UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission
file number
(Exact name of registrant as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code:
| Title of each class | Trading Symbol | Name of exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. ☒
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒
The number of shares common stock outstanding as of November 6, 2023 was , par value $0.0001 per share.
AGEX THERAPEUTICS, INC.
TABLE OF CONTENTS
Page Number | |||
| Part I – FINANCIAL INFORMATION | 3 | ||
| Item 1. | Financial Statements | 4 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 32 | |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 36 | |
| Item 4. | Controls and Procedures | 36 | |
| Part II – OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | 37 | |
| Item 1A. | Risk Factors | 37 | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 47 | |
| Item 3. | Default Upon Senior Securities | 47 | |
| Item 4. | Mine Safety Disclosures | 47 | |
| Item 5. | Other Information | 47 | |
| Item 6. | Exhibits | 48 | |
| SIGNATURES | 49 | ||
| 2 |
PART I — FINANCIAL INFORMATION
This Report on Form 10-Q (“Report”) contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology.
Any forward-looking statements in this Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those discussed in this Report under Item 1 of the Notes to Condensed Financial Statements, under Risk Factors in this Report and those listed under Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K as filed with the Securities Exchange Commission (the “SEC”) on March 31, 2023, and additional risk factors discussed in our other reports filed with the SEC. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
References to “AgeX,” “our” or “we” mean AgeX Therapeutics, Inc.
The description or discussion in this Form 10-Q of any contract or agreement or of any series of AgeX preferred stock is a summary only and is qualified in all respects by reference to the full text of the applicable contract or agreement or the certificate of designation of the series of preferred stock.
| 3 |
Item 1. Financial Statements
AGEX THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value amounts)
(unaudited)
| September 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts and grants receivable, net | ||||||||
| Related party receivables, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Restricted cash | ||||||||
| Intangible assets, net | ||||||||
| Convertible note receivable | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Loans due to Juvenescence, net of debt issuance costs, current portion | ||||||||
| Related party payables, net | ||||||||
| Warrant liability | ||||||||
| Insurance premium liability and other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Loans due to Juvenescence, net of debt issuance costs, net of current portion | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies (Note 11) | ||||||||
| Series
A preferred stock; par value; stated value $ | ||||||||
| Series
B preferred stock; par value; stated value $ | ||||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock, $ par value, shares authorized | ||||||||
| Common stock, $ par value, shares authorized; and and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total AgeX Therapeutics, Inc. stockholders’ deficit | ( | ) | ( | ) | ||||
| Noncontrolling interest | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
See accompanying notes to these condensed consolidated interim financial statements.
| 4 |
AGEX THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| REVENUES | ||||||||||||||||
| Grant revenues | $ | $ | $ | $ | ||||||||||||
| Other revenues | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Cost of sales | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross profit | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER EXPENSE, NET: | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of warrants | ( | ) | ( | ) | ||||||||||||
| Other income, net | ||||||||||||||||
| Total other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net (income) loss attributable to noncontrolling interest | ( | ) | ||||||||||||||
| NET LOSS ATTRIBUTABLE TO AGEX | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS PER COMMON SHARE: | ||||||||||||||||
| BASIC AND DILUTED | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: | ||||||||||||||||
| BASIC AND DILUTED | ||||||||||||||||
See accompanying notes to these condensed consolidated interim financial statements.
| 5 |
AGEX THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
(in thousands)
(unaudited)
| Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | AgeX’s Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Common Stock | Additional | Non | Total | |||||||||||||||||||||||||||||||||||
| Number
of Shares | Amount | Number
of Shares | Amount | Number of Shares | Par Value | Paid-In Capital | Accumulated Deficit | controlling Interest | Stockholders’ Deficit | |||||||||||||||||||||||||||||||
| BALANCE AT JUNE 30, 2023 | $ | $ | $ | | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Issuance of preferred stock | - | |||||||||||||||||||||||||||||||||||||||
| Preferred stock issuance costs | - | ( | ) | - | ( | ) | - | |||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Three Months Ended September 30, 2022 | ||||||||||||||||||||||||
| AgeX’s Stockholders’ Deficit | ||||||||||||||||||||||||
| Common Stock | Additional | Non | Total | |||||||||||||||||||||
Number of | Par Value | Paid-In Capital | Accumulated Deficit | controlling Interest | Stockholders’
| |||||||||||||||||||
| BALANCE AT JUNE 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Issuance of common stock upon vesting of restricted stock units, net of shares retired to pay employee’s taxes | ( | ) | ( | ) | ||||||||||||||||||||
| Fair value of liability classified warrants issued | - | |||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2022 | $ | | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||
See accompanying notes to these condensed consolidated interim financial statements.
| 6 |
AGEX THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
(in thousands)
(unaudited)
| Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | AgeX’s Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Common Stock | ||||||||||||||||||||||||||||||||||||||
| Number of Shares | Amount | Number of Shares | Amount | Number of Shares | Par Value | Additional Paid-In Capital | Accumulated Deficit | Non controlling Interest |
Total | |||||||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2022 | $ | $ | $ | | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Issuance of preferred stock | - | |||||||||||||||||||||||||||||||||||||||
| Preferred stock issuance costs | - | ( | ) | - | ( | ) | - |
| ||||||||||||||||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units, net of shares retired to pay employee’s taxes | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Fair value of liability classified warrants issued | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||
| AgeX’s Stockholders’ Deficit | ||||||||||||||||||||||||
| Common Stock | Additional | Non | Total | |||||||||||||||||||||
Number of Shares | Par Value | Paid-In Capital | Accumulated Deficit | controlling Interest | Stockholders’ | |||||||||||||||||||
| BALANCE AT DECEMBER 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Issuance of common stock upon vesting of restricted stock units, net of shares retired to pay employee’s taxes | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of warrants | - | |||||||||||||||||||||||
| Fair value of liability classified warrants issued | - | |||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
See accompanying notes to these condensed consolidated interim financial statements.
| 7 |
AGEX THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net loss attributable to AgeX | $ | ( | ) | $ | ( | ) | ||
| Net loss attributable to noncontrolling interest | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss attributable to AgeX to net cash used in operating activities: | ||||||||
| Change in fair value of warrants | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of debt issuance costs | ||||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts and grants receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ||||||||
| Interest on convertible note receivable | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Related party payables, net | ( | ) | ||||||
| Insurance premium liability | ( | ) | ( | ) | ||||
| Other current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Cash advanced on convertible note receivable | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| FINANCING ACTIVITIES: | ||||||||
| Drawdown on loan facilities from Juvenescence | ||||||||
| Net cash provided by financing activities | ||||||||
| NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ( | ) | ( | ) | ||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | ||||||||
| At beginning of the period | ||||||||
| At end of the period | $ | $ | ||||||
See accompanying notes to these condensed consolidated interim financial statements.
| 8 |
AGEX THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(unaudited)
1. Organization, Business Overview and Liquidity
AgeX Therapeutics, Inc. (“AgeX”) was incorporated in January 2017 in the state of Delaware. AgeX is a biotechnology company focused on the development and commercialization of novel therapeutics targeting human aging and degenerative diseases. AgeX’s mission is to apply its comprehensive experience in fundamental biological processes of human aging to a broad range of age-associated medical conditions.
AgeX’s proprietary technology, based on telomerase-mediated cellular immortality and regenerative biology, allows AgeX to utilize telomerase-expressing regenerative pluripotent stem cells (“PSCs”) for the manufacture of cell-based therapies to regenerate tissues afflicted with age-related chronic degenerative disease. AgeX’s main technology platforms and product candidates are:
| ● | PureStem® PSC-derived clonal embryonic progenitor cell lines that may be capable of generating a broad range of cell types for use in cell-based therapies; | |
| ● | UniverCyte™ which uses the HLA-G gene to suppress rejection of transplanted cells and tissues to confer low immune observability to cells; | |
| ● | AGEX-BAT1 using adipose brown fat cells for metabolic diseases such as Type II diabetes; | |
| ● | AGEX-VASC1 using vascular progenitor cells to treat tissue ischemia; and | |
| ● | Induced tissue regeneration or iTR technology to regenerate or rejuvenate cells to treat a variety of degenerative diseases including those associated with aging, as well as other potential tissue regeneration applications such as scarless wound repair. |
Restructuring Plans and Merger Agreement
During
March 2023, AgeX borrowed $
On August 29, 2023, AgeX entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Serina and Canaria Transaction Corporation, an Alabama corporation and wholly owned subsidiary of AgeX (“Merger Sub”). Serina currently has a pipeline of small molecule candidates targeting central nervous system (“CNS”) indications, enabled by the company’s proprietary POZ PlatformTM delivery technology. In addition to advancing Serina’s wholly owned pipeline assets, Serina is working with pharma partners currently advancing pre-clinical studies exploring POZ polymer lipid-nanoparticles (“LNPs”) in next generation LNP delivered RNA vaccines. In addition, Serina is advancing a lead drug candidate, SER-252 (POZ-apomorphine) for the treatment of advanced Parkinson’s Disease through pre-clinical studies towards the goal of an investigational new drug submission or “IND” to the Food and Drug Administration for the initiation of a Phase I clinical trial during the fourth quarter of 2024. Serina has two other pipeline assets that are positioned to enter IND enabling studies, SER-227 (POZ-buprenorphine) for certain post-operative pain indications, and SER-228 (POZ-cannabidiol) for treatment refractory epilepsy indications. Serina is also focused on expanding its LNP and anti-body drug conjugate partnering collaborations.
Upon the terms and subject to the satisfaction of the conditions described in the Merger Agreement, including that the Merger is approved by the stockholders of Serina and the issuance of AgeX common stock to Serina in the Merger is approved by the stockholders of AgeX, Merger Sub will be merged with and into Serina, with Serina surviving as a wholly owned subsidiary of AgeX (the “Merger”). There is no assurance the necessary approvals by AgeX stockholders and Serina stockholders will be obtained or that the other conditions to the Merger as provided in the Merger Agreement will be met.
AgeX’s restructuring plans also include a potential spinoff of AgeX’s subsidiary Reverse Bioengineering, Inc. (“Reverse Bio”) through a distribution of some or all of the shares of capital stock of Reverse Bio held by AgeX to AgeX stockholders following a financing of Reverse Bio through the sale of shares of Reverse Bio common stock to private investors (the “Reverse Bio Financing”). If the Reverse Bio spinoff is completed, Reverse Bio would become a separate publicly traded company.
| 9 |
Definitive agreements regarding the Reverse Bio Financing and a Reverse Bio spinoff have not yet been executed, nor has AgeX’s board of directors approved the Reverse Bio spinoff. Accordingly, there is a risk that the Reverse Bio Financing and the Reverse Bio spinoff may never be consummated.
Emerging Growth Company
AgeX is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012.
Going Concern
AgeX
primarily finances its operations through loans from its largest stockholder, Juvenescence Limited (“Juvenescence”). AgeX
has incurred operating losses and negative cash flows since inception and had an accumulated deficit of $
Based
on a strategic review of its operations, giving consideration to the status of its product development programs, human resources, capital
needs and resources, and current conditions in the capital markets, AgeX’s board of directors and management have adopted operating
plans and budgets to extend the period over which AgeX can continue its operations with its available cash resources. Notwithstanding
those operating plans and budgets, based on AgeX’s most recent projected cash flows AgeX believes that its cash and cash equivalents
of $
Liquidity and Impact of COVID-19
In addition to general economic and capital market trends and conditions, AgeX’s ability to raise sufficient additional capital to finance its operations from time to time will depend on a number of factors specific to AgeX’s operations such as operating expenses and progress in out-licensing its technologies and development of its product candidates. Although AgeX has been able to reduce its operating expenses, with the exception of certain non-recurring expenses incurred related to the possible Merger between AgeX and Serina, by eliminating internal research and development activities and focusing instead on outsourcing research and development and seeking licensing arrangements for AgeX technologies, this approach has also made it more difficult for AgeX to make progress in developing its target product candidates and technologies, which in turn may make it more difficult for AgeX to raise capital. The unavailability or inadequacy of financing to meet future capital needs could force AgeX to modify, curtail, delay, or suspend some or all aspects of planned operations. Sales of additional equity securities could result in the dilution of the interests of its stockholders. AgeX cannot assure that adequate financing will be available on favorable terms, if at all.
2. Basis of Presentation and Summary of Significant Accounting Policies
The unaudited condensed consolidated interim financial statements presented herein, and discussed below, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. In accordance with those rules and regulations certain information and footnote disclosures normally included in comprehensive consolidated financial statements have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2022 was derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by U.S. GAAP. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in AgeX’s Annual Report on Form 10-K for the year ended December 31, 2022.
The accompanying condensed consolidated interim financial statements, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of AgeX’s financial condition and results of operations. The condensed consolidated results of operations are not necessarily indicative of the results to be expected for any other interim period or for the entire year.
Principles of consolidation
The
consolidated financial statements include the accounts of AgeX and its subsidiaries in which AgeX has a controlling financial interest.
The consolidated financial statements also include certain variable interest entities in which AgeX is the primary beneficiary (as described
in more detail below). For consolidated entities where AgeX has less than
| 10 |
AgeX assesses whether it is the primary beneficiary of a variable interest entity (“VIE”) at the inception of the arrangement and at each reporting date. This assessment is based on its power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and AgeX’s obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. If the entity is within the scope of the variable interest model and meets the definition of a VIE, AgeX considers whether it must consolidate the VIE or provide additional disclosures regarding its involvement with the VIE. If AgeX determines that it is the primary beneficiary of the VIE, AgeX will consolidate the VIE. This analysis is performed at the initial investment in the entity or upon any reconsideration event. For entities AgeX holds as an equity investment that are not consolidated under the VIE model, AgeX will consider whether its investment constitutes a controlling financial interest in the entity and therefore should be considered for consolidation under the voting interest model.
AgeX
has four subsidiaries, Reverse Bio, ReCyte Therapeutics, Inc. (“ReCyte”), and NeuroAirmid Therapeutics, Inc.
(“NeuroAirmid”), Canaria Transaction Corporation (“Merger Sub”), and has incorporated but not yet
capitalized a fourth subsidiary UniverXome Bioengineering, Inc.(“UniverXome”). Reverse Bio is a wholly owned subsidiary
of AgeX through which AgeX plans to finance its iTRTM research and development efforts. AgeX is actively seeking equity
financing for Reverse Bio and to the extent that such Reverse Bio Financing is obtained through the sale of capital stock or other
equity securities by Reverse Bio, AgeX’s equity interest in Reverse Bio and its iTRTM business would be diluted.
AgeX’s restructuring plans also include a potential spinoff of Reverse Bio through a distribution of some or all of the shares
of capital stock of Reverse Bio held by AgeX to AgeX stockholders following the Reverse Bio Financing. ReCyte is an early stage
pre-clinical research and development company involved in stem cell-derived endothelial and cardiovascular related progenitor cells
for the treatment of vascular disorders and ischemic conditions. AgeX owns
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and (ii) the reported amounts of revenues and expenses during the reporting period, in each case 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, determining the fair value of AgeX’s embedded derivatives in the convertible notes payable and receivable, and assumptions used to value stock-based awards or other equity instruments and liability classified warrants. Actual results could differ materially from those estimates. The financial information for private companies may not be available and, even if available, that information may be limited and/or unreliable. To the extent there are material differences between the estimates and actual results, AgeX’s future results of operations will be affected.
See Note 6, Warrant Liability, for discussion on estimated change in fair value of warrant liability.
