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, 1998
OR
9 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. 10,032,579 common
shares, no par value, as of November 12, 1998.
<PAGE>
PART 1--FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
BIOTIME, INC,
(A Development Stage Company)
<CAPTION>
BALANCE SHEETS
(Unaudited)
September 30, June 30,
ASSETS 1998 1998
--------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,303,000 $ 4,105,781
Prepaid expenses and other current assets 207,111 245,912
--------------- -------------
Total current assets 3,510,111 4,351,693
EQUIPMENT, Net of accumulated depreciation of $203,575 and $188,526 176,914 190,665
OTHER ASSETS 77,700 99,422
--------------- --------------
TOTAL ASSETS $ 3,764,725 $ 4,641,780
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 137,327 $ 189,530
Deferred revenue - current portion 312,500 437,500
--------------- --------------
Total current liabilities 449,827 627,030
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 40,000,000 shares; issued
and outstanding 10,026,579 and 9,947,579 18,995,526 18,557,636
Contributed Capital 93,972 93,972
Deficit accumulated during development stage (15,774,600) (14,636,858)
--------------- --------------
Total shareholders' equity 3,314,898 4,014,750
--------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,764,725 $ 4,641,780
<FN>
See notes to financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
BIOTIME, INC.
(A Development Stage Company)
<CAPTION>
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Period from Inception
September 30, (November 30, 1990)
1998 1997 to September 30, 1998
------------- ------------ ----------------------
<S> <C> <C> <C>
REVENUE:
License fee $ 125,000 $ 125,000 $ 1,337,500
------------- ------------ ----------------------
EXPENSES:
Research and development $ (930,418) $ (678,272) $ (10,888,546)
General and administrative (380,453) (505,494) (7,460,086)
------------- ------------ ----------------------
Total expenses (1,310,871) (1,183,766) (18,348,632)
INTEREST AND OTHER INCOME 48,129 76,145 1,261,363
------------- ------------ ----------------------
NET LOSS $(1,137,742) $ (982,621) $ (15,749,769)
============= ============ =====================
BASIC AND DILUTED LOSS PER SHARE $ ( .11) $ ( .10)
============= ============
COMMON AND EQUIVALENT SHARES USED IN
COMPUTING PER SHARE AMOUNTS:
BASIC AND DILUTED 9,985,525 9,640,394
============= ============
<FN>
See notes to financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
BIOTIME, INC.
(A Development Stage Company)
<CAPTION>
STATEMENTS OF SHAREHOLDERS' EQUITY
Series A Convertible
Preferred Shares Common Shares Deficit
--------------------- ----------------------- Accumulated
Number of Number Contributed During
Shares Amount of Shares Amount Capital Development 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 (24,831)
on preferred shares
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)
NET LOSS SINCE INCEPTION (6,099,136)
--------- --------- ---------- ---------- --------- ------------
BALANCE AT JUNE 30, 1995 -- $ -- 7,933,266 $9,451,627 $ 93,972 $(3,746,220)
<FN>
See notes to condensed financial statements. (Continued)
</FN>
</TABLE>
4
<PAGE>
<TABLE>
BIOTIME, INC.
(A Development Stage Company)
<CAPTION>
STATEMENTS OF SHAREHOLDERS' EQUITY
Series A Convertible
Preferred Shares Common Shares Deficit
--------------------- ----------------------- Accumulated
Number of Number Contributed During
Shares Amount of Shares Amount Capital Development Stage
--------- --------- --------- ---------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
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) 337,500 887,130
Common shares warrants and options
granted for service 38,050
Common shares issued for services
500 6,250
NET LOSS (3,453,346)
--------- --------- ---------- ----------- -------- -------------
BALANCE AT JUNE 30, 1998 -- $ -- 9,935,579 $18,534,076 $ 93,972 $(14,636,858)
Common Shares issued for cash
(exercise of options)-unaudited 78,500 375,390
Common shares warrants and options
granted for service-unaudited 50,000
Common shares issued for
services-unaudited
1,000 12,500
NET LOSS (3,453,346)
--------- --------- ---------- ----------- -------- -------------
BALANCE AT SEPTEMBER 30, 1998-unaudited -- $ -- 10,026,579 $18,995,526 $ 93,972 $(15,774,600)
<FN>
See Notes to financial statements. (Concluded)
</FN>
</TABLE>
5
<PAGE>
<TABLE>
BIOTIME, INC.
