SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
T
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
fiscal year ended December 31, 2006
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.
(Name
of
small business issuer as specified in its charter)
|
California
|
94-3127919
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
6121
Hollis Street
Emeryville,
California 94608
(Address
of principal executive offices) (Zip Code)
Issuer’s
telephone number, including area code
(510) 350-2940
Securities
registered pursuant to Section 12(b) of the Act:
None
|
Securities
registered pursuant to Section 12(g) of the Act
|
|
|
Title
of class
|
Common
Shares, no par value
|
|
Title
of class
|
Common
Share Purchase Warrants
|
Check
whether the issuer is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes £
No
T
Check
whether the issuer (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 T
No
£
Check
if
there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B contained in this form, and no disclosure will be contained, to the best
of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to
this Form 10-KSB. £
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act): Yes £
No
T
The
issuer’s revenues for the fiscal year ended December 31, 2006 were
$1,162,015
The
approximate aggregate market value of voting common shares held by nonaffiliates
of the issuer computed by reference to the price at which common shares were
sold as of March 1, 2007 was $6,925,104. Shares held by each executive officer
and director and by each person who beneficially owns more than 5% of the
outstanding common shares have been excluded in that such persons may under
certain circumstances be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
22,574,374
(Number
of common shares outstanding as of March 1, 2007)
Documents
Incorporated by Reference
None
Transitional
Small Business Disclosure Format (check one): Yes £
No
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Statements
made in this Form 10-KSB that are not historical facts may constitute
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those discussed. Words
such
as “expects,” “may,” “will,” “anticipates,” “intends,” “plans,” “believes,”
“seeks,” “estimates,” and similar expressions identify forward-looking
statements. See “Risk Factors” and Note 1 to Financial
Statements.
Overview
BioTime,
Inc. is engaged in the research and development of synthetic solutions that
can
be used as blood plasma volume expanders, blood replacement solutions during
hypothermic (low temperature) surgery, and organ preservation solutions. Plasma
volume expanders are used to treat blood loss in surgical or trauma patients
until blood loss becomes so severe that a transfusion of packed red blood cells
or other blood products is required. We are also developing a specially
formulated hypothermic blood substitute solution that would have a similar
function and would be used for the replacement of very large volumes of a
patient’s blood during cardiac surgery, neurosurgery and other surgeries that
involve lowering the patient’s body temperature to hypothermic levels.
Our
first
product, Hextend®, is a physiologically balanced blood plasma volume expander,
for the treatment of hypovolemia. Hypovolemia is a condition caused by low
blood
volume, often from blood loss during surgery or from injury. Hextend maintains
circulatory system fluid volume and blood pressure and helps sustain vital
organs during surgery. Hextend, approved for use in major surgery, is the only
blood plasma volume expander that contains lactate, multiple electrolytes,
glucose, and a medically approved form of starch called hetastarch. Hextend
is
sterile to avoid risk of infection. Health insurance reimbursements and HMO
coverage now include the cost of Hextend used in surgical
procedures.
We
are
also developing two other blood volume replacement products, PentaLyte® and
HetaCool®, which, like Hextend, have been formulated to maintain the patient’s
tissue and organ function by sustaining the patient’s fluid volume and
physiological balance. We have completed the patient enrollment and treatment
portion of a Phase II clinical trial using PentaLyte in the treatment of
hypovolemia in cardiac surgery, and we are now evaluating the results of the
trial. PentaLyte contains a lower molecular weight hydroxyethyl starch than
Hextend, and is more quickly metabolized. PentaLyte is designed for use when
short lasting volume expansion is desirable. Our ability to complete clinical
studies of PentaLyte will depend on our cash resources and the costs involved,
which are not presently determinable.
Hextend
is being distributed in the United States by Hospira, Inc. and in South Korea
by
CJ Corp. (“CJ”) under exclusive licenses from us. Hospira also has the right to
obtain regulatory approval and market Hextend in Latin America and Australia.
Summit Pharmaceuticals International Corporation (“Summit”) has a license to
develop Hextend and PentaLyte in Japan, the People’s Republic of China, and
Taiwan. Summit has entered into sublicenses with Maruishi Pharmaceutical Co.,
Ltd. (“Maruishi”) to obtain regulatory approval, manufacture, and market Hextend
in Japan, and both Hextend
and PentaLyte in China and Taiwan. See “Licensing” for more information about
our licensing arrangements with Hospira, CJ and Summit.
1
Various
colloid and crystalloid products are being marketed by other companies for
use
in maintaining patient fluid volume in surgery and trauma care, but those
solutions do not contain the unique comprehensive combination of electrolytes,
glucose, lactate and hydroxyethyl starch found in Hextend, PentaLyte, and
HetaCool. The use of competing solutions has been reported to correlate with
patient morbidity, fluid accumulation in body tissues, impaired blood clotting,
and a disturbance of the delicate chemical balances on which most of the body’s
chemical reactions depend. One of these competing products is 6% hetastarch
in
saline solution. The United States Food and Drug Administration (the “FDA”) has
required the manufacturers of 6% hetastarch in saline solutions to change their
product labeling by adding a warning stating that those products are not
recommended for use as a cardiac bypass prime solution, or while the patient
is
on cardiopulmonary bypass, or in the immediate period after the pump has been
disconnected. We have not been required to add that warning to the labeling
of
Hextend.
Another
competing product is albumin produced from human plasma. Albumin is more
expensive than Hextend and is subject to supply shortages. An FDA warning has
cautioned physicians about the risk of administering albumin to seriously ill
patients.
We
are
also continuing to develop solutions for low temperature surgery and trauma
care. A number of physicians have reported using Hextend to treat hypovolemia
under mild hypothermic conditions during cardiac surgery. Additional cardiac
surgeries have been performed at deeper hypothermic temperatures. In one case,
Hextend was used to treat hypovolemia in a cancer patient operated on under
deep
hypothermic conditions in which the heart was arrested. Once a sufficient amount
of data from successful low temperature surgery has been compiled, we plan
to
seek permission to conduct trials using Hextend as a complete replacement for
blood under near-freezing conditions. We currently plan to market Hextend for
complete blood volume replacement at very low temperatures under the trademark
“HetaCool” after FDA approval is obtained.
We
were
awarded a research grant by the National Heart, Lung, and Blood Institute
division of the National Institutes of Health (“NIH”) for use in the development
of HetaCool. The grant is being used to fund a project entitled “Resuscitating
Blood-Substituted Hypothermic Dogs” at the Texas Heart Institute in Houston
under the guidance of Dr. George V. Letsou. Dr. Letsou is Associate Professor
of
Surgery and Director of the Heart Failure Center at the University of Texas
Medical School in Houston, Texas. We have received $240,251of the grant funds
through December 31, 2006. In 2007, the time period for drawing down the
remainder of the grant funds was extended for another year, running through
March 31, 2008.
BioTime
was incorporated under the laws of the State of California on November 30,
1990.
Our principal office is located at 6121 Hollis Street, Emeryville, California
94608. Our telephone number is (510) 350-2940.
Hextend,®
PentaLyte,® and HetaCool® are registered trademarks of BioTime,
Inc.
2
Products
for Surgery, Plasma Volume Replacement and Emergency Care
The
Market for Plasma Volume Expanders
We
are
developing Hextend, PentaLyte, HetaCool and other synthetic plasma expander
solutions to treat acute blood loss that occurs as a result of trauma injuries
and during many kinds of surgery. These products are synthetic, can be
sterilized, and can be manufactured in large volumes. Hextend, PentaLyte, and
HetaCool contain constituents that may maintain physiological balance when
used
to replace lost blood volume.
Hextend
is also currently being used to treat hypovolemia subsequent to trauma or low
blood pressure due to shock by emergency room physicians. After appropriate
clinical testing and regulatory approval, it may be used by paramedics to treat
acute blood loss in trauma victims being transported to the hospital. Hextend
is
part of the Tactical Combat Casualty Care protocol and has been purchased by
the
U.S. Armed Forces through intermittent large volume orders.
Approximately
10,000,000 surgeries take place in the United States each year, and blood
transfusions are required in approximately 3,000,000 of those cases.
Transfusions are also required to treat patients suffering severe blood loss
due
to traumatic injury. Many more surgical and trauma cases do not require blood
transfusions but do involve significant bleeding that can place the patient
at
risk of suffering from shock caused by the loss of fluid volume (hypovolemia)
and physiological balance. Whole blood and packed red cells generally cannot
be
administered to a patient until the patient’s blood has been typed and
sufficient units of compatible blood or red cells can be located. Periodic
shortages of supply of donated human blood are not uncommon, and rare blood
types are often difficult to locate. The use of human blood products also poses
the risk of exposing the patient to blood-borne diseases such as AIDS and
hepatitis.
Due
to
the risks and cost of using human blood products, even when a sufficient supply
of compatible blood is available, physicians treating patients suffering blood
loss are generally not permitted to transfuse red blood cells until the
patient’s level of red blood cells has fallen to a level known as the
“transfusion trigger.” During the course of surgery, while blood volume is being
lost, the patient is infused with plasma volume expanders to maintain adequate
blood circulation. During the surgical procedure, red blood cells are not
generally replaced until the patient has lost approximately 45% to 50% of his
or
her red blood cells, thus reaching the transfusion trigger at which point the
transfusion of red blood cells may be required. After the transfusion of red
blood cells, the patient may continue to experience blood volume loss, which
will be replaced with plasma volume expanders. Even in those patients who do
not
require a transfusion, physicians routinely administer plasma volume expanders
to maintain sufficient fluid volume to permit the available red blood cells
to
circulate throughout the body and to maintain the patient’s physiological
balance.
Several
units of fluid replacement products are often administered during surgery.
The
number of units will vary depending upon the amount of blood loss and the kind
of plasma volume expander administered. Crystalloid products must be used in
larger volumes than colloid products such as Hextend.
3
The
Market for Products for Hypothermic Surgery
In
2003, more than 400,000 coronary
bypass and other open-heart surgeries were performed in the United States.
Current estimates indicate that more than one million people over age 55 have
pathological changes associated with the aortic arch. Open-heart procedures
often require the use of cardio-pulmonary bypass equipment to do the work of
the
heart and lungs during the surgery. During open-heart surgery and surgical
procedures for the treatment of certain cardiovascular conditions such as large
aneurysms, cardiovascular abnormalities and damaged blood vessels in the brain,
surgeons must temporarily interrupt the flow of blood through the body.
Interruption of blood flow can be maintained only for short periods of time
at
normal body temperatures because many critical organs, particularly the brain,
are quickly damaged by the resultant loss of oxygen. As a result, certain
surgical procedures are performed at low temperatures because lower body
temperature helps to minimize the chance of damage to the patient’s organs by
reducing the patient’s metabolic rate, thereby decreasing the patient’s needs
during surgery for oxygen and nutrients that normally flow through the
blood.
Current
technology limits the degree to which surgeons can lower a patient’s temperature
and the amount of time the patient can be maintained at a low body temperature
because blood, even when diluted, cannot be circulated through the body at
near-freezing temperatures. As a result, surgeons face severe time constraints
in performing surgical procedures requiring blood flow interruption, and those
time limitations prevent surgeons from correcting certain cardiovascular
abnormalities.
Hextend,
PentaLyte and HetaCool
Our
first
three blood volume replacement products, Hextend, PentaLyte, and HetaCool,
have
been formulated to maintain the patient’s tissue and organ function by
sustaining the patient’s fluid volume and physiological balance. Hextend,
PentaLyte, and HetaCool are composed of a hydroxyethyl starch, electrolytes,
sugar and lactate in an aqueous base. Hextend and HetaCool use a high molecular
weight hydroxyethyl starch (hetastarch) whereas PentaLyte uses a lower,
molecular weight hydroxyethyl starch (pentastarch). The hetastarch is retained
in the blood longer than the pentastarch, which may make Hextend and HetaCool
the products of choice when a larger volume of plasma expander or blood
replacement solution for low temperature surgery is needed, or where the
patient’s ability to restore his own blood proteins after surgery is
compromised. PentaLyte, with pentastarch, would be eliminated from the blood
faster than Hextend and HetaCool and might be used when less plasma expander
is
needed or where the patient is more capable of quickly restoring lost blood
proteins. We believe that by testing and bringing these products to the market,
we can increase our market share by providing the medical community with
solutions to match patients’ needs.
Certain
clinical test results indicate that Hextend is effective at maintaining blood
calcium levels when used to replace lost blood volume. Calcium can be a
significant factor in regulating blood clotting and cardiac function. Clinical
studies have also shown that Hextend maintains acid-base better than
saline-based surgical fluids. We expect that PentaLyte will also be able to
maintain blood calcium levels and acid-base balance based upon the fact that
the
electrolyte formulation of PentaLyte is identical to that of Hextend.
4
Albumin
produced from human plasma is also used as plasma volume expander, but it is
expensive and subject to supply shortages. Additionally, an FDA warning has
cautioned physicians about the risk of administering albumin to seriously ill
patients.
We
have
not attempted to synthesize potentially toxic and costly oxygen-carrying
molecules such as hemoglobin because the loss of fluid volume and physiological
balance may contribute as much to shock as the loss of the oxygen-carrying
component of the blood. Surgical and trauma patients are routinely given
supplemental oxygen and retain a substantial portion of their own red blood
cells. Whole blood or packed red blood cells are generally not transfused during
surgery or in trauma care until several units of plasma volume expanders have
been administered and the patient’s blood cell count has fallen to the
transfusion trigger. Therefore, the lack of oxygen-carrying molecules in BioTime
solutions should not pose a significant contraindication to use.
However,
our scientists have conducted laboratory animal experiments in which they have
shown that Hextend can be successfully used in conjunction with a
hemoglobin-based oxygen carrier solution approved for veterinary purposes to
completely replace the animal’s circulating blood volume without any subsequent
transfusion and without the use of supplemental oxygen. By diluting these oxygen
carrier solutions, Hextend may reduce the potential toxicity and costs
associated with the use of those products. Once such solutions have received
regulatory approval and become commercially available, this sort of protocol
may
prove valuable in markets in parts of the developing world where the blood
supply is extremely unsafe. These applications may also be useful in combat
where logistics make blood use impracticable.
Hextend
is our
proprietary hetastarch-based synthetic blood plasma volume expander, designed
especially to treat hypovolemia in surgery where patients experience significant
blood loss. An important goal of the Hextend development program was to produce
a product that can be used in multi-liter volumes. The safety related secondary
endpoints targeted in the U.S. clinical study included those involving
coagulation. We believe that the low incidence of adverse events related to
blood clotting in the Hextend patients demonstrates that Hextend may be safely
used in amounts exceeding 1.5 liters. An average of 1.6 liters of Hextend was
used in the Phase III clinical trials, with an average of two liters for
patients who received transfused blood products.
Hextend
is also being used in surgery with cardio-pulmonary bypass circuits. In order
to
perform heart surgery, the patient’s heart must be stopped and a mechanical
apparatus is used to oxygenate and circulate the blood. The cardio-pulmonary
bypass apparatus requires a blood compatible fluid such as Hextend to commence
and maintain the process of diverting the patient’s blood from the heart and
lungs to the mechanical oxygenator and pump. In a clinical trial conducted
in
2001, cardiac surgery patients treated with Hextend, maintained more normal
kidney function, experienced less pain and nausea, showed less deep venous
thrombosis, avoided dialysis, and had shorter delay times to first meal compared
to those treated with other fluids.
PentaLyte
is our
proprietary pentastarch-based synthetic plasma expander, designed especially
for
use when a faster elimination of the starch component is desired and acceptable.
Although Hextend can be used in these cases, some physicians appear to prefer
a
solution which can be metabolized faster and excreted earlier when the longer
term protection provided by Hextend is not required. PentaLyte combines the
physiologically balanced Hextend formulation with pentastarch that has a lower
molecular weight and degree of substitution than the hetastarch used in Hextend.
Plasma expanders containing pentastarch are currently widely used around the
world. Our present plan is to seek approval of PentaLyte for use in the
treatment of hypovolemia, and we are
5
presently
evaluating the results of the patient treatment portion of a Phase II clinical
study using PentaLyte in cardiac surgery for that purpose.
HetaCool
is a
modified formulation of Hextend. HetaCool is specifically designed for use
at
low temperatures. Surgeons are already using Hextend and a variety of other
solutions to carry out certain limited procedures involving shorter term (up
to
nearly one hour) arrest of brain and heart function at temperatures between
15o
and
25o
C.
However, we are not aware of any fluid currently used in medical practice or
any
medically approved protocol allowing operations that can completely replace
all
of a patient’s blood at temperatures close to the ice point. We believe that
very low temperature bloodless surgical techniques could be developed for open
heart and minimally invasive closed chest cardiovascular surgeries, removal
of
tumors from and the repair of aneurysms in the brain, heart, and other areas,
as
well as in the treatment of trauma, toxicity and cancer.
The
experimental protocol for the use of HetaCool as a solution to replace all
of a
patient’s circulating blood volume during surgical procedures carried out at
near freezing temperatures is being tested on animals in our NIH funded research
program at the Texas Heart Institute. In medical use, HetaCool would be
introduced into the patient’s body during the cooling process. Once the
patient’s body temperature is nearly ice cold, and heart and brain function are
temporarily arrested, the surgeon would perform the operation. During the
surgery, HetaCool may be circulated throughout the body in place of blood,
or
the circulation may be arrested for a period of time if an interruption of
fluid
circulation is required. Upon completion of the surgery, the patient would
be
slowly warmed and blood would be transfused.
Hextend
has already been used to partially replace blood during cancer surgery in which
a patient’s body temperature was lowered to 15oC
and his
heart was stopped for 27 minutes while the tumor was removed. The patient
recovered without incident, and a case study of the procedure was published
in
the April 2002 issue of the Canadian
Journal of Anesthesia.
Hypothermic techniques may also have an important use in treating trauma
patients that have experienced severe blood loss. We have conducted a research
program using HetaCool in animal models of trauma at the State University of
New
York Health Science Center in Brooklyn. Laboratory results there have already
supported the feasibility of using HetaCool to treat subjects following severe
hemorrhage.
Organ
Transplant Products
The
Market for Organ Preservation Solutions
Organ
transplant surgery is a growing field. Each year in the United States,
approximately 5,000 donors donate organs, and approximately 5,000 people donate
skin, bone and other tissues. As more surgeons have gained the necessary
expertise, and surgical methods have been refined, the number of transplant
procedures has increased, as has the percentage of successful transplants.
Organ
transplant surgeons and their patients face two major obstacles: the shortage
of
available organs from donors, and the limited amount of time that a
transplantable organ can be kept viable between the time it is harvested from
the donor and the time it is transplanted into the recipient.
The
scarcity of transplantable organs makes them too precious to lose and increases
the importance of effective preservation technology and products. Current organ
removal and preservation technology generally requires multiple preservation
solutions to remove and preserve effectively different groups of organs. The
removal of one organ can impair the viability of other organs. Available
technology does not permit surgeons to keep the remaining organs viable
within
6
the
donor’s body for a significant time after the first organ is removed. Currently,
an organ available for transplant is flushed with an ice-cold solution during
the removal process to deactivate the organ and preserve its tissues, and then
the organ is transported on ice to the donee. The ice-cold solutions currently
used, together with transportation on ice, keep the organ healthy for only
a
short period of time. For example, the storage time for hearts is limited to
approximately six hours. Because of the short time span available for removal
and transplant of an organ, potential organ donees may not receive the needed
organs.
