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 Commission file number
September 30, 2004 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 NOVEMBER 15, 2004.
Transitional Small Business Disclosure Format (check one). Yes ___ No _X_
BIOLIFE SOLUTIONS, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2004
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements:
Unaudited Balance Sheet at September 30, 2004.................. 2
Unaudited Statements of Operations for the three and
nine month periods ended September 30, 2004
and September 30, 2003....................................... 3
Unaudited Statements of Cash Flows for the nine month
periods ended September 30, 2004 and September 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................................................ 14-15
Signatures......................................................... 16
Certifications.................................................. 17-19
PART I
FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
BIOLIFE SOLUTIONS, INC.
BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30,
2004
----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 571,792
Receivables 115,699
Inventories 83,282
Prepaid expenses and other current assets 27,800
---------------
TOTAL CURRENT ASSETS 798,573
---------------
PROPERTY AND EQUIPMENT
Leasehold improvements 39,283
Furniture and computer equipment 39,760
Manufacturing and other equipment 203,066
---------------
TOTAL 282,109
Less: Accumulated depreciation and amortization (141,271)
---------------
NET PROPERTY AND EQUIPMENT 140,838
TOTAL ASSETS $ 939,411
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 99,307
Accrued expenses 125,501
---------------
TOTAL CURRENT LIABILITIES 224,808
---------------
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 (39,960,995)
--------------
TOTAL STOCKHOLDERS' EQUITY 714,603
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 939,411
==============
See notes to financial statements
2
BIOLIFE SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2004 2003
---------------- --------------- ---------------- ----------------
REVENUE
Grant revenue $ - $ 114,873 $ 38,936 $ 241,126
Facilities fee - related party 35,651 - 72,617 -
Management fee - related party 19,608 - 39,939 -
Seminar Fees 1,400 - 2,475 -
Consulting revenue 14,000 16,000 86,000 153,360
Product sales 84,215 43,650 225,305 121,085
---------------- -------------- ------------- --------------
TOTAL REVENUE 154,874 174,523 465,272 515,571
---------------- -------------- ------------- --------------
OPERATING EXPENSES
Research and development 71,429 245,199 217,031 583,163
Sales and marketing 56,401 65,241 215,623 149,909
Product sales 5,949 3,598 5,232 12,932
General and administrative 174,557 413,304 687,597 1,148,326
---------------- -------------- ------------- --------------
TOTAL EXPENSES 308,336 727,342 1,125,483 1,894,330
---------------- -------------- ------------- --------------
OPERATING LOSS (153,462) (552,819) (660,211) (1,378,759)
---------------- -------------- ------------- --------------
OTHER INCOME (EXPENSE)
Interest income (expense) 3,284 (16,250) 18,692 (35,764)
Other income - - - 3,200
---------------- ------------- ------------- --------------
TOTAL OTHER INCOME (EXPENSE) 3,284 (16,250) 18,692 (32,564)
---------------- ------------- ------------- --------------
NET LOSS $ (150,178) $ (569,069) $ (641,519) $ (1,411,323)
================ ============= ============= ==============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE:
TOTAL BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (0.01) $ (0.05) $ (0.05) $ (0.11)
=============== ============= ============= ==============
Basic and diluted weighted average common
shares used to compute net loss per
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)
NINE MONTHS ENDED
SEPTEMBER 30,
2004 2003
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (641,519) $ (1,411,323)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES
Depreciation 43,953 34,507
Amortization of loan financing costs 106,408 102,995
Issuance of warrants and options for consulting
and professional services - 138,512
CHANGE IN OPERATING NET ASSETS AND LIABILITIES
(INCREASE) DECREASE IN
Receivables 1,791,097 (22,686)
Inventories (43,477) (1,502)
Prepaid expenses and other current assets (27,800) 7,852
INCREASE (DECREASE) IN
Accounts payable (464,051) 358,627
Increase in bank overdraft - 11,903
Accrued expenses (213,407) 336,745
--------------- ---------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 551,204 (444,370)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (61,791) -
--------------- ---------------
NET CASH USED BY INVESTING ACTIVITIES (61,791) -
--------------- ---------------
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 DECREASE IN CASH (216,112) (64,370)
CASH - BEGINNING OF PERIOD 787,904 67,118
--------------- ---------------
CASH - END OF PERIOD $ 571,792 $ 2,748
=============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 81,597 $ -
=============== ===============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Warrants issued for payment of loan financing costs $ - $ 211,713
=============== ===============
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 September 30, 2004, and the Statements of Operations for
the three month and nine month periods ended September 30, 2004 and 2003 and
Statements of Cash Flows for the nine month periods ended September 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 September 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 nine month periods ended
September 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
it to pay a majority of its outstanding debts and liabilities. At September 30,
2004, the Company had stockholders' equity of approximately $715,000 and a
working capital surplus of approximately $574,000. Although monthly product
sales remained consistent through the third quarter of 2004, the Company must
continue to focus on product sales growth as the current level of product sales
is not sufficient to meet its operating needs.
