The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
1. | 1. Organization and Significant Accounting Policies
|
Business
BioLife Solutions, Inc. (“BioLife,” “us,” “we,” “our,” or the “Company”) is a leading developer, manufacturer and supplier of a portfolio of bioproduction tools including;including proprietary biopreservation media, automated thawing devices, cloud-connected shipping containers, and freezer technology for cell and gene therapies. Our CryoStor® freeze media and HypoThermosol® hypothermic storage are optimized to preserve cells in the regenerative medicine market. These novel biopreservation media products are serum-free and protein-free, fully defined, and are formulated to reduce preservation-induced cell damage and death; offering commercial companies and clinical researchers significant improvement in shelf life and post-preservation viability and function. Our ThawSTAR® product line is comprised of a family of automated thawing devices for frozen cell and gene therapies packaged in cryovials and cryobags. These products improve the quality of administration of high-value, temperature-sensitive biologic therapies to patients by standardizing the thawing process and reducing the risks of contamination and overheating which are inherent with the use of traditional water baths. Our evo shipping containers are innovative high-performance cloud-connected passive storage and transport containers for temperature-sensitive biologics and pharmaceuticals. Our cryogenic freezer technology provides for controlled rate freezing and storage of biologic materials.
Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by BioLife Solutions, Inc. in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), for Quarterly Reports on Form 10-Q10-Q and Article 10 of Regulation S-XS-X and do not include all of the information and footnote disclosures required by GAAP. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K10-K for the fiscal year ended December 31, 2019.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Astero Bio Corporation (“Astero,” and the Astero product line, “ThawStar” acquired on April 1, 2019), SAVSU Technologies, Inc. (“SAVSU” and the product line “evo” acquired on August 8, 2019), and Arctic Solutions, Inc. dba Custom Biogenic Systems (“CBS” and the freezer and accessory product lines acquired on November 12, 2019). All significant intercompany accounts and transactions have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal, recurring adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows. The results of operations for the interim periods presented are not necessarily indicative of results to be expected for the entire year.
Financial Statement Reclassification
Certain classifications on the Condensed Consolidated Statements of Cash Flows related to Nonnon cash lease expense and Accruedaccrued expenses and other current liabilities for the three and six months ended March 31,June 30, 2019 were reclassified to conform to current period presentation. These reclassifications have no impact on previously reported total revenue, net income (loss), net assets, or total operating cash flows.
Significant Accounting PoliciesPolicies
There have been no significant changes to the accounting policies during the threesix months ended March 31,June 30, 2020, as compared to the significant accounting policies described in our Annual Report on Form 10-K.10-K.
Liquidity and Capital Resources
On March 31,June 30, 2020 and December 31, 2019, we had $29.9 million and $6.4 million in cash and cash equivalents.equivalents, respectively. We acquired Astero on April 1, 2019 for $12.5 million in cash and contingent consideration of up to $8.5 million (which payment requirement has not been triggered or otherwisemillion. We paid to date). We anticipate paying $484,000 for the earnout$483,000 of contingent consideration related to 2019 revenues of Astero in the second quarter of 2020. On August 8, 2019, we acquired SAVSU for 1,100,000 shares of common stock. On November 12, 2019, we acquired CBS for $11.0 million in cash, $4.0 million in shares of our common stock, and up to $15.0 million in contingent consideration payable in cash or stock (which payment requirement has not been triggered or otherwise paid to date).
On May 22, 2020, the Company closed on a share purchase agreement with Casdin Capital LLC, a current stockholder of the Company (“Casdin”), pursuant to which Casdin invested $20 million in the Company. Company at $10.50 per share. On July 7, 2020, the Company closed its public offering of 5,951,250 shares of common stock at the public offering price of $14.50 per share, which includes the shares purchased pursuant to the exercise in full of the underwriters' option to purchase up to an additional 776,250 shares of its common stock. The net proceeds from the offering to BioLife, after deducting underwriting discounts and commissions and estimated offering expenses, were approximately $81 million.
Based on our current expectations with respect to our future revenue and expenses, we believe that our current level of cash and cash equivalents including proceeds from the Casdin investment,public offering, will be sufficient to meet our liquidity needs for at least the next 12 months. However, if our revenues do not grow as expected, including as a result of the COVID-19COVID-19 pandemic, and if we are not able to manage expenses sufficiently, we may be required to obtain additional equity or debt financing if our cash resources are depleted.financing. Further, the Company may choose to raise additional capital through a debt or equity financing in an attempt to mitigate the heightened level of business uncertainty caused by the COVID-19COVID-19 pandemic, or in order to pursue additional acquisition or strategic investment opportunities. Additional capital, if required, may not be available on reasonable terms, if at all.
Risks and Uncertainties
COVID-19 Pandemic
On March 10, 2020, the World Health Organization declared the COVID-19 outbreak of the novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 (“COVID-19”) a pandemic. The virusCOVID-19 pandemic, and actions takenthe resulting restrictions intended to mitigateslow the spread of COVID-19, including stay-at-home orders, business shutdowns and other restrictions, has affected the Company’s business in several ways. In the last two weeks of March 2020, the Company received higher than average orders for its spread have had and are expectedcryopreservation media products. The Company estimates that a total of between $1.5 to continue$2.0 million of orders for cryopreservation were shipped to customers wanting to have a broad adverse impactproduct on hand in the economies and financial marketsevent of many countries, including the geographical areas in whichany potential supply disruptions. At this time, the Company operates and conducts its business. In particular,is unable to determine whether the Seattle area, including the location of our corporate headquarters and our media production facility and warehouse, is at one of the epicenters of the coronavirus outbreak in the U.S. We are currently following the recommendations of local health authorities to minimize exposure risk for our team members and visitors. However, the scale and scope of this pandemic is unknown and the duration of the business disruption and related financial impact cannot be reasonably estimated at this time. While we have implemented specific business continuity plans to reduce the potential impact of COVID-19 and believe that we have sufficient biopreservation mediaincremental cryopreservation “safety stock” orders represent a permanent inventory to meet previously forecasted demand for the next six to nine months, there is no guarantee that our continuity plan, once in place, will be successful or that our inventory will meet forecasted or actual demand.
We have already experienced certain disruptions to our business such as temporary closure of our offices and similar disruptions may occurlayer for our customers, or supplierswhether it was simply demand pull forward, which could result in lower cryopreservation orders in subsequent periods. Further, while the sales of our automated thaw and freezer product lines were not materially affected in the three months ended March 31, 2020, we believe the sales of these capital equipment products were negatively impacted in the second quarter ended June 30, 2020, due to customer facility closures resulting in delayed deliveries. We also believe that new capital equipment decisions may materially affectbe delayed due to the pandemic, which would impact our abilityautomated thaw and freezer product lines, although at this time, the Company cannot estimate the financial impact.
The Company reviews capital and amortizing intangible assets (long-lived assets) for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company determined that the economic uncertainty caused by the COVID-19 pandemic was a trigger for an impairment review of certain long-lived assets based on the expected near term weakness in ThawStar and freezer revenue resulting from the impact of COVID-19. The Company revised the revenue projections for these two product lines to obtain suppliesdetermine the impact on the fair value of the contingent consideration related to the existing earnout provisions. Based on results of the fair value analysis of the contingent consideration, the Company reduced the fair value of the combined contingent consideration liability from $1.9 million at March 31, 2020, to $388,000 at June 30, 2020.
As a result of the Company’s changed outlook for near term revenue from the ThawStar and freezer product lines, estimated undiscounted cash flow projections were developed to determine if any impairment of the related intangible assets was warranted. After conducting such review, the Company determined that there was 0 impairment of the remaining long-lived assets as of June 30, 2020. Given the inherent uncertainties of the COVID-19 pandemic and the estimates used in these cash flow projections, changes based on facts and circumstances in future quarters could give rise to impairment.
