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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number 1-12830

BioTime, Inc.
(Exact name of registrant as specified in its charter)

California		94-3127919
(State or other jurisdiction of incorporation		(IRS Employer
or organization)		Identification No.)

935 Pardee Street
Berkeley, California 94710
(Address of principal executive offices)

(510) 845-9535
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  [X]   No [   ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 13,490,101 common shares, no par value, as of November 8, 2002.

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PART 1— FINANCIAL INFORMATION

     Statements made in this Report that are not historical facts may constitute forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those discussed. Such risks and uncertainties include but are not limited to those discussed in this report under Note 1 to Financial Statements, and in BioTime’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. Words such as “expects,” “may,” “will,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions identify forward-looking statements.

Item 1. Financial Statements

BIOTIME, INC.
(A Development Stage Company)

CONDENSED BALANCE SHEETS
(Unaudited)

				September 30,				December 31,
				2002				2001
		ASSETS
CURRENT ASSETS
Cash and cash equivalents				$	1,829,139			$	1,652,748
Prepaid expenses and other current assets					4,090				109,431
Total current assets					1,833,229				1,762,179
EQUIPMENT, Net of accumulated depreciation of $458,670 at September 30, 2002 and $409,331 at December 31, 2001					118,608				167,946
DEPOSITS AND OTHER ASSETS					11,250				11,250
TOTAL ASSETS				$	1,963,087			$	1,941,375
		LIABILITIES AND SHAREHOLDERS’ DEFICIT
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES				$	278,037			$	309,347
DEBENTURES, net of discount of $1,307,681 and $1,618,878					2,042,319				1,731,122
SHAREHOLDERS’ DEFICIT:
Preferred Shares, no par value, undesignated as to Series, 1,000,000 shares authorized; none outstanding
Common Shares, no par value, 40,000,000 shares authorized; issued and outstanding 13,490,101 at September 30, 2002 and 11,627,316 at December 31, 2001					32,412,280				30,602,003
Contributed Capital					93,973				93,972
Deficit accumulated during development stage					(32,863,522	)			(30,795,069	)
Total shareholders’ deficit					(357,269	)			(99,094	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT				$	1,963,087			$	1,941,375

See notes to condensed financial statements.

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BIOTIME, INC.
(A Development Stage Company)

CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

		Three Months Ended								Nine Months Ended								Period from Inception
		September 30,				September 30,				September 30,				September 30,				(November 30, 1990) to
		2002				2001				2002				2001				September 30, 2002
REVENUE:
License fee		$	—			$	—			$	—			$	—			$	2,500,000
Royalty			85,843				36,416				203,890				99,069				408,299
Total revenue		$	85,843			$	36,416			$	203,890			$	99,069			$	2,908,299
EXPENSES:
Research and development			251,994				290,550				856,038				1,386,336				22,599,581
General and administrative			151,446				505,525				773,480				1,556,012				13,972,708
Total expenses			403,440				796,075				1,629,518				2,942,348				36,572,289
Interest and other income (expense)—net:			(261,267	)			(101,614	)			(642,825	)			(89,757	)			825,299
NET LOSS		$	(578,864	)		$	(861,273	)		$	(2,068,453	)		$	(2,933,036	)		$	(32,838,691	)
BASIC AND DILUTED LOSS PER SHARE		$	(0.05	)		$	(0.07	)		$	(0.18	)		$	(0.26	)
COMMON AND EQUIVALENT SHARES USED IN COMPUTING BASIC AND DILUTED LOSS PER SHARE AMOUNTS			12,289,705				11,583,500				11,815,101				11,498,381

See notes to condensed financial statements.

