Attached files
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
———————
FORM
10-K
———————
(Mark
One)
þ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the year ended December 31, 2009
¨ 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
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94-3076866
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(State
or other jurisdiction of
incorporation
or organization)
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(IRS
Employer
Identification
No.)
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3303
MONTE VILLA PARKWAY, SUITE 310, BOTHELL, WASHINGTON, 98021
(Address
of registrant’s principal executive offices, Zip Code)
(425)
402-1400
(Telephone
number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
COMMON
STOCK, $0.001 PAR VALUE
Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes ¨ No þ
Indicate
by check mark whether the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ No þ
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 ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (S232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
Registrant was required to submit and post said
files). Yes ¨ No þ
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer”, and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company þ
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes ¨ No þ
As of the
registrant’s most recently completed second fiscal quarter, the aggregate market
value of common equity held by non-affiliates was $2,822,210.
As of
March 29, 2010, 69,679,854 shares of the registrant’s common stock were
outstanding.
Table
of Contents
Page No. | |||||
Part I | 1 | ||||
Item 1. | Business | 1 | |||
Item 1a. | Risk Factors | 7 | |||
Item 1b. | Unresolved Staff Comments | 10 | |||
Item 2 | Properties | 10 | |||
Item 3. | Legal Proceedings | 10 | |||
Item 4. | Reserved | ||||
Part II | 12 | ||||
Item 5. | Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities | 12 | |||
Item 7. | Management's Discussion And Analysis Of Financial Condition And Results Of Operations | 12 | |||
Item 8. | Financial Statements And Supplementary Data | 17 | |||
Item 9. | Changes In And Disagreements With Accountants On Accounting And Financial Disclosure | 17 | |||
Item 9a. | Controls And Procedures | 17 | |||
Item 9b. | Other Information | 18 | |||
Part III | 18 | ||||
Item 10. | Directors, Executive Officers, And Corporate Governance | 18 | |||
Item 11. | Executive Compensation | 21 | |||
Item 12. | Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters | 22 | |||
Item 13. | Certain Relationships And Related Transactions And Director Independence | 24 | |||
Item 14. | Principal Accountant Fees And Services | 25 | |||
Part IV | 26 | ||||
Item 15. | Exhibits And Financial Statement Schedules | 26 | |||
Signatures | |||||
Index To Financial Statements | F-1 |
PART
I
ITEM
1. BUSINESS
Note:
The terms “the Company,” “us,” “we” and “our” refer to BioLife Solutions,
Inc.
Overview
BioLife
Solutions, Inc. ("BioLife” or the “Company”), a life sciences tools provider,
was incorporated in 1998 in Delaware as a wholly owned subsidiary of Cryomedical
Sciences, Inc. ("Cryomedical"), a company that was engaged in manufacturing and
marketing cryosurgical products. In 2002, BioLife was merged into Cryomedical,
which changed its name to BioLife Solutions, Inc. Our product and
service offerings include:
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Patented
hypothermic storage and cryopreservation media products for cells,
tissues, and organs
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Generic
formulations of blood stem cell freezing media
products
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Custom
product formulation and custom packaging
services
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Contracted
research and development and consulting services related to optimization
of biopreservation processes and
protocols.
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Contract
aseptic manufacturing services
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Our
proprietary HypoThermosol®,
CryoStor™, and generic BloodStor™ biopreservation media
products are marketed to companies, laboratories, and academic institutions
engaged in research and commercial clinical applications. 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.
Our Oprincipal executive offices are
located at 3303 Monte Villa Parkway, Suite 310, Bothell, WA 98021 and the
telephone number is (425) 402-1400.
Mission
We strive
to be the leading provider of biopreservation tools for cells, tissues, and
organs; to facilitate basic and applied research and commercialization of new
therapies by maintaining the health and function of biologic source material and
finished products during the preservation process.
Technological
Overview
Stability
during transportation, shelf life, and functional recovery are crucial aspects
of academic research and clinical practice in the biopreservation of biologic
based source material, intermediate derivatives, and isolated/derived/expanded
cellular products. Modern therapies must be accomplished under time constraints
if they are to be effective. This problem becomes especially critical in the
field of cell and tissue therapy, where harvested cell culture and tissue, if
maintained at body temperature (98.6ºF/37ºC), will lose viability over time. To
slow the "metabolic engine" of harvested cells and tissues, chilling is
required. However, chilling is of mixed benefit. Although cooling successfully
reduces metabolism (i.e., lowers demand for oxygen), chilling, or hypothermia,
is also damaging to cells. To solve this problem, transplant surgeons, for
example, will flush the donor tissue with a cold solution designed to provide
short-term biopreservation support after removal of the organ from the donor and
during transportation. Clinicians engaged in cell and gene therapy will also
attempt to maintain the original and derived cellular material in a cold
solution before and after application of the specific cell or gene therapy
technique, and during necessary transportation. Traditional support solutions
range from simple "balanced salt" (electrolyte) formulations to complex mixtures
of electrolytes, energy substrates such as sugars, acid buffers, osmolytes and
antibiotics. Clinically, there is not a great deal of protective difference
between these various solutions that are often fifty year old formulas, and few
offer long-term protection to biologic material.
Because
of the cascading destructive cellular effects that begin with the reduction or
arrest of metabolism as a result of cooling, and end with cell death through
apoptosis and necrosis, development of new methods of cell and tissue
preservation are important to ensure that cell-based and tissue-engineered
products survive the trip from the factory to the operating room in good working
order and do not die during transplantation. Improved post-thaw cell, tissue and
organ viability, function, longer shelf life and transport time are the key
unmet needs in the field of preservation of biologic material.
1
Our
scientific research activities over the last 20 years enabled a detailed
understanding of the molecular basis for the cryogenic destruction of cells
through apoptosis. This research led directly to the development of our
specifically formulated and patented HypoThermosol technology. Working from the
HypoThermosol technology base, we developed a family of proprietary cell, tissue
and organ specific hypothermic storage and cryopreservation media solutions to
address the current unmet needs of academic and clinical researchers and
transplant physicians. Our products are specifically formulated to:
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Minimize
cell and tissue swelling
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Remove
free radicals upon formation
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Maintain
appropriate ion balances
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Provide
regenerative, high energy substrates to stimulate recovery upon
warming
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Avoid
the creation of an acidic state
(acidosis)
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Inhibit
the onset of apoptosis
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A key
feature of our products is their fully “defined” nature. All of our products are
serum-free, protein-free and packaged under sterile conditions using United
States Pharmaopeia (“USP”) grade or highest quality available synthetic
components.
The
results of independent testing demonstrate that our patented HypoThermosol
solutions significantly extend shelf-life and improve cell and tissue post-thaw
viability and function, which may, in turn, improve clinical outcomes for
existing and new cell and tissue therapy applications. Our proprietary
HypoThermosol technology is optimized based on low temperature molecular biology
principles and genetic analysis. Competing biopreservation media products are
often formulated with culture media, animal serum, a sugar, and in the case of
cryopreservation media, a cryoprotectant such as Dimethyl Sufoxide (“DMSO”). A
key differentiator of our proprietary formulations is the tuning and optimizing
of the key ionic component concentrations for hypothermic environments, as
opposed to normal body temperature around 37°C, as is found in culture media
based formulas. Our research and intellectual property related to the cellular
stress response to cold temperature also led to discoveries in the field of
cryosurgery. Specifically, through contracted research and completion of the
specific aims of two National Institutes of Health (“NIH”) Small Business
Innovative Research (“SBIR”) grants awarded to Cryomedical Sciences, our
predecessor, and to BioLife, we determined via in vitro experiments on cancer
cells, that the combination of chemotherapy and cryosurgery was more effective
than cryosurgery alone. This intellectual property was excluded from the asset
sold to Endocare in 2002, and has been the subject of extensive
publications.
BioLife
Products
HypoThermosol®
HypoThermosol
is a family of cell-specific, optimized hypothermic (2-8°C) biopreservation
media that allows for improved and extended preservation of biologic source
material and manufactured cell and tissue based clinical products. A full line
of customized HypoThermosol biopreservation solutions are available to
researchers and clinicians to preserve cells and tissue in low temperature
environments for extended periods. The HypoThermosol family of biopreservation
media for the hypothermic maintenance and cryopreservation of mammalian cell
systems include:
HypoThermosol®-FRS
This
solution has been formulated to decrease the free radical accumulation in cells
undergoing prolonged hypothermic preservation. Numerous investigators have shown
that an increase in free radicals can lead to either pathological cell death or
apoptosis (programmed cell death) in clinical conditions. HypoThermosol-FRS is
very effective at extending the shelf life and improving the post-preservation
viability and function of numerous cell and tissue types.
2
HypoThermosol
Purge
HypoThermosol-Purge
is an acellular flush solution specifically designed for use during the
transition from normothermic to mild hypothermic temperatures (37°C to 20°C) to
rinse culture media and native fluids from tissue and whole organ systems prior
to suspension in a preservation solution.
CryoStor™
Based on
our proprietary HypoThermosol technology, we developed CryoStor, a family of
optimized cryopreservation media designed for frozen (temperature of -196°C)
storage of cells and tissues. CryoStor is uniquely formulated to address the
molecular-biological aspects of cellular stress as a response to the
biopreservation process thereby directly reducing the level of
preservation-induced, delayed-onset cell damage and death.
CryoStor™ CS2
CryoStor
CS2, a member of the CryoStor series of solutions, addresses the
molecular-biological properties of systems undergoing preservation processes.
CryoStor CS2 has been further formulated to provide reduced concentrations of
cryoprotective agents (2% DMSO), for use in applications where a reduction in
the levels of DMSO is preferred.
CryoStor™
CS5
CryoStor
CS5 is a base cryopreservation solution which is designed to incorporate the
principles which led to the successful development of the HypoThermosol series
with the incorporation of agents to modulate the physical damaging effects
associated with ice formation and cellular freezing such as dimethyl sulfoxide
(“DMSO”). The proprietary formula of the CryoStor platform facilitates
substantially improved post-thaw cell survival and function and allows for the
maintenance of this enhanced recovery with substantially reduced levels of
cryoprotective agents such as DMSO.
CryoStor™
CS10
CryoStor
CS10, a member of the CryoStor series of solutions, addresses the
molecular-biological properties of systems undergoing preservation
processes. CryoStor CS10 contains 10% DMSO.
BloodStor™
BloodStor
is a new family of generic blood cell freezing media
products. BloodStor 55-5 is a GMP grade offering of the traditional
55% DMSO, 5% Dextran cord blood stem cell freezing media. This
product is packaged in sterile, single-use vials and also custom bulk
packaging.
Market
Opportunity
Recent
advances in cord blood banking, adult stem cell banking, cell therapy, and
tissue engineering have highlighted the significant and unmet requirement to
maintain the health and viability of biological material across time and
space.
At the
leading edge of biologic-based medicine is cell therapy, which involves a method
of growing human cells that may be able to treat cancers and a variety of
chronic disorders. Embryonic stem cells are the earliest precursor of human
differentiated cells. Adult stem cells, as their name suggests, are derived from
other sources, rather than from the blastocysts of embryos. Many researchers
believe that cell therapy may revolutionize the treatment of chronic disorders
by allowing scientists to utilize stem cells from these sources, as well as from
umbilical cord blood, the umbilical cord, placental tissue, the amniotic
membrane, amniotic fluid, dental pulp from avulsed teeth, adipose tissue, bone
marrow, and skeletal muscle to grow new cells that specifically replace and
treat diseased tissue. Applications include the treatment of heart disease,
Parkinson’s, Alzheimer’s, stroke, spinal cord injuries, burns and other
wounds.
Time
management in cell therapy becomes especially critical where very scarce and
fragile source cells or tissues are extracted from a patient, transported to a
culture laboratory, and then transported back to the patient to be inserted into
the target tissue, organ, or blood stream. Because this entire process can take
months and may involve transportation over long distances, cellular viability is
of paramount importance.
3
Similar
to techniques used in whole organ transplantation, clinicians engaged in cell
therapy will attempt to maintain the original and derived cellular material in a
cold solution to extend cell viability before and after application of the
specific cell or gene therapy technique, and during necessary
transportation.
Tissue
engineering has led to the development of several artificial tissue substitutes
for the therapeutic treatment of injury and disease. The process of preparing
engineered tissue involves isolation of cells, manipulation and purification,
expansion to larger quantities – often requiring appropriate media and support
materials, some mechanism to control differentiation and longevity of the cells,
and processes and conditions for maintaining viability during transportation and
storage. The development of effective delivery systems for engineered tissue has
been the subject of enormous investment for the last several years. These
delivery systems serve to protect cells from arduous conditions during culture
and distribution, and are often vital for protection of cells.
Areas
such as vaccine and medicine development and toxicological testing for
application in clinical, military, law enforcement, cosmetic, academic,
environmental and pharmaceutical settings, also rely heavily on the utilization
of biological components. Banking, distribution and storage of these biologics
are critical components for successful practical application.
Common to
each of these markets is the need for hypothermic preservation media that yields
both extended survival time and superior post-preservation performance when
contrasted with current processes and non-specific media solutions currently in
use. For companies in these market segments, the therapeutic benefit they
deliver to clinicians and patients is dependent on establishing a reasonable
shelf-life and dosage potency and efficacy for the end product. Our products
address this underlying and unmet need by providing an enabling technology – a
platform of superior biopreservation media to the entire biotechnology
industry.
Our
target markets include:
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Cell
and tissue banking
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Cell
suppliers
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Cord
blood collection and storage
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Toxicity
testing
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Hair
transplantation
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Reproductive
biology
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Tissue
engineering
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Organ
transplantation
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Cellular
therapy
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Pharmaceutical
drug discovery
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We are
unable to forecast potential product sales in any of these markets because most
of these markets are in their infancy, and it should be noted that in some of
these segments we do not currently and may never participate as a result of a
number of factors.
Sales
and Marketing
On
May 12, 2005, we signed an Exclusive Private Labeling and Distribution
Agreement (“VWR Agreement”) with VWR International, Inc., a global leader in the
distribution of scientific supplies, pursuant to which we manufactured our
HypoThermosol and CryoStor product lines under the VWR label for sale by VWR to
non-clinical customers in North America and Western Europe.
On
February 25, 2008, we sent VWR International, Inc. a notice of termination,
effective February 29, 2008, which discontinued the VWR Agreement, due to
VWR’s failure to cure a breach of the agreement.
In
addition to our direct sales activities, we have STEMCELL Technologies,
Sigma-Aldrich, and NexBio as distributors.
Manufacturing
In
October 2007, we entered into non-exclusive master services, quality, and
order fulfillment agreements with Bioserv Inc, a division of NextPharma
Technologies, Inc., a leading contract manufacturing organization (“CMO”) and
provider of product development, contract manufacturing and distribution
outsourcing services to the pharmaceutical, specialty pharmaceutical, generics
and biotech industries.
4
In the
third quarter of 2008, in order to lower our cost of product sales and increase
our production flexibility, we decided to transition to internal manufacturing
and maintain our relationship with our previous contract manufacturing
organization as a contingency for additional production capacity. Our
internal production facility was validated and became operational during the
second quarter of 2009. In December 2009, our quality and
manufacturing systems became certified to ISO 13485:2003. We also
adhere to 21 CFR Part 820 - Quality System Regulation for Good Manufacturing
Practices (GMP) of medical devices, 21 CFR Parts 210 and 211 covering GMP for
Aseptic Production, Volume 4, EU Guidelines, Annex 1 for the Manufacture of
Sterile Medicinal Products, ISO 13408 for aseptic processing of healthcare
products, and ISO 14644 for Clean Rooms and Associated Controlled
Environments. We expect to achieve CE Mark conformity for our
products in 2010.
Governmental
Regulation
As an
ancillary or excipient reagent used in the production, transportation, and/or
clinical delivery of other developed technologies, HypoThermosol, CryoStor, and
BloodStor are not subject to specific FDA pre-market approval for drugs,
devices, or biologics. In particular, we are not required to sponsor formal
prospective, controlled clinical-trials in order to establish safety and
efficacy. However, it is highly likely that all potential customers would
require that we comply with Current Good Manufacturing Procedures (“cGMP”) as
mandated by FDA. In 2008, we completed small animal safety studies on our
products in collaboration with the Fred Hutchinson Cancer Research Center in
Seattle.