We
are
seeking to address this problem by developing a more effective organ
preservation solution that will permit surgeons to harvest all transplantable
organs from a single donor. We believe that preserving the viability of all
transplantable organs and tissues simultaneously, at low temperatures, would
extend by several hours the time span in which the organs can be preserved
prior
to transplant.
Using
HetaCool for Multi-Organ Preservation.
We are
seeking to develop HetaCool for use as a single solution that can simultaneously
preserve all of a single donor’s organs. When used as an organ preservation
solution, HetaCool would be perfused into the donor’s body while the body is
chilled, thereby eliminating an undesirable condition called “warm ischemia,”
caused when an organ is warm while its blood supply is interrupted. The use
of
HetaCool in conjunction with the chilling of the body should help to slow down
the process of organ deterioration by a number of hours so that a surgeon can
remove all organs for donation and transplant. We currently estimate that each
such preservation procedure could require as much as 50 liters of
HetaCool.
We
believe that the ability to replace an animal’s blood with HetaCool, to maintain
the animal at near freezing temperatures for several hours, and then revive
the
animal, would demonstrate that the solution could be used for human multi-organ
preservation. BioTime scientists have revived animals after more than six hours
of cold blood-substitution, and have observed heart function in animals
maintained cold and blood-substituted for more than eight hours. An objective
of
our research and development program is to extend the time span in which animal
subjects can be maintained in a cold, blood-substituted state before revival
or
removal of organs for transplant purposes. Organ transplant procedures using
animal subjects could then be conducted to test the effectiveness of Hextend
as
an organ preservative.
A
successful transplant of a lung cooled inside the donor’s body prior to
transplant has recently been reported in Sweden. The patient who received the
lung was reported to be doing well several months later. The success of that
transplant, which did not involve the use of a BioTime product, involved the
preservation and transplant of a single organ, but indicates that hypothermic
techniques can be used to preserve organs in the donor prior to removal for
transplant.
Long-term
Tissue and Organ Banking
The
development of marketable products and technologies for the preservation of
tissues and vital organs for weeks and months is a long-range goal of our
research and development plan. To permit such long-term organ banking we are
attempting to develop products and technologies that can protect tissues and
organs from the damage that occurs when human tissues are subjected to
subfreezing temperatures.
HetaFreeze®
is one
of a family of BioTime freeze-protective solutions that may ultimately allow
the
extension of time during which organs and tissues can be stored for future
transplant or
7
surgical
grafting. In laboratory experiments, our proprietary freeze-protective compounds
have already been used to preserve skin. Silver dollar-sized full thickness
shaved skin samples have been removed after saturation with HetaFreeze solution,
frozen at liquid nitrogen temperatures and stored for periods ranging from
days
to weeks. The grafts were then warmed and sewn onto the backs of host animals.
Many of these grafts survived. In other experiments, rat femoral arteries were
frozen to liquid nitrogen temperatures, later thawed and then transplanted
into
host rats. These grafts were proven to last up to four months. The work was
published in the October 2002 issue of the Annals
of Plastic Surgery.
We
have
also developed a patent pending devise for hyperbaric freezing and thawing
of
tissues in a manner that might reduce or eliminate structural damage to the
cells or tissue samples. This technology may have application in biological
and
medical research and in the storage of cells and tissues for medical
use.
Our
scientists have also shown that animals can be revived to consciousness after
partial freezing with their blood replaced by HetaFreeze. While this technology
has not developed to an extent that allows long term survival of the laboratory
subjects and their organs, a better understanding of the effects of partial
freezing could allow for extended preservation times for vital organs, skin
and
blood vessels.
Research
and Development Strategy
The
greatest portion of our research and development efforts has been devoted to
the
development of Hextend, PentaLyte and HetaCool for conventional surgery,
emergency care, low temperature surgery, and multi-organ preservation. A lesser
portion of our research and development efforts have been devoted to developing
solutions and protocols for storing organs and tissues at subfreezing
temperatures. As the first products achieve market entry, more effort will
be
expended to bring the next tier of products to maturity.
Another
major focus of our research and development effort has been on products and
technology to extend the time animals can be kept cold and blood-substituted,
and then revived without physical impairment. An integral part of that effort
has been the development of techniques and procedures or “protocols” for use of
our products. A substantial amount of data has been accumulated through animal
tests, including the proper surgical techniques, drugs and anesthetics, the
temperatures and pressures at which blood and blood replacement solutions should
be removed, restored and circulated, solution volume, the temperature range,
and
times, for maintaining circulatory arrest, and the rate at which the subject
should be rewarmed.
Experiments
intended to test the efficacy of our low temperature blood replacement solutions
and protocols for surgical applications involve replacing the animal’s blood
with our solution, maintaining the animal in a cold blood-substituted state
for
a period of time, and then attempting to revive the animal. Experiments for
multi-organ preservation involve the maintenance of the animal subjects at
cold
temperatures for longer periods of time than would be required for many surgical
applications, followed by transplant procedures to test the viability of one
or
more of the subject’s vital organs.
We
are
also developing products for low temperature preservation of tissues and cells.
This area research includes our work with HetaFreeze and a patent pending devise
for hyperbaric freezing
8
and
thawing of tissues in a manner that might reduce or eliminate structural damage
to the cells or tissue samples.
In
addition to our NIH funded research project at the Texas Heart Institute, we
are
conducting two collaborative research programs at the University of California
at Berkeley. One program is testing our solutions and protocols designed for
organ preservation, and the other program is an interventive gerontology project
focused on the identification of specific factors central to aging of the brain
and the development of medical and pharmacological strategies to treat
senescence-related consequences.
We
intend
to continue to foster relations with research hospitals and medical schools
for
the purpose of conducting collaborative research projects because we believe
that such projects will introduce our potential products to members of the
medical profession and provide us with objective product evaluations from
independent research physicians and surgeons.
Some
of
our studies indicate that Hextend can potentially be used in a variety of
protocols in which donor blood is difficult or impossible to use, such as on
the
battlefield, or in parts of the world where there is a shortage of disease-free
blood. For example, we have conducted preliminary laboratory animal studies
using Hextend in a pressurized oxygen environment and found that Hextend can
replace nearly all, or in some cases all, of the circulating blood of rats.
Some
of the rats were able to live long term without a subsequent transfusion, while
others received their own blood back. In other cases, Hextend was used in large
volumes in association with a hemoglobin-based oxygen carrier solution approved
for veterinary use. When used in this way, rats were able to live long term
after all their circulating blood was replaced at normal body temperature while
breathing room air. In still other experiments, rats were allowed to lose
approximately half their circulating blood volume, and then allowed to develop
and remain in respiratory arrest from 10-18 minutes. They were then resuscitated
with Hextend and either ventilated with 100% oxygen, or in a hyperbaric oxygen
chamber containing 100% oxygen at two atmospheres above normal pressure. Some
of
the rats recovered and lived long term after as long as 15 minutes of
respiratory arrest. The hyperbaric chamber appeared to have improved the outcome
in a number of cases.
Licensing
Hospira
Hospira
has the exclusive right to manufacture and sell Hextend in the United States,
Canada, Latin America and Australia under a license agreement with us. Hospira
is presently marketing Hextend in the United States. Hospira’s license applies
to all therapeutic uses other than those involving hypothermic surgery where
the
patient’s body temperature is lower than 12°C
(“Hypothermic
Use”), or replacement of substantially all of a patient’s circulating blood
volume (“Total Body Washout”).
Under
the
Hospira license agreement, we received license fees of $2,500,000 for the grant
of the license and the achievement of certain milestones.
Hospira
also pays us a royalty on total annual net sales of Hextend. The royalty rate
is
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 is applied on a
total net sales basis. Hospira’s obligation to pay royalties on sales of Hextend
will expire on a country by country basis when all patents
protecting
9
Hextend
in the applicable country expire and any third party obtains certain regulatory
approvals to market a generic equivalent product in that country. The relevant
composition patents begin to expire in 2014 and the relevant methods of use
patents expire in 2019.
We
have
the right to convert Hospira’s exclusive license to a non-exclusive license or
to terminate the license outright if certain minimum sales and royalty payments
are not met. In order to terminate the license outright, we would pay a
termination fee in an amount ranging from the milestone payments we received
to
an amount equal to three times prior year net sales, depending upon when
termination occurs. Hospira has agreed to manufacture Hextend for sale by us
in
the event that the exclusive license is terminated.
Hospira
has certain rights to acquire additional licenses to manufacture and sell our
other plasma expander products in their market territory. If Hospira exercises
these rights to acquire a license to sell such products for uses other than
Hypothermic Surgery or Total Body Washout, in addition to paying royalties,
Hospira will be obligated to pay a license fee based upon our direct and
indirect research, development and other costs allocable to the new product.
If
Hospira desires to acquire a license to sell any of our products for use in
Hypothermic Surgery or Total Body Washout, the license fees and other terms
of
the license will be subject to negotiation between the parties. For the purpose
of determining the applicable royalty rates, net sales of any such new products
licensed by Hospira will be aggregated with sales of Hextend. If Hospira does
not exercise its right to acquire a new product license, we may manufacture
and
sell the product ourselves or we may license others to do so.
Hospira
supplied us with batches of PentaLyte for our clinical trial, and performed
characterization and stability studies, and other regulatory support needed
for
our clinical studies. The foregoing description of the Hospira license agreement
is a summary only and is qualified in all respects by reference to the full
text
of that license agreement.
CJ
Corp.
CJ
markets Hextend in South Korea under an exclusive license from us. CJ paid
us a
license fee of $800,000 in two installments, less Korean taxes of $132,000
withheld. In connection with these installments, we paid a total finder’s fee of
$80,000 to an unrelated third party. In addition to the license fees, CJ pays
us
a royalty on sales of Hextend. The royalty will range from $1.30 to $2.60 per
500 ml unit of product sold, depending upon the price approved by Korea’s
National Health Insurance. CJ is also responsible for obtaining the regulatory
approvals required to manufacture and market PentaLyte, including conducting
any
clinical trials that may be required, and will bear all related costs and
expenses.
The
foregoing description of the CJ license is a summary only and is qualified
in
all respects by reference to the full text of the CJ license
agreement.
Summit
We
have
entered into agreements with Summit to develop Hextend and PentaLyte in Japan,
the People’s Republic of China, and Taiwan. Summit has sublicensed to Maruishi
the right to manufacture and market Hextend in Japan, and the right to
manufacture and market Hextend and PentaLyte in China and Taiwan. The licenses
do not include Hypothermic Use.
10
Under
the
sublicense, Maruishi will complete clinical trials required and obtain
regulatory approval to market the licensed products. Summit will also
participate in the clinical trial and regulatory approval process. A Phase
II
clinical trial using Hextend in surgery is presently being conducted in Japan,
and if the results are favorable, Summit plans to begin a Phase III trial during
2008. Maruishi will not be obligated to begin to seek regulatory approval of
Hextend or PentaLyte in China and Taiwan earlier than six months after the
results of the Phase II study of Hextend in Japan or our Phase II study of
PentaLyte in the United States are made available to them, or March 2009,
whichever is later.
The
revenues from licensing fees, royalties, and net sales, and any other payments
made for co-development, manufacturing, or marking rights to Hextend and
PentaLyte in Japan will be shared between BioTime and Summit as follows: 40%
to
us and 60% to Summit. Net sales means the gross revenues from the sale of a
product, less rebates, discounts, returns, transportation costs, sales taxes
and
import/export duties.
Summit
paid us a total of $900,000 through 2005 for the right to co-develop Hextend
and
PentaLyte in Japan. In June 2005, we paid Summit a one-time fee of $130,000
for
Summit’s services in preparing a product development plan. In addition, we
received approximately $237,356 from Summit as our share of a sublicense fee
payment from Maruishi to Summit in October 2005. Additional milestone payments
of 100,000,000 yen each, of which BioTime will receive 40%, are payable by
Maruishi to Summit when a new drug application for Hextend is filed in Japan
and
when the new drug application is approved. The filing of a new drug application
in Japan will not be done until clinical trials are completed, which could
take
several years. We will also be entitled to receive 40% of the royalties paid
by
Maruishi to Summit on sales in Japan. Royalties will range from 12% to 20%
of
net sales, depending upon the amount of Hextend sold. The royalty rates are
subject to reduction if Summit does not complete its participation in Phase
III
trials of Hextend and the new drug application, or if Summit elects to co-market
Hextend in Japan. However, if Summit sells Hextend, we will also be entitled
to
receive 40% of Summit’s net sales revenues.
We
will
pay to Summit 8% of all net royalties that we receive from the sale of PentaLyte
in the United States, plus 8% of any license fees that we receive in
consideration of granting a license to develop, manufacture and market PentaLyte
in the United States. Net royalties means royalty payments received during
a
calendar year, minus the following costs and expenses incurred during such
calendar year: (a) all taxes assessed (other than taxes determined with
reference to our net income) and credits given or owed by us in connection
with
the receipt of royalties on the sale of PentaLyte in the United States, and
(b)
all fees and expenses payable by us to the United States Food and Drug
Administration (directly or as a reimbursement of any licensee) with respect
to
PentaLyte. In the case of license fees received from Hospira based upon the
combined sale of PentaLyte and Hextend, the portion of that license fee that
will be deemed to be a paid on account of the sale of PentaLyte will be
determined by multiplying the total license fee paid by a fraction, the
numerator of which will be the total net sales of PentaLyte in the United States
for the applicable period and the denominator of which shall be the total net
sales of Hextend and PentaLyte in the United States for the same
period.
Summit
paid us $500,000 as the initial consideration for the China and Taiwan license.
We also will be entitled to receive 50% of the royalties and milestone payments
payable to Summit by its third-party sublicensee, Maruishi. Milestone payments
of 20,000,000 yen are payable by Maruishi when the first new drug application
for Hextend is filed and when the first clinical study of
11
PentaLyte
begins under the sublicense. An additional milestone payment of 30,000,000
yen
is payable by Maruishi when the first new drug application for PentaLyte is
filed under the sublicense.
The
foregoing description of the Summit agreement is a summary only and is qualified
in all respects by reference to the full text of the Summit agreements.
Other
Licensing Efforts
We
are
discussing prospective licensing arrangements with other pharmaceutical
companies that have expressed their interest in marketing our products
abroad. In
licensing arrangements that include marketing rights, the participating
pharmaceutical company would be entitled to retain a large portion of the
revenues from sales to end users and would pay us a royalty on net sales. There
is no assurance that any such licensing arrangements can be made.
Manufacturing
Manufacturing
Arrangements
Hospira
manufactures Hextend for use in the North American market, and CJ manufactures
Hextend for use in South Korea. NPBI International, BV, a Netherlands company
(“NPBI”), has manufactured batches of Hextend for our use in seeking regulatory
approval in Europe. Hospira, CJ, and NPBI have the facilities to manufacture
Hextend and other BioTime products in commercial quantities. If Hospira and
CJ
choose not to manufacture and market PentaLyte or other BioTime products, and
if
NPBI declines to manufacture BioTime products on a commercial basis, other
manufacturers will have to be found that would be willing to manufacture
products for us or any licensee of our products.
Facilities
Required
Any
products that are used in clinical trials for regulatory approval in the United
States or abroad, or that are approved by the FDA or foreign regulatory
authorities for marketing, have to be manufactured according to “good
manufacturing practices” at a facility that has passed regulatory inspection. In
addition, products that are approved for sale will have to be manufactured
in
commercial quantities, and with sufficient stability to withstand the
distribution process, and in compliance with such domestic and foreign
regulatory requirements as may be applicable. The active ingredients and
component parts of the products must be medical grade or themselves manufactured
according to FDA-acceptable “good manufacturing practices.”
We
do not
have facilities to manufacture our products in commercial quantities, or under
“good manufacturing practices.” Acquiring
a manufacturing facility would involve significant expenditure of time and
money
for design and construction of the facility, purchasing equipment, hiring and
training a production staff, purchasing raw material and attaining an efficient
level of production. Although we have not determined the cost of constructing
production facilities that meet FDA requirements, we expect that the cost would
be substantial, and that we would need to raise additional capital in the future
for that purpose. To avoid the incurrence of those expenses and delays, we
are
relying on contract and licensing arrangements with established pharmaceutical
companies for the production of our products, but there can be no assurance
that
satisfactory arrangements will be made for any new products that we may develop.
12
Raw
Materials
Although
most ingredients in the products we are developing are readily obtainable from
multiple sources, we know of only a few manufacturers of the hydroxyethyl
starches that serve as the primary drug substance in Hextend, PentaLyte and
HetaCool. Hospira and CJ presently have a source of supply of the hydroxyethyl
starch used in Hextend, PentaLyte and HetaCool, and have agreed to maintain
a
supply sufficient to meet market demand for Hextend in the countries in which
they market the product. We believe that we will be able to obtain a sufficient
supply of starch for our needs in the foreseeable future, although we do not
have supply agreements in place. If for any reason a sufficient supply of
hydroxyethyl starch could not be obtained, we or a licensee would have to
acquire a manufacturing facility and the technology to produce the hydroxyethyl
starch according to good manufacturing practices. We would have to raise
additional capital to participate in the development and acquisition of the
necessary production technology and facilities.
If
arrangements cannot be made for a source of supply of hydroxyethyl starch,
we
would have to reformulate our solutions to use one or more other starches that
are more readily available. In order to reformulate our products, we would
have
to perform new laboratory testing to determine whether the alternative starches
could be used in a safe and effective synthetic plasma volume expander, low
temperature blood substitute or organ preservation solution. If needed, such
testing would be costly to conduct and would delay our product development
program, and there is no certainty that any such testing would demonstrate
that
an alternative ingredient, even if chemically similar to the one currently
used,
would be as safe or effective.
Marketing
Hextend
is being distributed in the United States by Hospira and in South Korea by
CJ
under exclusive licenses from us. Hospira also has the right to obtain licenses
to manufacture and sell other BioTime products. We have granted Hospira the
right to market Hextend in Latin America and Australia, we have granted CJ
the
right to market PentaLyte in South Korea, and we have licensed to Summit the
right to market Hextend and PentaLyte in Japan, China and Taiwan, but our
licensees will have to first obtain the foreign regulatory approvals required
to
sell our product in those countries.
Because
Hextend is a surgical product, sales efforts must be directed to physicians
and
hospitals. The Hextend marketing strategy is designed to reach its target
customer base through sales calls and an advertising campaign focused on the
use
of a plasma-like substance to replace lost blood volume and the ability of
Hextend to support vital physiological processes.
Hextend
competes with other products used to treat or prevent hypovolemia, including
albumin, generic 6% hetastarch solutions, and crystalloid solutions. The
competing products have been commonly used in surgery and trauma care for many
years, and in order to sell Hextend, physicians must be convinced to change
their product loyalties. Although albumin is expensive, crystalloid solutions
and generic 6% hetastarch solutions sell at low prices. In order to compete
with
other products, particularly those that sell at lower prices, Hextend will
have
to be recognized as providing medically significant advantages.
