UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004 Commission file number 0-18170
-------------- -------
BIOLIFE SOLUTIONS, INC.
-----------------------
(Exact name of small business issuer as specified in its charter)
Delaware 94-3076866
-------- ----------
(State of Incorporation) (IRS Employer I.D. Number)
171 Front Street
Owego, NY 13827
---------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (607) 687-4487
--------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
12,413,209 SHARES OF BIOLIFE SOLUTIONS, INC. COMMON STOCK, PAR VALUE $.001 PER
SHARE, WERE OUTSTANDING AS OF MAY 14, 2004.
Transitional Small Business Disclosure Format (check one). Yes No X
--- ---
BIOLIFE SOLUTIONS, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 2004
INDEX
Page
No.
Part I. Financial Information
Item 1. Financial Statements:
Unaudited Balance Sheet at March 31, 2004.................................................... 2
Unaudited Statements of Operations for the three month periods ended March 31, 2004
and March 31, 2003........................................................................... 3
Unaudited Statements of Cash Flows for the three month periods ended March 31, 2004
and March 31,2003............................................................................ 4
Notes to Financial Statements................................................................ 5-7
Item 2. Management's Discussion and Analysis...................................................... 8-12
Item 3. Controls and Procedures................................................................... 13
Part II. Other Information
Item 1. Legal Proceedings......................................................................... 14
Item 6. Exhibits and Reports on Form 8-K.......................................................... 14-15
Signatures........................................................................................ 16
1
PART I
FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
BIOLIFE SOLUTIONS, INC.
BALANCE SHEET
(UNAUDITED)
MARCH 31,
2004
--------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 882,677
Receivables 80,817
Due from related party 69,534
Inventories 58,941
Prepaid expenses and other current assets 36,147
--------------------
TOTAL CURRENT ASSETS 1,128,116
--------------------
PROPERTY AND EQUIPMENT
Leasehold improvements 34,935
Furniture and computer equipment 37,636
Manufacturing and other equipment 198,063
--------------------
TOTAL 270,634
Less: Accumulated depreciation and amortization (109,013)
--------------------
NET PROPERTY AND EQUIPMENT 161,621
--------------------
TOTAL ASSETS $ 1,289,737
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 86,583
Accrued expenses 104,880
--------------------
TOTAL CURRENT LIABILITIES 191,463
--------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series F convertible preferred stock, $.001 par value; 12,000
shares authorized, 12,000 shares issued and outstanding 12
Series G convertible preferred stock, $.001 par value; 80
shares authorized, 55 shares issued and outstanding --
Common stock, $0.001 par value, 25,000,000 shares
authorized, 12,413,209 shares issued and outstanding 12,413
Additional paid-in capital 40,663,172
Accumulated deficit (39,577,323)
--------------------
TOTAL STOCKHOLDERS' EQUITY 1,098,274
--------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,289,737
====================
See notes to financial statements
2
BIOLIFE SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2004 2003
----------------- ------------------
REVENUE
Grant revenue $ 27,287 $ 100,355
Facilities fee - related party 14,786 --
Management fee - related party 8,132 --
Consulting revenue 59,000 101,360
Product sales 54,946 26,565
----------------- ---------------
TOTAL REVENUE 164,151 228,280
----------------- ---------------
OPERATING EXPENSES
Research and development 59,177 176,341
Sales and marketing 71,400 39,048
Product sales (9,563) 601
General and administrative 312,307 342,716
----------------- ---------------
TOTAL EXPENSES 433,321 558,706
----------------- ---------------
OPERATING LOSS (269,170) (330,426)
----------------- ---------------
OTHER INCOME (EXPENSE)
Interest expense (5,434) (6,250)
Other income 16,757 3,200
----------------- ---------------
TOTAL OTHER INCOME (EXPENSE) 11,323 (3,050)
----------------- ---------------
LOSS BEFORE BENEFIT FOR TAXES (257,847) (333,476)
(BENEFIT) PROVISION FOR INCOME TAXES -- --
----------------- ---------------
NET LOSS $ (257,847) $ (333,476)
================= ===============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE:
TOTAL BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (0.02) $ (0.03)
================= ===============
Basic and diluted weighted average common
shares used to compute net loss per
per share 12,413,209 12,413,209