There can
be no assurance that we will not be required to obtain approval from the FDA
prior to marketing any of our products in the future. We do not market our
products for use in embryo and gamete preservation or for tissue or organ
transplants, and expect that we will need to obtain pre market approval from the
FDA before we do so. This would entail substantial financial and other resources
and could take several years before the products are approved, if at all. During
2009, we submitted updated Type II Master Files to the FDA for CryoStor and
HypoThermosol. These enhanced regulatory submissions provide the FDA with
information regarding the quality of components used in the formulation of our
products, the manufacturing process, our quality system, and stability testing
that we have performed. Customers engaged in clinical applications who wish to
notify the FDA of their intention to use our products in their product
development and manufacturing process can now request a cross-reference to our
Master Files.
Intellectual
Property
We
currently have six issued U.S. patents, one issued European patents, one issued
Japanese patents, and several pending patent applications.
In
addition to our corporate logo and name, we have registered the following
marks:
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HypoThermosol
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GelStor
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Powering
the Preservation Sciences
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CryoStor
CS2
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BioPreservation
Today
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CP-RXCUE
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BloodStor
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CryoStor
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While we
believe that the protection of patents and trademarks is important to our
business, we also rely on a combination of trade secrets, nondisclosure and
confidentiality agreements, know-how and continuing technological innovation to
maintain our competitive position. Despite these precautions, it may
be possible for unauthorized third parties to copy certain aspects of our
products or to obtain and use information that we regard as proprietary. The
laws of some foreign countries in which we may sell our products do not protect
our proprietary rights to the same extent as do the laws of the United
States.
5
Research
and Development
We
currently employ a team of one FTE (“full time equivalent”) and several partial
FTE research scientists some of whom hold Ph.D. degrees in molecular biology or
related fields. We also conduct collaborative research with several leading
academic and commercial entities in our strategic markets.
During
2009 and 2008, we spent approximately $414,500 and $457,600, respectively, on
research and development activities. In 2007, we established a Scientific
Advisory Board (SAB) comprised of external members including leaders in the
fields of cellular therapy, preservation of biologic material, and regulatory
compliance. These members advise us on our product development and overall
marketing strategies. The current members are:
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Shelly
Heimfeld, Ph.D., Director of the Cellular Therapy Laboratory at the Fred
Hutchinson Cancer Research Center in Seattle, and President of the
International Society of Cellular Therapy. Dr. Heimfeld is internationally
recognized for research in hematopoietic-derived stem cells and the
development of cell processing technologies for improved cancer
therapy.
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Dayong
Gao, Ph.D., Professor of Biomedical Engineering at the University of
Washington in Seattle. Dr. Gao has been actively engaged in
cryopreservation research for more than 20 years, and has authored over
130 peer-reviewed journal articles on
cryopreservation.
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Darin
Weber, Ph.D., a leading regulatory expert for cellular and tissue based
products, and former FDA cellular therapy reviewer. Dr. Weber’s knowledge
of the regulatory landscape for cell and gene therapy is extensive and
directly relevant to our business since our biopreservation solutions are
a critical process component in several active clinical trials for new
cellular therapy products.
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Andrew
Hinson, Vice President for Clinical and Regulatory Affairs for
CardioPolymers, Inc. (formerly Symphony Medical, Inc.) since 2004.
CardioPolymers is a venture capital backed privately-held developer of
therapeutic biopolymer therapies for the treatment of heart failure and
other cardiac abnormalities.
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Scott
R. Burger, M.D., Principal, Advanced Cell and Gene Therapy, a consulting
firm specializing in cell, gene, and tissue-based therapies. Dr. Burger
works with clients in industry and academic centers worldwide, providing
assistance in process development and validation, GMP/GTP manufacturing,
GMP facility design and operation, regulatory affairs, technology
evaluation, and strategic analysis.
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Erik
J. Woods, Ph.D., Co-founder, CEO and Laboratory Director of The Genesis
Bank, a private cord blood bank, and also Director of Genome Resources, an
anonymous donor and client depositor sperm bank. Both laboratories are FDA
registered and CLIA compliant.
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Lizabeth
J. Cardwell, Principal, Compliance Consulting, LLC, a private consulting
business offering quality and regulatory consulting services to cell
therapy, medical device, and pharmaceutical
companies.
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Colleen
Delaney, MSc., M.D., Director of the Cord Blood Research and Transplant
Program at Fred Hutchinson Cancer Research Center (FHCRC) and Seattle
Cancer Care Alliance (SCCA). She is an attending physician at Seattle
Children's Hospital, Assistant Member of the Clinical Research Division of
FHCRC and Assistant Professor at the University of Washington, School of
Medicine.
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Competition
The life
sciences industry is highly competitive. Most of our potential competitors have
considerably greater financial, technical, marketing, and other resources than
we do.
Our
competitors include Life Technologies Corp. (formally Invitrogen), Lonza, Sigma
Aldrich, and less than 5 other much smaller companies. However, it is our belief
that in-house formulated biopreservation media, whereby the user purchases raw
ingredients and manually mixes the ingredients, satisfies the large majority of
the annual demand thereof. Our products offer significant advantages over
in-house formulations including, time saving, improved quality of components,
more rigorous quality control release testing, and improved preservation
efficacy.
We expect
competition to intensify with respect to the areas in which we are involved as
technical advances are made and become more widely known.
Employees
At
December 31, 2009, we had 10 employees, of whom two were engaged in aseptic
production; two were engaged in quality assurance; one in research and
development; two were engaged in sales and marketing; and three were
engaged in finance and administration. Our employees are not covered by any
collective bargaining agreement. We consider relations with our employees to be
good.
6
Reports
to Security Holders
This
annual report on Form 10-K, including the exhibits and schedules filed as
part of the annual report, may be inspected at the public reference facility
maintained by the Securities and Exchange Commission ("SEC") at its public
reference room at 450 Fifth Street NW, Washington, DC 20549 and copies of all or
any part thereof may be obtained from that office upon payment of the prescribed
fees. One may call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference room and request copies of the documents upon
payment of a duplicating fee, by writing to the SEC. In addition, the SEC
maintains a website that contains reports, proxy and information statements and
other information regarding registrants, including the Company, that file
electronically with the SEC which can be accessed at www.sec.gov.
We also
make our periodic and current reports available, free of charge, on our website,
www.BioLifeSolutions.com, as soon as reasonably practicable after such material
is electronically filed with the SEC. Information available on our website is
not a part of, and is not incorporated into, this annual report on
Form 10-K.
Safe
Harbor for Forward-Looking Statements Under the Securities Litigation Reform Act
of 1995; Risk Factors
This
Annual Report on Form 10-K and other reports, releases, and statements
(both written and oral) issued by the Company and its officers from time to time
may contain statements concerning our future results, future performance,
intentions, objectives, plans, and expectations that are deemed to be
“forward-looking statements.” Such statements are made in reliance upon safe
harbor provisions of the Private Securities Litigation Reform Act of
1995. Our actual results, performance, and achievements may differ
significantly from those discussed or implied in the forward-looking statements
as a result of a number of known and unknown risks and uncertainties including,
without limitation, those discussed below and in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.” In light of the
significant uncertainties inherent in such forward-looking statements, the
inclusion of such statements should not be regarded as a representation by the
Company or any other person that the Company’s objectives and plans will be
achieved. Words such as “believes,” “anticipates,” “expects,” “intends,” “may,”
and similar expressions are intended to identify forward-looking statements, but
are not the exclusive means of identifying such statements. We undertake no
obligation to revise any of these forward-looking statements.
ITEM
1A. RISK
FACTORS
The risks
presented below may not be all of the risks we may face. These are the factors
that we believe could cause actual results to be different from expected and
historical results. Other sections of this report include additional factors
that could have an effect on our business and financial performance. The
industry in which we compete is very competitive and changes rapidly. Sometimes
new risks emerge and management may not be able to predict all of them or how
they may cause actual results to be different from those contained in any
forward-looking statements. One should not rely upon forward-looking statements
as a prediction of future results.
We
have a history of losses and may never achieve or maintain
profitability.
We have
incurred annual operating losses since inception, and may continue to incur
operating losses because new products will require substantial development,
clinical, regulatory, manufacturing, marketing, and other expenditures. For the
fiscal years ended December 31, 2009 and December 31, 2008, we had net
losses of $(2,768,352) and $(2,775,117), respectively. As of December 31,
2009, our accumulated deficit was $(50,211,221). We may not be able to
successfully commercialize our current or future products, achieve significant
revenues from sales, or achieve or sustain profitability. Successful completion
of our commercialization program and our transition to attaining profitable
operations is dependent upon achieving a level of revenues adequate to support
our cost structure.
7
The
market for our Common Stock is limited and our stock price is
volatile.
Our
common stock, traded on the OTC Bulletin Board, has historically traded at low
average daily volumes, resulting in a limited market for the purchase and sale
of our common stock.
The
market prices of many publicly traded companies, including emerging companies in
the health care industry, have been, and can be expected to be, highly volatile.
The future market price of our common stock could be significantly impacted
by:
|
·
|
Future
sales of our common stock
|
|
·
|
Announcements
of technological innovations for new commercial products by our present or
potential competitors
|
|
·
|
Developments
concerning proprietary rights
|
|
·
|
Adverse
results in our field or with clinical tests of our products in customer
applications
|
|
·
|
Adverse
litigation
|
|
·
|
Unfavorable
legislation or regulatory decisions
|
|
·
|
Public
concerns regarding our products
|
|
·
|
Variations
in quarterly operating results
|
|
·
|
General
trends in the health care industry
|
|
·
|
Other
factors outside of our control
|
There
is uncertainty surrounding our ability to successfully commercialize our
biopreservative solutions.
Our
growth depends, in part, on our continued ability to successfully develop,
commercialize and market our HypoThermosol, CryoStor, and BloodStor
biopreservation media products. Even in markets that do not require us to
undergo clinical trials and obtain regulatory approvals, our products will not
be used unless they present an attractive alternative to competitive products
and if the benefits and cost savings achieved through their use outweigh the
cost of the solutions.
The
success of our HypoThermosol, CryoStor, and BloodStor biopreservation media
products is dependant, in part, on the commercial success of new cell and gene
therapy technology.
We are
developing biopreservative media for, and marketing our HypoThermosol, CryoStor,
and BloodStor biopreservative solutions to, biotechnology companies and research
institutions engaged in research and development of cell, gene and tissue
engineering therapy. Although we, as a component supplier, may not be subject to
the same formal prospective, controlled clinical-trials to establish safety and
efficacy, and to substantial regulatory oversight by the FDA and other
regulatory bodies, with respect to the commercialized end-products or therapies
developed by these biotechnology companies and research institutions, the
development of these therapies are years away from commercialization, and
demand, if any, for the HypoThermosol, CryoStor, and BloodStor biopreservative
solutions in these markets, is expected to be limited for several
years.
We
face significant competition.
The life
sciences industry is highly competitive. Many of our competitors are
significantly larger than we are and have greater financial, technical,
research, marketing, sales, distribution and other resources than we do.
Additionally, we believe there will be intense price competition with respect to
our products. There can be no assurance that our competitors will not succeed in
developing or marketing technologies and products that are more effective or
commercially attractive than any that are being developed or marketed by us, or
that such competitors will not succeed in obtaining regulatory approval, or
introducing or commercializing any such products, prior to us. Such developments
could have a material adverse effect on our business, financial condition and
results of operations. Further, even if we are able to compete successfully,
there can be no assurance that we could do so in a profitable
manner.
Our
success will depend on our ability to attract and retain key
personnel.
In order
to execute our business plan, we must attract, retain and motivate highly
qualified managerial, technical and sales personnel. If we fail to attract and
retain skilled scientific and sales personnel, our research and development and
sales efforts will be hindered. Our future success depends to a
significant degree upon the continued services of key scientific and technical
personnel. If we do not attract and retain qualified personnel we will not be
able to achieve our growth objectives.
8
If
we fail to protect our intellectual property rights, our competitors may take
advantage of our ideas and compete directly against us.
Our
success will depend to a significant degree on our ability to secure and protect
intellectual proprietary rights and enforce patent and trademark protections
relating to our technology. While we believe that the protection of patents and
trademarks is important to our business, we also rely on a combination of
copyright, trade secret, nondisclosure and confidentiality agreements, know-how
and continuing technological innovation to maintain our competitive position.
From time to time, litigation may be advisable to protect our intellectual
property position. However, these legal means afford only limited protection and
may not adequately protect our rights or permit us to gain or keep any
competitive advantage. Any litigation in this regard could be costly, and it is
possible that we will not have sufficient resources to fully pursue litigation
or to protect our intellectual property rights. This could result in the
rejection or invalidation of our existing and future patents. Any adverse
outcome in litigation relating to the validity of our patents, or any failure to
pursue litigation or otherwise to protect our patent position, could materially
harm our business and financial condition. In addition, confidentiality
agreements with our employees, consultants, customers, and key vendors may not
prevent the unauthorized disclosure or use of our technology. It is possible
that these agreements will be breached or that they will not be enforceable in
every instance, and that we will not have adequate remedies for any such breach.
Enforcement of these agreements may be costly and time consuming. Furthermore,
the laws of foreign countries may not protect our intellectual property rights
to the same extent as the laws of the United States.
Because
the life sciences industry is litigious, we may be sued for allegedly violating
the intellectual property rights of others.
In the
past, the life sciences industry has been characterized by a substantial amount
of litigation and related administrative proceedings regarding patents and
intellectual property rights. In addition, many life science companies have used
litigation against emerging growth companies as a means of gaining a competitive
advantage. Should third parties file patent applications or be issued patents
claiming technology claimed by us in pending applications, we may be required to
participate in interference proceedings in the U.S. Patent and Trademark Office
to determine the relative priorities of our inventions and the third parties’
inventions. We could also be required to participate in interference proceedings
involving our issued patents and pending applications of another entity. An
adverse outcome in an interference proceeding could require that we cease using
the technology or license rights from prevailing third parties. Third
parties may claim that we are using their patented inventions and may go to
court to stop us from engaging in our normal operations and activities. These
lawsuits are expensive to defend and conduct and would also consume and divert
the time and attention of our management. A court may decide that we are
infringing on a third party’s patents and may order us to cease the infringing
activity. The court could also order us to pay damages for the infringement.
These damages could be substantial and could harm our business, financial
condition and operating results. If we are unable to obtain any
necessary license following an adverse determination in litigation or in
interference or other administrative proceedings, we would have to redesign our
products to avoid infringing a third party’s patent and temporarily or
permanently discontinue manufacturing and selling some of our products. If this
were to occur, it would negatively impact future sales.
If
we fail to obtain or maintain future regulatory clearances or approvals for our
products, or if approvals are delayed or withdrawn, we will be unable to
commercially distribute and market our products or any product
modifications.
As an
ancillary or excipient reagent used in the manufacturing, transportation, or
clinical delivery of other developed technologies, HypoThermosol, CryoStor, and
BloodStor are not currently subject to specific FDA pre-market approval for
drugs, devices, or biologics. In particular, we are not required to sponsor
formal prospective, controlled clinical-trials in order to establish safety and
efficacy. However, it is highly likely that all potential customers would
require that we comply with Current Good Manufacturing Procedures (“cGMP”) as
mandated by FDA. In 2008, we completed small animal safety studies on our
products in collaboration with the Fred Hutchinson Cancer Research Center in
Seattle. Regulatory approvals, if granted, may include significant limitations
on the indicated uses for which our products may be marketed. In addition, to
obtain such approvals, the FDA and foreign regulatory authorities may impose
numerous other requirements on us. FDA enforcement policy prohibits the
marketing of approved medical devices for unapproved uses. Furthermore, product
approvals can be withdrawn for failure to comply with regulatory standards or
unforeseen problems following initial marketing. We may not be able to obtain or
maintain regulatory approvals for our products on a timely basis, or at all, and
delays in receipt of or failure to receive such approvals, the loss of
previously obtained approvals, or failure to comply with existing or future
regulatory requirements would have a significant negative effect on our
financial condition.
