-----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, TUb1f3vpGGo7cujy058mK1vLfmgRsAVqvw+QiDqbPjIA4nM0AlF6JSs2yPmVhF7u CzmTM/aOQG9L/NH971ymMw== 0001005150-04-000897.txt : 20040414 0001005150-04-000897.hdr.sgml : 20040414 20040414154522 ACCESSION NUMBER: 0001005150-04-000897 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040414 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: 04733059 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: BIOLIFE SOLUTION INC DATE OF NAME CHANGE: 20030113 FORMER COMPANY: FORMER CONFORMED NAME: CRYOMEDICAL SCIENCES INC DATE OF NAME CHANGE: 19920703 10KSB 1 form10ksb.txt FORM 10KSB ================================================================================ 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, 2003 ----------------- 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, 2003 were $605,511. As of March 30, 2004, the aggregate market value of voting stock held by nonaffiliates was $1,737,849. As of March 30, 2004, 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 BioLife Solutions, Inc. ("BioLife" or the "Company") was incorporated in 1997 in Delaware as a wholly owned subsidiary of Cryomedical Sciences, Inc. ("Cryomedical"), a company that was engaged in manufacturing and marketing cryosurgical products. BioLife (a) provides contract-based services for the development of cryopreservation solutions and processes, and (b), based upon its patented HypoThermosol(R) platform technology, develops, manufactures and markets proprietary cryopreservation solutions that markedly improve the biological processing and preservation of cells and tissues. In May 2002, Cryomedical implemented a restructuring and recapitalization program designed to shift its focus away from cryosurgery toward 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. 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. 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 1 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. Based on its understanding of the molecular basis for the cryogenic destruction of cells through apoptosis, the Company has specifically formulated its HypoThermosol(R) ("HTS") technology to develop a range of proprietary cell, tissue and organ specific hypothermic preservative solutions 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. Clinical results suggest that BioLife's customized HypoThermosol(R) solutions significantly prolongs cell, tissue and organ viability, which may, in turn, improve clinical outcomes for new and existing cell and tissue therapy applications, as well as for organ transplantation. BioLife's proprietary HypoThermosol(R) 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(R) 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 HYPOTHERMOSOL(R) HypoThermosol(R) is a family of cell-specific, optimized hypothermic (4-10(degree)C) preservation media that allows for improved and extended preservation of biologics. A full line of customized HypoThermosol(R) preservation solutions are available to researchers and clinicians to preserve cells and tissue in low temperature environments for extended periods The Company's HypoThermosol(R) family of preservation media for the hypothermic maintenance and cryopreservation of mammalian cell systems include: HypoThermosol(R) Base HypoThermosol(R) Base 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. It 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(R) 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(R) 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 2 either pathological cell death or apoptosis (programmed cell death) in clinical conditions. HypoThermosol(R)-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(R) Purge HypoThermosol(R)-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(R) preservation solution variants. CRYOSTOR CRYOPRESERVATION MEDIA Based on BioLife's proprietary HypoThermosol(R) technology, CryoStor is a family of cell-specific, optimized cryopreservation media designed for frozen storage (temperature of -196(degree)C) of cells and tissues. Its purpose is to extend the cryopreservation window for gene and cell therapy and tissue engineering. 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. 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(R) series with the incorporation of agents to 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 SOLID STORAGE SOLUTION To provide 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 has developed GelStor and GelStar FRS to support the long distance shipping of biological material in the 40(degree)C to 20(degree)C range. Based on BioLife's proprietary HypoThermosol(R) 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. 3 GelStor 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 designed similarly to HypoThermosol(R)-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. The Company currently markets its HypoThermosol(R), Cryostar and Gelstor products directly to companies and labs engaged in pre-clinical research, and to academic institutions. RESEARCH CONTRACTS BioLife has entered into research agreements with several emerging biotechnology companies engaged in the research and commercialization of cell and gene therapy technology. BioLife contemplates that in many instances, these contracts will lead to continuing sales of its products. In February 2004, the Company announced that it signed a multi-year supply agreement with Pittsboro, NC-based Hepatotech Inc., a privately-held manufacturer and distributor of hepatocytes (liver cells). Under the terms of the agreement, BioLife will sell to Hepatotech the Company's off-the-shelf Hypothermosol(R) and Cryostor(TM) preservation solutions to support Hepatotech's cell harvest and shipment services. The agreement with Hepatotech further expands the sales opportunities for BioLife's technology. In February 2004, the Company entered into a research agreement with Ann Arbor, MI-based Aastrom Biosciences, Inc., a company specializing in developing, manufacturing, and marketing tissue repair cells. Under the terms of the agreement, Aastrom will provide BioLife with cartilage biopsies and materials derived therefrom as are necessary to conduct the Research Program with the goal of providing solution formulations to Aastrom. BioLife will be compensated, over time, based on certain project milestones. The entire contract is worth $40,000 if all of the projects are completed. 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 $700,000, including an upfront payment from T-Cubed, if the entire contract is completed. 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(R) 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(R) 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. BioLife pays 4 the University $1,005 per month during the term of the License and all inventions conceived as a result of these research and development efforts will belong to BioLife. SBIR GRANTS The Company has conducted its internal research through Small Business Innovative Research ("SBIR") grants. In conjunction with academic investigators, BioLife has been awarded six National Institute of Health ("NIH") grants and one National Science Foundation grant, valued at $1.38 million, since 2000. These grants involve research based around BioLife's core HypoThermosol(R) 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 2004, the Company elected to not continue to engage directly in the SBIR program. Accordingly, based upon numerous discussions with the Small Business Administration and a review of applicable SBIR rules and regulations, the Company entered into a Research Agreement with Cell Preservation Services, Inc. ("CPSI") to outsource to CPSI all BioLife research currently funded through SBIR grants. CPSI is owned by Dr. John M. Baust, a recognized expert in cell preservation, a former employee of BioLife and the son of John G. Baust, the CEO of BioLife. Robert Van Buskirk, formerly Vice President, Business Development of BioLife and the person primarily responsible for processing applications for SBIR grants for BioLife, also has left the employ of BioLife and joined CPSI. The Research Agreement, which was negotiated on an arms length basis and designed to comply with the rules and regulations applicable to the performance of research with respect to SBIR grants, establishes a format pursuant to which CPSI will (a) take over the processing of existing applications for SBIR grants applied for by BioLife ("Current Projects"), (b) apply for additional SBIR grants for future research projects ("Future Projects"), (c) perform a substantial portion of the principal work to be done, in terms of (i) time spent, and (ii) research, in connection with Current Projects and Future Projects (the "Research"), and (d) utilize BioLife personnel as consultants with respect to such Research. In conjunction therewith, BioLife has granted to CPSI a non-exclusive, royalty free license (with no right to sublicense) to use BioLife's technology solely for the purpose of conducting the research in connection with the Current Projects and Future Projects. Pursuant to the Research Contract, (x) BioLife will, among other things, provide CPSI with (i) suitable facilities in which to conduct the Research, including basic research equipment and office equipment ("Facilities"), and (ii) management services ("Management Services"), and (y) CPSI will (i) accept assignment of Current Projects, (ii) be responsible for conducting Research with respect to Current Projects and Future Projects, (iii) as mutually agreed to by the parties and within the confines of the rules and regulations applicable to the performance of Research with respect to SBIR grants, utilize BioLife's personnel as consultants, (iv) provide suitable experienced personnel, including, without limitation, a principal investigator/program director, to conduct the Research, (v) comply with all federal laws, rules and regulations applicable to SBIR grants and file all necessary forms and reports with the federal agency awarding the SBIR grants, and (vi) utilize the Facilities and Management Services and pay BioLife fees with respect thereto. BioLife is to own all right, title and interest in and to any technology, inventions, designs, ideas, and the like (whether or not patentable) that emanates from the Current Projects, Future Projects and Research. 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 5 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. 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 from 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. Engineered cartilage and skin generated worldwide sales of $47.5 million in 2001. The market for engineered skin is expected to grow at a compound annual growth rate ("CAGR") of 44.8% between 2002 and 2010. The market for engineered bone is expected to grow at a CAGR of 31.2% between 2002 and 2010. The market for engineered cartilage 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. 6 The Company is unable to forecast its potential product sales in any of these markets because each of these markets are in their infancy and not all of the Company's competitors are known. MANUFACTURING BioLife's HypoThermosol(R) line of preservation solutions currently are manufactured in-house in accordance with the Company's patented and proprietary formulas. In February 2003, the Company entered into a two-year non-exclusive manufacturing agreement with a contracted manufacturer. BioLife last ordered solutions from such manufacturer in March 2003. There are multiple sources available from which the Company can have HypoThermosol(R) 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, or the loss of previously obtained approvals, or the 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. As a component of other developed technology, HypoThermosol(R) 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. 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. 7 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 our 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 is committed to aggressively protect BioLife's intellectual property portfolio. BioLife's core HypoThermosol(R) 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, 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 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. In February 2003, the Company filed a patent application (Serial No. 10/372,379) entitled "Method and Use of Protein Microarray Technology and Proteomic Analysis to Determine Efficacy of Human and Xenographic Cell, Tissue and Organ Transplant" which contains claims related to systems, tools, and methods for assessing the success of the transplant of a cell, tissue, or organ before and after transplant. In October 2003, the Company was awarded U.S. Patent No. 6,632,666 B2 entitled "Normothermic, Hypothermic and Cryopreservation Maintenance and Storage Cells, Tissues and Organs in Gel-Based Media". This patent covers gel-based compositions for normothermic, Hypothermic and cryopreservative transport or storage of plant tissues or cells and animal organs, tissues or cells, the gel-based compositions comprising a cell maintenance and preservation medium and a gelling agent. 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(R) 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(R) 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 8 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(R) 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 Medical Corporation also has developed a preservation medium, which is indicated for use in the U.S. only 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 four research and development contractors at December 31, 2003. The Company is not a party to any collective bargaining agreements. REPORTS TO SECURITY HOLDERS This annual report, including the exhibits and schedules filed as part of the annual report, may be inspected at the public reference facility maintained by the Securities and Exchange Commission ("SEC") at its public reference room at 450 Fifth Street, NW, Washington, DC 20549 and copies of all or any part thereof may be obtained from that office upon payment of the prescribed fees. You may call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room and you can request copies of the documents upon payment of a duplicating fee, by writing to the SEC. In addition, the SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically with the SEC which can be accessed at www.sec.gov. The Company also makes its periodic and current reports available, free of charge, on its website, www.BioLifeSolutions.com, as soon as reasonably practicable after such material is electronically filed with the 9 SEC. Information available on our website is not a part of, and should not be incorporated into, this annual report on Form 10-K. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE SECURITIES LITIGATION REFORM ACT OF 1995 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. ITEM 2. DESCRIPTION OF PROPERTY - -------------------------------- Rental expense for all of the Company's facilities for the year ended December 31, 2003 totaled approximately $12,000. 