UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------------
FORM 10-QSB
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006
|_| TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
----------------------------------------
0-18170
(Commission File No.)
BIOLIFE SOLUTIONS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 94-3076866
(State or Other Jurisdiction of Incorporation) (IRS Employer I.D. Number)
171 FRONT STREET
OWEGO, NEW YORK 13827
(Address of principal executive offices including zip code)
(607) 687-4487
(Registrant's telephone number, including area code)
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 |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12g-2 of the Exchange Act). Yes |_| No |X|
68,773,188 SHARES OF BIOLIFE SOLUTIONS, INC. COMMON STOCK, PAR VALUE $.001 PER
SHARE, WERE OUTSTANDING AS OF AUGUST 14, 2006
Transitional Small Business Disclosure Format (check one). Yes |_| No |X|.
BIOLIFE SOLUTIONS, INC.
FORM 10-QSB
QUARTER ENDED JUNE 30, 2006
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements:
Unaudited Balance Sheet at June 30, 2006.......................................................... 2
Unaudited Statements of Operations for the three and six month periods ended June 30, 2006 and
June 30, 2005................................................................................. 3
Unaudited Statements of Cash Flows for the six month periods ended June 30, 2006 and June 30,
2005.............................................................................................. 4
Notes to Financial Statements..................................................................... 5-9
Item 2. Management's Discussion and Analysis........................................................... 10-14
Item 3. Controls and Procedures........................................................................ 14-15
Part II. Other Information
Item 6. Exhibits....................................................................................... 16
Signatures............................................................................................. 17
Index to Exhibits...................................................................................... 18
Certifications......................................................................................... 19-20
1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOLIFE SOLUTIONS, INC.
BALANCE SHEET
(UNAUDITED)
JUNE 30,
2006
--------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 629,935
Receivables, net of allowance for doubtful accounts 114,341
Inventories 79,198
Prepaid expenses and other current assets 21,316
------------
TOTAL CURRENT ASSETS 844,790
------------
PROPERTY AND EQUIPMENT
Leasehold improvements 59,264
Furniture and computer equipment 32,245
Manufacturing and other equipment 125,852
------------
TOTAL 217,361
Less: Accumulated depreciation and amortization (167,737)
------------
NET PROPERTY AND EQUIPMENT 49,624
------------
TOTAL ASSETS $ 894,414
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
LDC Loan - current maturities $ 29,168
Accounts payable 117,110
Accounts payable - related parties 10,882
Accrued expenses 2,358
Accrued compensation 14,750
------------
TOTAL CURRENT LIABILITIES 174,268
------------
LONG TERM LIABILITIES
LDC Loan - less current maturities above
182,711
------------
TOTAL LIABILITIES 356,979
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 100,000,000 shares
authorized, 68,773,188 shares issued and outstanding 68,773
Additional paid-in capital 41,876,929
Accumulated deficit (41,382,303)
------------
563,399
Stock subscriptions receivable (25,964)
------------
TOTAL STOCKHOLDERS' EQUITY 537,435
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 894,414
============
See notes to financial statements
2
BIOLIFE SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2006 2005 2006 2005
----------------- ------------------ ---------------- --- -----------------
REVENUE
Product sales $ 156,318 $ 101,754 $ 303,363 $ 189,117
Facilities fee - related party -- 20,863 -- 41,725
Management fee - related party -- 11,475 -- 22,950
------------ ------------ ------------ ------------
TOTAL REVENUE 156,318 134,092 303,363 253,792
------------ ------------ ------------ ------------
OPERATING EXPENSES
Product sales 92,052 36,212 173,271 84,325
Research and development 14,740 1,553 19,020 12,884
Sales and marketing 66,484 9,742 104,351 33,798
General and administrative 428,854 217,393 661,653 419,152
------------ ------------ ------------ ------------
TOTAL EXPENSES 602,130 264,900 958,295 550,159
------------ ------------ ------------ ------------
OPERATING LOSS (445,812) (130,808) (654,932) (296,367)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (46,501) -- (49,296) --
Other income 2,985 2,042 3,886 4,824
