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Article by DailyStocks_admin    (04-02-13 11:33 PM)

Description

BioTime, Inc. Director, 10% Owner PARTNERS LP BROADWOOD bought 200,000 shares on 03-28-2013 at $ 3.81

BUSINESS OVERVIEW

We are a biotechnology company focused on the emerging field of regenerative medicine. Our core technologies center on stem cells capable of becoming all of the cell types in the human body, a property called pluripotency . Products made from these “pluripotent” stem cells are being developed by us and our subsidiaries, each of which concentrates on different medical specialties, including: neuroscience, oncology, orthopedics, and blood and vascular diseases. Our commercial strategy is heavily focused on near-term commercial opportunities including our current line of research products such as PureStem ™ cell lines (which we previously called ACTCellerate ™ cell line) and associated ESpan ™ culture media, HyStem ® hydrogels, human embryonic stem cell lines, and royalties from Hextend ® . Potential near term therapeutic and diagnostic product opportunities include Renevia ™ (formerly known as HyStem ® -Rx ) as a cell delivery device expected to enter clinical trials in Europe in 2013, and the launch of PanC-Dx ™ as a novel blood-based cancer screen, expected by 2014 in Europe. Our long-term strategic focus is to provide regenerative therapies for age-related degenerative diseases.

“Regenerative medicine” refers to an emerging field of therapeutic product development that may allow all human cell and tissue types to be manufactured on an industrial scale. This new technology is made possible by the isolation of human embryonic stem (“hES”) cells, and by the development of “induced pluripotent stem (“iPS”) cells” which are created from regular cells of the human body using technology that allows adult cells to be “reprogrammed” into cells with pluripotency like young hES-like cells. These pluripotent hES and iPS cells have the unique property of being able to branch out into each and every kind of cell in the human body, including the cell types that make up the brain, the blood, the heart, the lungs, the liver, and other tissues. Unlike adult-derived stem cells that have limited potential to become different cell types, pluripotent stem cells may have vast potential to supply an array of new regenerative therapeutic products, especially those targeting the large and growing markets associated with age-related degenerative disease. Unlike pharmaceuticals that require a molecular target, therapeutic strategies in regenerative medicine are generally aimed at regenerating affected cells and tissues, and therefore may have broader applicability. Regenerative medicine represents a revolution in the field of biotechnology with the promise of providing therapies for diseases previously considered incurable.

Our commercial efforts in regenerative medicine include the development and sale of products designed for research applications in the near term as well as products designed for diagnostic and therapeutic applications in the medium and long term. We offer advanced human stem cell products and technology that can be used by researchers at universities and at companies in the bioscience and biopharmaceutical industries. We have developed research and clinical grade hES cell lines that we market for both basic research and therapeutic product development. Our subsidiary, ES Cell International Pte. Ltd (“ESI”), has developed six hES cell lines that are among the best characterized and documented cell lines available today. Developed using current Good Manufacturing Practices (“cGMP”) that facilitate transition into the clinic, these hES cell lines are extensively characterized and five of the six cell lines currently have documented and publicly-available genomic sequences. The ESI hES cell lines are now included in the Stem Cell Registry of the National Institutes of Health (“NIH”), making them eligible for use in federally funded research, and all are available for purchase through http://bioreagents.lifemapsc.com . We also market human embryonic progenitor cell (“hEPCs”), which are called PureStem ™ cell lines and were developed using ACTCellerate ™ technology. These hEPCs are purified lineages of cells that are intermediate in the developmental process between embryonic stem cells and fully differentiated cells. We expect that hEPCs will simplify the scalable manufacture of highly purified and identified cell types and will possess the ability to become a wide array of cell types with potential applications in research, drug discovery, and human regenerative stem cell therapies. The PureStem ™ cell lines are also available for purchase through http://bioreagents.lifemapsc.com .

Research products can be marketed without regulatory or other governmental approval, and thus offer relatively near-term business opportunities, especially when compared to therapeutic products. The medical devices and diagnostics that we and our subsidiaries are developing will require regulatory approval for marketing, but the clinical trial and approval process for medical devices is often faster and less expensive than the process for the approval of new drugs and biological therapeutics. Our current and near-term product opportunities, combined with expected long-term revenues from the potentially very large revenue that could be derived from cell-based therapeutic products under development at our subsidiaries, provide us with a balanced commercial strategy. The value of this balance is apparent in the commercial field of regenerative medicine as competitors whose sole focus is on long-term therapeutic products have found it challenging to raise the requisite capital to fund clinical development.

Our HyStem ® hydrogel product line is one of the components in our near-term revenue strategy. HyStem ® is a patented biomaterial that mimics the human extracellular matrix, which is the network of molecules surrounding cells in organs and tissues that is essential to cellular function. Many tissue engineering and regenerative cell-based therapies will require the delivery of therapeutic cells in a matrix or scaffold to sustain cell survival after transplantation and to maintain proper cellular function. HyStem ® is a unique hydrogel that has been shown to support cellular attachment and proliferation in vivo.

Renevia ™ (formerly known as HyStem ® - Rx ) is a clinical grade formulation of HyStem-C ® , a biocompatible, implantable hyaluronan and collagen-based matrix for cell delivery in human clinical applications. As an injectable product, Renevia ™ may address an immediate need in cosmetic and reconstructive surgeries and other procedures by improving the process of transplanting adipose derived cells, mesenchymal stem cells, or other adult stem cells. We will need to obtain approval by the U.S. Food and Drug Administration (“FDA”) and comparable regulatory agencies in foreign countries in order to market Renevia ™ as a medical device. We expect to initiate clinical trials in the European Union during the first half of 2013 for CE marking.

Other HyStem ® products are currently being used by researchers at a number of leading medical schools in pre-clinical studies of stem cell therapies to facilitate wound healing, for the treatment of ischemic stroke, brain cancer, vocal fold scarring, and for myocardial infarct repair. Our HyStem ® hydrogels may have other applications when combined with the diverse and scalable cell types our scientists have isolated from hES cells.

Our subsidiary, OncoCyte Corporation, is developing PanC-Dx ™ , a novel non-invasive blood-based cancer screening test designed to detect the presence of various human cancers, including cancers of the breast, lung, bladder, uterus, stomach, and colon, during routine check -ups. We intend to initially seek regulatory approval to market PanC-Dx ™ in Europe as a screen for breast cancer before seeking regulatory approvals required to market the product in the U.S. and other countries.

Our subsidiary, LifeMap Sciences markets GeneCards ® , the leading human gene database, as part of an integrated database suite that includes LifeMap Discovery ™ , the database of embryonic development, stem cell research and regenerative medicine; and MalaCards , the human disease database. LifeMap Sciences also markets PanDaTox , a database that can be used to identify genes and intergenic regions that are unclonable in E. coli, to aid in the discovery of new antibiotics and biotechnologically beneficial functional genes. LifeMap Sciences will utilize its databases as part of its online marketing strategy for our research products to reach life sciences researchers at biotech and pharmaceutical companies and at academic institutions and research hospitals worldwide.

LifeMap Sciences is also the internet sales and marketing arm of our research products for sale through the website http://bioreagents.lifemapsc.com . We now offer 12 PureStem ™ hEPC and five hES cell lines developed under cGMP by our subsidiary ESI for sale, and hES cell lines carrying inherited genetic diseases. The hES cell lines developed by ESI are included in the NIH Stem Cell Registry, making them eligible for use in federally funded research, and five of the six cell lines currently have documented and publicly-available genomic sequences. We anticipate adding additional cell lines and related ESpan ™ growth media and differentiation kits over time.

During January 2013, we entered into an Asset Contribution Agreement with our subsidiary BioTime Acquisition Corporation (“BAC”) and Geron Corporation pursuant to which BAC will acquire a significant portfolio of patents and patent applications, cell lines, and hES technology and know-how related to potential therapeutic products in various stages of development. Two of the products under development have already been used in early stage clinical trials. The acquisition of the Geron stem cell assets is expected to occur no later than September 30, 2013. The completion of the transaction is subject to the satisfaction of certain conditions. See “BioTime Acquisition Corporation and the Asset Contribution Agreement.”

Plasma Volume Expander Products

We have developed and licensed manufacturing and marketing rights to Hextend ® , a physiologically balanced blood plasma volume expander used for the treatment of hypovolemia in surgery, emergency trauma treatment, and other applications. 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 or when a patient has sustained substantial blood loss due to an injury. Hextend ® 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, so its use avoids the risk of infection. Health insurance reimbursements and HMO coverage now include the cost of Hextend used in surgical procedures.

Hextend ® is manufactured and distributed in the United States by Hospira, Inc., and in South Korea by CJ CheilJedang Corp. (“CJ”), under license from us.

Key Accomplishments in 2012

In January 2012, we licensed key technology obtained in an exclusive license from The Wistar Institute in Philadelphia, PA for technology related to a gene designated as SP100 . Wistar Institute researchers have demonstrated pivotal roles for this gene in both cancer and stem cell biology. Scientists at BioTime’s subsidiaries OncoCyte Corporation and ReCyte Therapeutics, Inc. plan to apply this technology in the development of innovative medical products for cancer and vascular diseases. In conjunction with the license agreement, BioTime has agreed to fund research at The Wistar Institute to advance the technology, and BioTime will receive certain rights to negotiate additional licenses for any technologies invented as a result of the research.

In May 2012, through our subsidiary, LifeMap Sciences, we acquired XenneX Corporation. The acquisition integrated GeneCards ® and associated databases in a centralized resource. LifeMap now holds the exclusive, worldwide licenses to market GeneCards ® and PanDaTox . GeneCards ® is a searchable, integrated, database of human genes that provides concise genomic, transcriptomic, genetic, proteomic, functional and disease related information, on all known and predicted human genes. PanDaTox is a recently developed, searchable, database that can be used to identify genes and intergenic regions that are unclonable in E. coli, to aid in the discovery of new antibiotics and biotechnologically beneficial functional genes, and to improve the efficiency of metabolic engineering. Through this acquisition we began recognizing license revenue based upon subscription and advertising fees from customers worldwide including biotechnology, pharmaceutical and other life sciences companies, as well as organizations dealing with biotechnology intellectual property.