Concentration of credit risk and other risks and uncertainties
Financial instruments that potentially subject AgeX to concentrations of risk consist principally of cash equivalents and a convertible note receivable. AgeX maintains its cash deposits in Federal Deposit Insurance Corporation insured financial institutions within the federally insured limits. Even if balances were to exceed the federally insured limits, AgeX does not believe that it would be exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
AgeX also monitors the creditworthiness of the borrower of the convertible promissory note. AgeX believes that any concentration of credit risk in a convertible note receivable was mitigated in part by (i) AgeX’s right to convert loan amounts owed to AgeX into shares of equity securities of the borrower in the event the borrower completes a financing in at least a designated amount, and (ii) AgeX’s right to tender the convertible note receivable to a lender to settle a convertible note payable. See Notes 4, Convertible Note Receivable and 5, Related Party Transactions.
Product candidates developed by AgeX and its subsidiaries will require approvals or clearances from the United States Food and Drug Administration or foreign regulatory agencies prior to commercial sales. There can be no assurance that any of the product candidates being developed or planned to be developed by AgeX or its subsidiaries will receive any of the required approvals or clearances. If regulatory approval or clearance were to be denied or any such approval or clearance was to be delayed, it would have a material adverse impact on AgeX.
| 11 |
Fair value measurements of financial instruments
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. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of the financial statement presentation date.
The carrying values of cash equivalents, accounts receivable and accounts payable, are carried at, or approximate, fair value as of the reporting date because of their short-term nature. Fair values for AgeX’s warrant liabilities are estimated by utilizing valuation models that consider current and expected stock prices, volatility, dividends, market interest rates, forward yield curves and discount rates. Such amounts and the recognition of such amounts are subject to significant estimates that may change in the future.
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 (unadjusted) for identical assets or liabilities in active markets. | |
| ● | Level 2 – Inputs to the valuation methodology include observable quoted prices (other than quoted market prices included within Level 1) for similar assets or liabilities in active markets, and inputs that are observable for the assets or liabilities, either directly or indirectly, for substantially the full term of the financial instruments. | |
| ● | 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. |
In
determining fair value, AgeX utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable
inputs to the extent possible, and also considers counterparty credit risk in its assessment of fair value. For the periods presented,
AgeX has no financial assets recorded at fair value on a recurring basis, except for cash and cash equivalents primarily consisting of
money market funds. These assets are measured at fair value using the period-end quoted market prices as a Level 1 input. The carrying
amounts of accounts receivable, net, prepaid expenses and other current assets, related party amounts due to affiliates, accounts payable,
accrued liabilities and other current liabilities approximate fair values because of the short-term nature of these items. The discounted
conversion prices triggered by certain qualified events in the Serina Note and the $
The accounting guidance establishes a hierarchy which requires an entity to maximize the use of quoted market prices and minimize the use of unobservable inputs. An asset or liability’s level is based on the lowest level of input that is significant to the fair value measurement. Fair value estimates are reviewed at the origination date and again at each applicable measurement date and interim or annual financial reporting dates, as applicable for the financial instrument, and are based upon certain market assumptions and pertinent information available to management at those times.
The methods and significant inputs and assumptions utilized in estimating the fair value of the warrant liabilities, as well as the respective hierarchy designations are discussed further in Note 6, Warrant Liability. The warrant liability measurement is considered a Level 3 measurement based on the availability of market data and inputs and the significance of any unobservable inputs as of the measurement date. As of September 30, 2023, AgeX has utilized the full credit subject to warrants, and accordingly, the warrants were fully issued for each of the advances of loan funds under the Secured Note.
See Note 6, Warrant Liability, for additional information on accounting for liability classified warrants and certain Level 3 warrant valuation tables.
Cash, cash equivalents, and restricted cash
In accordance with Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, a reconciliation of AgeX’s cash and cash equivalents in the condensed consolidated balance sheets to cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows for all periods presented is as follows (in thousands):
September 30, 2023 (unaudited) | December 31, 2022 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash (1) | ||||||||
| Cash, cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows | $ | $ | ||||||
| (1) |
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Long-lived intangible assets, net
Long-lived
intangible assets, consisting primarily of acquired in-process research and development (“IPR&D”) and patents is stated
at acquired cost, less accumulated amortization. Amortization expense is computed using the straight-line method over the estimated useful
life of
Impairment of long-lived assets
AgeX assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. AgeX’s long-lived assets consists entirely of intangible assets. If events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying value of the asset over its fair value, is recorded. As of September 30, 2023, there has been no impairment of long-lived assets.
Leases
AgeX
accounts for leases in accordance with ASU 2016-02, Leases (Topic 842) (“ASC 842”), and its subsequent amendments
affecting AgeX: (i) ASU 2018-10, Codification Improvements to Topic 842, Leases, and (ii) ASU 2018-11, Leases (Topic 842):
Targeted Improvements, using the modified retrospective method. AgeX management determines 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. When determining whether a lease is a financing lease or an operating lease, ASC 842 does not specifically
define criteria to determine “major part of remaining economic life of the underlying asset” and “substantially all
of the fair value of the underlying asset.” For lease classification determination, AgeX continues to use
ROU assets represent an entity’s right to use an underlying asset during the lease term and lease liabilities represent an entity’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. If the lease agreement does not provide an implicit rate in the contract, an entity uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the entity will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. AgeX does not capitalize leases that have terms of twelve months or less.
AgeX
leases office space in Alameda, California. For 2022 base monthly rent was $
Accounting for warrants
AgeX determines the accounting classification of warrants it issues, 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, 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, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate AgeX to settle the warrants or the underlying shares by paying cash or other assets, or warrants that must or may require settlement by issuing a variable number of shares. If warrants do not meet liability classification under ASC 480-10, AgeX 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, and in order to conclude equity classification, AgeX also assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity under ASC 815-40 or other applicable U.S. GAAP. After all relevant assessments, AgeX concludes whether the warrants are classified as liability or equity. Liability classified warrants require fair value accounting at issuance and subsequent to initial issuance with all changes in fair value after the issuance date recorded in the statements of operations. Equity classified warrants only require fair value accounting at issuance with no changes recognized subsequent to the issuance date. AgeX has liability classified warrants as of September 30, 2023. See Notes 5, Related Party Transactions and 6, Warrant Liability, for additional information regarding warrants.
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Revenue recognition
AgeX recognizes revenue 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 expects to receive in exchange for such product or service. In doing so, AgeX 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. AgeX considers the terms of a contract and all relevant facts and circumstances when applying the revenue recognition standard. AgeX applies the revenue recognition standard, including the use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances.
Grant revenues – AgeX accounts for grants received to perform research and development services in accordance with ASC 730-20, Research and Development Arrangements. At the inception of the grant, we perform an assessment as to whether the grant is a liability or a contract to perform research and development services for others. If AgeX or a subsidiary receiving the grant is obligated to repay the grant funds to the grantor regardless of the outcome of the research and development activities, then AgeX is required to estimate and recognize that liability. Alternatively, if AgeX or a subsidiary receiving the grant is not required to repay, or if it is required to repay the grant funds only if the research and development activities are successful, then the grant agreement is accounted for as a contract to perform research and development services for others, in which case, grant revenue is recognized when the related research and development expenses are incurred.
In applying the provisions of Topic 606, AgeX has determined that government grants are out of the scope of Topic 606 because the government entities do not meet the definition of a “customer”, as defined by Topic 606, as there is not considered to be a transfer of control of good or services to the government entities funding the grant. In the absence of applicable guidance under U.S. GAAP, AgeX’s policy is to recognize grant revenue when the related costs are incurred, provided that the applicable conditions under the government contracts have been met. Only costs that are allowable under the grant award, certain government regulations and the National Institutes of Health (“NIH”) supplemental policy and procedure manual may be claimed for reimbursement, and the reimbursements are subject to routine audits from governmental agencies from time to time. Costs incurred are recorded in research and development expenses on the accompanying consolidated statements of operations.
AgeX believes the recognition of revenue as costs are incurred and amounts become realizable is analogous to the concept of transfer of control of a service over time under ASC 606.
In
August 2023, AgeX was awarded a grant of up to approximately $
ESI BIO Research Products – AgeX, through its ESI BIO research product division, markets a number of products related to human pluripotent stem cells (“PSC lines”), including research-grade PSC lines and PSC lines produced under current good manufacturing practices or “cGMP”. AgeX offers cells from PSC lines to customers under contracts that permit the customers to utilize PSC lines for the research, development, and commercialization of cell-based therapies or other products in defined fields of application. The compensation to AgeX for providing the PSC line cells under such contracts may include up-front payments, milestone payments related to product development, regulatory matters, and commercialization, and the payment of royalties on sales of products developed from AgeX PSC lines. Revenues from the sale of research products have not been significant during the periods presented in the condensed consolidated interim financial statements included in this Report.
Arrangements with multiple performance obligations – AgeX may enter into contracts with customers that include multiple performance obligations. For such arrangements, AgeX will allocate revenue to each performance obligation based on its relative standalone selling price. AgeX will determine or estimate standalone selling prices based on the prices charged, or that would be charged, to customers for that product or service. As of September 30, 2023 and December 31, 2022, AgeX did not have significant arrangements with multiple performance obligations.
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Research and development
Research and development expenses consist primarily of personnel costs and related benefits, including stock-based compensation, amortization of intangible assets, outside consultants and contractors, sponsored research agreements with certain universities, and suppliers, and license fees paid to third parties to acquire patents or licenses to use patents and other technology. Research and development expenses incurred and reimbursed by grants from third parties or governmental agencies if any and as applicable, approximate the respective revenues recognized in the condensed consolidated statements of operations.
General and administrative
General and administrative expenses consist primarily of compensation and related benefits, including stock-based compensation, for executive and corporate personnel, and professional and consulting fees.
Basic loss per share is calculated by dividing net loss attributable to AgeX common stockholders by the weighted average number of shares of common stock outstanding, net of unvested restricted stock or restricted stock units, subject to repurchase by AgeX, if any, during the period. Diluted loss per share is calculated by dividing the net income attributable to AgeX common stockholders, if any, by the weighted average number of shares of common stock outstanding, adjusted for the effects of potentially dilutive common stock issuable under outstanding stock options, warrants, and restricted stock units, using the treasury-stock method, and convertible preferred stock, if any, using the if-converted method, and treasury stock held by subsidiaries, if any.
For the three and nine months ended September 30, 2023 and 2022, because AgeX reported a net loss attributable to common stockholders, all potentially dilutive common stock, comprised of stock options, restricted stock units and warrants, is antidilutive.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Stock options | ||||||||||||||||
| Warrants (1) | ||||||||||||||||
| Restricted stock units | ||||||||||||||||
| (1) |
Reclassifications
Certain reclassifications have been made to the prior period’s condensed consolidated interim financial statements to conform to current year presentation. Additionally, certain financial information is presented on a rounded basis, which may cause minor differences.
Recently adopted accounting pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-10, which amends the current approach to estimate credit losses on certain financial assets. This ASU requires immediate recognition of management’s estimates of current expected credit losses. Under the prior model, losses were recognized only as they were incurred, which FASB has noted delayed recognition of expected losses that might not yet have met the threshold of being probable. The standard is applicable to all financial assets (and net investment in leases) that are not accounted for at fair value through net income, such as trade receivables, loans, debt securities, and net investment in leases, thereby bringing consistency in accounting treatment across different types of financial instruments and requiring consideration of a broader range of variables when forming loss estimates. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of previous losses are permitted. AgeX adopted this standard as of January 1, 2023, and it did not have a material impact on the condensed consolidated interim financial statements.
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In March 2022, the FASB issued ASU No. 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method, which clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets. The ASU amends the guidance in ASU 2017-12 (released on August 28, 2017) that, among other things, established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible. ASU 2022-01 renames that method the “portfolio layer” method and addresses feedback from stakeholders regarding its application. AgeX adopted this standard as of January 1, 2023, and it did not have a material impact on the condensed consolidated interim financial statements.
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which amends the accounting for credit losses on financial instruments. This amendment eliminates the recognition and measurement guidance on troubled debt restructurings for creditors that have adopted the new credit losses guidance in ASC 326 and requires enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. The new guidance also requires public business entities to present gross write-offs by year of origination in their vintage disclosures. The guidance became effective for AgeX on January 1, 2023 and includes interim periods. Entities can elect to adopt the guidance on troubled debt restructurings using either a prospective or modified retrospective transition. If an entity elects to apply a modified retrospective transition, it will record a cumulative effect adjustment to retained earnings in the period of adoption. This ASU did not have a material impact on the condensed consolidated interim financial statements.
On July 14, 2023, the FASB issued ASU No. 2023-02, Presentation of Financial Statements (Topic 205), Income Statement – Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation – Stock Compensation, which amends or supersedes various SEC paragraphs within the codification to conform to past announcements and guidance issued by the SEC. Specifically, the ASU responds to (1) the issuance of SEC Staff Accounting Bulletin (SAB) 120; (2) the SEC staff announcement at the March 24, 2022, EITF meeting; and (3) SAB Topic 6.B, “Accounting Series Release No. 280 — General Revision of Regulation S-X: Income or Loss Applicable to Common Stock.” This ASU is effective immediately and did not have a material impact on AgeX’s condensed consolidated interim financial statements.
3. Selected Balance Sheet Components
Intangible assets, net
At September 30, 2023 and December 31, 2022, intangible assets, primarily consisting of acquired IPR&D and patents, and accumulated amortization were as follows (in thousands):
September 30, 2023 (unaudited) | December 31, 2022 | |||||||
| Intangible assets | $ | $ | ||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Total intangible assets, net | $ | $ | ||||||
AgeX
recognized $
Amortization of intangible assets for periods subsequent to September 30, 2023 is as follows (in thousands):
| Year Ending December 31, | Amortization Expense | |||
| 2023 | $ | |||
| 2024 | | |||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
Accounts payable and accrued liabilities
At September 30, 2023 and December 31, 2022, accounts payable and accrued liabilities were comprised of the following (in thousands):
September 30, 2023 (unaudited) | December 31, 2022 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued compensation | ||||||||
| Accrued vendors and other expenses | ||||||||
| Total accounts payable and accrued liabilities | $ | $ | ||||||
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4. Convertible Note Receivable
On
March 15, 2023, AgeX and Serina entered into a Convertible Note Purchase Agreement (the “Serina Note Purchase Agreement”),
pursuant to which AgeX lent to Serina an aggregate principal amount of $
In connection with the issuance of the Serina Note, AgeX is entitled to elect one member to the board of directors of Serina and receive certain information and inspection rights as well as participation rights for subsequent equity issuances.
The
principal balance of the Serina Note with accrued interest will automatically convert into Serina preferred stock if Serina raises at
least $
AgeX
may (i) at its election, upon a change of control (as defined in the Serina Note), convert the Serina Note in whole or in part into either
(a) cash in an amount equal to 100% of the outstanding principal amount of the Serina Note, plus interest, or (b) into the highest ranking
shares of Serina then issued at a conversion price equal to the lowest price per share at which the most senior series of Serina shares
has been sold in a single transaction or a series of related transactions through which Serina raised at least $
If the Merger is consummated, the Serina Note will be canceled for no consideration.
The
outstanding principal balance of the Serina Note with accrued interest may become immediately due and payable prior to the stated maturity
date if an Event of Default as defined in the Serina Note occurs. In addition to this and any other remedy, both in equity and in law,
upon the occurrence of an Event of Default, an interest rate of
The Serina Note Purchase Agreement and Serina Note each includes certain covenants that among other matters require financial reporting and impose certain restrictions, including (i) restrictions on the incurrence of additional indebtedness by Serina and its subsidiaries; (ii) requiring that Serina use note proceeds and funds that may be raised through certain equity offerings only for research and development work, professional and administrative expenses, and for general working capital; and (iii) prohibiting Serina from entering into any material sale or transfer transactions outside of the ordinary course of business, other than in a merger between AgeX and Serina, without the consent of AgeX.
