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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR
__TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________ to __________
Commission file number 1-12830
BioTime, Inc.
(Exact name of registrant as specified in its charter)
California 94-3127919
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
935 Pardee Street, Berkeley, California 94710
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 845-9535
Securities registered pursuant to Section 12(b) of the Act:
Common Shares, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The approximate aggregate market value of voting stock held by
nonaffiliates of the registrant was $31,118,452 as of March 25, 2002. Shares
held by each executive officer and director and by each person who beneficially
owns more than 5% of the outstanding Common Shares have been excluded in that
such persons may under certain circumstances be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
11,627,316
(Number of Common Shares outstanding as of March 7, 2002)
Documents Incorporated by Reference
None
PART I
Statements made in this Form 10-K that are not historical facts may
constitute forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially from those
discussed. Words such as "expects," "may," "will," "anticipates,""intends,"
"plans," "believes," "seeks," "estimates," and similar expressions identify
forward-looking statements. See "Risk Factors" and Note 1 to Financial
Statements.
Item 1. Description of Business
Overview
BioTime, Inc. (the "Company" or "BioTime") is a development stage company
engaged in the research and development of synthetic solutions that can be used
as blood plasma volume expanders, blood replacement solutions during hypothermic
(low temperature) surgery, and organ preservation solutions. Plasma volume
expanders are used to treat blood loss in surgical or trauma patients until
blood loss becomes so severe that a transfusion of packed red blood cells or
other blood products is required. The Company is also developing a specially
formulated hypothermic blood substitute solution that would have a similar
function and would be used for the replacement of very large volumes of a
patient's blood during cardiac surgery, neurosurgery and other surgeries that
involve lowering the patient's body temperature to hypothermic levels.
The Company's first product, Hextend(R), is a physiologically balanced
blood plasma volume expander, for the treatment of hypovolemia. Hypovolemia is a
condition often associated with blood loss during surgery or from injury.
Hextend maintains circulatory system fluid volume and oncotic pressure and keeps
vital organs perfused during surgery. Hextend, approved for use in major
surgery, is the only blood plasma volume expander that contains hetastarch,
buffer, multiple electrolytes and glucose. Hextend is designed to compete with
and to replace products such as albumin and other colloid solutions, as well as
crystalloid solutions, that have been used to maintain fluid volume and blood
pressure during surgery. Hextend is also completely sterile to avoid risk of
infection. Health insurance reimbursements and HMO coverage now include the cost
of Hextend used in surgical procedures.
Hextend is being sold in the United States by Abbott Laboratories under an
exclusive license from the Company. Abbott also has the right to sell Hextend in
Canada, where an application for marketing approval is pending. Abbott also has
a right to obtain licenses to manufacture and sell other BioTime products. See
"Licensing" for more information about the license granted to Abbott
Laboratories.
As part of the marketing program, a number of studies have been conducted
that show the advantages of receiving Hextend and other BioTime products during
surgery. For example, the results of a clinical trial by NJ Wilkes et al
performed in England and entitled "The effects of balanced versus saline-based
hetastarch and crystalloid solutions on acid-base and electrolyte status and
gastric mucosal perfusion in elderly surgical patients" was published in the
October 2001 edition of Anesthesia and Analgesia, and underscores a number of
Hextend benefits including maintenance of normal acid-base balance, blood
calcium and chloride levels and perfusion of portions of the gastro-intestinal
tract. As future studies such as these are completed, the results will be
presented at medical conferences and articles will be written for publication in
medical journals. The Company is also aware of independent studies using Hextend
that are being conducted which may be published in medical journals or reported
2
at medical conferences. The outcome of future medical studies and timing of the
publication or presentation of the results could have an effect on Hextend
sales.
Hextend has been approved, or being considered for approval, by hundreds of
hospital formulary committees. Inclusion on hospital formularies is important
because it enables physicians to obtain Hextend without the need to special
order it. Obtaining formulary approval generally takes several months and often
requires diligent efforts.
The Company is also developing two other blood volume replacement products,
PentaLyte,(R) and HetaCool,TM that, like Hextend,(R) have been formulated to
maintain the patient's tissue and organ function by sustaining the patient's
fluid volume and physiological balance. Various colloid and crystalloid products
are being marketed by other companies for use in maintaining patient fluid
volume in surgery and trauma care, but those solutions do not contain the unique
comprehensive combination of electrolytes, glucose, lactate and hydroxyethyl
starch found in Hextend, PentaLyte, and HetaCool. The Company's products do not
contain albumin. Albumin produced from human plasma is also currently used as a
plasma expander, but it is expensive and subject to supply shortages.
Based upon the results of its clinical studies and laboratory research, the
Company has determined that in many emergency care and surgical applications it
is not necessary for a plasma volume expander to include special oxygen carrying
molecules to replace red blood cells. Therefore, the Company is developing
formulations that do not use costly and potentially toxic oxygen carrying
molecules such as synthetic hemoglobin and perfluorocarbons. However, recent
laboratory findings by Company scientists suggest that Hextend can allow
hemoglobin-based oxygen carrier solutions to be used. more effectively.
In order to commence clinical trials for regulatory approval of new
products, such as PentaLyte and HetaCool, or new therapeutic uses of Hextend, it
will be necessary for the Company to prepare and file with the FDA an
Investigational New Drug Application ("IND") or an amendment to expand the
present IND for additional Hextend studies. Filings with foreign regulatory
agencies will be required to commence clinical trials overseas.
BioTime has completed a Phase I clinical trial of PentaLyte involving a
small number of subjects and has submitted its findings to the FDA. BioTime
plans to test PentaLyte for the treatment of hypovolemia in surgery. PentaLyte
contains a lower molecular weight hydroxyethyl starch than Hextend, and is more
quickly metabolized. PentaLyte is designed for use when short lasting volume
expansion is desirable.
BioTime is also continuing to develop solutions for low temperature surgery
and trauma care. A number of physicians have reported using Hextend to treat
hypovolemia under mild hypothermic conditions during cardiac surgery. Additional
cardiac surgeries have been performed at deeper hypothermic temperatures. In one
case, Hextend was used to treat hypovolemia in a cancer patient operated on
under deep hypothermic conditions in which the heart was arrested. Once a
sufficient amount of data from successful low temperature surgery has been
compiled, the Company plans to seek permission to conduct trials using Hextend
as a complete replacement for blood under near-freezing conditions. BioTime
currently plans to market Hextend for complete blood volume replacement at very
low temperatures under the registered trade mark "HetaCool(R)" after FDA
approval is obtained.
3
The cost of preparing regulatory filings and conducting clinical trials is
not presently determinable, but could be substantial. It may be necessary for
the Company to obtain additional funds in order to complete any clinical trials
that it may conduct for its new products or for new uses of Hextend.
In addition to developing clinical trial programs, the Company plans to
continue to provide funding for its laboratory testing programs at selected
universities, medical schools and hospitals for the purpose of developing
additional uses of Hextend, PentaLyte, HetaCool, and other new products, but the
amount of research that will be conducted at those institutions will depend upon
the Company's financial status.
The Company was incorporated under the laws of the State of California on
November 30, 1990. The Company's principal office is located at 935 Pardee
Street, Berkeley, California 94710. Its telephone number at such office is (510)
845-9535.
Hextend(R) and PentaLyte(R) are registered trademarks, and HetaCoolTM is a
trademark, of BioTime, Inc.
Products for Surgery, Plasma Volume Replacement and Emergency Care
The Market for Plasma Volume Expanders
The Company is developing Hextend, PentaLyte, HetaCool and other synthetic
plasma expander solutions to treat acute blood loss that occurs as a result of
trauma injuries and during many kinds of surgery. These products are synthetic,
can be sterilized, and can be manufactured in large volumes. Hextend, PentaLyte,
and HetaCool contain constituents that may maintain physiological balance when
used to replace lost blood volume.
Hextend is also currently being used to treat hypovolemia subsequent to
trauma or sepsis by emergency room physicians. After appropriate clinical
testing and regulatory approval, it may be used by paramedics to treat acute
blood loss in trauma victims being transported to the hospital. Hextend has also
been purchased by the United States armed forces and may be used in cases of
battlefield trauma.
Approximately 10,000,000 surgeries take place in the United States each
year, and blood transfusions are required in approximately 3,000,000 of those
cases. Transfusions are also required to treat patients suffering severe blood
loss due to traumatic injury. Many more surgical and trauma cases do not require
blood transfusions but do involve significant bleeding that can place the
patient at risk of suffering from shock caused by the loss of fluid volume
(hypovolemia) and physiological balance. Whole blood and packed red cells
generally cannot be administered to a patient until the patient's blood has been
typed and sufficient units of compatible blood or red cells can be located.
Periodic shortages of supply of donated human blood are not uncommon, and rare
blood types are often difficult to locate. The use of human blood products also
poses the risk of exposing the patient to blood borne diseases such as AIDS and
hepatitis.
Due to the risks and cost of using human blood products, even when a
sufficient supply of compatible blood is available, physicians treating patients
suffering blood loss are generally not permitted to transfuse red blood cells
until the patient's level of red blood cells has fallen to a level known as the
"transfusion trigger." During the course of surgery, while blood volume is being
lost, the patient is infused with plasma volume expanders to maintain adequate
blood circulation. During the surgical
4
procedure, red blood cells are not generally replaced until the patient has lost
approximately 45% to 50% of their red blood cells, thus reaching the transfusion
trigger at which point the transfusion of red blood cells may be required. After
the transfusion of red blood cells, the patient may continue to experience blood
volume loss, which will be replaced with plasma volume expanders. Even in those
patients who do not require a transfusion, physicians routinely administer
plasma volume expanders to maintain sufficient fluid volume to permit the
available red blood cells to circulate throughout the body and to maintain the
patient's physiological balance.
Several units of fluid replacement products are often administered during
surgery. The number of units will vary depending upon the amount of blood loss
and the kind of plasma volume expander administered. Crystalloid products must
be used in larger volumes than colloid products such as Hextend. Albumin
produced from human plasma can be used for this purpose, but it is expensive and
subject to supply shortages. Additionally, an FDA warning has cautioned
physicians about the risk of administering albumin to seriously ill patients.
The Market for Products for Hypothermic Surgery
During 1997, more than 500,000 coronary bypass and other open heart
surgeries were performed in the United States annually. Approximately 18,000
aneurysm surgeries and 4,000 arterio-venous malformation surgeries were
performed in the United States during 1989. Current estimates indicate that more
than 1,000,000 people over age 55 have pathological changes associated with
aortic arch aneurysms. Open heart procedures often require the use of
cardio-pulmonary bypass equipment to do the work of the heart and lungs during
the surgery. During open heart surgery and surgical procedures for the treatment
of certain cardiovascular conditions such as large aneurysms, cardiovascular
abnormalities and damaged blood vessels in the brain, surgeons must temporarily
interrupt the flow of blood through the body. Interruption of blood flow can be
maintained only for short periods of time at normal body temperatures because
many critical organs, particularly the brain, are quickly damaged by the
resultant loss of oxygen. As a result, certain surgical procedures are performed
at low temperatures because lower body temperature helps to minimize the chance
of damage to the patient's organs by reducing the patient's metabolic rate,
thereby decreasing the patient's needs during surgery for oxygen and nutrients
which normally flow through the blood.
Current technology limits the degree to which surgeons can lower a
patient's temperature and the amount of time the patient can be maintained at a
low body temperature because blood, even when diluted, cannot be circulated
through the body at near-freezing temperatures. As a result, surgeons face
severe time constraints in performing surgical procedures requiring blood flow
interruption, and those time limitations prevent surgeons from correcting
certain cardiovascular abnormalities.
Hypothermic techniques may also have an important use in treating trauma
patients that have experienced severe blood loss. BioTime is sponsoring a new
project at the State University of New York Health Sciences Center in Brooklyn
to study hypothermia and complete blood volume replacement with HetaCool in an
animal model of civilian trauma.
Hextend, PentaLyte and HetaCool
The Company's first three blood volume replacement products, Hextend,
PentaLyte, and HetaCool have been formulated to maintain the patient's tissue
and organ function by sustaining the patient's fluid
5
volume and physiological balance. Hextend, PentaLyte, and HetaCool, are composed
of a hydroxyethyl starch, electrolytes, sugar and a buffer in an aqueous base.
Hextend and HetaCool use a high molecular weight hydroxyethyl starch
(hetastarch) whereas PentaLyte uses a lower molecular weight hydroxyethyl starch
(pentastarch). The hetastarch is retained in the blood longer than the
pentastarch, which may make Hextend and HetaCool the products of choice when a
larger volume of plasma expander or blood replacement solution for low
temperature surgery is needed or where the patient's ability to restore his own
blood proteins after surgery is compromised. PentaLyte, with pentastarch, would
be eliminated from the blood faster than Hextend and HetaCool and might be used
when less plasma expander is needed or where the patient is more capable of
quickly restoring lost blood proteins. The Company has also tested HexaLyte, a
new plasma volume expander that contains a low molecular weight hydroxyethyl
starch and that would be eliminated from the body more rapidly than Hextend and
HetaCool, but not as rapidly as PentaLyte. BioTime believes that by testing and
bringing these products to the market, it can increase its market share by
providing the medical community with solutions to match patients' needs.
Certain clinical test results indicate that Hextend is effective at
maintaining blood calcium levels when used to replace lost blood volume. Calcium
can be a significant factor in regulating blood clotting and cardiac function.
Clinical studies have also shown that Hextend maintains acid-base better than
saline-based surgical fluids. The Company expects that PentaLyte will also be
able to maintain blood calcium levels and acid-base balance based upon
laboratory studies and the fact that the formulation of PentaLyte is similar to
that of Hextend.
BioTime has not attempted to synthesize potentially toxic and costly oxygen
carrying molecules such as hemoglobin because the loss of fluid volume and
physiological balance may contribute as much to shock as the loss of the oxygen
carrying component of the blood. Surgical and trauma patients are routinely
given supplemental oxygen and retain a substantial portion of their own red
blood cells. Whole blood or packed red blood cells are generally not transfused
during surgery or in trauma care until several units of plasma volume expanders
have been administered and the patient's hematocrit has fallen to the
transfusion trigger. Therefore, the lack of oxygen carrying molecules in the
Company's solutions should not pose a significant contraindication to use.
However, BioTime scientists have conducted laboratory animal experiments in
which they have shown that Hextend can be successfully used in conjunction with
a hemoglobin-based oxygen carrier solution approved for veterinary purposes to
completely replace the animal's circulating blood volume without any subsequent
transfusion and without the use of supplemental oxygen. By diluting these oxygen
carrier solutions, Hextend may reduce the potential toxicity and costs
associated with the use of those products. Once such solutions have received
regulatory approval and become commercially available, this sort of protocol may
prove valuable in markets in parts of the developing world where the blood
supply is extremely unsafe. These applications may also be useful in combat
where logistics make blood use impracticable.
Hextend is BioTime's proprietary hetastarch-based synthetic blood plasma
volume expander, designed especially to treat hypovolemia in surgery where
patients experience significant blood loss. An important goal of the Hextend
development program was to produce a product that can be used in multi- liter
volumes. The safety related secondary endpoints targeted in the U.S. clinical
study included those involving coagulation. The Company believes that the low
incidence of adverse events related to blood clotting in the Hextend patients
demonstrates that Hextend may be safely used in amounts exceeding 1.5 liters. An
average of 1.6 liters of Hextend was used in the Phase III clinical trials, with
an average of two
6
liters for patients who received transfused blood products. Since then, more
than a quarter million units (500 ml. bags) have been sold for commercial
purposes, and the use of quantities of 7 to 8 liters per patient have been
reported. There have been no serious adverse events directly related to the use
of Hextend even when used in these large volumes.
Hextend is also being used in surgery with cardio-pulmonary bypass
circuits. In order to perform heart surgery, the patient's heart must be stopped
and a mechanical apparatus is used to oxygenate and circulate the blood. The
cardio-pulmonary bypass apparatus requires a blood compatible fluid such as
Hextend to commence and maintain the process of diverting the patient's blood
from the heart and lungs to the mechanical oxygenator and pump. In a recent
clinical trial, cardiac surgery patients treated with Hextend, maintained more
normal kidney function, experienced less pain and nausea, showed no deep venous
thromboses, avoided dialysis, and had shorter delay times to first meal compared
to those treated with other fluids.
PentaLyte is BioTime's proprietary pentastarch-based synthetic plasma
expander, designed especially for use when a faster elimination of the starch
component is desired and acceptable. Although Hextend can be used in these
cases, some physicians appear to prefer a solution which could be metabolized
faster and excreted earlier when the longer term protection provided by Hextend
is not required. PentaLyte combines the physiologically balanced Hextend
formulation with pentastarch that has a lower molecular weight and degree of
substitution than the hetastarch used in Hextend. Plasma expanders containing
pentastarch are currently widely used around the world. BioTime has completed
its Phase I clinical study and is planning more advanced PentaLyte clinical
trials. BioTime's present plan is to seek approval of PentaLyte for use in the
treatment of hypovolemia.
Abbott has certain rights of first refusal to obtain a license to
manufacture and market PentaLyte in the United States and Canada.
HetaCool is a modified formulation of Hextend. HetaCool is specifically
designed for use at low temperatures. Surgeons are already using a variety of
other solutions to carry out certain limited procedures involving shorter term
(up to nearly one hour) arrest of brain and heart function at temperatures
between 15o and 25o C. However, BioTime is not aware of any fluid currently used
in medical practice or any medically-approved protocol allowing operations which
can completely replace all of a patient's blood at temperatures close to the ice
point. The Company believes that very low temperature bloodless surgical
techniques could be developed for open heart and minimally invasive closed chest
cardiovascular surgeries, removal of tumors from and the repair of aneurysms in
the brain, heart, and other areas, as well as in the treatment of trauma,
toxicity and cancer.
The Company is in the process of preparing an amendment to its Hextend IND
application to conduct clinical trials using HetaCool as a solution to replace
all of a patient's circulating blood volume during profound hypothermic (carried
out at near-freezing temperatures) surgical procedures. The experimental
protocol for the planned blood replacement clinical trial is being tested on
animal subjects. HetaCool would be introduced into the patient's body during the
cooling process. Once the patient's body temperature is nearly ice cold, and
heart and brain function are temporarily arrested, the surgeon would perform the
operation. During the surgery, HetaCool may be circulated throughout the body in
place of blood, or the circulation may be arrested for a period of time if an
interruption of fluid circulation is required. Upon completion of the surgery,
the patient would be slowly warmed and blood would be transfused.
