Forward Looking Statements
The statements contained in this Quarterly Report on Form 10-Q, including under the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations," include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including, without limitation, statements regarding
Management's discussion and analysis provides additional insight into the Company and is provided as a supplement to, and should be read in conjunction with, our annual report on Form 10-K for the fiscal year ended
BioLife was originally incorporated in
We develop, manufacture and market patented hypothermic storage and cryopreservation solutions for cells and tissue. Our product offerings include:
? Patented biopreservation media products for cells, tissues, and organs ? Generic formulations of blood stem cell freezing media products ? Custom product formulation and custom packaging services ? Precision thermal packaging products ? Contract aseptic manufacturing formulation, fill, and finish services of liquid media products
Our proprietary HypoThermosol® FRS and CryoStor®, generic BloodStor® biopreservation media products and precision thermal packaging products are marketed to the biobanking, drug discovery, and regenerative medicine markets, including hospital-based stem cell transplant centers, pharmaceutical companies, cord blood and adult stem cell banks, hair transplant centers, and suppliers of cells to the drug discovery, toxicology testing and diagnostic markets. All of our products are serum-free and protein-free, fully defined, and are manufactured under current Good Manufacturing Practices (cGMP) using United States Pharmacopia (USP)/Multicompendial or the highest available grade components.
Our patented biopreservation media products are formulated to reduce preservation-induced, delayed-onset cell damage and death. Our platform enabling technology provides our customers significant shelf life extension of biologic source material and final cell products, and also greatly improved post-preservation cell, tissue, and organ viability and function. We believe that our products have been incorporated into the manufacturing, storage, shipping, freezing, and clinical delivery processes of over 100 hospital-approved or clinical trial stage regenerative medicine applications.
The discoveries made by our scientists and consultants relate to how cells, tissues, and organs respond to the stress of hypothermic storage, cryopreservation, and the thawing process. These discoveries enabled the formulation of innovative biopreservation media products that protect biologic material from preservation-related cellular injury, much of which is not apparent immediately after return to normothermic body temperature. Our product formulations have demonstrated notable reduction in apoptotic (programmed) and necrotic (pathologic) cell death mechanisms and are enabling the clinical and commercial development of dozens of innovative regenerative medicine products.
Recent Developments Reverse Stock Split
Public Offering of Units
Conversion of Notes and Interest to Equity
Pursuant to previously disclosed note conversion agreements with
Listing of Common Stock on
Summary of Results for the Second Quarter of 2014
? Total revenue decreased 48% for the second quarter of 2014 compared to the second quarter of 2013 and 41% from the first quarter of 2014, due to the cancellation of our contract manufacturing services agreement with an organ preservation company. ? We announced the execution of a long-term contract manufacturing services agreement with
Somahlution LLC, a Jupiter, Florida-based biotechnology company in July 2014. This agreement is expected to start generating revenue in the fourth quarter of 2014. We will manufacture DuraGraft™, a tissue preservation solution for storage of harvested veins used in coronary artery bypass graft (CABG) and other vascular access surgeries. ? Core product revenue in the second quarter of 2014 increased 14% over the second quarter of 2013, with increased sales to the regenerative medicine market, as well as strong sales to cell suppliers. Core product revenue was down 5% from the first quarter of 2014. Our core product revenue is subject to significant quarter-to-quarter fluctuations and can be concentrated in particular quarters. It is heavily dependent on the progress and timing of our customers' clinical trials. ? Net loss for the second quarter of 2014 increased to $883,356, compared to $282,506in the second quarter of 2013 and $559,371in the first quarter of 2014. The increase is the result of reduction in revenue from the cancellation of our contract manufacturing services agreement. We also reported higher research and development and selling and marketing expenses, with the ramp up in our efforts in both of those areas. General and administrative expenses also impacted net loss, with higher consulting fees for investor relations, higher personnel costs, including salaries and bonuses, and higher corporate costs, including corporate insurance, directors' fees, legal fees and accounting fees. ? Net cash used by operating activities was $1,767,644in the first half of 2014 compared to cash provided by operations of $79,992in the first half of 2013. The difference being primarily attributable to the reduction in revenue from the cancellation of our contract manufacturing services agreement. 14
? TxCell, a
Nice, France-based biotechnology company developing innovative, personalized cell-based immunotherapies using antigen specific regulatory T cells (Ag-Tregs) for severe chronic inflammatory and autoimmune diseases, announced they adopted BioLife's CryoStor clinical grade cell freezing media for use in their European phase IIb clinical trial of Ovasave® immunotherapy in refractory Crohn's Disease, which is planned to start in the second half of 2014. ? We announced that we expect to launch biologistex, a new integrated service platform combining cloud-based information service and precision thermal shipping products for cells and tissues. We are finalizing the terms of this relationship and expect to be in beta trials with customers by the fourth quarter of this year. ? We received the Frost & Sullivan2014 Technology Innovation Leadership Award for Biopreservation Media, recognizing our position as a market leader.