9
We
are dependent on outside suppliers for all of our manufacturing
supplies.
We rely
on outside suppliers for all of our manufacturing supplies, parts and
components. Although we believe we could develop alternative sources of supply
for most of these components within a reasonable period of time, there can be no
assurance that, in the future, our current or alternative sources will be able
to meet all of our demands on a timely basis. Unavailability of necessary
components could require us to re-engineer our products to accommodate available
substitutions which would increase costs to us and/or have a material adverse
effect on manufacturing schedules, products performance and market
acceptance.
ITEM
1B. UNRESOLVED
STAFF COMMENTS
Not
applicable.
ITEM
2. PROPERTIES
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 our
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.
ITEM
3. LEGAL
PROCEEDINGS
On
February 7, 2007, Kristi Snyder, a former employee of the Company filed a
complaint in the New York State Supreme Court, County of Broome, against the
Company alleging a breach of an employment agreement and seeking damages of up
to $300,000 plus attorneys’ fees. This case currently is in discovery. The
Company is vigorously defending its position.
On
April 6, 2007, the Company was served with a complaint filed by John G.
Baust, the Company’s former Chief Executive Officer and President, and
thereafter, until January 8, 2007, the Chairman, Sr. Vice President and
Chief Scientific Officer, in the New York State Supreme Court, County of Tioga,
against the Company seeking, among other things, damages under his employment
agreement to be determined upon trial of the action plus attorneys’ fees, a
declaratory judgment that he did not breach his fiduciary duties to the Company,
and that his covenant not to compete is void as against public policy or
unenforceable as a matter of law, and to enjoin the Company from commencing an
action against him in Delaware courts seeking damages for breaches of his
fiduciary obligations to the Company. The parties have engaged in extensive
motion practice. By decision of December 18, 2009, Justice Tait
rejected Plaintiff Baust’s efforts to obtain partial summary
judgment. This case continues in pre-trial discovery. The Company is
defending the lawsuit vigorously.
On
June 15, 2007, the Company filed a lawsuit in the State of New York Supreme
Court, County of Tioga against Cell Preservation Services, Inc. (“CPSI”) and
Coraegis Bioinnovations, Inc. (“Coraegis”), both of which are owned and/or
controlled by John M. Baust, a former employee of the Company and the son of
John G. Baust, both of whose employment with the Company was terminated on
January 8, 2007.
10
On
March 15, 2004, the Company had entered into a Research Agreement with
CPSI, pursuant to which CPSI took over the processing of the Company’s existing
SBIR grants, and, on behalf of the Company, was to apply for additional SBIR
grants; in each case, was to perform the research with respect to such grants.
In connection therewith, the Company granted to CPSI a limited license to use
the Company’s technology (“BioLife’s Technology”), including the Company’s
proprietary cryopreservation solutions (collectively, “Intellectual Property”),
solely for the purpose of conducting the research pertaining to the SBIR grants,
and CPSI agreed to keep confidential all Company confidential information
disclosed to CPSI (“Confidential Information”). On January 8, 2007, the
Company informed CPSI that the Research Agreement would not be extended and
would terminate in accordance with its terms on March 15,
2007.
The
lawsuit states various causes of action, including, (1) repeated violations of
the Research Agreement by CPSI by improperly using BioLife’s Technology,
Intellectual Property and Confidential Information for its own purposes, (2) the
unlawful misappropriation by CPSI and Coraegis of the Company’s trade secrets,
(3) unfair competition on the part of CPSI and Coraegis through their unlawful
misappropriation and misuse of BioLife’s Technology, Intellectual Property and
Confidential Information, and (4) the conversion of BioLife’s Technology,
Intellectual Property and Confidential Information by CPSI and Coraegis to their
own use without the Company’s permission.
The
lawsuit seeks, among other things, (1) to enjoin CPSI from continuing to violate
the Research Agreement, (2) damages as a result of CPSI’s breaches of the
Research Agreement, (3) to enjoin CPSI and Coraegis from any further use of the
Company’s trade secrets, (4) damages (including punitive damages) as a result of
CPSI’s and Coraegis’ misappropriation of the Company’s trade secrets, (5) to
enjoin CPSI and Coraegis from any further use of BioLife’s Technology,
Intellectual Property and Confidential Information, (6) damages (including
punitive damages) as a result of CPSI’s and Coraegis’ unfair competition against
the Company, and (7) damages (including punitive damages) as a result of CPSI’s
and Coraegis’ conversion of BioLife’s Technology, Intellectual Property and
Confidential Information to their own use. On September 30, 2008, Justice
Jeffrey Tait issued a Letter Decision and Order which provides for a multi-phase
process for discovery concerning contested discovery disclosures. The parties
are awaiting Justice Tait’s decision on the initial process to be used
concerning these contested discovery issues. The parties have engaged
in extensive motion practice. By decision of December 18, 2009,
Justice Tait denied the attempt of the Defendants to dismiss Plaintiff’s
complaint. This case is in pre-trial discovery. The Company is
prosecuting the lawsuit vigorously.
On
December 4, 2007, John M. Baust, the son of John G. Baust, filed a
complaint in the New York State Supreme Court, County of Tioga, against the
Company and Michael Rice, the Company’s Chairman and Chief Executive Officer,
alleging, among other things, a breach of an employment agreement and defamation
of character and seeking damages against the Company in excess of $300,000 plus
attorneys fees. The case currently is in discovery. The Company is defending the
lawsuit vigorously.
On
December 27, 2007, John G. Baust and John M. Baust, each separately, filed
complaints with the State of New York, Division of Human Rights (“the Division”)
alleging unlawful discrimination practices against the Company based on wrongful
termination due to retaliation for bringing complaints of sexual harassment on
the part of Michael Rice, the Company’s Chairman and Chief Executive Officer.
The Company responded to the complaints, filed by John G. Baust on January 22,
2008, and by John M. Baust on January 14, 2008. On March 5, 2008, the Company
was notified by the Division that these complaints were ordered dismissed and
the files were closed due to the Division’s lack of jurisdiction in the matter,
the Division having determined that the civil suits filed by John G. Baust and
John M. Baust had precedence and precluded the Division from asserting
jurisdiction. The determination was successfully appealed and overturned by
Justice Tait on October 23, 2008. On February 4, 2010, the Appellate Division of
the Supreme Court of New York, Third Department affirmed Justice Tait’s opinion
that John G. Baust and John M. Baust could pursue a complaint in the
Division. On March 15, 2010, the Division delivered to the Supreme
Court, Appellate Division, a Notice of Motion and Motion for Reargument or Leave
to Appeal. The motion is returnable April 5, 2010. In the
event the Division's motion is denied or, if granted, the Division is
unsuccessful in its reargument or appeal, the Company retains all of its rights
to oppose the complaint of Messrs. Baust before the Division. In such
event, the Company would vigorously oppose any attempt at a
recovery.
11
PART
II
ITEM
5. MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
Price
Range of Common Stock
The
common stock, par value $.001 per share, of the Company (“Common Stock”) is
traded on the OTC Bulletin Board under the symbol “BLFS”. As of
December 31, 2009, there were approximately 3,000 holders of record of its
common stock. The Company has never paid cash dividends on our
common stock and do not anticipate that any cash dividends will be paid in the
foreseeable future.
The
following table sets forth, for the periods indicated, the range of high and low
quarterly closing sales prices of its common stock:
High
|
Low
|
|||||||
Year
ended December 31, 2008
|
||||||||
4th
Quarter
|
$ | 0.04 | $ | 0.03 | ||||
3rd
Quarter
|
0.04 | 0.04 | ||||||
2nd
Quarter
|
0.05 | 0.05 | ||||||
1st
Quarter
|
0.08 | 0.08 | ||||||
Year
ended December 31, 2009
|
||||||||
4th
Quarter
|
$ | 0.11 | $ | 0.10 | ||||
3rd
Quarter
|
0.13 | 0.13 | ||||||
2nd
Quarter
|
0.22 | 0.17 | ||||||
1st
Quarter
|
0.07 | 0.05 |
ITEM
7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion and analysis should be read in conjunction with our audited
financial statements and notes thereto that appear elsewhere in this report.
This discussion contains forward-looking statements reflecting our current
expectations that involve risks and uncertainties. Actual results may differ
materially from those discussed in these forward-looking statements due to a
number of factors, including those set forth in the section entitled “Risk
Factors” and elsewhere in this report.
The
statements contained in this Annual Report on Form 10-K, including
statements under this 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 our 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 Annual Report on Form 10-K is based on our current expectations and
beliefs concerning future developments and their potential effects on
us. There can be no assurance that future developments affecting us will be
those that we 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 Item 1A of Part I, “Risk
Factors”. 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. We undertake 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.
12
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 audited
financial statements and accompanying footnotes thereto.
We
develop and market patented biopreservation media products for cells, tissues,
and organs. Our proprietary HypoThermosol, CryoStor, and BloodStor platform of
hypothermic storage, transport, and cryopreservation media products are marketed
to cell therapy companies, pharmaceutical companies, cord blood banks, hair
transplant surgeons, and suppliers of cells to the toxicology testing and
diagnostics markets. All of our products are serum-free and protein-free, fully
defined, and are manufactured under current Good Manufacturing Practices using
USP or the highest available grade components.
The
discoveries made by our scientists 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.
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
accounting principles generally accepted in the United States. The preparation
of financial statements requires that we make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements as
well as reported revenues and expenses during the reporting periods. On an
ongoing basis, we evaluates estimates, including, but not limited to those
related to accounts receivable allowances, determination of fair value of
share-based compensation, contingencies, income taxes, and expense accruals. We
base our estimates on historical experience and on other factors that we
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.
Share-based
Compensation
We
account for share-based compensation by estimating the fair value of share-based
compensation using the Black-Scholes option pricing model on the date of
grant. We utilize assumptions related to stock price volatility,
stock option term and forfeiture rates that are based upon both historical
factors as well as management’s judgment. Non-cash compensation
expense is recognized on a straight-line basis over the applicable requisite
service period of one to four years, based on the fair value of such share-based
awards on the grant date.
Income
Taxes
We follow
the asset and liability method of accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax basis of assets and liabilities and on
the expected future tax benefits to be derived from net operating loss
carryforwards measured using current tax rates. A valuation allowance is
established if it is more likely than not that some portion or all of the
deferred tax assets will not be realized. We have not recorded any
liabilities for uncertain tax positions or any related interest and penalties.
Our tax returns are open to audit for the years ending December 31, 2006 to
2009.
Recent
Accounting Pronouncements
In
October 2009, the Financial Accounting Standards Board (“FASB”) issued
authoritative guidance on revenue arrangements with multiple deliverables that
are outside the scope of the software revenue recognition guidance (which does
not have impact on our accounting). Under the new guidance, when
vendor specific objective evidence or third party evidence for deliverables in
an arrangement cannot be determined, a best estimate of a selling price is
required to separate deliverables and allocate arrangement consideration using
the relative selling price method. The new guidance includes new
disclosure requirements on how the application of the relative selling price
method affects the timing and amount of revenue recognition. We
believe adoption of this new guidance will not have a material effect on our
financial statements.
13
Comparison
of Annual Results of Operations
Percentage
comparisons have been omitted within the following table where they are not
considered meaningful.
Years
Ended December 31,
|
||||||||||||||||
2009
|
2008
|
$
Change
|
%
Change
|
|||||||||||||
Revenue
|
||||||||||||||||
Product
sales
|
$ | 1,556,600 | $ | 1,277,497 | $ | 279,103 | 22 | % | ||||||||
Licensing
revenue
|
25,000 | 45,000 | (20,000 | ) | -20 | % | ||||||||||
Total
revenue
|
1,581,600 | 1,322,497 | 259,103 | 20 | % | |||||||||||
Cost
of product sales
|
1,007,022 | 770,646 | 236,376 | 31 | % | |||||||||||
Gross
profit
|
574,578 | 551,851 | 22,727 | 4 | % | |||||||||||
Operating
expenses
|
||||||||||||||||
Research
and development
|
414,465 | 457,640 | (43,175 | ) | -9 | % | ||||||||||
Sales
and marketing
|
558,721 | 372,324 | 186,397 | 50 | % | |||||||||||
General
and administrative
|
1,503,552 | 1,925,654 | (422,102 | ) | -22 | % | ||||||||||
Manufacturing
start-up costs
|
385,205 | 259,687 | 125,518 | 48 | % | |||||||||||
Total operating
expenses
|
2,861,943 | 3,015,305 | (153,362 | ) | -5 | % | ||||||||||
Operating
loss
|
(2,287,365 | ) | (2,463,454 | ) | 176,089 | -7 | % | |||||||||
Other
income (expenses)
|
||||||||||||||||
Interest
income
|
1,069 | 6,354 | (5,285 | ) | -83 | % | ||||||||||
Other
income, net
|
5,957 | 10,495 | (4,538 | ) | -43 | % | ||||||||||
Interest
expense
|
(488,013 | ) | (284,762 | ) | (203,251 | ) | 71 | % | ||||||||
Amortization
of deferred financing costs
|
–– | (43,750 | ) | 43,750 | -100 | % | ||||||||||
Total
other income (expenses)
|
(480,987 | ) | (311,663 | ) | (169,324 | ) | 54 | % | ||||||||
Net
Loss
|
$ | (2,768,352 | ) | $ | (2,775,117 | ) | $ | 6,765 |
Comparison
of Results of Operations for the Years Ended December 31, 2009 and
2008
Revenue. Sales
to individual customers representing more than 10% of total revenue totaled
approximately $494,000 and $409,000 in 2009 and 2008,
respectively. In 2009 the amount in product sales revenue was from
two customers, one which totaled $334,000 representing 21% of total product
sales, and the other which totaled $160,000 representing 10% of total product
sales. In 2008 the amount in product sales revenue was from two
customers, one which totaled $246,000 representing 19% of total product sales,
and the other which totaled $163,000 representing 13% of total product
sales. Increase in revenue is primarily due to higher product sales
to existing customers, the acquisition of new customers, and initial sales of
our new product BloodStor™.
Licensing
revenue. Revenue from license fees decreased in
2009 compared to 2008. In 2009, license revenue was comprised of one
customer. In 2008, license revenue was comprised of two
customers. We expect to recognize licensing revenue ratably over the
term of the agreements through September 2019.
Product sales and
cost of product sales. In 2009, product sales
increased 22% compared to 2008 due to higher product sales to existing
customers, the acquisition of new customers in the cell therapy, drug discovery,
and cell supplier markets, and our initial sales of the new product family
BloodStor™.
Cost of
product sales consists of raw materials, labor and overhead
expenses. In May 2009, we transitioned from a contract manufacturer
to internal manufacturing. The initial period of in-house production
included lower factory utilization during the start-up phase, which resulted in
lower gross margins than we expect to realize in future periods.
14
Research and
Development. R&D expense 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 year ended December 31, 2009
decreased 9% compared to the 2008 period due to lower personnel related cost due
to the reduction in workforce at the end of July 2009, offset by an increase in
lab supplies and small equipment expenses related to the build-out of the
research and development lab facility.
Sales and
Marketing. Sales and marketing expenses consist
primarily of salaries and other personnel-related expenses, consulting, trade
shows and advertising. The 50% increase in 2009 sales and marketing
expenses compared to 2008 was due to higher personnel-related costs and an
increase in expenses associated with advertising, market research and attendance
at key trade shows. We expect our sales and marketing expenses to
continue to increase in 2010 due to increased activities to support an increase
in sales revenue.
General and
Administrative Expenses. General
and administrative expenses consist primarily of salaries and other
personnel-related expenses to support our R&D activities, 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 22% decrease in general
and administrative expenses in 2009 compared to 2008 resulted primarily from
lower litigation related legal fees, offset by an increase in professional
accounting fees and stock-based compensation.
Manufacturing
Start-up Costs. Manufacturing
start-up costs increased 48% in the current year compared to 2008. 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. We do not expect to incur any start-up costs in
2010.