The
FDA
has required the manufacturers of 6% hetastarch in saline solutions to change
their product labeling by adding a warning stating that those products are
not
recommended for use as a
13
cardiac
bypass prime solution, or while the patient is on cardiopulmonary bypass, or
in
the immediate period after the pump has been disconnected. We have not been
required to add that warning to the labeling of Hextend. An article discussing
this issue entitled “6% Hetastarch in Saline Linked to Excessive Bleeding in
Bypass Surgery” appeared in the December 2002 edition of Anesthesiology
News.
We
understand that a number of hospitals have switched from 6% hetastarch in saline
to Hextend due to these concerns.
As
part
of the marketing program, a number of studies have been conducted that show
the
advantages of receiving Hextend and other BioTime products during surgery.
As
these studies are completed, the results are presented at medical conferences
and articles written for publication in medical journals. We are also aware
of
independent studies using Hextend that are being conducted by physicians and
hospitals who may publish their findings in medical journals or report their
findings at medical conferences. The outcome of future medical studies and
timing of the publication or presentation of the results could have an effect
on
Hextend sales.
Government
Regulation
The
FDA
and foreign regulatory authorities will regulate our proposed products as drugs,
biologicals, or medical devices, depending upon such factors as the use to
which
the product will be put, the chemical composition and the interaction of the
product on the human body. In the United States, products that are intended
to
be introduced into the body, such as blood substitute solutions for low
temperature surgery and plasma expanders, will be regulated as drugs and will
be
reviewed by the FDA staff responsible for evaluating biologicals.
Our
domestic human drug products will be subject to rigorous FDA review and approval
procedures. After testing in animals, an Investigational New Drug Application
(IND) must be filed with the FDA to obtain authorization for human testing.
Extensive clinical testing, which is generally done in three phases, must then
be undertaken at a hospital or medical center to demonstrate optimal use, safety
and efficacy of each product in humans. Each clinical study is conducted under
the auspices of an independent Institutional Review Board (“IRB”). The IRB will
consider, among other things, ethical factors, the safety of human subjects
and
the possible liability of the institution. The time and expense required to
perform this clinical testing can far exceed the time and expense of the
research and development initially required to create the product. No action
can
be taken to market any therapeutic product in the United States until an
appropriate New Drug Application (“NDA”) has been approved by the FDA. Even
after initial FDA approval has been obtained, further studies may be required
to
provide additional data on safety or to gain approval for the use of a product
as a treatment for clinical indications other than those initially targeted.
In
addition, use of these products during testing and after marketing could reveal
side effects that could delay, impede or prevent FDA marketing approval,
resulting in a FDA-ordered product recall, or in FDA-imposed limitations on
permissible uses.
The
FDA
regulates the manufacturing process of pharmaceutical products, requiring that
they be produced in compliance with “good manufacturing practices.” See
“Manufacturing.” The FDA also regulates the content of advertisements used to
market pharmaceutical products. Generally, claims made in advertisements
concerning the safety and efficacy of a product, or any advantages of a product
over another product, must be supported by clinical data filed as part of an
NDA
or an amendment to an NDA, and statements regarding the use of a product must
be
consistent with the FDA approved labeling and dosage information for that
product.
14
Sales
of
pharmaceutical products outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. Even if FDA
approval has been obtained, approval of a product by comparable regulatory
authorities of foreign countries must be obtained prior to the commencement
of
marketing the product in those countries. The time required to obtain such
approval may be longer or shorter than that required for FDA approval.
Patents
and Trade Secrets
We
currently hold 21 issued United States patents having composition and methods
of
use claims covering our proprietary solutions, including Hextend and PentaLyte.
The most recent U.S. patents were issued during 2002. Some of our allowed claims
in the United States, which include the composition and methods of use of
Hextend and PentaLyte, are expected to remain in force until 2014 in the case
of
the composition patents and 2019 in the case of the methods of use patents.
Patents covering certain of our solutions have also been issued in several
countries of the European Union, Australia, Israel, Russia, South Africa, South
Korea, Japan, China, Hong Kong, Taiwan and Singapore, and we have filed patent
applications in other foreign countries for certain products, including Hextend,
HetaCool, and PentaLyte. Certain device patents describing our hyperbaric (high
pressure oxygen) chamber, and proprietary microcannula (a surgical tool) have
also been issued in the United States and overseas, both of which - although
only used in research so far - have possible indications in clinical medicine.
We have also filed patent applications for our new device designed to freeze
and
thaw tissues.
There
is
no assurance that any additional patents will be issued. There is also the
risk
that any patents that we hold or later obtain could be challenged by third
parties and declared invalid or infringing of third party claims. Further,
the
enforcement of patent rights often requires litigation against third party
infringers, and such litigation can be costly to pursue.
In
addition to patents, we rely on trade secrets, know-how and continuing
technological advancement to maintain our competitive position. We have entered
into intellectual property, invention and non-disclosure agreements with our
employees and it is our practice to enter into confidentiality agreements with
our consultants. There can be no assurance, however, that these measures will
prevent the unauthorized disclosure or use of our trade secrets and know-how
or
that others may not independently develop similar trade secrets and know-how
or
obtain access to our trade secrets, know-how or proprietary technology.
Competition
Our
plasma volume expander solutions will compete with products currently used
to
treat or prevent hypovolemia, including albumin, other colloid solutions, and
crystalloid solutions presently manufactured by established pharmaceutical
companies, and with human blood products. Some of these products, in particular
crystalloid solutions, are commonly used in surgery and trauma care and sell
at
low prices. In order to compete with other products, particularly those that
sell at lower prices, our products will have to be recognized as providing
medically significant advantages. Like Hextend, the competing products are
being
manufactured and marketed by established pharmaceutical companies that have
large research facilities, technical staffs and financial and marketing
resources. B.Braun presently markets Hespan, an artificial plasma volume
expander containing 6% hetastarch in saline solution. Hospira and Baxter
International manufacture and sell a generic equivalent of Hespan. As a result
of the introduction of generic plasma expanders intended to compete with Hespan,
competition in the plasma expander market has intensified and
wholesale
15
prices
have declined. Hospira, which markets Hextend in the United States, is also
the
leading seller of generic 6% hetastarch in saline solution. Sanofi-Aventis,
Baxter International, and Alpha Therapeutics sell albumin, and Hospira, Baxter
International, and B.Braun sell crystalloid solutions.
To
compete with new and existing plasma expanders, we have developed products
that
contain constituents that may prevent or reduce the physiological imbalances,
bleeding, fluid overload, edema, poor oxygenation, and organ failure that can
occur when competing products are used. To compete with existing organ
preservation solutions, we have developed solutions that can be used to preserve
all organs simultaneously and for long periods of time.
A
number
of other companies are known to be developing hemoglobin and synthetic red
blood
cell substitutes and technologies. Our products have been developed for use
either before red blood cells are needed or in conjunction with the use of
red
blood cells. In contrast, hemoglobin and other red blood cell substitute
products are designed to remedy ischemia and similar conditions that may result
from the loss of oxygen-carrying red blood cells. Those products would not
necessarily compete with our products unless the oxygenating molecules were
included in solutions that could replace fluid volume and prevent or reduce
the
physiological imbalances as effectively as our products. Generally, red blood
cell substitutes are more expensive to produce and potentially more toxic than
Hextend and PentaLyte.
The
competition we face is likely to intensify further as new products and
technologies reach the market. Superior new products are likely to sell for
higher prices and generate higher profit margins once acceptance by the medical
community is achieved. Those companies that are successful in introducing new
products and technologies to the market first may gain significant economic
advantages over their competitors in the establishment of a customer base and
track record for the performance of their products and technologies. Such
companies will also benefit from revenues from sales that could be used to
strengthen their research and development, production, and marketing resources.
All companies engaged in the medical products industry face the risk of
obsolescence of their products and technologies as more advanced or cost
effective products and technologies are developed by their competitors. As
the
industry matures, companies will compete based upon the performance and cost
effectiveness of their products.
Employees
As
of
December 31, 2006, we employed nine persons on a full-time basis and one person
on a part-time basis. Four full-time employees hold Ph.D. Degrees in one or
more
fields of science.
We
occupy
our office and laboratory facility in Heritage Square in Emeryville, California
under a lease that will expire on May 31, 2010, with a five year extension
option. We presently occupy approximately 5,244 square feet of space and pay
monthly rent in the amount of $10,802. Our rent will increase by 3% each year
during the initial five year term. If the option to extend the lease is
exercised, monthly rent will be set at 95% of fair market rent at that time.
In
addition to rent, we will pay our prorata share of operating expenses and real
estate taxes for the building in which our space is located or for the Heritage
Square project as a whole, as applicable, based upon the ratio that the number
of square feet we rent bears to the total number of square feet in the building
or project.
16
We
are
not presently involved in any material litigation or proceedings, and to our
knowledge no such litigation or proceedings are contemplated.
None.
17
BioTime
common shares were traded on the American Stock Exchange from August 31, 1999
until July 14, 2005, and have been quoted on the OTC Bulletin Board under the
symbol BTIM since July 15, 2005. BioTime shares traded on the Nasdaq National
Market from April 28, 1998 to August 30, 1999, and on the Nasdaq SmallCap Market
from March 5, 1992 through April 27, 1998.
The
following table sets forth the range of high and low sale or bid prices for
the
common shares for the fiscal years ended December 31, 2005 and 2006 based on
transaction data as reported by the AMEX and the Nasdaq OTC Bulletin Board:
|
Quarter
Ended
|
High
|
Low
|
||
|
March
31, 2005
|
1.67
|
1.12
|
||
|
June
30, 2005
|
1.19
|
0.52
|
||
|
September
30, 2005
|
0.80
|
0.35
|
||
|
December
31, 2005
|
0.43
|
0.20
|
||
|
March
31, 2006
|
0.46
|
0.28
|
||
|
June
30, 2006
|
0.41
|
0.21
|
||
|
September
30, 2006
|
0.39
|
0.18
|
||
|
December
31, 2006
|
0.49
|
0.20
|
Over-the-counter
market quotations may reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual
transactions.
As
of
January 31, 2006, there were 5,401 holders of the common shares.
BioTime
has paid no dividends on its common shares since its inception and does not
plan
to pay dividends on its common shares in the foreseeable future. We are also
prohibited from paying dividends under the terms of a Revolving Line of Credit
Agreement.
The
following table shows certain information concerning the options and warrants
outstanding and available for issuance under all of our compensation plans
and
agreements as of December 31, 2006.
18
|
Plan
Category
|
Number
of Shares to be Issued Upon Exercise of Outstanding Options, Warrants,
and
Rights
|
Weighted
Average Exercise Price of the Outstanding Options, Warrants, and
Rights
|
Number
of Shares
Remaining
Available for Future Issuance Under Equity Compensation
Plans
|
|||
|
Equity
Compensation Plans Approved by Shareholders
|
9,654,978
|
$2.03
|
407,836
|
|||
|
Equity
Compensation Plans Not Approved By Shareholders
|
100,000
|
$4.00
|
__
|
19
Overview
We
are in
the business of developing blood plasma volume expanders and related products.
Our operating revenues have been generated primarily from licensing fees and
from royalties on the sale of Hextend. Our ability to generate substantial
operating revenue depends upon our success in developing and marketing or
licensing our plasma volume expanders and organ preservation solutions and
technology for medical use.
Most
of
our research and development efforts have been devoted to our first three blood
volume replacement products: Hextend, PentaLyte, and HetaCool. By testing and
bringing all three products to the market, we can increase our 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, we may also create new market segments
for
our product line.
Royalties
on sales of Hextend that occurred during the fourth quarter of 2005 through
the
third quarter of 2006 are reflected in our financial statements for the year
ended December 31, 2006. We received $933,478 in royalties from Hextend sales
during 2006. This represents an increase of 49% from $626,135 in royalties
from
Hextend sales in 2005. The amount received during 2005 included $62,272 received
from Hospira to preserve certain rights under their license. Although hospital
sales increased in 2006, the largest contributing factor to the increase in
royalties from 2005 was an increase in large volume orders by the U.S. Armed
Forces in the second half of 2006. Hextend is part of the Tactical Combat
Casualty Care protocol and has been purchased by the U.S. Armed Forces through
intermittent large volume orders.
Royalties
of $199,264
on sales that occurred during the fourth quarter of 2006 will be reflected
in
our financial statements for the first quarter of 2007.
Hextend
has become the standard plasma volume expander at a number of prominent
teaching
hospitals and leading medical centers and is part of the Tactical Combat
Casualty Care protocol. We believe that as Hextend use proliferates within
the
leading U.S. hospitals, other smaller hospitals will follow their lead,
contributing to sales growth.
During
the years ended December 31, 2006 and 2005 we received $500,000 and $600,000,
respectively, from Summit for the right to co-develop Hextend and PentaLyte
in
Japan, China, and Taiwan. A portion of the cash payments will be a partial
reimbursement of BioTime’s development costs of Hextend and a portion will be a
partial reimbursement of BioTime’s development costs of PentaLyte. These
payments have not been recognized as revenues. Instead the $500,000 received
in
2006 is reflected on our balance sheet as deferred revenue and the $600,000
is
reflected on our balance sheet as a royalty obligation. In June 2005, we paid
Summit a one-time fee of $130,000 for Summit’s services in preparing a product
development plan. In addition, we received approximately $237,356 from Summit
in
October 2005 as our 40% share of a sublicense fee payment made by Maruishi
to
Summit. See Note 4 to financial statements for further discussion of the
appropriate accounting.
The
following graph illustrates the increase in our annual revenues from royalties
and license fees for the years indicated. For the years 2001 and 2002, revenues
consist of payments received from Hospira. For 2003 through 2006, revenues
include payments received from Hospira and the amortized portion of license
fees
and royalties from CJ Corp and Summit. For the years 2004 through 2006, revenues
also include income from our NIH grant. Only $70,478 and $7,417 of the payments
we received from Summit during 2005 and 2006, respectively, have been
recognized as revenues for financial reporting purposes.
We
have
completed the patient enrollment and treatment portion of a Phase II clinical
trial of PentaLyte in which PentaLyte is being used to treat hypovolemia in
cardiac surgery, and we are presently analyzing the results of the trial. Our
ability to commence and complete additional clinical studies of PentaLyte
depends on our cash resources and the costs involved, which are not presently
determinable. Clinical trials of PentaLyte in the United States may take longer
and may be more costly than the Hextend clinical trials, which cost
approximately $3,000,000. The FDA permitted us to proceed directly into a Phase
III clinical trial of Hextend involving only 120 patients because the active
ingredients in Hextend had already been approved for use in plasma expanders
by
the FDA in other products. Because PentaLyte contains a starch (pentastarch)
that has not been approved by the FDA for use in a plasma volume expander
(although pentastarch is approved in the US for use in certain intravenous
solutions used to collect certain blood cell fractions), we had to complete
Phase I and Phase II clinical trial of PentaLyte. A subsequent Phase III trial
may involve more patients than the Hextend trials, and we do not know yet the
actual scope or cost of the clinical trials that the FDA will require for
PentaLyte or the other products we are developing.
20
If
Hospira obtains a license to manufacture and market PentaLyte under our License
Agreement with them, they would reimburse us for our direct costs incurred
in
developing PentaLyte. Hospira’s decision whether to license PentaLyte would
follow their evaluation of the results of our Phase II trial. We submitted
a
report of those results to Hospira during April 2007. Although Hospira has
expressed its continued interest in PentaLyte, there is no assurance that they
will choose to obtain a license. If Hospira declines to license PentaLyte,
we
would need to find a different licensee to manufacture and market PentaLyte
in
the United States and Canada. Regardless of whether we license PentaLyte to
Hospira, we will seek licensing arrangements for PentaLyte in
Europe.
Plasma
volume expanders containing pentastarch have been approved for use in certain
foreign countries including Canada, certain European Union countries, and Japan.
The regulatory agencies in those countries may be more willing to accept
applications for regulatory approval of PentaLyte based upon clinical trials
smaller in scope than those that may be required by the FDA. This would permit
us to bring PentaLyte to market overseas more quickly than in the United States,
provided that suitable licensing arrangements can be made with multinational
or
foreign pharmaceutical companies to obtain financing for clinical trials and
manufacturing and marketing arrangements.
We
are
also continuing to develop solutions for low temperature surgery. Once a
sufficient amount of data from successful low temperature surgery has been
compiled, we plan to seek permission to use Hextend as a complete replacement
for blood under near-freezing conditions. We currently plan to market Hextend
for complete blood volume replacement at very low temperatures under the
registered trademark “HetaCool®” after FDA approval is obtained.
We
have
been awarded a $299,990 research grant by the NIH for use in the development
of
HetaCool. We are using the grant to fund a project entitled “Resuscitating
Blood-Substituted Hypothermic Dogs” at the Texas Heart Institute in Houston
under the guidance of Dr. George V. Letsou. Dr. Letsou is Associate Professor
of
Surgery and Director of the Heart Failure Center at the University of Texas
Medical School in Houston, Texas. We were granted $149,994 for the project
during 2004 and $149,996 during 2005. We have received $240,251 of the grant
funds through December 31, 2006. In 2007, the time period for drawing down
the
remainder of the grant funds was extended for another year, running through
March 31, 2008.
BioTime
scientists believe 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 a multi-organ donor preservation solution or to
temporarily replace substantially all of the patient’s circulating blood volume)
in cardiovascular surgery, trauma treatment, and organ transplantation. However,
the cost and time to complete the development of HetaCool, including clinical
trials, cannot presently be determined.
We
will
depend upon royalties from the sale of Hextend by Hospira and CJ as our
principal source of revenues for the foreseeable future. Those royalty revenues
will be supplemented by license fees as we enter into new commercial license
agreements for our products.
The
amount and pace of research and development work that we can do or sponsor,
and
our ability to commence and complete clinical trials required to obtain FDA
and
foreign regulatory approval of products, depends upon the amount of money we
have. Future research and clinical
21
study
costs are not presently determinable due to many factors, including the inherent
uncertainty of these costs and the uncertainty as to timing, source, and amount
of capital that will become available for these projects. We have already
curtailed the pace of our product development efforts due to the limited amount
of funds available, and we may have to postpone further laboratory and clinical
studies, unless our cash resources increase through growth in revenues, the
completion of licensing agreements, additional equity investment, borrowing
or
third party sponsorship.
Because
our 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 in the
near term.
Results
of Operations
Year
Ended December 31, 2006 and Year Ended December 31, 2005
For
the
year ended December 31, 2006, we recognized $933,478 of royalty revenues,
compared with $626,135 recognized for the year ended December 31, 2005. This
49%
increase in royalties is attributable to an increase in product sales by
Hospira. Although hospital sales increased in 2006, the largest contributing
factor to the increase in royalties from 2005 was an increase in large volume
orders by the U.S. Armed Forces in the second half of 2006. The Armed Forces
purchase Hextend through intermittent, large volume orders, which makes it
difficult to predict sales to them in subsequent periods.
Under
our
License Agreement, Hospira reports sales of Hextend and pays us the royalties
and license fees due on account of such sales within 90 days after the end
of
each calendar quarter. We recognize such revenues in the quarter in which the
sales report is received, rather than the quarter in which the sales took place,
as we do not have sufficient sales history to accurately predict quarterly
sales. For example, royalties on sales made during the fourth quarter of 2006
will not be recognized until the first quarter of fiscal year 2007.