Subordination Agreement
In
connection with the issuance of the Serina Note, Serina, each other holder of Serina indebtedness (each a “Serina Lender”),
and AgeX entered into a Subordination Agreement, dated March 15, 2023, pursuant to which each Serina Lender agreed to subordinate to
AgeX’s rights of repayment with respect to the obligations owed under the Serina Note Purchase Agreement and the Serina Note (i)
all Serina indebtedness owed to such Serina Lender under certain convertible notes between each Serina Lender and Serina, which aggregate
principal amount of all of such convertible notes equals $
| 17 |
5. Related Party Transactions
During
July 2023, AgeX and Juvenescence entered into an Exchange Agreement pursuant to which AgeX issued shares of Series A Preferred Stock
and Series B Preferred Stock to Juvenescence in exchange for the extinguishment of a total of $
2019 Loan Agreement
On
August 13, 2019, AgeX and Juvenescence entered into a Loan Facility Agreement (the “2019 Loan Agreement”) pursuant to which
Juvenescence provided to AgeX a $
2020 Loan Agreement
On
March 30, 2020, AgeX and Juvenescence entered into a new Secured Convertible Facility Agreement (the “2020 Loan Agreement”)
pursuant to which Juvenescence provided to AgeX an $
2020
Warrants — Under the terms of the 2020 Loan Agreement, each time AgeX received an advance of funds under the 2020 Loan Agreement,
AgeX issued to Juvenescence a number of 2020 Warrants equal to 50% of the number determined by dividing the amount of the advance by
the applicable Market Price. The Market Price set each 2020 Warrant when issued was the closing price per share of AgeX common stock
on the NYSE American on the date of the applicable notice from AgeX requesting a draw of funds that triggered the obligation to issue
the 2020 Warrant. The 2020 Warrants will expire at 5:00 p.m. New York time three years after the date of issue. AgeX had issued to Juvenescence
2020 Warrants to purchase a total of
2022 Secured Convertible Promissory Note and Security Agreement
On
February 14, 2022, AgeX and Juvenescence entered into a Secured Convertible Promissory Note (the “Secured Note”) pursuant
to which Juvenescence agreed to provide to AgeX a $
| 18 |
On
July 31, 2023, AgeX and Juvenescence entered into a Fourth Amendment (the “Fourth Amendment”) to the Secured Note to provide
that
As
of September 30, 2023, AgeX had borrowed a total of $
As an arrangement fee for the Secured Note, AgeX will pay Juvenescence an origination fee in an amount equal to 4% of the amount each draw of loan funds, which will accrue as each draw is funded, and an additional 4% of all the total amount of funds drawn that will accrue following the end of the period during which funds may be drawn from the line of credit. The origination fee will become due and payable on the repayment date or in a pro rata amount with any prepayment of in whole or in part of the outstanding principal balance of the Secured Note.
2022 Warrants – Upon each drawdown of funds under the Secured Note prior to June 2, 2023 when the Third Amendment went into effect, AgeX issued to Juvenescence warrants to purchase shares of AgeX common stock (“2022 Warrants”). The 2022 Warrants are governed by the terms of a Warrant Agreement between AgeX and Juvenescence. The number of 2022 Warrants issued with respect to each draw of loan funds was equal to 50% of the number determined by dividing the amount of the applicable loan draw by the applicable Market Price. The Market Price was the last closing price per share of AgeX common stock on the NYSE American o preceding the delivery of the notice from AgeX requesting the draw of funds that triggered the obligation to issue 2022 Warrants. The exercise price of the 2022 Warrants is the applicable Market Price used to determine the number of Warrants issued. The 2022 Warrants will expire at 5:00 p.m. New York time three years after the date of issue.
As
of September 30, 2023, AgeX had issued to Juvenescence 2022 Warrants to purchase a total of
Conversion
of Loan Amounts to Common Stock – In lieu of repayment of funds borrowed, AgeX may convert the loan balance and any accrued
but unpaid origination fee into AgeX common stock or “units” if AgeX consummates a sale of common stock (or common stock
paired with warrants or other convertible securities in “units”) in which the gross sale proceeds are at least $
| 19 |
Default
Provisions – The loan balance and origination fees may become immediately due and payable prior to the mandatory repayment
date if an Event of Default occurs. Events of Default under the Secured Note include the following: (a) AgeX fails to pay any principal
amount payable by it in the manner and at the time provided under and in accordance with the Secured Note; (b) AgeX fails to pay any
other amount payable by it in the manner and at the time provided under and in accordance with the Secured Note or the Security Agreement
described below or any other agreement executed in connection with the Secured Note (the “Loan Documents”) and the failure
is not remedied within three business days; (c) AgeX fails to perform any of its covenants or obligations or fail to satisfy any of the
conditions under the Secured Note or any other Loan Document and, such failure (if capable of remedy) remains unremedied to the satisfaction
of Juvenescence (in its sole discretion) for 10 business days after the earlier of (i) notice requiring its remedy has been given by
Juvenescence to AgeX and (ii) actual knowledge of the failure by senior officers of AgeX; (d)
Restrictive Covenants – The Secured Note includes certain covenants that among other matters such as financial reporting: (i) impose financial restrictions on AgeX while the Secured Note remains unpaid, including restrictions on the incurrence of additional indebtedness by AgeX and its subsidiaries, except that AgeX’s subsidiary Reverse Bio will be permitted to incur debt convertible into equity not guaranteed or secured by the assets of AgeX or any other AgeX subsidiary, (ii) require that AgeX use loan proceeds and funds that may be raised through certain equity offerings only for research and development work, professional and administrative expenses, for general working capital, and for repayment of all or a portion of AgeX’s indebtedness to Juvenescence; and (iii) prohibit AgeX from making additional investments in subsidiaries, unless AgeX obtains the written consent of Juvenescence to a transaction that otherwise would be prohibited or restricted.
Security Agreement – AgeX has entered into a Security Agreement granting Juvenescence a security interest in substantially all of the assets of AgeX, including a security interest in shares of AgeX subsidiaries that hold certain assets, as collateral for AgeX’s loan obligations. If an Event of Default occurs, Juvenescence will have the right to foreclose on the assets pledged as collateral.
$
On
March 13, 2023, AgeX and Juvenescence entered into a $
| 20 |
On
July 31, 2023, AgeX and Juvenescence also entered into an amendment to the $
The
outstanding principal balance of the $
During
July 2023, the $
The
$
The
$
AgeX
has entered into an Amended and Restated Security Agreement that amends the February 14, 2022 Security Agreement between AgeX and Juvenescence
and adds the $
Registration Rights
AgeX
entered into certain Registration Rights Agreements, as amended, pursuant to which AgeX has agreed to register for sale under the Securities
Act of 1933, as amended (the “Securities Act”) all shares of AgeX common stock presently held by Juvenescence or that may
be acquired by Juvenescence through the exercise of common stock purchase warrants that they hold or that they may acquire pursuant to
the 2020 Loan Agreement and pursuant to the Secured Note, and shares that they may acquire through the conversion of those loans into
AgeX common stock.
AgeX and Juvenescence have entered into a second Registration Rights Agreement pursuant to which AgeX has agreed to use commercially reasonable efforts to register the for sale under the Securities Act the shares of common stock issuable upon conversion of Preferred Stock. A registration statement must be filed upon request of Juvenescence if Form S-3 is available to AgeX. Juvenescence will also have “piggy-back” registration rights if AgeX files a registration statement for the sale of shares for itself or other stockholders, subject to certain customary exceptions based on the nature of the registration statement. AgeX will bear the expenses of the registration statement but not underwriting or broker’s commissions related to the sale of the common stock. AgeX and Juvenescence will indemnify each other from certain liabilities in connection the registration, offer, and sale of securities under a registration statement, including liabilities arising under the Securities Act.
| 21 |
Debt Issuance Costs
In accordance with ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, all debt issuance costs are recorded as a discount on the debt and amortized to interest expense over the term of the applicable loan agreement using the effective interest method. Direct debt issuance costs include but are not limited to legal fees, debt origination fees, estimated fair market value of common stock and warrants issued in connection with the loan agreement, and NYSE American additional listing fees for the underlying shares of warrants issued with each drawdown of funds.
The following table summarizes the debt issuance costs and the debt balances net of debt issuance costs by loan agreement as of September 30, 2023 (in thousands):
| Drawdown of Funds | Origination Fee | Debt Exchanged for Preferred Stock | Total Debt | Debt Issuance Costs | Amortization of Debt Issuance Costs | Total Debt, Net | ||||||||||||||||||||||
| Current | ||||||||||||||||||||||||||||
| 2020 Loan Agreement | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Secured Note | ( | ) | ( | ) | ||||||||||||||||||||||||
| Total current, net | ( | ) | ( | ) | ||||||||||||||||||||||||
| Non-current | ||||||||||||||||||||||||||||
| $ | ( | ) | ( | ) | ||||||||||||||||||||||||
| Total debt, net | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||
Related Party Receivables/Payables, net
Since
October 2018, AgeX’s Chief Operating Officer (“COO”), who is also an employee of Juvenescence, is devoting a majority
of his time to AgeX’s operations. AgeX reimburses Juvenescence for his services on an agreed-upon fixed annual amount of approximately
$
Indemnification Agreements
On March 13, 2023, AgeX executed that certain Letter of Indemnification in Lieu of or Supplemental to a Medallion Signature Guarantee (“Letter of Indemnification”), pursuant to which AgeX agreed to indemnify American Stock Transfer & Trust Company, LLC and its affiliates, successors and assigns (the “AST Indemnity”) from and against any and all claims, damages, liabilities or losses arising out of the transfer of all of the AgeX common stock held by Juvenescence to its wholly-owned subsidiary, Juvenescence US Corp. (the “Share Transfer”). In connection with AgeX’s execution of the Letter of Indemnification, AgeX and Juvenescence entered into that certain Transfer of Shares of AgeX Therapeutics, Inc. Common Stock – Indemnification Agreement, pursuant to which Juvenescence agreed to indemnify AgeX against any and all claims, damages, liabilities or losses arising out of the Share Transfer or AST Indemnity.
6. Warrant Liability
AgeX determines the accounting classification of warrants it issues, 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, 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, Distinguishing Liabilities from Equity, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate AgeX to settle the warrants or the underlying shares by paying cash or other assets, or warrants that must or may require settlement by issuing a variable number of shares. If warrants do not meet liability classification under ASC 480-10, AgeX 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, and in order to conclude equity classification, AgeX also assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity under ASC 815-40 or other applicable U.S. GAAP.
As
a condition of each amount drawn up to $
| 22 |
AgeX
has utilized the full credit available under the Secured Note that is subject to warrants and accordingly the warrants were issued for
each of the advances of loan funds under the Secured Note. After all relevant assessments, AgeX determined that the warrants issued under
the Secured Note require classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. In accordance
with the accounting guidance, for each reporting period prior to the full drawdown of the entire $
Under
the Third Amendment, AgeX is not obligated to issue additional warrants to Juvenescence in connection with the receipt of loan funds
up to $
The fair value of the warrant liabilities was measured using a Black-Scholes option pricing model. Significant inputs into the model at the inception date, the date when warrants were issued upon receipt of amounts drawn during the period, and as of the reporting period end remeasurement dates are as follows:
| Black-Scholes Assumptions | Exercise Price (1) | Warrant Expiration Date (2) | Stock Price (3) | Interest Rate (annual) (4) | Volatility (annual) (5) | Time to Maturity (Years) | Calculated Fair Value per Share | |||||||||||||||||||
| Inception Date: 2/14/2022 | $ | $ | % | % | $ | |||||||||||||||||||||
| Issuance Date: 2/14/2022 | $ | $ | % | % | $ | |||||||||||||||||||||
| Issuance Date: 2/15/2022 | $ | $ | % | % | $ | |||||||||||||||||||||
| Period Ended 3/31/2022 | $ | $ | % | % | $ | |||||||||||||||||||||
| Issuance Date: 4/4/2022 | $ | $ | % | % | $ | |||||||||||||||||||||
| Issuance Date: 6/6/2022 | $ | $ | % | % | $ | |||||||||||||||||||||
| Period Ended 6/30/2022 | $ | $ | % | % | $ | |||||||||||||||||||||
| Issuance Date: 8/16/2022 | $ | $ | % | % | $ | |||||||||||||||||||||
| Period Ended 9/30/2022 | $ | $ | % | % | $ | |||||||||||||||||||||
| Issuance Date: 10/21/2022 | $ | $ | % | % | $ | |||||||||||||||||||||
| Issuance Date: 12/14/2022 | $ | $ | % | % | $ | |||||||||||||||||||||
| Period Ended 12/31/2022 | $ | $ | % | % | $ | |||||||||||||||||||||
| Issuance Date: 1/25/2023 | $ | $ | % | % | $ | |||||||||||||||||||||
| Inception Date: 2/9/2023 | $ | $ | % | % | $ | |||||||||||||||||||||
| Issuance Date: 2/15/2023 | $ | $ | % | % | $ | |||||||||||||||||||||
| Period Ended 3/31/2023 | $ | $ | % | % | $ | |||||||||||||||||||||
| Issuance Date: 4/4/2023 | $ | $ | % | % | $ | |||||||||||||||||||||
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) |
| 23 |
The warrants outstanding and fair values at each of the respective valuation dates are summarized below:
| Warrant Liability | Credit Line and Draw Amounts (in thousands) | Warrants | Fair Value per Share | Fair Value (in thousands) | ||||||||||||
| Fair value as of January 1, 2022 | $ | $ | $ | |||||||||||||
| Fair value at initial measurement date of 2/14/2022 | (1) | (2) | ||||||||||||||
| Fair value of warrants issued on 2/14/2022 | ( | )(3) | ( | )(4) | ( | ) | ||||||||||
| Fair value of warrants issued on 2/15/2022 | ( | )(3) | ( | )(4) | ( | ) | ||||||||||
| Fair value of warrants issued on 4/4/2022 | ( | )(3) | ( | )(4) | ( | ) | ||||||||||
| Fair value of warrants issued on 6/6/2022 | ( | )(3) | ( | )(4) | ( | ) | ||||||||||
| Fair value of warrants issued on 8/16/2022 | ( | )(3) | ( | )(4) | ( | ) | ||||||||||
| Fair value of warrants issued on 10/21/2022 | ( | )(3) | ( | )(4) | ( | ) | ||||||||||
| Fair value of warrants issued on 12/14/2022 | ( | )(3) | ( | )(4) | ( | ) | ||||||||||
| Change in fair value of warrants | ||||||||||||||||
| Fair value as of December 31, 2022 | $ | (1) | (2) | $ | $ | |||||||||||
| Fair value of warrants issued on 1/25/2023 | ( | )(3) | ( | )(4) | ( | ) | ||||||||||
| Fair value at initial measurement date of 2/9/2023 | (1) | (2) | ||||||||||||||
| Fair value of warrants issued on 2/15/2023 | ( | )(3) | ( | )(4) | ( | ) | ||||||||||
| Fair value of warrants issued on 4/4/2023 | ( | )(3) | ( | )(4) | ( | ) | ||||||||||
| Change in fair value of warrants | ||||||||||||||||
| Fair value as of September 30, 2023 | $ | (1) | (2) | $ | $ | |||||||||||
| (1) | |
| (2) | |
| (3) | |
| (4) |
During
the nine months ended September 30, 2023, AgeX recorded a loss on change in fair value of warrants of $
The warrant liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair value includes various assumptions about future activities and AgeX’s stock prices and historical volatility as inputs. None of the warrants issued have been exercised.
