BioLife Solutions, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. BioLife develops, manufactures, and markets biopreservation media and related services and products for cell, tissue, and organ storage and transport.
Key financial results
| Metric | Q1 2014 | Q1 2013 / prior date |
|---|---|---|
| Total revenue | $2.07 million | $2.16 million |
| Gross profit / margin | $903,389 / 44% | $1.13 million / 52% |
| Operating income (loss) | $(369,041) | $192,331 |
| Net income (loss) | $(559,371) | $(7,176) |
| Operating cash flow | $(894,126) | $(126,476) |
| Cash and equivalents | $12.84 million at March 31 | $156,273 at December 31, 2013 |
| Total liabilities | $1.90 million | $16.62 million at December 31, 2013 |
Core product sales rose 47% to $1.13 million; contract manufacturing revenue rose 19% to $933,000. Licensing revenue was zero, compared with $609,167 in Q1 2013. The prior-year license revenue had no associated cost and boosted the comparison-period gross margin; excluding that effect, management said gross margin percentage improved, primarily because of higher core product sales.
Operating expenses increased 36% to $1.27 million, led by higher general and administrative, research and development, and sales and marketing costs. Basic and diluted loss per share was $0.10, versus approximately break-even in Q1 2013. The company used $18,777 in investing cash flow, primarily for equipment, and received $13.60 million in net financing proceeds from its public offering. Operating cash use increased partly because of payments of accrued compensation and other liabilities.
Material changes and developments
- On March 25, the company raised $15.43 million gross, or $13.60 million net, in a registered unit offering. Each unit included one share and a seven-year warrant exercisable at $4.75.
- At the offering closing, approximately $14.3 million of related-party notes and accrued interest were converted into equity units. The debt was extinguished and security interests released; no promissory notes or related-party accrued interest remained at March 31.
- Common stock began trading on Nasdaq Capital Market on March 26 under BLFS. A 1-for-14 reverse split became effective January 29.
- Despite the equity transactions, substantial potential dilution remained: 7.43 million warrants and 1.37 million options were outstanding at quarter-end. The filing reports 11.94 million shares outstanding at March 31 and 12,007,461 as of April 30.
Outlook, risks, and contingencies
- Management’s 2014 goal was core product sales growth of 25%–35% over 2013; it cautioned that adoption, customer clinical and commercial success, competition, and other risks could prevent achievement. Management believed available cash would meet liquidity needs for the foreseeable future.
- The largest contract manufacturing customer represented about 45% of Q1 2014 product revenue and 47% of gross receivables at quarter-end. After completing the latest order in April, the company said it expected no significant new orders. It gave termination notice on May 8, with termination expected around November 5, 2014.
- Management expected about $0.1 million of revenue from the remaining order in Q2 and none thereafter. Assuming the customer otherwise would have generated an additional $3 million of 2014 revenue, management estimated a roughly $0.3 million gross-profit reduction and up to $0.7 million of unabsorbed manufacturing overhead. Cost reductions or reallocation could mitigate the effect; the company expected the change to increase overall gross-margin percentage.
- The contract includes a two-year post-termination restriction on manufacturing or selling certain solutions approved for clinical use in human-organ storage and transport. The company said it did not expect this restriction to affect its core business or non-conflicting contract manufacturing opportunities.
- The company planned a biologistex platform with SAVSU, combining information services and thermal shipping products, but ownership, marketing, and other commercial arrangements were still being finalized. Launch and manufacturing depended on successfully concluding discussions.
- New York litigation involving the company, its former CEO, and family members had no significant developments in the quarter. No litigation accrual was recorded. The filing also describes long-term lease and executive employment commitments.
Important facts for investors to verify
- Whether core product growth can offset the expected loss of significant contract manufacturing orders, including the actual overhead and margin effects.
- Progress and final commercial structure of the proposed biologistex/SAVSU offering.
- Customer concentration and receivables exposure, and the status and potential outcome of the disclosed litigation.
- Potential dilution and warrant exercise terms following the offering and debt conversion.
- Whether operating cash use and management’s liquidity expectations remain consistent with subsequent results.