UNITED STATES

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


———————

FORM 10-Q

———————


ü

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

 

 ACT OF 1934

For the quarterly period ended: September 30, 2008

or

 

 

 

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

 

 ACT OF 1934

For the transition period from: _____________ to _____________


Commission File Number: 0-18170


———————

BioLife Solutions, Inc.

(Exact name of registrant as specified in its charter)

———————


[biolifesolutions10q001.jpg]


Delaware

94-3076866

(State or other jurisdiction

(I.R.S. Employer

of incorporation or organization)

Identification No.)

3303 Monte Villa Parkway, Suite 310, Bothell, WA  98021

(Address of Principal Executive Office) (Zip Code)

(425) 402-1400

(Registrant’s telephone number, including area code)

———————

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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.

ü

 Yes

 

 No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

 

Large accelerated filer

 

 

 

Accelerated filer

 

 

Non-accelerated filer

 

 (Do not check if a smaller

 

Smaller reporting company

ü

 

 

 

 reporting company)

 

 

 

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

 Yes

ü

 No

 

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  

The registrant had 69,639,854 shares of Common Stock, $0.001 par value per share, outstanding as of October 31, 2008.

 

 




1




BIOLIFE SOLUTIONS, INC.


FORM 10-Q


FOR THE QUARTER ENDED SEPTEMBER 30, 2008


TABLE OF CONTENTS


PART I.  FINANCIAL INFORMATION

Item 1.       Financial Statements

3

Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007

3

Statements of Operations (unaudited) for the three- and nine-month periods ended
September 30, 2008 and 2007

4

Statements of Cash Flows (unaudited) for the three- and nine-month periods ended
September 30, 2008 and 2007

5

Notes to Financial Statements (unaudited)

6

Item 2.       Management’s Discussion and Analysis of Financial Condition and Results of Operations

10

Item 4.       Controls and Procedures

14

PART II.

OTHER INFORMATION

Item 6.       Exhibits

15

SIGNATURES

16




2




PART I.  FINANCIAL INFORMATION

Item 1.

Financial Statements

BioLife Solutions, Inc.

Balance Sheets
(unaudited)

 

September 30,

 

December 31,

 

 

2008

 

2007

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

85,070

 

 

$

56,497

 

Accounts receivable, trade, net of allowance for doubtful accounts of $5,000 at both
September 30, 2008 and December 31, 2007

 

 

362,145

 

 

 

300,505

 

Inventories

 

 

587,726

 

 

 

99,062

 

Prepaid expenses

 

 

133,257

 

 

 

113,514

 

Total current assets

 

 

1,168,198

 

 

 

569,578

 

 

 

 

 

 

 

 

 

 

Property and equipment

 

 

 

 

 

 

 

 

Leasehold improvements

 

 

––

 

 

 

42,448

 

Furniture and computer equipment

 

 

105,418

 

 

 

93,425

 

Manufacturing and other equipment

 

 

210,558

 

 

 

180,197

 

Subtotal

 

 

315,976

 

 

 

316,070

 

Less: Accumulated depreciation and amortization

 

 

(181,582

)

 

 

(203,380

)

Net property and equipment

 

 

134,394

 

 

 

112,690

 

Deferred financing costs, net

 

 

––

 

 

 

43,750

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,302,592

 

 

$

726,018

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity (Deficiency)

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

654,625

 

 

$

97,138

 

Accrued expenses

 

 

265,879

 

 

 

233,012

 

Accrued interest, related parties

 

 

––

 

 

 

107,325

 

Deferred revenue

 

 

109,583

 

 

 

8,333

 

Total current liabilities

 

 

1,030,087

 

 

 

445,808

 

 

 

 

 

 

 

 

 

 

Long term liabilities

 

 

 

 

 

 

 

 

Promissory notes payable, related parties

 

 

4,463,127

 

 

 

2,750,000

 

Accrued interest, related parties

 

 

193,778

 

 

 

––

 

Total liabilities

 

 

5,686,992

 

 

 

3,195,808

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity (deficiency)

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000

 

 

 

 

 

 

 

 

shares authorized, 69,639,854 and 69,606,520 shares issued and outstanding at
September 30, 2008 and December 31, 2007, respectively

 

 

69,640

 

 

 

69,607

 

Additional paid-in capital

 

 

42,184,559

 

 

 

42,128,356

 

Accumulated deficit

 

 

(46,638,599

)

 

 

(44,667,753

)

 

 

 

 

 

 

 

 

 

Total stockholders' equity (deficiency)

 

 

(4,384,400

)

 

 

(2,469,790

)

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity (deficiency)

 

$

1,302,592

 

 

$

726,018

 

See accompanying notes.



