BioLife Solutions, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; comparisons are with Q1 2012 unless otherwise noted. BioLife develops and sells cell, tissue, and organ preservation media and provides custom formulation and contract manufacturing services.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Total revenue | $2.16 million | $835,880; up 158% |
| Product sales | $1.55 million | $830,880 |
| Gross profit / margin | $1.13 million / 52.1% | $489,751 / 58.6% |
| Operating income (loss) | $192,331 | $(179,264) |
| Net income (loss) | $(7,176) | $(296,877) |
| Cash used in operating activities | $126,476 | $74,823 |
| Cash and cash equivalents | $61,523 at March 31 | $196,478 at December 31, 2012 |
Revenue growth reflected $780,712 in contract manufacturing services and $609,167 in licensing revenue. Core product sales fell 7% to $770,133: direct sales decreased 17%, while indirect sales increased 73%. Cost of sales rose 199% to $1.03 million, and gross margin declined primarily because contract manufacturing has higher costs than core products.
Operating expenses were $933,153, up from $669,015. Research and development decreased to $105,968; sales and marketing increased to $202,758; general and administrative increased to $624,427. Management attributed increases principally to added personnel and higher corporate, facility, and professional-service costs. Interest expense was $185,555.
At March 31, current assets were $1.92 million and current liabilities were $1.47 million, yielding reported working capital of $442,440. Total liabilities were $15.82 million against total assets of $3.42 million, and shareholders’ equity was negative $12.40 million. Related-party promissory notes totaled $10.60 million, with $2.94 million of accrued related-party interest. The notes are secured by company assets and due January 11, 2016. Approximately $900,000 remained available under the facilities.
Material changes and unusual items
- A new intellectual-property license agreement generated $500,000 of upfront revenue with no future performance obligations; the company also recognized $109,167 of previously deferred revenue after earlier performance obligations were cancelled.
- In Q1 2012, other income included $87,215 for inventory received in a noncash transaction; there was no comparable amount in Q1 2013.
- Cash declined by $134,955 during the quarter. Operating cash use included a $376,004 increase in trade receivables; accounts payable increased $191,419.
- After quarter-end, the company received a $250,000 short-term note from its two largest stockholders.
- The amended facility lease covers approximately 26,000 rentable square feet through July 31, 2021. Monthly base rent rose to approximately $35,000 in January 2013 and was expected to rise to approximately $46,000 in May, subject to completion of leasehold improvements.
Outlook, risks, and contingencies
Management forecast 2013 revenue of $6.5 million to $7.0 million, gross margin of approximately 38%–41%, and operating expenses 10%–20% above 2012. It expected revenue growth from existing and new customers, regenerative-medicine activity, and distribution, and stated it would focus on positive operating income. Management believed cash from customer collections would fund operations, working capital, debt obligations, and capital expenditures for the foreseeable future.
- The company reported operating losses since inception, an accumulated deficit of $55.8 million, and stated profitability depends on achieving revenue sufficient to support its cost structure. Cash was $61,523 at quarter-end; working-capital needs may fluctuate.
- Customer concentration is significant: one contract manufacturing customer generated approximately 50% of Q1 2013 product revenue. The license customer represented 56% of gross accounts receivable; one other customer represented 10%. All license revenue in both comparison periods came from one customer.
- Failure to comply with material debt covenants could trigger default and acceleration of the secured related-party debt.
- The company disclosed ongoing New York legal matters involving the company or its former CEO and family members. No significant developments occurred in the quarter, and no litigation accrual was recorded.
- Management reported disclosure controls were effective as of March 31, 2013 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the one-time license revenue and contract manufacturing sales continue, and how customer concentration evolves.
- Cash generation, receivables collection, and liquidity relative to the company’s stated 2013 outlook and low quarter-end cash balance.
- Debt terms, covenant compliance, related-party financing, and the use and repayment terms of the post-quarter $250,000 note.
- Actual 2013 revenue, gross margin, expense, and operating-income results versus management’s forecasts.
- Developments in the disclosed legal matters and any resulting financial exposure.