What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-04 compared with 2020-08-06 · 246 added, 242 removed, 261 unchanged (65% of the section changed)

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combating cancer.

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

and manufacturing capabilities.

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

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

These differentiated cells are developed either to

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

as a means of helping the body mount an effective immune response to cancer.

Specifically, Lineage is testing therapies to treat dry age-related macular degeneration, spinal cord injuries,

and non-small cell lung cancer.

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

development and manufacturing capabilities.

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

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

These differentiated cells are transplanted

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

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

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

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

We and our subsidiary, Cell Cure, have

rights to issued U.S.

and international patents and pending patent applications covering OpRegen.

The expiration dates of

the issued patents, and the estimated expiration dates of the pending patent applications, range from 2025 to 2038.

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

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

We have numerous U.S.

and international issued patents and pending patent applications that are relevant to neural cells, such as oligodendrocyte

progenitor cells, including patent families acquired from Geron Corporation (“Geron”) that are directed to the

differentiation of pluripotent stem cells, including human embryonic stem (“hES”) cells, into various neural cell

types, as well as various culture and purification methods.

and international issued patents and pending patent

applications also include those in-licensed from the Regents of the University of California.

The expiration dates of the

issued patents, and the estimated expiration dates of the pending patent applications, range from 2020 to 2040.

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

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

We have numerous U.S.

and international

issued patents and pending patent applications that are relevant to dendritic cells, including patent families acquired from

Geron or in-licensed from third parties that are directed to the differentiation of pluripotent stem cells, including hES

cells, into hematopoietic progenitor cells and immature and mature dendritic cells.

The expiration dates of the issued patents,

and the estimated expiration dates of the pending patent applications, range from 2020 to 2041.

also are currently working to identify a commercialization partner for Renevia ® , our proprietary three-dimensional

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

Mark in September 2019.

completed our merger with Asterias Biotherapeutics, Inc.

(“Asterias”) on March 8, 2019, which incorporated OPC1 and

VAC2 into our cell therapy product portfolio.

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

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

two companies that later became publicly traded companies:

OncoCyte Corporation (“OncoCyte”) and AgeX Therapeutics,

The combined value of these holdings as of August 4, 2020, was approximately $6.9 million, based

on the closing price of their common stock on that date.

We also hold a convertible promissory note from Juvenescence Limited

(“Juvenescence”) in connection with our sale of AgeX stock to Juvenescence in August 2018.

The value of the Juvenescence

note of $24.4 million at June 30, 2020 is based on the principal amount of $21.6 million plus accrued interest.

In this Report,

see Part II, Item 1A, “Risk Factors—Risks Related to Our Business Operations and Capital Requirements—The value

of our investments in public companies fluctuates based on their respective stock prices and could be negatively affected by poor

business performance”.

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

identify a commercialization or development partner for Renevia ® .

Renevia is a proprietary three-dimensional scaffold

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

in September 2019.

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

(“Asterias”) on March

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

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

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

transactions.

We founded two companies that later became publicly traded companies:

OncoCyte Corporation

(“OncoCyte”) and AgeX Therapeutics, Inc.

We no longer hold any common stock in AgeX.

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

price of their common stock on that date.

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

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

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

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

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of Operations

of Three and Six Months Ended June 30, 2020 and 2019

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

and Cost of Sales

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Three Months Ended

June 30, (unaudited)

September 30, (unaudited)

Grant revenue

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Cost of sales

Six Months Ended

30, (unaudited)

Nine Months Ended

September 30, (unaudited)

Grant revenue

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Cost of sales

total revenues decreased by $393,000 for the three months ended June 30, 2020 as compared to the same period in the prior

year, primarily reflecting a $242,000 decrease in grant revenues due to less grant-related activities and a $110,000 decrease

in the sale of research products and services due to the cessation of such sales.

total revenues decreased by $807,000 for the six months ended June 30, 2020 as compared to the same period in the prior

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

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

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

cessation of such sales.

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

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

in the sale of research products and services due to the cessation of such sales.

grant revenues are generated primarily by Cell Cure from the IIA for the development of OpRegen ® and from a Small

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

NIH grant related activities are scheduled to be completed in the third quarter of 2020.