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (43,516) 2,042 (45,410) 4,824
------------ ------------ ------------ ------------
NET LOSS $ (489,328) $ (128,766) $ (700,342) $ (291,543)
============ ============ ============ ============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE:
TOTAL BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (0.01) $ (0.01) $ (0.02) $ (0.02)
============ ============ ============ ============
Basic and diluted weighted average
common shares used to compute net
loss per share 60,721,762 12,413,209 36,700,935 12,413,209
============ ============ ============ ============
See notes to financial statements
3
BIOLIFE SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
2006 2005
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(700,342) $(291,543)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES
Depreciation 26,173 32,069
Loss on disposal of property and equipment 3,273 --
Stock-based compensation expense 202,468 --
CHANGE IN OPERATING NET ASSETS AND LIABILITIES
(INCREASE) DECREASE IN
Accounts receivable (37,998) 34,574
Inventories 44,215 (61,826)
Prepaid and other current assets (21,316) (22,067)
INCREASE (DECREASE) IN
Accounts payable 105,863 53,481
Accounts payable - related parties 2,153 --
Accrued expenses (43,378) (1,320)
Accrued compensation 10,952 (73,039)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (407,937) (329,671)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (16,816) (12,622)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (16,816) (12,622)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable (14,048) --
Receipts from exercise of options and warrants 883,641 --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 869,593 --
--------- ---------
NET INCREASE (DECREASE) IN CASH 444,840 (342,293)
CASH - BEGINNING OF PERIOD 185,095 531,684
--------- ---------
CASH - END OF PERIOD $ 629,935 $ 189,391
========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
In connection with stock options exercised during the quarter ended June 30,
2006, liabilities totaling $113,187 were forgiven by employees as partial
payment for their common stock. In addition, the company granted stock
subscription loans to employees totaling $30,264 to assist in exercising their
options.
See notes to financial statements
4
BIOLIFE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
A. GENERAL
Incorporated in 1998 in the State of Delaware as a wholly owned subsidiary of
Cryomedical Sciences, Inc. ("Cryomedical"), BioLife Solutions, Inc. ("BioLife"
or the "Company") develops, manufactures and markets low temperature
technologies for use in preserving and prolonging the viability of cellular and
genetic material for use in cell therapy and tissue engineering. The Company's
patented HypoThermosol(R) platform technology is used to provide customized
preservation solutions designed to significantly prolong cell, tissue and organ
viability. These solutions, in turn, could improve clinical outcomes for new and
existing cell and tissue therapy applications, as well as for organ
transplantation. The Company currently markets its HypoThermosol(R) line of
solutions directly to companies and labs engaged in pre-clinical research, and
to academic institutions.
In May 2002, Cryomedical implemented a restructuring and recapitalization
program designed to shift its focus away from cryosurgery toward addressing
preservation and transportation needs in the biomedical marketplace. On June 25,
2002 the Company completed the sale of its cryosurgery product line and related
intellectual property assets to Irvine, CA-based Endocare Inc., a public
company. In the transaction, the Company transferred ownership of all of its
cryosurgical installed base, inventory, and related intellectual property, in
exchange for $2.2 million in cash and 120,022 shares of Endocare restricted
common stock. In conjunction with the sale of Cryomedical's cryosurgical assets,
Cryomedical's Board of Directors also approved merging BioLife into Cryomedical
and changing its name to BioLife Solutions, Inc. In September 2002, Cryomedical
changed its name to BioLife Solutions, Inc. and began to trade under the new
ticker symbol, "BLFS" on the OTCBB. Subsequent to the merger, the Company ceased
to have any subsidiaries.
The Balance Sheet as of June 30, 2006, the Statements of Operations for the
three and six month periods ended June 30, 2006 and 2005 and Statements of Cash
Flows for the six month periods ended June 30, 2006 and 2005 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, 2006, 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,
2005.
The results of operations for the three and six month periods ended June 30,
2006 are not necessarily indicative of the operating results anticipated for the
full year.
