ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information necessary to understand our audited consolidated financial statements for the two-year period ended December 31, 2023, and highlight certain other information which, in the opinion of management, will enhance a reader’s understanding of our financial condition, changes in financial condition and results of operations. In particular, the discussion is intended to provide an analysis of significant trends and material changes in our financial position and the operating results of our business during the year ended December 31, 2023 as compared to the year ended December 31, 2022. This discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. These historical financial statements may not be indicative of our future performance. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described throughout this report, particularly in “Item 1A. Risk Factors.”

Company and Business Overview

We are a clinical-stage biotechnology company developing novel allogeneic, or "off-the-shelf," cell therapies to address unmet medical needs. Our programs are based on our proprietary cell-based technology platform and associated development and manufacturing capabilities. From this platform, we design, develop, manufacture, and test specialized human cells with anatomical and physiological functions similar or identical to, cells found naturally in the human body. The cells we manufacture are created by applying directed differentiation protocols to established, well-characterized, and self-renewing pluripotent cell lines. These protocols generate cells with characteristics associated with specific and desired developmental lineages. Cells derived from such lineages which are relevant to the underlying condition are transplanted into patients in an effort to (a) replace or support cells that are absent or dysfunctional due to degenerative disease, aging, or traumatic injury, and (b) restore or augment the patient's functional activity.

Our business strategy is to efficiently leverage our technology platform and our development, formulation, delivery, and manufacturing capabilities to advance our programs internally or in conjunction with strategic partners to further enhance their value and probability of success.

A significant area of focus is a collaboration we entered into with F. Hoffmann-La Roche Ltd and Genentech, Inc., a member of the Roche Group (collectively or individually, “Roche” or “Genentech”), under which our lead cell therapy program known as OpRegen® is being developed for the treatment of ocular disorders, including geographic atrophy (“GA”) secondary to age-related macular degeneration (“AMD”). OpRegen (also known as RG6501) is a suspension of human allogeneic retinal pigmented epithelial (“RPE”) cells and is currently being evaluated in a Phase 2a multicenter clinical trial in patients with GA secondary to AMD. OpRegen subretinal delivery has the potential to counteract RPE cell loss in areas of GA lesions by supporting retinal cell health and improving retinal structure and function. Under the terms of the Collaboration and License Agreement we entered into with Roche in December 2021 (the “Roche Agreement”), we received a $50.0 million upfront payment in January 2022 and are eligible to receive up to an additional $620.0 million in developmental, regulatory, and commercialization milestone payments. We also are eligible to receive tiered double-digit percentage royalties on net sales of OpRegen in the U.S. and other major markets.

Our most advanced unpartnered product candidate is OPC1, an allogeneic oligodendrocyte progenitor cell therapy designed to improve recovery following a spinal cord injury (“SCI”). OPC1 has been tested in two clinical trials to date: a five patient Phase 1 clinical trial in acute thoracic SCI, where all subjects were followed for at least 10 years, and a 25 patient Phase 1/2a multicenter clinical trial in subacute cervical SCI, where all subjects were evaluated for at least two years. Results from both studies have been published in the Journal of Neurosurgery Spine. OPC1 clinical development has been supported in part by a $14.3 million grant from the California Institute for Regenerative Medicine (“CIRM”). In February 2024, we announced the clearance by the FDA of our Investigational New Drug ("IND") amendment for OPC1. Pursuant to the IND amendment, we have initiated activities to open our first clinical site in the DOSED (Delivery of Oligodendrocyte Progenitor Cells for Spinal Cord Injury: Evaluation of a Novel Device) clinical study, to evaluate the safety and utility of a novel spinal cord delivery device to administer OPC1 to

the spinal parenchyma in subacute and chronic SCI patients. We expect the initial clinical site opening to occur in the second quarter of 2024.

Our neuroscience focused pipeline of allogeneic, or “off-the-shelf”, cell therapy programs currently includes:

•

RG6501 (OpRegen), an allogeneic RPE cell replacement therapy currently in a Phase 2a multicenter, open-label, single arm clinical trial, being conducted by Genentech, for the treatment of GA secondary to AMD, also known as atrophic or dry AMD.

•

OPC1, an allogeneic oligodendrocyte progenitor cell therapy which will be evaluated in the DOSED clinical study to test the safety and utility of a novel spinal cord delivery device in both subacute and chronic spinal cord injuries and continues to be evaluated in long-term follow-up from a Phase 1/2a multicenter clinical trial for subacute cervical spinal cord injuries.

•

ANP1, an allogeneic auditory neuron progenitor cell transplant currently in preclinical development for the treatment of debilitating hearing loss.

•

PNC1, an allogeneic photoreceptor cell transplant currently in preclinical development for the treatment of vision loss due to photoreceptor dysfunction or damage.

•

RND1, a novel hypoimmune induced pluripotent stem cell (“iPSC”) line being developed in collaboration with Eterna Therapeutics Inc. (“Eterna”), which will be evaluated for differentiation into cell transplant product candidates for central nervous system ("CNS") diseases and other neurology indications.

Other Programs

We have additional undisclosed product candidates being considered for development, and we may consider others, which cover a range of therapeutic areas and unmet medical needs. Generally, these product candidates are based on the same platform technology and employ a similar guided cell differentiation and transplant approach as the product candidates detailed above, but in some cases may also include genetic modifications designed to enhance efficacy and/or safety profiles.

Our efforts to broaden the application of our cell therapy platform and support long-term growth include a strategic collaboration we entered into with Eterna. This reflects a portion of our corporate strategy to capitalize on our process development capabilities by combining them with cell engineering and/or editing technologies, to create novel cell therapies with potentially superior product profiles compared to currently marketed therapies, if any.

In addition to seeking to create value for shareholders by developing product candidates and advancing those candidates through clinical development, we also may seek to create value from our non-core intellectual property or related technologies and capabilities, through licensing collaborations and/or other strategic transactions, such as our business development approach to our VAC dendritic cell therapy platform.

Israel-Hamas War

All of our manufacturing processes, including cell banking and product manufacturing for our cell therapy product candidates, are conducted by our subsidiary, Cell Cure, at its facility in Jerusalem, Israel, and more than two-thirds of our employees are Cell Cure employees who are based in the same facility. As of the date of this report, our operations have not been materially or adversely impacted as a result of the Israel-Hamas war that began in October 2023.

As a result of safety concerns and in response to government-imposed restrictions on movement and travel and other precautions taken to address the ongoing war, our operations at our facilities in Israel were temporarily impacted. Further, a number of our employees in Israel are members of the military reserves and subject to immediate call-up in response to the war in Israel. A number of our employees in Israel have been activated for military duty and additional employees may also be activated. In addition, the general impact on employees operating in a region at war could adversely impact our operations. Although we have business continuity plans in place to address medium- or long-term disruptions that could result from the war, any long-term closure of our facilities in Israel, or if those facilities were damaged, or if hostilities otherwise disrupt the ongoing operation of our facilities or if a meaningful number of

employees are unable to work for significant portions of time our operations would be materially and adversely impacted.

It is currently not possible to predict the scope, duration or severity of the ongoing war or its effects on our operations, financial condition or operating results. The ongoing war is rapidly evolving, and could materially adversely impact our business and operations, including our ability to raise capital, as well as the overall economy in Israel and the value of the New Israeli Shekel. See the risk factor in Item 1A. Risk Factors in this report titled, “All of our manufacturing operations currently are conducted at our facility in Jerusalem, Israel. Accordingly, political and economic conditions in Israel and war, terrorist attacks or other armed conflicts involving Israel, such as the Israel-Hamas war that began in October 2023, could directly affect our business. Any event or condition that significantly disrupts our ordinary course of operations at our Jerusalem facility could harm our business and materially and adversely affect our financial condition and operating results.”

Our commercial insurance may not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure that this government coverage will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material adverse effect on our business.

Critical Accounting Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and related notes. We have identified below our critical accounting policies and estimates that we believe require the greatest amount of judgment. On an ongoing basis, we evaluate estimates which are subject to significant judgment, including those related to revenue recognition under collaborative agreements, research and development costs, impairment of long-lived intangible assets, deferred income taxes and tax reserves, and assumptions used to value stock-based awards or other equity instruments. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates compared to historical experience and trends which form the basis for making judgments about the carrying value of assets and liabilities. To the extent that there are material differences between our estimates and our actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

We believe the assumptions and estimates associated with the following have the greatest potential impact on our consolidated financial statements. For information on all of our significant accounting policies, see Note 2 (Significant Accounting Policies) in the accompanying notes to the consolidated financial statements included in this report.

Revenue recognition under collaborative agreements

We review collaborative agreements to determine if the accounting treatment falls under Accounting Standards Codification, Topic 606, Revenue from Contracts with Customers (“ASC 606”), or ASC Topic 808, Collaborative Arrangements (“ASC 808”). For agreements that may be within the scope of ASC 808, we may analogize to ASC 606 for some aspects of the agreements. If elements of the collaboration reflect a vendor-customer relationship, then those elements are within the scope ASC 606. The classification of transactions under our arrangements is determined based on the nature and contractual terms of the arrangement along with the nature of the operations of the participants.

We determine revenue recognition for arrangements within the scope of Topic 606 by performing the following five steps: (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. We consider the terms of a contract and all relevant facts and circumstances when applying the revenue recognition standard. We apply the revenue recognition standard, including the use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances. As part of the accounting treatment for these contracts, we must develop estimates and assumptions that require judgment, including estimated collaboration costs, to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated

among the performance obligations. For further information, see Note 3 (Revenue) in the accompanying notes to the consolidated financial statements included in this report.

Research and development costs

Research and development expenses consist of costs incurred for company-sponsored, collaborative and contracted research and development activities. These costs include direct expenses and indirect research-related overhead expenses including compensation and related benefits, stock-based compensation, consulting fees, research and laboratory fees, rent of research facilities, amortization of intangible assets, and license fees paid to third parties to acquire patents or licenses to use patents and other technology. Research and development expenses which have an alternative future use will be capitalized as intangible assets, and research and development costs with no future benefit or alternative use will be expensed as incurred. Research and development expenses incurred and reimbursed by grants from third parties approximate the grant income recognized in the consolidated statements of operations. Royalties and sublicensing fees are recorded as research and development expenses, unless these costs are associated with royalties from product sales, which we classify as cost of sales on our consolidated statements of operations. We estimate preclinical, clinical, and other research related expenses based on services performed, pursuant to arrangements with contract research organizations, that conduct studies and research on our behalf. We estimate these expenses based on regular reviews with internal management personnel and external service providers as to the progress or stage of completion of services and the contracted fees to be paid for such services. Based upon the combined inputs of internal and external resources, if the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the expense accordingly. We expect our total research and development expenses to fluctuate each reporting period based on several factors including (i) the stage of development for each cell therapy program, (ii) the availability of resources to work on each program, and (iii) the timing of contractual obligations.

Impairment of long-lived intangible assets

Our long-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If an impairment indicator is present, we evaluate recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If the assets are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the estimated fair value of the assets.

Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed in the acquisition transaction. Goodwill is tested for impairment in accordance with Accounting Standards Update ("ASU") 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. In-process research and development (“IPR&D”) assets are indefinite-lived intangible assets until the completion or abandonment of the associated research and development (“R&D”) efforts. Once the R&D efforts are completed or abandoned, the IPR&D will either be amortized over the asset’s estimated life as a finite-lived intangible asset or be impaired, respectively, in accordance with ASC Topic 350, Intangibles – Goodwill and Other ("ASC 350"). In accordance with ASC 350, goodwill and acquired IPR&D are determined to have indefinite lives and, therefore, are not amortized. Instead, they are tested for impairment at least annually and between annual tests if we become aware of an event or a change in circumstances that would indicate the asset may be impaired. For further information, see Note 7 (Goodwill and Intangible Assets, Net) in the accompanying notes to the consolidated financial statements included in this report.

