PINX:BLFS Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

OR
 
o
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)
 
 
Delaware
 
94-3076866
(State or Other Jurisdiction
of Incorporation)
 
(IRS Employer
Identification No.)

3303 Monte Villa Parkway, Suite 310
Bothell, WA  98021
(Address of Principal Executive Offices, Including 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.    Yes  þ     No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act):
 
Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer o (Do not check if a smaller reporting company)
             
Smaller reporting company þ          
                                             
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 registrant had 69,679,854 shares of Common Stock, $0.001 par value per share, outstanding as of May 1, 2012.
 


 
 

 
BIOLIFE SOLUTIONS, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2012

TABLE OF CONTENTS


PART I.  FINANCIAL INFORMATION
 
Item 1.
Financial Statements
     
 
Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011
    3  
 
Statements of Operations (unaudited) for the three month periods Ended March 31, 2012 and 2011
    4  
 
Statements of Cash Flows (unaudited) for the three month periods Ended March 31, 2012 and 2011
    5  
 
Notes to Financial Statements (unaudited)
    6  
           
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    10  
           
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
    14  
           
Item 4.
Controls and Procedures
    14  
           
PART II. OTHER INFORMATION        
           
Item 6.
Exhibits
    15  
           
 
Signatures
    16  
           
 
Index to Exhibits
    17  
 
 
2

 
 
PART I.  FINANCIAL INFORMATION
 
ITEM 1.        FINANCIAL STATEMENTS
 
BIOLIFE SOLUTIONS, INC.
Balance Sheets
(unaudited)

 
March 31,
 
December 31,
 
 
2012
 
2011
 
Assets
Current assets
           
Cash and cash equivalents
 
$
70,524
   
$
16,864
 
Accounts receivable, trade, net of allowance for doubtful accounts of $1,100 at March 31, 2012 and December 31, 2011
   
471,816
     
547,143
 
Inventories
   
763,967
     
505,956
 
Prepaid expenses and other current assets
   
68,299
     
90,444
 
Total current assets
   
1,374,606
     
1,160,407
 
                 
Property and equipment
               
Leasehold improvements
   
3,936
     
––
 
Furniture and computer equipment
   
187,147
     
177,013
 
Manufacturing and other equipment
   
655,098
     
623,782
 
Subtotal
   
846,181
     
800,795
 
Less: Accumulated depreciation
   
(472,780
)
   
(447,393
)
Net property and equipment
   
373,401
     
353,402
 
Long term deposits
   
36,166
     
36,166
 
Deferred financing costs
   
84,997
     
112,042
 
Total assets
 
$
1,869,170
   
$
1,662,017
 
                 
Liabilities and Shareholders’ Equity (Deficiency)
Current liabilities
               
Accounts payable
 
$
534,001
   
$
403,103
 
Accrued expenses and other current liabilities
   
58,207
     
69,582
 
Accrued compensation
   
75,605
     
86,563
 
Deferred revenue
   
20,000
     
20,000
 
Total current liabilities
   
687,813
     
579,248
 
Long term liabilities
               
Promissory notes payable, related parties
   
10,303,127
     
10,128,127
 
Accrued interest, related parties
   
2,204,738
     
2,025,961
 
Deferred revenue, long term
   
104,167
     
109,167
 
Total liabilities
   
13,299,845
     
12,842,503
 
                 
Commitments and Contingencies (Note 9)
               
                 
Shareholders' equity (deficiency)
               
Common stock, $0.001 par value; 100,000,000 shares authorized, 69,679,854 shares issued and outstanding at March 31, 2012 and December 31, 2011
   
69,680
     
69,680
 
Additional paid-in capital
   
42,948,013
     
42,901,325
 
Accumulated deficit
   
(54,448,368
)
   
(54,151,491
)
Total shareholders' equity (deficiency)
   
(11,430,675
)
   
(11,180,486
)
Total liabilities and shareholders' equity (deficiency)
 