We
recognized $172,371 and $113,039 of license fees from CJ and Summit during
2006
and 2005, respectively. Full recognition of license fees has been deferred,
as
the completion of the development of PentaLyte, including final FDA approval,
remains uncertain. Revenue is recognized over the life of the contract, which
has been estimated to be approximately eight years based on the current expected
life of the governing patent covering our products in Korea and Japan.
We
have
been awarded a $299,990 research grant by the NIH for use in the development
of
HetaCool. We were granted $149,994 for the project during 2004 and $149,996
during 2005. We have received $240,251 of the grant funds through December
31,
2006. In 2007, the time period for drawing down the remainder of the grant
funds
was extended for another year, running through March 31, 2008.
Research
and development expenses decreased to $1,422,257 for the year ended December
31,
2006, from $1,525,686 for the year ended December 31, 2005. The decrease is
chiefly attributable to a decrease of approximately $122,000 in outside research
for Phase II trials of PentaLyte and a decrease of approximately $40,000 in
consultants and lab expenses. This decrease is partially offset by the adoption
of Statement of Financial Accounting Standards (“SFAS”)
No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”)
which
resulted in stock-based research and
22
development
expense of approximately $27,000 for 2006. Additionally, salary expense
increased approximately $43,000 due to the discontinuation of voluntary pay
cuts
by BioTime employees as part of a cost cutting plan that had been in effect
for
half of 2005. Research and development expenses include laboratory study
expenses, salaries, preparation of regulatory applications for our products,
manufacturing of solution for trials, and consultants’ fees.
General
and administrative expenses increased to $1,491,622 for the year ended December
31, 2006 from $1,395,925 for the year ended December 31, 2005. This change
reflects an increase of approximately $120,000 in general and administrative
salary expense due to the end of a voluntary salary reduction plan that had
been
in effect for half of 2005, and approximately $87,000 charged to general and
administrative stock-based compensation in accordance with adoption of SFAS
123(R). The increase was offset by a decrease in general and administrative
consulting fees of approximately $37,000, a decrease in legal and accounting
expenses of approximately $57,000, and a decrease in office expenses of
approximately $23,000. General and administrative expenses include salaries
allocated to general and administrative accounts, scientific consulting fees,
expenditures for patent costs, trademark expenses, insurance costs allocated
to
general and administrative expenses, stock exchange-related costs, depreciation
expense, shipping expenses, marketing costs, and other miscellaneous expenses.
Our
interest expense increased by $77,557 during 2006 due to imputed interest on
our
royalty obligation.
For
the
year ended December 31, 2006, other income increased to $44,357 from $23,138
for
the year ended December 31, 2005. The difference is chiefly attributable to
an
increase in interest income of $20,354.
Taxes
At
December 31, 2006 we had a cumulative net operating loss carryforward of
approximately $44,700,000
for federal income tax purposes. Our effective tax rate differs from the
statutory rate because we have recorded a 100% valuation allowance against
our
deferred tax assets, as we do not consider realization to be more likely than
not.
Liquidity
and Capital Resources
During
2006 we received approximately $1,560,000 of cash in our operations. Our sources
of that cash were: approximately $930,000 of royalty revenues from Hospira;
approximately $60,000 of NIH grant money; a net total of $500,000 from Summit;
$20,000 from CJ; and $50,000 in other income. During the same period our total
research and development expenditures were approximately $1,420,000 and our
administrative expenditures were approximately $1,490,000. We had no contractual
obligations as of December 31, 2006, with the exception of a fixed,
non-cancelable operating lease on our office and laboratory facilities in
Emeryville, California. Under this lease, we are committed to make payments
of
$10,802 per month, increasing 3% annually, plus our pro rata share of operating
costs for the building and office complex, through May 31, 2010.
At
December 31, 2006 we had $561,017 of cash on hand and a $500,000 line of credit.
At our projected rate of spending, which includes possible spending cuts, our
cash on hand, anticipated
23
royalties
from the sale of Hextend, licensing fees, and our available revolving line
of
credit will allow us to operate through September 30, 2007.
We
will
need to obtain additional equity capital or licensing fees during 2007 to
finance our current operations because our current line of credit and our
royalty revenues are not sufficient to fund our operating expenses operations
beyond September 30, 2007.
During
April 2007 we submitted to Hospira a report of the results of our Phase II
clinical study of PentaLyte. Although Hospira has expressed its continued
interest in PentaLyte, there is no assurance that they will choose to obtain
a
license. If Hospira declines to license PentaLyte, we would need to find a
different licensee to manufacture and market PentaLyte in the United States
and
Canada. Regardless of whether we license PentaLyte to Hospira, we will seek
licensing arrangements for PentaLyte in Europe.
Since
inception, we have primarily financed our operations through the sale of equity
securities, licensing fees, royalties on product sales by our licensees, and
borrowings. The amount of license fees and royalties that may be earned through
the licensing and sale of our products and technology, the timing of the receipt
of license fee payments, and the future availability and terms of equity
financing, are uncertain. The unavailability or inadequacy of financing or
revenues to meet future capital needs could force us to modify, curtail, delay
or suspend some or all aspects of our planned operations. Sales of additional
equity securities could result in the dilution of the interests of present
shareholders.
In
April
2006, we entered into a Revolving Line of Credit Agreement (the “Credit
Agreement”) with Alfred D. Kingsley, Cyndel & Co., Inc., and George
Karfunkel, investors in BioTime, under which we may borrow up to $500,000 for
working capital purposes at an interest rate of 10% per annum. The
maturity date of the Credit Agreement is the earlier of (i) October 31,
2007 and (ii) such date on which the we shall have received an aggregate of
$600,000 through (A) the sale of capital stock, (B) the collection of license
fees, signing fees, milestone fees, or similar fees in excess of $1,000,000
under any present or future agreement pursuant to which we grant one or more
licenses to use our patents or technology, (C) funds borrowed from other
lenders, (D) any combination of sources under clauses (A) through (C). Under
the
Credit Agreement, we will prepay, and the credit line will be reduced by, any
funds received prior to the maturity date from those sources discussed above.
In
consideration for making the line of credit available, we issued to the
investors a total of 99,999 common shares. The line of credit is collateralized
by a security interest in our right to receive royalty and other payments under
our license agreement with Hospira. The market value of BioTime common stock
was
$0.38 per common share on April 12, 2006, valuing the shares at $38,000.
During
January 2004, we completed a rights offer that began during 2003 (the “2003
Rights Offer”) through which we raised gross proceeds of $4,184,420 through the
sale of 2,560,303 common shares and 1,280,073 warrants. Following the completion
of the 2003 Rights Offer, we raised an additional $600,000 by selling an
additional 428,571 common shares and 214,284 warrants under a Standby Purchase
Agreement. During February 2004, we eliminated $3,350,000 of debenture
indebtedness by using a portion of the proceeds of the 2003 Rights Offer to
repay $1,850,000 of debentures in cash, and by issuing a total of 1,071,428
common shares and 535,712 common share purchase warrants in exchange for
$1,500,000 of debentures held by certain persons who acted as Participating
Debenture Holders under the Standby Purchase Agreement. During December
2005, we completed a new subscription rights offer under which we raised gross
proceeds of $1,787,144 through the sale of 4,467,862 common shares and warrants
(the “2005 Rights Offer”). See Note 5 to the financial
statements.
24
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Shareholders of
BioTime,
Inc.
We
have
audited the accompanying balance sheet of BioTime, Inc. (the “Company”) as of
December 31, 2006, and the related statement of operations, shareholders’ equity
(deficit), and cash flows for the year then ended. These financial statements
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures
that
are appropriate in the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of BioTime, Inc. as of December 31,
2006, and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has $3,044 in working capital, shareholders’ deficit of
$1,865,221 and an accumulated deficit of $42,406,271. These conditions, among
others, raise substantial doubt about its ability to continue as a going
concern. Management’s plans in regard to these matters are also described in
Note 1. The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/
Rothstein, Kass & Company, P.C.
Roseland,
New Jersey
March
8,
2007
25
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors and Shareholders
BioTime,
Inc.
Berkeley,
California
We
have
audited the accompanying statements of operations, shareholders’ equity
(deficit), and cash flows for the year ended December 31, 2005 of BioTime,
Inc. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
the
financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as
well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the results of BioTime, Inc.’s operations and its cash flows
for the year ended December 31, 2005 in conformity with accounting principles
generally accepted in the United States of America.
/s/
BDO
Seidman, LLP
San
Francisco, California
March
31, 2006, except for Note 3, which is as of April 13,
2006.
26
BIOTIME,
INC.
BALANCE
SHEET
|
|
|
December
31,
2006
|
||
|
ASSETS
|
||||
|
CURRENT
ASSETS
|
||||
|
Cash
and cash equivalents
|
$
|
561,017
|
||
|
Prepaid
expenses and other current assets
|
57,675
|
|||
|
Total
current assets
|
618,692
|
|||
|
EQUIPMENT,
net of accumulated depreciation of $580,933
|
10,839
|
|||
|
DEPOSITS
AND OTHER ASSETS
|
20,976
|
|||
|
TOTAL
ASSETS
|
$
|
650,507
|
||
|
LIABILITIES
AND SHAREHOLDERS' DEFICIT
|
||||
|
CURRENT
LIABILITIES
|
||||
|
Accounts
payable and accrued liabilities
|
$
|
431,713
|
||
|
Deferred
license revenue, current portion
|
183,935
|
|||
|
Total
current liabilities
|
615,648
|
|||
|
DEFERRED
LICENSE REVENUE, net of current portion
|
1,258,205
|
|||
|
ROYALTY
OBLIGATION
|
631,757
|
|||
|
DEFERRED
RENT
|
10,118
|
|||
|
Total
long-term liabilities
|
1,900,080
|
|||
|
COMMITMENTS
AND CONTINGENCIES
|
||||
|
SHAREHOLDERS'
DEFICIT:
|
||||
|
Common
Shares, no par value, authorized 50,000,000 shares; issued and outstanding
22,574,374 shares
|
40,447,078
|
|||
|
Contributed
capital
|
93,972
|
|||
|
Accumulated
deficit
|
(42,406,271
|
)
|
||
|
Total
shareholders' deficit
|
(1,865,221
|
)
|
||
|
TOTAL
LIABILITIES AND SHAREHOLDERS' DEFICIT
|
$
|
650,507
|
||
See
notes
to financial statements.
27
BIOTIME,
INC.
STATEMENTS
OF OPERATIONS
|
Year
Ended
December
31,
|
|||||||
|
2006
|
|
2005
|
|||||
|
REVENUE:
|
|||||||
|
License
fees
|
$
|
172,371
|
$
|
113,039
|
|||
|
Royalty
from product sales
|
933,478
|
626,135
|
|||||
|
Grant
income
|
56,166
|
164,026
|
|||||
|
Total
revenue
|
1,162,015
|
903,200
|
|||||
|
EXPENSES:
|
|||||||
|
Research
and development
|
(1,422,257
|
)
|
(1,525,686
|
)
|
|||
|
General
and administrative
|
(1,491,622
|
)
|
(1,395,925
|
)
|
|||
|
Total
expenses
|
(2,913,879
|
)
|
(2,921,611
|
)
|
|||
|
Loss
from operations
|
(1,751,864
|
)
|
(2,018,411
|
)
|
|||
|
INTEREST
EXPENSE AND OTHER INCOME:
|
|||||||
|
Interest
and other expense
|
(157,114
|
)
|
(78,978
|
)
|
|||
|
Other
income
|
44,357
|
23,138
|
|||||
|
Total
interest expense and other income
|
(112,757
|
)
|
(55,840
|
)
|
|||
|
NET
LOSS
|
$
|
(1,864,621
|
)
|
$
|
(2,074,251
|
)
|
|
|
BASIC
AND DILUTED LOSS PER COMMON SHARE
|
$
|
(0.08
|
)
|
$
|
(0.12
|
)
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
BASIC
AND DILUTED
|
22,538,003
|
17,903,230
|
|||||
See
notes
to financial statements.
28
BIOTIME,
INC.
STATEMENTS
OF SHAREHOLDERS' EQUITY (DEFICIT)
|
Common
Shares
|
||||||||||||||||
|
|
|
|
Number
of
Shares
|
Amount
|
Contributed
Capital
|
Accumulated
Deficit
|
Total
Shareholders' Equity (Deficit)
|
|||||||||
|
BALANCE
AT JANUARY 1, 2005
|
17,811,450
|
$
|
38,718,197
|
$
|
93,972
|
$
|
(38,467,399
|
)
|
$
|
344,770
|
||||||
|
Common
shares and warrants issued in Rights Offer, net of issuance cost
of
$379,984
|
4,467,862
|
1,407,160
|
—
|
—
|
1,407,160
|
|||||||||||
|
Common
shares issued for services
|
60,000
|
84,200
|
—
|
—
|
84,200
|
|||||||||||
|
Options
granted for services
|
—
|
41,540
|
—
|
—
|
41,540
|
|||||||||||
|
NET
LOSS
|
—
|
—
|
—
|
(2,074,251
|
)
|
(2,074,251
|
)
|
|||||||||
|
BALANCE
AT DECEMBER 31, 2005
|
22,339,312
|
|
40,251,097
|
|
93,972
|
|
(40,541,650
|
)
|
|
(196,581
|
)
|
|||||
|
Common
shares issued for line of credit
|
99,999
|
37,999
|
37,999
|
|||||||||||||
|
Shares
granted for services
|
135,000
|
43,876
|
43,876
|
|||||||||||||
|
Exercise
of warrants
|
63
|
126
|
126
|
|||||||||||||
|
Options
granted under FASB 123(R)
|
113,980
|
113,980
|
||||||||||||||
|
NET
LOSS
|
(1,864,621
|
)
|
(1,864,621
|
)
|
||||||||||||
|
BALANCE
AT DECEMBER 31, 2006
|
22,574,374
|
$
|
40,447,078
|
$
|
93,972
|
$
|
(42,406,271
|
)
|
$
|
(1,865,221
|
)
|
|||||
See
notes
to financial statements.
29
BIOTIME,
INC.
STATEMENTS
OF CASH FLOWS
|
Year
Ended
December
31,
|
|||||||
|
2006
|
2005
|
||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||
|
Net
loss
|
$
|
(1,864,621
|
)
|
$
|
(2,074,251
|
)
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
|
Depreciation
|
6,003
|
6,374
|
|||||
|
Amortization
of line of credit costs
|
20,508
|
—
|
|||||
|
Stock-based
compensation
|
167,643
|
89,178
|
|||||
|
Interest
on royalty obligation
|
138,813
|
78,978
|
|||||
|
Changes
in operating assets and liabilities:
|
|||||||
|
Prepaid
expenses and other current assets
|
(5,227
|
)
|
24,368
|
||||
|
Deposits
and other assets
|
62,899
|
(4,926
|
)
|
||||
|
Accounts
payable and accrued liabilities
|
(144,670
|
)
|
327,900
|
||||
|
Deferred
revenue
|
350,854
|
133,692
|
|||||
|
Deferred
rent
|
5,579
|
4,539
|
|||||
|
Net
cash used in operating activities
|
(1,262,219
|
)
|
(1,414,148
|
)
|
|||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||
|
Cash
used in investing activities, purchase of property
|
(10,664
|
)
|
—
|
||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
|
Cash
received from licensee for royalty obligation
|
—
|
600,000
|
|||||
|
Cash
paid to licensee on royalty obligation
|
—
|
(130,000
|
)
|
||||
|
Issuance
of common shares and warrants for cash
|
126
|
1,787,144
|
|||||
|
Common
share placement costs
|
—
|
(379,984
|
)
|
||||
|
Net
cash provided by financing activities
|
126
|
1,877,160
|
|||||
|
INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
(1,272,757
|
)
|
463,012
|
||||
|
CASH
AND CASH EQUIVALENTS:
|
|||||||
|
At
beginning of year
|
1,833,774
|
1,370,762
|
|||||
|
At
end of year
|
$
|
561,017
|
$
|
1,833,774
|
|||
|
SUPPLEMENTAL
SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES :
|
|||||||
|
Decrease
in royalty obligation due to third party payment
|
$
|
—
|
$
|
356,000
|
|||
|
Issuance
of Warrants to Guarantors for participation in the Rights
Offer
|
$
|
—
|
$
|
30,000
|
|||
|
Extension
of existing warrant terms
|
$
|
—
|
$
|
152,812
|
|||
See
notes
to financial statements.
30
BIOTIME,
INC.
NOTES
TO FINANCIAL STATEMENTS
1.
Organization
General
-
BioTime, Inc. was organized November 30, 1990 as a California corporation.
BioTime is a biomedical organization engaged in the development of synthetic
plasma expanders, blood volume substitute solutions, and organ preservation
solutions, for use in surgery, trauma care, organ transplant procedures, and
other areas of medicine.
Certain
Significant Risks and Uncertainties
-
BioTime’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 BioTime’s products;
BioTime’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 BioTime products; BioTime’s ability to obtain additional
financing and the terms of any such financing that may be obtained; BioTime’s
ability to negotiate favorable licensing or other manufacturing and marketing
agreements for its products; the availability of ingredients used in BioTime’s
products; and the availability of reimbursement for the cost of BioTime’s
products (and related treatment) from government health administration
authorities, private health coverage insurers and other
organizations.
Liquidity
and Going Concern -
At
December 31, 2006, BioTime had $561,017 of cash on hand and working capital
of
$3,044, a shareholders’ deficit of $1,865,221, and an accumulated deficit of
$42,406,271. BioTime will continue to need additional capital and greater
revenues to continue its current operations and to continue to conduct its
product development and research programs. Sales of additional equity securities
could result in the dilution of the interests of present shareholders. BioTime
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 BioTime to modify, curtail, delay or suspend some
or
all aspects of its planned operations. To
mitigate these factors, management has also devised a cost-cutting contingency
plan to be instituted if necessary. The principal components of this plan are
reductions in the salaries of existing personnel and in discretionary general
and administrative expenses such as public relations. As
a
result, management believes that at BioTime’s projected rate of spending, which
may include spending cuts, cash on hand, anticipated royalties from the sale
of
Hextend, licensing fees, and the available revolving line of credit (see Note
3)
will allow BioTime to operate through September 30, 2007. BioTime will continue
to seek additional financing or capital as well as additional licensing revenues
from its current and future patents. In view of the matters described above,
BioTime’s continued operations are dependent on its ability to raise additional
capital, obtain additional financing and or succeed in its operations. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and classification
of liabilities should the company be unable to continue as a going
concern.
31
2.
Summary of 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.
Actual results could differ from those estimates.
Revenue
recognition
-
BioTime complies with the Securities and Exchange Commission’s (SEC) Staff
Accounting Bulletin (“SAB”) No. 101, Revenue Recognition, as amended by SAB No.
104. Royalty and license fee revenues consist of product royalty payments and
fees under license agreements and are recognized when earned and reasonably
estimable. BioTime recognizes revenue in the quarter in which the royalty report
is received rather than the quarter in which the sales took place, as it does
not have sufficient sales history to accurately predict quarterly sales.
Up-front nonrefundable fees where BioTime has no continuing performance
obligations are recognized as revenues when collection is reasonably assured.