Interest
Expense. The
71% increase in interest expense in 2009 compared to 2008 was due to a higher
average debt balance.
Liquidity,
Going Concern and Capital Resources
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, or,
to amounts and classification of liabilities that may be necessary should we be
unable to continue as a going concern.
Liquidity
At
December 31, 2009, we had cash and cash equivalents of $139,151, compared
to cash and cash equivalents of $98,724 at December 31, 2008. At
December 31, 2009, we had working capital of $535,697 compared to working
capital of $95,543 at December 31, 2008. We have been unable to
generate sufficient income from operations in order to meet our operating needs
and have an accumulated deficit of approximately $50 million at December 31,
2009. This raises substantial doubt about our ability to continue as
a going concern.
Net
Cash Used in Operating Activities
During
the year ended December 31, 2009, net cash used in operating activities was
$(2,413,642) as compared to net cash used by operating activities of
$(2,113,418) for the year ended December 31, 2008. 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. We expect to use cash for operating
activities in the foreseeable future as we continue our R&D
activities.
Net
Cash Provided by and Used in Investing Activities
Net cash
used in investing activities totaled $(373,531) during the year ended
December 31, 2009, $(46,688) during the year ended December 31,
2008. Cash used in investing activities is due to purchase of
property and equipment.
15
Net
Cash Provided by Financing Activities
Net cash
provided by financing activities totaled $2,827,600 for the year ended
December 31, 2009, which resulted primarily from the issuance of promissory
notes to two shareholders (see below). Net cash provided by financing activities
totaled $2,202,333 for the year ended December 31, 2008 resulting from the
issuance of promissory notes to two shareholders (see 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) incorporates (i) a refinancing of existing indebtedness of the
Company to the Investor, and accrued interest thereon, in the aggregate amount
of $1,431,563.30, (ii) a then current advance of $300,000, and (iii) a
commitment to advance to the Company, from time to time, additional amounts up
to a maximum of $768,436.70, (b) bears interest at the rate of 7% per annum on
the principal balance outstanding from time to time, (c) is evidenced by a
secured convertible multi-draw term loan note (the “Multi-Draw Term Loan Note”),
due and payable, together with accrued interest thereon, the earlier of (i)
January 11, 2010, or (ii) an Event of Default (as defined in the Multi-Draw Term
Loan Note), (d) if outstanding at the time of any bona fide equity financing of
the Company of at least Two Million Dollars ($2,000,000) (a “Financing”), at the
option of the Investor, may be converted into that number of fully paid and
non-assessable shares or units of the equity security(ies) of the Company sold
in the Financing (“New Equity Securities”) as is equal to the quotient obtained
by dividing the principal amount of the Facility outstanding at the time of the
conversion plus accrued interest thereon by 85% of the per share or per unit
purchase price of the New Equity Securities, and (e) is secured by all of the
Company’s assets.
In May
and July 2008, we received an additional $1,000,000 in total from the Investors
pursuant to the Multi-Draw Term Loan Facility. 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 Multi-Draw Term Loan
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 Multi-Draw Term Loan Facilities, which brought our total principal
balance owed under the Multi-Draw Term Loan Notes to $7,888,127, and leaves
$1,111,873 left to draw from the Facilities at December 31, 2009. In
December 2009 the Investors granted an extension of the repayment date to
January 11, 2011. 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.
Operating
Capital and Capital Expenditure Requirements
We
believe that continued access to the Multi-Draw Term Loan Facilities, in
combination with cash generated from operations, will provide sufficient funds
for the next nine months. However, we would require additional
capital in the immediate short term if our ability to draw on the Multi-Draw
Term Loan Facilities is restricted or terminated. Other factors that would
negatively impact our ability to finance our 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. We expect that we 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, we 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 shareholders. If we are unable to secure additional
capital, as circumstances require, we may not be able to continue our
operations.
Off-Balance
Sheet Arrangements
As of
December 31, 2009, we did not have any off-balance sheet financing
arrangements.
16
Contract
Obligations
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, WA at an initial
rental rate of $6,367 per month. We are also responsible for paying our
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, WA 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.
ITEM
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
The
information required by this item is incorporated herein by reference to the
financial statements included in Item 15 (a)1 of this Form 10-K Annual
Report.
ITEM
9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
9A. CONTROLS
AND PROCEDURES
Disclosure
Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
material information required to be disclosed in our periodic reports filed
under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded,
processed, summarized, and reported within the time periods specified in the
SEC’s rules and forms and to ensure that such information 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. During the quarter ended December 31, 2009 we carried out an
evaluation, under the supervision and with the participation of our management,
including the chief executive officer and chief financial officer, as required
by the rules and regulations under the 1934 Act, of the effectiveness of the
design and operation of our disclosure controls and procedures, as defined in
Rule 13a-15(e) under the 1934 Act. Based on this evaluation, our chief
executive officer and chief financial officer concluded that, as of
December 31, 2009, that our disclosure controls and procedures were
effective.
Management’s Report on Internal
Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) under the
Securities Exchange Act of 1934, as amended. Our internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of the financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles. This process includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of our assets; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and (iii)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on our financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of the
internal control over financial reporting to future periods are subject to risk
that the internal control may become inadequate because of changes in
conditions, or that the degree of compliance with policies or procedures may
deteriorate.
17
Our
management, including our chief executive officer and chief financial officer,
conducted an evaluation of the design effectiveness of our internal control over
financial reporting based on the framework in “Internal Control —
Integrated Framework” issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”), as of December 31, 2009. Based on our
assessment, we conclude that as of December 31, 2009 our internal control over
financial reporting was effective.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this annual report.
Changes
in Internal Control Over Financial Reporting
There
were no changes that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting during the quarter ended
December 31, 2009.
Limitations
on Controls
Management
does not expect that our disclosure controls and procedures or our internal
control over financial reporting will prevent or detect all error and
fraud. Any control system, no matter how well designed and operated,
is based upon certain assumptions and can provide only reasonable, not absolute,
assurance that our objectives will be met. Further, no evaluation of
controls can provide absolute assurance that misstatements due to error or fraud
will not occur or that all control issues and instances of fraud, if any, have
been detected.
ITEM
9B. OTHER
INFORMATION
None.
PART
III
ITEM
10. DIRECTORS,
EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The
following table and text set forth the names and ages of all directors and
executive officers of the Company as of March 31, 2010. The Board of
Directors is comprised of only one class. All of the directors will serve until
the next annual meeting of shareholders, and until their successors are elected
and qualified, or until their earlier death, retirement, resignation or removal.
There are no family relationships among directors and executive officers. Also
provided herein are brief descriptions of the business experience of each
director and executive officer during the past five years (based on information
supplied by them) and an indication of directorships held by each director in
other companies subject to the reporting requirements under the Federal
securities laws.
Name
|
Age
|
Position
and Offices With the Company
|
|||
Michael
Rice
|
47 |
Chief
Executive Officer,
|
|||
President,
and Director
|
|||||
Howard
S. Breslow
|
70 |
Director,
Secretary
|
|||
Roderick
de Greef
|
49 |
Director
|
|||
Thomas
Girschweiler
|
52 |
Director
|
|||
Raymond
Cohen
|
50 |
Director
|
|||
Andrew
Hinson
|
44 |
Director
|
Michael
Rice has been President and Chief Executive Officer and a director of the
Company since August 2006. From October 2004 to August 2006,
Mr. Rice served as Sr. Business Development Manager for the Medical &
Wireless Products Group at AMI Semiconductor, Inc. (NASDAQ: AMIS). Prior
thereto, from October 2000 to October 2004, he served as Director of
Marketing & Business Development, Western Region Sales Manager, and
Director, Commercial Sales at Cardiac Science, Inc. (NASDAQ: CSCX); from
May 1998 to October 2000 as Vice President, Sales and Marketing at
TEGRIS Corporation; and from May 1986 to May 1998 in several sales and
marketing roles at Physio Control Corporation.
18
Howard S.
Breslow has served as a director of the Company since July 1988. He has
been a practicing attorney in New York City for more than 40 years and is a
member of the law firm of Breslow & Walker, LLP, New York, NY, which firm
serves as general counsel to the Company.
Roderick
de Greef has served on the Company’s Board of Directors since June 19,
2000. Effective July 1, 2007, Mr. de Greef was retained by the Company
as an outside consultant to provide oversight of the Company’s financing
activities, internal accounting functions and SEC reporting, and assist in the
search for, and reviewing, strategic alternatives. Mr. de Greef currently
serves as the Chairman of the Board of Cambridge Heart, Inc. (NASDAQ: CAMH), a
manufacturer of diagnostic cardiology products. Mr. de Greef also serves on
the board of directors of Endologix, Inc. (NASDAQ: ELGX), a medical device
company and Elephant Talk Communications, Inc., a publicly traded
telecommunications company. Previously, Mr. de Greef served as the Chief
Financial Officer of Cambridge Heart from October 2005 to July 2007.
From 2001 to 2005, Mr. de Greef served as the Executive Vice President,
Chief Financial Officer and Secretary of Cardiac Science, Inc. (NASDAQ:
CSCX).
Thomas
Girschweiler joined the Board in 2003. Mr. Girschweiler has been engaged in
corporate financing activities on his own behalf since 1996. From 1981 to 1996
he was an investment banker with Union Bank of Switzerland.
Mr. Girschweiler is a graduate of the Swiss Banking School.
Raymond
W. Cohen joined the Board in May 2006. Mr. Cohen is an Accredited Public Company
Director and has served as the CEO and member of the Board of Directors of
CardioPolymers, Inc., a venture backed developer of novel biotherapeutic
therapies since 2006 and as an advisor to Fjord Ventures, LLC., a life science
incubator. Cohen also serves on the Board of publicly traded Cardiogenesis,
Inc., (CPCG) a manufacturer of transmyocardial revascularization lasers,
Syncroness, Inc., a privately-held engineering and product development firm and
BioGenex, a privately-held manufacturer of immunohistochemistry devices. In
2008, Mr. Cohen was named by AeA as the Private Company Life Science CEO of
the Year. From 1997 to 2005, Cohen served as Chairman and Chief Executive
Officer of Nasdaq listed Cardiac Science Inc. In 2004, Cardiac Science was
ranked as the 4th
fastest growing technology company in North America on Deloitte & Touche’s Fast
500 listing. Mr. Cohen was named Entrepreneur of the Year in
2002 by the Orange County Business Journal and was a finalist for Ernst & Young’s Entrepreneur of
the Year in the medical company category in 2004. Mr. Cohen is a member
of a number of local Southern California organizations, notably the Forum of
Corporate Directors and OCTANe where he is a member of the Biomedical Leadership
Council. Mr. Cohen holds a B.S. in Business Management from the State University
of New York at Binghamton.
Andrew
Hinson joined the Board in February 2007. He has served as Vice President
for Clinical and Regulatory Affairs for CardioPolymers, Inc (formerly Symphony
Medical, Inc.) since 2004. CardioPolymers is a venture capital backed
privately-held developer of therapeutic biopolymer therapies for the treatment
of heart failure and other cardiac abnormalities. Mr. Hinson previously
served as Senior Director of Clinical Development at AnGes, Inc (2002 to 2004),
a biotechnology firm developing novel gene-based approaches for the treatment of
cardiovascular disease and served in various management roles in Clinical
and Medical Affairs at Procter & Gamble Pharmaceutical from 1993 to 2002.
Mr. Hinson has diverse experience in the cell and gene therapy markets and
extensive experience managing clinical trials for new biologic based therapies
for cardiac, neurologic, and gastrointestinal applications.
Committee
Membership, Meetings and Attendance
During
the fiscal year ended December 31, 2009, there were:
|
·
|
Three
meetings of the Board of Directors
|
|
·
|
Four
meetings of the Audit Committee
|
|
·
|
Two
meetings of the Compensation
Committee
|
|
·
|
No
meetings of the Nominating and Corporate Governance
Committee
|
Each
Director attended or participated in at least 75% of the meetings of the Board
of Directors held during the fiscal year ended December 31,
2009.
19
Board
Committees
In
February 2008 the Company’s Board of Directors established three standing
committees: Audit, Compensation, and Nominating and Corporate
Governance.
Audit
Committee and Audit Committee Financial Expert
On
February 11, 2008, we formed a separately designated standing Audit
Committee. The Audit Committee is currently composed of
Messrs. Girschweiler, Cohen and de Greef. The Board of Directors has
determined that Mr. de Greef is an “audit committee financial expert” as
defined in Item 407(d)(5)(ii) of Regulation S-K. The Audit Committee has
the sole authority and responsibility to select, evaluate and replace our
independent registered public accounting firm or nominate the independent
auditors for stockholder approval. The Audit Committee must pre-approve all
audit engagement fees and terms and all non-audit engagements with the
independent auditors. The Audit Committee consults with management but does not
delegate these responsibilities. The Audit Committee met four times in fiscal
2009 in which they reviewed and discussed the financial statements as presented
in form 10-K for period ended December 31, 2008, and in form 10-Q for periods
ended March 31, June 30, and September 30, 2008.
Compensation
Committee
Our
Compensation Committee was formed on February 11, 2008 and consists of
Messrs., Hinson, Cohen and Girschweiler. The Compensation Committee will award
stock options to officers and employees and has overall responsibility for
approving and evaluating the executive officer compensation plans, policies and
programs of the Company. The Compensation Committee met two times in
fiscal 2009.
Nominating
and Corporate Governance Committee
Our
Nominating and Corporate Governance Committee was formed on February 11,
2008 and consists of Messrs. Hinson, de Greef and Breslow. The Nominating
and Corporate Governance Committee did not meet in fiscal 2009. The Nominating
and Corporate Governance Committee is responsible for (1) reviewing suggestions
of candidates for director made by directors and others; (2) identifying
individuals qualified to become Board members, and recommending to the Board the
director nominees for the next annual meeting of shareholders; (3) recommending
to the Board director nominees for each committee of the Board; (4) recommending
to the Board the corporate governance principles applicable to the Company; and
(5) overseeing the annual evaluation of the Board and management. Pursuant to
the Nominating and Corporate Governance Committee Charter, there is no
difference in the manner in which a nominee is evaluated based on whether the
nominee is recommended by a stockholder or otherwise.
Section 16(a)
Beneficial Ownership Reporting Compliance
Our
executive officers, directors, and beneficial owners of more than 10% of any
class of its equity securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934 (collectively, the “Reporting Persons”) are
required to file reports of ownership and changes in beneficial ownership of the
Company’s equity securities with the Securities Exchange Commission. Copies of
those reports also must be furnished to us. Based solely on review of the copies
of such forms furnished by the Company, we believe that during the year ended
December 31, 2009, the Reporting Persons complied with all applicable
Section 16(a) filing requirements.
Code
of Ethics
We have
always encouraged our employees, including officers and directors to conduct
business in an honest and ethical manner. Additionally, it has always been our
policy to comply with all applicable laws and provide accurate and timely
disclosure. Accordingly, the Board has adopted a formal written code of ethics
for all employees, and an additional corporate code of ethics for its Chief
Executive Officer and Senior Financial Officers. The code of ethics is designed
to deter wrongdoing and promote honest and ethical conduct and compliance with
applicable laws and regulations. These codes also incorporate our expectations
of our executives which enable us to provide accurate and timely disclosure of
our filings with the Securities and Exchange Commission and other public
communication. The code of ethics is posted on our website, www.biolifesolutions.com.
Any future changes or amendments to our code of ethics, and any waiver of our
codes of ethics, will be posted on the website when applicable.
20
ITEM
11. EXECUTIVE
COMPENSATION
The
following table sets forth certain information concerning the compensation paid
by the Company to its Chief Executive Officer, and any additional executive
officers that received salary and bonus payments in excess of $100,000 during
the fiscal year ended December 31, 2009 (collectively the “Named Executive
Officers”).
