10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

———————

ü	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
	ACT OF 1934
For the quarterly period ended: September 30, 2008
or
	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
	ACT OF 1934
For the transition period from: _____________ to _____________

Commission File Number: 0-18170

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BioLife Solutions, Inc.

(Exact name of registrant as specified in its charter)

———————

Delaware	94-3076866
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

3303 Monte Villa Parkway, Suite 310, Bothell, WA  98021

(Address of Principal Executive Office) (Zip Code)

(425) 402-1400

(Registrant’s telephone number, including area code)

———————

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.			ü	Yes		No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer		Accelerated filer
Non-accelerated filer	(Do not check if a smaller	Smaller reporting company			ü
	reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
				Yes	ü	No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.   The registrant had 69,639,854 shares of Common Stock, $0.001 par value per share, outstanding as of October 31, 2008.

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BIOLIFE SOLUTIONS, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2008

TABLE OF CONTENTS

PART I.  FINANCIAL INFORMATION

PART II.

OTHER INFORMATION

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PART I.  FINANCIAL INFORMATION

Item 1.

Financial Statements

BioLife Solutions, Inc.

Balance Sheets
(unaudited)

	September 30,				December 31,
	2008				2007
Assets
Current assets
Cash and cash equivalents		$	85,070			$	56,497
Accounts receivable, trade, net of allowance for doubtful accounts of $5,000 at both September 30, 2008 and December 31, 2007			362,145				300,505
Inventories			587,726				99,062
Prepaid expenses			133,257				113,514
Total current assets			1,168,198				569,578
Property and equipment
Leasehold improvements			––				42,448
Furniture and computer equipment			105,418				93,425
Manufacturing and other equipment			210,558				180,197
Subtotal			315,976				316,070
Less: Accumulated depreciation and amortization			(181,582	)			(203,380	)
Net property and equipment			134,394				112,690
Deferred financing costs, net			––				43,750
Total assets		$	1,302,592			$	726,018
Liabilities and Stockholders’ Equity (Deficiency)
Current liabilities
Accounts payable		$	654,625			$	97,138
Accrued expenses			265,879				233,012
Accrued interest, related parties			––				107,325
Deferred revenue			109,583				8,333
Total current liabilities			1,030,087				445,808
Long term liabilities
Promissory notes payable, related parties			4,463,127				2,750,000
Accrued interest, related parties			193,778				––
Total liabilities			5,686,992				3,195,808
Commitments and Contingencies
Stockholders' equity (deficiency)
Common stock, $0.001 par value; 100,000,000
shares authorized, 69,639,854 and 69,606,520 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively			69,640				69,607
Additional paid-in capital			42,184,559				42,128,356
Accumulated deficit			(46,638,599	)			(44,667,753	)
Total stockholders' equity (deficiency)			(4,384,400	)			(2,469,790	)
Total liabilities and stockholders' equity (deficiency)		$	1,302,592			$	726,018

See accompanying notes.

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BioLife Solutions, Inc.

Statements of Operations
(unaudited)

	Three-month Period Ended September 30,						Nine-month Period Ended September 30,
	2008			2007			2008			2007
Revenue
Product sales	$	296,620		$	226,705		$	869,716		$	636,043
Licensing revenue		11,250			13,750			33,750			15,417
Total revenue		307,870			240,455			903,466			651,460
Cost of product sales		133,770			73,958			519,532			250,315
Gross margin		174,100			166,497			383,934			401,145
Operating expenses
Research and development		94,133			79,984			308,813			275,728
Sales and marketing		80,400			170,360			252,900			544,377
General and administrative		481,771			437,275			1,459,731			1,412,257
Manufacturing start-up costs		106,294			198,491			106,294			198,491
Total  operating expenses		762,598			886,110			2,127,738			2,430,853
Operating loss		(588,498	)		(719,613	)		(1,743,804	)		(2,029,708	)
Other income (expenses)
Interest income		1,052			3,616			5,791			7,607
Other income		––			97			10,495			1,497
Interest expense		(75,379	)		(36,324	)		(199,579	)		(63,378	)
Amortization of deferred financing costs		––			(9,375	)		(43,750	)		(21,875	)
Total other income (expenses)		(74,327	)		(41,986	)		(227,043	)		(76,149	)
Net Loss	$	(662,825	)	$	(761,599	)	$	(1,970,847	)	$	(2,105,857	)
Basic and diluted net loss per common share	$	(0.01	)	$	(0.01	)	$	(0.03	)	$	(0.03	)
Basic and diluted weighted average common shares used to calculate net loss per common share		69,639,854			69,606,520			69,628,865			69,311,861

See accompanying notes.

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BioLife Solutions, Inc.

