Business context and reporting period
BioLife Solutions, Inc. filed this unaudited Form 10-Q for the quarter ended September 30, 2011. The company develops and sells cell, tissue, and organ preservation products, and provides contract research and manufacturing services.
Financial performance
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Total revenue | $715,518 | $524,892 | $1,949,165 | $1,505,571 |
| Gross profit | $369,962 | $224,845 | $946,094 | $649,118 |
| Gross margin | 52% | 43% | 49% | 43% |
| Operating loss | $(284,808) | $(286,196) | $(999,097) | $(1,078,878) |
| Net loss | $(478,668) | $(436,732) | $(1,545,469) | $(1,512,992) |
Product sales rose 37% in the quarter and 30% year to date; licensing revenue was $5,000 and $15,000, respectively, unchanged from the comparable periods. Management attributed sales growth to distributor and contract-manufacturing activity. Gross-margin improvement was primarily attributed to better manufacturing-capacity utilization, partly offset by non-recurring employee-transition costs earlier in 2011.
For the nine months, research and development expense increased to $391,086 from $246,784, sales and marketing expense declined to $197,883 from $331,399, and general and administrative expense increased to $1,356,222 from $1,149,813. Higher G&A included legal and personnel costs and stock-based compensation. Interest expense rose to $497,458 from $432,628 as borrowings increased. The company reported basic and diluted loss per share of $0.01 for Q3 and $0.02 for the nine-month period in both years.
Cash flow, debt, and liquidity
Cash was $20,117 at September 30, 2011, versus $3,211 at December 31, 2010; working capital was $528,675 versus $474,271. Net cash used in operations was $797,122 for the first nine months, compared with $972,168 in 2010. Investing used $55,972, while financing provided $870,000, principally through related-party term loan facilities. The filing’s extracted balance-sheet text does not provide a clear accounts receivable value.
Related-party promissory notes payable were $9,903,127, with $1,852,433 of accrued related-party interest; total liabilities were $12,385,875. On August 10, 2011, each of two facilities was increased by $500,000, to $5.25 million each ($10.5 million aggregate). The company reported issuing 2 million warrants to noteholders in connection with note restructuring; the warrants were valued at $89,225 as deferred financing costs. After quarter-end, the company received an additional $175,000 under the facilities.
Outlook, risks, and other matters
Management said facility availability, together with customer collections, was expected to fund operations through June 30, 2012. This outlook is conditional: the company stated it may need additional capital to achieve sustainable positive cash flow and could need immediate funding if access to the facilities is restricted or ends. Management warned that additional financing may not be available, or could dilute stockholders. The filing states that the approximately $54 million accumulated deficit and continuing operating losses raise substantial doubt about the company’s ability to continue as a going concern.
The company was involved in seven New York legal matters involving the company, its former CEO, and members of his extended family. No significant developments were reported for the period, and no litigation accrual was recorded. The company reported no off-balance-sheet arrangements. Management concluded disclosure controls were effective as of September 30, 2011 and reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether the company can continue drawing on the related-party facilities and obtain additional capital if needed.
- Cash use, customer collections, and progress toward the stated June 30, 2012 funding horizon.
- Whether revenue growth and improved gross margins can continue while operating losses and interest costs remain material.
- Developments in the seven legal matters and any resulting financial exposure.
- Potential dilution from outstanding options and warrants; the filing lists 17,723,227 options and 6,218,750 warrants outstanding at September 30, 2011.