-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O/841+CtDdes05kvrjRixCPxFSTb5aJOzv3bOhfV0p95zviu5L4zK+kB0dGS0b90 Tdnw0PwbTRDT2YCIBBv7Ow== 0001005150-03-000792.txt : 20030415 0001005150-03-000792.hdr.sgml : 20030415 20030415122816 ACCESSION NUMBER: 0001005150-03-000792 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOLIFE SOLUTIONS INC CENTRAL INDEX KEY: 0000834365 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 943076866 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-18170 FILM NUMBER: 03649949 BUSINESS ADDRESS: STREET 1: SUNY PARK SCIENCE III STREET 2: SUITE 144 CITY: BINGHAMTON STATE: NY ZIP: 13902-6000 BUSINESS PHONE: 6077772775 MAIL ADDRESS: STREET 1: SUNYPARK SCIENCE III STREET 2: STE 144 CITY: BINGHAMTON STATE: NY ZIP: 13902-6000 FORMER COMPANY: FORMER CONFORMED NAME: CRYOMEDICAL SCIENCES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BIOLIFE SOLUTION INC DATE OF NAME CHANGE: 20030113 10KSB 1 form10ksb.txt FORM 10-KSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------------------------------- FORM 10-KSB (MARK ONE) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 2002 ------------------ OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-18170 ------- -------------------- BIOLIFE SOLUTIONS, INC. ( Name of Small Business Issuer in its Charter) DELAWARE 94-3076866 -------- ---------- (State of Incorporation) (IRS Employer Identification Number) SUITE 144 - SCIENCE III, SUNY PARK, BINGHAMTON, NY 13902 - -------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) -------------------- Issuer telephone number, including area code: (607) 777-4415 -------------- Securities registered under Section 12(b) of the Exchange Act: None ---- Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $.001 per share --------------------------------------- Title of Class Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 _X_ No ___ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB [X] . Issuer's revenues for the fiscal year ended December 31, 2002 were $823,791. As of March 31, 2003, the aggregate market value of voting stock held by nonaffiliates was $1,222,110. As of March 31, 2003, there were 12,413,209 shares of Common Stock (par value $.001 per share) outstanding. Transitional Small Business Disclosure Format (check one). Yes ___ No _X_ Documents Incorporated by Reference ----------------------------------- None ================================================================================ PART I ITEM 1. DESCRIPTION OF BUSINESS - -------------------------------- GENERAL Incorporated in 1998 as a wholly owned subsidiary of Cryomedical Sciences, Inc. ("Cryomedical"), BioLife Solutions, Inc. ("BioLife" or the "Company") develops, manufactures and markets low temperature technologies for use in preserving and prolonging the viability of cellular and genetic material for use in cell therapy and tissue engineering. The Company's patented HypoThermosol(R) platform technology is used to provide customized preservation solutions designed to significantly prolong cell, tissue and organ viability. These solutions, in turn, could improve clinical outcomes for new and existing cell and tissue therapy applications, as well as for organ transplantation. The Company currently markets its HypoThermosol line of solutions directly and through a distributor to companies and labs engaged in pre-clinical research, and to academic institutions. In May 2002, Cryomedical implemented a restructuring and recapitalization program designed to shift its focus away from cryosurgery towards addressing preservation and transportation needs of the biomedical marketplace. On June 25, 2002 the Company completed the sale of its cryosurgery product line and related intellectual property assets to Irvine, CA-based Endocare, Inc. (NASDAQ: ENDO). In the transaction, the Company transferred ownership of all of its cryosurgical installed base, inventory, and related intellectual property, in exchange for $2.2 million in cash and 120,022 shares of Endocare restricted common stock. In conjunction with the sale of Cryomedical's cryosurgical assets, Cryomedical's Board of Directors also approved merging BioLife into Cryomedical and changing its name to BioLife Solutions, Inc. In September 2002, Cryomedical changed its name to BioLife Solutions, Inc. and began to trade under the new ticker symbol, "BLFS" on the OTCBB. Based on its understanding of the molecular basis for the cryogenic destruction of cells through apoptosis, BioLife is developing a range of proprietary cell, tissue and organ specific hypothermic preservative solutions, based on its patented HypoThermosol platform technology. Initial clinical results suggest that BioLife's customized HypoThermosol solutions could significantly prolong cell, tissue and organ viability, which could, in turn, improve clinical outcomes for new and existing cell and tissue therapy applications, as well as for organ transplantation. BioLife has entered into research agreements with several emerging biotechnology companies engaged in the research and commercialization of cell and gene therapy technology and has received several government research grants in partnership with academic institutions involved in cell and tissue therapy research. BioLife currently markets its HypoThermosol line of solutions directly and through a distributor to companies and labs engaged in pre-clinical research, and to academic institutions. Grants and other revenues totaled $977,210 and $1,344,016 (including sales from discontinued operations) for the years ended December 31, 2002 and 2001, respectively. Total research and development expenses were $644,798 and $1,773,119 for the year ended December 31, 2002 and 2001, respectively. The backlog of orders was zero at December 31, 2002 and 2001. The Company was originally incorporated in Delaware in November 1987. The Company's principal executive offices are located at Suite 144, Science III, SUNY Park, Binghamton, NY 13902 and its telephone number is (607) 777-4415. 1 TECHNOLOGICAL OVERVIEW Time management is a crucial aspect of many facets of clinical practice and, increasingly, cell and gene therapy. 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 (37(degree)C), will not be viable for any reasonable length of time. To slow the "metabolic engine" of the harvested cell and tissue, 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 preservation 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. 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 and few offer long-term protection. Often, the basis for selection of a "preservation solution" is a matter of local preference rooted primarily in a hospital's traditional source of supply. Because of the cascading destructive cellular effects that begin with the arrest of metabolism as a result of cooling, and end with cell death through apoptosis, development of new methods of tissue preservation are important to ensure that tissue-engineered products survive the trip from the factory to the operating room in good working order and do not die during transplantation . By understanding the molecular basis of cell death and designing HypoThermosol to specifically address these processes, the Company's proprietary HypoThermosol technology is specifically formulated to satisfy clinicians' need to keep cells and tissue viable longer by: o minimizing cell and tissue swelling; o removing free radicals upon formation; o maintaining appropriate ion balances; o providing regenerative, high energy substrates to stimulate recovery upon warming; o avoiding the creation of an acidic state (acidosis); and o inhibiting the onset of apoptosis. HypoThermosol has been specifically formulated, tested and proven to be effective in extending the viability of numerous human cell and tissue complexes. BioLife's proprietary HypoThermosol technology is optimized based on molecular biology principles and genetic analysis, not on conventional "cookbook" techniques incorporated in other solutions currently on the market. The Company's line of preservation solutions, based on its patented HypoThermosol technology, is composed of complex synthetic, aqueous solutions containing, in part, minerals and other elements found in human blood which are necessary to maintain fluids and chemical balances throughout the body at near freezing temperatures. BIOLIFE PRODUCTS AND SERVICES A full line of customized HypoThermosol preservation solutions are now available to researchers and clinicians to preserve cells and tissue in low temperature environments for extended periods. HypoThermosol solutions, which are optimized for mammalian cells at temperatures between 4(degree)C and 10(degree)C, are serum- and 2 protein-free, are stable (thus have a long shelf life), and provide for rapid recovery, higher yields and faster cell attachment in a variety of applications. HYPOTHERMOSOL The Company's HypoThermosol family of preservation media for the hypothermic maintenance and cryopreservation of mammalian cell systems include: HypoThermosol Base HypoThermosol is a family of cell-specific, optimized hypothermic (4-10(degree) C) preservation media that allows for improved and extended preservation of biologics. HypoThermosol is a uniquely formulated hypothermic preservation solution designed to address the molecular-biological aspects of cells during the preservation process thereby directly reducing the level of cell death during and following the preservation interval. HTS has been formulated to provide broad-spectrum chill preservation to most mammalian cell systems. This variant has proven effective at preserving and maintaining cells, tissues and organs of the abdominal and thoracic origins, blood vessels, muscular and neural tissues. HypoThermosol DCC HypoThermosol(R)-DCC is a uniquely formulated hypothermic preservation solution designed with the appreciation that the loss of divalent cation homeostasis in cells either at 37(degree) C or 4(degree) C can lead to activation of enzymes (phospholipases, proteases and endonucleases) culminating in cell death. HTS-DCC is especially designed to inhibit these activities. 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 preserving myocardial and kidney tissues, both of which have high-energy demands that can lead to free radical accumulation. HypoThermosol Purge HypoThermosol-Purge is an acellular flush solution specifically designed for use during the transition from normothermic to mild hypothermic temperatures (37(degree) C to 20(degree)C) to rinse culture media and native fluids from tissue and whole organ systems prior to suspension in one of the various HypoThermosol preservation solution variants. CRYOSTOR(R) CRYOPRESERVATION MEDIA Based on proprietary HypoThermosol technology, the CryoStor series of preservative solutions extends the cryopreservation window for gene and cell therapy and tissue engineering, improving clinical outcomes for promising new research and for those undergoing cell and gene therapy. CryoStor is a family of cell-specific, optimized cryopreservation media that enhances cell survival in the emerging tissue engineering and stem cell markets. CryoStor is designed for frozen storage (temperature of -196(degree)C). CryoStor is uniquely formulated to address the molecular-biological aspects of cells during the preservation process thereby directly reducing the level of Cryopreservation-Induced Delayed-Onset Cell Death (Baust, et al., 2001). CryoStor CS5 CryoStor CS5 is BioLife's 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 3 modulate the physical damaging effects associated with ice formation and cellular freezing such as dimethyl sulfoxide ("DMSO"). As a result of solution design, utilization of the CryoStor platform facilitates substantially improved post-thaw cell survival and allows for the maintenance of this enhanced recovery with substantially reduced levels of cryoprotective agents such as DMSO. CryoStor CS AI CryoStor CS AI is the next generation of cryopreservation solutions developed by the Company and is designed around the base CryoStor platform with the added inclusion of specific components which directly modulate the molecular response of the cells to the preservation process. Specifically, CryoStor CS AI is designed to modulate the initiation of the induction of apoptosis through direct inhibition of the progression of the apoptotic process. CP Rescue The CP Rescue platform represents a solution technology developed as a post-cryopreservation cellular salvage medium and is designed to improve cell recovery following cryopreservation of the cells under sub optimal preservation regimes where the CryoStor series of preservation solutions were not utilized. This solution is designed to modulate the post-preservation activation and progression of cellular death pathways, such as apoptosis and necrosis, during the initial cell recovery interval, and thereby reduce the extent of cryopreservation-induced cell death. GELSTOR(R) SOLID STORAGE SOLUTION By providing the field of cell therapy and regenerative medicine with the ability to preserve and maintain consistency of cell and genetic material for extended periods, BioLife is developing GelStor to support the long distance shipping of biological material. Based on proprietary HypoThermosol technology, GelStor has been developed specifically to address the need to transport sensitive cell and tissue material and to serve as a critical adjunct in cell therapy and tissue engineering medicine. GelStor Solid storage preservation media for preservation in the 4(degree)C to 20(degree)C, which includes GelStor and GelStor-FRS. This preservation medium is designed to be liquidous above 30(degree)C to allow for suspension of cells and when cooled becomes a solid "gel-like" preservation medium. GelStor is designed for the preservation of sensitive biologics, such as pancreatic islets, where environmental factors such as shock, sheering, etc. have a critical effect on cell viability and short term preservation is necessary for transport. GelStor-FRS GelStor-FRS is a member of the GelStor superfamily of preservation solutions, which is designed similarly to HypoThermosol-FRS, to address the molecular-biological aspects of cells during preservation by decreasing the free radical accumulation in cells which are undergoing preservation or transport. RESEARCH CONTRACTS AND GRANT AWARDS BioLife is engaged in various research and product development initiatives with public and private institutions that are focused on gene and cell therapy and tissue engineering research. In addition to private research contracts with leading-edge biotechnology concerns, BioLife has secured several government grant awards, in partnership with leading academic institutions, to conduct basic research, which could lead to further commercialization of technology to preserve human cells, tissues and organs. In conjunction with academic investigators, BioLife has been awarded five National Institute of Health ("NIH") grants and one National Science Foundation grant, valued at $1.2 million, since 2000. These grants 4 involve research based around BioLife's core HypoThermosol technology and includes work on optimizing preservation media for different cellular and tissue applications and more fundamental research into cellular apoptosis and cell and tissue preservation. In March 2003, the Company announced that it signed a multi-year research and development agreement with Edison, NJ-based Tissue Transformation Technologies ("T-Cubed"), a processor, marketer and distributor of human tissues and cells from non-transplantable organs. Under the terms of the agreement, BioLife will work with T-Cubed to develop the next generation of molecular-based preservation technology in support of T-Cubed's emerging cell-based reagents and therapeutic markets. BioLife estimates that the agreement is valued in excess of $1 million, including an upfront payment from T-Cubed and potential milestone payments from third-party participants in the partnership In 2001, BioLife entered into a solutions optimization contract with a biotechnology Company specializing in stem cell research. The Company contracted for BioLife to supply an optimized HypoThermosol preservative solution to preserve immature myoblasts (skeletal muscle cells) that doctors injected into the damaged area of a woman's heart in the first autologous human clinical trials for heart muscle regeneration. Ten injections totaling 25 million cells were made into the damaged cells. BioLife's HypoThermosol preservation solution was used both in shipping the original biopsy taken from the patient's thigh as well as in shipping the propagated immature muscle cells back to the surgeon for injection. In March 1999, BioLife signed an Incubator Licensing Agreement with SUNY whereby BioLife will conduct research and development in the field of cryogenic science and in particular solution technology. All inventions conceived as a result of these research and development efforts will belong to BioLife. BIOLIFE MARKETS Recent advances in 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 biomedicine 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, rely on other sources of stem cells 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 to grow 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 myoblasts are extracted from a patient, transported to a culture laboratory, and then transported back to the patient to be inserted into the target tissue. Because this entire process can take months and may involve transportation over long distances, cellular viability is of paramount importance. 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. Support solutions range from simple balanced salt formulations to complex mixtures of electrolytes and other components. Until now, there has not been a great deal of protective difference between these various solutions and few offer long-term protection. 