The Company believes it has sufficient funds to continue operations for at least
the next twelve months. 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 $33,311 of finished product and $49,971 of
manufacturing materials at September 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 nine
month periods ended September 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2004 2003
Net loss as reported $ (150,178) $ (569,069) $ (641,519) $ (1,411,323)
Compensation expense based on fair value,
net of related tax effects (17,805) (26,921) (53,415) (80,763)
------------ ----------- ---------- ------------
Pro forma net loss $ (167,983) $ (595,990) $ (694,934) $ (1,492,086)
============ =========== =========== ============
Basic and diluted net loss per share as reported $ (0.01) $ (0.05) $ (0.05) $ (0.11)
============ =========== =========== ============
Pro forma $ (0.01) $ (0.05) $ (0.06) $ (0.12)
============ =========== =========== ============
This disclosure is in accordance with Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure.
G. RECLASSIFICATIONS
Certain September 2003 amounts have been reclassified to conform to the
September 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 has developed dozens of accounts that now
purchase and rely on 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 third quarter of 2004 were approximately 129% higher than the average
quarterly product sales in 2003. Product sales in the third quarter of 2004 were
only down 2% from the second quarter in what is generally regarded as a slow
sales period by the Company. Through the first three quarters of 2004, the
Company has generated approximately $225,000 in product sales as compared to
approximately $121,000 for the first 3 quarters of 2003. Although our product
sales are not yet able to sustain the Company, this 86% increase from 2003
suggests that the Company is headed in the right direction.
8
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30,
2004 AND 2003
REVENUE
Revenue for the quarter ended September 30, 2004 declined $19,649, or 11%, to
$154,874, compared to $174,523 for the quarter ended September 30, 2003. The
shift in focus toward product sales resulted in a 93% increase in product sales
in the third quarter of 2004 as compared to the third quarter of 2003. While
product sales rose, consulting revenue remained fairly consistent at $14,000 for
the third quarter of 2004 as compared to $16,000 for the third quarter of 2003.
In addition, the shift in focus toward product sales and away from research and
development activities resulted in no grant revenue for the Company during the
third quarter of 2004 as compared to $114,873 in grant revenue for the third
quarter of 2003. For the quarter ended September 30, 2004, the Company received
management and facilities fees totaling $55,259 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 nine month period ended September 30, 2004 decreased $50,299, or
10%, to $465,272, compared to $515,571 for the nine month period ended September
30, 2003. The shift in focus toward product sales resulted in an 86% increase in
product sales for the nine month period ended September 30, 2004, compared to
the nine month period ended September 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 84% decline in grant revenue, or $202,190, from the nine month
period ended September 30, 2003. For the nine month period ended September 30,
2004, the Company received management and facilities fees totaling $112,555 as a
result of the research agreement between the Company and CPSI.
COST OF PRODUCT SALES
For the quarter ended September 30, 2004, the cost of product sales was $5,949
as compared to $3,598 for the quarter ended September 30, 2003. For the nine
month period ended September 30, 2004, the cost of product sales was $5,232 as
compared to $12,932 for the nine month period ending September 30, 2003. This
disparity 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 September
30, 2004 declined $173,770, or 71%, from the previous quarter ended September
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 $145,871 during the quarter ended September 30, 2003 to $16,250
for the quarter ended September 30, 2004.
9
Expenses relating to research and development for the nine month period ended
September 30, 2004 declined $366,132 or 63% from the previous nine month period
ended September 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 $327,284 during the nine month period ended September
30, 2003 to $87,323 for the nine month period ended September 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.
SALES AND MARKETING
For the quarter ended September 30, 2004, sales and marketing expenses decreased
$8,840, or 14%, to $56,401, compared to $65,241 for the quarter ended September
30, 2003. In the third quarter of 2003, additional sales salaries in the amount
of $17,335 were recorded as a result of compensatory warrants being issued
during the quarter to sales personnel. Sales and marketing activities not
related to salaries such as travel, trade show attendance fees, and advertising
expenses increased $6,223, or 83%, for the third quarter of 2004 as compared to
the third quarter of 2003.
For the nine month period ended September 30, 2004, sales and marketing expenses
increased $65,714, or 44%, to $215,623, compared to $149,909 for the nine month
period ended September 30, 2003. The increase in sales and marketing expense was
due to several factors related to increasing sales activity including
advertising, communication expenses, and trade show attendance fees.