Through the acquisition, XenneX stockholders received 1,362,589 shares of LifeMap Sciences common stock, which represents approximately 13% of the LifeMap Sciences common stock now outstanding. XenneX shareholders also received 448,429 BioTime common shares as part of the transaction.

In August, 2012 our subsidiary OncoCyte announced the publication of a scientific report on the gene COL10A1 and its potential as a marker for numerous types of human cancers. The paper described the microarray-based approach used to identify COL10A1 as a pan-cancer biomarker with significantly elevated expression in diverse malignant tumor types including cancers of the breast, stomach, colon, lung, bladder, pancreas, and ovaries. In addition, the protein was shown to be specifically localized within tumor vasculature. Combined, these findings will be an important basis for the development and application of new diagnostic and therapeutic strategies, including the measurement of Collagen Type X in the blood as a screen for the presence of cancer, the use of antibodies that recognize and bind to the protein to visualize and locate tumors in the body, and the targeted delivery of tumor-destroying agents.

In November, 2012, we made an additional investment in our subsidiary Cell Cure Neurosciences Ltd. (“Cell Cure Neurosciences”) through which we agreed to purchase 87,456 Cell Cure Neurosciences ordinary shares in exchange for 906,735 BioTime common shares. The transaction closed in January 2013. As a result of the share purchase, BioTime owns, directly and through its wholly owned subsidiary ESI, approximately 62.6% of the outstanding ordinary shares of Cell Cure Neurosciences.

In September, 2012 we formed a new subsidiary, BAC, to acquire assets in the stem cell field for use in developing and commercializing products for regenerative medicine. In November 2012 we and BAC signed a letter of intent with Geron which contained terms of a potential transaction through which Geron would contribute to BAC its intellectual property and other assets related to Geron’s discontinued human embryonic stem cell programs and BioTime would contribute to BAC cash, BioTime common shares, warrants to purchase common shares of BioTime at a pre-specified price, rights to use certain human embryonic stem cell lines, and minority stakes in two of BioTime’s subsidiaries. In January 2013, we entered into a definitive agreement through an Asset Contribution Agreement with BAC and Geron pursuant to which Geron has agreed to contribute certain assets, including intellectual property and proprietary technology, including certain patents and know-how related to human embryonic stem cells; certain biological materials and reagents; certain laboratory equipment; certain contracts; Geron’s Phase I clinical trial of oligodendrocyte progenitor cells in patients with acute spinal cord injury, and Geron’s autologous cellular immunotherapy program, including the Phase I/II clinical trial of autologous immunotherapy in patients with acute myelogenous leukemia; and certain regulatory filings, in exchange for shares of BAC common stock, and we have agreed to contribute 8,902,077 common shares; warrants to subscribe for and purchase 8,000,000 additional common shares; $5,000,000 in cash; 10% of the issued and outstanding shares of common stock of our subsidiary OrthoCyte Corporation; 6% of the issued and outstanding ordinary shares of our subsidiary Cell Cure Neurosciences; and a quantity of certain human hES cell lines produced under cGMP, and a non-exclusive, world-wide, royalty-free license to use those hES cell lines and certain patents pertaining to stem cell differentiation technology, in exchange for BAC common stock and warrants to purchase BAC common stock. We expect the transaction to close in the third quarter of 2013.

Related to the proposed acquisition of Geron’s stem cell assets by BAC, we and BAC entered into agreements for a $10 million investment from a private investor to provide financing for the proposed acquisition of the Geron stem cell assets. Under the agreed terms, the investor will invest $5 million in BioTime in two tranches by purchasing a total of 1.35 million BioTime common shares at a purchase price of approximately $3.70 per share, and warrants to purchase approximately 650,000 additional BioTime common shares with an exercise price of $5 per share and a three year term. The initial investment tranche of $2 million was made in January, 2013. The second tranche of $3 million was originally intended to close later this year concurrent with the closing of the Asset Contribution Agreement. However, o n March 7, 2013 we executed an amendment with the investor to accelerate the closing date to April 10, 2013. In addition, the investor will contribute $5 million in cash to BAC in exchange for shares of BAC common stock that, upon issuance, will represent approximately 7% of the BAC common stock then issued and outstanding, plus warrants to purchase approximately 350,000 additional shares of BAC common stock at an exercise price of $5 per share, with a three year term.

Additional Information

HyStem ® , Hextend ® and PentaLyte ® are registered trademarks of BioTime, Inc., and Renevia ™ , PureStem ™ , ESpan ™ , and ESpy ® are trademarks of BioTime, Inc. ACTCellerate ™ is a trademark licensed to us by Advanced Cell Technology, Inc. ReCyte ™ is a trademark of ReCyte Therapeutics, Inc. PanC-Dx ™ is a trademark of OncoCyte Corporation. GeneCards ® is a registered trademark of Yeda Research and Development Co. Ltd.

We were incorporated in 1990 in the state of California. Our principal executive offices are located at 1301 Harbor Bay Parkway, Alameda, California 94502. Our telephone number is (510) 521-3390.

Business Strategy

One of our goals is to develop cell-based regenerative therapies for age-related degenerative disease. The degenerative diseases of aging meet several criteria that make them an attractive business opportunity. First, the elderly comprise a large and growing segment of both the U.S. and the world population. Second, chronic diseases account for nearly 75% of health care costs. Third, because many age-related diseases appear to be caused by the inherent limited capacity of aged human cells to regenerate damaged tissues in the body, our cell replacement technologies may eliminate the high costs associated with years of palliative care addressing these large markets.

Our effort in regenerative medicine also includes research on more than 200 purified, scalable, and novel human embryonic progenitor cell types produced from hES and iPS cells. This research has included extensive gene expression studies of the unique properties of the cells, as well as conditions that cause the cells to differentiate into many of the cell types in the body. We have filed patent applications on the compositions of these cells, the media in which they can be expanded, and a variety of uses of the cells, including drug discovery and cell replacement therapies. This novel manufacturing technology may provide us with a competitive advantage in producing highly purified, identified, and scalable cell types for potential use in therapy.

We have organized several subsidiaries to undertake our cell replacement therapeutic programs, diagnostic product programs, and our research product programs. We will partly or wholly fund these subsidiaries, recruit their management teams, assist them in acquiring technology, and provide general guidance for building the subsidiary companies. We may license patents and technology to the subsidiaries that we do not wholly own under agreements that will entitle us to receive royalty payments from the commercialization of products or technology developed by the subsidiaries.

In September 2012 we formed a new subsidiary, BAC, to acquire assets in the stem cell field for use in developing and commercializing products for regenerative medicine. During January 2013, BAC entered into the Asset Contribution Agreement to acquire the assets that Geron had used in its stem cell research and development programs. By a cquiring Geron’s stem cell assets, BAC will have the use of cell lines and other biological materials, patents, and technology developed by Geron over 12 years of work focused in the following complementary lines of research:



the establishment of cell banks of undifferentiated hES cells produced under current good manufacturing procedures “cGMP” and suitable for human therapeutic use;



the development of scalable differentiation methods which convert, at low cost, undifferentiated hES cells into functional cells suitable for human therapeutic cells that can be stored and distributed in the frozen state for “off-the-shelf” use;



the development of regulatory paradigms to satisfy both U.S. and European regulatory authority requirements to begin human clinical testing of products made from hES cells; and



the continuous filing and prosecution of patents covering inventions to protect commercialization rights, as well as consummating in-licenses to enable freedom to operate in a variety of fields.

The joint ownership of subsidiaries with other investors will allow us to fund the expensive development costs of therapeutics in a manner that spreads the costs and risk and reduces our need to obtain more equity financing of our own that could be dilutive to our shareholders. In some cases, the co-investors in our subsidiaries may include other participants in the pharmaceutical or biotechnology industry and their affiliates. An example of this would be our investment in Cell Cure Neurosciences, which was made in concert with investments from Teva Pharmaceutical Industries, Ltd. and HBL-Hadasit Bio-Holdings, Ltd.

Another tenet of our business strategy is the development and sale of advanced human stem cell products and technologies that can be used by researchers at universities and other institutions, at companies in the bioscience and biopharmaceutical industries, and at other companies that provide research products to companies in those industries. By providing products and technologies that will be used by researchers and drug developers at larger institutions and corporations, we believe that we will be able to commercialize products more quickly and inexpensively, and realize greater revenues than would be possible with the development of therapeutic products alone.

We have made the filing and prosecution of patent applications an integral part of our business strategy in order to protect our investment in our products and that we and our subsidiaries have developed or licensed from others. See the “Licensed Stem Cell Technology and Stem Cell Product Development Agreements” and “Patents and Trade Secrets” sections of this report.

CEO BACKGROUND

At the Meeting, eight directors will be elected to hold office until the next Annual Meeting of Shareholders, and until their successors have been duly elected and qualified. All of the nominees named below are incumbent directors.

It is the intention of the persons named in the enclosed proxy, unless the proxy specifies otherwise, to vote the shares represented by such proxy FOR the election of the nominees listed below. In the unlikely event that any nominee should be unable to serve as a director, proxies may be voted in favor of a substitute nominee designated by the Board of Directors. However, if you are a beneficial owner of shares held in street name, your broker or other nominee will not be allowed to vote in the election of directors unless you instruct your broker or other nominee how to vote on the form that the broker or nominee provided to you.