5 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. The delivery systems serve to protect cells form arduous conditions during culture and distribution, and these delivery systems 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. As with the biological components in these areas, development, banking, distribution and storage of these biologics is a critical component for successful and ultimately their 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 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 for the end product. BioLife is addressing this underlying and unmet need, of providing an enabling technology - a superior preservation or culture medium - to the entire biomedical industry. A large and rapidly growing market already exists for extending the life and viability of cartilage and skin. According to MedMarket Diligence, LLC, engineered cartilage and skin generated worldwide sales of $47.5 million in 2001. The market for engineered skin - projected worldwide sales of $34.0 million in 2002 - is expected to grow at a compound annual growth rate ("CAGR") of 44.8% between 2002 and 2010. The market for engineered bone - projected worldwide sales of $5.0 million in 2002 - is expected to grow at a CAGR of 31.2% between 2002 and 2010. The market for engineered cartilage - projected worldwide sales of $30.0 million in 2002 - is expected to grow at a CAGR of 12.5% between 2002 and 2010. An even larger market is expected to develop over the next several years as cell therapy and tissue engineering begins to address chronic afflictions such as Alzheimer's, diabetes and heart disease. These markets will also require the successful transportation and storage of biologics to ultimately deliver successful therapy to patients on a large scale. In addition to the growth in currently commercialized tissue engineered products, the development of tissue engineering applications to treat chronic diseases has the potential to generate annual sales of more than $1.0 billion by 2010. As a component of other developed technology, HypoThermosol is not subject to specific FDA pre-market approval. In particular, the Company is 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 BioLife to comply with Good Manufacturing Procedures ("GMP") as mandated by FDA. The Company's current contract manufacturer, which manufactures the HypoThermosol line of preservative solutions for the Company, is GMP compliant. There can be no assurance, that the Company will not be required to obtain pre market approval from the FDA to market any of the Company's products in the future. Although BioLife does not market its products for use in embryo and gamete preservation or for tissue or organ transplants, the Company expects that it will need to obtain pre market approval from the FDA before it does so. This would entail substantial financial and other resources and could take several years before the products are approved, if at all. 6 MANUFACTURING BioLife's HypoThermosol line of preservation solutions are manufactured in accordance with the Company's patented and proprietary formulas under confidentiality agreements by an independent third party contract manufacturer, a leading manufacturer of cell culture media and reagents. In February 2003, the Company entered into a two-year manufacturing agreement with the contract manufacturer. Manufacturing of BioLife's Hypothermosol products follow current Good Manufacturing Practices (cGMPs) prescribed by the FDA. There are multiple sources available from which the Company could have HypoThermosol manufactured. GOVERNMENTAL REGULATION Governmental regulation in the United States and other countries is a significant factor affecting the research and development, manufacture and marketing of the Company's products. In the United States, the FDA has broad authority under the Federal Food, Drug and Cosmetic Act and the Public Health Service Act to regulate the distribution, manufacture and sale of medical devices. Foreign sales of medical devices are subject to foreign governmental regulation and restrictions which vary from country to country. The process of obtaining FDA and other required regulatory clearances or approvals is lengthy and expensive. There can be no assurance that the Company will be able to obtain necessary clearances or approvals for clinical testing or for manufacturing or marketing of those of its products that currently do not have clearance. Failure to comply with applicable regulatory approvals can, among other things, result in warning letters, fines, suspensions of regulatory approvals, product recalls, operating restrictions and criminal prosecution. In addition, governmental regulations may be established which could prevent, delay, modify or rescind regulatory clearance or approval of the Company's products. Regulatory clearances or approvals, if granted, may include significant limitations on the indicated uses for which the Company's products may be marketed. In addition, to obtain such clearances or approvals, the FDA and foreign regulatory authorities may impose numerous other requirements on the Company. FDA enforcement policy strictly prohibits the marketing of approved medical devices for unapproved uses. In addition, product approvals can be withdrawn for failure to comply with regulatory standards or the occurrence of unforeseen problems following initial marketing. There can be no assurance that the Company will be able to obtain regulatory clearances or approvals for 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 material adverse effect on the Company's business, financial condition and results of operations. INTELLECTUAL PROPERTY Obtaining and maintaining a strong intellectual property position is a key component of the Company's competitive strategy. In addition to keeping competitors out of key markets, a broad portfolio of intellectual property will enable BioLife to negotiate more favorable licensing and distribution agreements than could otherwise occur. The Company, and its legal counsel, are committed to aggressively protect BioLife's intellectual property portfolio. BioLife's core HypoThermosol cell preservation technology is protected by U.S. Patent No. 6,045,990, "Inclusion of Apoptotic Regulators in Solutions for Cell Storage at Low Temperature," owned by the Company, and which covers the use of cell-free solution compositions for hypothermic cell storage supplemented with agents inhibiting apoptotic induced cell death. Additionally, solutions for cell storage at hypothermic 7 temperatures supplemented with cell death inhibitors for cryopreservation are disclosed. BioLife's other core patent (No. 5,405,942) contains claims relating to tissue preservation and bloodless surgery in the field of organ transplantation. The Company also has several additional patents (U.S. Patent Nos. 4,923,442 and 5,130,230), relating to blood substitute products, dating back to 1990. These patents were originally filed with the purpose of providing surgeons with the ability to perform bloodless surgery in the event of severe trauma or under battlefield conditions. In addition to these U.S. patents, the Company has filed for similar claims for patent protection in Europe and other major international markets, relating to each of these patents. The Company's patents protect HypoThermosol from both literal infringement and also infringement under the Doctrine of Equivalents. This doctrine does not allow infringement to be avoided by simply replacing an element or component of BioLife's invention. In addition to the Company's corporate logo and name, BioLife has trademarked the following product names: o HypoThermosol o CryoStor o GelStor o BioPak Although the Company intends to continue to develop and file patents relating to its core technology and to rigorously defend its patent position, there can be no assurance that any additional patents will be granted. To the extent that any unique applications of the Company's technologies are developed by the Company's scientists, such applications or procedures may not be subject to any protection and there can also be no assurance that the Company will develop additional patentable processes or products or, if developed, that the Company would be able to obtain patents with respect thereto, or that others may not assert claims successfully with respect to such patents or patent applications. Furthermore, the Company might not be able to afford the expense of any litigation which might be necessary to enforce its rights under any patents it may obtain, and there can be no assurance that the Company would be successful in any such suit. There is also no assurance that the Company's proposed products will not infringe on patents owned by others. While the Company believes that the protection of patents and trademarks is important to its business, the Company also relies on a combination of copyright, trade secret, nondisclosure and confidentiality agreements, know-how and continuing technological innovation to maintain its competitive position. Despite these precautions, it may be possible for unauthorized third parties to copy certain aspects of the Company's products or to obtain and use information that the Company regards as proprietary. The laws of some foreign countries in which the Company may sell its products do not protect the Company's proprietary rights to the same extent as do the laws of the United States. COMPETITION The medical products industry is highly competitive. Most of the Company's potential competitors have considerably greater financial, technical, marketing, and other resources than the Company. BioLife faces competition in the markets for its line of HypoThermosol preservation solutions from several much larger companies, including Organ Recovery Systems, Inc., which is developing low temperature technologies for the preservation and transportation of tissue and Barr Laboratories, Inc., which is selling Viaspan, the organ preservation solution, under license from DuPont Pharmaceuticals Company. SangStat 8 Medical Corporation has also developed a preservation medium, but which is only indicated for use in the U.S. for cardiac transplantation The Company expects competition to intensify with respect to the areas in which it is involved as technical advances are made and become more widely known. EMPLOYEES The Company's business is highly dependent upon its ability to attract and retain qualified scientific, technical and management personnel. BioLife had six full-time employees and engaged five research and development contractors at December 31, 2002. The Company's future success depends to a significant degree upon the continued services of key management personnel, including John G. Baust, Ph.D., the Company's President and Chief Executive Officer. The Company is not a party to any collective bargaining agreements. ITEM 2. DESCRIPTION OF PROPERTY - ------------------------------- Rental expense for all of the Company's facilities for the year ended December 31, 2002 totaled approximately $45,000. In March 1999, BioLife signed an Incubator Licensing Agreement with SUNY Binghamton, whereby BioLife leases 720 square feet of office and laboratory space at the University at a rental rate of $1,005 per month, which is reviewed annually. ITEM 3. LEGAL PROCEEDINGS - -------------------------- BioLife is currently involved in a lawsuit against Endocare, Inc., arising out of Endocare's failure to register 120,022 shares of its stock as part of the transaction by which the Company sold its cryosurgical equipment assets to Endocare in a transaction that closed on June 24, 2002. In the lawsuit, the Company is claiming damages of $1,648,935, comprising the proceeds that could have been realized had Endocare properly registered the Stock within the time frame set forth in the Registration Rights Agreement entered into between the parties. Endocare filed an answer and counterclaim, seeking damages of over $5,000,000 as a result of various alleged breaches by the Company of the Asset Purchase Agreement entered into between the parties. Trial in this matter began on March 31, 2003 and concluded on April 3, 2003. As of the date of this Form 10-KSB, the presiding judge has not yet declared a verdict. The Company is confident of the merits of its claims (and the merits of its defenses to Endocare's counterclaims) and intends to prosecute the case vigorously. However, there can be no guarantee that the Company will prevail in these matters. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ None. 9 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ----------------------------------------------------------------- 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. The following table sets forth the high and low closing prices for the Common Stock for the periods indicated. Price Range ----------- High Low ---- --- Quarter Ended: ------------- March 31, 2001 $0.69 $0.38 June 30, 2001 $0.48 $0.21 September 30, 2001 $0.30 $0.04 December 31, 2001 $0.35 $0.04 March 31, 2002 $0.29 $0.09 June 30, 2002 $0.25 $0.10 September 30, 2002 $0.20 $0.10 December 31, 2002 $0.20 $0.09 HOLDERS As of December 31, 2002, there were 1,178 holders of record of the Common Stock. DIVIDEND HISTORY AND POLICY The Company has never paid cash dividends on its Common Stock and does not anticipate that any cash dividends will be paid for the foreseeable future. PRIVATE PLACEMENTS In March 2002, the Company borrowed $250,000, represented by a 12-month promissory note agreement. The principal balance on this promissory note accrues interest at the rate of 10% per annum. In connection with the promissory note, the Company issued warrants to purchase one million shares of the Company's common stock at $0.25 per share. The payment of this note was extended to April 10, 2003. The Company is currently negotiating another extension to the promissory note. 10 EQUITY COMPENSATION PLAN INFORMATION The following table shows securities authorized for issuance under equity compensation plans
(A) (B) (C) Number of securities remaining available for Number of future issuance securities to under equity be issued upon Weighted-average compensation exercise of exercise price of plans (excluding outstanding options, outstanding options, securities reflected Plan Category warrants and rights warrants and rights in column (a)) - ------------- ------------------- ------------------- ------------------ Equity compensation plans approved by security holders....................................... 4,000,000 $0.88 -- Equity compensation plans not approved by security holders....................................... 6,924,000 (1) $0.61 3,060,000 (2) -------------- ----- ------------- Total 10,924,000 $0.72 3,060,000 (2)
(1) Includes 440,000 shares of Common Stock underlying options which are subject to approval by the Company's stockholders on or before July 10, 2003, amending the Company's 1998 Stock Option Plan which was adopted by the Company's Board of Directors on July 11, 2002. (2) Subject to approval by the Company's stockholders on or before July 10, 2003, amending the Company's 1998 Stock Option Plan which was adopted by the Company's Board of Directors on July 11, 2002. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - -------------------------------------------------------------------- The following discussion should be read in conjunction with the Company's financial statements and notes thereto set forth elsewhere herein. The discussion of the results from operations includes only the Company's continuing operations. BioLife has pioneered the next generation of preservation solutions designed to maintain the viability and health of cellular matter and tissues during freezing, transportation and storage. Based on the Company's proprietary bio-packaging technology and a patented understanding of the mechanism of cellular damage and death, these products enable the biotechnology and medical community to address a growing problem that exists today. The expanding practice of cell and gene therapy has created a need for products that ensure the biological viability of mammalian cell and tissue material during transportation and storage. The Company believes that HypoThermosol and CryoStor products it is selling today are a significant step forward in meeting these needs. The Company's line of preservation solutions is composed of complex synthetic, aqueous solutions containing, in part, minerals and other elements found in human blood which are necessary to maintain fluids and chemical balances throughout the body at near freezing temperatures. The solutions preserve cells and tissue in low temperature environments for extended periods after removal of the cells through minimally invasive biopsy or surgical extraction, as well as in shipping the propagated material for the application of cell or gene therapy or tissue engineering. BioLife has entered into research agreements with several emerging biotechnology companies engaged in the research and commercialization of cell and gene therapy technology and has received several government research grants in partnership with academic institutions to conduct basic research, which could lead to further commercialization of technology to preserve human cells, tissues and organs. 11 The Company currently markets its HypoThermosol line of solutions directly and through a distributor to companies and labs engaged in pre-clinical research, and to academic institutions. On June 25, 2002, the Company completed the sale of its cryosurgery product line and related intellectual property assets to Irvine, California-based Endocare, Inc. In the transaction, the Company transferred ownership of all of its cryosurgical installed base, inventory and related intellectual property in exchange for $2.2 million in cash and 120,022 shares of Endocare restricted common stock. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Company's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements require the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures. On an ongoing basis, the Company evaluates estimates including those related to bad debts, inventories, fixed assets, intangible assets, income taxes, restructuring costs, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of the Company's judgments on the carrying value of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. The Company believes that following accounting policies involves more significant judgments and estimates in the preparation of the consolidated financial statements. The Company maintains an allowance for doubtful accounts for estimated losses that may result from the inability of its customers to make payments. If the financial condition of the Company's customers were to deteriorate, resulting in their inability to make payments, the Company may be required to make additional allowances. The Company writes down inventory for estimated obsolete or unmarketable inventory to the lower of cost or market based on assumptions of future demand. If the actual demand and market conditions are less favorable than projected, additional write-downs may be required. RESULTS OF OPERATIONS Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001 REVENUE. Revenue for the year ended December 31, 2002 increased $426,519 or 101%, to $848,791, compared to $422,272 for the year ended December 31, 2001. The increase in revenue is attributable to higher revenues from grants, which increased to $641,825 in 2002, compared to $356,912 in the year-ago period, the direct result of additional grant awards, the execution of several new research contracts, which resulted in an increase in corporate consulting revenue, and the introduction in 2002 of our line of hypothermic preservation solutions. COST OF PRODUCT SALES. For the year ended December 31, 2002, cost of product sales increased to $25,646, compared to $2,455 for the year ended December 31, 2001. This increase was the result of all of the Company's product inventory that was utilized in research and development activities. RESEARCH AND DEVELOPMENT. Expenses relating to research and development for the year ended December 31, 2002 increased $119,242, or 23%, to $644,798, compared to $525,556 for the year ended December 31, 2001. The increase in research and development expense was due to several factors relating to increased research and development activity, including depreciation expense and legal costs relating to patent applications. Higher headcount in 2002 also increased salary expense and the related employee travel 12 expenditures as research and development personnel presented papers at scientific conferences around the United States. These higher research and development expenses were offset by lower consulting fees, as more development work was brought in-house. SALES AND MARKETING. For the year ended December 31, 2002, sales and marketing expense increased $32,549, or 107%, to $62,988, compared to $30,439 for the year ended December 31, 2001. The increase in sales and marketing expense was due to greater sales and marketing-related activity, including the commercial release of the Company's HypoThermosol product line, as well as higher tradeshow attendance costs and higher consulting fees. This increase in sales and marketing expense was offset by slightly lower salary expense compared to the year ago period, as a result of a lower average head count over the entire year. GENERAL AND ADMINISTRATIVE EXPENSE. For the year ended December 31, 2002, general and administrative expense increased $593,617 to $735,470, compared to $141,853 for the year ended December 31, 2001. This increase was due to the shift in the burden of general and administrative expense to the Company's continuing operations from discontinued operations. As a result of this shift, the Company experienced significantly higher salary and related benefits expense, as well as higher travel, legal and accounting expense. DISCONTINUED OPERATIONS. On June 25, 2002, all of the cryosurgical assets, including customer receivables, inventory, fixed assets and intangible assets related to the cryosurgical business, were sold to Endocare for a combination of cash and common stock of the purchaser. For the year ended December 31, 2002 loss from the operations of cryosurgical assets was $(1,572,207) compared to a loss of $(4,131,456) for the year ended December 31, 2001. For the year ended December 31, 2002, the gain on disposal of cryosurgical assets, net of assets sold at cost, was $2,426,109. OPERATING EXPENSES AND NET INCOME. For the year ended December 31, 2002, operating expenses increased $768,599 to $1,468,902, compared to $700,303 for the year ended December 31, 2001. The Company reported net income of $215,876 for the year ended December 31, 2002, compared to a net loss of $(4,410,257) for the year ended December 31, 2001. The Company's reported net income/(loss) for the years ended December 31, 2002 and 2001, includes results from discontinued operations and the gain on disposal of cryosurgical assets. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2002, the Company had cash and cash equivalents of $67,118, compared to cash and cash equivalents of $286,105 at December 31, 2001. At December 31, 2002, the Company had a working capital deficit of $(711,965), compared to a working capital deficit of $(614,626) at December 31, 2001. The reduction in the Company's cash and working capital position compared to December 31, 2001 was due to sale of the Company's cryosurgical assets in 2002, and subsequent write-down of securities received in the sale, and was partially offset by net income for the year ended December 31, 2002. In order to continue its operations, the Company will need to secure funding in the immediate short term. In this respect, the Company is currently involved in litigation against Endocare, Inc., seeking to recover damages that it believes it suffered when Endocare failed to register its common shares that the Company received in the sale of the Company's cryosurgical assets in June 2002. In addition to this litigation, the Company is also pursuing other financing initiatives, including the sale of equity securities, the issuance of debt, or other alternatives. The Company can make no assurances that it will be successful in either its litigation against Endocare, or in raising capital. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Other arrangements, if necessary to raise additional funds, may require the Company to relinquish rights to certain of its technologies, products, marketing territories or other assets. The failure to raise capital when needed will have a significant negative effect on the Company's financial condition and may force the Company to curtail or cease its activities. Capital expenditures related to continuing operations, totaled $87,387 for the year ended December 31, 2002, compared to $121,711 for the year ended December 31, 2001. 13 In March 2002, the Company borrowed $250,000 represented by a 12-month promissory note agreement. In connection with this debt, the Company issued warrants to purchase one million shares of the Company's Common Stock at $0.25 per share. The payment of this note was extended to April 10, 2003. The Company is currently negotiating another extension to the promissory note. Also in March 2002, the Company entered into a promissory note with a vendor of the Company in the amount of $200,824 payable in $10,000 monthly installments, without interest, until the principal amount is paid in full. In May 2002, the Company borrowed an aggregate of $115,000 under 12-month promissory note agreements. In connection with this debt, the Company issued warrants to purchase 460,000 shares of the Company's common stock at $0.25 per share. The Company has repaid the $115,000 12-month promissory notes, and has also repaid $105,000 of the vendor promissory note. 14 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 the Company's 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. The Company's 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 or Plan of Operation." 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. The Company undertakes no obligation to revise any of these forward-looking statements. The risks presented below may not be all of the risks the Company may face. These are the factors that the Company believes 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 the Company's business and financial performance. The industry that the Company competes in 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. You should not rely upon forward-looking statements as a prediction of future results. THE COMPANY REQUIRES FUNDING TO ENSURE ITS SHORT TERM VIABILITY. In order to continue its operations, the Company will need to secure funding in the immediate short term. In this respect, the Company is currently involved in litigation against Endocare, Inc., seeking to recover damages that it believes it suffered when Endocare failed to register its common shares that the Company received in the sale of the Company's cryosurgical assets in June 2002. In addition to this litigation, the Company is also pursuing other financing initiatives, including the sale of equity securities, the issuance of debt, or other alternatives. The Company can make no assurances that it will either be successful in its litigation against Endocare, or in raising capital. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Other arrangements, if necessary to raise additional funds, may require the Company to relinquish rights to certain of its technologies, products, marketing territories or other assets. The failure to raise capital when needed will have a significant negative effect on the Company's financial condition and may force the Company to curtail or cease its activities. THE COMPANY IS CURRENTLY INVOLVED IN LITIGATION, WHICH IS EXPENSIVE AND MAY NOT RESULT IN A FAVORABLE OUTCOME. The Company is involved in litigation with Endocare. The Company is claiming damages relating to the drop in value of part of the consideration that the Company received in the sale of its cryosurgical assets to Endocare. There can be no assurance that the Company will prevail in this litigation, or that the Company will reach a settlement with Endocare. Litigation, and in particular the trial phase of litigation, is expensive. Without additional financing, there can be no assurance that the Company will be able to support its litigation efforts, or that it will be successful. 15 THE COMPANY HAS A HISTORY OF LOSSES AND MAY NEVER ACHIEVE OR MAINTAIN PROFITABILITY. The Company has incurred annual operating losses since inception, and expects to 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, 2002 and December 31, 2001, the Company had net income of $215,876 and a net loss of $4,410,257, respectively. However, the 2002 net income can be offset by the write-off of the Endocare securities in the amount of $1,434,263. As of December 31, 2002, the Company's accumulated deficit was $37,495,108. The Company may not be able to successfully develop or commercialize its current or future products, achieve significant revenues from sales, or achieve or sustain profitability. Successful completion of the Company's development program and its transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support its cost structure and obtaining additional financing adequate to fulfill its research and development activities to continue refining its existing products and developing and commercializing new products. THE MARKET FOR THE COMPANY'S COMMON STOCK IS LIMITED AND ITS STOCK PRICE IS VOLATILE. The Company's 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 the Company's Common Stock on the OTC Bulletin Board. 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 the Company's common stock could be significantly impacted by o future sales of the Company's common stock, o announcements of technological innovations for new commercial products by the Company's present or potential competitors, o developments concerning proprietary rights, o adverse results in the Company's field or with clinical tests, o adverse litigation, o unfavorable legislation or regulatory decisions, o public concerns regarding the Company's products, o variations in quarterly operating results, o general trends in the health care industry, and o other factors outside of the Company's control. THERE IS UNCERTAINTY SURROUNDING THE COMPANY'S ABILITY TO SUCCESSFULLY COMMERCIALIZE ITS PRESERVATIVE SOLUTIONS. The Company's growth depends, in part, on its continued ability to successfully develop, commercialize and market the Company's HypoThermosol preservative solutions. Even in markets that do not require the Company to undergo clinical trials and obtain regulatory approvals, the Company's line of HypoThermosol preservative solutions will not be used unless they present an attractive alternative to competitive products and the benefits and cost savings achieved through their use outweigh the cost of the solutions. The Company believes that recommendations and endorsements of physicians will be essential for market acceptance of the HypoThermosol product line. 16 THE SUCCESS OF THE COMPANY'S HYPOTHERMOSOL PRESERVATIVE SOLUTIONS IS DEPENDANT, IN PART, ON THE COMMERCIAL SUCCESS OF NEW CELL AND GENE THERAPY TECHNOLOGY. The Company is developing preservative media for, and marketing its HypoThermosol preservative solutions to, biotechnology companies and research institutions engaged in research and development of cell, gene and tissue reengineering therapy. Although the Company, 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 preservative solutions in these markets, is expected to be limited for several years. THE COMPANY FACES SIGNIFICANT COMPETITION. The Company faces competition in the markets for its HypoThermosol preservation solution from several much larger companies, including Organ Recovery Systems, Inc., which is developing low temperature technologies for the preservation and transportation of tissue and Barr Laboratories, Inc., which is selling Viaspan, the organ preservation solution, under license from DuPont Pharmaceuticals Company. SangStat Medical Corporation has also developed a preservation medium for use for cardiac transplantation in the U.S. Many of the Company's competitors are significantly larger than the Company and have greater financial, technical, research, marketing, sales, distribution and other resources than the Company. Additionally, the Company believes there will be intense price competition with respect to the Company's products. There can be no assurance that the Company's 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 the Company, or that such competitors will not succeed in obtaining regulatory approval, introducing, or commercializing any such products prior to the Company. Such developments could have a material adverse effect on the Company's business, financial condition and results of operations. Further, even if the Company is able to compete successfully, there can be no assurance that it could do so in a profitable manner. THE COMPANY'S SUCCESS WILL DEPEND ON ITS ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL. In order to execute its business plan, the Company must attract, retain and motivate highly qualified managerial, technical and sales personnel. If the Company fails to attract and retain skilled scientific and sales personnel, the Company's research and development and sales efforts will be hindered. The Company's future success depends to a significant degree upon the continued services of key management personnel, including John G. Baust, Ph.D., the Company's President and Chief Executive Officer. Although Dr. Baust is subject to an employment agreement, he is not covered by a life insurance policy naming the Company as beneficiary. If the Company does not attract and retain qualified personnel it will not be able to achieve its growth objectives. IF THE COMPANY FAILS TO PROTECT ITS INTELLECTUAL PROPERTY RIGHTS, THE COMPANY'S COMPETITORS MAY TAKE ADVANTAGE OF ITS IDEAS AND COMPETE DIRECTLY AGAINST IT. The Company's success will depend to a significant degree on its ability to secure and protect intellectual proprietary rights and enforce patent and trademark protections relating to the Company's technology. While the Company believes that the protection of patents and trademarks is important to its business, the Company also relies on a combination of copyright, trade secret, nondisclosure and confidentiality agreements, know-how and continuing technological innovation to maintain its competitive position. From time to time, litigation may be advisable to protect its intellectual property position. However, these legal means afford only limited protection and may not adequately protect the Company's rights or permit it to gain or keep any competitive advantage. Any litigation in this regard could be costly, and it is possible that the Company will not have sufficient resources to fully pursue litigation or to protect the Company's intellectual property rights. This could result in the rejection or invalidation of the Company's existing and future patents. 17 Any adverse outcome in litigation relating to the validity of its patents, or any failure to pursue litigation or otherwise to protect its patent position, could materially harm the Company's business and financial condition. In addition, confidentiality agreements with the Company's employees, consultants, customers, and key vendors may not prevent the unauthorized disclosure or use of the Company's technology. It is possible that these agreements will be breached or that they will not be enforceable in every instance, and that the Company 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 the Company's intellectual property rights to the same extent as the laws of the United States. BECAUSE THE BIOTECHNOLOGY INDUSTRY IS LITIGIOUS, THE COMPANY MAY BE SUED FOR ALLEGEDLY VIOLATING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS. The medical technology industry in the past has been characterized by a substantial amount of litigation and related administrative proceedings regarding patents and intellectual property rights. In addition, many medical device 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 the Company in pending applications, the Company may be required to participate in interference proceedings in the U.S. Patent and Trademark Office to determine the relative priorities of its inventions and the third parties' inventions. The Company could also be required to participate in interference proceedings involving its issued patents and pending applications of another entity. An adverse outcome in an interference proceeding could require the Company to cease using the technology or to license rights from prevailing third parties. Third parties may claim that the Company is using their patented inventions and may go to court to stop the Company from engaging in its normal operations and activities. These lawsuits are expensive to defend and conduct and would also consume and divert the time and attention of the Company's management. A court may decide that the Company is infringing on a third party's patents and may order the Company to cease the infringing activity. The court could also order the Company to pay damages for the infringement. These damages could be substantial and could harm the Company's business, financial condition and operating results. If the Company is unable to obtain any necessary license following an adverse determination in litigation or in interference or other administrative proceedings, the Company would have to redesign its products to avoid infringing a third party's patent and temporarily or permanently discontinue manufacturing and selling some of its products. If this were to occur, it would negatively impact future sales. IF THE COMPANY FAILS TO OBTAIN OR MAINTAIN NECESSARY REGULATORY CLEARANCES OR APPROVALS FOR PRODUCTS, OR IF APPROVALS ARE DELAYED OR WITHDRAWN, THE COMPANY WILL BE UNABLE TO COMMERCIALLY DISTRIBUTE AND MARKET ITS PRODUCTS OR ANY PRODUCT MODIFICATIONS. Government regulation has a significant impact on the Company's business. Government regulation in the United States and other countries is a significant factor affecting the research and development, manufacture and marketing of the Company's products. In the United States, the FDA has broad authority under the Federal Food, Drug and Cosmetic Act to regulate the distribution, manufacture and sale of medical devices. Foreign sales of drugs and medical devices are subject to foreign governmental regulation and restrictions, which vary from country to country. The process of obtaining FDA and other required regulatory clearances and approvals is lengthy and expensive. The Company may not be able to obtain or maintain necessary approvals for clinical testing or for the manufacturing or marketing of its products. Failure to comply with applicable regulatory approvals can, among other things, result in fines, suspension or withdrawal of regulatory approvals, product recalls, operating restrictions, and criminal prosecution. In addition, governmental regulations may be established which could prevent, delay, modify or rescind regulatory approval of the Company's products. Any of these actions by the FDA, or change in FDA regulations, may adversely impact the Company's business and financial condition. 