B. FINANCIAL CONDITION
At June 30, 2006, the Company had stockholders' equity of approximately $563,000
and a working capital surplus of approximately $670,000. The Company has been
unable to generate sufficient income from operations to meet its operating
needs. This raises doubt about the Company's ability to continue as a going
concern.
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.
5
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 nor to amounts and classification of liabilities that may be necessary
should the Company be unable to continue as a going concern.
C. INVENTORIES
Inventories consist of $58,167 of finished product and $21,031 of manufacturing
materials at June 30, 2006.
The Company has a policy of segregating from its unexpired inventory its
preservation solutions inventory that is near expiration or has expired. During
June 2006 the Company suffered a loss related to the expired inventory and has
submitted an insurance claim. The Company will record this gain contingency if,
and when realized.
D. STOCKHOLDERS' EQUITY
In March 2006, in order to secure much needed capital, the Board of Directors
approved a plan to raise additional capital from the holders of its outstanding
warrants and stock options at a reduced price of $0.04 per share, in order to
(a) prevent further dilution by the issuance of additional securities to
outsiders, and (b) to restructure the capitalization of the Company. The
offering was completed on May 1, 2006 and the Company was able to raise $883,641
through (a) the exercise of warrants to purchase 23,022,783 shares of the
Company's Common Stock at $0.04, and (b) the exercise of stock options to
purchase 2,547,000 shares of the Company's Common Stock at $0.04. As a result,
12,000 shares of the Company's Series F Preferred Stock were converted to
4,800,000 shares of Common Stock and 55.125 shares of the Company's Series G
Preferred Shares were converted to 17,226,563 shares of Common Stock. After the
conversion, the company terminated all designations of Series F and G Preferred
Shares. In addition, on May 1, 2006, the Company declared, effective as of
December 31, 2005, $507,808 and $217,181 in accumulated dividends payable on the
Series F preferred stock and Series G preferred stock, respectively, which
dividends were paid in common stock of the Company on May 1, 2006. The total
number of shares paid in connection with such dividends was 8,763,633. After the
payment of such dividends, the issuance of shares of common stock in connection
with the conversion of the Series F preferred stock and Series G preferred and
the aforementioned exercise of options and warrants, the Company had 68,773,188
shares of common stock issued and outstanding.
At June 30, 2006 there were options to purchase 3,519,000 shares of Company
stock outstanding, 1,089,000 of which were exercisable, with exercise prices
ranging from $0.08 to $2.50 per share. At June 30, 2006 there were warrants to
purchase 4,244,075 shares of Company stock outstanding, all of which were
exercisable, with exercise prices ranging from $0.08 to $2.65 per share.
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 operations by the weighted average number of shares
outstanding, including potentially dilutive securities such as preferred stock,
stock options and warrants. Potential common shares were not included in the
diluted earnings per share amounts for the three and six month periods ended
June 30, 2006 and 2005 as their effect would have been anti-dilutive.
F. STOCK-BASED COMPENSATION
In December 2004, the FASB issued SFAS No. 123(R) (revised 2004) "Share-Based
Payment." This statement replaces SFAS No. 123, "Accounting for Stock-Based
Compensation," and supersedes Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees." This statement requires that the
cost resulting from all share-based payment transactions be recognized in the
financial statements. Pro forma disclosure is no longer an alternative. This
statement establishes fair value as the measurement objective in accounting for
share-based payment arrangements and requires all entities to apply a
fair-value-based measurement method in accounting for share-based payment
transactions with employees. This statement uses the terms compensation and
payment in their broadest senses to refer to the consideration paid for goods or
services, regardless of whether the supplier is an employee.
The Company adopted SFAS No. 123(R) effective January 1, 2006 and is recognizing
the cost of stock-based compensation, consisting of stock options, using the
"Modified Prospective Application" transition method whereby the cost of new
awards and awards modified, repurchased or cancelled after January 1, 2006 and
the portion of awards for which the requisite service has not been rendered
(unvested awards) that are outstanding as of January 1, 2006, as the requisite
service is rendered on or after the effective date, January 1, 2006. Under the
modified prospective application transition method, no restatement of previously
issued financial statements is required. Compensation expense is measured and
recognized beginning in 2006 as follows:
AWARDS GRANTED AFTER DECEMBER 31, 2005 - Awards are measured at their fair value
at date of grant. The resulting compensation expense is recognized in the
Statement of Operations ratably over the vesting period of the award.
