Biolife Solutions - 10-Q quarterly report FY

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  þ

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, bu t 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 are based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those that it has 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-K for the fiscal year ended December 31, 2009 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.

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-K for the fiscal year ended December 31, 2009 filed with the Securities and Exchange Commission.

BioLife Solutions, Inc. develops, manufactures, and markets patented hypothermic storage and cryopreservation solutions for cells, tissues, and organs, and provides contracted research and development and consulting services related to optimization of biopreservation processes and protocols.  Our proprietary HypoThermosol®, CryoStor®, and generic BloodStor™ biopreservation 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 diagnostic markets.  All of our products are serum-free and protein-free, fully defined, and are ma nufactured under current Good Manufacturing Practices using United States Pharmacopeia (“USP”) or the highest available grade components.

 

Our product line of serum-free and protein-free biopreservation media products are fully defined and formulated to reduce preservation-induced, delayed-onset cell damage and death. This platform enabling technology provides academic and clinical researchers significant extension in biologic source material shelf life and also improved post-thaw cell, tissue, and organ viability and function.

 

The discoveries made by our scientists and consultants relate to how cells, tissues, and organs respond to the stress of hypothermic storage, cryopreservation, and the thawing process, and enables 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.

 

Management’s discussion and analysis of our financial condition and results of operations is based on our 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 us 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, we evaluate estimates, including those related to share-based compensation and expense accruals. We base our estimates on historical experience and on other factors that we believe are reasonable under the circumstances, the results of which form the basi s 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. Our 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 7 in our Form 10-K for the fiscal year ended December 31, 2009, filed with the Securities and Exchange Commission.

As of June 30, 2010, we had $67,881 in cash and cash equivalents.  To date, we have financed our operations primarily through proceeds from debt instruments including the Secured Convertible Multi-draw Term Loan Facilities described in detail below.

On January 11, 2008, we entered into a Secured Convertible Multi-Draw Term Loan Facility Agreement with each of Thomas Girschweiler, a director and stockholder of the Company, and Walter Villiger, an affiliate of the Company (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) incorporated (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”), which was 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, could 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.

In May and July 2008, we received an additional $1,000,000 in total from the Investors pursuant to the Facilities.  On October 20, 2008, each Facility was increased by $2,000,000 to $4,500,000 (an aggregate of $9,000,000), and, on October 24, 2008, we received an additional $600,000 in total from the Investors pursuant to the amended Facilities.  In January, May, July, August, and November 2009, we received an additional $2,825,000 in total from the Investors pursuant to the amended Facilities.  In December 2009, the Investors granted an extension of the repayment date to January 11, 2011.  In February and April 2010, we received an additional $600,000 in total from the Investors pursuant to the amended Facilities, which brought our total principal balance owed under the Multi-Draw Term Loan Note s to $8,488,127, and leaves $511,873 left to draw from the Facilities at June 30, 2010.  We analyzed the Facility in accordance with the authoritative literature with respect to derivatives related to the contingent conversion feature of the promissory notes at a variable exercise price.  According to our analysis, the resulting derivatives are not material to the transaction or to the financial statements taken as a whole and as a result, we did not record the derivative liabilities at each draw date.  In December 2009, the Facility was amended such that the conversion feature was deleted in its entirety.

 

 

We believe that continued access to the amended Facilities, in combination with cash generated from operations, will provide sufficient funds through December 31, 2010. However, we would require additional capital in the immediate short term if our ability to draw on the amended Facilities is restricted or terminated.  Other factors that would negatively impact our ability to finance our operations include (a) significant reductions in revenue from our internal projections, (b) increased capital expenditures, (c) significant increases in cost of goods and operating expenses, or; (d) an adverse outcome resulting from current litigation. We expect that we may need additional capital to reach a sustainable level of positive cash flow.  Although the Investors who have provided the amended Facilities historically have de monstrated a willingness to grant access to the Facilities and renegotiate terms of previous credit arrangements 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 amended Facilities we would need to find immediate additional sources of capital.  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 stockholders. If we are unable to secure additional capital as circumstances require, we may not be able to continue our operations.

For the six month period ended June 30, 2010, net cash used in operating activities was $(657,540) as compared to net cash used in operating activities of $(1,542,332) for the six month period ended June 30, 2009.  The $884,792 decrease in net cash used by operations primarily is reflected in the lower net loss for the year to date, partially offset by non-cash operating expenses including share-based compensation, and changes in operating assets and liabilities.

