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| BLFS.OB > SEC Filings for BLFS.OB > Form 10-Q on 15-May-2009 | All Recent SEC Filings |
15-May-2009
Quarterly Report
The statements contained in this Quarterly Report on Form 10-Q, including under
the section titled "Management's Discussion and Analysis of Financial Condition
and Results of Operations," include forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including,
without limitation, statements regarding the Company management's expectations,
hopes, beliefs, intentions or strategies regarding the future. The words
"believe," "may," "will," "estimate," "continue," "anticipate," "intend,"
"expect," "plan" and similar expressions may identify forward-looking
statements, but the absence of these words does not mean that a statement is not
forward-looking. The forward-looking statements contained in this Quarterly
Report on Form 10-Q is based on its current expectations and beliefs concerning
future developments and their potential effects on the Company. There can be no
assurance that future developments affecting it will be those that the Company
anticipated. These forward-looking statements involve a number of risks,
uncertainties or other assumptions that may cause actual results or performance
to be materially different from those expressed or implied by these
forward-looking statements. These risks and uncertainties include those factors
described in greater detail in the risk factors disclosed in our Form 10-K for
the fiscal year ended December 31, 2008 filed with the Securities and Exchange
Commission. Should one or more of these risks or uncertainties materialize, or
should any of our assumptions prove incorrect, actual results may vary in
material respects from those anticipated in these forward-looking
statements. The Company undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, except as may be required under applicable securities laws.
Overview
Management's discussion and analysis provides additional insight into BioLife Solutions, Inc. and is provided as a supplement to, and should be read in conjunction with, its annual report on Form 10-K for the fiscal year ended December 31, 2008 filed with the Securities and Exchange Commission.
We develop and market patented hypothermic storage and cryopreservation solutions for cells, tissues, and organs, and provide contracted research and development and consulting services related to optimization of biopreservation processes and protocols. Our proprietary HypoThermosol® and CryoStor™ biopreservation media products are marketed to companies, laboratories, and academic institutions engaged in research and commercial clinical applications. Our line of serum-free and protein-free biopreservation solutions 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 improvement in biologic source material shelf life and also post-thaw isolated cell, tissue, and organ viability and function.
Critical Accounting Policies and Significant Judgments and Estimates
Management's discussion and analysis of the Company's financial condition and results of operations is based on its financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting. The preparation of financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and reported revenues and expenses during the reporting periods presented. On an ongoing basis, it evaluates estimates, including those related to share-based compensation and expense accruals. The Company bases its estimates on historical experience and on other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. The Company's critical accounting policies and estimates have not changed significantly from those policies and estimates disclosed under the heading "Critical Accounting Policies and Estimates" under Item 7 in the Company's Form 10-K for the fiscal year ended December 31, 2008, filed with the Securities and Exchange Commission.
Three-month Periods Ended March 31, 2009 and 2008
Revenue
Product sales for the three months ended March 31, 2009 increased $61,561, or 20%, to $367,945, compared to $306,384 for the three months ended March 31, 2008. This increase in revenue was primarily due to the acquisition of new customers and growth in orders from existing customers. Additionally, the Company had licensing revenue for the three months ended March 31, 2009 of $9,167, compared to $11,250 for the three months ended March 31, 2008 related to three license agreements. Despite the year-over-year revenue growth, the Company did see some customers postpone or reduce order sizes due to the general economic slowdown, particularly in the cord blood and cell supplier market segments.
Cost of Product Sales
Cost of product sales for the three months ended March 31, 2009 increased by $71,875, or 45%, to $230,277, compared to $158,402 for the three months ended March 31, 2008, resulting in a gross margin as a percentage of revenue of 39% as compared to 50% for the same period in 2008. The increase in cost of product sales is primarily attributable to the higher production costs at the company's CMO compared to the prior periods when the production costs were lower. To reduce cost of product sales, and enhance its production flexibility, the Company is transitioning to internal manufacturing and expects to begin production in the second calendar quarter of 2009.