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 of rate of $1,005 per month. The Company is evaluating the option to extend such licensing agreement. In January 2004, BioLife signed a 3 year lease with Field Afar Properties, LLC whereby BioLife leases 6,161 square feet of office, laboratory, and manufacturing space in Owego, NY at a rental rate of $6,200 per month. Renovation of this new facility is expected to be completed in April 2004. ITEM 3. LEGAL PROCEEDINGS - -------------------------- BioLife has been 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 claimed 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. On October 10, 2003, the State of Delaware issued a Final Order and Judgment in favor of BioLife in the amount of $1,648,935 plus prejudgment interest. On February 25, 2004, the Company collected $1.88 million from Endocare for damages, interest, and legal fees. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ None 10 PART II ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES - ------------------------------------------------------------------------ PRICE RANGE OF COMMON STOCK The common stock, par value $.001 per share, of the Company ("Common Stock") is traded on the OTC Bulletin Board under the symbol "BLFS." 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 March 31, 2003 $0.17 $0.11 June 30, 2003 $0.22 $0.11 September 30, 2003 $0.15 $0.08 December 31, 2003 $0.18 $0.08 HOLDERS As of December 31, 2003, there were 523 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 in March 2003 for an additional 12 months and the 11 warrants associated with the note have been repriced at $0.08 per share. All principal and interest payable on this note was paid in March 2004. In March 2003, the Company borrowed $100,000, 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 500,000 shares of the Company's common stock at $0.08 per share. All principal and interest payable on this note was paid in March 2004. In May 2003, the Company borrowed $300,000, represented by three (3) 12-month promissory note agreements. The principal balances on these promissory notes accrue interest at the rate of 10% per annum. In connection with the promissory notes, the Company issued warrants to purchase 1,500,000 shares of the Company's common stock at $0.08 per share. All principal and interest payable on these notes was paid in March 2004. In December 2003, the Company completed a private placement of 55.125 Units, raising $1,226,533 in cash, net of issuance costs of $23,467, and $128,125 as payment of accrued salaries to certain employees. Each Unit was priced at $25,000 and consisted of one share of Series G convertible non-redeemable preferred stock, convertible into 312,500 shares of common stock, and one warrant to purchase 312,500 shares of common stock at $.08 per share, on or before October 2013. 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. 12 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(R), GelStor 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. The Company currently markets its HypoThermosol(R), CryoStor and GelStor line of solutions to companies and labs engaged in pre-clinical research, and to academic institutions. LIQUIDITY AND CAPITAL RESOURCES During 2003, our first full year of product sales, we financed our operations primarily from the proceeds from financing activities conducted during the year as our product sales were not sufficient to support our operating activities or service other debt. Proceeds from financing activities totaled $1,586,233 during the year and were comprised of note issuances and issuance of preferred stock. Note issuances during 2003 totaled $400,000 and proceeds from preferred stock and warrants totaled $1,226,533. Principal payments on a pre-existing note totaled $40,300 during the year. As of December 31, 2003, we had cash and cash equivalents of $787,904 and total assets of $2,963,911. A legal settlement receivable of $1,871,945 was recorded in 2003 as the Court entered a judgment in favor of the Company in its lawsuit with Endocare. On February 25, 2004, the Company settled with Endocare and collected the judgment, interest and a reimbursement of legal fees. During the year ended December 31, 2003, net cash used by continuing operations was approximately $854,228 as compared to net cash used by continuing operating activities of $364,702 for the year ended December 31, 2002. The increase in net cash used in operating activities in 2003 resulted primarily from a net loss of $1,303,368 during the year as the Company shifted focus to product sales and accumulated accounts payable. Accounts receivable (net) decreased to $34,851 at December 31, 2003 from $44,666 at December 31, 2002. The increase 13 primarily was due to the decrease in sales as the Company's focus shifted to product sales. Inventory increased to $39,805 at December 31, 2003 from $0 at December 31, 2002 as all inventory was written off at December 31, 2002. Other factors contributing to the net cash used by operating activities included an increase in accounts payable and accrued liabilities. Net cash used in investing activities totaled $11,219 during the year ended December 31, 2003 which resulted from purchase of property and equipment. Net cash provided by investing activities totaled $2,112,613 during the year ended December 31, 2002. The amount for fiscal 2002 is the result of cash proceeds from the sale of cryosurgical assets in the amount of $2,200,000 and purchases of property and equipment totaling $87,387. Net cash provided by financing activities totaled $1,586,233 and $345,824 during the years ended December 31, 2003 and 2002, respectively. In fiscal year 2003, net cash was provided by issuance of notes in the amount of $400,000 and issuance of preferred stock and warrants in the amount of $1,226,533. Principal payments on existing notes during the year totaled $40,300. In 2002, net cash provided was derived from proceeds from note issuances totaling $565,824 and principal payments on existing notes totaling $220,000. During 2003, the Company was not able to support its operating activities through sales of its products or contracted revenue sources as the Company focused on product sales for the first full year. As a result, operations were funded primarily with proceeds from notes and issuance of preferred stock. The Company maintains no line of credit or bank notes. In addition, the Company accumulated a significant amount of payables and accrued expenses during the year as its operation continued its transition to product sales related activities. In February of 2004, the Company collected proceeds in the amount of $1,887,474 from its settlement of the Endocare lawsuit. With these proceeds, the Company was able to pay all outstanding note obligations as well as pay off a majority of the accrued liabilities. Strategies for 2004 and beyond include procuring multiyear agreements with manufacturing and distributing companies in an effort to establish annuity revenue streams. These annuity type agreements will enable us to stabilize and forecast revenues and cash flows. In February 2004, the Company announced that it signed a multi-year supply agreement with Pittsboro, NC-based Hepatotech Inc., a privately-held manufacturer and distributor of hepatocytes (liver cells). Under the terms of the agreement, BioLife will sell Hepatotech its off-the-shelf Hypothermosol(R) and Cryostor(TM) preservation solutions to support Hepatotech's cell harvest and shipment services. The agreement with Hepatotech further expands the sales opportunities for BioLife's technology. In February 2004, the Company entered into a research agreement with Ann Arbor, MI-based Aastrom Biosciences, Inc., a company specializing in developing, manufacturing, and marketing tissue repair cells. Under the terms of the agreement, Aastrom will provide BioLife with cartilage biopsies and materials derived therefrom as are necessary to conduct the Research Program with the goal of providing solution formulations to Aastrom. The Company believes it has sufficient funds to continue operations in the near term. However, it may need to raise additional funds through additional financings, including private or public equity and/or debt offerings and collaborative research and development arrangements with corporate partners in order to pursue new business opportunities. Our future capital requirements will depend on many factors, including the ability to market and sell our product line, research and development programs, the scope and results of clinical trials, the time and costs involved in obtaining regulatory approvals, the costs involved in obtaining and enforcing patents or any litigation by third parties regarding intellectual property, the status of competitive products, the maintenance of our manufacturing facility, the maintenance of sales and marketing capabilities, and the establishment of collaborative relationships with other parties. 14 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 requires 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, 2003 COMPARED TO THE YEAR ENDED DECEMBER 31, 2002) REVENUE Revenue for the year ended December 31, 2003 decreased $243,280 or 29%, to $605,511, compared to $848,791 for the year ended December 31, 2002. The decrease in revenue is attributable to a reduction in grant revenue as a result of expiration of several 2002 grants, while being awarded only one new grant in 2003. In addition, consulting revenue declined as a result of scheduled completion of contracts with 2 consulting clients. The shift of the Company's focus toward product sales resulted in a 467% increase in product sales over 2002. COST OF PRODUCT SALES For the year ended December 31, 2002, the entire cost of product sales was the result of all of the Company's product inventory written off at year end as it was utilized in research and development activities during the year. In 2003, cost of product sales was $9,387 and represented the direct costs associated with product sales during the year. RESEARCH AND DEVELOPMENT Expenses relating to research and development for the year ended December 31, 2003 increased $114,511, or 18%, to $759,309, compared to $644,798 for the year ended December 31, 2002. The increase in research and development expense was due to several factors relating to increased research and development activity. Lab supply expenses increased 35% with the shift in focus to product sales and manufacturing refinement. Legal expenses increased 53% as the Company incurred patent related attorneys fees to protect its intellectual property. Higher headcount in 2003 resulted in an increase in salary expenses by 30% over 2002. SALES AND MARKETING For the year ended December 31, 2003, sales and marketing expense increased $144,703, or 230%, to $207,691, compared to $62,988 for the year ended December 31, 2002. The increase in sales and marketing expense was due to the hiring of a VP of Sales late in 2002 as well as greater sales and marketing-related activity, including the travel and trade show attendance. 15 GENERAL AND ADMINISTRATIVE EXPENSE For the year ended December 31, 2003, general and administrative expense increased $490,782, or 67% to $1,226,252, compared to $735,470 for the year ended December 31, 2002. This increase was due to several factors including amortization expense related to financing activities in 2003 totaling $205,653. Accounting fees were substantially higher as the Company hired a full time consultant for all accounting related activities. Legal fees increased by 38% over 2002 as the Company incurred additional fees related to the lawsuit with Endocare. OPERATING EXPENSES AND NET INCOME For the year ended December 31, 2003, operating expenses increased $733,737, or 50% to $2,202,639, compared to $1,468,902 for the year ended December 31, 2002. The Company reported net loss of $(1,303,368) for the year ended December 31, 2003, compared to a net income of $215,876 for the year ended December 31, 2002. The Company's reported net income for the year ended December 31, 2002 includes results from discontinued operations and the gain on disposal of cryosurgical assets. CASH AND CASH EQUIVALENTS At December 31, 2003, the Company had cash and cash equivalents of $787,904, compared to cash and cash equivalents of $67,118 at December 31, 2002. At December 31, 2003, the Company had a working capital surplus of $1,233,123, compared to a working capital deficit of $(711,965) at December 31, 2002. The increase in the Company's cash and working capital position compared to December 31, 2002 was due to financing activities during the year. CONTRACT OBLIGATIONS The Company leases equipment as lessee, under operating leases expiring on various dates through 2005. The leases require monthly payments of approximately $2,340. In March 1999, the Company signed an Incubator Licensing Agreement with State University of New York (SUNY) whereby the Company 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 expires in July 2004, unless terminated earlier by either party, and all inventions conceived as a result of these research and development efforts will belong to the Company. The Company is evaluating the option to extend such licensing agreement. Effective January 8, 2004, the Company has entered into a non-cancelable operating lease for new space in Owego, NY that expires in January 2007. The lease payments under the new lease will be $6,200 per month. The building in which the Company will lease space is partially owned by the Company's president. RISK FACTORS 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 HAS A HISTORY OF LOSSES AND MAY NEVER ACHIEVE OR MAINTAIN PROFITABILITY. The Company has incurred annual operating losses since inception, and may continue to incur operating losses because new products will require substantial development, clinical, regulatory, manufacturing, marketing and 16 other expenditures. For the fiscal years ended December 31, 2003 and December 31, 2002, the Company had net loss of $1,303,368 and a net income of $215,876, respectively. As of December 31, 2003, the Company's accumulated deficit was $39,319,476 ($1,824,368 of this accumulated deficit is attributed to 2003, the first full year that the Company focused primarily on product sales). The Company may not be able to successfully 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. 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(R) 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(R) 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(R) product line. THE SUCCESS OF THE COMPANY'S HYPOTHERMOSOL(R) 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(R) 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 17 therapies are years away from commercialization, and demand, if any, for the HypoThermosol(R) 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(R) 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. 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. 18 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 MEDICAL DEVICE 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. 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 19 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. ITEM 7. FINANCIAL STATEMENTS - ----------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders BIOLIFE SOLUTIONS, INC. Binghamton, New York We have audited the accompanying Consolidated Balance Sheets of BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY as of December 31, 2003 and 2002, and the related Consolidated Statements of Operations, Comprehensive Income (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, 2003 and 2002, 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 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 February 26, 2004 20 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