AWARDS GRANTED PRIOR TO JANUARY 1, 2006 - Awards were measured at their fair
value at the date of original grant. Compensation expense associated with the
unvested portion of these options at January 1, 2006 is recognized in the
Statement of Operations ratably over the remaining vesting period. Compensation
expense associated with options granted prior to January 1, 2006 totaled $23,708
for the three months ended June 30, 2006 and $47,416 for the six months ended
June 30, 2006. No similar expense was charged against income in the prior
periods as the Company had elected to apply the provisions of APB No. 25 to
those periods as permitted by SFAS No. 123.
For all grants issued after December 31, 2005 the amount of recognized
compensation expense is adjusted based upon an estimated forfeiture rate which
is derived from historical data.
For the three and six month periods ended June 30, 2005, the intrinsic value
based method of accounting for stock options prescribed by APB No. 25 was
applied. Accordingly, no compensation expense was recognized for these stock
options since all options granted had an exercise price equal to the market
value of the underlying stock on the grant date.
7
If compensation expense had been recognized based on the estimate of the fair
value of each option granted in accordance with the provisions of SFAS No. 123
as amended by SFAS No. 148, net loss would have been increased to the following
pro forma amount as follows:
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2005 JUNE 30, 2005
----------------------- -----------------------
Net loss as reported $(128,766) $(291,543)
Compensation expense based on fair value,
net of related tax effects (17,805) (35,610)
--------- ---------
Pro forma net loss $(146,571) $(327,153)
========= =========
Basic and diluted net loss per share as reported $ (0.01) $ (0.02)
========= =========
Pro forma $ (0.01) $ (0.03)
========= =========
Pro forma compensation expense recognized under SFAS No. 123 does not consider
estimated forfeitures.
G. RECLASSIFICATIONS
Certain June 2005 amounts have been reclassified to conform to the June 2006
presentation. The reclassifications had no material effect on operations.
H. SUBSEQUENT EVENTS
On July 26, 2006, John G. Baust, who served until such date as President and
Chief Executive Officer of the Company relinquished such position to become
Chairman of the Board of Directors and Chief Scientific Officer of the Company
and to focus on product development. Dr. Baust entered into a new employment
agreement with the Company, pursuant to which (a) he is employed by the Company
for an initial term of one (1) year, which term shall automatically renew for
additional one (1) year periods, unless not less than 90 days prior to the
commencement of any such one (1) year period the Company notifies Dr. Baust, in
writing, that the term of the agreement shall not be extended, (b) he will
receive a base salary of $20,000 per month through January 26, 2007, and
thereafter $10,000 per month, and shall be entitled to annual bonuses of up to
50% of his base salary based upon the achievement of specific milestones to be
accomplished by the Company for the ensuing year, (c) in the event he leaves the
employ of the Company (voluntarily or involuntarily) within three (3) months
after a Change of Control, the Company shall continue to pay his base salary for
a period of 24 consecutive months, and (d) in the event his employment is
terminated by the Company without cause, the Company shall continue to pay him
his base salary through the end of the then current term of the agreement and
any bonus to which he might be entitled through the end of the quarter during
which such termination takes effect.
Additionally, on July 26, 2006, Michael Rice was named as President and Chief
Executive Officer of the Company, effective as of August 7, 2006. Mr. Rice has
entered into an employment agreement with the Company, commencing August 7,
2006, pursuant to which (a) he is employed by the Company for an initial term of
one (1) year, which term shall automatically renew for successive one (1) year
periods in the event either party does not send the other a "termination notice"
not less than ninety (90) days prior to the expiration of the initial term, or
any subsequent term, (b) he will receive a base salary of $200,000, with such
increases as may be determined from time to time by the Board of Directors, and
will be eligible for quarterly bonus payments equal to $25,000 per calendar
quarter based on certain key objectives which will be determined by the Board,
(c) he will be granted options to purchase 1,500,000 shares of the Company's
Common Stock, which options will be exercisable at the fair market value of the
Company's Common Stock on the date of grant and will vest over a period of three
(3) years, and (d) in the event his employment is terminated by the Company
Without Cause or by Mr. Rice for Good Reason, he will be entitled to continued
payment of his base salary for one (1) year after the date of termination, or,
if termination by him for Good Reason is on account of a "Change in Control,"
eighteen (18) months after the effective date of the "Change in Control" event.