The Company may also experience other negative impacts of the COVID-19 outbreak such as the lack of availability of the Company’s key personnel, additional temporary closures of the Company’s office or the facilities of the Company’s business partners, customers, third party service providers or other components forvendors, the inability to travel to market and sell our products, produce our productsand the interruption of the Company’s supply chain, distribution channels, liquidity and capital or deliver inventoryfinancial markets.
Any disruption and volatility in a timely manner. This would result in lost product revenue, additional costs, or penalties, or damage our reputation. Similarly, COVID-19 could impact our customers and/or suppliersthe global capital markets as a result of a health epidemic or other outbreak occurring in other locations which could reduce their demand for our products or theirthe pandemic may increase the Company’s cost of capital and adversely affect the Company’s ability to deliver needed supplies foraccess financing when and on terms that the productionCompany desires. In addition, a recession resulting from the spread of our products. COVID-19 could materially affect the Company’s business, especially if a recession results in higher unemployment causing potential patients to not have access to health insurance.
The ultimate extent to which COVID-19 or any other health epidemic maythe COVID-19 pandemic and its repercussions impact our resultsthe Company’s business will depend on future developments, which are highly uncertainuncertain. However, the foregoing and cannot be predicted, including new information which may emerge concerningother continued disruptions to the severityCompany’s business as a result of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. Accordingly, COVID-19COVID-19 could haveresult in a material adverse effect on ourthe Company’s business, results of operations, financial condition and prospects.cash flows.
There are many uncertainties regarding On March 27, 2020, the current pandemicPresident signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the novel coronavirus (“COVID-19”),net interest deduction limitations, increased limitations on qualified charitable contributions, and the Company is closely monitoring the impact of COVID-19 on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, business partners and distribution channels. While COVID-19 did not materially affect the Company’s financial results and business operations in the Company’s first quarter ended March 31, 2020, the Company is unabletechnical corrections to predict the impact that COVID-19 may have on its financial position and operations moving forward due to numerous uncertainties. We estimate that we received approximately $1.5-$2.0 million in incremental media revenue resulting from what we believe were safety stock purchases of media. These estimates may change as new events occur and additional information is obtained, and actual results could differ materially from these estimates under different assumptions or conditions.tax depreciation methods for qualified improvement property. The Company will continue to assessmonitor the evolving impact that the CARES Act may have on the Company’s business, financial condition, results of COVID-19 and will make adjustments to its operations, as necessary. or liquidity.
We determined that we met the original eligibility requirements per the guidelines original established by the U.S. federal government as part of the CARES Act for the Pursuant to the Paycheck Protection Program (the “PPP”). As such, on April 20, 2020, the Company received $2,175,320 in support from the PPP. Because the U.S. government subsequently changed its position and guidelines related to the PPP and publicly traded companies, the Company repaid the loan on April 29, 2020. As of March 30, 2020, the company started deferring the employer side of social security payments. We will pay back 50% of our total deferred payments in 2021 and the remaining 50% in 2022.
Concentrations of credit risk and business risk
In the three months ended March 31,June 30, 2020, we derived approximately 25% of our product revenue from two customers. In customers and in the threesix months ended March 31, 2019, June 30, 2020, we derived approximately 34%13% of our revenue from 1 customer. In the three months ended June 30, 2019, we derived approximately 17% of our product revenue from two customers. 1 customer and in the six months ended June 30, 2019, we derived approximately 20% of our revenue from 1 customer. No other customer accounted for more than 10% of revenue in the threesix months ended March 31,June 30, 2020 or 2019. In the three months ended March 31,June 30, 2020 and 2019, we derived approximately 66%62% and 90%82%, of our revenue from CryoStor products, respectively. Due to our acquisitions in 2019, we expect both our revenue concentration related to CryoStor and our customer concentrationconcentrations to be reduced for the year ended December 31, 2020. At March 31,June 30, 2020, two2 customers accounted for approximately 33%22% of total gross accounts receivable. At December 31, 2019, two2 customers accounted for approximately 25% of total gross accounts receivable.
The following table represents the Company’s total revenue by geographic area (based on the location of the customer):
| | | Three Months Ended March 31, | | | Three Months Ended June 30, | | Six Months Ended June 30, | |
Revenue by customers’ geographic locations | | 2020 | | | 2019 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | |
United States | | | 74 | % | | | 60 | % | | 70 | % | | 71 | % | | 73 | % | | 66 | % |
Canada | | | 11 | % | | | 23 | % | | 18 | % | | 17 | % | | 14 | % | | 20 | % |
Europe, Middle East, Africa (EMEA) | | | 12 | % | | | 13 | % | | 10 | % | | 11 | % | | 11 | % | | 12 | % |
Other | | | 3 | % | | | 4 | % | | | 2 | % | | | 1 | % | | | 2 | % | | | 2 | % |
Total revenue | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
Recent accounting pronouncements
In August 2018, the FASB issued ASU 2018-13,2018-13, “Fair Value Measurement (Topic 820)820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-132018-13 includes amendments that aim to improve the effectiveness of fair value measurement disclosures. The amendments in this guidance modify the disclosure requirements on fair value measurements based on the concepts in FASB Concepts Statement, “Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements,” including the consideration of costs and benefits. The amendments become effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company adopted this guidance January 1, 2020 and there was no material impact on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12,2019-12, “Income Taxes (Topic 740)740) – Simplifying the Accounting for Income Taxes.” ASU 2019-122019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, including, but not limited to, the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, the exceptions related to the recognition of a deferred tax liability related to an equity method investment and the exception to methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. ASU 2019-122019-12 becomes effective for the Company in the year ended December 31, 2021, including interim periods. The Company is considering early adoption in 2020. Due to the full valuation allowance on the Company’s net deferred tax assets, the Company is currently expecting no material impact from the adoption of ASU 2019-122019-12 on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13,2016-13, “Financial Instruments – Credit Losses (Topic 326)326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-132016-13 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For Smaller Reporting Companies as defined by the SEC, ASU 2016-132016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is evaluating the impact of the guidance on its financial statements.
In August 2018, the FASB issued ASU No. 2018-15,2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40)350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”, which clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-152018-15 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company will adopt the standard prospectively on January 1, 2020. The Company adopted this guidance January 1, 2020 and there was no material impact on its consolidated financial statements.
2.Fair Value Measurement
In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” (“ASC Topic 820”), the Company measures its cash and cash equivalents and investments at fair value on a recurring basis. The Company also measures certain assets and liabilities at fair value on a non-recurring basis when applying acquisition accounting. ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC Topic 820 establishes a three-tierthree-tier value fair hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 – Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices included in Level 1 for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Level 3 – Unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement.
As of March 31,June 30, 2020 and December 31, 2019, the Company valued the Astero and CBS contingent consideration, investment in convertible debt, and warrant liability at fair value.value, which require Level 3 inputs
For the Astero and CBS contingent consideration, the significant Level 3 inputs are the future projected revenue and revenue volatility from the acquired businesses. The company used best estimates in developing revenue forecasts.
For the investment in convertible debt, the significant Level 3 inputs are the expected term of the instrument, the underlying credit worthiness of the issuer and the valuation of various embedded features in the note, which are based on future financings of the issuer. The expected term the range of our estimate is 3 to 5 years, with equal weighting over this term. There is currently no quantitative information concerning the creditworthiness of the issuer.
For the warrant liability, the significant Level 3 inputs include the estimated term of the warrants and the volatility of the Company’s common stock. For the estimated term of the warrants, we used the actual terms of the warrants, which are all currently less than one year. For the volatility off the Company’s stock we used historical volatility for the remaining term of each warrant. These amounts ranged from 73.9% to 77.7%. We did not make any adjustments to the historical volatility.
There were no remeasurements to fair value during the threesix months ended March 31,June 30, 2020 of financial assets and liabilities that are not measured at fair value on a recurring basis.