December 31, December 31, 2003 2002 ------------ ------------ Assets - ------ Current assets Cash and cash equivalents $ 787,904 $ 67,118 Accounts receivables, trade 34,851 44,666 Legal settlement receivable 1,871,945 -- Inventories 39,805 -- Loan financing costs, net of accumulated amortization of $334,529 and $128,876 at December 31, 2003 and 2002, respectively 106,408 25,753 Prepaid expenses and other current assets -- 18,595 ------------ ------------ Total current assets 2,840,913 156,132 ------------ ------------ Property and equipment Furniture and computer equipment 36,486 31,266 Manufacturing and other equipment 183,830 177,831 ------------ ------------ Total 220,316 209,097 Less: Accumulated depreciation and amortization (97,318) (51,383) ------------ ------------ Net property and equipment 122,998 157,714 ------------ ------------ Total assets $ 2,963,911 $ 313,846 ============ ============ Liabilities and Stockholders' Equity (Deficiency) - ------------------------------------------------- Current liabilities Accounts payable $ 563,359 $ 171,666 Accrued expenses 83,422 105,801 Accrued salaries 255,485 244,806 Notes payable - related parties 650,000 250,000 Notes payable - other 55,524 95,824 ------------ ------------ Total current liabilities 1,607,790 868,097 ------------ ------------ Commitments and contingencies Stockholders' equity (deficiency) Series F convertible preferred stock, $.001 par value; 12,000 shares authorized, 12,000 shares issued and outstanding 12 12 Series G convertible preferred stock, $.001 par value; 80 shares authorized, 55 shares issued and outstanding -- -- Common stock, $0.001 par value; 25,000,000 shares authorized, 12,413,209 shares issued and outstanding 12,413 12,413 Additional paid-in capital 40,663,172 38,362,695 Accumulated deficit (39,319,476) (37,495,108) Accumulated other comprehensive loss -- (1,434,263) ------------ ------------ Total stockholders' equity (deficiency) 1,356,121 (554,251) ------------ ------------ Total liabilities and stockholders' equity (deficiency) $ 2,963,911 $ 313,846 ============ ============
The accompanying Notes to Financials Statements are an integral part of these financial statements F-1 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, ------------------------------- 2003 2002 ---- ---- Revenue Grant revenue $ 309,359 $ 641,825 Consulting revenue 149,360 181,080 Product sales 146,792 25,886 ------------ ------------ Total revenue 605,511 848,791 ------------ ------------ Operating expenses Research and development 759,309 644,798 Sales and marketing 207,691 62,988 Product sales 9,387 25,646 General and administrative 1,226,252 735,470 ------------ ------------ Total expenses 2,202,639 1,468,902 ------------ ------------ Operating loss (1,597,128) (620,111) ------------ ------------ Other income (expense) Legal settlement income 214,672 -- Other income 3,200 -- Interest income 128,202 835 Interest expense - related parties (52,014) (18,750) Interest expense - other (300) -- ------------ ------------ Total other income (expense) 293,760 (17,915) ------------ ------------ Loss from continuing operations before benefit for income taxes (1,303,368) (638,026) Benefit for income taxes -- (329,606) ------------ ------------ Loss from continuing operations (1,303,368) (308,420) ------------ ------------ Discontinued operations Loss from discontinued operations, net of tax benefit of $606,872 -- (965,335) Gain on disposition of cryosurgical assets, net of tax of $936,478 -- 1,489,631 ------------ ------------ Total discontinued operations -- 524,296 ------------ ------------ Net (loss) income (1,303,368) 215,876 Series G preferred stock deemed dividend 521,000 -- ------------ ------------ Net (loss) income attributable to holders of common stock $ (1,824,368) $ 215,876 ============ ============ Basic and diluted net (loss) income per common share attributable to holders of common stock: Loss from continuing operations $ (0.15) $ (0.02) Loss from discontinued operations -- (0.08) Gain on disposition of cryosurgical assets -- 0.12 ------------ ------------ Total basic and diluted net (loss) income per common share attributable to holders of common stock: $ (0.15) $ 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-2 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Years Ended December 31, ----------------------------- 2003 2002 ----------- ----------- Net (loss) income $(1,303,368) $ 215,876 ----------- ----------- Unrealized gain (loss) on marketable securities 1,434,263 (1,434,263) ----------- ----------- Total other comprehensive income (loss) 1,434,263 (1,434,263) ----------- ----------- Comprehensive income (loss) $ 130,895 $(1,218,387) =========== ===========
The accompanying Notes to Financials Statements are an integral part of these financial statements F-3 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Convertible Series F Accumulated Total and Preferred Stock Common Stock Additional other stockholders' -------------------- -------------------- paid-in Accumulated comprehensive equity Shares Amount Shares Amount capital deficit loss (deficiency) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, January 1, 2002 12,000 $ 12 12,413,209 $ 12,413 $ 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 12,000 $ 12 12,413,209 $ 12,413 $ 38,362,695 $(37,495,108) $(1,434,263) $ (554,251) Issuance of warrants for professional services -- -- -- -- 47,589 -- -- 47,589 Issuance of warrants for loan financing costs -- -- -- -- 286,308 -- -- 286,308 Issuance of warrants in lieu of cash compensation -- -- -- -- 90,922 -- -- 90,922 Issuance of convertible Series G preferred stock 55 -- -- -- 1,354,658 -- -- 1,354,658 Deemed dividend on convertible Series G preferred stock -- -- -- -- 521,000 (521,000) -- -- Disposal of marketable securities -- -- -- -- -- -- 1,434,263 1,434,263 Net loss -- -- -- -- -- (1,303,368) -- (1,303,368) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2003 12,055 $ 12 12,413,209 $ 12,413 $ 40,663,172 $(39,319,476) $ -- $ 1,356,121 ===================================================================================================================================
The accompanying Notes to Financials Statements are an integral part of these financial statements F-4 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2003 2002 ----------- ----------- Cash flows from operating activities Net (loss) income $(1,303,368) $ 215,876 Adjustments to reconcile net (loss) income to net cash used by operating activities Gain on disposition of cryosurgical assets -- (2,426,109) Loss from discontinued operations -- 1,572,207 Depreciation 45,935 40,004 Amortization of loan financing costs 205,653 128,876 Write-down of inventory -- 25,685 Disposal of marketable securities 1,434,263 -- Issuance of warrants and options for compensation, consulting and professional services 138,511 198,741 Change in operating assets and liabilities net of effects from disposition of cryosurgical assets: (Increase) decrease in Accounts receivable, trade 9,815 (20,731) Legal settlement receivable (1,871,945) -- Inventories (39,805) -- Prepaid and other current assets 18,595 (18,595) Increase (decrease) in Accounts payable 391,693 80,715 Accrued expenses (22,379) (218,870) Accrued salaries 138,804 57,499 ----------- ----------- Cash used by continuing operations (854,228) (364,702) Cash used by discontinued operations -- (2,312,722) ----------- ----------- Net cash (used) by operating activities (854,228) (2,677,424) ----------- ----------- Cash flows from investing activities Proceeds from sale of cryosurgical assets -- 2,200,000 Purchase of property and equipment (11,219) (87,387) ----------- ----------- Net cash (used) provided by investing activities (11,219) 2,112,613 ----------- ----------- Cash flows from financing activities Proceeds from notes payable 400,000 565,824 Principal payments on notes payable (40,300) (220,000) Issuance of preferred stock and warrants 1,226,533 -- ----------- ----------- Net cash provided by financing activities 1,586,233 345,824 ----------- ----------- Net increase (decrease) in cash 720,786 (218,987) Cash - beginning of year 67,118 286,105 ----------- ----------- Cash - end of year $ 787,904 $ 67,118 =========== =========== Supplemental cash flow information Actual cash payments for: Interest - other $ 300 $ 1,673 =========== =========== Noncash investing and financing activities Marketable securities received from disposition of cryosurgical assets $ -- $ 1,434,263 =========== =========== Warrants issued for payment of loan financing costs $ 286,308 $ 154,629 =========== =========== Series G convertible preferred stock issued for accrued salaries $ 128,125 $ -- =========== ===========
The accompanying Notes to Financials Statements are an integral part of these financial statements F-5 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Incorporated in 1998 in the State of Delaware 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(R) 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. Subsequent to the merger, the Company ceased to have any subsidiaries. In 2001, the Company was awarded a research grant from the National Institute of Health (the "NIH") for $804,014, titled, "Apoptosis Intervention in Cell and Organ Preservation." Portions of the funds from this grant were recognized in 2002 and 2003, matching research related to this grant carried out in 2002 and 2003, respectively. Furthermore, the Company was awarded a grant from NIH for $100,000 titled, "Pro/Anti-Apoptotic Grant." Portions of the funds from this grant were recognized in 2002 and 2003, matching research related to this grant carried out in 2002 and 2003, respectively. In September 2003, the Company was awarded a research grant from the NIH for $177,000, titled "Improved Preservation of Suspended Cells." Portions of the funds from this grant were recognized in 2003, and the remainder will be recognized in 2004. Total grant revenue recognized during the years ended December 31, 2003 and 2002 totaled $309,359 and $641,825, respectively. F-6 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PRINCIPLES OF CONSOLIDATION: The 2003 and 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. 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 6). 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 is recognized at the time of shipment. F-7 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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: Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), allows companies to account for stock-based compensation either under the provisions of SFAS 123 or under the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), as amended by FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation (an Interpretation of APB Opinion No. 25)," but requires pro forma disclosure in the footnotes to the financial statements as if the measurement provisions of SFAS 123 had been adopted. The Company has elected to account for its stock-based compensation in accordance with the provisions of APB 25. The following table illustrates the effect on income (loss) attributable to holders of common stock and earning per share if the Company had applied the fair value recognition provisions of SFAS 123: 2003 2002 -------------------------- Income (loss) attributable to holders of common stock $(1,824,368) $ 215,876 Compensation expense based on fair value, net of related tax effects 107,684 80,225 - -------------------------------------------------------------------------------- PRO FORMA INCOME (LOSS) ATTRIBUTABLE TO HOLDERS OF COMMON STOCK $(1,932,052) $ 135,651 ================================================================================ Basic and diluted net income (loss) per share attributable to holders of common stock As reported $ (0.15) $ 0.02 ================================================================================ Pro forma $ (0.16) $ 0.01 ================================================================================ F-8 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) This disclosure is in accordance with Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," that the Company has adopted in these financial statements. Stock options and warrants granted to non-employees are accounted for in accordance with SFAS 123 and the Emerging Issues Task Force Consensus No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services," which requires the value of the options to be periodically re-measured as they vest over a performance period. 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 2003 and 2002: expected volatility of 63% and 95%, respectively; expected dividend yield of 0%; risk-free interest rate of 4.5% and expected lives of five to ten years, as applicable. 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 in the field of hypothermic solutions. As of December 31, 2003 and 2002 this is the Company's only business segment. RECLASSIFICATIONS: Certain reclassifications have been made in the 2002 financial statements to conform to the 2003 presentation. RECENT PRONOUNCEMENTS: In April 2003, the Financial Accounting Standards Board issued Statement No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". This Statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. This pronouncement is not expected to have a material impact on the Company's financial position or results of operations. F-9 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In May 2003, the Financial Accounting Standards Board issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This statement affects the classification, measurement and disclosure requirements of certain freestanding financial instruments, including mandatorily redeemable shares. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective for the Company for the third quarter of Fiscal 2003. This pronouncement is not expected to have a material impact on the Company's financial position or results of operations upon adoption. 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, 2003. 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. 2. FINANCIAL CONDITION The Company has been unable to generate sufficient income from operations in order to meet its operating needs. In addition, at December 31, 2003, the Company has $705,524 of debt maturing in 2004. These conditions raise substantial doubt about the Company's ability to continue as a going concern. F-10 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 2. FINANCIAL CONDITION (CONTINUED) On February 25, 2004, the Company settled its lawsuit with Endocare and collected $1,887,474 in damages, including interest and legal fees reimbursement (See Note 11). This settlement improved the Company's cash position and enabled it to pay many of its outstanding liabilities. The Company is now poised to focus on generating product sales in 2004. However, the Company can make no assurances that it will be successful in its generating adequate product sales to sustain itself. The Company may need to raise additional 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 generate adequate product sales or raise additional 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 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 was litigation between the companies at December 31, 2003 (See Note 11). Net sales of discontinued operations for the year ended December 31, 2002, were $128,419 and are included in the loss from discontinued operations in the accompanying Statements of Operations. The pre-tax losses of the cryosurgical operations totaled $1,572,207 for the year ended December 31, 2002 and 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. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 3. SALE OF CRYOSURGICAL ASSETS (CONTINUED) Cryosurgical assets sold in the transaction with Endocare consisted of the following (all assets are shown at their net realizable value): June 25, 2002 ---------- Accounts receivable $ 42,660 Inventory 438,606 Other current assets 18,604 Fixed assets, net 254,361 Intangible assets, net 453,923 - ----------------------------------------------------------- NET ASSETS SOLD $1,208,154 =========================================================== 4. INVENTORIES Inventories consist of the following at December 31, 2003: Raw materials and purchased parts $ 20,309 Finished goods 19,496 - ----------------------------------------------------------- TOTAL $ 39,805 =========================================================== 5. LEGAL SETTLEMENT RECEIVABLE 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. No such registration statement was ever filed. As a result, the Company engaged in litigation in connection with such failure to file the registration statement (See Note 11). 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 considered the securities to have zero value at December 31, 2002, and recorded an unrealized loss of $1,434,263 in the Statement of Comprehensive Loss for the year then ended. On October 10, 2003, the Company was awarded $1,648,935 plus accrued interest and the ability to petition the Court for its reasonable legal fees. On February 25, 2004, the Company settled all of its claims against Endocare, including legal fees, and collected $1,887,474 from Endocare for damages, legal fees and interest through the date of settlement. In addition, the Company surrendered the 120,022 shares back to Endocare. Accordingly, at December 31, 2003, the Company recorded a receivable for $1,871,945 for the settlement and the previously recorded unrealized loss of $1,434,263 was removed from other comprehensive loss. F-12 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 6. NOTES PAYABLE At December 31, 2003 and 2002, notes payable consisted of the following: 2003 2002 -------------------- NOTES PAYABLE - RELATED PARTIES: Note payable to stockholder, unsecured, bearing interest at 10%, due April 2004. The note granted a warrant to the payee to purchase 1,000,000 shares of common stock at $0.25 per share (subsequently changed to $0.08), as additional consideration for the loan (See Note 8) $250,000 $250,000 Note payable to stockholder, unsecured, bearing interest at 10%, due March 2004. The note granted a warrant to the payee to purchase 500,000 shares of common stock at $0.08 per share, as additional consideration for the loan (See Note 8) 100,000 -- Note payable to stockholder, unsecured, bearing interest at 10%, due May 2004. The note granted a warrant to the payee to purchase 500,000 shares of common stock at $0.08 per share, as additional consideration for the loan (See Note 8) 100,000 -- Note payable to stockholder, unsecured, bearing interest at 10%, due May 2004. The note granted a warrant to the payee to purchase 250,000 shares of common stock at $0.08 per share, as additional consideration for the loan (See Note 8) 50,000 -- Note payable to stockholder, unsecured, bearing interest at 10%, due May 2004. The note granted a warrant to the payee to purchase 750,00 shares of common stock at $0.08 per share, as additional consideration for the loan (See Note 8) 150,000 -- - -------------------------------------------------------------------------------- TOTAL NOTES PAYABLE - RELATED PARTIES 650,000 250,000 NOTES PAYABLE - OTHER: Note payable to equipment vendor, unsecured, noninterest bearing, payable in monthly installments of $10,000, due October 2003 The Company is currently in default on the note 55,524 95,824 - -------------------------------------------------------------------------------- TOTAL NOTES PAYABLE $705,524 $345,824 ================================================================================ F-13 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 7. INCOME TAXES Income tax (benefit) expense reconciled to tax calculated at statutory rates is as follows: 2003 2002 ---------------------------- Federal taxes (benefit) at statutory rate $ (443,145) $ 73,398 State income taxes (benefit), net of federal expense/benefit (60,216) 9,930 Change in valuation allowance 523,537 (111,168) Other (20,176) 27,840 - ------------------------------------------------------------------------------- PROVISION FOR INCOME TAXES, NET $ -- $ -- ================================================================================ The components of the deferred tax asset at December 31, 2003 and 2002, are as follows: Net operating loss carryforward $ 13,764,881 $ 13,241,344 Tax credits 717,000 717,000 - ------------------------------------------------------------------------------- 14,481,881 13,958,344 Valuation allowance (14,481,881) (13,958,344) - ------------------------------------------------------------------------------- NET DEFERRED TAX ASSET $ -- $ -- =============================================================================== The Company provides a valuation allowance for deferred tax assets which, in its opinion, is more likely than not that they will not be realized. F-14 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 7. INCOME TAXES (CONTINUED) The Company has the following net operating loss and research and development (R&D) tax credit carryforwards available at December 31, 2003: Net R&D Year of Operating Tax Expiration Losses Credits - ---------------------------------------------------- 2004 $ 231,000 $ 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 -- 2023 1,343,000 -- - ---------------------------------------------------- TOTAL $35,618,000 $ 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. 8. STOCKHOLDERS' EQUITY The Company has granted options and warrants to consultants and others who have provided 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. F-15 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 8. STOCKHOLDERS' EQUITY (CONTINUED) PREFERRED SERIES F STOCK: 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 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 2003 and 2002 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, 2003 and 2002 dividends in arrears on the cumulative preferred stock were $270,000 and $150,000, respectively. Conversion Rights - Each Series F preferred share is convertible, at any time, into 400 shares of common stock. 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-16 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 8. STOCKHOLDERS' EQUITY (CONTINUED) 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. Series F preferred stock and Series G preferred stock are equal in their seniority. 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. PREFERRED SERIES G STOCK: In December 2003, the Company completed a private placement of 55.125 Units, raising $1,226,533 in cash, net of issuance costs of $23,467, and $128,125 as payment of accrued salaries to certain employees. Each Unit was priced at $25,000 and consisted of one share of Series G convertible non-redeemable preferred stock, convertible into 312,500 shares of common stock, and one warrant to purchase 312,500 shares of common stock at $.08 per share, on or before October 2013. 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 connection with the issuance of the Series G preferred stock, the Company has recorded a deemed dividend of $521,000 in accordance with the accounting requirements for a beneficial conversion feature. The proceeds received in the Series G offering were first allocated between the convertible instrument and the Series G warrant on a relative fair value basis. A calculation then was performed to determine the difference between the effective conversion price and the fair market value of the Common Stock at the date of issuance. F-17 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 8. STOCKHOLDERS' EQUITY (CONTINUED) The key rights of the Series G convertible preferred stock, par value $0.001, issued in the Unit financing include the following: Dividends - Series G preferred stockholders are entitled to annual cumulative dividends at the rate of $1,875 per share payable at the option of the Company in cash or shares of common stock. The number of common shares to be issued for dividend purposes is based upon the average market value of the common stock for the thirty calendar days immediately prior to the date such dividends are declared. No dividends were declared or paid during 2003 on the preferred stock. At December 31, 2003 dividends in arrears on the cumulative preferred stock were $10,462. Conversion Rights - Each Series G preferred share is convertible, at any time, into 312,500 shares of common stock, and the Company will reserve authorized and unissued shares of common stock in the event of conversion. The conversion ratio is subject to equitable adjustment for stock splits, stock dividends, combinations or similar transactions. Voting Rights - The Series G 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 G 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 G 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 G preferred stock. Series G preferred stock and Series F preferred stock are equal in their seniority. Liquidation Preference - In the event of any liquidation, dissolution, or winding up of the Company, the Series G preferred stockholders are entitled to receive, before any distribution to any other class of stock ranking junior to the Series G preferred stock, liquidating distributions in the amount of $25,000 per share and all unpaid dividends. WARRANTS: 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. F-18 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 8. STOCKHOLDERS' EQUITY (CONTINUED) 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 (Breslow), the Company's general counsel, and de Greef & Partners, LLC (de Greef), a consultant for the Company, ten-year warrants to purchase 500,000 shares of the Company's common stock at $0.25 per share. In August 2003, the Company issued to Breslow and to de Greef five-year warrants, to purchase 282,910 and 252,500 shares, respectively, of the Company's common stock at $0.08 per share for professional services rendered. The Company recorded additional-paid-in-capital of $47,589 and $139,677, respectively, to reflect the fair market value of the warrants issued and recorded a corresponding expense in the Company's Statement of Operations. In connection with the issuance of 12-month promissory notes in March and May 2003, the Company issued four separate five-year warrants to purchase an aggregate of 2,000,000 shares of the Company's common stock at $0.08 per share. The Company recorded additional paid-in capital of $211,713 to reflect the fair market value of the warrants issued. In addition, as a consideration for receiving a one-year extension for note payable originally maturing in March 2003, the Company reduced the exercise price of the warrant, issued with the note in March 2002, from $0.25 to $0.08. The Company recorded additional paid-in capital of $74,595 to reflect the fair market value of the change in exercise price of the warrant. In August 2003, the Company issued six separate five-year warrants valued $90,922 to purchase an aggregate of 1,022,885 shares of the Company's common stock at $0.08 per share to employees as a payment of accrued payroll liabilities for services performed. F-19 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 8. STOCKHOLDERS' EQUITY (CONTINUED) The following table summarizes warrant activity for the years ended December 31, 2003 and 2002: YEAR ENDED Year Ended DECEMBER 31, 2003 December 31, 2002 ------------------------------------------------ WGTD. AVG. Wgtd. Avg. EXERCISE Exercise SHARES PRICE Shares Price - ------------------------------------------------------------------------------- Outstanding at beginning of year 6,484,000 $ 0.61 4,024,000 $ 0.82 Granted 20,784,858 0.08 2,460,000 0.25 - ------------------------------------------------------------------------------- Outstanding at end of year 27,268,858 $ 0.20 6,484,000 $ 0.61 =============================================================================== WARRANTS EXERCISABLE AT YEAR END 27,268,858 $ 0.20 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. 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. 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 at the shareholders' meeting to be held in 2004. 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. F-20 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 8. STOCKHOLDERS' EQUITY (CONTINUED) The following is a summary of stock option activity under the plans for 2003 and 2002, and the status of stock options outstanding and available under the plans at December 31, 2003 and 2002. YEAR ENDED Year Ended DECEMBER 31, 2003 December 31, 2002 ----------------------------------------------- WGTD. AVG. Wgtd. Avg. EXERCISE Exercise SHARES PRICE Shares Price ----------------------------------------------- Outstanding at beginning 4,216,000 $ 0.49 3,316,000 $ 0.56 of year Granted -- -- 1,550,000 0.25 Cancelled (40,000) (1.25) (650,000) (0.25) - -------------------------------------------------------------------------------- Outstanding at end of year 4,176,000 $ 0.49 4,216,000 $ 0.49 ================================================================================ STOCK OPTIONS EXERCISABLE AT YEAR END 2,376,000 $ 0.66 1,607,667 $ 0.88 ================================================================================ 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. The following table summarizes information about stock options outstanding at December 31, 2003: Weighted Number Average Weighted Range of Outstanding Remaining Average Exercise at December Contractual Exercise Prices 31, 2003 Life Price - ---------------------------------------------------------------------- $ 0.25 3,400,000 8.05 $ 0.25 1.25 741,000 4.51 1.25 2.50-10.63 35,000 1.61 7.14 - ---------------------------------------------------------------------- 4,176,000 8.41 $ 0.49 ====================================================================== F-21 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 8. STOCKHOLDERS' EQUITY (CONTINUED) The Company has 25,000,000 shares of authorized common stock at December 31, 2003, of which 12,413,209 shares are issued. During 2003, Board of Directors approved an increase in the authorized shares from 25,000,000 to 100,000,000 subject to shareholders' approval. At December 31, 2003, there are 53,471,421 of common stock that could be issued upon the conversion/exercise of stock warrants, options and convertible preferred stock. The following table summarizes the potential shares to be issued upon conversion/exercise of the above instruments: Series F preferred stock 4,800,000 Series G preferred stock 17,226,563 Common stock options 4,176,000 Common stock warrants 27,268,858 - --------------------------------------------------------------- TOTAL 53,471,421 =============================================================== 9. RELATED PARTY TRANSACTIONS The Company incurred $79,000 and $204,452 in legal fees during the years ended December 31, 2003 and 2002, respectively, for services provided by a law firm in which a director and stockholder of the Company is a partner. For the years ended December 31, 2003 and 2002, the Company also issued 282,910 and 500,000 warrants, respectively, exercisable at $0.08 and $0.25 per share, respectively, as partial consideration for services rendered by the related party. At December 31, 2003 and 2002 accounts payable includes $67,356 and $21,339, respectively, 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. 