7
Cardiac surgeons are working to develop innovative procedures to repair
damaged coronary arteries and heart valves. If optically guided surgical
instruments can be inserted into the heart through blood vessels or small
incisions, there may be no need to open the patient's chest cavity. BioTime
believes that HetaCool may be useful in these minimally invasive closed chest
cardiac procedures because the solution is transparent and if it were used to
completely replace blood at low temperatures it would permit surgeons to use
their optically guided instruments inside the heart or blood vessels without
having their view obstructed by blood. The use of BioTime's solutions may also
allow better control over stopping and starting the heart, as well as extending
the time period of such surgeries.
HetaCool has been used to completely replace the blood volume of hamsters,
dogs, pigs, and baboons at temperatures approaching freezing. Many of these
animal subjects survived long term after hypothermic blood substitution with
HetaCool. In these laboratory tests, the animals' blood was replaced by HetaCool
and they were chilled for one to more than four hours with deep body
temperatures between 1oC and 10oC.
BioTime has recently launched a research program using HetaCool in animal
models of trauma at the State University of New York Health Science Center in
Brooklyn. Preliminary laboratory results there have already supported the
feasibility of using HetaCool to treat subjects following severe hemorrhage. The
use of HetaCool at near-freezing temperatures also will be studied in animal
models of cardiovascular surgery at the Texas Heart Institute in Houston. The
project has been approved by the appropriate internal committees, and is
awaiting the beginning of experimentation.
BioTime is developing a new formulation that has allowed the revival of
hamsters after as long as 6.5 hours of hypothermic blood substitution during
which time the animals' heartbeat and circulation were stopped.
Abbott has certain rights of first refusal to obtain a license to
manufacture and market HetaCool in the United States and Canada.
Organ Transplant Products
The Market for Organ Preservation Solutions
Organ transplant surgery is a growing field. Each year in the United
States, approximately 5,000 donors donate organs, and approximately 5,000 people
donate skin, bone and other tissues. As more surgeons have gained the necessary
expertise and surgical methods have been refined, the number of transplant
procedures has increased, as has the percentage of successful transplants. Organ
transplant surgeons and their patients face two major obstacles, namely the
shortage of available organs from donors, and the limited amount of time that a
transplantable organ can be kept viable between the time it is harvested from
the donor and the time it is transplanted into the recipient.
The scarcity of transplantable organs makes them too precious to lose and
increases the importance of effective preservation technology and products.
Current organ removal and preservation technology generally requires multiple
preservation solutions to remove and preserve effectively different groups of
organs. The removal of one organ can impair the viability of other organs.
Available technology does not permit surgeons to keep the remaining organs
viable within the donor's body for a significant time after the first organ is
removed. Currently, an organ available for transplant is flushed with an ice
cold
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solution during the removal process to deactivate the organ and preserve its
tissues, and then the organ is transported on ice to the donee. The ice cold
solutions currently used, together with transportation on ice, keep the organ
healthy for only a short period of time. For example, the storage time for
hearts is limited to approximately six hours. Because of the short time span
available for removal and transplant of an organ, potential organ donees may not
receive the needed organs.
BioTime is seeking to address this problem by developing a more effective
organ preservation solution that will permit surgeons to harvest all
transplantable organs from a single donor. The Company believes that preserving
the viability of all transplantable organs and tissues simultaneously, at low
temperatures, would extend by several hours the time span in which the organs
can be preserved prior to transplant.
Using HetaCool for Multi-Organ Preservation. The Company is seeking to
develop HetaCool for use as a single solution that can simultaneously preserve
all of a single donor's organs. When used as an organ preservation solution,
HetaCool would be perfused into the donor's body while the body is chilled,
thereby eliminating an undesirable condition called "warm ischemia," caused when
an organ is warm while its blood supply is interrupted. The use of HetaCool in
conjunction with the chilling of the body should help to slow down the process
of organ deterioration by a number of hours so that a surgeon can remove all
organs for donation and transplant. The Company's current estimates are that
each such preservation procedure could require as much as 50 liters of HetaCool.
The Company believes that the ability to replace an animal's blood with the
Company's HetaCool solution, to maintain the animal at near freezing
temperatures for several hours, and then revive the animal, would demonstrate
that the solution could be used for multi-organ preservation. Company scientists
have revived animals after more than six hours of cold blood-substitution, and
have observed heart function in animals maintained cold and blood-substituted
for more than eight hours. An objective of the Company's research and
development program is to extend the time span in which animal subjects can be
maintained in a cold, blood-substituted state before revival or removal of
organs for transplant purposes. Organ transplant procedures using animal
subjects could then be conducted to test the effectiveness of Hextend as an
organ preservative.
A successful transplant of a lung cooled inside the donor's body prior to
transplant has recently been reported in Sweden. The patient who received the
lung is reported to be doing well several months later. The success of that
transplant, which did not involve the use of a BioTime product, involved the
preservation and transplant of a single organ, but indicates that hypothermic
techniques can be used to preserve organs in the donor prior to removal for
transplant.
Long-term Tissue and Organ Banking
The development of marketable products and technologies for the
preservation of tissues and vital organs for weeks and months is a long-range
goal of the Company's research and development plan. To permit such long-term
organ banking the Company is attempting to develop products and technologies
that can protect tissues and organs from the damage that occurs when human
tissues are subjected to subfreezing temperatures.
HetaFreeze is one of a family of BioTime's freeze-protective solutions
which may ultimately allow the extension of time during which organs and tissues
can be stored for future transplant or surgical
9
grafting. In laboratory experiments, BioTime's proprietary freeze-protective
compounds have already been used to preserve skin when used as a whole animal
perfusate. Silver dollar size full thickness shaved skin samples have been
removed after saturation with HetaFreeze solution, frozen at liquid nitrogen
temperatures and stored for periods ranging from days to weeks. The grafts were
then warmed and sewn onto the backs of host animals. Many of these grafts
survived.
In other laboratory experiments, BioTime scientists have shown that animals
can be revived to consciousness after partial freezing with their blood replaced
by HetaFreeze. While this technology has not developed to an extent that allows
long term survival of the laboratory subjects, and their organs, a better
understanding of the effects of partial freezing could allow for extended
preservation times for vital organs, skin and blood vessels.
Other Potential Uses of BioTime Solutions
Isolated regional perfusion of anti-cancer drugs has been used to treat
melanoma of the limbs, and inoperable tumors of the liver. The Company believes
that employing such a procedure while the patient is kept in ice-cold
blood-substitution may allow high doses of toxic anti-cancer drugs to be
directed at inoperable tumors within vital organs, which would selectively be
warmed. Keeping the rest of the patient in a cold, blood substituted state may
reduce or eliminate the circulation of the toxic drugs to healthy tissues.
BioTime considers such surgical techniques to be a longer range goal of its
research and development program for hypothermic surgery products. Use of this
complex technology in the practice of oncology can occur only after ice-cold
blood-substitution has advanced to an appropriate level of safety and
effectiveness.
Research and Development Strategy
From inception through December 31, 2001, the Company has expensed
$21,630,518 on research and development. The greatest portion of BioTime's
research and development efforts have been devoted to the development of
Hextend, PentaLyte and HetaCool for conventional surgery, emergency care, low
temperature surgery, and multi-organ preservation. A lesser portion of the
Company's research and development efforts have been devoted to developing
solutions and protocols for storing organs and tissues at subfreezing
temperatures. In the future the Company may explore other applications of its
products and technologies, including cancer chemotherapy. As the first products
achieve market entry, more effort will be expended to bring the next tier of
products to maturity.
A major focus of the Company's research and development effort has been on
products and technology to significantly reduce or eliminate the need for blood
products in surgery and trauma care. The Company has recently conducted
preliminary studies using Hextend in a pressurized oxygen environment and found
that Hextend can replace nearly all, or in some cases all, of the circulating
blood of rats. Some of the rats were able to live long term without a subsequent
transfusion, while others received their own blood back. In other cases, Hextend
was used in large volumes in association with a hemoglobin-based oxygen carrier
solution approved for veterinary use. When used in this way, rats were able to
live long term after all their circulating blood was replaced at normal body
temperature breathing room air.
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In still other experiments, rats were allowed to lose approximately half
their circulating blood volume, and then allowed to develop and remain in
respiratory arrest from 10-18 minutes. They were then resuscitated with Hextend
and either ventilated with 100% oxygen, or in a hyperbaric oxygen chamber
containing 100% oxygen at two atmospheres above normal pressure. Some of the
rats recovered and lived long term after as long as 15 minutes of respiratory
arrest. The hyperbaric chamber appeared to have improved the outcome in a number
of cases.
These studies indicate that Hextend can potentially be used in a variety of
protocols in which donor blood is difficult or impossible to use, such as on the
battlefield, or in parts of the world where there is a shortage of disease-free
blood.
Another major focus of the Company's research and development effort has
been on products and technology to extend the time animals can be kept cold and
blood-substituted, and then revived without physical impairment. An integral
part of that effort has been the development of techniques and procedures or
"protocols" for use of the Company's products. A substantial amount of data has
been accumulated through animal tests, including the proper surgical techniques,
drugs and anesthetics, the temperatures and pressures at which blood and blood
replacement solutions should be removed, restored and circulated, solution
volume, the temperature range, and times, for maintaining circulatory arrest,
and the rate at which the subject should be rewarmed.
Experiments intended to test the efficacy of the Company's low temperature
blood replacement solutions and protocols for surgical applications involve
replacing the animal's blood with the Company's solution, maintaining the animal
in a cold blood-substituted state for a period of time, and then attempting to
revive the animal. Experiments for multi-organ preservation involve the
maintenance of the animal subjects at cold temperatures for longer periods of
time than would be required for many surgical applications, followed by
transplant procedures to test the viability of one or more of the subject's
vital organs.
The Company is conducting experiments at hospitals, medical schools, and
university research facilities. These collaborative research programs are
testing solutions and protocols developed in the Company's laboratories and, in
some cases, comparing the efficacy of the Company's products with commercially
available FDA approved products manufactured by other companies. Collaborative
gerontological research is being conducting at the University of California at
Berkeley. The Company intends to continue to foster relations with research
hospitals and medical schools for the purpose of conducting collaborative
research projects because it believes that such projects will introduce the
Company's potential products to members of the medical profession and provide
the Company with objective product evaluations from independent research
physicians and surgeons.
BioTime has also expanded its product development efforts by initiating an
interventive gerontology program focused on the identification of specific
factors central to aging of the brain. The program, which is being undertaken
with the cooperation of the University of California at Berkeley, is focused on
the development of medical and pharmacological strategies to treat senescence
related consequences.
11
Licensing
Abbott Laboratories
On April 23, 1997, the Company and Abbott entered into a License Agreement
under which the Company granted to Abbott an exclusive license to manufacture
and sell Hextend in the United States and Canada for all therapeutic uses other
than those involving hypothermic surgery where the patient's body temperature is
lower than 12(degree)C ("Hypothermic Use"), or replacement of substantially all
of a patient's circulating blood volume ("Total Body Washout"). The Company has
retained all rights to manufacture, sell or license Hextend and other products
in all other countries.
Under the Abbott License Agreement, Abbott has agreed to pay the Company up
to $40,000,000 in license fees, of which $2,500,000 has been paid to date for
the grant of the license and the achievement of certain milestones. Up to
$37,500,000 of additional license fees will be payable based upon annual net
sales of Hextend, at the rate of 10% of annual net sales if annual net sales
exceed $30,000,000 or 5% if annual net sales are between $15,000,0000 and
$30,000,000. Abbott's obligation to pay licensing fees on sales of Hextend will
expire on the earlier of January 1, 2007 or, on a country by country basis, when
all patents protecting Hextend in the applicable country expire or any third
party obtains certain regulatory approvals to market a generic equivalent
product in that country.
In addition to the license fees, Abbott will pay the Company a royalty on
total annual net sales of Hextend. The royalty rate will be 5% plus an
additional .22% for each $1,000,000 of annual net sales, up to a maximum royalty
rate of 36%. The royalty rate for each year will be applied on a total net sales
basis. Abbott's obligation to pay royalties on sales of Hextend will expire in
the United States or Canada when all patents protecting Hextend in the
applicable country expire and any third party obtains certain regulatory
approvals to market a generic equivalent product in that country.
Abbott has agreed that the Company may convert Abbott's exclusive license
to a non-exclusive license or may terminate the license outright if certain
minimum sales and royalty payments are not met. In order to terminate the
license outright, the Company would pay a termination fee in an amount ranging
from the milestone payments made by Abbott to an amount equal to three times
prior year net sales, depending upon when termination occurs. Abbott's exclusive
license also may terminate, without the payment of termination fees by the
Company, if Abbott fails to market Hextend. Abbott has agreed to manufacture
Hextend for sale by the Company in the event that Abbott's exclusive license is
terminated in either case.
Abbott has certain rights to acquire additional licenses to manufacture and
sell the Company's other plasma expander products in the United States and
Canada. If Abbott exercises these rights to acquire a license to sell such
products for uses other than Hypothermic Surgery or Total Body Washout, in
addition to paying royalties, Abbott will be obligated to pay a license fee
based upon the Company's direct and indirect research, development and other
costs allocable to the new product. If Abbott desires to acquire a license to
sell any of the Company's products for use in Hypothermic Surgery or Total Body
Washout, the license fees and other terms of the license will be subject to
negotiation between the parties. For the purpose of determining the applicable
royalty rates, net sales of any such new products licensed by Abbott will be
aggregated with sales of Hextend. If Abbott does not exercise its right to
acquire a new product license, the Company may manufacture and sell the product
itself or may license others to do so.
12
In order to preserve its rights to obtain an exclusive license for
PentaLyte under its License Agreement, Abbott notified the Company that Abbott
will supply BioTime with batches of PentaLyte, characterization and stability
studies, and other regulatory support needed for BioTime to file an IND and
conduct clinical studies.
The foregoing description of the Abbott License Agreement is a summary only
and is qualified in all respects by reference to the full text of that License
Agreement.
Other Licensing Efforts
The Company is discussing prospective licensing arrangements with other
pharmaceutical companies that have expressed their interest in marketing the
Company's products abroad. In licensing arrangements that include marketing
rights, the participating pharmaceutical company would be entitled to retain a
large portion of the revenues from sales to end users and would pay the Company
a royalty on net sales. There is no assurance that any such licensing
arrangements can be made.
Manufacturing
Manufacturing Arrangements
Abbott manufactures Hextend for the North American market, and NPBI
International, BV, a Netherlands company ("NPBI"), has manufactured lots of
Hextend for the Company's use in seeking regulatory approval in Europe. Abbott
and NPBI have the facilities to manufacture Hextend and other BioTime products
in commercial quantities. If Abbott chooses not to obtain a license to
manufacture and market another BioTime product, and if NPBI declines to
manufacture BioTime products on a commercial basis, other manufacturers will
have to be found that would be willing to manufacture products for BioTime or
any licensee of BioTime products.
Facilities Required
Any products that are used in clinical trials for regulatory approval in
the United States or abroad, or that are approved by the FDA or foreign
regulatory authorities for marketing, have to be manufactured according to "good
manufacturing practices" at a facility that has passed regulatory inspection. In
addition, products that are approved for sale will have to be manufactured in
commercial quantities, and with sufficient stability to withstand the
distribution process, and in compliance with such domestic and foreign
regulatory requirements as may be applicable. The active ingredients and
component parts of the products must be either USP or themselves manufactured
according to "good manufacturing practices".
The Company does not have facilities to manufacture its products in
commercial quantities, or under "good manufacturing practices." Acquiring a
manufacturing facility would involve significant expenditure of time and money
for design and construction of the facility, purchasing equipment, hiring and
training a production staff, purchasing raw material and attaining an efficient
level of production. Although the Company has not determined the cost of
constructing production facilities that meet FDA requirements, it expects that
the cost would be substantial, and that the Company would need to raise
additional capital in the future for that purpose. To avoid the incurrence of
those expenses and delays, the Company is relying on contract and licensing
arrangements with established pharmaceutical
13
companies for the production of the Company's products, but there can be no
assurance that satisfactory arrangements will be made for any new products that
the Company may develop.
Raw Materials
Although most ingredients in the products being developed by the Company
are readily obtainable from multiple sources, the Company knows of only a few
manufacturers of the hydroxyethyl starches that serve as the drug substance in
Hextend, PentaLyte and HetaCool. Abbott presently has a source of supply of the
hydroxyethyl starch used in Hextend, PentaLyte and HetaCool, and has agreed to
maintain a supply sufficient to meet market demand for Hextend in the United
States and Canada. The Company believes that it will be able to obtain a
sufficient supply of starch for its needs in the foreseeable future, although
the Company does not have supply agreements in place. If for any reason a
sufficient supply of hydroxyethyl starch could not be obtained, the Company or a
licensee would have to acquire a manufacturing facility and the technology to
produce the hydroxyethyl starch according to good manufacturing practices. The
Company would have to raise additional capital to participate in the development
and acquisition of the necessary production technology and facilities.
If arrangements cannot be made for a source of supply of hydroxyethyl
starch, the Company would have to reformulate its solutions to use one or more
other starches that are more readily available. In order to reformulate its
products, the Company would have to perform new laboratory testing to determine
whether the alternative starches could be used in a safe and effective synthetic
plasma volume expander, low temperature blood substitute or organ preservation
solution. If needed, such testing would be costly to conduct and would delay the
Company's product development program, and there is no certainty that any such
testing would demonstrate that an alternative ingredient, even if chemically
similar to the one currently used, would be as safe or effective.
Marketing
Hextend is being sold by Abbott in the United States. When regulatory
approval is obtained, Hextend will be sold by Abbott in Canada as well.
Hextend has been approved for use and added to hospital formularies in
hundreds of hospitals. Inclusion on hospital formularies is important because it
enables physicians to obtain Hextend without the need to special order it.
Because Hextend is a surgical product, sales efforts must be directed to
physicians and hospitals. The Hextend marketing strategy is designed to reach
its target customer base through sales calls and an advertising campaign focused
on the use of a plasma-like substance to replace lost blood volume and the
ability of Hextend to support vital physiological processes.
Hextend competes with other products used to treat or prevent hypovolemia,
including albumin, generic 6% hetastarch solutions, and crystalloid solutions.
The competing products have been commonly used in surgery and trauma care for
many years, and in order to sell Hextend, physicians must be convinced to change
their product loyalties. Although albumin is expensive, crystalloid solutions
and generic 6% hetastarch solutions sell at low prices. In order to compete with
other products, particularly
14
those that sell at lower prices, Hextend will have to be recognized as providing
medically significant advantages.