3




BioLife Solutions, Inc.

Statements of Operations
(unaudited)


 

 

Three-month Period

Ended September 30,

 

 

Nine-month Period

Ended September 30,

 

 

 

2008

 

 

2007

 

 

2008

 

 

2007

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

         Product sales

 

$

296,620

 

 

$

226,705

 

 

$

869,716

 

 

$

636,043

 

         Licensing revenue

 

 

11,250

 

 

 

13,750

 

 

 

33,750

 

 

 

15,417

 

Total revenue

 

 

307,870

 

 

 

240,455

 

 

 

903,466

 

 

 

651,460

 

Cost of product sales

 

 

133,770

 

 

 

73,958

 

 

 

519,532

 

 

 

250,315

 

     Gross margin

 

 

174,100

 

 

 

166,497

 

 

 

383,934

 

 

 

401,145

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

94,133

 

 

 

79,984

 

 

 

308,813

 

 

 

275,728

 

Sales and marketing

 

 

80,400

 

 

 

170,360

 

 

 

252,900

 

 

 

544,377

 

General and administrative

 

 

481,771

 

 

 

437,275

 

 

 

1,459,731

 

 

 

1,412,257

 

        Manufacturing start-up costs

 

 

106,294

 

 

 

198,491

 

 

 

106,294

 

 

 

198,491

 

Total  operating expenses

 

 

762,598

 

 

 

886,110

 

 

 

2,127,738

 

 

 

2,430,853

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(588,498

)

 

 

(719,613

)

 

 

(1,743,804

)

 

 

(2,029,708

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,052

 

 

 

3,616

 

 

 

5,791

 

 

 

7,607

 

       Other income

 

 

––

 

 

 

97

 

 

 

10,495

 

 

 

1,497

 

Interest expense

 

 

(75,379

)

 

 

(36,324

)

 

 

(199,579

)

 

 

(63,378

)

       Amortization of deferred financing costs

 

 

––

 

 

 

(9,375

)

 

 

(43,750

)

 

 

(21,875

)

Total other income (expenses)

 

 

(74,327

)

 

 

(41,986

)

 

 

(227,043

)

 

 

(76,149

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(662,825

)

 

$

(761,599

)

 

$

(1,970,847

)

 

$

(2,105,857

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.01

)

 

$

(0.01

)

 

$

(0.03

)

 

$

(0.03

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average common shares used to calculate net loss per common share

 

 

69,639,854

 

 

 

69,606,520

 

 

 

69,628,865

 

 

 

69,311,861

 


See accompanying notes.






4




BioLife Solutions, Inc.

Statements of Cash Flows
(unaudited)


  

 

Nine-month Period

Ended September 30,

 

  

 

2008

 

 

2007

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(1,970,847

)

 

$

(2,105,857

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 

Depreciation

 

 

20,722

 

 

 

23,543

 

Amortization of deferred financing costs

 

 

43,750

 

 

 

21,875

 

Share-based compensation expense

 

 

53,903

 

 

 

83,844

 

Change in operating assets and liabilities

 

 

 

 

 

 

 

 

(Increase) Decrease in

 

 

 

 

 

 

 

 

Accounts receivable, trade

 

 

(61,640

)

 

 

(110,999

)

Inventories

 

 

(488,664

)

 

 

(156,019

)

Prepaid expenses and other current assets

 

 

(19,742

)

 

 

(92,422

)

Increase (Decrease) in

 

 

 

 

 

 

 

 

Accounts payable

 

 

557,487

 

 

 

112,015

 

Accrued expenses

 

 

32,867

 

 

 

118,290

 

Accrued interest, related parties

 

 

199,579

 

 

 

58,805

 

Deferred revenue

 

 

101,250

 

 

 

19,583

 

Net cash used in operating activities

 

 

(1,531,335

)

 

 

(2,027,342

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activity

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(42,425

)

 

 

(87,646

)

Net cash used in investing activity

 

 

(42,425

)

 

 

(87,646

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Decrease in restricted cash

 

 

––

 

 

 

190,837

 

Proceeds from promissory notes payable, related parties

 

 

1,600,000

 

 

 

2,750,000

 

Principal payments on note payable

 

 

––

 

 

 

(197,477

)

Proceeds from exercise of options

 

 

2,333

 

 

 

––

 

Collection of stock subscriptions receivable

 

 

––

 

 

 

7,305

 

Net cash provided by financing activities

 

 

1,602,333

 

 

 

2,750,665

 

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

28,573

 

 

 

635,677

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents - beginning of period

 

 

56,497

 

 

 

118,674

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents - end of period

 

$

85,070

 

 

$

754,351

 

Non-cash items:

 

 

 

 

 

 

Transfer of accrued interest to promissory notes payable

 

$

113,127

 

 

$

––

 

Stock issued in consideration for financing fees related to

Promissory notes payable

 

$

––

 

 

$

75,000

 


See accompanying notes.



