FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 (IRS Employer
of incorporation or organization) Identification No.)
935 Pardee Street
Berkeley, California 94710
(Address of principal executive offices)
(510) 845-9535
(Registrant's telephone number, including area code)
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 9,830,079 common
shares, no par value, as of November 12, 1997.
1
<PAGE>
PART 1--FINANCIAL INFORMATION
Item 1. Financial Statements
BIOTIME, INC,
(A Development Stage Company)
<TABLE>
CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
September 30, June 30,
ASSETS 1997 1997
-------------- ---------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 7,370,991 $ 7,811,634
Research & development supplies on hand 50,000 100,000
Prepaid expenses and other current assets 87,143 259,109
-------------- ---------------
Total current assets 7,508,134 8,170,743
EQUIPMENT, Net of accumulated depreciation of $150,355 and $139,241 112,559 92,609
OTHER ASSETS 29,422 34,422
-------------- ---------------
TOTAL ASSETS $ 7,650,115 $ 8,297,774
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 178,290 $ 249,168
Accrued compensation 125,000 175,000
Deferred revenue - current portion 900,000 900,000
-------------- ---------------
Total current liabilities 1,203,290 1,324,168
DEFERRED REVENUE 312,500 437,500
-------------- ---------------
Total liabilities 1,515,790 1,761,668
-------------- ---------------
COMMITMENTS
SHAREHOLDERS' EQUITY:
Preferred Shares, no par value, undesignated as to Series,
authorized 1,000,000 shares; none outstanding
Common Shares, no par value, authorized 25,000,000 shares; issued
and outstanding 9,798,579 and 9,609,579 18,206,486 17,625,646
Contributed Capital 93,972 93,972
Deficit accumulated during development stage (12,166,133) (11,183,512)
-------------- ---------------
Total shareholders' equity 6,134,325 6,536,106
-------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,650,115 $ 8,297,774
============== ===============
<FN>
See notes to condensed financial statements.
</FN>
</TABLE>
2
<PAGE>
BIOTIME, INC.
(A Development Stage Company)
<TABLE>
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Period from Inception
September 30, (November 30, 1990)
1997 1996 to September 30, 1997
------------ ------------ -------------------------
<S> <C> <C> <C>
REVENUE:
License fee $ 125,000 $ 187,500
------------ ------------ -----------------
EXPENSES:
Research and development $ (678,272) $ (432,166) $ (7,587,625)
General and administrative (505,494) (306,353) (5,735,815)
------------ ------------ -----------------
Total expenses (1,183,766) (738,519) (13,323,440)
------------ ------------ -----------------
INTEREST AND OTHER INCOME 76,145 20,163 994,638
------------ ------------ -----------------
NET LOSS $ (982,621) $ (718,356) $ (12,141,302)
============ ============ =================
NET LOSS PER SHARE $ ( .10) $ ( .09) $ (1.89)
============ ============ =================
SHARES USED IN
<CAPTION>
PER SHARE COMPUTATION 9,640,394 8,324,508 6,425,875
============ ============ =================
<FN>
See notes to condensed financial statements.
</FN>
</TABLE>
3
<PAGE>
BIOTIME, INC.
(A Development Stage Company)
<TABLE>
STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Series A Convertible Deficit
Preferred Shares Common Shares Accumulated
---------------------- --------------------- During
Number of Number Contributed Development
Shares Amount of Shares Amount Capital Stage
--------- --------- ---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, November 30, 1990
(date of inception) -- -- -- -- -- --
NOVEMBER 1990
Common shares issued for cash 1,312,761 $ 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
NET LOSS SINCE INCEPTION (3,721,389)
--------- --------- ---------- ---------- --------- -----------
BALANCE AT JUNE 30, 1994 -- $ -- 7,933,266 9,451,627 $ 93,972 $ 3,746,220)
<FN>
See notes to condensed financial statements. (Continued)
</FN>
</TABLE>
4
<PAGE>
BIOTIME, INC.