The following tables set forth the Company’s financial assets measured at fair value on a recurring basis as of March 31,June 30, 2020 and December 31,2019, based on the three-tierthree-tier fair value hierarchy:
(In thousands)
As of March 31, 2020 | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | |
As of June 30, 2020 | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Money market accounts | | $ | 6,400 | | | $ | — | | | $ | — | | | $ | 6,400 | | | $ | 29,879 | | | $ | — | | | $ | — | | | $ | 29,879 | |
Convertible debt held at fair value | | | — | | | | — | | | | 1,000 | | | | 1,000 | | | | — | | | | — | | | | 1,000 | | | | 1,000 | |
Total | | | 6,400 | | | | — | | | | 1,000 | | | | 7,400 | | | 29,879 | | | — | | | 1,000 | | | 30,879 | |
Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contingent consideration - business combinations | | | — | | | | — | | | | 1,851 | | | | 1,851 | | | — | | | — | | | 387 | | | 387 | |
Warrant liability | | | — | | | | — | | | | 17,667 | | | | 17,667 | | | | — | | | | — | | | | 963 | | | | 963 | |
Total | | $ | — | | | $ | — | | | $ | 19,518 | | | $ | 19,518 | | | $ | — | | | $ | — | | | $ | 1,350 | | | $ | 1,350 | |
As of December 31, 2019 | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Assets: | | | | | | | | | | | | | | | | |
Money market accounts | | $ | 6,448 | | | $ | — | | | $ | — | | | $ | 6,448 | |
Convertible debt held at fair value | | | — | | | | — | | | | 1,000 | | | | 1,000 | |
Total | | | 6,448 | | | | — | | | | 1,000 | | | | 7,448 | |
Liabilities: | | | | | | | | | | | | | | | | |
Contingent consideration - business combinations | | | — | | | | — | | | | 1,914 | | | | 1,914 | |
Warrant liability | | | — | | | | — | | | | 39,602 | | | | 39,602 | |
Total | | $ | — | | | $ | — | | | $ | 41,516 | | | $ | 41,516 | |
The fair values of money market funds classified as Level 1 were derived from quoted market prices as active markets for these instruments exist. The fair values of investments, warrant liability and contingent consideration classified as Level 3 were derived from management assumptions. There have been no transfers of assets or liabilities between the fair value measurement levels. The following table presents the changes in investments held at fair value which are measured using Level 3 inputs:
| | | March 31, | | | December 31, | | | June 30, | | December 31, | |
(In thousands) | | 2020 | | | 2019 | | | 2020 | | | 2019 | |
Beginning balance | | $ | 1,000 | | | $ | 1,000 | | | $ | 1,000 | | | $ | 1,000 | |
Purchases | | | — | | | | — | | | — | | | — | |
Change in fair value recognized in net income | | | — | | | | — | | | | — | | | | — | |
Total | | $ | 1,000 | | | $ | 1,000 | | | $ | 1,000 | | | $ | 1,000 | |
The following table presents the changes in fair value of contingent consideration liabilities which are measured using Level 3 inputs:
| | | March 31, | | | December 31, | | | June 30, | | December 31, | |
(In thousands) | | 2020 | | | 2019 | | | 2020 | | | 2019 | |
Beginning balance | | $ | 1,914 | | | $ | — | | | $ | 1,914 | | | $ | — | |
Additions | | | — | | | | 2,347 | | | — | | | 2,347 | |
Change in fair value recognized in net income | | | (63 | ) | | | 50 | | | (1,526 | ) | | 50 | |
Payments earned, reclassified to accrued liabilities | | | — | | | | (483 | ) | | | — | | | | (483 | ) |
Total | | $ | 1,851 | | | $ | 1,914 | | | $ | 388 | | | $ | 1,914 | |
The following table presents the changes in fair value of warrant liabilities which are measured using Level 3 inputs:
| | | March 31, | | | December 31, | | | June 30, | | December 31, | |
(In thousands) | | 2020 | | | 2019 | | | 2020 | | | 2019 | |
Beginning balance | | $ | 39,602 | | | $ | 28,516 | | | $ | 39,602 | | | $ | 28,516 | |
Exercised warrants | | | (21 | ) | | | (1,749 | ) | | (33,167 | ) | | (1,749 | ) |
Change in fair value recognized in net income | | | (21,914 | ) | | | 12,835 | | | | (5,472 | ) | | | 12,835 | |
Ending balance | | $ | 17,667 | | | $ | 39,602 | | | $ | 963 | | | $ | 39,602 | |
3. Acquisitions
Astero Acquisition
On April 1, 2019, BioLife completed the acquisition of all the outstanding shares of Astero. Astero’s ThawSTAR product line is comprised of a family of automated thawing devices for frozen cell and gene therapies packaged in cryovials and cryobags. The products improve the quality of administration of high-value, temperature-sensitive biologic therapies to patients by standardizing the thawing process and reducing the risks of contamination and overheating, which are inherent with the use of traditional water baths.
In connection with the acquisition, the Company paid (i) a base payment in the amount of $12.5 million consisting of (x)(x) an initial cash payment of $8.0 million at the closing of the transactions, subject to adjustment for working capital, net debt and transaction expenses, and (y) a deferred cash payment that was paid into escrow and subsequently paid to Astero of $4.5 million which was payable upon the earlier of Astero meeting certain product development milestones or one year after the date of the Closing and (ii) earnout payments in calendar years 2019,2020 and 2021 of up to an aggregate of $3.5 million, which shall be payable upon Astero achieving certain specified revenue targets in each year (in the second quarter of 2020 we paid $483,000 for the earnout related to 2019 revenues) and a separate earnout payment of $5.0 million for calendar year 2021, which shall be payable upon Astero achieving a cumulative revenue target over the three-yearthree-year period from 2019 to 2021.
Consideration transferred
The Astero acquisition was accounted for as a purchase of a business under FASB ASC Topic 805, “Business Combinations”. The Astero acquisition was funded through payment of approximately $12.5 million in cash and under the terms of the share purchase agreement, Astero shareholders are eligible to receive up to an additional $8.5 million of contingent consideration in cash over the next three years based on attainment of specific revenue targets. Under the acquisition method of accounting, the assets acquired and liabilities assumed from Astero were recorded as of the acquisition date, at their respective fair values, and consolidated with those of BioLife. The fair value of the contingent consideration of $1.5 million was determined using an option pricing model. The fair value of the net tangible assets acquired is estimated to be approximately $324,000, the fair value of the intangible assets acquired is estimated to be approximately $4.1 million, and the residual goodwill is estimated to be approximately $9.5 million. The fair value estimates required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates. BioLife believes these estimates to be reasonable. Actual results may differ from these estimates.
Total consideration recorded for the acquisition of Astero is as follows (amounts in thousands):
Cash consideration | | $ | 12,521 | |
Contingent consideration | | | 1,491 | |
Working capital adjustment | | | (71 | ) |
Total consideration transferred | | $ | 13,941 | |
Fair Value of Net Assets Acquired
The table below represents the purchase price allocation to the net assets acquired based on their estimated fair values (amounts in thousands). Such amounts were estimated using the most recent financial statements from Astero as of March 31, 2019.