5




BioLife Solutions, Inc.


Notes to Financial Statements
(unaudited)

1.  Nature of the Business


BioLife Solutions, Inc. ("BioLife” or the “Company”) develops and markets patented biopreservation media products for cells, tissues, and organs. The Company’s proprietary HypoThermosol® and CryoStor platform of hypothermic storage, transport, and cryopreservation media products are marketed to cell therapy companies, pharmaceutical companies, cord blood banks, hair transplant surgeons, and suppliers of cells to the toxicology testing and diagnostics markets.  All of its products are serum-free and protein-free, fully defined, and are manufactured under current Good Manufacturing Practices using only USP or the highest available grade components.  


The discoveries made by the Company’s scientists relate to how cells, tissues, and organs respond to the stress of hypothermic storage, cryopreservation, and the thawing process enabled the formulation of truly innovative biopreservation media products that protect biologic material from preservation related cellular injury, much of which is not apparent immediately post-thaw.   This enabling technology provides significant improvement in post-preservation viability and function of biologic material.  The yield improvement can reduce research, development, and commercialization costs of new cell and tissue based clinical therapies.


2.  Financial Condition


On January 11, 2008, the Company entered into a Secured Convertible Multi-Draw Term Loan Facility Agreement with each of Thomas Girschweiler and Walter Villiger (the “Investors”), pursuant to which each Investor extended to the Company a secured convertible multi-draw term loan facility (the “Facility”) of $2,500,000, which Facility (a) incorporates (i) a refinancing of then existing indebtedness of the Company to the Investor and accrued interest thereon, in the aggregate amount of $1,431,563.30, (ii) a then current advance of $300,000, and (iii) a commitment to advance to the Company, from time to time, additional amounts up to a maximum of $768,436.70, (b) bears interest at the rate of 7% per annum on the principal balance outstanding from time to time, (c) is evidenced by a secured convertible multi-draw term loan note (the “Multi-Draw Term Loan Note”), due and payable, together with accrued interest thereon, the earlier of (i) January 11, 2010, or (ii) an Event of Default (as defined in the Multi-Draw Term Loan Note), (d) if outstanding at the time of any bona fide equity financing of the Company of at least two Million Dollars ($2,000,000) (a “Financing”), at the option of the Investor, may be converted into that number of fully paid and non-assessable shares or units of the equity security(ies) of the Company sold in the Financing (“New Equity Securities”) as is equal to the quotient obtained by dividing the principal amount of the Facility outstanding at the time of the conversion plus accrued interest thereon by 85% of the per share or per unit purchase price of the New Equity Securities, and (e) is secured by all of the Company’s assets.  As of September 30, 2008, the Company, contingent on the approval of the Investors, could access an aggregate of an additional $536,873 in capital under the Multi-Draw Term Loan Facility Agreements.  


On October 20, 2008, each Facility was increased by $2,000,000 to $4,500,000 (an aggregate of $9,000,000). On October 24, 2008, the Company received an additional $600,000 in total from the Investors pursuant to the Facility.  The Company believes that continued access to the Multi-Draw Term Loan Note, in combination with cash generated from operations, will provide sufficient funds through at least the next twelve months. However, the Company would require additional capital in the immediate short term if the Company’s ability to draw on the Multi-Draw Term Loan Note be restricted or terminated. Other factors that would negatively impact the Company’s ability to finance its operations include (i) significant reductions in revenue (ii) increased capital expenditures (iii) significant increases in cost of goods and operating expenses or; (iv) an adverse outcome resulting from current litigation. The Company expects that it may need additional capital to reach a sustainable level of positive cash flow.  Although the Investors who have provided the Multi-Draw Term Loan Note have historically demonstrated a willingness to grant access to the Facility, there is no assurance they will continue to do so in the future.  If the Investors were to become unwilling to provide access to additional funds through the Multi-Draw Term Loan Note, the Company will need to find immediate additional sources of capital and there can be no assurance that such capital would be available at all, or if available, that the terms of such financing would not be dilutive to other stockholders. If the Company is unable to secure additional capital as circumstances require, it may not be able to continue its operations.