Research and Development Expenses
Expenses relating to research and development for the three months ended March 31, 2009 increased $22,322, or 20%, to $133,624, compared to $111,302 for the three months ended March 31, 2008. The increase primarily was due to approximately $18,000 of obsolete raw materials and expired products that were expensed and will be used in research and development projects, and a slight increase in headcount costs, offset by a decrease in travel and related expenses.
Sales and Marketing Expenses
For the three months ended March 31, 2009, sales and marketing expenses increased $27,495, or 29%, to $123,581, compared to $96,086 for the three months ended March 31, 2008. The increase primarily is due to higher compensation and benefit costs of approximately $46,000 attributable to payroll costs now classified in this expense category and an increase in marketing related expenses of approximately $12,000, offset by a decrease of approximately $36,000 in trade show costs due to the timing of certain trade shows that the Company attends.
General and Administrative Expenses
For the three months ended March 31, 2009, general and administrative expenses decreased $56,383, or 11%, to $456,075, compared to $512,458 for the three months ended March 31, 2008. The reduction primarily is due to a decrease of approximately $79,000 in litigation related legal fees, and a decrease of approximately $10,000 in travel related expenses. Offsetting these decreases is an increase in bad debt expense of approximately $18,000 attributed to uncollectible accounts receivable.
Manufacturing Start-up Costs
For the three months ended March 31, 2009, manufacturing start-up costs were $166,951. During the third quarter of 2007, as a result of relocating the Company from Owego, NY to Bothell, WA, the Company decided to outsource its manufacturing and entered into a contract with a CMO. One-time start-up costs related to the outsourcing of its manufacturing were expensed as incurred. In the third quarter of 2008, to reduce cost of product sales and enhance its production flexibility, the Company decided to transition to internal manufacturing and expects to begin production in the second calendar quarter of 2009.
Interest Expense
Interest expense increased to $106,853 for the three months ended March 31, 2009 from $45,418 for the three months ended March 31, 2008. The increase is due to a higher average debt balance.
For the three months ended March 31, 2009, operating expenses (excluding product costs) increased $160,385, or 22%, to $880,231, compared to $719,846 for the three months ended March 31, 2008. This increase primarily is attributed to the manufacturing start-up costs as the Company transitions into bringing the manufacturing process in-house. The Company reported a net loss of ($839,568) for the three months ended March 31, 2009, compared to a net loss of ($645,527) for the three months ended March 31, 2008.
Liquidity and Capital Resources
As of March 31, 2009, the Company had $428,196 in cash and cash equivalents. To date, the Company has financed its operations primarily through proceeds from debt instruments including the Secured Convertible Multi-draw Term Loan Facilities described in detail below.
On January 11, 2008, the Company entered into a Secured Convertible Multi-Draw Term Loan Facility Agreement with each of Thomas Girschweiler, 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) incorporates (i) a refinancing of the existing indebtedness of the Company to the Investor, represented by the Notes, and accrued interest thereon, in the aggregate amount of $1,431,563.30, (ii) a current advance of $300,000, and (iii) a commitment to advance to the Company, from time to time, additional amounts up to a maximum of $768,436.70, (b) bears interest at the rate of 7% per annum on the principal balance outstanding from time to time, (c) is evidenced by a secured convertible multi-draw term loan note (the "Multi-Draw Term Loan Note"), due and payable, together with accrued interest thereon, the earlier of (i) January 11, 2010, or (ii) an Event of Default (as defined in the Multi-Draw Term Loan Note), (d) if outstanding at the time of any bona fide equity financing of the Company of at least Two Million Dollars ($2,000,000) (a "Financing"), at the option of the Investor, may be converted into that number of fully paid and non-assessable shares or units of the equity security(ies) of the Company sold in the Financing ("New Equity Securities") as is equal to the quotient obtained by dividing the principal amount of the Facility outstanding at the time of the conversion plus accrued interest thereon by 85% of the per share or per unit purchase price of the New Equity Securities, and (e) is secured by all of the Company's assets.