Cash and cash equivalents | | $ | 11 | |
Accounts receivable, net | | | 154 | |
Inventory | | | 456 | |
Customer relationships | | | 160 | |
Tradenames | | | 470 | |
Developed technology | | | 2,840 | |
In-process research and development | | | 650 | |
Goodwill | | | 9,515 | |
Other assets | | | 99 | |
Accounts payable | | | (250 | ) |
Other liabilities | | | (164 | ) |
Fair value of net assets acquired | | $ | 13,941 | |
The fair value of Astero’s identifiable intangible assets and estimated useful lives have been estimated as follows (amounts in thousands except years):
| | | Estimated Fair Value | | | Estimated Useful Life (Years) | |
Customer relationships | | $ | 160 | | | | 4 | | |
Tradenames | | | 470 | | | | 9 | | |
Developed technology | | | 2,840 | | | 5 | – | 9 | |
In-process research and development | | | 650 | | | | 9 | | |
Total identifiable intangible assets | | $ | 4,120 | | | | | | |
Fair value measurement methodologies used to calculate the value of any asset can be broadly classified into one of three approaches, referred to as the cost, market and income approaches. In any fair value measurement analysis, all three approaches must be considered, and the approach or approaches deemed most relevant will then be selected for use in the fair value measurement of that asset. The fair value of identifiable intangible assets was determined by third-partythird-party appraisal primarily using variations of the income approach, which is based on the present value of the future after-tax cash flows attributable to each identifiable intangible asset. The fair value of inventories was determined using both the cost approach and the market approach.
Some of the more significant assumptions inherent in the development of intangible asset fair values, from the perspective of a market participant, include, but are not limited to (i) the amount and timing of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to measure the risks inherent in the future cash flows, (iii) the assessment of the asset’s life cycle, and (iv) the competitive trends impacting the asset. Some of the more significant assumptions inherent in valuing the contingent consideration, include, but are not limited to (i) the amount and timing of projected future revenue, (ii) the volatility rate selected to measure the risks inherent in the revenue, and (iii) risk free interest rate.
Acquired Goodwill
The goodwill of $9.5 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. All but $1.1 million of the goodwill recorded is not expected to be deductible for income tax purposes.
SAVSU Acquisition
On August 8, 2019, we closed the acquisition of SAVSU pursuant to a Share Exchange Agreement. Pursuant to the Share Exchange Agreement, SAVSU Origin, LLC agreed to transfer to us and we agreed to acquire from the seller 8,616 shares of common stock of SAVSU, representing the remaining 56% of the outstanding shares of SAVSU that we did not previously own, in exchange for 1,100,000 shares of BioLife common stock. As a result of the acquisition, SAVSU became a wholly-owned subsidiary on August 8, 2019, the acquisition date.
Consideration transferred
The SAVSU acquisition was accounted for as a purchase of a business under FASB ASC Topic 805, “Business Combinations”. The acquisition of 56% of SAVSU was funded through a transfer of 1,100,000 shares of BioLife common stock, which had a fair value of $18.12 per share or $19.9 million at time of closing. The total value of 100% of SAVSU consisting of the fair value of the stock issued and the fair value of our existing investment in SAVSU was $35.8 million at time of closing. Prior to the acquisition, we accounted for our investment of SAVSU using the equity method of accounting which resulted in a recorded book value of $5.8 million at the acquisition date. We remeasured to fair value the equity interest in SAVSU held immediately before the business combination. The fair value of our equity interest was determined to be $15.9 million on our existing 44% ownership based on the fair value of shares transferred at the time of acquisition for the 56% we did not previously own. As a result, we recorded a non-operating gain of $10.1 million.
Under the acquisition method of accounting, the assets acquired and liabilities assumed from SAVSU were recorded as of the acquisition date, at their respective fair values, and consolidated with those of BioLife. The fair value of the net tangible assets acquired is estimated to be approximately $4.2 million, the fair value of the intangible assets acquired is estimated to be approximately $12.2 million, and the residual goodwill is estimated to be approximately $19.5 million. The fair value estimates required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates. BioLife believes these estimates to be reasonable. Actual results may differ from these estimates.
Total consideration paid for the acquisition of SAVSU is as follows (amounts in thousands):
Stock consideration for 55.6% equity interest purchased | | $ | 19,932 | | $ | 19,932 | |
This stock consideration plus the fair value of our existing equity investment in SAVSU of $15.9 million results in the total purchase price for accounting purposes of $35.8 million.
Fair Value of Net Assets Acquired
The table below represents the purchase price allocation to the net assets acquired based on their estimated fair values (amounts in thousands). Such amounts were estimated using the most recent financial statements from SAVSU as of August 7, 2019.
Cash and cash equivalents | | $ | 1,251 | |
Accounts receivable, net | | | 753 | |
Prepaid expenses and other current assets | | | 19 | |
Property, plant and equipment, net | | | 546 | |
Operating right-of-use asset | | | 233 | |
Assets held for rent, net | | | 2,441 | |
Customer relationships | | | 80 | |
Tradenames | | | 1,320 | |
Developed technology | | | 10,750 | |
Goodwill | | | 21,037 | |
Accounts payable and accrued expenses | | | (807 | ) |
Deferred tax liabilities | | | (1,541 | ) |
Other liabilities | | | (232 | ) |
Fair value of net assets acquired | | $ | 35,850 | |
The fair value of SAVSU’s identifiable intangible assets and estimated useful lives have been estimated as follows (amounts in thousands except years):
| | | Estimated Fair Value | | | Estimated Useful Life (Years) | |
Customer relationships | | $ | 80 | | | | 6 | | |
Tradenames | | | 1,320 | | | | 9 | | |
Developed technology | | | 10,750 | | | 7 | – | 8 | |
Total identifiable intangible assets | | $ | 12,150 | | | | | | |
Fair value measurement methodologies used to calculate the value of any asset can be broadly classified into one of three approaches, referred to as the cost, market and income approaches. In any fair value measurement analysis, all three approaches must be considered, and the approach or approaches deemed most relevant will then be selected for use in the fair value measurement of that asset. The fair value of identifiable intangible assets was determined primarily using variations of the income approach, which is based on the present value of the future after-tax cash flows attributable to each identifiable intangible asset. The fair value of assets held for rent and property, plant and equipment was determined using both the cost approach and the market approach.
Some of the more significant assumptions inherent in the development of intangible asset fair values, from the perspective of a market participant, include, but are not limited to (i) the amount and timing of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to measure the risks inherent in the future cash flows, (iii) the assessment of the asset’s life cycle, and (iv) the competitive trends impacting the asset. Some of the more significant assumptions inherent in the in valuing the contingent consideration, include, but are not limited to (i) the amount and timing of projected future revenue, (ii) the volatility rate selected to measure the risks inherent in the revenue, and (iii) risk free interest rate.
Acquired Goodwill
The goodwill of $21.0 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. None of the goodwill recorded is expected to be deductible for income tax purposes.
Custom Biogenic Systems Acquisition
On November 10, 2019, we entered into an Asset Purchase Agreement, by and among the Company, Arctic Solutions, Inc., a Delaware corporation and wholly-owned subsidiary of the Company, and Custom Biogenic Systems, Inc.,CBS, a Michigan corporation, (“CBS Seller”), pursuant to which we agreed to purchase from the CBS Seller substantially all of CBS Seller’sCBS’s assets, properties and rights (the “CBS Acquisition”). The CBS, Seller, a privately held company with operations located near Detroit, Michigan, designs and manufactures liquid nitrogen laboratory freezers and cryogenic equipment and also offers a related cloud-based monitoring system that continuously assesses biologic sample storage conditions and alerts equipment owners if a fault condition occurs. The CBS Acquisition closed on November 12, 2019.
In connection with the CBS Acquisition, we paid to CBS Seller (i) a base payment in the amount of $15.0 million, consisting of a cash payment of $11.0 million paid at the closing of the CBS Acquisition, less a cash holdback escrow of $550,000 to satisfy certain indemnification claims, and an aggregate number of shares of our common stock, with an aggregate fair value equal to $4.0 million, less a holdback escrow of shares of Common Stock with an aggregate value equal to $3.0 million to satisfy potential payments related to any product liability claims outstanding as of March 13, 2019, and (ii) potential earnout payments in calendar years 2020,2021,2022,2023 and 2024 of up to an aggregate of, but not exceeding, $15.0 million payable to CBS Seller upon achieving certain specified revenue targets in each year for certain product lines.