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

product sales and license fees.

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

(“Cell Cure”) from the Israel

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

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

related activities were completed in the third quarter of 2020.

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

six months ended June 30, 2020 and $486,000 and $916,000 for the three and six months ended June 30, 2019, respectively.

revenues generated by the NIH grant amounted to $157,000 and $374,000 for the three and six months ended June 30,

2020 and $43,000 and $362,000 for the three and six months ended June 30, 2019, respectively.

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

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

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

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

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

2018 to license certain intellectual property.

This amount was originally recorded as deferred revenue and subsequently recognized

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

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

Three Months Ended

June 30 (unaudited)

September 30 (unaudited)

Research and development expenses

General and administrative expenses

Six Months Ended

June 30 (unaudited)

and development expenses

and administrative expenses

Nine Months Ended

September 30 (unaudited)

Research and development expenses

General and administrative expenses

and development expenses

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projects for the periods presented (in thousands).

Months Ended June 30,

and other ophthalmic applications

and all other

research and development expenses

Months Ended June 30,

and other ophthalmic applications

and all other

research and development expenses

decrease of $2.4 million in total research and development expenses for the three months ended June 30, 2020 as compared to the

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

decrease of $1.7 million in OpRegen and other ophthalmic application expenses, attributable primarily to a decrease in manufacturing

activities in 2020 as compared to 2019, and

decrease of $0.7 million in OPC1 related expenses, primarily related to a decrease in development activities in 2020 as compared

to 2019 when technology transfer was a focus upon OPC1 coming in-house with the acquisition of Asterias.

decrease of $4.1 million in total research and development expenses for the six months ended June 30, 2020 as compared to the

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

decrease of $3.5 million in OpRegen and other ophthalmic application expenses, attributable primarily to a decrease in manufacturing

activities in 2020 as compared to 2019,

Three Months Ended September 30,

Percent of Total

OpRegen ® and other ophthalmic applications

Renevia and all other

Total research and development expenses

Nine Months Ended September 30,

Percent of Total

OpRegen ® and other ophthalmic applications

Renevia and all other

Total research and development expenses

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

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

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

in manufacturing activities in 2020 as compared to 2019,

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

$0.8 million from a former Asterias service provider,

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

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

decrease of $0.1 million in OPC1 related expenses, primarily related to a decrease in development activities in 2020 as compared

to 2019 when technology transfer was a focus upon OPC1 coming in-house with the acquisition of Asterias.

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

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

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

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

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

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

in manufacturing activities in 2020 as compared to 2019,

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

$0.8 million from a former Asterias service provider,

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

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

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

($1.6 million) to Cancer Research UK.

and administrative expenses

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

total net decrease of $2.4 million in general and administrative expenses for the three months ended June 30, 2020 compared to

the same period in 2019, was primarily attributable to a $1.6 million reduction in Asterias Merger related expenses, a $0.2 million

reduction in compensation expenses, a $0.2 million reduction in investor and public relations expenses, a $0.2 million reduction

in accounting expenses, a $0.1 million reduction in rent expenses, a $0.1 million reduction in travel expenses and a $0.1 million

reduction in consulting expenses, offset by a $0.2 million increase related to the cessation of shared services reimbursements.

total net decrease of $6.5 million in general and administrative expenses for the six months ended June 30, 2020 compared to the

same period in 2019, was primarily attributable to a $5.0 million reduction in Asterias Merger related expenses, a $1.1 million

reduction in compensation costs, a $0.6 million reduction in accounting expenses, a $0.2 million reduction in investor

and public relations expenses, a $0.2 million reduction in consulting expenses, a $0.2 million reduction in travel expenses

and a $0.1 million reduction in rent expenses, offset by a $0.5 million increase in legal and patent expenses and a

The total net decrease

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

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

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

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

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

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

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

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

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

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

million increase related to the cessation of shared services reimbursements.

income and expenses, net

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

Three Months Ended

June 30, (unaudited)

Other income and expenses, net

Interest income, net

on equity method investment in OncoCyte at fair value

Gain on sale of marketable securities

Unrealized loss on marketable equity securities

Unrealized (loss) gain on warrant liability

Other income, net

Total other expense, net

Six Months Ended

June 30, (unaudited)

