BioLife Solutions, Inc. — Q3 2013 Form 10-Q
Business and period: The company develops and sells biopreservation media and provides custom formulation and contract aseptic manufacturing services. This unaudited filing covers the quarter and nine months ended September 30, 2013; comparisons are with the corresponding 2012 periods. Amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Total revenue | $2.170 million (2012: $1.681 million) | $6.661 million (2012: $3.615 million) |
| Gross profit / margin | $889,000 / 41.0% (2012: $595,000 / 35.4%) | $2.843 million / 42.7% (2012: $1.541 million / 42.6%) |
| Operating expenses | $999,000 (2012: $744,000) | $2.843 million (2012: $2.175 million) |
| Operating loss | $110,000 (2012: $149,000) | $606 (2012: $635,000) |
| Net loss | $310,000 (2012: $352,000) | $600,000 (2012: $1.148 million) |
| Operating cash flow | $67,000 for nine months (2012: $686,000) |
Q3 revenue growth was driven by core product sales of $1.002 million, up 61%, and contract manufacturing revenue of $1.168 million, up 15%. Nine-month core product sales rose 23% to $2.714 million; contract manufacturing revenue increased 146% to $3.338 million. Nine-month licensing revenue was $609,000, including a $500,000 upfront fee recognized in Q1 and $109,167 of previously deferred revenue recognized after related obligations were cancelled. Management reported record quarterly core product revenue of $1.0 million.
At September 30, cash and cash equivalents were $79,000, compared with $196,000 at year-end 2012. Working capital was $427,000, versus $262,000. Nine-month investing cash use was $235,000, primarily for facility improvements and equipment; financing cash inflow was $50,000 from warrant and option exercises. The company reported $10.6 million of related-party promissory notes, due January 11, 2016 and secured by all company assets, plus $3.316 million of accrued related-party interest. Approximately $900,000 remained available under the facilities. Shareholders’ equity was a deficit of $12.859 million; accumulated deficit was $56.411 million.
Changes, outlook and risks
- Revenue rose 29% in Q3 and 84% over nine months. Q3 margin improved, primarily because higher-margin core product sales made up a larger share of revenue; nine-month margin was nearly flat year over year.
- Nine-month net loss narrowed to $600,000 from $1.148 million, while operating cash flow declined to $67,000 from $686,000. The prior-year comparison included $766,000 of net landlord lease-incentive cash-flow benefit, versus $88,000 in 2013.
- Management said current cash and operating cash generation should meet working capital, debt and capital expenditure needs for the foreseeable future, but noted capital needs depend on profitability, debt repayment and market developments. No quantified revenue or earnings guidance was provided.
- The company has incurred annual operating losses since inception and stated profitability is not assured. One contract manufacturing customer generated 54% of Q3 and 55% of nine-month 2013 product revenue and represented 39% of gross receivables at quarter-end. Management noted regenerative-medicine sales may be uneven.
- Related-party debt is substantial relative to cash; covenant defaults could permit acceleration of the debt. New York legal matters involving the company, its former CEO and members of his family had no significant developments during the period; no litigation accrual was recorded.
- Management reported effective disclosure controls as of September 30, 2013 and no material change in internal control over financial reporting. The filing reports no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether core product growth and the contract manufacturing relationship are sustainable, given customer concentration and potential variability in regenerative-medicine demand.
- Cash runway and access to the approximately $900,000 unused facility, alongside the $10.6 million secured related-party notes and accumulated interest.
- The timing and economics of the licensing agreement, including the one-time $500,000 upfront fee and recognition of deferred revenue.
- Potential outcomes and financial exposure from the disclosed litigation, for which no accrual was recorded.
- Potential dilution: 19.7 million options and 7.4 million warrants were outstanding at September 30, 2013; common equivalents were excluded from diluted loss per share as anti-dilutive. The company reported 70.4 million common shares outstanding as of November 1, 2013.