The CBS acquisitionAcquisition was accounted for as a purchase of a business under FASB ASC Topic 805, “Business Combinations”. Under the acquisition method of accounting, the acquired assets and liabilities assumed from CBS were recorded as of the acquisition date, at their fair values, and consolidated with BioLife. The fair value of the net tangible assets acquired is $6.0 million, the fair value of the identifiable intangibles is $6.8 million, and the residual goodwill is $3.1 million. The fair value estimates required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates. BioLife believes these estimates to be reasonable. Actual results may differ from these estimates.
Total consideration transferred (in thousands):
Cash consideration | | $ | 11,000 | |
Stock consideration | | | 4,000 | |
Contingent consideration | | | 856 | |
Total consideration transferred | | $ | 15,856 | |
Fair Value of Net Assets Acquired
The table below represents the purchase price allocation to the net assets acquired based on their fair values (amounts in thousands). Such amounts were estimated using the most recent financial statements from CBS as of November 11, 2019.
Accounts receivable, net | | $ | 1,044 | |
Inventory | | | 3,232 | |
Prepaid expenses and other current assets | | | 29 | |
Property, plant and equipment, net | | | 3,615 | |
Customer relationships | | | 560 | |
Tradenames | | | 800 | |
Developed technology | | | 5,430 | |
Goodwill | | | 2,954 | |
Accounts payable | | | (1,197 | ) |
Other liabilities | | | (611 | ) |
Fair value of net assets acquired | | $ | 15,856 | |
The fair value of CBS’s identifiable intangible assets and weighted average useful lives have been estimated as follows (amounts in thousands except years):
| | | Estimated Fair Value | | | Estimated Useful Life (Years) | |
Customer relationships | | $ | 560 | | | 6 | |
Tradenames | | | 800 | | | 6 | |
Developed technology | | | 5,430 | | | 9 | |
Total identifiable intangible assets | | $ | 6,790 | | | | |
Fair value measurement methodologies used to calculate the value of any asset can be broadly classified into one of three approaches, referred to as the cost, market and income approaches. In any fair value measurement analysis, all three approaches must be considered, and the approach or approaches deemed most relevant will then be selected for use in the fair value measurement of that asset. The fair value of identifiable intangible assets was determined primarily using variations of the income approach, which is based on the present value of the future after-tax cash flows attributable to each identifiable intangible asset. The fair value of inventories was determined using both the cost approach and the market approach and the fair value of property, plant and equipment was determined using the cost and market approach.
Some of the more significant assumptions inherent in the development of intangible asset fair values, from the perspective of a market participant, include, but are not limited to (i) the amount and timing of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to measure the risks inherent in the future cash flows, (iii) the assessment of the asset’s life cycle, and (iv) the competitive trends impacting the asset. Some of the more significant assumptions inherent in valuing the contingent consideration, include, but are not limited to (i) the amount and timing of projected future revenue, (ii) the volatility rate selected to measure the risks inherent in the revenue, and (iii) risk free interest rate.
Acquired Goodwill
The goodwill of $3.0 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. All of the goodwill recorded is expected to be deductible for income tax purposes.
4. Inventory
Inventory consists of the following at March 31,June 30, 2020 and December 31,2019:
(In thousands) | | June 30, 2020 | | | December 31, 2019 | |
Raw materials | | $ | 2,679 | | | $ | 2,979 | |
Work in progress | | | 1,678 | | | | 1,896 | |
Finished goods | | | 6,533 | | | | 6,097 | |
Total | | $ | 10,890 | | | $ | 10,972 | |
(In thousands) | | March 31, 2020 | | | December 31, 2019 | |
Raw materials | | $ | 3,282 | | | $ | 2,979 | |
Work in progress | | | 1,658 | | | | 1,896 | |
Finished goods | | | 5,889 | | | | 6,097 | |
Total | | $ | 10,829 | | | $ | 10,972 | |
5.Assets held for rent
Assets held for rent consist of the following at March 31,June 30, 2020 and December 31, 2019:
(In thousands) | | March 31, 2020 | | | December 31, 2019 | | | June 30, 2020 | | | December 31, 2019 | |
Shippers placed in service | | $ | 3,748 | | | $ | 3,073 | | | $ | 4,199 | | | $ | 3,073 | |
Accumulated deprecation | | | (302 | ) | | | (174 | ) | | | (569 | ) | | | (174 | ) |
Net | | | 3,446 | | | | 2,899 | | | 3,630 | | | 2,899 | |
Shippers and related components in production | | | 1,429 | | | | 1,023 | | | | 1,328 | | | | 1,023 | |
Total | | $ | 4,875 | | | $ | 3,922 | | | $ | 4,958 | | | $ | 3,922 | |
Shippers and related components in production include shippers complete and ready to be deployed and placed in service upon a customer order, shippers in the process of being assembled, and components available to build shippers. We recognized $128,000$267,000 and $395,000 in depreciation expense related to assets held for rent during the three and six months ended March 31,June 30, 2020. We did not have any depreciation expense related to assets held for rent during the three months and six months ended March 31, 2019June 30, 2019.
6. | 6. Goodwill and Intangible Assets
|
Goodwill
Goodwill represents the difference between the purchase price and the estimated fair value of identifiable assets acquired and liabilities assumed. Goodwill acquired in a business combination and determined to have an indefinite useful life is not amortized, but instead is tested for impairment at least annually in accordance with ASC 350. The following table represents the change in the carrying value of goodwill for the three months ended March 31,June 30, 2020:
(In thousands) | | | | | | | | |
Balance as of December 31, 2019 | | $ | 33,637 | | | $ | 33,637 | |
| Correction of an error related to CBS goodwill | | | (131 | ) | | | (131 | ) |
Balance as of March 31, 2020 | | $ | 33,506 | | |
Balance as of June 30, 2020 | | | $ | 33,506 | |
We adjusted goodwill from the CBS acquisitionAcquisition related to an immaterial error of $131,000 in payables that were paid during closing and incorrectly recorded as liabilities in our purchase price accounting as of December 31, 2019. We reduced our goodwill and accounts payable by $131,000.
Intangible Assets
Intangible assets, net consisted of the following at March 31,June 30, 2020:
(In thousands, except weighted average useful life) | | March 31, 2020 | | | | | | | June 30, 2020 | | | | | |
Finite-lived intangible assets: | | Gross Carrying Value | | | Accumulated Amortization | | | Net Carrying Value | | | Weighted Average Useful Life (in years) | | | Gross Carrying Value | | | Accumulated Amortization | | | Net Carrying Value | | | Weighted Average Useful Life (in years) | |
Customer Relationships | | $ | 800 | | | $ | (88 | ) | | $ | 712 | | | | 5.0 | | | $ | 800 | | | $ | (124 | ) | | $ | 676 | | | 4.8 | |
Tradenames | | | 2,590 | | | | (205 | ) | | | 2,385 | | | | 7.4 | | | 2,590 | | | (289 | ) | | 2,301 | | | 7.2 | |
Technology – acquired | | | 19,020 | | | | (1,473 | ) | | | 17,547 | | | | 7.8 | | | | 19,670 | | | | (2,059 | ) | | | 17,611 | | | | 7.6 | |
In-process R&D(1) | | | 650 | | | | — | | | | 650 | | | | 9.0 | | |
Total intangible assets | | $ | 23,060 | | | $ | (1,766 | ) | | $ | 21,294 | | | | 7.7 | | | $ | 23,060 | | | $ | (2,472 | ) | | $ | 20,588 | | | | 7.4 | |
(1)(1) We transferred $650,000 out of “in-process R&D” into “Technology – acquired” on April 1, 2020, which was the date on which the product line became technologically feasible.
