BioLife Solutions, Inc. — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. BioLife develops, manufactures and sells cell and tissue preservation products, alongside contract manufacturing and related services.
Financial performance and position
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $1.212 million | $2.330 million | $3.277 million | $4.490 million |
| Gross profit | $545,320 | $828,443 | $1.449 million | $1.954 million |
| Gross margin | 45.0% | 35.6% | 44.2% | 43.5% |
| Operating loss | $887,873 | $82,844 | $1.257 million | Operating income of $109,487 |
| Net loss | $883,356 | $282,506 | $1.443 million | $289,682 |
| Net loss per share | $0.07 | $0.06 | $0.16 | $0.06 |
- Q2 core product sales were $1.077 million, up 14%; contract manufacturing revenue was $135,120, down 90%. For the six-month period, core product sales rose 29% to $2.209 million while contract manufacturing revenue fell 51% to $1.068 million; prior-year licensing revenue was $609,167.
- Operating expenses rose 57% in Q2 to $1.433 million and 47% in the first half to $2.706 million. Management cited increased research and development and sales efforts, as well as higher investor-relations consulting, personnel, insurance, directors’ fees, legal and accounting costs.
- First-half operating cash use was $1.768 million, versus $79,992 of cash provided in the prior-year period. Investing cash use was $6.163 million, largely purchases of short-term investments; financing provided $13.677 million, principally from the public offering.
- At June 30, cash and cash equivalents were $5.902 million and short-term investments were $6.012 million. Current liabilities were $613,004; total liabilities were $1.408 million. Related-party notes and accrued interest, totaling about $14.3 million, were converted to equity in March; the company reported no remaining notes payable.
Material changes and developments
- Total Q2 revenue fell 48% year over year, primarily after the contract manufacturing agreement with ORS was terminated in May. Core product revenue increased, partly offsetting that decline. The higher Q2 gross margin reflected the greater contribution from higher-margin core products compared with contract manufacturing.
- On March 25, the company completed a registered unit offering, receiving $13.596 million net of fees and costs. Each unit included a share and a seven-year warrant exercisable at $4.75. At the same time, approximately $14.3 million of related-party debt and interest was converted into units, extinguishing the debt and releasing security interests.
- The company completed a 1-for-14 reverse stock split effective January 29 and listed its common stock on Nasdaq under BLFS on March 26. It reported 12,027,293 shares outstanding as of July 31, 2014. At June 30, 7,428,141 warrants and 1,367,465 options were outstanding.
Outlook, risks and contingencies
- Management’s 2014 goal was core product sales growth of 25%–35% over 2013; the filing cautions there is no assurance the goal will be achieved. Sales can fluctuate with product adoption, customer clinical-trial timing and success, competition, and market conditions.
- A long-term manufacturing agreement with Somahlution was announced in July 2014, with revenue expected to begin in Q4 2014. The company also expected customer beta trials of its biologistex service platform by Q4 2014. These are forward-looking expectations, not reported results.
- Management said available cash and cash equivalents were expected to meet liquidity needs for the foreseeable future. It also identified macroeconomic conditions and execution of business plans as risks to liquidity.
- Revenue remains exposed to customer concentration: one contract manufacturing customer accounted for 11% of Q2 2014 product revenue and 33% for the first half. Management noted that revenue and cash balances may fluctuate significantly.
- The company disclosed ongoing New York legal matters involving the company or its former CEO and family members, with no significant developments in the quarter and no litigation accrual recorded. The Bothell lease runs through July 2021, with two five-year extension options. Management reported disclosure controls were effective as of June 30, 2014.
Key facts for investors to verify
- Whether growth in core product sales can offset the loss of ORS contract manufacturing revenue, and whether the 25%–35% core sales growth goal remains achievable.
- Whether Somahlution manufacturing revenue begins as expected in Q4 2014 and whether biologistex progresses to beta trials.
- Cash burn and liquidity trends, including the composition and maturity of the $6.012 million investment portfolio.
- Potential dilution from the 7.428 million outstanding warrants and 1.367 million options, and the terms and proceeds of the March financing.
- Developments in the disclosed litigation and any resulting financial exposure; the filing records no related accrual.