(A Development Stage Company)
<TABLE>
STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Series A Convertible Deficit
Preferred Shares Common Shares Accumulated
-------------------- ----------------------- During
Number of Number of Contributed Development
Shares Amount Shares Amount Capital Stage
--------- --------- ----------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1994 -- $ -- 7,933,266 $9,451,627 $ 93,972 $ (3,746,220)
Common shares repurchased
with cash (253,800) (190,029)
NET LOSS (2,377,747)
--------- --------- --------- --------- -------- -------------
BALANCE AT JUNE 30, 1995 -- $ -- 7,679,466 $9,261,598 $ 93,972 $ (6,123,967)
Common shares issued for
cash (exercise of options and warrants) 496,521 1,162,370
Common shares issued for cash
(lapse of recision) 112,176 67,300
Common shares repurchased
with cash (18,600) (12,693)
Common shares warrants and options
granted for services -- 356,000
NET LOSS (1,965,335)
--------- --------- --------- ---------- -------- -------------
BALANCE AT JUNE 30, 1996 -- $ -- 8,269,563 $10,834,575 $ 93,972 $ (8,089,302)
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
NET LOSS (3,094,210)
--------- --------- --------- --------- -------- -------------
BALANCE AT JUNE 30, 1997 -- $ -- 9,609,579 $17,625,646 $ 93,972 $ (11,183,512)
Common Shares issued for cash
(exercise of options) 189,000 580,840
NET LOSS (982,621)
--------- --------- --------- --------- -------- -------------
BALANCE AT SEPTEMBER 30, 1997 -- $ -- 9,798,579 $18,206,486 $ 93,972 $(12,166,133)
========= ========= ========= ========= ======== =============
<FN>
See Notes to condensed financial statements. (Concluded)
</FN>
</TABLE>
5
<PAGE>
BIOTIME, INC.
(A Development Stage Company)
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended Period from Inception
September 30, (November 30, 1990)
1997 1996 to September 30, 1997
----------- ----------- ---------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (982,621) $ (718,356) $(12,141,302)
Adjustments to reconcile net loss to net
cash used in operating activities:
Deferred Revenue (125,000) -- (187,500)
Depreciation 11,112 10,124 150,353
Cost of Services - options and warrants 12,525 70,413 451,481
Supply Reserves 50,000 150,000
Changes in operating assets and liabilities:
Research and development supplies on hand -- -- (200,000)
Prepaid expenses and other current
assets 159,441 -- (47,421)
Deposits 5,000 9,615 (29,422)
Accounts payable (70,878) 44,362 178,290
Accrued compensation (50,000) -- 125,000
Deferred revenue -- -- 1,400,000
----------- ---------- ------------
Net cash used in operating activities (990,421) (583,842) (10,150,521)
----------- ---------- ------------
INVESTING ACTIVITIES:
Sale of investments -- -- 197,400
Purchase of short-term investments -- -- (9,946,203)
Redemption of short-term investments -- -- 9,934,000
Purchase of equipment and furniture (31,062) -- (246,487)
----------- ---------- ------------
Net cash used in investing activities (31,062) -- (61,290)
----------- ---------- ------------
FINANCING ACTIVITIES:
Issuance of preferred shares for cash -- -- 600,000
Preferred shares placement costs -- -- (125,700)
Issuance of common shares for cash -- -- 16,373,106
Net proceeds from exercise of common share options
and warrants 580,840 159,865 2,937,698
Common shares placement costs -- -- (2,052,296)
Contributed capital - cash -- -- 77,547
Dividends paid on preferred shares -- -- (24,831)
Repurchase Common Shares -- -- (202,722)
----------- ---------- ------------
Net cash provided by (used in) financing activities 580,840 159,865 17,582,802
----------- ---------- ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (440,643) (423,977) 7,370,991
CASH AND CASH EQUIVALENTS:
At beginning of period 7,811,634 2,443,121 --
----------- ---------- ------------
At end of period $ 7,370,991 $ 2,019,144 $ 7,370,991
=========== ========== ============
<FN>
See notes to condensed financial statements. (Continued)
</FN>
</TABLE>
6
<PAGE>
BIOTIME, INC.
(A Development Stage Company)
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended Period from Inception
September 30, (November 30, 1990)
1997 1996 to September 30, 1997
----------- ----------- -----------------------
<S> <C> <C> <C>
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
Granting of options and warrants for services $ 85,000 $ 479,000
<FN>
See notes to condensed financial statements. (Concluded)
</FN>
</TABLE>
7
<PAGE>
BIOTIME, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. GENERAL AND DEVELOPMENT STAGE ENTERPRISE
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.
Certain Significant Risks and Uncertainties - 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.
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 ("FDA") 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 any Company products that are ultimately sold; 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.
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 not had any
significant operating revenues and has incurred operating losses of
$12,141,302 from inception to September 30, 1997. 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 sales adequate to support the
Company's cost structure.
8
<PAGE>
2. RECENTLY ISSUED ACCOUNTING STANDARDS
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS 128). The Company is required to adopt SFAS 128 in the
second quarter of fiscal 1998 and will restate at that time earnings
per share (EPS) data for prior periods to conform with SFAS 128.
Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a
dual presentation of basic and diluted EPS. Basic EPS excludes dilution
and is computed by dividing net income available to common shareholders
by the weighted average number of common shares outstanding during the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common shares were exercised or
converted to common shares.
If SFAS 128 had been in effect during the current and prior periods,
basic EPS and diluted EPS would not have been significantly different
than primary EPS and fully diluted EPS currently reported for the
period. Fully diluted EPS, as with diluted EPS, is not reported for the
current and prior periods due to its antidilutive affect on EPS.
During June 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," which requires that an enterprise report the
change in its net assets from nonowner sources by major components and
as a single total. The Board also issued Statements of Financial
Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and
interim reporting standards for an enterprise's operating segments and
related disclosures about its products, services, geographic areas, and
major customers. Adoption of these statements will not impact the
Company's consolidated financial position, results of operations or
cash flows, and any effect will be limited to the form and content of
its disclosures. Both statements are effective for fiscal years
beginning after December 15, 1997, with earlier application permitted.
3. SHAREHOLDERS' EQUITY
In 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
120,000 common shares at a price of $6.25 per share. Warrants for
75,000 common shares vested and became exercisable and transferable
when issued; warrants for the remaining 45,000 common shares vest
ratably through September 1997 and become exercisable and transferable
as vesting occurs. The estimated value of the services to be performed
is $60,000 and that amount has been capitalized and is being amortized
over the three year term of the agreement.
9
<PAGE>
During September 1995, the Company entered into an agreement with a
firm to act as its financial advisor. In exchange for financial
consulting services associated in part with a plan to secure additional
capital, the Company issued to the financial advisor warrants to
purchase 300,000 common shares at a price of $2 per share, and the
Company agreed to issue additional warrants to purchase up to an
additional 600,000 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 grant or (b) $2 per share. The additional warrants were
issued in equal quarterly installments over a two year period,
beginning October 15, 1995. The warrants are exercisable at the
following prices: 450,000 at a price of $2 per share, 75,000 at a price
of $2.44 per share, 75,000 at a price of $10.01 per share, 75,000 at a
price of $9.78 per share, 75,000 at a price of $10.88 per share, 75,000
at a price of $16.34 per share, and 75,000 at a price of $14.26 per
share. The total value of these 900,000 warrants at the agreement date,
estimated to be $300,000, was capitalized in fiscal 1996 and is being
amortized over the two year term of the agreement.
The Board of Directors of the Company adopted the 1992 Stock Option
Plan (the "Plan") in September 1992, which 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 nonstatutory 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. At September 30, 1997, 651,000 shares were available
for future grants under the Option Plan; and 651,000 shares have been
granted at exercise prices ranging from $0.66 to $10.33.
In June 1994, the Board of Directors authorized management to
repurchase up to 600,000 of the Company's common shares at market price
at the time of purchase. As of June 30, 1997, 272,400 shares have been
repurchased and retired. No shares have been repurchased since August
28, 1995.
4. LICENSE AGREEMENT
In April 1997, BioTime and Abbott Laboratories ("Abbott") entered into
an Exclusive License Agreement (the "License Agreement") under which
BioTime has 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.
10
<PAGE>
Under the License Agreement, Abbott has agreed to pay the Company up to
$40,000,000 in license fees; of which $1,000,000 due upon signing of
the License Agreement (the "signing payment"), and $400,000 due upon
the achievement of a patent claims milestone (the "patent payment")
have been received; an additional $1,100,000 will become payable in
installments upon the achievement of specific milestones (the
"milestone payments") pertaining to the filing and approval of a New
Drug Application for Hextend and the commencement of sales of the
product. 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 $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.
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. Abbott's exclusive license also
may terminate, without the payment of termination fees by the Company,
if Abbott fails to market Hextend. Management believes that the
probability of payments of any termination fee by the Company is
remote.
As of September 30, 1997, the Company received $1,400,000 from Abbott
under the License Agreement, and has deferred recognition of
$1,212,500. The Company will recognize the signing payment over the
estimated development period (two years) and the patent payment when
the related patent has been issued. Further milestone payments will be
recognized as achieved. Additional license fees and royalty payments
will be recognized as the related sales are made and reported as earned
to the Company by Abbott.
5. STOCK SPLIT
On October 30, 1997, the Company effected a three-for-one stock split
by distributing to its shareholders of record on October 9, 1997 two
additional shares for each share owned by them. All share and per share
data have been restated to reflect the stock split for all periods
presented herein.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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 product development activities. The Company has not
yet generated significant operating revenues, and as of September 30, 1997 the
Company had incurred a cumulative net loss of $12,141,302.