(A Development Stage Company)
<CAPTION>
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Period from Inception
September 30, (November 30,1990)
1998 1997 September 30, 1998
------------- ------------ ----------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,137,742) $ (982,621) (15,749,769)
Adjustments to reconcile net loss to net
cash used in operating activities:
Deferred Revenue (125,000) (125,000) (687,500)
Depreciation 15,049 11,112 203,574
Cost of Services - options and warrants 67,500 12,525 550,756
Supply Reserves -- 50,000 200,000
Changes in operating assets and liabilities:
Research and development supplies on hand -- -- (200,000)
Prepaid expenses and other current
assets 33,801 159,441 (159,864)
Other assets 21,722 5,000 (77,700)
Accounts payable (52,203) (70,878) 137,327
Accrued compensation -- (50,000) --
Deferred revenue -- -- 1,000,000
------------- ------------ ------------
Net cash used in operating activities (1,176,873) (990,421) (14,783,176)
------------- ------------ -------------
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 (1,298) (31,062) (364,063)
------------- ------------ -------------
Net cash used in investing activities (1,298) (31,062) (178,866)
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
Common shares placement costs -- -- (2,052,296)
Net proceeds from exercise of common share
options and warrants 375,390 580,840 3,619,938
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 375,390 580,840 18,265,042
------------- ------------ -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (802,781) (440,643) 3,303,000
------------- ------------ -------------
CASH AND CASH EQUIVALENTS:
At beginning of period 4,105,781 7,811,634 --
------------- ------------ --------------
At end of period $3,303,000 $7,370,991 $ 3,303,000
============= ============ ==============
<FN>
See notes to financial statements. (Continued)
</FN>
</TABLE>
6
<PAGE>
<TABLE>
BIOTIME, INC.
(A Development Stage Company)
<CAPTION>
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Period from Inception
September 30, (November 30,1990)
1998 1997 September 30, 1998
------------- ------------ ----------------------
<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 $ 197,400
Sciences, Inc. in a stock-for-stock
transaction
Granting of options and warrants for services $ 50,000 $ 567,050
Issuance of common shares in exchange for services 12,500 $ 18,750
<FN>
See notes to financial statements. (Concluded)
</FN>
</TABLE>
7
<PAGE>
BIOTIME, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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.
The balance sheet as of September 30, 1998, the statements of operations
for the three months ended September 30, 1998 and 1997 and the period from
inception (November 30, 1990) to September 30, 1998, the statement of
shareholders= equity for the three month period ended September 30, 1998
and 1997 and the statements of cash flows for the three month period ended
September 30, 1998 and 1997 and the period from inception (November 30,
1990) to September 30, 1998 have been prepared by the Company without
audit. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial
position, results of operations, shareholders= equity and cash flows at
September 30, 1998 and for all periods presented have been made. The
balance sheet as of June 30, 1998 is derived from the Company=s audited
financial statements as of that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted as permitted by regulations of
the Securities and Exchange Commission. Certain previously furnished
amounts have been reclassified to conform with presentations made during
the current periods. It is suggested that these interim financial
statements be read in conjunction with the audited financial statements and
notes thereto included in the Company=s Form 10-K for the year ended June
30, 1998.
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.
8
<PAGE>
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 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 limited
operating revenues and has incurred operating losses of $15,749,769 from
inception to September 30, 1998. 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.
Comprehensive Income - On July 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, AReporting Comprehensive Income,@
which requires an enterprise to report, by major components and as a single
total, the change in net assets during the period from non-owner sources.
For the three months ended September 30, 1998 and 1997, comprehensive
income was the same as net income attributable to common shareholders.
Change in Fiscal Year End - The Company has determined to change its fiscal
year end from June 30 to December 31. Due to the change in fiscal year, the
Company will file an annual report on Form 10-K for the year (six months)
ending December 31, 1998.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, ADisclosures 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. The Company has not yet determined its reporting segments.
Adoption of this statement will not impact the Company=s financial
position, results of operations or cash flows, and any effect will be
limited to the form and content of its disclosures. The Company will adopt
this statement in its financial statements for the period ending December
31, 1998.
9
<PAGE>
In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133, AAccounting for Derivative Instruments and
Hedging Activities,@ (SFAS 133) which establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS 133
requires that entities recognize all derivatives as either assets or
liabilities and measure those instruments at fair value. Adoption of this
statement is not expected to have a material impact on the Company=s
financial position, results of operations or cash flows. The Company will
adopt SFAS 133 in its financial statements in the first quarter of the
fiscal year ending December 31, 1999.
3. PER SHARE INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 128,
AEarnings per Share@ (SFAS 128) in the second quarter of fiscal 1997 and
has restated earnings per share (EPS) data for prior periods to conform
with current presentation.
SFAS 128 requires a dual presentation of basic and diluted EPS. Basic EPS
excludes dilution and is computed by dividing net income (loss)
attributable to common shareholders by the weighted average number of
common shares outstanding during the period. Diluted EPS reflects the
potential dilution from securities and other contracts, which are
exercisable or convertible into common shares. As a result of operating
losses, there is no difference between the basic and diluted calculations
of EPS.
