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 June 30, 2004 Commission file number 0-18170
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BIOLIFE SOLUTIONS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 94-3076866
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(State of Incorporation) (IRS Employer I.D. Number)
171 Front Street
Owego, NY 13827
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(Address of principal executive offices)
Issuer's telephone number, including area code: (607) 687-4487
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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 AUGUST 11, 2004.
Transitional Small Business Disclosure Format (check one). Yes ___ No _X_
BIOLIFE SOLUTIONS, INC.
FORM 10-QSB
QUARTER ENDED JUNE 30, 2004
INDEX
Page
No.
Part I. Financial Information
Item 1. Financial Statements:
Unaudited Balance Sheet at June 30, 2004 ..................................................... 2
Unaudited Statements of Operations for the three and six month periods ended June 30,
2004 and June 30, 2003 ....................................................................... 3
Unaudited Statements of Cash Flows for the six month periods ended June 30, 2004 and
June 30, 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 6. Exhibits and Reports on Form 8-K .......................................................... 14-15
Signatures ........................................................................................ 16
Certifications .................................................................................... 17-19
1
PART I
FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
BIOLIFE SOLUTIONS, INC.
BALANCE SHEET
(UNAUDITED)
JUNE 30,
2004
--------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 724,344
Receivables 105,341
Inventories 75,383
Prepaid expenses and other current assets 27,800
--------------------
TOTAL CURRENT ASSETS 932,868
--------------------
PROPERTY AND EQUIPMENT
Leasehold improvements 39,283
Furniture and computer equipment 39,761
Manufacturing and other equipment 203,066
--------------------
TOTAL 282,110
Less: Accumulated depreciation and amortization (124,893)
--------------------
NET PROPERTY AND EQUIPMENT 157,217
--------------------
TOTAL ASSETS $ 1,090,085
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 115,931
Accrued expenses 109,373
--------------------
TOTAL CURRENT LIABILITIES 225,304
--------------------
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 1
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 (39,810,817)
--------------------
TOTAL STOCKHOLDERS' EQUITY 864,781
--------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,090,085
====================
See notes to financial statements
2
BIOLIFE SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
------------------------------------ ------------------------------------
REVENUE
Grant revenue $ 11,650 $ 25,898 $ 38,936 $ 126,253
Facilities fee - related party 22,179 - 36,965 -
Management fee - related party 12,198 - 20,331 -
Seminar Fees 1,075 - 1,075 -
Consulting revenue 13,000 36,000 72,000 137,360
Product sales 86,145 50,870 141,091 77,435
----------------- --------------- -------------- ---------------
TOTAL REVENUE 146,247 112,768 310,398 341,048
----------------- --------------- -------------- ---------------
OPERATING EXPENSES
Research and development 86,425 161,622 145,602 337,963
Sales and marketing 87,823 45,621 159,222 84,669
Product sales 8,845 8,733 (718) 9,334
General and administrative 200,733 377,999 513,041 735,023
----------------- --------------- -------------- ---------------
TOTAL EXPENSES 383,826 593,975 817,147 1,166,988
----------------- --------------- -------------- ---------------
OPERATING LOSS (237,579) (481,207) (506,749) (825,940)
----------------- --------------- -------------- ---------------
OTHER INCOME (EXPENSE)
Interest income (expense) 4,085 (13,264) 15,408 (19,514)
Other income - - - 3,200
----------------- --------------- -------------- ---------------
TOTAL OTHER INCOME (EXPENSE) 4,085 (13,264) 15,408 (16,314)
----------------- --------------- -------------- ---------------
LOSS BEFORE BENEFIT FOR TAXES (233,494) (494,471) (491,341) (842,254)
(BENEFIT) PROVISION FOR INCOME TAXES - - - -
----------------- --------------- -------------- ---------------
NET LOSS $(233,494) $(494,471) $(491,341) $(842,254)
================= =============== ============== ===============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE:
TOTAL BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (0.02) $ (0.04) $ (0.04) $ (0.07)
================= =============== ============== ===============
Basic and diluted weighted average common
shares used to compute net loss
per share 12,413,209 12,413,209 12,413,209 12,413,209
================= =============== ============== ===============
See notes to financial statements
3
BIOLIFE SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
2004 2003
------------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (491,341) $(842,254)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES
Depreciation 27,574 23,091
Amortization of loan financing costs 106,408 50,066
CHANGE IN OPERATING NET ASSETS AND LIABILITIES
(INCREASE) DECREASE IN
Accounts receivable 1,801,454 (32,470)