18 Regulatory approvals, if granted, may include significant limitations on the indicated uses for which the Company's products may be marketed. In addition, to obtain such approvals, the FDA and foreign regulatory authorities may impose numerous other requirements on the Company. FDA enforcement policy prohibits the marketing of approved medical devices for unapproved uses. In addition, product approvals can be withdrawn for failure to comply with regulatory standards or unforeseen problems following initial marketing. The Company may not be able to obtain or maintain regulatory approvals for its 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 the Company's financial condition. THE COMPANY IS DEPENDANT ON OUTSIDE SUPPLIERS FOR ALL OF ITS MANUFACTURING SUPPLIES. The Company relies on outside suppliers for all of its manufacturing supplies, parts and components. Although the Company believes it 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, its current or alternative sources will be able to meet all of the Company's demands on a timely basis. Unavailability of necessary components could require the Company to re-engineer its products to accommodate available substitutions which would increase costs to the Company and/or have a material adverse effect on manufacturing schedules, products performance and market acceptance. 19 ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Number Independent Auditor's Report F-1 Consolidated Balance Sheets F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Comprehensive Loss F-4 Consolidated Statements of Stockholders' Equity (Deficiency) F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F7-F20 20 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders of BioLife Solutions, Inc. (Formerly Cryomedical Sciences, Inc.) Binghamton, New York We have audited the accompanying Consolidated Balance Sheets of BioLife Solutions, Inc. (Formerly Cryomedical Sciences, Inc.) and Subsidiary as of December 31, 2002 and 2001, and the related Consolidated Statements of Operations, Comprehensive Loss, Stockholders' 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BioLife Solutions, Inc. and Subsidiary as of December 31, 2002 and 2001, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that 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 and may not have sufficient liquidity to meet its financial obligations in the future. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. ARONSON & COMPANY Rockville, Maryland March 31, 2003 F-1
BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, December 31, 2001 2002 --------------------- --------------------- Assets ------ Current assets Cash and cash equivalents $ 286,105 $ 67,118 Receivables, net of allowance for doubtful accounts of $26,970 at December 31, 2001 54,043 44,666 Inventories 487,858 -- Loan financing costs, net of accumulated amortization of $128,876 at December 31, 2002 -- 25,753 Prepaid expenses and other current assets 23,192 18,595 ------------------ ------------------ Total current assets 851,198 156,132 ------------------ ------------------ Property and equipment Leasehold improvements 16,783 -- Furniture and computer equipment 190,939 31,266 Manufacturing and other equipment 2,385,185 177,831 ------------------ ------------------ Total 2,592,907 209,097 Less: Accumulated depreciation and amortization (2,138,614) (51,383) ------------------ ------------------ Net property and equipment 454,293 157,714 Intangible assets, net 471,099 -- ------------------ ------------------ Total assets $ 1,776,590 $ 313,846 ================== ================== Liabilities and Stockholders' Equity (Deficiency) ------------------------------------------------- Current liabilities Accounts payable $ 1,000,027 $ 171,666 Accrued expenses 278,490 105,801 Accrued salaries 187,307 244,806 Notes payable -- 345,824 ------------------ ------------------ Total current liabilities 1,465,824 868,097 ------------------ ------------------ Commitments and contingencies Stockholders' equity (deficiency) Preferred stock, $.001 par value per share; 1,000,000 authorized, 12,000 shares issued and outstanding 12 12 Common stock, par value $.001 per share; 25,000,000 shares authorized, 12,413,209 shares issued and outstanding 12,413 12,413 Additional paid-in capital 38,009,325 38,362,695 Accumulated deficit (37,710,984) (37,495,108) Accumulated other comprehensive loss -- (1,434,263) ------------------ ------------------ Total stockholders' equity (deficiency) 310,766 (554,251) ------------------ ------------------ Total liabilities and stockholders' equity (deficiency) $ 1,776,590 $ 313,846 ================== ==================
The accompanying Notes to Financials Statements are an integral part of these financial statements F-2
BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS Year ended December 31, ------------------------------------------- 2001 2002 ---- ---- Revenue Grant revenue $ 356,912 $ 641,825 Services and other 65,360 206,966 ------------------ ------------------ Total revenue 422,272 848,791 ------------------ ------------------ Operating expenses Research and development 525,556 644,798 Sales and marketing 30,439 62,988 Product sales 2,455 25,646 General and administrative 141,853 735,470 ------------------ ------------------ Total expenses 700,303 1,468,902 ------------------ ------------------ Operating loss (278,031) (620,111) ------------------ ------------------ Other income (expense) Interest income -- 835 Interest expense (770) (18,750) ------------------ ------------------ Total other income (expense) (770) (17,915) ------------------ ------------------ Loss from continuing operations before (benefit) provision for income taxes (278,801) (638,026) Provision (benefit) for income taxes 1,594,742 (329,606) ------------------ ------------------ Loss from continuing operations (1,873,543) (308,420) ------------------ ------------------ Discontinued operations Loss from discontinued operations, net of tax benefit of $1,594,742 and $606,872 in 2001 and 2002, respectively (2,536,714) (965,335) Gain on disposition of cryosurgical assets, net of tax of $936,478 -- 1,489,631 ------------------ ------------------ Total discontinued operations (2,536,714) 524,296 ------------------ ------------------ Net (loss) income $ (4,410,257) $ 215,876 ================== ================== Basic and diluted net (loss) income per common share: Loss from continuing operations $ (0.15) $ (0.02) Loss from discontinued operations (0.21) (0.08) Gain on disposition of cryosurgical assets -- 0.12 ------------------ ------------------ Total basic and diluted net (loss) income per common share $ (0.36) $ 0.02 ================== ================== Basic and diluted weighted average common shares used to compute net (loss) income per share 12,413,209 12,413,209 ================== ==================
The accompanying Notes to Financials Statements are an integral part of these financial statements F-3
BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS YEAR ENDED DECEMBER 31, --------------------------------------- 2001 2002 ------------------- ---------------- Net (loss) income $ (4,410,257) $ 215,876 Unrealized loss on marketable securities -- (1,434,263) ------------------- ---------------- Comprehensive (loss) $ (4,410,257) $ (1,218,387) =================== ================
The accompanying Notes to Financials Statements are an integral part of these financial statements F-4
BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) Convertible Accumulated Total Common stock Preferred Stock Additional Other stockholders' ---------------- ----------------- paid-in Accumulated Comprehensive equity Shares Amount Shares Amount capital deficit Loss (deficiency) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, January 1, 2001 12,413,209 $12,413 -- $ -- $ 36,916,868 $(33,300,727) $ -- $ 3,628,554 Issuance of Series F Convertible Preferred Stock -- -- 12,000 12 1,068,871 -- -- 1,068,883 Issuance of warrants and options for consulting and professional services -- -- -- -- 23,586 -- -- 23,586 Net loss -- -- -- -- -- (4,410,257) -- (4,410,257) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2001 12,413,209 12,413 12,000 12 38,009,325 (37,710,984) -- 310,766 Issuance of warrants and options for consulting and professional services -- -- -- -- 198,741 -- -- 198,741 Issuance of warrants for loan financing costs -- -- -- -- 154,629 -- -- 154,629 Unrealized loss on marketable securities -- -- -- -- -- -- (1,434,263) (1,434,263) Net income -- -- -- -- -- 215,876 -- 215,876 - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2002 12,413,209 $ 12,413 12,000 $ 12 $ 38,362,695 $(37,495,108) $(1,434,263) $ (554,251) ===================================================================================================================================
The accompanying Notes to Financials Statements are an integral part of these financial statements F-5
BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, 2001 2002 --------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (4,410,257) $ 215,876 ADJUSTMENTS TO RECONCILE NET (LOSS) INCOME TO NET CASH USED BY OPERATING ACTIVITIES: Gain on disposition of cryosurgical assets, net -- (2,426,109) Loss from discontinued operations 4,131,456 1,572,207 Depreciation 11,379 40,004 Amortization of loan financing costs -- 128,876 Write-down of inventory -- 25,685 Allowance for bad debts 19,796 -- Issuance of warrants and options for consulting and professional services -- 198,741 CHANGE IN OPERATING ASSETS AND LIABILITIES, NET OF EFFECTS FROM DISPOSITION OF CRYOSURGICAL ASSETS: (INCREASE) DECREASE IN: Accounts receivable (37,887) (20,731) Prepaid and other current assets (23,192) (18,595) Accounts payable 98,900 80,715 INCREASE (DECREASE) IN: Accrued expenses 273,770 (218,870) Accrued salaries (55,829) 57,499 ------------------ ----------------- CASH PROVIDED (USED) BY CONTINUING OPERATIONS 8,316 (364,702) CASH USED BY DISCONTINUED OPERATIONS (2,650,842) (2,312,722) ------------------ ----------------- NET CASH USED BY OPERATING ACTIVITIES (2,642,706) (2,677,424) ------------------ ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of cryosurgical assets -- 2,200,000 Purchase of property and equipment by discontinued operations (157,615) -- Purchase of property and equipment (121,711) (87,387) ------------------ ----------------- NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (279,326) 2,112,613 ------------------ ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable -- 565,824 Principal payments on notes payable (10,858) (220,000) Issuance of preferred stock 1,068,883 -- ------------------ ----------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,058,025 345,824 ------------------ ----------------- Net decrease in cash (1,864,007) (218,987) Cash at beginning of year 2,150,112 286,105 ------------------ ----------------- Cash at end of year $ 286,105 $ 67,118 ================== ================= SUPPLEMENTAL CASH FLOW INFORMATION: Actual cash payments for: Interest $ 41,662 $ 1,673 ================== ================= NON-CASH INVESTING AND FINANCING ACTIVITIES: Marketable securities received from disposition of cryosurgical assets $ -- $ 1,434,263 ================== ================= Warrants issued for payment of loan financing costs $ -- $ 154,629 ================== =================
The accompanying Notes to Financials Statements are an integral part of these financial statements F-6 BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Incorporated in 1998 as a wholly owned subsidiary of Cryomedical Sciences, Inc. ("Cryomedical"), BioLife Solutions, Inc. ("BioLife" or the "Company") develops, manufactures and markets low temperature technologies for use in preserving and prolonging the viability of cellular and genetic material for use in cell therapy and tissue engineering. The Company's patented HypoThermosol(R) platform technology is used to provide customized preservation solutions designed to significantly prolong cell, tissue and organ viability. These solutions, in turn, could improve clinical outcomes for new and existing cell and tissue therapy applications, as well as for organ transplantation. The Company currently markets its HypoThermosol line of solutions directly and through a distributor to companies and labs engaged in pre-clinical research, and to academic institutions. In May 2002, Cryomedical implemented a restructuring and recapitalization program designed to shift its focus away from cryosurgery towards addressing preservation and transportation needs in the biomedical marketplace. On June 25, 2002 the Company completed the sale of its cryosurgery product line and related intellectual property assets to Irvine, CA-based Endocare, Inc., a public company. In the transaction, the Company transferred ownership of all of its cryosurgical installed base, inventory, and related intellectual property, in exchange for $2.2 million in cash and 120,022 shares of Endocare restricted common stock. In conjunction with the sale of Cryomedical's cryosurgical assets, Cryomedical's Board of Directors also approved merging BioLife into Cryomedical and changing its name to BioLife Solutions, Inc. In September 2002, Cryomedical changed its name to BioLife Solutions, Inc. and began to trade under the new ticker symbol, "BLFS" on the OTCBB. In 2001, BioLife was awarded a research grant from the National Institute of Health (the "NIH") for $804,014, titled, "Apoptosis Intervention in Cell and Organ Preservation." A portion of the funds from this grant were recognized in 2002, matching research related to this grant carried out in 2002. Additional funds from this grant are expected to be recognized in 2003. Also, in 2001 the Company received a research grant from the National Institute of Health (NIH) for $100,000 titled, "Treating Cancer of the Gastro Intestinal Tract Using Cryomolecular Biology." Funds from this grant were recognized in 2002, matching the period in which research on this project was carried out. Furthermore, the Company was awarded a grant from NIH for $100,000 titled, "Pro/Anti-Apoptotic Grant." A portion of the funds from this grant was recognized in 2002, and additional amounts are expected to be recognized in 2003. Total grant revenue recognized during the years ended December 31, 2002 and 2001 totaled $641,825 and $356,912, respectively. PRINCIPLES OF CONSOLIDATION: The 2001 financial statements include the accounts of Cryomedical and its then wholly owned subsidiary BioLife. The 2002 financial statements include accounts of the surviving entity after the restructuring and reorganization which took place in 2002. All significant intercompany accounts and transactions have been eliminated in consolidation. NET INCOME (LOSS) PER SHARE: Basic net income (loss) per common share is calculated by dividing the net income (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 plus dilutive common stock equivalents outstanding during the period. Anti-dilutive common stock equivalents are excluded. Common stock equivalents are stock options, warrants and convertible preferred stock. F-7 BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CASH EQUIVALENTS: Cash equivalents consist primarily of interest-bearing money market accounts. The Company considers all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents. The Company maintains cash balances which may exceed Federally insured limits. The Company does not believe that this results in any significant credit risk. INVENTORIES: Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out ("FIFO") method. LOAN FINANCING COSTS: Loan financing costs are amortized on a straight-line basis over the 12-month life of the related debt (See Note 7). FIXED ASSETS: 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: The Company recognizes revenue on cost plus fixed fee type of grant funds received from various government agencies in the same period that expenses relating to the grants are incurred by the Company. Revenue from sales of products under the discontinued Cryosurgical operations is recognized at the time of shipment. INCOME TAXES: The Company accounts 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. The Company evaluates 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. 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 the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. STOCK-BASED COMPENSATION: The Company accounts for stock-based compensation, including stock options granted under its Employee Stock Option Plans, using the intrinsic value method prescribed in APB No. 25 "Accounting for Stock Issued to Employees", and related interpretations. Compensation cost for stock options, if any, is recognized ratably over the vesting period. The Company provides additional pro forma disclosures as required under SFAS No. 123, "Accounting for Stock-Based Compensation". F-8 BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table illustrates the effect on net income (loss) and net income (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock based employee compensation.
