obtained in exchange for lease obligations: Operating leases 2,286 213 Financing leases 90 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 December 31, 2022 December 31, 2021 Operating leases Right-of-use assets, net $ 3,517 $ 2,372 Right-of-use lease liabilities, current $ 916 $ 801 Right-of-use lease liabilities, noncurrent 2,860 1,941 Total operating lease liabilities $ 3,776 $ 2,742 Financing leases Right-of-use assets, net $ 105 $ 36 Lease liabilities, current $ 29 $ 13 Lease liabilities, noncurrent 84 23 Total lease liabilities $ 113 $ 36 Other current liabilities 7 17 Long-term liabilities - 7 Total finance lease liabilities $ 120 $ 60 Weighted average remaining lease term Operating leases 4.3 years 3.5 years Finance leases 4.1 years 2.2 years Weighted average discount rate Operating leases 6.3 % 7.7 % Finance leases 6.9 % 5.7 % Future minimum lease commitments are as follows as of December 31, 2022 (in thousands): Schedule of Future Minimum Lease Commitments Operating Leases Finance Leases Year Ending December 31, 2023 $ 1,113 $ 42 2024 974 32 2025 901 22 2026 657 22 2027 697 20 Total lease payments 4,342 138 Less imputed interest ( 566 ) ( 18 ) Total $ 3,776 $ 120 121 | P a g e Collaborations Roche Agreement In December 2021, Lineage entered into the Roche Agreement, wherein Lineage granted to Roche exclusive worldwide rights to develop and commercialize RPE cell therapies, including Lineage’s proprietary cell therapy known as OpRegen, for the treatment of ocular disorders, including GA secondary to AMD. Under the terms of the Roche Agreement, 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 also is eligible for tiered double-digit percentage royalties on net sales of OpRegen in the U.S and other major markets. All regulatory and commercial milestone payments and royalty payments are subject to the existence of certain intellectual property rights that cover OpRegen at the time such payments would otherwise become due, and the royalty payments on net sales of OpRegen are subject to financial offsets based on the existence of competing products. Roche assumed responsibility for further clinical development and commercialization of OpRegen. Lineage is responsible for completing activities related to the ongoing clinical study, for which enrollment is complete, and performing certain manufacturing and process development activities. Unless earlier terminated by either party, the Roche 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 or upon certain insolvency events involving the other party. In January 2022, Lineage received the $ 50.0 million upfront payment from Roche. Subsequently, Lineage, via Cell Cure, paid $ 12.1 million to the IIA, and $ 8.9 million to Hadasit. Such payments were made in accordance with obligations under the Innovation Law (as discussed below) and under the terms of Cell Cure’s agreements with Hadasit (as discussed below). The payment to Hadasit was reduced by $ 1.9 million in accordance with the provisions of such agreements discussed below that reduce the sublicensing fee payable to Hadasit for costs related to Lineage’s performance obligations under the Roche Agreement. To the extent such costs are not incurred within five years after the execution of the Roche Agreement, Cell Cure will be required to pay Hadasit 21.5 % of the amount of costs not incurred. ITI Collaboration Agreement Under Lineage’s collaborative agreement with Immunomic Therapeutics, Inc., Lineage agreed to perform up to approximately $ 2.2 million worth of certain research, development, manufacturing, and oversight activities related to an allogeneic VAC-CMV product candidate. ITI will reimburse Lineage for these costs and full-time employee costs for the manufacturing of the VAC-CMV product candidate. ITI has received a research and development grade of the VAC-CMV product and is evaluating its next steps. Agreements with Hadasit and IIA The OpRegen program was supported in part with licenses to technology obtained from Hadasit, the technology transfer company of Hadassah Medical Center, and through a series of research grants from the IIA, an independent agency created to address the needs of global innovation ecosystems. A subset of the intellectual property underlying OpRegen was originally generated at Hadassah Medical Center and licensed to Cell Cure for further development. Under the Encouragement of Research, Development and Technological Innovation in the Industry Law 5744, and the regulations, guidelines, rules, procedures and benefit tracks thereunder, annual research and development programs that meet specified criteria and were approved by a committee of the IIA 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. 