SUMMARY
COMPENSATION TABLE
Non-Equity
|
Nonqualified
Deferred
|
|||||||||||||||||||||||||||||||||
Name
and Principal
Positions
(a)
|
Year
(b)
|
Salary
($)
(c)
|
Bonus
($)
(d)
|
Stock
Awards
($)
(e)
|
Option
Awards
($)
(f)
(1)
|
Incentive
Plan
Compensation
($)
(g)
|
Compensation
Earnings
($)
(h)
|
All
Other
Compensation
($)
(i)
|
Total
($)
(j)
|
|||||||||||||||||||||||||
Michael
Rice
|
2009
|
287,500
|
––
|
––
|
50,963
|
(2)
|
––
|
––
|
––
|
338,463
|
||||||||||||||||||||||||
President,
Chief
|
2008
|
300,000
|
30,000
|
––
|
––
|
––
|
––
|
––
|
330,000
|
|||||||||||||||||||||||||
Executive
Officer and
|
||||||||||||||||||||||||||||||||||
Director
(8/06 –present)
|
———————
(1) See
Note 1 to Notes to Financial Statements for a description on the valuation
methodology of stock option awards.
(2) Amount
is a result of options to purchase 765,000 shares at $0.09 per share granted to
officer on 2/2/2009, which options vest to the extent of 191,250 shares on each
of 2/2/2010, 2/2/2011, 2/2/2012 and 2/2/2013.
Employment
Agreements
We have
an employment agreement with Michael Rice, its President and Chief Executive
Officer, which automatically renews for successive one year periods in the event
either party does not send the other a “termination notice” no less than 90 days
prior to the expiration of the initial term or any subsequent term. The
agreement provided for a salary of $200,000 per year and an incentive bonus
based on certain quarterly milestones, to be determined by the Board of
Directors. The officer also received ten-year incentive stock options to
purchase 1,500,000 shares of common stock at $.07 per share (the fair market
value on the date of grant), which vest to the extent of 500,000 shares on each
of the first three anniversary dates of the date of grant. We amended this
employment agreement on February 7, 2007 to provide that if, in connection
with a “change in control,” Mr. Rice’s employment is terminated without
“Cause” or he resigns for “Good Reason,” he will be entitled to the continued
payment of salary and bonuses and the reimbursement of medical insurance
premiums for 24 months following the change in control event. On
February 11, 2008, Mr. Rice’s salary was increased to $300,000 per
annum, retroactive to January 1, 2008 and his quarterly bonus plan was
supplanted for 2008 with an annual review by the Compensation Committee, which
took place on February 2, 2009. Beginning on August 1, 2009, Mr.
Rice’s salary was decreased 10% in conjunction with the Company’s 10% across the
board pay cuts.
The
following table provides information related to outstanding equity awards for
each of the Named Executive Officers as of December 31, 2009:
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
OPTION
AWARDS
|
STOCK
AWARDS
|
||||||||||||||||||||||||||||||||
Equity
Incentive
|
Equity
Incentive
Plan
Awards:
|
||||||||||||||||||||||||||||||||
Name
(a)
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(b)
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(c)
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
(d)
|
Option
Exercise
Price
($)
(e)
|
Option
Expiration
Date
(f)
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
(g)
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
(h)
|
Plan
Awards:
Number
of
Unearned
Shares,
units
or
Other
Rights
That
Have
Not
Vested
(#)
(i)
|
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
($)
(j)
|
||||||||||||||||||||||||
Michael
Rice
|
1,500,000
|
––
|
––
|
0.07
|
8/7/2016
(1)
|
––
|
––
|
––
|
––
|
||||||||||||||||||||||||
Michael
Rice
|
666,666
|
333,334
|
––
|
0.08
|
2/7/2017
(2)
|
––
|
––
|
––
|
––
|
||||||||||||||||||||||||
Michael
Rice
|
––
|
765,000
|
––
|
0.09
|
2/2/2019
(3)
|
––
|
––
|
––
|
––
|
———————
(1)
|
This
award vests 500,000 shares on each of 8/7/2007, 8/7/2008, and
8/7/2009
|
(2)
|
This
award vests 333,333 shares on each of 2/7/2008, 2/7/2009, and 333,334
shares on 2/7/2010
|
(3)
|
This
award vests 191,250 shares on each of 2/2/2010, 2/2/2011, 2/2/2012 and
2/2/2013
|
21
Compensation
of Directors
Outside
directors were compensated a quarterly retainer fee of $1,500. The
Audit Committee Chairman was compensated an additional quarterly retainer fee of
$2,000. All directors receive $1,000 for attending board meetings and
$500 per meeting for telephonic board meetings. Directors who attend audit
committee and the compensation committee meetings receive $500. A
total of $61,250 in director compensation was recorded during the year ended
December 31, 2009.
The
following table sets forth compensation paid to outside directors during the
fiscal year ended December 31, 2009:
DIRECTOR
COMPENSATION
Name
(a)
|
Fees
Earned
or
Paid in
Cash
($)
(b)
|
Stock
Awards
($)
(c)
|
Option
Awards
($)
(d)(1)
|
Non-Equity
Incentive
Plan
Compensation
($)
(e)
|
Non-Qualified
Deferred
Compensation
Earnings
($)
(f)
|
All
Other
Compensation
($)
(g)
|
Total
($)
(j)
|
|||||||||||||||||||||
Howard
Breslow (2)
|
8,000
|
––
|
9,197
|
––
|
––
|
––
|
17,197
|
|||||||||||||||||||||
Thomas
Girschweiler (3)
|
11,500
|
––
|
9,197
|
––
|
––
|
––
|
20,697
|
|||||||||||||||||||||
Roderick
de Greef (4)
|
10,500
|
––
|
9,197
|
––
|
––
|
110,000
|
129,697
|
|||||||||||||||||||||
Raymond
Cohen (5)
|
21,500
|
––
|
9,197
|
––
|
––
|
––
|
30,697
|
|||||||||||||||||||||
Andrew
Hinson (6)
|
9,000
|
––
|
9,197
|
––
|
––
|
––
|
18,197
|
———————
(1)
|
See
Note 1 to Notes to Financial Statements for a description on the valuation
methodology of stock option awards.
|
(2)
|
As
of December 31, 2009, Mr. Breslow had received a grant of
150,000 options which vested 100% on 2/2/2010. He owned the
following options and warrants, all of which were exercisable: options to
purchase 500,000 shares of Common Stock and warrants to purchase 500,000
shares of Common Stock.
|
(3)
|
As
of December 31, 2009, Mr. Girschweiler had received a grant of
150,000 options which vested 100% on 2/2/2010. He owned the
following options, all of which were exercisable: options to purchase
250,000 shares of Common Stock.
|
(4)
|
As
of December 31, 2009, Mr. de Greef had received a grant of
150,000 options which vested 100% on 2/2/2010. He owned the
following options and warrants, all of which were exercisable: options to
purchase 500,000 shares of Common Stock and warrants to purchase 1,250,000
shares of Common Stock.
|
(5)
|
As
of December 31, 2009, Mr. Cohen had received a grant of 150,000
options which vested on 2/2/2010. He owned the following
options, all of which were exercisable: options to purchase 750,000 shares
of Common Stock.
|
(6)
|
As
of December 31, 2009, Mr. Hinson had received a grant of 150,000
options which vested on 2/2/2010. He owned the following
options, all of which were exercisable: options to purchase 250,000 shares
of Common Stock.
|
ITEM
12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The
following table sets forth, as of March 31, 2010, certain information
regarding the beneficial ownership of Common Stock by (i) each stockholder known
by the Company to be the beneficial owner of more than 5% of the outstanding
shares thereof; (ii) each director of the Company; (iii) each Named Executive
Officer of the Company; and (iv) all of the Company’s current directors and
executive officers as a group.
22
Name
and Address of Beneficial Owner
|
Common
Stock (1)
|
Percentage
of Class (1)
|
||||||
Michael
Rice (Officer and Director)
c/o
BioLife Solutions, Inc.
3303
Monte Villa Pkwy, Suite 310
Bothell,
WA 98021
|
2,691,250 | (2) | 3.7 | % | ||||
John
G. Baust
175
Raish Hill Road
Candor,
NY 13743
|
3,694,722 | 5.3 | % | |||||
Howard
S. Breslow, Esq. (Director)
c/o
Breslow & Walker, LLP
767
Third Avenue
New
York, NY 10017
|
1,203,600 | (3) | 1.7 | % | ||||
Roderick
de Greef (Director)
c/o
BioLife Solutions, Inc.
3303
Monte Villa Pkwy, Suite 310
Bothell,
WA 98021
|
5,449,163 | (4) | 7.6 | % | ||||
Walter
Villiger
c/o
BioLife Solutions, Inc.
3303
Monte Villa Pkwy, Suite 310
Bothell,
WA 98021
|
19,240,081 | 27.6 | % | |||||
Thomas
Girschweiler (Director)
c/o
BioLife Solutions, Inc.
3303
Monte Villa Pkwy, Suite 310
Bothell,
WA 98021
|
14,806,552 | (5) | 21.1 | % | ||||
Beskivest
Chart LTD
Goodmans
Bay Center
West
Bay Street & Sea View Drive
Nassau,
Bahamas
|
7,255,026 | 10.4 | % | |||||
Raymond
Cohen (Director)
c/o
BioLife Solutions, Inc.
3303
Monte Villa Pkwy, Suite 310
Bothell,
WA 98021
|
945,000 | (6) | 1.3 | % | ||||
Andrew
Hinson (Director)
c/o
BioLife Solutions, Inc.
3303
Monte Villa Pkwy, Suite 310
Bothell,
WA 98021
|
400,000 | (7) | 0.6 | % | ||||
All
officers and directors as a group
(six
persons)
|
25,495,565 | 33.1 | % |
———————
(1)
|
Shares
of Common Stock subject to options and warrants that are exercisable or
will be exercisable within 60 days are deemed outstanding for computing
the number of shares beneficially owned. The percentage of the
outstanding shares held by a person holding such options or warrants
includes those currently exercisable or exercisable within 60 days, but
such options and warrants are not deemed outstanding for computing
the percentage of any other person. Except as indicated by footnote,
and subject to community property laws where applicable, the Company
believes that the persons named in the table have sole voting and
investment power with respect to all shares shown as beneficially owned by
them.
|
(2)
|
Includes
2,500,000 shares of Common Stock issuable upon the exercise of outstanding
stock options under the Company’s 1998 Stock Option Plan, 191,250 shares
of Common Stock issuable upon the exercise of outstanding stock options
granted subsequent to the expiration of its plan. This does not
include 573,750 and 1,190,878 shares of Common Stock issuable upon the
exercise of non-vested stock options granted on February 2, 2009 and
February 5, 2010, respectively.
|
(3)
|
Includes
500,000 shares of Common Stock issuable upon the exercise of outstanding
stock options under the Company’s 1998 Stock Option Plan, 150,000 shares
of Common Stock issuable upon the exercise of outstanding stock options
granted subsequent to the expiration of its plan, and 500,000 shares of
Common Stock issuable upon the exercise of outstanding warrants, all of
which options and warrants are currently exercisable, and 53,600 common
shares. This does not include 150,000 shares of Common Stock
issuable upon the exercise of non-vested stock options granted on February
5, 2010.
|
(4)
|
Includes
500,000 shares of Common Stock issuable upon the exercise of outstanding
stock options under the Company’s 1998 Stock Option Plan, 150,000 shares
of Common Stock issuable upon the exercise of outstanding stock options
granted subsequent to the expiration of its plan, and 1,250,000 shares of
Common Stock issuable upon the exercise of outstanding warrants, all of
which options and warrants are currently exercisable, and 3,549,163 common
shares. This does not include 150,000 shares of Common Stock
issuable upon the exercise of non-vested stock options granted on February
5, 2010.
|
(5)
|
Includes
250,000 shares of Common Stock issuable upon the exercise of outstanding
stock options under the Company’s 1998 Stock Option Plan, 150,000 shares
of Common Stock issuable upon the exercise of outstanding stock options
granted subsequent to the expiration of its plan, all of which options are
currently exercisable, and 14,406,552 common shares. This does
not include 150,000 shares of Common Stock issuable upon the exercise of
non-vested stock options granted on February 5,
2010.
|
23
(6)
|
Includes
750,000 shares of Common Stock issuable upon the exercise of outstanding
stock options under the Company’s 1998 Stock Option Plan, 150,000 shares
of Common Stock issuable upon the exercise of outstanding stock options
granted subsequent to the expiration of its plan, all of which options are
currently exercisable, and 45,000 common shares. This does not
include 150,000 shares of Common Stock issuable upon the exercise of
non-vested stock options granted on February 5,
2010.
|
(7)
|
Includes
250,000 shares of Common Stock issuable upon the exercise of outstanding
stock options under the Company’s 1998 Stock Option Plan, 150,000 shares
of Common Stock issuable upon the exercise of outstanding stock options
granted subsequent to the expiration of its plan, all of which options are
currently exercisable. This does not include 150,000 shares of
Common Stock issuable upon the exercise of non-vested stock options
granted on February 5, 2010.
|
Securities
Authorized for Issuance under Equity Compensation Plan
Plan
category
|
Number
of
securities
to be
issued
upon
exercise
of
outstanding
options
and
warrants
(in
thousands)
|
Weighted
Average
exercise
price
of
outstanding
options
and
warrants
|
Number
of
securities
remaining
available
for
future
issuance
(in
thousands)
|
|||||||||
Equity
compensation plans approved by security holders
|
6,850
|
$
|
.09
|
––
|
||||||||
Equity
compensation plans not approved by security holders*
|
4,634
|
$
|
.09
|
––
|
||||||||
Total
|
11,484
|
$
|
.09
|
––
|
*See note
6 of Notes to Financial Statements
ITEM
13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Howard S.
Breslow, a director of the Company, is a member of Breslow & Walker, LLP,
general counsel to the Company. Mr. Breslow currently owns 53,600 shares of
Common Stock of the Company and holds rights to purchase an aggregate of
1,150,000 additional shares pursuant to stock options and warrants issued to him
and/or affiliates. The Company incurred approximately $27,845 in legal fees
during the year ended December 31, 2009 for services provided by Breslow
& Walker, LLP. At December 31, 2009, accounts payable includes $4,895
due to Breslow & Walker, LLP.
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) incorporates (i) a refinancing of existing indebtedness of the
Company to the Investor, and accrued interest thereon, in the aggregate amount
of $1,431,563.30, (ii) a then current advance of $300,000, and (iii) a
commitment to advance to the Company, from time to time, additional amounts up
to a maximum of $768,436.70, (b) bears interest at the rate of 7% per annum on
the principal balance outstanding from time to time, (c) is evidenced by a
secured convertible multi-draw term loan note (the “Multi-Draw Term Loan Note”),
due and payable, together with accrued interest thereon, the earlier of (i)
January 11, 2010, or (ii) an Event of Default (as defined in the Multi-Draw Term
Loan Note), (d) if outstanding at the time of any bona fide equity financing of
the Company of at least Two Million Dollars ($2,000,000) (a “Financing”), at the
option of the Investor, may be converted into that number of fully paid and
non-assessable shares or units of the equity security(ies) of the Company sold
in the Financing (“New Equity Securities”) as is equal to the quotient obtained
by dividing the principal amount of the Facility outstanding at the time of the
conversion plus accrued interest thereon by 85% of the per share or per unit
purchase price of the New Equity Securities, and (e) is secured by all of the
Company’s assets.
24
In May
and July 2008, we received an additional $1,000,000 in total from the Investors
pursuant to the Multi-Draw Term Loan Facility. 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 Multi-Draw Term Loan
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 Multi-Draw Term Loan Facilities, which brought our total principal
balance owed under the Multi-Draw Term Loan Notes to $7,888,127, and leaves
$1,111,873 left to draw from the Facilities at December 31, 2009. In
December 2009 the Investors granted an extension of the repayment date to
January 11, 2011.
On
August 7, 2007, the Board of Directors of the Company agreed to outsource
to Roderick de Greef, a director of the Company, the task of overseeing the
Company’s financing activities, internal accounting functions and SEC reporting,
and assisting in the search for, and reviewing, strategic alternatives, on a
part-time basis (up to 80 hours per month on an as needed basis), effective as
of July 1, 2007 (since he was effectively serving the Company in such
capacity since such date), on terms to be agreed upon by Mike Rice, the
President of the Company, and Mr. de Greef, and approved by the Board.