2001 2002 ------------------------------------------- (Loss) income, as reported $ (4,410,257) $ 215,876 Compensation expense based on fair value, net of related tax effects 85,880 80,225 - --------------------------------------------------------------------------------------------------------------- PRO FORMA NET (LOSS) INCOME $ (4,496,137) $ 135,651 =============================================================================================================== Basic and diluted net (loss) income per share As reported $ (0.36) $ 0.02 =============================================================================================================== Pro forma $ (0.36) $ 0.01 ===============================================================================================================
The fair value of each option/warrant granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in fiscal years 2002 and 2001: expected volatility of 95 and 93 percent, respectively; expected dividend yield of 0%; risk-free interest rate of 4.5 and 5.0 percent, respectively; and expected lives of ten years. FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of the financial instruments included in the consolidated financial statements, except as otherwise discussed in the notes to financial statements, approximates their carrying value. BUSINESS SEGMENTS: As described above, the Company's activities are directed at the fields hypothermic solutions. As of December 31, 2002 this is the Company's only business segment. RECLASSIFICATIONS: Certain reclassifications have been made in the 2001 financial statements to conform to the 2002 presentation. RECENT PRONOUNCEMENTS: In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 eliminates Statement No. 4 (and Statement No. 64, as it amends Statement No. 4), which requires gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a result, the criteria in APB Opinion 30 will now be used to classify those gains and losses. SFAS No. 145 amends FASB Statement No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. This amendment is consistent with the FASB's goal of requiring similar accounting treatment for transactions that have similar economic effects. In addition, SFAS No. 145 makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. This statement is effective for fiscal years beginning after May 2002 for the provisions related to the rescission of Statements No. 4 and No. 64, and for all transactions entered into beginning May 2002 for the provision related to the amendment of Statement 13, although early adoption is permitted. The Company does not expect this change to have an impact on its financial statements when adopted. F-9 BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In June 2002 the FASB adopted FASB Statement No. 146 (SFAS 146), "Accounting for Exit or Disposal Activities", effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. SFAS 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues Task Force (EITF) has set forth in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs incurred in a Restructuring)." A fundamental conclusion reached by the Board in this Statement is that an entity's commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. Therefore, this Statement eliminates the definition and requirements for recognition of exit costs in Issue 94-3. This statement also establishes that fair value is the objective for initial measurement of the liability. The scope of FAS No. 146 also includes (1) costs related to terminating a contract that is not a capital lease and (2) termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement or an individual deferred-compensation contract. The Company does not expect the implementation of this standard will have an impact on its financial statements when adopted. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure -- an amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company is required to follow the prescribed format and provide the additional disclosures required by SFAS No. 148 in its annual financial statements for the year ending December 31, 2002 and must also provide the disclosures in its quarterly reports containing condensed financial statements for interim periods beginning with the quarterly period ended March 31, 2003. The Company has included the disclosures required in accordance with SFAS No. 148 in Note 1. In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a liability be recorded in the guarantor's balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about guarantees that an entity has issued, including a rollforward of the entity's product warranty liabilities. The Company will apply the recognition provisions of FIN 45 prospectively to guarantees issued after December 31, 2002. The Company does not expect the implementation of this standard will have an impact on the Company's financial statements when adopted. In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity, if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. This Interpretation is not expected to have any effect on the Company's accounting practices or financial reporting since its activities do not include investments in such entities. F-10 BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. FINANCIAL CONDITION At December 31, 2002, the Company had a deficiency in stockholders' equity of $554,251 and a working capital deficiency of $711,965. The Company has been unable to generate sufficient income from operations in order to meet its operating needs. In addition, the Company has approximately $346,000 in debt maturing in 2003. These conditions raise substantial doubt about the Company's ability to continue as a going concern. In order to continue its operations, the Company will need to secure funding in the immediate short term. In this respect, the Company is currently involved in litigation against Endocare, Inc., seeking to recover damages that it believes it suffered when Endocare failed to register its common shares that the Company received in the sale of the Company's cryosurgical assets in June 2002. In addition to this litigation, the Company is also pursuing other financing initiatives, including the sale of equity securities, the issuance of debt, and other alternatives. The Company can make no assurances that it will either be successful in its litigation against Endocare, or in raising capital. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Other arrangements, if necessary to raise additional funds, may require the Company to relinquish rights to certain of its technologies, products, marketing territories or other assets. The failure to raise capital when needed will have a significant negative effect on the Company's financial condition and may force the Company to curtail or cease its activities. These financial statements assume that the Company will be able to continue as a going concern. If the Company is unable to continue as a going concern, the Company may be unable to realize its assets and discharge its liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or to amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern. 3. SALE OF CRYOSURGICAL ASSETS On June 25, 2002 the Company completed the sale of its cryosurgery product line and related intellectual property assets to Irvine, California-based Endocare, Inc. In the transaction, which was originally announced on May 29, 2002, the Company transferred ownership of all of its cryosurgical installed base, inventory, and related intellectual property, in exchange for $2,200,000 in cash and 120,022 shares of restricted Endocare common stock (valued at $1,434,263 on June 25, 2002). There is currently litigation between the companies (see Note 12). Net sales of discontinued operations for the years ended December 31, 2002 and 2001, were $128,419 and $921,744, respectively, and are included in the loss from discontinued operations in the accompanying Statements of Operations. Operating results of the cryosurgical operations totaled $1,572,207 and $4,131,456 for the years ended December 31, 2002 and 2001, are shown separately in the accompanying Statements of Operations net of the related tax effects. The Company recorded a gain on sale of cryosurgical assets of $2,426,109 during the year ended December 31, 2002. F-11 BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cryosurgical assets sold in the transaction with Endocare consisted of the following (all assets are shown at their estimated net realizable value):
June 25, December 31, 2002 2001 ---------------------------------- Accounts receivable $ 42,660 $ 30,108 Inventory 438,606 487,858 Other current assets 18,604 23,192 Fixed assets, net 254,361 343,961 Intangible assets, net 453,923 471,099 ------------------------------------------------------------------------------------------- Net assets sold $ 1,208,154 ==========================================================================
4. INVENTORIES Inventories consist of the following at December 31, 2001: Raw materials and purchased parts $ 268,768 Finished goods 219,090 -------------------------------------------------------------------------- Total $ 487,858 ==========================================================================
All inventory was sold in 2002 (See Note 3). 5. MARKETABLE SECURITIES The Company classifies its marketable securities as "available-for-sale" as defined under Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities." At December 31, 2002, the Company's marketable securities consisted of 120,022 shares of Endocare restricted common stock that were received in connection with the sale of Cryosurgical assets (See Note 3). Pursuant to the terms of the sale, Endocare was required to have filed a registration statement with the SEC covering the sale of the shares by September 22, 2002, thereby removing the restriction. To date, no such registration statement has been filed. The Company is seeking the legal remedies available to it in connection with such failure to file the registration statement (See Note 12). Given the lack of marketability due to the restriction, the uncertainty of pending litigation against Endocare and the significant decline of Endocare's stock price, the Company considers the securities to have zero value at December 31, 2002, and has recorded an unrealized loss of $1,434,263 in the Statement of Comprehensive Loss for the year then ended. 6. INTANGIBLE ASSETS The Company perfected its rights to a patent on the cryoprobe during 1999. Legal and other costs associated with this action were capitalized and were being amortized on a straight-line basis over the remaining life of the patent of 168 months. Intangible assets at December 31, 2001 are as follows: F-12 BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Patent $ 558,954 Less: Accumulated amortization (87,855) ----------------------------------------------------------------- Intangible assets, net $ 471,099 ================================================================= The patent was sold during 2002 (See Note 3). 7. NOTES PAYABLE At December 31, 2002, notes payable consisted of the following: Note payable to a stockholder, unsecured, bearing interest at 10%, due March 2003. The note granted a warrant to the payee to purchase 1,000,000 shares of common stock at $0.25 per share, as additional consideration for the loan (See Note 9). $ 250,000 Note payable to equipment vendor, unsecured, noninterest bearing, payable in monthly installments of $10,000, due October 2003. 95,829 ----------------------------------------------------------------- TOTAL NOTES PAYABLE $ 345,824 ================================================================= 8. INCOME TAXES Income tax (benefit) expense reconciled to tax calculated at statutory rates is as follows:
2001 2002 ---------------------------------- Federal taxes (benefit) at statutory rate $ (1,499,487) $ 73,398 State income taxes (benefit), net of federal effect (202,872) 9,930 Change in valuation allowance 1,608,848 (111,168) Other 93,511 27,840 ---------------------------------------------------------------------- ---------------- Provision for income taxes $ -- $ -- ====================================================================== ================
F-13 BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The components of the deferred tax asset at December 31, 2002 and 2001, are as follows:
2001 2002 -------- -------- Net operating loss carryforward $ 13,352,512 $ 13,241,344 Tax credit carryforwards 717,000 717,000 ------------------------------------------------------------------------------------------------- 14,069,512 13,958,344 Valuation allowance (14,069,512) (13,958,344) ------------------------------------------------------------------------------------------------- Net deferred tax asset $ - $ - =================================================================================================
The Company provides a valuation allowance for deferred tax assets which, in its opinion, more likely than not will not be realized. The Company has the following net operating loss and research and development (R&D) tax credit carryforwards available at December 31, 2002:
Net R&D Year of Operating Tax Expiration Losses Credits ------------------------------------------------------------------------------------------- 2004 $ 260,000 $ 20,000 2005 1,747,000 42,000 2006 2,523,000 88,000 2007 4,505,000 125,000 2008 5,893,000 150,000 2009 1,431,000 114,000 2010 1,562,000 145,000 2011 5,137,000 33,000 2012 1,570,000 -- 2013 1,425,000 -- 2019 1,234,000 -- 2020 2,849,000 -- 2021 4,168,000 -- ------------------------------------------------------------------------------------------- Total $ 34,304,000 $ 717,000 ===========================================================================================
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. F-14 BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. STOCKHOLDERS' EQUITY The Company has granted options and warrants to consultants and others who have provided, or will provide, services to the Company at an exercise price per share not less than the market price of the common stock on the date of grant. The expiration of such options and warrants range from one to ten years with various vesting arrangements. In October 2001, the Company completed a private placement of 5,000 Units, raising approximately $1,000,000. Each Unit was priced at $200.01 and consisted of two shares of Series F convertible preferred stock, convertible into 800 shares of common stock, and one warrant to purchase four hundred shares of common stock at $.375 per share, on or before October 2006. The Company retained an adviser to assist the Company in finding qualified investors to purchase the Units. The Adviser was entitled to a finder's fee equal to 10 percent of the monies received by the Company, payable in Units valued at $200.01 per Unit. The Adviser was also entitled to a cash fee of seven percent with respect to the monies received by the Company upon exercise of the warrants. The Units were placed with investors in the United States and Europe, and the sales of the Units were exempt from Registration under the Securities Act pursuant to Rule 506 of Regulation D and Rule 903 of Regulation S. In December 2001, the Company received an additional $200,000 after completing a private placement of an additional 1,000 Units under the same terms as the Units issued in October 2001. In connection with the private placement of Units in 2001, the Company has recorded a commission payable of $120,000 on its Consolidated Balance Sheet at December 31, 2001 and issued warrants to purchase 240,000 shares of the Company's common stock to the Adviser. The key rights of the Series F convertible preferred stock, par value $0.001, issued in the Unit financing include the following: Dividends - Series F preferred stockholders are entitled to annual cumulative dividends at the rate of $10.00 per share payable in the Company's common stock. The number of common shares to be issued for dividend purposes is based upon the market value of the common stock on the date such dividends are declared. No dividends were declared or paid during 2002 and 2001 on the preferred stock. The Series F preferred is adjusted for dividends paid to common stockholders so that each preferred stockholder will receive the same number of shares of common stock which the stockholder would have owned or been entitled to receive before the dividend. At December 31, 2002 and 2001, dividends in arrears on the