$
1,869,170
   
$
1,662,017
 
 
The accompanying Notes to Financial Statements are an integral part of these financial statements
 
 
3

 
 
BIOLIFE SOLUTIONS, INC.
Statements of Operations
(unaudited)

   
Three Month Period Ended March 31,
 
   
2012
   
2011
 
Revenue
           
Product sales
 
$
830,880
   
$
605,799
 
Licensing revenue
   
5,000
     
5,000
 
Total revenue
   
835,880
     
610,799
 
Cost of product sales
   
346,129
     
368,600
 
Gross profit
   
489,751
     
242,199
 
Operating expenses
               
Research and development
   
116,521
     
158,793
 
Sales and marketing
   
73,381
     
83,308
 
General and administrative
   
479,113
     
454,375
 
Total  operating expenses
   
669,015
     
696,476
 
                 
Operating loss
   
(179,264
)
   
(454,277
)
                 
Other income (expenses)
               
Other income
   
88,272
     
21
 
Interest expense
   
(178,777
)
   
(160,542
)
Amortization of deferred financing costs
   
(27,045
)
   
(15,324
)
Loss on disposal of property and equipment
   
     (63
   
     ––
 
Total other income (expenses)
   
(117,613
)
   
(175,845
)
                 
Net Loss
 
$
(296,877
)
 
$
(630,122
)
                 
Basic and diluted net loss per common share
 
$
(0.00
)
 
$
(0.01
)
                 
Basic and diluted weighted average common shares used to calculate net loss per common share
   
69,679,854
     
69,679,854
 

The accompanying Notes to Financial Statements are an integral part of these financial statements
 
 
4

 
 
BIOLIFE SOLUTIONS, INC.
Statements of Cash Flows
(unaudited)

   
Three Month Period Ended March 31,
 
   
2012
   
2011
 
Cash flows from operating activities
               
Net loss
 
$
(296,877
)
 
$
(630,122
)
Adjustments to reconcile net loss to net cash used in operating activities
               
Depreciation
   
26,455
     
22,872
 
Loss on disposal of property and equipment
   
63
     
––
 
Stock-based compensation expense
   
46,688
     
78,628
 
Amortization of deferred financing costs
   
27,045
     
15,324
 
Change in operating assets and liabilities
               
(Increase) Decrease in
               
Accounts receivable, trade
   
75,327
     
(17,802
Inventories
   
(258,011
)
   
(36,820
)
Prepaid expenses and other current assets
   
22,145
     
(15,405
Increase (Decrease) in
               
Accounts payable
   
130,898
     
159,447
 
Accrued compensation and other expenses and other current liabilities
   
(22,333
   
(36,303
Accrued interest, related parties
   
178,777
     
160,542
 
Deferred revenue
   
(5,000
   
(5,000
Net cash used in operating activities
   
(74,823
)
   
(304,639
)
                 
Cash flows from investing activities
               
Cash received from sale of property and equipment
   
700
     
––
 
Purchase of property and equipment
   
(47,217
)
   
(13,475
)
Net cash used in investing activities
   
(46,517
)
   
(13,475
)
                 
Cash flows from financing activity
               
Proceeds from notes payable
   
175,000
     
350,000
 
Net cash provided by financing activity
   
175,000
     
350,000
 
                 
Net increase in cash and cash equivalents
   
53,660
     
31,886
 
                 
Cash and cash equivalents - beginning of period
   
16,864
     
3,211
 
                 
Cash and cash equivalents - end of period
 
$
70,524
   
$
35,097
 
 
The accompanying Notes to Financial Statements are an integral part of these financial statements
 
 
5

 
 
BIOLIFE SOLUTIONS, INC.