In May and July 2008, the Company received an additional $1,000,000 in total from the Investors pursuant to the Multi-Draw Term Loan 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, the Company received an additional $600,000 in total from the Investors pursuant to the amended Multi-Draw Term Loan Facilities and in January 2009, the Company received an additional $1,400,000 in total from the Investors pursuant to the amended Multi-Draw Term Loan Facilities, which brought the Company's total principal balance owed under the Multi-Draw Term Loan Notes to $6,463,127, which leaves $2,536,873 left to draw from the Facilities as of March 31, 2009. In May 2009, the Company received an additional $500,000 in total from the Investors pursuant to the Facilities.
Net Cash Used in Operating Activities
For the three month period ended March 31, 2009, net cash used in operating activities was $(811,807) as compared to net cash used in operating activities of $(516,995) for the three month period ended March 31, 2008. The $294,812 increase in net cash used by operations primarily is reflected in the higher net loss for the quarter, partially offset by non-cash operating expenses including depreciation, amortization of deferred financing costs, share-based compensation, and changes in operating assets and liabilities.
Net Cash Provided by Investing Activities
Net cash used in investing activities consist of purchases of property and equipment. For the three month period ended March 31, 2009, the aggregate investment in property and equipment was $(258,721), compared to $(5,653) for the three month period ended March 31, 2008 primarily due to the manufacturing clean room build-out.
Net Cash Provided by Financing Activities
Net cash provided by financing activities totaled $1,400,000 for the three month period ended March 31, 2009, which resulted from the draws taken on the Multi-Draw Term Loan Facilities. Net cash provided by financing activities totaled $602,333 for the three month period ended March 31, 2008 resulting from draws taken on the Multi-Draw Term Loan Facilities.
The Company believes that continued access to the Multi-Draw Term Loan Facilities, in combination with cash generated from operations, will provide sufficient funds for the next twelve months. However, the Company would require additional capital in the immediate short term if the Company's ability to draw on the Multi-Draw Term Loan Facilities is restricted or terminated. Other factors that would negatively impact the Company's ability to finance its operations include (i) significant reductions in revenue (ii) increased capital expenditures (iii) significant increases in cost of goods and operating expenses or; (iv) an adverse outcome resulting from current litigation. The Company expects that it may need additional capital to reach a sustainable level of positive cash flow. Although the Investors who have provided the Multi-Draw Term Loan Facilities have historically demonstrated a willingness to grant access to the Facilities, there is no assurance they will continue to do so in the future. If the Investors were to become unwilling to provide access to additional funds through the Multi-Draw Term Loan Facilities, the Company will need to find immediate additional sources of capital and there can be no assurance that such capital would be available at all, or if available, that the terms of such financing would not be dilutive to other stockholders. If the Company is unable to secure additional capital, as circumstances require, it may not be able to continue its operations.
Contractual Obligations
The Company did not enter into any significant contractual obligations during
the three month period ended March 31, 2009. It had no significant contractual
obligations not fully recorded on our Balance Sheets or fully disclosed in the
Notes to our Financial Statements in Form 10-K for the fiscal year ended
December 31, 2008, filed with the Securities and Exchange Commission. The
Company did not have any off-balance sheet arrangements as defined in S-K
303(a)(4)(ii).
Subsequent Event
Subsequent to period ended March 31, 2009, the Company received an additional $500,000 in total from the Investors pursuant to the Facilities. This draw will provide funds for the Company's operating expenses in the second quarter of 2009.
Item 4T.
Controls and Procedures
The Company maintains disclosure controls and procedures designed to ensure that it is 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 its disclosure controls and procedures as of the end of the period covered by this report conducted by its management, with the participation of the Company's Chief Executive/Chief Financial Officer, the Chief Executive/Chief Financial Officer believes that these controls and procedures are effective to ensure that it is able to collect, process and disclose the information required to be disclosed in the reports that are filed with the SEC within the required time periods.
There were no changes in the Company's internal control over financial reporting during the first quarter of fiscal 2009 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
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