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 March 31, 2002
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 incorporation (IRS Employer
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. 11,637,316 common shares, no
par value, as of May 10, 2002.
PART 1--FINANCIAL INFORMATION
Statements made 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. Such risks
and uncertainties include but are not limited to those discussed in this report
under Item 1 of the Notes to Financial Statements, and in BioTime's Annual
Report on Form 10-K filed with the Securities and Exchange Commission. Words
such as "expects," "may," "will," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates," and similar expressions identify forward-looking
statements.
Item 1. Financial Statements
BIOTIME, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2002 2001
ASSETS ----------------- ----------------
CURRENT ASSETS
Cash and cash equivalents $ 987,470 $ 1,652,748
Prepaid expenses 54,409 70,315
Other current assets 63,230 39,116
----------------- ----------------
Total current assets 1,105,109 1,762,179
EQUIPMENT, Net of accumulated depreciation of $426,192 and $409,331,
respectively 151,086 167,946
DEPOSITS AND OTHER ASSETS 11,250 11,250
----------------- ----------------
TOTAL ASSETS $ 1,267,445 $ 1,941,375
================= ================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 189,643 $ 309,347
DEBENTURES, net of discount of $1,525,399 and $1,618,878,
respectively 1,824,601 1,731,122
----------------- ----------------
SHAREHOLDERS' DEFICIT:
Preferred Shares, no par value, undesignated as to Series,
authorized 1,000,000 shares; none outstanding in 1999 and 1998
Common Shares, no par value, authorized 40,000,000 shares; issued and
outstanding shares; 11,637,316 and 11,627,316 30,660,706 30,602,003
Contributed Capital 93,972 93,972
Deficit accumulated during development stage (31,501,477) (30,795,069)
----------------- ----------------
Total shareholders' deficit (746,799) (99,094)
----------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 1,267,445 $ 1,941,375
================= ================
See notes to condensed financial statements.
2
BIOTIME, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Period from Inception
March 31, (November 30, 1990) to
2002 2001 March 31, 2002
-------------- -------------- ----------------------
REVENUE:
License fee $ - $ - $ 2,500,000
Royalty from product sales 57,235 32,695 261,644
-------------- -------------- --------------
Total revenue 57,235 32,695 2,761,644
-------------- -------------- --------------
EXPENSES:
Research and development (260,571) (553,892) (21,891,089)
General and administrative (331,407) (436,997) (13,759,134)
-------------- -------------- --------------
Total expenses (591,978) (990,889) (35,650,223)
-------------- -------------- --------------
INTEREST INCOME (EXPENSE) AND
OTHER: (171,665) 6,455 1,411,933
-------------- -------------- --------------
NET LOSS $ (706,408) (951,739) $ (31,476,646)
============== ============== ==============
BASIC AND DILUTED LOSS PER SHARE $ (0.06) (0.08)
============== ==============
COMMON AND EQUIVALENT SHARES
USED IN COMPUTING PER SHARE
AMOUNTS:
BASIC AND DILUTED 11,627,872 11,470,054
============== ==============
See notes to condensed financial statements.
3
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended Period from Inception
March 31, (November 30, 1990) to
2002 2001 March 31, 2002
---- ---- --------------
OPERATING ACTIVITIES:
Net loss $ (706,408) $ (951,739) $ (31,476,646)
Adjustments to reconcile net loss to net cash
used in operating activities:
Deferred revenue (1,000,000)
Depreciation 16,861 19,449 432,733
Amortization of debt discount 93,479 325,317
Cost of Donation - warrants 552,000
Cost of services - shares, options and warrants 58,703 120,398 1,292,187
Supply reserves 200,000
Changes in operating assets and liabilities:
Research and development supplies on hand (200,000)
Prepaid expenses and other current assets (8,209) 23,359 (117,640)
Deposits (11,250)
Accounts payable (119,704) (223,316) 189,643
Deferred revenue 1,000,000
-------------- -------------- ---------------
Net cash used in operating activities (665,278) (1,011,849) (28,813,656)
-------------- -------------- ---------------
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 (1,477) (567,392)
-------------- -------------- ---------------
Net cash used in investing activities 0 (1,477) (369,992)
-------------- -------------- ---------------
FINANCING ACTIVITIES:
Warrants and debentures 2,350,000
Borrowings 1,000,000
Issuance of preferred shares for cash 600,000
Preferred shares placement costs (125,700)
Issuance of common shares for cash 23,701,732
Common shares placement costs (2,216,497)
Net proceeds from exercise of common share
options and warrants 16,500 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 0 16,500 30,171,118
-------------- -------------- ---------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (665,278) (996,826) 987,470
CASH AND CASH EQUIVALENTS:
At beginning of period 1,652,748 1,318,338 -
-------------- -------------- ---------------
At end of period $ 987,470 $ 321,512 $ 987,470
============== ============== ===============
See notes to condensed financial statements. (Continued)
4
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended Period from Inception
March 31, (November 30, 1990) to
2002 2001 March 31, 2002
----------- ------------ ----------------------
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
See notes to condensed financial statements. (Concluded)
5
BIOTIME, INC.