4. SHAREHOLDERS' EQUITY
On February 5, 1997, the Company completed a subscription rights offering
raising $5,662,180 (less offering costs of $170,597), through the sale of
849,327 common shares.
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 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.
10
<PAGE>
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 to purchase 304,169 Common Shares at a price of $1.97 per share,
and the Company agreed to issue additional warrants to purchase up to an
additional 608,336 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. 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.
The warrants are exercisable at the following prices: 456,252 at $1.97 per
share; 76,042 at $2.41 per share;76,042 at $9.88 per share; 76,042 at $9.64
per share; 76,042 at $10.73 per share; 76,042 at $16.11 per share; and
76,042 at $14.07 per share. The total value of these warrants at the
agreement date, estimated to be $300,000, was capitalized in fiscal 1996
and was amortized over the two year term of the agreement.
During April 1998, the Company entered into a new financial advisory
services agreement with Greenbelt Corp. The agreement provides for an
initial payment of $90,000 followed by an advisory fee of $15,000 per month
that will be paid quarterly. The agreement will expire on March 31, 2000,
but either party may terminate the agreement earlier upon 30 days prior
written notice.
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.
During the quarter ended September 30, 1998, options to purchase a total of
20,000 common shares were issued to a consultant at a price of $7.25 per
share. The estimated fair value of the services totaled $50,000 and was
recognized in the period. At September 30, 1998, 599,000 shares were
available for future grants under the Option Plan; and options to purchase
476,500 shares have been granted and were outstanding at exercise prices
ranging from $0.66 to $18.25.
5. LICENSE AGREEMENT
In April 1997, BioTime and Abbott Laboratories (AAbbott@) entered into an
Exclusive License Agreement (the ALicense 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.
11
<PAGE>
Under the License Agreement, Abbott has agreed to pay the Company up to
$40,000,000 in license fees; of which $1,650,000 was paid as of September
30, 1998, and an additional $850,000 will become payable upon achievement
of specific 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
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.
The Company has deferred recognition of $312,500 of the license fee revenue
received for signing the License Agreement. The Company will recognize the
deferred revenues through June, 1999. Additional milestone payments may be
earned when the Company=s New Drug Application is approved and when sales
of Hextend commence. These milestone payments will be recognized during the
periods in which the milestones are achieved. Additional license fees and
royalty payments will be recognized as the related sales are made and
reported to the Company by Abbott.
6. 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.
12
<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 development activities. The Company has not yet
generated significant operating revenues, and as of September 30, 1998 the
Company had incurred a cumulative net loss of $15,749,769. 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 development of the Company's first three blood volume replacement
products: Hextend, PentaLyte, and HetaCool. 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.
On March 31, 1998, the Company completed the submission of its New Drug
Application (NDA) to the FDA, seeking approval to market Hextend in the United
States. The NDA includes data from the Company's Phase III clinical trials, in
which the primary endpoints were successfully met. 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 large amounts. However,
the FDA will make its own evaluation of the clinical trial data and there is no
assurance that the FDA will approve the Company's NDA.
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.
Abbott also has a right to obtain licenses to manufacture and sell other BioTime
products.
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. So far, Company has received $1,650,000 of license fee
milestone payments. In addition to the license fees, Abbott will pay BioTime 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 so that once the highest royalty rate for a year is determined,
that rate will be paid with respect to all sales for that year. 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.
13
<PAGE>
The Company intends to enter global markets through licensing
agreements with overseas pharmaceutical companies. By licensing its products
abroad, the Company will avoid the capital costs and delays inherent in
acquiring or establishing its own pharmaceutical manufacturing facilities and
establishing an international marketing organization. A number of pharmaceutical
companies in Europe, Asia and other markets around the world have expressed
their interest in obtaining licenses to manufacture and market the Company's
products. The Company is continuing to meet with representatives of interested
companies to discuss potential agreements.
The Company is also pursuing a global clinical trial strategy, the goal
of which is to permit the Company to obtain regulatory approval for its products
as quickly and economically as practicable. For example, the United States Phase
III clinical trials of Hextend involved 120 patients and were completed in less
than 12 months. Although regulatory requirements vary from country to country,
the Company may be able to file applications for foreign regulatory approval of
its products based upon the results of the United States clinical trials. Based
upon discussions with the Canadian Bureau of Pharmaceutical Assessment, the
Company plans to file for Canadian market approval based upon the results of its
United States clinical trials. Regulatory approvals for countries that are
members of the European Union may be obtained through a mutual recognition
procedure. The Company plans to determine whether one or more member nations
would accept an application based upon the United States clinical trials. If
approvals based upon those trials can be obtained in the requisite number of
member nations, then the Company would be permitted to market Hextend in all 16
member nations.