cumulative preferred stock were $150,000 and $30,000, respectively. Conversion Rights - Each Series F preferred share is convertible, at any time, into 400 shares of common stock, and the Company will reserve authorized and unissued shares of common stock in the event of conversion. In the event the closing price for the common stock is $0.75 or greater for 10 consecutive trading days, the Series F preferred stock shall automatically be converted into common stock at 400 shares of common stock for each share of preferred stock. F-15 BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Voting Rights - The Series F preferred stock has full voting rights on all matters that holders of common stock are entitled to vote and are entitled to one vote for each share of common stock into which the Series F preferred stock held is convertible. In the event of a proposed dissolution, liquidation or winding up of the Company, or a sale of all or substantially all of the assets of the Company (other than in connection with a consolidation or merger), the affirmative vote of the holders of at least two thirds of the outstanding shares of Series F preferred stock is required. Senior Ranking - The Company may not issue a security with rights and preferences that are senior to those of the holders of Series F preferred stock. Liquidation Preference - In the event of any liquidation, dissolution, or winding up of the Company, the Series F preferred stockholders are entitled to receive, before any distribution to any other class of stock ranking junior to the Series F preferred stock, liquidating distributions in the amount of $150.00 per share and all unpaid dividends. In connection with the issuance of a 12-month promissory note in March 2002, the Company issued a five year warrant to purchase 1,000,000 shares of the Company's common stock at $0.25 per share. The Company recorded additional paid-in capital of $154,629 to reflect the fair market value of the warrants issued. In May 2002, the Company issued three separate five year warrants to purchase an aggregate of 460,000 shares of the Company's common stock at $0.25 per share in payment of professional services. The Company recorded additional paid-in capital of $48,564 to reflect the fair market value of the warrants issued. In connection with the sale of the Company's cryosurgical assets, as partial consideration for services rendered, the Company issued to each of Breslow & Walker, LLP, the Company's general counsel, and de Greef & Partners, LLC, a consultant for the Company, 10-year warrants to purchase 500,000 shares of the Company's common stock at $0.25 per share. The Company recorded additional paid-in capital of $139,677 to reflect the fair market value of the warrants issued and recorded a corresponding expense in the Company's statement of operations. During the year ended December 31, 2002, the Company recognized $10,500 of professional services expense related to options granted in prior years to non-employees based on respective vesting schedules. F-16 BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes warrant activity for the years ended December 31, 2002 and 2001:
Year Ended Year Ended December 31, 2001 December 31, 2002 ----------------------------------------------------------- Wgtd. Avg. Wgtd. Avg. Exercise Exercise Shares Price Shares Price ---------------------------------------------------------------------------------------- Outstanding at beginning 4,002,000 $ 1.40 4,024,000 $ 0.82 of year Granted 2,640,000 0.38 2,460,000 0.25 Exercised -- -- -- -- Cancelled (2,618,000) (1.25) -- -- ------------------------------------------------------------------------------------------- Outstanding at end of year 4,024,000 $ 0.82 6,484,000 $ 0.61 =========================================================================================== Warrants exercisable at year end 4,024,000 $ 0.82 6,484,000 $ 0.61 ===========================================================================================
STOCK COMPENSATION PLANS: The Company's 1988 Stock Option Plan was approved and adopted by the Board of Directors in July 1988 and had a term of ten years. The plan expired in 1998. The options are exercisable for up to ten years from the grant date. F-17 BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During 1998, the Company adopted the 1998 Stock Option Plan. Under 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. All shares reserved for issuance have been issued at December 31, 2002. During 2002, the Board of Directors approved an increase in the number of shares available for issuance to 7,500,000 shares. The increase is subject to shareholder approval on or prior to July 10, 2003. 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 options are exercisable for up to ten years from the grant date. The plan expires August 30, 2008. The following is a summary of stock option activity under the plans for 2001 and 2002, and the status of stock options outstanding and available under the plans at December 31, 2001 and 2002.
Year Ended Year Ended December 31, 2001 December 31, 2002 -------------------------------------------------------------- Wgtd. Avg. Wgtd. Avg. Exercise Exercise Shares Price Shares Price ------------------------------------------------------------------------------------------- Outstanding at beginning 2,513,060 $ 2.04 3,316,000 $ 0.56 of year Granted 2,500,000 0.25 1,550,000 0.25 Exercised -- -- -- -- Cancelled (1,697,060) (2.30) (650,000) (0.25) ------------------------------------------------------------------------------------------- Outstanding at end of year 3,316,000 $ 0.56 4,216,000 $ 0.49 =========================================================================================== Stock options exercisable at year end 1,341,500 $ 0.99 1,607,667 $ 0.88 ============================ =============== =============== ============== ===============
The following table summarizes information about stock options outstanding at December 31, 2002:
Number Weighted Range of Outstanding Average Weighted Exercise at December Remaining Average Prices 31, 2002 Contractual Life Exercise Price ------------------------------------------------------------------------------------------- $ 0.25 3,400,000 9.05 $ 0.25 1.25 781,000 5.90 1.25 2.50-10.63 35,000 2.61 7.14 ------------------------------------------------------------------------------------------- 4,216,000 8.41 $ 0.49 ===========================================================================================
F-18 BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. RELATED PARTY TRANSACTIONS The Company incurred $204,452 and $93,786 in legal fees during the years ended December 31, 2002 and 2001, respectively, for services provided by a law firm in which a director and stockholder of the Company is a partner. For the year ended December 31, 2002, the Company also issued 500,000 warrants, exercisable at $0.25 per share, as partial consideration for services rendered by the related party. At December 31, 2001 accounts payable includes $24,654 due to the related party. During the year ended December 31, 2002, the Company paid $150,000 in cash and issued 500,000 warrants, exercisable at $0.25 per share, as consideration for services rendered by a consultant of the Company, in which a director and stockholder of the Company is a partner. 11. COMMITMENTS LEASES: The Company leases equipment as lessee, under operating leases expiring on various dates through December 2004. The leases require monthly payments of approximately $2,800. The Company's leases for office and laboratory space expired in 2002. The Company pays SUNY (below) monthly rent in connection with its research projects. The following is a schedule of future minimum lease payments required under the operating leases: Year Ending December 31 Amount -------------------------------------------------------- 2003 $ 26,724 2004 7,146 -------------------------------------------------------- Total $ 33,870 ======================================================== Rental expense for facilities and equipment operating leases for the years ended December 31, 2002 and 2001, totaled $86,251 and $137,752, respectively. EMPLOYMENT AGREEMENT: The Company has executed employment agreements with its key employees which expire on various dates through October 2004. The agreements provide for certain minimum compensation per month and incentive bonuses at the discretion of the Board of Directors. The officers also received incentive stock options to purchase shares of the Company's common stock. OTHER: In March 1999, BioLife signed an Incubator Licensing Agreement with State University of New York (SUNY) whereby BioLife will conduct research and development in the field of cryogenic science and in particular solution technology. The Company will pay the University $1,005 per month during the term of the License, which is reviewed annually, and all inventions conceived as a result of these research and development efforts will belong to BioLife. F-19 BIOLIFE SOLUTIONS, INC. (FORMERLY CRYOMEDICAL SCIENCES, INC.) AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. LITIGATION The Company is currently involved in a lawsuit against Endocare, Inc., arising out of Endocare's failure to register 120,022 shares of its stock (the "Stock") as part of the transaction by which the Company sold its cryosurgical assets to Endocare in a transaction that closed on June 24, 2002 (See Note 3). In the lawsuit, the Company is claiming damages of $1,648,935, comprising the proceeds that could have been realized had Endocare properly registered the Stock within the time frame set forth in the Registration Rights Agreement entered into between the parties. Endocare filed an answer and counterclaim, seeking damages of over $5,000,000 as a result of various alleged breaches by the Company of the Asset Purchase Agreement entered into between the parties. Trial in this matter began on March 31, 2003 and concluded on April 3, 2003. As of the date of this Form 10-KSB, the presiding judge has not yet declared a verdict. The Company is confident of the merits of its claims (and the merits of its defenses to Endocare's counterclaims) and intends to prosecute the case vigorously. However, there can be no guarantee that the Company will prevail in these matters. F-20 ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ----------------------------------------------------------------------- FINANCIAL DISCLOSURE - -------------------- None PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ----------------------------------------------------------- The directors and executive officers of the Company are as follows: Position and Offices Name Age With the Company - ---- --- -------------------- John G. Baust, Ph.D. 60 President, Chief Executive Officer and Director Robert Van Buskirk, Ph.D. 58 Vice President, Business Development Alan Rich 56 Vice President, Sales and Marketing Howard S. Breslow 63 Director, Secretary Roderick de Greef 42 Director Set forth below is a biographical description of each of the directors and executive officers identified above based on information supplied by them. John G. Baust, Ph.D., has been President and Chief Executive Officer of the Company since June 2002. Previously he was Senior Vice President of the Company since January 1995, Chief Scientific Officer since August 1993, served as Vice President, Research and Development, of the Company from July 1990 to January 1995, and served as a consultant to the Company from April 1990 to July 1990. Dr. Baust became a director of the Company on October 13, 2000. Since 1987, Dr. Baust has also been a Professor and the Director of the Center for Cryobiological Research at State University of New York at Binghamton, and since July 1994, Dr. Baust has also been Adjunct Professor of Surgery, Medical College of Pennsylvania. From 1984 to 1987, he was a Professor and the Director of the Institute of Low Temperature Biology at the University of Houston. Robert Van Buskirk, Ph.D., has been Vice President of Business Development since July 2002 and was Vice President of Research and Development from 2001 to 2002. He has been a Professor at the State University of New York since 1986 and is currently Director of the Advanced Biotechnologies Center. He was a Postdoctoral Fellow at Harvard Medical School from 1983 through 1985. He has served as a consultant for a 21 variety of companies in the past 20 years including Millipore Corporation, Corning Corporation, MatTek Corporation, Cryomedical Sciences, Inc. and BioLife Solutions Inc. He also worked for the US Army Medical Research Institute of Chemical Defense helping this organization develop protective processes to protect the troops against the harmful effects of mustard gas. He received his B.A. degree in Zoology in 1972 and Masters degree in 1975 from the University of Vermont. He subsequently received his Ph.D degree from Harvard University in Cell Biology in 1983. Alan Rich, has been Vice President, Sales and Marketing since November 2002. From 1999 to 2002 he was responsible for Eastern New England sales at Acuson Corporation, a diagnostic ultrasound equipment manufacturer. During 1999 he consulted with various businesses and from 1992 to 1999 held several positions at Cryomedical Sciences, Inc., the parent of BioLife, culminating in the position of Vice President Sales and Marketing. From 1987 to 1992 he was an account manager at Spacelabs, Inc. and from 1984 to 1987 was a regional sales director at U.S. Surgical Corporation. He has also held sales positions at Delta Research in Needham, MA and American Edwards Laboratories in Santa Ana, CA. He received a B.S. Education from Boston University in 1974 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 35 years and is a member of the law firm of Breslow & Walker, LLP, New York, New York, which firm serves as general counsel to the Company. Mr. Breslow currently serves as a director of Excel Technology, Inc., a publicly-held company engaged in the development and sale of laser products; Vikonics, Inc., a non-operating publicly-held company, and Lucille Farms, Inc., a company engaged in the manufacture and marketing of dairy products. Roderick de Greef has served as a director of the Company since June 19, 2000. From March 2001 to present, Mr. de Greef has served as Executive Vice President, Chief Financial Officer and Secretary of Cardiac Sciences, Inc., a public company traded on NASDAQ, under the ticker "DFIB". Since 1995 Mr. de Greef has provided corporate finance advisory services to a number of early stage companies, including the Company, where he was instrumental in securing the Company's equity capital beginning in June 2000, and advising on merger and acquisition activity. From 1989 to 1995, Mr. de Greef was Vice President and Chief Financial Officer of BioAnalogics, Inc. and International BioAnalogics, Inc., publicly held, development stage medical technology companies located in Portland, Oregon. From 1986 to 1989, Mr. de Greef was Controller and then Chief Financial Officer of Brentwood Instruments, Inc., a publicly held cardiology products distribution company based in Torrance, California. Mr. de Greef has a B.A. in Economics and International Relations from California State University at San Francisco and an M.BA. from the University of Oregon. All directors of the Company hold office until the next annual meeting of stockholders of the Company or until their successors are elected and qualified. Executive officers hold office until their successors are elected and qualified, subject to earlier removal by the Board of Directors. No family relationship exists between any director or executive officer and any other director or executive officer of the Company. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE The Company's 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 the Company. Based solely on a review of copies of the reports furnished to the Company, the Company believes that during the fiscal year ended December 31, 2002 all of these filing requirements have been satisfied. 22 ITEM 10. EXECUTIVE COMPENSATION - -------------------------------- The following table sets forth certain information concerning the compensation paid by the Company to its Chief Executive Officer and to each of its executive officers (other than the Chief Executive Officer) who received salary and bonus payments in excess of $100,000 during the fiscal year ended December 31, 2002 (collectively the "Named Executive Officers").