These financial statements assume that the Company will 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.



6




3.  Summary of Significant Accounting Policies


Basis of Presentation


The unaudited financial statements have been prepared by the Company, according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted.


In the opinion of management, the accompanying unaudited financial statements for the periods presented reflect all adjustments, which are normal and recurring, necessary to fairly state the financial position, results of operations and cash flows.  These unaudited financial statements should be read in conjunction with the audited financial statements included on Form 10-KSB for the fiscal year ended December 31, 2007 filed with the Securities and Exchange Commission (SEC).


Reclassifications


Certain prior period amounts in the financial statements have been reclassified to conform to current period presentation.  There has been no impact on previously reported net loss or shareholders’ equity.


Recent Accounting Pronouncements


In May 2008, the FASB issued FASB FSP Accounting Principles Board (“APB”) (“FSP APB 14-1”), “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).”  FSP APB 14-1 applies to convertible debt instruments that, by their stated terms, may be settled in cash (or other assets) upon conversion, including partial cash settlement of the conversion option.  FSP APB 14-1 requires bifurcation of the instrument into a debt component that is initially recorded at fair value and an equity component.  The difference between the fair value of the debt component and the initial proceeds from issuance of the instrument is recorded as a component of equity.  The liability component of the debt instrument is accreted to par using the effective yield method; accretion is reported as a component of interest expense.  The equity component is not subsequently re-valued as long as it continues to qualify for equity treatment.  FSP APB 14-1 must be applied retrospectively to previously issued cash-settleable convertible instruments as well as prospectively to newly issued instruments.  FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  Though the Company does not believe FSP APB 14-1 will have an effect on its current financial position, the Company is currently evaluating the requirements of FSP APB 14-1 with respect to its recent convertible debt financing (see Note 2 above) and has not yet determined the impact on the Company’s financial statements.


Manufacturing Start-up Costs


During the third quarter of 2007, as a result of relocating the Company from Owego, NY to Bothell, WA, the Company decided to outsource its manufacturing and entered into a contract with a Contract Manufacturing Organization (“CMO”).  One-time start-up costs related to the outsourcing of its manufacturing were expensed as incurred and amounted to $198,490 for the period ended September 30, 2007.  In the third quarter of 2008, in order to lower its cost of product sales, based on anticipated future sales volume, the Company has decided to transition to internal manufacturing and maintain its relationship with its CMO as a contingency for additional production capacity.  One-time start-up costs related to the transition to internal manufacturing were expensed as incurred and amounted to $106,294 for the period ended September 30, 2008.


4.  Inventories


  

September 30,

2008

  

December 31,

2007

  

Product, Finished Goods

  

$

264,405

  

  

$

89,242

  

Product, Work in Progress

  

 

305,682

  

  

 

––

  

Raw Materials

  

 

17,639

  

  

 

9,820

  

Total Inventory

  

$

587,726

  

  

$

99,062

  


5.  Share-based Compensation


At September 30, 2008 and December 31, 2007, the Company had one active share-based compensation plan, the 1998 Stock Option Plan (as amended through September 28, 2005), which is described more fully in Note 6 of the Company’s Financial Statements included in its 2007 Form 10-KSB. Under Statement of Financial Accounting Standard SFAS 123R, the Company recorded stock compensation expense of $16,743 and $32,527 for the three months ended September 30, 2008 and 2007,



7




respectively.  For the nine month periods ended September 30, 2008 and 2007 the company recorded stock compensation expense of $53,903 and $83,844, respectively.


As of September 30, 2008, the Company had approximately $117,000 of unrecognized compensation expense related to unvested stock options.  The Company expects to recognize this compensation expense over a weighted average period of approximately two years.  


The Company uses the Black-Scholes options-pricing model (Black-Scholes model) to value share-based employee and non-employee director stock option awards.  The determination of fair value of stock-based payment awards using an option-pricing model requires the use of certain estimates and assumptions that affect the reported amount of share-based compensation cost recognized in the Statements of Operations.  Among these are expected term of options, estimated forfeitures, expected volatility of the Company’s stock price, expected dividends and risk-free interest rate.


