Liquidity

Since inception, BioTime has incurred significant operating losses and has funded its operations primarily through the issuance of equity securities, sale of common stock of AgeX, a former subsidiary, receipt of research grants, royalties from product sales, license revenues and sales of research products. Additionally, BioTime raised $4.2 million in a sale of a portion of its OncoCyte holdings and $1.2 million in sales of a portion of its Hadasit Bio-Holdings Ltd. (“Hadasit”) holdings in July 2019 (see Note 16). At June 30, 2019, BioTime had an accumulated deficit of approximately $252.4 million, working capital of $12.6 million and shareholders’ equity of $131.8 million. BioTime has evaluated its projected cash flows and believes that its $16.7 million of cash, cash equivalents and marketable equity securities at June 30, 2019, plus the $4.2 million in net proceeds from the sale of OncoCyte shares of common stock in July 2019 and the value of its remaining equity investment in OncoCyte (which was approximately $21.7 million based on the closing price of OncoCyte common stock of $1.75 per share on August 6, 2019), provide sufficient cash, cash equivalents, and liquidity to carry out BioTime’s current planned operations through at least twelve months from the issuance date of the consolidated financial statements included herein. If BioTime needs near term working capital or liquidity to supplement its cash and cash equivalents for its operations, BioTime may sell some, or all, of its investments, as necessary.

The AgeX Distribution was completed on November 28, 2018 when AgeX became a publicly traded company (see Note 6). BioTime continues to hold a minority interest in AgeX that may be a source of additional liquidity to BioTime as a marketable equity security.

If the promissory note issued by Juvenescence in favor of BioTime discussed in Note 5 is converted into equity securities of Juvenescence prior to its maturity date, the Juvenescence equity securities may be marketable securities that BioTime may use to supplement its liquidity, as needed. If such promissory note is not converted, it is payable in cash, plus accrued interest, at maturity on August 30, 2020.

On March 8, 2019, with the consummation of the Asterias Merger, Asterias became BioTime’s wholly owned subsidiary. BioTime began consolidating Asterias’ operations and results with its operations and results beginning on March 8, 2019 (see Note 3). As BioTime integrates Asterias’ operations into its own, BioTime expects to make extensive reductions in headcount and to reduce non-clinical related spend, in each case, as compared to Asterias’ operations before the Asterias Merger.

BioTime’s projected cash flows are subject to various risks and uncertainties, and 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 it makes in its research and development programs, any changes to the scope and focus of those programs, any changes in grant funding for certain of those programs, and projection of future costs, revenues, and rates of expenditure. BioTime may be required to delay, postpone, or cancel clinical trials or limit the number of clinical trial sites, unless it is able to obtain adequate financing. In addition, BioTime has incurred and expects to continue incurring significant costs in connection with the acquisition of Asterias and with integrating its operations. BioTime may incur additional costs to maintain employee morale and to retain key employees. 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 and affiliates could result in the dilution of the interests of current shareholders.

Equity Method Investments at Fair Value

Equity method investments at fair value

BioTime uses the equity method of accounting when it has the ability to exercise significant influence, but not control, as determined in accordance with GAAP, over the operating and financial policies of a company. For equity method investments which BioTime has elected to measure at fair value, unrealized gains and losses are reported in the consolidated statements of operations in other income and expenses, net.

As further discussed in Note 4, BioTime has elected to account for its OncoCyte shares at fair value using the equity method of accounting because beginning on February 17, 2017, the respective date on which BioTime deconsolidated OncoCyte, BioTime has not had control of OncoCyte, as defined by GAAP, but continues to exercise significant influence over this company. Under the fair value method, BioTime’s value in shares of common stock it holds in OncoCyte is marked to market at each balance sheet date using the closing price of OncoCyte common stock on the NYSE American multiplied by the number of shares of OncoCyte held by BioTime, with changes in the fair value of the OncoCyte shares included in other income and expenses, net, in the consolidated statements of operations. The OncoCyte shares are considered level 1 assets as defined by ASC 820, Fair Value Measurements and Disclosures.

Prior to the Asterias Merger completed on March 8, 2019 discussed in Note 3, BioTime accounted for its Asterias shares held at fair value, using the equity method of accounting.