================= ===============
See notes to financial statements
3
BIOLIFE SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2004 2003
------------------ -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (257,847) $ (333,476)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED
(USED) BY OPERATING ACTIVITIES
Depreciation 11,695 11,545
Amortization of loan financing costs 106,408 25,753
CHANGE IN OPERATING NET ASSETS AND LIABILITIES
(INCREASE) DECREASE IN
Accounts receivable 1,825,977 (26,157)
Due from related party (69,534) --
Inventories (19,136) (2,695)
Prepaid and other current assets (36,147) 11,531
INCREASE (DECREASE) IN
Accounts payable (476,774) 224,401
Accrued expenses (39,869) (28,354)
Accrued salaries (194,159) 64,943
------------------ -------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 850,614 (52,509)
------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (50,317) --
------------------ -------------------
NET CASH USED BY INVESTING ACTIVITIES (50,317) --
------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable -- 100,000
Principal payments on notes payable (705,525) (10,000)
------------------ -------------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (705,525) 90,000
------------------ -------------------
NET INCREASE IN CASH 94,772 37,491
CASH - BEGINNING OF PERIOD 787,905 67,118
------------------ -------------------
CASH - END OF PERIOD $ 882,677 $ 104,609
================== ===================
See notes to financial statements
4
BIOLIFE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
A. GENERAL
BioLife Solutions, Inc. ("BioLife" or the "Company") was incorporated in 1997 in
Delaware as a wholly owned subsidiary of Cryomedical Sciences, Inc.
("Cryomedical"), a company that was engaged in manufacturing and marketing
cryosurgical products. BioLife (a) provides cryopreservation process evaluation
services, and (b), based upon its patented HypoThermosol(R) platform technology,
develops, manufactures and markets proprietary cryopreservation solutions that
markedly improve the biological processing and preservation of cells and
tissues.
On June 25, 2002 the Company sold its cryosurgery product line and related
intellectual property assets to Irvine, CA-based Endocare, Inc., a public
company, in exchange for $2.2 million in cash and 120,022 shares of Endocare
restricted common stock. In conjunction therewith, Cryomedical's Board of
Directors approved merging BioLife into Cryomedical and changing its name to
BioLife Solutions, Inc. In September 2002, the merger and name change were
completed and the Company began to trade under the new ticker symbol, "BLFS" on
the OTCBB.
The Balance Sheet as of March 31, 2004, and the Statements of Operations for the
three month periods ended March 31, 2004 and 2003 and Statements of Cash Flows
for the three-month periods ended March 31, 2004 and 2003, have been prepared
without audit. In the opinion of management, all adjustments necessary to
present fairly the financial position, results of operations, and cash flows at
March 31, 2004, and for all periods then ended, have been recorded. All
adjustments recorded were of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto, included
in the Company's Annual Report on Form 10-KSB for the year ended December 31,
2003.
The results of operations for the three-month period ended March 31, 2004 are
not necessarily indicative of the operating results anticipated for the full
year.
5
BIOLIFE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
B. FINANCIAL CONDITION
On February 25, 2004, the Company settled its lawsuit with Endocare and
collected $1,887,474 in damages, including interest and legal fees
reimbursement. This settlement improved the Company's cash position and enabled
it to pay many of its outstanding liabilities. At March 31, 2004, the Company
had stockholders' equity of approximately $1,098,000 and a working capital
surplus of approximately $937,000. Although the first quarter of 2004 resulted
in the highest product sales in the history of the Company, it has been unable
to generate sufficient income from operations to meet its operating needs.
The Company believes it has sufficient funds to continue operations in the near
term. Future capital requirements will depend on many factors, including the
ability to market and sell the Company's product line, research and development
programs, the scope and results of clinical trials, the time and costs involved
in obtaining regulatory approvals, the costs involved in obtaining and enforcing
patents or any litigation by third parties regarding intellectual property, the
status of competitive products, the maintenance of our manufacturing facility,
the maintenance of sales and marketing capabilities, and the establishment of
collaborative relationships with other parties.