(A Development Stage Company)
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.
The condensed balance sheets as of March 31, 2002 and 2001, the condensed
statements of operations for the three months ended March 31, 2002 and 2001 and
the period from inception (November 30, 1990) to March 31, 2002, and the
statements of cash flows for the three months ended March 31, 2002 and 2001 and
the period from inception (November 30, 1990) to March 31, 2002 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, and cash flows at
March 31, 2002 and for all periods presented have been made. The balance sheet
as of December 31, 2001 is derived from the Company's audited financial
statements as of that date. The results of operations for the period ended March
31, 2002 are not necessarily indicative of the operating results anticipated for
the full year.
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 condensed financial statements be read in conjunction with
the annual audited financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 2001.
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 $31,476,646 from inception to March 31, 2002. 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.
6
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 March 31, 2002, BioTime had
$987,470 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 3). 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.
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
7
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 three months ended March 31, 2002 include royalties on sales
made by Abbott during the three months ended December 31, 2001. Royalties on
sales made during the first quarter of 2002 will not be recognized by the
Company until the second quarter of fiscal year 2002.
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.
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.
Recently issued accounting standards -
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
8
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 adopted SFAS 141 on July
1, 2001 and SFAS 142 on January 1, 2002. The adoption of these statements did
not have a material impact on the condensed 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
adopted SFAS 144 on January 1, 2002. The adoption of this statement did not have
a material impact on the condensed financial statements.
3. LINES 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 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 that 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 to 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. 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. This spending restriction will expire
9
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 has been 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.
On March 27, 2002, BioTime entered into a new Revolving Line of Credit Agreement
(the "2002 Credit Agreement") with Alfred D. Kingsley under which BioTime may
borrow up to $300,000 for working capital purposes. Interest on borrowings shall
accrue at a rate of 10% per annum and is payable with principal on the maturity
date. Amounts borrowed under the 2002 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. 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 2002 Credit Agreement on March 27, 2002,
the Company issued to Mr. Kingsley a warrant to purchase 30,000 of the Company's
common shares at $4.00 per share. The warrant is fully exercisable and
non-forfeitable on the date of grant and expires on March 26, 2007. The fair
value of the warrant was $60,390 and was determined using the Black- Scholes
option pricing model with the following assumptions: contractual life of 5
years; risk-free interest rate of 4.4%; volatility of 84.6%; and no dividends
during the expected term. The fair value of the warrant was included in other
current assets at March 31, 2002, and is being amortized over the term of the
2002 Credit Agreement.
4. SHAREHOLDERS' DEFICIT
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
10
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. As of March 31, 2002, 379,000 shares were
available for future grants under the Option Plan; and options to purchase
473,201 had been granted and were outstanding at exercise prices ranging from
$1.13 to $18.25. Of the options granted to consultants, options to purchase
60,000 common shares vest upon achievement of certain milestones. At March 31,
2002, 5000 options had vested, and 55,000 options had not vested. The Company
recorded a benefit of $31,687 as a result of the remeasurement of such options.
The benefit recognized on these options during the three months ended March 31,
2002 was recorded as an offset to research and development expense.
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, the Company has registered the shares for public sale.
5. NET LOSS PER SHARE
Basic earnings (loss) per share excludes dilution and is computed by dividing
net income (loss) by the weighted average number of common shares outstanding
during the period. Diluted earnings (loss) per share reflects the potential
dilution from securities and other contracts which are exercisable or
convertible into common shares. Diluted earnings (loss) per share for the three
months ended March 31, 2002 exclude any effect from such securities as their
inclusion would be antidilutive. As a result, there is no difference between
basic and diluted calculations of loss per share for all periods presented.
11
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 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 and royalties, including $2,500,000 of licensing fees 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 $31,476,646 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 niches 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 three months ended March
31, 2002 consist of royalties on sales made by Abbott during the period
beginning October 1, 2001 and ending December 31, 2001. Royalty revenues
recognized for the three months ended March 31, 2002 were $57,235, a 75%
increase over the $32,695 of royalty revenue during the prior year. Sales of
Hextend during the fourth quarter periods may reflect purchasing practices of
certain wholesale distributors who increase their purchases of inventory during
the last month of the year, with a corresponding reduction in purchases during
the first quarters of each new year.