In
situations where continuing performance obligations exist, up-front
nonrefundable fees are deferred and amortized ratably over the performance
period. If the performance period cannot be reasonably estimated, BioTime
amortizes nonrefundable fees over the life of the contract until such time
that
the performance period can be more reasonably estimated. Milestones, if any,
related to scientific or technical achievements are recognized in income when
the milestone is accomplished if (a) substantive effort was required to achieve
the milestone, (b) the amount of the milestone payment appears reasonably
commensurate with the effort expended and (c) collection of the payment is
reasonably assured.
BioTime
also defers costs, including finders’ fees, which are directly related to
license agreements for which revenue has been deferred. Deferred costs are
charged to expense proportionally and over the same period that related deferred
revenue is recognized as revenue. Deferred costs are net against deferred
revenues in BioTime’s balance sheet.
Grant
income is recognized as revenue when earned.
Cash
and cash equivalents
-
BioTime considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Concentrations
of credit risk
-
Financial instruments that potentially subject BioTime to significant
concentrations of credit risk consist primarily of cash and cash equivalents.
BioTime limits the amount of credit exposure of cash balances by maintaining
its
accounts in high credit quality financial institutions. Cash equivalent deposits
with financial institutions may, at times, exceed federally issued limits;
however, BioTime has not experienced any losses on such
accounts.
Equipment
-
Equipment is stated at cost. Equipment is being depreciated using the
straight-line method over a period of thirty-six to eighty-four
months.
Patent
costs -
Patent
costs associated with obtaining patents on products being developed are expensed
as general and administrative expenses when incurred. These costs totaled
$126,618 and $82,058, for the years ended December 31, 2006 and 2005,
respectively.
32
Research
and development -
BioTime
complies with the accounting requirements of Statement of Financial Accounting
Standards (“SFAS”) No.2, Accounting for Research and Development Costs. Research
and development costs are expensed when incurred and consist principally of
salaries, payroll taxes, research and laboratory fees, hospital and consultant
fees related to clinical trials, and BioTime’s PentaLyte solution for use in
human clinical trials.
Income
Taxes -
BioTime
accounts for income taxes in accordance with SFAS No. 109, Accounting for Income
Taxes, which prescribes the use of the asset and liability method whereby
deferred tax asset or liability account balances are calculated at the balance
sheet date using current tax laws and rates in effect. Valuation allowances
are
established when necessary to reduce deferred tax assets when it is more likely
than not that a portion or all of the deferred tax assets will not be
realized.
Stock-based
Compensation
- On
January 1, 2006, BioTime adopted SFAS No. 123 (revised 2004), “Share-Based
Payment” (“SFAS 123(R)”) which requires the measurement and recognition of
compensation expense for all share-based payment awards made to directors and
employees including employee stock options based on estimated fair values.
SFAS
123(R) supersedes BioTime's previous accounting using the intrinsic value method
under Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock
Issued to Employees” for periods beginning in fiscal 2006. In March 2005, the
SEC issued SAB No. 107, “Valuation of Share-Based Payment Arrangements for
Public Companies”, which provides supplemental implementation guidance for SFAS
123(R). BioTime has applied the provisions of SAB 107 in its adoption of SFAS
123(R). Upon adoption of SFAS 123 (R), BioTime has continued to utilize the
Black-Scholes Merton option pricing model which was previously used for
BioTime's proforma disclosures under SFAS 123. BioTime's determination of fair
value of share-based payment awards on the date of grant using an option-pricing
model is affected by BioTime's stock price as well as assumptions regarding
a
number of highly complex and subjective variables. These variables include,
but
are not limited to, BioTime's expected stock price volatility over the term
of
the awards, and the actual and the projected employee stock options exercise
behaviors. The expected term of options granted is derived from historical
data
on employee exercises and post-vesting employment termination behavior. The
risk-free rate is based on the U.S Treasury rates in effect during the
corresponding period of grant. Because changes in the subjective assumptions
can
materially affect the estimated value, in management's opinion, the existing
valuation models may not provide an accurate measure of the fair value of
BioTime's employee stock options. Although the fair value of employee stock
options is determined in accordance with SFAS 123(R) and SAB 107 using an
option-pricing model, that value may not be indicative of the fair value
observed in a willing buyer/willing seller market transaction.
Loss
per share
-
BioTime complies with the accounting and reporting requirements of SFAS No.
128,
“Earnings Per Share.” Basic net loss per share is computed by dividing net loss
available to common stockholders by the weighted-average common shares
outstanding for the period. Diluted net loss per share reflects the
weighted-average common shares outstanding plus the potential effect of dilutive
securities or contracts which are convertible to common shares such as options,
warrants, convertible debt, and preferred stock (using the treasury stock
method) and shares issuable in future periods, except in cases where the effect
would be anti-dilutive. Diluted loss per share for the years ended December
31,
2006 and 2005 excludes any effect from 1,811,664 options and 7,943,314 warrants;
1,477,164 options and 8,220,972 warrants,, respectively, as their inclusion
would be antidilutive.
33
Fair
value of financial instruments
- The
carrying amount of BioTime’s financial instruments, consisting of cash, accounts
receivable, and short-term payables, approximates their fair value due to their
short-term maturity.
Reclassification
-
Certain prior year amounts have been reclassified to conform to the current
year
presentation.
Recently
issued accounting standards -
In
July
2006, the Financial Accounting Standards Board issued Interpretation (FIN)
No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48
creates a single accounting and disclosure model for uncertain tax positions,
provides guidance on the minimum threshold that a tax uncertainty is required
to
meet before it can be recognized in the financial statements and applies to
all
tax positions taken by a company; both those deemed to be routine as well as
those for which there may be a high degree of uncertainty.
FIN
48
establishes a two-step approach for evaluating tax positions. The first step,
recognition, occurs when a company concludes (based solely on the technical
aspects of the tax matter) that a tax position is more likely than not to be
sustained on examination by a taxing authority. The second step, measurement,
is
only considered after step one has been satisfied and measures any tax benefit
at the largest amount that is deemed more likely than not to be realized upon
ultimate settlement of the uncertainty. Tax positions that fail to qualify
for
initial recognition are recognized in the first subsequent interim period that
they meet the more likely than not standard, when they are resolved through
negotiation or litigation with the taxing authority or upon the expiration
of
the statute of limitations. Derecognition of a tax position previously
recognized would occur when a company subsequently concludes that a tax position
no longer meets the more likely than not threshold of being sustained. FIN
48
also significantly expands the financial statement disclosure requirements
relating to uncertain tax positions. FIN 48 is effective for fiscal years
beginning after December 15, 2006. Differences between the amounts
recognized in the balance sheet prior to adoption and the amounts recognized
in
the balance sheet after adoption will be accounted for as a cumulative effect
adjustment to the beginning balance of retained earnings. BioTime does not
believe that the adoption of FIN 48 will have a material effect on its financial
statements.
In
September 2006, the Financial Accounting Standards Board (the “FASB”) issued
SFAS No. 157, “Fair Value Measurements” (SFAS No. 157), which defines
fair value, establishes a framework for measuring fair value and requires
additional disclosures about fair value measurements. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007. BioTime
is currently evaluating the effect, if any, the adoption of SFAS No. 157
will have on its financial statements.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities”. SFAS 159 permits entities to choose to
measure many financial instruments, and certain other items, at fair value.
SFAS
159 applies to reporting periods beginning after November 15, 2007. BioTime
is
currently evaluating the effect, if any, that the adoption of SFAS 159 will
have
on its financial statements.
34
3.
Lines of Credit
In
March
2006, BioTime entered into a Revolving Line of Credit Agreement (the “Credit
Agreement”) with Alfred D. Kingsley, Cyndel & Co., Inc., and George
Karfunkel, investors in BioTime, under which BioTime may borrow up to $500,000
for working capital purposes at an interest rate of 10% per annum. The credit
line will expire, and any funds borrowed, plus accrued interest, must be repaid,
on the earlier of October 31, 2007 or when BioTime receives $600,000 in new
funding through the sale of capital stock, the receipt of licensing and similar
fees in excess of $1,000,000, from other borrowing, or any combination of those
sources. Under the Credit Agreement, BioTime will prepay, and the credit line
will be reduced by, any funds received prior to the maturity date from those
sources. In consideration for making the line of credit available, BioTime
issued to the investors a total of 99,999 common shares. The line of credit
is
collateralized by a security interest in BioTime’s right to receive royalty and
other payments under the license agreement with Hospira.
BioTime
also obtained a line of credit from American Express in August 2004, which
allows for borrowings up to $43,600; no funds have yet been drawn from this
line
of credit. Should any such money be drawn, interest will be payable on
borrowings at a total rate equal to the prime rate plus 3.99%; however,
regardless of the prime rate, the interest rate payable will at no time be
less
than 9.49%.
BioTime
also secured a line of credit from Advanta in November 2006, which allows for
borrowings up to $30,000; no funds have yet been drawn from this line of credit.
Should any such money be drawn, interest will be payable on borrowings at a
Variable Rate Index, which will at no time be less than 8.25%.
4.
Royalty Obligation
In
December 2004, BioTime entered into an agreement with Summit Pharmaceuticals
International Corporation (“Summit”) to co-develop Hextend and PentaLyte for the
Japanese market. Under the agreement, BioTime received $300,000 in December
2004, $450,000 in April 2005, and $150,000 in October 2005. The payments
represent a partial reimbursement of BioTime’s development cost of Hextend and
PentaLyte. In June 2005, following BioTime’s approval of Summit’s business plan
for Hextend, BioTime paid to Summit a one-time fee of $130,000 for their
services in preparing the plan. The agreement states that revenues from Hextend
and PentaLyte in Japan will be shared between BioTime and Summit as follows:
BioTime 40% and Summit 60%. Additionally, BioTime will pay Summit 8% of all
net
royalties received from the sale of PentaLyte in the United States.
The
accounting treatment of the payments from Summit falls under the guidance of
Emerging Issues Task Force (“EITF”) Issue No. 88-18, “Sales of Future Revenues.”
EITF 88-18 addresses the accounting treatment when an enterprise (BioTime)
receives cash from an investor (Summit) and agrees to pay to the investor a
specified percentage or amount of the revenue or a measure of income of a
particular product line, business segment, trademark, patent, or contractual
right. The Emerging Issues Task Force reached a consensus on six independent
factors that would require reclassification of the proceeds as debt. BioTime
meets one of the factors whereby BioTime has significant continuing involvement
in the generation of the cash flows due to the investor. As a result, BioTime
initially recorded the net proceeds from Summit to date of $770,000 as long-term
debt to
comply
35
with
EITF
88-18 even though BioTime is not legally indebted to Summit for that
amount.
In
July
2005, Summit sublicensed the rights to Hextend in Japan to Maruishi. In
consideration for the license, Maruishi agreed to pay Summit a series of
milestone payments: Yen 70,000,000, (or $593,390 based on foreign currency
conversion rates at the time) upon executing the agreement, and Yen 100,000,000
upon regulatory filing in Japan, and Yen 100,000,000 upon regulatory approval
of
Hextend in Japan. Consistent with the terms of the BioTime and Summit agreement,
Summit paid 40% of that amount, or $237,356, to BioTime during October 2005.
BioTime does not expect the regulatory filing and approval milestones to be
attained for several years.
The
initial accounting viewed the potential repayment of the $770,000 imputed debt
to come only from the 8% share of US PentaLyte revenues generated by BioTime
and
paid to Summit. BioTime first became aware of the terms of the Maruishi and
Summit agreement during the fourth quarter of 2005, prepared an estimate of
the
future cash flows, and determined that Summit will earn a majority of their
return on investment from their agreement with Maruishi, and not the 8% of
BioTime’s U.S. PentaLyte sales. Considering this, the $770,000 is viewed as a
royalty obligation which will be reduced by Summit’s 8% share of BioTime’s U.S.
PentaLyte sales plus Summit’s 60% share of Japanese revenue. Accordingly,
BioTime recorded the entire amount paid by Maruishi to Summit for the sublicense
of $593,390 as deferred revenue, to be amortized over the remaining life of
the
patent through 2019. BioTime’s 40% share of this payment was collected in
October 2005 and the remaining 60% share was recorded as a reduction of the
long-term royalty obligation of BioTime to Summit. The balance of the license
fees received by BioTime is still being treated as a long-term royalty
obligation for financial accounting purposes under EITF 88-18. Interest on
the
long-term royalty obligation is accrued monthly using the effective interest
method beginning October 2005, using a rate of 25.2% per annum, which BioTime
has determined is the appropriate interest rate when the future cash flows
from
the transaction are considered. Prior to October 2005, BioTime was accruing
interest at a rate of 12% based upon its incremental borrowing rate as the
effective interest rate derived from future “deemed payments” could not be
reasonably estimated. The effective interest rate will be evaluated annually,
or
when events occur that have significantly affected the estimate of future cash
flows. BioTime has recorded $132,960 and $78,978 of interest expense on the
long-term royalty obligation for 2006 and 2005, respectively.
5.
Shareholders’ Deficit
During
December 2005, BioTime completed a subscription rights offer (the “2005 Rights
Offer”) through which BioTime raised gross proceeds of $1,787,144 through the
sale of 4,467,862 common shares and 4,467,862 warrants. The common shares and
warrants were sold as “units” consisting of one common share and one warrant for
$0.40 per unit. Each warrant entitles the holder to purchase one common share
for $2.00 per share and will expire on October 31, 2010. BioTime may redeem
the
warrants by paying $.05 per warrant if the closing price of the common shares
on
any national securities exchange or the Nasdaq Stock Market exceeds 200% of
the
exercise price of the warrants for any 20 consecutive trading days.
Certain
persons acted as guarantors of the 2005 Rights Offer under a Standby Purchase
Agreement pursuant to which they agreed to purchase up to 4,467,862 units if
the
subscription rights were not fully exercised. In consideration for their
agreement, BioTime paid the guarantors $132,000 in cash and issued to them
warrants to purchase 600,000 common shares, which were accounted for as
costs
36
of
the
equity financing. The $132,000 was included in accounts payable and accrued
expenses as of December 31, 2005. Total cash costs for the 2005 Rights Offer,
which were recorded as a reduction of the proceeds received, were $379,984.
The
warrants issued to the guarantors have the same terms as the warrants BioTime
sold in the 2005 Rights Offer. The market price of all warrants issued in the
2005 Rights Offer was $0.05 on the closing date.
During
April 1998, BioTime entered into a financial advisory services agreement with
Greenbelt, Corp., a corporation controlled by Alfred D. Kingsley and Gary K.
Duberstein, who are also shareholders of BioTime. BioTime agreed to indemnify
Greenbelt and its officers, affiliates, employees, agents, assignees, and
controlling person from any liabilities arising out of or in connection with
actions taken on BioTime's behalf under the agreement. The agreement has been
renewed each year and will expire on March 31, 2007. BioTime agreed to issue
Greenbelt $90,000 in cash and 60,000 common shares for the twelve months ending
March 31, 2005, $45,000 cash and 135,000 common shares for the twelve months
ending March 31, 2006 and $90,000 cash and 200,000 common shares for the twelve
months ending March 31, 2007. Of the final period’s fees, 150,000 Common Shares
were issued on January 2, 2007, the balance of the shares is due to be issued,
on April 3, 2007. The
cash
fee is payable as follows: $30,000 on January 2, 2007, $30,000 on April 2,
2007,
and $30,000 on October 1, 2007; provided, that BioTime may defer either or
both of the cash payments that would otherwise be due on January 2, 2007 and
April 2, 2007 until a date that BioTime may determine, but not later than
October 1, 2007.
The
agreement with Greenbelt states that in return for allowing such a deferral,
Greenbelt will be issued an additional 30,000 shares by BioTime. To
date, BioTime has deferred both the January 2, 2007 payment and the
April 2, 2007 payment, thereby necessitating issuance of 60,000 additional
shares to Greenbelt.
Activity
related to the Greenbelt agreement is presented in the table below:
|
Balance
included in Accounts Payable at January 1
|
Add:
Cash-based
expense accrued
|
Add:
Stock-based
expense accrued
|
Less:
Cash
payments
|
Less:
Value
of stock-based payments
|
Balance
included in Accounts Payable at December 31,
|
|||||||
|
2006
|
$65,138
|
$78,750
|
$52,987
|
$(45,000)
|
$(43,875)
|
$108,000
|
||||||
|
2005
|
$112,950
|
$56,250
|
$47,638
|
$(67,500)
|
$(84,200)
|
$65,138
|
37
In
August
2005, BioTime issued to outside consultants fully vested options to purchase
100,000 common shares. Expense of $41,540 for these options was recorded in
general and administrative expense for the year ended December 31, 2005. The
fair value of these options was determined using the Black-Scholes options
pricing model with the following assumptions: contractual life of five years;
risk free interest rate of 4.28%; volatility of 83.55%; and no
dividends.
BioTime,
as part of rights offerings and other agreements, has issued warrants to
purchase its common stock. Activity related to warrants in 2006 and 2005 is
presented in the table below:
|
|
|
Number
of Shares
|
|
Per
share
warrant
price
|
|
Weighted
Average
Exercise
Price
|
|
|||
|
Outstanding,
January 1, 2005
|
|
|
3,153,191
|
|
$
|
1.47-$8.14
|
|
$
|
2.07
|
|
|
Issued
in 2005 with rights offer
|
5,067,781
|
2.00
|
2.00
|
|||||||
|
Shares
under warrants at December 31, 2005
|
8,220,972
|
1.47-8.14
|
2.03
|
|||||||
|
Exercised
|
|
|
(63)
|
|
|
2.00
|
|
|
2.00
|
|
|
Expired
in 2006
|
|
|
(277,595)
|
|
|
1.47-8.14
|
|
2.70
|
|
|
|
Outstanding,
December 31, 2006
|
|
|
7,943,314
|
|
$
|
1.34-$3.92
|
|
$
|
2.00
|
|
At
December 31, 2006, 7,943,314 warrants to purchase common stock with a weighted
average exercise price of $2.00 and a weighted average remaining contractual
life of 3.79 years were outstanding.
In
March
2006, the board of directors approved an increase in the authorized number
of
common shares to 50,000,000 shares.
6.
Stock Option Plans
During
1992, BioTime adopted the 1992 Stock Option Plan (the "1992 Plan"). Options
granted under the 1992 Plan 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 December 31, 2006, options to purchase 119,500 shares had
been
granted and were outstanding at exercise prices ranging from $3.00 to $11.75
under the 1992 Plan. At December 31, 2006, no options were available for future
grants under the 1992 Plan.
During
2002, BioTime adopted a new stock option plan (the “2002 Plan”). The 2002 Plan
was amended during December 2004 to increase the number of shares available
for
the issuance of options. Under the 2002 Plan, BioTime has reserved 2,000,000
common shares for issuance under options granted to eligible persons. No options
may be granted under the 2002 Plan more than ten years after the date the 2002
Plan was adopted by the Board of Directors, and no options granted under the
2002 Plan may be exercised after the expiration of ten years from the date
of
grant. Under the 2002 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
38
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 Compensation Committee. The 2002 Plan also permits BioTime
to
sell common shares to employees subject to vesting provisions under restricted
stock agreements that entitle BioTime to repurchase unvested shares at the
employee’s cost upon the occurrence of specified events, such as termination of
employment. BioTime may permit employees or consultants, but not executive
officers or directors, who purchase stock under restricted stock purchase
agreements to pay for their shares by delivering a promissory note that is
secured by a pledge of their shares. Under the 2002 Plan, as of December 31,
2006, BioTime had granted to certain employees, consultants, and directors,
options to purchase a total of 1,592,164 common shares at exercise prices
ranging from $0.32 to $4.00 per share; and had 407,836 options available for
future grants.