As part of the marketing program, a number of studies have been conducting
that show the advantages of receiving Hextend and other BioTime products during
surgery. As these studies are completed, the results are presented at medical
conferences and articles written for publication in medical journals. The
Company is also aware of independent studies using Hextend that are being
conducted by physicians and hospitals who may publish their findings in medical
journals or report their findings at medical conferences. The outcome of future
medical studies and timing of the publication or presentation of the results
could have an effect on Hextend sales.
Government Regulation
The FDA and foreign regulatory authorities will regulate the Company's
proposed products as drugs, biologicals, or medical devices, depending upon such
factors as the use to which the product will be put, the chemical composition
and the interaction of the product on the human body. In the United States,
products that are intended to be introduced into the body, such as blood
substitute solutions for low temperature surgery and plasma expanders, will be
regulated as drugs and will be reviewed by the FDA staff responsible for
evaluating biologicals.
The Company's domestic human drug products will be subject to rigorous FDA
review and approval procedures. After testing in animals, an Investigational New
Drug (IND) application must be filed with the FDA to obtain authorization for
human testing. Extensive clinical testing, which is generally done in three
phases, must then be undertaken at a hospital or medical center to demonstrate
optimal use, safety and efficacy of each product in humans. Each clinical study
is conducted under the auspices of an independent Institutional Review Board
("IRB"). The IRB will consider, among other things, ethical factors, the safety
of human subjects and the possible liability of the institution. The time and
expense required to perform this clinical testing can far exceed the time and
expense of the research and development initially required to create the
product. No action can be taken to market any therapeutic product in the United
States until an appropriate New Drug Application ("NDA") has been approved by
the FDA. Even after initial FDA approval has been obtained, further studies may
be required to provide additional data on safety or to gain approval for the use
of a product as a treatment for clinical indications other than those initially
targeted. In addition, use of these products during testing and after marketing
could reveal side effects that could delay, impede or prevent FDA marketing
approval, resulting in a FDA-ordered product recall, or in FDA-imposed
limitations on permissible uses.
The FDA regulates the manufacturing process of pharmaceutical products,
requiring that they be produced in compliance with "good manufacturing
practices." See "Manufacturing." The FDA also regulates the content of
advertisements used to market pharmaceutical products. Generally, claims made in
advertisements concerning the safety and efficacy of a product, or any
advantages of a product over an other product, must be supported by clinical
data filed as part of an NDA or an amendment to an NDA, and statements regarding
the use of a product must be consistent with the FDA approved labeling and
dosage information for that product.
Sales of pharmaceutical products outside the United States are subject to
foreign regulatory requirements that vary widely from country to country. Even
if FDA approval has been obtained, approval of a product by comparable
regulatory authorities of foreign countries must be obtained prior
15
to the commencement of marketing the product in those countries. The time
required to obtain such approval may be longer or shorter than that required for
FDA approval.
Patents and Trade Secrets
The Company currently holds 17 issued United States patents having
composition and methods of use claims covering BioTime's proprietary solutions,
including Hextend and PentaLyte. The most recent U.S. patents were issued during
2001. Thirty patents covering certain of the Company's solutions have also been
issued in the countries of the European Union, Australia, Israel, Russia, Hong
Kong, South Africa, Japan, and South Korea. Additional patent applications have
been filed in the United States and numerous other countries for Hextend,
PentaLyte and other solutions. Certain device patents describing BioTime's
hyperbaric chamber, and proprietary microcannula have also been issued in the
United States and overseas, both of which - although only used in research so
far - have possible indications in clinical medicine.
There is no assurance that any additional patents will be issued, or that
any patents now held or later obtained by the Company will not be successfully
challenged by third parties and declared invalid or infringing of third party
claims. Further, the enforcement of patent rights often requires litigation
against third party infringers, and such litigation can be costly to pursue.
In addition to patents, the Company will rely on trade secrets, know-how
and continuing technological advancement to maintain its competitive position.
The Company has entered into intellectual property, invention and non-disclosure
agreements with its employees and it is the Company's practice to enter into
confidentiality agreements with its consultants. There can be no assurance,
however, that these measures will prevent the unauthorized disclosure or use of
the Company's trade secrets and know-how or that others may not independently
develop similar trade secrets and know-how or obtain access to the Company's
trade secrets, know-how or proprietary technology.
Competition
The Company's solutions will compete with products currently used to treat
or prevent hypovolemia, including albumin, other colloid solutions, and
crystalloid solutions presently manufactured by established pharmaceutical
companies, and with human blood products. Some of these products, in particular
crystalloid solutions, are commonly used in surgery and trauma care and sell at
low prices. In order to compete with other products, particularly those that
sell at lower prices, the Company's products will have to be recognized as
providing medically significant advantages. Like Hextend, the competing products
are being manufactured and marketed by established pharmaceutical companies that
have large research facilities, technical staffs and financial and marketing
resources. B.Braun presently markets Hespan, an artificial plasma volume
expander containing 6% hetastarch in saline solution. Abbott and Baxter
International manufacture and sell a generic equivalent of Hespan. As a result
of the introduction of generic plasma expanders intended to compete with Hespan,
competition in the plasma expander market has intensified and wholesale prices
have declined. Abbott, which markets Hextend for BioTime in the Untied States,
is also the leading seller of generic 6% hetastarch in saline solution. Aventis
Behring, LLC, Baxter International, and Alpha Therapeutics sell albumin, and
Abbott, Baxter International and B.Braun sell crystalloid solutions
16
To compete with new and existing plasma expanders, the Company has
developed products that contain constituents that may prevent or reduce the
physiological imbalances, bleeding, fluid overload, edema, poor oxygenation, and
organ failure that can occur when competing products are used. To compete with
existing organ preservation solutions, the Company has developed solutions that
can be used to preserve all organs simultaneously and for long periods of time.
A number of other companies are known to be developing hemoglobin and
synthetic red blood cell substitutes and technologies. BioTime's products have
been developed for use either before red blood cells are needed or in
conjunction with the use of red blood cells. In contrast, hemoglobin and other
red blood cell substitute products are designed to remedy ischemia and similar
conditions that may result from the loss of oxygen carrying red blood cells.
Those products would not necessarily compete with the Company's products unless
the oxygenating molecules were included in solutions that could replace fluid
volume and prevent or reduce the physiological imbalances as effectively as the
Company's products. Generally, red blood cell substitutes are more expensive to
produce and potentially more toxic than Hextend and PentaLyte.
Competition in the areas of business targeted by the Company is likely to
intensify further as new products and technologies reach the market. Superior
new products are likely to sell for higher prices and generate higher profit
margins once acceptance by the medical community is achieved. Those companies
that are successful in introducing new products and technologies to the market
first may gain significant economic advantages over their competitors in the
establishment of a customer base and track record for the performance of their
products and technologies. Such companies will also benefit from revenues from
sales which could be used to strengthen their research and development,
production, and marketing resources. All companies engaged in the medical
products industry face the risk of obsolescence of their products and
technologies as more advanced or cost effective products and technologies are
developed by their competitors. As the industry matures, companies will compete
based upon the performance and cost effectiveness of their products.
Employees
As of December 31, 2001, the Company employed nine persons on a full-time
basis and three persons on a part-time basis. Three full-time employees and one
part-time employee hold Ph.D. Degrees in one or more fields of science.
Risk Factors
Some of the factors that could materially affect the Company's operations
and prospects are discussed below. There may be other factors that are not
mentioned here or of which BioTime is not presently aware that could also affect
BioTime's operations.
Development Stage Company; Continuing Operating Losses
BioTime is in the development stage, and, is principally engaged in
research and development activities. To date, the Company's operating revenues
have been generated primarily from licensing fees, including $2,500,000 received
from Abbott for the right to manufacture and market Hextend in the United States
and Canada. Only one of the Company's products is presently on the market, and
since the
17
Company received FDA approval to market Hextend it has received $204,409 of
royalties on sales. As a result of the developmental nature of its business and
the limited sales of its product, since the Company's inception in November 1990
it has incurred $30,770,238 of losses. There can be no assurance that the
Company will generate sufficient revenues from licensing its products and
technologies and from royalties on sales of its products to be profitable.
Uncertainty of Future Sales; Competition
The Company's ability to generate substantial operating revenue depends
upon the ability of Abbott to successfully market Hextend and any other BioTime
products that they may license in the future. There can be no assurance that
Hextend or any other products that receive FDA or foreign regulatory approval
will be successfully marketed or that the Company will receive sufficient
revenues from product sales to meet its operating expenses.
Widespread acceptance of the Company's products and technologies by the
medical profession will take time to develop because many physicians and
hospitals are reluctant to try a new product due to the high degree of risk
associated with the application of new technologies and products in the field of
human medicine.
Hextend and BioTime's other plasma expander products will compete with
products currently used to treat or prevent hypovolemia, including albumin and
other colloid solutions, and crystalloid solutions. Some of these products, in
particular crystalloid solutions, are commonly used in surgery and trauma care
and sell at low prices. In order to compete with other products, particularly
those that sell at lower prices, the Company's products will have to be
recognized as providing medically significant advantages. Such recognition may
come from the publication of medical studies in medical journals or the
presentation of the results of such studies at medical conferences. While some
studies of Hextend have already been published or presented at medical
conferences, it will take time to complete further studies and for the results
of those studies to be published or presented.
Products that compete with Hextend are being manufactured and sold by
established pharmaceutical companies with substantial resources. B. Braun
presently sells Hespan, an artificial plasma volume expander that contains 6%
hetastarch in saline solution. Abbott and Baxter International manufacture and
sell a generic equivalent of Hespan. As a result of the introduction of generic
plasma expanders intended to compete with Hespan, competition in the plasma
expander market has intensified and wholesale prices have declined. Aventis
Behring, LLC, Baxter International, and Alpha Therapeutics sell albumin. Abbott,
Baxter International and B. Braun sell crystalloids. There also is a risk that
the Company's competitors may succeed in developing safer or more effective
products that could render the Company's products and technologies obsolete or
noncompetitive.
BioTime Needs to Raise Additional Capital
The Company needs to raise capital to meet its operating expenses until
such time as it is able to generate sufficient revenues from product sales or
royalties. In August 2001, BioTime raised $3,350,000 through the sale of
debentures to a group of private investors. In March of 2002, the Company
entered into a Credit Agreement with Alfred D. Kingsley, an investor and
consultant to the Company, under which the Company may borrow up to $300,000 for
working capital purposes. Amounts borrowed under
18
the Credit Agreement will bear interest at 10% per annum and will be due in one
year or when BioTime receives at least $600,000 through the sale of capital
stock, loans from other lenders, fees under licensing agreements (excluding
royalty payments), or any combination of those sources. Mandatory prepayments of
principal will be due to the extent that the Company receives funds from any one
or more of those sources in excess of $300,000 but less than $600,000, and the
amount of any such mandatory prepayments of principal will reduce the maximum
amount available under the Credit Agreement and will not be available for future
borrowings. The Company will have the right to make voluntary prepayments of
principal that would otherwise not be due, without penalty or premium but with
accrued interest, at any time, and any amounts voluntarily prepaid will be
available for future borrowings, so long as the Company is not in default under
the Credit Agreement, and the outstanding principal balance loaned under the
Credit Agreement does not exceed $300,000. Although BioTime believes that its
cash on hand and funds available under the Credit Agreement will be sufficient
to allow it to continue its operations on a limited scale for 12 months, it will
need additional funds to begin clinical trials of PentaLyte and to conduct its
other product development and research programs. There can be no assurance that
the Company will be able to raise additional funds on favorable terms or at all,
or that such funds, if raised, will be sufficient to permit the Company to
continue its operations, notwithstanding the progress of its research and
development projects. The Company's operating expenses will increase if it
succeeds in bringing additional products out of the laboratory testing phase of
development and into clinical trials. Additional financing will be required for
the continuation or expansion of the Company's research and product development,
additional clinical trials of new products, and production and marketing of
Company products that receive FDA or foreign regulatory approval. Although the
Company will continue to seek licensing fees from pharmaceutical companies for
licenses to manufacture and market new products such as PentaLyte and HetaCool,
additional sales of equity or debt securities will be required to meet the
Company's short-term capital needs. Sales of additional equity securities could
result in the dilution of the interests of present shareholders.
BioTime Products Cannot Be Marketed Without FDA and Other Regulatory Approvals
The products that BioTime develops cannot be sold until the FDA and
corresponding foreign regulatory authorities approve the products for medical
use. The regulatory process, which includes preclinical, clinical and
post-clinical testing of each product to establish its safety and efficacy, can
take several years to complete and require the expenditure of substantial time
and funds. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations which could delay, limit or prevent
regulatory approval. In addition, delays or rejections may be encountered as a
result of changes in FDA policy during the period of product development and FDA
regulatory review. Similar delays may also be encountered in foreign countries.
There can be no assurance that, even after substantial expenditures of time and
money, regulatory approval will be obtained for any new products developed by
the Company. Moreover, even if regulatory approval of a product is granted, such
approval may entail limitations on the indicated uses for which the product may
be marketed. After regulatory approval is obtained, the approved product, the
manufacturer and the manufacturing facilities are subject to continual review
and periodic inspections, and a later discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on the
product or manufacturer, including withdrawal of the product from the market.
Failure to comply with the applicable regulatory requirements can, among other
things, result in fines, suspensions of regulatory approvals, product recalls,
operating restrictions and criminal prosecution. Additional government
regulation may be established which could prevent or delay regulatory approval
of the Company's products.
19
Uncertainty as to the Successful Development of Medical Products
The Company's business involves the attempt to develop new medical products
and technologies. Such experimentation is inherently costly, time consuming and
uncertain as to its results. If the Company is successful in developing a new
technology or product, refinement of the new technology or product and
definition of the practical applications and limitations of the technology or
product may take years and require the expenditure of large sums of money. From
the date of the Company's inception through December 31, 2001, the Company
expensed $21,630,518 on research and development, and the Company expects to
continue to incur substantial research and development expenses.
Absence of Manufacturing and Marketing Capabilities; Reliance Upon Licensing
The Company presently does not have adequate facilities or resources to
manufacture its products or the hydroxyethyl starches used in its products.
BioTime has granted Abbott an exclusive license to manufacture and market
Hextend in the United States and Canada, and BioTime plans to enter into
additional arrangements with pharmaceutical companies for the production and
marketing of the Company's products in other countries. There can be no
assurance that the Company will be successful in entering into those
arrangements.
Patents May Not Protect BioTime Products from Competition
The Company has obtained patents in the United States, countries of the
European Union, Australia, Israel, Russia, Hong Kong, South Africa, Japan, and
South Korea, and has filed patent applications in certain foreign countries, for
certain products, including Hextend and PentaLyte. No assurance can be given
that any additional patents will be issued to the Company, or that the Company's
patents will provide meaningful protection against the development of competing
products. There also is no assurance that competitors will not successfully
challenge the validity or enforceability of any patent issued to the Company.
The costs required to uphold the validity and prevent infringement of any patent
issued to the Company could be substantial, and the Company might not have the
resources available to defend its patent rights.
Prices and Sales of Products May be Limited by Health Insurance Coverage and
Government Regulation
Success in selling BioTime's products may depend in part on the extent to
which health insurance companies, HMOs, and government health administration
authorities such as Medicare and Medicaid will pay for the cost of the products
and related treatment. Health insurance reimbursements and HMO coverage now
include the cost of Hextend used in surgical procedures. However, there can be
no assurance that such reimbursements will continue. In some foreign countries,
pricing or profitability of health care products is subject to government
control. In the United States, there have been a number of federal and state
proposals to implement similar government controls, and new proposals are likely
to be made in the future.
20
Dependence Upon Key Personnel
The Company depends to a considerable degree on the continued services of
its executive officers. The loss of the services of any of the executive
officers could have a material adverse effect on the Company. In addition, the
success of the Company will depend, among other factors, upon successful
recruitment and retention of additional highly skilled and experienced
management and technical personnel.
BioTime Does Not Pay Cash Dividends
BioTime does not pay cash dividends on its Common Shares. For the
foreseeable future it is anticipated that any earnings generated from the
Company's business will be used to finance the growth of the Company and will
not be paid out as dividends to BioTime shareholders. BioTime has also agreed
not to declare or pay any cash dividends on its capital stock or to redeem or
repurchase any shares of its capital stock, until it has paid off the debenture
indebtedness in full.
The Price of BioTime Stock May Rise and Fall Rapidly
BioTime Common Shares are traded on the American Stock Exchange. The market
price of the Common Shares, like that of the common stock of many biotechnology
companies, has been highly volatile. The price of BioTime shares may rise
rapidly in response to certain events, such as the commencement of clinical
trials of an experimental new drug, even though the outcome of those trials and
the likelihood of ultimate FDA approval remains uncertain. Similarly, prices of
BioTime shares may fall rapidly in response to certain events such as
unfavorable results of clinical trials or a delay or failure to obtain FDA
approval. The failure of the Company's earnings to meet analysts' expectations
could result in a significant rapid decline in the market price of the Company's
shares. In addition, the stock market has experienced and continues to
experience extreme price and volume fluctuations which have affected the market
price of the equity securities of many biotechnology companies and which have
often been unrelated to the operating performance of these companies. Such broad
market fluctuations, as well as general economic and political conditions, may
adversely affect the market price of BioTime Common Shares.
Item 2. Facilities.
The Company occupies its office and laboratory facility in Berkeley,
California under a lease that will expire on March 31, 2004. The Company
presently occupies approximately 8,890 square feet of space and pays rent in the
amount of $11,024 per month. The rent will increase annually by the greater of
3% and the increase in the local consumer price index, subject to a maximum
annual increase of 7%. The Company also pays all charges for utilities and
garbage collection.
The Company has an option to extend the term of the lease for a period of
three years, and to terminate the lease early upon six months notice.
The Company uses, on a fee per use basis, facilities for surgical research
on animals at an unaffiliated privately run research center located in Winters,
California. Contracting for the use of research facilities has enabled the
Company to initiate its research projects without the substantial capital cost,
overhead
21
costs and delay associated with the acquisition and maintenance of a modern
animal surgical research facility.
Item 3. Legal Proceedings.
