BioLife Solutions, Inc. — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; comparisons are to fiscal 2012. This is an annual report, not a standalone fourth-quarter filing. The company effected a 1-for-14 reverse stock split on January 29, 2014; reported share and per-share figures are adjusted for it.
Business context
BioLife develops, manufactures, and sells biopreservation media for cells and tissues, including HypoThermosol FRS, CryoStor, and BloodStor. It also provides contract manufacturing services and began exclusively distributing SAVSU precision thermal packaging products to regenerative medicine and stem-cell markets. Management cited more than 100 hospital-approved or clinical-trial-stage applications using its products. The company operates from its Bothell, Washington facility.
Financial results and liquidity
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Total revenue | $8.949 million | $5.663 million | +58% |
| Core product sales | $3.924 million | $3.019 million | +30% |
| Contract manufacturing revenue | $4.416 million | $2.624 million | +68% |
| Licensing revenue | $609,167 | $20,000 | Increase |
| Gross profit / margin | $3.763 million / 42.0% | $2.292 million / 40.5% | Margin +1.5 points |
| Operating loss | $(285,357) | $(942,238) | Loss narrowed |
| Net loss | $(1.084) million | $(1.660) million | Loss narrowed |
| Basic and diluted loss per share | $(0.22) | $(0.33) | Improved |
| Cash from operations | $146,007 | $854,934 | Lower |
Operating expenses rose 25% to $4.048 million: research and development was $488,000, sales and marketing $841,000, and general and administrative $2.719 million. Gross margin improved partly because of licensing revenue with no associated costs; contract manufacturing carries higher costs than core product sales.
At year-end, cash and cash equivalents were $156,273, working capital was $250,118, and total assets were $3.353 million. Cash used in investing was $236,670, mainly for equipment and facility improvements; financing provided $50,458. The company reported an accumulated deficit of $56.895 million and shareholders’ deficiency of $13.272 million.
Related-party notes had $10.603 million principal outstanding, plus $3.502 million accrued interest, secured by company assets and bearing 7% interest; they were due January 11, 2016. Noteholders agreed to convert the debt and accrued interest into equity in connection with a qualifying cash financing, but completion was not assured. Approximately $900,000 remained available under the facilities at year-end.
Material changes, outlook, and risks
- Growth reflected higher core product and contract manufacturing sales, plus a $500,000 upfront intellectual-property license fee recognized in 2013 and $109,167 of previously deferred licensing revenue recognized after prior obligations were cancelled.
- One contract manufacturing customer accounted for approximately 49% of 2013 revenue, versus 46% in 2012. Janssen Research & Development accounted for approximately 14% of 2013 revenue. Three customers represented about 64% of year-end gross accounts receivable.
- Management said current cash and operating cash flows should meet working-capital, debt, and capital-expenditure needs for the foreseeable future, while also disclosing a registration statement for a proposed common-stock-and-warrant offering. No quantified revenue or earnings guidance was provided.
- Management expects regenerative-medicine opportunities to develop over several years, but customer therapy approvals and commercialization may be delayed or fail. Near-term revenue can be uneven as customers evaluate products and advance clinical programs.
- Principal risks include customer and market concentration, continued losses and potential need for capital, competition, reliance on external suppliers, manufacturing and quality requirements, intellectual-property protection, and limited trading liquidity. The company did not meet Nasdaq Capital Market shareholders’ equity requirements at filing and could not assure a listing.
- The notes were secured by all company assets until conversion; a default could trigger acceleration. Related-party holders collectively owned approximately 52.4% of shares at December 31, 2013 and held the notes.
- Several longstanding New York legal matters involving former employees and the company’s claims against related parties remained in discovery. The company said potential losses could not be reasonably estimated and recorded no accrual.
- The 2013 financial statements received an unqualified audit opinion. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal-control effectiveness.
Most important facts for investors to verify
- Whether the proposed equity financing was completed, its terms and dilution, and whether the related-party debt and accrued interest converted and the security interests were released.
- Whether cash generation and liquidity improved after year-end, given only $156,273 of reported cash and $250,118 of working capital at December 31, 2013.
- Whether the contract manufacturing relationship and other major customers continued at comparable volumes, and how customer concentration affected subsequent revenue and receivables.
- How much of reported growth was recurring core product demand versus contract manufacturing and the 2013 licensing item.
- Developments in the pending litigation, manufacturing capacity and compliance, and the Nasdaq listing application.