Intangible assets, net consisted of the following at December 31, 2019:
(In thousands, except weighted average useful life) | | December 31, 2019 | | | | | |
Finite-lived intangible assets: | | Gross Carrying Value | | | Accumulated Amortization | | | Net Carrying Value | | | Weighted Average Useful Life (in years) | |
Customer Relationships | | $ | 800 | | | $ | (51 | ) | | $ | 749 | | | | 5.6 | |
Tradenames | | | 2,590 | | | | (123 | ) | | | 2,467 | | | | 8.1 | |
Technology – acquired | | | 19,020 | | | | (904 | ) | | | 18,116 | | | | 8.4 | |
In-process R&D (2) | | | 650 | | | | — | | | | 650 | | | | 9.0 | |
Total intangible assets | | $ | 23,060 | | | $ | (1,078 | ) | | $ | 21,982 | | | | 8.3 | |
(2) In-process R&D represents the fair value of incomplete research and development that has not yet reached technological feasibility. We will amortizeOn April 1, 2020, we began amortizing the asset upon technological feasibility, which hassince it reached technological feasibility and been placed in service in the second quarter of 2020.
Intangible assets, net consisted of the following at December 31, 2019:
(In thousands, except weighted average useful life) | | December 31, 2019 | | | | | |
Finite-lived intangible assets: | | Gross Carrying Value | | | Accumulated Amortization | | | Net Carrying Value | | | Weighted Average Useful Life (in years) | |
Customer Relationships | | $ | 800 | | | $ | (51 | ) | | $ | 749 | | | | 5.6 | |
Tradenames | | | 2,590 | | | | (123 | ) | | | 2,467 | | | | 8.1 | |
Technology – acquired | | | 19,020 | | | | (904 | ) | | | 18,116 | | | | 8.4 | |
In-process R&D(1) | | | 650 | | | | — | | | | 650 | | | | 9.0 | |
Total intangible assets | | $ | 23,060 | | | $ | (1,078 | ) | | $ | 21,982 | | | | 8.3 | |
(1) In-process R&D represents the fair value of incomplete research and development that has not yet reached technological feasibility. We will amortize the asset upon technological feasibility, which has reached technological feasibility and been placed in service in the second quarter of 2020.(see footnote 1 above).
Amortization expense for finite-lived intangible assets was $688,000$706,000 and $1.4 million for the three and six months ended March 31, 2020. We had no amortization expense for finite-lived intangible assetsJune 30, 2020, respectively and $104,000 for the three and six months ended March 31,June 30, 2019. In-process research and development was put into service in the second quarter of 2020, as such we have included the amortization in the schedule below based on an estimated life of 9 years. As of March 31,June 30, 2020, the Company expects to record the following amortization expense:
(In thousands) For the Years Ended December 31, | | Estimated Amortization Expense | | | Estimated Amortization Expense | |
2020 (9 months remaining) | | $ | 2,100 | | |
2020 (6 months remaining) | | | $ | 1,412 | |
2021 | | | 2,825 | | | 2,825 | |
2022 | | | 2,825 | | | 2,825 | |
2023 | | | 2,795 | | | 2,795 | |
2024 | | | 2,770 | | | 2,770 | |
Thereafter | | | 7,979 | | | | 7,961 | |
Total | | $ | 21,294 | | | $ | 20,588 | |
7.Share-based Compensation | Share-based Compensation |
Service Vesting-Based Stock Options
The following is a summary of service vesting basedvesting-based stock option activity for the threesix month period ended March 31,June 30, 2020 and the status of stockservice vesting-based options outstanding at March 31,June 30, 2020:
| | | Three Months Ended | | | Six Month Period Ended | �� |
| | | March 31, 2020 | | | June 30, 2020 | |
| | | Options | | | Weighted Avg. Exercise Price | | | | | | | Wtd. Avg. | |
Outstanding at beginning of period | | | 1,570,455 | | | $ | 1.96 | | |
| | | | | | | | Exercise | |
| | | | Options | | | Price | |
Outstanding at beginning of year | | | 1,570,455 | | | $ | 1.96 | |
Granted | | | — | | | $ | — | | | — | | | $ | — | |
Exercised | | | (251,180 | ) | | $ | 1.84 | | | (393,680 | ) | | $ | 1.92 | |
Forfeited | | | — | | | $ | — | | | — | | | $ | — | |
Expired | | | — | | | $ | — | | | | — | | | $ | — | |
Outstanding at March 31, 2020 | | | 1,319,275 | | | $ | 1.98 | | |
Outstanding service vesting-based at June 30, 2020 | | | | 1,176,775 | | | $ | 1.98 | |
| | | | | | | | | | |
| Service vesting-based stock options exercisable at March 31, 2020 | | | 1,263,377 | | | $ | 1.96 | | |
Service vesting-based options exercisable at June 30, 2020 | | | 1,148,338 | | | $ | 1.94 | |
We recognized stock compensation expense of $61,000 and $144,000 related to service vesting-based options of $28,000 and $95,000 during the three month periods ending March 31, months ended June 30, 2020 and 2019, respectively, and $89,000 and $240,000 during the six months ended June 30, 2020 and June 30, 2019, respectively. As of March 31,June 30, 2020, there was $9.9$16.9 million of aggregate intrinsic value of outstanding service vesting-based stock options, including $9.5$16.5 million of aggregate intrinsic value of exercisable service vesting-based stock options. Intrinsic value is the total pretax intrinsic value for all “in-the-money” options (i.e., the difference between the Company’s closing stock price on the last trading day of the quarter and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on March 31,June 30, 2020. This amount will change based on the fair market value of the Company’s stock. During the quarters ended March 31, 2020 and 2019 intrinsicIntrinsic value of service vesting-based awards exercised during the three months ended June 30, 2020 and 2019was $3.0$1.6 million and $1.4$2.0 million, respectively, and during the six months ended June 30, 2020 and 2019 was $4.7 million and $3.5 million, respectively. There were 0 service based-vesting options granted during the six months ended June 30, 2020 and 2019. The weighted average remaining contractual life of service vesting-based options outstanding and exercisable at June 30, 2020 is 4.1 years. Total unrecognized compensation cost of service vesting-based stock options at March 31,June 30, 2020 of $86,000$58,000 is expected to be recognized over a weighted average period of 1.2 years.
Performance-based Stock Options
The following is a summary of performance-based stock option activity under our stock option plans for the three monthssix month period ended March 31,June 30, 2020, and the status of performance-based options outstanding at June 30, 2020:
| | | Six Month Period Ended | |
| | | June 30, 2020 | |
| | | | | | | Wtd. Avg. | |
| | | | | | | Exercise | |
| | | Options | | | Price | |
Outstanding at beginning of year | | | 737,497 | | | $ | 1.64 | |
Granted | | | — | | | $ | — | |
Exercised | | | (17,113 | ) | | $ | 1.64 | |
Outstanding performance-based at June 30, 2020 | | | 720,384 | | | $ | 1.64 | |
| | | | | | | | | |
Performance-based options exercisable at June 30, 2020 | | | 720,384 | | | $ | 1.64 | |
All compensation cost of performance-based stock options outstanding at Marchwas recognized as of December 31, 2020:
| | | Three Months Ended March 31, 2020 | |
| | | Options | | | Wtd. Avg. Exercise Price | |
Outstanding at beginning of period | | | 737,497 | | | $ | 1.64 | |
Granted | | | — | | | $ | — | |
Exercised | | | (17,113 | ) | | $ | 1.64 | |
Outstanding performance-based at March 31, 2020 | | | 720,384 | | | $ | 1.64 | |
| | | | | | | | | |
Performance-based stock options exercisable at March 31, 2020 | | | 720,384 | | | $ | 1.64 | |
2018. As of March 31,June 30, 2020, there was $5.7$10.6 million of aggregate intrinsic value of outstanding and exercisable performance-based stock options. Intrinsic value is the total pretax intrinsic value for all “in-the-money” options (i.e., the difference between the Company’s closing stock price on the last trading day of the quarter and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on March 31,June 30, 2020. This amount will change based on the fair market value of the Company’s stock. Intrinsic value of performance-based awards exercised during the three months and six months ended June 30, 2020 was none and $239,000, respectively, and in the three and six months ended June 30, 2019 was none.The weighted average remaining contractual life of performance-based options outstanding and exercisable at March 31,June 30, 2020 is 1.71.5 years. All compensation cost of performance-based stock options outstanding at March 31, 2020 has been recognized.
