Serina Therapeutics, Inc.(SER) - 2021 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Forward-Looking Statements This section highlights that the report contains forward-looking statements, involving known and unknown risks and uncertainties that could cause actual results to differ materially from projections, with no obligation for the company to update them - All statements other than historical facts are forward-looking, identifiable by specific keywords[7] - Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from expectations[8] - The company assumes no obligation to update or revise these forward-looking statements, even with new information[8] Disposition and Deconsolidation of LifeMap Sciences, Inc. (Overview) AgeX Therapeutics completed the merger and deconsolidation of LifeMap Sciences, Inc. on March 15, 2021, receiving $466,400 in cash and converting $1,761,296 of debt into common stock, ceasing its subsidiary status - AgeX completed the merger of LifeMap Sciences, Inc. on March 15, 2021, with Atlas Capital Partners Limited becoming the sole shareholder[11] Merger Consideration Received by AgeX | Item | Amount ($) | | :------------------------------------------------ | :----------- | | Cash received as pro rata share of Merger Consideration | 466,400 | | LifeMap Sciences' indebtedness converted to common stock | 1,761,296 | | Cash payment for portion of indebtedness not converted | 250,000 | - LifeMap Sciences' results of operations and cash flows are reported as discontinued operations for all periods in AgeX's condensed consolidated financial statements[13] Item 1. Financial Statements This section presents AgeX Therapeutics, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, and cash flows for specified periods Condensed Consolidated Balance Sheets This section provides a detailed overview of AgeX Therapeutics' financial position through its condensed consolidated balance sheets Condensed Consolidated Balance Sheets (in thousands) | Item | June 30, 2021 (Unaudited) | December 31, 2020 | | :--------------------------------------- | :------------------------ | :------------------ | | ASSETS | | | | Total current assets | $1,556 | $2,283 | | Total assets | $2,541 | $3,925 | | LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | Total current liabilities | $5,271 | $5,357 | | Total liabilities | $10,835 | $9,321 | | Total stockholders' deficit | $(8,294) | $(5,396) | - Total assets decreased by approximately 35.3% from $3,925 thousand at December 31, 2020, to $2,541 thousand at June 30, 2021[21] - Total stockholders' deficit increased by approximately 53.7% from $(5,396) thousand at December 31, 2020, to $(8,294) thousand at June 30, 2021, indicating a worsening financial position[21] Condensed Consolidated Statements of Operations This section presents AgeX Therapeutics' financial performance through its condensed consolidated statements of operations, detailing revenues, expenses, and net loss Condensed Consolidated Statements of Operations (in thousands, except per share data) | Item | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $37 | $45 | $93 | $134 | | Gross profit | $24 | $42 | $77 | $130 | | Total operating expenses | $2,229 | $2,410 | $4,575 | $5,506 | | Gain on deconsolidation of LifeMap Sciences | $- | $- | $106 | $- | | Loss from continuing operations | $(2,475) | $(2,432) | $(4,468) | $(5,465) | | Loss from discontinued operations | $- | $(299) | $(103) | $(488) | | NET LOSS | $(2,475) | $(2,731) | $(4,571) | $(5,953) | | NET LOSS ATTRIBUTABLE TO AGEX | $(2,474) | $(2,689) | $(4,562) | $(5,876) | | NET LOSS PER COMMON SHARE (BASIC AND DILUTED) | $(0.07) | $(0.07) | $(0.12) | $(0.16) | - Net loss attributable to AgeX decreased by 8.0% for the three months and 22.4% for the six months ended June 30, 2021, primarily due to a gain on deconsolidation and reduced operating expenses[23] - Loss from discontinued operations significantly decreased to $0 for Q2 2021 and $(103) thousand for H1 2021, following LifeMap Sciences' deconsolidation[23] Condensed Consolidated Statements of Comprehensive Loss This section outlines AgeX Therapeutics' comprehensive loss, including net loss and other comprehensive income/loss items, for the reported periods Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Item | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | NET LOSS | $(2,475) | $(2,731) | $(4,571) | $(5,953) | | Foreign currency translation adjustments from discontinued operations | $- | $37 | $(143) | $12 | | COMPREHENSIVE LOSS | $(2,475) | $(2,694) | $(4,714) | $(5,941) | | COMPREHENSIVE LOSS ATTRIBUTABLE TO AGEX COMMON STOCKHOLDERS | $(2,474) | $(2,652) | $(4,705) | $(5,864) | - Comprehensive loss attributable to AgeX common stockholders decreased by 6.7% for the three months and 19.7% for the six months ended June 30, 2021, compared to prior year periods[24] Condensed Consolidated Statements of Cash Flows This section details AgeX Therapeutics' cash inflows and outflows from operating, investing, and financing activities for the reported periods Condensed Consolidated Statements of Cash Flows (in thousands) | Item | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(4,324) | $(4,308) | | Net cash provided by (used in) investing activities | $416 | $(8) | | Net cash provided by financing activities | $3,996 | $2,992 | | NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | $88 | $(1,319) | | Cash, cash equivalents and restricted cash at end of period | $665 | $1,133 | - Net cash provided by investing activities significantly improved to $416 thousand in H1 2021 from $(8) thousand in H1 2020, primarily due to proceeds from LifeMap Sciences' sale[27] - Net cash provided by financing activities increased by 33.6% to $3,996 thousand in H1 2021, driven by higher loan drawdowns from Juvenescence and common stock issuance proceeds[27] - The company experienced a net increase in cash, cash equivalents, and restricted cash of $88 thousand in H1 2021, a significant improvement from a net decrease of $(1,319) thousand in H1 2020[27] Notes to Condensed Consolidated Interim Financial Statements This section provides detailed notes to the condensed consolidated interim financial statements, covering organization, liquidity, accounting policies, LifeMap Sciences' disposition, balance sheet components, related party transactions, equity, stock-based awards, income taxes, cash flow, commitments, contingencies, and subsequent events 1. Organization, Business Overview and Liquidity This section outlines AgeX Therapeutics' business, its focus on therapeutics for aging and degenerative diseases, and its ongoing liquidity challenges and going concern issues - AgeX Therapeutics, Inc. is a biotechnology company focused on developing novel therapeutics for human aging and degenerative diseases using telomerase-mediated cellular immortality and regenerative biology[30][31] - AgeX has incurred operating losses and negative cash flows since inception, with an accumulated deficit of $101.6 million as of June 30, 2021, raising substantial doubt about its going concern ability[35][36] - The company implemented staff reductions in April 2020 and eliminated its laboratory facilities lease by December 31, 2020, to reduce cash expenditures and extend operations[37][38] - AgeX's ability to raise additional capital is uncertain and may be adversely impacted by the COVID-19 pandemic, potentially forcing operational modifications, curtailments, delays, or suspensions[39] 2. Basis of Presentation and Summary of Significant Accounting Policies This section details the basis of financial statement presentation and summarizes AgeX Therapeutics' significant accounting policies, including revenue recognition and recent accounting standard adoptions - The condensed consolidated interim financial statements are prepared in accordance with GAAP for interim financial information, with certain disclosures condensed or omitted[40] - AgeX consolidates its direct and indirect wholly-owned or majority-owned subsidiaries, reflecting noncontrolling interest as a separate element of stockholders' deficit[42][46] - Revenue recognition follows a five-step approach under Topic 606; LifeMap Sciences' subscription and advertisement revenues were a major source prior to deconsolidation, now discontinued[49][52] - Grant revenues, primarily from NIH, are recognized when related costs are incurred and the right to payment is realized, as government entities do not meet the definition of a 'customer' under Topic 606[53][54] - AgeX adopted ASU 2019-12 (Income Taxes) and ASU 2020-06 (Debt with Conversion and Other Options) as of January 1, 2021, with no material impact on its consolidated financial statements[71][72] 3. Disposition and Deconsolidation of LifeMap Sciences This section details the financial impact of AgeX Therapeutics' disposition and deconsolidation of LifeMap Sciences, including cash received and the gain recognized - AgeX completed the cash-out merger of LifeMap Sciences on March 15, 2021, receiving $466,400 in cash and converting $1,761,296 of debt into LifeMap Sciences common stock[78][79] LifeMap Sciences Operating Results (Discontinued Operations, in thousands) | Item | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net revenues | $- | $369 | $277 | $795 | | Loss from discontinued operations | $- | $(299) | $(103) | $(488) | | Net loss from discontinued operations attributable to noncontrolling interest | $- | $41 | $7 | $76 | | Loss from discontinued operations attributable to AgeX | $- | $(258) | $(96) | $(412) | - AgeX recognized a gain of $106,000 from the LifeMap Deconsolidation, which resulted in a taxable loss, thus no income tax was due[86] 4. Selected Balance Sheet Components This section provides a breakdown of selected balance sheet components, including property and equipment, intangible assets, and accounts payable and accrued liabilities - Property and equipment of $381,000 were fully depreciated at June 30, 2021, and December 31, 2020[87] Intangible Assets, Net (in thousands) | Item | June 30, 2021 (Unaudited) | December 31, 2020 | | :-------------------------- | :------------------------ | :------------------ | | Intangible assets | $1,312 | $5,586 | | Accumulated amortization | $(377) | $(3,994) | | Total intangible assets, net | $935 | $1,592 | - Intangible assets, net, decreased by 41.3% from $1,592 thousand at December 31, 2020, to $935 thousand at June 30, 2021, primarily due to the LifeMap Deconsolidation[88][89] Accounts Payable and Accrued Liabilities (in thousands) | Item | June 30, 2021 (Unaudited) | December 31, 2020 | | :-------------------------------- | :------------------------ | :------------------ | | Accounts payable | $483 | $761 | | Accrued compensation | $197 | $228 | | Accrued vendors and other expenses | $622 | $667 | | Total accounts payable and accrued liabilities | $1,302 | $1,656 | 5. Related Party Transactions This section details AgeX Therapeutics' financial arrangements and transactions with related parties, primarily Juvenescence, its largest stockholder - AgeX secured convertible facility agreements with Juvenescence, its largest stockholder, providing lines of credit totaling $8.0 million and $2.0 million[92][96] - As of June 30, 2021, AgeX had drawn a total of $7.5 million under the 2020 Loan Agreement and the full $2.0 million under the 2019 Loan Agreement[95][96] - In lieu of interest, AgeX issued common stock and warrants to Juvenescence as consideration for the loan facilities[97][100] - The 2019 Loan Agreement was amended in February 2021 to extend maturity to February 14, 2022, and increase the facility by $4.0 million, with an additional $1.5 million borrowed during Q2 2021[101][102] - AgeX reimburses Juvenescence approximately $280,000 annually for its COO's services, with $96,000 payable as of June 30, 2021[107] 6. Stockholders' Equity (Deficit) This section details AgeX Therapeutics' stockholders' equity (deficit), including authorized and outstanding shares, warrant issuances, and ATM offering proceeds - AgeX has 100,000,000 shares of $0.0001 par value common stock authorized, with 37,937,132 shares issued and outstanding as of June 30, 2021[109] - AgeX issued warrants to Juvenescence to purchase 3,362,098 shares of common stock as consideration for $7.5 million in loans under the 2020 Loan Agreement[110] - Through an at-the-market (ATM) offering facility, AgeX raised approximately $496,000 in gross proceeds from common stock sales through June 30, 2021[112] Reconciliation of Changes in Stockholders' Equity (Deficit) (in thousands) | Item | Balance at Dec 31, 2020 | Issuance of common stock | Issuance of warrants | Stock-based compensation | Deconsolidation of LifeMap Sciences | Net loss | Balance at Jun 30, 2021 | | :-------------------------------- | :---------------------- | :----------------------- | :------------------- | :----------------------- | :---------------------------------- | :------- | :---------------------- | | Common Stock (Par Value) | $4 | $- | $- | $- | $- | $- | $4 | | Additional Paid-In Capital | $91,810 | $475 | $757 | $468 | $143 | $- | $93,379 | | Accumulated Deficit | $(97,073) | $- | $- | $- | $- | $(4,562) | $(101,635) | | Total Stockholders' Deficit | $(5,396) | $470 | $757 | $468 | $(22) | $(4,571) | $(8,294) | 7. Stock-Based Awards This section provides details on AgeX Therapeutics' stock option and restricted stock unit activity, along with related stock-based compensation expenses Stock Option Activity (in thousands, except weighted average exercise price) | Item | Shares Available for Grant | Number of Options Outstanding | Number of RSUs Outstanding | Weighted Average Exercise Price | | :-------------------------------- | :------------------------- | :---------------------------- | :------------------------- | :------------------------------ | | December 31, 2020 | 1,046 | 2,854 | 28 | $2.51 | | Options granted | (568) | 568 | - | $1.46 | | Options forfeited, cancelled or expired | 40 | (40) | - | $3.00 | | Restricted stock units vested | - | - | (6) | - | | June 30, 2021 | 518 | 3,382 | 22 | $2.31 | | Options exercisable at June 30, 2021 | | 2,253 | | $2.51 | Stock-based Compensation Expense (in thousands) | Category | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $15 | $15 | $31 | $48 | | General and administrative | $271 | $237 | $433 | $457 | | Total stock-based compensation expense – continued operations | $286 | $252 | $464 | $505 | | Stock-based compensation expense – discontinued operations | $4 | $7 | $4 | $14 | - Total stock-based compensation expense for continuing operations increased by 13.5% for the three months but decreased by 8.1% for the six months ended June 30, 2021, compared to prior year periods[121] 8. Income Taxes This section discusses AgeX Therapeutics' income tax provision, accounting for GILTI, and the valuation allowance for deferred tax assets - AgeX recorded no income tax provision for the three and six months ended June 30, 2021, due to domestic and foreign losses from continuing operations[124][125] - The company accounts for Global Intangible Low Tax Income (GILTI) as a current period expense when incurred, with no GILTI included in income for the first six months of 2021 due to foreign entity losses[123] - A full valuation allowance has been established for all domestic deferred tax assets due