Statements of Cash Flows
(unaudited)

	Nine-month Period Ended September 30,
	2008			2007
Cash flows from operating activities
Net loss	$	(1,970,847	)	$	(2,105,857	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation		20,722			23,543
Amortization of deferred financing costs		43,750			21,875
Share-based compensation expense		53,903			83,844
Change in operating assets and liabilities
(Increase) Decrease in
Accounts receivable, trade		(61,640	)		(110,999	)
Inventories		(488,664	)		(156,019	)
Prepaid expenses and other current assets		(19,742	)		(92,422	)
Increase (Decrease) in
Accounts payable		557,487			112,015
Accrued expenses		32,867			118,290
Accrued interest, related parties		199,579			58,805
Deferred revenue		101,250			19,583
Net cash used in operating activities		(1,531,335	)		(2,027,342	)
Cash flows from investing activity
Purchase of property and equipment		(42,425	)		(87,646	)
Net cash used in investing activity		(42,425	)		(87,646	)
Cash flows from financing activities
Decrease in restricted cash		––			190,837
Proceeds from promissory notes payable, related parties		1,600,000			2,750,000
Principal payments on note payable		––			(197,477	)
Proceeds from exercise of options		2,333			––
Collection of stock subscriptions receivable		––			7,305
Net cash provided by financing activities		1,602,333			2,750,665
Net increase in cash and cash equivalents		28,573			635,677
Cash and cash equivalents - beginning of period		56,497			118,674
Cash and cash equivalents - end of period	$	85,070		$	754,351
Non-cash items:
Transfer of accrued interest to promissory notes payable	$	113,127		$	––
Stock issued in consideration for financing fees related to Promissory notes payable	$	––		$	75,000

See accompanying notes.

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BioLife Solutions, Inc.

Notes to Financial Statements
(unaudited)

1.  Nature of the Business

BioLife Solutions, Inc. ("BioLife” or the “Company”) develops and markets patented biopreservation media products for cells, tissues, and organs. The Company’s proprietary HypoThermosol^® and CryoStor^™ platform of hypothermic storage, transport, and cryopreservation media products are marketed to cell therapy companies, pharmaceutical companies, cord blood banks, hair transplant surgeons, and suppliers of cells to the toxicology testing and diagnostics markets.  All of its products are serum-free and protein-free, fully defined, and are manufactured under current Good Manufacturing Practices using only USP or the highest available grade components.  

The discoveries made by the Company’s scientists relate to how cells, tissues, and organs respond to the stress of hypothermic storage, cryopreservation, and the thawing process enabled the formulation of truly innovative biopreservation media products that protect biologic material from preservation related cellular injury, much of which is not apparent immediately post-thaw.   This enabling technology provides significant improvement in post-preservation viability and function of biologic material.  The yield improvement can reduce research, development, and commercialization costs of new cell and tissue based clinical therapies.

2.  Financial Condition

On January 11, 2008, the Company entered into a Secured Convertible Multi-Draw Term Loan Facility Agreement with each of Thomas Girschweiler and Walter Villiger (the “Investors”), pursuant to which each Investor extended to the Company a secured convertible multi-draw term loan facility (the “Facility”) of $2,500,000, which Facility (a) incorporates (i) a refinancing of then existing indebtedness of the Company to the Investor and accrued interest thereon, in the aggregate amount of $1,431,563.30, (ii) a then current advance of $300,000, and (iii) a commitment to advance to the Company, from time to time, additional amounts up to a maximum of $768,436.70, (b) bears interest at the rate of 7% per annum on the principal balance outstanding from time to time, (c) is evidenced by a secured convertible multi-draw term loan note (the “Multi-Draw Term Loan Note”), due and payable, together with accrued interest thereon, the earlier of (i) January 11, 2010, or (ii) an Event of Default (as defined in the Multi-Draw Term Loan Note), (d) if outstanding at the time of any bona fide equity financing of the Company of at least two Million Dollars ($2,000,000) (a “Financing”), at the option of the Investor, may be converted into that number of fully paid and non-assessable shares or units of the equity security(ies) of the Company sold in the Financing (“New Equity Securities”) as is equal to the quotient obtained by dividing the principal amount of the Facility outstanding at the time of the conversion plus accrued interest thereon by 85% of the per share or per unit purchase price of the New Equity Securities, and (e) is secured by all of the Company’s assets.  As of September 30, 2008, the Company, contingent on the approval of the Investors, could access an aggregate of an additional $536,873 in capital under the Multi-Draw Term Loan Facility Agreements.  

On October 20, 2008, each Facility was increased by $2,000,000 to $4,500,000 (an aggregate of $9,000,000). On October 24, 2008, the Company received an additional $600,000 in total from the Investors pursuant to the Facility.  The Company believes that continued access to the Multi-Draw Term Loan Note, in combination with cash generated from operations, will provide sufficient funds through at least the next twelve months. However, the Company would require additional capital in the immediate short term if the Company’s ability to draw on the Multi-Draw Term Loan Note be restricted or terminated. Other factors that would negatively impact the Company’s ability to finance its operations include (i) significant reductions in revenue (ii) increased capital expenditures (iii) significant increases in cost of goods and operating expenses or; (iv) an adverse outcome resulting from current litigation. The Company expects that it may need additional capital to reach a sustainable level of positive cash flow.  Although the Investors who have provided the Multi-Draw Term Loan Note have historically demonstrated a willingness to grant access to the Facility, there is no assurance they will continue to do so in the future.  If the Investors were to become unwilling to provide access to additional funds through the Multi-Draw Term Loan Note, the Company will need to find immediate additional sources of capital and there can be no assurance that such capital would be available at all, or if available, that the terms of such financing would not be dilutive to other stockholders. If the Company is unable to secure additional capital as circumstances require, it may not be able to continue its operations.

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.

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3.  Summary of Significant Accounting Policies

Basis of Presentation

The unaudited financial statements have been prepared by the Company, according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted.

In the opinion of management, the accompanying unaudited financial statements for the periods presented reflect all adjustments, which are normal and recurring, necessary to fairly state the financial position, results of operations and cash flows.  These unaudited financial statements should be read in conjunction with the audited financial statements included on Form 10-KSB for the fiscal year ended December 31, 2007 filed with the Securities and Exchange Commission (SEC).