There were no0 stock options granted to employees and non-employee directors in the three and six month periods ended March 31,June 30, 2020 and 2019.
Restricted Stock
Service vesting-based restricted stock
Service vesting-based restricted stock generally vests over a four-year period, with 25% vesting on the first anniversary of the date of grant and the remainder vesting in equal quarterly installments thereafter. The following is a summary of service vesting-based restricted stock activity for the threesix month period ended March 31,June 30, 2020, and the status of unvested service vesting-based restricted stock outstanding at March 31,June 30, 2020:
| | | Three Months Ended March 31, 2020 | | | Six Month Period Ended | |
| | | Number of
Restricted
Shares | | | Grant-Date
Fair Value | | | June 30, 2020 | |
Unvested outstanding at beginning of period | | | 429,399 | | | $ | 13.25 | | |
Service vesting-based restricted stock | | | Number of
Restricted
Shares | | | Grant-Date
Fair Value | |
Outstanding at beginning of year | | | 429,399 | | | $ | 13.25 | |
Granted | | | 175,971 | | | $ | 9.43 | | | 235,215 | | | $ | 12.03 | |
Granted in lieu of cash | | | 34,154 | | | $ | 9.18 | |
Vested | | | (53 026 | ) | | $ | 12.90 | | | (88,390 | ) | | $ | 11.89 | |
Forfeited | | | (7,000 | ) | | $ | 15.92 | | | | (20,661 | ) | | $ | 14.62 | |
Unvested outstanding at March 31, 2020 | | | 545,344 | | | $ | 12.01 | | |
Outstanding at June 30, 2020 | | | 589,717 | | | $ | 12.68 | |
The aggregate fair value of the service vesting-based awards granted during the three months ended March 31,June 30, 2020 and 2019 was $1.7$1.5 million and $2.6$548,000, respectively, and during the six months ended June 30, 2020 and 2019 was $3.1 million and $3.2 million, respectively, which represents the market value of BioLifeour common stock on the date that the restricted stock awards were granted. The aggregate fair value of the service vesting-based awards that vested during the three months ended June 30, 2020 and 2019 was $406,000 and $369,000, respectively and during the six months ended June 30, 2020 and 2019 was $1.2 million.
On March 25, 2020 our board of directors granted 34,154 restricted stock awards, based on a fair value on the grant date of $9.18 per share, in lieu of the 2019 cash performance bonus for our executive compensation plan. The award vests in full on September 25, 2020 regardless of employment status on that vested was $813,000 and $853,000 fordate. All expenses related to these awards were incurred in the three monthsyear ended MarchDecember 31, 2020 and March 31, 2019, respectively.2019.
We recognized stock compensation expense of $394,000$466,000 and $255,000$268,000 related to service vesting-based restricted stock awards for the three months ended March 31,June 30, 2020 and March 31, 2019, respectively, and $860,000 and $522,000 related to service vesting-based awards for the six months ended June 30, 2020 and 2019, respectively. As of March 31,June 30, 2020, there was $5.7$6.6 million in unrecognized compensation costs related to service vesting-based restricted stock awards. We expect to recognize those costs over 3.33.2 years.
Performance-based restricted stock
On March 25, 2020 the Company granted 82,805 shares of performance-based stock to its executives in the form of restricted stock. The shares granted contain a performance condition based on several Company metrics related to 2020 performance. The performance-based restricted stock awards will vest as to between 0% and 125% of the number of restricted shares granted to each recipient. The grant date fair value of this award was $9.18 per share. The fair value of this award will be expensed on a straight-line basis over the requisite service period ending on December 31, 2020.
The following is a summary of performance-based restricted stock activity for the six month period ended June 30, 2020, and the status of unvested service vesting-based restricted stock outstanding at June 30, 2020:
| | | Six Month Period Ended | |
| | | June 30, 2020 | |
Performance-based restricted stock | | Number of
Restricted
Shares | | | Grant-Date
Fair Value | |
Outstanding at beginning of year | | | — | | | $ | — | |
Expected to vest | | | 82,805 | | | $ | 9.18 | |
Vested | | | — | | | $ | — | |
Forfeited | | | — | | | $ | — | |
Outstanding at June 30, 2020 | | | 82,805 | | | $ | 9.18 | |
We recognized stock compensation expense of $189,000 for the three months ended March 31, 2020and $378,000 related to performance-based restricted stock awards.awards for the three and six months ended June 30, 2020, respectively. As of March 31,June 30, 2020, there was $571,000$382,000 in unrecognized non-cash compensation costs related to performance-based restricted stock awards expected to vest. We expect to recognize those costs over 0.8.5 years.
Performance-based restricted stock in lieu
Market-based restricted stock
On February 25, 2019 the Company granted 94,247 shares and on April 1, 2019 granted 29,604 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on Total Shareholder Return (“TSR”). The TSR market condition measures the Company’s performance against a peer group. The market-based restricted stock awards will vest as to between 0% and 200% of the number of restricted shares granted to each recipient based on our total shareholder return during the period beginning on January 1, 2019 through December 31, 2020 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 69%, 0% dividend yield and a risk-free interest rate of 2.5%. The historical volatility was based on the most recent 2-year2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. The fair value of this award will be expensed on a straight-line basis over the grant date to the vesting date of December 31, 2020.
On March 25, 2020 the Company granted 109,140 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on TSR. The TSR market condition measures the Company’s performance against a peer group. The market-based restricted stock awards will vest as to between 0% and 200% of the number of restricted shares granted to each recipient based on our total shareholder return during the period beginning on January 1, 2020 through December 31, 2021 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 78%, 0% dividend yield and a risk-free interest rate of 0.3%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year2-year term associated with the market condition of the award. The fair value of this award will be expensed on a straight-line basis over the grant date to the vesting date of December 31, 2021.
We recognized stock compensation expense of $469,000$462,000 and $132,000 for the three months ended March 31, 2020 and 2019, respectively,$455,000 related to market-based restricted stock awards.awards for the three months ended June 30, 2020 and 2019, respectively, and $931,000 and $587,000 related to market-based restricted stock awards for the six months ended June 30, 2020 and 2019, respectively. As of March 31,June 30, 2020, there was $2.6$1.9 million in unrecognized non-cash compensation costs related to market-based restricted stock awards expected to vest. We expect to recognize those costs over 1.2 years.1 year.
Total Stock Compensation Expense
We recorded total stock compensation expense for the three and six month periods ended March 31,June 30, 2020 and 2019, as follows:
| | | Three Month Period Ended | | | Six Month Period Ended | |
| | | June 30, | | | June 30, | |
(In thousands) | | 2020 | | | 2019 | | | 2020 | | | 2019 | |
Research and development costs | | $ | 222 | | | $ | 168 | | | $ | 397 | | | $ | 235 | |
Sales and marketing costs | | | 96 | | | | 171 | | | | 325 | | | | 326 | |
General and administrative costs | | | 699 | | | | 439 | | | | 1,275 | | | | 716 | |
Cost of product sales | | | 128 | | | | 40 | | | | 261 | | | | 72 | |
Total | | $ | 1,145 | | | $ | 818 | | | $ | 2,258 | | | $ | 1,349 | |
| | | Three Months Ended March 31, | |
(In thousands) | | 2020 | | | 2019 | |
Research and development costs | | $ | 174 | | | $ | 67 | |
Sales and marketing costs | | | 229 | | | | 154 | |
General and administrative costs | | | 577 | | | | 278 | |
Cost of product sales | | | 133 | | | | 32 | |
Total | | $ | 1,113 | | | $ | 531 | |
111. Commitments and Contingencies
| Commitments & Contingencies |
Employment agreements
We have employment agreements with our Chief Executive Officer, Chief Financial and Operating Officer, Chief Science Officer, Chief Quality Officer, Chief Marketing Officer, Chief Revenue Officer, Vice President, Freezer Technologies, Vice President of Sales, Thaw Technologies, Vice President of Product Development, Thaw Technologies, and Vice President, Cold Chain Technologies Sales. None of these employment agreements is for a definitive period, but rather each will continue indefinitely until terminated in accordance with its terms. The agreements provide for a base annual salary, payable in monthly (or shorter) installments. In addition, the agreement with the Chief Executive Officer provides for incentive bonuses at the discretion of the Board of Directors. Under certain conditions and for certain of these officers, we may be required to pay additional amounts upon terminating the officer or upon the officer resigning for good reason.