to the uncertainty of realizing future tax benefits from net operating loss carryforwards[125] 9. Supplemental Cash Flow Information This section provides supplemental disclosures regarding AgeX Therapeutics' non-cash investing and financing activities Supplemental Disclosures of Non-Cash Investing and Financing Activities (in thousands) | Item | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------------ | :----------------------------- | :----------------------------- | | Cash paid during the period for interest | $11 | $11 | | Issuance of common stock upon vesting of restricted stock units | $11 | $13 | | Issuance of warrants for debt issuance | $757 | $689 | 10. Commitments and Contingencies This section outlines AgeX Therapeutics' commitments and contingencies, including lease agreements, PPP loan forgiveness, NYSE American listing compliance, and litigation status - AgeX's previous lease expired on December 31, 2020, relocating to a smaller office-only space with a base monthly rent of $947 effective January 1, 2021[128][131] - The Paycheck Protection Program (PPP) loan of $432,952 obtained on April 13, 2020, was forgiven in full on February 19, 2021[137][138] - AgeX regained compliance with NYSE American listing standards on April 15, 2021, after previously receiving a deficiency letter for not meeting certain equity and loss criteria[140][141] - The company is not aware of any litigation claims likely to have a material adverse effect on its financial condition or results of operations[134] 11. Subsequent Events This section discloses significant events that occurred after the reporting period, including additional borrowings and a change in the independent registered public accounting firm - On July 12, 2021, AgeX borrowed an additional $1,000,000 under the amended 2019 Loan Agreement with Juvenescence[143] - OUM & Co. LLP, AgeX's independent registered public accounting firm, resigned on July 15, 2021, and WithumSmith + Brown PC was approved as the new firm on July 20, 2021[144] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on AgeX's financial condition and results, including critical accounting policies, COVID-19 impact, analysis of revenues, expenses, other income, income taxes, and liquidity, particularly concerning its going concern status Critical Accounting Policies This section discusses management's reliance on estimates and assumptions in financial statements and confirms no significant changes to critical accounting policies - Management's financial statements rely on estimates and assumptions, with no significant changes to critical accounting policies during the six months ended June 30, 2021, except as disclosed in Note 2[147][148] Impact of COVID-19 Pandemic This section addresses the significant volatility and disruption caused by the COVID-19 pandemic, impacting operations, remote work, and research activities - The COVID-19 pandemic has caused significant volatility and disruption, leading to altered operations, remote work, and potential impacts on employee productivity and board meetings[149] - The pace of work on the Sponsored Research Agreement with the University of California at Irvine (UCI) for neural stem cell development was slowed by COVID-19 safety procedures[150] - The full extent of the pandemic's impact on business, operations, and financial results is highly uncertain and difficult to predict[151] Results of Operations This section analyzes AgeX Therapeutics' financial performance, including detailed breakdowns of revenues, cost of sales, operating expenses, and other income Revenues and Cost of Sales (in thousands) | Item | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Grant revenues | $11 | $36 | $57 | $122 | | Other revenues | $26 | $9 | $36 | $12 | | Total revenues | $37 | $45 | $93 | $134 | | Cost of sales | $(13) | $(3) | $(16) | $(4) | | Gross profit | $24 | $42 | $77 | $130 | - Total revenues decreased by 17.8% for the three months and 30.6% for the six months ended June 30, 2021, primarily due to a decrease in NIH grant revenues[155][156] Operating Expenses (in thousands) | Item | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development expenses | $481 | $935 | $805 | $2,156 | | General and administrative expenses | $1,748 | $1,475 | $3,770 | $3,350 | - Research and development expenses decreased significantly by 48.6% for the three months and 62.7% for the six months ended June 30, 2021, due to staff layoffs and lab facility shutdown[159][160][161] - General and administrative expenses increased by 18.5% for the three months and 12.5% for the six months ended June 30, 2021, driven by non-recurring projects, patent fees, consulting, and insurance, partially offset by reduced facilities rent[159][162][163][164] - Other income, net, in 2021 primarily includes a $437,000 gain from the forgiveness of the PPP Loan[166] Liquidity and Capital Resources This section discusses AgeX Therapeutics' liquidity position, capital resources, and its ability to continue as a going concern, highlighting accumulated deficit and funding requirements - AgeX had an accumulated deficit of $101.6 