BioLife Solutions, Inc. — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012. The company develops and sells biopreservation products and provides custom formulation, fill, and finish services.
Financial results
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $1,681,480 | $715,518 | $3,614,770 | $1,949,165 |
| Gross profit | $595,449 | $369,962 | $1,540,861 | $946,094 |
| Gross margin | 35.4% | 51.7% | 42.6% | 48.5% |
| Operating expenses | $744,157 | $654,770 | $2,175,463 | $1,945,191 |
| Operating loss | $(148,708) | $(284,808) | $(634,602) | $(999,097) |
| Net loss | $(352,228) | $(478,668) | $(1,147,998) | $(1,545,469) |
| Net loss per share, basic and diluted | $(0.01) | $(0.01) | $(0.02) | $(0.02) |
- Q3 revenue increased 135%; nine-month revenue rose 85%. Contract-manufacturing sales were the main growth driver: $1,055,853 in Q3 versus $101,664 a year earlier. Core product sales grew 2% in Q3 and 30% year to date.
- Gross margin fell as contract-manufacturing sales, which carry higher costs, made up more of revenue; management also cited production ramp-up costs.
- At September 30, cash was $7,529, working capital was $309,503, and total assets were $3,417,833. Total liabilities were $15,453,615, including $10,603,127 in related-party notes and $2,573,836 in accrued related-party interest. Shareholders’ equity was negative $12,035,782.
- Nine-month operating cash flow was $686,128, compared with cash used of $797,122 in 2011. The 2012 figure included a $785,112 increase in deferred rent associated with landlord-funded leasehold improvements. Investing cash outflow was $1,170,463, primarily for facility improvements and equipment; financing provided $475,000.
Outlook, developments, and risks
- Management forecast 2012 revenue of $5.0 million, citing expected higher contract-manufacturing sales, growth from existing and new regenerative-medicine customers, and distribution-channel growth.
- Management expected Q4 gross margin to improve from Q3 but remain below the year-earlier quarter, operating expenses to stay near Q3 levels, and positive operating cash flow in Q4. These are forward-looking expectations, not reported results.
- The company reported its ninth consecutive record-revenue quarter, completed a second cGMP clean-room suite, and signed a private-label distribution agreement. It said no investor funding was needed during Q3.
- One contract-manufacturing customer represented approximately 60% of Q3 product revenue and 38% of nine-month product revenue; $415,000 was due from that customer at quarter-end. Either party can terminate the agreement on six months’ notice.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing its approximately $55 million accumulated deficit and inability to generate sufficient operating income to meet needs. It relied on customer collections and access to existing investor facilities; additional capital may not be available or may be dilutive.
- In May, two investors increased their related-party facilities to a combined $11.5 million and extended note maturity to January 11, 2016; the notes bear 7% interest. The company issued 2 million warrants in connection with the restructuring.
- A March lease amendment expanded the facility to approximately 21,000 square feet and extended the lease through June 2021. Monthly base rent was scheduled to rise to approximately $35,000 beginning January 2013. Future minimum lease payments disclosed totaled $4,050,871.
- Existing New York legal matters had no significant developments in the quarter; the company recorded no litigation accrual. An adverse litigation outcome was identified as a potential financing risk.
- A noncash inventory receipt of $87,215 was recognized as other income in the first quarter. The filing reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the $5.0 million 2012 revenue outlook and expected Q4 operating cash flow were achieved.
- How dependent sales, receivables, and future cash generation remain on the major contract-manufacturing customer.
- Available borrowing capacity and terms under the related-party facilities, accrued interest, and any need for additional capital.
- Whether operating cash flow improves apart from deferred-rent and other working-capital effects, alongside the facility’s ongoing lease and investment costs.
- Developments in the disclosed litigation and any resulting financial exposure.