Reclassifications

Certain prior period amounts in the financial statements have been reclassified to conform to current period presentation.  There has been no impact on previously reported net loss or shareholders’ equity.

Recent Accounting Pronouncements

In May 2008, the FASB issued FASB FSP Accounting Principles Board (“APB”) (“FSP APB 14-1”), “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).”  FSP APB 14-1 applies to convertible debt instruments that, by their stated terms, may be settled in cash (or other assets) upon conversion, including partial cash settlement of the conversion option.  FSP APB 14-1 requires bifurcation of the instrument into a debt component that is initially recorded at fair value and an equity component.  The difference between the fair value of the debt component and the initial proceeds from issuance of the instrument is recorded as a component of equity.  The liability component of the debt instrument is accreted to par using the effective yield method; accretion is reported as a component of interest expense.  The equity component is not subsequently re-valued as l ong as it continues to qualify for equity treatment.  FSP APB 14-1 must be applied retrospectively to previously issued cash-settleable convertible instruments as well as prospectively to newly issued instruments.  FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  Though the Company does not believe FSP APB 14-1 will have an effect on its current financial position, the Company is currently evaluating the requirements of FSP APB 14-1 with respect to its recent convertible debt financing (see Note 2 above) and has not yet determined the impact on the Company’s financial statements.

Manufacturing Start-up Costs

During the third quarter of 2007, as a result of relocating the Company from Owego, NY to Bothell, WA, the Company decided to outsource its manufacturing and entered into a contract with a Contract Manufacturing Organization (“CMO”).  One-time start-up costs related to the outsourcing of its manufacturing were expensed as incurred and amounted to $198,490 for the period ended September 30, 2007.  In the third quarter of 2008, in order to lower its cost of product sales, based on anticipated future sales volume, the Company has decided to transition to internal manufacturing and maintain its relationship with its CMO as a contingency for additional production capacity.  One-time start-up costs related to the transition to internal manufacturing were expensed as incurred and amounted to $106,294 for the period ended September 30, 2008.

4.  Inventories

	September 30, 2008			December 31, 2007
Product, Finished Goods		$	264,405		$	89,242
Product, Work in Progress			305,682			––
Raw Materials			17,639			9,820
Total Inventory		$	587,726		$	99,062

5.  Share-based Compensation

At September 30, 2008 and December 31, 2007, the Company had one active share-based compensation plan, the 1998 Stock Option Plan (as amended through September 28, 2005), which is described more fully in Note 6 of the Company’s Financial Statements included in its 2007 Form 10-KSB. Under Statement of Financial Accounting Standard SFAS 123R, the Company recorded stock compensation expense of $16,743 and $32,527 for the three months ended September 30, 2008 and 2007,

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respectively.  For the nine month periods ended September 30, 2008 and 2007 the company recorded stock compensation expense of $53,903 and $83,844, respectively.

As of September 30, 2008, the Company had approximately $117,000 of unrecognized compensation expense related to unvested stock options.  The Company expects to recognize this compensation expense over a weighted average period of approximately two years.  

The Company uses the Black-Scholes options-pricing model (Black-Scholes model) to value share-based employee and non-employee director stock option awards.  The determination of fair value of stock-based payment awards using an option-pricing model requires the use of certain estimates and assumptions that affect the reported amount of share-based compensation cost recognized in the Statements of Operations.  Among these are expected term of options, estimated forfeitures, expected volatility of the Company’s stock price, expected dividends and risk-free interest rate.

The fair value of share-based payments made to employees and non-employee directors was estimated on the measurement date using the Black-Scholes model using the following weighted average assumptions:

	Three-month Period Ended  September 30,			Nine-month Period Ended September 30,
	2008	2007		2008		2007
Risk free interest rate	––	4.60	%	2.67	%	4.70	%
Dividend yield	––	0.0	%	0.0	%	0.0	%
Expected term (in years)	––	7		7		6.3
Volatility	––	76.20	%	73.74	%	74.57	%

A summary of the Company’s stock option activity and related information for the nine months ended September 30, 2008 is as follows: 

				Wgtd. Avg.
				Exercise
	Shares			Price
Outstanding at December 31, 2007		6,844,000		$	0.12
Granted		450,000			0.05
Exercised		(33,334	)		0.07
Forfeited		(210,666	)		0.66
Outstanding at September 30, 2008		7,050,000		$	0.07
Outstanding options vested and exercisable at September 30, 2008		4,184,999		$	0.10

The weighted average grant-date fair value of option awards granted was $.07 per share during the three months ended September 30, 2007.  There was no option awards granted during the three months ended September 30, 2008.  The weighted average grant-date fair value of option awards granted was $.04 and $.06 per share during the nine months ended September 30, 2008 and 2007, respectively.  

The total intrinsic value of options exercised, determined as of the date of exercise, during the nine-month period ended September 30, 2008 was $334.

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Exercise prices for options outstanding at September 30, 2008 are as follows:

			Weighted
			Average		Weighted
Range of			Remaining		Average
Exercise	Number		Contractual		Exercise
Prices	Of Shares		Life (in years)		Price
$0.05-$0.07		2,050,000		8.19	$	0.07
$0.08-$0.09		4,145,000		8.05	$	0.08
$0.10-$1.25		855,000		7.33	$	0.21
		7,050,000		7.86	$	0.09

6.  Net Loss per Common 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 by dividing net income (loss) by the weighted average number of common shares outstanding plus dilutive common stock equivalents outstanding during the period.  Common stock equivalents are excluded for the periods ending September 30, 2008 and 2007 as the effect would be anti-dilutive.  Common stock equivalents include stock options, warrants, and convertible debt.