Inventories (35,578) (3,003)
Prepaid and other current assets (27,800) 7,852
INCREASE (DECREASE) IN
Accounts payable (447,425) 271,238
Accrued expenses (73,074) 7,621
Accrued salaries (156,461) 86,028
------------------- -----------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 703,757 (431,831)
------------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (61,793) -
------------------- -----------------
NET CASH USED BY INVESTING ACTIVITIES (61,793) -
------------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - 400,000
Principal payments on notes payable (705,525) (20,000)
------------------- -----------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (705,525) 380,000
------------------- -----------------
NET INCREASE (DECREASE) IN CASH (63,561) (51,831)
CASH - BEGINNING OF PERIOD 787,905 67,118
------------------- -----------------
CASH - END OF PERIOD $ 724,344 $ 15,287
=================== =================
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 June 30, 2004, and the Statements of Operations for the
three month and six month periods ended June 30, 2004 and 2003 and Statements of
Cash Flows for the six-month periods ended June 30, 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 June 30, 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 and six month periods ended June
30, 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
the Company to pay a majority of its outstanding debts and liabilities. At June
30, 2004, the Company had stockholders' equity of approximately $865,000 and a
working capital surplus of approximately $707,000. Although the second 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 had 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 approximately $1.88 million from Endocare for damages, interest, and
legal fees.
D. INVENTORIES
Inventories consisted of $26,312 of finished product and $49,071 of
manufacturing materials at June 30, 2004.
6
E. 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 issuable common shares were not
included in the diluted earnings per share amounts for the three month and six
month periods ended June 30, 2004 and 2003 as their effect would have been
anti-dilutive.
F. 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
Net Income (Loss) as reported $ (233,494) $ (494,471) $ (491,341) $ (842,254)
Compensation expense based on fair value,
net of related tax effects (17,805) (26,921) (35,610) (53,842)
-------------- --------------- -------------- ---------------
Pro forma net loss $ (251,299) $ (521,392) $(526,951) $ (896,096)
============== =============== ============== ===============
Basic and diluted net loss per share as reported $ (0.02) $ (0.04) $ (0.04) $ (0.07)
============== =============== ============== ===============
Pro forma $ (0.02) $ (0.04) $ (0.04) $ (0.07)
============== =============== ============== ===============
This disclosure is in accordance with Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure.
G. RECLASSIFICATIONS
Certain June 2003 amounts have been reclassified to conform to the June 2004
presentation. These reclassifications had no effect on operations.
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.
BioLife has pioneered the next generation of cryopreservation 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 cryopreservation 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 February of 2004, BioLife
was able to pay the majority of its debt and liabilities 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 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 its extensive
knowledge base in the field of cryopreservation solutions. The first part is
based on the broad-based need for improved quality of cryopreservation 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 cryopreservation processes of potential clients. Under these
contracts, the client defines specific cryopreservation 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 the first quarter of 2004 were the highest ever at that time: approximately
50% higher than the average quarterly numbers for 2003. Product sales in the
second quarter of 2004 surpassed the first quarter by 57% as the Company reached
record product sales of $86,145. During June 2004, the Company achieved product
sales of more than $32,000, its highest monthly sales total ever. These numbers,
while moving in the right direction, are modest and only provide a base from
which we plan to grow.
8
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS
ENDED JUNE 30, 2004 AND 2003
REVENUE
Revenue for the quarter ended June 30, 2004 increased $33,479, or 30%, to
$146,247, compared to $112,768 for the quarter ended June 30, 2003. The shift in
focus toward product sales resulted in a 69% increase in product sales in the
second quarter of 2004 as compared to the second quarter of 2003. While product
sales rose, consulting revenue declined as a result of the scheduled completion
of contracts with consulting clients. In addition, the shift in focus toward
product sales resulted in a 55% decline in grant revenue, or $14,248, from the
second quarter of 2003. For the quarter ended June 30, 2004, the Company
received management and facilities fees totaling $34,377 as a result of the
research agreement between the Company and Cell Preservation Services, Inc.