Subsequent to August 7, 2007, Mr. Rice and Mr. de Greef agreed to
the following terms: (1) a fee of $10,000 per month, (2) reimbursement of
business expenses, (3) 90 day advance notice of termination by the Company, and
(4) the payment of one (1) year’s fees ($120,000) if terminated in connection
with a Change of Control transaction. As used herein the term Change of Control
means (A) there shall be consummated (1) any consolidation or merger of the
Company in which the Company is not the continuing or surviving corporation or
pursuant to which shares of the Company’s Common Stock would be converted into
cash, securities or other property, other than a merger of the Company in which
the holders of the Company’s Common Stock immediately prior to the merger have
the same proportionate ownership of at least 50% of common stock of the
surviving corporation immediately after the merger, or (2) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company; (B)
the shareholders of the Company approve any plan or proposal for the liquidation
or dissolution of the Company; or (C) any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the “Exchange
Act”)), shall become the beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of 50% or more of the Company’s
outstanding Common Stock. On November 14, 2007, the arrangement was
approved by the Board of Directors of the Company. Beginning on
August 1, 2009, Mr. de Greef’s fees were decreased 20% in conjunction with the
Company’s 10% across the board pay cuts. The Company paid consulting
fees of $110,000 for year ended December 31, 2009.
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
During
2009, Peterson Sullivan LLP acted as the independent auditors for the Company.
The following table sets forth the aggregate fees billed and expected to be
billed for audit and review services rendered in connection with the financial
statements and reports for the years ending December 31, 2009 and December 31,
2008 and for other services rendered during the years ending December 31, 2009
and December 31, 2008 on behalf of the Company:
ACCOUNTANT
FEES AND SERVICES
Years
Ended December 31,
|
||||||||
Description
|
2009
|
2008
|
||||||
Audit
Fees
|
$
|
87,000
|
$
|
73,000
|
||||
Tax
Fees
|
0
|
0
|
||||||
All
Other Fees
|
0
|
0
|
||||||
Totals
|
$
|
87,000
|
$
|
73,000
|
The Board
of Directors pre-approves all audit and non-audit services to be performed by
the Company's independent auditors.
25
PART
IV
ITEM
15. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial
Statements
The financial statements required by
this item are included herein:
Page
No.
|
||||
Index
to Financial Statements
|
F-1 | |||
Report
of Independent Registered Public Accounting Firm
|
F-2 | |||
Audited
Financial Statements:
|
||||
Balance
Sheets
|
F-3 | |||
Statements
of Operations
|
F-4 | |||
Statements
of Shareholders’ Equity (Deficiency)
|
F-5 | |||
Statements
of Cash Flows
|
F-6 | |||
Notes
to Financial Statements
|
F-7 |
(a)
3. Exhibits
See Exhibit Index below for
exhibits filed as part of this Annual Report on Form 10-K
Exhibit
|
|||
Number
|
Document
|
||
3.1 |
Certificate
of Incorporation, as amended. (1)
|
||
3.2 |
By-Laws,
and amendment, dated March 19, 1990, thereto. (1)
|
||
4.1 |
Specimen
of Common Stock Certificate. (1)
|
||
10.1 |
Stock
Option Plan, dated July 7, 1988, and amendment, dated July 19,
1989. (1)
|
||
10.2 |
1998
Stock Option Plan (2)
|
||
10.3 |
Employment
Agreement dated July 26, 2006 between the Company and Michael Rice
(3) ^
|
||
10.4 |
Amendment
to Employment Agreement dated February 7, 2007 between the Company
and Michael Rice (4) ^
|
||
10.5 |
Manufacturing
Service Agreement dated October 26, 2007 between the Company and
Bioserv, Inc., a division of NextPharma Technologies, Inc.
(5)
|
||
10.6 |
Quality
Agreement dated October 26, 2007 between the Company and Bioserv,
Inc., a division of NextPharma Technologies, Inc. (5)
|
||
10.7 |
Storage
Services Agreement dated October 26, 2007 between the Company and
Bioserv, Inc., a division of NextPharma Technologies, Inc.
(5)
|
||
10.8 |
Order
Fulfillment Services Agreement dated October 26, 2007 between the
Company and Bioserv, Inc., a division of NextPharma Technologies, Inc.
(5)
|
||
10.9 |
Lease
Agreement dated August 1, 2007 for facility space 3303 Monte Villa
Parkway, Bothell, WA 98021 (6)
|
||
10.10 |
Consulting
Agreement dated August 7, 2007 between the Company and Roderick de
Greef (7)
|
26
10.11 |
Secured
Convertible Multi-Draw Term Loan Facility Agreement dated January 11,
2008, between the Company and Thomas Girschweiler (8)
|
||
10.12 |
Secured
Convertible Multi-Draw Term Loan Facility Agreement dated January 11,
2008, between the Company and Walter Villiger (8)
|
||
10.13 |
First
Amendment to the Secured Convertible Multi-Draw Term Loan Facility
Agreement dated October 20, 2008, between the Company, Thomas
Girschweiler, and Walter Villiger (9)
|
||
10.14 |
Promissory
Note dated October 20, 2008 issued by the Company to Thomas
Girschweiler (9)
|
||
10.15 |
Promissory
Note dated October 20, 2008 issued by the Company to Walter Villiger
(9)
|
||
10.16 |
First
Amendment to the Lease, dated the November 4, 2008, between the
Company and Monte Villa Farms, LLC (9)
|
||
10.17 |
Second
Amendment to the Secured Convertible Multi-Draw Term Loan Facility
Agreement dated December 16, 2009, between the Company, Thomas
Girschweiler and Walter Villiger *
|
||
10.18 |
Promissory
Note dated December 16, 2009 issued by the Company to Thomas Girschweiler
*
|
||
10.19 |
Promissory
Note dated December 16, 2009 issued by the Company to Walter Villiger
*
|
||
31 |
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*
|
||
32 |
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*
|
———————
(1)
|
Incorporated
by reference to the Company’s Annual Report on Form 10-KSB for the
fiscal year ended December 31,
2000.
|
(2)
|
Incorporated
by reference to the Company’s Definitive Proxy Statement for the special
meeting of shareholders held on December 16,
1998.
|
(3)
|
Incorporated
by reference to the Company’s Annual Report on Form 10-KSB for the
fiscal year ended December 31,
2006.
|
(4)
|
Incorporated
by reference to the Company’s current report on Form 8-K filed
February 12, 2007.
|
(5)
|
Incorporated
by reference to the Company’s current report on Form 8-K filed
October 30, 2007.
|
(6)
|
Incorporated
by reference to the Company’s Annual Report on Form 10-KSB for the
fiscal year ended December 31,
2007.
|
(7)
|
Incorporated
by reference to the Company’s current report on Form 8-K filed
November 19, 2007.
|
(8)
|
Incorporated
by reference to the Company’s current report on Form 8-K filed
January 14, 2008.
|
(9)
|
Incorporated
by reference to the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2008.
|
*
|
Filed
herewith
|
^
|
Compensatory
plan or arrangement
|
27
|
SIGNATURES
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date:
|
March
30, 2010
|
BIOLIFE
SOLUTIONS, INC.
|
|||
/s/Michael Rice
|
|||||
Michael
Rice
|
|||||
Chief
Executive Officer and Chief
|
|||||
Financial
Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Date:
|
March
30, 2010
|
/s/Michael Rice
|
|||
Michael
Rice
|
|||||
Director
|
|||||
Date:
|
March
30, 2010
|
/s/Roderick de Greef
|
|||
Roderick
de Greef
|
|||||
Director
|
|||||
Date:
|
March
30, 2010
|
/s/Howard S. Breslow
|
|||
Howard
S. Breslow
|
|||||
Director
|
|||||
Date:
|
March
30, 2010
|
/s/Thomas Girschweiler
|
|||
Thomas
Girschweiler
|
|||||
Director
|
|||||
Date:
|
March
30, 2010
|
/s/Raymond Cohen
|
|||
Raymond
Cohen
|
|||||
Director
|
|||||
Date:
|
March
30, 2010
|
/s/Andrew Hinson
|
|||
Andrew
Hinson
|
|||||
Director
|
28
INDEX
TO FINANCIAL STATEMENTS
|
Page
No.
|
||||
Report
of Independent Registered Public Accounting Firm
|
F-2 | |||
Balance
Sheets
|
F-3 | |||
Statements
of Operations
|
F-4 | |||
Statements
of Shareholders’ Equity (Deficiency)
|
F-5 | |||
Statements
of Cash Flows
|
F-6 | |||
Notes
to Financial Statements
|
F-7 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders
BioLife
Solutions, Inc.
Bothell,
Washington
We have
audited the accompanying balance sheets of BioLife Solutions, Inc. ("the
Company") as of December 31, 2009 and 2008, and the related statements of
operations, shareholders' equity (deficiency), and cash flows for the years then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company has determined that it is not required to have, nor were we engaged to
perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of BioLife Solutions, Inc. as of
December 31, 2009 and 2008, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has been unable to generate sufficient income
from operations in order to meet its operating needs. Additionally,
the Company used approximately $2.4 million in cash for operating activities
during the year ended December 31, 2009, and has an accumulated deficit of
approximately $50 million at December 31, 2009. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans regarding those matters are also
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/
PETERSON SULLIVAN LLP
Seattle,
Washington
March 30,
2010
F-2
BioLife
Solutions, Inc.
Balance
Sheets
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Assets
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$
|
139,151
|
$
|
98,724
|
||||
Accounts
receivable, trade, net of allowance for doubtful accounts of $550 and
$29,000 at December 31, 2009 and 2008, respectively
|
315,365
|
279,192
|
||||||
Inventories
|
358,219
|
625,291
|
||||||
Prepaid
expenses and other current assets
|
79,635
|
19,483
|
||||||
Total
current assets
|
892,370
|
1,022,690
|
||||||
Property
and equipment
|
||||||||
Leasehold
improvements
|
202,270
|
––
|
||||||
Furniture
and computer equipment
|
164,964
|
109,753
|
||||||
Manufacturing
and other equipment
|
319,224
|
210,558
|
||||||
Subtotal
|
686,458
|
320,311
|
||||||
Less:
Accumulated depreciation and amortization
|
(281,036
|
)
|
(190,214
|
)
|
||||
Net
property and equipment
|
405,422
|
130,097
|
||||||
Long
term deposits
|
36,166
|
17,835
|
||||||
Total
assets
|
$
|
1,333,958
|
$
|
1,170,622
|
||||
Liabilities
and Shareholders’ Equity (Deficiency)
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable
|
$
|
192,834
|
$
|
659,133
|
||||
Accrued
expenses
|
51,251
|
52,722
|
||||||
Accrued
compensation
|
92,588
|
189,459
|
||||||
Deferred
revenue
|
20,000
|
25,833
|
||||||
Total
current liabilities
|
356,673
|
927,147
|
||||||
Long
term liabilities
|
||||||||
Promissory
notes payable, related parties
|
7,888,127
|
5,063,127
|
||||||
Accrued
interest, related parties
|
766,973
|
278,961
|
||||||
Deferred
revenue, long term
|
149,167
|
72,500
|
||||||
Total
liabilities
|
9,160,940
|
6,341,735
|
||||||
Commitments
and Contingencies (Note 8)
|
||||||||
Shareholders'
equity (deficiency)
|
||||||||
Common
stock, $0.001 par value; 100,000,000 shares authorized, 69,679,854 and
69,639,854 shares issued and outstanding at December 31, 2009 and
2008, respectively
|
69,680
|
69,640
|
||||||
Additional
paid-in capital
|
42,314,560
|
42,202,117
|
||||||
Accumulated
deficit
|
(50,211,222
|
)
|
(47,442,870
|
)
|
||||
Total
shareholders' equity (deficiency)
|
(7,826,982
|
)
|
(5,171,113
|
)
|
||||
Total
liabilities and shareholders' equity (deficiency)
|
$
|
1,333,958
|
$
|
1,170,622
|
The
accompanying Notes to Financial Statements are an integral part of these
financial statements
F-3
BioLife
Solutions, Inc.
Statements
of Operations
Years
Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Revenue
|
||||||||
Product
sales
|
$
|
1,556,600
|
$
|
1,277,497
|
||||
Licensing
revenue
|
25,000
|
45,000
|
||||||
Total
revenue
|
1,581,600
|
1,322,497
|
||||||
Cost
of product sales
|
1,007,022
|
770,646
|
||||||
Gross
profit
|
574,578
|
551,851
|
||||||
Operating
expenses
|
||||||||
Research
and development
|
414,465
|
457,640
|
||||||
Sales
and marketing
|
558,721
|
372,324
|
||||||
General
and administrative
|
1,503,552
|
1,925,654
|
||||||
Manufacturing
start-up costs
|
385,205
|
259,687
|
||||||
Total operating
expenses
|
2,861,943
|
3,015,305
|
||||||
Operating
loss
|
(2,287,365
|
)
|
(2,463,454
|
)
|
||||
Other
income (expenses)
|
||||||||
Interest
income
|
1,069
|
6,354
|
||||||
Other
income
|
9,692
|
10,495
|
||||||
Interest
expense
|
(488,013
|
)
|
(284,762
|
)
|
||||
Loss
on disposal of property and equipment
|
(3,735)
|
––
|
||||||
Amortization
of deferred financing costs
|
––
|
(43,750
|
)
|
|||||
Total
other income (expenses)
|
(480,987
|
)
|
(311,663
|
)
|
||||
Net
Loss
|
$
|
(2,768,352
|
)
|
$
|
(2,775,117
|
)
|
||
Basic
and diluted net loss per common share
|
$
|
(0.04
|
)
|
$
|
(0.04
|
)
|
||
Basic
and diluted weighted average common shares used to calculate net loss per
common share
|
69,647,635
|
69,631,566
|
The
accompanying Notes to Financial Statements are an integral part of these
financial statements
F-4
BioLife
Solutions, Inc.
Statements
of Shareholders’ Equity (Deficiency)
Common
Stock
|
Additional
Paid-in
|
Accumulated
|
Total
Shareholders'
Equity
|
|||||||||||||||||
Shares
|
Amount
|
Capital
|
Deficit
|
(Deficiency)
|
||||||||||||||||
Balance,
January 1, 2008
|
69,606,520
|
$
|
69,607
|
$
|
42,128,356
|
$
|
(44,667,753
|
)
|
$
|
(2,469,790)
|
||||||||||
Exercise
of options to purchase common stock
|
33,334
|
33
|
2,300
|
––
|
2,333
|
|||||||||||||||
Stock-based
compensation
|
––
|
––
|
71,461
|
––
|
71,461
|
|||||||||||||||
Net
loss
|
––
|
––
|
––
|
(2,775,117
|
)
|
(2,775,117
|
)
|
|||||||||||||
Balance,
December 31, 2008
|
69,639,854
|
$
|
69,640
|
$
|
42,202,117
|
$
|
(47,442,870
|
)
|
$
|
(5,171,113
|
)
|
|||||||||
Exercise
of options to purchase common stock
|
40,000
|
40
|
2,560
|
––
|
2,600
|
|||||||||||||||
Stock-based
compensation
|
––
|
––
|
109,883
|
––
|
109,883
|
|||||||||||||||
Net
loss
|
––
|
––
|
––
|
(2,768,352
|
)
|
(2,768,352
|
)
|
|||||||||||||
Balance,
December 31, 2009
|
69,679,854
|
$
|
69,680
|
$
|
42,314,560
|
$
|
(50,211,222
|
)
|
$
|
(7,826,982
|
)
|
The
accompanying Notes to Financial Statements are an integral part of these
financial statements
F-5
BioLife
Solutions, Inc.