Most of the Company's research and development efforts have been
devoted to the development of the Company's first three blood volume replacement
products: Hextend(R), PentaLyte(R), and HetaCool(TM). The Company has completed
all the surgical procedures for its Phase III clinical trials of Hextend, its
proprietary blood plasma volume expander. The Phase III trials were designed to
test whether Hextend can be used to treat hypovolemia (loss of blood volume) by
adequately maintaining blood pressure and volume during high blood loss surgery.
A 28 day follow-up period has been completed for each patient. The case report
forms for each patient in the study, containing data gathered during the trial
which will be used to evaluate the safety and efficacy of Hextend, are being
reviewed.
The data gathered during the trial will be transferred to a computer
file which will be used in a statistical evaluation of the trial results. The
code which determined whether each patient received Hextend or the control
solution will then be broken, and the analysis of the data will begin. It is
expected that this process will be initiated, and certain results regarding the
outcome of the study, will be available to the Company before the end of
calendar year 1997.
In July 1997, the Company began a clinical trial of Hextend using human
volunteers at Middlesex Hospital in London, England. All human testing has been
completed and the results of that trial are being analyzed and will be used in
the design of multinational trials aimed at expanding indications for the use of
Hextend and obtaining regulatory approval.
Additional studies are being designed for new products under
development, including PentaLyte and HetaCool, and to assess the safety and
efficacy of Hextend in other surgical and medical applications.
Hextend, PentaLyte and HetaCool are similar formulations, except that
Hextend and HetaCool use a high molecular weight hetastarch whereas PentaLyte
uses a lower molecular weight 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 a blood substitute
for low temperature surgery is needed or where the patient's ability to
regenerate his own blood proteins after surgery is compromised. PentaLyte, with
pentastarch, would be eliminated from the blood faster
12
<PAGE>
than Hextend and HetaCool and might be used when less plasma expander is needed
or where the patient is more capable of quickly regenerating lost blood
proteins. By testing and bringing both Hextend and PentaLyte to the market,
BioTime can increase its market share by providing the medical community with
solutions to match patients' needs.
In order to commence clinical trials of new products and certain 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 Hextend. The cost of preparing those IND
filings and conducting those clinical trials is not presently determinable, but
could be substantial. It may be necessary for the Company to obtain additional
financing in order to complete any clinical trials that may begin for its new
products or for new uses of Hextend.
On April 23, 1997, BioTime and Abbott Laboratories entered into a
License Agreement under which BioTime has 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, or the
replacement of substantially all of a patient's circulating blood volume.
BioTime has retained all rights to manufacture, sell or license Hextend and
other products in all other countries.
Under the License Agreement, Abbott has agreed to pay BioTime up to
$40,000,000 in license fees based upon product sales and the achievement of
certain milestones, and to provide assistance to BioTime in connection with the
Company's Phase III clinical trials of Hextend. In addition to the license fees,
Abbott will pay BioTime a royalty on 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%. 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 also agreed to manufacture Hextend for sale by BioTime in
the event that Abbott's exclusive license is terminated prior to expiration.
The Company and a number of overseas and multinational pharmaceutical
companies are discussing licenses to manufacture and market Hextend and other of
BioTime products. Representatives of certain of those companies have made
arrangements to meet with the Company in the United States to continue
discussions regarding manufacturing and marketing rights in Europe and Japan.
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 losses from operations
will continue to be incurred for the foreseeable future.
13
<PAGE>
Hextend(R) and PentaLyte(R) are registered trademarks, and HetaCoolTM is a
trademark, of BioTime, Inc.
Results of Operations
Revenues
From inception (November 30, 1990) through September 30, 1997, the
Company generated $187,500 of revenue. For the three months ended September 30,
1997, the Company generated total revenues of $125,000, comprised of license fee
income from the signing of the License Agreement with Abbott. The Company has
deferred recognition of $1,212,500 of revenue received for signing the License
Agreement and achieving a license fee milestone pertaining to the allowance of
certain patent claims pending (See Note 4 to the accompanying financial
statements). The Company did not earn any license fee income during the three
months ended September 30, 1996, as the Company did not have any license
agreements in effect during that period. 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.
Operating Expenses
From inception (November 30, 1990) through September 30, 1997, the
Company incurred $7,587,625 of research and development expenses, including
salaries, supplies and other expense items. Research and development expenses
were $678,272 for the three months ended September 30, 1997, compared to
$432,166 for the three months ended September 30, 1996. The increase in research
and development expenses is attributable to ongoing Phase III human clinical
trials, compilation of data and preparation of an NDA (New Drug Application),
and an accrual for bonuses for services rendered during the period from July 1,
1997 to September 30, 1997. It is expected that research and development
expenses will increase as the Company commences additional clinical studies of
Hextend in the United States and abroad, and commences clinical studies of other
products.