million as of June 30, 2021, and expects continued operating losses and negative cash flows, raising substantial doubt about its going concern ability[170][171] - The company's cash, cash equivalents, potential additional loans from Juvenescence, and ATM offering proceeds are not expected to be sufficient for the next twelve months' funding requirements[171] - AgeX borrowed $11.0 million under loan agreements with Juvenescence as of June 30, 2021, with an additional $1.0 million drawn in July 2021, subject to Juvenescence's discretion[172][143] - Net cash used in operating activities from continuing operations was $4.2 million for the six months ended June 30, 2021, primarily due to net loss offset by non-cash adjustments and working capital changes[177] - Net cash provided by investing activities from continuing operations was $466,000, stemming from cash proceeds received from the LifeMap Sciences merger[179] - Net cash provided by financing activities from continuing operations was $4.2 million, mainly from loan drawdowns from Juvenescence and proceeds from the ATM offering[181] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, AgeX Therapeutics is exempt from providing quantitative and qualitative disclosures about market risk - AgeX Therapeutics, as a smaller reporting company, is exempt from providing quantitative and qualitative disclosures about market risk[184] Item 4. Controls and Procedures Management evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2021, determining them effective with no material changes in internal control over financial reporting during the period - Management determined that disclosure controls and procedures were effective as of June 30, 2021[185] - No material changes in internal control over financial reporting occurred during the period covered by this Quarterly Report on Form 10-Q[186] PART II — OTHER INFORMATION Item 1. Legal Proceedings AgeX Therapeutics is not currently involved in any material litigation or proceedings, nor is it aware of any contemplated material legal actions - AgeX is not presently involved in any material litigation or proceedings, and no material litigation or proceedings are contemplated[188] Item 1A. Risk Factors This section reiterates AgeX's business faces various risks, particularly the need for additional financing to continue as a going concern, with its accumulated deficit and projected cash flows raising substantial doubt about future financial obligations - AgeX needs additional financing to execute its operating plan and continue as a going concern, as current cash and available credit are insufficient for the next twelve months[189] - The company had an accumulated deficit of $101.6 million as of June 30, 2021, and expects continued operating losses and negative cash flows[190] - The ability to obtain necessary capital is uncertain, and failure could force delays, reductions, or elimination of R&D activities, or prevent the company from continuing as a going concern[190] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds AgeX sold 242,200 shares of common stock through an ATM offering, generating $495,708 in gross proceeds and $480,790 in net proceeds, primarily used for working capital including legal, tax, audit fees, insurance, and consulting - AgeX sold 242,200 shares of common stock in an ATM Offering through Chardan Capital Markets LLC during the six months ended June 30, 2021[193] ATM Offering Proceeds and Expenses (Six Months Ended June 30, 2021) | Item | Amount ($) | | :------------------- | :----------- | | Gross proceeds | 495,708 | | Sales Agent fees | 14,871 | | Other expenses | 47 | | Total expenses | 14,918 | | Net proceeds | 480,790 | - Net proceeds from the ATM Offering were used for working capital, including legal, tax, and audit professional fees ($224,300), insurance premiums ($103,700), consulting fees ($58,400), director compensation ($37,500), and other operating expenses ($56,800)[196] Item 3. Default Upon Senior Securities AgeX Therapeutics reported no defaults upon senior securities - There were no defaults upon senior securities[198] Item 4. Mine Safety Disclosures This item is not applicable to AgeX Therapeutics - Mine Safety Disclosures are not applicable to AgeX Therapeutics[199] Item 5. Other Information AgeX Therapeutics disclosed a subsequent event where it borrowed an additional $1,000,000 under the amended 2019 Loan Agreement with Juvenescence on July 12, 2021 - On July 12, 2021, AgeX borrowed an additional $1,000,000 under the amended 2019 Loan Agreement with Juvenescence[200] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including organizational documents, certifications, and various Inline XBRL documents - Exhibits include organizational documents, certifications, and Inline XBRL documents[201] SIGNATURES The report is duly signed on behalf of AgeX Therapeutics, Inc. by its Chief Executive Officer, Michael D. West, and Chief Financial Officer, Andrea E. Park, on August 13, 2021 - The report was signed by Michael D. West, Chief Executive Officer, and Andrea E. Park, Chief Financial Officer, on August 13, 2021[204]