(CPSI), pursuant to which the Company receives facilities and management fees
from CPSI in exchange for the use of BioLife facilities and management services
in connection with the research performed on behalf of CPSI. CPSI is a company
formed by Dr. John M. Baust, a former Biolife employee and the son of Dr. John
G. Baust, President of BioLife.
Revenue for the six month period ended June 30, 2004 decreased $30,650, or 9%,
to $310,398, compared to $341,048 for the six month period ended June 30, 2003.
The shift in focus toward product sales resulted in an 82% increase in product
sales for the six month period ended June 30, 2004, compared to the six month
period ended June 30, 2003. While product sales rose, consulting revenue
declined as a result of the scheduled completion of contracts with consulting
clients. In addition, the shift in focus toward product sales resulted in a 69%
decline in grant revenue, or $87,317, from the six month period ended June 30,
2003. For the six month period ended June 30, 2004, the Company received
management and facilities fees totaling $57,296 as a result of the research
agreement between the Company and CPSI.
COST OF PRODUCT SALES
For the quarter ended June 30, 2004, the cost of product sales was $8,845 as
compared to $8,733 for the quarter ended June 30, 2003. For the six month period
ended June 30, 2004, the cost of product sales was ($718) as compared to $9,334
for the six month period ending June 30, 2003. 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 first quarter of 2004.
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 audit.
RESEARCH AND DEVELOPMENT
Expenses relating to research and development for the quarter ended June 30,
2004 declined $75,197, or 47%, from the previous quarter ended June 30, 2003.
This decrease in research and development costs was in large part due to the
shift of grant related research activities to CPSI pursuant to the research
agreement. Three former employees of BioLife became CPSI employees during the
first quarter of 2004 to perform grant related research and development work.
This resulted in a reduction in research and development salaries from $92,453
during the quarter ended June 30, 2003 to $16,250 for the quarter ended June 30,
2004.
Expenses relating to research and development for the six month period ended
June 30, 2004 declined $192,361 or 57% from the previous six month period ended
June 30, 2003. This decrease in research and development costs was in large part
due to the shift of grant related research activities to CPSI pursuant to the
research agreement. Three former employees of BioLife became CPSI employees
during the first quarter of 2004 to perform grant related research and
development work. This resulted in a reduction in research and development
salaries from $181,413 during the six month period ended June 30, 2003 to
$71,073 for the six month period ended June 30, 2004. In addition, the Company
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 June 30, 2004, sales and marketing expenses increased
$42,202, or 93%, to $87,823, compared to $45,621 for the quarter ended June 30,
2003. The increase in sales and marketing expense was due to several factors,
including travel and trade show related expenses incurred in the second quarter
of 2004 in an effort to increase Company and product exposure. Travel and trade
show related expenses totaled $14,638 during the quarter ended June 30, 2004 as
compared to $7,930 during the quarter ended June 30, 2003. In addition, trade
show attendance fees of $1,860 were incurred in 2004. Medical insurance for the
quarter ended June 30, 2004 totaled $3,900. There were no medical insurance
expenses recorded during the second quarter of 2003. Expenses related to medical
insurance were posted to a non-sales account in 2003, which caused this
discrepancy. In addition, commissions and auto allowances accrued in 2002, 2003,
and 2004 totaling $25,540 that were previously not booked, were booked in the
second quarter of 2004.
For the six month period ended June 30, 2004, sales and marketing expenses
increased $74,553, or 88%, to $159,222, compared to $84,669 for the six month
period ended June 30, 2003. The increase in sales and marketing expense was due
to several factors as mentioned in the previous paragraph.
GENERAL AND ADMINISTRATIVE EXPENSE
For the quarter ended June 30, 2004, general and administrative expense
decreased $177,266, or 47%, to $200,733, compared to $377,999 for the quarter
ended June 30, 2003. The Company incurred amortization expense of $36,746 in the
second quarter of 2003 related to capitalized loan financing costs. All notes
were paid during the first quarter of 2004 and the remaining loan financing
costs were written off in the first quarter. There was no amortization expense
incurred during the second quarter of 2004. Accounting fees decreased $13,167
for the quarter ended June 30, 2004 as compared to the quarter ended June 30,
2003 as audit fees were recorded during the first quarter in 2004 and in the
second quarter of 2003. The Company hired a controller to replace a previously
outsourced controller during the first quarter of 2004 and reduced consulting
fees by $33,510 during the second quarter of 2004 as compared to the second
quarter of 2003. For the quarter ended June 30, 2004, legal expenses decreased
$37,472, or 61% to $24,214, compared to $61,687 for the quarter ended June 30,
2003. In 2003, the Company incurred additional legal expenses related to the
Endocare lawsuit. The Company was also able to reduce other general and
administrative expenses during the second quarter of 2004 by reducing operating
expenditures.