Directors and Nominees

The names and ages of our directors are:

Neal C. Bradsher, CFA, 46, joined the Board of Directors during July 2009. Mr. Bradsher has been President of Broadwood Capital, Inc., a private investment firm, since 2002. Previously, he was a Managing Director at Whitehall Asset Management, Inc. from 1999 to 2002. Earlier in his career Mr. Bradsher was a Managing Director at Campbell Advisors, as well as a senior equity analyst at Alex Brown & Sons and Hambrecht & Quist. Mr. Bradsher holds a B.A. degree in economics from Yale College and is a Chartered Financial Analyst. Mr. Bradsher is also a director of Questcor Pharmaceuticals, Inc.

Mr. Bradsher brings to the Board a wealth of experience in finance, management, and corporate governance attained through his successful investments in other companies, including companies in the pharmaceutical, medical device, health care services, and health care information systems sectors. He has worked with several health care companies to improve their management and governance, and he currently serves as a director of Questcor Pharmaceuticals, Inc, which is engaged in the development and marketing of pharmaceutical products. Entities that Mr. Bradsher controls have invested in most of BioTime's financing transactions over the last several years. Mr. Bradsher is the President of the general partner of Broadwood Partners, LP, currently one of our largest shareholders.

Arnold I. Burns , 82, joined the Board of Directors during July 2009. Mr. Burns was Chairman of QuanStar Group, LLC, a strategic management consulting firm, from 2004 to 2009. Mr. Burns was a managing director of Arnhold and S. Bleichroeder, Inc. from 1999 to 2002, and Natixis Bleichroeder, Inc. during 2002. Mr. Burns was a practicing attorney for nearly 40 years. From 1989 to 1999 he was a partner in the New York law firm of Proskauer Rose, LLP, and from 1986-1988 he was Deputy Attorney General of the United States, the Chief Operating Officer of the Department of Justice. Mr. Burns holds a J.D. degree from Cornell Law School.

Mr. Burns brings to the Board many years of experience in the fields of law, finance, and management. Mr. Burns was a practicing attorney for nearly 40 years. As Chief Operating Officer of the Department of Justice, he was responsible for the management of a large, nationwide organization within the Executive Branch of government. As a private consultant, Mr. Burns provides advice to business clients regarding strategic relationships for growing businesses.

Abraham E. Cohen , 75, joined the Board of Directors during July 2009. Mr. Cohen is an independent international business consultant and is Chairman and President of Kramex Company, a privately owned consulting firm. From 1982 to 1992, Mr. Cohen served as Senior Vice-President of Merck & Co., and from 1977 to 1988 as President of the Merck Sharp & Dohme International Division. Mr. Cohen serves as a director of the following other public companies: Chugai Pharmaceutical Co., Ltd., MannKind Corporation, and Teva Pharmaceutical Industries, Ltd., and previously served as a director of Neurobiological Technologies, Inc., and Vasomedical, Inc.

We asked Mr. Cohen to join our Board of Directors after his long career in the pharmaceutical industry, where he played a key role in the development of international business for Merck & Co. While at Merck, Mr. Cohen was a leader in the development of Merck’s international business, initially in Asia, then in Europe and, subsequently, in all international regions as President of Merck Sharp & Dohme, which manufactures and markets human health products outside the United States. We have expanded our global focus in recent years and we are actively seeking opportunities in overseas markets and we believe that Mr. Cohen’s guidance, based on his many years of experience in the international pharmaceutical industry, will be of great value to our efforts to grow our business.

Alfred D. Kingsley , 69, joined the Board of Directors and became Chairman of the Board during July 2009. In January 2011, Mr. Kingsley became the executive Chairman of five of our subsidiaries. Mr. Kingsley has been general partner of Greenway Partners, L.P., a private investment firm, and President of Greenbelt Corp., a business consulting firm, since 1993. Greenbelt Corp. served as our financial advisor from 1998 until June 30, 2009. Mr. Kingsley was Senior Vice-President of Icahn and Company and its affiliated entities for more than 25 years. Mr. Kingsley holds a BS degree in economics from the Wharton School of the University of Pennsylvania, and a J.D. degree and LLM in taxation from New York University Law School.

Mr. Kingsley’s long career in corporate finance and mergers and acquisitions includes substantial experience in helping companies to improve their management and corporate governance, and to restructure their operations in order to add value for shareholders. Mr. Kingsley developed an intimate knowledge of our business in his role as our financial advisor before he joined our Board. Mr. Kingsley has been instrumental in structuring our equity and debt financings, and in the transition of our business focus into the field of human embryonic stem cell technology, and the business acquisitions that have helped us expand the scope of our business. Mr. Kingsley, along with entities that he controls, is currently our largest shareholder.

Pedro Lichtinger , 57, joined the Board of Directors during August 2009. Mr. Lichtinger has been the President, Chief Executive Officer, and a director of Optimer Pharmaceuticals, Inc., since May 2010. Mr. Lichtinger previously served as an executive of Pfizer, Inc. from 1995 to 2009, including as President of Pfizer's Global Primary Care Unit from 2008 to 2009, Area President, Europe from 2006 to 2008, President, Global Animal Health from 1999 to 2006, and Regional President Europe Animal Health from 1995 to 1999. Before joining Pfizer, Mr. Lichtinger was an executive of Smith Kline Beecham, last serving as Senior Vice-President Europe Animal Health from 1987 to 1995. Mr. Lichtinger holds an MBA degree from the Wharton School of Business and an Engineering degree from the National University of Mexico.

Mr. Lichtinger brings to our Board more than 20 years of experience in the pharmaceutical industry, where he played a key role in the development of international business for two leading pharmaceutical companies, Pfizer and Smith Kline Beecham. We believe that Mr. Lichtinger’s experience in the international pharmaceutical industry will be of great value in our efforts to find and capitalize on opportunities in overseas markets. Mr. Lichtinger was responsible for more than $23 billion of revenues by Pfizer in 2008.

Judith Segall , 58, is our Vice President of Administration and Corporate Secretary, and has served on the Board of Directors from 1990 through 1994, and from 1995 through the present date. She was a co-founder of BioTime in 1990. Ms. Segall received a B.S. in Nutrition and Clinical Dietetics from the University of California at Berkeley in 1989.

As one of our co-founders, Ms. Segall has served on our Board and as an executive for more than 20 years. During that time, she has developed a wealth of knowledge concerning our business operations, financial structure, and institutional relationships, particularly our relationships with the manufacturers and distributors of Hextend ® .

Andrew C. von Eschenbach, M.D ., 70, joined our Board of Directors during November 2011. Dr. von Eschenbach is the President of Samaritan Health Initiatives, Inc., a health care policy consultancy, and is an Adjunct Professor at University of Texas MD Anderson Cancer Center. From September of 2005 to January 2009, Dr. von Eschenbach served as Commissioner of the Food and Drug Administration. He was appointed Commissioner of the FDA after serving for four years as Director of the National Cancer Institute at the National Institutes of Health. Dr. von Eschenbach earned a B.S. from St. Joseph’s University and a medical degree from Georgetown University School of Medicine in Washington, D.C. Dr. von Eschenbach serves on the Board of Directors of Elan Corporation, plc.

Dr. von Eschenbach is an internationally renowned cancer specialist and author of more than 300 scientific articles and studies, and also was a founding member of the National Dialogue on Cancer. Under his leadership, the FDA experienced dramatic increases in resources enabling implementation of many new programs designed to strengthen the FDA in its mission to protect and promote public health. Dr. von Eschenbach previously served for over three decades as a physician, surgeon, oncologist, and executive in the healthcare industry. His roles have included serving as Chairman of the Department of Urologic Oncology and Executive Vice President and Chief Academic at the University of Texas MD Anderson Cancer Center in Houston. He also serves on the Chugai Pharmaceutical International Advisory Council; the GE Healthymagination Advisory Board; the Scientific Advisory Board of Arrowhead Research Corporation; and the Johnson & Johnson Corporate Office of Science & Technology External Scientific Advisory Board. He is also Senior Fellow at the Milken Institute, Director of the FDA Project at the Manhattan Institute; and serves on the Expert Oncology Panel at GSK Oncology.

Michael D. West, Ph.D ., 59, became our Chief Executive Officer during October 2007, and has served on the Board of Directors since 2002. Prior to becoming our Chief Executive Officer, Dr. West served as Chief Executive Officer, President, and Chief Scientific Officer of Advanced Cell Technology, Inc., a company engaged in developing human stem cell technology for use in regenerative medicine. Dr. West also 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.

Dr. West is an internationally renowned pioneer and expert in stem cell research, and has extensive academic and business experience in age-related degenerative diseases, telomerase molecular biology, and human embryonic stem cell research and development. Dr. West brings to our Board the proven ability to conceive of and manage innovative research and development programs that have made scientifically significant discoveries in the field of human embryonic stem cells, and the ability to build companies focused on the great potential of regenerative medicine.

Director Independence

Our Board of Directors has determined that Neal C. Bradsher, Arnold I. Burns, Abraham E. Cohen, Pedro Lichtinger, and Andrew C. von Eschenbach qualify as “independent” in accordance with Section 803(A) of the NYSE Amex Company Guide. The members of our Audit Committee also meet the independence standards under Section 803(B)(2) of the NYSE Amex Company Guide and Section 10A-3 under the Securities Exchange Act of 1934, as amended. Our independent directors received no compensation or remuneration for serving as directors except as disclosed under “CORPORATE GOVERNANCE--Compensation of Directors.”

The only compensation or remuneration that BioTime has provided to Mr. Bradsher, Mr. Burns, Mr. Cohen, Mr. Lichtinger, and Dr. von Eschenbach during their tenure as directors has been compensation as non-employee directors. None of these directors, nor any of the members of their families, have participated in any transaction with us that would disqualify them as “independent” directors under the standard described above.