On
January 1, 2006, BioTime adopted SFAS 123(R), which requires the measurement
and
recognition for all share-based payment awards made to BioTime’s employees and
directors including employee stock options. The following table summarizes
stock-based compensation expense related to employee and director stock options
awards for the year ended December 31, 2006, which was allocated as
follows:
|
Year
Ended
December
31, 2006
(under
SFAS 123(R))
|
||||
|
Stock-based
compensation expense:
|
||||
|
Research
and Development
|
$
|
26,874
|
||
|
General
and Administrative
|
87,106
|
|||
|
Total
stock-based compensation expense
|
$
|
113,980
|
||
The
following table reflects pro forma net loss and basic and diluted loss per
share
for the year ended December 31, 2005, and stock-based compensation expense
is
calculated based on the pro forma application of SFAS No.
123:
39
|
Year
ended
December
31,
2005
|
||||
|
Net
loss - as reported for the prior period
|
$
|
(2,074,251
|
)
|
|
|
Stock-based
compensation expense related to employee stock options
|
(192,416
|
)
|
||
|
Net
loss, including the effect of stock-based compensation
expense
|
$
|
(2,266,667
|
)
|
|
|
Net
loss per share - as reported for the prior period
|
||||
|
Basic
and diluted
|
$
|
(0.12
|
)
|
|
|
Net
loss per share, including the effect of stock-based compensation
expense
|
||||
|
Basic
and diluted
|
$
|
(0.13
|
)
|
|
BioTime
adopted SFAS 123(R) using the modified prospective transition method, which
requires the application of the accounting standard as of January 1, 2006,
the
first day of BioTime’s fiscal year 2006. BioTime’s financial statements as of
and for the year ended December 31, 2006, reflect the impact of SFAS 123(R).
In
accordance with the modified prospective transition method, the financial
statements for prior periods have not been restated to reflect, and do not
include, the impact of SFAS 123(R). As of December 31, 2006, total unrecognized
compensation costs related to unvested stock options was $2,866, which is
expected to be recognized as expense over a weighted average period of
approximately 0.40 years.
For
all
applicable periods, the value of each employee and director stock option was
estimated on the date of grant using the Black-Scholes Merton model for the
purpose of the pro forma financial disclosures in accordance with SFAS
123.
The
weighted-average estimated fair value of stock options granted during the years
ended December 31, 2006 and 2005 was $0.16 and $1.86 per share, respectively,
using the Black-Scholes Merton model with the following weighted-average
assumptions:
|
Year
Ended
December
31, 2006
|
Year
Ended
December
31, 2005
|
|||
|
Expected
lives in years
|
5
|
5
|
||
|
Risk
free interest rates
|
4.60%
|
4.28%
|
||
|
Volatility
|
89%
|
93%
|
||
|
Dividend
yield
|
0%
|
0%
|
For
options granted prior to 2006 and valued in accordance with SFAS 123, the
expected life and the expected volatility of the stock options were based upon
historical data. Forfeitures of employee stock options were accounted for on
an
as-incurred basis.
40
General
Option Information
A
summary of all option activity for the years ended December 31, 2006 and 2005
is
as follows:
|
|
|
Options
available
for
grant
|
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
|||
|
Outstanding,
January 1, 2005
|
1,213,336
|
1,192,164
|
$
|
4.00
|
||||||
|
Granted
|
(326,000)
|
326,000
|
1.86
|
|||||||
|
Forfeited/expired
|
--
|
(41,000)
|
10.22
|
|||||||
|
Outstanding,
December 31, 2005
|
|
|
887,336
|
|
|
1,477,164
|
|
$
|
3.31
|
|
|
Granted
|
|
|
(509,500)
|
|
509,500
|
|
|
0.32
|
|
|
|
Forfeited/expired
|
|
|
30,000
|
|
|
(175,000
|
)
|
|
5.51
|
|
|
Outstanding,
December 31, 2006
|
|
|
407,836
|
|
|
1,811,164
|
|
$
|
2.20
|
|
Additional
information regarding options outstanding as of December 31, 2006 is as
follows:
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||
|
Range
of
Exercise
Prices
|
Number
Outstanding
|
Weighted
Avg. Remaining Contractual Life (yrs)
|
Weighted
Avg. Exercise Price
|
Number
Exercisable
|
Weighted
Avg. Exercise Price
|
|||||
|
$.32-$.34
|
494,500
|
5.77
|
$0.32
|
494,500
|
$0.32
|
|||||
|
1.00-3.00
|
837,664
|
2.58
|
1.95
|
758,664
|
1.94
|
|||||
|
4.00
|
320,000
|
.82
|
4.00
|
320,000
|
4.00
|
|||||
|
11.75
|
59,500
|
2.29
|
11.75
|
59,500
|
11.75
|
|||||
|
$0.32-$11.75
|
1,711,664
|
2.21
|
$2.08
|
1,632,664
|
$2.21
|
|||||
7.
Commitments and Contingencies
BioTime
occupies approximately 5,244 square feet of office and laboratory space in
Heritage Square in Emeryville, California under a five year lease. BioTime
moved
to this facility in May 2005. Monthly rent will increase by 3% each year during
the initial five year term. If BioTime exercises its option to extend the lease,
then monthly rent will be set at 95% of the fair market rent at that time.
In
addition to rent, BioTime will pay its pro rata share of operating expenses
and
real estate taxes for the building in which BioTime’s space is located or for
the Heritage Square project as a whole, as applicable, based upon the ratio
that
the number of square feet rented by BioTime bears to the total number of square
feet in the building or project.
Rent
expenses totaled $192,521 and $172,140 for the years ended December 31, 2006
and
2005,
41
respectively.
Remaining minimum annual lease payments under the lease are as
follows:
|
Year
|
Minimum
lease payments
|
|||
|
2007
|
|
$
|
131,900
|
|
|
2008
|
135,857
|
|||
|
2009
|
139,933
|
|||
|
2010
|
59,022
|
|||
Indemnification
- Under
BioTime’s bylaws, BioTime has agreed to indemnify its officers and directors for
certain events or occurrences arising as a result of the officer or director
serving in such capacity. The term of the indemnification period is for the
officer’s or director’s lifetime. The maximum potential amount of future
payments that BioTime could be required to make under the indemnification
provisions contained in BioTime’s bylaws is unlimited. However, BioTime has a
directors and officers liability insurance policy that limits its exposure
and
enables it to recover a portion of any future amounts paid. As a result of
the
insurance policy coverage, BioTime believes the estimated fair value of these
indemnification agreements is minimal and no liabilities were recorded for
these
agreements as of December 31, 2006.
Under
the
license agreements with Hospira and CJ, BioTime will indemnify Abbott
Laboratories (Hospira’s predecessor), Hospira, and/or CJ for any cost or expense
resulting from any third party claim or lawsuit arising from alleged patent
infringement, as defined, by Abbott, Hospira, or CJ relating to actions covered
by the applicable license agreement. Management believes that the possibility
of
payments under the indemnification clauses is remote. Therefore, BioTime has
not
recorded a provision for potential claims as of December 31, 2006. BioTime
enters into indemnification provisions under (i) agreements with other companies
in the ordinary course of business, typically with business partners, licensees,
contractors, hospitals at which clinical studies are conducted, and landlords,
and (ii) agreements with investors, underwriters, investment bankers, and
financial advisers. Under these provisions, BioTime generally agrees to
indemnify and hold harmless the indemnified party for losses suffered or
incurred by the indemnified party as a result of BioTime’s activities or, in
some cases, as a result of the indemnified party’s activities under the
agreement. These indemnification provisions often include indemnifications
relating to representations made by BioTime with regard to intellectual property
rights. These indemnification provisions generally survive termination of the
underlying agreement. In some cases, BioTime has obtained liability insurance
providing coverage that limits its exposure for indemnified matters. The maximum
potential amount of future payments that BioTime could be required to make
under
these indemnification provisions is unlimited. BioTime has not incurred material
costs to defend lawsuits or settle claims related to these indemnification
agreements. As a result, BioTime believes the estimated fair value of these
agreements is minimal. Accordingly, BioTime has no liabilities recorded for
these agreements as of December 31, 2006.
42
8.
Income Taxes
The
primary components of the net deferred tax asset are:
|
Year
Ended
December
31, 2006
|
|
|
Deferred
tax asset:
|
|
|
Net
operating loss carryforwards
|
$16,081,000
|
|
Research
& development and other credits
|
1,726,000
|
|
Other,
net
|
1,023,000
|
|
Total
|
18,830,000
|
|
Valuation
allowance
|
(18,830,000)
|
|
Net
deferred tax asset
|
$
-0-
|
Income
taxes differed from the amounts computed by applying the U.S. federal income
tax
of 34% to pretax losses from operations as a result of the
following:
|
|
|
|||
|
Year
ending December 31,
|
2006
|
2005
|
||
|
Computed
tax benefit at federal statutory rate
|
34%
|
34%
|
||
|
Permanent
differences, primarily nondeductible interest
|
(4%)
|
(1%)
|
||
|
Losses
for which no benefit has been recognized
|
(39%)
|
(41%)
|
||
|
State
tax benefit, net of effect on federal income taxes
|
6%
|
6%
|
||
|
Research
and development and other credits
|
3%
|
2%
|
||
|
0%
|
0%
|
|||
No
tax
benefit has been recorded through December 31, 2006 because of the net operating
losses
incurred
and a full valuation allowance provided. A valuation allowance is provided
when
it is more likely than not that some portion of the deferred tax asset will
not
be realized. BioTime established a 100% valuation allowance for all periods
presented due to the uncertainty of realizing future tax benefits from its
net
operating loss carryforwards and other deferred tax assets.
As
of
December 31, 2006, BioTime has net operating loss carryforwards of approximately
$44,700,000 for federal and $14,800,000 for state tax purposes, which expire
through 2026. In addition, BioTime has tax credit carryforwards for federal
and
state tax purposes of $978,000 and $748,000, respectively, which expire through
2026.
Internal
Revenue Code Section 382 places a limitation (the “Section 382 Limitation”) on
the amount of taxable income that can be offset by net operating loss (“NOL”)
carryforwards after a change in control (generally greater than 50% change
in
ownership within a three-year period) of a loss corporation. California has
similar rules. Generally, after a control change, a loss corporation cannot
deduct NOL carryforwards in excess of the Section 382 Limitation. Due to these
“change in
43
ownership”
provisions, utilization of the NOL and tax credit carryforwards may be subject
to an annual limitation regarding their utilization against taxable income
in
future periods.
9.
Enterprise-wide Disclosures
Geographic
Area Information
Revenues,
including license fees and royalties, by geographic area are based on the
country of domicile of the counterparty to the agreement.
|
Year
ended December 31,
|
|
2006
|
|
2005
|
|
|||
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
993,554
|
$
|
790,161
|
||
|
|
Asia
|
|
|
168,461
|
113,039
|
|||
|
|
|
|
|
|||||
|
Total
revenues
|
|
$
|
1,162,015
|
|
$
|
903,200
|
|
|
|
|
|
|
|
|||||
All
of
BioTime’s assets are located at its Emeryville, California
facility.
Major
Customers
BioTime
has two major customers comprising significant amounts of total revenues as
follows:
|
Year
ended December 31,
|
2006
|
2005
|
||
|
%
of Total Revenues
|
||||
|
Hospira
|
80%
|
69%
|
||
|
CJ
Corp
|
8%
|
11%
|
10.
Subsequent Events
On
January 2, 2007, BioTime issued 150,000 shares to Greenbelt in accordance with
Greenbelt's consulting agreement. BioTime elected to defer the cash
payments due to be paid Greenbelt under the consulting agreement during
January and April 2007. According to the terms of the agreement, BioTime will
issue Greenbelt an additional 60,000 shares in consideration of the
deferral.
44
Matters
required to be reported under paragraph (a) of Item 304 of Regulation S-K have
been previously reported. No matter described in paragraph (b) of Item 304
has
occurred.
Evaluation
of Disclosure Controls and Procedures
Our
management, including its principal executive officers and its principal
financial officer, have reviewed and evaluated our disclosure controls and
procedures as of a date within ninety (90) days of the filing date of this
Form
10-KSB annual report. Following this review and evaluation,
management
has collectively determined that our disclosure controls and procedures are
sufficient to ensure that material information relating to BioTime with respect
to 2006 was made known to them.
During
January 2007, we issued 150,000 common shares, and during April 2007 we issued
110,000 common shares, to Greenbelt Corp., our financial advisor, under the
terms of their financial advisory agreement. The shares issued during April
2007
included 60,000 shares issued as additional compensation under the agreement
in
connection with our election to defer payment of the cash fees due during
January and April 2007. The issuance of these shares was exempt from
registration under Section 4(2) of the Securities Exchange Act of 1933, as
amended.
45
Directors
and Executive Officers
The
names and ages of the directors and executive officers of BioTime are as
follows:
Hal
Sternberg, Ph.D.,
53, is
our Vice President of Research and a Member of the Office of the President,
and
has served on the Board of Directors since 1990. Dr. Sternberg was a visiting
scientist and research Associate at the University of California at Berkeley
from 1985-1988, where he supervised a team of researchers studying Alzheimer’s
Disease. Dr. Sternberg received his Ph.D. from the University of Maryland in
Biochemistry in 1982.
Harold
Waitz, Ph.D.,
64, is
our Vice President of Engineering and Regulatory Affairs and a member of the
Office of the President, and has served on the Board of Directors since 1990.
He
received his Ph.D. in Biophysics and Medical Physics from the University of
California at Berkeley in 1983.
Judith
Segall,
53, is
our Vice President of Operations and Secretary and a member of the Office of
the
President, and has served on the Board of Directors from 1990 through 1994,
and
from 1995 through the present date. Ms. Segall received a B.S. in Nutrition
and
Clinical Dietetics from the University of California at Berkeley in 1989.
Michael D. West, Ph.D., 53,
has
served on the Board of Directors since 2002. Dr.
West
serves as President and Chief Scientific Officer of Advanced Cell Technology,
Inc., and is Adjunct Professor of Bioengineering at the University of
California, Berkeley. Dr. West has extensive academic and business experience
in
age-related degenerative diseases, telomerase molecular biology and human
embryonic stem cell research and development. Prior to joining ACT in 1998,
Dr.
West founded Geron Corporation of Menlo Park, California and from 1990 to 1998
he was a Director and Vice President, where he initiated and managed programs
in
telomerase diagnostics, oligonucleotide-based telomerase inhibition as
anti-tumor therapy, and the cloning and use of telomerase in telomerase-mediated
therapy wherein telomerase is utilized to immortalize human cells. From 1995
to
1998 he organized and managed the research between Geron and its academic
collaborators James Thomson and John Gearhart that led to the first isolation
of
human embryonic stem and human embryonic germ cells. Dr. West received a B.S.
Degree from Rensselaer Polytechnic Institute in 1976, an M.S. Degree in Biology
from Andrews University in 1982, and a Ph.D. from Baylor College of Medicine
in
1989 concentrating on the biology of cellular aging.
Valeta
Gregg,
53,
joined the Board of Directors during October 2004. Ms. Gregg is Vice President
and Assistant General Counsel, Patents of Regeneron Pharmaceuticals, Inc.,
a
Tarrytown, New York based company engaged in the development of pharmaceutical
products for the treatment of a number of serious medical conditions, including
cancer, diseases of the eye, rheumatoid arthritis and other inflammatory
conditions, allergies, asthma, and obesity. Prior to joining Regeneron in 2002,
Ms. Gregg worked as a patent attorney, at Klauber & Jackson in Hackensack,
New Jersey from
46
2001
to
2002, and for Novo Nordisk A/S and its United States subsidiary from 1996 to
2001, and for Fish & Richardson, P.C., Menlo Park, California from 1994 to
1996. Ms. Gregg received her law degree from University of Colorado School
of
Law in 1992 and received a Ph.D in Biochemistry from the University of Alberta
in 1982.
Executive
Officers
Hal
Sternberg, Harold Waitz, Judith Segall, Jeffrey B. Nickel, and Steven Seinberg
are the only executive officers of BioTime. Following the death of Dr. Paul
Segall, BioTime’s Chairman and Chief Executive Officer in June 2003, the Board
of Directors appointed Hal Sternberg, Harold Waitz, and Judith Segall to serve
as members of the Office of the President. The members of the Office of the
President collectively exercise the powers of the Chief Executive
Officer.
Steven
A. Seinberg, J.D.,
40,
became Chief Financial Officer and Treasurer during August 2001. Prior to
assuming these positions, Mr. Seinberg worked for over five years as BioTime’s
Director of Financial and Legal Research, a position that involved, among other
duties, contract modifications and management of our intellectual property
portfolio. Mr. Seinberg received a J.D. from Hastings College of the Law in
San
Francisco in 1994.
Jeffrey
B. Nickel, Ph.D.,
63,
became Vice President of Business Development and Marketing during June 2004
and
served on the Board of Directors from 1997 until June 2004. Dr. Nickel was
the
President of Nickel Consulting through which he served as a consultant to
companies in the pharmaceutical and biotechnology industries from 1990 until
becoming Vice President of BioTime. Prior to starting his consulting business,
Dr. Nickel served in a number of management positions for Syntex Corporation
and
Merck & Company. Dr. Nickel received his Ph.D. in Organic Chemistry from
Rutgers University in 1970.
There
are
no family relationships among our directors or officers.
Committees
of the Board
The
Board
of Directors has an Audit Committee, a Compensation Committee and a Nominating
Committee. Each of those committees is composed of three directors who are
independent in accordance with Section 121(A) of the American Stock Exchange
(AAMEX@)
listing
standards and Section 10A-3 under the Securities Exchange Act of 1934, as
amended.
The
members of the Audit Committee are Valeta Gregg and Michael West. The Audit
Committee met four times during the fiscal year ended December 31, 2006. The
purpose of the Audit Committee is to recommend the engagement of our independent
auditors and to review their performance, the plan, scope and results of the
audit, and the fees paid to the corporation’s independent auditors. The Audit
Committee also will review our accounting and financial reporting procedures
and
controls and all transactions between us and our officers, directors, and
shareholders who beneficially own 5% or more of the common shares.
The
Board
of Directors has determined that Michael West is an audit committee financial
expert within the meaning of Item 407(d)) of SEC Regulation S-K on the basis
of
Mr. West’s experience as the President of Advanced Cell Technology, Inc. and as
a founder of Geron, Inc. Mr. West
has
had oversight over the performance of the chief financial and accounting
officers of those companies.
47
A
copy of
the Audit Committee Charter has been posted on our internet website and can
be
found at www.biotimeinc.com.
Compliance
with Section 16(a) of the Securities Exchange Act of 1934
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
requires our directors and executive officers and persons who own more than
ten
percent (10%) of a registered class of our equity securities to file with the
Securities and Exchange Commission (the “SEC”) initial reports of ownership and
reports of changes in ownership of common shares and other BioTime equity
securities. Officers, directors and greater than ten percent beneficial owners
are required by SEC regulations to furnish us with copies of all reports they
file under Section 16(a).