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 over-seas. The cost of
preparing those regulatory filings and conducting those clinical trials is not
presently determinable, but could be substantial. It will be necessary for the
Company to obtain additional funds in order to complete any clinical trials that
may begin for its new products or for new uses of Hextend. The Company plans to
negotiate product licensing and marketing agreements that require overseas
licensees and distributors of Company products to bear regulatory approval and
clinical trial costs for their territories.
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 losses from operations will continue to be incurred for the foreseeable
future.
14
<PAGE>
Year 2000 Considerations
The Company has reviewed its internal computer and software systems and
has determined that it is highly unlikely that any of those systems will be
adversely affected by problems associated with the year 2000. Accordingly, the
Company does not expect to incur any material expense in bringing its computer
systems into year 2000 compliance. The so-called "year 2000 problems" may arise
if computer programs do not properly recognize years that begin with "20"
instead of "19." If not corrected, computer applications that are affected by
they year 2000 problem could fail or create erroneous results.
The Company relies upon data analysis provided by independent third
parties that conduct tests on Company products and compile and analyze data from
Company laboratory studies and clinical trials. The Company is asking its third
party contractors to inform the Company's management whether their systems will
be adversely affected by the year 2000 problem and what plans they have to
remedy any such problems in a timely manner.
Because the Company does not have its own pharmaceutical production
facilities, it will rely upon Abbott and others to manufacture and distribute
Company products. If year 2000 problems were to impede the ability of those
companies to manufacture and distribute Company products or raw materials used
in the manufacture of Company products, future sales of Company products could
be adversely affected. Abbott has announced the implementation of a program to
assess and remedy any year 2000 problems that may affect its operations, and has
asked its key suppliers to certify that their systems are year 2000 compliant.
The results of the year 2000 compliance programs implemented by Abbott and its
suppliers are not presently known.
Results of Operations
From inception (November 30, 1990) through September 30, 1998, the
Company generated $2,598,863 of revenue, comprised of $1,337,500 in license fee
income, and $1,261,363 in interest and other income. The Company recognized
$125,000 of such revenue during the three months ended September 30, 1998. The
remaining $312,500 of revenue will be recognized through June, 1999. (See Note 5
to the accompanying financial statements). Interest and other income decreased
to $48,129 for the period ended September 30, 1998 from $76,145 for the period
ended September 30, 1997. The decrease in interest and other income is
attributable to the decrease in cash and cash equivalents.
From inception (November 30, 1990) through September 30, 1998, the
Company incurred $10,888,546 of research and development expenses, including
salaries, supplies and other expense items. Research and development expenses
were $930,418 for the three months ended September 30, 1998, compared to
$678,272 for the three months ended September 30, 1997. The increase in research
and development expenses is attributable to an increase in the development and
testing of PentaLyte, the Company=s second product. It is expected that research
and development expenses will increase as the Company continues clinical testing
of Hextend and commences clinical studies of other products.
15
<PAGE>
From inception (November 30, 1990) through September 30, 1998, the
Company incurred $7,460,086 of general and administrative expenses. General and
administrative expenses decreased to $380,453 for the three months ended
September 30, 1998, from $505,494 for the three months ended September 30, 1997.
This decrease is attributable to a decrease in personnel costs primarily related
to bonuses accrued in the quarter ended September 30, 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,
1998, the Company had cash and cash equivalents of $3,300,000. Management
believes that additional funds will be required for the successful completion of
the Company's product development activities. The Company plans to obtain
financing for its future operations through royalties and licensing fees from
Abbott, from licensing fees from other pharmaceutical companies, and/or
additional sales of equity or debt securities. Sales of additional equity
securities could result in the dilution of the interests of present
shareholders.
Under its License Agreement with Abbott, the Company has received
$1,650,000 of license fees and milestone payments for signing the agreement and
achieving milestones pertaining to the allowance of certain patent claims
pending and the submission of the NDA for Hextend. Up to an additional $850,000
of license payments under the License Agreement will become payable in
installments upon the achievement of specific milestones pertaining to the
approval of the NDA for Hextend and the commencement of sales of the product.
Additional license fees and royalties will become payable based 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 is uncertain. 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,
1998.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company did not hold any market risk sensitive instruments as of September
30, 1998.
16
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
The Company has determined to change its fiscal year end from June 30 to
December 31. The change will take effect on December 31, 1998. Due to the change
in the fiscal year, the Company will file an annual report on Form 10-K for the
year (six months) ending December 31, 1998.
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.+
17
<PAGE>
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.+
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 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-K for the fiscal year
ended June 30, 1998.
** 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, 1998.
18
<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/Ronald S. Barkin
Date: November 13, 1998 -------------------
Ronald S. Barkin
President
/s/Victoria Bellport
Date: November 13, 1998 ----------------------
Victoria Bellport
Chief Financial Officer
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