Michael D. West and Judith Segall do not qualify as “independent” because they are our full-time employees. Alfred D. Kingsley does not qualify as “independent” because he receives compensation for serving in an executive role as Chairman of certain of our subsidiaries and he is the principal shareholder and president of Greenbelt Corp., which received compensation from us, in one or more of the preceding three fiscal years for services rendered as our financial advisor, in an amount that precludes Mr. Kingsley from qualifying as “independent” under NYSE Amex Rule 803(A).

Directors’ Meetings

During the fiscal year ended December 31, 2011, the Board of Directors met 10 times. No director attended fewer than 75% of the meetings of the Board and the committees on which they served.

Directors are also encouraged to attend our annual meetings of shareholders, although they are not formally required to do so. All of our current directors who were then serving on the Board attended the last annual meeting, except Abraham E. Cohen, who was unable to attend.

Meetings of Non-Management Directors

Our non-management directors meet in executive session, without any directors who are BioTime officers or employees present, following regular meetings of the Board, which occur at least once each calendar quarter. These meetings allow the non-management directors to engage in open and frank discussions about corporate governance and about our business, operations, finances, and management performance.

Shareholder Communications with Directors

If you wish to communicate with the Board of Directors or with individual directors, you may do so by following the procedure described on our website www.biotimeinc.com .

Code of Ethics

We have adopted a Code of Business Conduct and Ethics (“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 SEC 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 intend to disclose any future amendments to certain provisions of our Code of Ethics, and any waivers of those provisions granted to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, by posting the information on our website within four business days following the date of the amendment or waiver.

MANAGEMENT DISCUSSION FROM LATEST 10K

The following Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information necessary to understand our audited consolidated financial statements for the two-year period ended December 31, 2012, and highlight certain other information which, in the opinion of management, will enhance a reader's understanding of our financial condition, changes in financial condition and results of operations. In particular, the discussion is intended to provide an analysis of significant trends and material changes in our financial position and the operating results of our business during the year ended December 31, 2012 as compared to the year ended December 31, 2011, and during the year ended December 31, 2011 as compared to the year ended December 31, 2010. This discussion should be read in conjunction with our consolidated financial statements for the two-year period ended December 31, 2012 and related notes included elsewhere in this Annual Report on Form 10-K. These historical financial statements may not be indicative of our future performance. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described throughout this filing, particularly in "Item 1A. Risk Factors."

Stem Cells and Products for Regenerative Medicine Research

We have designated our subsidiary LifeMap Sciences as our primary internet marketing arm for our research products. In addition to offering subscriptions to its database products, LifeMap Sciences is also utilizing its databases as part of its strategy for marketing our research products online to reach life sciences researchers at biotech and pharmaceutical companies and at academic institutions and research hospitals worldwide. The LifeMap Discovery ™ data base provides access to available cell-related information and resources necessary to improve stem cell research and development of therapeutics based on regenerative medicine and may promote the sale of our PureStem ™ hEPC by permitting data base users to follow the development of hES cell lines to the purified hEPC state.

Plasma Volume Expander Products

Royalties and licensing fees related to our plasma volume expander products, primarily Hextend ® , comprise a significant part of our operating revenues. 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 of the U.S. Armed Forces.

Under our license agreements, Hospira and CJ will report sales of Hextend ® and pay us the royalties and license fees due on account of such sales after the end of each calendar quarter. We recognize revenues in the quarter in which the sales report is received, rather than the quarter in which the sales took place.

Royalties on sales of Hextend ® that occurred during the fourth quarter of 2011 through the third quarter of 2012 are reflected in our financial statements for the year ended December 31, 2012. We received $429,353 in royalties from Hextend ® sales by Hospira during 2012. Royalties for 2012 decreased 32% from $630,858 in royalties from Hospira on Hextend ® sales in 2011. In addition, we received royalties from CJ in the amount of $111,940 for the period ended December 31, 2012; representing a 9% decrease from $122,351 in royalties received for the period ended December 31, 2011.

Based on sales of Hextend ® that occurred during the fourth quarter of 2012, we received royalties of $88,946 from Hospira and $18,652 from CJ during the first quarter of 2013. Total royalties of $107,598 for the quarter decreased 27% from royalties of $147,402 received during the same period last year. These royalties will be reflected in our financial statements for the first quarter of 2013.

The decrease in royalties is attributable to a decrease in Hextend ® sales in the U.S. and in the Republic of Korea. The decrease in royalties received from Hospira based on sales during the previous quarter is generally due to the decline in the price of hetastarch-based products in the market. The blood volume expander marketing is shrinking overall and hospitals have shifted their purchases to albumin products. Hospira has reported that they have seen a rapid decline in the price of hetastarch-based plasma expanders in the market which could continue to have a negative impact on revenues from the sale of Hextend ® . Hospira implemented further price reductions for Hextend ® during 2012 in an attempt to maintain market share.

During the year ended December 31, 2006, we received $500,000 from Summit for the right to co-develop Hextend ® and PentaLyte ® in Japan, China, and Taiwan. A portion of the cash payment is a partial reimbursement of BioTime’s development costs of Hextend ® and a portion is a partial reimbursement of BioTime’s development costs of PentaLyte ® . This payment is reflected on our balance sheet as deferred revenue.

Research and Development Programs in Regenerative Medicine and Stem Cell Research

We entered the fields of stem cell research and regenerative medicine during October 2007. From that time through 2009, our activities in those fields included acquiring rights to market stem cell lines, pursuing patents, planning future products and research programs, applying for research grants, identifying the characteristics of various acquired progenitor and stem cell lines, negotiating a product distribution agreement, organizing new subsidiaries to address particular fields of product development, and planning and launching our first product development programs.

The inherent uncertainties of developing new products for stem cell research and for medical use make it impossible to predict the amount of time and expense that will be required to complete the development and commence commercialization of new products. There is no assurance that we or any of our subsidiaries will be successful in developing new technologies or stem cell products, or that any technology or products that may be developed will be proven safe and effective for treating diseases in humans, or will be successfully commercialized. Most of our potential therapeutic products are at a very early stage of preclinical development. Before any clinical trials can be conducted by us or any of our subsidiaries, the company seeking to conduct the trials would have to compile sufficient laboratory test data substantiating the characteristics and purity of the stem cells, conduct animal studies, and then obtain all necessary regulatory and clinical trial site approvals, after which a team of physicians and statisticians would need to be assembled to perform the trials. Clinical trials will be costly to undertake and will take years to complete. See our discussion of the risks inherent in our business and the impact of government regulation on our business in the “Risk Factors” section and “Business” section of this report.

We believe each of our operating subsidiaries has sufficient capital to carry out its current research and development plan during 2013. We may provide additional financing for our subsidiaries, or obtain financing from third parties, based on the following: our evaluation of progress made in their respective research and development programs, any changes to or the expansion of the scope and focus of their research, and our projection of future costs. See “Liquidity and Capital Resources” for a discussion of our available capital resources, our potential need for future financing, and possible sources of capital.

Research and Development Expenses

The following table shows the approximate percentages of our total research and development expenses of $18,116,688 and $13,699,691 allocated to our primary research and development projects during the years ended December 31, 2012 and 2011, respectively.


Critical Accounting Policies

Revenue recognition – We comply with SEC Staff Accounting Bulletin guidance on revenue recognition. Royalty revenues consist of product royalty payments. License fee revenues consist of fees under license agreements and are recognized when earned and reasonably estimable and also include subscription and advertising revenue from our online databases based upon respective subscription or advertising periods. We recognize revenue in the quarter in which the royalty reports are received rather than the quarter in which the sales took place. When we are entitled to receive up-front nonrefundable licensing or similar fees pursuant to agreements under which we have no continuing performance obligations, the fees are recognized as revenues when collection is reasonably assured. When we receive up-front nonrefundable licensing or similar fees pursuant to agreements under which we do have continuing performance obligations, the fees are deferred and amortized ratably over the performance period. If the performance period cannot be reasonably estimated, we amortize nonrefundable fees over the life of the contract until such time that the performance period can be more reasonably estimated. Milestone payments, 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. Grant income and the sale of research products are recognized as revenue when earned. Revenues from the sale of research products are primarily derived from the sale of hydrogels and stem cell products.

Patent costs – Costs associated with obtaining patents on products or technology developed are expensed as general and administrative expenses when incurred. This accounting is in compliance with guidance promulgated by the Financial Accounting Standards Board (“FASB”) regarding goodwill and other intangible assets.

Research and development – We comply with FASB requirements governing accounting for research and development costs. Research and development costs are expensed when incurred, and consist principally of salaries, payroll taxes, consulting fees, research and laboratory fees, and license fees paid to acquire patents or licenses to use patents and other technology from third parties.

Stock-based compensation – We have adopted accounting standards governing share-based payments, which require 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. We utilize the Black-Scholes Merton option pricing model. Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual and projected employee stock option 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. Although the fair value of employee stock options is determined in accordance with recent FASB guidance, 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 employee stock options because the option-pricing model value may not be indicative of the fair value that would be established in a willing buyer/willing seller market transaction.

Treasury stock – We account for BioTime common shares issued to subsidiaries for future potential working capital needs as treasury stock on the consolidated balance sheet. We have the intent and ability to register any unregistered shares to support the marketability of the shares.

Impairment of long-lived assets – Our long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If an impairment indicator is present, we evaluate recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If the assets are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the estimated fair value of the assets.

Deferred license and consulting fees – Deferred license and consulting fees consist of the value of warrants issued to third parties for services and to the minority shareholder in BioTime Asia for its participation in the organization of that company, and deferred license fees paid to acquire rights to use the proprietary technologies of third parties. The value of the warrants is being amortized over the lives of the warrants, and deferred license fees over the estimated useful lives of the licensed technologies or licensed research products. The estimation of the useful life any technology or product involves a significant degree of inherent uncertainty, since the outcome of research and development or the commercial life of a new product cannot be known with certainty at the time that the right to use the technology or product is acquired. We will review its amortization schedules for impairments that might occur earlier than the original expected useful lives. See also Note 6 to the Condensed Consolidated Interim Financial Statements.