7.  Related Party Transactions

The Company incurred $68,075 and $144,025 in legal fees during the nine months ended September 30, 2008 and 2007, respectively, for services provided by a law firm in which a director and stockholder of the Company is a partner.  Pursuant to a consulting agreement disclosed on the Company’s 8-K filing dated November 19, 2007, the Company incurred $90,000 and $30,000 in consulting fees during the nine months ended September 30, 2008 and 2007, respectively, for services provided by a director and stockholder of the Company.

Included in accounts payable and accrued expenses is $25,123 and $32,678 due to related parties for services rendered as of September 30, 2008 and December 31, 2007, respectively.  

8.  Subsequent Event

On November 4, 2008, the Company signed an amended 5-year lease to gain 5,798 square feet of additional clean room space for its manufacturing floor in a facility adjacent to its corporate office facility leased in Bothell, WA at an initial rental rate of $14,495 per month for the new space.  Included in this amendment is the exercise of the renewal option for its current office and laboratory space to make the lease for such space coterminous with the new facility 5-year lease period.  In July 2007, the Company originally signed a 4-year lease, commencing August 1, 2007, for 4,366 square feet of office and laboratory space in Bothell, WA at an initial rental rate of $6,367 per month.  

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The statements contained in this Quarterly Report on Form 10-Q, including under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding the Company management’s expectations, hopes, beliefs, intentions or strategies regarding the future. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “plan” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking stat ements contained in this Quarterly Report on Form 10-Q is based on its current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting it will be those that the Company anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include those factors described in greater detail in the risk factors disclosed in our Form 10-KSB for the fiscal year ended December 31, 2007 filed with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those anticipated in these forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Overview

Management’s discussion and analysis provides additional insight into BioLife Solutions, Inc. and is provided as a supplement to, and should be read in conjunction with, its annual report on Form 10-KSB for the fiscal year ended December 31, 2007 filed with the Securities and Exchange Commission.

We develop and market patented biopreservation media products for cells, tissues, and organs. Our proprietary HypoThermosol^® and CryoStor^™ platform of hypothermic storage, transport, and cryopreservation media products are marketed to cell therapy companies, pharmaceutical companies, cord blood banks, hair transplant surgeons, and suppliers of cells to the toxicology testing and diagnostics markets.  All of our products are serum-free and protein-free, fully defined, and are manufactured under current Good Manufacturing Practices using USP or the highest available grade components.  

The discoveries made by our scientists related to how cells, tissues, and organs respond to the stress of hypothermic storage, cryopreservation, and the thawing process enabled the formulation of truly innovative biopreservation media products that protect biologic material from preservation related cellular injury, much of which is not apparent immediately post-thaw. Our enabling technology provides significant improvement in post-preservation viability and function of biologic material. This yield improvement can reduce research, development, and commercialization costs of new cell and tissue based clinical therapies.

Critical Accounting Policies and Significant Judgments and Estimates

Management’s discussion and analysis of the Company’s financial condition and results of operations is based on its financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting. The preparation of financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and reported revenues and expenses during the reporting periods presented. On an ongoing basis, it evaluates estimates, including those related to share-based compensation and expense accruals. The Company bases its estimates on historical experience and on other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. The Company’s critical accounting policies and estimates have not changed significantly from those policies and estimates disclosed under the heading “Critical Accounting Policies and Estimates” under Item 6 in the Company’s Form 10-KSB for the fiscal year ended December 31, 2007, filed with the Securities and Exchange Commission.

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Results of Operations

Three- and Nine-Month Periods Ended September 30, 2008 compared to the Three- and Nine-Month Periods Ended September 30, 2007

Revenue

Product sales for the three months ended September 30, 2008 increased $69,915, or 31%, to $296,620, compared to $226,705 for the three months ended September 30, 2007. Product sales for the nine months ended September 30, 2008 increased $233,673, or 37%, to $869,716, compared to $636,043 for the nine months ended September 30, 2007.  This increase in revenue was primarily due to higher product sales to existing customers and the acquisition of new customers in the cell therapy and cord blood markets. Additionally, the Company had revenue for the nine months ended September 30, 2008 of $33,750, compared to $15,417 for the nine months ended September 30, 2007 related to three license agreements.

Cost of Product Sales

Cost of product sales for the three months ended September 30, 2008 increased by $59,812, or 81%, to $133,770, compared to $73,958 for the three months ended September 30, 2007, resulting in a gross margin as a percentage of revenue of 57% as compared to 69% for the same period in 2007. Cost of product sales for the nine months ended September 30, 2008 increased by $269,217, or 108%, to $519,532, compared to $250,315 for the nine months ended September 30, 2007, resulting in a gross margin as a percentage of revenue of 43% as compared to 62% for the same period in 2007.  The increase in cost of product sales is primarily attributable to the higher production costs at the company’s CMO compared to the prior periods when products were manufactured internally.  To reduce cost of product sales, and enhance its production flexibility, the Company has decided to transition to internal manufacturing and maintain its relationship with its contract manufacturer as a contingency for additional production capacity.  