The Company is not presently involved in any material litigation or
proceedings, and to the Company's knowledge no such litigation or proceedings
are contemplated.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Shares have been trading on the American Stock
Exchange since August 31, 1999, and traded on the Nasdaq National Market from
April 28, 1998 to August 30,1999, and on the Nasdaq SmallCap Market from March
5, 1992 through April 27, 1998. The closing price of the Company's Common Shares
on the AMEX on March 25, 2002 was $3.58.
The following table sets forth the range of high and low bid prices for the
Common Shares for the fiscal years ended December 31, 2000 and 2001 based on
transaction data as reported by Nasdaq and AMEX.
Quarter Ended High Low
- ------------- ---- ---
March 31, 2000 17.13 8.63
June 30, 2000 12.25 5.50
September 30, 2000 9.13 6.38
December 31, 2000 8.31 3.81
March 31, 2001 11.10 6.23
June 30, 2001 8.50 6.40
September 30, 2001 7.95 4.50
December 31, 2001 6.15 4.22
As of March 7, 2002, there were 324 shareholders of record of the Common
Shares based upon information from the Registrar and Transfer Agent.
The Company has paid no dividends on its Common Shares since its inception
and does not plan to pay dividends on its Common Shares in the foreseeable
future. BioTime has also agreed not to declare or pay any cash dividends on its
capital stock or to redeem or repurchase any shares of its capital stock,
22
until it has paid off in full the indebtedness on certain debentures issued
during August 2001. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."
During the three month periods ended September 30, 2001 and December 31,
2001, the Company issued 862 common shares and 1,087 common shares,
respectively, to Milton D. Dresner in lieu of a cash fee for serving as a
director. The shares were issued without registration under the Securities Act
of 1933, as amended, pursuant to the exemption provided in Section 4(2). See
"Directors' Meetings, Compensation and Committees of the Board."
23
Item 6. Selected Financial Data.
The selected financial data as of, and for the periods ended, December 31,
2001, 2000, 1999 and 1998, and June 30, 1998 and 1997 presented below have been
derived from the audited financial statements of the Company. The selected
financial data should be read in conjunction with the Company's financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
Statement of Operations Data:
Year Ended Six Months
December 31, Ended Year Ended Year Ended
-------------------------------------- December 31, June 30, June 30,
2001 2000 1999 1998 1998 1997
------------ ------------ ------------ ------------ ------------ --------------
REVENUE:
License fee $ - $ - $ 1,037,500 $ 250,000 $ 1,150,000 $ 62,500
Royalty from
product sale 151,917 52,492 - - - -
------------------------- ------------ ------------ ------------ --------------
Total revenue 151,917 52,492 - - - 62,500
------------------------- ------------ ------------ ------------ --------------
EXPENSES:
Research and
development (1,685,168) (3,362,841) (4,900,521) (1,723,860) (3,048,775) (2,136,325)
General and
administrative (1,961,342) (1,779,931) (1,896,690) (710,131) (1,849,312) (1,209,546)
------------------------- ------------ ------------ ------------ --------------
Total expenses (3,646,510) (5,142,772) (6,797,211) (2,433,991) (4,898,087) (3,345,871)
------------------------- ------------ ------------ ------------ --------------
INTEREST EXPENSE
AND OTHER INCOME:
Interest expense (278,576) - - - - -
Other income 114,344 165,256 279,827 89,513 294,741 189,161
------------ ------------ ------------ ------------ ------------ --------------
Total interest
expense and
other income (114,685) 165,256 279,827 89,513 294,741 189,161
------------ ------------ ------------ ------------ ------------ --------------
NET LOSS $ (3,658,825)$(4,925,024) $(5,479,884) $(2,094,478) $(3,453,346) $ (3,094,210)
============ ============ ============ ============ ============ ==============
BASIC AND DILUTED
LOSS PER SHARE $ (0.32) (0.44) (0.51) (0.21) (0.35) $ (0.35)
============ =========== ============ ============ ============ ==============
COMMON AND
EQUIVALENT SHARES
USED IN COMPUTING PER
SHARE
AMOUNTS:
BASIC AND DILUTED 11,562,108 11,042,087 10,688,100 10,008,468 9,833,156 8,877,024
============ =========== ============ ============ ============ ===============
Balance Sheet Data:
December 31, December 31, December 31, December 31, June 30, June 30,
2001 2000 1999 1998 1998 1997
-------------- -------------- -------------- -------------- ------------- ------------
Cash, cash equivalents
and short term
investments $ 1,652,748 $ 1,318,338 $ 5,292,806 $ 2,429,014 $ 4,105,781 $ 7,811,634
Working Capital 1,452,832 1,081,237 4,804,579 2,157,578 3,724,663 6,846,575
Total assets 1,941,375 1,677,484 5,678,644 2,809,455 4,641,780 8,297,774
Shareholders' equity (99,094) 1,317,735 5,083,132 2,384,752 4,014,750 6,536,106
24
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Overview
Since its inception in November 1990, the Company has been engaged
primarily in research and development activities which have culminated in the
commercial launch of Hextend, its lead product, and a clinical trial of
PentaLyte. The Company's operating revenues have been generated primarily from
licensing fees, including $2,500,000 received from Abbott Laboratories for the
right to manufacture and market Hextend(R) in the United States and Canada. As a
result of the developmental nature of its business and the limited sales of its
product, since the Company's inception in November 1990 it has incurred
$30,770,238 of losses. The Company's ability to generate substantial operating
revenue depends upon its success in developing and marketing or licensing its
plasma volume expanders and organ preservation solutions and technology for
medical use.
Most of the Company's research and development efforts have been devoted to
the Company's first three blood volume replacement products: Hextend,(R)
PentaLyte,(R) and HetaCool.(TM) By testing and bringing all three products to
the market, BioTime can increase its market share by providing the medical
community with solutions to match patients' needs. By developing technology for
the use of HetaCool in low temperature surgery, trauma care, and organ
transplant surgery, BioTime may also create new market segments for its product
line.
The Company's first product, Hextend, is a physiologically balanced blood
plasma volume expander, for the treatment of hypovolemia. Hextend is being sold
in the United States by Abbott Laboratories under an exclusive license from the
Company. Abbott also has the right to sell Hextend in Canada, where an
application for marketing approval is pending. Abbott also has a right to obtain
licenses to manufacture and sell other BioTime products.
Under its License Agreement with the Company, Abbott will report sales of
Hextend and pay the Company the royalties and license fees due on account of
such sales within 90 days after the end of each calendar quarter. The Company
recognizes such revenues in the quarter in which the sales report is received,
rather than the quarter in which the sales took place, as the Company does not
have sufficient sales history to accurately predict quarterly sales. Hextend
sales are still in the ramp- up phase.
Revenues for the year ended December 31, 2001 include royalties on sales
made by Abbott during the period beginning October 1, 2000 and ending September
30, 2001. Royalties on sales recognized as revenues made during that 12 month
period were $151,917. Royalties on sales during the three month period ending
December 31, 2001 were $57,235 but will not be recognized by the Company for
financial accounting purposes until the first quarter of fiscal year 2002.
Hextend sales are still in the ramp-up phase , as illustrated by the following
graph:
25
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
[GRAPHIC OMITTED]
Semi-Annual Hextend(R) Sales ($ millions)
Jul-Dec'99 0.3
Jan-Jun'00 0.5
Jul-Dec'00 1.0
Jan-Jun'01 1.2
Jul-Dec'01 1.9
The graph illustrates semi-annual sales of Hextend derived from quarterly
sales reports provided to BioTime by Abbott with royalty payments. Royalties on
sales that occurred during the third quarter of 1999 through the third quarter
of 2000 are reflected in the Company's financial statements for the year ended
December 31, 2000. Royalties on sales that occurred during the third quarter of
2000 through the third quarter of 2001 are reflected in the Company's financial
statements for the year ended December 31, 2001. Royalties on sales that
occurred during the fourth quarter of 2001 will be reflected in the Company's
financial statements for the first quarter of 2002.
As shown above, semi-annual sales of Hextend have increased 760% from the
last half of 1999, when the product was first launched, through the last half of
2001. Sales during the last half of 2001 were strong despite the adverse
influences of the events of September 11, 2001, and sales of Hextend continue to
rise progressively from year to year. BioTime attributes these gains in semi-
annual sales to escalating marketing efforts, an accelerating demand for Hextend
by physicians and hospitals due to its outstanding performance in many hundreds
of operating rooms around the country, and recent clinical trial results which
highlight its many clinical benefits. Based on preliminary estimates, current
monthly sales of Hextend are nearly half of the amount of monthly sales the
Company needs to operate at the break-even point at the present reduced rate of
Company spending, which includes substantial salary reductions and limited
research and development activities.
As part of the marketing program, a number of studies have been conducted
that show the advantages of receiving Hextend and other BioTime products during
surgery. For example, the
26
results of a clinical trial by NJ Wilkes et al performed in England and entitled
"The effects of balanced versus saline-based hetastarch and crystalloid
solutions on acid-base and electrolyte status and gastric mucosal perfusion in
elderly surgical patients" was published in the October 2001 edition of
Anesthesia and Analgesia, and underscores a number of Hextend benefits including
maintenance of normal acid-base balance, blood calcium and chloride levels and
perfusion of portions of the gastro-intestinal tract. Furthermore, the results
of a clinical study of 200 cardiac surgery patients at Columbia University
Medical Center in New York were presented at the 2001 Annual Meeting of the
Anesthesiology Society of America. In that study, patients receiving Hextend had
better outcomes than patients receiving other surgical fluids (6% hetastarch in
normal saline, albumin in saline and lactated Ringer's), based upon maintenance
of renal function, avoidance of dialysis, avoidance of deep venous thromboses,
lower level of pain, nausea and suffering, shorter time to first meal, and less
clotting abnormalities.
As future studies such as these are completed, the results will be
presented at medical conferences and articles will be written for publication in
medical journals. The Company is also aware of independent studies using Hextend
that are being conducted by physicians and hospitals who may publish their
findings in medical journals or report their findings at medical conferences.
The outcome of future medical studies and timing of the publication or
presentation of the results could have an effect on Hextend sales.
Hextend has become the standard plasma volume expander at a number of
prominent teaching hospitals and leading medical centers. BioTime feels that as
Hextend use proliferates within the leading US hospitals, other smaller
hospitals will follow their lead and accelerate sales growth.
Hextend is being evaluated by a number of military physicians as a plasma
volume expander in the treatment of hypovolemia in combat casualties. This was
the topic of a number of formal presentations and discussions at Combat Fluid
Resuscitation 2001, a meeting held at the Uniformed Services University of the
Health Sciences in Bethesda, Maryland in June, 2001, under their auspices and
that of the Office of Naval Research and the US Army Medical Research and
Materiel Command. Additionally, a meeting was held at Hahnemann University
Medical College of Pennsylvania in Philadelphia on October 8, 2001 at which
military and civilian medical and scientific personnel discussed making
recommendations to the United States military on the use of intravenous fluids
and medical devices to treat combat casualties. Hextend was among the fluids
considered during this meeting.
The Company has completed a Phase I clinical trial of PentaLyte and is
planning the next phase of its clinical trials in which PentaLyte will be used
to treat hypovolemia in surgery.
The Company is also continuing to develop solutions for low temperature
surgery. Once a sufficient amount of data from successful low temperature
surgery has been compiled, the Company plans to seek permission to use Hextend
as a complete replacement for blood under near-freezing conditions. BioTime
currently plans to market Hextend for complete blood volume replacement at very
low temperatures under the registered trade mark "HetaCool(TM)" after FDA
approval is obtained.
Abbott has an option to obtain a license to market PentaLyte and HetaCool
in the United States and Canada, and BioTime would receive additional license
fees if those options are exercised,
27
in addition to royalties on subsequent sales of those products. BioTime and
certain pharmaceutical companies are discussing potential manufacturing,
distributing and marketing agreements for BioTime products in the rest of the
world.
In order to commence clinical trials for regulatory approval of new
products or new therapeutic uses of products, it will be necessary for the
Company to prepare and file with the FDA an Investigational New Drug Application
("IND") or an amendment to expand a previous filing. Filings with foreign
regulatory agencies will be required to commence clinical trials overseas. The
Company has filed an application to market Hextend in Canada, and its first
application for approval in a European Union member nation, Sweden. Regulatory
approvals for other countries that are members of the European Union may be
obtained through a mutual recognition process. If approvals can be obtained in
the requisite number of member nations, then the Company would be permitted to
market Hextend in all 16 member nations. BioTime is continuing to work with the
appropriate officials to achieve regulatory approval in Canada and Sweden.
In addition to developing clinical trial programs, the Company plans to
continue to provide funding for its laboratory testing programs at selected
universities, medical schools and hospitals for the purpose of developing
additional uses of Hextend, PentaLyte, HetaCool, and other new products, but the
amount of research that will be conducted at those institutions will depend upon
the Company's financial status. Because the Company's research and development
expenses, clinical trial expenses, and production and marketing expenses will be
charged against earnings for financial reporting purposes, management expects
that there will be losses from operations from time to time during the near
future.
Hextend(R) and PentaLyte(R) are registered trademarks, and HetaCool(TM) is
a trademark, of BioTime.
Results of Operations
Year Ended December 31, 2001 and Year Ended December 31, 2000
For the year ended December 31, 2001, the Company recognized $151,917 of
royalty revenues. Under its License Agreement with the Company, Abbott reports
sales of Hextend and pays the Company the royalties and license fees due on
account of such sales within 90 days after the end of each calendar quarter. The
Company recognizes such revenues in the quarter in which the sales report is
received, rather than the quarter in which the sales took place, as the Company
does not have sufficient sales history to accurately predict quarterly sales.
Royalties on sales made during the fourth quarter of 2001 will not be recognized
by the Company until the first quarter of fiscal year 2002.
For the year ended December 31, 2001, interest and other income decreased
to $114,344 from $165,256 for the year ended December 31, 2000. The decrease is
attributable to lower interest rates and cash balances for 2001, versus 2000.
28
Research and development expenses decreased to $1,685,168 for the year
ended December 31, 2001, down from $3,362,841 for the year ended December 31,
2000. The decrease is attributable to a significant decrease in laboratory study
expenses and fees paid to scientific research personnel as a result of a cost
reduction program in which the Company reduced its research and development
activities. Research and development expenses include laboratory study expenses,
European clinical trial expenses, salaries, preparation of additional regulatory
applications in the United States and Europe, manufacturing of solution for
trials, and consultants' fees. It is expected that research and development
expenses will increase if the Company obtains sufficient capital to commence new
clinical studies of its products in the United States and Europe.
General and administrative expenses increased to $1,961,342 for the year
ended December 31, 2001 from $1,779,931 for the year ended December 31, 2000.
This increase is attributable to significant increases in expenditures for the
Company's Annual Report and Meeting, fees required for continued stock exchange
listing, overall insurance costs, investor/public relations costs, legal and
accounting fees, and costs associated with continued maintenance of the
Company's patent portfolio.
The company's interest expense increased by $278,576 during 2001 because it
began to borrow money to meet its capital needs.
Year Ended December 31, 2000 and Year Ended December 31, 1999
For the year ended December 31, 2000, the Company recognized $52,492 of
royalty revenues. During Fiscal 1999 the Company recognized $1,037,500 of
license fees that were received from Abbott during prior years. No license fee
revenue was received in Fiscal 2000.
For the year ended December 31, 2000, interest and other income decreased
to $165,256 from $279,827 for the year ended December 31, 1999. The decrease is
attributable to a decrease in cash and cash equivalents for the year ended
December 31, 2000.
Research and development expenses decreased to $3,362,841 for the year
ended December 31, 2000, from $4,900,521 for the year ended December 31, 1999.
The decrease is attributable to a decrease in clinical trials and laboratory
study expenses, and completion of the European clinical trial. Research and
development expenses include laboratory study expenses, European clinical trial
expenses, salaries, preparation of additional regulatory applications in the
United States and Europe, manufacturing of solution for trials, and consultants'
fees.
General and administrative expenses decreased to $1,779,931 for the year
ended December 31, 2000, from $1,896,690 for the year ended December 31, 1999.
This decrease is attributable to a decrease in the general operations of the
Company.
29
Taxes
At December 31, 2001 the Company had a cumulative net operating loss
carryforward of approximately $37,200,000 for federal income tax purposes.
Liquidity and Capital Resources
Since inception, the Company has primarily financed its operations through
the sale of equity securities, licensing fees, and borrowings. During August
2001, the Company received loans of $3,350,000 through the sale of debentures to
a group of private investors, including Alfred D. Kingsley, an investor and
consultant to the Company, who purchased $1,500,000 of debentures, and Milton
Dresner, a director of the Company. Mr. Kingsley's investment included the
conversion of the $1,000,000 principal balance of a line of credit that he had
previously provided.
Interest on the debentures is payable at an annual rate of 10% and is
payable semiannually. The principal amount of the debentures will be due and
payable on August 1, 2004. BioTime may prepay the debentures, in whole or in
part, at any time without premium or penalty. Under the terms of the debentures,
BioTime has agreed that commencing October 1, 2001 it will restrict its
quarterly cash payments for operating expenses to not more than $450,000
(excluding interest payable on the debentures) plus the amount of cash revenues
(excluding interest and dividends) it collects for the quarter. To the extent
BioTime's expenditures during any quarter are less than $450,000 over its
revenues, it may expend the difference in one or more subsequent quarters.
That restriction will expire when BioTime obtains at least $5,000,000 in
cash through sales of equity securities or pays off the debenture indebtedness
in full. For this purpose, cash revenues will include royalties, license fees,
and other proceeds from the sale or licensing of its products and technology,
but will not include interest, dividends, and any monies borrowed or the
proceeds from the issue or sale of any debt or equity securities. BioTime has
also agreed not to declare or pay any cash dividends on its capital stock or to
redeem or repurchase any shares of its capital stock, until it has paid off the
debenture indebtedness in full.
Investors who purchased the debentures also received warrants to purchase a
total of 515,383 common shares at an exercise price of $6.50 per share. The
warrants will expire if not exercised by August 1, 2004. After June 30, 2002,
the Company has the right to call the warrants for redemption at a redemption
price of $0.01 per share if the closing price of the Company's common shares on
the American Stock Exchange equals or exceeds 150% of the exercise price for
fifteen (15) consecutive trading days and the shares issuable upon the exercise
of the warrants have been registered for sale under the Securities Act of 1933,
as amended (the "Securities Act").