7. Stockholders’ Equity (Deficit)
Preferred Stock
On
July 24, 2023, AgeX issued to Juvenescence shares of a newly authorized Series A Preferred Stock and shares of a newly
authorized Series B Preferred Stock in exchange for the cancellation of a total of $
Classification of Preferred Stock
The deemed liquidation preference provisions of the preferred stock are considered contingent redemption provisions that are not solely within AgeX’s control. Accordingly, the preferred stock has been presented outside of permanent equity in the mezzanine section of the condensed consolidated balance sheet. Because the occurrence of a deemed liquidation event is not currently probable, the carrying values of the preferred stock are not being accreted to their redemption values. Subsequent adjustments to the carrying values to the preferred stock would be made only when a deemed liquidation event becomes probable.
On November 7, 2023, certain terms of the Series A Preferred Stock and Series B Preferred Stock was amended (i) to clarify that certain change of control or disposition of asset transactions would be treated as adeemed liquidation if the applicable transaction is approved by the Board of Directors or stockholders of AgeX, and (ii) to provide that in case of such a deemed liquidation transaction holders of Preferred Stock would receive the same type of consideration as that distributed or paid to holders of AgeX common stock. This amendment permits the classification of the Series A Preferred Stock and Series B Preferred Stock as permanent equity effective November 7, 2023. See Note 12, Subsequent Events, for illustration of the Preferred Stock presented in permanent equity in the condensed consolidated pro forma balance sheet.
| 24 |
Dividends – The Preferred Stock is not entitled to receive any payment or distribution of cash or other dividends.
Liquidation Preference – In the event of any voluntary or involuntary liquidation, dissolution or other winding up of the affairs of AgeX, subject to the preferences and other rights of any senior stock, before any assets of AgeX shall be distributed to holders of common stock or other junior stock, all of the assets of AgeX available for distribution to stockholders shall be distributed among the holders of Series A Preferred Stock and Series B Preferred Stock and any other “parity stock” that may be issued ranking parri passu with those series of Preferred Stock with respect to liquidation rights, in proportion to the number of shares of Series B Preferred Stock and parity stock held by each such holder as of the record date for the determination of holders of Series A Preferred Stock, Series B Preferred Stock, and parity stock entitled to receive such distribution, until AgeX shall have distributed to the holders of those shares an amount of assets having a value equal to the subscription price per share. If the assets of AgeX shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders of Series A Preferred Stock, Series B Preferred Stock and parity stock shall be ratably distributed among such holders. The (i) acquisition of AgeX by another entity by means of any transaction or series of transactions (including, without limitation, any reorganization, merger or consolidation) in which the stockholders of AgeX immediately before such transaction or series of transactions do not own a majority of the outstanding stock of the surviving or acquiring corporation upon completion of such transaction or series of transactions or (ii) a sale of all or substantially all of the assets of AgeX in a single transaction or series of related transactions, shall be deemed a liquidation. On November 7, 2023, certain terms of the liquidation preference were amended. See Note 12 Subsequent Transactions.
Conversion
of Preferred Stock into Common Stock – Each share of Preferred Stock shall be convertible into a number of shares of AgeX common
stock determined by dividing (x) a number equal to the number of dollars and cents comprising the subscription price, by (y) a number
equal to the number of dollars and cents comprising the conversion price. The subscription price per share of Preferred Stock is $
which was paid through the exchange of indebtedness for shares of Preferred Stock. The conversion price per share of Series A Preferred
Stock or Series B Preferred Stock is $
Optional Conversion – Preferred Stock shall be convertible into common stock at the election of the holder of shares of Preferred Stock at any time and from time to time subject to the limitations on conversion of Series B Preferred Stock discussed below.
Automatic Conversion – The outstanding shares of Series A Preferred Stock shall automatically be converted into common stock without any further act of AgeX or its stockholders (“Automatic Conversion”) upon the earliest of: (x) the date on which AgeX or a subsidiary shall have consummated a merger with Serina, or a subsidiary thereof; and (y) February 1, 2024. Further, if the holders of at least a majority of the outstanding shares of Series A Preferred Stock approve or consent to the Automatic Conversion of the shares of that series, then the outstanding shares of Series A Preferred Stock shall be converted into common stock upon such approval or consent.
The
outstanding shares of Series B Preferred Stock shall automatically be converted into common stock without any further act of AgeX or
its stockholders upon the earliest of: (x) the date on which AgeX or a subsidiary shall have consummated a merger with Serina or a subsidiary
thereof; and
Certain
Limitations on Conversion of Series B Preferred Stock –
| 25 |
Adjustment of conversion price and subscription price – If AgeX shall (a) declare a dividend or make a distribution on its common stock in shares of common stock, (b) subdivide or reclassify the outstanding common stock into a greater number of shares, or (c) combine or reclassify the outstanding common stock into a smaller number of shares, the conversion price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be proportionately adjusted. If AgeX shall (i) declare a dividend or make a distribution on a series of Preferred Stock in shares of Preferred Stock, (ii) subdivide or reclassify the outstanding shares of a series of Preferred Stock into a greater number of shares, or (iii) combine or reclassify the outstanding shares of a series of Preferred Stock into a smaller number of shares, the subscription price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be proportionately adjusted. Successive adjustments in the conversion price or subscription price, as applicable, shall be made whenever any event specified above shall occur.
No Fractional Shares – No fractional share of common stock or scrip shall be issued upon conversion of Preferred Stock. Instead of any fractional share of common stock which would otherwise be issuable upon conversion of any Preferred Stock, AgeX will pay a cash adjustment in respect of such fractional interest in an amount equal to that fractional interest at the then fair value determined in accordance with the terms of the Preferred Stock.
Voting
Rights – The following matters shall require the approval of the holders of a majority of the shares of a series of Preferred
Stock then outstanding, voting as a separate class:
Governing Law – The powers, designations, preferences, rights, qualifications, limitations, and restrictions of either series of Preferred Stock, the validity, authorization and issuance of such Preferred Stock, and the conversion of such Preferred Stock into common stock shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflict of laws thereof, and all legal proceedings pursuant or with respect to or concerning such matters (a “Proceeding”), whether brought by or against a holder of Preferred Stock or AgeX or any of their respective directors, officers, stockholders, employees or agents, shall be commenced in the state and federal courts sitting in the State of Delaware (the “Delaware Courts”). The Preferred Stock provides that (a) AgeX and each holder of Preferred Stock irrevocably submits to the exclusive jurisdiction of the Delaware Courts for the adjudication of any Proceeding, and irrevocably waives, and agrees not to assert in any Proceeding any claim that they are not personally subject to the jurisdiction of such Delaware Courts, or such Delaware Courts are an improper or inconvenient venue for such Proceeding, and (b) AgeX and each holder of Preferred Stock irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to such party and agrees that such service shall constitute good and sufficient service of process and notice
Common Stock
AgeX has shares of $ par value common stock authorized. At September 30, 2023 and December 31, 2022, there were and shares of AgeX common stock issued and outstanding, respectively.
Issuance and Sale of Warrants by AgeX
In
connection with the $
| 26 |
At-the-Market Offering Facility
On
January 8, 2021, AgeX entered into a sales agreement with Chardan Capital Markets, LLC (“Chardan”) relating to the sale
of shares of AgeX common stock, par value $
per share, through an at-the-market (“ATM”) offering as described in the prospectus supplement filed with the Form S-3
which was declared effective by the SEC on January 29, 2021. In accordance with the terms of the sales agreement, AgeX may offer and
sell shares of AgeX common stock having an aggregate offering price of up to $
Equity Incentive Plan Awards
AgeX has an Equity Incentive Plan (the “Plan”) under which a maximum of shares of common stock are available for the grant of stock options, the sale of restricted stock, the settlement of restricted stock units, and the grant of stock appreciation rights. The Plan also permits AgeX to issue such other securities as its Board of Directors or the Compensation Committee administering the Plan may determine.
Shares Available for Grant | Number of Options Outstanding | Number of RSUs Outstanding | Weighted- Average Exercise Price | |||||||||||||
| Balance at December 31, 2022 | $ | |||||||||||||||
| Options granted | ( | ) | ||||||||||||||
| Restricted stock units vested | ) | |||||||||||||||
| Balance at September 30, 2023 | $ | |||||||||||||||
| Options exercisable at September 30, 2023 | $ | |||||||||||||||
There have been exercises of stock options to date.
Stock-based Compensation Expense
AgeX recognizes compensation expense related to employee option grants and restricted stock grants, if any, in accordance with ASC 718, Compensation – Stock Compensation (“ASC 718”). AgeX estimates the fair value of employee stock-based payment awards on the grant-date and recognizes the resulting fair value, net of estimated forfeitures for grants prior to 2017, over the requisite service period. Upon adoption of ASU 2016-09 on January 1, 2017 as further discussed below, forfeitures are accounted for as they occur instead of based on the number of awards that were expected to vest prior to adoption of ASU 2016-09.
AgeX uses the Black-Scholes option pricing model for estimating the fair value of options granted under AgeX’s 2017 Equity Incentive Plan (the “Incentive Plan”). The fair value of each restricted stock grant, if any, is determined based on the value of the common stock granted or sold. AgeX has elected to treat stock-based payment awards with time-based service conditions as a single award and recognizes stock-based compensation on a straight-line basis over the requisite service period.
Compensation expense for non-employee stock-based awards is recognized in accordance with ASC 718. Stock option awards issued to non-employees, principally consultants or outside contractors, as applicable, are accounted for at fair value using the Black-Scholes option pricing model. Management believes that the fair value of the stock options and restricted stock units can more reliably be measured than the fair value of services received. AgeX records compensation expense based on the then-current fair values of the stock options and restricted stock units at the grant date. Compensation expense for non-employee grants is recorded on a straight-line basis in the consolidated statements of operations.
| 27 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| Total 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 including expected life, risk-free interest rates, volatility, and dividend yield. The assumptions that were used to calculate the grant date fair value of employee and non-employee stock option grants for the three and nine months ended September 30, 2022 were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022(1) | 2023 | 2022 | |||||||||||||
| Grant price | $ | $ | $ | $ | ||||||||||||
| Market price | $ | $ | $ | $ | ||||||||||||
| Expected life (in years) | ||||||||||||||||
| Volatility | % | % | % | % | ||||||||||||
| Risk-free interest rates | % | % | % | % | ||||||||||||
| Dividend yield | % | % | % | % | ||||||||||||
| (1) |
The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If AgeX had made different assumptions, its stock-based compensation expense and net loss for the nine months ended September 30, 2023 and 2022 may have been significantly different.
AgeX does not recognize deferred income taxes for incentive stock option compensation expense and records a tax deduction only when a disqualified disposition has occurred.
9. Income Taxes
The provision for income taxes for interim periods is determined using an estimated annual effective tax rate in accordance with ASC 740-270, Income Taxes, Interim Reporting. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, if any, and changes in or the interpretation of tax laws in jurisdictions where AgeX conducts business.
For
the three and nine months ended September 30, 2023 and 2022, AgeX experienced a loss; therefore,
Due to losses incurred for all periods presented, AgeX did not record a provision or benefit for income taxes. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. AgeX established a full valuation allowance for all of its deferred tax assets for all periods presented due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets.
10. Supplemental Cash Flow Information
Non-cash investing and financing transactions presented separately from the condensed consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022 are as follows (in thousands):
Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Issuance of preferred stock in exchange for debt | $ | $ | ||||||
| Issuance of common stock upon vesting of restricted stock units (Note 8) | $ | $ | ||||||
| Issuance of warrants for debt issuance under the 2020 Loan Agreement | $ | $ | ||||||
| Fair value of liability classified warrants at debt inception date (Note 6) | $ | $ | ||||||
| Debt refinanced with new debt (Note 5) | $ | $ | ||||||
| 28 |
11. Commitments and Contingencies
Office Lease Agreement
AgeX
leases office space in Alameda, California. For 2022 base monthly rent was $
ASC 842
For the office lease, AgeX has elected to not apply the recognition requirements under ASC 842 as lease cost on a straight-line basis over the lease term because the amount of the lease payments is not deemed material.
There were no future minimum lease commitments as of September 30, 2023.
Litigation – General
AgeX is subject to various claims and contingencies in the ordinary course of its business, including those related to litigation, business transactions, employee-related matters, and others. When AgeX is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, AgeX will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, AgeX discloses the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. AgeX is not aware of any claims likely to have a material adverse effect on its financial condition or results of operations.
Tax Filings
AgeX tax filings are subject to audit by taxing authorities in jurisdictions where it conducts business. These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or potentially through the courts. Management believes AgeX has adequately provided for any ultimate amounts that are likely to result from these audits; however, final assessments, if any, could be significantly different than the amounts recorded in the unaudited condensed consolidated interim financial statements.
Employment Contracts
AgeX has entered into employment contracts with certain executive officers. Under the provisions of the contracts, AgeX may be required to incur severance obligations for matters relating to changes in control, as defined, and involuntary terminations.
Indemnification
In the normal course of business, AgeX may provide indemnifications of varying scope under AgeX’s agreements with other companies or consultants, typically for AgeX’s research and development programs. Pursuant to these agreements, AgeX will generally agree to indemnify, hold harmless, and reimburse the indemnified parties for losses and expenses suffered or incurred by the indemnified parties arising from claims of third parties in connection with AgeX’s research and development. Indemnification provisions could also cover third-party infringement claims with respect to patent rights, copyrights, or other intellectual property licensed from AgeX to third parties. Office and laboratory leases will also generally indemnify the lessor with respect to certain matters that may arise during the term of the lease. The sales agreement between AgeX and Chardan also includes indemnification provisions pursuant to which the parties have agreed to indemnify each other from certain liabilities that could arise from the offer and sale of AgeX common stock through the ATM facility, including liabilities under the Securities Act. Similarly, the Registration Rights Agreement between Juvenescence and AgeX includes indemnification provisions pursuant to which the parties will indemnify each other from certain liabilities in connection with the registration, offer, and sale of securities under a registration statement, including liabilities arising under the Securities Act. AgeX has also agreed to provide the AST Indemnity pursuant to the Letter of Indemnification described in Note 5, Related Party Transactions. The term of these indemnification obligations will generally continue in effect after the termination or expiration of the particular license, lease, or agreement to which they relate. The potential future payments AgeX could be required to make under these indemnification agreements will generally not be subject to any specified maximum amount. Historically, AgeX has not been subject to any claims or demands for indemnification. AgeX also maintains various liability insurance policies that limit AgeX’s financial exposure and in the case of the AST Indemnity AgeX has received a cross-indemnity from Juvenescence against all claims, damages, liabilities or losses arising out of the AST Indemnity. As a result, AgeX believes the fair value of these indemnification agreements is minimal. Accordingly, AgeX has not recorded any liabilities for these agreements to date.
| 29 |
Notice of Delisting
On
April 20, 2023, AgeX received a letter (the “2023 Deficiency Letter”) from the staff of the Exchange indicating that AgeX
does not meet certain of the Exchange’s continued listing standards as set forth in Sections 1003(a)(i), (ii), and (iii) of the
Exchange Company Guide in that AgeX has stockholders equity of less than (A) $
On
May 17, 2023 AgeX received a notice from the staff of the Exchange indicating that they intend to commence proceedings to delist AgeX
common stock from the Exchange based upon AgeX’s non-compliance with the stockholders’ equity requirements set forth in Sections
1003(a)(i), (ii) and (iii) of the Exchange’s Company Guide by the end of a compliance plan period that expired on May 17, 2023.