Research and Development Expenses

Expenses relating to research and development for the three months ended September 30, 2008 increased $14,149, or 18%, to $94,133, compared to $79,984 for the three months ended September 30, 2007.  The increase was primarily due to an increase in headcount costs of $21,000 and ongoing research project costs of $18,000, offset by a decrease in Intellectual Property (“IP”) related legal expenses of $8,000, and travel and related expenses of $17,000.

For the nine months ended September 30, 2008 research and development expenses increased $33,085, or 12%, to $308,813, compared to $275,728 for the nine months ended September 30, 2007.  The increase was due to year over year increase in IP related legal expenses and an increase in headcount costs.

Sales and Marketing Expenses

For the three months ended September 30, 2008, sales and marketing expenses decreased $89,960, or 53%, to $80,400, compared to $170,360 for the three months ended September 30, 2007.  The decrease is primarily due to lower compensation and benefits expense of $47,000, a decrease of $14,000 in travel and related expenses, and a decrease of $17,000 in consultant fees, all of which are associated with lower headcount in sales and marketing.

For the nine months ended September 30, 2008, sales and marketing expenses decreased $291,477, or 54%, to $252,900, compared to $544,377 for the nine months ended September 30, 2007.  The decrease is due to lower headcount and travel related costs.

General and Administrative Expenses

For the three months ended September 30, 2008, general and administrative expenses increased $44,496, or 10%, to $481,771, compared to $437,275 for the three months ended September 30, 2007.  The increase is primarily due to an increase of $65,000 in legal fees associated with ongoing litigation, and an increase of $31,000 in professional and consulting services.  Offsetting decreases include $25,000 in travel and related costs, $10,000 in facility lease and related office expenses, and a $16,000 decrease in stock-based compensation associated with the decrease in headcount and fully vested stock option grants.

For the nine months ended September 30, 2008, general and administrative expenses increased $47,474, or 3%, to $1,459,731, compared to $1,412,257 for the nine months ended September 30, 2007.  The increase is primarily due to higher legal fees associated with ongoing litigation, offset by a decrease in facility lease cost.

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Manufacturing Start-up Costs

For the three and nine months ended September 30, 2008, manufacturing start-up costs were $106,294, compared to $198,491 for the three and nine months ended September 30, 2007.  During the third quarter of 2007, as a result of relocating the Company from Owego, NY to Bothell, WA, the Company decided to outsource its manufacturing and entered into a contract with a Contract Manufacturing Organization (“CMO”). In the third quarter of 2008, to reduce cost of product sales and enhance its production flexibility, the Company has decided to transition to internal manufacturing and maintain its relationship with its CMO as a contingency for additional production capacity. These expenses are expected to trend higher in the fourth quarter as preparation in bringing the manufacturing process back in-house continue. One-time start-up costs related to these efforts were expensed as incurred.

Interest Expense

Interest expense increased to $75,379 for the three months ended September 30, 2008 from $36,324 for the three months ended September 30, 2007. The increase is due to a higher average debt balance.

For the nine months ended September 30, 2008, interest expense increased to $199,579, compared to $63,378 for the same period ended September 30, 2007. The increase is due to a higher average debt balance.

Operating Expenses and Net Loss

For the three months ended September 30, 2008, operating expenses (excluding product costs) decreased $123,512, or 14%, to $762,598, compared to $886,110 for the three months ended September 30, 2007.  The Company reported a net loss of ($662,825) for the three months ended September 30, 2008, compared to a net loss of ($761,599) for the three months ended September 30, 2007.  

For the nine months ended September 30, 2008, operating expenses (excluding product costs) decreased $303,115, or 12%, to $2,127,738, compared to $2,430,853 for the nine months ended September 30, 2007.  The Company reported a net loss of ($1,970,847) for the nine months ended September 30, 2008, compared to the net loss of ($2,105,857) for the nine months ended September 30, 2007.

Liquidity and Capital Resources

As of September 30, 2008, the Company had $85,070 in cash and cash equivalents.  To date, the Company has financed its operations primarily through proceeds from debt instruments including the Secured Convertible Multi-draw Term Loan Facility described in detail below.

On January 11, 2008, the Company entered into a Secured Convertible Multi-Draw Term Loan Facility Agreement with each of Thomas Girschweiler and Walter Villiger (the “Investors”), pursuant to which each Investor extended to the Company a secured convertible multi-draw term loan facility (the “Facility”) of $2,500,000, which Facility (a) incorporates (i) a refinancing of then existing indebtedness of the Company to the Investor and accrued interest thereon, in the aggregate amount of $1,431,563.30, (ii) a then current advance of $300,000, and (iii) a commitment to advance to the Company, from time to time, additional amounts up to a maximum of $768,436.70, (b) bears interest at the rate of 7% per annum on the principal balance outstanding from time to time, (c) is evidenced by a secured convertible multi-draw term loan note (the “Multi-Draw Term Loan Note”), due and payable, together with accrued interest thereon, the earlier of (i) January 11, 2010, or (ii) an Event of Default (as defined in the Multi-Draw Term Loan Note), (d) if outstanding at the time of any bona fide equity financing of the Company of at least two Million Dollars ($2,000,000) (a “Financing”), at the option of the Investor, may be converted into that number of fully paid and non-assessable shares or units of the equity security(ies) of the Company sold in the Financing (“New Equity Securities”) as is equal to the quotient obtained by dividing the principal amount of the Facility outstanding at the time of the conversion plus accrued interest thereon by 85% of the per share or per unit purchase price of the New Equity Securities, and (e) is secured by all of the Company’s assets.  As of September 30, 2008, the Company, contingent on the approval of the Investors, could access an aggregate of an additional $536,873 in capital under the Multi-Draw Term Loan Facility Agreements.  On October 20, 2008, each Facility was increased by $2,000,000 to $4 ,500,000 (an aggregate of $9,000,000).  On October 24, 2008, the Company received an additional $600,000 in total from the Investors pursuant to the Multi-Draw Term Loan Facility.