On March 27, 2002, the Company entered into a new Credit Agreement with
Alfred D. Kingsley under which the Company may borrow up to $300,000 for working
capital purposes. Amounts borrowed under the Credit Agreement will bear interest
at 10% per annum and will be due on March 27, 2003 or when BioTime receives at
least $600,000 through the sale of capital stock, loans from other lenders, fees
under licensing agreements (excluding royalty payments), or any combination of
those sources. Mandatory prepayments of principal will be due to the extent that
the Company receives funds from any one or more of those sources in excess of
$300,000 but less than $600,000, and the amount of
30
any such mandatory prepayments of principal will reduce the maximum amount
available under the Credit Agreement and will not be available for future
borrowings. The Company will have the right to make voluntary prepayments of
principal that would otherwise not be due, without penalty or premium but with
accrued interest, at any time, and any amounts voluntarily prepaid will be
available for future borrowings, so long as the Company is not in default under
the Credit Agreement, and the outstanding principal balance loaned under the
Credit Agreement does not exceed $300,000.
In connection with entering into the Credit Agreement on March 27, 2002,
the Company granted Alfred D. Kingsley a warrant to purchase 30,000 shares of
the Company's common stock at $4.00 per share. The warrants are fully
exercisable and non-forfeitable on the date of grant and expire on March 26,
2007.
The following depicts BioTime's contractual obligations as of December 31,
2001:
Payments due by Period
----------------------
Contractual Obligation Total less than 1 year 1-3 years
- ---------------------- ----- ---------------- ---------
Debentures $3,350,000 $ - $3,350,000
Operating Leases 309,672 135,264 174,408
------------------------------------------------
Total Contractual Cash $3,659,672 $ 135,264 $3,524,408
Obligations
================================================
At December 31, 2001, BioTime had $ 1,652,748 of cash on hand, and has
implemented cost savings and expenditure limitation measures. The Company needs
additional capital and greater revenues to continue its current operations, to
begin clinical trials of PentaLyte, and to conduct its planned product
development and research programs. On March 27, 2002, the Company received a new
$300,000 line of credit. The Company has also retained certain investment
bankers on a non- exclusive basis to assist the Company in raising capital.
However, sales of additional equity securities could result in the dilution of
the interests of present shareholders. The Company is also continuing to seek
new agreements with pharmaceutical companies to provide product and technology
licensing fees and royalties. The availability and terms of equity financing and
new license agreements are uncertain. The unavailability or inadequacy of
additional financing or future revenues to meet capital needs could force the
Company to modify, curtail, delay or suspend some or all aspects of its planned
operations. However, management believes its existing cash and available credit
are sufficient to allow the Company to operate through December 31, 2002.
31
Critical Accounting Policies and Estimates
Management's discussion and analysis of the Company's financial condition
and results of operations are based on the Company's financial statements, which
have been prepared in conformity with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires management to make judgments and estimates that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. The Company based its
estimates on historical experience and on various other assumptions that it
believed to be reasonable under the circumstances. Actual results may differ
from such estimates under different assumptions or conditions. The following
summarizes the Company's critical accounting policies and significant estimates
used in preparing its financial statements:
Debenture and Warrant Valuation
During 2001 and in connection with the issuance of $3,350,000 of debt, the
Company issued warrants to purchase common shares in the Company. The fair value
of the warrants was estimated using the Black-Scholes option pricing model and
has been recorded at a discount to the debentures. The discount is being
amortized using the effective interest rate method over the term of the loan.
The Company may prepay the debt, in whole or in part, at any time. If the
Company were to prepay the debt, the unamortized portion of the discount would
be recognized as a loss on the repayment date.
Revenue Recognition
Under the Company's License Agreement with Abbott Laboratories, the Company
has received $2,500,000 of license fees based upon achievement of specified
milestones. Such fees have been recognized as revenue as the milestones were
achieved. Up to $37,500,000 of additional license fees will be payable based
upon annual net sales of Hextend, at the rate of 10% of annual net sales if
annual net sales exceed $30,000,000 or 5% if annual net sales are between
$15,000,000 and $30,000,000. Abbott's obligation to pay licensing fees on sales
of Hextend will expire on the earlier of January 1, 2007 or, on a country by
country basis, when all patents protecting Hextend in the applicable country
expire or any third party obtains certain regulatory approvals to market a
generic equivalent product in that country.
In addition to the license fees, Abbott will pay the Company a royalty on
total annual net sales of Hextend. The royalty rate will be 5% plus an
additional .22% for each $1,000,000 of annual net sales, up to a maximum royalty
rate of 36%. The royalty rate for each year will be applied on a total net sales
basis. Abbott's obligation to pay royalties on sales of Hextend will expire in
the United States or Canada when all patents protecting Hextend in the
applicable country expire and any third party obtains certain regulatory
approvals to market a generic equivalent product in that country.
The Company recognizes such revenues in the quarter in which the sales
report is received, rather than the quarter in which the sales took place, as
the Company does not have sufficient sales history to accurately predict
quarterly sales. Revenues for the year ended December 31, 2001 include royalties
on sales made by Abbott during the twelve months ended September 30, 2001.
Royalties
32
on sales made during the fourth quarter of 2001 will not be recognized by the
Company until the first quarter of fiscal year 2002. Royalties on sales made
during the quarter ended December 31, 2001 were not material to the Company's
financial results.
Deferred Tax Asset Valuation Allowance
The Company records a valuation allowance to reduce its deferred tax assets
when it is more likely than not, based upon currently available evidence and
other factors, that it will not realize some portion of, or all of, the deferred
tax assets. The Company bases its determination of the need for a valuation
allowance on an ongoing evaluation of current evidence including, among other
things, estimates of future earnings and the expected timing of deferred tax
asset reversals. The Company charges or credits adjustments to the valuation
allowance to income tax expense in the period in which these determinations are
made. If the Company determines that it would be able to realize its deferred
tax assets in the future in excess of its net recorded amount, an adjustment to
the deferred tax asset would increase income in the period this determination
was made. Likewise, if the Company determines that it would not be able to
realize all or part of its net deferred tax assets in the future, the Company
would charge to operations an adjustment to the deferred tax asset in the period
this determination was made.
Recently Issued Accounting Standards
Derivative instruments and hedging activities - On January 1, 2001, the
Company adopted Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133,
as amended, requires that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded on the balance
sheet at its fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. SFAS 133, as amended, requires that the Company
formally document, designate, and assess the effectiveness of transactions that
receive hedge accounting. The Company adopted SFAS 133, as amended, on January
1, 2001 and did not elect hedge accounting as defined by SFAS 133. The adoption
of this statement did not have a material impact on the Company's financial
position or results of operations.
Business combinations and goodwill - In June 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 141 (SFAS
141"), "Business Combinations" and Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 141 requires
that all business combinations initiated after June 30, 2001 be accounted for
under the purchase method and addresses the initial recognition and measurement
of goodwill and other intangible assets acquired in a business combination. SFAS
141 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to their acquisition. SFAS 142 provides that
intangible assets with finite useful lives be amortized and that goodwill and
intangible assets with indefinite lives will not be amortized, but will rather
be tested
33
at least annually for impairment. The Company will adopt SFAS 141 and 142 on
January 1, 2002. The adoption of this statement will not have a material impact
on the financial statements.
Impairment and disposal of long lived assets - In October 2001, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS 144 supersedes SFAS 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations - - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, " and addresses financial accounting and
reporting for the impairment of disposal of long-lived assets. The Company will
adopt SFAS 144 on January 1, 2002. The adoption of this statement will not have
a material impact on the financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company did not hold any market risk sensitive instruments as of
December 31, 2001, December 31, 2000, or December 31, 1999.
34
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Pages
-----
Independent Auditors' Report 36
Balance Sheets As of December 31, 2001 and
December 31, 2000 37
Statements of Operations For the Years Ended
December 31, 2001, December 31, 2000, and December 31, 1999
and the Period From Inception (November 30, 1990) to
December 31, 2001 38
Statements of Shareholders' Equity (Deficit) For the Years Ended
December 31, 2001, December 31, 2000, and December 31, 1999, and
the Period From Inception (November 30, 1990) to December 31, 2001 39-41
Statements of Cash Flows For the Years Ended December 31, 2001,
December 31, 2000, and December 31, 1999,
and the Period From Inception (November 30, 1990) to
December 31, 2001 42-43
Notes to Financial Statements 44-55
35
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
BioTime, Inc.:
We have audited the accompanying balance sheets of BioTime, Inc. (a development
stage company) as of December 31, 2001 and 2000, and the related statements of
operations, shareholders' equity (deficit) and cash flows for the years ended
December 31, 2001, 2000, and 1999, and the period from November 30, 1990
(inception) to December 31, 2001. These 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 conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of BioTime, Inc. as of December 31, 2001 and
2000, and the results of its operations and its cash flows for the years ended
December 31, 2001, 2000 and 1999, and the period from November 30, 1990
(inception) to December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
The Company is in the development stage as of December 31, 2001. As discussed in
Note 1 to the financial statements, successful completion of the Company's
product development program and, ultimately, the attainment of profitable
operations is dependent upon future events, including maintaining adequate
financing to fulfill its development activities, obtaining regulatory approval
for products ultimately developed, and achieving a level of revenues adequate to
support the Company's cost structure.
/s/DELOITTE & TOUCHE LLP
San Francisco, California
February 16, 2002
(March 27, 2002 as to Note 9 and the fourth paragraph of Note 1)
36
BIOTIME, INC.
(A Development Stage Company)
BALANCE SHEETS
December 31, December 31,
2001 2000
----------------- ----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,652,748 $ 1,318,338
Prepaid expenses and other current assets 109,430 122,648
----------------- ----------------
Total current assets 1,762,179 1,440,986
----------------- ----------------
EQUIPMENT, Net of accumulated depreciation of $409,331 and $352,104 167,946 226,598
DEPOSITS AND OTHER ASSETS 11,250 9,900
----------------- ----------------
TOTAL ASSETS $ 1,941,375 $ 1,677,484
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 309,347 $ 359,749
COMMITMENTS (Note 6)
DEBENTURES, net of discount of $1,618,878 1,731,122
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred Shares, no par value, undesignated as to Series,
authorized 1,000,000 shares; none outstanding in 2001 and 2000 (Note 4)
Common Shares, no par value, authorized 40,000,000 shares; issued and
outstanding shares; 11,627,316 in 2001 and 11,426,604 in 2000 (Note 4 ) 30,602,003 28,360,007
Contributed Capital 93,972 93,972
Deficit accumulated during development stage (30,795,069) (27,136,244)
----------------- ----------------
Total shareholders' equity (deficit) (99,094) 1,317,735
----------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 1,941,375 $ 1,677,484
================= ================
See notes to financial statements.
37
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Year Ended
December 31, Period from Inception
---------------------------------------- (November 30, 1990)
2001 2000 1999 to December 31, 2001
------------ ------------ ------------ --------------------
REVENUE:
License fee $ - $ - $ 1,037,500 $ 2,500,000
Royalty from product sales 151,917 52,492 - 204,409
------------ ------------ ------------ ---------------
Total revenue 151,917 52,492 - 2, 704,409
------------ ------------ ------------ ---------------
EXPENSES:
Research and development (1,685,168) (3,362,841) (4,900,521) (21,630,518)
General and administrative (1,961,342) (1,779,931) (1,896,690) (15,427,727)
------------ ------------ ------------ ---------------
Total expenses (3,646,510) (5,142,772) (6,797,211) (35,058,245)
------------ ------------ ------------ ---------------
INTEREST EXPENSE AND OTHER
INCOME:
Interest expense (278,576) - - (278,576)
Other income 114,344 165,256 279,827 1,862,174
------------ ------------ ------------ ---------------
Total interest expense and other
income (114,685) 165,256 279,827 1,633,145
------------ ------------ ------------ ---------------
NET LOSS (3,658,825) $(4,925,024)$ (5,479,884) $ (30,770,238)
============ ============ ============ ===============
BASIC AND DILUTED LOSS PER SHARE $ (0.32) (0.44) (0.51)
============ ============ ============
COMMON AND EQUIVALENT SHARES
USED IN COMPUTING PER SHARE
AMOUNTS:
BASIC AND DILUTED 11,562,108 11,042,087 10,688,100
============ ============ ============
See notes to financial statements.
38
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY
Series A Convertible Preferred
Shares Common Shares
---------------------------- ---------------------------------
Number of Number Deficit Accumulated
Shares Amount of Shares Amount Contributed Capital During Development Stage
-------------- ------------ ------------ ------------- ------------------- ------------------------
BALANCE, November 30, 1990
(date of inception) -- -- -- -- -- --
NOVEMBER 1990:
Common shares issued
for cash 1,312,758 $ 263
DECEMBER 1990:
Common shares issued for
stock of a separate entity
at fair value 1,050,210 137,400
Contributed equipment at
appraised value $ 16,425
Contributed cash 77,547
MAY 1991:
Common shares issued for
cash less offering costs 101,175 54,463
Common shares issued for
stock of a separate entity
at fair value 100,020 60,000
JULY 1991:
Common shares issued for
services performed 30,000 18,000
AUGUST-DECEMBER 1991:
Preferred shares issued for
cash less offering costs of
$125,700 360,000 $ 474,300
MARCH 1992:
Common shares issued for
cash less offering costs of
$1,015,873 2,173,500 4,780,127
Preferred shares converted
into common shares (360,000) (474,300) 360,000 474,300
Dividends declared and paid
on preferred shares $ (24,831)
MARCH 1994:
Common shares issued for
cash less offering costs
of $865,826 2,805,600 3,927,074
JANUARY-JUNE 1995:
Common shares repurchased
with cash (253,800) (190,029)
JULY 1995-JUNE 1996:
Common shares issued
for cash 608,697 1,229,670
Common shares repurchased
with cash (18,600) (12,693)
Common shares warrants
and options granted
for services 356,000
NET LOSS (8,064,471)
-------------- ------------ ------------ ------------- --------------- ---------------------
BALANCE AT JUNE 30, 1996 -- $ -- 8,269,560 $10,834,575 $ 93,972 $(8,089,302)
See notes to financial statements. (Continued)
39
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY
Series A Convertible Preferred
(Continued) Shares Common Shares
---------------------------- ---------------------------------
Number of Number Deficit Accumulated
Shares Amount of Shares Amount Contributed Capital During Development Stage
------------ --------- ----------- ------------- ------------------- ------------------------
JULY 1996 - JUNE 1997:
Common shares issued
for cash less offering
costs of $170,597 849,327 $ 5,491,583
Common shares issued
for cash (exercise of
options and warrants) 490,689 1,194,488
Common shares warrants
and options granted
for service 105,000
JULY 1997 - JUNE 1998:
Common shares issued
for cash (exercise
of options) 337,500 887,690
Common shares warrants
and options granted
for service 38,050
Common shares issued
for services 500 6,250
JULY 1998 - DECEMBER 1998:
Common shares issued
for cash (exercise of
options and warrants) 84,000 395,730
Common shares options
granted for services 50,000
Common shares issued
for services 1,500 18,750
NET LOSS (8,642,034)
------------ --------- ----------- -------------- ------------------- ----------------------
BALANCE AT DECEMBER 31,
1998 - - 10,033,076 19,022,116 93,972 (16,731,336)
Common shares issued
for cash (less offering
costs of $128,024) 751,654 7,200,602
Common shares issued
for cash and exchange
for 2,491 common shares
which were canceled
(exercise of options) 65,509 199,810
Common shares issued
for services 792 9,900
Common shares warrant
donated 552,000
Common shares issued
for cash (exercise of
warrant) 40,000 20,000
Options granted for
services 195,952
NET LOSS (5,479,884)
------------ --------- ----------- ------------- -------------------- ----------------------
BALANCE AT DECEMBER 31,
1999 - $ - 10,891,031 $27,200,380 $93,972 $(22,211,220)
See notes to financial statements. (Continued)
40
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY
Series A Convertible Preferred
(Continued) Shares Common Shares
--------------------------- -------------------------------- Deficit Accumulated
Number of Contributed During Development
Shares Amount Number of Shares Amount Capital Stage
------------- ------------ --------------- ---------------- -------------- --------------------
Common Shares issued for
services 17,661 $ 131,525
Exercise of Options 51,000 51,000
Exercise of Warrants (less
issuance cost of $36,176) 466,912 864,964
Options granted for services 112,138
NET LOSS (4,925,024)
------------- ------------ -------------- ---------------- ------------- -------------------
BALANCE AT DECEMBER
31, 2000 - $ - 11,426,604 $ 28,360,007 $ 93,972 $(27,136,244)
Common Shares issued for
services 48,890 324,169
Common Shares issued for
cash and exchanged for 9,295
common shares which were
canceled (exercise of options) 74,004 16,488
Common Shares issued for
cash (exercise of warrants) 77,818 182,872
Issuance of warrants in
connection with debt financing 1,850,716
Compensation benefit from
revaluation of warrants (132,249)
NET LOSS (3,658,825)
------------- ------------ -------------- ---------------- ------------- -------------------
BALANCE AT DECEMBER - $ - 11,627,319 $ 30,602,003 $ 93,972 $(30,795,069)
31, 2001
============= ============ ============== ================ ============= ===================
See notes to financial statements. (Concluded)
41
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Year Ended
December 31, Period from Inception
--------------------------------------------------- (November 30, 1990) to
2001 2000 1999 December 31 , 2001
--------------- ---------------- ----------------- --------------------
OPERATING ACTIVITIES:
Net loss $ (3,658,825) $ (4,925,024) $ (5,479,884) $(30,770,238)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Deferred revenue (187,500) (1,000,000)
Depreciation 63,767 75,458 59,540 415,872
Amortization of debt
discount 231,838 231,838
Cost of donation - warrants 552,000 552,000
Issuance of common shares,
options and warrants in
exchange for services 191,920 243,663 220,574 1,233,484
Supply reserves 200,000
Changes in operating assets
and liabilities:
Research and development
supplies on hand (200,000)
Prepaid expenses and
other current assets 13,218 (15,364) 31,260 (109,431)
Deposits and other assets (1,350) 50,800 (11,250)
Accounts payable and
accrued liabilities (50,402) (235,763) 358,309 309,347
Deferred revenue 1,000,000
--------------- ------------- --------------- -------------------
Net cash used in
operating activities (3,209,834) (4,857,030) (4,394,901) (28,148,378)
--------------- ------------- --------------- -------------------
INVESTING ACTIVITIES:
Sale of investments 197,400
Purchase of short-term
investments (9,946,203)
Redemption of short-term
investments 9,946,203
Purchase of equipment
and furniture (5,116) (33,402) (161,719) (567,392)
--------------- ------------- --------------- -------------------
Net cash used in
investing activities (5,116) (33,402) (161,719) (369,992)
--------------- ------------- --------------- -------------------
FINANCING ACTIVITIES:
Proceeds from issuance
of Warrants and
Debentures 2,350,000 2,350,000
Borrowings under
line of credit 1,000,000 1,000,000
Issuance of preferred
shares for cash 600,000
Preferred shares
placement costs (125,700)
Issuance of common
shares for cash 7,328,626 23,701,732
Common shares
placement costs (36,177) (128,024) (2,216,497)
Net proceeds from exercise
of common share options
and warrants 199,360 952,141 219,810 5,011,589
Contributed capital - cash 77,547
Dividends paid on
preferred shares (24,831)
Repurchase of common shares (202,722)
--------------- ------------- --------------- -------------------
Net cash provided by
financing activities $3,549,360 $915,964 $7,420,412 $30,171,118
--------------- ------------- --------------- -------------------
See notes to financial statements. (Continued)
42
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Year Ended
December 31, Period from Inception
--------------------------------------------------- (November 30, 1990) to
2001 2000 1999 December 31, 2001
--------------- ---------------- ----------------- ----------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 334,410 (3,974,466) 2,863,792 1,652,748
CASH AND CASH EQUIVALENTS:
At beginning of period 1,318,338 5,292,806 2,429,014 --
--------------- ------------- --------------- -------------------
At end of period $ 1,652,748 $ 1,318,338 $ 5,292,806 $ 1,652,748
=============== ============= =============== ===================
NONCASH FINANCING AND
INVESTING ACTIVITIES:
Receipt of contributed
equipment $ 16,425
Issuance of common shares
in exchange for shares of
common stock of Cryomedical
Sciences, Inc. in a stock-
for-stock transaction $ 197,400
Conversion of line-of-credit
to debentures $ 1,000,000 -- -- $ 1,000,000
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ -- -- -- --
Cash paid for income taxes $ -- -- -- --
See notes to financial statements. (Concluded)
43
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
General - BioTime, Inc. (the Company) was organized November 30, 1990 as a
California corporation. The Company is a biomedical organization, currently in
the development stage, which is engaged in the research and development of
synthetic plasma expanders, blood volume substitute solutions, and organ
preservation solutions, for use in surgery, trauma care, organ transplant
procedures, and other areas of medicine.