Notes to Financial Statements
(unaudited)

1.     Business

BioLife Solutions, Inc. ("BioLife,” “us,” “we,” “our,” or the “Company”) develops, manufactures and markets patented hypothermic storage and cryopreservation solutions for cells and tissues.  The Company’s proprietary HypoThermosol® and CryoStor® platform of solutions are marketed to academic and commercial organizations involved in cell therapy, tissue engineering, cord blood banking, drug discovery, and toxicology testing. BioLife’s products are serum-free and protein-free, fully defined, and are formulated to reduce preservation-induced, delayed-onset cell damage and death.  BioLife’s enabling technology provides academic and clinical researchers significant improvements in post-thaw cell, tissue, and organ viability and function.  Additionally, for our direct, distributor, and contract customers, we perform custom formulation, fill, and finish services.
 
2.     Financial Condition and Going Concern

We have been unable to generate sufficient income from operations in order to meet our operating needs and have an accumulated deficit of approximately $54 million at March 31, 2012. This raises substantial doubt about our ability to continue as a going concern.
 
We believe that cash generated from customer collections in combination with continued access to funds from investors, will provide sufficient funds through December 31, 2012. 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. If we are unable to collect adequate cash from customer collections and our investors were to become unwilling to provide access to additional funds, we would need to find immediate additional sources of capital.  There can be no assurance that such capital would be available, 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.
 
These financial statements assume that we will continue as a going concern.  If we are unable to continue as a going concern, we may be unable to realize our assets and discharge our 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 we be unable to continue as a going concern.
 
3.     Summary of Significant Accounting Policies

Basis of Presentation

We have prepared the accompanying unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to these rules and regulations, we have condensed or omitted certain information and footnote disclosures we normally include in our annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In management’s opinion, we have made all adjustments (consisting only of normal, recurring adjustments) necessary to fairly present our financial position, results of operations and cash flows. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full year. These financial statements and accompanying notes should be read in conjunction with the financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2011 on file with the SEC.

There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in the financial statements in our Annual Report on Form 10-K for the year ended December 31, 2011.

Fair value of financial instruments

We generally have the following financial instruments: cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and notes payable. The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair value based on the short-term nature of these financial instruments. The carrying values of notes payable approximate their fair value because interest rates of notes payable approximate market interest rates.

Recent Accounting Pronouncements

There have been no new accounting pronouncements during the three month period ended March 31, 2012, as compared to our Annual Report on Form 10-K for the year ended December 31, 2011, that are of significance, or potential significance, to us.

 
6

 
 
4.     Inventory
 
Inventories consist of the following at March 31, 2012 and December 31, 2011:
 
   
March 31, 2012
   
December 31, 2011
 
Raw materials
 
$
328,913
   
$
173,510
 
Work in progress
   
3,869
     
11,768
 
Finished goods
   
431,185
     
320,678
 
Total
 
$
763,967
   
$
505,956
 
 
During the period ended March 31, 2012, the Company recorded a nonreciprocal, non-monetary receipt of inventory in the amount of $87,215. This amount was also recorded as Other Income in the Statement of Operations during the three month period ended March 31, 2012. The transaction was accounted for at fair value on the date the inventory was received.

5.     Share-based Compensation
 
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
 
   
March 31,
 
   
2012
   
2011
 
Risk free interest rate
   
0.83%
     
2.25%
 
Dividend yield
   
0.0%
     
0.0%
 
Expected term (in years)
   
6.0
     
6.0
 
Volatility
   
101%
     
93%
 
                 
 
Management applies an estimated forfeiture rate that is derived from historical employee termination data.  The estimated forfeiture rate applied for the three month periods ended March 31, 2012 and 2011 was 7.85% and 6.47%, respectively.

The following is a summary of stock option activity for the three month period ended March 31, 2012, and the status of stock options outstanding at March 31, 2012:
 
   
Three Month Period Ended
 
   
March 31, 2012
 
         
Wtd. Avg.
 
         
Exercise
 
   
Shares
   
Price
 
Outstanding at beginning of year
   
17,873,227
   
$
0.08
 
Granted
   
1,100,000
     
0.10
 
Exercised
   
––
     
––
 
Forfeited
   
(206,250
)
   
(0.08
)
Outstanding at March 31, 2012
   
18,766,977
   
$
0.09
 
                 
 Stock options exercisable at March 31, 2012
   
11,722,906
   
$
0.09
 
 
Weighted average fair value of options granted was $0.08 and $0.06 per share for the three month periods ended March 31, 2012 and 2011, respectively.
 