Basic and Diluted Net Income (Loss) Per Share Attributable to Common Shareholders

Basic and diluted net income (loss) per share attributable to common shareholders

Basic earnings per share is calculated by dividing net income or loss attributable to BioTime common shareholders by the weighted average number of common shares outstanding, net of unvested restricted stock or restricted stock units, subject to repurchase by BioTime, if any, during the period. Diluted earnings per share is calculated by dividing the net income or loss attributable to BioTime common shareholders by the weighted average number of common shares outstanding, adjusted for the effects of potentially dilutive common shares issuable under outstanding stock options and warrants, using the treasury-stock method, convertible preferred stock, if any, using the if-converted method, and treasury stock held by subsidiaries, if any.

For the three months ended June 30, 2019, and for the three and six months ended June 30, 2018, BioTime reported a net loss attributable to common shareholders, and therefore, all potentially dilutive common stock was considered antidilutive for those periods. For the six months ended June 30, 2019, BioTime reported net income attributable to common shareholders, and therefore, performed an analysis of common share equivalents to determine their impact on diluted net income, and determined that none of the common share equivalents were dilutive.

The following weighted average common share equivalents were excluded from the computation of diluted net income (loss) per common share for the periods presented because including them would have been antidilutive (in thousands):

	Three Months Ended June 30, (unaudited)				Six Months Ended June 30, (unaudited)
	2019		2018		2019		2018
Stock options		15,374		8,990		15,103		8,990
Warrants ⁽¹⁾		-		8,795		-		8,795
BioTime Warrants ⁽²⁾ (Note 3)		1,296		-		917		-
Restricted stock units		271		535		275		535

⁽¹⁾	The warrants expired on October 1, 2018.
⁽²⁾	Although the BioTime Warrants are classified as liabilities, these warrants are considered for dilutive earnings per share calculations in accordance with ASC 260, Earnings Per Share, and determined to be anti-dilutive for the period presented.

Other Recently Adopted Accounting Pronouncements

Other recently adopted accounting pronouncements

Adoption of ASU 2016-18, Statement of Cash Flows (Topic 230) - On January 1, 2018, BioTime adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash, and that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the condensed consolidated statements of cash flows. The adoption of ASU 2016-18 did not have a material effect on BioTime’s condensed consolidated financial statements. However, prior period restricted cash balances included in prepaid expenses and other current assets, and in deposits and other long-term assets, on the condensed consolidated balance sheets was added to the beginning-of-period and end-of-period total consolidated cash and cash equivalents in the condensed consolidated statements of cash flows to conform to the current presentation shown below.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheet dates that comprise the total of the same such amounts shown in the condensed consolidated statements of cash flows for all periods presented herein and effected by the adoption of ASU 2016-18 (in thousands):

	June 30, 2019		December 31, 2018		June 30, 2018		December 31, 2017
		(unaudited)				(unaudited)
Cash and cash equivalents	$	8,210	$	23,587	$	27,207	$	36,838
Restricted cash included in prepaid expenses and other current assets (see Note 15)		-		346		346		-
Restricted cash included in deposits and other long-term assets (see Note 15)		586		466		78		847
Total cash, cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows	$	8,796	$	24,399	$	27,631	$	37,685

Adoption of ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting - In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for non-employee share-based payment transactions. The new standard expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018 (including interim periods within that fiscal year). BioTime adopted ASU 2018-07 on January 1, 2019. As BioTime does not have a significant number of nonemployee share-based awards, the application of the new standard did not have a material impact on its consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted - The recently issued accounting pronouncements applicable to BioTime that are not yet effective should be read in conjunction with the recently issued accounting pronouncements, as applicable and disclosed in BioTime’s Annual Report on Form 10-K for the year ended December 31, 2018.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies certain disclosure requirements for reporting fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. BioTime will adopt this standard on January 1, 2020 and is currently evaluating the disclosure requirements and its effect on the consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This standard will be effective for interim and annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for annual periods beginning after December 15, 2018. BioTime has not yet completed its assessment of the impact of the new standard on its consolidated financial statements.