Specifically, AgeX did not meet the continued listing standards because it had stockholders equity of less than (A) $
On
May 24, 2023, AgeX filed a request for a review of the delisting determination by a Committee of the Board of Directors of the Exchange.
On May 31, 2023, AgeX received a notice from the staff of the Exchange which scheduled a hearing for July 25, 2023. On July 24, 2023,
AgeX issued shares of preferred stock to Juvenescence in exchange for the extinguishment of $
12. Subsequent Events
Additional Loans Under Secured Note
On
October 3, 2023, AgeX drew $
Increase in Secured Note Line of Credit
On
November 9, 2023, AgeX and Juvenescence entered into the Allonge and Fifth Amendment to Amended and Restated Convertible Promissory
Note (the “Fifth Amendment”) that increases the amount of the line of credit available to AgeX by $
Amendment to Preferred Stock and Remediation of Stock Exchange Listing Deficiency
On
July 24, 2023, AgeX issued shares of AgeX Series A Preferred Stock and AgeX Series B Preferred Stock to Juvenescence in exchange for
the extinguishment of $
The following pro-forma condensed consolidated balance sheet illustrates the effect of the Preferred Stock in permanent equity.
| 30 |
Non-GAAP Financial Measures
The condensed consolidated interim financial statements include stockholders equity (deficit) prepared in accordance with accounting principles generally accepted in the United States (GAAP). The following pro-forma condensed consolidated balance sheet includes certain pro forma historical non-GAAP adjustments to the balance sheet. In particular, AgeX has provided a non-GAAP pro forma presentation of Series A Preferred Stock and Series B Preferred Stock classified as permanent equity, eliminating the stockholders deficit, based on a post-September 30, 2023 amendment to the liquidation provisions of the Preferred Stock. Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable financial measures prepared in accordance with GAAP. However, AgeX believes the non-GAAP presentation of stockholders equity, when viewed in conjunction with our GAAP presentation, is helpful in understanding AgeX’s current capital structure.
AGEX THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
(in thousands, except par value amounts)
(unaudited)
| September 30, 2023 | Adjustment | Adjusted Balance | ||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Accounts and grants receivable, net | ||||||||||||
| Related party receivables, net | ||||||||||||
| Prepaid expenses and other current assets | ||||||||||||
| Total current assets | ||||||||||||
| Restricted cash | ||||||||||||
| Intangible assets, net | ||||||||||||
| Convertible note receivable | ||||||||||||
| TOTAL ASSETS | $ | $ | $ | |||||||||
| LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | |||||||||
| Loan due to Juvenescence, net of debt issuance costs, current portion | ||||||||||||
| Insurance premium liability and other current liabilities | ||||||||||||
| Total current liabilities | ||||||||||||
| Loan due to Juvenescence, net of debt issuance costs, net of current portion | ||||||||||||
| TOTAL LIABILITIES | ||||||||||||
| Commitments and contingencies | ||||||||||||
| Series
A preferred stock; par value; stated value $ | ( | ) | ||||||||||
| Series
B preferred stock; par value; stated value $ | ( | ) | ||||||||||
| Stockholders' equity (deficit): | ||||||||||||
| Preferred stock, $par value, shares authorized; and | ||||||||||||
| Series A Preferred stock - and shares issued and outstanding, respectively | ||||||||||||
| Series B Preferred stock - and shares issued and outstanding, respectively | ||||||||||||
| Common stock, $ par value, shares authorized; and and shares issued and outstanding, respectively | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||||
| Total AgeX Therapeutics, Inc. stockholders’ equity (deficit) | ( | ) | ||||||||||
| Noncontrolling interest | ( | ) | ( | ) | ||||||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||||||
| TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | $ | |||||||||
| 31 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The matters addressed in this Item 2 that are not historical information constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements about any of the following: any projections of earnings, revenue, cash, effective tax rate, use of net operating losses, or any other financial items; the plans, strategies and objectives of management for future operations or prospects for achieving such plans, and any statements of assumptions underlying any of the foregoing. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. While AgeX may elect to update forward-looking statements in the future, it specifically disclaims any obligation to do so, even if the AgeX estimates change and readers should not rely on those forward-looking statements as representing AgeX views as of any date subsequent to the date of the filing of this Quarterly Report. Although we believe that the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risks and AgeX can give no assurances that its expectations will prove to be correct. Actual results could differ materially from those described in this report because of numerous factors, many of which are beyond the control of AgeX. A number of important factors could cause the results of the company to differ materially from those indicated by such forward-looking statements, including those detailed under the heading “Risk Factors” in this Form 10-Q, our Form 10-K for the year ended December 31, 2022, and our other reports filed with the SEC from time to time.
The following discussion should be read in conjunction with AgeX’s condensed consolidated interim financial statements and the related notes provided under “Item 1- Financial Statements” above.
Merger Agreement and Related Transactions
On August 29, 2023, AgeX entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Serina Therapeutics, Inc. (“Serina”) and Canaria Transaction Corporation, an Alabama corporation and wholly owned subsidiary of AgeX (“Merger Sub”). Serina currently has a pipeline of small molecule candidates targeting central nervous system (“CNS”) indications, enabled by the company’s proprietary POZ PlatformTM delivery technology. In addition to advancing Serina’s wholly owned pipeline assets, Serina is working with pharma partners currently advancing pre-clinical studies exploring POZ polymer lipid-nanoparticles (“LNPs”) in next generation LNP delivered RNA vaccines. In addition, Serina is advancing a lead drug candidate, SER-252 (POZ-apomorphine) for the treatment of advanced Parkinson’s Disease through pre-clinical studies towards the goal of an investigational new drug submission or “IND” to the Food and Drug Administration for the initiation of a Phase I clinical trial during the fourth quarter of 2024. Serina has two other pipeline assets that are positioned to enter IND enabling studies, SER-227 (POZ-buprenorphine) for certain post-operative pain indications, and SER-228 (POZ-cannabidiol) for treatment refractory epilepsy indications. Serina is also focused on expanding its LNP and anti-body drug conjugate partnering collaborations.
Upon the terms and subject to the satisfaction of the conditions described in the Merger Agreement, including that the Merger is approved by the stockholders of AgeX and the stockholders of Serina, Merger Sub will be merged with and into Serina, with Serina surviving as a wholly owned subsidiary of AgeX (the “Merger”). AgeX following the Merger is referred to herein as the “Combined Company.” There is no assurance the necessary approvals by AgeX stockholders and Serina stockholders will be obtained or that the other conditions to the Merger as provided in the Merger Agreement will be met.
Immediately following the Merger, equity holders of Serina immediately prior to the closing of the Merger are expected to own approximately 75% of the outstanding shares of common stock of the Combined Company, and stockholders of AgeX immediately prior to the closing of the Merger are expected to own approximately 25% of the outstanding shares of common stock of the Combined Company, in each case, on a pro forma fully diluted basis, subject to certain assumptions and exclusions, including the Actual Closing Price (as defined in the Merger Agreement) of AgeX common stock being equal to or greater than $12.00 per share, giving effect to a planned reverse stock split and the conversion of AgeX Preferred Stock into shares of AgeX common stock and excluding the impact of any Post-Merger Warrant, Incentive Warrant or the issuance of any share of AgeX common stock upon exercise of any Post-Merger Warrant or incentive warrant.
Prior to the closing of the Merger, AgeX will issue to each holder of AgeX common stock three warrants (“Post-Merger Warrants”) for each five shares of AgeX common stock held by such stockholder. Each Post-Merger Warrant will be exercisable for one unit of AgeX (“AgeX Unit”) at a price equal to $13.20 per unit and will expire on July 31, 2025. Each AgeX Unit will consist of (i) one share of AgeX common stock and (ii) one warrant (“Incentive Warrant”). Each Incentive Warrant will be exercisable for one share of AgeX common stock at a price equal to $18.00 per warrant and will expire on the four-year anniversary of the closing date of the Merger. The terms of each Post-Merger Warrant and Incentive Warrant will be further detailed in a warrant agreement that will be negotiated between the parties prior to the closing of the Merger.
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Concurrently with the execution of the Merger Agreement, AgeX, Serina and Juvenescence entered into a Side Letter, which will become effective immediately prior to the closing of the Merger. The Side Letter provides, among other things, that (i) effective immediately before the consummation of the Merger, Juvenescence will cancel all out of the money AgeX warrants held by Juvenescence; (ii) Juvenescence will exercise all Post-Merger Warrants it holds to provide the Combined Company an additional $15 million in capital according to the following schedule: (x) at least one-third on or before May 31, 2024, (y) at least one-third on or before November 30, 2024, and (z) at least one-third on or before June 30, 2025; (iii) Juvenescence will not sell any shares of AgeX Series A Preferred Stock or AgeX Series B Preferred Stock and will take all actions necessary to convert all of such Preferred Stock into AgeX common stock before a reverse stock split that will occur before the Merger; (iv) Juvenescence will release all security interests, guarantees, pledges, assignments and other forms of collateral that it may have in AgeX’s assets pursuant to the terms of Juvenescence loans to AgeX; and (v) Juvenescence will consent to a newly formed subsidiary of AgeX assuming AgeX’s obligations with respect to loan agreements and promissory notes governing loans payable to Juvenescence, including obligations for amounts currently owed and future advances of loan funds, and Juvenescence shall release AgeX from those loan obligations.
The following discussion and analysis of AgeX’s financial condition and results of operations and liquidity and capital resources does not reflect material changes to AgeX’s business, assets, liabilities, financial condition, operations, management, liquidity, capital resources, and prospects that will occur if the Merger is consummated.
Critical Accounting Estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses and analyzes data in our unaudited condensed consolidated interim financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual conditions may differ from our assumptions and actual results may differ from our estimates.
An accounting policy is deemed critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate are reasonably likely to occur, that could materially impact the financial statements. Management believes that there have been no significant changes during the nine months ended September 30, 2023 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022, except as disclosed in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, of our condensed consolidated interim financial statements included elsewhere in this Report.
Results of Operations
Comparison of Three and Nine Months Ended September 30, 2023 and 2022
Revenues and Cost of Sales
During the three and nine months ended September 30, 2023 we recognized income of approximately $21,000 from a grant awarded by the NIH in August 2023 with a one year grant period that commenced on September 1, 2023.
During the three and nine months ended September 30, 2023, we recognized revenues of $46,000 and $65,000, respectively, from the sale of research products. During the three and nine months ended September 30, 2022, we recognized revenues of $9,000 and $26,000, respectively from the sale of research products.
During the three and nine months ended September 30, 2023, we recognized cost of sales of $33,000 and $39,000, respectively, from the sale of research products. During the three and nine months ended September 30, 2022, we recognized cost of sales of $5,000 and $12,000, respectively from the sale of research products.
Operating Expenses
We continue to maintain a minimal workforce since our May 1, 2020 reduction in force which resulted in the layoff of most of our research and development personnel and certain administrative personnel. The following table shows our consolidated operating expenses for the periods presented (in thousands).
Three Months Ended September 30, | $ Increase/ | % Increase/ | ||||||||||||||
| 2023 | 2022 | (Decrease) | (Decrease) | |||||||||||||
| Research and development expenses | $ | 218 | $ | 162 | $ | 56 | 34.6 | % | ||||||||
| General and administrative expenses | 2,172 | 1,392 | 780 | 56.0 | % | |||||||||||
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Nine Months Ended September 30, | $ Increase/ | % Increase/ | ||||||||||||||
| 2023 | 2022 | (Decrease) | (Decrease) | |||||||||||||
| Research and development expenses | $ | 552 | $ | 817 | $ | (265 | ) | (32.4 | )% | |||||||
| General and administrative expenses | 5,895 | 4,390 | 1,505 | 34.3 | % | |||||||||||
Research and development expenses
Research and development expenses for the three months ended September 30, 2023 were approximately $0.2 million, consistent with the same period in 2022.
Research and development expenses for the nine months ended September 30, 2023 decreased by approximately $0.2 million to $0.6 million from $0.8 million during the same period in 2022. The net decrease was primarily attributable to reductions of $0.2 million in outside research and services allocable to research and development expenses.
General and administrative expenses
General and administrative expenses for the three months ended September 30, 2023 increased by $0.8 million to $2.2 million as compared to $1.4 million during the same period in 2022. The net increase is attributable to increases of $0.7 million in professional fees for legal services related to the possible Merger between AgeX and Serina, $0.1 million in professional fees for non-merger related legal services, $0.1 million in patent and license maintenance related fees and $0.1 million in investor relations related expenses and insurance expense. These increases were offset to some extent by a $0.2 million decrease in noncash stock-based compensation to employees, consultants and directors.
General and administrative expenses for the nine months ended September 30, 2023 increased by $1.5 million to $5.9 million as compared to $4.4 million during the same period in 2022. The net increase is attributable to increases of $1.7 million in professional fees for legal services, consulting expenses incurred in connection with due diligence and other expenses related to the possible Merger between AgeX and Serina, $0.2 million in investor relations related expenses and insurance expense, $0.1 million in professional fees for other non-recurring legal services, and $0.1 million in salaries and payroll related expenses allocated to general and administrative expenses. These increases were offset to some extent by a $0.5 million decrease in noncash stock-based compensation to employees, consultants and directors, and $0.1 million in patent and license maintenance related fees, travel and lodging, and minimum royalty fees under certain license agreements.
General and administrative expenses include employee and director compensation allocated to general and administrative expenses, consulting fees other than those paid for science-related consulting, facilities and equipment rent and maintenance related expenses, insurance costs allocated to general and administrative expenses, stock exchange-related costs, depreciation expense, marketing costs, legal and accounting costs, and other miscellaneous expenses which are allocated to general and administrative expense.
Other expense, net
Total other expense, net for the three months ended September 30, 2023 consists primarily of $3.2 million amortization of deferred debt issuance costs to interest expense, write off of deferred debt cost upon $36 million debt exchanged for preferred stock in July 2023, and other debt related expenses included in interest expense offset by $0.2 million net interest income primarily earned from a $10,000,000 loan under the terms of the Serina Note. Total other expense, net for the three months ended September 30, 2022 consists primarily of $0.9 million amortization of deferred debt issuance costs to interest expense and other debt related expenses included in interest expense.
Total other expense, net for the nine months ended September 30, 2023 consists primarily of $5.3 million amortization of deferred debt issuance costs to interest expense, write off of deferred debt cost upon $36 million debt exchanged for preferred stock in July 2023, and other debt related expenses included in interest expense offset by $0.4 million net interest income primarily earned from the Serina Note. Total other expense, net for the nine months ended September 30, 2022 consists primarily of $2.3 million amortization of deferred debt issuance costs to interest expense and other debt related expenses included in interest expense and $0.2 million unrealized loss on change in fair value of warrants issued to Juvenescence in connection with borrowings under the Secured Note.
See Notes 4, Convertible Note Receivable, 5, Related Party Transactions, 6, Warrant Liability, and 7, Stockholders’ Equity (Deficit) to our condensed consolidated interim financial statements included elsewhere in this Report for additional information about our loan agreement with Serina, loan agreements with Juvenescence, liability classified warrants, and debt exchanged for preferred stock.
Income taxes
For the three and nine months ended September 30, 2023 and 2022, AgeX experienced a loss; therefore, no income tax provision was recorded for the three and nine months ended September 30, 2023 and 2022.