Development Stage Enterprise - Since inception, the Company has been engaged in
research and development activities in connection with the development of
synthetic plasma expanders, blood volume substitute solutions and organ
preservation products. The Company has limited operating revenues and has
incurred net losses of $30,770,238 from inception to December 31, 2001. The
successful completion of the Company's product development program and,
ultimately, achieving profitable operations is dependent upon future events
including maintaining adequate capital to finance its future development
activities, obtaining regulatory approvals for the products it develops and
achieving a level of revenues adequate to support the Company's cost structure.
The Company's operations are subject to a number of factors that can affect its
operating results and financial condition. Such factors include but are not
limited to the following: the results of clinical trials of the Company's
products; the Company's ability to obtain United States Food and Drug
Administration and foreign regulatory approval to market its products;
competition from products manufactured and sold or being developed by other
companies; the price of and demand for Company products; the Company's ability
to obtain additional financing and the terms of any such financing that may be
obtained; the Company's ability to negotiate favorable licensing or other
manufacturing and marketing agreements for its products; the availability of
ingredients used in the Company's products; and the availability of
reimbursement for the cost of the Company's products (and related treatment)
from government health administration authorities, private health coverage
insurers and other organizations.
Certain Significant Risks and Uncertainties - At December 31, 2001, BioTime had
$ 1,652,748 of cash on hand, and has implemented cost savings and expenditure
limitation measures. The Company needs additional capital and greater revenues
to continue its current operations, to begin clinical trials of PentaLyte, and
to conduct its planned product development and research programs. On March 27,
2002, the Company received a new $300,000 line of credit (see Note 9). The
Company has also retained certain investment bankers on a non-exclusive basis to
assist the Company in raising capital. However, sales of additional equity
securities could result in the dilution of the interests of present
shareholders. The Company is also continuing to seek new agreements with
pharmaceutical companies to provide product and technology licensing fees and
royalties. The availability and terms of equity financing and new license
agreements are uncertain. The unavailability or inadequacy of additional
financing or future revenues to meet capital needs could force the Company to
modify, curtail, delay or suspend some or all aspects of its planned operations.
However, management believes its existing cash and available credit are
sufficient to allow the Company to operate through December 31, 2002.
44
2. SIGNIFICANT ACCOUNTING POLICIES
Financial Statement Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses
during the reporting period. Such management estimates include certain accruals.
Actual results could differ from those estimates.
Revenue recognition - In April 1997, BioTime and Abbott Laboratories ("Abbott")
entered into an Exclusive License Agreement (the "License Agreement") under
which BioTime granted to Abbott an exclusive license to manufacture and sell
BioTime's proprietary blood plasma volume expander solution Hextend in the
United States and Canada for certain therapeutic uses.
Under the License Agreement, Abbott has paid the Company $2,500,000 of license
fees based upon achievement of specified milestones. Such fees have been
recognized as revenue as the milestones were achieved. Up to $37,500,000 of
additional license fees will be payable based upon annual net sales of Hextend
at the rate of 10% of annual net sales if annual net sales exceed $30,000,000 or
5% if annual net sales are between $15,000,000 and $30,000,000. Abbott's
obligation to pay license fees on sales of Hextend will expire on the earlier of
January 1, 2007 or, on a country by country basis, when all patents protecting
Hextend in the applicable country expire or any third party obtains certain
regulatory approvals to market a generic equivalent product in that country.
In addition to the license fees, Abbott will pay the Company a royalty on annual
net sales of Hextend. The royalty rate will be 5% plus an additional .22% for
each increment of $1,000,000 of annual net sales, up to a maximum royalty rate
of 36%. Abbott's obligation to pay royalties on sales of Hextend will expire in
the United States or Canada when all patents protecting Hextend in the
applicable country expire and any third party obtains certain regulatory
approvals to market a generic equivalent product in that country.
The Company recognizes such revenues in the quarter in which the sales report is
received, rather than the quarter in which the sales took place, as the Company
does not have sufficient sales history to accurately predict quarterly sales.
Revenues for the year ended December 31, 2001 include royalties on sales made by
Abbott during the twelve months ended September 30, 2001. Royalties on sales
made during the fourth quarter of 2001 will not be recognized by the Company
until the first quarter of fiscal year 2002. Royalties on sales made during the
quarter ended December 31, 2001 were not material to BioTime's financial
results.
Abbott has agreed that the Company may convert Abbott's exclusive license to a
non-exclusive license or may terminate the license outright if certain minimum
sales and royalty payments are not met. In order to terminate the license
outright, BioTime would pay a termination fee in an amount ranging from the
milestone payments made by Abbott to an amount equal to three times prior year
net sales, depending upon when termination occurs. Management believes that the
probability of payments of any termination fee by the Company is remote.
Cash and cash equivalents - The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Concentration of credit risk - Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist primarily of
cash and cash equivalents. The Company limits the amount of credit exposure of
cash balances by maintaining its accounts in high credit quality financial
institutions.
45
Equipment is stated at cost or, in the case of donated equipment, at fair market
value. Equipment is being depreciated using the straight-line method over a
period of thirty-six to eighty-four months.
Patent costs associated with obtaining patents on products being developed are
expensed as research and development expenses when incurred. These costs totaled
$343,501, $215,424 and $160,221 for the years ended December 31, 2001, 2000 and
1999, respectively, and cumulatively, $1,220,209 for the period from inception
(November 30, 1990) to December 31, 2001.
Research and development costs are expensed when incurred and consist
principally of salaries, payroll taxes, research and laboratory fees, hospital
and consultant fees related to clinical trials, and the Company's PentaLyte
solution for use in human clinical trials.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which prescribes 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.
Stock-based compensation - The Company grants stock options for a fixed number
of shares to employees with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for employee stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25 ("APB
25"), "Accounting for Stock Issued to Employees." The Company accounts for
stock-based awards to nonemployees in accordance with Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation" and Emerging Issues Task Force (EITF) Issue No. 96-18, "Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods, or Services."
Stock split - In October 1997, the Company effected a three-for-one split of its
common shares. All share and per share amounts have been restated to reflect the
stock split for all periods presented.
Net Loss per share - Basic net loss per share is computed by dividing net loss
available to common stockholders by the weighted-average common shares
outstanding for the period. Diluted net loss per share reflects the
weighted-average common shares outstanding plus the potential effect of dilutive
securities or contracts which are convertible to common shares such as options,
warrants, convertible debt, and preferred stock (using the treasury stock
method) and shares issuable in future periods, except in cases where the effect
would be anti-dilutive. Diluted loss per share for the years ended December 31,
2001, 2000, and 1999 exclude any effect from such securities as their inclusion
would be antidilutive.
Comprehensive Loss - Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," establishes standards for reporting and
displaying comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general-purpose financial statements. Comprehensive
loss was the same as net loss for all periods presented.
46
Fair value of financial instruments - The carrying amount of the Company's
long-term debt (debentures) approximates its fair value.
Segment information - The Company operates in the single segment of producing
aqueous based synthetic solutions used in medical applications and is currently
in the development stage of this segment.
Recently issued accounting standards
Derivative instruments and hedging activities - On January 1, 2001, the Company
adopted Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133, as
amended, requires that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded on the balance sheet at its
fair value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. SFAS 133, as amended, requires that the Company formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. The Company adopted SFAS 133, as amended, on January 1, 2001
and did not elect hedge accounting as defined by SFAS 133. The adoption of this
statement did not have a material impact on the Company's financial position or
results of operations.
Business combinations and goodwill - In June 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 141 (SFAS
141"), "Business Combinations" and Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 141 requires
that all business combinations initiated after June 30, 2001 be accounted for
under the purchase method and addresses the initial recognition and measurement
of goodwill and other intangible assets acquired in a business combination. SFAS
141 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to their acquisition. SFAS 142 provides that
intangible assets with finite useful lives be amortized and that goodwill and
intangible assets with indefinite lives will not be amortized, but will rather
be tested at least annually for impairment. The Company will adopt SFAS 141 and
142 on January 1, 2002. The adoption of this statement will not have a material
impact on the financial statements.
Impairment and disposal of long lived assets - In October 2001, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS 144 supersedes SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations - - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, " and addresses financial accounting and
reporting for the impairment of disposal of long-lived assets. The Company will
adopt SFAS 144 on January 1, 2002. The adoption of this statement will not have
a material impact on the financial statements.
47
3. LINE OF CREDIT AND DEBENTURES
During March, 2001, BioTime entered into a one year Revolving Line of Credit
Agreement (the "Credit Agreement") with Alfred D. Kingsley, an investor and
consultant to the Company, under which BioTime could borrow up to $1,000,000 for
working capital purposes at an interest rate of 10% per annum. In consideration
for making the line of credit available, the company issued to Mr. Kingsley a
fully vested warrant to purchase 50,000 common shares at an exercise price of
$8.31. The fair value of this warrant of $254,595 was determined using the
Black-Scholes pricing model with the following assumptions: contractual life of
5 years; risk-free interest rate of 5.50%; volatility of 87.55%; and no
dividends during the expected term. The fair value amount of the warrant was
recorded as deferred financing costs and was being amortized to interest expense
over the term of the Credit Agreement.
In August 2001, the company issued $3,350,000 of debentures to an investor
group. As part of the $3,350,000 debenture issuance, Mr. Kingsley agreed to
convert the $1,000,000 current outstanding balance under the Credit Agreement to
$1,000,000 of debentures and purchased an additional $500,000 of debentures for
cash. On the date of the conversion of the Credit Agreement to the debentures,
the Credit Agreement was terminated, and no additional borrowings are available
under the Credit Agreement. Interest on the debentures is payable at an annual
rate of 10% and is payable semi-annually. The principal amount of the debentures
is due on August 1, 2004. BioTime may prepay the debentures, in whole or in
part, at any time without premium or penalty. Under the terms of the debentures,
BioTime has agreed that commencing October 1, 2001, it will restrict its
quarterly cash payments for operating expenses to not more than $450,000
(excluding interest payable on the debentures) plus the amount of cash revenue
(excluding interest and dividends) it collects for the quarter. This restriction
will expire when the Company obtains at least $5,000,000 in cash through sales
of equity securities or pays off the debenture indebtedness in full. The Company
has also agreed not to pay any cash dividends on or to redeem or repurchase any
of its common shares outstanding until it has paid off the debentures in full.
Investors who purchased the debentures also received warrants to purchase a
total of 515,385 common shares at an exercise price of $6.50. The warrants
expire on August 1, 2004. The total fair value of the warrants of $1,596,124 was
determined using the Black-Scholes option pricing model with the following
assumptions: contractual life of 3 years; risk-free interest rate of 4.04%;
volatility of 88%; and no dividends during the expected term. Of the $3,350,000
of proceeds $1,596,124 was allocated to the warrants which includes the
unamortized portion ($159,122) of the fair value of the warrant issued in
connection with the Credit Agreement. The portion of the proceeds allocated to
the debentures is being accreted to interest expense over the term of the
debentures using the effective interest rate method. The Company has the right
to call the warrants for redemption at a redemption price of $0.01 per share if
the closing price of the Company's common shares equals or exceeds 150% of the
exercise price for fifteen consecutive trading days.
4. SHAREHOLDERS' EQUITY
During June 1994, the Board of Directors authorized management to repurchase up
to 200,000 of the Company's common shares at market price at the time of
purchase. A total of 90,800 shares have been repurchased and retired. No shares
have been repurchased since August 28, 1995.
During September 1995, the Company entered into an agreement for financial
advisory services with Greenbelt Corp., a corporation controlled by Alfred D.
Kingsley and Gary K. Duberstein, who are also shareholders of the Company. Under
this agreement the Company issued to the financial advisor warrants
48
to purchase 311,276 Common Shares at a price of $1.93 per share, and the Company
agreed to issue additional warrants to purchase up to an additional 622,549
Common Shares at a price equal to the greater of (a) 150% of the average market
price of the Common Shares during the three months prior to issuance and (b) $2
per share. The additional warrants were issued in equal quarterly installments
over a two year period, beginning October 15, 1995.
Greenbelt has purchased 544,730 Common Shares by exercising some of those
warrants at prices ranging from $1.93 to $2.35 per share. Greenbelt continues to
hold warrants, expiring during April and June 2002, to purchase an aggregate of
155,636 Common Shares at prices ranging from $13.75 to $15.74. The other
warrants have expired unexercised. The number of shares and exercise prices
shown have been adjusted for the Company's subscription rights distributions
during January 1997 and February 1999 and the payment of a stock dividend during
October 1997.
During September 1996, the Company entered into an agreement with an individual
to act as an advisor to the Company. In exchange for services, as defined, to be
rendered by the advisor through September 1999, the Company issued warrants,
with five year terms, to purchase 124,510 common shares at a price of $6.02 per
share. The exercise price and number of common shares for which the warrants may
be exercised are subject to adjustment to prevent dilution in the event of a
stock split, combination, stock dividend, reclassification of shares, sale of
assets, merger or similar transaction. Warrants for 77,775 common shares vested
and became exercisable and transferable when issued; warrants for the remaining
46,735 common shares vested ratably through September 1997 and became
exercisable and transferable as vesting occurred. The estimated value of the
services to be performed is $60,000 and that amount has been amortized over the
three year term of the agreement.
On February 5, 1997, the Company completed a subscription rights offering
raising $5,662,180, through the sale of 849,327 common shares.
During April 1998, the Company entered into a financial advisory services
agreement with Greenbelt Corp. The agreement provided for an initial payment of
$90,000 followed by an advisory fee of $15,000 per month that was paid
quarterly. On August 11, 2000, the Board of Directors approved the renewal and
amendment of this agreement for a period of twelve months ending March 31, 2001.
Under the amended agreement, Greenbelt Corp. received 30,000 common shares in
four quarterly installments of 7,500 shares each. On January 16, 2002, the
agreement was renewed and amended to provide for the issuance of 40,000 common
shares payable in quarterly installments of 10,000 ending on March 31, 2002.
Under the agreement, upon the request of Greenbelt Corp., the Company will file
a registration statement to register the shares for public sale. The Company
recognized $299,175 and $105,000 of stock compensation expense (general &
administrative) during the years ended December 31, 2001 and 2000, respectively,
under the agreement.
On March 9, 1999, the Company completed a subscription rights offering raising
$7,328,626, through the sale of 751,654 common shares.
On July 15, 1999, the Company established the "BioTime Endowment for the Study
of Aging and Low- Temperature Medicine" (the "Endowment") at the University of
California at Berkeley. The endowment will support the research activities of
faculty and researchers in the areas of aging and low temperature medicine. The
initial term of the Endowment shall be for ten years, and upon review, renewed
every five years
49
thereafter. The Company funded the Endowment with $65,000 in cash and a warrant
to the University to purchase 40,000 of the Company's common shares for $0.50
per share. On September 23, 1999, the University of California at Berkeley
exercised its warrant for 40,000 shares. The fair value of the warrant,
estimated to be approximately $552,000, was recognized in research and
development expenses during the year ended December 31, 1999.
5. STOCK OPTION PLAN
The Board of Directors of the Company adopted the 1992 Stock Option Plan (the
"Plan") during September 1992. The Plan was approved by the shareholders at the
1992 Annual Meeting of Shareholders on December 1, 1992. Under the Plan, as
amended, the Company has reserved 1,800,000 common shares for issuance under
options granted to eligible persons. No options may be granted under the Plan
more than ten years after the date the Plan was adopted by the Board of
Directors, and no options granted under the Plan may be exercised after the
expiration of ten years from the date of grant. Under the Plan, options to
purchase common shares may be granted to employees, directors and certain
consultants at prices not less than the fair market value at date of grant for
incentive stock options and not less than 85% of fair market value for other
stock options. These options expire five to ten years from the date of grant and
may be fully exercisable immediately, or may be exercisable according to a
schedule or conditions specified by the Board of Directors or the Option
Committee. During the years ended December 31, 2001, 2000 and 1999, employees
and directors were granted options to purchase 80,000, 48,000 and 33,000 common
shares, respectively, and non-employees were granted options to purchase 50,000,
1,500 and 63,000 shares, respectively. At December 31, 2001, 439,000 shares were
available for future grants under the Option Plan.