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BIOTIME, INC.
(A Development Stage Company)

CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

			Nine Months Ended								Period from Inception
			September 30,								(November 30, 1990) to
			2002				2001				September 30, 2002
OPERATING ACTIVITIES:
Net loss			$	(2,068,453	)		$	(2,933,036	)		$	(32,838,691	)
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred Revenue				—				—				(1,000,000	)
Depreciation				49,339				47,163				465,211
Amortization of deferred Financing Costs				311,197				147,298				543,035
Cost of Donation — warrants				—				—				552,000
Cost of Services — options and warrants				77,922				75,976				1,311,406
Supply Reserves				—				—				200,000
Changes in operating assets and liabilities:
	Research and development supplies on hand			—				—				(200,000	)
	Decrease/(increase) in prepaid expenses and other current assets			44,950				(4,988	)			(64,481	)
	Deposits and other assets			—				—				(11,250	)
	Increase in accounts payable			(31,310	)			(257,505	)			278,037
	License fee receivables			—				—				—
	Deferred revenue			—				—				1,000,000
Net cash used in operating activities				(1,616,355	)			(2,925,092	)			(29,764,733	)
INVESTING ACTIVITIES:
Sale of investments				—				—				197,400
Purchase of short-term investments				—				—				(9,946,203	)
Redemption of short-term investments				—				—				9,946,203
Purchase of equipment and furniture				—				(5,522	)			(567,392	)
Net cash used in investing activities				—				(5,522	)			(369,992	)
FINANCING ACTIVITIES:
Issuance of debentures and warrants for cash				—				3,350,000				3,350,000
Issuance of preferred shares for cash				—				—				600,000
Preferred shares placement costs				—				—				(125,700	)
Issuance of common shares for cash				2,075,119				—				25,776,851
Common shares placement costs				(282,373	)			—				(2,498,870	)
Net proceeds from exercise of common share options and warrants				—				199,360				5,011,589
Contributed capital — cash				—				—				77,547
Dividends paid on preferred shares				—				—				(24,831	)
Repurchase Common Shares				—				—				(202,722	)
Net cash provided by financing activities				1,792,746				3,549,360				31,963,864
INCREASE IN CASH AND CASH EQUIVALENTS				176,391				618,746				1,829,139
CASH AND CASH EQUIVALENTS:
At beginning of period				1,652,748				1,318,338				—
At end of period			$	1,829,139			$	1,937,084			$	1,829,139

(Continued)

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BIOTIME, INC.
(A Development Stage Company)

CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

		Nine Months Ended								Period from Inception
		September 30,								(November 30, 1990) to
		2002				2001				September 30, 2002
NONCASH FINANCING AND INVESTING ACTIVITIES:
Receipt of contributed equipment										$	16,425
Issuance of common shares in exchange for shares of common stock of Cryomedical Sciences, Inc. in a stock-for-stock transaction										$	197,400
Issuance of warrants for private placement costs		$	163,583							$	163,583
Issuance of warrants related to debenture financing and Line of Credit Agreement		$	60,390			$	1,850,716			$	1,911,106
Conversion of Line of Credit to debentures, net of deferred financing fees						$	840,878			$	840,878

See notes to condensed financial statements.		(Concluded)

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BIOTIME, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

1.		ORGANIZATION
		General — BioTime, Inc. (the Company) was organized November 30, 1990 as a California corporation. The Company is a biomedical organization, currently in the development stage, which is engaged in the research and development of synthetic plasma expanders, blood volume substitute solutions, and organ preservation solutions, for use in surgery, trauma care, organ transplant procedures, and other areas of medicine.
		The condensed balance sheet as of September 30, 2002, the condensed statements of operations for the three months and nine months ended September 30, 2002 and 2001 and the period from inception (November 30, 1990) to September 30, 2002, and the statements of cash flows for the nine months ended September 30, 2002 and 2001 and the period from inception (November 30, 1990) to September 30, 2002 have been prepared by the Company without audit. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at September 30, 2002 and for all periods presented have been made. The balance sheet as of December 31, 2001 is derived from the Company’s audited financial statements as of that date. The results of operations for the period ended September 30, 2002 are not necessarily indicative of the operating results anticipated for the full year.
		Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as permitted by regulations of the Securities and Exchange Commission. Certain prior year amounts have been reclassified to conform with presentations made during the current periods. It is suggested that these interim condensed financial statements be read in conjunction with the annual audited financial statements and notes thereto included in the Company’s Form 10-K, as amended, for the year ended December 31, 2001.
		Development Stage Enterprise — Since inception, the Company has been engaged in research and development activities in connection with the development of synthetic plasma expanders, blood volume substitute solutions and organ preservation products. The Company has limited operating revenues and has incurred operating losses of $32,838,691 from inception to September 30, 2002. The successful completion of the Company’s product development program and, ultimately, achieving profitable operations is dependent upon future events including maintaining adequate capital to finance its future development activities, obtaining regulatory approvals for the products it develops and achieving a level of revenues adequate to support the Company’s cost structure.