 

Net cash used in investing activities consisted of purchases of property and equipment.  For the six month period ended June 30, 2010, the aggregate investment in property and equipment was $(13,730), compared to $(369,989) for the six month period ended June 30, 2009, primarily due to the manufacturing facility build-out that took place in the first quarter of 2009.

Net cash provided by financing activities totaled $600,000 for the six month period ended June 30, 2010, which resulted from the draws taken on the Facilities.  Net cash provided by financing activities totaled $1,900,000 for the six month period ended June 30, 2009 resulting primarily from draws taken on the Facilities.

 

Product sales for the three months ended June 30, 2010 increased $191,243, or 70%, to $462,771, compared to $271,528 for the three months ended June 30, 2009.  Product sales for the six months ended June 30, 2010 increased $331,207, or 52%, to $970,680, compared to $639,473 for the six months ended June 30, 2009.  This increase in revenue primarily is due to higher product sales, including our BloodStor™ cord blood stem cell freeze media introduced in the third quarter of 2009, to existing customers and new customers.  Additionally, licensing revenue was $5,000 for both three months ended June 30, 2010 and 2009.

Cost of product sales for the three months ended June 30, 2010 increased by $55,302, or 25%, to $274,153, compared to $218,851 for the three months ended March 31, 2009.  Gross margin as a percentage of revenue increased to 41%, compared to 21% for the same period in 2009.  Cost of product sales for the six months ended June 30, 2010 increased by $99,214, or 22%, to $548,341, compared to $449,127 for the six months ended June 30, 2009, resulting in a gross margin as a percentage of revenue of 44% as compared to 31% for the same period in 2009.  The increase in cost of product sales for both periods primarily is the result of increased production costs associated with the increase in product sales.  The gross margin increases reflect the transition from a contract manufacturer to internal manufact uring which began in May 2009, and higher levels of revenue relative to our fixed manufacturing cost structure.

Expenses relating to research and development for the three months ended June 30, 2010 decreased $60,444, or 43%, to $81,502, compared to $141,946 for the three months ended June 30, 2009.  For the six months ended June 30, 2010, research and development expenses decreased $127,135, or 46%, to $148,435, compared to $275,570 for the six months ended June 30, 2009.  The decrease primarily is due to lower personnel related costs as a result of a reduction in workforce that took place at the end of July 2009, a decrease in contracted research activities, and lower legal fees associated with the Company’s intellectual property portfolio.

For the three months ended June 30, 2010, sales and marketing expenses decreased $94,021, or 45%, to $117,017, compared to $211,038 for the three months ended June 30, 2009.  For the six months ended June 30, 2010, sales and marketing expenses decreased $94,573, or 28%, to $240,046, compared to $334,619 for the six months ended June 30, 2009.  The decrease primarily is due to lower personnel related costs, and a decrease in expenses associated with advertising, market research and the Company’s attendance at trade shows.

For the three months ended June 30, 2010, general and administrative expenses increased $7,454, or 2%, to $386,626, compared to $379,172 for the three months ended June 30, 2009.  The increase primarily is due to higher costs in stock-based compensation related to stock options granted in the first quarter of 2010, offset by a decrease in personnel related costs as a result of staff salary reductions that took place in August 2009.  For the six months ended June 30, 2010, general and administrative expenses decreased $4,047, or 0.5%, to $829,200, compared to $833,247 for the six months ended June 30, 2009.  The decrease primarily is due to lower personnel related costs offset by the higher stock based compensation expenses.

There were no manufacturing start-up costs for the six months ended June 30, 2010.  In the third quarter of 2008, to reduce cost of product sales and enhance production flexibility, we decided to transition our manufacturing process in-house.  The first production run was completed half way through the second quarter in May 2009 at which time costs were no longer classified as manufacturing start-up.  Manufacturing start-up costs were $385,205 for the six months ended June 30, 2009.

Interest expense increased to $145,693 for the three months ended June 30, 2010 compared to $118,267 for the three months ended June 30, 2009.  For the six months ended June 30, 2010, interest expense increased to $282,065, compared to $225,120 for the same period ended June 30, 2009.  The increase is due to a higher average debt balance.

We did not have any off-balance sheet arrangements as defined in S-K 303(a)(4)(ii). 

We maintain disclosure controls and procedures designed to ensure that we are able to collect the information required to be disclosed 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 our disclosure controls and procedures as of the end of the period covered by this report conducted by the Company’s management, with the participation of the Company’s Chief Executive/Chief Financial Officer, the Chief Executive/Chief Financial Officer concluded that these controls and procedures are effective.

There were no changes in our internal control over financial reporting during the second quarter of fiscal 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

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.