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Due to losses incurred for all periods presented, we did not record a provision or benefit for income taxes. A valuation allowance will be provided when it is more likely than not that some portion of the deferred tax assets will not be realized. We established a full valuation allowance for all deferred tax assets for the periods presented due to the uncertainty of realizing future tax benefits from our net operating loss carryforwards and other deferred tax assets.
For years beginning after December 31, 2021, the 2017 Tax Act requires companies to capitalize their research and experimentation expenditures as defined under Section 174 and amortize those expenditures on a straight-line bases over a period of 5 years. Previously AgeX was able to immediately expense such costs. It is possible that Congress will defer or eliminate the ultimate implementation of this provision. AgeX has sufficient federal net operation loss carryforwards to offset the impact of this provision.
Liquidity and Capital Resources
Operating Losses and Going Concern Considerations
We have incurred operating losses and negative cash flows since inception and had an accumulated deficit of $127.6 million as of September 30, 2023. We expect to continue to incur operating losses and negative cash flows. We have been funding our operations with loans from Juvenescence. As of October 31, 2023, we had drawn down in full the remaining credit available to us from Juvenescence pursuant to the Secured Note, and we estimate that our cash on hand as of that date will be sufficient to fund our operations through the end of November 2023. However, on November 9, 2023, we entered into an Allonge and Fifth Amendment to Amended and Restated Convertible Promissory Note with Juvenescence that increases the amount of the line of credit available to us by $4,400,000 under the Secured Note, subject to the terms of the Secured Note as so amended and Juvenescence’s discretion to approve and fund each of our future draws of that additional amount of credit.
We have made certain adjustments to our operating plans and budgets to reduce our projected cash expenditures in order to extend the period over which we can continue our operations with our available cash resources. These adjustments entailed down-sizing of our leased office space effective January 1, 2021, a staff force reduction during 2020 primarily impacting research and development personnel, and the elimination of our leased laboratory facility. These down-sizing adjustments to our operations will require the deferral of certain work on the development of our product candidates and technologies. However, notwithstanding those adjustments, based on our most recent projected cash flows, our cash and cash equivalents, the amount of the Secured Note line of credit available to us from Juvenescence, including the $4,400,000 increase in the line of credit, and the proceeds we may receive from the sale of additional shares of our common stock in “at-the-market” transactions through a Sales Agreement with Chardan as a sales agent, would not be sufficient to satisfy our anticipated operating and other funding requirements for the next twelve months from the date of filing of this Report. These factors raise substantial doubt regarding our ability to continue as a going concern. See Note 5, Related Party Transactions, and Note 12, Subsequent Events, to our condensed consolidated interim financial statements included elsewhere in this Report for additional information about our loan agreements with Juvenescence. We will need to raise additional capital in the near term to be able to meet our operating expenses.
The loans from Juvenescence that remain outstanding prohibit us and our subsidiaries ReCyte Therapeutics and Reverse Bio from borrowing funds from other lenders or engaging in certain other transactions without the consent of Juvenescence unless we repay all amounts owed to Juvenescence. AgeX and three of its subsidiaries have granted Juvenescence a security interest and lien on substantially all of their assets to secure AgeX’s obligations under the Secured Note, and AgeX has granted Juvenescence a security interest and lien on substantially all of AgeX’s assets to secure AgeX’s obligations under the $10 Million Secured Note. The outstanding amounts under the Secured Note and the $10 Million Secured Note will become due and payable upon maturity on February 14, 2024 and March 13, 2026, respectively. These factors and the impact of potential dilution through the issuance of shares of our common stock upon the conversion of the Juvenescence loans or shares of Preferred Stock into AgeX common stock and the exercise of warrants issued to Juvenescence in connection with the Juvenescence loans could make AgeX less attractive to new equity investors and could impair our ability to finance our operations or the operations of our subsidiaries unless Juvenescence agrees, in its discretion, to lend us additional funds.
Through the Sales Agreement with Chardan, we may sell during any 12 month period an amount of common stock in “at-the-market” transactions not to exceed one-third of the aggregate market value of our common stock held by stockholders who would not be considered “affiliates” of AgeX, determined in accordance with applicable SEC rules. We do not have any other committed sources of funds for additional financing.
Although we have been able to reduce our operating expenses by eliminating internal research and development activities and focusing instead on out-sourcing research and development and seeking licensing arrangements for our technologies, this approach has also made it more difficult for us to make progress in developing our target product candidates and technologies, which in turn may make it more difficult for us to raise capital.
The unavailability or inadequacy of financing to meet future capital needs could force us to modify, curtail, delay, or suspend some or all aspects of planned operations.
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To the extent that we are able to raise additional capital through the sale of AgeX equity or convertible debt securities or the sale of equity or convertible debt securities of any of our subsidiaries, the ownership interest of our present stockholders will be diluted, and the terms of any securities we or our subsidiaries issue may include liquidation or other preferences that adversely affect the rights of our common stockholders. Additional debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, and may involve the issuance of convertible debt or stock purchase warrants that would dilute the equity interests of our stockholders. If we raise funds through additional strategic partnerships or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.
Summary of Cash Flows
The following table summarizes the major sources and uses of cash for the periods set forth below (in thousands):
Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (5,748 | ) | $ | (4,618 | ) | ||
| Investing activities | (10,000 | ) | - | |||||
| Financing activities | 15,500 | 4,500 | ||||||
| Net change in cash, cash equivalents, and restricted cash | $ | (248 | ) | $ | (118 | ) | ||
Operating Activities
Net loss attributable to us for the nine months ended September 30, 2023 amounted to $11.3 million. Net cash used in operating activities during this period amounted to $5.7 million. The $5.6 million difference between the net loss attributable to us and net cash used in operating activities during the nine months ended September 30, 2023 was primarily attributable to $5.4 million in amortization of intangible assets and deferred debt issuance costs, $1.1 million in prepaid expenses and other current assets, $0.6 million in accounts payables and accrued liabilities, and $0.1 million in stock-based compensation expense. The impact of these non-cash items was offset to some extent by a $1.1 million payment of a financed insurance premium liability, $0.4 million in accrued interest on convertible note receivable, and $0.1 million net change in working capital from operating activities. See Notes 4, Convertible Note Receivable and 5, Related Party Transactions, to our condensed consolidated interim financial statements included elsewhere in this Report for additional information about our loan agreement with Serina and our loan agreements with Juvenescence.
Investing Activities
During the nine months ended September 30, 2023, net cash used by investing activities is entirely comprised of the $10 million loan made to Serina. See Note 4, Convertible Note Receivable, to our condensed consolidated interim financial statements included elsewhere in this Report for additional information about the Serina Note.
During the nine months ended September 30, 2022, AgeX had no investing activities.
Financing Activities
During the nine months ended September 30, 2023, net cash provided by financing activities amounted to $15.5 million which was entirely attributable to amounts drawn under the credit facilities from Juvenescence. See Notes 5, Related Party Transactions and 7, Stockholders’ Equity (Deficit), to our condensed consolidated interim financial statements included elsewhere in this Report for additional information about our loan agreements with Juvenescence.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Under SEC rules and regulations, as a smaller reporting company, we are not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
It is management’s responsibility to establish and maintain adequate internal control over all financial reporting pursuant to Rule 13a-15 under the Exchange Act. Our management, including our principal executive officer and principal financial officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Following this review and evaluation, the principal executive officer and principal financial officer determined that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to management, including our principal executive officer, and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in routine litigation incidental to the conduct of our business. We are not presently involved in any material litigation or proceedings, and to our knowledge no material litigation or proceedings are contemplated.
Item 1A. Risk Factors
Our business, financial condition, results of operations and future growth prospects are subject to various risks, including those described in Item 1A “Risk Factors” of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 31, 2023 (the “2022 Form 10-K”), which we encourage you to review. There have been no material changes from the risk factors disclosed in the 2022 Form 10-K, except risks pertaining to the Merger and those described below:
Risks Related to the Merger
On August 29, 2023, AgeX entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Serina Therapeutics, Inc., and Canaria Transaction Corporation, a wholly owned subsidiary of AgeX (“Merger Sub”). Upon the terms and subject to the satisfaction of the conditions described in the Merger Agreement, Merger Sub will be merged with and into Serina, with Serina surviving as a wholly owned subsidiary of AgeX (the “Merger”). There is no assurance the conditions to the Merger will be met and that the Merger will be consummated. AgeX stockholders will face a number of risks related to the terms of the Merger Agreement and the Merger, some of which risks are described below. References to the “Combined Company” in this Report mean AgeX after the Merger through which AgeX will have acquired Serina.
AgeX stockholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, AgeX as a Combined Company with Serina following the closing of the Merger as compared to their current ownership and voting interest in AgeX before the Merger.
Immediately following the closing of the Merger, equity holders of Serina immediately prior to the closing of the Merger are expected to own approximately 75% of the outstanding shares of common stock of the Combined Company, and stockholders of AgeX immediately prior to the closing of the Merger are expected to own, excluding the impact of the exercise of certain warrants that are expected to be distributed to AgeX stockholders before the Merger, approximately 25% of the outstanding shares of common stock of the Combined Company, in each case, on a fully diluted basis, subject to certain assumptions, including giving effect to a contemplated reverse stock split of AgeX common stock and the conversion of AgeX Preferred Stock into AgeX common stock before the Merger. Consequently, following the closing of the Merger, the pre-Merger stockholders of AgeX will own a smaller percentage of the Combined Company than their ownership of AgeX prior to the Merger and will be able to exercise less influence over the management and policies of the Combined Company than they currently exercise over the management and policies of AgeX.
In addition, the seven-member board of directors of the Combined Company will initially consist of three individuals with prior affiliations with Serina, two individuals with prior affiliation with AgeX and two of such members designated by mutual agreement of Serina and AgeX. The Chief Financial Officer, the Chief Executive Officer and the Chief Operating Officer of Serina will serve as the Chief Executive Officer, Chief Scientific Officer and Chief Operating Officer and Secretary of the Combined Company, respectively, following the closing of the Merger. The Chief Financial Officer of AgeX will serve as the Interim Chief Financial Officer and Chief Accounting Officer of the Combined Company following the closing of the Merger.
The exchange ratio is not adjustable based on the market price of AgeX common stock so the consideration at the closing of the Merger may have a greater or lesser value than at the time the Merger Agreement was signed.
The relative 75% proportion of the Combined Company that the Serina equity holders will own and the 25% proportion of the Combined Company that AgeX stockholders will own when the Merger closes will be based on the relative valuations of AgeX and Serina as negotiated by the parties and as specified in the Merger Agreement. Those ownership percentages will not change even if there is a change in the relative values of Serina and AgeX prior to the consummation of the Merger.
Because the lack of a public market for Serina’s capital stock makes it difficult to evaluate the fair market value of Serina’s capital stock, the value of the AgeX common stock to be issued to Serina stockholders may be more or less than the fair market value of Serina common stock.
The outstanding capital stock of Serina is privately held and is not traded in any public market. The lack of a public market makes it difficult to determine the fair market value of Serina’s capital stock. Because the percentage of AgeX common stock to be issued to Serina stockholders in the Merger was determined based on negotiations between the parties, without the AgeX Board of Directors having public market prices of Serina capital stock to use a reference point in valuing Serina for the purpose of determining that percentage, it is possible that Serina stockholders will receive in the Merger a percentage of the Combined Company greater than the percentage of the value Combined Company attributable to the fair market value of Serina and the value of the AgeX common stock to be received by Serina stockholders will be more than the fair market value of Serina’s capital stock.
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Failure to complete the Merger may result in AgeX or Serina paying a termination fee to the other party and could harm the common stock price of AgeX and future business and operations of AgeX.
If the Merger is not completed, each of AgeX and Serina is subject to the following risks:
| ● | upon termination of the Merger Agreement, AgeX may be required to pay Serina a termination fee of $1,000,000 million or up to $1,000,000 in expense reimbursements; or Serina may be required to pay AgeX a termination fee of $1,000,000 million or up to $1,000,000 in expense reimbursements; | |
| ● | AgeX will have incurred significant expenses related to the Merger, such as legal and accounting fees, which must be paid even if the Merger is not completed; | |
| ● | the price of AgeX’s common stock may decline and remain volatile; and | |
| ● | the reputation of AgeX may be adversely impacted. |
In addition, if the Merger Agreement is terminated and the AgeX Board of Directors determines to seek another business combination, there can be no assurance that AgeX will be able to find another company willing enter into a business combination or acquisition with AgeX, or another company would provide equivalent or more attractive consideration in a business combination or acquisition than the consideration to be provided by Serina in the Merger.
The issuance of AgeX common stock to Serina stockholders pursuant to the Merger Agreement and the resulting change in control of AgeX from the Merger must be approved by AgeX stockholders, and the Merger Agreement and transactions contemplated thereby must be approved by the Serina stockholders. Failure to obtain these approvals would prevent the closing of the Merger.
Before the Merger can be completed, AgeX stockholders must approve, among other things, the issuance of AgeX common stock to Serina stockholders pursuant to the Merger Agreement and the resulting change in control of AgeX from the Merger, and Serina stockholders must adopt the Merger Agreement and approve the Merger and the related transactions contemplated thereby. Failure to obtain the required stockholder approvals may result in a material delay in, or the abandonment of, the Merger. Any delay in completing the Merger may materially adversely affect the timing and benefits that are expected to be achieved from the Merger or the ability of AgeX or Serina to complete the Merger in accordance with the Merger Agreement.
If the conditions to the closing of the Merger are not satisfied or waived, the Merger may not occur or the closing of the Merger could be delayed.
Even if each certain transactions related to the Merger are approved by the stockholders of AgeX as required by the Merger Agreement as a condition to the Merger, other conditions specified in the Merger Agreement must be satisfied or, to the extent permitted by applicable law, waived to complete the Merger. There is no assurance that all of those conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Merger may not occur or could be delayed, and AgeX may lose some or all the intended benefits of the Merger.
The Merger may be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes and/or other causes.
In general, either AgeX or Serina can refuse to complete the Merger if there is a material adverse effect affecting the other party between August 29, 2023, the date of the Merger Agreement, and the closing of the Merger. However, certain types of effects are excluded from the concept of a “material adverse effect” and do not permit the parties to refuse to complete the Merger, even if such change could be said to have a material adverse effect on AgeX or Serina. Such exclusions included, but are not limited to:
| ● | general business, political or economic conditions generally affecting the industry in which Serina or AgeX operate; | |
| ● | acts of war, the outbreak or escalation of armed hostilities, acts of terrorism, earthquakes, wildfires, hurricanes or other natural disasters, health emergencies, including pandemics (including COVID-19 and any evolutions or mutations thereof) and related or associated epidemics, disease outbreaks or quarantine restrictions; |
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| ● | changes in financial, banking or securities markets; | |
| ● | any change in the stock price or trading volume of AgeX common stock; | |
| ● | any failure by AgeX to meet internal or analysts’ expectations or projections or the results of operations of AgeX; | |
| ● | any change in or affecting clinical trial programs or studies conducted by or on behalf of AgeX or its subsidiaries; | |
| ● | any change from continued losses from operations or decreases in cash balances of Serina or any of its subsidiaries or on a consolidated basis among Serina and its subsidiaries; | |
| ● | any change in, or any compliance with or action taken for the purpose of complying with, any law or GAAP (or interpretations of any law or GAAP); or | |
| ● | any change resulting from the announcement of the Merger Agreement or the pendency of the Merger and related transactions; | |
| ● | any change resulting from a disposition of certain assets by AgeX; | |
| ● | the taking of any action required to be taken by the Merger Agreement; or | |
| ● | any reduction in the amount of AgeX’s cash and cash equivalents as a result of winding down its activities associated with the termination of its research and development activities. |
If adverse changes occur and AgeX and Serina still complete the Merger, the stock price of the Combined Company following the closing of the Merger may suffer. This in turn may reduce the value of the Merger to AgeX stockholders.