These financial statements assume that the Company will be able to continue as a
going concern. If the Company is unable to continue as a going concern, the
Company may be unable to realize its assets and discharge its liabilities in the
normal course of business. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or to amounts and classification of liabilities that may be necessary
should the Company be unable to continue as a going concern.
C. LEGAL PROCEEDINGS
BioLife has been involved in a lawsuit against Endocare, Inc., arising out of
Endocare's failure to register 120,022 shares of its stock as part of the
transaction by which the Company sold its cryosurgical equipment assets to
Endocare in a transaction that closed on June 24, 2002. In the lawsuit, the
Company claimed damages of $1,648,935, comprising the proceeds that could have
been realized had Endocare properly registered the Stock within the time frame
set forth in the Registration Rights Agreement entered into between the parties.
Endocare filed an answer and counterclaim, seeking damages of over $5,000,000 as
a result of various alleged breaches by the Company of the Asset Purchase
Agreement entered into between the parties. Trial in this matter began on March
31, 2003 and concluded on April 3, 2003. On October 10, 2003, the State of
Delaware issued a Final Order and Judgment in favor of BioLife in the amount of
$1,648,935 plus prejudgment interest. On February 25, 2004, the Company
collected $1.88 million from Endocare for damages, interest, and legal fees.
D. DUE FROM RELATED PARTY
Due from related party consists of amounts due to the Company from Cell
Preservation Services, Inc. (CPSI) resulting from the Research Agreement between
the companies. CPSI is a company formed by Dr. John M. Baust, a former Biolife
employee and the son of the President of Biolife. During the first quarter of
2004, $14,786 and $8,132 were earned under this Agreement for facilities fees
and management fees, respectively. The Company paid salaries of $46,616 on
behalf of CPSI during the first quarter of 2004. All amounts due from CPSI will
be collected upon completion of various contracts and awards.
6
E. INVENTORIES
Inventories consist of $26,874 of finished HypoThermosol product and $32,067 of
manufacturing materials at March 31, 2004.
F. NOTES PAYABLE AND ISSUANCE OF WARRANTS
All notes payable at December 31, 2003 were paid in full on March 1, 2004 from
proceeds of the settlement of the Endocare lawsuit.
G. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is calculated by dividing the net income (loss)
attributable to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share is calculated
by dividing income from continuing operations by the weighted average number of
shares outstanding, including potentially dilutive securities such as preferred
stock, stock options and warrants. Potential common shares were not included in
the diluted earnings per share amounts for the three-month periods ended March
31, 2004 and 2003 as their effect would have been anti-dilutive.
H. STOCK OPTIONS
In accounting for stock options to employees, the Company follows the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, as opposed to the fair value method
prescribed by Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation. The following table illustrates the effect on net
income and earnings per share if the Company had applied the fair value
recognition provisions of FASB Statement No. 123:
THREE MONTHS ENDED
MARCH 31,
2004 2003
Net Income (Loss) as reported $ (257,847) $ (333,476)
Compensation expense based on fair value,
net of related tax effects (17,805) (26,921)
-------------- ---------------
Pro forma net income (loss) $ (275,652) $ (360,397)
============== ===============
Basic and diluted net income (loss) per share as reported $ (0.02) $ (0.03)
============== ===============
Pro forma $ (0.02) $ (0.03)
============== ===============
This disclosure is in accordance with Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure.
I. RECLASSIFICATIONS
Certain March 2003 amounts have been reclassified to conform to the March 2004
presentation.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto set forth elsewhere herein. The
discussion of the results from operations includes only the Company's continuing
operations.
BioLife has pioneered the next generation of preservation solutions designed to
maintain the viability and health of cellular matter and tissues during
freezing, transportation and storage. Based on the Company's proprietary
bio-packaging technology and a patented understanding of the mechanism of
cellular damage and death, these products enable the biotechnology and medical
community to address a growing problem that exists today. The expanding practice
of cell and gene therapy has created a need for products that ensure the
biological viability of mammalian cell and tissue material during transportation
and storage. The Company believes that HypoThermosol(R), GelStor and CryoStor
products it is selling today are a significant step forward in meeting these
needs.