The fair value of share-based payments made to employees and non-employee directors was estimated on the measurement date using the Black-Scholes model using the following weighted average assumptions:


  

Three-month Period Ended

 September 30,

  

Nine-month Period Ended

September 30,

 

  

2008

  

  

2007

  

2008

  

2007

 

Risk free interest rate

––

  

  

4.60

%

2.67

%

4.70

%

Dividend yield

––

  

  

0.0

%

0.0

%

0.0

%

Expected term (in years)

––

  

  

7

  

7

  

6.3

 

Volatility

––

  

  

76.20

%

73.74

%

74.57

%


A summary of the Company’s stock option activity and related information for the nine months ended September 30, 2008 is as follows: 


 

 

 

 

 

Wgtd.

Avg.

 

 

 

 

 

 

Exercise

 

 

 

Shares

 

 

Price

 

Outstanding at December 31, 2007

 

 

6,844,000

 

 

$

0.12

 

Granted

 

 

450,000

 

 

 

0.05

 

Exercised

 

 

(33,334

)

 

 

0.07

 

Forfeited

 

 

(210,666

)

 

 

0.66

 

Outstanding at September 30, 2008

 

 

7,050,000

 

 

$

0.07

 

Outstanding options vested and

exercisable at September 30, 2008

 

 

4,184,999

 

 

$

0.10

 


The weighted average grant-date fair value of option awards granted was $.07 per share during the three months ended September 30, 2007.  There was no option awards granted during the three months ended September 30, 2008.  The weighted average grant-date fair value of option awards granted was $.04 and $.06 per share during the nine months ended September 30, 2008 and 2007, respectively.  


The total intrinsic value of options exercised, determined as of the date of exercise, during the nine-month period ended September 30, 2008 was $334.



8




Exercise prices for options outstanding at September 30, 2008 are as follows:

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

Weighted

 

Range of

 

 

 

Remaining

 

Average

 

Exercise

 

Number

 

Contractual

 

Exercise

 

Prices

 

Of Shares

 

Life (in years)

 

Price

 

$0.05-$0.07

 

 

2,050,000

 

 

8.19

 

$

0.07

 

$0.08-$0.09

 

 

4,145,000

 

 

8.05

 

$

0.08

 

$0.10-$1.25

 

 

855,000

 

 

7.33

 

$

0.21

 

 

 

 

7,050,000

 

 

7.86

 

$

0.09

 


6.  Net Loss per Common Share


Basic net income (loss) per common share is calculated by dividing the net income (loss) by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding plus dilutive common stock equivalents outstanding during the period.  Common stock equivalents are excluded for the periods ending September 30, 2008 and 2007 as the effect would be anti-dilutive.  Common stock equivalents include stock options, warrants, and convertible debt.


7.  Related Party Transactions


The Company incurred $68,075 and $144,025 in legal fees during the nine months ended September 30, 2008 and 2007, respectively, for services provided by a law firm in which a director and stockholder of the Company is a partner.  Pursuant to a consulting agreement disclosed on the Company’s 8-K filing dated November 19, 2007, the Company incurred $90,000 and $30,000 in consulting fees during the nine months ended September 30, 2008 and 2007, respectively, for services provided by a director and stockholder of the Company.


Included in accounts payable and accrued expenses is $25,123 and $32,678 due to related parties for services rendered as of September 30, 2008 and December 31, 2007, respectively.  


8.  Subsequent Event


On November 4, 2008, the Company signed an amended 5-year lease to gain 5,798 square feet of additional clean room space for its manufacturing floor in a facility adjacent to its corporate office facility leased in Bothell, WA at an initial rental rate of $14,495 per month for the new space.  Included in this amendment is the exercise of the renewal option for its current office and laboratory space to make the lease for such space coterminous with the new facility 5-year lease period.  In July 2007, the Company originally signed a 4-year lease, commencing August 1, 2007, for 4,366 square feet of office and laboratory space in Bothell, WA at an initial rental rate of $6,367 per month.  



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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The statements contained in this Quarterly Report on Form 10-Q, including under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding the Company management’s expectations, hopes, beliefs, intentions or strategies regarding the future. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “plan” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this Quarterly Report on Form 10-Q is based on its current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting it will be those that the Company anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include those factors described in greater detail in the risk factors disclosed in our Form 10-KSB for the fiscal year ended December 31, 2007 filed with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those anticipated in these forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.


Overview


Management’s discussion and analysis provides additional insight into BioLife Solutions, Inc. and is provided as a supplement to, and should be read in conjunction with, its annual report on Form 10-KSB for the fiscal year ended December 31, 2007 filed with the Securities and Exchange Commission.


We develop and market patented biopreservation media products for cells, tissues, and organs. Our proprietary HypoThermosol® and CryoStor platform of hypothermic storage, transport, and cryopreservation media products are marketed to cell therapy companies, pharmaceutical companies, cord blood banks, hair transplant surgeons, and suppliers of cells to the toxicology testing and diagnostics markets.  All of our products are serum-free and protein-free, fully defined, and are manufactured under current Good Manufacturing Practices using USP or the highest available grade components.  