Net Cash Used in Operating Activities

For the nine month period ended September 30, 2008, net cash used in operating activities was $(1,531,335) as compared to net cash used in operating activities of $(2,027,342) for the nine month period ended September 30, 2007.  The $496,007 decrease in

12

net cash used by operations primarily is reflected in the lower net loss for the quarter, partially offset by non-cash operating expenses including depreciation, amortization of deferred financing costs, share-based compensation, and changes in operating assets and liabilities.

Net Cash Provided by Investing Activities

Net cash used in investing activities consist of purchases of property and equipment.  For the nine month period ended September 30, 2008, the aggregate investment in property and equipment was $(42,425), compared to $(87,646) for the nine month period ended September 30, 2007.

Net Cash Provided by Financing Activities

Net cash provided by financing activities totaled $1,602,333 for the nine month period ended September 30, 2008, which resulted primarily from the draws taken on the Multi-Draw Term Loan Note due to two shareholders.  Net cash provided by financing activities totaled $2,750,665 for the nine month period ended September 30, 2007 resulting from the issuance of promissory notes.

Operating Capital and Capital Expenditure Requirements

The Company believes that continued access to the Multi-Draw Term Loan Note, in combination with cash generated from operations, will provide sufficient funds for at least the next twelve months.  However, the Company would require additional capital in the immediate short term if the Company’s ability to draw on the Multi-Draw Term Loan Note be restricted or terminated. Other factors that would negatively impact the Company’s ability to finance its operations include (i) significant reductions in revenue (ii) increased capital expenditures (iii) significant increases in cost of goods and operating expenses or; (iv) an adverse outcome resulting from current litigation. The Company expects that it may need additional capital to reach a sustainable level of positive cash flow. Although the Investors who have provided the Multi-Draw Term Loan Note have historically demonstrated a willingness to grant access to the Facility, there is no assurance they will conti nue to do so in the future.  If the Investors were to become unwilling to provide access to additional funds through the Multi-Draw Term Loan Note, the Company will need to find immediate additional sources of capital and there can be no assurance that such capital would be available at all, or if available, that the terms of such financing would not be dilutive to other stockholders. If the Company is unable to secure additional capital, as circumstances require, it may not be able to continue its operations.

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.

Contractual Obligations

The Company did not enter into any significant contractual obligations during the nine month period ended September 30, 2008.  It had no significant contractual obligations not fully recorded on our Balance Sheets or fully disclosed in the Notes to our Financial Statements in Form 10-KSB for the fiscal year ended December 31, 2007, filed with the Securities and Exchange Commission. The Company did not have any off-balance sheet arrangements as defined in S-K 303(a)(4)(ii). 

Subsequent Event

On November 4, 2008, the Company signed an amended 5-year lease to gain 5,798 square feet of additional clean room space for its manufacturing floor in a facility adjacent to its corporate office facility leased in Bothell, WA at an initial rental rate of $14,495 per month for the new space.  Included in this amendment is the exercise of the renewal option for its current office and laboratory space to make the lease for such space coterminous with the new facility 5-year lease period.  In July 2007, the Company originally signed a 4-year lease, commencing August 1, 2007, for 4,366 square feet of office and laboratory space in Bothell, WA at an initial rental rate of $6,367 per month.  

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Item 4.

Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure that it is able to collect the information required to disclose in the reports that are filed with the SEC, and to record, process, summarize and disclose this information within the time periods specified in the rules of the SEC. Based on an evaluation of its disclosure controls and procedures as of the end of the period covered by this report conducted by its management, with the participation of the Company’s Chief Executive/Chief Financial Officer, the Chief Executive/Chief Financial Officer believes that these controls and procedures are effective to ensure that it is able to collect, process and disclose the information required to disclose in the reports that are filed with the SEC within the required time periods.

There were no changes in the Company’s internal control over financial reporting during the third quarter of fiscal 2008 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

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PART II: Other Information

Item 6.

Exhibits

See accompanying Index to Exhibits included after the signature page of this report for a list of exhibits filed or furnished with this report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 Dated: November 10, 2008

BIOLIFE SOLUTIONS, INC.

/s/ MICHAEL RICE

Michael Rice

President and Chief Executive Officer

(Principal Executive and Financial Officer)

16

BioLife Solutions, Inc.

INDEX TO EXHIBITS

Exhibit No.	Description
10	First Amendment to Lease, dated the 4th day of November, 2008, between the Company and Monte Villa Farms, LLC
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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EX-10

EXHIBIT 10

FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE (the “Amendment”) dated this 4th of November, 2008 amends that certain Lease dated July 24, 2007 by and between BIOLIFE SOLUTIONS, INC. (“Tenant”) and MONTE VILLA FARMS LLC (“Landlord”) (the “Lease”) in the project known as “Monte Villa Farms” located in Bothell, Washington.

RECITALS

WHEREAS, Tenant is desirous of leasing additional agreed square footage as follows:  approximately 5,798 rentable square feet described and outlined on Exhibit C.1 attached hereto ("Clean Room Premises"), and Landlord is desirous of leasing the Clean Room Premises to Tenant on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the above recitals and good and valuable consideration, the receipt and sufficiency of which is acknowledged by each of the parties hereto, Landlord and Tenant agree to amend the Lease as follows:

1.