Options to purchase 60,000 common shares, granted to consultants in 1999, vest
upon achievement of certain milestones. At December 31, 2001, 5000 options had
vested and 55,000 had not vested. The Company is amortizing into research and
development expense the estimated fair value of such options, subject to
remeasurement at the end of each reporting period, over the period estimated to
achieve such milestones (one to two years). During 2001 the Company recorded a
benefit of $132,249 as a result of the remeasurement of such options. The
Company recorded $203,229 and $171,027 as compensation expense related to these
options during the years ended December 31, 2000 and 1999, respectively. The
Company has $112,166 in unamortized compensation expense at December 31, 2001.
The Company's estimate of compensation cost at December 31, 2001 is based on the
Black-Scholes option pricing model with the following assumptions: contractual
life of 7 years; risk-free interest rate of 5.09%; volatility of 73%; and no
dividends during the expected term.
Option activity under the Plan is as follows:
Weighted
Number of Average Exercise
Shares Price
---------------------- -----------------------
Outstanding, December 31, 1998 (440,500
exercisable at a weighted average price of $5.76) 470,500 $ 5.46
Granted (weighted average fair value of $9.52 per
share) 96,000 11.81
50
Weighted
Number of Average Exercise
Shares Price
---------------------- -----------------------
Exercised (68,000) 12.65
Canceled -- --
---------------------- -----------------------
Outstanding, December 31, 1999 (438,500
exercisable at a weighted average price of $6.33) 498,500 6.98
Granted (weighted average fair value of $7.03 per
share) 52,500 9.95
Exercised (51,000) 1.00
Canceled (30,000) 1.00
---------------------- -----------------------
Outstanding, December 31, 2000 470,000 8.34
---------------------- -----------------------
Granted (weighted average fair value of $3.81 per
share) 150,000 6.30
Exercised (60,799) 1.21
Canceled (73,500) 7.15
---------------------- -----------------------
Outstanding, December 31, 2001 485,701 8.78
---------------------- -----------------------
Additional information regarding options outstanding as of December 31, 2001 is
as follows:
Options Outstanding Options Exercisable
------------------------- ----------------------------------------
Weighted Avg.
Remaining
Range of Number Contractual Life Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding (yrs) Exercise Price Exercisable Exercise Price
- -------------------- --------------- -------------------- -------------------- --------------- ------------------
$1.13 38,701 2.42 $1.13 38,701 $1.13
4.92-8.81 153,500 4.56 6.15 153,500 6.15
9.00-13.00 274,500 2.88 10.68 219,500 10.61
18.25 19,000 0.90 18.25 19,000 18.25
--------------- ---------------
$1.0-$18.25 485,701 3.30 $8.78 430,701 $8.40
--------------- ---------------
51
Had compensation cost for employee options granted in 2001, 2000, and 1999 under
the Company's Option Plan been determined based on the fair value at the grant
dates, as prescribed in Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the Company's net loss and pro forma
net loss per share would have been as follows:
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Net Loss:
As reported $3,658,825 $4,925,024 $5,479,884
Pro forma $3,971,595 $5,103,989 $5,706,878
Basic and diluted net loss:
As reported $0.32 $0.44 $0.51
Pro forma $0.34 $0.46 $0.54
The fair value of each option grant is estimated using the Black-Scholes option
pricing model with the following assumptions during the applicable period:
2001 2000 1999
---- ---- ----
Average risk-free rate of return 4%-5% 6.72% 5.99%
Weighted average expected option life 5 years 5 years 5 years
Volatility rate 45%-60% 87.4% 84.7%
Dividend yield 0% 0% 0%
6. COMMITMENTS AND CONTINGENCIES
The Company has an employment agreement with one officer who is also a
shareholder, for a five-year term, which expires in April 2002. This agreement
provides for a base salary with annual increases. The agreement also provides
that in the event the officer's employment terminates, voluntarily or
involuntarily, after a change in control of the Company through an acquisition
of voting stock or assets, or a merger or consolidation with another corporation
or entity, the officer will be entitled to severance payments equal to the
greater of (a) 2.99 times the average annual compensation for the preceding five
years or (b) the balance of the base salary for the unexpired portion of the
term of the employment agreement. This officer/shareholder has signed an
intellectual property agreement with the Company as a condition of employment.
The Company occupies its office and laboratory facility in Berkeley, California
under a lease that will expire on March 31, 2004. The Company presently occupies
approximately 8,890 square feet of space with a
52
monthly rent of $11,024. The rent increases annually by the greater of 3% and
the increase in the local consumer price index, subject to a maximum annual
increase of 7%. Due to an increase in the local consumer price index of only
1.8% over the period defined in the lease agreement, rent will only be increased
by the minimum amount of 3% (yielding a new rent, payable beginning with the
month of April, 2002, of $11,355). Rent expense totaled $122,096, $113,600 and
$91,796 for the years ended December 31, 2001, 2000 and 1999, respectively.
7. INCOME TAXES
The primary components of the net deferred tax asset are:
Year Ended Year Ended
December 31, December 31,
2001 2000
----------------- ----------------
Deferred Tax Asset:
Net operating loss carryforwards $ 14,056,615 $ 11,938,185
Research & Development Credits 1,224,065 873,269
Other, net 81,466 (100,841)
----------------- ----------------
Total 15,362,146 12,710,613
Valuation allowance (15,362,146) (12,710,613)
----------------- ----------------
Net deferred tax asset $ -0- $ -0-
================= ================
No tax benefit has been recorded through December 31, 2001 because of the net
operating losses incurred and a full valuation allowance provided. A valuation
allowance is provided when it is more likely than not that some portion of the
deferred tax asset will not be realized. The Company established a 100%
valuation allowance for all periods presented due to the uncertainty of
realizing future tax benefits from its net operating loss carryforwards and
other deferred tax assets.
As of December 31, 2001, the Company has net operating loss carryforwards of
approximately $37,200,000 for federal and $18,000,000 for state tax purposes,
which begin to expire during fiscal years 2005 and 2001, respectively. In
addition, the Company has tax credit carryforwards for federal and state tax
purposes of $778,682 and $445,383, respectively, which will begin to expire in
2005.
Internal Revenue Code Section 382 places a limitation (the "Section 382
Limitation") on the amount of taxable income which can be offset by net
operating loss ("NOL") carryforwards after a change in control (generally
greater than 50% change in ownership) of a loss corporation. California has
similar rules. Generally, after a control change, a loss corporation cannot
deduct NOL carryforwards in excess of the Section 382 Limitation. Due to these
"change in ownership" provisions, utilization of the NOL and tax credit
53
carryforwards may be subject to an annual limitation regarding their utilization
against taxable income in future periods.
8. RELATED PARTY TRANSACTIONS
During the years ended December 31, 2000 and 1999, fees for consulting services
of $5,500 and $19,125, respectively, were paid to a member of the Board of
Directors. No consulting fees were paid to any members of the Board of Directors
during the year ended December 31, 2001.
9. SUBSEQUENT EVENTS
On March 27, 2002, BioTime entered into a new Revolving Line of Credit Agreement
(the "Credit Agreement") with Alfred D. Kingsley under which BioTime may borrow
up to $300,000 for working capital purposes. Amounts borrowed under the Credit
Agreement will be due on March 31, 2003 or when BioTime receives at least
$600,000 through the sale of capital stock, loans from other lenders, fees under
licensing agreements (excluding royalty payments), or any combination of those
sources. Interest on borrowings shall accrue at a rate of 10% per annum and is
payable with principal on the maturity date. Mandatory prepayments of principal
will be due to the extent that the Company receives funds from any one or more
of those sources in excess of $300,000 but less than $600,000.
In connection with entering into the Credit Agreement on March 27, 2002, the
Company granted Alfred D. Kingsley a warrant to purchase 30,000 shares of the
Company's common stock at $4.00 per share. The warrants are fully exercisable
and non-forfeitable on the date of grant and expire on March 26, 2007.
10. QUARTERLY RESULTS (UNAUDITED)
Summarized unaudited results of operations for each quarter of the years ended
December 31, 2001 and 2000 are as follows:
First Quarter Second Quarter Third Quarter Fourth Quarter Total Year
------------------ ------------------- ------------------- ---------------- -----------------
Fiscal Year Ended
December 31, 2001
- ---------------------------
Revenue $32,695 $29,958 $36,416 $52,848 $151,917
Net Loss $951,739 $1,120,024 $861,273 $715,280 $3,648,316
Net Loss per share $.08 $.10 $.07 $.06 $.32
54
First Quarter Second Quarter Third Quarter Fourth Quarter Total Year
------------------ ------------------- ------------------- ---------------- -----------------
Fiscal Year Ended
December 31, 2000
- ---------------------------
Revenue $5,732 $7,387 $19,592 $19,781 $52,492
Net Loss $1,319,947 $1,329,761 $1,224,955 $1,050,361 $4,925,024
Net Loss per share $.12 $.12 $.11 $.10 $.44
55
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors and Executive Officers
The names and ages of the directors and executive officers of the Company
are as follows:
Paul Segall, Ph.D., 59, is the Chairman and Chief Executive Officer and has
served as a director of the Company since 1990. Dr. Segall received a Ph.D. in
Physiology from the University of California at Berkeley in 1977.
Ronald S. Barkin, 56, served as President of BioTime from October 1997
through March 2002, after serving as Executive Vice President since April 1997.
Mr. Barkin has been a director of the Company since 1990. Before becoming an
executive officer of the Company, Mr. Barkin practiced civil and corporate law
for more than 25 years after getting a J.D. from Boalt Hall, University of
California at Berkeley.
Hal Sternberg, Ph.D., 48, is the Vice President of Research and has been a
director of the Company since 1990. Dr. Sternberg was a visiting scientist and
research Associate at the University of California at Berkeley from 1985-1988,
where he supervised a team of researchers studying Alzheimer's Disease. Dr.
Sternberg received his Ph.D. from the University of Maryland in Biochemistry in
1982.
Harold Waitz, Ph.D., 59, is the Vice President of Engineering and
Regulatory Affairs and has been a director of the Company since 1990. He
received his Ph.D. in Biophysics and Medical Physics from the University of
California at Berkeley in 1983.
Judith Segall, 48, is the Vice President of Technology and Secretary, and
has been a director of the Company from 1990 through 1994, and from 1995 through
the present date. Ms. Segall received a B.S. in Nutrition and Clinical Dietetics
from the University of California at Berkeley in 1989.
Steven A. Seinberg, J.D., 35, became Chief Financial Officer and Treasurer
during August 2001. Prior to assuming these positions, Mr. Seinberg worked for
over five years as BioTime's Director of Financial and Legal Research, a
position that involved, among other duties, contract modifications and
management of the Company's intellectual property portfolio. Mr. Seinberg
received a J.D. from Hastings College of the Law in San Francisco in 1994.
Jeffrey B. Nickel, Ph.D., 57, joined the Board of Directors of the Company
during March 1997. Dr. Nickel is the President of Nickel Consulting through
which he has served as a consultant to companies in the pharmaceutical and
biotechnology industries since 1990. Prior to starting his consulting business,
Dr. Nickel served in a number of management positions for Syntex Corporation and
Merck & Company. Dr. Nickel received his Ph.D. in Organic Chemistry from Rutgers
University in 1970.
56
Milton H. Dresner, 76, joined the Board of Directors of the Company during
February 1998. Mr. Dresner is a private investor and principal of Milton Dresner
Investments. Mr. Dresner was formerly the Co- Chairman of the Highland
Companies, a diversified organization that was engaged in the development and
ownership of residential and industrial real estate. Mr. Dresner serves as a
director of Avatar Holdings, Inc., a real estate development company, and
Childtime Learning Centers, Inc. a child care and pre-school education services
company.
Katherine Gordon, Ph.D., 47, joined the Board of Directors of the Company
during June 2001. Dr. Gordon is the Chief Executive Officer and a director of
Apollo BioPharmaceutics, Inc. (a wholly-owned subsidiary of MitoKor),a company
engaged in the research and development of drugs to treat brain cell damage and
diseases. Prior to founding Apollo in 1992, Dr. Gordon was an Associate Director
at Genzyme Corporation. Dr. Gordon obtained her Ph.D. from Wesleyan University
in 1982 and was a post-doctoral fellow at Yale University.
Executive Officers
Paul Segall, Ronald S. Barkin, Steven Seinberg, Hal Sternberg, Harold Waitz
and Judith Segall are the only executive officers of BioTime.
There are no family relationships among the directors or officers of the
Company, except that Paul Segall and Judith Segall are husband and wife.
Directors' Meetings, Compensation and Committees of the Board
The Board of Directors has an Audit Committee, the members of which are
Jeffrey Nickel, Milton Dresner, and Katherine Gordon. The purpose of the Audit
Committee is to recommend the engagement of the corporation's independent
auditors and to review their performance, the plan, scope and results of the
audit, and the fees paid to the corporation's independent auditors. The Audit
Committee also will review the Company's accounting and financial reporting
procedures and controls and all transactions between the Company and its
officers, directors, and shareholders who beneficially own 5% or more of the
Common Shares.
The Company does not have a standing Nominating Committee. Nominees to the
Board of Directors are selected by the entire Board.
The Board of Directors has a Stock Option Committee that administers the
Company's 1992 Stock Option Plan and makes grants of options to key employees,
consultants, scientific advisory board members and independent contractors of
the Company, but not to officers or directors of the Company. The members of the
Stock Option Committee are Paul Segall, Ronald S. Barkin, and Hal Sternberg. The
Stock Option Committee was formed during September 1992.
During the fiscal year ended December 31, 2001, the Board of Directors met
8 times. No director attended fewer than 75% of the meetings of the Board or any
committee on which they served.
Directors of the Company who are not employees receive an annual fee of
$20,000, which may be paid in cash or in Common Shares, at the election of the
director. Milton Dresner received 3,224 Common Shares in lieu of the cash fee
during the year ended December 31, 2001. During the year ended December 31,
2001, Katherine Gordon received options to purchase 15,000 Common Shares, and
Jeffrey Nickel and Milton Dresner each received options to purchase 10,000
Common Shares. Directors of the Company and members of
57
committees of the Board of Directors who are employees of the Company are not
compensated for serving as directors or attending meetings of the Board or
committees of the Board. Directors are entitled to reimbursements for their
out-of-pocket expenses incurred in attending meetings of the Board or committees
of the Board. Directors who are employees of the Company are also entitled to
receive compensation in such capacity.
For 2002, the Directors will receive 20,000 options exercisable at the
closing price for BioTime stock on the American Stock Exchange on the last day
of March, 2002. During this year, the Directors will not receive cash fees. Of
the 20,000 options being given, 12,500 will be fully vested and exercisable upon
grant. The remaining 7500 options will vest and become exercisable in nine equal
monthly installments based on continued service on the Board of Directors.
Executive Compensation
The Company had five-year employment agreements with Paul Segall, Chairman
and Chief Executive Officer; Judith Segall, Vice President of Technology and
Corporate Secretary; Hal Sternberg, Vice President of Research; and Harold
Waitz, Vice President of Engineering and Regulatory Affairs that expired on
December 31, 2000 and were renewed for a one-year term that ended on December
31, 2001. The Company also has an employment agreement with Ronald S. Barkin,
President, that will expire on March 31, 2002. Mr. Barkin will not continue as
President after termination of his employment agreement. The executive officers
were entitled to receive annual salaries of $163,000 for the year ended December
31, 2001, but in July, 2001 Drs. Segall, Sternberg and Waitz and Judith Segall
agreed to participate in the Company's voluntary salary reduction program. Since
these voluntary salary reductions went into effect, Dr. Segall has received a
salary of $3,000 per month and Drs. Sternberg and Waitz and Judith Segall have
easch received a salary of $6,000 per month. The Board of Directors has approved
a continuation of those reduced salaries until the Board of Director determines
that the Company is in a financial position to commit to other compensation
arrangements commensurate with each officer's experience and past performance
and prevailing compensation rates in the San Francisco Bay area.
Each executive officer has also executed an Intellectual Property Agreement
which provides that the Company is the owner of all inventions developed by the
executive officer during the course of his or her employment.
The following table summarizes certain information concerning the
compensation paid to the five most highly compensated executive officers during
the last three full fiscal years.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name and Principal Position Year Ended Salary($) Bonus Stock Options (Shares)
- --------------------------- ---------- --------- ----- ----------------------
Paul Segall December 31, 2001 $101,792
Chairman and Chief Executive Officer December 31, 2000 $163,000
December 31, 1999 $156,000
Ronald S. Barkin December 31, 2001 $163,000
President December 31, 2000 $163,000
December 31, 1999 $156,000
Hal Sternberg December 31, 2001 $115,292
58
Vice President of Research December 31, 2000 $163,000
December 31, 1999 $156,000
Harold Waitz December 31, 2001 $125,083
Vice President of Engineering December 31, 2000 $163,000
December 31, 1999 $156,000
Judith Segall December 31, 2001 $115,292
Vice President and Corporate Secretary December 31, 2000 $163,000
December 31, 1999 $156,000
Insider Participation in Compensation Decisions
The Board of Directors does not have a standing Compensation Committee.
Instead, the Board of Directors as a whole and the Audit Committee approve all
executive compensation. All of the executive officers of the Company serve on
the Board of Directors but do not vote on matters pertaining to their own
personal compensation. Paul Segall and Judith Segall do not vote on matters
pertaining to each other's compensation. None of the members of the Audit
Committee are employees of the Company.
Stock Options
Of the five most highly compensated executive officers of the Company, only
Ronald S. Barkin held any stock options during the fiscal year ended December
31, 2001. The following table certain information concerning Mr. Barkin's stock
options.
Aggregated Options Exercised in Last Fiscal Year,
and Fiscal Year-End Option Values
Number of Number of Value of Unexercised
Shares Unexercised Options at In-the-Money Options at
Acquired Value December 31, 2001 December 31, 2001
on Realized ------------------------------------ ---------------------------------
Name Exercise ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ---------- ----- ----------- ------------- ----------- -------------
Ronald S. Barkin 0 0 90,000 0 0 0
Certain Relationships and Related Transactions
During September 1995, the Company entered into an agreement for financial
advisory services with Greenbelt Corp. ("Greenbelt"), a corporation controlled
by Alfred D. Kingsley and Gary K. Duberstein, who are also shareholders of the
Company. Under this agreement the Company issued to the financial advisor
warrants to purchase 311,276 Common Shares at a price of $1.93 per share, and
the Company agreed to issue additional warrants to purchase up to an additional
622,549 Common Shares at a price equal to the greater of (a) 150% of the average
market price of the Common Shares during the three months prior to issuance and
(b) $2 per share. The additional warrants were issued in equal quarterly
installments over a two year period, beginning October 15, 1995.