Income Taxes

Lineage accounts for income taxes in accordance with ASC Topic 740, Income Taxes ("ASC 740"), whichprescribes the use of the asset and liability method, whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect. Valuation allowances are established when necessary to reduce deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will not be realized. ASC 740 guidance also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For benefits to be recognized, a tax position must be more-likely-than-not sustainable upon examination by taxing authorities. Lineage files a U.S. federal income tax return as well as California combined and foreign income tax returns. Lineage’s judgments regarding future taxable income may change over time due to changes in market

conditions, changes in tax laws, tax planning strategies or other factors. If Lineage assumptions, and consequently the estimates, change in the future with respect to Lineage’s own deferred tax assets and liabilities, the valuation allowance may be increased or decreased, which may have a material impact on Lineage’s consolidated financial statements. Lineage recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense; however, no amounts were accrued for the payment of interest and penalties as of December 31, 2023 and 2022. We provided a reserve against our federal and California research and development credits generated. The carryforward amounts for these credits have been reported net of these reserves. Accordingly, no accrued interest and penalties related to unrecognized tax benefits have been recorded as of December 31, 2023 and 2022. For further information, see Note 13 (Income Taxes) in the accompanying notes to the consolidated financial statements included in this report.

Stock-based compensation

We follow accounting standards governing share-based payments, which require the measurement and recognition of compensation expense for all share-based compensation awards made to directors and employees, including employee stock options, based on estimated fair values. We utilize the Black-Scholes option pricing model. Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to: (i) the expected stock price volatility over the term of the awards; (ii) the expected term of options granted, which is derived using the simplified method, which is an average of the contractual term of the option and its vesting period, as we do not have sufficient historical exercise data to estimate the expected term; and (iii) the risk-free rate, which is based on the U.S. Treasury yield in effect at the time of grant for U.S. Treasury notes with maturities similar to the expected term of the awards. Stock option forfeitures are accounted for as they occur.

For restricted stock unit (“RSUs”) awards subject to service and/or performance vesting conditions, the grant-date fair value is established based on the closing price of Lineage’s common shares on such date. Stock-based compensation expense for RSUs subject to only service conditions is recognized on a straight-line basis over the service period. Stock-based compensation expense for RSUs with both service and performance conditions is recognized on a graded basis only if it is probable that the performance condition will be achieved. Lineage accounts for forfeitures of RSUs as they occur in determining stock-based compensation expense. For RSUs subject to a market condition, the grant-date fair value is estimated using a Monte Carlo valuation model. The model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment. Lineage recognizes stock-based compensation expense for RSUs subject to market-based vesting conditions regardless of whether it becomes probable that the vesting conditions will be achieved, and stock-based compensation expense for such RSUs is not reversed if vesting does not actually occur.

Although the fair value of employee stock options is determined in accordance with FASB guidance, changes in the assumptions can materially affect the estimated value and therefore the amount of compensation expense recognized in the consolidated financial statements. For further information, see Note 12 (Stock-Based Awards) to our consolidated financial statements included in this report.

Results of Operations

Comparison of Years Ended December 31, 2023 and 2022

Revenues

The following table shows our revenues for the years ended December 31, 2023 and 2022 (amounts in thousands except percentages).

Year Ended December 31, DollarIncrease PercentIncrease

Royalties, license and other revenues 1,357 1,336 21 2 %

Total revenues for the year ended December 31, 2023 were $8.9 million compared to $14.7 million for the year ended December 31, 2022. The $5.8 million decrease in collaboration revenues was primarily due to lower collaboration revenues under the Roche Agreement, related to an overall increase in the total estimated costs to be incurred under this collaboration agreement. Collaboration revenues may fluctuate from period to period based on changes in estimated costs to support performance obligations. The $7.6 million is part of the $50.0 million upfront payment which was included in deferred revenues at December 31, 2022 (see Note 3 (Revenue) to our consolidated financial statements included in this report for additional information).

Operating Expenses

Our operating expenses consist of research and development expenses and general and administrative expenses.

Research and development expenses. These expenses consist of costs incurred for company-sponsored, collaborative and contracted research and development activities. These costs include direct expenses and indirect research-related overhead expenses including compensation and related benefits, stock-based compensation, consulting fees, research and laboratory fees, rent of research facilities, amortization of intangible assets, and license fees paid to third parties to acquire patents or licenses to use patents and other technology. Research and development expenses which have an alternative future use will be capitalized as intangible assets, and research and development costs with no future benefit or alternative use will be expensed as incurred. Research and development expenses incurred and reimbursed by grants from third parties approximate the grant income recognized in our consolidated statements of operations. Royalties and sublicensing fees are recorded as research and development expenses, unless these costs are associated with royalties from product sales, which we classify as cost of sales in our consolidated statements of operations. We expect our total research and development expenses to fluctuate each reporting period based on several factors including (i) the stage of development for each cell therapy program, (ii) the availability of resources to work on each program, and (iii) the timing of contractual obligations.

General and administrative expenses. These expenses consist of employee and director compensation and related benefits, including stock-based compensation, for executive and corporate personnel, professional and consulting fees, and allocated overhead such as facilities rent and equipment rent and maintenance, insurance costs allocated to general and administrative expenses, costs of patent applications, prosecution and maintenance, stock exchange-related costs, depreciation expense, marketing costs, legal and accounting costs, and other miscellaneous expenses.

The following table shows our operating expenses for the years ended December 31, 2023 and 2022 (amounts in thousands, except percentages).

Year Ended December 31, DollarIncrease PercentIncrease

The following table shows the amount of our total research and development expenses allocated to our primary research and development projects for the periods presented (amounts in thousands, except percentages).

Year Ended December 31,

Amount Percent of Total

Research and development expenses. For the twelve months ended December 31, 2023, the $1.7 million year-over-year increase in total research and development expenses is mainly attributable to a $0.4 million increase in our OpRegen program, a $1.2 million increase in our OPC1 program, and a $2.0 million increase in preclinical programs. These increases were partially offset by a $1.9 million decrease in our other research and development programs, primarily related to reduced manufacturing activities.

General and administrative expenses. For the twelve months ended December 31, 2023, the $5.2 million year-over-year decrease in general and administrative expenses was primarily attributable to (i) a $4.2 million decrease in legal and litigation expense, primarily due to the settlement of the Asterias litigation, and (ii) an overall reduction in costs incurred for services provided by third parties, consulting costs and rent-related expenses.

Other Income and Expenses, Net

The following table shows the amount of other income (expenses), net, during the year ended December 31, 2023 and 2022 (in thousands):

Year Ended December 31, Dollar Increase Percent Increase

Other income (expenses), net 2023 2022 (Decrease) (Decrease)

Loss on marketable equity securities, net (176 ) (2,194 ) 2,018 (92 )%

Gain on revaluation of warrant liability 2 225 (223 ) (99 )%

Interest income, net. During the third quarter of 2022, we began to invest our excess cash in short-term U.S. Treasury securities resulting in an increase in interest income. The increasing interest rates from 2022 to 2023 also contributed to the year over year increase. See Note 4 (Marketable Debt Securities) to our consolidated financial statements included in this report for additional information regarding our marketable debt securities.

Marketable equity securities, net. We expect our net gain or loss on marketable equitable securities to fluctuate based on mark-to-market adjustments resulting from changes in the market price of the common stock of OncoCyte Corporation (“OncoCyte”) and Hadasit Bio-Holdings Ltd (“HBL”). These shares are carried at fair market value on our consolidated balance sheet. See Note 5 (Marketable Equity Securities) to our consolidated financial statements included in this report for additional information regarding our marketable equity securities.

For the twelve months ended December 31, 2023 and 2022, Lineage recognized a net loss on marketable equity securities of $0.2 million and $2.2 million, respectively, primarily related to changes in the fair market value of the securities during the respective periods.

Other expenses, net. For the years ended December 31, 2023 and 2022, other expenses, net primarily includes foreign currency transaction losses of $0.5 million and $2.0 million, respectively. The majority of these foreign

currency transaction gains and losses are generated by Cell Cure’s intercompany notes payable and notes receivable with Lineage, which is U.S. dollar-denominated, while Cell Cure’s functional currency is the Israeli New Shekel (“ILS”). The year-over-year decrease in foreign currency transaction losses was the result of the combined impact of (i) changes in intercompany balances in 2023 as compared to 2022, and (ii) volatility of the ILS as compared to the U.S. dollar during 2023 and 2022. For the year ended December 31, 2023, the foreign currency transaction losses of $0.5 million was offset by the employee retention credit (discussed below) which was not applicable in the prior year.

Under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Company is eligible for an employee retention credit subject to certain criteria. The employee retention credit is a payroll tax refund per employee, which was designed by the U.S. Treasury Department to assist businesses that retained employees during the COVID pandemic. For the year ended December 31, 2023, we recorded an employee retention credit of $0.5 million, due to a decline in the quarterly revenue during 2020 and 2021 as compared to the same quarterly period in 2019.

Income Taxes

Under ASC 740, 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. We established a full valuation allowance as of December 31, 2018 due to the uncertainty of realizing future tax benefits from the net operating loss carryforwards and other deferred tax assets, including foreign net operating losses generated by our subsidiaries.

For the year ended December 31, 2023, Lineage recorded a $1.8 million deferred tax benefit due to the ability to offset certain deferred tax assets against the deferred tax liability associated with in-process research and development (“IPR&D”), and the related release of the valuation allowance. It was determined that a portion of the deferred tax liability related to the indefinite lived assets may be realized prior to the expiration of certain pre 2018 net operating losses. Lineage did not record a deferred tax benefit for the year ended December 31, 2022.

For the year ended December 31, 2022, Lineage recorded a withholding tax of $0.5 million on interest expense deemed paid to Lineage from Cell Cure on the purchase of intellectual property pursuant to the U.S. Israeli tax treaty. There was no comparable tax expense recorded for the year ended December 31, 2023. See Note 13 (Income Taxes) for additional information.

Liquidity and Capital Resources

Overview

As of December 31, 2023, our accumulated deficit was $384.9 million. For the year ended December 31, 2023, we incurred a loss from operations of $24.7 million and had negative cash flow from operations of $28.6 million. Since inception, we have incurred significant operating losses and we expect to continue to incur significant operating losses for the foreseeable future. As of December 31, 2023, we had $35.5 million in cash, cash equivalents and marketable securities. In February 2024, we raised approximately $13.8 million in net proceeds through a registered direct offering of our common shares.

We have historically funded our operations primarily through proceeds from the sale of our common shares and securities exercisable for or convertible into our common shares, the sale of common stock of our former subsidiaries, research grants, revenues from collaborations, and royalties from product sales that are unrelated to our current cell therapy product candidates. We do not expect sales of shares of our former subsidiaries that we own to be a significant source of additional funds. See Note 5 (Marketable Equity Securities) to our consolidated financial statements included in this report for additional information regarding those marketable equity securities. During the year ended December 31, 2023, we issued and sold 4,774,603 common shares under our at-the-market offering program for gross proceeds of $6.6 million.

As of December 31, 2023, $57.2 million remained available for sale under our at-the-market offering program. As of March 1, 2024, $40 million was available for sale under our ATM offering program. See Note 11 (Shareholders’ Equity) to our consolidated financial statements included in this report for additional information regarding our at-the-market offering program.

Cash Flows

Year Ended December 31,

Cash provided by (used in):

Net increase (decrease) in cash and restricted cash $ 24,056 $ (44,341 )

Cash (used in) provided by operating activities

Net cash used in operating activities was $28.6 million for the year ended December 31, 2023, which primarily reflects the loss from operations of $24.7 million plus the changes in operating assets and liabilities of $10.8 million. These items were offset by the non-cash expenses of $4.6 million for stock-based compensation and $0.8 million for depreciation and amortization. The foreign currency remeasurement and deferred tax benefit had no effect on cash flows.

Net cash provided by operating activities was $1.1 million for the year ended December 31, 2022, which primarily reflects the net changes in assets and liabilities of $18.7 million, plus the $5.0 million in non-cash expenses for stock-based compensation and depreciation and amortization, less the loss from operations of $22.5 million. The change in assets and liabilities was impacted by the receipt of the $50.0 million upfront payment under the Roche Agreement, and subsequent related payments to the IIA and Hadasit (see Note 14 (Commitments and Contingencies) to the consolidated financial statements included in this report for further explanation), partially offset by the accrual of the litigation settlement also as described in Note 14 (Commitments and Contingencies) to the consolidated financial statements included in this report. The loss on marketable equity securities and foreign currency remeasurement had no effect on the cash flows.

