BioLife Solutions, Inc. — Q2 2013 Form 10-Q
Business and period: The company develops, manufactures, and markets biopreservation solutions and related custom and contract manufacturing services. This unaudited report covers the quarter and six months ended June 30, 2013, compared with the corresponding 2012 periods.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Total revenue | $2.330 million | $1.097 million | $4.490 million | $1.933 million |
| Gross profit | $828,443 | $455,661 | $1.954 million | $945,412 |
| Gross margin | 35.6% | 41.5% | 43.5% | 48.9% |
| Operating income (loss) | ($82,844) | ($306,630) | $109,487 | ($485,894) |
| Net loss | ($282,506) | ($498,893) | ($289,682) | ($795,770) |
| Operating cash flow | Not presented separately | Not presented separately | $79,992 | $686,007 |
Q2 revenue rose 112%; six-month revenue rose 132%. Growth reflected contract manufacturing services revenue of $1.388 million in Q2 and $2.169 million for the six months, largely from one significant customer, and higher direct core product sales. Core product sales increased 25% in Q2 and 8% for the six months. Six-month revenue also included $609,167 of licensing revenue.
Gross margin declined as contract manufacturing sales, which carry higher costs, represented a larger share of revenue. The six-month margin included license revenue with no associated costs. Operating expenses increased 20% in Q2 and 29% for the six months, including higher sales and marketing and general and administrative costs; R&D spending declined. Interest expense was $185,555 in Q2 and $371,110 for the six months.
Liquidity, debt, and balance sheet
- At June 30, cash and cash equivalents were $76,205, versus $196,478 at year-end 2012. Working capital was $392,417, compared with $262,421.
- Six-month operating cash flow was $79,992; investing cash use was $225,723, mainly for facility improvements and equipment; financing cash provided was $25,458. Cash decreased by $120,273 during the period.
- Promissory notes payable to related-party lenders totaled $10.603 million, with $3.131 million of accrued related-party interest. The notes are secured by all company assets and due January 11, 2016. The company reported approximately $900,000 of unused capacity under the facilities.
- Total liabilities were $16.100 million and shareholders’ equity was a $12.663 million deficit. The accumulated deficit was $56.1 million.
Outlook, risks, and notable items
- Management maintained its 2013 outlook: revenue of $6.5–$7.0 million, gross margin of approximately 38%–41%, operating expense growth of 10%–20% over 2012, and improvement in operating and net income (loss) compared with 2012. These are expectations, not guarantees.
- Management stated it expected cash from operations and customer collections to fund working capital, debt obligations, and capital expenditures for the foreseeable future, while noting operating losses, working-capital fluctuations, financing needs, and the possibility that profitability may not be achieved or sustained.
- Customer concentration is significant: one contract manufacturing customer generated approximately 60% of Q2 and 50% of six-month product revenue, and represented 50% of gross receivables at June 30. All six-month licensing revenue came from one customer.
- The $500,000 upfront fee under a new intellectual-property license was recognized in Q1 because no future performance obligations remained; an additional $109,167 of prior deferred revenue was recognized when obligations under earlier agreements were cancelled.
- The company disclosed ongoing New York legal matters involving the company or its former CEO and family members. No significant developments occurred in the first half, and no litigation accrual was recorded. The expanded facility lease runs through July 31, 2021; monthly base rent was scheduled to increase to approximately $46,000 effective August 1, 2013.
Important facts for investors to verify
- Whether contract manufacturing demand and the concentrated customer relationship continue, and how that mix affects gross margins.
- Whether the 2013 revenue and margin outlook remains achievable, particularly given uneven adoption in the regenerative medicine market.
- Cash conversion and funding needs: cash was $76,205, six-month operating cash flow was $79,992, and substantial debt and accrued interest remain outstanding.
- The terms, covenant compliance, and repayment capacity for the secured related-party notes, including availability of the reported unused facility capacity.
- Developments in the disclosed litigation and any resulting financial exposure; the filing provides no clear estimate of potential outcomes.