59
The number of shares and exercise prices shown have been adjusted for the
Company's subscription rights distributions during January 1997 and February
1999 and the payment of a stock dividend during October 1997. Greenbelt has
purchased 544,730 Common Shares by exercising some of those warrants at prices
ranging from $1.93 to $2.35 per share. Greenbelt continues to hold warrants,
expiring during April and June 2002, to purchase an aggregate of 155,636 Common
Shares at price ranging from $13.75 to $15.74. The other warrants have expired
unexercised.
During April 1998, the Company entered into a new financial advisory
services agreement with Greenbelt. The new agreement provided for an initial
payment of $90,000 followed by an advisory fee of $15,000 per month paid
quarterly. The Company agreed to reimburse Greenbelt for all reasonable out-of-
pocket expenses incurred in connection with its engagement as financial advisor,
and to indemnify Greenbelt and its officers, affiliates, employees, agents,
assignees, and controlling person from any liabilities arising out of or in
connection with actions taken on BioTime's behalf under the agreement. The
agreement has been renewed twice and will expire on March 31, 2002, but instead
of paying cash compensation, the Company agreed to issue Greenbelt 30,000 Common
Shares in four quarterly installments of 7,500 shares each for the twelve months
ended March 31, 2001, and 40,000 Common Shares in four quarterly installments of
10,000 each for the twelve months ended March 31, 2002.
During March 2001, the Company entered into a Line of Credit Agreement with
Alfred D. Kingsley under which Mr. Kingsley agreed to lend the Company
$1,000,000. In consideration of Mr. Kingsley's agreement to provide that line of
credit, the Company issued to him a warrant to purchase 50,000 Common Shares at
an exercise price of $8.31 per share. The warrant will expire in five years. The
exercise price and number of Common Shares for which the warrant may be
exercised are subject to adjustment to prevent dilution in the event of a stock
split, combination, stock dividend, reclassification of shares, sale of assets,
merger or similar transaction.
During August 2001, the Company received loans of $3,350,000 through the
sale of debentures to a group of private investors, including Mr. Kingsley, who
purchased $1,500,000 of debentures, and Milton Dresner, a director of the
Company. Mr. Kingsley's investment included the conversion of the $1,000,000
principal balance of the line of credit that he had previously provided.
Interest on the debentures is payable at an annual rate of 10% and is
payable semiannually. The principal amount of the debentures will be due and
payable on August 1, 2004. BioTime may prepay the debentures, in whole or in
part, at any time without premium or penalty. Under the terms of the debentures,
BioTime has agreed that commencing October 1, 2001 it will restrict its
quarterly cash payments for operating expenses to not more than $450,000
(excluding interest payable on the debentures) plus the amount of cash revenues
(excluding interest and dividends) it collects for the quarter. To the extent
BioTime's expenditures during any quarter are less than $450,000 over its
revenues, it may expend the difference in one or more subsequent quarters. That
restriction will expire when BioTime obtains at least $5,000,000 in cash through
sales of equity securities or pays off the debenture indebtedness in full. For
this purpose, cash revenues will include royalties, license fees, and other
proceeds from the sale or licensing of its products and technology, but will not
include interest, dividends, and any monies borrowed or the proceeds from the
issue or sale of any debt or equity securities. BioTime has also agreed not to
declare or pay any cash dividends on its capital stock or to redeem or
repurchase any shares of its capital stock, until it has paid off the debenture
indebtedness in full.
60
Investors who purchased the debentures also received warrants to purchase a
total of 515,383 common shares at an exercise price of $6.50 per share. The
warrants will expire if not exercised by August 1, 2004. The Company has the
right to call the warrants for redemption at a redemption price of $0.01 per
share if the closing price of the Company's Common Shares on the American Stock
Exchange equals or exceeds 150% of the exercise price for fifteen (15)
consecutive trading days and the shares issuable upon the exercise of the
warrants have been registered for sale under the Securities Act of 1933, as
amended (the "Act").
The Company has registered for sale under the Act, the warrants and Common
Shares described above, including Common Shares that may be issued upon the
exercise of the warrants or in installments under the financial advisory
agreement. The Company also included in the registration 300,000 Common Shares
the Mr. Kingsley acquired during December 2000 from certain BioTime officers and
directors. The Company paid the expenses of registration, but will not be
obligated to pay any underwriting discounts or commissions that may be incurred
by Greenbelt, Mr. Kingsley, or Mr. Dresner in connection with any sale of the
warrants or Common Shares.
During March 2002, the Company entered into a new Credit Agreement with
Alfred D. Kingsley. In consideration of Mr. Kingsley's agreement to provide that
line of credit, the Company issued to him a warrant to purchase 30,000 Common
Shares at an exercise price of $4.00 per share. The warrant will expire in five
years. The exercise price and number of Common Shares for which the warrant may
be exercised are subject to adjustment to prevent dilution in the event of a
stock split, combination, stock dividend, reclassification of shares, sale of
assets, merger, or similar transaction. The Company has agreed to register the
shares issuable under the warrant for sale under the Act, upon request, on
substantially the same terms as the registration of the warrants issued under
the Company's consulting agreement with Greenbelt.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The following table sets forth information as of March 1, 2002 concerning
beneficial ownership of Common Shares by each shareholder known by the Company
to be the beneficial owner of 5% or more of the Company's Common Shares, and the
Company's executive officers and directors. Information concerning certain
beneficial owners of more than 5% of the Common Shares is based upon information
disclosed by such owners in their reports on Schedule 13D or Schedule 13G.
Number of Percent of
Shares Total
------ -----
Alfred D. Kingsley (1)
Gary K. Duberstein
Greenbelt Corp.
Greenway Partners, L.P.
Greenhouse Partners, L.P.
909 Third Avenue, 30th Floor
New York, New York 10022 2,015,252 16.4%
Paul and Judith Segall (2) 645,408 5.6%
61
Harold D. Waitz (3) 424,166 3.6%
Hal Sternberg 214,907 1.8%
Ronald S. Barkin (4) 176,861 1.5%
Steven Seinberg(5) 24,000 *
Jeffrey B. Nickel (6) 45,000 *
Milton H. Dresner (7) 70,206 *
Katherine Gordon (8) 15,000 *
All officers and directors
as a group (9 persons)(9) 1,615,548 13.6%
- ---------------------------
* Less than 1%
(1) Includes 155,636 Common Shares issuable upon the exercise of certain
warrants owned beneficially by Greenbelt Corp, 674,460 Common Shares owned
by Greenbelt Corp., 90,750 Common Shares owned by Greenway Partners, L.P.,
772,742 Common Shares owned solely by Alfred D. Kingsley, 310,769 Common
Shares issuable upon the exercise of certain warrants owned solely by Mr.
Kingsley, and 10,895 Common Shares owned solely by Gary K. Duberstein.
Alfred D. Kingsley and Gary K. Duberstein control Greenbelt Corp. and may
be deemed to beneficially own the warrants and shares that Greenbelt Corp.
beneficially owns. Greenhouse Partners, L.P. is the general partner of
Greenway Partners, L.P., and Mr. Kingsley and Mr. Duberstein are the
general partners of Greenhouse Partners, L.P. Greenhouse Partners, L.P.,
Mr. Kingsley, and Mr. Duberstein may be deemed to beneficially own the
shares that Greenway Partners, L.P. owns. Mr. Duberstein disclaims
beneficial ownership of the shares and warrants owned solely by Mr.
Kingsley, and Mr. Kingsley disclaims beneficial ownership of the shares
owned solely by Mr. Duberstein.
(2) Includes 443,245 shares held of record by Paul Segall and 202,163 shares
held of record by Judith Segall.
(3) Includes 2,100 shares held for the benefit of Dr. Waitz's minor children.
(4) Includes 90,000 Common Shares issuable upon the exercise of certain
options.
(5) Includes 24,000 Common Shares issuable upon the exercise of certain
options.
(6) Includes 45,000 Common Shares issuable upon the exercise of certain
options.
(7) Includes 30,000 Common Shares issuable upon the exercise of certain stock
options, and 15,384 Common Shares issuable upon the exercise of certain
warrants. Does not include Common Shares that Mr. Dresner may acquire in
lieu of cash payment of his director's fees.
62
(8) Includes 15,000 Common Shares issuable upon the exercise of certain
options.
(9) Includes 219,384 Common Shares issuable upon the exercise of certain
options and warrants.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers and
persons who own more than ten percent (10%) of a registered class of the
Company's equity securities to file with the Securities and Exchange Commission
(the "SEC") initial reports of ownership and reports of changes in ownership of
Common Shares and other equity securities of the Company. Officers, directors
and greater than ten percent beneficial owners are required by SEC regulation to
furnish the Company with copies of all reports they file under Section 16(a).
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were complied
with during the fiscal year ended December 31, 2001, except that Steven
Seinberg, Chief Financial Officer, was late in filing a Form 3 and a Form 4.
63
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a-1) Financial Statements.
The following financial statements of BioTime, Inc. are filed in the Form 10-K:
Page
----
Independent Auditors' Report 36
Balance Sheets As of December 31, 2001
and December 31, 2000 37
Statements of Operations For the
Years Ended December 31, 2001,
December 31, 2000 and December 31, 1999,
and the Period From Inception
(November 30, 1990) to December 31, 2001 38
Statements of Shareholders' Equity For the
Years Ended December 31, 2001, December 31, 2000 and
December 31, 1999, and the Period From Inception
(November 30, 1990) to December 31, 2001 39-41
Statements of Cash Flows For the
Years Ended December 31, 2001, December 31, 2000 and
December 31, 1999, and the Period From Inception
(November 30, 1990) to December 31, 2001 42-43
Notes to Financial Statements 44-55
(a-2) Financial Statement Schedules
All schedules are omitted because the required information is inapplicable or
the information is presented in the financial statements or the notes thereto.
(a-3) Exhibits.
64
Exhibit
Numbers Description
- ------- -----------
3.1 Articles of Incorporation, as Amended.+
3.3 By-Laws, As Amended.#
4.1 Specimen of Common Share Certificate.+
10.1 Lease Agreement dated July 1, 1994 between the Registrant and Robert
and Norah Brower, relating to principal executive offices of the
Registrant.*
10.2 Intellectual Property Agreement between the Company and Paul Segall.+
10.3 Intellectual Property Agreement between the Company and Hal Sternberg.+
10.4 Intellectual Property Agreement between the Company and Harold Waitz.+
10.5 Intellectual Property Agreement between the Company and Judith Segall.+
10.6 Intellectual Property Agreement between the Company and Steven
Seinberg.**
10.7 Agreement between CMSI and BioTime Officers Releasing Employment
Agreements, Selling Shares, and Transferring Non-Exclusive License.+
10.8 Agreement for Trans Time, Inc. to Exchange CMSI Common Stock for
BioTime, Inc. Common Shares.+
10.9 1992 Stock Option Plan, as amended.##
10.10 Intellectual Property Agreement between the Company and Ronald S.
Barkin.^
10.11 Addenda to Lease Agreement between the Company and Donn Logan.++
10.12 Exclusive License Agreement between Abbott Laboratories and BioTime,
Inc. (Portions of this exhibit have been omitted pursuant to a request
for confidential treatment).###
10.13 Modification of Exclusive License Agreement between Abbott Laboratories
and BioTime, Inc. (Portions of this exhibit have been omitted pursuant
to a request for confidential treatment).^^^
10.14 Revolving Line of Credit Agreement, dated March 27, 2001, between
BioTime, Inc. and Alfred D. Kingsley+++
10.15 Warrant Agreement, dated March 27, 2001, between BioTime, Inc. and
Alfred D.Kingsley+++
10.16 Form of Series 2001-A 10% Debenture due August 1, 2004++++
10.17 Warrant Agreement between BioTime, Inc. and Purchasers of Series 2001-A
Debentures++++
10.18 Revolving Line of Credit Agreement, dated March 27, 2002, between
BioTime, Inc. and Alfred D. Kingsley**
65
10.19 Warrant Agreement, dated March 27, 2002, between BioTime, Inc. and
Alfred D. Kingsley**
23.1 Consent of Deloitte & Touche LLP**
+ Incorporated by reference to the Company's Form 10-K for the fiscal year
ended June 30, 1998.
+ Incorporated by reference to Registration Statement on Form S-1, File
Number 33-44549 filed with the Securities and Exchange Commission on
December 18, 1991, and Amendment No. 1 and Amendment No. 2 thereto filed
with the Securities and Exchange Commission on February 6, 1992 and March
7, 1992, respectively.
# Incorporated by reference to Registration Statement on Form S-1, File
Number 33-48717 and Post- Effective Amendment No. 1 thereto filed with the
Securities and Exchange Commission on June 22, 1992, and August 27, 1992,
respectively.
* Incorporated by reference to the Company's Form 10-K for the fiscal year
ended June 30, 1994.
++ Incorporated by reference to the Company's Form 10-K for the fiscal year
ended June 30, 1996.
^ Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 1997.
## Incorporated by reference to Registration Statement on Form S-8, File
Number 333-30603 filed with the Securities and Exchange Commission on July
2, 1997.
^^ Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 1999.
### Incorporated by reference to the Company's Form 8-K, filed April 24, 1997.
^^^ Incorporated by reference to the Company's Form 10-Q for the quarter ended
June 30, 1999.
++ Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1999.
+++ Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 2000.
++++ Incorporated by reference to the Company's Form 10-Q for the quarter ended
June 30, 2001.
** Filed herewith.
(b) Reports on Form 8-K
The Company did not file any reports of Form 8-K for the three months ended
December 31, 2001.
66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized on the
29th day of March 2002.
BIOTIME, INC.
By: /s/Paul E. Segall
-----------------------------
Paul E. Segall, Ph.D.
Chairman and Chief Executive
Officer (Principal executive
officer)
Signature Title Date
--------- ----- ----
/s/Paul E. Segall
- -----------------------------
Paul E. Segall, Ph.D. Chairman, Chief Executive Officer and March 29, 2002
Director (Principal Executive Officer)
- -----------------------------
Ronald S. Barkin President and Director March 29, 2002
/s/Harold D. Waitz
- -----------------------------
Harold D. Waitz, Ph.D. Vice President and Director March 29, 2002
- -----------------------------
Hal Sternberg, Ph.D. Vice President and Director March 29, 2002
/s/Steven Seinberg
- -----------------------------
Steven Seinberg Chief Financial Officer March 29, 2002
(Principal Financial and
Accounting Officer)
/s/Judith Segall
- -----------------------------
Judith Segall Vice President, Corporate Secretary March 29, 2002
and Director
/s/Jeffrey B. Nickel
- -----------------------------
Jeffrey B. Nickel Director March 29, 2002
/s/Milton H. Dresner
- -----------------------------
Milton H. Dresner Director March 29, 2002
- -----------------------------
Katherine Gordon Director March 29, 2002
67
Exhibit Index
Exhibit
Numbers Description
- ------- -----------
3.1 Articles of Incorporation, as Amended.+
3.3 By-Laws, As Amended.#
4.1 Specimen of Common Share Certificate.+
10.1 Lease Agreement dated July 1, 1994 between the Registrant and Robert
and Norah Brower, relating to principal executive offices of the
Registrant.*
10.2 Intellectual Property Agreement between the Company and Paul Segall.+
10.3 Intellectual Property Agreement between the Company and Hal Sternberg.+
10.4 Intellectual Property Agreement between the Company and Harold Waitz.+
10.5 Intellectual Property Agreement between the Company and Judith Segall.+
10.6 Intellectual Property Agreement between the Company and Steven
Seinberg.**
10.7 Agreement between CMSI and BioTime Officers Releasing Employment
Agreements, Selling Shares, and Transferring Non-Exclusive License.+
10.8 Agreement for Trans Time, Inc. to Exchange CMSI Common Stock for
BioTime, Inc. Common Shares.+
10.9 1992 Stock Option Plan, as amended.##
10.10 Intellectual Property Agreement between the Company and Ronald S.
Barkin.^
10.11 Addenda to Lease Agreement between the Company and Donn Logan.++
10.12 Exclusive License Agreement between Abbott Laboratories and BioTime,
Inc. (Portions of this exhibit have been omitted pursuant to a request
for confidential treatment).###
10.13 Modification of Exclusive License Agreement between Abbott Laboratories
and BioTime, Inc. (Portions of this exhibit have been omitted pursuant
to a request for confidential treatment).^^^
10.14 Revolving Line of Credit Agreement dated March 27, 2001, between
BioTime, Inc. and Alfred D. Kingsley+++
10.15 Warrant Agreement dated March 27, 2001, between BioTime, Inc. and
Alfred D. Kingsley+++
10.16 Form of Series 2001-A 10% Debenture due August 1, 2004++++
10.17 Warrant Agreement between BioTime, Inc. and Purchasers of Series 2001-A
Debentures++++
10.18 Revolving Line of Credit Agreement dated March 27, 2002, between
BioTime, Inc. and Alfred D. Kingsley**
10.19 Warrant Agreement dated March 27, 2002, between BioTime, Inc. and
Alfred D. Kingsley**
23.1 Consent of Deloitte & Touche LLP**
68
+ Incorporated by reference to the Company's Form 10-K for the fiscal year
ended June 30, 1998.
+ Incorporated by reference to Registration Statement on Form S-1, File
Number 33-44549 filed with the Securities and Exchange Commission on
December 18, 1991, and Amendment No. 1 and Amendment No. 2 thereto filed
with the Securities and Exchange Commission on February 6, 1992 and March
7, 1992, respectively.
# Incorporated by reference to Registration Statement on Form S-1, File
Number 33-48717 and Post- Effective Amendment No. 1 thereto filed with the
Securities and Exchange Commission on June 22, 1992, and August 27, 1992,
respectively.
* Incorporated by reference to the Company's Form 10-K for the fiscal year
ended June 30, 1994.
++ Incorporated by reference to the Company's Form 10-K for the fiscal year
ended June 30, 1996.
^ Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 1997.
## Incorporated by reference to Registration Statement on Form S-8, File
Number 333-30603 filed with the Securities and Exchange Commission on July
2, 1997.
^^ Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 1999.
### Incorporated by reference to the Company's Form 8-K, filed April 24, 1997.
^^^ Incorporated by reference to the Company's Form 10-Q for the quarter ended
June 30, 1999.
++ Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1999.
+++ Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 2000.
++++ Incorporated by reference to the Company's Form 10-Q for the quarter ended
June 30, 2001.
** Filed herewith.
69