1. Organization, Basis of Presentation and Liquidity

General – BioTime is a clinical-stage biotechnology company focused on developing and commercializing products addressing degenerative diseases. BioTime’s clinical programs are based on two platform technologies. The foundation of BioTime’s core therapeutic technology platform is pluripotent cells that are capable of becoming any of the cell types in the human body. The foundation of BioTime’s cell delivery platform is its HyStem^® 3-D cell and drug delivery matrix technology. BioTime’s current clinical programs are targeting three primary sectors, aesthetics, ophthalmology and cell/drug delivery.

BioTime also has significant equity holdings in two publicly traded companies, Asterias Biotherapeutics, Inc. ("AST") and OncoCyte Corporation ("OCX"), which BioTime founded and, until recently, were majority-owned and consolidated subsidiaries. Asterias (NYSE MKT: AST) is presently focused on advancing three clinical-stage programs that have the potential to address areas of high unmet medical need in the fields of neurology (spinal cord injury) and oncology (acute myeloid leukemia and lung cancer). OncoCyte (NYSE MKT: OCX) is developing confirmatory diagnostic tests for lung cancer, breast cancer, and bladder cancer utilizing novel liquid biopsy technology.

BioTime is also enabling early-stage programs in other new technologies through its own research programs as well as through other subsidiaries or affiliates.

As further discussed in Notes 3 and 4, effective May 13, 2016, BioTime deconsolidated Asterias financial statements and results of operations due to the decrease in BioTime’s percentage ownership in Asterias from 57.1% to 48.7% as a result of Asterias’ public offering of its common stock to raise capital for its operations (the “Asterias Deconsolidation”). Since May 13, 2016, BioTime has accounted for the Asterias common stock it holds using the equity method of accounting at fair value.

As further discussed in Note 16, on February 17, 2017, BioTime’s ownership of OncoCyte declined below 50% and BioTime deconsolidated the financial statements of OncoCyte from its consolidated financial statements. Beginning on February 17, 2017, BioTime will account for OncoCyte using the equity method of accounting at fair value.

Use of estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period with consideration given to materiality. Significant estimates and assumptions which are subject to significant judgment include those related to going concern assessment of consolidated financial statements, useful lives associated with long-lived assets, including evaluation of asset impairment, allowances for uncollectible accounts receivables, valuing investments in nonconsolidated investees using the equity method, loss contingencies, deferred income taxes and tax reserves, including valuation allowances related to deferred income taxes, and assumptions used to value stock-based awards, debt or other equity instruments. Actual results could differ materially from those estimates.

Principles of consolidation – BioTime’s consolidated financial statements include the accounts of its subsidiaries. The following table reflects BioTime’s ownership, directly or through one or more subsidiaries, of the outstanding shares of its operating subsidiaries as of December 31, 2016.

Subsidiary	Field of Business	BioTime Ownership	Country
Cell Cure Neurosciences Ltd.	Products to treat age-related macular degeneration	62.5%(1)	Israel
ES Cell International Pte. Ltd.	Stem cell products for research, including clinical grade cell lines produced under cGMP	100%	Singapore
LifeMap Sciences, Inc.	Biomedical, gene, disease, and stem cell databases and tools	77.9%	USA
LifeMap Sciences, Ltd.	Biomedical, gene, disease, and stem cell databases and tools	(2)	Israel
LifeMap Solutions, Inc.	Mobile health software	(2)	USA
OncoCyte Corporation (3)	Cancer diagnostics	51.1%	USA
OrthoCyte Corporation	Developing bone grafting products for orthopedic diseases and injuries	100%	USA
ReCyte Therapeutics, Inc.	Research and development involved in stem cell-derived endothelial and cardiovascular related progenitor cells for the treatment of vascular disorders, ischemic conditions and brown adipocytes for type-2 diabetes and obesity	94.8%	USA

(1)

Includes shares owned by BioTime and ES Cell International Pte. Ltd.

(2)

LifeMap Sciences, Ltd. and LifeMap Solutions, Inc. are wholly-owned subsidiaries of LifeMap Sciences, Inc.

(3)

See Note 16. Beginning February 17, 2017, BioTime deconsolidated OncoCyte and OncoCyte is no longer a subsidiary of BioTime as of that date.

All material intercompany accounts and transactions have been eliminated in consolidation. As of December 31, 2016, BioTime consolidated ReCyte Therapeutics, Inc. (“ReCyte”), OncoCyte, OrthoCyte Corporation (“OrthoCyte”), ES Cell International Pte. Ltd. (“ESI”), Cell Cure Neurosciences Ltd (“Cell Cure”), BioTime Asia, Limited (“BioTime Asia”), LifeMap Sciences, Inc. (“LifeMap Sciences”), LifeMap Sciences, Ltd., and LifeMap Solutions, Inc. (“LifeMap Solutions”) as BioTime has the ability to control their operating and financial decisions and policies through its ownership, and the noncontrolling interest is reflected as a separate element of shareholders’ equity on BioTime’s consolidated balance sheets.

Liquidity – Since inception, BioTime has incurred significant operating losses and has funded its operations primarily through the issuance of equity securities, payments from research grants, royalties from product sales and sales of research products and services. At December 31, 2016, BioTime had an accumulated deficit of approximately $196 million, working capital of $17 million and shareholders’ equity of $131 million. BioTime has evaluated its projected cash flows and believes that its cash, cash equivalents, and available for sale securities of $12.5 million (not including cash held by OncoCyte) as of December 31, 2016, and the net proceeds of $18.7 million raised in the underwritten public offering on February 15, 2017 (see Note 16), provide sufficient cash, cash equivalents, and working capital to carry out BioTime’s current operations through at least twelve months from the issuance date of the consolidated financial statements included herein.

BioTime’s projected cash flows are subject to various risks and uncertainties. For example, clinical trials being conducted by Cell Cure will be funded in part with funds from grants and not from cash on hand. If Cell Cure were to lose its grant funding or BioTime is unable to continue to provide working capital to Cell Cure, or both, it may be required to delay, postpone, or cancel its clinical trials or limit the number of clinical trial sites, or otherwise reduce or curtail its operations unless it is able to obtain adequate financing from another source that could be used for its clinical trial. The unavailability or inadequacy of financing to meet future capital needs could force BioTime to modify, curtail, delay, or suspend some or all aspects of its planned operations. BioTime’s determination as to when it will seek new financing and the amount of financing that it will need will be based on BioTime’s evaluation of the progress its makes in its research and development programs, any changes to the scope and focus of those programs, and projection of future costs, revenues, and rates of expenditure. BioTime cannot assure that adequate financing will be available on favorable terms, if at all. Sales of additional equity securities by BioTime or its subsidiaries could result in the dilution of the interests of present shareholders.