The fifth Whereas paragraph shall be amended to read as follows:  

“WHEREAS, Tenant has leased approximately 4,366 rentable square feet of office space described and outlined on Exhibit C attached hereto (the "Office Premises") and Tenant is desirous of leasing additional agreed square footage as follows: approximately 5,798 rentable square feet of the first floor of the Production Building as shown on Exhibit C.1 attached hereto ("Clean Room Premises"), and Landlord is desirous of leasing the Clean Room Premises to Tenant on the terms and conditions set forth herein.  The Office Premises and the Clean Room Premises shall be collectively known as the “Demised Premises”.  The revised total rentable square footage of leased space shall be approximately 10,164 square feet, or as otherwise measured according to BOMA standard.

2.

Paragraph 1.1.(a) shall be revised to read as follows:

“The “Commencement Date” for the Office Premises shall be July 31, 2007. The “Commencement Date” of the Clean Room Premises shall be upon completion of the remediation work as described in Paragraph 13 herein.”

3.

Paragraph 1.2, line 4, insert “and C1” after “C”.

4.

Paragraph 1.2, line 5, after “4,366 rentable square feet” add “in the Office Premises (Exhibit C) and 5,798 rentable square feet in the Clean Room Premises (Exhibit C1)”.

5.

Paragraph 1.3, line 14, delete “thirteen (13)” and insert “twenty (20)”.

1

6.

Paragraph 1.4, line 2, delete “July 31, 2011” and insert “the last day of the sixtieth full calendar month following the Commencement Date for the Clean Room Premises”.

7.

Paragraph 2.6 (a) line 3, delete “4,366” and insert “10,164”.

8.

Paragraph 2.6.(a) line 5, delete “1.54%” and insert “3.59%”.  

9.

Tenant may occupy the Clean Room Premises anytime after execution of this Amendment, so long as Tenant’s occupancy does not interfere with other tenants’ or Landlord’s contractors.

10.

Landlord shall provide Tenant up to 150 square feet of powered storage space for equipment until the completion of the Tenant Improvements.

11.

Exhibit B shall be replaced by Exhibit B.1.

12.

Exhibit D shall be replaced by Exhibit D.1.

13.

At Landlord’s sole expense, Landlord shall replace the vinyl floor and remediate the conditions in the walls forming and within the Clean Room Premises.  Tenant’s consultant has approved of the scope of work for the remediation.  During the remediation period, Landlord shall keep Tenant apprised of its progress and method used, and Tenant will be allowed to visually inspect work by giving proper notice to access the Clean Room Premises.

a.

All remediation work must be completed by February 11, 2009 or Tenant may terminate this First Amendment with no penalty and with 100% of the Security deposit refunded to Tenant.

b.

If at any time during the term of the Lease, the floor in the Clean Room Premises exhibits moisture ingress, all repairs needed to return the floor to usable condition will be completed by the Landlord at its sole expense.  Such repairs shall be completed within 60 days from the date Tenant or Landlord notices the other party of such moister ingress, or Tenant shall be awarded an appropriate abatement of rent.

14.

Tenant shall have two (2) five (5) year renewal options for the Demised Premises, according to the terms specified in Paragraph 35 of the Lease. Tenant does hereby exercise its renewal option on its Premises at 3303 Monte Villa Parkway, Suite 310, Bothell, WA (“Office Premises”) and the parties agree that the Office Premises and the Clean Room Premises will be coterminous with a revised termination date of the last day of the sixtieth full calendar month following the Commencement Date for the Clean Room Premises.  

15.

Landlord shall make available 100 kW of continuous standby power from a standby generator on Property, to back up HVAC system, sump pumps and Tenant’s equipment.  Cost of wiring and connecting the generator to the electrical panel(s) and switches servicing or needed by the Clean Room Premises and sump pumps shall be the responsibility of the Tenant, which is approximated to cost $54,000.00, with the work contracted by the Landlord.  Landlord’s responsibility

2

for connecting the backup generator to the electrical panel servicing the Clean Room Premises and sump pumps must be completed by March 3, 2009.  Failure to do so shall constitute a breach of this Lease and shall entitle Tenant to an appropriate abatement of Rent.  Tenant will pay its proportionate share of fuel and maintenance cost for the generator.  Landlord may make reasonable modifications, replacements or repairs to the generators or the Property upon prior notice to Tenant.  Landlord shall use commercially reasonable efforts to minimize disruption to Tenant’s use of the Clean Room Premises.

16.

Landlord may require Tenant to separately meter its electricity and natural gas usage for the Clean Room Premises.  In this case, Tenant’s Operating Expenses for the Clean Room Premises will be reduced accordingly.

17.

Paragraph 21.1, line 5, add the sentence, “Landlord shall provide standard building signage on the lobby directory and outside the Premises.”

18.

Paragraph 34, at the end of the first sentence, add “for the Office Premises, and three months Rent and Operating Expenses for the Clean Room Premises.  From the Security Deposit for the Clean Room Premises, Rent and Operating Expenses for the Clean Room Premises shall be applied for April 2009 and May 2009.”

19.