122 | P a g e 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 formulas provided under the Innovation Law. In November 2021, the IIA research committee approved an application made by Cell Cure with respect to the grant of 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 approximately 24.3 % of the upfront, milestone, and royalty payments which may be received under the Roche Agreement, up to an aggregate cap on all payments, such cap growing over time via interest accrual until paid in full. As of December 31, 2022, the aggregate cap amount was approximately $ 91.2 million. Pursuant to the Second Amended and Restated License Agreement, dated June 15, 2017, between Cell Cure and Hadasit, and a certain letter agreement entered into on December 17, 2021, Hadasit was entitled to, and was paid, a sublicensing fee of 21.5 % of the $ 50.0 million upfront payment under the Roche Agreement (subject to certain reductions, including for costs related to Lineage’s performance obligations under the Roche Agreement) and of 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 under the Roche Agreement. The letter agreement generally terminates upon the termination of the Roche Agreement. Second Amendment to Clinical Trial and Option Agreement and License Agreement with Cancer Research UK In May 2020, Lineage and Asterias entered into a Second Amendment to Clinical Trial and Option Agreement (the “CTOA Amendment”) with CRUK and 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. Lineage and CRT effectuated the option by simultaneously entering into a license agreement (the “CRT License Agreement”) pursuant to which Lineage agreed to pay the previously agreed signature fee of £ 1,250,000 (approximately $ 1.6 million). For the primary licensed product for the first indication, the CRT 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 CRT License Agreement for the uncured material breach of the other party. CRT may terminate the CRT License Agreement in the case of Lineage’s insolvency or if Lineage ceases all development and commercialization of all products under the CRT License Agreement. Other Contingent Obligations Other than disclosed above, we have obligations under various license agreements and grants received from government entities to make future payments to third parties, which become due and payable on the achievement of certain development, regulatory and commercial milestones or on the sublicense of our rights to another party. These commitments include sublicense fees, milestone payments, redemption fees and royalties. Sublicense fees are payable to licensors or government entities when we sublicense underlying intellectual property to third parties; the fees are based on a percentage of the license fees we receive from sublicensees. Milestone payments are due to licensors or government entities upon the future achievement of certain development and regulatory milestones. Redemption fees due to the IIA under the Innovation Law are due upon receipt of any milestone and royalties received under the Roche Agreement. Royalties are payable to licensors or government entities based on a percentage of net sales of licensed products. As of December 31, 2022, we have not included these commitments on our consolidated balance sheet because the achievement and timing of these events are not fixed and determinable. 123 | P a g e 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. We are not currently subject to any pending material litigation, other than ordinary routine litigation incidental to our business, as described above. Asterias Merger In November 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 pursuant to which Lineage agreed to acquire all of the outstanding common stock of Asterias in a stock-for-stock transaction (the “Asterias Merger”). The Asterias Merger closed in March 2019. In October 2019, a putative class action lawsuit was filed challenging the Asterias Merger. The lawsuit (captioned Ross v. Lineage Cell Therapeutics, Inc., et al ., C.A. No. 2019-0822) was filed in Delaware Chancery Court and named, among other defendants, Lineage, Michael H. Mulroy, Alfred D. Kingsley, Richard T. LeBuhn and Aditya Mohanty. Messrs. Mulroy and Kingsley are members of the Lineage board of directors and were former members of the Asterias board of directors. Messrs. LeBuhn and Mohanty were also former members of the Asterias board of directors, and Mr. Mohanty was a former member of the Lineage board of directors and a former chief executive officer of Lineage. The lawsuit 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. In April 2022, the parties reached an agreement in principle to settle the lawsuit and, in October 2022, the plaintiff, on behalf of himself and all others similarly situated, Lineage and Messrs. Mulroy, Kingsley, LeBuhn and Mohanty entered into a Stipulation and Agreement of Compromise and Settlement (the “Settlement Agreement”). The effectiveness of the Settlement Agreement was subject to court approval, which, as discussed in Note 19 (Subsequent Events), was obtained in February 2023. In accordance with ASC 450, Contingencies , Lineage has recorded an accrual for a liability associated with the proposed settlement, acknowledging that a liability is probable, and the amount of the loss is estimable. See Note 19 (Subsequent Events) for an update on Asterias Merger Litigation . 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. 