8
Pursuant to his employment agreement, upon joining the Company on August 7,
2006, Mr. Rice will be nominated and elected as a director of the Company. Mr.
Rice will not serve on any committee as the Board does not have any committees.
Other than the covenant in his employment agreement to nominate and elect him as
a director of the Company, there was no arrangement or understanding between Mr.
Rice and any other person, pursuant to which Mr. Rice is to be elected as a
director.
There are no family relationships between Mr. Rice and any of the directors or
executive officers of the Company. There have been no transactions during the
past two (2) years between Mr. Rice (or any member of his immediate family) and
the Company.
9
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 preservation solutions designed to
maintain the viability and health of cellular matter and tissues during
freezing, transportation and storage. Based on the Company's proprietary,
bio-packaging technology and a patented understanding of the mechanism of
cellular damage and death, these products enable the biotechnology and medical
community to address a growing problem that exists today. The expanding practice
of cell and gene therapy has created a need for products that ensure the
biological viability of mammalian cell and tissue material during transportation
and storage. The Company believes that the HypoThermosol(R), CryoStor and
GelStor products it is selling today are a significant step forward in meeting
these needs.
The Company's line of preservation solutions is composed of complex synthetic,
aqueous solutions containing, in part, minerals and other elements found in
human blood, which are necessary to maintain fluids and chemical balances
throughout the body at near freezing temperatures. The solutions preserve cells
and tissue in low temperature environments for extended periods after removal of
the cells through minimally invasive biopsy or surgical extraction, as well as
in shipping the propagated material for the application of cell or gene therapy
or tissue engineering. BioLife has entered into research agreements with several
emerging biotechnology companies engaged in the research and commercialization
of cell and gene therapy technology and has received several government research
grants in partnership with academic institutions to conduct basic research,
which could lead to further commercialization of technology to preserve human
cells, tissues and organs.
The Company currently markets its HypoThermosol(R), CryoStor and GelStor line of
solutions to companies and labs engaged in pre-clinical research, and to
academic institutions.
RESULTS OF OPERATIONS (THREE AND SIX MONTH PERIOD ENDED JUNE 30, 2006 COMPARED
TO THE THREE AND SIX MONTH PERIOD ENDED JUNE 30, 2005)
REVENUE
Revenue for the quarter ended June 30, 2006 increased $22,226, or 17%, to
$156,318, compared to $134,092 for the quarter ended June 30, 2005. The shift in
focus toward product sales resulted in a 54% increase in revenue from product
sales in the second quarter of 2006 as compared to the second quarter of 2005.
In 2004, the Company elected to discontinue engaging directly in Small Business
Innovative Research ("SBIR") grants and entered into a research agreement with
Cell Preservation Services, Inc. ("CPSI") to outsource to CPSI all BioLife
research funded through SBIR grants. In addition to shifting R&D related
expenses to CPSI, BioLife received facilities and management fees from CPSI in
exchange for the use of BioLife facilities and management services in connection
with the research performed in 2005. In the second quarter of 2005, BioLife had
revenues of $20,863 and $11,475 for facilities fees and management fees,
respectively. BioLife earned no facilities or management fees in the second
quarter of 2006 as CPSI engaged in no grant related research activity during
this period.
Revenue for the six month period ended June 30, 2006 increased $49,571, or 20%,
to $303,363, compared to $253,792 for the six month period ended June 30, 2005.