To
our
knowledge, based solely on our review of the copies of such reports furnished
to
us, all Section 16(a) filing requirements applicable to our officers, directors,
and greater than ten percent beneficial owners were complied with during the
fiscal year ended December 31, 2006, except that Alfred D. Kingsley and
Greenbelt Corp. were delinquent in filing a Form 4.
Code
of Ethics
We
have
adopted a Code of Ethics that applies to our principal executive officers,
our
principal financial officer and accounting officer, our other executive
officers, and our directors. The purpose of the Code of Ethics is to promote
(i)
honest and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional relationships; (ii)
full, fair, accurate, timely and understandable disclosure in reports and
documents that we file with or submit to the Securities and Exchange Commission
and in our other public communications; (iii) compliance with applicable
governmental rules and regulations, (iv) prompt internal reporting of violations
of the Code to an appropriate person or persons identified in the Code; and
(v)
accountability for adherence to the Code. A copy of our Code of Ethics has
been
posted on our internet website and can be found at
www.biotimeinc.com.
We
do not
have long term employment agreements with our executive officers. However,
each
executive officer has executed an Intellectual Property Agreement which provides
that BioTime is the owner of all inventions developed by the executive officer
during the course of his or her employment.
48
The
following table summarizes certain information concerning the compensation
paid
during the past two fiscal years to each of the executive officers:
SUMMARY
COMPENSATION TABLE
|
Name
and Principal Position
|
Year
|
Salary
|
Bonus
|
Option
Awards
|
Total
|
|||||
|
Hal
Sternberg
|
2006
|
$100,000
|
$
—
|
$10,913
|
$110,913
|
|||||
|
Vice
President of Research
|
2005
|
$90,167
|
$
—
|
$90,167
|
||||||
|
Member,
Office of the President
|
||||||||||
|
Harold
Waitz
|
2006
|
$100,000
|
$
—
|
$10,913
|
$110,913
|
|||||
|
Vice
President of Regulatory Affairs & Engineering
|
2005
|
$94,333
|
$
—
|
$94,333
|
||||||
|
Member,
Office of the President
|
||||||||||
|
Judith
Segall
|
2006
|
$108,000
|
$
—
|
$10,913
|
$118,913
|
|||||
|
Vice
President of Operations
|
2005
|
$58,500
|
$17,068
|
$75,568
|
||||||
| Corporate Secretary | ||||||||||
|
Member,
Office of the President
|
||||||||||
|
Steven
A. Seinberg
|
2006
|
$100,000
|
$
—
|
$10,913
|
$110,913
|
|||||
|
Chief
Financial Officer and Treasurer
|
2005
|
$94,917
|
$
—
|
$94,333
|
||||||
|
Member,
Office of the President
|
||||||||||
|
Jeffrey
Nickel
|
2006
|
$100,000
|
$
—
|
$10,913
|
$110,913
|
|||||
|
Vice
President of Business
|
2005
|
$54,167
|
$
—
|
$54,167
|
||||||
|
Development
and Marketing
|
On
November 8, 2005, the Board of Directors granted Judith Segall an option to
purchase 125,000 common shares, each, at an exercise price of $2.00 per share.
The option was granted under our 2002 Stock Option Plan. The options will expire
five years from the date of grant, or within three months after termination
of
the executive’s employment, subject to certain exceptions in the event of death
or disability. The exercise price of the option exceeded the closing price
the
common shares as reported on the Nasdaq OTCBB on the date of the grant.
On
November 24, 2006, the Board of Directors granted Judith Segall, Harold Waitz,
Hal Sternberg, Steven Seinberg, and Jeffrey Nickel options to purchase 80,000
common shares, each, at an exercise price of $0.32 per shares. Each option
was
granted under our 2002 Stock Option Plan. The options will expire five years
from the date of grant, or within three months after termination of the
executive’s employment, subject to certain exceptions in the event of death or
disability. The exercise price of the options was equal to 150% of the closing
price the common shares as reported on the Nasdaq OTCBB on November 22, 2006,
the last trading day before the effective date of the grant.
49
Stock
Options
The
following table summarizes certain information concerning stock options held
by
each member of the Office of the President as of December 31, 2006.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
Option
Awards
|
Name
|
Number
of Securities Underlying Unexercised Options
Exercisable
|
Number
of Securities Underlying Unexercised Options
Unexercisable
|
Option
Exercise
Price
|
Option
Expiration
Date
|
||||
|
Judith
Segall
|
80,000(1)
|
$4.00
|
October
27, 2007
|
|||||
|
37,500(2)
|
12,500(2)
|
$2.00
|
May
31, 2009
|
|||||
|
125,000(3)
|
$2.00
|
November
7, 2010
|
||||||
|
80,000(4)
|
$0.32
|
November
23, 2011
|
||||||
|
Hal
Sternberg
|
90,000(5)
|
$4.00
|
October
27, 2007
|
|||||
|
37,500(2)
|
12,500(2)
|
$2.00
|
May
31, 2009
|
|||||
|
80,000(4)
|
$0.32
|
November
23, 2011
|
||||||
|
Harold
Waitz
|
80,000(1)
|
$4.00
|
October
27, 2007
|
|||||
|
37,500(2)
|
12,500(2)
|
$2.00
|
May
31, 2009
|
|||||
|
80,000(4)
|
$0.32
|
November
23, 2011
|
||||||
|
Steven
Seinberg
|
20,000(6)
|
$4.00
|
October
27, 2007
|
|||||
|
18,750(7)
|
6,250(7)
|
$2.00
|
May
31, 2009
|
|||||
|
80,000(4)
|
$0.32
|
November
23, 2011
|
||||||
|
Jeffrey
Nickel
|
20,000(8)
|
$3.00
|
March
30, 2007
|
|||||
|
20,000(9)
|
$1.55
|
March
30, 2008
|
||||||
|
10,000(10)
|
$2.17
|
March
7, 2009
|
||||||
|
75,000(11)
|
25,000(11)
|
$2.00
|
May
31, 2009
|
|||||
|
80,000(4)
|
$0.32
|
November
23, 2011
|
||||||
(1)
26,666 options became exercisable on October 28, 2002, 26,667 options became
exercisable on January 1, 2003, and 26,667 options became exercisable on January
4, 2004.
(2)
12,500 options became exercisable on June 1, 2004 and the remaining options
became or will become exercisable in three equal annual
installments.
(3)
125,000 options became exercisable on November 8, 2005
(4)
80,000 options became exercisable on November 24, 2006
(5)
30,000 options became exercisable on October 28, 2002, 30,000 options became
exercisable on January 1, 2003, and 30,000 options became exercisable on January
4, 2004.
(6)
6,666
options became exercisable on October 28, 2002, 6,667 options became exercisable
on January 1, 2003, and 6,667 options became exercisable on January 4,
2004.
(7)
6,250
options became exercisable on June 1, 2004 and the remaining options became
or
will become exercisable in three equal annual installments.
50
(8)
12,500 options became exercisable on March 31, 2002 and the remaining options
became or will become exercisable in nine equal monthly
installments.
(9)
5,000
options became exercisable on March 31, 2003 and the remaining options became
or
will become exercisable in nine equal monthly installments.
(10)
5,000 options became exercisable on March 31, 2004 and the remaining options
became or will become exercisable in on May 31, 2004.
(11)
25,000 options became exercisable on June 1, 2004 and the remaining options
became or will become exercisable in three equal annual
installments.
Compensation
of Directors
The
two
directors who were not employees each received either $10,000 in cash and
options to purchase 10,000 common shares exercisable at $0.34 per share, which
was the closing
price of the common shares reported on the OTCBB on March 28, 2006,
or
options to purchase 20,000 common shares exercisable at $0.34 per share. The
options granted to these directors vested and became exercisable in equal
quarterly installments based on continued service on the Board of Directors.
Directors and members of committees of the Board of Directors who are BioTime
employees are not compensated for serving as directors or attending meetings
of
the Board or committees of the Board. Directors are entitled to reimbursements
for their out-of-pocket expenses incurred in attending meetings of the Board
or
committees of the Board. Directors who are BioTime employees are also entitled
to receive compensation in such capacity.
The
following table summarizes certain information concerning the compensation
paid
during the past fiscal year to each of the current members of the Board of
Directors who are not employees of BioTime.
DIRECTOR
COMPENSATION
|
Name
|
Fees
Earned
or
Paid In Cash
|
Option
Awards
|
Total
|
|||||||
|
Michael
D. West
|
—
|
$
|
5,003
|
$
|
5,003
|
|||||
|
Valeta
Gregg
|
$
|
10,000
|
$
|
2,502
|
$
|
12,502
|
||||
(1)
At
December 31, 2006 Michael West held options to purchase 98,332 common shares
at
exercise prices ranging from $0.34 to$1.26 per share.
(2)
At
December 31, 2006 Valeta Gregg held options to purchase 38,332 common shares
at
exercise prices ranging from $0.34 to$2.17 per share.
51
The
following table sets forth information as of March 1, 2006 concerning beneficial
ownership of common shares by each shareholder known by us to be the beneficial
owner of 5% or more of our common shares. Information concerning certain
beneficial owners of more than 5% of the common shares is based upon information
disclosed by such owners in their reports on Schedule 13D or Schedule
13G.
Security
Ownership of Certain Beneficial Owners
|
Number
of Shares
|
Percent
of
Total
|
|||
|
Alfred
D. Kingsley(1)
Gary
K. Duberstein
Greenbelt
Corp.
Greenway
Partners, L.P.
Greenhouse
Partners, L.P.
110
E. 59th
Street, Suite 3203
New
York, New York 10022
|
9,888,204
|
38.5%
|
||
|
Neal
C. Bradsher(2)
Broadwood
Partners, L.P.
Broadwood
Capital, Inc.
767
Fifth Avenue, 50th
Floor
New
York, NY 10153
|
3,321,806
|
13.8%
|
||
|
George
Karfunkel (3)
59
Maiden Lane
New
York, New York 10038
|
2,342,108
|
9.8%
|
||
|
Cyndel
& Co., Inc (4)
Patrick
Kolenik
Huntington
Laurel Partnership
36
Golf Lane
Huntington,
NY 11743
Cynthia
Bayern
Steven
Bayern
BN
Ventures, LLC
SJCMB
Family Limited Partnership
26
West Broadway #1004
Long
Beach, NY 11561
|
1,795,270
|
7.6%
|
||
___________________________
(1)
Includes 1,606,698 shares presently owned by Greenbelt Corp, 334,632 shares
that
may be acquired by Greenbelt Corp. upon the exercise of certain warrants,
527,942 shares owned by Greenway Partners, L.P., 448,121 shares that may be
acquired by Greenway Partners, L.P. upon the exercise of certain warrants,
4,669,522 shares owned solely by Alfred D. Kingsley, 2,301,289 shares that
may
be acquired by Mr. Kingsley upon the exercise of warrants, 12,256 shares owned
solely by Gary K. Duberstein, and 680 shares that may be acquired by Mr.
Duberstein upon the exercise of certain warrants. Mr. Kingsley and Mr.
Duberstein control Greenbelt Corp. and may be deemed to beneficially own the
warrants and shares that Greenbelt Corp. beneficially owns. Greenhouse Partners,
L.P. is the general partner of Greenway Partners, L.P., and Mr. Kingsley and
Mr.
Duberstein are the general partners of Greenhouse Partners, L.P. Greenhouse
Partners, L.P., Mr. Kingsley, and Mr. Duberstein may be deemed to beneficially
own the shares that Greenway Partners, L.P. owns. Mr.
52
Duberstein
disclaims beneficial ownership of the shares and warrants owned solely by Mr.
Kingsley, and Mr. Kingsley disclaims beneficial ownership of the shares owned
solely by Mr. Duberstein.
(2)
Includes 1,866,566 shares owned by Broadwood Partners, L.P., 1,412,332 shares
that may be acquired by Broadwood Partners, L.P upon the exercise of certain
warrants, 37,358 shares owned by Neal C. Bradsher, and 5,550 shares that may
be
acquired by Mr. Bradsher upon the exercise of certain warrants. Broadwood
Capital, Inc. is the general partner of Broadwood Partners, L.P., and Mr.
Bradsher is the President of Broadwood Capital, Inc. Mr. Bradsher and Broadwood
Capital, Inc. may be deemed to beneficially own the shares that Broadwood
Partners, L.P. owns.
(3)
Includes 1,413,277 shares that maybe acquired upon the exercise of certain
warrants.
(4)
Includes 104,762 shares owned by Cyndel & Co., Inc., 135,714 shares that
Cyndel maybe acquire upon the exercise of certain warrants, 66,500 shares owned
by partnership of which Cynthia Bayern is a general partner, 125,000 shares
that
Dr. Bayern may acquire upon the exercise of certain warrants, 305,000 shares
that Steven Bayern may acquire upon the exercise of certain warrants,
222,897shares owned by Huntington Laurel Partnership, 220,297 shares that
Huntington Laurel Partnership may be acquire upon the exercise of certain
warrants, 205,100 shares owned by Patrick Kolenik, 55,000 shares owned by Mr.
Kolenik’s wife jointly with a third party, and 175,000 shares that Mr. Kolenik
may acquire upon the exercise of certain warrants. Steven Bayern and Cynthia
Bayern are husband and wife and each may be deemed to beneficially own the
shares beneficially owned by the other. Mr. Bayern and Mr. Kolenik are the
shareholders, officers and directors of Cyndel and may be deemed to beneficially
own the shares that Cyndel owns. Mr. Bayern and Mr. Kolenik are the members
of
the general partner of Huntington Laurel Partnership and may be deemed to
beneficially own the shares owned by that partnership.
Security
Ownership Of Management
The
following table sets forth information as of March 1, 2006 concerning beneficial
ownership of common shares by each member of the Board of Directors, certain
executive officers, and all officers and directors as a group.
|
Number
of Shares
|
Percent
of Total
|
||
|
Judith
Segall(1)
|
792,669
|
3.5%
|
|
|
Hal
Sternberg(2)
|
500,201
|
2.2%
|
|
|
Harold
D. Waitz(3)
|
418,625
|
1.8%
|
|
|
Jeffrey
Nickel(4)
|
242,812
|
1.1%
|
|
|
Steven
A. Seinberg(5)
|
125,000
|
*
|
|
|
Michael
D. West(6)
|
98,332
|
*
|
|
|
Valeta
Gregg(7)
|
38,332
|
*
|
|
|
All
officers and directors
as
a group (7 persons)(8)
|
2,215,971
|
9.3%
|
* Less
than
1%
(1)
Includes 335,000 shares that may be acquired upon the exercise of certain stock
options, and 45,337 shares that may be acquired upon the exercise of certain
warrants.
53
(2)
Includes 220,000 shares that may be acquired upon the exercise of certain
options and 25,931 shares that may
be acquired upon the exercise of certain
warrants.
|
(3)
|
Includes
2,952 shares held for the benefit of Dr. Waitz’s children, 210,000 shares
that may be acquired by Dr. Waitz upon the exercise of certain stock
options, 38,379 shares that may be acquired by Dr. Waitz upon the
exercise
of certain warrants (including 720 warrants held for the benefit
of Dr.
Waitz’s children).
|
|
(4)
|
Includes
230,000 shares that may be acquired upon the exercise of certain
options
and 937 shares that may be acquired upon the exercise of certain
warrants.
|
|
(5)
|
Includes
125,000 shares that may be acquired upon the exercise of certain
options.
|
(6)
Includes 98,332 shares that may be acquired upon the exercise of certain
options.
(7)
Includes 38,332 shares that may be acquired upon the exercise of certain
options.
(8)
Includes 1,370,200 shares that may be acquired upon the exercise of certain
options and warrants.
During April 1998, we entered into a financial advisory services agreement
with
Greenbelt Corp., a corporation controlled by Alfred D. Kingsley and Gary K.
Duberstein, who are also BioTime shareholders. We agreed to indemnify Greenbelt
and its officers, affiliates, employees, agents, assignees, and controlling
person from any liabilities arising out of or in connection with actions taken
on our behalf under the agreement. The agreement has been renewed each year
and
will expire on March 31, 2007. We agreed to issue Greenbelt $90,000 cash and
80,000 common shares for the twelve months ending March 31, 2004, $90,000 cash
and 60,000 common shares for the twelve months ending March 31, 2005, and
$45,000 cash and 135,000 common shares for the twelve months ending March 31,
2006. The financial advisory agreement with Greenbelt has been extended through
March 31, 2007 and for service rendered Greenbelt will be entitled to receive
a
cash fee of $90,000 and 200,000 Shares (the “2006 Consulting Shares”). The 2006
Consulting Shares are issuable in two installments as follows: 150,000 Shares
on
January 2, 2007 for services rendered through December 31, 2006, and 50,000
Shares on April 2, 2007 for services rendered from January 1, 2007 through
March
31, 2007. The cash fee is payable as follows: $30,000 on January 2, 2007,
$30,000 on April 2, 2007, and $30,000 on October 1, 2007; provided, that we
may
defer either or both of the cash payments that would otherwise be due on January
2, 2007 and April 2, 2007 until a date that we may determine, but not later
than
October 1, 2007. If we elect to defer a cash payment, we will issue to Greenbelt
30,000 additional common shares within ten business days after the date on
which
the deferred cash payment was originally due. To
date,
we have now deferred both the January 2, 2007 payment and the April 2, 2007
payment, thereby necessitating issuance of a total of 60,000 shares to
Greenbelt. We
have
agreed to file a registration statement, at our expense, to register Greenbelt’s
shares for sale under the Securities Act of 1933, as amended, upon Greenbelt’s
request.
On
December 10, 2003, we commenced the 2003 Rights Offer by distributing 13,654,949
subscription rights to our shareholders, entitling them to purchase a total
of
1,706,869 units at a subscription price of $1.40 per unit. Each unit consisted
of one new common share and one-half of a warrant to purchase an additional
common share. We also reserved 853,434 additional units for sale to fill
over-subscriptions.
54
A
group
of private investors (the “2003 Guarantors”) including Mr. Kingsley, Broadwood
Partners, LP (“Broadwood”), George Karfunkel, and Cynthia Bayern, and holders of
$1,500,000 in principal amount of BioTime Series 2001-A debentures (the
“Participating Debenture Holders’), including Mr. Kingsley, Broadwood and Mr.
Karfunkel, agreed to purchase units that remained unsold at the conclusion
of
the 2003 Rights Offer, excluding units that we reserved to issue to fill
over-subscriptions, and subject to a maximum purchase commitment of $2,250,000.
The Participating Debenture Holders agreed to purchase their portion of any
unsold units by exchanging a principal amount of Series 2001-A debentures equal
to the purchase price of the units. Mr. Kingsley’s purchase commitment under the
Standby Purchase Agreement as a 2003 Guarantor was $187,500, payable in cash,
and his purchase commitment as a Participating Debenture Holder was $818,182,
payable in debentures. Broadwood’s purchase commitment as a Participating
Debenture Holder was $272,727, payable in debentures. Mr. Karfunkel’s purchase
commitment under the Standby Purchase Agreement as a 2003 Guarantor was
$187,500, payable in cash, and his purchase commitment as a Participating
Debenture Holder was $272,727, payable in debentures. Dr. Bayern’s purchase
commitment under the Standby Purchase Agreement as a 2003 Guarantor was
$375,000, payable in cash. The 2003 Guarantors and Participating Debenture
Holders were not required to acquire any units through those commitments because
the 2003 Rights Offer was oversubscribed.