Statements
of Cash Flows
Years
Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
loss
|
$
|
(2,768,352
|
)
|
$
|
(2,775,117
|
)
|
||
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||
Depreciation
|
93,690
|
29,281
|
||||||
Loss
on disposal of property and equipment
|
3,735
|
––
|
||||||
Amortization
of deferred financing costs
|
––
|
43,750
|
||||||
Stock-based
compensation expense
|
109,883
|
71,461
|
||||||
Other
|
782
|
––
|
||||||
Change
in operating assets and liabilities
|
||||||||
(Increase)
Decrease in
|
||||||||
Accounts
receivable, trade
|
(36,173)
|
21,313
|
||||||
Inventories
|
267,072
|
(526,229
|
)
|
|||||
Prepaid
expenses and other current assets and long-term deposits
|
(78,483)
|
76,196
|
||||||
Increase
(Decrease) in
|
||||||||
Accounts
payable
|
(466,301)
|
561,995
|
||||||
Accrued
compensation and other expenses
|
(98,342)
|
9,169
|
||||||
Accrued
interest, related parties
|
488,012
|
284,763
|
||||||
Deferred
revenue
|
70,835
|
90,000
|
||||||
Net
cash used in operating activities
|
(2,413,642
|
)
|
(2,113,418
|
)
|
||||
Cash
flows from investing activity
|
||||||||
Purchase
of property and equipment
|
(373,531
|
)
|
(46,688
|
)
|
||||
Cash
flows from financing activities
|
||||||||
Proceeds
from notes payable
|
2,825,000
|
2,200,000
|
||||||
Proceeds
from exercise of options
|
2,600
|
2,333
|
||||||
Net
cash provided by financing activities
|
2,827,600
|
2,202,333
|
||||||
Net
increase in cash and cash equivalents
|
40,427
|
42,227
|
||||||
Cash
and cash equivalents - beginning of year
|
98,724
|
56,497
|
||||||
Cash
and cash equivalents - end of year
|
$
|
139,151
|
$
|
98,724
|
The
accompanying Notes to Financial Statements are an integral part of these
financial statements
F-6
NOTES
TO FINANCIAL STATEMENTS
1.
Organization and Significant Accounting Policies
Business
BioLife
Solutions, Inc. ("BioLife,” “us,” “we,” “our,” or the “Company”) develops 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 BloodStor™ 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.
Use
of estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain
prior period amounts in the financial statements have been reclassified to
conform to current period presentation. There has been no impact on previously
reported net loss or shareholders’ equity (deficiency).
Net
loss per 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 years ending
December 31, 2009 and 2008 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
antidilutive, are as follows for the years ended December 31, 2009 and
2008:
2009
|
2008
|
||||
Basic
and diluted weighted average common stock shares
outstanding
|
69,647,635
|
69,631,566
|
|||
Potentially
dilutive securities excluded from loss per share
computations:
|
|||||
Common
stock options
|
9,265,000
|
8,000,000
|
|||
Common
stock purchase warrants
|
2,218,750
|
2,218,750
|
|||
Cash
and cash equivalents
Cash
equivalents consist primarily of interest-bearing money market accounts. We
consider all highly liquid debt instruments purchased with an initial maturity
of three months or less to be cash equivalents. We maintain cash balances that
may exceed Federally insured limits. We do not believe that this results in any
significant credit risk.
Inventories
Inventories
represent biopreservation solutions and raw materials and are stated at the
lower of cost or market. Cost is determined using the first-in, first-out
(“FIFO”) method.
F-7
Accounts
receivable
Accounts
receivable are stated at principal amount, do not bear interest, and are
generally unsecured. We provide an allowance for doubtful accounts based on an
evaluation of customer account balances past due ninety days from the date of
invoicing. Accounts considered uncollectible are charged against the established
allowance.
Property
and equipment
Furniture
and equipment are stated at cost and are depreciated using the straight-line
method over estimated useful lives of three to five years. Leasehold
improvements are stated at cost and are amortized using the straight-line method
over the lesser of the life of the asset or the remaining term of the
lease.
Revenue
recognition
We
recognize product revenue, including shipping and handling charges billed to
customers, upon shipment of product when title and risk of loss pass to
customers. Shipping and handling costs are classified as part of cost of product
sales. Generally, revenue related to licensing agreement activity is recognized
ratably over the estimated term of the service period. Payments received in
advance of the related licensing agreement period are recorded as deferred
revenue and recognized when earned.
Income
taxes
We
account for income taxes using an asset and liability method which generally
requires recognition of deferred tax assets and liabilities for the expected
future tax effects of events that have been included in the financial statements
or tax returns. Under this method, deferred tax assets and liabilities are
recognized for the future tax effects of differences between tax bases of assets
and liabilities, and financial reporting amounts, based upon enacted tax laws
and statutory rates applicable to the periods in which the differences are
expected to affect taxable income. We evaluate the likelihood of realization of
deferred tax assets and provides an allowance where, in management’s opinion, it
is more likely than not that the asset will not be realized.
We have
not recorded any liabilities for uncertain tax positions or any related interest
and penalties. Our tax returns are open to audit for years ending
December 31, 2006 to 2009.
Advertising
Advertising
costs are expensed as incurred and totaled $16,018 and $7,620 for the years
ended December 31, 2009 and 2008, respectively.
Manufacturing
start-up costs
During
the third quarter of 2007, as a result of relocating the Company from Owego, New
York to Bothell, Washington, we decided to outsource manufacturing and entered
into a contract with a Contract Manufacturing Organization (“CMO”). In the third
quarter of 2008, to reduce cost of product sales and enhance its production
flexibility, we decided to transition our manufacturing from the CMO to process
in-house. The first production run was completed half way through the
second quarter in May 2009. One-time start-up costs related to the
transition to internal manufacturing were expensed as incurred and amounted to
$385,205 and $259,687, for the years ended December 31, 2009 and December 31,
2008, respectively.
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.
Business
segments
As
described above, our activities are directed in the life sciences field of
biopreservation products and services. As of December 31, 2009 and 2008
this is the Company’s only business segment.
F-8
Research
and Development
Research
and development costs are expensed as incurred.
Stock-based
compensation
We use
the Black-Scholes option pricing model as our method of valuation for
share-based awards. Share-based compensation expense is based on the
value of the portion of the stock-based award that will vest during the period,
adjusted for expected forfeitures. Our determination of the fair
value of share-based awards on the date of grant using an option pricing model
is affected by our stock price as well as assumptions regarding a number of
highly complex and subjective variables. These variables include, but are not
limited to, the expected life of the award, expected stock price volatility over
the term of the award and historical and projected exercise
behaviors. The estimation of share-based awards that will
ultimately vest requires judgment, and to the extent actual or updated results
differ from our current estimates, such amounts will be recorded in the period
estimates are revised. Although the fair value of share-based awards is
determined in accordance with authoritative guidance, the Black-Scholes option
pricing model requires the input of highly subjective assumptions and other
reasonable assumptions could provide differing results. Share-based
compensation expense is recognized ratably over the applicable requisite service
period, based on the fair value of such share-based awards on the grant
date.
The fair
value of options and warrants at the date of grant is determined under the
Black-Scholes option pricing model. During the years ended December
31, 2009 and 2008, the following weighted-average assumptions were
used:
Assumptions
|
2009
|
2008
|
||||||
Risk-free
rate
|
1.78
|
%
|
2.55
|
%
|
||||
Annual
rate of dividends
|
––
|
––
|
||||||
Historical
volatility
|
82.27
|
%
|
69.38
|
%
|
||||
Expected
life
|
6.4
years
|
7
years
|
The
risk-free interest rate was based on the U.S. Treasury yield curve in effect at
the time of grant. We do not anticipate declaring dividends in the
foreseeable future. Volatility was based on historical
data. We utilize the simplified method as allowed by SEC Staff
Accounting Bulletin No. 107 and 110 in determining option lives. The
simplified method is used due to the fact that we have had significant
structural changes in our business such that our historical exercise data may
not provide a reasonable basis to estimate option lives. We recognize
compensation expense for only the portion of options that are expected to
vest. Therefore, management applies an estimated forfeiture rate that
is derived from historical employee termination data. The estimated
forfeiture rate applied for the years ended December 31, 2009 and 2008 was 4.7%
and 2.6%, respectively. If the actual number of forfeitures differs
from those estimated by management, additional adjustments to compensation
expense may be required in future periods. Our stock price
volatility, option lives and expected forfeiture rates involve management’s best
estimates at the time of such determination, all of which impact the fair value
of the option calculated under the Black-Scholes methodology and, ultimately,
the expense that will be recognized over the life of the option.
In the
event that we enter into any share-based payments transactions for goods or
services other than employee services, such transactions would be accounted
for using the Black-Scholes option pricing model as the fair value of the
equity instruments is usually more readily determinable than the fair value of
the goods or services. We have not entered into any share-based payment
transactions other than with employees and directors of the company during the
periods ended December 31, 2009 and 2008.
Recent
Accounting Pronouncements
In
October 2009, the Financial Accounting Standards Board (“FASB”) issued
authoritative guidance on revenue arrangements with multiple deliverables that
are outside the scope of the software revenue recognition guidance (which does
not have an impact on our accounting). Under the new guidance, when
vendor specific objective evidence or third party evidence for deliverables in
an arrangement cannot be determined, a best estimate of a selling price is
required to separate deliverables and allocate arrangement consideration using
the relative selling price method. The new guidance includes new
disclosure requirements on how the application of the relative selling price
method affects the timing and amount of revenue recognition. We
believe that the adoption of this new guidance will not have a material effect
on our financial statements.
2.
Financial
Condition
We have
been unable to generate sufficient income from operations in order to meet our
operating needs and have an accumulated deficit of approximately
$50 million at December 31, 2009. This raises substantial doubt about
our ability to continue as a going concern.
F-9
At
December 31, 2009, we had cash and cash equivalents of $139,151, compared
to cash and cash equivalents of $98,724 at December 31, 2008. At
December 31, 2009, we had working capital of $535,697, compared to working
capital of $95,543 at December 31, 2008.
During
the year ended December 31, 2009, net cash used in operating activities was
$(2,413,642) compared to net cash used by operating activities of $(2,113,418)
for the year ended December 31, 2008. 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. We expect to use cash for operating activities in the
foreseeable future as we continue our R&D activities.
Net cash
used in investing activities totaled $(373,531) during the year ended
December 31, 2009 compared to $(46,688) during the year ended
December 31, 2008. Cash used in investing activities are due to purchases
of property and equipment.
Net cash
provided by financing activities totaled $2,827,600 for the year ended
December 31, 2009, that resulted primarily from the draws taken on the
Multi-Draw Term Loan Note due to two shareholders discussed below. Net cash
provided by financing activities totaled $2,202,333 for the year ended
December 31, 2008 resulting from the issuance of promissory notes to the
same two shareholders.
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) incorporates (i) a refinancing of existing indebtedness of the
Company to each Investor, and accrued interest thereon, in the aggregate amount
of $1,431,563.30, (ii) a then current advance of $300,000, and (iii) a
commitment to advance to the Company, from time to time, additional amounts up
to a maximum of $768,436.70, (b) bears interest at the rate of 7% per annum on
the principal balance outstanding from time to time, (c) is evidenced by a
secured convertible multi-draw term loan note (the “Multi-Draw Term Loan Note”),
due and payable, together with accrued interest thereon, the earlier of (i)
January 11, 2010, or (ii) an Event of Default (as defined in the Multi-Draw Term
Loan Note), (d) if outstanding at the time of any bona fide equity financing of
the Company of at least Two Million Dollars ($2,000,000) (a “Financing”), at the
option of the Investor, may be converted into that number of fully paid and
non-assessable shares or units of the equity security(ies) of the Company sold
in the Financing (“New Equity Securities”) as is equal to the quotient obtained
by dividing the principal amount of the Facility outstanding at the time of the
conversion plus accrued interest thereon by 85% of the per share or per unit
purchase price of the New Equity Securities, and (e) is secured by all of the
Company’s assets.
In May
and July 2008, we received an additional $1,000,000 in total from the Investors
pursuant to the Multi-Draw Term Loan Facility. 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 Multi-Draw Term Loan
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 Multi-Draw Term Loan Facilities, which brought our total principal
balance owed under the Multi-Draw Term Loan Notes to $7,888,127, and leaves
$1,111,873 left to draw from the Facilities at December 31, 2009. In
December 2009 the Investors granted an extension of the repayment date to
January 11, 2011. 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 Multi-Draw Term Loan Facilities, in
combination with cash generated from operations, will provide sufficient funds
for the next nine months. However, we would require additional
capital in the immediate short term if our ability to draw on the Multi-Draw
Term Loan Facilities is restricted or terminated. Other factors that would
negatively impact our ability to finance our 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. We expect that we 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, we 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 shareholders. If we are unable to secure additional
capital, as circumstances require, we may not be able to continue our
operations.
F-10
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, or, to amounts and classification of
liabilities that may be necessary should we be unable to continue as a going
concern.
3.
Inventories
Inventories
consist of the following at December 31, 2009 and 2008:
2009
|
2008
|
|||||||
Raw
materials
|
$
|
123,421
|
$
|
9,820
|
||||
Work
in progress
|
49,350
|
113,382
|
||||||
Finished
goods
|
185,448
|
502,089
|
||||||
Total
|
$
|
358,219
|
$
|
625,291
|
4.
Promissory Notes Payable
At
December 31, 2009 and 2008, notes payable consisted of the
following:
2009
|
2008
|
|||||||
Notes
payable to Thomas Girschweiler and Walter Villiger, secured by all assets
of the Company, principal balances of all notes payable outstanding due in
full in January 2011, including interest of 7% (see Note
2)
|
$
|
7,888,127
|
$
|
5,063,127
|
||||
Total
notes payable, long-term
|
$
|
7,888,127
|
$
|
5,063,127
|
5.
Income Taxes
Income
tax benefit reconciled to tax calculated at statutory rates is as
follows:
2009
|
2008
|
|||||||
Federal
tax (benefit) at statutory rate
|
$
|
(941,240
|
)
|
$
|
(943,540
|
)
|
||
Expiration
of net operating loss carryforwards
|
486,462
|
2,003,596
|
||||||
Expiration
of tax credits
|
114,000
|
150,000
|
||||||
Change
in valuation allowance
|
339,840
|
(1,210,920
|
)
|
|||||
Other
|
938
|
864
|
||||||
Provision
for income taxes, net
|
$
|
––
|
$
|
––
|
At
December 31, 2009 and 2008, the components of the Company’s deferred taxes
are as follows:
2009
|
2008
|
|||||||
Deferred
tax assets (liabilities)
|
||||||||
Net
operating loss carryforwards
|
$
|
9,766,585
|
$
|
9,506,573
|
||||
Tax
credits
|
178,000
|
292,000
|
||||||
Accrued
compensation
|
31,480
|
41,296
|
||||||
Depreciation
|
1,204
|
(7,112
|
)
|
|||||
Stock-based
compensation
|
140,820
|
103,460
|
||||||
Accrued
related party interest
|
260,771
|
94,847
|
||||||
Other
|
2,361
|
10,317
|
||||||
Total
|
10,381,221
|
10,041,381
|
||||||
Less: Valuation
allowance
|
(10,381,221
|
)
|
(10,041,381
|
)
|
||||
Net
deferred tax asset
|
$
|
––
|
$
|
––
|
F-11
The
Company has the following net operating loss and research and development
(R&D) tax credit carryforwards available at December 31,
2009:
Year
of
|
Net
Operating
|
R&D
Tax
|
||||||
Expiration
|
Losses
|
Credits
|
||||||
2010
|
$
|
1,562,000
|
$
|
145,000
|
||||
2011
|
5,277,000
|
33,000
|
||||||
2012
|
1,570,000
|
––
|
||||||
2013
|
1,425,000
|
––
|
||||||
2014
|
1,234,000
|
––
|
||||||
2020
|
2,849,000
|
––
|
||||||
2021
|
4,168,000
|
––
|
||||||
2023
|
1,217,000
|
––
|
||||||
2024
|
646,000
|
––
|
||||||
2025
|
589,000
|
––
|
||||||
2026
|
873,000
|
––
|
||||||
2027
|
2,607,000
|
––
|
||||||
2028
|
2,512,000
|
––
|
||||||
2029
|
2,196,000
|
––
|
||||||
Total
|
$
|
28,725,000
|
$
|
178,000
|
In the
event of a significant change in the ownership of the Company, the utilization
of such loss and tax credit carryforwards could be substantially
limited.