From inception (November 30, 1990) through September 30, 1997, the
Company incurred $5,735,815 of general and administrative expenses. General and
administrative expenses were $505,494 for the three months ended September 30,
1997, compared to $306,353 for the three months ended September 30, 1996. This
increase is primarily attributable to increased personnel costs and to an
accrual for bonuses for services rendered during the period from July 1, 1997 to
September 30, 1997.
Interest and Other Income
From inception (November 30, 1990) through September 30, 1997, the
Company generated $994,638 of interest and other income. For the three months
ended September 30, 1997, the Company
14
<PAGE>
generated $76,145 of interest and other income, compared to $20,163 for the
three months ended September 30, 1996. The increase in interest income is
attributable to an increase in cash and cash equivalents from the Company's
subscription rights offering completed on February 5, 1997.
Liquidity and Capital Resources
Since inception, the Company has primarily financed its operations
through the sale of equity securities and licensing fees, and at September 30,
1997, the Company had cash and cash equivalents of $7,370,991. Management
believes that additional funds may be required for the successful completion of
the Company's product development activities. The Company plans to obtain
financing for its future operations through additional sales of equity or debt
securities, and through the licensing of its products to pharmaceutical
companies.
Under its License Agreement with Abbott, the Company has received
$1,400,000 of license fees and milestone payments for signing the agreement and
achieving a milestone pertaining to the allowance of certain patent claims
pending. An additional $1,100,000 of license payments under the License
Agreement will become payable in installments upon the achievement of specific
milestones pertaining to the filing and approval of a New Drug Application for
Hextend and the commencement of sales of the product. Additional license fees
and royalties will become payable upon product sales.
License fees and royalties will also be sought from Abbott or other
pharmaceutical companies for United States and Canadian licenses of new products
and uses of Hextend that are not covered by Abbott's license, and for licenses
to manufacture and market the Company's products abroad.
The future availability and terms of equity and debt financings, and
the amount of license fees and royalties that may be earned through the
licensing and sale of the Company's products cannot be predicted. The
unavailability or inadequacy of financing or revenues to meet future capital
needs could force the Company to modify, curtail, delay or suspend some or all
aspects of its planned operations.
Statements contained in this report 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. See Note 1 to Financial Statements and the "Risk Factors" discussed
in the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1997.
15
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
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 Employment Agreement dated June 1, 1996 between the Company and Paul
Segall.++
10.3 Employment Agreement dated June 1, 1996 between the Company and Hal
Sternberg.++
10.4 Employment Agreement dated June 1, 1996 between the Company and Harold
Waitz.++
10.5 Employment Agreement dated June 1, 1996 between the Company and Judith
Segall.++
10.6 Employment Agreement dated June 1, 1996 between the Company and
Victoria Bellport.++
10.7 Intellectual Property Agreement between the Company and Paul Segall.+
10.8 Intellectual Property Agreement between the Company and Hal Sternberg.+
10.9 Intellectual Property Agreement between the Company and Harold Waitz.+
10.10 Intellectual Property Agreement between the Company and Judith Segall.+
10.11 Intellectual Property Agreement between the Company and Victoria
Bellport.+
10.12 Agreement between CMSI and BioTime Officers Releasing Employment
Agreements, Selling Shares, and Transferring Non-Exclusive License.+
10.13 Agreement for Trans Time, Inc. to Exchange CMSI Common Stock for
BioTime, Inc. Common Shares.+
16
<PAGE>
10.14 1992 Stock Option Plan, as amended.+++
10.15 Employment Agreement dated April 1, 1997 between the Company and Ronald
S. Barkin.^
10.16 Intellectual Property Agreement between the Company and Ronald S.
Barkin.^
27 Financial Data Schedule**
= Incorporated by reference to the Company's Form 10-K for the fiscal year ended
June 30, 1997.
+ 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 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, 1997.
** Filed herewith.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K for the three months ended
September 30, 1997.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOTIME, INC.
/s/Paul E. Segall
Date: November 13, 1997 ---------------------------------------
Paul E. Segall
Chief Executive Officer
/s/Victoria Bellport
Date: November 13, 1997 ---------------------------------------
Victoria Bellport
Chief Financial Officer
18
<PAGE>
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<PERIOD-END> SEP-30-1997
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