12
Since the beginning of 2002, monthly sales have grown steadily. Royalty
revenues of $60,812 received from first quarter 2002 sales will be recognized by
the Company during the second quarter ending June 30, 2002. Royalties from sales
of Hextend for the first three months of 2002 were up from $29,958 during the
same period last year, representing approximately a 103% increase from the prior
year. Based upon preliminary estimates of sales for the first month of the
second quarter, sales approached half the amount of monthly sales the Company
needs to operate at the break-even point at the present reduced rate of
spending, which includes substantial salary reductions and limited research and
development activities.
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.
Obtaining formulary approval can be a lengthy process and requires diligent
efforts by the sales force who not only provide Hextend to the hospital but also
can provide the formulary committee with necessary information showing that the
product is safe and effective.
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.
BioTime has been informed that Hextend has been purchased for use by
certain armed forces units deployed overseas, and arrangements have been made to
facilitate additional purchases of Hextend by the military and other federal
government agencies. BioTime is continuing to work to promote the use of Hextend
by the United States armed forces. Military physicians and researchers are
evaluating Hextend for use as part of the standard treatment of hypovolemia in
combat casualties, and a number of laboratories under the direction of the armed
forces or engaged in civilian-directed medical research projects receiving
military funding, have conducted studies using Hextend in animal models of
military trauma. Some of the results of these studies were discussed at a recent
conference sponsored by the Office of Naval Research and other military
organizations to create a consensus regarding animal models for research into
military trauma.
Presentations by BioTime scientists were featured at the American
Physiological Society's April 2002 Annual Meeting held during the Experimental
Biology 2002 conference in New Orleans. The presentations described the use of
Hextend and BioTime's proprietary hyperbaric oxygen chamber and technology in
animal models designed to eliminate battlefield transfusions, as well as
Hextend's potential to facilitate the use of oxygen carrier solutions.
The research indicated that by resuscitating animals with Hextend and
BioTime's devices, they could revive after massive blood loss and extended
periods of respiratory arrest without any further blood transfusion. The
research also indicated that animals could survive and remain active for hours
with all their blood replaced with Hextend within BioTime's hyperbaric oxygen
chamber, and that the chamber could be used to manage animals with nearly all
their blood replaced until they could rebuild enough red blood cells to allow
them to return to their cages without blood transfusions. A summary of BioTime's
presentation can be found in the Society's press release, which is posted on
their website.
13
Although the chamber used in these studies was designed for small animals,
BioTime holds patents on these devices and the solutions, technologies, and
methods associated with their use in clinical medicine. BioTime also presented
evidence that Hextend could facilitate the use of a hemoglobin-based blood
substitute to completely replace the blood of rats in room air, and then allow
them to return to their cages without any further blood transfusions. This
attracted the attention of pharmaceutical company and military research
scientists studying hemoglobin-based oxygen carrier solutions, who expressed
their interest in whether Hextend might play a role in reducing the side effects
and the high costs associated with the use of oxygen carrier solutions.
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 trademark "HetaCool(TM)" after FDA
approval is obtained.
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 scientists believe that the HetaCool program has the potential to
produce a product that could be used in very high fluid volumes (50 liters or
more per procedure if HetaCool were used as an organ preservation solution or to
temporarily replace substantially all of the patient's circulating blood volume)
in cardiovascular surgery, trauma treatment, and organ transplantation.
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, 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 may require clinical trials overseas. BioTime has responded
to recent requests for information required to achieve regulatory approval in
Canada, and is continuing to
14
work with the appropriate regulatory authorities to seek regulatory
approval in Canada and in Sweden, a member of the European Union. 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.
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
Revenues
From inception (November 30, 1990) through March 31, 2002, the Company
recognized $2,500,000 of license fee revenues. All license fees based upon
milestones under the Abbott License Agreement were earned prior to the quarter
ended March 31, 2002. See Note 2 to the accompanying condensed financial
statements.
From inception (November 30, 1990) through March 31, 2002, the Company has
recognized $261,644 in royalty revenue based on product sales. For the three
months ended March 31, 2002, the Company recognized $57,235 in royalty revenue,
whereas the Company recognized $32,695 for the three months ended March 31,
2001. This 75% increase in royalties is attributable to an increase in product
sales by Abbott. See Note 2 to the accompanying condensed financial statements.