Results of Operations
Our revenue, results of operations and cash balances are likely to fluctuate significantly from quarter-to-quarter. These fluctuations are due to a number of factors, especially the progress of our customers' clinical trials. The majority of our net sales come from a relatively small number of customers and a limited number of market sectors. Each of these sectors is subject to macroeconomic conditions as well as trends and conditions that are sector specific. Any weakness in the market sectors in which our customers are concentrated could affect our business and results of operations.
Comparison of Results of Operations for the Three and Six Month Periods Ended
Percentage comparisons have been omitted within the following table where they are not considered meaningful.
Revenue and Gross Margin Three Month Period Ended June 30, 2014 2013 % Change Revenue: Core product sales
$ 1,076,780 $ 941,56814% Contract manufacturing services 135,120 1,388,450 (90)% Total revenue 1,211,900 2,330,018 (48)% Cost of sales 666,580 1,501,575 (56)% Gross profit $ 545,320 $ 828,443(34)% Gross margin % 45.0% 35.6% Six Month Period Ended June 30, 2014 2013 % Change Revenue: Core product sales $ 2,209,025 $ 1,711,70129% Contract manufacturing services 1,067,905 2,169,162 (51)% Licensing revenue -- 609,167 (100)% Total revenue 3,276,930 4,490,030 (27)% Cost of sales 1,828,221 2,536,103 (28)% Gross profit $ 1,448,709 $ 1,953,927(26)% Gross margin % 44.2% 43.5%
Core Product Sales. Our core products are sold through both direct and indirect channels. Sales to our core customers in the three and six months ended
Contract Manufacturing Services. Contract manufacturing services represents sales of product to one significant customer, ORS. The contract with this customer was terminated in May of 2014.
Licensing Revenue. During the first quarter of 2013, we negotiated a new intellectual property license agreement that provides one customer with limited access to our intellectual property under certain conditions. This customer paid upfront fees for the specific rights and there are no future performance obligations. The upfront fee of
Cost of Sales. Cost of sales consists of raw materials, labor and overhead expenses. Cost of sales in the three and six months ended
Gross Margin. Gross margin as a percentage of revenue was 45% in the three months ended
Gross margin for the six months ended
Our operating expenses for the three and six month periods ended
June 30, 2014and 2013 were: Three Month Period Ended June 30, 2014 2013 % Change Operating Expenses: Research and development $ 192,778 $ 94,908103% Sales and marketing 270,616 214,762 26% General and administrative 969,799 601,617 61% Operating Expenses 1,433,193 911,287 57% % of revenue 118% 39% Six Month Period Ended June 30, 2014 2013 % Change Operating Expenses: Research and development $ 360,065 $ 200,87679% Sales and marketing 512,016 417,520 23% General and administrative 1,833,542 1,226,044 50% Operating Expenses 2,705,623 1,844,440 47% % of revenue 83% 41% 16
Research and Development. Research and development expenses consist primarily of salaries and other personnel expenses, consulting and other outside services including legal services, laboratory supplies, and other costs. We expense all research and development costs as incurred. Research and development expenses for the three and six months ended
Sales and Marketing. Sales and marketing expenses consist primarily of salaries and other personnel-related expenses, consulting, trade shows and advertising. The increases in the three and six months ended
General and Administrative Expenses. General and administrative expenses consist primarily of salaries and other personnel-related expenses, non-cash stock-based compensation for administrative personnel and non-employee members of the board of directors, professional fees, such as accounting and legal, corporate insurance and facilities costs. The increases in general and administrative expenses in the three and six months ended
Other Income (Expenses)
Interest Expense. The reduction in interest expense in the three and six months ended
Amortization of Deferred Financing Costs. During the three and six months ended
We believe that our current level of cash and cash equivalents will be sufficient to meet our liquidity needs for the foreseeable future. We expect to have ongoing cash requirements which we plan to fund through total available liquidity and cash flows generated from operations. Our future uses of cash, which may vary from time to time based on market conditions and other factors, are centered around growing our core business, and continuing to strengthen our balance sheet and competitive position.
Our liquidity plans are subject to a number of risks and uncertainties, including those described in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended
We continue to monitor and evaluate opportunities to strengthen our balance sheet and competitive position over the long-term. These actions may include the possibility of acquisitions or strategic alliances that we believe would generate significant advantages and substantially strengthen our business.
Net Cash Provided by (Used In) Operating Activities
During the six months ended
Net Cash Used in Investing Activities
Net cash used in investing activities totaled
Net Cash Provided by Financing Activities
Net cash provided by financing activities was
Upon conversion of all of our outstanding notes and interest to equity on
Off-Balance Sheet Arrangements
Critical Accounting Policies and Significant Judgments and Estimates
Management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in
Our critical accounting policies and estimates have not changed significantly from those policies and estimates disclosed under the heading "Critical Accounting Policies and Significant Judgments and Estimates" in Part II, Item 7, "Management's Discussion and Analysis of Financial Conditions and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended
We previously disclosed certain contractual obligations and contingencies and commitments relevant to us within the financial statements and Management Discussion and Analysis of Financial condition and Results of Operations in our Annual report on Form 10-K for the year ended