124 | P a g e Indemnification In the normal course of business, Lineage may agree to indemnify and reimburse other parties, typically Lineage’s clinical research organizations, investigators, clinical sites, and suppliers, 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 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 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. Generally, Lineage has not been subject to any material claims or demands for indemnification. Lineage maintains liability insurance policies that limit its financial exposure under the indemnification agreements. Accordingly, Lineage has not recorded any liabilities for these agreements as of December 31, 2022 or December 31, 2021. Royalty Obligations and License Fees We have licensing agreements with research institutions, universities and other parties providing us with certain rights to use intellectual property in conducting research and development activities in exchange for the payment of royalties on future product sales, if any. In addition, in order to maintain these licenses and other rights, we must comply with various conditions including the payment of patent related costs and annual minimum maintenance fees. As part of the Asterias Merger, Lineage acquired certain royalty revenues for cash flows generated under certain patent families that Asterias acquired from Geron Corporation. Lineage continues to make royalty payments to Geron from 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 each of the years ended December 31, 2022 and 2021, we incurred approximately $ 0.2 million 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. 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 2022 2021 Year Ended December 31, Geographic Area 2022 2021 United States $ 14,703 $ 3,895 Foreign (1) - 446 Total revenues $ 14,703 $ 4,341 (1) Foreign revenues are primarily generated from grants in Israel. 125 | P a g e 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, 2022 and 2021, is set forth below (in thousands): 2022 2021 December 31, 2022 2021 Domestic $ 1,384 $ 548 Foreign (1) 4,289 4,324 Total $ 5,673 $ 4,872 (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 2022 2021 Year Ended December 31, 2022 2021 REVENUES: Collaboration revenues $ 13,367 $ 1,120 Royalties 1,336 2,776 Grant revenues - 445 Total revenues $ 14,703 $ 4,341 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, 2022 and 2021: Schedule of Sources of Revenues Sources of Revenues 2022 2021 Year Ended December 31, Sources of Revenues 2022 2021 Collaboration revenues 90.9 % 25.8 % Royalties 9.1 % 63.9 % Grant revenues - 10.3 % 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, 2022 First Quarter Second Quarter Third Quarter Fourth Quarter Revenues, net $ 5,237 $ 4,553 $ 2,998 $ 1,915 Operating expenses 11,457 8,572 8,014 8,452 Loss from operations ( 6,396 ) ( 4,234 ) ( 5,251 ) ( 6,639 ) Net loss attributable to Lineage ( 7,087 ) ( 6,763 ) ( 6,069 ) ( 6,354 ) Basic net income (loss) per share $ ( 0.04 ) $ ( 0.04 ) $ ( 0.04 ) $ ( 0.03 ) Year Ended December 31, 2021 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 income (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 ) 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. 126 | P a g e 19. Subsequent Events Asterias Merger Litigation Settlement In February 2023, the court approved the Settlement Agreement. Pursuant to the terms of the Settlement Agreement, Lineage and certain insurers of the defendants paid $ 10.65 million (the “Settlement Amount”) into a fund created for the benefit of the purported class and in consideration for the full and final release, settlement and discharge of all claims. Approximately $ 7.12 million of the Settlement Amount was funded by certain insurers and approximately $ 3.53 million was paid by Lineage in cash. Lineage and all defendants have denied, and continue to deny, the claims alleged in the lawsuit and the settlement does not reflect or constitute any admission, concession, presumption, proof, evidence or finding of any liability, fault, wrongdoing or injury or damages, or of any wrongful conduct, acts or omissions on the part any defendant. Premvia Litigation Settlement In July 2019, the Company, along with other named defendants, was sued in the Superior Court of the State of California in a matter captioned Gonzalez v. Aronowitz, M.D., et al . The plaintiff asserted medical negligence and product liability causes of action relating to the use in a clinical trial of a product candidate Premvia, that the Company is no longer developing and has no plans to pursue, and that is not related to the cell therapy candidates the Company currently is developing. In February 2023, the Company and the other defendants each entered into settlement agreements with the plaintiff pursuant to which the defendants without admitting any liability, which the defendants expressly denied, each agreed to pay specified amounts to the plaintiff in exchange for a full settlement and release and discharge of claims. The Company’s insurance covered the full amount paid by the Company excluding the $ 25,000 insurance deductible. 127 | P a g e ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.