As of March 31, 2012, there was $299,363 of aggregate intrinsic value of outstanding stock options, including $195,359 of aggregate intrinsic value of exercisable stock options.  Intrinsic value is the total pretax intrinsic value for all “in-the-money” options (i.e., the difference between the Company’s closing stock price on the last trading day of the quarter and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on March 31, 2012.  This amount will change based on the fair market value of the Company’s stock.
 
 
7

 
 
We recorded stock compensation expense of $46,688 and $78,628 for the three month periods ended March 31, 2012 and 2011, respectively, as follows:

   
Three Month Period Ended
 
   
March 31,
 
   
2012
   
2011
 
Research and development costs
 
 $
       6,368
   
$
10,433
 
Sales and marketing costs
   
––
     
862
 
General and administrative costs
   
37,299
     
60,693
 
Cost of product sales
   
3,021
     
6,640
 
Total
 
 $
46,688
   
$
     78,628
 

As of March 31, 2012, we had approximately $354,092 of unrecognized compensation expense related to unvested stock options.  We expect to recognize this compensation expense over a weighted average period of approximately 2.40 years.

6.     Warrants

At March 31, 2012, we had 6,218,750 warrants outstanding and exercisable with a weighted average exercise price of $0.08. There were no warrants issued, exercised or forfeited in the three month period ended March 31, 2012. The outstanding warrants have expiration dates between May 2012 and August 2016.
 
During the three month period ended March 31, 2012, we recorded $27,045 and $15,324, respectively, in amortization of deferred financing costs related to warrants granted in 2010 and 2011 in conjunction with the restructuring of outstanding notes.
 
7.     Net Loss per Common Share
 
Basic net loss per common share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using the weighted average number of common shares outstanding plus dilutive common stock equivalents outstanding during the period. Common stock equivalents are excluded for the three month periods ended March 31. 2012 and 2011, respectively, since the effect is anti-dilutive due to the Company’s net losses. Common stock equivalents include stock options and warrants.
 
Basic weighted average common shares outstanding, and the potentially dilutive securities excluded from loss per share computations because they are anti-dilutive, are as follows as of March 31, 2012 and 2011, respectively:
 
   
Three Month Period Ended
March 31,
 
   
2012
   
2011
 
Basic and diluted weighted average common stock shares outstanding
    69,679,854       69,679,854  
Potentially dilutive securities excluded from loss per share computations:
               
Common stock options
    18,766,977       19,101,545  
Common stock purchase warrants
    6,218,750       4,218,750  

 
8

 
 
8.     Related Party Transactions

We incurred $7,201 and $11,983 in legal fees during the three month periods ended March 31, 2012 and 2011, respectively, for services provided by Breslow & Walker, LLP in which Howard S. Breslow, a director and stockholder of the Company, is a partner.  At March 31, 2012 and December 31, 2011, accounts payable included $19,266 and $22,631, respectively, due to Breslow & Walker, LLP for services rendered.
 
We incurred $24,000 in consulting fees for services provided pursuant to a consulting agreement during the three month period ended March 31, 2011 to Roderick de Greef, a director of the Company. The agreement with Mr. De Greef was terminated in August of 2011.
 
9.     Commitments & Contingencies

Legal Proceedings

We are a party in a number of legal matters filed in the state of New York by the Company or John G. Baust, the Company’s former Chief Executive Officer, and members of his extended family, that are described more fully in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.  During the three months ended March 31, 2012, there were no significant developments related to these complaints.  We have not made any accrual related to future litigation outcomes as of March 31, 2012 and December 31, 2011.
 