Principles of consolidation – Our consolidated financial statements include the accounts of our wholly-owned subsidiaries, OrthoCyte, and ESI, the accounts of ReCyte Therapeutics, a subsidiary of which we owned approximately 95.2% of the outstanding shares of common stock as of December 31, 2012; the accounts of OncoCyte, a subsidiary of which we owned approximately 75.3% of the outstanding shares of common stock as of December 31, 2012; the accounts of BioTime Asia, a subsidiary of which we owned approximately 81.0% of the outstanding shares as of December 31, 2012, the accounts of Cell Cure Neurosciences, a subsidiary of which we owned approximately 53.6% of the outstanding shares as of December 31, 2012, the accounts of LifeMap Sciences, a subsidiary of which we owned approximately 73.2% of the outstanding shares as of December 31, 2012, and the accounts of BAC, a subsidiary of which we owned 96.7% of the outstanding shares as of December 31, 2012. All material intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements are presented in accordance with accounting principles generally accepted in the U.S. and with the accounting and reporting requirements of Regulation S-X of the SEC.

Results of Operations

Our license fee revenues amounted to $899,998 and $263,757 for the years ended December 31, 2012 and 2011, respectively. License fee revenues for the year ended December 31, 2012 include subscription and advertising revenues of $752,896 from LifeMap Science’s online database business primarily related to its GeneCards ® database which LifeMap Sciences began marketing after its acquisition of XenneX during 2012. The 241% increase in license fee revenue in 2012 is primarily attributed to this new subscription and advertising revenue which is partially offset by license fee revenues of $85,358 earned through ESI in 2011 but not in 2012. License fee revenues also include $145,873 and $178,399 for the years ended December 31, 2012 and 2011, respectively from CJ and Summit. The license fees from CJ were received during April 2003 and July 2004, and the license fees from Summit were received during December 2004 and April and October of 2005, but full recognition of those license fees has been deferred, and is being recognized over the life of the contracts, which has been estimated to last until approximately 2019 based on the current expected life of the governing patent covering our products in Korea and Japan. See Note 1 to the Consolidated Financial Statements.

Under our license agreements with Hospira and CJ, our licensees report sales of Hextend ® and pay 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. For example, royalties on sales made during the fourth quarter of 2011 were not recognized until the first quarter of fiscal year 2012.

Our royalty revenues from product sales for the year ended December 31, 2012 primarily consist of royalties on sales of Hextend ® made by Hospira and CJ during the period beginning October 1, 2011 and ending September 30, 2012. Royalty revenues recognized for that period were $541,681 compared with $756,950 recognized for the year ended December 31, 2011. This 28% decrease in royalties is attributable to a decrease in Hextend ® sales in the U.S. and in the Republic of Korea. The decrease in royalties received from Hospira is primarily due to the decline in the price of hetastarch-based products in the market. The blood volume expander marketing continues to contract and hospitals continue to shift their purchases to albumin products. Hospira has reported that they have seen a rapid decline in the price of hetastarch-based plasma expanders in the market which could continue to have a negative impact on revenues from the sale of Hextend ® . Hospira implemented further price reductions for Hextend ® during 2012 in an attempt to maintain market share. We expect royalty revenues from product sales to continue to decline as a percentage of total revenue.

Total grant revenue in 2012 decreased by approximately 20% as a result of the completion of the CIRM grant in August 31, 2012 compared to a full year of CIRM grant revenue in 2011. Grant revenue in 2012 included $1,047,106 from CIRM, $1,109,699 recognized through Cell Cure Neurosciences and $18,145 through Life Map Sciences, Ltd., and $47,507 of a $335,900 grant awarded to us by the NIH. The original NIH grant period ran from September 30, 2011 through September 29, 2012. However, this grant was extended for another year through September 29, 2013.

The decline in sales of research products and services in 2012 is primarily attributed to a one time sale of approximately $200,000 in revenues recognized through ESI in 2011.

Research and development expenses – Research and development expenses increased approximately 32% to $18,116,688 for the year ended December 31, 2012, from $13,699,691 for the year ended December 31, 2011. Research and development expenses include laboratory study expenses, patent and technology license fees, employee compensation, rent, insurance, and science-related consultants’ fees which are allocated to research and development expense.

Research and development expenses for the years ended December 31, 2012 and 2011, include $1,582,647 and $1,499,726, respectively, derived from the amortization of patent technology related to our acquisition of ESI and Cell Cure Neurosciences in May and October 2010, respectively. Aside from these expenses, the increase in research and development expenses during 2012 is primarily attributable to an increase of $2,116,195 in employee compensation and related costs allocated to research and development expenses, an increase of $1,019,031 in our HyStem ® program related research expenses, an increase of $456,068 in the amortization of patent technology reflecting a full year of amortization related to our acquisition of assets from CTI and merger with Glycosan in 2011, and amortization related to the merger with XenneX in 2012, an increase of $409,546 in expenditures made to cover laboratory expenses and supplies, an increase of $181,194 in stock-based compensation to employees and consultants, an increase of $148,501 in licenses, patent and trademark related fees and legal fees, an increase of $144,082 in scientific consulting fees, an increase of $142,744 in outside research and research related outside services, an increase of $160,218 in rent and building maintenance, an increase of $108,116 in travel, lodging and meals, and an increase of $96,888 in depreciation expense. These increases in 2012 over 2011 were offset in part by a decrease of $335,567 and $272,225 in ESI and Cell Cure Neurosciences research and development expenses, respectively.

General and administrative expenses – General and administrative expenses increased to $10,365,045 for the year ended December 31, 2012 from $9,341,502 for the year ended December 31, 2011. General and administrative expenses include employee and director compensation allocated to general and administrative expenses, consulting fees other than those paid for science-related consulting, insurance costs allocated to general and administrative expenses, stock exchange-related costs, depreciation expense, shipping expenses, marketing costs, and other miscellaneous expenses which are allocated to general and administrative expense.

The increase is attributable to an increase of $563,257 in employee compensation, bonuses and related costs allocated to general and administrative expenses, an increase of $180,639 in stock-based compensation to employees and consultants, an increase of $667,731 in legal fees, an increase of $107,818 in accounting and tax services, an increase of $76,745 in rent and building maintenance and an increase of $87,392 in Cell Cure Neurosciences general and administrative expenses. These increases are in part offset by a decrease of $185,456 in consulting fees, a decrease of $165,030 in recruiting service expenses, a decrease of $83,966 in travel, lodging and meals, a decrease of $83,414 in bad debt expenses, decrease of $75,573 in transfer agent, stock listing and registration fees and a decrease of $62,461 in ESI general and administrative expenses.

Interest income – During 2012, we earned $19,698 of interest income, net of $315 of interest expense. Interest income is primarily attributed to interest earned on cash balances held in interest bearing accounts during 2012. During 2011, we earned $30,053 of interest income, net of $326 of interest expense.

Other income/(expense) – Other expenses in 2012 include reversal of $207,425 in revenues recognized by ESI. The $207,425 represents US $200,000 that was recognized as revenues in 2011 upon the shipment of cell lines in accordance with an agreement between ESI and a customer. The difference of $7,425 is attributed to foreign currency rates. The revenue for the cell lines shipped to the customer was reversed during the first quarter of 2012 pending the final completion of audits and acceptance of vials by the customer which was incorrectly assumed to have occurred in December 2011. Other income in 2011 consists primarily of approximately $198,000 of reimbursement of tenant improvement expenses incurred by us.

Our license fee revenue of $263,757 in 2011 and $292,904 in 2010 were primarily comprised of and license fees from CJ and Summit. The license fees were received from CJ during April 2003 and July 2004, and from Summit during December 2004 and April and October of 2005, but full recognition of the license fees has been deferred, and is being recognized over the life of the contract, which has been estimated to last until approximately 2019 based on the current expected life of the governing patent covering our products in Korea and Japan. See Note 1 to the Consolidated Financial Statements.

Our royalty revenue from product sales for the year ended December 31, 2011 consist of royalties on sales of Hextend ® made by Hospira and CJ during the period beginning October 1, 2010 and ending September 30, 2011. Royalty revenues recognized for that period were $753,140 compared with $945,461 recognized for the year ended December 31, 2010. This 20% decrease in royalties is attributable to a decrease in Hextend ® sales in the U.S., which was slightly offset by an increase in sales in the Republic of Korea. The decrease in royalties received from Hospira based on sales during 2011 is due to the rapid decline in the price of hetastarch-based products in the market. The blood volume expander marketing is shrinking overall and hospitals have shifted their purchases to albumin products. Hospira has reported that they have seen a rapid decline in the price of hetastarch-based plasma expanders in the market which could continue to have a negative impact on revenues from the sale of Hextend ® . Hospira has implemented further price reductions for Hextend ® during 2012 in an attempt to maintain market share.

We recognized $1,570,663 from our research grant from CIRM during the years ended December 31, 2011 and 2010. Grant income also included awards from other sources in the amount of $1,073,668 recognized through Cell Cure Neurosciences and $94,933 through OncoCyte and OrthoCyte and $27, 197 from an NIH grant that started in September 2011. The increase in grant income of approximately 18.4% in 2011 over 2010 is primarily attributed to the grant income recognized through Cell Cure Neurosciences compared to nil in 2010 and the NIH grant that started in September 2011. These increases were partially offset by $733,438 grant awarded to us under the U.S. Government's Qualifying Therapeutic Discovery Project ("QTDP"). This one time grant was entirely recognized in 2010.

The increase in sales of research products and services in 2011 is partially attributed to a one time sale of approximately $200,000 in revenues recognized through ESI in 2011 and the sale of research products acquired from the merger with Glycosan in March 2011 of approximately $241,000.