The discoveries made by our scientists related to how cells, tissues, and organs respond to the stress of hypothermic storage, cryopreservation, and the thawing process enabled the formulation of truly innovative biopreservation media products that protect biologic material from preservation related cellular injury, much of which is not apparent immediately post-thaw. Our enabling technology provides significant improvement in post-preservation viability and function of biologic material. This yield improvement can reduce research, development, and commercialization costs of new cell and tissue based clinical therapies.


Critical Accounting Policies and Significant Judgments and Estimates


Management’s discussion and analysis of the Company’s financial condition and results of operations is based on its financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting. The preparation of financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and reported revenues and expenses during the reporting periods presented. On an ongoing basis, it evaluates estimates, including those related to share-based compensation and expense accruals. The Company bases its estimates on historical experience and on other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. The Company’s critical accounting policies and estimates have not changed significantly from those policies and estimates disclosed under the heading “Critical Accounting Policies and Estimates” under Item 6 in the Company’s Form 10-KSB for the fiscal year ended December 31, 2007, filed with the Securities and Exchange Commission.



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Results of Operations

Three- and Nine-Month Periods Ended September 30, 2008 compared to the Three- and Nine-Month Periods Ended September 30, 2007


Revenue


Product sales for the three months ended September 30, 2008 increased $69,915, or 31%, to $296,620, compared to $226,705 for the three months ended September 30, 2007. Product sales for the nine months ended September 30, 2008 increased $233,673, or 37%, to $869,716, compared to $636,043 for the nine months ended September 30, 2007.  This increase in revenue was primarily due to higher product sales to existing customers and the acquisition of new customers in the cell therapy and cord blood markets. Additionally, the Company had revenue for the nine months ended September 30, 2008 of $33,750, compared to $15,417 for the nine months ended September 30, 2007 related to three license agreements.


Cost of Product Sales


Cost of product sales for the three months ended September 30, 2008 increased by $59,812, or 81%, to $133,770, compared to $73,958 for the three months ended September 30, 2007, resulting in a gross margin as a percentage of revenue of 57% as compared to 69% for the same period in 2007. Cost of product sales for the nine months ended September 30, 2008 increased by $269,217, or 108%, to $519,532, compared to $250,315 for the nine months ended September 30, 2007, resulting in a gross margin as a percentage of revenue of 43% as compared to 62% for the same period in 2007.  The increase in cost of product sales is primarily attributable to the higher production costs at the company’s CMO compared to the prior periods when products were manufactured internally.  To reduce cost of product sales, and enhance its production flexibility, the Company has decided to transition to internal manufacturing and maintain its relationship with its contract manufacturer as a contingency for additional production capacity.  


Research and Development Expenses


Expenses relating to research and development for the three months ended September 30, 2008 increased $14,149, or 18%, to $94,133, compared to $79,984 for the three months ended September 30, 2007.  The increase was primarily due to an increase in headcount costs of $21,000 and ongoing research project costs of $18,000, offset by a decrease in Intellectual Property (“IP”) related legal expenses of $8,000, and travel and related expenses of $17,000.


For the nine months ended September 30, 2008 research and development expenses increased $33,085, or 12%, to $308,813, compared to $275,728 for the nine months ended September 30, 2007.  The increase was due to year over year increase in IP related legal expenses and an increase in headcount costs.


Sales and Marketing Expenses


For the three months ended September 30, 2008, sales and marketing expenses decreased $89,960, or 53%, to $80,400, compared to $170,360 for the three months ended September 30, 2007.  The decrease is primarily due to lower compensation and benefits expense of $47,000, a decrease of $14,000 in travel and related expenses, and a decrease of $17,000 in consultant fees, all of which are associated with lower headcount in sales and marketing.


For the nine months ended September 30, 2008, sales and marketing expenses decreased $291,477, or 54%, to $252,900, compared to $544,377 for the nine months ended September 30, 2007.  The decrease is due to lower headcount and travel related costs.


General and Administrative Expenses


For the three months ended September 30, 2008, general and administrative expenses increased $44,496, or 10%, to $481,771, compared to $437,275 for the three months ended September 30, 2007.  The increase is primarily due to an increase of $65,000 in legal fees associated with ongoing litigation, and an increase of $31,000 in professional and consulting services.  Offsetting decreases include $25,000 in travel and related costs, $10,000 in facility lease and related office expenses, and a $16,000 decrease in stock-based compensation associated with the decrease in headcount and fully vested stock option grants.