Leases

In July 2007, we signed a four-year lease, commencing August 1, 2007, for 4,366 square feet of office and laboratory space in Bothell, Washington at an initial rental rate of $6,367 per month. We are also responsible for paying a proportionate share of property taxes and other operating expenses as defined in the lease.

In November 2008, we signed an amended five-year lease to gain 5,798 square feet of additional clean room space for manufacturing in a facility adjacent to our corporate office facility leased in Bothell, Washington at an initial rental rate of $14,495 per month. Included in this amendment is the exercise of the renewal option for our current office and laboratory space to make the lease for such space coterminous with the new facility five-year lease period.

In March of 2012, we signed an amended lease agreement which expanded the premises leased by the Company from the landlord to approximately 21,000 rentable square feet. The term of the lease was extended for nine (9) years commencing on July 1, 2012 and expiring on June 30, 2021. The amendment includes two (2) options to extend the term of the lease, each option is for an additional period of five (5) years, with the first extension term commencing, if at all, on July 1, 2021, and the second extension term commencing, if at all, immediately following the expiration of the first extension term. In accordance with the amended lease agreement, the Company’s monthly base rent will increase to approximately $35,000. The Company will be required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses.

The following is a schedule of future minimum lease payments required under the facility leases as of March 31, 2012:

Year Ending
     
December 31
     
2012
 
 $
215,314
 
2013
   
426,086
 
2014
   
436,738
 
2015
   
447,656
 
2016
   
458,848
 
Thereafter
   
2,209,374
 
         Total
 
$
4,194,016
 

10.   Subsequent Events

Additional Proceeds on Outstanding Notes Payable

Subsequent to March 31, 2012, the Company received an additional $300,000 in total pursuant to the amended notes payable.
 
Extension of Maturity Date of Notes Payable

Subsequent to March 31, 2012, the Investors agreed to extend the maturity date of the Notes Payable for at least twelve months, and we have therefore, classified the Notes Payable as long-term liabilities as of March 31, 2012.
 
 
9

 
 
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 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, 2011 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 the Company and is provided as a supplement to, and should be read in conjunction with, our annual report on Form 10-K for the fiscal year ended December 31, 2011 filed with the Securities and Exchange Commission.

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 manufactured under current Good Manufacturing Practices using United States Pharmacopeia (“USP”) or the highest available grade components.

Our products are 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-preservation 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 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 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 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. Our critical accounting policies and estimates have not changed significantly from those policies and estimates disclosed under the heading “Critical Accounting Policies and Significant Judgments and Estimates” under Item 7 in our Form 10-K for the fiscal year ended December 31, 2011, filed with the Securities and Exchange Commission.
 
 
10

 

Results of Operations

Summary of Achievements for the First Quarter of 2012

·  
The Company recorded its seventh sequential record revenue quarter.
·  
Revenue from direct customers was up 15% over the fourth quarter of 2011 and 84% over the first quarter of 2011, with significant increases in revenue from drug discovery and regenerative medicine market segments.
·  
The Company recorded a record gross margin of 58.6% of revenue.
·  
The Company signed a lease amendment to increase the size of the corporate headquarters and manufacturing facility by approximately 100%.

Comparison of Results of Operations for the Three Month Periods Ended March 31, 2012 and 2011

Percentage comparisons have been omitted within the following table where they are not considered meaningful.

Revenue and Gross Margin

   
Three Month Period Ended
       
   
March 31,
       
   
2012
   
2011
   
Change
   
% Change
 
Revenue:
                               
Product revenue
                               
Direct
 
$
738,167
   
$
401,929
   
$
336,238
     
84%
 
Indirect
   
92,713
     
127,184
     
(34,471
)
   
(27%
)
Contract manufacturing
   
––
     
76,686
     
(76,686
)
   
(100%
)
Total product sales
   
830,880
     
605,799
     
225,081
     
37%
 
Licensing revenue
   
5,000
     
5,000
     
––
     
––
 
Total revenue
   
835,880
     
610,799
     
225,081
     
37%
 
Cost of sales
   
346,129
     
368,600
     
(22,471
)
   