Some executive officers and directors of AgeX and Serina have interests in the Merger that are different from the respective stockholders of AgeX and Serina and that may influence them to support or approve the Merger without regard to the interests of the respective stockholders of AgeX and Serina.
Directors and executive officers of AgeX and Serina may have interests in the Merger that are different from, or in addition to, the interests of other stockholders of AgeX and Serina, respectively. These interests with respect to AgeX’s directors and executive officers include, but are not limited to, the expected continued service of one of the directors of AgeX as a director of the Combined Company following the closing of the Merger, the expected continued employment of one of the executive officers of AgeX as an executive officer of the Combined Company following the closing of the Merger, severance benefits if employment is terminated in a qualifying termination in connection with the Merger and rights to continued indemnification, expense advancement and insurance coverage. The AgeX Board of Directors is aware of and considered such interests, among other matters, in reaching the decision to approve and adopt the Merger Agreement, approve the Merger and recommend the approval of the Merger Agreement to AgeX stockholders. These interests, among other factors, may have influenced the directors and executive officers of AgeX to support or approve the Merger.
AgeX stockholders may not realize a benefit from the Merger commensurate with the ownership interest dilution they will experience in connection with the Merger.
If the Combined Company is unable to realize the full strategic and financial benefits currently anticipated from the Merger, AgeX stockholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the Combined Company is able to realize only part of the strategic and financial benefits currently anticipated from the Merger.
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The market price of the Combined Company’s common stock following the Merger may decline as a result of the Merger.
The market price of the Combined Company’s common stock may decline as a result of the Merger for a number of reasons, including if:
| ● | investors react negatively to the prospects of the Combined Company’s product candidates, business and financial condition following the closing of the Merger; | |
| ● | the effect of the Merger on the Combined Company’s business and prospects following the closing of the Merger is not consistent with the expectations of financial or industry analysts; or | |
| ● | the Combined Company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by stockholders or financial or industry analysts. |
During the pendency of the Merger Agreement, AgeX may be limited in its ability to enter into a business combination with another party on more favorable terms because of restrictions in the Merger Agreement, which could adversely affect its business prospects.
Covenants in the Merger Agreement impede the ability of AgeX and Serina to make acquisitions during the pendency of the Merger, subject to specified exceptions. As a result, if the Merger is not completed, AgeX may be at a disadvantage to its competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, initiating or knowingly encouraging, inducing or facilitating the communication, making, submission or announcement of any acquisition proposal or acquisition inquiry or taking any action that could reasonably be expected to lead to an acquisition proposal or acquisition inquiry regarding transactions involving a third party, including a merger, sale of assets or other business combination, subject to specified exceptions. Any such transactions involving AgeX could be favorable to AgeX stockholders, but AgeX may be unable to pursue them.
Certain provisions of the Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the transactions contemplated by the Merger Agreement.
The terms of the Merger Agreement prohibit each of AgeX and Serina from soliciting competing proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances. In addition, if AgeX or Serina terminate the Merger Agreement under specified circumstances, AgeX may be required to pay Serina a termination fee of $1,000,000 or up to $1,000,000 in expense reimbursements or Serina may be required to pay AgeX a termination fee of $1,000,000 or up to $1,000,000 in expense reimbursements; provided that neither party will be responsible for payment of more than $1,000,000 in the aggregate. The termination fee or expense reimbursements that might become payable by AgeX may discourage third parties from submitting competing proposals to AgeX or to AgeX stockholders and may cause the AgeX Board of Directors to be less inclined to recommend that AgeX stockholders approve a competing proposal.
Litigation could arise in connection with the Merger, against AgeX or the AgeX Board of Directors, Serina or the Serina Board of Directors, which could be costly, prevent the consummation of the Merger, divert management’s attention and otherwise materially harm AgeX’s, Serina’s or the Combined Company’s business.
In the past, securities class action or shareholder derivative litigation has often followed certain significant business transactions, such as the sale of a company or announcement of a merger or any other strategic transaction. AgeX, the AgeX Board of Directors, Serina, the Serina Board of Directors, or the Combined Company may be exposed to such litigation even if no wrongdoing occurred. Even if the Merger is not consummated for any reason, litigation could be filed in connection with the failure of AgeX to consummate the Merger. Litigation is usually expensive and diverts management’s attention and resources, which could adversely affect the business and cash resources or either party and the ability of either party to consummate the Merger or the ultimate value the AgeX stockholders receive from the Merger.
Any such litigation related to the Merger may result in negative publicity or an unfavorable impression of AgeX or the Combined Company, which could adversely affect the price of AgeX common stock or the Combined Company’s common stock, impair the ability of AgeX or the Combined Company to recruit or retain employees, damage relationships with customers, suppliers, and other business partners, or otherwise materially harm of AgeX’s or the Combined Company’s operations and financial performance.
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If the Merger is consummated, the Combined Company will face risks that are substantially the same as or similar risks faced by AgeX.
Although Serina is engaged in the development of different technologies and products than AgeX, Serina’s business, and accordingly the business of the Combined Company, as a medical products developer will be subject to regulatory, legal, liquidity, capital resource, financial, operating, and other business risks that AgeX also faces.
If the Merger is not completed we would not be able to pursue the development and commercialization of Serina’s technologies and product pipeline.
We have been formulating corporate restructuring plans that include the Merger through which AgeX would be able to enter the field of drug delivery polymer technology. If the Merger is completed, the Combined Company will primarily focus on developing Serina’s product candidates. Any failure to satisfy a required condition to closing may prevent, delay or otherwise materially and adversely affect the completion of the Merger, which could materially and adversely affect AgeX’s ability to enter the field of drug delivery polymer technology and could materially and adversely affect AgeX’s results of operations, business, financial condition or stock price. AgeX cannot predict with certainty whether or when any of the required closing conditions will be satisfied and whether AgeX will be able to successfully consummate the Merger as currently contemplated under the Merger Agreement or at all. Accordingly, there is no assurance that the Merger will be consummated.
Uncertainty as to whether the Merger will be completed could adversely affect our operations and business.
AgeX’s efforts to complete the Merger could cause substantial disruptions in, and create uncertainty surrounding, our business, which may materially adversely affect AgeX’s results of operations and business. Uncertainty as to whether the Merger will be completed may affect our ability to retain and motivate existing employees or recruit prospective employees if vacancies in staffing need to be filled. Employee retention may be particularly challenging while the Merger is pending because employees may experience uncertainty about their roles following the transaction. A substantial amount of AgeX’s management’s and employees’ attention is being directed toward the completion of the transaction and thus is being diverted from AgeX’s day-to-day operations.
If the Merger is not completed, the market price of AgeX common stock may decline significantly.
The market price of AgeX common stock has been subject to significant fluctuations. Pending completion or abandonment of the Merger, the market price of AgeX common stock will likely be volatile based on whether stockholders and other investors believe that AgeX can complete the Merger. If the Merger is not completed, the market price of our common stock could decline significantly reflecting the elimination of any value attributed by investors to the prospective Merger and reflecting uncertainty about the future of AgeX’s business and its ability to find an alternative strategic transaction.
If the Merger is not approved or does not occur, we may not be successful in the execution of our current business strategies or identifying and implementing any strategic alternatives with respect to our assets and development programs, and any future strategic alternatives could have negative consequences.
If the Merger is not approved or does not occur, we expect to continue to execute on our current business strategies while seeking out and evaluating potential strategic alternatives with respect to our assets and development programs, which may include a merger, business combination, investment into AgeX, asset sale or other strategic transaction, and we may not be successful in executing such strategies or identifying or implementing any such strategic alternatives.
In addition, the process of seeking out and evaluating a potential strategic alternative with respect to our assets and development programs is costly, time-consuming and complex, and we have incurred, and may in the future incur, significant costs related to the Merger and our other ongoing restructuring plans, such as legal and accounting fees and expenses and other related charges. We may also incur additional unanticipated expenses in connection with this process. A considerable portion of these costs will be incurred regardless of whether any such course of action is implemented or transaction is completed, decreasing the remaining cash available for use in our business.
The development and any potential commercialization of our product candidates will require substantial additional cash to fund the costs associated with conducting the necessary preclinical and clinical testing and obtaining regulatory approval. Consequently, any potential counterparty in a strategic transaction involving AgeX may be reluctant to spend additional resources required to pursue development of AgeX’s product candidates and may attribute little or no value to AgeX product assets in such a transaction.
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There can be no assurance that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated, lead to increased stockholder value, or achieve the anticipated results.
Risks Related to a Reverse Stock Split
The contemplated reverse stock split may not increase the Combined Company’s stock price over the long-term.
It is expected that AgeX will implement a reverse stock split of its common stock prior to the Merger for the purpose of meeting certain stock exchange initial listing standards for the Combined Company. It is contemplated that the reverse stock split of AgeX common stock will be at a ratio in the range from 1-for-35 to 1-for-36 with such specific ratio resulting in approximately 2,500,000 shares of AgeX common stock being outstanding immediately prior to the consummation of the Merger, unless otherwise mutually agreed upon by the respective AgeX and Serina boards of directors. While it is expected that the reduction in the number of outstanding shares of common stock as a result of a reverse stock split will proportionally increase the market price of AgeX common stock, it cannot be assured that the reverse stock split will increase the market price of AgeX common stock by a multiple of the reverse stock split ratio or result in any permanent or sustained increase in the market price of the Combined Company’s common stock, which is dependent upon many factors, including the Combined Company’s business and financial performance, general market conditions and prospects for future success. Thus, it cannot be assured that the reverse stock split will accomplish any increase in the per-share market price of the Combined Company’s common stock for any meaningful period of time.
The contemplated reverse stock split may decrease the liquidity of AgeX common stock or the Combined Company’s common stock.
Although the AgeX Board of Directors believes that the anticipated increase in the market price of the Combined Company’s common stock resulting from the proposed reverse stock split could encourage interest in its common stock and possibly promote greater liquidity for its stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the reverse stock split. The reduction in the number of outstanding shares may lead to reduced trading in and a smaller number of market makers for the Combined Company’s common stock.
The reverse stock split may lead to a decrease in the Combined Company’s overall market capitalization.
Should the market price of the Combined Company’s common stock decline, the percentage decline may be greater as a result of the reverse stock split, due to the smaller number of shares outstanding, than it would have been had the reverse stock split not been implemented. A reverse stock split is often viewed negatively by the market and, consequently, can lead to a decrease in the Combined Company’s overall market capitalization.
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Risks Related to Our Current Business, Financial Condition, and Capital Resources
If the Merger is not completed, we expect to continue to execute on our current business strategies while seeking out and evaluating potential strategic alternatives with respect to our assets and development programs. The following risk factors relate to and update certain risks described in Item 1A “Risk Factors” of our 2022 Form 10-K.
We need additional financing to execute our operating plan and continue to operate as a going concern.
As required under Accounting Standards Update 2014-15, Presentation of Financial Statements-Going Concern (ASC 205-40), we have the responsibility to evaluate whether conditions and/or events raise substantial doubt about our ability to meet our future financial obligations as they become due within one year after the date the financial statements are issued. Based on our most recent projected cash flows, we believe that our cash and cash equivalents, even with the increased amount of credit available through the Fifth Amendment of our Secured Note with Juvenescence, and the proceeds we may receive from the sale of additional shares of our common stock in “at-the-market” transactions through a Sales Agreement with Chardan as a sales agent, would not be sufficient to satisfy our anticipated operating and other funding requirements for the next twelve months from the date of filing of this Report. These factors raise substantial doubt regarding our ability to continue as a going concern and the report of our independent registered public accountants accompanying our audited consolidated financial statements in this Report contains a qualification to such effect.
We have incurred operating losses and negative cash flows since inception and had an accumulated deficit of $127.6 million as of September 30, 2023. We expect to continue to incur operating losses and negative cash flows. Because we will continue to experience net operating losses, our ability to continue as a going concern is subject to our ability to obtain necessary capital from outside sources, including obtaining additional capital from the sale of our common stock or other equity securities or assets, obtaining additional loans from financial institutions or investors, and entering into collaborative research and development arrangements or licensing some or all of our patents and know-how to third parties while retaining a royalty and other contingent payment rights related to the development and commercialization of products covered by the licenses. Our continued net operating losses, the amount of our debt obligations to Juvenescence and the provisions of our indebtedness agreements with them, including restrictions on the use of loan funds and the security interest they hold in our assets and assets of certain of our subsidiaries, Juvenescence’s ownership of shares of AgeX Preferred Stock, the risks associated with the development of our product candidates and technologies, and our deferral of in-house development of our product candidates and technologies in connection with our reductions in staffing and the closing of our research laboratory facilities, will increase the difficulty in obtaining such capital, and there can be no assurances that we will be able to obtain such capital on favorable terms or at all. If we are unable to raise capital when needed, we may be forced to delay, reduce or eliminate our research and development activities, or ultimately not be able to continue as a going concern.
We are a discovery-stage development company with limited capital resources and have incurred operating losses since our inception. We anticipate that we will incur continued losses for the foreseeable future and will need to continue to raise capital to finance our operations, and we do not know if we will ever attain profitability.
We are a discovery-stage therapeutics company with a limited operating history and limited capital resources. Since our inception in August 2017, we have incurred operating losses and negative cash flows and we expect to continue to incur losses and negative cash flow in the future. Our net operating losses from continuing operations were $10.5 million and $8.6 million for the years ended December 31, 2022 and 2021, respectively, and we had an accumulated deficit of approximately $116.2 million as of December 31, 2022. Our net operating losses from operations were $6.4 million and $5.2 million for the nine months ended September 30, 2023 and 2022, respectively, and we had an accumulated deficit of approximately $127.6 million as of September 30, 2023.
These net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital. We expect to continue to incur significant additional operating losses for the foreseeable future and will need to continuously raise additional capital to fund our operations. The amount of our expenses and anticipated losses will depend on our capital resources and whether we license out product development to third parties or participate ourselves directly or financially with collaborators in research, development and commercialization efforts. Although we do not expect to advance our product candidates through clinical trials, seek regulatory approval, or commercialize our product candidates ourselves, our capital needs would increase greatly if we were to change plans and determine to do so.
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The amount of our future net losses will depend, in part, on the rate of future growth of our expenses, our ability to raise the capital needed to continue our operations, and our ability to generate revenues. If we or any licensees or collaborators are unable to develop and commercialize one or more of our product candidates, or if revenues from any product candidates that receive marketing approval are insufficient, we will not achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability. If we are unable to achieve and then maintain profitability, the value of our equity securities will be materially and adversely affected.
We are highly leveraged, carrying a significant amount of indebtedness, including indebtedness secured by our assets, that will become due and payable over the next three years and there is no assurance that we will be able to refinance those obligations as they become due.