10. COMMITMENTS LEASES: The Company leases equipment as lessee, under operating leases expiring on various dates through 2005. The leases require monthly payments of approximately $2,340. The following is a schedule of future minimum lease payments required under the operating leases: Year Ending December 31 Amount - --------------------------------------------------------------- 2004 $ 28,074 2005 14,273 - --------------------------------------------------------------- TOTAL $ 42,347 =============================================================== F-22 BIOLIFE SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 10. COMMITMENTS (CONTINUED) Rental expense for facilities and equipment operating leases for the years ended December 31, 2003 and 2002, totaled $51,014 and $86,251, respectively. OTHER: In March 1999, the Company signed an Incubator Licensing Agreement with State University of New York (SUNY) whereby the Company 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 expires in July 2005, unless terminated earlier by either party, and all inventions conceived as a result of these research and development efforts will belong to the Company. Effective January 8, 2004, the Company has entered into non-cancelable operating lease for new space in Owego, New York that expires in January 2007. The lease payments under the new lease will be $6,200 per month. The building in which the Company will lease space is partially owned by the Company's president. EMPLOYMENT AGREEMENT: During the year ended December 31, 2002, the Company 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, which are included in the table in Note 8. 11. LITIGATION The Company was 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 equipment assets to Endocare in a transaction that closed on June 24, 2002 (See Note 3). In the lawsuit, the Company claimed 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. On October 10, 2003, the Court issued a Final Order and Judgment in favor of the Company in the amount of $1,648,935 plus prejudgment interest. On February 25, 2004, the Company collected $1,887,474 from Endocare for damages, interest, and legal fees. F-23 ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ------------------------------------------------------------------------ None ITEM 8A. CONTROLS AND PROCEDURES - -------------------------------- As of the end of the period covered by this Annual Report on Form 10-K, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the CEO/CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company's CEO/CFO concluded that the Company's disclosure controls and procedures are effective in timely alerting him to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings. The Company does not expect that its disclosure controls and procedures will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected. There were no significant changes in the Company's internal control over financial reporting during the quarterly period ended December 31, 2003 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 21 PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ----------------------------------------------------------- The following table and text set forth the names and ages of all directors and executive officers of the Company as of March 31, 2004. The Board of Directors is comprised of only one class. All of the directors will serve until the next annual meeting of shareholders, which is anticipated to be held in 2004, and until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. There are no family relationships among directors and executive officers. Also provided herein are brief descriptions of the business experience of each director and executive officer during the past five years (based on information supplied by them) and an indication of directorships held by each director in other companies subject to the reporting requirements under the Federal securities laws. Position and Offices Name Age With the Company - ---- --- -------------------- John G. Baust, Ph.D. 61 President, Chief Executive Officer and Director Richard O'Hara 34 Controller Alan Rich 57 Vice President, Sales and Marketing Howard S. Breslow 64 Director, Secretary Roderick de Greef 43 Director Thomas Girschweiler 46 Director 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. Richard O'Hara served as an accounting consultant with the Company since December 2003 and was hired as Controller in January 2004. Prior to joining BioLife, he served as the Senior Vice President of Operations of E-Base Interactive, Inc., a software development company in upstate New York from January 2001 to November 2003. From January 2000 to December 2000, he served as a Project Manager with E-Base Interactive, Inc. From January 1998 to December 1999, Mr. O'Hara served as the Director of Operations of Dine-A-Mate, Inc. Subsequent to his position as the Director of Operations of Dine-A-Mate, he served as Head Project Manager where he managed multimillion dollar accounts. Mr. O'Hara earned his MBA from the State University of New York at Albany in 1993 and his Bachelor's Degree in Economics-Management from Ithaca College in 1991. 22 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, 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. Thomas Girschweiler joined the Board in 2003. Mr. Girschweiler has been engaged in corporate financing activities on his own behalf since 1996. From 1981 to 1996 he was an investment banker with Union Bank of Switzerland. Thomas Girschweiler was graduated at the Swiss Banking School. 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, 2003 all of these filing requirements have been satisfied. CODE OF ETHICS The Company has always encouraged its employees, including officers and directors to conduct business in an honest and ethical manner. Additionally, it has always been our policy to comply with all applicable laws and provide accurate and timely disclosure. We did not have a formal written code of ethics for the 2003 fiscal year due to the abundance of tasks associated with marketing our products. The Board has adopted formal written codes of ethics for both our executive officers and for our directors. Our codes of ethics are designed to deter wrongdoing and promote honest and ethical conduct and compliance with applicable laws and regulations. These codes also incorporate our expectations of our executives that 23 enable us to provide accurate and timely disclosure in our filings with the Securities and Exchange Commission and other public communications. Our codes of ethics is posted on our website, www.BioLifeSolutions.com. Any future changes or amendments to our code of ethics, and any waiver of our codes of ethics will also be posted on our website when applicable. NO AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT: The Company does not have an audit committee or an audit committee financial expert. The Company does not believe, based upon its present operations, that the failure to have such a committee or expert is material to the financial statements of the Company. 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 $100,000 during the fiscal year ended December 31, 2003 (collectively the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation ------------------------------- ----------------------------------------------- Awards Payouts ---------------------- ---------------------- Other Annual Restricted Name and Principal Fiscal Salary Bonus Compensation Stock Options/ LTIP All Other Positions Year ($) ($) ($) Award(s) SARs (#) Payouts Compensation - ------------------------- ------ ------- ------ ------------ ---------- --------- ------- ------------ John G. Baust, Ph.D 2003 240,000 -- 7,490 (1) -- -- -- -- President, Chief 2002 202,369 50,000 3,600 (1) -- 1,000,000 -- -- Executive Officer and 2001 180,000 -- 7,846 (1) -- 1,000,000 -- -- Director Robert VanBuskirk, PhD 2003 150,000 -- -- -- -- -- -- VP Business Development 2002 66,346 -- -- 150,000 -- -- 2001 -- -- -- -- -- -- -- Alan Rich 2003 150,000 -- -- -- 100,000 -- -- VP Sales & Marketing 2002 15,000 -- -- -- -- -- -- 2001 -- -- -- -- -- -- -- John M. Baust 2003 115,487 -- -- -- -- -- -- Director of Research 2002 66,857 -- -- -- -- -- -- 2001 60,221 -- -- -- -- -- --
(1) Represents auto allowance 24 OPTION/SAR GRANTS IN YEAR-ENDED DECEMBER 31, 2003 In 2003, the Company issued no options to purchase shares of Common Stock to its executive officers. AGGREGATED OPTION/SAR EXERCISES DURING THE 2003 FISCAL YEAR AND THE 2003 FISCAL YEAR OPTION/SAR VALUES The following table provides information related to options exercised by each of the Named Executive Officers during the 2003 fiscal year and the number and value of options held at December 31, 2003. The Company does not have any outstanding stock appreciation rights. None of the options were in the money at year ended December 31, 2003.
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. -- -- 1,152,000 1,400,000 -- -- Robert Van Buskirk, Ph.D. -- -- 75,000 100,000 -- -- Alan F. Rich -- -- 100,000 300,000 -- -- John M. Baust, Ph.D. -- -- -- -- -- --
- ------------ (1) The closing price for the Common Stock as reported on the OTC Bulletin Board on December 31, 2003 was $0.11. Value is calculated on the basis of the difference between the option exercise price and $0.11 multiplied by the number of shares of Common Stock underlying the option. EMPLOYMENT AGREEMENTS The Company has an employment agreement with its President and Chief Executive Officer which expires on June 30, 2004. 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 $600 per month. The Company also has an employment agreement with its Vice President, Sales and Marketing. The agreement, which expires October 31, 2004, 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. 25 CONSULTANTS At December 31, 2003, various consultants to the Company held exercisable warrants to purchase an aggregate of 2,537,410 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 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 Directors are not compensated for attending board meetings or 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 2,237,910 additional shares pursuant to stock options and warrants issued to him and/or affiliates. During the period ended December 2003, Breslow & Walker, LLP billed the Company approximately $79,000 for legal fees. 26 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ----------------------------------------------------------------------- The following table sets forth, as of March 30, 2004, certain information regarding the beneficial ownership of Common Stock and Series F and Series G 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 (1) Class (1) Common Stock John G. Baust 2,810,680 (2) 4.3% c/o BioLife Solutions, Inc. Suite 144, Science III SUNY Park Binghamton, NY 13902 Series G Preferred Stock 2.125 3.9% Common Stock Howard S. Breslow, Esq. 2,291,510 (3) 3.5% c/o Breslow & Walker, LLP 767 Third Avenue New York, NY 10017 Common Stock Roderick de Greef 3,897,300 (4) 6.0% c/o BioLife Solutions, Inc. Suite 144, Science III SUNY Park Binghamton, NY 13902 Series F Preferred Stock 1,000 8.3% Series G Preferred Stock 4 7.3% Common Stock Robert Van Buskirk 877,185 (5) * c/o BioLife Solutions, Inc. Suite 144, Science III SUNY Park Binghamton, NY 13902 Series G Preferred Stock 1 1.8% Common Stock Walter Villiger 15,400,000 (6) 23.6% Hurdnerstrasse 10 P.O. Box 1474 CH-8649 Hurden, Switzerland Series F Preferred Stock 5,000 41.7% Series G Preferred Stock 18 32.7% Common Stock Thomas Girschweiler 11,498,060 (7) 17.6% Wissmannstrasse 15 8057 Zurich, Switzerland Series F Preferred Stock 3,450 28.8% Series G Preferred Stock 10 18.1%
27 Common Stock Karl-Heinz Illenseer 3,750,000 (8) 5.7% c/o Banca Del Gottardo Schutzengasse 31 8001 Zurich, Switzerland Series G Preferred Stock 6 10.9% Common Stock Alan Rich 607,500 (9) 0.9% c/o BioLife Solutions, Inc. Suite 144, Science III SUNY Park Binghamton, NY 13902 Series G Preferred Stock 0.5 0.9% Common Stock Clariden Bank 2,000,000 (10) 3.1% Claridenstrasse 26 Postfach 5080 CH-8022 Zurich, Switzerland Series F Preferred Stock 2,000 16.7% Common Stock Richard Molinsky 2,500,000 (11) 3.8% c/o BioLife Solutions, Inc. Suite 144, Science III SUNY Park Binghamton, NY 13902 Series G Preferred Stock 4 7.3% Common Stock Francois Illenseer 2,500,000 (12) 3.8% c/o Banca Del Gottardo Schutzengasse 31 8001 Zurich, Switzerland Series G Preferred Stock 4 7.3% Common Stock Charlotte Illenseer 2,500,000 (13) 3.8% c/o Banca Del Gottardo Schutzengasse 31 8001 Zurich, Switzerland Series G Preferred Stock 4 7.3% Common Stock All officers and directors 11,334,175 17.3% as a group (six persons) Series F Preferred Stock All officers and directors 1,000 8.3% as a group (one person) Series G Preferred Stock All officers and directors 7.625 13.8% as a group (one person)
- ----------- (1) Shares of Common Stock subject to options and warrants currently exercisable or exercisable within 60 days are deemed outstanding 28 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) Includes 1,152,000 shares of Common Stock issuable upon the exercise of outstanding stock options under the Company's 1988 and 1998 Stock Option Plans, 664,063 shares of Common Stock issuable upon the conversion of Series G Preferred Stock, and 994,618 shares of Common Stock issuable upon the exercise of outstanding warrants. (3) 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. (4) Includes 400,000 shares of Common Stock issuable upon the conversion of Series F Preferred Stock, 1,250,000 shares of Common Stock issuable upon the conversion of Series G Preferred Stock, and 1,814,000 shares of Common Stock issuable upon the exercise of outstanding warrants. (5) Includes 75,000 shares of Common Stock issuable upon the exercise of outstanding stock options under the Company's 1988 and 1998 Stock Option Plans, 312,500 shares of Common Stock issuable upon the conversion of Series G Preferred Stock, and 489,685 shares of Common Stock issuable upon the exercise of outstanding warrants. (6) Includes 2,000,000 shares of Common Stock issuable upon the conversion of Series F Preferred Stock, 5,625,000 shares of Common Stock issuable upon the conversion of Series G Preferred Stock and 7,375,000 shares of Common Stock issuable upon the exercise of outstanding warrants. (7) Includes 1,380,000 shares of Common Stock issuable upon the conversion of Series F Preferred Stock, 3,125,000 shares of Common Stock issuable upon the conversion of Series G Preferred Stock and 6,455,000 shares of Common Stock issuable upon the exercise of outstanding warrants. (8) Includes 1,875,000 shares of Common Stock issuable upon the conversion of Series G Preferred Stock and 1,875,000 shares of Common Stock issuable upon the exercise of outstanding warrants. (9) Includes 100,000 shares of Common Stock issuable upon the exercise of outstanding stock options under the Company's 1988 and 1998 Stock Option Plans, 156,250 shares of Common Stock issuable upon the conversion of Series G Preferred Stock, and 351,250 shares of Common Stock issuable upon the exercise of outstanding warrants. (10) 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. (11) Includes 1,250,000 shares of Common Stock issuable upon the conversion of Series G Preferred Stock and 1,250,000 shares of Common Stock issuable upon the exercise of outstanding warrants. (12) Includes 1,250,000 shares of Common Stock issuable upon the conversion of Series G Preferred Stock and 1,250,000 shares of Common Stock issuable upon the exercise of outstanding warrants. (13) Includes 1,250,000 shares of Common Stock issuable upon the conversion of Series G Preferred Stock and 1,250,000 shares of Common Stock issuable upon the exercise of outstanding warrants. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN
Number of securities to be Number of securities issued upon exercise of Weighted average remaining available outstanding options exercise price of for future issuance (in Plan category (in thousands) outstanding options thousands) - ------------- -------------- ------------------- --------- Equity compensation plans approved by security holders 4,176 $.49 3,324 Equity compensation plans not approved by security holders 27,269 $.20 0 Total 31,445 $.24 3,324
29 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------------------------------------------------------- In 2004, the Company elected to not continue to directly engage in the SBIR program. Accordingly, based upon numerous discussions with the Small Business Administration and a review of applicable SBIR rules and regulations, the Company entered into a Research Agreement with Cell Preservation Services, Inc. ("CPSI") to outsource to CPSI all BioLife research currently funded through SBIR grants. CPSI is owned by Dr. John M. Baust, a recognized expert in cell preservation, a former employee of BioLife and the son of John G. Baust, the CEO of BioLife. Robert Van Buskirk, formerly Vice President, Business Development of BioLife and the person primarily responsible for processing applications for SBIR grants for BioLife, also has left the employ of BioLife and joined CPSI. The Research Agreement, which was negotiated on an arms length basis and designed to comply with the rules and regulations applicable to the performance of research with respect to SBIR grants, establishes a format pursuant to which CPSI will (a) take over the processing of existing applications for SBIR grants applied for by BioLife ("Current Projects"), (b) apply for additional SBIR grants for future research projects ("Future Projects"), (c) perform a substantial portion of the principal work to be done, in terms of (i) time spent, and (ii) research, in connection with Current Projects and Future Projects (the "Research"), and (d) utilize BioLife personnel as consultants with respect to such Research. In conjunction therewith BioLife has granted to CPSI a non-exclusive, royalty free license (with no right to sublicense) to use BioLife's technology solely for the purpose of conducting the research in connection with the Current Projects and Future Projects. Pursuant to the Research Contract, (x) BioLife will, among other matters, provide CPSI with (i) suitable facilities in which to conduct the Research, including basic research equipment and office equipment ("Facilities"), and (ii) management services ("Management Services"), and (y) CPSI will (i) accept assignment of Current Projects, (ii) be responsible for conducting Research with respect to Current Projects and Future Projects, (iii) as mutually agreed to by the parties and within the confines of the rules and regulations applicable to the performance of Research with respect to SBIR grants, utilize BioLife's personnel as consultants, (iv) provide suitable experienced personnel, including, without limitation, a principal investigator/program director, to conduct the Research, (v) comply with all federal laws, rules and regulations applicable to SBIR grants and file all necessary forms and reports with the federal agency awarding the SBIR grants, and (vi) utilize the Facilities and Management Services and pay BioLife fees with respect thereto. BioLife is to own all right, title and interest in and to any technology, inventions, designs, ideas, and the like (whether or not patentable) that emanates from the Current Projects, Future Projects and Research. 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 2,237,910 additional shares pursuant to stock options and warrants issued to him and/or affiliates. The Company incurred $79,000 and $204,452 in legal fees during the years ended December 31, 2003 and 2002, respectively, for services provided by Breslow & Walker, LLP. For the years ended December 31, 2003 and 2002, the Company also issued 282,910 and 500,000 warrants, exercisable at $0.08 and $0.25 per share, respectively, as partial consideration for services rendered by Breslow & Walker, LLP. At December 31, 2003 and 2002 accounts payable includes $67,356 and $21,339, respectively, due to Breslow & Walker, LLP. 30 PART V ITEM 13. EXHIBITS, LISTS 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 [ ]. (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 (6) 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) 10.8 Research Agreement dated March 15, 2004 between the Company and CPSI 31 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* 32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* (1) Incorporated by reference to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2000. (2) Incorporated by reference to the Company's Definitive Proxy Statement for the special meeting of 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. 31 (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 quarterly report on Form 8-k filed July 10, 2002. (6) Incorporated by reference to the Company's annual report on From 10-KSB for the year ended December 31, 2002. *Filed herewith (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 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES - ----------------------------------------------- December 31 2003 2002 ---- ---- Audit Fees $64,317 $65,875 Audit-related fees -- -- Tax fees 17,163 12,377 All other fees -- -- ------- ------- Total $81,480 $78,252 The Board of Directors pre-approves all audit and non-audit services to be performed by the Company's independent auditors. 32 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 Date: April 14, 2004 ------------------------------ 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 Date: April 14, 2004 -------------------------- John G. Baust, Ph.D. Director /s/ Roderick de Greef Date: April 14, 2004 -------------------------- Roderick de Greef Director /s/ Howard S. Breslow Date: April 14, 2004 -------------------------- Howard S. Breslow Director 33 EX-10 3 ex10-8.txt EX10-8 Exhibit 10.8 ------------ RESEARCH AGREEMENT, entered into as of the 15th day of March, 2004, by and between BIOLIFE SOLUTIONS, INC., a Delaware corporation having its principal place of business at SUNY Park Science 3, Suite 144, Binghamton, NY 13902 ("BioLife") and CELL PRESERVATION SERVICES, INC. a New York corporation having its principal place of business at 2 Court Street, Owego, NY 13827 ("CPSI"). W I T N E S S E T H: WHEREAS, BioLife specializes in (a) providing contract-based services for the development of cryopreservation processes and (b), based upon its core technology ("BioLife's Technology"), developing, manufacturing and marketing cryopreservation solutions (the "Solutions") that markedly improve the biological processing and preservation of human and mammalian cells and tissues; and WHEREAS, substantially all of the research conducted by BioLife is conducted in-house and funded through Small Business Innovative Research ("SBIR") grants from federal governmental agencies, including the National Institutes of Health ("NIH"); and WHEREAS, BioLife desires to outsource a substantial portion of its research, including the preparation and processing of applications for SBIR grants; and WHEREAS, CPSI specializes in providing contract-based research and development services; and WHEREAS, the parties wish to establish a format pursuant to which CPSI will (a) take over the processing of existing applications for SBIR grants applied for by BioLife and assigned to CPSI pursuant to this Agreement ("Current Projects"), (b) apply for additional SBIR grants for future research projects ("Future Projects") as maybe requested by BioLife, (c) perform a substantial portion of the principal work to be done, in terms of (i) time spent, and (ii) research, in connection with Current Projects and Future Projects (the "Research"), and (d) utilize BioLife personnel as consultants with respect to such Research; and WHEREAS, the parties intend that (a) this Agreement serve as a Master Agreement setting forth (i), in general, the obligations of the parties with respect to Current Projects and Future Projects, and (ii) the ownership of any technology, inventions, designs, ideas and the like emanating from the Current Projects, Future Projects and Research, and (b), at appropriate times, an addendum ("Addendum") to this Master Agreement be prepared with respect to each Current Project and Future Project setting forth (i) the assignment thereof from BioLife to CPSI, (ii) the Research to be performed by CPSI or by consultants, including BioLife personnel, with respect to such Current Project or Future Project, and (iii) the fees and other expenses to be paid to BioLife and others in connection with such Current Project or Future Project. 1 WHEREAS, BioLife is willing to grant to CPSI a limited license with respect to BioLife's Technology to enable CPSI to carry out the Research with respect to Current Projects and Future Projects; and WHEREAS, CPSI desires that with respect to each Current Project and Future Project, BioLife provide CPSI with (a) suitable facilities in which to conduct the Research, including basic research equipment and office equipment (including computers and software) and furniture suitable to enable CPSI to perform the Research ("Facilities") in compliance with all federal laws, rules and regulations, and (b) management/administrative/clerical/personnel and services ("Management Services") in connection with the performance of the Research; and WHEREAS, BioLife has a Current Project from the NIH titled "Hypothermic and Cryopreservation of Human Blood Vessels" (the "Pending Application"), which Pending Application BioLife wishes to assign herein to CPSI for the purpose of CPSI pursuing the grant with respect thereto and, thereafter, performing the Research required in connection with any grant awarded pursuant thereto; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, it is agreed as follows: 1. BioLife's Technology. (a) Description. A description of BioLife's Technology is set forth on Appendix A attached hereto and made a part hereof. As BioLife's Technology expands, addendums to Appendix A shall be attached hereto setting forth the new developments. (b) Grant of Limited License. BioLife hereby grants to CPSI, and CPSI hereby accepts from BioLife, a non-exclusive, royalty free license (with no right to sublicense others) to use the BioLife Technology solely for the purpose of conducting the Research in connection with the Current Projects (including the Pending Application) and Future Projects. (c) Delivery of BioLife Know How. BioLife shall provide CPSI with relevant know-how (including any documentation with respect thereto) to enable CPSI to apply BioLife's Technology to the Research required in connection with the Current Projects and Future Projects. 2. Obligations of the Parties. (a) Obligations of BioLife. BioLife shall: (i) Current Projects/Future Projects. From time to time (A) assign to CPSI applications with respect to Current Projects, and (B) request CPSI to make application for Future Projects and, in connection with any grants awarded pursuant thereto, provide personnel as consultants to CPSI), as may be mutually determined by the parties within the confines of the rules and regulations applicable to the performance of Research with respect to SBIR grants. (ii) Facilities. Provide CPSI with the Facilities. 2 (iii) Provision of Management Services. (A) Administrative/Clerical/Secretarial Personnel. Provide CPSI with administrative, clerical and secretarial personnel. (B) Management/Administrative Services. Provide CPSI with management and administrative services as set forth on Appendix B attached hereto and made a part hereof. (C) Maintenance of Books and Records. Prepare and maintain records pertaining to the execution of each Current Project and Future Project. (D) Utilities/Supplies/Etc. Provide utilities, telephone and fax services, office supplies, and other similar services as shall be necessary and appropriate to permit CPSI to perform the Services; (E) Housekeeping/Janitorial Services. Provide maintenance and repair of the facilities, including housekeeping and janitorial services. (b) Obligations of CPSI. CPSI shall: -------------------------------- (i) Current Projects/Future Projects. At the request of BioLife, (A) accept assignments of Current Projects, and (B) make application for Future Projects, and, in each case, use commercially reasonable best efforts to process the application with the applicable federal agency so as to maximize the possibility of a grant with respect thereto. (ii) Research. With respect to each Current Project and Future Project, (A) be responsible for conducting the Research with respect thereto, in accordance with the criteria set forth in the application therefor, and (B), as mutually agreed to by the parties and within the confines of the rules and regulations applicable to the performance of Research with respect to SBIR grants, utilize BioLife's personnel as consultants. (iii) Research Personnel. With respect to each Current Project and Future Project, provide suitable experienced personnel, including, without limitation, a Principal Investigator/Program Director, to conduct the Research with respect thereto. (iv) Compliance with Laws/Filing of Reports. With respect to each Current Project and Future Project, comply with all federal laws, rules and regulations applicable to SBIR grants; and file all necessary forms and reports with the federal agency awarding the SBIR grant. (v) Facilities and Management Services. With respect to each Current Project and Future Project, utilize the Facilities and Management Services. (vi) Payment of Expenses. With respect to each Current Project and Future Project, pay all of (A) CPSI's expenses in connection therewith, including, without 3 limitation, payments to BioLife for Solutions utilized in connection with the Research, and (B) BioLife's reasonable expenses in connection therewith, including reimbursement, if any, of expenses incurred by BioLife for BioLife personnel retained by CPSI as consultants, including, without limitation, travel expenses ("BioLife Expenses"). (vii) Technology. With respect to each Current Project and Future Project, identify patentable technology resulting from the Research; and create a path (excluding covering costs associated with executing patents, clinical trials, etc. on said technology), through its relationship with BioLife, that will facilitate bringing any new technology to market. (viii) Progress Reports. With respect to each Current Project and Future Project, prepare detailed quarterly progress reports for BioLife with respect to all Research. (ix) Access to Records. With respect to each Current Project and Future Project, permit BioLife, through its duly authorized representatives, to have access, during normal business hours and upon not less than three (3) days prior notice, to the books and records maintained by CPSI relating to the Research for the purpose of auditing the same. (x) Payment of Fees for Research, Facilities and Management Services. Pay to BioLife fees for (A) Research performed by BioLife, (B) use of the Facilities, and (C) Management Services. 