Operating Expenses
From inception (November 30, 1990) through March 31, 2002, the Company
incurred $21,891,089 of research and development expenses. Research and
development expenses were $260,571 for the three months ended March 31, 2002,
compared to $553,892 for the three months ended March 31, 2001. This substantial
decrease is attributable to a concerted effort to cut spending. More
specifically, less funding was allocated to laboratory equipment and supplies,
fees paid to scientific consultants, clinical trial work, and wages paid to
scientific and research personnel within the Company. Research and development
expenses include laboratory study expenses, clinical trial expenses, salaries,
preparation of additional regulatory applications in the United States and
Europe, manufacturing of solution for trials, and scientific consultants' fees.
It is expected that research and
15
development expenses will increase as the Company commences new clinical studies
of its products in the United States and Europe, although the commencement of
new clinical trials depends upon the availability of capital.
From inception (November 30, 1990) through March 31, 2002, the Company
incurred $13,759,134 in general and administrative expenses. General and
administrative expenses were $331,407 for the three months ended March 31, 2002
compared to $436,997 for the three months ended March 31, 2001. This is
attributable to a decrease in personnel costs, as the number of full-time
employees has dropped from 11 at March 31, 2001 to 8 at March 31, 2002, and most
of those remaining have agreed to voluntary reductions in compensation to ease
financial burdens. General and administrative expenses include salaries,
consultants' fees, and general operating expenses.
Most of the Company's employees have agreed to participate in a
compensation reduction program designed to permit the Company to conserve cash
without implementing an immediate workforce reduction. The salary reductions
have ranged from 56% to 78% for participating executive officers, and 14% to 38%
for other participating employees. The duration of the program will depend upon
a number of factors such as the time frame needed to obtain additional capital,
the amount of capital obtained, and the willingness of employees to continue to
work for the Company at the reduced compensation rates. The Company is also
negotiating with its consultants to restructure their compensation arrangements.
Interest and Other Income
From inception (November 30, 1990) through March 31, 2002, the Company
generated $1,866,591 of interest. For the three months ended March 31, 2002, the
Company incurred a total of $171,665 of net interest expense, compared to net
interest income of $6,455 for the three months ended March 31, 2001. The
difference is attributable to interest expense incurred on the Company's
debentures during the three months ended March 31, 2002, whereas the Company had
no outstanding debt during the three months ended March 31, 2001.
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 cash and converted debt totaling $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 to restrict its quarterly cash payments for operating
expenses to
16
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. The spending 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 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.
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 2002 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 any such
mandatory prepayments of principal will reduce the maximum amount available
under the 2002 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 2002
Credit Agreement, and the outstanding principal balance loaned under the 2002
Credit Agreement does not exceed $300,000.
In connection with entering into the 2002 Credit Agreement on March 27,
2002, the Company issued to Mr. 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 fair value of the warrant was $60,390 and was determined using the
Black- Scholes option pricing model with the following assumptions: contractual
life of 5 years; risk-free interest rate of 4.4%; volatility of 84.6%; and no
dividends during the expected term. The fair value of the warrant was included
in other current assets at March 31, 2002, and is being amortized over the term
of the 2002 Credit Agreement.
17
The Company is working with a number of investment bankers to raise
additional capital. BioTime needs additional equity capital, fees from licensing
its products to pharmaceutical companies, profits from sales of its products
and/or a substantial increase in royalty revenues to continue its current
operations, to begin clinical trials of PentaLyte, and to conduct its planned
product development and research programs. Sales of additional equity securities
could result in the dilution of the interests of present shareholders. The
amount of license fees and royalties that may be earned through the licensing
and sale of the Company's products and technology, the timing of the receipt of
license fee payments, and the future availability and terms of equity financing,
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.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
During March 2002, the Company issued warrants to purchase 30,000 common
shares at $4.00 per share. The warrants will expire if not exercised by March
26, 2007. The warrants were issued without registration under the Securities Act
of 1933, as amended, pursuant to the exemption provided in Section 4(2).
18
Item 6. Exhibits and Reports of Form 8-K
(a-3) 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 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).^^^
19
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***
@ 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-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.
20
++++ Incorporated by reference to the Company's Form 10-Q for the quarter ended
June 30, 2001.
*** Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 2001.
(b) Reports on Form 8-K
The Company did not file any reports of Form 8-K for the three months ended
March 31, 2002.
21
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 Segall
Date: May 15, 2002 -------------------------------------
Paul Segall
Chief Executive Officer
s/Steven Seinberg
Date: May 15, 2002 -------------------------------------
Steven Seinberg
Chief Financial Officer
22
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+++
23
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***
@ 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-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.
24
++++ Incorporated by reference to the Company's Form 10-Q for the quarter ended
June 30, 2001.
*** Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 2001.
25