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		Certain Significant Risks and Uncertainties — The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include but are not limited to the following: the results of clinical trials of the Company’s products; the Company’s ability to obtain United States Food and Drug Administration and foreign regulatory approval to market its products; competition from products manufactured and sold or being developed by other companies; the price of and demand for Company products; the Company’s ability to obtain additional financing and the terms of any such financing that may be obtained; the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products; and the availability of reimbursement for the cost of the Company’s products (and related treatment) from government health administration authorities, private health coverage insurers and other organizations.
2.		SIGNIFICANT ACCOUNTING POLICIES
		Financial Statement Estimates — The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such management estimates include certain accruals. Actual results could differ from those estimates.
		Revenue recognition — In April 1997, BioTime and Abbott Laboratories (“Abbott”) entered into an Exclusive License Agreement (the “License Agreement”) under which BioTime granted to Abbott an exclusive license to manufacture and sell BioTime’s proprietary blood plasma volume expander solution Hextend in the United States and Canada for certain therapeutic uses.
		Under the License Agreement, Abbott has paid BioTime $2,500,000 in milestone payments that were payable when BioTime achieved specific milestones including the signing of the agreement, issuance of a patent, filing a new drug application with the FDA, obtaining FDA approval of the new drug application, and the first sale of the product, all of which were achieved by 1999. The Company recognized the revenue associated with the signing of the agreement over the regulatory approval period; while the other milestone payments were recognized as revenue when those milestones were achieved, as they coincided with substantive stages of progress under the arrangement.
		Additional license fees of up to $37,500,000 will be payable based upon annual net sales of Hextend at the rate of 10% of annual net sales if annual net sales exceed $30,000,000 or 5% if annual net sales are between $15,000,000 and $30,000,000. Abbott’s obligation to pay license fees on sales of Hextend will expire on the earlier of January 1, 2007 or, on a country by country basis, when all patents protecting Hextend in the applicable country expire or any third party obtains certain regulatory approvals to market a generic equivalent product in that country. No amounts have been paid to BioTime under this portion of the license agreement.

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		In addition to the license fees, Abbott will pay the Company a royalty on annual net sales of Hextend. The royalty rate will be 5% plus an additional .22% for each increment of $1,000,000 of annual net sales, up to a maximum royalty rate of 36%. Abbott’s obligation to pay royalties on sales of Hextend will expire in the United States or Canada when all patents protecting Hextend in the applicable country expire and any third party obtains certain regulatory approvals to market a generic equivalent product in that country.
		The Company recognizes such revenues in the quarter in which the sales report is received, rather than the quarter in which the sales took place, as the Company does not have sufficient sales history to accurately predict quarterly sales. Revenues for the three months ended September 30, 2002 include royalties on sales made by Abbott during the three months ended June 30, 2002. Royalties on sales made during the third quarter of 2002 will not be recognized by the Company until the fourth quarter of fiscal year 2002.
		Abbott has agreed that the Company may convert Abbott’s exclusive license to a non-exclusive license or may terminate the license outright if certain minimum sales and royalty payments are not met. In order to terminate the license outright, BioTime would pay a termination fee in an amount ranging from the milestone payments made by Abbott to an amount equal to three times prior year net sales, depending upon when termination occurs. Management believes that the probability of payments of any termination fee by the Company is remote.
		Comprehensive Loss — Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income,” establishes standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. Comprehensive loss was the same as net loss for all periods presented.
		Recently issued accounting standards —
		Business combinations and goodwill — In June 2001, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” SFAS 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives will not be amortized, but will rather be tested at least annually for impairment. The Company adopted SFAS 142 on January 1, 2002. The adoption of this statement did not have a material impact on the condensed financial statements.