3. Appendices. (a) Appendix A sets forth a description of BioLife Technology. (b) Appendix B sets forth the Management/Administrative Services to be provided by BioLife to CPSI. (c) Appendix C. With respect to each Current Project and Future Project, an Appendix C (consecutively numbered C-1, C-2, etc.), in the form attached hereto, shall be attached to this Agreement or the Addendum setting forth the grant title and number and the award date and performance period. Each Appendix C also shall (i) breakdown the amount of the award into its components (a) the amount attributable to direct costs (b) the amount of direct cost attributable to equipment, (c) net direct costs (direct costs less cost of equipment,) (d) indirect costs and (e) any fixed fee, and (ii) set forth (a) the fee to be paid to BioLife for the use of the Facilities, (b) the fee to be paid to BioLife for the Management Services, (c) estimated amounts, if any, to be paid to BioLife for BioLife Expenses and Solutions, and cost allocations for consultants. The amounts set forth on any Appendix C may be modified from time to time by the parties to reflect any adjustments made to estimates made by the parties or any agreed to changes made by the parties. 5. Intellectual Property Ownership. As between the parties, BioLife (a) is the owner of all right, title and interest in and to BioLife's Technology and the Solutions (collectively, "Intellectual Property"), and (b) shall own all right, title and interest in and to any technology, inventions, designs, ideas and the like (whether or not patentable) that emanates from the 4 Current Projects, Future Projects and Research. CPSI agrees to execute all documents, including, but not limited to assignments, that may be necessary to secure BioLife's ownership in the Intellectual Property. 6. The Pending Application. (a) Assignment of Pending Application. BioLife hereby assigns, sells, transfers and sets over (collectively, the "Assignment") to CPSI all of BioLife's right, title, benefit, privileges and interest in and to, and all of BioLife's burdens, obligations and liabilities in connection with, the Pending Application. CPSI hereby accepts the Assignment and assumes and agrees to observe and perform all of the duties, obligations, terms, provisions and covenants, and to pay and discharge all of the liabilities of BioLife to be observed, performed, paid or discharged from and after the date hereof, in connection with the Pending Application. BioLife represents and warrants to CPSI that BioLife has done nothing improper with respect to the Pending Application that would create any liability or cost to CPSI with respect thereto. (b) Allocation of Research Upon Award of Grant Under Pending Application. Upon the approval of the Pending Application and the award of a grant with respect thereto, the Research to be performed by CPSI, and others (including personnel of BioLife retained by CPSI as consultants) shall be as set forth on Appendix C-1 attached hereto and made a part hereof. (c) Fees to BioLife for Research, Facilities and Management Services. CPSI shall pay to BioLife the fees set forth on Appendix C-1 attached hereto and made a part hereof, for Research, the Facilities and Management Services in connection with any grant regarding the Pending Application. (d) Other Expenses. Appendix C-1 sets forth any other expenses (estimated or otherwise) to be paid by CPSI in connection with any grant pursuant to the Pending Application, including BioLife Expenses. (e) Equipment. To the extent that CPSI expends monies from the grant for the purchase of equipment, at any time after the completion of the Research with respect to the Pending Application, to the extent CPSI does not wish to retain ownership of such equipment, BioLife shall have the right to purchase such equipment from CPSI at its depreciated value at the time of such purchase. 7. Representations and Warranties. (a) By BioLife. BioLife hereby represents and warrants to CPSI as follows: (i) BioLife has all necessary power and authority to enter into, and be bound by the terms of, this Agreement, to grant the rights, licenses, and privileges granted to CPSI herein, and to perform all of its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by BioLife. (ii) This Agreement constitutes the legal, valid, and binding obligation of BioLife, enforceable against BioLife in accordance with its terms, except as such enforceability 5 may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (iii) The execution of this Agreement by BioLife and the consummation of the Research contemplated hereby does not conflict with or result in a default under or breach of (A) BioLife's Articles of Incorporation or By-laws or other organizational documents; (B) any agreement, indenture, mortgage, contract or instrument to which BioLife is bound or by which any of its properties or assets is subject; (C) any order, writ, injunction, decree or judgment of any court or governmental agency applicable to BioLife or to which any of its assets is bound; or (D) any law, rule, or regulation applicable to BioLife or by which any of its assets is bound. (iv) (A) BioLife owns, or possesses adequate licenses or other rights to, all of the Intellectual Property, free and clear of all liens, encumbrances, security interests, or rights of any other party whatsoever, (B) the Intellectual Property is not the subject of any pending or threatened litigation, claim, or assessment contesting BioLife's ownership of (or right to use) the Intellectual Property, and (C) CPSI's use of the Intellectual Property as contemplated herein, will not violate or infringe upon any copyright, trademark, patent, or any other intellectual property right or proprietary right of any person. (b) By CPSI. CPSI hereby represents and warrants to BioLife as follows: (i) CPSI has all necessary power and authority to enter into, and be bound by the terms of, this Agreement, to accept the rights, licenses, and privileges granted by BioLife herein, and to perform all of its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by CPSI. (ii) This Agreement constitutes the legal, valid, and binding obligation of CPSI, enforceable against CPSI in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (iii) The execution of this Agreement by CPSI and the consummation of the Research contemplated hereby does not conflict with or result in a default under or breach of (A) CPSI's Articles of Incorporation or By-laws or organizational documents; (B) any agreement, indenture, mortgage, contract or instrument to which CPSI is bound or by which any of its properties or assets is subject; (C) any order, writ, injunction, decree or judgment of any court or governmental agency applicable to CPSI or to which any of its assets is bound; or (D) any law, rule, or regulation applicable to CPSI or by which any of its assets is bound. 6 8. Indemnification. (a) Scope. Each party to this Agreement (the "Indemnifying Party") will indemnify, defend, and hold harmless the other party and such other party's officers, managers, directors, shareholders, members, agents, and employees (each, an "Indemnified Party"), from and against, for and in respect of, any and all losses, liabilities, claims, damages, deficiencies, obligations, and expenses (including costs of investigation and defense and reasonable attorney's fees and expenses) suffered or incurred by an Indemnified Party which arise from or are related to any breach by the Indemnifying Party of any of its representations, warranties, or covenants contained in this Agreement or in any other document, writing or instrument delivered pursuant to this Agreement. (b) Procedures. If a claim is made against an Indemnified Party for which it is entitled to indemnification hereunder, then such Indemnified Party shall give notice of such claim to the Indemnifying Party within a reasonable time after the assertion thereof, but failure to so notify the Indemnifying Party shall not relieve it from any liability which it may have to the Indemnified Party hereunder unless such omission materially prejudices the Indemnifying Party's ability to defend against such claim. If a claim is made against an Indemnified Party and it notifies the Indemnifying Party as herein provided, then the Indemnifying Party, subject to the provisions set forth herein, shall be entitled to participate at its own expense in the defense thereof or, if it so elects within a reasonable time after receipt of such notice, to assume the defense thereof, which defense shall be conducted by counsel chosen by it and reasonably satisfactory to the Indemnified Party defendant or defendants in any suit so brought. The Indemnified Party will have the right to employ its own counsel in any such action, but the fees, expenses, and other charges of such counsel will be at the expense of such Indemnified Party unless (i) the employment of counsel by the Indemnified Party has been authorized in writing by the Indemnifying Party, (ii) the Indemnified Party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the Indemnifying Party, (iii) a conflict or potential conflict exists (based on advice of counsel to the Indemnified Party) between the Indemnified Party and the Indemnifying Party (in which case the Indemnifying Party will not have the right to direct the defense of such action on behalf of the Indemnified Party), or (iv) the Indemnifying Party has not employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements, and other charges of counsel will be at the expense of the Indemnifying Party. It is understood that the Indemnifying Party shall not, in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys, in the aggregate, for the Indemnified Party and controlling persons thereof. (c) Limitation on Damages. Anything herein to the contrary notwithstanding, neither party will be liable to the other for indirect, incidental, punitive, or consequential damages or the loss of anticipated business or profits arising from any breach of this Agreement, even if notice is given of the possibility of such damages. 7 9. Term and Termination. (a) Term. The term of this Agreement shall be three (3) years commencing on the date hereof (the "Term"). The Term automatically shall be renewed for successive one-year terms unless written notice of non-renewal is given by either party at least sixty (60) days prior to the end of the then Term. (b) Termination by Either Party. Notwithstanding anything to the contrary contained herein, either party (the "Terminating Party") shall have the right to cancel this Agreement at any time upon the occurrence of any of the following events: (i) the other party's failure to cure any material breach of this Agreement within thirty (30) days after written notification of such breach by the Terminating Party; (ii) the other party engaging in any act or failure to act related to the subject matter of this Agreement which is determined by a court of competent jurisdiction to be illegal or an unfair or deceptive trade practice in violation of applicable law or accepted standards of ethical conduct; (iii) if there shall be filed against the other party any petition or application for relief under the Bankruptcy Code which is not discharged or bonded to the satisfaction of the Terminating Party within sixty (60) days, or if the other party consents to any order for relief under the Bankruptcy Code; (iv) if the other party ceases functioning as a going concern; or if the other party makes a general assignment for the benefit of creditors or calls a meeting of creditors for the purpose of obtaining any financial accommodation or concession; or if a receiver or trustee is appointed for all or any portion of the other party's assets; or if the other party files any petition or application for relief under the Bankruptcy Code; or (v) by mutual written consent of the parties. (c) Termination by BioLife BioLife shall have the right to cancel this agreement in the event of the sale of all or substantially all of its businesses and assets, the merger of BioLife with or into another entity that results in a change of more than fifty percent (50%) of the equity ownership of BioLife, or the sale of all or substantially all of the outstanding equity of BioLife or the issuance of new equity that results in the holders thereof obtaining more than fifty percent (50%) of the outstanding equity of BioLife. (d) Effect of Termination. (i) In addition to any other rights or remedies a party may have hereunder, upon any termination or expiration of this Agreement (A) CPSI shall (1) cease conducting Research and shall discontinue all uses of the Intellectual Property, and (2) pay to BioLife any monies due and owing to BioLife pursuant to the terms hereof, and (B) BioLife shall have the option, exercisable concurrently the expiration or termination of this Agreement by giving written notice of such exercise to CPSI, to repurchase any Solutions then in the possession of CPSI 8 (the "Available Solutions"), at the prices originally billed to CPSI with deductions for moneys due or to become due to BioLife under this Agreement. (ii) If within twenty (20) days after expiration or termination of this Agreement BioLife does not exercise the repurchase option with respect to all of the Available Solutions, then CPSI shall immediately destroy and dispose of all Available Solutions. 