Cash provided by (used in) investing activities

Cash provided by investing activities for the year ended December 31, 2023 was $46.4 million and consisted of $63.3 million in U.S. Treasury securities which matured during the period and $0.2 million in proceeds from the sale of marketable equity securities, partially offset by $16.4 million used to purchase U.S. Treasury securities and $0.7 million used to purchase equipment.

Cash used in investing activities for the year ended December 31, 2022 was $46.2 million and consisted of $53.4 million related to the purchase of U.S. Treasury securities and $0.4 million for the purchase of equipment, offset with $7.7 million in U.S. Treasuries which matured during the year.

Cash provided by financing activities

Cash provided by financing activities for the year ended December 31, 2023 was $6.4 million and primarily consisted of net proceeds from the sale of our common shares under our at-the-market offering program.

Cash provided by financing activities for the year ended December 31, 2022 was $1.6 million and consisted of $1.0 million of proceeds from the exercise of warrants to purchase shares of Cell Cure and $0.6 million of proceeds from the exercise of employee stock options.

Financial Obligations

Our financial obligations primarily consist of obligations to our licensors under license agreements, obligations related to grants received from government entities, including the IIA, obligations under vendor contracts to provide research services and other purchase commitments with suppliers.

Our obligations to licensors under license agreements and to government entities under the terms of grants we've received require us to make future payments relating to sublicense fees, milestone payments, redemption fees, royalties and patent maintenance costs. Sublicense fees are payable to licensors or government entities when we sublicense underlying intellectual property to third parties; the fees are based on a percentage of the license-related revenue we receive from sublicensees. Milestone payments, are due to licensors or government entities upon future achievement of certain commercial, development and regulatory milestones, including those related to the Roche Agreement. Redemption fees due to the IIA under the Innovation Law are due upon receipt of any milestone payments and royalties received under the Roche Agreement, (see Note 14 (Commitment and Contingencies)) to the consolidated financial statements included in this report for additional information. Royalties, are payable to licensors or government entities based on a percentage of net sales of licensed products, including those related to the Roche Agreement. Patent maintenance costs are payable to licensors as reimbursement for the cost of maintaining licensed patents. Due to the contingent nature of the payments, the amounts and timing of payments to licensors under our in-license agreements and to government entities under the terms of grants we've received are uncertain and may fluctuate significantly from period to period. As of December 31, 2023, we have not included these commitments on our consolidated balance sheet because the achievement and timing of these events are not fixed and determinable.

As discussed in “Part I—Item 1. Business—Grants from Government Entities,” above, we have received grants under the Innovation Law and are required to pay royalties to the IIA from the revenues generated from the sale of product candidates and related services developed, in whole or in part pursuant to, or as a result of, a research and development program funded by the IIA. Under the Innovation Law, we are also required to pay redemption fees to the IIA. To date, through a series of separate grants beginning in 2007, Cell Cure has received a total of $15.4 million from the IIA to support the OpRegen program. We are obligated to pay approximately 24.1% of any future payments we receive under the Roche Agreement to the IIA, up to an aggregate cap on all payments to IIA, such cap growing over time via interest accrual until paid in full. As of December 31, 2023 the aggregate cap amount was approximately $93.2 million. Redemption fees due to the IIA under the Innovation Law are due upon receipt of any milestone payments and royalties received under the Roche Agreement. As of December 31, 2023, we have not included any future financial obligations due to the IIA under the Innovation Law in our consolidated balance sheet because the achievement and timing of the events that would require future payments to the IIA under the Innovation Law is not fixed and determinable. See Note 14 (Commitments and Contingencies) to our consolidated financial statements included in this report for additional information.

Under the terms of the leases for the facilities from which Cell Cure and Lineage operate, a total of $3.2 million of rent payments will become due, of which $1.0 million will become due in 2024.

In the normal course of business, we enter into services agreements with contract research organizations, contract manufacturing organizations and other third parties. Generally, these agreements provide for termination upon notice, with specified amounts due upon termination based on the timing of termination and the terms of the agreement. The amounts and timing of payments under these agreements are uncertain and contingent upon the initiation and completion of the services to be provided.

Future Funding Requirements and Potential Sources

We expect that our operating expenses will continue to increase for the foreseeable future as we continue the development of, and seek regulatory approval for, our product candidates. As a result, we will need significant additional capital to fund our operations. Our determination as to when we will seek additional capital and the amount of additional capital that we will need will be based on our evaluation of the progress we make in our research and development programs, changes to the scope and focus of those programs, changes in grant funding for certain of those programs, and projection of future costs, revenues, and rates of expenditure. If we are unable to raise additional capital when and as needed, we may be required to delay, postpone, or cancel our clinical trials or limit the number of clinical trial sites.

We may seek to obtain the additional capital we may need through one or more equity offerings, debt financings, government or other grant funding or other third-party funding transactions, including potential strategic alliances and licensing or collaboration agreements, or structured financings such as royalty monetization transactions. We cannot provide any assurance that adequate additional capital will be available on favorable terms, if at all. The issuance of additional securities, whether equity or debt, or the possibility of such issuance, may cause the market price of our

common shares to decline, and the issuance of additional equity securities could result in the dilution of the interests of our current shareholders. If we obtain additional capital through strategic alliances and licensing or collaboration agreements or structured financing, we may be required to relinquish rights to our intellectual property, our product candidates or rights to future revenue streams or otherwise agree to terms unfavorable to us. The unavailability or inadequacy of additional capital to meet future capital needs could force us to modify, curtail, delay, or suspend some or all aspects of our current planned operations. Our ability to raise additional capital may be adversely impacted due to external factors beyond our control, such as unfavorable global economic conditions, disruptions to and volatility in the credit and financial markets in the United States and worldwide, public health emergencies such as the COVID-19 pandemic, geopolitical conflicts, political and economic instability, inflation and relatively high interest rates, and other macroeconomic factors.

We believe that our $35.5 million in cash, cash equivalents and marketable securities at December 31, 2023, together with the approximately $13.8 million in net proceeds from the registered direct offering of our common shares we completed in February 2024, will be sufficient to fund our planned operations through for least twelve months from the issuance date of our consolidated financial statements included elsewhere in this report.

Off-Balance Sheet Arrangements

None.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Under rules and regulations of the SEC, as a smaller reporting company, we are not required to provide the information required by this item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to consolidated financial statements

Independent Registered Public Accounting Firm - Audit Opinion 91

Financial Statements:

Consolidated Balance Sheets 93

Consolidated Statements of Operations 94

Consolidated Statements of Comprehensive Loss 95

Consolidated Statements of Shareholders Equity 96

Consolidated Statements of Cash Flows 97

Notes to the Consolidated Financial Statements 98

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders of

Lineage Cell Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Lineage Cell Therapeutics, Inc. and Subsidiaries (collectively, the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the Audit Committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements; and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for Revenue Recognition

Description of the Matter

The Company recorded deferred revenue of $28.7 million as of December 31, 2023 and revenue of $7.6 million for the year ended December 31, 2023 from a collaboration agreement. As described in Note 3, the Company has concluded that the grant of licenses for the Company’s technology or programs, research and development services, and services or obligations in connection with participation in research or steering committees represent a combined performance obligation for which the Company recognizes collaboration revenues as the services are performed over time.

Auditing the Company’s accounting for revenues from this collaboration agreement was especially complex and required significant judgments, primarily in evaluating the period in which the performance obligation was satisfied and evaluating estimates of total expected inputs under the input method for revenue recognized over time.

How We Addressed the Matter in Our Audit

To test the measurement of efforts toward satisfying the performance obligation, our audit procedures included, among others, gaining an understanding of the internal control process over revenue from collaboration agreements, reviewing management’s analysis for accuracy and completeness by agreeing data to the underlying agreement, evaluating the assumptions used for forecasting, performing analytical procedures on budget to actual and forecasted costs, evaluating the application of the input method for the recognition of revenue, and on a sample basis, testing the estimated costs and actual costs incurred to underlying source documents.

/s/ WithumSmith+Brown, PC

We have served as the Company's auditor since 2014.

San Francisco, California

March 7, 2024

PCAOB ID Number 100

LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

ASSETS

CURRENT ASSETS

Accounts receivable, net (Note 3) 745 297

Prepaid expenses and other current assets 2,204 1,828

NONCURRENT ASSETS

Property and equipment, net (Notes 6 and 14) 4,767 5,673

Deposits and other long-term assets 577 627

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES

Accounts payable and accrued liabilities $ 6,270 $ 8,608

Operating lease liabilities, current portion (Note 14) 830 916

Finance lease liabilities, current portion (Note 14) 52 36

Deferred revenues, current portion (Note 3) 10,808 9,421

LONG-TERM LIABILITIES

Deferred revenues, net of current portion (Note 3) 18,693 27,725

Operating lease liabilities, net of current portion (Note 14) 1,979 2,860

Finance lease liabilities, net of current portion (Note 14) 91 84

Other long-term liabilities — 2

Commitments and contingencies (Note 14)

SHAREHOLDERS’ EQUITY

Accumulated other comprehensive loss (3,068 ) (3,571 )

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 101,019 $ 123,664

See accompanying notes to the consolidated financial statements.

LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Year Ended December 31,

REVENUES:

Royalties, license and other revenues 1,357 1,336

OPERATING EXPENSES:

OTHER INCOME (EXPENSES):

Loss on marketable equity securities, net (176 ) (2,194 )

Gain on revaluation of warrant liability 2 225

Other expenses, net (4 ) (2,152 )

Total other income (expenses), net 1,451 (3,292 )

Provision for income tax benefit (expense) 1,803 (541 )

Net (income) loss attributable to noncontrolling interest (7 ) 80

NET LOSS ATTRIBUTABLE TO LINEAGE $ (21,486 ) $ (26,273 )

NET LOSS PER COMMON SHARE ATTRIBUTABLE TO LINEAGE

Basic and Diluted $ (0.12 ) $ (0.15 )

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:

See accompanying notes to the consolidated financial statements.

LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(IN THOUSANDS)

Year Ended December 31,

Other comprehensive loss, net of tax:

Foreign currency translation adjustment 353 1,790

Unrealized gain (loss) on marketable debt securities 150 (150 )

See accompanying notes to the consolidated financial statements.

LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(IN THOUSANDS)

Accumulated

Common Other Total

Shares Accumulated Noncontrolling Comprehensive Shareholders’

Shares Amount Deficit Deficit Income / (Loss) Equity

Stock-based compensation — 4,287 — — — 4,287

Shares issued upon exercise of stock options 596 490 — — — 490

Subsidiary warrant exercise, net — 991 — — — 991

Unrealized loss on marketable debt securities — — — — (150 ) (150 )

Foreign currency translation gain — — — — 1,790 1,790

Financing related fees — (221 ) — — — (221 )

Shares issued upon exercise of stock options 66 56 — — — 56

Stock-based compensation — 4,640 — — — 4,640

Unrealized gain on marketable debt securities — — — — 150 150

Foreign currency translation gain — — — — 353 353

See accompanying notes to the consolidated financial statements.

LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

Year Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss attributable to Lineage Cell Therapeutics, Inc. $ (21,486 ) $ (26,273 )

Net income (loss) allocable to noncontrolling interest 7 (80 )

Loss on marketable equity securities, net 176 2,194

Accretion of income on marketable debt securities (679 ) (501 )

Depreciation expense, including amortization of leasehold improvements 562 582

Change in right-of-use assets and liabilities 91 (35 )

Amortization of intangible assets 130 145

Gain on revaluation of warrant liability (2 ) (225 )

Deferred income tax benefit (1,803 ) —

Foreign currency remeasurement and other loss 602 2,272

Gain on sale of assets — (11 )

Changes in operating assets and liabilities:

Accounts receivable, net (Note 3) (446 ) 50,314

Prepaid expenses and other current assets (418 ) 446

Accounts payable and accrued liabilities (Note 7) (2,295 ) (18,702 )

Net cash (used in) provided by operating activities (28,566 ) 1,059

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from the sale of marketable equity securities 196 —

Purchases of marketable debt securities (16,403 ) (53,412 )

Maturities of marketable debt securities 63,330 7,666

Purchase of equipment (674 ) (413 )

Net cash provided by (used in) investing activities 46,449 (46,159 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from employee options exercised 88 648

Common shares received and retired for employee taxes paid (37 ) (17 )

Proceeds from exercise of subsidiary warrants, net — 991

Proceeds from sale of common shares 6,625 148

Payments for offering costs (199 ) (106 )

Repayment of finance lease liabilities (54 ) (32 )

Net cash provided by financing activities 6,423 1,632

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

SUPPLEMENTAL DISCLOSURES

Cash paid for interest $ 10 $ 13

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:

Property and equipment expenditures in accounts payable $ 8 $ 28

Amortization of financing costs $ 22 $ -

Receivable from exercise of stock options $ - $ 32

Reconciliation of cash, cash equivalents and restricted cash, end of period:

Total cash, cash equivalents, and restricted cash $ 35,992 $ 11,936

See accompanying notes to the consolidated financial statements.

LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Organization, Basis of Presentation and Liquidity

We are a clinical-stage biotechnology company developing novel allogeneic, or "off-the-shelf," cell therapies to address unmet medical needs. Our programs are based on our proprietary cell-based technology platform and associated development and manufacturing capabilities. From this platform, we design, develop, manufacture, and test specialized human cells with anatomical and physiological functions similar or identical to cells found naturally in the human body. The cells we manufacture are created by applying directed differentiation protocols to established, well-characterized, and self-renewing pluripotent cell lines. These protocols generate cells with characteristics associated with specific and desired developmental lineages. Cells derived from such lineages which are relevant to the underlying condition are transplanted into patients in an effort to (a) replace or support cells that are absent or dysfunctional due to degenerative disease, aging, or traumatic injury, and (b) restore or augment the patient's functional activity.

A significant area of focus is a collaboration we entered into with F. Hoffmann-La Roche Ltd and Genentech, Inc., a member of the Roche Group (collectively or individually, “Roche” or “Genentech”), under which our lead cell therapy program known as OpRegen®, is being developed for the treatment of ocular disorders, including geographic atrophy (“GA”) secondary to age-related macular degeneration (“AMD”). OpRegen (also known as RG6501) is a suspension of human allogeneic retinal pigmented epithelial (“RPE”) cells and is currently being evaluated in a Phase 2a multicenter clinical trial in patients with GA secondary to AMD. OpRegen subretinal delivery has the potential to counteract RPE cell loss in areas of GA lesions by supporting retinal cell health and improving retinal structure and function. Under the terms of the Collaboration and License Agreement we entered into with Roche in December 2021 (the “Roche Agreement”), we received a $50.0 million upfront payment in January 2022 and are eligible to receive up to an additional $620.0 million in developmental, regulatory, and commercialization milestone payments. We also are eligible to receive tiered double-digit percentage royalties on net sales of OpRegen in the U.S. and other major markets.

Our most advanced unpartnered product candidate is OPC1, an allogeneic oligodendrocyte progenitor cell therapy designed to improve recovery following a spinal cord injury (“SCI”). OPC1 has been tested in two clinical trials to date; a five patient Phase 1 clinical trial in acute thoracic SCI, where all subjects were followed for at least 10 years, and a 25 patient Phase 1/2a multicenter clinical trial in subacute cervical SCI, where all subjects were evaluated for at least two years. Results from both studies have been published in the Journal of Neurosurgery Spine. OPC1 clinical development has been supported in part by a $14.3 million grant from the California Institute for Regenerative Medicine (“CIRM”). In February 2024, we announced the clearance by the FDA of our Investigational New Drug ("IND") amendment for OPC1. Pursuant to the IND amendment, we have initiated activities to open our first clinical site in the DOSED (Delivery of Oligodendrocyte Progenitor Cells for Spinal Cord Injury: Evaluation of a Novel Device) clinical study, to evaluate the safety and utility of a novel spinal cord delivery device to administer OPC1 to the spinal parenchyma in subacute and chronic SCI patients. We expect the initial clinical site opening to occur in the second quarter of 2024.

Our neuroscience focused pipeline of allogeneic, or “off-the-shelf”, cell therapy programs currently includes:

•

ANP1, an allogeneic auditory neuron progenitor cell transplant currently in preclinical development for the treatment of debilitating hearing loss.

•

PNC1, an allogeneic photoreceptor cell transplant currently in preclinical development for the treatment of vision loss due to photoreceptor dysfunction or damage.

•

Other Programs

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period with consideration given to materiality. Significant estimates and assumptions which are subject to significant judgment include those related to revenue recognition under collaborative agreements, research and development costs, impairment of long-lived intangible assets, deferred income taxes and tax reserves, and assumptions used to value stock-based awards or other equity instruments. Actual results could differ materially from those estimates.

Principles of consolidation

Lineage’s consolidated financial statements include the accounts of its subsidiaries. The following table reflects Lineage’s ownership, directly or through one or more subsidiaries of the outstanding shares of its operating subsidiaries as of December 31, 2023.

Subsidiary Field of Business Lineage Ownership Country

(1)

Includes shares owned by Lineage and ES Cell International Pte. Ltd.

(2)

In July 2022, Hadasit Bio-Holdings Ltd. exercised warrants to purchase 21,999 ordinary shares of Cell Cure Neurosciences Ltd. ("Cell Cure"). Lineage’s ownership percentage of Cell Cure decreased to approximately 94% as a result of the warrant exercise. As of December 31, 2023, our ownership percentage of Cell Cure was approximately 94%.

All material intercompany accounts and transactions have been eliminated in consolidation. As of December 31, 2023, Lineage consolidated its direct and indirect wholly owned or majority-owned subsidiaries because Lineage has the ability to control their operating and financial decisions and policies through its ownership, and the noncontrolling interest is reflected as a separate element of shareholders’ equity on Lineage’s consolidated balance sheets.

Liquidity

On December 31, 2023, we had $35.5 million of cash, cash equivalents and marketable securities. Based on our current operating plan, we believe that our cash, cash equivalents and marketable securities, combined with the $13.8 million net raised in February 2024 through a registered direct offering (See Note 19 - Subsequent Events), will be sufficient to enable us to carry out our planned operations through at least twelve months from the issuance date of our consolidated financial statements.

Capital Resources

Since inception, we have incurred significant operating losses and have funded our operations primarily through the issuance of equity securities, the sale of common stock of our former subsidiaries, OncoCyte Corporation and AgeX Therapeutics, Inc., receipt of proceeds from research grants, revenues from collaborations, royalties from product sales and sales of research products and services.

As of December 31, 2023, $57.2 million remained available for sale under our at the market offering program ("ATM"). See Note 11 (Shareholders’ Equity) for additional information.

As of December 31, 2023, we had $0.1 million of marketable securities. We may use our marketable securities for liquidity as necessary and as market conditions allow. The market value of our marketable securities may not represent the amount that could be realized in a sale of such securities due to various market and regulatory factors, including trading volume, prevailing market conditions and prices at the time of any sale and subsequent sales of securities by the entities. In addition, the value of our marketable securities may be significantly and adversely impacted by deteriorating global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the recent pandemics, including the COVID-19 pandemic, geopolitical conflicts, political and economic instability, rising inflation and interest rates, and other macroeconomic factors.

Additional Capital Requirements

Our financial obligations primarily consist of obligations to licensors under license agreements, obligations related to grants received from government entities, including the Israel Innovation Authority (“IIA”), obligations under contracts with vendors who provide research services and purchase commitments with suppliers.

Our obligations to licensors under license agreements and our obligations related to grants received from government entities require us to make future payments, such as sublicense fees, milestone payments, redemption fees, royalties and patent maintenance costs. Sublicense fees are payable to licensors or government entities when we sublicense the applicable intellectual property to third parties; the fees are based on a percentage of the license-related revenue we receive from sublicensees. Milestone payments, including those related to the Roche Agreement, are due to licensors or government entities upon achievement of commercial, development and regulatory milestones. Redemption fees due to the IIA under the Innovation Law are due upon receipt of milestone payments and royalties received under the Roche Agreement. See Note 14 (Commitment and Contingencies) for additional information. Royalties, including those related to royalties we may receive under the Roche Agreement, are payable to licensors or government entities based on a percentage of net sales of licensed products. Patent maintenance costs are payable to licensors as reimbursement for the cost of maintaining license patents. Due to the contingent nature of the payments, the amounts and timing of payments to licensors under our in-license agreements are uncertain and may fluctuate significantly from period to period. As of December 31, 2023, we have not included these commitments on our consolidated balance sheet because the achievement of events that would trigger our payment obligations and the timing thereof are not fixed and determinable.

100

2. Significant Accounting Policies

Revenue recognition - Lineage recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) ASU 2014-09, Revenues from Contracts with Customers (Topic 606), and in a manner that depicts the transfer of control of a product or a service to a customer and reflects the amount of the consideration it is entitled to receive in exchange for such product or service. In doing so, Lineage follows a five-step approach: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue when (or as) the customer obtains control of the product or service. Lineage considers the terms of a contract and all relevant facts and circumstances when applying the revenue recognition standard. Lineage applies the revenue recognition standard, including the use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances.

Marketable Debt Securities - Lineage accounts for its holdings of U.S. Treasury securities in accordance with Accounting Standards Codification (“ASC”) 320-10-50, Debt Securities. Marketable debt securities purchased with an original maturity of three months or less have been classified as cash equivalents. All marketable debt securities purchased with an original maturity of more than three months have been classified as “available-for-sale” and are carried at estimated fair value. Unrealized gains and losses are excluded from earnings and are included in other comprehensive income or loss and reported as a separate component of stockholders’ equity or deficit until realized. Realized gains or losses on available-for-sale debt securities are included in other income (expense), net. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion, together with interest on securities, are included in interest income on the Company’s consolidated statement of operations. The cost of securities sold is based on the specific-identification method. In accordance with the Company’s investment policy, management invests in debt securities with high credit quality, including U.S. government securities.

Lineage's investments are accounted for as available-for-sale securities and are carried at fair value on the consolidated balance sheets. Any unrealized losses attributable to current expected credit loss (“CECL”) would be recorded through an allowance for credit losses, limited to the amount by which the fair value is below amortized cost, with the offsetting amount recorded in other income or expense in the consolidated statement of operations and comprehensive loss. To date, no such credit losses have occurred or have been recorded. Unrealized losses not attributable to an expected credit loss and unrealized gains on investments are recorded in other comprehensive income (loss) on the consolidated statements of operations and comprehensive loss. Realized gains and losses, if any, on investments classified as available-for-sale securities are included in other income or expense. The amortized cost of investments classified as available-for-sale debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest See Note 4 (Marketable Debt Securities) for additional information.

Marketable equity securities - Lineage accounts for the shares it holds in OncoCyte and HBL as marketable equity securities in accordance with ASC 320-10-25, Investments – Debt and Equity Securities, as amended by Accounting Standards Update (“ASU”) 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, further discussed below.

OncoCyte shares have readily determinable fair values quoted on the NYSE American under trading symbol “OCX”. The HBL shares have a readily determinable fair value quoted on the Tel Aviv Stock Exchange (“TASE”) under the trading symbol “HDST” where share prices are denominated in New Israeli Shekels (NIS).

Royalties from product sales and license fees - For agreements that include sales-based royalties, including commercial milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, Lineage recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

101

Lineage estimates and recognizes royalty revenues based on all available information, including estimates provided by the customer or licensee from which Lineage obtains such estimates directly for each reporting period. Actual revenues ultimately received may differ from those estimates recorded and are adjusted in the period when information on actuals is available to Lineage.

