LCTX

Business Context and Reporting Period

Company: BioTime, Inc. (Note: Input metadata referenced Lineage Cell Therapeutics, but the filing text identifies BioTime, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Business Overview: BioTime is a biotechnology company focused on two areas: (1) blood plasma volume expanders, primarily Hextend, distributed by Hospira and CJ CheilJedang; and (2) regenerative medicine via its subsidiary Embryome Sciences, Inc., developing human embryonic stem cell products for research. The company has not yet generated significant revenue from its stem cell segment.

Key Financial Metrics

Cash Flow Summary: Net cash used in operating activities was $1,025,785. Net cash provided by financing activities was $1,561,902, primarily driven by $1,480,000 in borrowings under lines of credit.

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 22% to $296,743 from $381,018. Royalty revenue dropped 28% to $222,667 due to decreased sales of Hextend to hospitals and the U.S. Armed Forces.
• Increased Expenses: Total expenses rose 54% to $1,207,998. Research and Development (R&D) increased 51% to $525,824, driven by higher rent, salaries, and lab costs. General and Administrative (G&A) expenses increased 56% to $682,174, largely due to a $198,741 increase in stock appreciation rights compensation liability.
• Interest Expense Surge: Interest expense jumped to $608,027 from $76,521, reflecting higher debt levels and imputed costs associated with the right of lenders to exchange notes for stock at discounted prices.
• Liquidity Improvement: Cash on hand increased from $12,279 at the start of the quarter to $541,106, funded primarily by new borrowings.

Outlook, Risks, and Subsequent Events

Management Commentary & Outlook: Management expects the $4.0 million equity raise (May 2009) combined with expected royalties and a new grant to finance operations for 12 to 18 months. The company is focusing on near-term research markets for stem cells which do not require FDA approval.

Subsequent Events (Post-March 31, 2009):

• CIRM Grant: Awarded a $4,721,706 grant from the California Institute of Regenerative Medicine for stem cell research, with ~$1.6 million expected in the first year.
• Equity Financing: On May 13, 2009, raised $4,000,000 via the sale of 2,200,000 common shares and warrants to two private investors.
• Debt Restructuring: In April 2009, the Revolving Line of Credit maturity was extended to December 1, 2009, for $2.67 million of principal. Lenders received common shares as consideration for the extension.

Risks and Contingencies:

• Liquidity Risk: The company relies heavily on licensing fees, royalties, and external financing. Inadequate financing could force curtailment of operations.
• Debt Covenants: Lines of credit are collateralized by royalty rights. Lenders have the right to exchange notes for stock at discounted prices, creating dilution and imputed interest costs.
• Regulatory & Clinical: Future therapeutic products depend on FDA approval and successful clinical trials, which are uncertain and costly.

Key Facts for Investor Verification

• Debt-to-Cash Ratio: Verify the sustainability of operations given $3.52 million in lines of credit payable against only $541,000 in cash (excluding subsequent financing).
• Revenue Recognition Timing: Confirm that Q1 2009 royalties reflect sales from Q4 2008, while Q1 2009 sales royalties were received in May 2009 and will be recognized in Q2 2009.
• Dilution Impact: Assess the impact of recent and potential future equity issuances, including the May 2009 private placement and the conversion of debt to equity by lenders.
• Grant Utilization: Monitor the receipt and utilization of the $4.7 million CIRM grant, as it is critical for funding the stem cell research segment.
• License Agreements: Review the status of the sublicense with Maruishi in Japan, as termination discussions could impact future royalty streams.