10. Confidential Information. (a) In General. CPSI acknowledges that by reason of its relationship with BioLife under this Agreement it will have access to certain Confidential Information of BioLife, the value of which would be impaired if such Confidential Information were disclosed to third parties. CPSI may not disclose the terms of this Agreement to any third party without the consent of BioLife; provided, however, that such disclosure may be made to the extent required by law. As used herein the term "Confidential Information" shall mean any information disclosed that is confidential to BioLife, including, without limitation, all ideas, concepts, structures, specifications, documentation, designs, techniques, drawings, hardware, software, data, prototypes, processes, technology, know how, methods of design and/or development, inventions, and/or other technical, business, marketing, planning information and/or data regardless of how such information is transmitted (including orally, and/or in documentary and/or machine readable form, and/or in the form of samples from which the information may be derived). (b) Restrictions on Use and Disclosure. CPSI shall only reproduce, use, and/or disclose Confidential Information to the extent necessary for the purposes of defining, considering, and performing work in compliance with this Agreement, and even then only to those persons who (i) have a "need to know" in connection with the activities contemplated by this Agreement and (ii) have obligations to maintain the confidentiality of such information that are comparable in scope to those set forth hereunder. (c) Exceptions. The following information shall not be deemed Confidential Information and shall not be subject to the restrictions of this Section 9: information that (i) is or becomes a matter of public knowledge though no fault of or action by CPSI; (ii) was rightfully in CPSI's possession prior to disclosure by BioLife; (iii) subsequent to disclosure, is rightfully obtained by CPSI from a third party who is lawfully in possession of such information without restriction; (iv) is independently developed by CPSI without resort to BioLife's Confidential Information; or (v) is required by law or judicial order to be disclosed, provided that, prior to such disclosure, CPSI has furnished written notice to BioLife of CPSI's intent to disclose the information in order to afford BioLife a reasonable opportunity to seek a protective order. Nothing in this agreement shall require CPSI to maintain the confidentiality of information that, upon the advice of counsel, CPSI believes it is required by law to disclose. (d) Return. Whenever requested by BioLife, CPSI shall immediately return to BioLife or, at BioLife's option, destroy any and all manifestations of the Confidential Information that BioLife may designate. CPSI's obligations under this Section shall survive for a period of two (2) years from the date of termination of this Agreement. 9 (e) Ownership. All Confidential Information of BioLife shall remain the property of BioLife. CPSI's duty to protect BioLife's Confidential Information commences upon CPSI's receipt of such Confidential Information. 11. Miscellaneous (a) Headings. Caption and section headings used in this Agreement are for convenience only; they are not a part of this Agreement and shall not be used in construing it. The parties are sophisticated and have had the opportunity to review this Agreement with their respective counsel. Accordingly, the terms of this Agreement shall be construed in accordance with their fair meaning, and there shall be no presumption applied against any party for having drafted or participated in drafting any such terms. (b) Successors and Assigns. Subject to paragraph (i), this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. (c) No Third Party Beneficiaries. Nothing in this Agreement shall confer any rights or remedies under or by reason of this Agreement on any persons other than the parties and their respective successors and permitted assigns. Nothing in this Agreement shall relieve or discharge the obligation or liability of any third party to any party, nor shall any provision give any third party any right of subrogation or action over or against any party. (d) Independent Contractors. The parties are independent contractors and not partners, joint venturers, or otherwise affiliated, and neither has any right or authority to bind the other in any way or to hold itself out as having such right or authority. (e) Employees and Contractors. Employees and contractors of either party who perform services in connection with this Agreement shall be bound by the confidentiality provisions of this Agreement. At the request of either party, the other party will provide adequate evidence that such persons are in fact employees or contractors of that other party and that they are subject to the terms of this Agreement. (f) Severability. If any provision of this Agreement or the application of such provision to any party or circumstance is held invalid or unenforceable, the remainder of this Agreement and the application of such provision to persons or circumstances other than those to which it is held invalid or unenforceable shall not be affected thereby. In addition, to the greatest extent permitted by law, the invalid or unenforceable provision shall be replaced with a valid and/or enforceable provision that as nearly as possible effects the parties' intent. (g) Additional Acts. Each party agrees to execute and deliver, from time to time, such additional documents and instruments and to perform such additional acts as may be necessary or appropriate to effectuate, carry out, and perform all of the terms, provisions, and conditions of this Agreement and the transactions contemplated hereby. (h) Force Majeure. If any act of a government, act of terrorism, war conditions, labor disputes, strikes, fire, flood, or other act of God, or any other cause or condition beyond a party's control prevents any party from performing in accordance with the provisions 10 of this Agreement, such nonperformance shall not be considered a breach or default so long as the conditions prevail. (i) Assignment. Neither party may transfer, assign, convey, sell, encumber, or in any way alienate ("Transfer") all or any part of its rights or obligations under this Agreement except to an entity that is capable of assuming and agrees in writing to assume all of the transferring party's obligations under this Agreement. Transfers in violation of this paragraph (i) or in violation of any other provision of this Agreement shall be void ab initio and of no effect whatsoever. (j) Notices. Any notice required or permitted to be given by one party to another in connection with this Agreement shall be in writing and shall be deemed given when made (except as otherwise provided herein) if delivered personally, or sent by electronic mail, or sent by registered or certified mail, postage prepaid, or by an internationally recognized overnight courier with tracking capability, addressed as follows: For: BioLife Solutions, Inc. SUNY Park Science 3 Suite 144 Binghamton, NY 13902 Attn: John G. Baust Email Address: BAUSTCRYO@aol.com ----------------- Tel. No. (607) 777-2801 With a copy to: Howard S. Breslow, Esq. Breslow & Walker, LLP 100 Jericho Quadrangle Jericho, NY 11753 Email Address: hbreslow@breslowwalker.com -------------------------- For: Cell Preservations Services, Inc. 2 Court Street Owego, NY 13827 Attn: John M. Baust Email Address: jmbaust@cellpreservation.com ---------------------------- Tel. No.: With a copy to: Paul Prasarn, Esq. Hinman, Howad & Kattlel, LLP 80 Exchange Street Binghamton, NY 13902-5250 Email Address: pprasarn@hhk.com ---------------- Tel. No.: (607) 231-6721 11 Any change of address shall be made by notice given pursuant to this paragraph. (k) Amendment. This Agreement may not be modified or amended except in a writing signed by both parties. (l) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. (m) Remedies. The remedies under this Agreement are cumulative and shall not exclude any other remedies to which a person or entity may be lawfully entitled. (n) Governing Law. This Agreement shall be enforced, governed by, and construed in accordance with the laws of the State of New York. (o) Exhibits. All exhibits attached hereto and are hereby incorporated into and made a part of this Agreement. To the extent there is conflict between the terms of this Agreement and any exhibit, the terms of this Agreement shall control. (p) Complete Agreement. This Agreement constitutes the complete and exclusive statement of agreement between the parties with respect to the subject matter herein and replaces and supersedes all prior and contemporaneous written and oral agreements, negotiations, discussions, and statements by and between the parties. BIOLIFE SOLUTIONS, INC. CELL PRESERVATIONS SERVICES, INC. By: /s/ John G. Baust By: /s/ John M. Baust ---------------------------- ----------------------------- John G. Baust, President John M. Baust, President 12 APPENDIX A ---------- Description of BioLife Technology: - ---------------------------------- BioLife Solutions has pioneered the next generation of preservation solutions designed to maintain the viability and health of human and mammalian cellular matter and tissues during freezing, transportation and storage. Based on the Company's proprietary bio-packaging technology and a patented under standing 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 HypoThermosol(R) and CryoStor(TM) products that the Company markets today are a significant step forward in meeting these needs. The company's proprietary preservation solutions, consisting of HypoThermosol(R), CryoStor(TM) and GelStor(TM), form a TECHNOLOGY PLATFORM for BioLife. BioLife's line of proprietary preservation solutions, based on the company's patented HypoThermosol(R) technology, provides customers with a range of generic and tissue-specific preservation solutions to improve clinical outcomes by allowing cells to rapidly return to optimum functionality and to more rapidly repopulate. HypoThermosol(R) also allows human and mammalian cells and tissues to be preserved for longer periods, significantly expanding the market for cell therapy and tissue engineering applications. SCOPE OF CUSTOM PRODUCT DEVELOPMENT PROJECTS Although the company's proprietary HypoThermosol(R) preservation media enhances the viability of all mammalian cells at low temperatures, different human and mammalian cell structures and tissue respond differently to cold and thus the company has the opportunity to refine HypoThermosol(R) to address specific applications of tissue engineering and specific cell varieties. Research contracts based around BioLife's core HypoThermosol(R) technology include work on optimizing preservation media for different human and mammalian cellular and tissue applications and more fundamental research into cell and tissue response to low temperature exposure and required preservation as related to the HypoThermosol(R) technology. PATENTS RELATED TO BIOLIFE'S TECHNOLOGY Solutions for Tissue Preservation and Bloodless Surgery and Methods using same. US Patent No: 5,405,742. Issued: Apr. 11, 1995. Solutions for Tissue Preservation and Bloodless Surgery and Methods using same. US Patent No: 5,514,536. Issued: May 7, 1996. 13 Inclusion of Apoptotic Regulators in Solutions for Cell Storage at Low Temperatures. US Patent No. 6,045,990. Issued: April 4, 2000. Normothermic and Hypothermic Maintenance and Preservation of Cells, Tissues, and Organs in Gel-based Media. US Patent No: 6,632,666. Issued: October 10, 2003. 14 APPENDIX B ---------- Management/Administrative Services: - ----------------------------------- 1. Clerical Functions a. Create and maintain physical and electronic files for corporate documents b. Telecommunications (shared multi-line phone system) c. Mail (USPS, FedEx) d. Supplies (ordering and inventory) e. Document Control f. "Housekeeping" g. Computer Back-up (server oversight) h. Human Resources i. Calendar and scheduling j. Travel Arrangements k. Patent Attorney interface l. Support Administrative and Research Staff m. Equipment Tracking n. Powerpoint Presentations (copy and log) o. Assist in maintenance of library 2. Accounting Functions a. Assist in establishing and implementing the Company's accounting procedures, policies and internal financial controls b. Create monthly and quarterly financial statements for internal purposes c. Create budgeting/forecasting and financial reporting packages for the executive management d. Oversee the Company's A/R and A/P functions e. Oversee the Company's payroll and benefits programs f. Assist with and oversee the annual financial audit and quarterly reviews by the Company's auditors g. General accounting for the Company's research grants program 3. Customer Service Functions a. Schedule and coordinate scientific training workshops b. Schedule and coordinate seminars and presentations at conferences c. Web Master (Design and Updates) d. Corporate shows and meeting preparations e. Information Packets (Compiling and Sending) 15 APPENDIX C ---------- Allocation of Funds: - -------------------- Grant Title and Number: [list] Award Date and Period: [list]
Award Amount Year Direct Costs: $ Direct Costs Applicable to Equipment: $ Net Direct Costs: $ Indirect Costs: $ Fixed Fee: $ Fee to BioLife for Use of Facilities: $ - ------------------------------------ (40% of grant net direct costs - payable from indirect costs and fixed fee) --------------------------------------------------------------------------- Fee to BioLife for Management Services: $ - -------------------------------------- (22% of grant net direct costs - payable from indirect costs and fixed fee) --------------------------------------------------------------------------- Payments to BioLife for: - ------------------------ Solutions (As per grant budget - payable from net direct costs) $ BioLife Expenses (As per grant budget - payable from net direct costs) $
Consulting: - ----------- Percent Effort Allocation of Name Role on Project Indirect Costs - --------- ---- -------------- -------------- [list] 16 APPENDIX C-1 ------------ Allocation of Funds: - -------------------- Grant Title and Number: Hypothermic and Cryopreservation of Human Blood Vessels Award Date and Duration: February 2004, 2 Years
Award Amount Y1 Y2 Direct Costs: $ 278,968 208,633 Direct Costs Applicable to Equipment: $ 75,660 0 Net Direct Costs: $ 203,308 208,633 Indirect Costs: $ 144,349 148,129 Fixed Fee: $ 20,000 20,000 Fee to BioLife for Use of Facilities: $ 81,323 83,453 - ------------------------------------ (40% of grant net direct costs - payable from indirect costs and fixed fee) --------------------------------------------------------------------------- Fee to BioLife for Management Services: $ 44,727 45,899 - -------------------------------------- (22% of grant net direct costs - payable from indirect costs and fixed fee) --------------------------------------------------------------------------- Payments to BioLife for: - ------------------------ Solutions (As per grant budget payable from net direct costs) $ 15,000 15,000 BioLife Expenses (As per grant budget payable from net direct costs) $ 10,000 10,000
Consulting: - ----------- Percent Effort Allocation of Name Role on Project Indirect Cost - --------- ---- -------------- -------------- A. Mathew Scientist 10% $5,000 J.G. Baust Development 10% $10,000 17 EX-31 4 ex31.txt EXHIBIT 31 EXHIBIT 31 CERTIFICATION I, John G. Baust, certify that: 1. I have reviewed this annual report on Form 10-KSB of BioLife Solutions, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and I have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, 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 report is being prepared; b) intentionally omitted; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: April 14, 2004 /s/ John G. Baust ------------------------------ John G. Baust, Ph.D. Chief Executive Officer and Chief Financial Officer EX-32 5 ex32.txt EXHIBIT 32 EXHIBIT 32 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, 2003 (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, 2004 /s/ John G. Baust ----------------------------- John G. Baust, Ph.D. Chief Executive Officer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----