Collaborative agreements - In December 2021, Lineage entered into the Roche Agreement for the development and commercialization of OpRegen. Under the terms of the Roche Agreement, Roche agreed to pay Lineage a $50.0 million upfront payment and Lineage is eligible to receive up to an additional $620.0 million in developmental, regulatory and commercialization milestone payments. Lineage is also eligible to receive tiered double-digit percentage royalties on net sales of OpRegen. See Note 14 (Commitments and Contingencies) for additional information regarding this agreement.

In April 2021, Lineage entered a worldwide license and collaboration agreement with Immunomic Therapeutics, Inc.("ITI") for the development and commercialization of an allogeneic version of an immunomic oncology target utilizing the VAC platform. Under the terms of this agreement, Lineage is entitled to upfront licensing fees totaling up to $2.0 million, $1.0 million of which was received in 2021, and up to $67.0 million in development and commercial milestones across multiple indications. Lineage also will be eligible to receive royalties up to 10% on net sales of future products. See Note 14 (Commitments and Contingencies) for additional information regarding this agreement.

As of December 31, 2023, deferred revenue on the consolidated balance sheet, related to the collaboration agreements with each of Roche and ITI, was $28.7 million and $0.8 million, respectively. For the twelve months ended December 31, 2023, we recognized $7.6 million of revenue on the consolidated statement of operations, related to the Roche Agreement. See Note 3 (Revenue) for additional information.

We review collaborative agreements to determine if the accounting treatment falls under Accounting Standards Codification, Topic 606, Revenue from Contracts with Customers (“ASC 606”), or Accounting Standards Codification Topic 808, Collaborative Arrangements (“ASC 808”). For agreements that may be within the scope of ASC 808, we may analogize to ASC 606 for some aspects of the agreements. If elements of the collaboration reflect a vendor-customer relationship, then those elements are within the scope ASC 606. The classification of transactions under our arrangements is determined based on the nature and contractual terms of the arrangement along with the nature of the operations of the participants.

The terms of our collaborative agreements typically include one or more of the following: (i) upfront fees; (ii) milestone payments related to achievement of development or commercial milestones; (iii) royalties on net sales of licensed products; and (iv) reimbursement of cost-sharing of research and development (“R&D”) expenses. Each of these payments eventually result in collaboration revenues. When a portion of non-refundable upfront fees or other payments received are allocated to continuing performance obligations under the terms of a collaborative agreement, they are recorded as deferred revenue and recognized as collaboration revenue when (or as) the underlying performance obligation is satisfied.

To identify the performance obligations within the collaboration agreements, we first identify all the promises in the contract (i.e., explicit and implicit), which may include a customer option to acquire additional goods or services for free or at a discount. We exclude any immaterial promises from the assessment of identifying performance obligations. When an option is identified as providing a customer with a material right, the option is identified as a performance obligation. A portion of the transaction price is then allocated to the option and recognized when (or as) the future goods or services related to the option are provided, or when the option expires.

As part of the accounting treatment for these agreements, we must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligations. The following items are estimated in the calculation of the stand-alone selling price: forecasted revenues and development costs, development timelines, discount rates and probabilities of technical and regulatory success. We evaluate each performance obligation to determine if they can be satisfied at a point in time or over time, and we measure the services delivered to our collaboration partners each reporting period, which is based on the progress of the related program. If necessary, we adjust the measure of performance and related revenue recognition. Any such adjustments are recorded on a cumulative catch-up basis which would affect revenue and net income (loss) in the period of adjustment. In addition,

102

variable considerations (e.g., milestone payments) must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price.

Upfront fees - If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize collaboration revenues from the transaction price allocated to the license when the license is transferred to the licensee, and the licensee is able to use and benefit from the license. When the license is determined to be non-distinct, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time, and, if over time, the appropriate method of measuring progress for purposes of recognizing collaboration revenue from the allocated transaction price. For example, when we receive upfront fees for the performance of research and development services, or when research and development services are not considered to be distinct from a license, we recognize collaboration revenue for those units of account over time using a measure of progress. We evaluate the measure of progress at each reporting period and, if necessary, adjust the measure of performance and related revenue as a change in estimate.

Milestone payments - At the inception of each collaboration agreement that includes milestone payments (variable consideration), we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our or the collaboration partner’s control, such as non-operational developmental and regulatory approvals, are generally not considered probable of being achieved until those approvals are received. At the end of each reporting period, we re-evaluate the probability of achievement of milestones that are within our or the collaboration partner’s control, such as operational developmental milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues and net income (loss) in the period of adjustment. Revisions to our estimate of the transaction price may also result in negative collaboration revenues and net income (loss) in the period of adjustment.

Royalties - For collaboration agreements that include sales-based royalties, including commercial milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Reimbursement, cost-sharing payments - Under certain collaborative agreements, we will receive reimbursement for a portion of our R&D expenses. Such reimbursements are reviewed for gross versus net reporting considerations and reflected either as a reduction of R&D expense or as reimbursement revenue in our consolidated statements of operations.

Basic and diluted net income (loss) per share attributable to common shareholders - Basic earnings per share is calculated by dividing net income or loss attributable to Lineage common shareholders by the weighted average number of common shares outstanding, net of stock options and restricted stock units ("RSUs"), subject to repurchase by Lineage, if any, during the period. Diluted earnings per share is calculated by dividing the net income or loss attributable to Lineage common shareholders by the weighted average number of common shares outstanding, adjusted for the effects of potentially dilutive common shares issuable under outstanding stock options, restricted stock awards and warrants, using the treasury-stock method, convertible preferred stock, if any, using the if-converted method, and treasury stock held by subsidiaries, if any.

For the years ended December 31, 2023 and 2022, respectively, Lineage reported a net loss attributable to common shareholders, and therefore, all potentially dilutive common shares were considered antidilutive for those periods.

103

The following common share equivalents were excluded from the computation of diluted net loss per common share for the periods presented because including them would have been antidilutive (in thousands):

Year ended December 31,

Accounts receivable, net – Net accounts receivables amounted to $0.7 million and $0.3 million as of December 31, 2023 and 2022, respectively. Net trade receivables include an allowance for doubtful accounts of approximately $0.1 million as of December 31, 2023 and 2022, for those amounts deemed uncollectible by Lineage. Lineage establishes an allowance for doubtful accounts based on the evaluation of the collectability of its receivables on a variety of factors, including the length of time receivables are past due, significant events that may impair the customer’s ability to pay, such as a bankruptcy filing or deterioration in the customers operating results or financial position, and historical experience. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. The net balance in accounts receivable is primarily comprised of royalty-based revenue, and therefore Lineage has applied the CECL considerations to this specific balance. Lineage has deemed the risk of customer default within its royalty-based revenues to be low, as the receivable amounts: i) are based on estimates and/or reports directly communicated by its royalty-related sublicensees, and ii) have not historically been impacted by macro-economic uncertainties (i.e., interest rates, inflation, GDP growth) as it relates to collectability. As such, a credit loss allowance per the provisions of CECL is not determined to be necessary.

Leases - We account for leases in accordance with ASC 842, Leases. We determine if an arrangement is a lease at inception. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition in the consolidated statements of operations. Under the available practical expedients for the adoption of ASC 842, we account for the lease and non-lease components as a single lease component. We recognize right-of-use (“ROU”) assets and lease liabilities for leases with terms greater than twelve months in the consolidated balance sheet. ROU assets represent our right to use an underlying asset during the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating and finance lease ROU assets also includes any lease payments made and excludes lease incentives. Our lease terms used to determine operating and finance lease ROU assets and liabilities may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Lease expense for finance lease payments is recognized as amortization of ROU assets and related interest. Operating and finance leases are included as assets in property and equipment; finance and lease liabilities are included in the current and long-term liabilities in the consolidated balance sheets.

Goodwill and IPR&D – Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill is tested for impairment in accordance with ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. In-process research and development (“IPR&D”) assets are indefinite-lived intangible assets until the completion or abandonment of the associated research and development (“R&D”) efforts. Once the R&D efforts are completed or abandoned, the IPR&D will either be amortized over the asset’s estimated life as a finite-lived intangible asset or be impaired, respectively, in accordance with ASC 350, Intangibles – Goodwill and Other. In accordance with ASC 350, goodwill and acquired IPR&D are determined to have indefinite lives and, therefore, are not amortized. Instead, they are tested for impairment at least annually and between annual tests if we become aware of an event or a change in circumstances that would indicate the asset may be impaired.

Going concern assessment – Lineage assesses going concern uncertainty for its consolidated financial statements to determine if Lineage has sufficient cash and cash equivalents on hand and working capital to operate for a period of at least one year from the date the consolidated financial statements are issued or are available to be issued, which is referred to as the “look-forward period” as defined by FASB’s ASU No. 2014-15. As part of this assessment, based on conditions that are known and reasonably knowable to Lineage, Lineage will consider various scenarios,

104

forecasts, projections, and estimates, and Lineage will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, and its ability to delay or curtail those expenditures or programs, if necessary, among other factors. Based on this assessment, as necessary or applicable, Lineage makes certain assumptions concerning its ability to curtail or delay research and development programs and expenditures within the look-forward period in accordance with ASU No. 2014-15.

Cash and cash equivalents – Lineage considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of December 31, 2023 and 2022, Lineage had $21.0 million and $4.1 million in money market funds, respectively, considered to be cash equivalents. Additionally, as of December 31 2023, Lineage had $8.9 million in marketable debt securities, classified as cash equivalents due to their original maturity of three months or less at the time of purchase.

Restricted cash – At December 31, 2023 and 2022, the Company had restricted cash of $0.1 million required to be set aside for its corporate credit card facility. Additionally, Cell Cure has restricted cash related to its office lease. See Note 14 (Commitments and contingencies).

Concentrations of credit risk and significant sources of supply – Financial instruments that potentially subject Lineage to significant concentrations of credit risk consist primarily of cash, cash equivalents and marketable debt securities. Lineage limits the amount of credit exposure of cash balances by maintaining its accounts in high credit quality financial institutions. Cash equivalent deposits with financial institutions may occasionally exceed the limits of insurance on bank deposits; however, Lineage has not experienced any losses on such accounts. Lineage mitigates its credit exposure on marketable debt securities by investing in short term U.S. Treasuries securities.

Lineage relies on single-source, third-party suppliers for a few key components of our product candidates. If these single-source, third-party suppliers are unable to continue providing a key component, the initiation or progress of any clinical studies of its product candidates may be impeded.

Property and equipment, net – Property and equipment is stated at cost, net of accumulated depreciation and amortization. The cost of property and equipment is depreciated or amortized using the straight-line method over the estimated useful life of the asset, ranging from 3 to 10 years. Leasehold improvements are amortized over the shorter of the useful life or the lease term. See Note 6 (Property and Equipment, Net) for additional information.

Long-lived intangible assets – Long-lived intangible assets, consisting primarily of acquired patents, patent applications, and licenses to use certain patents are stated at acquired cost, less accumulated amortization. Amortization expense is computed using the straight-line method over the estimated useful lives of the assets, generally over 5 to 10 years.

Impairment of long-lived assets – Long-lived assets, including property and equipment and long-lived intangible assets, are reviewed annually for impairment and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If an impairment indicator is present, Lineage evaluates recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If the assets are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the estimated fair value of the assets. The Company did not recognize any impairment losses for the years ended December 31, 2023 and 2022.

Transactions with noncontrolling interests of subsidiaries - Lineage accounts for a change in ownership interests in its subsidiaries that does not result in a change of control of the subsidiary by Lineage under the provisions of ASC 810-10-45-23, Consolidation – Other Presentation Matters, which prescribes the accounting for changes in ownership interest that do not result in a change in control of the subsidiary, as defined by GAAP, before and after the transaction. Under this guidance, changes in a controlling shareholder’s ownership interest that do not result in a change of control, as defined by GAAP, in the subsidiary are accounted for as equity transactions. Thus, if the controlling shareholder retains control, no gain or loss is recognized in the statements of operations of the controlling shareholder. Similarly, the controlling shareholder will not record any additional acquisition adjustments to reflect its subsequent purchases of additional shares in the subsidiary if there is no change of control. Only a proportional and immediate transfer of carrying value between the controlling and the noncontrolling shareholders occurs based on the respective ownership percentages.