GENERAL AND ADMINISTRATIVE EXPENSE
For the quarter ended September 30, 2004, general and administrative expense
decreased $238,747, or 58%, to $174,557, compared to $413,304 for the quarter
ended September 30, 2003. The Company incurred amortization expense of $52,928
in the third 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 third quarter of 2004. Accounting fees decreased
$22,133 for the quarter ended September 30, 2004 as compared to the quarter
ended September 30, 2003 as the Company was required to perform a grant related
audit in 2003. In addition, tax preparation fees were recorded in the second
quarter of 2004 while tax preparation fees were recorded in the third quarter of
2003 resulting in the variation between the two periods. The Company hired a
controller to replace a previously outsourced controller during the first
quarter of 2004 and reduced consulting fees by $36,858 during the third quarter
of 2004 as compared to the third quarter of 2003. For the quarter ended
September 30, 2004, legal expenses decreased $37,584, or 83% to $7,603, compared
to $45,187 for the quarter ended September 30, 2003. In 2003, the Company
incurred legal expenses related to the Endocare lawsuit. The Company was also
able to reduce other general and administrative expenses during the third
quarter of 2004 by reducing operating expenditures.
For the nine month period ended September 30, 2004, general and administrative
expense decreased $460,729, or 40% to $687,597, compared to $1,148,326 for the
nine month period ended September 30, 2003. For the nine month period ended
September 30, 2004, the Company incurred amortization expenses from loan
financing costs in the amount of $106,408, whereas for the nine month period
ended September 30, 2003, amortization expense totaled $102,995. The Company was
able to reduce accounting fees by approximately $36,000 for the nine months
ended September 30, 2004 as compared to the nine months ended September 30,
2003. The Company was able to achieve a savings of approximately $16,000 on
commercial insurance during the third quarter of 2004 as compared to the third
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 approximately $92,000 during the third quarter of 2004 as compared to
the third quarter of 2003. Legal fees totaled $100,379 for the nine month period
ended September 30, 2004 as compared to $170,216 for the nine month period ended
September 30, 2003. This reduction in legal fees was primarily due to legal fees
incurred in 2003 related to the Endocare lawsuit. In addition to expense
reductions as mentioned above, the Company was able to negotiate and write off
$57,844 in liabilities 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.
10
OPERATING EXPENSES AND NET INCOME
For the quarter ended September 30, 2004, operating expenses decreased $419,006,
or 58% to $308,336, compared to $727,342 for the quarter ended September 30,
2003. The Company reported a net loss of $(150,178) for the quarter ended
September 30, 2004, compared to a net loss of $(569,069) for the quarter ended
September 30, 2003.
For the nine month period ended September 30, 2004, operating expenses decreased
$768,847, or 41% to $1,125,483, compared to $1,894,330 for the nine month period
ended September 30, 2003. The Company reported a net loss of $(641,519) for the
nine month period ended September 30, 2004, compared to a net loss of
$(1,411,323) for the nine month period ended September 30, 2003.
CASH AND CASH EQUIVALENTS
At September 30, 2004, the Company had cash and cash equivalents of $571,792,
compared to cash and cash equivalents of $787,904 at December 31, 2003. At
September 30, 2004, the Company had a working capital surplus of $573,765,
compared to a working capital surplus of $1,233,123 at December 31, 2003. The
decrease in the Company's cash and working capital position compared to December
31, 2003 was due to the Company's inability to sustain operations from sales in
2004.
LIQUIDITY AND CAPITAL RESOURCES
During the third quarter of 2004, the Company generated approximately $84,000 in
product sales, nearly equal to the product sales for the second quarter, its
highest quarter to date. The Company also realized approximately $14,000 in
consulting revenue. While the second and third quarter product sales appear
promising, the Company has been unable to support its operations solely from
revenue generated from product sales. In February 2004, the Company collected
$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 nine month period ended September 30, 2004, net cash provided by
operations was $551,204 as compared to net cash used by operating activities of
$444,370 for the nine month period ended September 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, accrued expenses, and accrued salaries. Trade receivables (net)
increased to $115,699 from $67,352 at December 31, 2003 as product sales
activity increased during the first three quarters of 2004. Inventory increased
to $83,282 from $1,502 at December 31, 2003 as raw materials were purchased and
product inventory was created to support product sales activity.
Net cash used in investing activities totaled $61,791 for the nine month period
ended September 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 nine month
period ended September 30, 2003.
Net cash used by financing activities totaled $705,525 for the nine month period
ended September 30, 2004 as all outstanding balances to noteholders were paid in
full, compared to net cash provided of $380,000 for the nine month period ended
September 30, 2003. This resulted from new $400,000 notes and payment of $20,000
on outstanding notes during the period.
11
The Company believes it has sufficient funds to continue operations for at least
the next twelve months. 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 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, income taxes, 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
$2,250.
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 Agreement has continued on a month to month basis since its
expiration in July 2004 and the Company pays the University $1,005 per month.
All inventions conceived as a result of these research and development efforts
belong to the Company.
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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. Also, the design of any
control procedure 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,
controls 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 September 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
(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
John G. Baust (3)
10.4 Employment Agreement dated November 1, 2002 between the Company
and Alan F. Rich (6)
10.5 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)
10.6 Asset Purchase Agreement dated May 26, 2002 (5)
10.7 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*
14
(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.
(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
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: November 15, 2004 By: /s/ John G. Baust
---------------------------------
John G. Baust, PhD
President and Chief Executive Officer
(Principal Executive Officer)