The shift in focus toward product sales resulted in a 60% increase in revenue
from product sales for the six month period ended June 30, 2006 as compared to
the six month period ended June 30, 2005. During the six month period ended June
30, 2005, BioLife had revenues of $41,725 and $22,950 for facilities fees and
management fees, respectively. BioLife earned no facilities or management fees
during the six month period ended June 30, 2006 as CPSI engaged in no grant
related research during this period.
10
COST OF PRODUCT SALES
Cost of product sales for the quarter ended June 30, 2006 increased $55,840, or
154%, to $92,052, compared to $36,212 for the quarter ended June 30, 2005. Cost
of product sales for the six month period ended June 30, 2006 increased $88,946,
or 105%, to $173,271, compared to $84,325 for the six month period ended June
30, 2005. These increases are primarily the result of increased production
costs, most of which were associated with the increase in product sales.
RESEARCH AND DEVELOPMENT EXPENSES
Expenses relating to research and development for the quarter ended June 30,
2006 increased $13,187, or 849%, to $14,740, compared to $1,553 for the quarter
ended June 30, 2005. Expenses relating to research and development for the six
month period ended June 30, 2006 increased $6,136, or 48%, to $19,020, compared
to $12,884 for the six month period ended June 30, 2005. This increase was due
to the addition of an employee to perform research and development work during
the second quarter of 2006.
SALES AND MARKETING EXPENSES
For the quarter ended June 30, 2006, sales and marketing expenses increased
$56,742, or 582%, to $66,484, compared to $9,742 for the quarter ended June 30,
2005. Sales and marketing expenses for the six month period ended June 30, 2006
increased $70,553, or 209%, to $104,351, compared to $33,798 for the six month
period ended June 30, 2005. The increase in sales and marketing expense was due
to the increased sales and marketing activities in 2006 such as tradeshows,
advertising, travel, and supplies as well as the addition of two employees
during the second quarter of 2006.
GENERAL AND ADMINISTRATIVE EXPENSES
For the quarter ended June 30, 2006, general and administrative expenses
increased $211,461, or 97%, to $428,854, compared to $217,393 for the quarter
ended June 30, 2005. Notable increases in general and administration expenses
from the second quarter of 2005 to the second quarter of 2006 include an
increase in travel expenses totaling approximately $59,000. This increase
resulted primarily from allowances based on travel expenditures made which were
granted to two employees, including the Chief Executive Officer. The Company
also recorded stock-based compensation expense totaling approximately $135,000
in the second quarter of 2006. In addition, facilities expenses increased
approximately $8,000 from the second quarter of 2005 to the second quarter of
2006. These increases were partially offset by a decrease in equipment rental
fees totaling approximately $5,000 from the second quarter of 2005 to the second
quarter of 2006 as several of the Company's equipment leases expired and more
cost effective solutions were implemented.
General and administrative expenses for the six month period ended June 30, 2006
increased $242,501, or 58%, to $661,653, compared to $419,152 for the six month
period ended June 30, 2005. Notable increases in general and administration
expenses include an increase in travel expenses for the six month period ended
June 30, 2006 totaling approximately $59,000 when compared to the six month
period ended June 30, 2005. This increase resulted primarily from allowances
based on travel expenditures made which were granted to two employees, including
the Chief Executive Officer. The Company also recorded stock-based compensation
expense totaling approximately $158,000 for the six month period ended June 30,
2006. In addition, facilities expenses for the six month period ended June 30,
2006 increased approximately $12,000 when compared to the six month period ended
June 30, 2005. These increases were partially offset by a decrease in equipment
rental fees for the six month period ended June 30, 2006 totaling approximately
$9,000 when compared to the six month period ended June 30, 2005 as several of
the Company's equipment leases expired and more cost effective solutions were
implemented.
11
INTEREST EXPENSE
For the quarter ended June 30, 2006, interest expense was $46,501. For the six
month period ended June 30, 2006, interest expense was $49,296. There was no
interest expense for the three and six month periods ended June 30, 2005. These
increases are primarily the result of $44,000 in interest recorded as a result
of modification of stock warrants which were originally issued in connection
with promissory notes.