SUMMARY COMPENSATION TABLE Annual Compensation Long Term Compensation ------------------------------------- -------------------------------------------------- Awards Payouts ------------------------- --------------------- Restricted Name and Principal Fiscal Other Annual Stock Options/ LTIP All Other Positions Year Salary ($) Bonus ($) Compensation ($) Award(s) SARs (#)(1) Payouts Compensation - ------------------------ ------- ----------- --------- ---------------- ----------- ------------ ------- ------------ John G. Baust, Ph.D 2002 202,369 50,000 3,600 (2) -- 1,000,000 -- -- President, Chief 2001 180,000 -- 7,846 (2) -- -- -- -- Executive Officer and Director J. Andrew Greuling. 2002 215,131 -- 5,000 (2) -- -- -- -- Chairman, Chief 2001 133,754 95,000 3,570 (2) -- 1,000,000 -- -- Executive Officer and Director (1)
(1) Mr. Greuling resigned as an officer and director of the Company effective July 1, 2002. (2) Represents auto allowance 23 OPTION/SAR GRANTS IN YEAR-ENDED DECEMBER 31, 2002 In 2002, the Company issued options to purchase shares of Common Stock to its executive officers as follows:
Number of Securities % of Total Options/ Name and Principal Underlying Options/ SARs granted to Exercise or Expiration Positions SARs granted(#)(1) Employees in Fiscal Year Base Price ($/sh) Date - ------------------------------ ----------------------- -------------------------- ------------------- ----------------- John G. Baust, Ph.D 1,000,000 64.5% 0.25 7/1/2012 President, Chief Executive Officer and Director Robert Van Buskirk, Ph.D. 150,000 9.7% 0.25 7/1/2012 Vice President, Business Development Alan F. Rich 400,000 25.8% 0.25 11/1/2012 Vice President, Sales and Marketing J. Andrew Greuling -- -- -- President, Chief Executive Officer and Director (2)
- ----------------------------------------------------- (1) Options to acquire shares of Common Stock. (2) Mr. Greuling resigned as an officer and director of the Company effective July 1, 2002. AGGREGATED OPTION/SAR EXERCISES DURING THE 2002 FISCAL YEAR AND THE 2002 FISCAL YEAR OPTION/SAR VALUES The following table provides information related to options exercised by each of the Named Executive Officers during the 2002 fiscal year and the number and value of options held at December 31, 2002. The Company does not have any outstanding stock appreciation rights. None of the options were in the money at year ended December 31, 2002.
Number of Securities Value of Unexercised Underlying Unexercised in the money Options/SAR Options/SAR At Fiscal Year End (#) At Fiscal Year End ($) (1) -------------------------- ---------------------------- Shares Acquired Value Name On Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable - --------- --------------- ------------ ----------- ------------- ----------- ------------- John G. Baust, Ph.D. -- -- 752,000 1,800,000 -- -- Robert Van Buskirk, Ph.D. -- -- 16,667 158,333 -- -- Alan F. Rich -- -- -- 400,000 -- -- J. Andrew Greuling(2) -- -- 600,000 250,000 -- --
- ----------------------------------- (1) The closing price for the Common Stock as reported on the OTC Bulletin Board on December 31, 2002 was $0. 12. Value is calculated on the basis of the difference between the option exercise price and $0.12 multiplied by the number of shares of Common Stock underlying the option. (2) Mr. Greuling resigned as an officer of the Company effective July 1, 2002. 24 EMPLOYMENT AGREEMENTS The Company has an employment agreement with its President and Chief Executive Officer which expires on July 1, 2003. The agreement provides for a salary of $20,000 per month and an incentive bonus based on certain milestones, as agreed by the discretion of the Board of Directors. The officer also received a $50,000 signing bonus and ten-year incentive stock options to purchase 1,000,000 shares of common stock, which vest 200,000 on each anniversary of the grant. The agreement also provides an automobile allowance of $500 per month. The Company has an employment agreement with its Vice President, Business Development. The agreement, which expires July 1, 2003, provides for a salary of $12,500 per month and an incentive bonus based on certain milestones, as agreed by the discretion of the Board of Directors, and ten-year incentive stock options to purchase 150,000 shares of common stock, which vest 50,000 on each anniversary of the grant. The Company also has an employment agreement with its Vice President, Sales and Marketing. The agreement, which expires November 1, 2003, provides for a salary of $12,500 per month and an incentive bonus based on certain milestones, as agreed by the discretion of the Board of Directors, and ten-year incentive stock options to purchase 400,000 shares of common stock, which vest 100,000 on each anniversary of the grant. Each officer has executed a Proprietary Information and Inventions Agreement pursuant to which each agreed, among other things, to keep the Company's information confidential and assigned all inventions to the Company, except for certain personal inventions not related to the Company's work, whether existing or later developed. CONSULTANTS At December 31, 2002, various consultants to the Company held exercisable warrants to purchase an aggregate of 1,884,000 shares of Common Stock. Consultants to the Company have either received warrants to purchase Common Stock or are entitled to cash compensation. No consultant has agreed to devote any specified amount of time to Company activities. Consultants to the Company may be employed by or have consulting agreements with entities other than the Company, some of which may conflict or compete with the Company, and the advisors and consultants are expected to devote only a small portion of their time to the Company. Most are not expected to actively participate in the Company's development. Certain of the institutions with which the advisors and consultants are affiliated may have regulations and policies which are unclear with respect to the ability of such personnel to act as part-time consultants or in other capacities for a commercial enterprise. Regulations or policies now in effect or adopted in the future might limit the ability of the advisors and consultants to consult with the Company. The loss of the services of certain of the advisors and consultants could adversely affect the Company. Furthermore, inventions or processes discovered by the advisors and consultants will not, unless otherwise agreed, become the property of the Company but will remain the property of such persons or of such persons' full-time employers. In addition, the institutions with which the advisors and consultants are affiliated may make available the research services of their scientific and other skilled personnel, including the advisors and 25 consultants, to entities other than the Company. In rendering such services, such institutions may be obligated to assign or license to a competitor of the Company patents and other proprietary information which may result from such services, including research performed by an advisor or consultant for a competitor of the Company. COMPENSATION OF DIRECTORS Outside directors are compensated at the rate of $1,000 for attending board meetings and $500 for telephonic board meetings. 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 options to purchase an aggregate of 1,955,000 additional shares pursuant to stock options and warrants issued to him and/or affiliates. During the period ended December 2002, Breslow & Walker, LLP billed the Company approximately $204,452 for legal fees. 26 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ The following table sets forth, as of March 31, 2003, certain information regarding the beneficial ownership of Common Stock and Series F Preferred 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.
Title of Name and Address Amount and Nature of Percent of Class of Beneficial Owner Beneficial Ownership Class (1) (1) - --------------------- ----------------------------------------- ------------------------ -------------- Common Stock J. Andrew Greuling 600,000 (2) 4.6% c/o BioLife Solutions, Inc. Suite 144, Science III SUNY Park Binghamton, NY 13902 Common Stock John G. Baust 756,000 (3) 5.7% c/o BioLife Solutions, Inc. Suite 144, Science III SUNY Park Binghamton, NY 13902 Common Stock Howard S. Breslow, Esq. 2,008,600 (4) 14.0% c/o Breslow & Walker, LLP 767 Third Avenue New York, NY 10017 Common Stock Roderick de Greef 1,397,300 (5) 10.4% c/o BioLife Solutions, Inc. Suite 144, Science III SUNY Park Binghamton, NY 13902 Series F Preferred Stock 1,000 8.3% Common Stock Robert Van Buskirk 16,667 (6) * c/o BioLife Solutions, Inc. Suite 144, Science III SUNY Park Binghamton, NY 13902 Common Stock Walter Villiger 3,400,000 (7) 22.1% Hurdnerstrasse 10 P.O. Box 1474 CH-8649 Hurden, Switzerland Series F Preferred Stock 5,000 41.7% Common Stock Clariden Bank 2,000,000 (8) 14.7% Claridenstrasse 26 Postfach 5080 CH-8022 Zurich, Switzerland Series F Preferred Stock 2,000 16.7% Common Stock Thomas Girschweiler 4,248,060 (9) 26.3% Wissmannstrasse 15 8057 Zurich, Switzerland
27 Series F Preferred Stock 3,450 28.8% Common Stock All officers and directors as a group 4,778,567 (10) 28.7% (four persons) Common Stock All beneficial owners of more than 5% 15,207,260 (11) 53.2% (six persons) Series F Preferred Stock All officers and directors as a group 1000 8.3% (one person) Series F Preferred Stock All beneficial owners of more than 5% 11,450 95.4% (four persons)
- ------------------------------------------------------------------ (1) Shares of Common Stock subject to options and warrants currently exercisable or exercisable within 60 days are deemed outstanding for computing the number of shares and the percentage of the outstanding shares held by a person holding such options or warrants, but 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 person named in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them. (2) Mr. Greuling resigned as an officer and director of the Company effective July 1, 2002. Includes 600,000 shares of Common Stock issuable upon the exercise of outstanding stock options under the Company's 1998 Stock Option Plan. (3) Includes 752,000 shares of Common Stock issuable upon the exercise of outstanding stock options under the Company's 1988 and 1998 Stock Option Plans. (4) Includes 159,000 shares of Common Stock issuable upon the exercise of outstanding stock options under the Company's 1988 and 1998 Stock Option Plans, and 1,796,000 shares of Common Stock issuable upon the exercise of outstanding warrants, owned of record by Breslow & Walker, LLP (576,000) and B & W Investments (1,220,000), both of which are entities in which Mr. Breslow is a partner. (5) Includes 400,000 shares of Common Stock issuable upon the conversion of Series F Preferred Stock, and 739,000 shares of Common Stock issuable upon the exercise of outstanding warrants. (6) Include 16,667 shares of Common Stock issuable upon the exercise of outstanding stock options under the Company's 1998 Stock Option Plan. (7) Includes 2,000,000 shares of Common Stock issuable upon the conversion of Series F Preferred Stock, and 1,000,000 shares of Common Stock issuable upon the exercise of outstanding warrants. (8) Includes 800,000 shares of Common Stock issuable upon the conversion of Series F Preferred Stock, and 400,000 shares of Common Stock issuable upon the exercise of outstanding warrants. (9) Includes 1,380,000 shares of Common Stock issuable upon the conversion of Series F Preferred Stock, and 2,330,000 shares of Common Stock issuable upon the exercise of outstanding warrants. (10) Includes 1,527,667 shares of Common Stock issuable upon the exercise of outstanding stock options, 2,385,000 shares of Common Stock issuable under outstanding warrants, and 400,000 shares of Common Stock issuable upon the conversion of Series F Preferred Stock. (11) Includes 927,667 shares of Common Stock issuable upon the exercise of outstanding stock options, 6,090,000 shares of Common Stock issuable under outstanding warrants, and 4,580,000 shares of Common Stock issuable upon the conversion of Series F Preferred Stock. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- The Company incurred $204,452 and $93,786 in legal fees during the years ended December 31, 2002 and 2001, respectively, for services provided by a law firm in which a director and stockholder of the Company is a partner. For the year ended December 31, 2002, the Company also issued 500,000 warrants, exercisable at $0.25 per share, as partial consideration for services rendered by the related party. At December 31, 2002 accounts payable includes $24,654 due to the related party. During the year ended December 31, 2002, the Company paid $150,000 in cash and issued 500,000 warrants, exercisable at $0.25 per share, as consideration for services rendered by a consultant of the Company, in which a director and stockholder of the Company is a partner. 28 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K - ------------------------------------------ (a) The following documents are filed as part of this report: (1) Financial Statements The financial statements filed as part of this report begin on page F-1. (2) Exhibits 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 1, 2002 between the Company and Robert Van Buskirk (3) 10.4 Employment Agreement dated July 1, 2002 between the Company and John G. Baust (3) 10.5 Employment Agreement dated November 1, 2002 between the Company and Alan F. Rich 10.6 Incubator License Agreement, dated the first day of March 1999, between BioLife Technologies, Inc. (name subsequently changed to BioLife Solutions, Inc.) and The Research Foundation of the State University of New York, and extensions thereto, dated February 23, 2000 and February 7, 2001 relating to the incubator space at the State University of New York at Binghamton. (4) 10.7 Asset Purchase Agreement dated May 26, 2002 (5) 21 List of Subsidiaries 99.1 Certification of Periodic Report dated April 14, 2003 (1) Incorporated by reference to the Company's Annual Report on Form 10-KSB for the fiscal year ended Decebmer 31, 2000. (2) Incorporated by reference to the Company's Definitive Proxy Statement for the special meeting of stockholders held on December 16, 1998. (3) Incorporated by reference to the Company's annual report on Form 10-K for the year ended December 31, 2000. (4) Incorporated by reference to the Company's quarterly report on Form 10-QSB for the quarter ended September 30, 2002. (5) Incorporated by reference to the Company's current report on Form 8-K filed July 10, 2002. (b) Reports on Form 8-K There were no Reports on Form 8-K filed during the last quarter of the period covered by this report. 29 ITEM 14. CONTROLS AND PROCEDURES - --------------------------------- Under the supervision and with the participation of the Company's management, including the principal executive officer and principal financial officer, the Company has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures within 90 days of the filing date of this annual report, and, based on the evaluation, the Company's principal executive officer and principal financial officer has concluded that these controls and procedures are effective. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation. Disclosure controls and procedures are the Company's controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to the Company's management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. 30 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. BIOLIFE SOLUTIONS, INC. /s/ John G. Baust, Ph.D. Date: April 14, 2003 ---------------------------- John G. Baust, Ph.D. 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. /s/ John G. Baust, Ph.D. Date: April 14, 2003 ------------------------------- John G. Baust, Ph.D. Director /s/ Roderick de Greef Date: April 14, 2003 ------------------------------- Roderick de Greef Director /s/ Howard S. Breslow Date: April 14, 2003 ------------------------------- Howard S. Breslow Director 31 CERTIFICATION I, John G. Baust, Chief Executive Officer and Chief Financial Officer of BioLife Solutions, Inc. (the "Registrant"), certify that: (1) I have reviewed this annual report on Form 10-KSB of the Registrant; (2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; (3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report; (4) I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and I have: a. designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date; (5) I have disclosed, based on my most recent evaluation, to the registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and (6) I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of the most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: April 14, 2003 /s/ John G. Baust, Ph.D. ---------------------------------- John G. Baust, Ph.D. Chief Executive Officer and Chief Financial Officer 32 EX-10.5 3 ex10-5.txt EXHIBIT 10.5 EXHIBIT 10.5 EMPLOYMENT AGREEMENT made as of the 1st day of November, 2002 by and between BIOLIFE SOLUTIONS, INC., a Delaware corporation (hereinafter referred to as the "Company"), and ALAN F. RICH, residing at 9 Harvest Lane, North Reading, MA 01865 (hereinafter referred to as "Employee"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company desires to employ Employee, and Employee is willing to accept such employment, all on the terms and subject to the conditions hereinafter set forth. NOW, THEREFORE, in consideration of the terms and conditions hereinafter set forth, the parties hereto agree as follows: 1. Employment The Company hereby employs Employee, and Employee hereby accepts employment with the Company, as Vice President of Sales and Marketing, on the terms and conditions herein set forth. 2. Term of Agreement Unless terminated sooner pursuant to the express provisions hereof, the term of employment hereunder shall commence on the date hereof (the "Commencement Date"), shall continue through October 31, 2004 (the "Original Term"). The Original Term shall be automatically extended for two additional one-year periods upon the terms and subject to the conditions contained herein, unless the Company notifies Employee, in writing, not less than 90 days prior to the commencement of any such one-year period, that the term of employment shall not be extended. The period commencing with the Commencement Date through the end of the term of Employee's employment hereunder is hereinafter referred to as the "Employment Period." 1 3. Duties During the Employment Period, Employee shall perform such functions as are normally carried out by the Vice President of Sales and Marketing of a business of the type in which the Company is engaged, and such other functions as the President and CEO (the "CEO") and the Board of Directors of the Company (the "Board") shall from time to time reasonably determine. Employee shall devote his energies and abilities exclusively to the Company's business pursuant to, and in accordance with, reasonable business policies and procedures, as fixed from time to time by the CEO and the Board. Employee covenants and agrees that he will faithfully adhere to and fulfill such policies as are established from time to time by the CEO and the Board of Directors. Employee shall not be assigned, by the CEO or the Board of Directors, responsibilities, in any material manner, inconsistent with his position as Vice President of Sales and Marketing. 4. Compensation 4.1 During the Employment Period, Employee's base salary shall be in the amount of $150,000 per annum, payable bi-weekly or, in the event the Company changes its current payroll period, in accordance with the Company's changed payroll procedures. 4.2 During the Employment Period, in addition to Employee's base salary, Employee shall be entitled to quarterly commissions of four percent (4%), payable within thirty (30) days of the end of each quarter with respect to monies received during such quarter, on (a) the sale of products, and (b) the receipt of new contracts, including government contracts, for the purchase of products or optimization services ("Commissionable Contracts"); provided, however, that there shall be excluded from Commissionable Contracts existing contracts that are renewed prior to January 1, 2003. No commission shall be paid with respect to grants (government or otherwise) received by the Company to further research and development. 2 4.3 During the Employment Period, the Company will provide Employee with a non-accountable automobile allowance of $600.00 per month. 4.4 During the Employment Period, the Company will provide Employee with family coverage for Blue Cross/Blue Shield (or equivalent thereof) and major medical insurance coverage. 4.5 Employee shall also be eligible, to the extent he qualifies, to participate in such fringe benefit plans (including retirement, pension, life or other similar employee benefit plans), if any, which the Company may from time to time make available to its employees, provided that the Company shall have the right from time to time to modify, terminate or replace any and all of such plans. 4.6 The Company shall reimburse Employee for all reasonable business expenses incurred by Employee in connection with the performance of his duties hereunder, provided Employee submits supporting vouchers for such expenses. 4.7 Employee shall be entitled to a four-week paid vacation each year during the Employment Period, to be taken at such time as is consistent with the needs of the Company and the convenience of Employee. 5. Stock Options On the Commencement Date, Employee shall be granted a 10 year Stock Option ("Option"), under the Company's 1998 Stock Option Plan, to purchase 400,000 shares of the Company's common stock, par value $.001 per share, at a price of $.25 per share. The Option shall vest over a 4-year period to the extent of 100,000 shares commencing with the first anniversary date of the Commencement Date and an additional 100,000 shares commencing with each of the next three anniversary dates thereof; provided, however, that in the event of a sale of all or substantially all of the assets or all of the outstanding shares of capital stock of the Company or the merger of the Company with or into another entity involving a "change of control" (i.e. an ownership change of more than 50%), in addition to that part of the Option which already has vested, there shall vest, immediately prior to the consummation of such event, all remaining Options. 3 6. Termination The Employment Period shall terminate upon the happening of any of the following events: 6.1 Automatically and without notice upon the death of Employee. 6.2 Employee leaves the employ of the Company. 6.3 Upon written notice of termination from the Board of the Company to Employee in the event that Employee becomes physically or mentally disabled ("Disability") during the Employment Period such that (a) in Board's good faith judgment, Employee is permanently incapable of properly performing the duties customarily performed by him hereunder, or (b) such Disability lasts for a period of 60 consecutive days or 90 days in any 150 day period and the Board elects to treat such Disability as being permanent in nature; 6.4 Upon discharge of Employee, on written notice, by the Board for cause. For purposes of this Agreement, "cause" shall mean the following: the commission of a felony or crime involving moral turpitude or other act causing material harm to the Corporation's standing and reputation, failure to carry out, after reasonable written notice of such failure, the reasonable policies of the Board as they may relate to Employee's duties hereunder (other than for reasons beyond his control), persistent absenteeism, a material default or breach of any of the covenants made by Employee in this Agreement, a breach of Employee's duty of loyalty to the Company or any act of dishonesty or fraud with respect to the Company, failure to make, in the sole and exclusive opinion of the Board, satisfactory progress toward the Milestones set forth in Annex A hereto, or the Employee's willful engaging in misconduct injurious to the Company. 4 6.5 In the event any one of the foregoing events referred to in Sections 6.1 through 6.4 hereof shall occur, the Company shall be obligated to pay to Employee the compensation due him under Section 4.1 hereof up to the date of termination only and Employee shall not be entitled to receive any additional compensation of any nature whatsoever. 6.6 In the event that Employee's employment with the Company is terminated by the Board during the Employment Period for a reason other than as is set forth above in Sections 6.1 through 6.4 hereof, the Company shall be required to continue to pay Employee the salary provided for in Section 4.1 hereof for a period of six (6) months; provided, however, that the Employee shall have affirmative obligation to seek comparable employment and mitigate the Company's damages. 7. Non-Competition 7.1 In view of the unique and valuable services that Employee has rendered and is expected to render to the Company, and Employee's knowledge of the business of the Company and proprietary information relating to the business of the Company and similar knowledge regarding the Company that Employee has obtained and is expected to obtain during the course of his employment with the Company and in consideration of the compensation to be received by Employee hereunder, Employee agrees that during the Employment Period and for a period of (twenty-four) months immediately following the termination or expiration thereof, Employee will not compete with, or, directly or indirectly, own, manage, operate, control, loan money to, or participate in the ownership, operation or control of, or be connected with as a director, partner, consultant, agent, independent contractor or otherwise, or acquiesce in the use of his name in any other business or organization which is in competition with the Company in any geographical area in which the Company is then conducting business or any geographical area in which, to the knowledge of Employee at the time of cessation of employment, the Company plans to conduct business within twenty four months from the date thereof. 5 7.2 Employee will not, during the twenty-four months following termination, solicit or interfere with, or endeavor to entice away from the Company, any of its employees or customers without the written consent of the Company or unless such employee is Employee's personal secretary. 7.3 Since a breach of the provisions of this Section 7 could not adequately be compensated by money damages and will cause irreparable injury to the Company, the Company shall be entitled, in addition to any other right or remedy available to it, to an injunction or restraining order restraining such breach or a threatened breach, and no bond or other security shall be required in connection therewith, and Employee hereby consents to the issuance of any such injunction or restraining order. Employee agrees that the provisions of this Section 7 are reasonable and necessary to protect the Company and its business. It is the desire and intent of the parties that the provisions of this Section 7 shall be enforced to the fullest extent permitted under the public policies and laws applied in each jurisdiction in which enforcement is sought. If any restriction contained in this Section 7 shall be deemed to be invalid, illegal or unenforceable by reason of the extent, duration or geographical scope thereof, or otherwise, then the court making such determination shall have the right to reduce such extent, duration, geographical scope or other provision hereof and in its reduced form such restriction shall then be enforceable in the manner contemplated hereby. 7.4 No provision of this Agreement shall be deemed to preclude Employee from serving as a director on the board of companies not in competition with the Company or of charitable organizations, provided, that any such directorship or consulting activities do not reduce Employee's ability to attend to his duties on behalf of the Company. 6 8. Entire Agreement The provisions hereof and the agreements referred to herein constitute the entire agreement between the parties with respect to the subject matter hereof and supersede any prior oral understanding, and no modification, supplement or discharge hereof shall be effective unless in writing and executed on behalf of the Company and Employee. 9. Assignability This Agreement, and its rights and obligations may not be assigned by Employee. The Company may assign any of its rights and obligations hereunder to a successor or surviving corporation resulting from a merger or consolidation of the Company, the sale by the Company of all or substantially all of its assets or other similar corporate reorganization, upon condition that the assignee shall assume, either expressly or by operation of law, all of the Company's obligations hereunder. 10. Waiver No waiver by either party of any condition, term or provision of this Agreement shall be deemed to be a waiver of any prior or succeeding breach of the same or of any other condition, term or provision thereof. 11. Notices All notices required or permitted to be given by either party hereunder shall be in writing and mailed by registered mail, return receipt requested, to the other party at the address set forth above or such different address as may be given by notice as provided for herein. Any notice mailed as provided above shall be deemed given seven (7) days after the date of mailing or on the date of receipt, whichever is sooner. 7 12. Counterparts This Agreement may be executed in several counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 13. Construction This Agreement shall be construed in accordance with the laws of the State of Delaware. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. /s/ Alan F. Rich ___________________________________ ALAN F. RICH BIOLIFE SOLUTIONS, INC. By: /s/ John G. Baust ________________________________ JOHN G. BAUST 8 EX-99.1 4 ex99-1.txt EXHIBIT 99.1 EXHIBIT 99.1 CERTIFICATION OF PERIODIC REPORT I, John G. Baust, Chief Executive Officer and Chief Financial Officer of BioLife Solutions, Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: 1. the Annual Report on Form 10-KSB of the Company for the year ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: April 14, 2003 /s/ John G. Baust, Ph.D. ------------------------------------ John G. Baust, Ph.D. Chief Executive Officer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----