The Company's line of preservation solutions is composed of complex synthetic,
aqueous solutions containing, in part, minerals and other elements found in
human blood, which are necessary to maintain fluids and chemical balances
throughout the body at near freezing temperatures. The solutions preserve cells
and tissue in low temperature environments for extended periods after removal of
the cells through minimally invasive biopsy or surgical extraction, as well as
in shipping the propagated material for the application of cell or gene therapy
or tissue engineering. BioLife has entered into research agreements with several
emerging biotechnology companies engaged in the research and commercialization
of cell and gene therapy technology and has received several government research
grants in partnership with academic institutions to conduct basic research,
which could lead to further commercialization of technology to preserve human
cells, tissues and organs.
The Company currently markets its HypoThermosol(R), CryoStor and GelStor line of
solutions to companies and labs engaged in pre-clinical research, and to
academic institutions.
With the addition of the settlement funds received in March of 2004, BioLife was
able to clear itself of all debt and is now positioned to move forward with
building a successful company based on its novel IP. To set the stage for this
growth, BioLife in 2003 developed dozens of accounts that now purchase its
solution products, entered into supply and development agreements that will
provide a revenue base moving forward, registered with the FDA as a Class 2
medical device manufacturer, established an internal manufacturing capability,
launched a series of national training workshops that serve to accelerate the
exposure of its technology, had its our products included in a number of FDA
approved cell therapy-based IND's, and is in the process of launching a clinical
trial in what promises to be a very substantial niche market.
The Company's two-part business plan is designed to exploit our extensive
knowledge base in the solutions preservation field. The first part is based on
an industry-wide need for improved quality of preservation within the cell-based
biomedical/biotech industries, and includes the outsourcing of this expertise to
large and small companies by providing them with cryopreservation process
evaluation services, pursuant to which BioLife evaluates the preservation
processes of potential clients. Under these contracts, the client defines
specific preservation milestones, BioLife develops an "off-the-shelf" solution
to meet the milestones, and the parties then enter into an appropriate supply
agreement.
A second key element to our business plan is the expansion of our product sales
base. In 2003, the Company launched an organized sales effort under the
direction of Alan Rich, Vice President of Sales and Marketing. Our product sales
in Q1 2004 were the highest ever: approximately 50% higher than the average
quarterly numbers for 2003. These numbers, while moving in the right direction,
are modest and only provide a base from which
8
we plan to grow.
To effectuate this growth, BioLife has instituted a reorganization plan that
will provide a clear separation from the "R&D focus". BioLife staff is now
focused exclusively on product sales, process evaluation agreements and
manufacturing. This change was brought about through a Research Agreement with
CPSI to manage all grant-related activities. CPSI was formed by Dr. J.M. Baust,
a former BioLife employee and son of the President of BioLife with his departure
from BioLife.
During the first quarter of 2004, BioLife moved its headquarters and
manufacturing to a newly remodeled facility.
RESULTS OF OPERATIONS (QUARTER ENDED MARCH 31, 2004 COMPARED TO THE QUARTER
ENDED MARCH 31, 2003)
REVENUE
Revenue for the quarter ended March 31, 2004 decreased $64,129 or 28%, to
$164,151, compared to $228,280 for the quarter ended March 31, 2003. The shift
in focus toward product sales resulted in a 107% increase in product sales in
the first quarter of 2004 as compared to the first quarter of 2003. While
product sales rose, total revenue dropped due to declines in grant revenue and
consulting revenue. The decrease in grant revenue is attributable to an
expiration of grants, while being awarded only one new grant in 2003. In
addition, consulting revenue declined as a result of scheduled completion of
contracts with two consulting clients. R&D related activities, funded through
grants, have been shifted to CPSI through a research agreement between the two
companies. In addition to shifting these R&D related expenses to CPSI, BioLife
receives facilities and management fees from CPSI in exchange for the use of
BioLife facilities and management services in connection with the research
performed. In the first quarter of 2004, BioLife had revenues of $14,786 and
$8,132 for facilities fees and management fees, respectively.