OPERATING EXPENSES AND NET LOSS
For the quarter ended June 30, 2006, operating expenses (excluding product
costs) increased $281,390, or 123%, to $510,078, compared to $228,688 for the
quarter ended June 30, 2005. The Company reported a net loss of ($489,328) for
the quarter ended June 30, 2006, compared to a net loss of ($128,766) for the
quarter ended June 30, 2005.
For the six month period ended June 30, 2006, operating expenses (excluding
product costs) increased $319,190, or 69%, to $785,024, compared to $465,834 for
the six month period ended June 30, 2005. The Company reported a net loss of
($700,342) for the six month period ended June 30, 2006, compared to a net loss
of ($291,543) for the six month period ended June 30, 2005.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2006, the Company had cash and cash equivalents of $629,935,
compared to cash and cash equivalents of $189,391 at June 30, 2005. At June 30,
2006, the Company had a working capital surplus of $670,522, compared to a
working capital surplus of $220,862 at June 30, 2005.
During the second quarter of 2006, the Company generated approximately $156,000
in product sales, the highest product sales quarter since the Company began to
focus on product sales. This represents a 6% increase over the previous high
product sales quarter (first quarter of 2006) of $147,045. While the increasing
product sales appear promising, the Company has been unable to support its
operations solely from revenue generated from product sales.
In September 2005, the Company secured a loan from the Tioga County LDC in the
amount of $230,500 to support its working capital needs and enhance production
capabilities to support the distribution agreement with VWR International. The
loan is a 7 year note with an annual interest rate of 5% requiring monthly
payments of $3,258.
During the six month period ended June 30, 2006, net cash used by operating
activities was approximately $408,000, compared to net cash used by operating
activities of approximately $330,000 for the six month period ended June 30,
2005. The use of cash is indicative of the Company's lack of sufficient sales to
support the operations.
During the six month period ended June 30, 2006, net cash used by investing
activities was approximately $16,800, compared to net cash used by investing
activities of approximately $12,600 for the six month period ended June 30,
2005. The use of cash resulted from purchases of property and equipment to
support the manufacturing facility.
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During the six month period ended June 30, 2006, net cash provided by financing
activities was approximately $870,000 resulting from refinancing activities
(described below) less approximately $14,000 in principal payments on the Tioga
County LDC loan. There was no cash provided by financing activities for the
quarter ended June 30, 2005.
In March 2006, in order to secure much needed capital, the Board of Directors
approved a plan to raise additional capital from the holders of its outstanding
warrants and stock options at a reduced price of $0.04 per share, in order to
(a) prevent further dilution by the issuance of additional securities to
outsiders, and (b) to restructure the capitalization of the Company. Under the
terms of the plan, the Company offered to:
1. the holders of the Company's (a) 12,000 shares of Series F Preferred Stock,
convertible into 4,800,000 shares of the Company's Common Stock, and (b)
the 6,000 Series F Warrants to purchase 2,400,000 shares of the Company's
Common Stock at $.375 per share purchased in conjunction with the Series F
Pfd. Stock, the right to exercise the Series F Warrants and purchase the
shares of Common Stock issuable upon exercise thereof at $.04 per share
(same number of shares at a lower price), provided that (a) simultaneously
with the exercise of such right, the holder converts his shares of Series F
Pfd. Stock into shares of the Company's Common Stock, and (b) the
conversion of the Series F Pfd. Stock and exercise of the Series F Warrants
take place on or before May 1, 2006;
2. the holders of the Company's 55.125 shares of Series G Pfd. Stock, which
Series G Pfd. Stock is convertible into 17,226,563 shares of the Company's
Common Stock, and (b) the 55.125 Series G Warrants to purchase 17,226,563
of the Company's Common Stock at $.08 per share purchased in conjunction
with the Series G. Pfd. Stock, the right to exercise the Series G Warrants
and purchase the shares of Common Stock issuable upon exercise thereof at
$.04 per share (same number of shares at a lower price), provided that (a)
simultaneously with the exercise of such right, they convert their shares
of Series G Pfd. Stock into shares of the Company's Common Stock, and (b)
the conversion of the Series G Pfd. Stock and exercise of the Series G
Warrants take place on or before May 1, 2006;
3. the holders of all exercisable Stock Options to purchase shares of the
Company's Common Stock (an aggregate of 3,511,000 shares of the Company's
Common Stock) at prices ranging from $.08-$2.50 per share, the right to
exercise such Stock Options and purchase the shares of Common Stock
issuable upon exercise thereof at $.04 per share (the same number of shares
at a lower exercise price), provided that the exercise of such stock
options takes place on or before May 1, 2006; and
4. the holders of all Warrants to purchase shares of the Company's Common
Stock (an aggregate of 7,640,295 shares of the Company's Common Stock) at
prices ranging from $.08-$41.25 per share, the right to exercise such
warrants and purchase the shares of Common Stock issuable upon exercise
thereof at $.04 per share (the same number of shares at a lower price),
provided the exercise of the warrants takes place on or before May 1, 2006.