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Impairment and disposal of long- lived assets — In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS 144 supersedes SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations - - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” and addresses financial accounting and reporting for the impairment of disposal of long-lived assets. The Company adopted SFAS 144 on January 1, 2002. The adoption of this statement did not have a material impact on the condensed financial statements.

Accounting for costs associated with exit or disposal activities — In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146 (“SFAS 146”), “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses accounting for restructuring and similar costs. SFAS 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue No. 94-3. The Company will adopt the provisions of SFAS 146 for restructuring activities initiated after December 31, 2002. SFAS 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost would have been recognized on the date of the Company’s commitment to an exit plan. SFAS 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS 146 may affect the recognition of future restructuring costs if applicable, as well as the amounts recognized.

3.		LINES OF CREDIT AND DEBENTURES
		During March, 2001, BioTime entered into a one year Revolving Line of Credit Agreement (the “Credit Agreement”) with Alfred D. Kingsley, an investor and consultant to the Company, under which BioTime could borrow up to $1,000,000 for working capital purposes at an interest rate of 10% per annum. In consideration for making the line of credit available, the Company issued to Mr. Kingsley a fully vested warrant to purchase 50,000 common shares at an exercise price of $8.31. The fair value of this warrant of $254,595 was determined using the Black-Scholes pricing model with the following assumptions: contractual life of 5 years; risk-free interest rate of 5.50%; volatility of 87.55%; and no dividends during the expected term. The fair value amount of the warrant was recorded as deferred financing costs and was being amortized to interest expense over the term of the Credit Agreement.
		In August 2001, the Company issued $3,350,000 of debentures to an investor group. As part of the $3,350,000 debenture issuance, Mr. Kingsley agreed to convert the $1,000,000 outstanding balance under the Credit Agreement to $1,000,000 of debentures and purchased an additional $500,000 of debentures for cash. On the date of the conversion of the Credit Agreement to the debentures, the Credit Agreement was terminated, and no additional borrowings are available under that Credit Agreement. Interest on the debentures is payable at an annual rate of 10% and is payable semi-annually. The principal amount of the

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		debentures is due on August 1, 2004. BioTime may prepay the debentures, in whole or in part, at any time without premium or penalty. Under the terms of the debentures, BioTime has agreed to restrict its quarterly cash payments for operating expenses to not more than $450,000 (excluding interest payable on the debentures) plus the amount of cash revenue (excluding interest and dividends) it collects for the quarter. To the extent BioTime’s expenditures during any quarter are less than $450,000 over its revenues, it may expend the difference in one or more subsequent quarters. This spending restriction will expire when the Company obtains at least $5,000,000 in cash through sales of equity securities or pays off the debenture indebtedness in full. The Company has also agreed not to pay any cash dividends on or to redeem or repurchase any of its common shares outstanding until it has paid off the debentures in full. In a recent private placement, the Company received $2.08 million for the sale of equity. Thus, the spending restriction will expire when an additional $2.92 million is obtained through the sales of additional equity securities or when the debenture is paid in full.
		Investors who purchased the debentures also received warrants to purchase a total of 515,385 common shares at an exercise price of $6.50. The warrants expire on August 1, 2004. The total fair value of the warrants of $1,596,124 was determined using the Black-Scholes option pricing model with the following assumptions: contractual life of 3 years; risk-free interest rate of 4.04%; volatility of 88%; and no dividends during the expected term. Of the $3,350,000 of proceeds, $1,596,124 has been allocated to the warrants, which includes the unamortized portion $159,122 of the fair value of the warrant issued in connection with the Credit Agreement. The portion of the proceeds allocated to the debentures is being accreted to interest expense over the term of the debentures using the effective interest rate method. The Company has the right to call the warrants for redemption at a redemption price of $0.01 per share if the closing price of the Company’s common shares equals or exceeds 150% of the exercise price for fifteen consecutive trading days.
		On March 27, 2002, BioTime entered into a new Revolving Line of Credit Agreement (the “2002 Credit Agreement”) with Alfred D. Kingsley which entitled BioTime to borrow up to $300,000 for working capital purposes. The 2002 Credit Agreement expired when the Company received $1,792,746 in net proceeds from a private placement offering (see Note 4). The Company had no borrowings under the 2002 Credit Agreement at September 30, 2002.
		In connection with entering into the 2002 Credit Agreement on March 27, 2002, the Company issued to Mr. Kingsley a warrant to purchase 30,000 of the Company’s common shares at $4.00 per share. The warrant is fully exercisable and non-forfeitable on the date of grant and expires on March 26, 2007. The fair value of the warrant was $60,390 and was determined using the Black-Scholes option pricing model with the following assumptions: contractual life of 5 years; risk-free interest rate of 4.4%; volatility of 84.6%; and no dividends during the expected term. The fair value of the warrant was being amortized over the term of the 2002 Credit Agreement. As the 2002 Credit Agreement expired, the warrant has been fully expensed, at September 30, 2002.