COST OF PRODUCT SALES
For the quarter ended March 31, 2004, the cost of product sales was ($9,563).
This negative cost of product sales is the result of an adjustment to raw
materials inventory and cost of goods sold based on a physical inventory audit
during the quarter. An adjustment was made to increase inventory by $11,895 and
decrease cost of product sales by $11,895 as a result of the physical inventory
count. Cost of sales for the quarter ended March 31, 2004 was $2,332 as compared
to $601 for the quarter ended March 31, 2003. The increase in cost of product
sales is the result of increased production costs as sales increased.
RESEARCH AND DEVELOPMENT
Expenses relating to research and development for the quarter ended March 31,
2004 declined $117,164 or 66% from the previous quarter ended March 31, 2003.
Research and development expenses were $59,177 for the quarter ended March 31,
2004 as compared to $176,341 for the quarter ended March 31, 2003. This decrease
in research and development costs was in large part due to the shift of grant
related research activities to CPSI per the research agreement. Three former
employees of BioLife, including Dr. Robert Van Buskirk, formerly Vice
President-Business Development, became CPSI employees during the quarter to
perform grant related research and development work. This resulted in a
reduction in research and development salaries from $88,961 during the quarter
ended March 31, 2003 to $54,823 for the quarter ended March 31, 2004. In
addition, BioLife was able to negotiate and settle legal fees to patent counsel
that had been accrued in 2003. This negotiation and settlement resulted in a
credit of $47,142 in legal fees during the first quarter of 2004.
9
SALES AND MARKETING
For the quarter ended March 31, 2004, sales and marketing expenses increased
$32,352, or 83%, to $71,400, compared to $39,048 for the quarter ended March 31,
2003. The increase in sales and marketing expense was due to several factors
including advertising expenses incurred in 2004 in an effort to increase Company
and product exposure. Advertising expenses totaled $18,513 during the quarter
ended March 31, 2004 as compared to $0 during the quarter ended March 31, 2003.
In addition, trade show attendance fees of $1,860 were incurred in 2004. There
were no fees during the first quarter of 2003. Medical insurance for the quarter
ended March 31, 2004 totaled $3,900. There were no medical insurance expenses
recorded during the first quarter of 2003. Expenses related to medical insurance
were posted to a non-sales account in 2003 causing this discrepancy.
GENERAL AND ADMINISTRATIVE EXPENSE
For the quarter ended March 31, 2004, general and administrative expense
decreased $30,409, or 9% to $312,307, compared to $342,716 for the quarter ended
March 31, 2003. The Company was able to negotiate and write off $57,844 in
liabilities during the first quarter of 2004. In addition, the Company hired a
Controller to replace a previously outsourced Controller during the first
quarter of 2004 and reduced consulting fees by $21,857. During the first quarter
of 2003, the Company incurred $12,500 in bad debt expense. No bad debt expense
was recorded during the first quarter of 2004. The Company was also able to
reduce other general and administrative expenses during the first quarter of
2004 by reducing operating expenditures. These reductions were partially offset
by the writing off of previously capitalized loan financing costs of $106,408
associated with note obligations that were paid off during the quarter. For the
quarter ended March 31, 2003, amortization of these loan financing costs totaled
$25,754.
OPERATING EXPENSES AND NET INCOME
For the quarter ended March 31, 2004, operating expenses decreased $125,385, or
22% to $433,321, compared to $558,706 for the quarter ended March 31, 2003. The
Company reported a net loss of $(257,847) for the quarter ended March 31, 2004,
compared to a net loss of ($333,476) for the quarter ended March 31, 2003.