Research and development expenses – Research and development expenses increased to $13,699,691 for the year ended December 31, 2011, from $8,191,314 for the year ended December 31, 2010. Research and development expenses include laboratory study expenses, patent and technology license fees, employee salaries and benefits, stock compensation expense, rent, insurance and science-related consultants’ fees which are allocated to research and development expense.

The increase in 2011 is partially attributed to accounting for a full year of research and development activity by ESI and Cell Cure Neurosciences in 2011 compared to eight months and three months for ESI and Cell Cure Neurosciences, respectively in 2010. These amounts include $1,499,726 in 2011 and $790,117 in 2010 of amortization expense of patent technology acquired from the acquisition of those subsidiaries in May and October 2010, respectively. In 2011, research and development expenses also included $491,474 in amortization expense related to the patent technology acquired from CTI in January 2011 and through the acquisition of Glycosan in March 2011. In addition to these expenses, the increase in research and development expense during 2011 is primarily attributable to an increase of $768,305 in employee compensation and related costs, an increase of $348,282 in outside research and laboratory costs, an increase of $411,688 in stock-based compensation allocated to research and development expense of which $236,942 arises from Cell Cure Neurosciences, an increase of $189,406 in expenditures made to cover laboratory expenses and supplies, an increase of $170,365 in rent expenses allocated to research and development expense, an increase of $86,284 for patent related legal expenses, an increase of $89,563 in depreciation expenses allocated to research and development expense, and $402,089 in expenses related to the Renevia ® project which began in 2011. These increases were partially offset to some extent by decreases of $76,749 in scientific consulting fees.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

We are a biotechnology company focused on the emerging field of regenerative medicine. Our core technologies center on stem cells capable of becoming all of the cell types in the human body, a property called pluripotency . Products made from these “pluripotent” stem cells are being developed by us and our subsidiaries, each of which concentrates on different medical specialties, including: neuroscience, oncology, orthopedics, and blood and vascular diseases. Our commercial strategy is heavily focused on near-term commercial opportunities including our current line of research products such as the online database products marketed by our subsidiary LifeMap Sciences, Inc., ACTCellerate ™ cell lines and associated ESpan ™ culture media, HyStem ® hydrogels, human embryonic stem cell lines, and royalties from Hextend ® . Potential near term therapeutic product opportunities include Renevia ™ (formerly known as HyStem ® -Rx ) as a cell delivery device expected to launch in Europe in 2013, and the launch of PanC-Dx ™ as a novel blood-based cancer screen, expected by 2014 in Europe. Our long-term strategic focus is to provide regenerative therapies for age-related degenerative diseases.

“Regenerative medicine” refers to an emerging field of therapeutic product development that may allow all human cell and tissue types to be manufactured on an industrial scale. This new technology is made possible by the isolation of human embryonic stem (“hES”) cells, and by the development of “induced pluripotent stem (“iPS”) cells” which are created from regular cells of the human body using technology that allows adult cells to be “reprogrammed” into cells with pluripotency like young hES-like cells. These pluripotent hES and iPS cells have the unique property of being able to branch out into each and every kind of cell in the human body, including the cell types that make up the brain, the blood, the heart, the lungs, the liver, and other tissues. Unlike adult-derived stem cells that have limited potential to become different cell types, pluripotent stem cells may have vast potential to supply an array of new regenerative therapeutic products, especially those targeting the large and growing markets associated with age-related degenerative disease. Unlike pharmaceuticals that require a molecular target, therapeutic strategies in regenerative medicine are generally aimed at regenerating affected cells and tissues, and therefore may have broader applicability. Regenerative medicine represents a revolution in the field of biotechnology with the promise of providing therapies for diseases previously considered incurable.


Our commercial efforts in regenerative medicine include the development and sale of products designed for research applications in the near term as well as products designed for diagnostic and therapeutic applications in the medium and long term. We offer advanced human stem cell products and technology that can be used by researchers at universities and at companies in the bioscience and biopharmaceutical industries.

Our subsidiary LifeMap Sciences, Inc. (“LifeMap”) markets GeneCards ® , the leading human gene database, and is developing an integrated database suite to complement GeneCards ® that will also include the LifeMap™ database of embryonic development, stem cell research and regenerative medicine, and MalaCards , the human disease database. LifeMap will also market PanDaTox, a database that can be used to identify genes and intergenic regions that are unclonable in E. coli, to aid in the discovery of new antibiotics and biotechnologically beneficial functional genes.

We have developed research and clinical grade hES cell lines that we market for both basic research and therapeutic product development. Our subsidiary, ES Cell International Pte. Ltd. (“ESI”), has developed six hES cell lines that are among the best characterized and documented cell lines available today. Developed using current Good Manufacturing Practices (“cGMP”) that facilitate transition into the clinic, these hES cell lines are extensively characterized and five of the six cell lines currently have documented and publicly-available genomic sequences. The ESI hES cell lines are now included in the Stem Cell Registry of the National Institutes of Health (“NIH”), making them eligible for use in federally funded research, and all are available for purchase through www.biotimeinc.com . We also market human embryonic progenitor cell (“hEPCs”) developed using ACTCellerate ™ technology. These hEPCs are purified lineages of cells that are intermediate in the developmental process between embryonic stem cells and fully differentiated cells. We expect that hEPCs will simplify the scalable manufacture of highly purified and identified cell types and will possess the ability to become a wide array of cell types with potential applications in research, drug discovery, and human regenerative stem cell therapies. The ACTCellerate ™ cell lines are also available for purchase through www.biotimeinc.com .

Research products can be marketed without regulatory or other governmental approval, and thus offer relatively near-term business opportunities, especially when compared to therapeutic products. The medical devices that we and our subsidiaries are developing will require regulatory approval for marketing, but the clinical trial and approval process for medical devices is often faster and less expensive than the process for the approval of new drugs and biological therapeutics. Our current and near-term product opportunities, combined with expected long-term revenues from the potentially very large revenue cell-based therapeutic products under development at our subsidiaries, provide us with a balanced commercial strategy. The value of this balance is apparent in the commercial field of regenerative medicine as competitors whose sole focus is on long-term therapeutic products have found it challenging to raise the requisite capital to fund clinical development.

Our HyStem ® hydrogel product line is one of the components in our near-term revenue strategy. HyStem ® is a patented biomaterial that mimics the human extracellular matrix, which is the network of molecules surrounding cells in organs and tissues that is essential to cellular function. Many tissue engineering and regenerative cell-based therapies will require the delivery of therapeutic cells in a matrix or scaffold to sustain cell survival after transplantation and to maintain proper cellular function. HyStem ® is a unique hydrogel that has been shown to support cellular attachment and proliferation in vivo and is currently being used by researchers at a number of leading medical schools in pre-clinical studies of stem cell therapies to facilitate wound healing, for the treatment of ischemic stroke, brain cancer, vocal fold scarring, and for myocardial infarct repair. Our HyStem ® hydrogels may have other applications when combined with the diverse and scalable cell types our scientists have isolated from hES cells.

Renevia ™ (formerly known as HyStem ® - Rx ) is a clinical grade formulation of HyStem ® -C , a biocompatible, implantable hyaluronan and collagen-based matrix for cell delivery in human clinical applications. As an injectable product, Renevia ™ may address an immediate need in cosmetic and reconstructive surgeries and other procedures by improving the process of transplanting adipose derived cells, mesenchymal stem cells, or other adult stem cells. We will need to obtain approval by the U.S. Food and Drug Administration (“FDA”) and comparable regulatory agencies in foreign countries in order to market Renevia ™ as a medical device. Our goal is to initiate clinical trials in the European Union by early 2013 for CE marking.

Our subsidiary, OncoCyte Corporation, is developing PanC-Dx ™, a novel non-invasive blood-based cancer screening test designed to detect the presence of various human cancers, including cancers of the breast, lung, bladder, uterus, stomach, and colon, during routine check-ups. We intend to initially seek regulatory approval to market PanC-Dx ™ in Europe before seeking regulatory approvals required to market the product in the U.S. and other countries.


We have organized several subsidiaries to undertake our cell replacement therapeutic programs, diagnostic product programs, and our research product programs. We will partly or wholly fund these subsidiaries, recruit their management teams, assist them in acquiring technology, and provide general guidance for building the subsidiary companies. We may license patents and technology to the subsidiaries that we do not wholly own under agreements that will entitle us to receive royalty payments from the commercialization of products or technology developed by the subsidiaries.

Additional Information

HyStem ® , Hextend ® , and PentaLyte ® , are registered trademarks of BioTime, Inc., and Renevia ™, ESpan ™, and ESpy ® are trademarks of BioTime, Inc. ReCyte ™ is a trademark of ReCyte Therapeutics, Inc. ACTCellerate ™ is a trademark licensed to us by Advanced Cell Technology, Inc. PanC-Dx ™ is a trademark of OncoCyte Corporation.

We were incorporated in 1990 in the state of California. Our principal executive offices are located at 1301 Harbor Bay Parkway, Alameda, California 94502. Our telephone number is (510) 521-3390.

Stem Cells, Databases, and Products for Regenerative Medicine Research

We now offer 96 ACTCellerate ™ hEPC lines, and six hES cell lines developed under cGMP by our subsidiary ESI for sale, and hES cell lines carrying inherited genetic diseases. We offer our research products for sale through our website www . biotimeinc.com , and we anticipate adding additional cell lines and related ESpan ™ growth media and differentiation kits over time. The hES cell lines developed by ESI are included in the NIH Stem Cell Registry, making them eligible for use in federally funded research, and five of the six cell lines currently have documented and publicly-available genomic sequences. We plan to make LifeMap our principal marketing subsidiary for these research products. LifeMap currently markets GeneCards ® , the leading human gene database, and is developing an integrated database suite to complement GeneCards ® that will also include the LifeMap™ database of embryonic development, stem cell research and regenerative medicine, and MalaCards , the human disease database. LifeMap also plans to market PanDaTox, a database that can be used to identify genes and intergenic regions that are unclonable in E. coli, to aid in the discovery of new antibiotics and biotechnologically beneficial functional genes. LifeMap will utilize its databases as part of its online marketing strategy for our research products to reach life sciences researchers at biotech and pharmaceutical companies and at academic institutions and research hospitals worldwide. Millipore Corporation also is an authorized distributor of certain ACTCellerate ™ hEPC lines and related ESpan ™ growth media.