(6%
)
Gross profit
 
$
489,751
   
$
242,199
   
$
247,552
     
  102%
 
Gross margin %
   
58.6%
     
39.7%
                 

Product Sales and Cost of Sales. Our products are sold through both direct and indirect channels. Product sales in the first quarter of 2012 increased compared to the first quarter of 2011 primarily due to higher sales to our customers in the drug discovery and regenerative medicine market segments, which were both up significantly over 2011. Sales to our direct customers in the first quarter of 2012 increased 84% compared to the first quarter of 2011due primarily to higher selling prices to existing customers. Sales to distributors in the first quarter of 2012 decreased 27% compared to the first quarter of 2011.
 
Cost of product sales consists of raw materials, labor and overhead expenses.  Cost of sales in the first quarter of 2012 decreased compared to 2011 and gross margin as a percentage of revenue increased in the first quarter of 2012 compared to 2011 which was due primarily to improved utilization of our manufacturing facility. This increased utilization resulted in lower overhead costs per unit manufactured being included in cost of sales.
 
Licensing Revenue. We have entered into license agreements with one customer that provides this customer with limited access to our intellectual property under certain conditions. This customer paid upfront fees for the specific rights and we recognize license revenue ratably over the term of the agreements.
 
 
11

 
 
Operating Expenses

Our operating expenses for the three month periods ended March 31, 2012 and 2011 were:

   
Three Month Period Ended
 
   
March 31,
 
   
2012
   
2011
 
Research and development
 
 $
116,521
   
$
158,793
 
% of revenue
   
14%
     
26%
 
Sales and marketing
 
 $
73,381
   
$
83,308
 
      % of revenue
   
9%
     
14%
 
General and administrative
 
 $
479,113
   
$
454,375
 
% of revenue
   
57%
     
74%
 

Research and Development. Research and Development expenses consist primarily of salaries and other personnel expenses, consulting and other outside services, laboratory supplies, and other costs.  We expense all R&D costs as incurred.  R&D expenses for the quarter ended March 31, 2012 decreased compared to the first quarter of 2011 primarily as a result of reduced spending on legal fees associated with patents and lower spending on other consulting expenses.
 
Sales and Marketing. Sales and marketing expenses consist primarily of salaries and other personnel-related expenses, consulting, trade shows and advertising.  The decrease in the first quarter of 2012 compared to the first quarter of 2011 was due primarily to reduced spending on advertising and trade shows.
 
General and Administrative Expenses. General and administrative expenses consist primarily of salaries and other personnel-related expenses, non-cash stock-based compensation for administrative personnel and non-employee members of the board of directors, professional fees, such as accounting and legal, corporate insurance and facilities costs.  The 5% increase in general and administrative expenses in the first quarter of 2012 compared to the first quarter of 2011 was due to higher personnel costs in 2012, offset somewhat by a reduction in consulting expenses due to the termination of one consulting agreement in the third quarter of 2011.
 
Other Income (Expenses)

Interest and Other Income. Interest and other income includes other revenue of $87,215 related to inventory received in a non-monetary transaction during the first quarter of 2012.

Interest Expense. Interest expense increased to $178,777 for the three months ended March 31, 2012 compared to $160,542 for the same period in 2011. The increase is due to a higher debt balance related to additional borrowings of $175,000 in the first quarter of 2012 and other draws in 2011 after March 31, 2011.

Amortization of Deferred Financing Costs. Amortization of deferred financing costs represents the cost of warrants issued in the fourth quarter of 2010 and the third quarter of 2011 which are being amortized over the life of the debt.
 
 
12

 

Outlook
 
We expect revenue to continue to increase to approximately $4.1 million in 2012. We expect sales to our contract manufacturing customers to increase significantly with the commencement of deliveries to the previously announced new customer.. We also expect steady increases in revenue shipments to existing and new direct customers, specifically in the regenerative medicine market segment, as our customers continue to move their cell and tissue based therapies and products through the clinical trial and regulatory approval processes.
 