For the six month period ended June 30, 2004, general and administrative expense
decreased $221,982, or 30% to $513,041, compared to $735,023 for the six month
period ended June 30, 2003. In addition to expense reductions as mentioned in
the previous paragraph, the Company was able to negotiate and write off $57,844
in liabilities during the first quarter of 2004. 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 during the first quarter of
2004. For the first quarter of 2003, amortization of these loan financing costs
totaled $25,754.
OPERATING EXPENSES AND NET INCOME
For the quarter ended June 30, 2004, operating expenses decreased $210,149, or
35% to $383,826, compared to $593,975 for the quarter ended June 30, 2003. The
Company reported a net loss of $(233,494) for the quarter ended June 30, 2004,
compared to a net loss of ($494,471) for the quarter ended June 30, 2003.
10
For the six month period ended June 30, 2004, operating expenses decreased
$349,841, or 30% to $817,147, compared to $1,166,988 for the six month period
ended June 30, 2003. The Company reported a net loss of $(491,341) for the six
month period ended June 30, 2004, compared to a net loss of ($842,254) for the
six month period ended June 30, 2003.
CASH AND CASH EQUIVALENTS
At June 30, 2004, the Company had cash and cash equivalents of $724,344,
compared to cash and cash equivalents of $15,287 at June 30, 2003. At June 30,
2004, the Company had a working capital surplus of $707,564, compared to a
working capital deficit of $(1,319,415) at June 30, 2003. The increase in the
Company's cash and working capital position compared to June 30, 2003 was due to
financing activities during 2003 as well as the settlement of the Endocare
lawsuit in the amount of $1.88 million.
LIQUIDITY AND CAPITAL RESOURCES
During the second quarter of 2004, the Company generated approximately $86,000
in product sales, the highest product sales quarter since inception. First
quarter sales were approximately $55,000 and represented the previous high
product sales quarter. The second quarter exceeded first quarter sales by
approximately $31,000, a 57% increase. The Company also realized approximately
$13,000 in consulting revenue. While the consecutive increasing product sales
quarters in the first and second quarters appear promising, the Company has been
unable to support its operations solely from revenue generated from product
sales. In February 2004, the Company collected approximately $1.88 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 six month period ended June 30, 2004, net cash provided by operations
was $703,757 as compared to net cash used by operating activities of $431,831
for the six month period ended June 30, 2003. The net cash provided from
operating activities resulted primarily from the collection of the Endocare
settlement and was partially offset by the reduction in accounts payable, loans
payable, accrued expenses, and accrued salaries. Trade receivables (net)
increased to $105,341 from $34,851 at December 31, 2003 as product sales during
the first two quarters and the Company earned management fees and facilities
fees from the agreement with CPSI. Inventory increased to $75,383 from $39,805
at December 31, 2003 as raw materials were purchased to support product sales
activity.
Net cash used in investing activities totaled $61,793 for the six month period
ended June 30, 2004 as the Company purchased new equipment and made leasehold
improvements to support the new manufacturing facility and product sales as
opposed to no net cash used in investing activities for the six month period
ended June 30, 2003.
Net cash used by financing activities totaled $705,525 for the six month period
ended June 30, 2004 as all outstanding balances to noteholders were paid in
full, compared to net cash provided of $380,000 for the six month period ended
June 30, 2003. This resulted from new $400,000 notes and payment of $20,000 on
outstanding notes during the period.
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.
11
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results of
operations are based upon its financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. 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 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.
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.
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 are $6,200 per month. The building in which the Company will lease
space is partially owned by the Company's president.
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.
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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 quarter ended June 30, 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 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)
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-KSB for the year ended December 31, 2000.
14
(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
None
15
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: August 11, 2004 By: /s/ John G. Baust
-------------------------------------
John G. Baust, PhD
President and Chief Executive Officer
(Principal Executive Officer )
16