Plasma Volume Expander Products

Royalties and licensing fees related to our plasma volume expander products, primarily Hextend ® , comprise a significant part of our operating revenues. 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 of the U.S. Armed Forces.

Under our license agreements, Hospira and CJ will report sales of Hextend ® and pay us the royalties and license fees due on account of such sales after the end of each calendar quarter. We recognize revenues in the quarter in which the sales report is received, rather than the quarter in which the sales took place.

Based on sales of Hextend ® that occurred during the third quarter of 2012, we expect to receive royalties of $109,670 from Hospira and have received $24,209 from CJ during the fourth quarter of 2012. Total royalties of $133,879 for the quarter decreased by $51,825 or 28% from royalties of $185,704 received during the same period last year. These royalties will be reflected in our financial statements in the fourth quarter of 2012.

Research and Development Programs in Regenerative Medicine and Stem Cell Research

We entered the fields of stem cell research and regenerative medicine during October 2007. From that time through 2009, our activities in those fields included acquiring rights to market stem cell lines, pursuing patents, planning future products and research programs, applying for research grants, identifying the characteristics of various acquired progenitor and stem cell lines, negotiating a product distribution agreement, organizing new subsidiaries to address particular fields of product development, and planning and launching our first product development programs.

The inherent uncertainties of developing new products for stem cell research and for medical use make it impossible to predict the amount of time and expense that will be required to complete the development and commence commercialization of new products. There is no assurance that we or any of our subsidiaries will be successful in developing new technologies or stem cell products, or that any technology or products that may be developed will be proven safe and effective for treating diseases in humans, or will be successfully commercialized. Most of our potential therapeutic products are at a very early stage of preclinical development. Before any clinical trials can be conducted by us or any of our subsidiaries, the company seeking to conduct the trials would have to compile sufficient laboratory test data substantiating the characteristics and purity of the stem cells, conduct animal studies, and then obtain all necessary regulatory and clinical trial site approvals, after which a team of physicians and statisticians would need to be assembled to perform the trials. Clinical trials will be costly to undertake and will take years to complete. See our discussion of the risks inherent in our business and the impact of government regulation on our business in the “Risk Factors” section and “Business” section of this report.

We believe each of our operating subsidiaries has sufficient capital to carry out its current research and development plan during 2012. We may provide additional financing for our subsidiaries, or obtain financing from third parties, based on the following: our evaluation of progress made in their respective research and development programs, any changes to or the expansion of the scope and focus of their research, and our projection of future costs. See “Liquidity and Capital Resources” for a discussion of our available capital resources, our potential need for future financing, and possible sources of capital.

Critical Accounting Policies

Revenue recognition – We comply with SEC Staff Accounting Bulletin guidance on revenue recognition. Royalty revenues consist of product royalty payments. License fee revenues consist of fees under license agreements and are recognized when earned and reasonably estimable and also include subscription and advertising revenue from our online databases based upon respective subscription or advertising periods. We recognize revenue in the quarter in which the royalty reports are received rather than the quarter in which the sales took place. When we are entitled to receive up-front nonrefundable licensing or similar fees pursuant to agreements under which we have no continuing performance obligations, the fees are recognized as revenues when collection is reasonably assured. When we receive up-front nonrefundable licensing or similar fees pursuant to agreements under which we do have continuing performance obligations, the fees are deferred and amortized ratably over the performance period. If the performance period cannot be reasonably estimated, we amortize nonrefundable fees over the life of the contract until such time that the performance period can be more reasonably estimated. Milestone payments, 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. Grant income and the sale of research products are recognized as revenue when earned. Revenues from the sale of research products are primarily derived from the sale of hydrogels and stem cell products.

Patent costs – Costs associated with obtaining patents on products or technology developed are expensed as general and administrative expenses when incurred. This accounting is in compliance with guidance promulgated by the Financial Accounting Standards Board (“FASB”) regarding goodwill and other intangible assets.

Research and development – We comply with FASB requirements governing accounting for research and development costs. Research and development costs are expensed when incurred, and consist principally of salaries, payroll taxes, consulting fees, research and laboratory fees, and license fees paid to acquire patents or licenses to use patents and other technology from third parties.

Stock-based compensation – We have adopted accounting standards governing share-based payments, which require 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. We utilize the Black-Scholes Merton option pricing model. Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual and projected employee stock option 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. Although the fair value of employee stock options is determined in accordance with recent FASB guidance, 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 employee stock options because the option-pricing model value may not be indicative of the fair value that would be established in a willing buyer/willing seller market transaction.

Treasury stock – We account for BioTime common shares issued to subsidiaries for future potential working capital needs as treasury stock on the consolidated balance sheet. We have the intent and ability to register any unregistered shares to support the marketability of the shares.

Impairment of long-lived assets – Our long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If an impairment indicator is present, we evaluate recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If the assets are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the estimated fair value of the assets.

Deferred license and consulting fees – Deferred license and consulting fees consist of the value of warrants issued to third parties for services and to the minority shareholder in BioTime Asia for its participation in the organization of that company, and deferred license fees paid to acquire rights to use the proprietary technologies of third parties. The value of the warrants is being amortized over the lives of the warrants, and deferred license fees over the estimated useful lives of the licensed technologies or licensed research products. The estimation of the useful life any technology or product involves a significant degree of inherent uncertainty, since the outcome of research and development or the commercial life of a new product cannot be known with certainty at the time that the right to use the technology or product is acquired. We will review its amortization schedules for impairments that might occur earlier than the original expected useful lives. See also Note 6 to the Condensed Consolidated Interim Financial Statements.

Principles of consolidation – Our consolidated financial statements include the accounts of our wholly-owned subsidiaries, OrthoCyte and ESI, the accounts of ReCyte Therapeutics, a subsidiary of which we owned approximately 95.15% of the outstanding shares of common stock as of September 30, 2012; the accounts of OncoCyte, a subsidiary of which we owned approximately 75.3% of the outstanding shares of common stock as of September 30, 2012; the accounts of BioTime Asia, a subsidiary of which we owned approximately 81% of the outstanding shares as of September 30, 2012, the accounts of Cell Cure Neurosciences, a subsidiary of which we owned approximately 53.6% of the outstanding shares as of September 30, 2012, the accounts of LifeMap, a subsidiary of which we owned approximately 77.1% of the outstanding shares as of September 30, 2012, and the accounts of BAC, a subsidiary of which we owned 96.7% of the outstanding shares as of September 30, 2012. All material intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements are presented in accordance with accounting principles generally accepted in the U.S. and with the accounting and reporting requirements of Regulation S-X of the SEC.


Results of Operations

Revenues

Under our license agreements with Hospira and CJ, our licensees report sales of Hextend ® and pay 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. For example, royalties on sales made during the second quarter of 2012 were not recognized until the third quarter of 2012. Royalty revenues recognized for the third quarter of 2012 were $104,619 from Hospira and $29,327 from CJ. Total royalties of $133,946 for the quarter decreased by $40,329 or 23% from royalties of $174,275 received from Hospira and CJ during the same period last year. Total royalties from Hospira and CJ of $407,415 for the nine month period ended September 30, 2012 decreased by $160,090 or 28% from royalties of $567,505 received from Hospira and CJ during the same period last year. Royalty revenues for the nine months ended September 31, 2012 also include $388 from another distributor. Royalty revenues for the three and nine months ended September 31, 2011 also include $1,752 from another distributor.

The decrease in royalties is attributable to a decrease in Hextend ® sales in the U.S. and in the Republic of Korea. The decrease in royalties received from Hospira based on sales during the previous quarter is generally due to the decline in the price of hetastarch-based products in the market. The blood volume expander marketing is shrinking overall and hospitals have shifted their purchases to albumin products. Hospira has reported that they have seen a rapid decline in the price of hetastarch-based plasma expanders in the market which could continue to have a negative impact on revenues from the sale of Hextend ® . Hospira has implemented further price reductions for Hextend ® during 2012 in an attempt to maintain market share.

We recognized as revenue $36,468 and $39,801 of license fees from CJ and Summit during the three months ended September 30, 2012 and 2011, respectively. License fee revenues from CJ and Summit for the nine months ended September 30, 2012 and 2011 amounted to $109,405 and $141,930, respectively. The license fees were received from CJ during April 2003 and July 2004, and from Summit during December 2004 and April and October of 2005, but full recognition of the license fees has been deferred, and is being recognized over the life of the contracts, which has been estimated to last until approximately 2019 based on the current expected life of the governing patent covering our products in Korea and Japan. See Note 1 to the Condensed Consolidated Interim Financial Statements. License fee revenues for the three and nine months ended September 30, 2012 also include $39 and $227 earned through ESI and also include subscription and advertising revenues of $300,126 and $438,889, respectively from LifeMap’s online database business. License fees for the three and nine months ended September 31, 2012 also include $1,000 from a new licensee. License fee revenues for the three and nine months ended September 30, 2011 also includes $15,099 and $59,659 earned through ESI.