Under
the
Standby Purchase Agreement, the 2003 Guarantors and Participating Debenture
Holders received the following cash and warrants as compensation:
|
2003
Guarantor or
Participating
Debenture Holder
|
Cash
Fee
|
|
Warrants
|
||||
|
Kingsley
|
$
|
67,045
|
335,227
|
||||
|
Broadwood
|
$
|
18,182
|
90,909
|
||||
|
Karfunkel
|
$
|
30,682
|
153,409
|
||||
|
Bayern
|
$
|
25,000
|
125,000
|
||||
Under
the
Standby Purchase Agreement, we also offered to sell up to an additional 428,571
units at the subscription price directly to the 2003 Guarantors and their
designees. Mr. Kingsley assigned his right to purchase 107,142 of those units
to
Dr. Bayern. The Participating Debenture Holders agreed to exchange $1,500,000
of
their debentures for units, if the 2003 Rights Offer was over-subscribed so
that
we issued all of the units reserved to fill excess over-subscriptions, and
if
the 2003 Guarantors purchased all 428,571 additional units offered to them.
Mr.
Kingsley exchanged $818,182 of his debentures for 584,415 common shares and
292,207 warrants, Broadwood exchanged $272,727 of its debentures for 194,805
common shares and 97,402 warrants, and Mr. Karfunkel exchanged $272,727 of
his
debentures for 194,805 common shares and 97,402 warrants.
Following
the 2003 Rights Offer, we eliminated the balance of our debenture indebtedness
by repaying $1,850,000 of debentures in cash. Mr. Kingsley, Broadwood, and
Mr.
Karfunkel received $681,820, $227,273, and $227,273 in cash, respectively,
plus
accrued interest, for their debentures.
On
October 27, 2005, we commenced the 2005 Rights Offer by distributing 17,871,450
subscription rights to our shareholders, entitling them to purchase a total
of
4,467,862 units at a subscription price of $0.40 per unit. Each unit consisted
of one new common share and one warrant to purchase an additional common
share.
55
Mr.
Kingsley and his affiliate Greenway Partners, L.P. (“Greenway”), Broadwood,
Cyndel & Co., Inc. (“Cyndel”), and Mr. Karfunkel (the “2005 Guarantors”)
entered into a new Standby Purchase Agreement under which they agreed to
purchase units that remained unsold at the conclusion of the 2005 Rights Offer,
excluding units that we reserved to issue to fill over-subscriptions. Mr.
Kingsley purchased 605,890 units, Greenway purchased 302,940 units, Broadwood
purchased 908,830 units, Mr. Karfunkel purchased 908,830 units, and Cyndel
purchased 545,298 units under the Standby Purchase Agreement.
Under
the
Standby Purchase Agreement, the 2005 Guarantors received the following cash
and
warrants as compensation for acting as Guarantors:
|
2005
Guarantor
|
Cash
Fee
|
|
Warrants
|
||||
|
Kingsley
|
$
|
24,444
|
111,111
|
||||
|
Greenway
|
$
|
12,222
|
55,555
|
||||
|
Broadwood
|
$
|
36,667
|
166,667
|
||||
|
Karfunkel
|
$
|
36,667
|
166,667
|
||||
|
Cyndel
|
$
|
22,000
|
100,000
|
||||
We
issued
Mr. Bayern a warrant to purchase 100,000 common shares at an exercise price
of
$4.00 per share as part of his consulting compensation during 2004. The warrant
will expire in April 2007. Mr. Bayern is an officer, director, and shareholder
of Cyndel and is the husband of Cynthia Bayern.
During
April 2006, we entered into a Revolving Line of Credit Agreement (the “Credit
Agreement”) with Alfred D. Kingsley, Cyndel & Co., Inc., and George
Karfunkel under which we may borrow up to $500,000 for working capital purposes
at an interest rate of 10% per annum. The credit line will expire, and any
funds
borrowed must be repaid, on the earlier of October 31, 2007 or when we receive
$600,000 in new funding through the sale of capital stock, the receipt of
licensing and similar fees in excess of $1,000,000, from other borrowing, or
any
combination of those sources. Under the Credit Agreement, we will prepay, and
the credit line will be reduced by, any funds we receive prior to the maturity
date from those sources. In consideration for making the line of credit
available, we issued to the lenders at total of 100,000 common shares. The
line
of credit is collateralized by a security interest in our right to receive
royalty and other payments under our license agreement with Hospira,
Inc.
56
(a-1)
Financial Statements.
The
following financial statements of BioTime, Inc. are filed in the Form
10-K:
Notes
to
Financial Statements
(a-2)
Financial Statement Schedules
All
schedules are omitted because the required information is inapplicable or
the
information is presented in the financial statements or the notes
thereto.
(a-3)
Exhibits.
|
Exhibit
Numbers
|
Description
|
|
|
3.1
|
Articles
of Incorporation.†
|
|
|
3.2
|
Amendment
of Articles of Incorporation.****
|
|
|
3.3
|
By-Laws,
As Amended.#
|
|
|
4.1
|
Specimen
of Common Share Certificate.+
|
|
|
4.2
|
Form
of Warrant Agreement between BioTime, Inc. and American Stock Transfer
& Trust Company++
|
|
|
4.3
|
Form
of Amendment to Warrant Agreement between BioTime, Inc. and American
Stock
Transfer & Trust Company. +++
|
|
|
4.4
|
Form
of Warrant+++
|
|
|
10.1
|
Intellectual
Property Agreement between BioTime, Inc. and Hal
Sternberg.+
|
|
|
10.2
|
Intellectual
Property Agreement between BioTime, Inc. and Harold
Waitz.+
|
|
|
10.3
|
Intellectual
Property Agreement between BioTime, Inc. and Judith
Segall.+
|
|
|
10.4
|
Intellectual
Property Agreement between BioTime, Inc. and Steven
Seinberg.*
|
|
|
10.5
|
Agreement
between CMSI and BioTime Officers Releasing Employment Agreements,
Selling
Shares, and Transferring Non-Exclusive License.+
|
|
|
10.6
|
Agreement
for Trans Time, Inc. to Exchange CMSI Common Stock for BioTime,
Inc.
Common Shares.+
|
|
|
10.7
|
2002
Stock Option Plan, as amended.##
|
|
|
10.8
|
Exclusive
License Agreement between Abbott Laboratories and BioTime, Inc.
(Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment).###
|
|
|
10.9
|
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).^
|
|
|
10.10
|
Warrant
Agreement, dated March 27, 2002, between BioTime, Inc. and Alfred
D.
Kingsley*
|
|
|
10.11
|
Warrant
for the Purchase of Common Shares, dated August 12, 2002, issued
to
Ladenburg Thalmann & Co. Inc.**
|
|
|
10.12
|
Exclusive
License Agreement between BioTime, Inc. and CJ Corp.***
|
|
|
10.13
|
Hextend
and PentaLyte Collaboration Agreement between BioTime, Inc. and
Summit
Pharmaceuticals International Corporation.‡
|
|
|
10.14
|
Lease
dated as of May 4, 2005 between BioTime, Inc. and Hollis R& D
Associates ‡‡
|
|
|
10.15
|
Addendum
to Hextend and PentaLyte Collaboration Agreement Between BioTime
Inc. And
Summit Pharmaceuticals International Corporation‡‡‡
|
57
|
10.16
|
Amendment
to Exclusive License Agreement Between BioTime Inc. and Hospira,
Inc.††
|
|
|
10.17
|
Hextend
and PentaLyte China License Agreement Between BioTime, Inc. and
Summit
Pharmaceuticals International Corporation.†††
|
|
|
10.18
|
Revolving
Credit Line Agreement between BioTime, Inc, Alfred D. Kingsley,
Cyndel
& Co., Inc., and George Karfunkel, dated April 12,
2006.††††
|
|
|
10.19
|
Security
Agreement executed by BioTime, Inc., dated April 12,
2006.††††
|
|
10.20
|
Form
of Revolving Credit Note of BioTime, Inc. in the principal amount
of
$166,666.67
dated April 12, 2006.††††
|
|
|
23.1
|
Consent
of Rothstein, Kass & Company, P.C.++++
|
|
|
23.2
|
Consent
of BDO Seidman, LLP++++
|
|
|
31
|
Rule
13a-14(a)/15d-14(a) Certification++++
|
|
|
32
|
Section
1350 Certification++++
|
†Incorporated
by reference to BioTime’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 Registration Statement on Form S-2, File Number
333-109442, filed with the Securities and Exchange Commission on October
3,
2003, and Amendment No.1 thereto filed with the Securities and Exchange
Commission on November 13, 2003.
+++Incorporated
by reference to Registration Statement on Form S-2, File Number 333-128083,
filed with the Securities and Exchange Commission on September 2,
2005.
##
Incorporated by reference to Registration Statement on Form S-8, File Number
333-101651 filed with the Securities and Exchange Commission on December
4, 2002
and Registration Statement on Form S-8, File Number 333-122844 filed with
the
Securities and Exchange Commission on February 23, 2005.
###
Incorporated by reference to BioTime’s Form 8-K, filed April 24,
1997.
^
Incorporated by reference to BioTime’s Form 10-Q for the quarter ended June 30,
1999.
*
Incorporated by reference to BioTime’s Form 10-K for the year ended December 31,
2001.
**
Incorporated by reference to BioTime’s Form 10-Q for the quarter ended June 30,
2002.
***
Incorporated by reference to BioTime’s Form 10-K/A-1 for the year ended December
31, 2002.
‡
Incorporated by reference to BioTime’s Form 8-K, filed December 30,
2004
‡‡
Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form S-2 File Number 333-109442, filed with the Securities and
Exchange Commission on May 24, 2005
‡‡‡
Incorporated by reference to BioTime’s Form 8-K, filed December 20,
2005
††
Incorporated by reference to BioTime’s Form 8-K, filed January 13,
2006
†††
Incorporated by reference to BioTime’s Form 8-K, filed March 30,
2006
††††
Incorporated by reference to BioTime’s Form 10-K For the year ended December 31,
2005
****
Incorporated by reference to BioTime’s Form 10-Q for the quarter ended June 30,
2006.
++++Filed
herewith
58
Rothstein,
Kass and Company (“RKCO”) audited our annual financial statements for the fiscal
year ended December 31, 2006. We first engaged RKCO as our auditors in February
2007; we did not pay them any fees during the year ended December 31, 2006.
BDO
Seidman, LLP (“BDO”) audited our annual financial statements for the fiscal year
ended December 31, 2005, and reviewed our financial statements included in
our
quarterly reports on Form 10-QSB for the first three quarters of 2006.
Audit
Fees.
BDO
billed us $165,751 in 2005 for the audit of our annual financial statements
and
for the review of our financial statements included in our quarterly reports
on
Form 10-Q. BDO billed us $86,998 in 2006 for the review of our financial
statements included in our quarterly reports on Form 10-QSB, and for work
performed in conjunction with the audit of our annual financial statements.
In
2005, BDO also provided services related to the filing of securities
registration statements; fees for those services were $33,770. No such services
were performed in 2006.
Audit-Related
Fees.
BDO
billed us $8,440 for audit-related fees during the fiscal year ended December
31
2005. These fees were incurred in connection with BDO’s consultations relative
to the BioTime-Summit transactions. No such services were performed in
2006.
Tax
Fees.
BDO
billed us $7,000 for review and preparation of U.S. federal, state, and local
tax returns during the fiscal years ended December 31, 2005 and 2006.
Other
Fees.
There
were no other fees charged to us by BDO during the fiscal years ended December
31, 2005 and 2006.
Under
practices and procedures adopted by the Audit Committee, the prior approval
of
the Audit Committee is required for the engagement of BioTime's auditors
to
perform any non-audit services for BioTime. Other than de minimis services
incidental to audit services, non-audit services shall generally be limited
to
tax services such as advice and planning and financial due diligence services.
All fees for such non-audit services must be approved by the Audit Committee,
except to the extent otherwise permitted by applicable SEC regulations.
59
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of
1934, the Registrant has duly caused this report on Form 10-KSB to be signed
on
its behalf by the undersigned, thereunto duly authorized on the 16th day
of
April 2007.
|
BIOTIME,
INC.
|
|||
|
By:
|
/s/Judith
Segall
|
||
|
Judith
Segall, Vice President-Operations,
|
|||
|
Member,
Office of the President*
|
|||
|
Signature
|
Title
|
Date
|
|||
|
/s/Judith
Segall
|
Vice
President -Operations and
|
April
16, 2007
|
|||
|
Judith
Segall
|
Corporate
Secretary; Member-
|
||||
|
Office
of the President*
|
|||||
|
and
Director
|
|||||
|
/s/Hal
Sternberg
|
Vice
President-Research;
|
April
16, 2007
|
|||
|
Hal
Sternberg, Ph.D.
|
Member,
Office of the President*
|
||||
|
and
Director
|
|||||
|
/s/Harold
D. Waitz
|
Vice
President-Regulatory Affairs;
|
April
16, 2007
|
|||
|
Harold
D. Waitz, Ph.D.
|
Member,
Office of the President*
|
||||
|
and
Director
|
|||||
|
/s/Steven
A. Seinberg
|
Chief
Financial Officer
|
April
16, 2007
|
|||
|
Steven
A. Seinberg
|
(Principal
Financial and
|
||||
|
Accounting
Officer)
|
|||||
|
Michael
D. West
|
Director
|
April
___, 2007
|
|||
|
/s/Valeta
Gregg
|
|||||
|
Valeta
Gregg
|
Director
|
April
16, 2007
|
*
The
Office of the President is comprised of the three above-referenced executive
officers of the Registrant who collectively exercise the powers of the Chief
Executive Officer.
60
|
Exhibit
Numbers
|
Description
|
|
|
3.1
|
Articles
of Incorporation.†
|
|
|
3.2
|
Amendment
of Articles of Incorporation.****
|
|
|
3.3
|
By-Laws,
As Amended.#
|
|
|
4.1
|
Specimen
of Common Share Certificate.+
|
|
|
4.2
|
Form
of Warrant Agreement between BioTime, Inc. and American Stock Transfer
& Trust Company++
|
|
|
4.3
|
Form
of Amendment to Warrant Agreement between BioTime, Inc. and American
Stock
Transfer & Trust Company. +++
|
|
|
4.4
|
Form
of Warrant+++
|
|
|
10.1
|
Intellectual
Property Agreement between BioTime, Inc. and Hal
Sternberg.+
|
|
|
10.2
|
Intellectual
Property Agreement between BioTime, Inc. and Harold
Waitz.+
|
|
|
10.3
|
Intellectual
Property Agreement between BioTime, Inc. and Judith
Segall.+
|
|
|
10.4
|
Intellectual
Property Agreement between BioTime, Inc. and Steven
Seinberg.*
|
|
|
10.5
|
Agreement
between CMSI and BioTime Officers Releasing Employment Agreements,
Selling
Shares, and Transferring Non-Exclusive License.+
|
|
|
10.6
|
Agreement
for Trans Time, Inc. to Exchange CMSI Common Stock for BioTime,
Inc.
Common Shares.+
|
|
|
10.7
|
2002
Stock Option Plan, as amended.##
|
|
|
10.8
|
Exclusive
License Agreement between Abbott Laboratories and BioTime, Inc.
(Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment).###
|
|
|
10.9
|
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).^
|
|
|
10.10
|
Warrant
Agreement, dated March 27, 2002, between BioTime, Inc. and Alfred
D.
Kingsley*
|
|
|
10.11
|
Warrant
for the Purchase of Common Shares, dated August 12, 2002, issued
to
Ladenburg Thalmann & Co. Inc.**
|
|
|
10.12
|
Exclusive
License Agreement between BioTime, Inc. and CJ Corp.***
|
|
|
10.13
|
Hextend
and PentaLyte Collaboration Agreement between BioTime, Inc. and
Summit
Pharmaceuticals International Corporation.‡
|
|
|
10.14
|
Lease
dated as of May 4, 2005 between BioTime, Inc. and Hollis R& D
Associates ‡‡
|
|
|
10.15
|
Addendum
to Hextend and PentaLyte Collaboration Agreement Between BioTime
Inc. And
Summit Pharmaceuticals International Corporation‡‡‡
|
|
|
10.16
|
Amendment
to Exclusive License Agreement Between BioTime Inc. and Hospira,
Inc.††
|
|
|
10.17
|
Hextend
and PentaLyte China License Agreement Between BioTime, Inc. and
Summit
Pharmaceuticals International Corporation.†††
|
|
|
10.18
|
Revolving
Credit Line Agreement between BioTime, Inc, Alfred D. Kingsley,
Cyndel
& Co., Inc., and George Karfunkel, dated April 12,
2006.††††
|
|
|
10.19
|
Security
Agreement executed by BioTime, Inc., dated April 12,
2006.††††
|
|
|
10.20
|
Form
of Revolving Credit Note of BioTime, Inc. in the principal amount
of
$166,666.67
dated April 12, 2006.††††
|
|
|
23.1
|
Consent
of Rothstein, Kass & Company, P.C.++++
|
|
|
23.2
|
Consent
of BDO Seidman, LLP++++
|
|
|
31
|
Rule
13a-14(a)/15d-14(a) Certification++++
|
|
|
32
|
Section
1350 Certification++++
|
†Incorporated
by reference to BioTime’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 Registration Statement on Form S-2, File Number
333-109442, filed with the Securities and Exchange Commission on October
3,
2003, and Amendment No.1 thereto filed with the Securities and Exchange
Commission on November 13, 2003.
61
+++Incorporated
by reference to Registration Statement on Form S-2, File Number 333-128083,
filed with the Securities and Exchange Commission on September 2,
2005.
##
Incorporated by reference to Registration Statement on Form S-8, File Number
333-101651 filed with the Securities and Exchange Commission on December
4, 2002
and Registration Statement on Form S-8, File Number 333-122844 filed with
the
Securities and Exchange Commission on February 23, 2005.
###
Incorporated by reference to BioTime’s Form 8-K, filed April 24,
1997.
^
Incorporated by reference to BioTime’s Form 10-Q for the quarter ended June 30,
1999.
*
Incorporated by reference to BioTime’s Form 10-K for the year ended December 31,
2001.
**
Incorporated by reference to BioTime’s Form 10-Q for the quarter ended June 30,
2002.
***
Incorporated by reference to BioTime’s Form 10-K/A-1 for the year ended December
31, 2002.
‡
Incorporated by reference to BioTime’s Form 8-K, filed December 30,
2004
‡‡
Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form S-2 File Number 333-109442, filed with the Securities and
Exchange Commission on May 24, 2005
‡‡‡
Incorporated by reference to BioTime’s Form 8-K, filed December 20,
2005
††
Incorporated by reference to BioTime’s Form 8-K, filed January 13,
2006
†††
Incorporated by reference to BioTime’s Form 8-K, filed March 30,
2006
††††
Incorporated by reference to BioTime’s Form 10-K For the year ended December 31,
2005
****
Incorporated by reference to BioTime’s Form 10-Q for the quarter ended June 30,
2006.
++++Filed
herewith
62