Other income and expenses, net

Interest income, net

Gain on equity method investment in Asterias at fair value

30, (unaudited)

income and expenses, net

on sale of marketable securities

loss on marketable equity securities

on sale of equity method investment in OncoCyte

loss on equity method investment in OncoCyte at fair value

gain on warrant liability

other expense, net

30, (unaudited)

income and expenses, net

on sale of marketable securities

loss on marketable equity securities

on sale of equity method investment in OncoCyte

gain on equity method investment in OncoCyte at fair value

Gain on sale of marketable securities

Unrealized (loss) gain on marketable equity securities

Unrealized gain on warrant liability

Other income (expense), net

Total other income (expense), net

income, net – During the three and six months ended June 30, 2020 and the three and six months ended June 30, 2019,

we earned $0.4 million and $0.8 million and $0.4 million and $0.8 million of interest income, respectively, from our Juvenescence

promissory note.

gain on equity method investment in Asterias at fair value

gain on warrant liability

other (expense), income, net

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

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

During the three

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

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

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

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

These shares had a fair value of $6.9 million, based

on the closing price of OncoCyte common stock of $1.91 per share on June 30, 2020.

As of December 31, 2019, Lineage had 8.4 million

shares of OncoCyte common stock.

These shares had a fair value of $19.0 million, based on the closing price of OncoCyte common

stock of $2.25 per share on December 31, 2019.

the three months ended June 30, 2020, Lineage recorded a realized gain of $2.1 million due to sales of OncoCyte shares in the

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

These shares had a fair value of $19.0 million,

based on the closing price of OncoCyte common stock of $2.25 per share on December 31, 2019.

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

These shares had a fair value of $5.0 million,

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

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

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

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

in the period.

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

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

$8.3 million of the unrealized loss was recorded as

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

the remaining $0.4 million was recorded

as an unrealized loss on marketable equity securities.

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

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

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

at June 30, 2020 and the decrease in OncoCyte’s stock price from $2.45 at March 31, 2020 to $1.91 at June 30, 2020.

the three months ended June 30, 2019, Lineage recorded an unrealized loss of $21.4 million due to the decrease in OncoCyte’s

stock price from $3.95 per share at March 31, 2019 to $2.49 per share at June 30, 2019.

the six months ended June 30, 2020, Lineage recorded a realized gain of $3.1 million due to sales of OncoCyte shares in the period.

In the same period, Lineage also recorded an unrealized loss of $4.2 million related to its OncoCyte shares.

The unrealized loss

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

the applicable prior month’s ending OncoCyte share price and an additional $0.5 million related to the shares remaining

at June 30, 2020 and the decrease in OncoCyte’s stock price from $2.25 at December 31, 2019 to $1.91 at June 30, 2020.

the six months ended June 30, 2019, Lineage recorded an unrealized gain of $16.3 million due to the increase in OncoCyte’s

stock price from $1.38 per share at December 31, 2018 to $2.49 per share at June 30, 2019.

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

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

shares in the period.

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

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

$8.0 million of the unrealized gain was recorded

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

the remaining $0.4 million

was recorded as an unrealized loss on marketable equity securities.

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

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of operations for each period.

equity securities - We also account for the shares we hold in HBL and AgeX as marketable equity securities, carried at fair

market value on our consolidated balance sheets.

For the three and six months ended June 30, 2020, Lineage recorded realized gains

of $0.4 million and $0.6 million, respectively, due to sales of AgeX shares in the period.

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

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

For the three and nine

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

of AgeX shares in the period.

Sales of HBL securities were negligible.

For the three and six months ended June 30, 2019, there were no significant sales of HBL or AgeX shares.

the three and six months ended June 30, 2020, we recorded unrealized losses of $0.2 million and $1.2 million, respectively.

the three months ended June 30, 2020, a majority of the unrealized loss was related to the difference between the book cost basis

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

For the six months ended

June 30, 2020, $0.4 million of the unrealized loss was related to the difference between the book cost basis of AgeX shares sold

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

the AgeX shares remaining at June 30, 2020 and the decrease in AgeX’s stock price from $1.82 at December 31, 2019 to $0.95

at June 30, 2020.

the three and six months ended June 30, 2019, we recorded an unrealized loss of $0.6 million and a gain of $1.3 million, respectively,

due to changes in fair market value of the marketable equity securities from March 31, 2019 to June 30, 2019 and December 31,

2018 to June 30, 2019.