We expect slightly lower gross margin as a percentage of revenue in 2012 as a result of increased contract manufacturing, in addition to increased operating expenses associated with selling and product development activity.
 
Finally, we believe the Company will achieve positive cash flow from operations in 2012 and that cash generated from customer collections will provide sufficient funds to operate our business.
 
Liquidity
 
At March 31, 2012, we had cash and cash equivalents of $70,524 compared to cash and cash equivalents of $16,864 at December 31, 2011. At March 31, 2012, we had working capital of $686,793, compared to working capital of $581,159 at December 31, 2011.  We have been unable to generate sufficient income from operations in order to meet our operating needs and have an accumulated deficit of approximately $54 million at March 31, 2012.  This raises substantial doubt about our ability to continue as a going concern.
 
Net Cash Used in Operating Activities
 
During the quarter ended March 31, 2012, net cash used in operating activities was $74,823 compared to net cash used by operating activities of $304,639 for the quarter ended March 31, 2011.  Cash used in operating activities relates primarily to funding net losses and changes in operating assets and liabilities, offset by non-cash compensation related to stock options and depreciation.
 
Net Cash Used in Investing Activities
 
Net cash used in investing activities totaled $46,517 and $13,475 during the quarters ended March 31, 2012 and 2011, respectively. Cash used in investing activities was due to purchase of property and equipment, offset slightly by cash received from the sale of certain assets.
 
Net Cash Provided by Financing Activities
 
Net cash provided by financing activities was $175,000 and $350,000 during the quarters ended March 31, 2012 and 2011, respectively. Cash provided by financing activities resulted from funding from two shareholders, Thomas Girschweiler, a director and stockholder of the Company, and Walter Villiger, an affiliate of the Company (the “Investors”).
 
Off-Balance Sheet Arrangements
 
As of March 31, 2012, we did not have any off-balance sheet financing arrangements.
 
Contractual Obligations

In March of 2012, we signed an amended lease agreement which expanded the premises leased by the Company from the Landlord to approximately 21,000 rentable square feet. The term of the lease was extended for nine (9) years commencing on July 1, 2012 and expiring on June 30, 2021. The amendment includes two (2) options to extend the term of the lease, each option is for an additional period of five (5) years, with the first extension term commencing, if at all, on July 1, 2021, and the second extension term commencing, if at all, immediately following the expiration of the first extension term. In accordance with the amended lease agreement, the Company’s monthly base rent will increase, as of July 1, 2012, to approximately $35,000. The Company will be required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses.
 
We did not have any off-balance sheet arrangements as defined in S-K 303(a)(4)(ii).
 
 
13

 

Going Concern

If we are unable to continue as a going concern, we may be unable to realize our assets and discharge our liabilities in the normal course of business.  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. If we are unable to collect adequate cash from customer collections and 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, 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.
 
ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not applicable.
 
ITEM 4.       CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this quarterly report. Based on this evaluation, our chief executive officer and chief financial officer concluded as of March 31, 2012, that our disclosure controls and procedures were effective such that the information required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2012 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Limitations on Effectiveness of Control. Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.
 
14

 

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.
 
 
       
   
BIOLIFE SOLUTIONS, INC.
 
       
Dated: May 14, 2012
 
/s/ Daphne Taylor
 
   
Daphne Taylor
 
   
Chief Financial Officer
 
    (Duly authorized officer and principal financial officer)  
                                                                                              
 
16

 
 
 BIOLIFE SOLUTIONS, INC.

INDEX TO EXHIBITS
 
Exhibit No.
 
Description
     
 
Second Amendment to the Lease, dated the March 2, 2012, between the Company and Monte Villa Farms, LLC
     
 
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
 
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
 
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
 
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
   
*Filed herewith

 
 
17
 
 

PINX:BLFS Quarterly Report 10-Q Filling

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PINX:BLFS Quarterly Report 10-Q Filing - 3/31/2012
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