The offering was conditioned upon all shares of the Company's Series F Preferred
Stock and Series G Preferred Stock converting into Common Stock of the Company.
The offering was completed on May 1, 2006 and the Company was able to raise
$883,641 through (a) the exercise of warrants to purchase 23,022,783 shares of
the Company's Common Stock at $0.04, and (b) the exercise of stock options to
purchase 2,547,000 shares of the Company's Common Stock at $0.04. As a result,
12,000 shares of the Company's Series F Preferred Stock were converted to
4,800,000 shares of Common Stock and 55.125 shares of the Company's Series G
Preferred Shares were converted to 17,226,563 shares of Common Stock. After the
conversion, the company terminated all designations of Series F and G Preferred
Shares. In addition, on May 1, 2006, the Company declared, effective as of
December 31, 2005, $507,808 and $217,181 in accumulated dividends payable on the
Series F preferred stock and Series G preferred stock, respectively, which
dividends were paid in common stock of the Company on May 1, 2006. The total
number of shares paid in connection with such dividends was 8,763,633. After the
payment of such dividends, the issuance of shares of common stock in connection
with the conversion of the Series F preferred stock and Series G preferred and
the aforementioned exercise of options and warrants, the Company had 68,773,188
shares of common stock issued and outstanding.
13
The Company believes it has sufficient funds to continue operations in the near
term. Future capital requirements will depend on many factors, including the
ability to market and sell our product line, research and development programs,
the scope and results of clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in obtaining and enforcing
patents or any litigation by third parties regarding intellectual property, the
status of competitive products, the maintenance of our manufacturing facility,
the maintenance of sales and marketing capabilities, and the establishment of
collaborative relationships with other parties.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results of
operations are based upon its financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets and
liabilities, revenues and expenses and related disclosures. On an ongoing basis,
the Company evaluates estimates, including those related to bad debts,
inventories, fixed assets, 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 an operating lease expiring in
November 2011. The lease requires monthly payments of $337.
In January 2004, BioLife signed a 3 year lease with Field Afar Properties, LLC
whereby BioLife leases 6,161 square feet of office, laboratory, and
manufacturing space in Owego, NY at a rental rate of $6,200 per month.
Renovation of the new facility was completed in April 2004. The Company's Chief
Scientific Officer is a member of Field Afar Properties, LLC.
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-15. 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 and
are designed to ensure that information required to be disclosed by the Company
in the reports is filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time permitted as specified by the
rules and forms.
14
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. The Company's disclosure and
controls procedures are designed to provide reasonable assurance of achieving
their objectives. The Company's CEO/CFO has concluded that the Company's
disclosure controls and procedures are effective at the reasonable assurance
level.
There were no significant changes in the Company's internal control over
financial reporting during the quarterly period ended June 30, 2006 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
See accompanying Index to Exhibits included after the signature page of this
report for a list of the exhibits filed or furnished with this report.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BioLife Solutions, Inc.
-----------------------
(Registrant)
Date: August 14, 2006 By: /s/ Michael Rice
-------------------------------
Michael Rice
President and Chief Executive Officer
(Principal Executive Officer)
INDEX TO EXHIBITS
Exhibit No. Description
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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