2.	Basis of Presentation, Liquidity and Summary of Significant Accounting Policies

The unaudited condensed consolidated interim financial statements presented herein, and discussed below, have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain information and footnote disclosures normally included in comprehensive consolidated financial statements have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet as of December 31, 2016 was derived from the audited consolidated financial statements at that date, but does not include all the information and footnotes required by GAAP. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in BioTime's Annual Report on Form 10-K for the year ended December 31, 2016.

The accompanying interim condensed consolidated interim financial statements, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of BioTime's financial condition and results of operations. The condensed consolidated results of operations are not necessarily indicative of the results to be expected for any other interim period or for the entire year.

Principles of consolidation – BioTime's consolidated financial statements present the operating results of all of its wholly-owned and majority-owned subsidiaries that it consolidates as required under GAAP. All material intercompany accounts and transactions have been eliminated in consolidation. BioTime consolidated ReCyte Therapeutics, Inc. ("ReCyte"), 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., LifeMap Solutions, Inc. ("LifeMap Solutions") and AgeX Therapeutics, Inc. ("AgeX"), as BioTime has the ability to control their operating and financial decisions and policies through its ownership or representation on the board of directors, and the noncontrolling interest is reflected as a separate element of shareholders' equity on BioTime's condensed consolidated balance sheets.

Although beginning on February 17, 2017 and May 13, 2016, respectively, OncoCyte and Asterias financial statements and results are no longer a part of BioTime's consolidated financial statements and results, the market value of OncoCyte and Asterias common stock, as of those respective dates, held by BioTime is reflected on BioTime's consolidated balance sheets and the subsequent changes in the market value of those shares will be reflected in BioTime's consolidated balance sheets and consolidated statements of operations, allowing BioTime shareholders to evaluate the value of the respective OncoCyte and Asterias' portion of BioTime's business.

As of December 31, 2016, OncoCyte's assets, liabilities and net assets are included in the consolidated balance sheet of BioTime, after intercompany eliminations.

OncoCyte's results of operations, comprehensive income or loss, and cash flows for the period from January 1, 2017 through February 16, 2017 are included in BioTime's condensed consolidated statements of operations, condensed consolidated statements of comprehensive income or loss and condensed consolidated statements of cash flows for the nine months ended September 30, 2017, after intercompany eliminations (see Notes 3 and 4). OncoCyte's results are not included in BioTime's unaudited condensed consolidated statements of operations and condensed consolidated statements of comprehensive income or loss for the three months ended September 30, 2017.

OncoCyte's results of operations, comprehensive income or loss and cash flows for the three and nine months ended September 30, 2016 are included in BioTime's condensed consolidated statements of operations, condensed consolidated statements of comprehensive income or loss and condensed consolidated statements of cash flows, after intercompany eliminations (see Notes 3 and 4).

Asterias' results of operations, comprehensive income or loss, and cash flows for the period from January 1, 2016 through May 12, 2016 are included in BioTime's condensed consolidated statements of operations, condensed consolidated statements of comprehensive income or loss and condensed consolidated statements of cash flows for the nine months ended September 30, 2016. Asterias' results are not included in BioTime's condensed consolidated statements of operations and condensed consolidated statements of comprehensive income or loss for the three months ended September 30, 2016.

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 September 30, 2017, BioTime had an accumulated deficit of $144.4 million, working capital of $17.2 million and shareholders' equity of $209.0 million. BioTime has evaluated its projected cash flows and believes that its $18.2 million of cash, cash equivalents and available for sale securities as of September 30, 2017, and the net proceeds of approximately $26.7 million raised in an underwritten public offering on October 17, 2017 (see Note 14) provide sufficient cash, cash equivalents and liquidity to carry out BioTime's current operations through at least twelve months from the issuance date of the condensed consolidated interim financial statements included herein. BioTime also holds shares of Asterias and OncoCyte common stock with a combined value of $184.7 million at September 30, 2017. Although BioTime has no present plans to liquidate its holdings of Asterias or OncoCyte shares, 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 Asterias or OncoCyte shares, as necessary.

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. For example, clinical trials of BioTime's OpRegen^®cell therapy treatment of age related macular degeneration will be funded in part with funds from grants and not from cash on hand. If the OpRegen^® program were to lose its grant funding or BioTime becomes unable to continue to provide working capital to fund the OpRegen^® clinical trial, BioTime may be required to delay, postpone, or cancel the clinical trial or limit the number of clinical trial sites, unless it is able to obtain adequate financing from another source that could be used for its clinical trial. 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, 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.

On August 8, 2017, the Israel Innovation Authority (the "IIA") approved a grant for 2017 of up to 7.2 million Israeli New Shekels (approximately $2.0 million) for the development of OpRegen^®. As of September 30, 2017, BioTime recorded a $1.2 million grant receivable from the IIA related to this grant.

On September 18, 2017, BioTime was awarded a grant of up to $1.56 million from the Small Business Innovation Research (SBIR) program of the National Institutes of Health (NIH). The SBIR grant provides funding to further develop BioTime’s innovative, next generation vision restoration program for advanced retinal diseases and injuries. The SBIR grant funds will be made available by NIH for payment to BioTime as allowable expenses are incurred by BioTime. As of September 30, 2017, no amounts were recorded in the consolidated financial statements.