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

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

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

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

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

For the nine months

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

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

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

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

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

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

31, 2018 to September 30, 2019.

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

gains and losses recognized by Cell Cure and ESI, changes in the fair value of the Cell Cure Warrants, dividend income and interest

Foreign currency transaction gains and losses for the periods presented are principally related to the remeasurement

of the US dollar denominated notes payable by Cell Cure to Lineage.

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

(“ESI”), changes in

the fair value of warrants issued by Cell Cure, dividend income and interest income, net.

Foreign currency transaction gains and

losses for the periods presented are principally related to the remeasurement of the U.S.

dollar denominated notes payable by

Cell Cure to Lineage.

market value of the shares of OncoCyte common stock we hold creates a deferred tax liability based on the closing prices of the

shares, less our tax basis in the shares.

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

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

30, 2020, is a source of future taxable income to us, as prescribed by ASC 740-10-30-17, that will more likely than not result

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This deferred tax liability is determined

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

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

Due to the inherent unpredictability of future prices

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is expected to occur.

Because the IPR&D (prior to completion or

abandonment of the R&D) is considered an indefinite-lived asset for accounting purposes, the fair value of the IPR&D on

the acquisition date creates a deferred income tax liability in accordance with ASC 740.

This DTL is computed using the fair value

of the IPR&D assets on the acquisition date multiplied by Lineage’s respective federal and state income tax rates.

this DTL would reverse on impairment or sale or commencement of amortization of the related intangible assets, those events are

not anticipated under ASC 740 for purposes of predicting reversal of a temporary difference to support the realization of deferred

tax assets, except for certain deferred tax assets and credit carryforwards that are also indefinite in nature as of the Asterias

Merger date, which may be considered for reversal under ASC 740 as further discussed below.

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

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

in accordance with ASC 740.

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

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

While this DTL would reverse on impairment or sale or commencement

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

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

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

740 as further discussed below.

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

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subsidiaries.

During the year ended December 31, 2019, a portion of the valuation allowance was released as it relates

to Lineage’s indefinite lived assets that can be used against the indefinite lived liabilities.

The amount of the valuation

allowance released was $7.4 million;

as new indefinite lived deferred tax assets are generated, we will continue

to book provision benefits until the deferred tax liability position is exhausted, barring any new developments.

the three and six months ended June 30, 2020, Lineage did not record any provision or benefit for income taxes, as Lineage had

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

This taxable income was offset by net operating

loss carryforwards.

the three and six months ended June 30, 2019, Lineage recorded a $1.2 million and $5.6 million valuation allowance release and

corresponding tax benefit, respectively, that were primarily related to state research and development credits, including federal net operating losses generated for the three and six months ended June 30, 2019, both of which are available and

indefinite in nature.

During the year ended December 31, 2019, a portion of the valuation allowance was released as it relates to Lineage’s

indefinite lived assets that can be used against the indefinite lived liabilities.

The amount of the valuation allowance released

was $7.4 million;

as new indefinite lived deferred tax assets are generated, we will continue to book provision benefits until

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

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

and corresponding benefit for income taxes.

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

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

in the closing stock prices of OncoCyte shares, including any changes in the fair value of our AgeX shares, from period to period

and the related changes in those deferred tax liabilities and our deferred tax assets and other credits, including changes in

the valuation allowance, for each period.

in the closing stock prices of OncoCyte shares from period to period and the related changes in those deferred tax liabilities

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

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

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and Capital Resources

June 30, 2020, we had $20.3 million of cash, cash equivalents and marketable equity securities on hand, which includes our investments

in HBL, AgeX and OncoCyte.

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

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

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

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

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

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

worldwide resulting from the ongoing COVID-19 pandemic.

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

investments in HBL, AgeX and OncoCyte.

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

conditions allow.

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

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

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

the entities.

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

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

and worldwide resulting from the ongoing COVID-19 pandemic.

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

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product sales and sales of research products and services.