105

Research and development expenses - Research and development expenses consist of costs incurred for company-sponsored, collaborative and contracted research and development activities. These costs include direct expenses and indirect research-related overhead expenses including compensation and related benefits, stock-based compensation, consulting fees, research and laboratory fees, rent of research facilities, amortization of intangible assets, and license fees paid to third parties to acquire patents or licenses to use patents and other technology. Research and development expenses which have an alternative future use will be capitalized as intangible assets, and research and development costs with no future benefit or alternative use will be expensed as incurred. Research and development expenses incurred and reimbursed by grants from third parties approximate the grant income recognized in the consolidated statements of operations. Royalties and sublicensing fees are recorded as research and development expenses, unless these costs are associated with royalties from product sales, which we classify as cost of sales on our consolidated statements of operations. We expect our total research and development expenses to fluctuate each reporting period based on several factors including (i) the stage of development for each cell therapy program, (ii) the availability of resources to work on each program, and (iii) the timing of contractual obligations.

General and administrative expenses - General and administrative expenses consist of employee and director compensation and related benefits, including stock-based compensation, for executive and corporate personnel, professional and consulting fees, and allocated overhead such as facilities rent and equipment rent and maintenance, insurance costs allocated to general and administrative expenses, costs of patent applications, prosecution and maintenance, stock exchange related costs, depreciation expense, marketing costs, legal and accounting costs, and other miscellaneous expenses.

Foreign currency translation adjustments and other comprehensive income or loss - In countries in which Lineage operates where the functional currency is other than the U.S. dollar, assets and liabilities are translated using published exchange rates in effect at the consolidated balance sheet date. Revenues and expenses and cash flows are translated using an approximate weighted average exchange rate for the period. Resulting foreign currency translation adjustments are recorded as other comprehensive income or loss, net of tax, in the consolidated statements of comprehensive income or loss and included as a component of accumulated other comprehensive income or loss on the consolidated balance sheets. Foreign currency translation adjustments are primarily attributable to Cell Cure and ESI, Lineage’s consolidated foreign subsidiaries. For the years ended December 31, 2023 and 2022, the total comprehensive loss includes gains from foreign currency translation adjustments, of $0.4 million and $1.8 million, respectively, net of an insignificant amount of tax. As of December 31, 2023 and 2022, we had cumulative translation adjustments of $2.7 million and $3.1 million, respectively, net of an insignificant amount of tax.

Foreign currency transaction gains and losses - For transactions denominated in other than the functional currency of Lineage or its subsidiaries, Lineage recognizes transaction gains and losses in the consolidated statements of operations and classifies the gain or loss based on the nature of the item that generated it. The majority of Lineage’s foreign currency transaction gains and losses are generated by Cell Cure’s intercompany debt owed to Lineage, which is U.S. dollar-denominated, while Cell Cure’s functional currency is the Israeli New Shekel (“ILS”). At each balance sheet date, Lineage remeasures the intercompany debt using the current exchange rate at that date pursuant to ASC 830, Foreign Currency Matters. These foreign currency remeasurement gains and losses are included in other expenses, net. For the years ended December 31, 2023 and 2022, other expenses, net includes foreign currency transaction losses of $0.5 million and $2.0 million, respectively.

Income taxes - Lineage accounts for income taxes in accordance with ASC 740, Income Taxes, which prescribe the use of the asset and liability method, whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect. Valuation allowances are established when necessary to reduce deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will not be realized. ASC 740 guidance also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For benefits to be recognized, a tax position must be more-likely-than-not sustainable upon examination by taxing authorities. Lineage files a U.S. federal income tax return as well as California combined and foreign income tax returns. Lineage’s judgments regarding future taxable income may change over time due to changes in market conditions, changes in tax laws, tax planning strategies or other factors. If Lineage assumptions, and consequently the estimates, change in the future with respect to Lineage’s own deferred tax assets and liabilities, the valuation allowance may be increased or decreased, which may have a material impact on Lineage’s consolidated financial statements. Lineage recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense; however, no amounts were accrued for the payment of interest and penalties as of December 31, 2023 and 2022. We provided a reserve

106

against our federal and California research and development credits generated. The carryforward amounts for these credits have been reported net of these reserves. Accordingly, no accrued interest and penalties related to unrecognized tax benefits have been recorded as of December 31, 2023 and 2022.

On December 22, 2017, the United States enacted major federal tax reform legislation, Public Law No. 115-97, commonly referred to as the 2017 Tax Cuts and Jobs Act (“2017 Tax Act”), which enacted a broad range of changes to the Internal Revenue Code. Beginning in 2018, the 2017 Tax Act subjects a U.S. stockholder to tax on Global Intangible Low Tax Income (“GILTI”) earned by certain foreign subsidiaries. In general, GILTI is the excess of a U.S. shareholder’s total net foreign income over a deemed return on tangible assets. The provision further allows a deduction of 50% of GILTI, however this deduction is limited to the Company’s pre-GILTI U.S. income. See Note 13 (Income Taxes) for additional information.

Current interpretations under ASC 740 state that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense. We have elected to account for GILTI as a current period expense when incurred.

Stock-based compensation - Lineage follows accounting standards governing share-based payments in accordance with ASC 718, Compensation – Stock Compensation, which require the measurement and recognition of compensation expense for all share-based payment awards made to directors and employees based on estimated fair values.

The Company recognizes share-based compensation for equity awards granted to employees, officers and directors as an expense on the consolidated statements of operations. Share-based compensation is recognized over the requisite service period of the individual awards using the straight-line attribution method, which generally equals the vesting period. Employees and officers’ stock options primarily have a ten-year life and generally vest 25% on the first anniversary of the grant and in 1/36th equal installments on each monthly anniversary thereafter, such that options are fully vested on the four-year anniversary of the date of grant. The exercisability and vesting periods of options granted to directors vary. Restricted stock units subject to time-based vesting generally vest in four equal annual installments beginning on the first anniversary of the grant date. Restricted stock units subject to performance-based vesting will vest in connection with the achievement of certain development milestones (see Note 12 (Stock-Based Awards) for additional details).

For employee and director stock options, we utilize the Black-Scholes option pricing model for valuing share-based payment awards. Lineage’s determination of fair value of share-based payment awards on the date of grant using that option-pricing model is affected by the price of Lineage’s common shares as well as by assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to: (i) the expected stock price volatility over the term of the awards, based upon our historical volatility; (ii) the expected term of options granted, which is derived using the simplified method, which is an average of the contractual term of the option and its vesting period, as we do not have sufficient historical exercise data upon which to estimate the expected term; and (iii) the risk-free rate, which is based on the U.S. Treasury yield in effect at the time of grant for U.S. Treasury notes with maturities similar to the expected term of the awards. Stock option forfeitures are accounted for as they occur.

For RSUs subject to service and/or performance vesting conditions, the grant-date fair value is established based on the closing price of Lineage’s common shares on such date. Stock-based compensation expense for RSUs subject to only service conditions is recognized on a straight-line basis over the service period. Stock-based compensation expense for RSUs with both service and performance conditions is recognized on a graded basis only if it is probable that the performance condition will be achieved. Lineage accounts for forfeitures of RSUs as they occur in determining stock-based compensation expense. For RSUs subject to a market condition, the grant-date fair value is estimated using a Monte Carlo valuation model. The model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment. Lineage recognizes stock-based compensation expense for RSUs subject to market-based vesting conditions regardless of whether it becomes probable that the vesting conditions will be achieved, and stock-based compensation expense for such RSUs is not reversed if vesting does not actually occur.

107

Although the fair value of employee stock options and RSUs are determined in accordance with FASB guidance, changes in the assumptions can materially affect the estimated value and therefore the amount of compensation expense recognized in the consolidated financial statements.

Recently Adopted Accounting Pronouncements -

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for Lineage beginning January 1, 2023 and its adoption did not have a significant effect on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. The Company has evaluated recently issued accounting pronouncements and does not believe any will have a material impact on the Company’s consolidated financial statements or related financial statement disclosures.

3. Revenue

Our disaggregated revenues were as follows (in thousands):

Year Ended December 31,

Revenues under collaborative agreements

Total revenues under collaborative agreements 7,588 13,367

Royalties, license and other revenues (2) 1,357 1,336

(1)

All of the upfront license fee revenue recognized each period was included within deferred revenue as contract liabilities at the beginning of the period. This revenue originated from the $50.0 million upfront payment under the Roche Agreement.

(2)

Of the royalties, license and other revenues recognized each period, $87,000 and $0 was included within deferred revenues as contract liabilities as of January 1, 2023 and 2022, respectively.

We are recognizing the $50.0 million upfront payment under the Roche Agreement utilizing an input method of costs incurred over total estimated costs to be incurred. At each reporting period, we update our total estimated collaboration costs, and any resulting adjustments are recorded on a cumulative basis which would affect revenue and net income (loss) in the period of adjustment. We believe the input methodology represents the most appropriate measure of progress towards satisfaction of the identified performance obligations.

For contracts with customers including collaboration partners which are within the scope of ASU 2014-09 – Revenue from Contracts with Customers (Topic 606), the aggregate amount of the transaction price allocated to remaining performance obligations as of December 31, 2023 was $31.1 million, of which $29.5 million has been collected and is reported as deferred revenues. The $31.1 million is expected to be converted to revenue by December 2026.

108

Accounts receivable, net, and deferred revenues (contract liabilities) from contracts with customers, including collaboration partners, consisted of the following (in thousands):

Accounts receivable, net - beginning of the period (1) $ 297 $ 50,640

Accounts receivable, net - end of the period (1) $ 676 $ 297

Contract liabilities (1)(2)

Deferred revenues - beginning of the period $ 37,146 $ 50,500

Deferred revenues - end of the period $ 29,501 $ 37,146

(1)

Excludes amounts outside the scope of ASU 2014-09 - Revenue from Contracts with Customers (Topic 606).

(2)

As of December 31, 2023 and 2022, $10.8 million and $9.4 million, respectively, was recorded within current deferred revenues with the remainder included within long-term deferred revenue on the consolidated balance sheet.

The following table presents amounts under our collaboration agreements included in the transaction price (i.e., cumulative amounts triggered or probable) as of December 31, 2023 (in thousands):

Upfront(1) Development(2) Reimbursements(3) Total

Collaboration partner and agreement date:

(1)

Upfront license fees.

(2)

Event-based development and regulatory milestones amounts.

(3)

Reimbursements and costs-sharing payments.

(4)

Regarding the accounting treatment for the collaborative agreement, the license and related development deliverables were determined to be highly interdependent and interrelated and have been combined as one performance obligation. Delivery is determined to be over time and revenue will be recognized utilizing an input method of costs incurred over total estimated costs in the work plan. The regulatory milestones are variable considerations that are fully constrained until the uncertainty of each milestone has been resolved. Sales-based milestones and royalties are variable considerations that will not be included in the transaction price until the related commercialization and sales have occurred. The cost reimbursements are considered variable consideration and are included in the transaction price. Revenues related to the cost reimbursements are presented gross on the consolidated statement of operations instead of a reduction to the costs being reimbursed. We currently estimate the unsatisfied performance obligations within the contract to be completed during the year ending December 31, 2024.

(5)

Regarding the accounting treatment for the collaborative agreement, the license, technology transfer and related clinical deliverables were determined to be highly interdependent and interrelated and have been combined as one performance obligation. Delivery is determined to be over time and revenue will be recognized utilizing an input method of costs incurred over total estimated costs to complete the performance obligation. A material customer option for additional goods and services was included in the transaction price, and $12.0 million of the transaction price was allocated to the second performance obligation. The option will be recognized when the customer exercises the option or when this option expires. Regulatory and development milestones are variable considerations that are fully constrained until the uncertainty of each milestone has been resolved. Sales-based milestones and royalties are variable considerations that will not be included in the transaction price until the related commercialization milestones and sales targets have occurred. We currently estimate the unsatisfied performance obligations within the contract to be completed by December 31, 2026.