At its sole expense, Landlord shall maintain the HVAC and other utilities servicing the Clean Room Premises.  If Landlord requests Tenant to perform such tests, Tenant shall be awarded an appropriate abatement of rent.  At its sole expense, Landlord shall replace all HEPA filters in the HVAC system servicing the Clean Room Premises by March 10, 2009.  After that date, Tenant shall replace all HEPA filters servicing the Clean Room Premises at its sole expense.  At the end of the Term, Tenant shall replace HEPA filters servicing the Clean Room Premises.

20.

At its sole expense, Landlord shall perform quarterly testing of the backup generator system and sump pumps and notify Tenant of the results.  If Landlord requests Tenant to perform such maintenance, Tenant shall be awarded an appropriate abatement of rent.

Other than set forth above, all terms and conditions of the lease remain in full force and effect. The parties hereby reaffirm and confirm such terms and conditions.  This agreement may be executed in several counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument.  Facsimile copies will be considered originals.

TENANT BIOLIFE SOLUTIONS, INC. a Delaware corporation		LANDLORD MONTE VILLA FARMS LLC, A Washington limited liability company
By:	/s/MICHAEL P. RICE	By:	/s/ROBERT E. HIBBS
Name:	Michael P. Rice	Name:	Robert E. Hibbs
Its:	CEO	Its:	Managing Member

3

)

)ss:

COUNTY OF SNOHOMISH

)

I certify that I know or have satisfactory evidence that Robert E. Hibbs is the person who appeared before me, and said person acknowledged that he signed this instrument, on oath stated that he/she was authorized to execute this instrument and acknowledged it as the managing member of MONTE VILLA FARMS LLC, a Washington limited liability company, to be the free and voluntary act of such party for the uses and purposes mentioned in this instrument.

DATED: , 2008.

Print Name:

NOTARY PUBLIC in and for the State of

Washington, residing at

My Appointment expires:

STATE OF WASHINGTON

)

)ss:

COUNTY OF

      )

I certify that I know or have satisfactory evidence that __________________ is the person who appeared before me, and said person acknowledged that he signed this instrument, on oath stated that he/she was authorized to execute this instrument and acknowledged it as the ____________ of BIOLIFE SOLUTIONS, a Delaware corporation, to be the free and voluntary act of such party for the uses and purposes mentioned in this instrument.

DATED: , 2008.

Print Name:

NOTARY PUBLIC in and for the State of

Washington, residing at

My Appointment expires:

4

EXHIBIT B.1

BASIC ANNUAL RENT

Office Premises:

The initial Basic Annual Rent shall be $17.50 per rentable square foot per year.  Basic Annual Rent shall be increased by four percent (4%) per annum.

Clean Room Premises:

The initial Basic Annual Rent shall be $30.00 per rentable square foot per year.  Basic Annual Rent shall be increased by four percent (4%) per annum.  For months 1 – 3 following the Commencement Date, there shall be no Basic Annual Rent due on the Clean Room Premises.

Landlord has the right to create up to 50,000 sq ft of additional space on the Property (the “Additional Space”). The creation of the Additional Space will reduce the Operating Expenses for the Premises (the “Additional Space Expense Reduction”). Tenant agrees that should Landlord create the Additional Space then the Rent shall be increased (effective as of the date of the inclusion of the Additional Space) by the amount of any Additional Space Expense Reduction.  Such a reduction shall be computed (within six months of the inclusion of Additional Space) by subtracting (i) the Tenant’s Proportionate Share of the Operating Expenses and Taxes computed after the inclusion of the Additional Space in the square footage calculations from (ii) Tenant’s Proportionate Share of the Operating Expenses and Taxes computed before the inclusion of the Additional Space in the square footage calculations .  Landlord shall provide Tenant with such computations for Tenant’s review.

5

EXHIBIT C

OFFICE PREMISES

6

EXHIBIT C.1

CLEAN ROOM PREMISES

7

EXHIBIT D.1

TENANT IMPROVEMENTS

Landlord, at its sole cost and expense except as provided below, shall perform the improvements listed on this Exhibit D.1 to Demised Premises.  

·

The Office Premises shall be leased as-is.  For the area on the west side of the corridor (1,329 USF), Landlord shall provide an improvement allowance of $10.00 per square foot.  

·

The furniture that is currently in the office space is available for Tenant’s use at no cost.

For the Clean Room Premises, Landlord shall reimburse Tenant with a Tenant Improvement Allowance of $25.00 per rentable square foot.  Tenant shall have the right to use the allowance for consulting related to, and actual permanent and modular fixtures to the building, standby generator connection, or electrical, mechanical or cabling additions.  Any equipment purchased with Tenant Improvement Allowance funds shall remain the property of Landlord at Lease termination.  All improvements shall be subject to Landlord approval, which shall not be unreasonably withheld.  As-builts shall be provided to Landlord for all improvement work.

8

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934 AS

ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Rice, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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. The registrant’s other certifying officer and I are 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 have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our 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

(c) 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. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the 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.

Date: November 10, 2008

By:	/s/ MICHAEL RICE
	Michael Rice
	Chief Executive Officer and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I,  Michael Rice, Chief Executive Officer and Chief Financial Officer of BioLife Solutions, Inc. (the “Company”), certify, for the purposes of section 1350 of chapter 63 of title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge, the Quarterly Report on Form 10-Q for the period ended September 30, 2008 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company. This written statement is being furnished to the Securities and Exchange Commission as an exhibit to such Form 10-Q. A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Dated: November 10, 2008

By:	/s/ MICHAEL RICE
	Michael Rice
	Chief Executive Officer and Chief Financial Officer