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4.		SHAREHOLDERS’ DEFICIT
		The Board of Directors of the Company adopted the 1992 Stock Option Plan (the “1992 Plan”) during September 1992. The 1992 Plan was approved by the shareholders at the 1992 Annual Meeting of Shareholders on December 1, 1992. Under the 1992 Plan, as amended, the Company has reserved 1,800,000 common shares for issuance under options granted to eligible persons. No options may be granted under the 1992 Plan more than ten years after the date the 1992 Plan was adopted by the Board of Directors, and no options granted under the 1992 Plan may be exercised after the expiration of ten years from the date of grant.
		Under the 1992 Plan, options to purchase common shares may be granted to employees, directors and certain consultants at prices not less than the fair market value at date of grant for incentive stock options and not less than 85% of fair market value for other stock options. These options expire five to ten years from the date of grant and may be fully exercisable immediately, or may be exercisable according to a schedule or conditions specified by the Board of Directors or the Option Committee. As of September 30, 2002, options to purchase 368,201 shares had been granted and were outstanding at exercise prices ranging from $1.13 to $18.25 under the 1992 Stock Option Plan. Of the options granted to consultants, options to purchase 60,000 common shares vest upon achievement of certain milestones. At September 30, 2002, 23,000 options had vested, and 37,000 options had not vested. The Company recorded a benefit of $17,699 as a result of remeasurement of such options. The benefit recognized on these options during the three months ended September 30, 2002 was recorded as an offset to research and development expense.
		During September 2002, the Company’s board of directors adopted, and during October 2002, the shareholders approved, a new stock option plan (the “2002 Plan”). Under the 2002 Plan, as amended, the Company has reserved 1,000,000 shares. The Company granted to certain employees, consultants, and directors, options to purchase a total of 445,000 common shares at an exercise price of $4.00 per share, and granted one new director options to purchase 18,332 common shares at an exercise price of $1.00 per share. As these options were approved by the shareholders in October, 2002, there was no measurement date for these options through September 30, 2002. The options were granted without registration under the Securities Act of 1933, as amended, pursuant to the exemption provided in Section 4(2) and Rule 506 thereunder. The Company intends to register these options and shares for sale under the Securities Act of 1933, as amended.
		On August 12, 2002, BioTime completed a private placement of 1,852,785 common shares for $2,075,119 ($1,792,746 net proceeds after cash placement fees of $282,373) through Ladenburg Thalmann & Co. Inc. The money will be used for clinical and pre-clinical product development, and for working capital. The Company has registered these shares for sale under the Securities Act of 1933, as amended. In connection with the offering, and in addition to the placement fees referred to above, the Company granted to Ladenburg Thalmann & Co. Inc., warrants to purchase 129,695 common shares at an exercise price of $1.34 per share. The warrants are fully vested and non-forfeitable, and expire on August 11, 2007.

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5.		NET LOSS PER SHARE
		Basic loss per share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed based on the weighted average number of common shares outstanding plus the dilutive effect of outstanding stock options and warrants. Diluted net loss per common share was the same as basic net loss per common share for all periods presented. As of September 30, 2002 and 2001, the Company had securities outstanding that could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net loss per share, as their effects would have been anti-dilutive, given the Company’s losses. Such outstanding securities consisted of the following:

     The Company had 16,201 “in the money” options and warrants at September 30, 2002 and 2001.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

     Since its inception in November 1990, the Company has been engaged primarily in research and development activities which have culminated in the commercial launch of Hextend, its lead product, and a