BioLife Solutions, Inc. — Q2 2012 Form 10-Q
Reporting period: Three and six months ended June 30, 2012. BioLife develops and sells cell and tissue preservation products and provides custom formulation and contract manufacturing services.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $1.097 million | $0.623 million | $1.933 million | $1.234 million |
| Gross profit | $456 thousand | $334 thousand | $945 thousand | $576 thousand |
| Gross margin | 41.5% | 53.6% | 48.9% | 46.7% |
| Operating expenses | $762 thousand | $594 thousand | $1.431 million | $1.290 million |
| Operating loss | $(307) thousand | $(260) thousand | $(486) thousand | $(714) thousand |
| Net loss | $(499) thousand | $(437) thousand | $(796) thousand | $(1.067) million |
Q2 product sales increased 78%, including 36% growth in core product sales and a rise in contract manufacturing sales to $341 thousand from $67 thousand. Six-month product sales increased 57%. Q2 gross margin declined as production staffing was added ahead of expected contract manufacturing demand and contract manufacturing carried a lower margin. Six-month margin improved year over year.
At June 30, cash was $155 thousand, versus $17 thousand at year-end 2011; working capital was $487 thousand, down from $581 thousand. Six-month operating cash flow was $686 thousand, compared with $544 thousand used in the prior-year period. However, it included $785 thousand of landlord-funded leasehold improvements recorded as deferred rent; excluding that item, the company reported using $99 thousand in operating cash. Investing activities used $1.023 million, mainly for facility improvements and equipment; financing provided $475 thousand.
Total liabilities were $14.810 million and shareholders’ equity was in deficit by $11.741 million. Related-party notes payable were $10.603 million, with $2.388 million of accrued related-party interest. The notes bear 7% interest; in May, investors increased the facilities to $11.5 million in total and extended maturity to January 11, 2016. The company issued 2 million warrants as part of the restructuring.
Changes, outlook, and risks
- Management reported its eighth consecutive record-revenue quarter, revenue above $1 million for the first time, initial deliveries to a new contract manufacturing customer, and completion of an expanded facility and second cGMP clean room suite.
- Management forecast 2012 revenue of $4.1 million, significant second-half sales to the new contract manufacturing customer, and improved second-half gross margin, while expecting margin to remain somewhat below 2011 levels. It also expected higher operating expenses and positive cash flow by year-end.
- The filing states that recurring operating needs have not been funded by operating income and that the approximately $55 million accumulated deficit raises substantial doubt about the company’s ability to continue as a going concern. Management believed collections and continued investor funding would fund operations through December 31, 2012, but noted that additional capital might be needed and could be dilutive.
- Key financing risks include revenue below projections, higher capital spending or costs, reduced customer collections, investors withholding further funding, and an adverse litigation outcome. Existing New York litigation had no significant developments in the period; no litigation accrual was recorded.
- A March lease amendment expanded the premises to approximately 21,000 square feet and extended the lease through June 2021. Future minimum lease payments total $4.123 million; monthly base rent is expected to rise to approximately $35,000 from January 2013, with scheduled increases.
- Unusual items included $87 thousand of noncash inventory recorded as other income and $785 thousand of landlord-funded improvements recorded as deferred rent. No off-balance-sheet financing arrangements were reported.
Important facts for investors to verify
- Whether second-half contract manufacturing orders and collections support the $4.1 million revenue forecast and year-end positive cash flow target.
- How much cash is available under the investor facilities, and whether further borrowing or other capital will be required.
- Whether contract manufacturing volumes and production costs improve gross margin as projected.
- The cash-flow impact of the expanded facility lease and the company’s ability to meet its long-term lease obligations.
- Developments in the New York litigation and any resulting financial or funding effects.