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CONTRACT WITH CUSTOMER
 6 Months Ended
Jun. 30, 2023
CONTRACT WITH CUSTOMER [Abstract]  
CONTRACT WITH CUSTOMER
5)
CONTRACT WITH CUSTOMER



On February 21, 2023, the Company and Lineage Cell Therapeutics, Inc. (“Lineage”) entered into an exclusive option and license agreement (the “Lineage Agreement”), pursuant to which, prior to August 22, 2023, Lineage may request that the Company develop for, and deliver to, Lineage certain induced pluripotent stem cell lines, which Lineage would use to evaluate the possible development of cell transplant therapies for treatment of diseases of the central nervous system in humans, excluding certain indications. The Lineage Agreement also provides Lineage with the option (the “Option Right”) to obtain an exclusive sublicense to certain related technology for preclinical, clinical and commercial purposes, which would permit Lineage to sublicense such intellectual property, subject to payment of certain sublicense royalty fees. Lineage has six months from our delivery to Lineage of such induced pluripotent stem cell lines to exercise such option. Upon entry into the Lineage Agreement, Lineage paid the Company a $250,000 non-refundable up-front payment (the “Option Fee”) for the Option Right. The Company is also entitled to certain cell line customization fees with respect to cell lines that Lineage may request that it develop for Lineage, and royalty payments with respect to any such licensed products, certain sublicense fees and certain milestone payments under the Lineage Agreement.



The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (“ASC 606”), when a customer obtains control of promised goods or services in an amount that reflect the consideration that the Company expects to receive in exchange for those goods or services. The Company performs the following five steps in order to recognize revenue:


 
1.
Identify the contract with a customer;
 
2.
Identify the performance obligations in the contracts;
 
3.
Determine the transaction price;
 
4.
Allocate the transaction price to the performance obligations; and
 
5.
Recognize revenue when (or as) the performance obligations are satisfied.



The Company has determined that as of contract inception, the Option Right contains a material right because by entering into the agreement, the Option Right allows the customer to obtain a license that no other customer can receive.  As a result, the Option Right is a separate performance obligation under the agreement.  The cell line customization activities that the Company may perform and the granting of the license that the Company may provide to the customer are not considered performance obligations as of contract inception, as these are goods and services that the customer may request in the future and will be accounted for as separate contracts when the customer exercises the Option Right or provides its request to the Company to perform the cell line customization activities.  As a result, the Option Right performance obligation is the only performance obligation as of contract inceptions, and 100% of the Option Fee is allocated to the Option Right.  Revenue from the Option Right will be recognized when the customer enters into the sublicense or when the Option Right expires.  As of June 30, 2023, the customer has not exercised the Option Right. Therefore, the $250,000 Option Fee remains recorded as deferred revenue in the accompanying condensed consolidated balance sheet as of June 30, 2023



As provided for in the Exclusive Factor License Agreement discussed in Note 9, the Company was obligated to pay Factor Limited 20% of the Option Fee when the Company received payment from the customer in February 2023.  Accordingly, the Company recognized a license cost of $50,000 during the six months ended June 30, 2023.  There were no license costs for the three months ended June 30, 2023.