As further discussed in Note 10, on August 17, 2017, AgeX completed an asset acquisition and stock sale pursuant to which it received certain assets from BioTime for use in its research and development programs and raised $10.0 million in cash primarily from new investors to finance its operations. However, BioTime cannot assure that adequate financing will be available to AgeX in the future to fund the AgeX programs.

Equity method accounting for Asterias and OncoCyte, 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 Notes 4 and 5, BioTime has elected to account for its Asterias and OncoCyte shares at fair value using the equity method of accounting because beginning on May 13, 2016 and February 17, 2017, the respective dates on which BioTime deconsolidated Asterias and OncoCyte, BioTime has not had control of Asterias and OncoCyte, as defined by GAAP since the applicable deconsolidation dates, but BioTime continues to exercise significant influence over Asterias and OncoCyte. Under the fair value method, the value of the shares of common stock BioTime holds in Asterias and OncoCyte is marked to market using the closing prices of Asterias and OncoCyte common stock on the NYSE American multiplied by the number of shares of Asterias and OncoCyte held by BioTime, with changes in the fair value of the Asterias and OncoCyte shares included in other income and expenses, net, in the condensed consolidated statements of operations. The Asterias and OncoCyte shares are considered level 1 assets as defined by ASC 820, Fair Value Measurements and Disclosures.

Foreign currency transaction gains and losses – For transactions denominated in other than the functional currency of BioTime or its subsidiaries, BioTime recognizes transaction gains and losses in the consolidated statements of operations and classifies the gain or loss based on the nature of the item that generated it. The majority of BioTime’s foreign currency transaction gains and losses are generated by Cell Cure’s intercompany debt due to BioTime (see Note 9), which are U.S. dollar-denominated, while Cell Cure’s functional currency is the Israeli New Shekel. Accordingly, foreign currency remeasurement gains and losses related to this debt are included in other income and expenses, net.

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.

The primary components of the weighted average number of potentially dilutive common shares used to compute diluted net income per common share for the three months ended September 30, 2017 were approximately 10,000 outstanding stock options and restricted stock units. The primary components of the weighted average number of potentially dilutive common shares used to compute diluted net income per common share for the nine months ended September 30, 2017 were approximately 109,000 shares of treasury stock (see Note 10), and approximately 26,000 outstanding stock options and restricted stock units. The primary components of weighted average shares of potentially dilutive common shares used to compute diluted net income per common share for the three months ended September 30, 2016 were approximately 620,000 shares of treasury stock (see Note 10), and approximately 282,000 restricted stock units and outstanding stock options. For the nine months ended September 30, 2016, potentially dilutive shares were approximately 3.4 million shares of treasury stock and approximately 154,000 restricted stock units and outstanding stock options (see Note 11).

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Stock options		7,915		5,652		7,871		5,652
Warrants		9,395		9,395		9,395		9,395

Reclassifications – Gain on sale of assets of $1.8 million generated during the three and six months ended June 30, 2017 and included in other income and expenses, net, on the consolidated statements of operations has been reclassified to be included in loss from operations in the consolidated statements of operations for the nine months ended September 30, 2017 to properly reflect the nature of the gain. This reclassification had no impact on the net income or loss, no impact on consolidated cash flows and consolidated balance sheets for any period presented.

For the nine months ended September 30, 2016 BioTime regrouped certain amounts in the operating section of the condensed consolidated statements of cash flows to conform to the presentation for the nine months ended September 30, 2017.

Recently Issued Accounting Pronouncements – The recently issued accounting pronouncements discussed below should be read in conjunction with the other recently issued accounting pronouncements as applicable and disclosed in BioTime's Annual Report on Form 10-K for the year ended December 31, 2016, and Quarterly Report on Form 10-Q for the first and second quarters of 2017.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815), in two parts. Part I of this ASU 2017-11 addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option, with changes in fair value of that instrument recognized in earnings of the entity. Part II is related to nonpublic entities and is not applicable to BioTime.

Under Part I of the new guidance in ASU 2017-11, when determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity-classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS.

The amendments in Part I of ASU 2017-11 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. Since BioTime currently has no financial instruments with down round features, BioTime does not expect any impact to its consolidated financial statements upon adoption.

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718) – Scope of Modification Accounting, to clarify existing guidance and reduce diversity in practice about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 requires modification accounting to a share-based award unless all of the following are met: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified, (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified, and (3) the classification of the modified award, as equity or liability instrument, is the same as the classification of the original award immediately before the original award is modified. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. BioTime applies the three-step test to all modifications, if any, or as they occur, and if all the conditions are not met, applies modification accounting. BioTime believes the adoption of ASU 2017-09 will not have a material impact on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgments and estimates may be required in the revenue recognition process than are required under existing GAAP. The revised revenue standard is effective for public entities for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients; or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).

BioTime is currently evaluating the impact of this standard on its operations, consolidated financial statements and footnote disclosures and is finalizing the overall assessment of the impact of the standard to BioTime. Preliminarily, BioTime intends to apply the modified retrospective method of adoption on its adoption date of January 1, 2018, and it anticipates expanded disclosures on revenues in order to comply with the new standard.