For the nine months ended September 30, 2008, general and administrative expenses increased $47,474, or 3%, to $1,459,731, compared to $1,412,257 for the nine months ended September 30, 2007.  The increase is primarily due to higher legal fees associated with ongoing litigation, offset by a decrease in facility lease cost.



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Manufacturing Start-up Costs


For the three and nine months ended September 30, 2008, manufacturing start-up costs were $106,294, compared to $198,491 for the three and nine months ended September 30, 2007.  During the third quarter of 2007, as a result of relocating the Company from Owego, NY to Bothell, WA, the Company decided to outsource its manufacturing and entered into a contract with a Contract Manufacturing Organization (“CMO”). In the third quarter of 2008, to reduce cost of product sales and enhance its production flexibility, the Company has decided to transition to internal manufacturing and maintain its relationship with its CMO as a contingency for additional production capacity. These expenses are expected to trend higher in the fourth quarter as preparation in bringing the manufacturing process back in-house continue. One-time start-up costs related to these efforts were expensed as incurred.


Interest Expense


Interest expense increased to $75,379 for the three months ended September 30, 2008 from $36,324 for the three months ended September 30, 2007. The increase is due to a higher average debt balance.


For the nine months ended September 30, 2008, interest expense increased to $199,579, compared to $63,378 for the same period ended September 30, 2007. The increase is due to a higher average debt balance.


Operating Expenses and Net Loss


For the three months ended September 30, 2008, operating expenses (excluding product costs) decreased $123,512, or 14%, to $762,598, compared to $886,110 for the three months ended September 30, 2007.  The Company reported a net loss of ($662,825) for the three months ended September 30, 2008, compared to a net loss of ($761,599) for the three months ended September 30, 2007.  


For the nine months ended September 30, 2008, operating expenses (excluding product costs) decreased $303,115, or 12%, to $2,127,738, compared to $2,430,853 for the nine months ended September 30, 2007.  The Company reported a net loss of ($1,970,847) for the nine months ended September 30, 2008, compared to the net loss of ($2,105,857) for the nine months ended September 30, 2007.


Liquidity and Capital Resources


As of September 30, 2008, the Company had $85,070 in cash and cash equivalents.  To date, the Company has financed its operations primarily through proceeds from debt instruments including the Secured Convertible Multi-draw Term Loan Facility described in detail below.


On January 11, 2008, the Company entered into a Secured Convertible Multi-Draw Term Loan Facility Agreement with each of Thomas Girschweiler and Walter Villiger (the “Investors”), pursuant to which each Investor extended to the Company a secured convertible multi-draw term loan facility (the “Facility”) of $2,500,000, which Facility (a) incorporates (i) a refinancing of then existing indebtedness of the Company to the Investor and accrued interest thereon, in the aggregate amount of $1,431,563.30, (ii) a then current advance of $300,000, and (iii) a commitment to advance to the Company, from time to time, additional amounts up to a maximum of $768,436.70, (b) bears interest at the rate of 7% per annum on the principal balance outstanding from time to time, (c) is evidenced by a secured convertible multi-draw term loan note (the “Multi-Draw Term Loan Note”), due and payable, together with accrued interest thereon, the earlier of (i) January 11, 2010, or (ii) an Event of Default (as defined in the Multi-Draw Term Loan Note), (d) if outstanding at the time of any bona fide equity financing of the Company of at least two Million Dollars ($2,000,000) (a “Financing”), at the option of the Investor, may be converted into that number of fully paid and non-assessable shares or units of the equity security(ies) of the Company sold in the Financing (“New Equity Securities”) as is equal to the quotient obtained by dividing the principal amount of the Facility outstanding at the time of the conversion plus accrued interest thereon by 85% of the per share or per unit purchase price of the New Equity Securities, and (e) is secured by all of the Company’s assets.  As of September 30, 2008, the Company, contingent on the approval of the Investors, could access an aggregate of an additional $536,873 in capital under the Multi-Draw Term Loan Facility Agreements.  On October 20, 2008, each Facility was increased by $2,000,000 to $4,500,000 (an aggregate of $9,000,000).  On October 24, 2008, the Company received an additional $600,000 in total from the Investors pursuant to the Multi-Draw Term Loan Facility.