CASH AND CASH EQUIVALENTS
At March 31, 2004, the Company had cash and cash equivalents of $882,677,
compared to cash and cash equivalents of $104,609 at March 31, 2003. At March
31, 2004, the Company had a working capital surplus of $936,653, compared to a
working capital deficit of $(993,872) at March 31, 2003. The increase in the
Company's cash and working capital position compared to March 31, 2003 was due
to financing activities during 2003 as well as the settlement of the Endocare
lawsuit in the amount of $1.877 million.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 2004, the Company generated approximately $55k in
product sales, the highest product sales quarter since inception. The Company
also realized approximately $59k in consulting revenue. While the new focus on
product sales is beginning to demonstrate its potential and the Company is
beginning to acquire more customers and gain exposure, the Company has been
unable to support its operations solely from revenue generated from product
sales. In February 2004, the Company collected $1.887 million from its lawsuit
settlement with Endocare. This settlement enabled the Company to relieve a
majority of its debt and liabilities as well as provide supplemental cash flow
to support operating activities.
During the quarter ended March 31, 2004, net cash provided by continuing
operations was approximately $850,000 as compared to net cash used by continuing
operating activities of $52,509 for the quarter ended March 31, 2003. The net
cash provided from operating activities in the first quarter of 2004 resulted
primarily
10
from the collection of the Endocare settlement and was partially offset by the
reduction in accounts payable, accrued expenses, and accrued salaries. Trade
receivables (net) increased to $150,351 from $34,851 at December 31, 2003 as
product sales grew in the first quarter and the Company earned management fees
and facilities fees from the agreement with CPSI. Inventory increased to $58,941
from $39,805 at December 31, 2003 as raw materials were purchased to support
product sales activity.
Net cash used in investing activities totaled $50,318 for the quarter ended
March 31, 2004 as the Company purchased new equipment and made leasehold
improvements to support the new manufacturing facility and product sales as
opposed to $0 net cash used in investing activities for the quarter ended March
31, 2003.
Net cash used by financing activities totaled $705,525 for the quarter ended
March 31, 2004 as all outstanding balances to noteholders were paid in full,
compared to net cash provided of $90,000 for the quarter ended March 31, 2003.
This resulted from a new $100,000 note and payment in the amount of $10,000 on
an outstanding note during the quarter.
The Company believes it has sufficient funds to continue operations in the near
term. Future capital requirements will depend on many factors, including the
ability to market and sell our product line, research and development programs,
the scope and results of clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in obtaining and enforcing
patents or any litigation by third parties regarding intellectual property, the
status of competitive products, the maintenance of our manufacturing facility,
the maintenance of sales and marketing capabilities, and the establishment of
collaborative relationships with other parties.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenues and expenses and related disclosures. On an
ongoing basis, the Company evaluates estimates including those related to bad
debts, inventories, fixed assets, intangible assets, income taxes, restructuring
costs, contingencies and litigation. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis of the
Company's judgments on the carrying value of assets and liabilities. Actual
results may differ from these estimates under different assumptions or
conditions.
The Company believes that following accounting policies involves more
significant judgments and estimates in the preparation of the consolidated
financial statements. The Company maintains an allowance for doubtful accounts
for estimated losses that may result from the inability of its customers to make
payments. If the financial condition of the Company's customers were to
deteriorate, resulting in their inability to make payments, the Company may be
required to make additional allowances. The Company writes down inventory for
estimated obsolete or unmarketable inventory to the lower of cost or market
based on assumptions of future demand. If the actual demand and market
conditions are less favorable than projected, additional write-downs may be
required.
11
CONTRACT OBLIGATIONS
The Company leases equipment as lessee, under operating leases expiring on
various dates through 2005. The leases require monthly payments of approximately
$2,340.
In March 1999, the Company signed an Incubator Licensing Agreement with State
University of New York (SUNY) whereby the Company will conduct research and
development in the field of cryogenic science and, in particular, solution
technology. The Company will pay the University $1,005 per month during the term
of the License, which expires in July 2004, unless terminated earlier by either
party, and all inventions conceived as a result of these research and
development efforts belong to the Company. The Company is evaluating the option
to extend such licensing agreement.
Effective January 8, 2004, the Company entered into a non-cancelable operating
lease for new space in Owego, NY that expires in January 2007. The lease
payments under the new lease will be $6,200 per month. The Company's president
has a minority interest in the leased premises.