6.
Shareholders’ Equity (Deficiency)
Warrants
The
following table summarizes warrant activity for the years ended
December 31, 2009 and 2008:
Year
Ended
|
Year
Ended
|
|||||||||||||||
December
31, 2009
|
December
31, 2008
|
|||||||||||||||
Wgtd.
Avg.
|
Wgtd.
Avg.
|
|||||||||||||||
Exercise
|
Exercise
|
|||||||||||||||
Shares
|
Price
|
Shares
|
Price
|
|||||||||||||
Outstanding
at beginning of year
|
2,218,750
|
$
|
0.12
|
4,239,075
|
$
|
0.46
|
||||||||||
Exercised
|
––
|
––
|
––
|
––
|
||||||||||||
Forfeited
|
––
|
––
|
(2,020,325
|
)
|
0.83
|
|||||||||||
Outstanding
at end of year
|
2,218,750
|
$
|
0.12
|
2,218,750
|
$
|
0.12
|
||||||||||
Warrants
exercisable at year end
|
2,218,750
|
$
|
0.12
|
2,218,750
|
$
|
0.12
|
The
outstanding warrants have expiration dates between May 2012 and
December 2013.
F-12
Stock
compensation plans
During
1998, we adopted the 1998 Stock Option Plan (“the Plan”). An aggregate of
4,000,000 shares of common stock are reserved for issuance upon the exercise of
options granted under the Plan. In September 2005, the shareholders
approved an increase in the number of shares available for issuance to
10,000,000 shares. The purchase price of the common stock underlying each option
may not be less than the fair market value at the date the option is granted
(110% of fair market value for optionees that own more than 10% of the voting
power of the Company). The Plan expired on August 31, 2008. The options are
exercisable for up to ten years from the grant date.
During
the years ended December 31, 2009 and December 31, 2008, subsequent to the
expiration of the Plan, the Company issued, outside of the Plan, non-incentive
stock options for an aggregate of 1,765,000 and 950,000 shares, respectively, of
Company common stock to five directors and four employees.
Certain
options awarded during 2009 and 2008 contain provisions which allow for the
automatic proportionate adjustment of the number of shares covered and the
exercise price of each share in the event that the Company changes its shares of
common stock by a stock dividend, stock split, combination, reclassification,
exchange, merger or consolidation.
The
following is a summary of stock option activity under the Plan and outside of
the Plan for 2009 and 2008, and the status of stock options outstanding at
December 31, 2009 and 2008:
Year
Ended
|
Year
Ended
|
|||||||||||||||
December
31, 2009
|
December
31, 2008
|
|||||||||||||||
Wgtd.
Avg.
|
Wgtd.
Avg.
|
|||||||||||||||
Exercise
|
Exercise
|
|||||||||||||||
Shares
|
Price
|
Shares
|
Price
|
|||||||||||||
Outstanding
at beginning of year
|
8,000,000
|
$
|
0.09
|
6,844,000
|
$
|
0.12
|
||||||||||
Granted
|
1,765,000
|
0.09
|
1,400,000
|
0.04
|
||||||||||||
Exercised
|
(40,000
|
)
|
(0.07
|
)
|
(33,334)
|
(0.07)
|
||||||||||
Forfeited
|
(460,000
|
)
|
(0.17
|
)
|
(210,666
|
)
|
(0.88
|
)
|
||||||||
Outstanding
at end of year
|
9,265,000
|
$
|
0.09
|
8,000,000
|
$
|
0.09
|
||||||||||
Stock
options exercisable at year end
|
5,846,667
|
$
|
0.09
|
4,258,333
|
$
|
0.10
|
Weighted
average fair value of options granted was $0.06 and $0.03 per share for the
years ended December 31, 2009 and 2008, respectively.
As of
December 31, 2009, there was $301,500 of aggregate intrinsic value of
outstanding stock options, including $187,875 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 2009 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 as of December 31,
2009. This amount changes, based on the fair market value of the
Company’s stock. Total intrinsic value of options exercised was
$2,600 and $334 for the years ended December 31, 2009 and 2008,
respectively.
F-13
The
following table summarizes information about stock options outstanding at
December 31, 2009:
Number
|
||||||
Outstanding
at
|
Weighted
Average
|
|||||
Range
of
|
December
31,
|
Remaining
|
Weighted
Average
|
|||
Exercise
Prices
|
2009
|
Contractual
Life
|
Exercise
Price
|
|||
$0.04-$0.07
|
2,800,000
|
7.48
|
$0.06
|
|||
$0.08-$0.09
|
5,650,000
|
7.42
|
$0.08
|
|||
$0.10-$1.25
|
815,000
|
6.42
|
$0.16
|
|||
9,265,000
|
7.35
|
$0.09
|
Total
unrecognized compensation cost at December 31, 2009 of $97,430 is expected
to be recognized over a weighted average period of 2.4 years.
In
February 2010, the Company issued ten-year options to one officer, five
directors and nine employees to purchase 5,299,815 common shares. See note 11,
Subsequent Events, for further information.
7.
Related Party Transactions
We
incurred $27,845 and $76,941 in legal fees during the years ended
December 31, 2009 and 2008, respectively, for services provided by Breslow
& Walker, LLP in which Howard Breslow, a director and stockholder of the
Company, is a partner. At December 31, 2009 and 2008, accounts
payable include $4,895 and $8,866, respectively, due to Breslow & Walker,
LLP for services rendered.
On
August 7, 2007, the Board of Directors of the Company agreed to outsource
to Roderick de Greef, a director of the Company, the task of overseeing the
Company’s financing activities, internal accounting functions and SEC reporting,
and assisting in the search for, and reviewing, strategic alternatives, on a
part-time basis (up to 80 hours per month on an as needed basis), effective as
of July 1, 2007 (since he was effectively serving the Company in such
capacity since such date), on terms to be agreed upon by Mike Rice, the
President of the Company, and Mr. de Greef, and approved by the Board.
Subsequent to August 7, 2007, Mr. Rice and Mr. de Greef agreed to
the following terms: (1) a fee of $10,000 per month, (2) reimbursement of
business expenses, (3) 90 day advance notice of termination by the Company, and
(4) the payment of one (1) year’s fees ($120,000) if terminated in connection
with a Change of Control transaction. As used herein the term Change of Control
means (A) there shall be consummated (1) any consolidation or merger of the
Company in which the Company is not the continuing or surviving corporation or
pursuant to which shares of the Company’s Common Stock would be converted into
cash, securities or other property, other than a merger of the Company in which
the holders of the Company’s Common Stock immediately prior to the merger have
the same proportionate ownership of at least 50% of common stock of the
surviving corporation immediately after the merger, or (2) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company; (B)
the shareholders of the Company approve any plan or proposal for the liquidation
or dissolution of the Company; or (C) any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the “Exchange
Act”)), shall become the beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of 50% or more of the Company’s
outstanding Common Stock. On November 14, 2007, the arrangement was
approved by the Board of Directors of the Company. Beginning on August 1, 2009,
Mr. de Greef’s fees were decreased 20% in conjunction with the Company’s 10%
across the board pay cuts. The Company incurred consulting fees of $110,000 and
$120,000 under this arrangement for years ended December 31, 2009 and 2008,
respectively.
F-14
8.
Commitments and Contingencies
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.
The
following is a schedule of future minimum lease payments required under the
facility leases:
Year
Ending
|
||||
December
31
|
||||
2010
|
$
|
263,540
|
||
2011
|
274,082
|
|||
2012
|
285,045
|
|||
2013
|
296,447
|
|||
2014
|
77,076
|
|||
Total
|
$
|
1,196,190
|
Rental
expense for this facility lease for the years ended December 31, 2009 and
2008 totaled $278,788 and $111,955, respectively. These amounts
include the Company’s proportionate share of property taxes and other operating
expenses as defined by the lease.
Employment
agreement
We have
an employment agreement with the Chief Executive Officer of the Company which
automatically renews for successive one year periods in the event either party
does not send the other a “termination notice” no less than 90 days prior to the
expiration of the initial term or any subsequent term. The agreement provides
for certain minimum compensation per month and incentive bonuses at the
discretion of the Board of Directors. Under certain conditions, we may be
required to continue to pay the base salary under the agreement for a period of
one to two years.
Litigation
On
February 7, 2007, Kristi Snyder, a former employee of the Company filed a
complaint in the New York State Supreme Court, County of Broome, against the
Company alleging a breach of an employment agreement and seeking damages of up
to $300,000 plus attorneys’ fees. This case currently is in discovery. The
Company is vigorously defending its position.
On
April 6, 2007, the Company was served with a complaint filed by John G.
Baust, the Company’s former Chief Executive Officer and President, and
thereafter, until January 8, 2007, the Chairman, Sr. Vice President and
Chief Scientific Officer, in the New York State Supreme Court, County of Tioga,
against the Company seeking, among other things, damages under his employment
agreement to be determined upon trial of the action plus attorneys’ fees, a
declaratory judgment that he did not breach his fiduciary duties to the Company,
and that his covenant not to compete is void as against public policy or
unenforceable as a matter of law, and to enjoin the Company from commencing an
action against him in Delaware courts seeking damages for breaches of his
fiduciary obligations to the Company. The parties have engaged in extensive
motion practice. By decision of December 18, 2009, Justice Tait
rejected Plaintiff Baust’s efforts to obtain partial summary
judgment. This case continues in pre-trial discovery. The Company is
defending the lawsuit vigorously.
On
June 15, 2007, the Company filed a lawsuit in the State of New York Supreme
Court, County of Tioga against Cell Preservation Services, Inc. (“CPSI”) and
Coraegis Bioinnovations, Inc. (“Coraegis”), both of which are owned and/or
controlled by John M. Baust, a former employee of the Company and the son of
John G. Baust, both of whose employment with the Company was terminated on
January 8, 2007.
F-15
On
March 15, 2004, the Company had entered into a Research Agreement with
CPSI, pursuant to which CPSI took over the processing of the Company’s existing
SBIR grants, and, on behalf of the Company, was to apply for additional SBIR
grants; in each case, was to perform the research with respect to such grants.
In connection therewith, the Company granted to CPSI a limited license to use
the Company’s technology (“BioLife’s Technology”), including the Company’s
proprietary cryopreservation solutions (collectively, “Intellectual Property”),
solely for the purpose of conducting the research pertaining to the SBIR grants,
and CPSI agreed to keep confidential all Company confidential information
disclosed to CPSI (“Confidential Information”). On January 8, 2007, the
Company informed CPSI that the Research Agreement would not be extended and
would terminate in accordance with its terms on March 15,
2007.
The
lawsuit states various causes of action, including, (1) repeated violations of
the Research Agreement by CPSI by improperly using BioLife’s Technology,
Intellectual Property and Confidential Information for its own purposes, (2) the
unlawful misappropriation by CPSI and Coraegis of the Company’s trade secrets,
(3) unfair competition on the part of CPSI and Coraegis through their unlawful
misappropriation and misuse of BioLife’s Technology, Intellectual Property and
Confidential Information, and (4) the conversion of BioLife’s Technology,
Intellectual Property and Confidential Information by CPSI and Coraegis to their
own use without the Company’s permission.
The
lawsuit seeks, among other things, (1) to enjoin CPSI from continuing to violate
the Research Agreement, (2) damages as a result of CPSI’s breaches of the
Research Agreement, (3) to enjoin CPSI and Coraegis from any further use of the
Company’s trade secrets, (4) damages (including punitive damages) as a result of
CPSI’s and Coraegis’ misappropriation of the Company’s trade secrets, (5) to
enjoin CPSI and Coraegis from any further use of BioLife’s Technology,
Intellectual Property and Confidential Information, (6) damages (including
punitive damages) as a result of CPSI’s and Coraegis’ unfair competition against
the Company, and (7) damages (including punitive damages) as a result of CPSI’s
and Coraegis’ conversion of BioLife’s Technology, Intellectual Property and
Confidential Information to their own use. On September 30, 2008, Justice
Jeffrey Tait issued a Letter Decision and Order which provides for a multi-phase
process for discovery concerning contested discovery disclosures. The parties
are awaiting Justice Tait’s decision on the initial process to be used
concerning these contested discovery issues. The parties have engaged
in extensive motion practice. By decision of December 18, 2009,
Justice Tait denied the attempt of the Defendants to dismiss Plaintiff’s
complaint. This case is in pre-trial discovery. The Company is
prosecuting the lawsuit vigorously.
On
December 4, 2007, John M. Baust, the son of John G. Baust, filed a
complaint in the New York State Supreme Court, County of Tioga, against the
Company and Michael Rice, the Company’s Chairman and Chief Executive Officer,
alleging, among other things, a breach of an employment agreement and defamation
of character and seeking damages against the Company in excess of $300,000 plus
attorneys fees. The case currently is in discovery. The Company is defending the
lawsuit vigorously.
On
December 27, 2007, John G. Baust and John M. Baust, each separately, filed
complaints with the State of New York, Division of Human Rights (“the Division”)
alleging unlawful discrimination practices against the Company based on wrongful
termination due to retaliation for bringing complaints of sexual harassment on
the part of Michael Rice, the Company’s Chairman and Chief Executive Officer.
The Company responded to the complaints, filed by John G. Baust on January 22,
2008, and by John M. Baust on January 14, 2008. On March 5, 2008, the Company
was notified by the Division that these complaints were ordered dismissed and
the files were closed due to the Division’s lack of jurisdiction in the matter,
the Division having determined that the civil suits filed by John G. Baust and
John M. Baust had precedence and precluded the Division from asserting
jurisdiction. The determination was successfully appealed and overturned by
Justice Tait on October 23, 2008. On February 4, 2010, the Appellate Division of
the Supreme Court of New York, Third Department affirmed Justice Tait’s opinion
that John G. Baust and John M. Baust could pursue a complaint in the
Division. On March 15, 2010, the Division delivered to the Supreme
Court, Appellate Division, a Notice of Motion and Motion for Reargument or Leave
to Appeal. The motion is returnable April 5, 2010. In the
event the Division's motion is denied or, if granted, the Division is
unsuccessful in its reargument or appeal, the Company retains all of its rights
to oppose the complaint of Messrs. Baust before the Division. In such
event, the Company would vigorously oppose any attempt at a
recovery.
We have
not made any accrual related to future litigation outcomes as of
December 31, 2009 or 2008.
F-16
9.
Concentration of Risk
Significant
customers
Sales to
individual customers representing more than 10% of total revenue totaled
approximately $494,000 and $409,000 in 2009 and 2008, respectively. In 2009 the
amount in product sales revenue were from two customers, one which totaled
$334,000 representing 21% of total product sales, and the other which totaled
$160,000 representing 10% of total product sales. In 2008 the amount
in product sales revenue were from two customers, one which totaled $246,000
representing 19% of total product sales, and the other which totaled $163,000
representing 13% of total product sales.
At
December 31, 2009, three customers accounted for approximately 47% of total
gross accounts receivable, and at December 31, 2008, two customers
accounted for approximately 36% of total gross accounts receivable.
10.
Supplemental Cash Flow Disclosures
Actual
cash payments
No cash
was paid for either interest expense or income taxes for the years ended
December 31, 2009 and 2008.
Non-cash
investing and financing activities
As
discussed in Note 2, on January 11, 2008, the Company entered into a Secured
Convertible Multi-Draw Term Loan Facility Agreement with each of 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
incorporates a refinancing of the existing indebtedness of the Company to the
Investor, represented by the February 2007 Notes, June 2007 Notes and September
2007 Notes, and accrued interest of $113,127. The total amount of
accrued interest was transferred to promissory notes payable as part of this
Facility.
11. Subsequent
Events
In
February 2010, the Company received an additional $250,000 in total from
Messrs. Girschweiler and Villiger pursuant to the amended Multi-Draw Term
Loan Facility described in Note 2.
In
February 2010, the Company issued ten-year options to one officer, five
directors and nine employees to purchase 5,299,815 common shares.
F-17