109

4. Marketable Debt Securities

As of December 31, 2023, Lineage had $8.9 million in marketable debt securities classified in the consolidated balance sheet within cash equivalents, as they had an original maturity of three months or less when purchased. As of December 31, 2022, Lineage had $46.0 million in marketable debt securities which had an original maturity of more than three months when purchased, and therefore are not classified as cash equivalents on the consolidated balance sheet.

The following table is a summary of available-for-sale debt securities classified within cash and cash equivalents or marketable securities in the Company’s consolidated balance sheet as of December 31, 2023 and 2022 (in thousands):

Financial Assets: Amortized Cost Unrealized Gains Unrealized Losses Fair Value

U.S. Treasury securities $ 8,855 $ 1 $ - $ 8,856

Financial Assets: Amortized Cost Unrealized Gains Unrealized Losses Fair Value

The Company has not recognized an allowance for credit losses on any securities in an unrealized loss position as of December 31, 2023 and 2022. We believe that the individual unrealized losses represent temporary declines resulting from changes in interest rates, and we intend to hold these marketable securities to their maturity. The Company currently does not intend to sell these securities prior to maturity and does not consider these investments to be other-than-temporarily impaired at December 31, 2023.

As of December 31, 2023, the amortized cost and estimated fair value of the Company’s available-for-sale debt securities by contractual maturity are shown below (in thousands):

Available-for-sale debt securities maturing: Amortized Cost Estimated Fair Value

Total available-for-sale debt securities $ 8,855 $ 8,856

5. Marketable Equity Securities

Marketable equity securities are reported at fair value with unrealized gains and losses related to mark-to-market adjustments included in income. Lineage’s marketable equity securities consist of the shares of stock of OncoCyte Corporation and Hadasit Bio-Holdings Ltd (“HBL”). All share prices are determined based on the closing price of OncoCyte and HBL common stock on the last day of the applicable quarter, or the last trading day of the applicable quarter, if the last day of a quarter fell on a day that was not a trading day.

As of December 31, 2023, Lineage owned approximately 7,500 shares of OncoCyte common stock, which had a fair value of $19,000 based on the closing price of OncoCyte common stock of $2.50 per share on that date. As of December 31, 2022, Lineage owned approximately 56,000 shares of OncoCyte common stock, which had a fair value of $0.4 million based on the closing price of OncoCyte common stock of $6.42 per share on that date. The fair market value of the HBL shares was $31,000 and $62,000 as of December 31, 2023 and 2022.

110

The following table represents the realized and unrealized loss on marketable equity securities (in thousands):

Year Ended December 31,

Loss on marketable equity securities, net $ (176 ) $ (2,194 )

Less: Loss recognized in earnings on marketable equity securities sold 23 -

6. Property and Equipment, Net

At December 31, 2023 and 2022, property and equipment, net was comprised of the following (in thousands):

Equipment, furniture and fixtures $ 3,614 $ 3,264

Right-of-use assets - Operating Lease 5,880 5,988

Right-of-use assets - Finance Lease 198 121

Accumulated depreciation and amortization (7,238 ) (5,850 )

Property and equipment, net $ 4,767 $ 5,673

Depreciation and amortization expense amounted to $562,000 and $582,000 for the years ended December 31, 2023 and 2022, respectively. Additionally, amortization expense for right-of-use finance lease assets amounted to $50,000 and $14,000 for the years ended December 31, 2023 and 2022, respectively.

7. Goodwill and Intangible Assets, Net

At December 31, 2023 and 2022, goodwill and intangible assets, net consisted of the following (in thousands):

Intangible assets:

Acquired IPR&D – OPC1 (from the Asterias Merger) (2) $ 31,700 $ 31,700

Acquired IPR&D – VAC (from the Asterias Merger) (2) 14,840 14,840

Intangible assets subject to amortization:

Acquired royalty contracts (3) 650 650

(1)

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired and liabilities assumed in the Asterias Merger, see Note 14 (Commitment and Contingencies) for further discussion on the Asterias Merger. To date, we have not recognized any goodwill impairment.

(2)

Asterias had two IPR&D intangible assets that were valued at $46.5 million as part of the purchase price allocation that was performed in connection with the Asterias Merger. The fair value of these assets at the acquisition date consisted of $31.7 million pertaining to the OPC1 program and $14.8 million pertaining to the VAC platform.

111

(3)

Asterias had royalty cash flows under patent families it acquired from Geron Corporation. Such patent families are expected to continue to generate revenue, are not used in the OPC1 or the VAC platform, and are considered to be separate long-lived intangible assets under ASC Topic 805, Business Combinations.

(4)

As of December 31, 2023 the acquired patents were fully amortized and the acquired royalty contracts had a remaining unamortized balance of $22,000, which will be amortized during 2024.

Lineage recognized approximately $0.1 in amortization expense of intangible assets during each of the years ended December 31, 2023 and 2022.

8. Accounts Payable and Accrued Liabilities

At December 31, 2023 and 2022, accounts payable and accrued liabilities consist of the following (in thousands):

9. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value (ASC 820-10-50), Fair Value Measurements and Disclosures:

•

Level 1 – Inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

•

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3 – Inputs to the valuation methodology are unobservable; that reflect management’s own assumptions about the assumptions market participants would make and significant to the fair value.

We have not transferred any instruments between the three levels of the fair value hierarchy.

The carrying value of cash, restricted cash, accounts receivable, accounts payable, and accrued liabilities approximate their respective fair values due to their relative short maturities. We measure our cash equivalents, marketable securities and our liability classified warrants at fair value on a recurring basis. The fair values of such assets and liabilities were as follows as of December 31, 2023 and 2022 (in thousands):

Fair Value Measurements Using

Assets:

Marketable debt securities (1) 8,856 8,856 — —

Marketable equity securities 50 50 — —

Total assets measured at fair value $ 29,935 $ 29,935 $ — $ —

112

Fair Value Measurements Using

Assets:

Marketable equity securities 423 423 — —

Total assets measured at fair value $ 50,622 $ 50,622 $ — $ —

Liabilities:

Warrants to purchase Cell Cure ordinary shares (2) $ 2 $ — $ — $ 2

Total liabilities measured at fair value $ 2 $ — $ — $ 2

(1)

Included in cash and cash equivalents in the accompanying consolidated balance sheet. Marketable debt securities purchased with an original maturity of three months or less have been classified as cash equivalents. There were no marketable debt securities classified as cash equivalents at December 31, 2022.

(2)

In determining fair value of the liability classified warrants, Lineage utilizes a Black-Scholes pricing model that maximizes the use of observable inputs and minimizes the use of unobservable inputs to the extent possible, and also considers counterparty credit risk in its assessment of fair value. The significant unobservable inputs used in the fair value measurement of the Company’s Level 3 Cell Cure warrant liabilities are volatility and share value. A significant increase or decrease in these Level 3 inputs could result in a significantly higher or lower fair value measurements.

Lineage’s marketable equity securities includes the shares of stock of OncoCyte and HBL. Both securities have readily determinable fair values quoted on the NYSE American or TASE (Level 1). These securities are measured at fair value and reported as current assets on the accompanying consolidated balance sheets based on the closing trading price of the security as of the date being presented.

10. Related Party Transactions

In connection with the putative shareholder class action lawsuits filed in February 2019 and October 2019 challenging the Asterias Merger (see Note 14 (Commitments and Contingencies)), Lineage agreed to pay the expenses for the legal defense of Neal Bradsher, a member of the Lineage board of directors, Broadwood Partners, L.P., a shareholder of Lineage, and Broadwood Capital, Inc., which serves as the general partner of Broadwood Partners, L.P., all of whom were named defendants in the lawsuits, prior to being dismissed. As of December 31, 2023, and 2022, Lineage had incurred a cumulative total of approximately $626,000 and $620,000, respectively, in legal expenses on behalf of the foregoing parties.

11. Shareholders’ Equity

Preferred Shares

Lineage is authorized to issue 2,000,000 preferred shares, no par value. The preferred shares may be issued in one or more series as the Lineage board of directors may determine by resolution. The Lineage board of directors is authorized to fix the number of shares of any series of preferred shares and to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed on the preferred shares as a class, or upon any wholly unissued series of any preferred shares. The Lineage board of directors may, by resolution, increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series of preferred shares subsequent to the issue of shares of that series. As of December 31, 2023 and 2022, there were no preferred shares issued or outstanding.

113

Common Shares

At December 31, 2022, Lineage was authorized to issue 250,000,000 common shares, no par value. In September 2023, Lineage's shareholders approved an increase in the number of authorized common shares, no par value, from 250,000,000 to 450,000,000. As of December 31, 2023 and December 31, 2022, there were 174,986,671 and 170,093,114 common shares issued and outstanding, respectively.

At The Market Offering Program

In May 2020, Lineage entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor Fitzgerald”), pursuant to which Lineage may sell its common shares from time to time through an ATM program under the Sales Agreement.

In March 2021, Lineage filed a prospectus supplement with the SEC in connection with the offer and sale of $25.0 million of common shares through the ATM program under the Sales Agreement (“March 2021 Prospectus Supplement”).

In December 2021, Lineage filed a prospectus supplement with the SEC in connection with the offer and sale of up to $64.1 million of common shares (which included $14.1 million of its common shares which then remained unsold under the March 2021 Prospectus Supplement) through the ATM program under the Sales Agreement. Following the filing of the prospectus supplement in December 2021, no further sales were made or will be made under the March 2021 Prospectus Supplement. The prospectus supplement filed in December 2021 was updated, amended and supplemented by a prospectus supplement filed with the SEC on May 18, 2023 (the prospectus supplement filed in December 2021, as updated, amended and supplemented by the prospectus supplement filed in May 2023, the “ATM Prospectus Supplement”).

As of December 31, 2023, Lineage had sold 4,882,803 common shares under the ATM Prospectus Supplement at a weighted average price per share of $1.41 for gross proceeds of $6.9 million. As of December 31, 2023, $57.2 million remained available for sale under the ATM Prospectus Supplement. During the year ended December 31, 2023, 4,774,603 shares were sold under the ATM Prospectus Supplement for gross proceeds of $6.6 million and net proceeds of $6.4 million. There were no such sales during 2022.

The shares offered under the ATM Prospectus Supplement are registered pursuant to Lineage’s effective shelf registration statement on Form S-3 (File No. 333-254167), which was filed with the SEC on March 5, 2021 and declared effective on March 19, 2021.

Lineage agreed to pay Cantor Fitzgerald a commission of 3.0% of the aggregate gross proceeds from the sale of shares under the Sales Agreement, reimburse its legal fees and disbursements, and provide Cantor Fitzgerald with customary indemnification and contribution rights. The Sales Agreement may be terminated by Cantor Fitzgerald or Lineage at any time upon notice to the other party, or by Cantor Fitzgerald at any time in certain circumstances, including the occurrence of a material and adverse change in Lineage’s business or financial condition that makes it impractical or inadvisable to market the shares or to enforce contracts for the sale of the shares.

12. Stock-Based Awards

Equity Incentive Plan Awards

In September 2021, our shareholders approved the Lineage Cell Therapeutics, Inc. 2021 Equity Incentive Plan and in September 2023, our shareholders approved an amendment to increase the number of common shares that may be issued thereunder by 19,500,000 (as amended to date, the “2021 Plan”). The 2021 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, RSUs, and other stock awards. All of our employees (including those of our affiliates), non-employee directors and consultants are eligible to participate in the 2021 Plan.

Subject to adjustment for certain changes in our capitalization, the aggregate number of our common shares that may be issued under the 2021 Plan will not exceed the sum of (i) 34,500,000 shares and (ii) the number of shares subject to awards granted under the Lineage Cell Therapeutics Inc. 2012 Equity Incentive Plan (the “2012 Plan”) that were outstanding when the 2021 Plan became effective and are not issued because such awards expire or otherwise

114

terminate. As a result of the approval of the 2021 Plan by our shareholders, no additional awards will be granted under the 2012 Plan. As of December 31, 2023, there were 27,078,144 shares available for grant under the 2021 Plan.