As of November 1, 2023, our borrowings from Juvenescence under various loans and accrued origination fees totaled approximately $3.4 million. The outstanding balances of those loans will become due and payable as follows: approximately $2.7 million on February 14, 2024 under the Secured Note and $692,800 on March 13, 2026 under the $10 Million Secured Note. During November 2023, we entered into an amendment of the Secured Note pursuant to which we may borrow up to an additional $4,400,000 from Juvenescence. Our obligations under the Secured Note and $10 Million Secured Note are collateralized by all of our assets, including the shares of common stock we hold in subsidiaries ReCyte Therapeutics, Reverse Bio, and UniverXome Bioengineering, Inc., under the terms of the Security Agreement, and those subsidiaries have guaranteed our obligations under the Secured Note, as amended, and have granted a security interest in their respective assets to Juvenescence pursuant to the Security Agreement to secure those obligations. If an Event of Default, as defined in the Secured Note or the $10 Million Secured Note, were to occur Juvenescence could foreclose on its security interest and sell our assets and the assets of those subsidiaries to satisfy the unpaid principal balances of those loans plus certain loan origination fees and costs incurred in connection with the Event of Default and the foreclosure and sale of the assets. As a result, we and those subsidiaries could lose some or all of our respective assets, leaving few if any assets available for the operation of our business or the businesses of our subsidiaries, or for sale for the benefit of our stockholders through a winding up of our affairs and liquidation of our assets.
The development and commercialization of new drugs to address obesity and type 2 diabetes may substantially limit or eliminate the prospects for AgeX’s prospective AGEX-BAT1 product.
A number of new GLP-1 receptor agonist drugs, including Mounjaro, Ozempic, Rybelsus, and Trulicity for treating type 2 diabetes, and Wegovy and Zepbound for weight management, have entered the market. Ozempic is also being used off label for weight loss. The attention and acceptance that these new drugs have attained in the medical field for the treatment of type 2 diabetes and chronic weight management may substantially limit or eliminate the prospects for developing and commercializing any product based on AGEX-BAT1, brown adipose tissue, for those uses. Although the GLP-1 receptor agonist drugs may in certain patients be contraindicated, carry unacceptable medical risks, lead to intolerable side effects, or may not be satisfactorily effective, it is not clear whether those patients would constitute a large enough market for an alternative therapy to warrant the time and expense of developing AGEX-BAT1 for the uses addressed by the products currently on the market. Further, it is likely that the administration of a AGEX-BAT1 cell therapy product would entail a surgical implant procedure which would be expensive and would pose risks to the patient related to the surgical procedure that are not faced by users of the injectable or pill GLP-1 receptor agonist drugs currently on the market.
Unless AgeX common stock continues to be listed on a national securities exchange, AgeX will become subject to the so-called “penny stock” rules that impose restrictive sales practice requirements.
On November 17, 2021, we received a letter (the “Deficiency Letter”) from the staff of the NYSE American indicating that AgeX did not meet certain of the NYSE American continued listing standards as set forth in Section 1003(a)(i) of the NYSE American Company Guide in that we had stockholders’ equity of less than $2,000,000 and had incurred losses from continuing operations and/or net losses during our two most recent fiscal years. Pursuant to Section 1009 of the NYSE American Company Guide and as provided in the Deficiency Letter provided, we provided the NYSE American staff with a plan (the “Compliance Plan”) advising the NYSE American staff of action we had taken and will take that would bring AgeX into compliance with the NYSE American continued listing standards. The NYSE American staff accepted our Compliance Plan but later required us to revise the Compliance Plan as we remained out of listing compliance. On November 22, 2022, we received a notification from the staff of the NYSE American indicating that the NYSE American accepted our revised listing Compliance Plan and granted us an extension of time to regain compliance with the NYSE American continued listing standards as set forth in Section 1003(a)(i) and (ii) of the NYSE American Company Guide by increasing our stockholders equity to not less than $4,000,000. On May 17, 2023, we received a notice from the staff of the NYSE American indicating that they intend to commence proceedings to delist AgeX common stock from the NYSE American based upon AgeX’s non-compliance with the stockholders’ equity requirements set forth in Sections 1003(a)(i), (ii) and (iii) of the NYSE American Company Guide by the end of a compliance plan period that expired on May 17, 2023. Specifically, AgeX did not meet the continued listing standards because it had stockholders equity of less than (A) $2,000,000 and has incurred losses from continuing operations and/or net losses during its two most recent fiscal years, (B) $4,000,000 and had incurred losses from continuing operations and/or net losses during three out of four of its most recent fiscal years, and (C) $6,000,000 or more and had reported losses from continuing operations and/or net losses in its five most recent fiscal years. On May 24, 2023, AgeX filed a request for a review of the delisting determination by a committee of the board of directors of the NYSE American. On May 31, 2023, AgeX received a notice from the staff of the NYSE American which scheduled a hearing for July 25, 2023. On July 24, 2023, AgeX issued shares of AgeX Series A Preferred Stock and AgeX Series B Preferred Stock to Juvenescence in exchange for the extinguishment of $36 million of indebtedness owed to Juvenescence with the intent of adding $36 million to stockholders equity and returning AgeX to compliance with the NYSE American continued listing standards. However, upon subsequent consideration in consultation with our registered independent public accountants it was determined that, in accordance with applicable guidance to GAAP, the deemed liquidation preference provisions of the Preferred Stock could be considered contingent redemption provisions that are not solely within AgeX’s control, requiring that the Preferred Stock be presented outside of permanent equity in the mezzanine section of our condensed consolidated balance sheets for the three and nine months ended September 30, 2023 included in this Report. To address this issue, the applicable deemed liquidation provision of the Preferred Stock has been amended so that the Preferred Stock will now qualify as permanent equity. See Note 12, Subsequent Events. We have informed the NYSE American of the accounting issue and the remedy that we have implemented and we believe we are now in compliance with their continued listing standards.
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If we are unable to maintain the listing of AgeX common stock on the NYSE American or another national securities exchange, AgeX common stock could become subject to the so-called “penny stock” rules if the shares have a market value of less than $5.00 per share. The SEC has adopted regulations that define a penny stock to include any stock that has a market price of less than $5.00 per share, subject to certain exceptions, including an exception for stock traded on a national securities exchange. The SEC regulations impose restrictive sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. An accredited investor generally is a person whose individual annual income exceeded $200,000, or whose joint annual income with a spouse exceeded $300,000 during the past two years and who expects their annual income to exceed the applicable level during the current year, or a person with net worth in excess of $1.0 million, not including the value of the investor’s principal residence and excluding mortgage debt secured by the investor’s principal residence up to the estimated fair market value of the home, except that any mortgage debt incurred by the investor within 60 days prior to the date of the transaction shall not be excluded from the determination of the investor’s net worth unless the mortgage debt was incurred to acquire the residence. For transactions covered by this rule, the broker-dealer must make a special suitability determination for the purchaser and must have received the purchaser’s written consent to the transaction prior to sale. This means that if we are unable maintain the listing of AgeX common stock on a national securities exchange, the ability of stockholders to sell their AgeX common stock in the secondary market could be adversely affected.
If a transaction involving a penny stock is not exempt from the SEC’s rule, a broker-dealer must deliver a disclosure schedule relating to the penny stock market to each investor prior to a transaction. The broker-dealer also must disclose the commissions payable to both the broker-dealer and its registered representative, current quotations for the penny stock, and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the customer’s account and information on the limited market in penny stocks.
Enacted and future healthcare legislation, including the Affordable Care Act (ACA), may increase the difficulty and cost of obtaining marketing approval and commercializing our product candidates and may affect the prices we may set.
In the United States, the European Union and other jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed changes to the healthcare system that could affect our future results of operations. As a result of the adoption of the ACA in the United States, substantial changes have been made to the system for paying for healthcare in the United States. Certain provisions related to cost-savings and reimbursement measures could adversely affect our future financial performance. For example, among the provisions of the ACA, those of greatest importance to the biopharmaceutical industry includes the following:
| ● | an annual, non-deductible fee payable by any entity that manufactures or imports certain branded prescription drugs and biologic agents (other than those designated as orphan drugs), which is apportioned among these entities according to their market share in certain government healthcare programs; | |
| ● | new requirements to report certain financial arrangements with physicians and teaching hospitals, including reporting “transfers of value” made or distributed to prescribers and other healthcare providers and reporting investment interests held by physicians and their immediate family members; | |
| ● | a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; | |
| ● | expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability; | |
| ● | a licensure framework for follow on biologic products; | |
| ● | a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and | |
| ● | establishment of a Center for Medicare Innovation at the Centers for Medicare & Medicaid Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending. |
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The ACA has been subject to revision and to judicial, congressional, and executive challenges. As a result of tax reform legislation passed in December 2017, the requirement that all individuals maintain health insurance coverage or pay a penalty, referred to as the “individual mandate” was eliminated effective January 1, 2019. According to the Congressional Budget Office, the repeal of the individual mandate will cause 13 million fewer Americans to be insured in 2027 and premiums in insurance markets may rise.
The costs of prescription pharmaceuticals in the United States have also been the subject of considerable debate, and new legislative and administrative measures could be implemented to address such costs. To date, there have been several recent U.S. congressional inquiries and proposed state and federal legislation designed to, among other things, improve transparency in drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare, and reform government program reimbursement methodologies for drug products. Under recent legislation, starting in 2023 a manufacturer of a drug or biological product covered by Medicare Parts B or D must pay a rebate to the federal government if the product’s price increases faster than the rate of inflation. This calculation is made on a drug product by drug product basis and the amount of the rebate owed to the federal government is directly dependent on the volume of a drug product that is paid for by Medicare Parts B or D. Additionally, starting in payment year 2026, CMS will negotiate drug prices annually for a select number of single source Part D drugs without generic or biosimilar competition. CMS will also negotiate drug prices for a select number of Part B drugs starting for payment year 2028. If a drug product is selected by CMS for negotiation, it is expected that the revenue generated from such drug will decrease. The pricing of prescription pharmaceuticals is also subject to governmental control outside the United States. In these other countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost effectiveness of our product candidates to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our ability to generate revenues and become profitable could be impaired.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for approved products. In addition, there have been several recent Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare and reform government program reimbursement methodologies for drugs. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent labeling and post-marketing testing and other requirements.
Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS may develop new payment and delivery models, such as bundled payment models. In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
Individual states in the United States have also become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally-mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for our product candidates or put pressure on our product pricing.
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In the EU, similar political, economic and regulatory developments may affect our ability to profitably commercialize our product candidates, if approved. In addition to continuing pressure on prices and cost containment measures, legislative developments at the EU or member state level may result in significant additional requirements or obstacles that may increase our operating costs. The delivery of healthcare in the EU, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing EU and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to commercialize our product candidates, if approved.
In markets outside of the United States and EU, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action in the United States, the EU or any other jurisdiction. If we or any third parties we may engage are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or such third parties are not able to maintain regulatory compliance, our product candidates may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Previously reported.
Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Increase in Secured Note Line of Credit
On November 9, 2023, AgeX and Juvenescence entered into an Allonge and Fifth Amendment to Amended and Restated Convertible Promissory Note (the “Fifth Amendment”) that increases the amount of the line of credit available to AgeX by $4,400,000, subject to the terms of the Secured Note and Juvenescence’s discretion to approve and fund each of AgeX’s future draws of that additional amount of credit. Concurrently with the execution of the Fifth Amendment, AgeX also entered into an additional Pledge Agreement to add shares of a subsidiary to the collateral under the Security Agreement, and AgeX’s subsidiaries ReCyte, Reverse Bio, and UniverXome each entered into a Guaranty Agreement and Joinder Agreement pursuant to which each of them agreed to guaranty AgeX’s obligations to Juvenescence pursuant to the Secured Note, as amended by the Fifth Amendment, and to grant Juvenescence a security interest in their respective assets pursuant to the Security Agreement to secure their obligations to Juvenescence.
Amendment to Preferred Stock and Remediation of Stock Exchange Listing Deficiency
On July 24, 2023, AgeX issued shares of AgeX Series A Preferred Stock and AgeX Series B Preferred Stock to Juvenescence in exchange for the extinguishment of $36 million of indebtedness owed to Juvenescence with the intent of adding $36 million to stockholders equity to eliminate a stockholders equity deficiency that caused AgeX to be out of compliance with the NYSE American continued listing standards. However, upon subsequent consideration in consultation with AgeX’s independent registered public accountants, AgeX determined that, in accordance with applicable guidance to GAAP, the deemed liquidation preference provisions of the Preferred Stock could be considered contingent redemption provisions that are not solely within AgeX’s control, requiring that the Preferred Stock be presented outside of permanent equity in the mezzanine section of the condensed consolidated balance sheets for the three and nine months ended September 30, 2023. To comply with the NYSE American listing requirement by permitting the Preferred Stock to qualify now as permanent equity, on November 7, 2023 Section 3(b) of the terms of the Series A Preferred Stock and Series B Preferred Stock was amended (i) to clarify that certain change of control or disposition of asset transactions would be treated as a deemed liquidation if the applicable transaction is approved by the Board of Directors or stockholders of AgeX, and (ii) to provide that in case of such a deemed liquidation transaction holders of Preferred Stock would receive the same type of consideration as that distributed or paid to holders of AgeX common stock. AgeX has informed the NYSE American of the accounting issue and the remedy that has been implemented and AgeX believes it is in compliance with NYSE American’s continued listing standards.
This discussion of the amendment of the Series A Preferred Stock and Series B Preferred Stock is a summary only and is qualified in all respects by the full terms Section 3(b) as amended and included in the Amended and Restated Certificate of Designation of Series A Preferred Stock filed as Exhibit 4.1 and the Amended and Restated Certificate of Designation of Series B Preferred Stock filed as Exhibit 4.2 to this Report, which Exhibits are incorporated herein by reference.
Termination of License and Sublicence
On November 9, 2023, AgeX sent a notice to the licensee and the sublicensees of patent rights for certain uses of HyStem® hydrogel products, informing them that AgeX was exercising its rights to terminate, respectively: (i) a License Agreement, dated August 17, 2017, as amended, by and between AgeX and Lineage Cell Therapeutics, Inc (formerly BioTime, Inc.) and (ii) a Sublicense Agreement, dated August 17, 2017, as amended, by and among AgeX, Lineage Cell Therapeutics, Inc., and OrthoCyte Corporation. The terminations will become effective sixty days after the termination notices were given.
The license agreement and sublicense agreement granted AgeX rights to use certain HyStem® hydrogel patents on a non-exclusive, world-wide, royalty bearing basis, but only for therapeutic uses with (a) cells covered by specified patents related to human embryonic progenitor cell technology, brown adipose fat progenitors, vascular cell progenitors, and human pluripotent stem cell lines and technology, and (b) products covered by specified AgeX iTR patents, and in either case only for use outside the fields of (i) orthopedic indications, (ii) ophthalmological indications, and (iii) medical aesthetics, as defined in the license and sublicense agreements.
AgeX’s decision to terminate the license and sublicence was based on certain considerations, including the scope of the rights licensed or sublicensed to AgeX, the extent to which HyStem® was used in AgeX research and development programs, the expected availability of alternative products for use as a cell transplant matrix or for therapeutic molecular iTR drug delivery that could be used in AgeX product development programs, the expiration dates of the licensed and sublicensed patents, and the expected cost of maintaining the license and sublicense rights to use HyStem®, including annual payment obligations and fees that would become payable upon a change of control of AgeX such as the expected Merger with Serina.
Lineage Cell Therapeutics, Inc. (“Lineage”) is the original parent corporation of AgeX. OrthoCyte Corporation is a subsidiary of Lineage. HyStem® is a registered trademark of Lineage.
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Item 6. Exhibits
| * | Filed herewith |
| ** | Furnished herewith |
| # | Management contract or compensatory plan. |
| † | Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission on request. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| AGEX THERAPEUTICS, INC. | |
| Date: November 14, 2023 | /s/ Joanne M. Hackett |
| Joanne M. Hackett | |
| Interim Chief Executive Officer | |
| Date: November 14, 2023 | /s/ Andrea E. Park |
| Andrea E. Park | |
| Chief Financial Officer |
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