At June 30, 2020, we had an accumulated deficit of $288.3 million,

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

working capital of $32.0 million and shareholders’ equity of $90.2 million.

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

and our access to additional capital through the Sales Agreement at June 30, 2020, provide sufficient cash, cash equivalents,

and liquidity to carry out our current planned operations through at least twelve months from the issuance date of our condensed

consolidated interim financial statements included elsewhere in this Report.

If we need near term working capital or liquidity

to supplement our cash and cash equivalents for our operations, we may sell some, or all, of our investments, as necessary.

the promissory note issued by Juvenescence in favor of Lineage discussed in Note 5 to our consolidated financial statements included

elsewhere in this Report is converted into equity securities of Juvenescence prior to its maturity date, the Juvenescence equity

securities may be marketable securities that Lineage may use to supplement its liquidity, as needed.

If such promissory note is

not converted, it is payable in cash, plus accrued interest, at maturity on August 30, 2020.

The value of the promissory note

is $24.4 million as of June 30, 2020.

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

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

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

of our investments, as necessary.

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

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

As we integrate Asterias’ operations

into our own, we have made extensive reductions in headcount and reduced non-clinical related spend, in each case, as compared

to Asterias’ operations before the merger.

We have implemented significant cost savings initiatives and anticipate reduced

operational spend in 2020 compared to prior periods.

We have made extensive reductions in headcount

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

We have implemented

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

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

clinical trial.

In particular, we have seen sites pause enrollment to focus on, and direct resources to, the COVID-19 pandemic.

Additionally, patients may choose not to enroll or continue participating in clinical trials as a result of the pandemic.

unable to predict with confidence the duration of such patient enrollment delays and difficulties.

If patient enrollment is delayed

for an extended period of time, such clinical trials could be delayed or otherwise adversely affected.

Our inability to enroll

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

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

In particular, we saw sites pause enrollment to focus on, and direct resources to, the COVID-19 pandemic.

Additionally,

patients may choose not to enroll or continue participating in clinical trials as a result of the pandemic.

At this point in time,

the majority of our sites are back up and enrolling.

We are unable to predict with confidence if there will be future patient

enrollment delays and difficulties as the COVID-19 pandemic continues.

If patient enrollment is delayed for an extended period

of time, such clinical trials could be delayed or otherwise adversely affected.

Our inability to enroll a sufficient number of

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

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

of the COVID-19 related enrollment delays.

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flows used in operating activities

cash used in operating activities of $9.3 million for the six months ended June 30, 2020 primarily reflects the loss from

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

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

These items were offset

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

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

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

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

These items were offset primarily by non-cash

expenses of $1.3 million of depreciation and amortization and $1.2 million for stock-based compensation.

The unrealized loss on

marketable securities is a non-cash item that had no effect on cash flows.

cash used in operating activities of $19.0 million for the six months ended June 30, 2019 primarily reflects the loss from operations

of $23.6 million, offset primarily by non-cash expenses of $2.2 million for stock-based compensation and $1.5 million of depreciation

and amortization.

The unrealized gains on equity method investments and marketable securities and deferred tax benefit are non-cash

items that had no effect on cash flows.

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

The unrealized gains

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

flows provided by investing activities

provided by investing activities of $12.0 million for the six months ended June 30, 2020 was associated primarily with

receipts of $10.9 million from sales of a portion of our OncoCyte holdings and $1.0 million in sales of a portion of our

AgeX holdings.

provided by investing activities of $2.8 million for the six months ended June 30, 2019 was associated primarily with the receipt

of $3.1 million of cash that Asterias had on the closing date of the Asterias Merger, offset by $0.4 million in purchases of equipment

and other assets.

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

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

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

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

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

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

flows provided by financing activities

provided by financing activities of $0.5 million for the six months ended June 30, 2020 was associated primarily with proceeds

of $0.5 million from a PPP loan.

provided by financing activities of $0.5 million for the six months ended June 30, 2019 was associated primarily with $0.7 million

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

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

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

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

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

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

Sheet Arrangements

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

Commission Regulation S-K.

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

of Commission Regulation S-K.

Quantitative and Qualitative Disclosures about Market Risk

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What changed 10-Q

Item 2. Management’s Discussion and Analysis