On February 11, 2022, Lineage granted 694,424 RSUs to certain employees, including the Company’s executive officers, to further align management with the achievement of certain development milestones under the Roche Agreement. For each RSU, half of the common shares subject to the RSU will vest in four equal annual installments beginning on the first anniversary of the grant date. The other half of the common shares will vest in connection with the achievement of certain development milestones set forth in the Roche Agreement. Additionally, on March 10, 2022, Lineage granted 300,000 RSUs to its Chief Executive Officer. 100,000 of these RSUs were forfeited on March 9, 2023, and 100,000 will vest on or prior to each of the second and third anniversaries of such date, in each case upon the achievement of certain per share performance targets, calculated based on the trailing 20-day volume weighted average price of the Company’s common shares as of the date of determination. If such per share performance targets are not achieved by the applicable vesting date, then such RSUs will be forfeited.

A summary of activity under the 2021 Plan is as follows (in thousands, except per share amounts):

Options expired/forfeited/cancelled (935 ) $ 1.43

Number of RSUs Outstanding WeightedAverage GrantDate Fair Valueper Share

A summary of activity of the 2012 Plan, and the 2018 inducement option (which was issued to a Lineage executive outside of all equity plans), is as follows (in thousands, except per share amounts):

Options exercised (66 ) $ 0.84

Options expired/forfeited/cancelled (1,267 ) $ 1.83

115

Stock-based compensation expense

The fair value of each option award is estimated on the date of grant using a Black-Scholes option pricing model applying the weighted-average assumptions noted in the following table:

Year ended December 31,

Expected life (in years) 6.20 6.21

Risk-free interest rates 4.2 % 2.4 %

Dividend yield — —

Operating expenses include stock-based compensation expense as follows (in thousands):

Year ended December 31,

Research and development $ 794 $ 747

Total stock-based compensation expense $ 4,640 $ 4,287

As of December 31, 2023, total unrecognized compensation costs related to unvested stock options and unvested RSUs under all equity plans (including the 2018 inducement option), were $8.6 million, which is expected to be recognized as expense over a weighted average period of approximately 2.5 years. For the years ended December 31, 2023 and 2022, the weighted average grant-date fair value per share of options granted during the year under the 2021 Plan was $1.00 and $0.93, respectively. For the year ended December 31, 2022, the weighted average grant-date fair value per share of RSUs granted during the year under the 2021 Plan was $1.12. No RSUs were granted in the year ended December 31, 2023. The total intrinsic value of options exercised during the years ended December 31, 2023 and 2022 was $38,000 and $367,000, respectively. The fair value of the options vested during the years ended December 31, 2023 and 2022 was $3,947,000 and $4,122,000, respectively.

13. Income Taxes

For the year ended December 31, 2023, Lineage recorded a $1.8 million deferred tax benefit, due to the ability to offset certain deferred tax assets against the deferred tax liability associated with IPR&D, and the related release of the valuation allowance. It was determined that a portion of the deferred tax liability related to the indefinite lived assets may be realized prior to the expiration of certain pre 2018 net operating losses. For the year ended December 31, 2022, Lineage did not record a tax provision or deferred tax benefit.

The domestic and foreign breakout of loss before net income tax benefit was as follows:

Year Ended December 31,

Loss before net income tax benefit $ (23,282 ) $ (25,812 )

116

Income taxes differed from the amounts computed by applying the indicated current U.S. federal income tax rate to pretax losses from operations as a result of the following:

Year Ended December 31,

Computed tax benefit at federal statutory rate 21 % 21 %

Research and development and other credits (1 )% 3 %

Withholding tax — % (2 )%

Permanent differences (1 )% (2 )%

Change in valuation allowance (12 )% (28 )%

State tax benefit 2 % 7 %

GILTI inclusion (1 )% (1 )%

Income tax benefit (expense) 8 % (2 )%

The primary components of the deferred tax assets and liabilities at December 31, 2023 and 2022 were as follows (in thousands):

Deferred tax assets/(liabilities): December 31, 2023 December 31, 2022

Research and development and other credits 8,890 10,463

Operating lease liability 240 —

Deferred tax assets, net of valuation allowance 4,725 499

Operating lease ROU assets (221 ) (4 )

Marketable securities at fair value (6 ) (107 )

Total deferred tax liabilities (4,998 ) (2,575 )

Net deferred tax liabilities $ (273 ) $ (2,076 )

Lineage has established an accrual for uncertain tax positions related to its U.S. research and development credits. As of December 31, 2023 and 2022, there was no accrued interest related to uncertain tax positions. Lineage does not believe it is reasonably possible that its unrecognized tax benefits will significantly change in the next twelve months. A reconciliation of beginning and ending balances for unrecognized tax benefits is as follows (in thousands):

Year Ended December 31,

Balance at the beginning of the period $ — $ —

Additions for tax positions related to the current year 354 —

Additions for tax positions related to prior years 2,609 —

Reductions for tax positions related to prior years — —

Reductions related to settlements — —

Reductions related to a lapse of statute — —

Balance at the end of the period $ 2,963 $ —

Under ASC 740, a valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. Lineage established a full valuation allowance as of December 31, 2018 due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets, including foreign net operating losses generated by its subsidiaries.

117

As of December 31, 2023 and 2022, Lineage had gross federal net operating loss carryforwards, of approximately $163.1 million and $150.6 million, respectively. The pre-2018 federal net operating loss carryforwards expire in varying amounts between 2030 and 2037. The post-2017 federal net operating loss carryforwards can be carried forward indefinitely and can only offset 80 percent of taxable income. As of December 31, 2023 and 2022, Lineage’s foreign subsidiaries had net operating loss carryforwards of approximately $64.8 and $66.6 million, respectively, which carryforward indefinitely.

As of December 31, 2023 and 2022, Lineage has net operating losses of $188.8 million and $160.2 million, respectively for state tax purposes. The California net operating losses expire in varying amounts between 2030 and 2043.

As of December 31, 2023 and 2022, Lineage had research tax credit carryforwards for federal tax purposes of $4.3 million and $4.5 million, respectively. These tax credits reflect the amounts for Lineage and its’ domestic subsidiaries. For federal purposes, the credits generated each year have a carryforward period of 20 years. The federal tax credits expire in varying amounts between 2023 and 2043.

As of December 31, 2023 and 2022, Lineage had research tax credit carryforwards for California tax purposes of $4.6 million and $6.0 million, respectively. These tax credits reflect the amounts for Lineage and its’ domestic subsidiaries. The state tax credits have no expiration period.

On December 17, 2021, Lineage and its subsidiary, Cell Cure, entered into a Collaboration and License Agreement with Roche, wherein Lineage granted to Roche exclusive worldwide rights to develop and commercialize RPE cell therapies. Under the agreement Roche paid Lineage a $50.0 million upfront payment, which was received in January of 2022. See Note 14 (Commitments and Contingencies) for additional information.

For the tax years beginning on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminates the option to currently deduct research and development expenses and requires taxpayers to capitalize and amortize them over five years for research activities performed in the United States and 15 years for research activities performed outside the United States pursuant to IRC Section 174. Although Congress is considering legislation that would repeal and defer this capitalization and amortization requirement for research activities performed in the United States, it is not certain that this provision will be repealed or otherwise modified. If the requirement is not repealed or replaced, it will continue to defer our tax deduction for research and development expense in future years.

During December 2021, in an intercompany transaction, Lineage acquired the economic rights to Cell Cure’s interest in certain intellectual property. This transaction generated a gain to Cell Cure of $31.7 million which was fully offset by net operating loss carryforwards in Israel. For book and California income tax purposes, this transaction eliminates in consolidation. For federal income tax purposes, the activities of our foreign subsidiaries are not included in the consolidated tax return. However, under the regulations related to global intangible low-taxed income (“GILTI”), the profits of our foreign subsidiaries may be included, see further discussion below.

The 2017 Tax Act subjects a U.S. stockholder to GILTI earned by certain foreign subsidiaries. In general, GILTI is the excess of a U.S. stockholder’s total net foreign income over a deemed return on tangible assets. The provision further allows a deduction of 50% of GILTI, however this deduction is limited to the company’s pre-GILTI U.S. income. For the years ended December 31, 2023 and 2022, Lineage’s combined foreign entities generated a profit arising from intercompany transactions. As a result, there was an inclusion of $1.1 million and $1.7 million for GILTI purposes for 2023 and 2022, respectively. The resulting net income for federal income tax purposes was fully offset by their federal net operating loss carryforwards.

Other Income Tax Matters

Internal Revenue Code Section 382 places a limitation (“Section 382 Limitation”) on the amount of taxable income that can be offset by NOL carryforwards after a change in control (generally greater than 50% change in ownership within a three-year period) of a loss corporation. California has similar rules. Generally, after a change in control, a loss corporation cannot deduct NOL carryforwards in excess of the Section 382 Limitation. Due to these

118

“change in ownership” provisions, utilization of the NOL and tax credit carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods.

Lineage files a U.S. federal income tax return as well as a California combined and foreign income tax returns. In general, Lineage is no longer subject to tax examination by major taxing authorities for years before 2019. Although the statute is closed for purposes of assessing additional income and tax in these years, the taxing authorities may still make adjustments to the NOL and credit carryforwards used in open years. Therefore, the statute should be considered open as it relates to the NOL and credit carryforwards used in open years.

Lineage may be subject to potential examination by U.S. federal, U.S. states or foreign jurisdiction authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with U.S. federal, U.S. state and foreign tax laws. Based on Lineage’s assessment, no liabilities for uncertain tax positions should be recorded as of December 31, 2023 and 2022. Lineage’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

Lineage’s practice is to recognize interest and penalties related to income tax matters in tax expense. As of December 31, 2023 and 2022, Lineage has no accrued interest and penalties.

14. Commitments and Contingencies

Real Property Leases

Carlsbad Lease

In May 2019, Lineage entered into a lease for approximately 8,841 square feet of rentable space in an office park in Carlsbad, California. The lease was amended in December 2022 and the term was extended for a period of thirty-seven months (the “Extended Term”) commencing on March 1, 2023 (the “Extended Term Commencement Date”). The lease expires on March 31, 2026, and rent was abated for months two through four of the Extended Term. The monthly base rent was $24,666 through the Extended Term Commencement Date, after which it increased to $25,197. As security for the performance of its obligations under the lease, Lineage provided the landlord a security deposit of $17,850, which is included in deposits and other long-term assets on the consolidated balance sheet as of December 31, 2023.

In addition to base rent, Lineage pays a pro-rata portion of increases in certain expenses, including real property taxes, utilities (to the extent not separately metered to the leased space) and the landlord’s operating expenses, over the amounts of those expenses incurred by the landlord. These pro-rata charges are expensed as incurred and excluded from the calculation of the ROU assets and lease liabilities.

Carlsbad Sublease

In September 2022, Lineage entered into a sublease for approximately 4,500 square feet of rentable industrial space in Carlsbad, California for a term that commenced on October 1, 2022 and expires on March 31, 2024. As security for the performance of its obligations under the sublease, Lineage provided the landlord with a security deposit of $22,500, which is included in prepaid expense and other current assets on the consolidated balance sheet as of December 31, 2023. Base rent is $22,500 per month until the lease expires. In February 2024, Lineage and the landlord executed an agreement to extend the duration of the term of the sublease for an additional 24 months on similar terms.

Cell Cure Leases

Cell Cure leases 728.5 square meters (approximately 7,842 square feet) of office and laboratory space in Jerusalem, Israel under a lease that expires December 31, 2027, with an option to extend the lease for five years. Base monthly rent is NIS 39,776 (approximately $12,200 per month). In addition to base rent, Cell Cure pays a pro-rata share of real property taxes and certain costs related to the operation and maintenance of the building in which the

119

LCTX US Equity

LCTX · 10-K · period ended 2023-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

LCTX US Equity☆

LCTX · 10-K · period ended 2023-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

LCTX US Equity