Net Cash Used in Operating Activities


For the nine month period ended September 30, 2008, net cash used in operating activities was $(1,531,335) as compared to net cash used in operating activities of $(2,027,342) for the nine month period ended September 30, 2007.  The $496,007 decrease in



12




net cash used by operations primarily is reflected in the lower net loss for the quarter, partially offset by non-cash operating expenses including depreciation, amortization of deferred financing costs, share-based compensation, and changes in operating assets and liabilities.


Net Cash Provided by Investing Activities


Net cash used in investing activities consist of purchases of property and equipment.  For the nine month period ended September 30, 2008, the aggregate investment in property and equipment was $(42,425), compared to $(87,646) for the nine month period ended September 30, 2007.


Net Cash Provided by Financing Activities


Net cash provided by financing activities totaled $1,602,333 for the nine month period ended September 30, 2008, which resulted primarily from the draws taken on the Multi-Draw Term Loan Note due to two shareholders.  Net cash provided by financing activities totaled $2,750,665 for the nine month period ended September 30, 2007 resulting from the issuance of promissory notes.


Operating Capital and Capital Expenditure Requirements


The Company believes that continued access to the Multi-Draw Term Loan Note, in combination with cash generated from operations, will provide sufficient funds for at least the next twelve months.  However, the Company would require additional capital in the immediate short term if the Company’s ability to draw on the Multi-Draw Term Loan Note be restricted or terminated. Other factors that would negatively impact the Company’s ability to finance its operations include (i) significant reductions in revenue (ii) increased capital expenditures (iii) significant increases in cost of goods and operating expenses or; (iv) an adverse outcome resulting from current litigation. The Company expects that it may need additional capital to reach a sustainable level of positive cash flow. Although the Investors who have provided the Multi-Draw Term Loan Note have historically demonstrated a willingness to grant access to the Facility, there is no assurance they will continue to do so in the future.  If the Investors were to become unwilling to provide access to additional funds through the Multi-Draw Term Loan Note, the Company will need to find immediate additional sources of capital and there can be no assurance that such capital would be available at all, or if available, that the terms of such financing would not be dilutive to other stockholders. If the Company is unable to secure additional capital, as circumstances require, it may not be able to continue its operations.


These financial statements assume that the Company will 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.


Contractual Obligations


The Company did not enter into any significant contractual obligations during the nine month period ended September 30, 2008.  It had no significant contractual obligations not fully recorded on our Balance Sheets or fully disclosed in the Notes to our Financial Statements in Form 10-KSB for the fiscal year ended December 31, 2007, filed with the Securities and Exchange Commission. The Company did not have any off-balance sheet arrangements as defined in S-K 303(a)(4)(ii). 


Subsequent Event


On November 4, 2008, the Company signed an amended 5-year lease to gain 5,798 square feet of additional clean room space for its manufacturing floor in a facility adjacent to its corporate office facility leased in Bothell, WA at an initial rental rate of $14,495 per month for the new space.  Included in this amendment is the exercise of the renewal option for its current office and laboratory space to make the lease for such space coterminous with the new facility 5-year lease period.  In July 2007, the Company originally signed a 4-year lease, commencing August 1, 2007, for 4,366 square feet of office and laboratory space in Bothell, WA at an initial rental rate of $6,367 per month.  



13





Item 4.

Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure that it is able to collect the information required to disclose in the reports that are filed with the SEC, and to record, process, summarize and disclose this information within the time periods specified in the rules of the SEC. Based on an evaluation of its disclosure controls and procedures as of the end of the period covered by this report conducted by its management, with the participation of the Company’s Chief Executive/Chief Financial Officer, the Chief Executive/Chief Financial Officer believes that these controls and procedures are effective to ensure that it is able to collect, process and disclose the information required to disclose in the reports that are filed with the SEC within the required time periods.


There were no changes in the Company’s internal control over financial reporting during the third quarter of fiscal 2008 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.



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PART II: Other Information

 

Item 6.

Exhibits

See accompanying Index to Exhibits included after the signature page of this report for a list of exhibits filed or furnished with this report.



15




SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


 Dated: November 10, 2008

 

 

 

 

 

 

 

 

 

BIOLIFE SOLUTIONS, INC.

 

 

 

 

 

 

 

/s/ MICHAEL RICE

 

 

 

 

Michael Rice

 

 

 

 

President and Chief Executive Officer

 

 

 

 

(Principal Executive and Financial Officer)



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BioLife Solutions, Inc.


INDEX TO EXHIBITS


Exhibit

No.

 

Description

 

 

 

10

 

First Amendment to Lease, dated the 4th day of November, 2008, between the Company and Monte Villa Farms, LLC

 

 

 

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




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