12
ITEM 3. CONTROLS AND PROCEDURES
At the end of the period covered by this Quarterly Report on Form 10-QSB, the
Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the CEO/CFO, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation,
the Company's CEO/CFO concluded that the Company's disclosure controls and
procedures are effective in timely alerting him to material information relating
to the Company required to be included in the Company's periodic SEC filings.
The Company does not expect that its disclosure controls and procedures will
prevent all error and all fraud. A control procedure, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control procedure are met. Because of the inherent
limitations in all control procedures, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control. The design of any control
procedure also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions; over time,
control may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control procedure, misstatements due to
error or fraud may occur and not be detected.
There were no significant changes in the Company's internal control over
financial reporting during the quarterly period ended March 31, 2004 that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
BioLife was involved in a lawsuit against Endocare, Inc., arising out of
Endocare's failure to register 120,022 shares of its stock as part of the
transaction by which the Company sold its cryosurgical equipment assets to
Endocare in a transaction that closed on June 24, 2002. In the lawsuit, the
Company claimed damages of $1,648,935, comprising the proceeds that could have
been realized had Endocare properly registered the Stock within the time frame
set forth in the Registration Rights Agreement entered into between the parties.
Endocare filed an answer and counterclaim, seeking damages of over $5,000,000 as
a result of various alleged breaches by the Company of the Asset Purchase
Agreement entered into between the parties. Trial in this matter began on March
31, 2003 and concluded on April 3, 2003. On October 10, 2003, the State of
Delaware issued a Final Order and Judgment in favor of BioLife in the amount of
$1,648,935 plus prejudgment interest. On February 25, 2004, the Company
collected $1.88 million from Endocare for damages, interest, and legal fees.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements - filed as part of this report
beginning on page 2.
(2) Exhibits
Exhibit
-------
Number Document
------ --------
3.1 Certificate of Incorporation, as amended. (1)
3.2 By-Laws, and amendment, dated March 19, 1990, thereto. (1)
4.1 Specimen of Common Stock Certificate. (1)
10.1 Stock Option Plan, dated July 7, 1988, and amendment,
dated July 19, 1989. (1)
10.2 1998 Stock Option Plan (2)
10.3 Employment Agreement dated July 1, 2002 between the Company
and Robert Van Buskirk (3)
10.4 Employment Agreement dated July 1, 2002 between the Company
and John G. Baust (3)
10.5 Employment Agreement dated November 1, 2002 between the
Company and Alan F. Rich (6)
10.6 Incubator License Agreement, dated the first day of
March 1999, between BioLife Technologies, Inc. (name
subsequently changed to BioLife Solutions, Inc.) and The
Research Foundation of the State University of New York,
and extensions thereto, dated February 23, 2000 and
February 7, 2001 relating to the incubator space at the
State University of New York at Binghamton. (4)
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10.7 Asset Purchase Agreement dated May 26, 2002 (5)
10.8 Research Agreement dated March 15, 2004 between the Company
and CPSI (7)
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002*
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002*
(1) Incorporated by reference to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31,
2000.
(2) Incorporated by reference to the Company's Definitive
Proxy Statement for the special meeting of stockholders
held on December 16, 1998.
(3) Incorporated by reference to the Company's annual report
on Form 10-K for the year ended December 31, 2000.
(4) Incorporated by reference to the Company's quarterly
report on Form 10-QSB for the quarter ended September 30,
2002.
(5) Incorporated by reference to the Company's quarterly
report on Form 8-k filed July 10, 2002.
(6) Incorporated by reference to the Company's annual report
on From 10-KSB for the year ended December 31, 2002.
(7) Incorporated by reference to the Company's annual report
on From 10-KSB for the year ended December 31, 2003.
*Filed herewith
(b) Reports on Form 8-K
Current Report on Form 8-K, filed January 16, 2004, relating to the
Series G Convertible Preferred Stock private placement.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BioLife Solutions, Inc.
-----------------------
(Registrant)
Date: May 14, 2004 By: /s/ John G. Baust
---------------------------------
John G. Baust, PhD
President and Chief Executive Officer
(Principal Executive Officer )
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