We recognized revenue of $261,776 and $1,047,107 from our research grant from CIRM during the three and nine months ended September 30, 2012 and $392,666 and $1,177,996 during the same periods in 2011. The term of our CIRM grant expired during August 2012 and it is no longer a source of revenue for us. Grant revenues for the three months ended September 30, 2012 also include $3,239 from the NIH, and $7,692 received by LifeMap Sciences, Ltd, and $168,923 received by Cell Cure Neurosciences from the OCS. Grant revenues for the three months ended September 30, 2011 also include $22,409 and $331,351 from other grants received by OrthoCyte and Cell Cure Neurosciences, respectively. For the nine months ended September 30, 2012, grant revenues also include $38,535 from the NIH, and $15,587 received by LifeMap Sciences, Ltd., and $416,857 received by Cell Cure Neurosciences from the OCS. For the nine months ended September 30, 2011, grant revenues also include $50,390, $44,544 and $332,682 from other grants received by OrthoCyte, OncoCyte and Cell Cure Neurosciences, respectively.

Operating Expenses

Research and development expenses increased to $4,545,470 for the three months ended September 30, 2012 from $3,488,121 for the three months ended September 30, 2011. Research and development expenses for the three months ended September 30, 2012 and 2011, also included $1,141,110 and $1,146,055, respectively, of research and development expenses incurred by ESI and Cell Cure Neurosciences, of which $385,454 and $419,869, respectively, is derived from the amortization of patent technology related to our acquisition of those subsidiaries in May and October 2010, respectively. Aside from these expenses, the increase in research and development expenses during 2012 is primarily attributable to an increase of $447,709 in employee compensation and related costs allocated to research and development expenses, an increase of $602,756 in Renevia™ and HyStem ® program related development expenses, an increase of $89,110 in the amortization of patent technology related to our acquisition of assets from CTI and merger with Glycosan in 2011 and the merger with XenneX in 2012, an increase of $40,656 in scientific consulting fees, an increase of $22,606 in rent and building maintenance expenses allocated to research and development expenses, an increase of $22,161 in lab equipment repairs and maintenance expenses, an increase of $19,274 in travel, lodging and meals allocated to research and development expenses, and an increase of $149,968 in Cell Cure Neurosciences research and development expenses. These increases were offset in part by a decrease of $184,149 in outside research and service expenses and a decrease of $154,913 in ESI research and development expenses. Research and development expenses include laboratory study expenses, patent and technology license fees, employee compensation, rent, insurance, and science-related consultants’ fees.


Research and development expenses increased to $13,323,410 for the nine months ended September 30, 2012 from $9,756,443 for the nine months ended September 30, 2011. Research and development expenses for the nine months ended September 30, 2012 and 2011, also included $3,386,041 and $3,577,747, respectively, of research and development expenses incurred by ESI and Cell Cure Neurosciences, of which $1,156,362 and $1,245,799, respectively, is derived from the amortization of patent technology related to our acquisition of those subsidiaries in May and October 2010, respectively. Aside from these expenses, the increase in research and development expenses during 2012 is primarily attributable to an increase of $1,573,722 in employee compensation and related costs allocated to research and development expenses, an increase of $1,073,482 in HyStem ® program related research expenses, an increase of $226,336 in the amortization of patent technology related to our acquisition of assets from CTI and merger with Glycosan in 2011 and the merger with XenneX in 2012, an increase of $274,624 in expenditures made to cover laboratory expenses and supplies, an increase of $160,008 in licenses, patent and trademark related fees and legal fees, an increase of $134,686 in scientific consulting fees, an increase of $102,391 in depreciation expense allocated to research and development expenses, an increase of $91,013 in travel, lodging and meals allocated to research and development expenses, an increase of $81,098 in rent and building maintenance allocated to research and development expenses, and an increase of $82,633 in Cell Cure Neurosciences research and development expenses. These increases were offset in part by a decrease of $274,339 in ESI research and development expenses. Research and development expenses include laboratory study expenses, patent and technology license fees, employee compensation, rent, insurance, and science-related consultants’ fees.

General and administrative expenses increased to $2,234,905 for the three months ended September 30, 2012 from $1,887,298 for the three months ended September 30, 2011. General and administrative expenses for the three months ended September 30, 2012 and 2011 also included $197,618 and $235,432, respectively, of general and administrative expense incurred by ESI and Cell Cure Neurosciences, which we acquired in May and October of 2010, respectively. The increase is further attributable to an increase of $296,074 in employee compensation, bonuses and related costs allocated to general and administrative expenses, an increase of $52,498 in stock based compensation allocated to general and administrative expenses, an increase of $47,226 in legal expenses, an increase of $37,138 in accounting and tax services, an increase of $28,316 in general consulting expenses, an increase of $24,308 in rent and building maintenance allocated to research and development expenses, and an increase of $21,000 director compensation expense. These increases are in part offset by a decrease of $72,631 in travel, lodging and meals allocated to general and administrative expenses, a decrease of $31,931 in recruiting service expenses, a decrease of $29,778 in general office expenses, and a decrease of $22,599 and $15,215 in ESI and Cell Cure Neurosciences general and administrative expenses. General and administrative expenses include employee and director compensation allocated to general and administrative expenses, consulting fees other than those paid for science-related consulting, insurance costs allocated to general and administrative expenses, stock exchange-related costs, depreciation expense, shipping expenses, marketing costs, and other miscellaneous expenses.

General and administrative expenses increased to $7,037,807 for the nine months ended September 30, 2012 from $6,193,383 for the nine months ended September 30, 2011. General and administrative expenses for the nine months ended September 30, 2012 and 2011 also included $604,943 and $602,731, respectively, of general and administrative expense incurred by ESI and Cell Cure Neurosciences, which we acquired in May and October of 2010, respectively. The increase is further attributable to an increase of $779,440 in employee compensation, bonuses and related costs allocated to general and administrative expenses, an increase of $133,164 in stock based compensation expenses allocated to general and administrative expenses, an increase of $87,991 in accounting and tax services, an increase of $42,636 in rent and building maintenance allocated to general and administrative expenses, an increase of $35,070 in general consulting fees, and an increase of $44,963 in Cell Cure Neurosciences general and administrative expenses. These increases are in part offset by a decrease of $90,441 in recruiting service expenses, a decrease of $61,504 in travel, lodging and meals allocated to general and administrative expenses, a decrease of $60,814 in transfer agent, stock listing and registration fees, a decrease of $34,569 in depreciation expenses allocated to general and administrative expenses and a decrease of $42,751 in ESI general and administrative expenses. General and administrative expenses include employee and director compensation allocated to general and administrative expenses, consulting fees other than those paid for science-related consulting, insurance costs allocated to general and administrative expenses, stock exchange-related costs, depreciation expense, shipping expenses, marketing costs, and other miscellaneous expenses.

Interest and Other Income (Expense)

For the three months ended September 30, 2012, we earned $5,684 of interest income net of $60 of interest expense, compared to interest income of $3,806 net of $895 of interest expense for the three months ended September 30, 2011. For the nine months ended September 30, 2012, we earned $17,636 of interest income net of $315 of interest expense, compared to interest income of $20,778 net of $1,073 of interest expense for the nine months ended September 30, 2011. The decline in interest income is generally attributed to interest earned on lower cash balances held during 2012 compared to 2011.

Other expenses for the nine months ended September 30, 2012 includes reversal of $205,926 in revenues recognized by ESI. The $205,926 represents US $200,000 that was recognized as revenues in 2011 upon the shipment of cell lines in accordance with an agreement between ESI and a customer. The difference of $5,926 is attributed to foreign currency rates. The revenue for the cell lines shipped to the customer was reversed during the first quarter of 2012 pending the final completion of audits and acceptance of vials by the customer which was incorrectly assumed to have occurred in December 2011.

Income Taxes

During the three and nine months ended September 30, 2012 and 2011, we had no Federal and state income tax obligations because we have substantial net operating loss carryovers and have provided a 100% valuation allowance for any deferred taxes.

Liquidity and Capital Resources

At September 30, 2012, we had $ 7,830,347 of cash and cash equivalents on hand. We will depend upon revenue from the sale of our research products, subscription and advertising revenues, royalties from the sale of Hextend ® by Hospira and CJ, and research grants as our principal sources of revenues for the near future. Our CIRM grant, which was our largest source of grant revenues, expired during August 2012 and will no longer be a source of cash for our operations. Although we have applied for additional CIRM grants, there is no assurance that CIRM will approve any future grants for our research and development programs.

Because our revenues from product sales, subscription and advertising revenues, and royalties are not presently sufficient to cover our operating expenses, we may need to obtain additional equity capital or debt in order to finance our operations. The future availability and terms of equity or debt financing are uncertain. We presently have issued and outstanding 556,613 common share purchase warrants exercisable at a price of $10.00 per share, 50,000 of which expire in April 2014 and the remaining 506,613 expire in May 2014. None of the warrants are publicly traded.

On August 24, 2012, we entered into a Controlled Equity Offering SM sales agreement with Cantor Fitzgerald & Co. (“Cantor”), pursuant to which we may offer and sell up to $25 million of our common shares, from time to time through Cantor acting as our sales agent. The offer and sale of our shares through Cantor has been registered pursuant to registration statement filed under the Securities Act of 1933, as amended. The offering pursuant to the sales agreement will terminate upon the sale of all shares subject to the sales agreement or the earlier termination of the sales agreement as permitted by its terms. There is no assurance that we will be able to sell any common shares through the offering at prices acceptable to us.

Under the sales agreement, Cantor may sell shares of our common stock by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 of the SEC Securities Act of 1933, as amended, including, but not limited to, sales made directly on NYSE MKT, on any other existing trading market for our common stock or to or through a market maker. Cantor may also sell our shares under the sales agreement by any other method permitted by law, including in privately negotiated transactions. Cantor has agreed in the sales agreement to use its commercially reasonable efforts to sell shares in accordance with our instructions (including any price, time or size limit or other customary parameters or conditions we may impose).

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.

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