Litigation
From time to time, the Company is subject to various legal proceedings that arise in the ordinary course of business, none of which are currently material to the Company’s business. The Company’s industry is characterized by frequent claims and litigation, including claims regarding intellectual property. As a result, the Company may be subject to various legal proceedings from time to time. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. Management is not aware of any pending or threatened litigation.
Indemnification
As permitted under Delaware law and in accordance with the Company’s bylaws, the Company is required to indemnify its officers and directors for certain errors and occurrences while the officer or director is or was serving in such capacity. The Company is also party to indemnification agreements with its directors. The Company believes the fair value of the indemnification rights and agreements is minimal. Accordingly, the Company has not recorded any liabilities for these indemnification rights and agreements as of March 31,June 30, 2020.
We currently operate as one operating segment focusing on biopreservationbioproduction tools.
We generate revenue from the sale of bioproduction products, equipment devices, and related consumables used with these equipment devices to customers in the life science and biopharmaceutical industries. Under ASC 606, “Revenue from Contracts with Customers,” revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to customers.
The Company also generates revenue from the leasing of our evo cold chain systems, which are typically cloud-connected shippers with enabling cold chain cloud applications, to customers pursuant to rental arrangements entered into with the customer. Revenue from the rental of cold chain systems is not within the scope of FASB ASC Topic 606 as it is within the scope of FASB ASC Topic 842, “Leases”. All customers leasing shippers currently do so under month-to-month rental arrangements. We account for these rental transactions as operating leases and record rental revenue on a straight-line basis over the rental term.
The following table represents revenues by product line:
| | | Three Months Ended March 31, | | | Three Month Period Ended | | Six Month Period Ended | |
(In thousands, except percentages) | | 2020 | | | 2019 | | |
| | | | June 30, | | | June 30, | |
(In thousands) | | | 2020 | | | 2019 | | | 2020 | | | 2019 | |
Biopreservation media | | $ | 8,672 | | | $ | 5,770 | | | $ | 6,667 | | | $ | 6,327 | | | $ | 15,339 | | | $ | 12,097 | |
Automated thawing | | | 394 | | | –– | | | 376 | | | 374 | | | 770 | | | 374 | |
evo shippers | | | 438 | | | –– | | | 439 | | | — | | | 877 | | | — | |
Freezers and accessories | | | 2,658 | | | –– | | | | 2,438 | | | | — | | | | 5,096 | | | | — | |
Total revenue | | $ | 12,162 | | | $ | 5,770 | | |
Total | | | $ | 9,920 | | | $ | 6,701 | | | $ | 22,082 | | | $ | 12,471 | |
We lease approximately 32,106 square feet in our Bothell, Washington headquarters. The term of our lease continues until July 31, 2021 with two options to extend the term of the lease, each of which is for an additional period of five years, with the first extension term commencing, if at all, on August 1, 2021, and the second extension term commencing, if at all, immediately following the expiration of the first extension term. In accordance with the amended lease agreement, our monthly base rent is approximately $63,000 at March 31,June 30, 2020, with scheduled annual increases each August and again in October for the most recent amendment. We are also required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses.
We lease approximately 1,250 square feet in our Menlo Park, California location. The term of our lease continues until July 1, 2020. In accordance with the lease agreement, the monthly base rent is approximately $5,000 at March 31,June 30, 2020. We are also required to pay an amount equal to the Company’s proportionate electrical expenses.
We lease approximately 9,932 square feet in our Albuquerque, New Mexico location. The term of our lease continues until December 31, 2021 with two options to extend the terms of the lease, each of which is for an additional period of three years, with the first extension term commencing, if at all, on December 1, 2021, and the second extension term commencing, if at all, December 1, 2024. In accordance with the lease agreement, the monthly base rent is approximately $9,000 at March 31,June 30, 2020, with a monthly increase if the term is extended.
We lease approximately 106,998 square feet in our Detroit, Michigan location. The term of our lease continues until November 30, 2020 with one option to extend the term of the lease, for an additional sixty months, with the extension term commencing, if at all, on November 12, 2020. These extension options are not accounted for under ASC Topic 842, “Leases” because we are not reasonably certain we will enter into the renewal options in their current terms and the current term is less than 12 months. With adequate notice prior to expiration of the option notice period, we have the right to purchase the premises for a purchase price that is mutually acceptable to landlord and tenant as agreed to by the parties on or before the expiration of the option notice period. In the event that the parties are unable to mutually agree on the option purchase price then each party shall obtain, at its sole cost and expense, an appraisal of the premises and the option purchase price will be the average of the two appraisals. For the avoidance of doubt, our right to elect to purchase the premises for the option purchase price will terminate upon the expiration of the option notice period, but we will not be obligated to close on the purchase of the premises prior to the expiration of the initial term. In accordance with the lease agreement, the monthly base rent is approximately $15,000 at March 31,June 30, 2020, with scheduled annual increases if the term is extended.
Operating leases recorded on our condensed consolidated balance sheet are primarily related to our Bothell, Washington headquarters space lease and our Albuquerque, New Mexico, SAVSU, space lease. We have not included extension options in our right of use assets or lease liabilities as we are not reasonably certain we will enter into the renewal options in their current terms. Our Detroit, Michigan and Menlo Park, California lease are not recorded on our condensed consolidated balance sheet as the term expires in one year or less.
Our financing lease is related to research equipment.
We used a weighted average discount rate of 6.5%, our market collateralized borrowing rate, and 8.1%, the weighted average implied interest on our leases, to determine our operating and financing lease liabilities, respectively. The weighted average remaining term of our operating and financing leases are 1.51.3 years and 0.90.7 years, respectively. We initially recognized $1.3 million in operating lease right of use assets and initially recognized $1.8 million in operating lease liabilities. Through the SAVSU acquisition we acquired $233,000 in operating lease right of use assets and acquired $232,000 in operating lease liabilities. The operating lease costs recognized in the three months ended March 31,June 30, 2020 were $229,000, which consist of $170,000 in operating lease costs and $59,000 in short-term lease costs, and we did not have any variable lease costs. The operating lease costs recognized in the six months ended June 30, 2020 were $456,000, which consist of $339,000 in operating lease costs and $117,000 in short-term lease costs, and we did not have any variable lease costs. The operating lease cash paid in the three and six months ended March 31,June 30, 2020 of $217,000.was $217,000 and $434,000, respectively. Rent expense for the three and six months ended March 31,June 30, 2019, was recognized under prior GAAP (ASC 840)$142,000 and amounted to $142,000.$186,000, respectively.
Maturities of our operating lease liabilities as of March 31,June 30, 2020 is as follows:
(In thousands) | | Operating Leases | | | Financing Leases | | | Operating Leases | | | Financing Leases | |
2020 | | $ | 656 | | | $ | 11 | | | 440 | | | 8 | |
2021 | | | 559 | | | | 3 | | | | 559 | | | | 2 | |
Total lease payments | | | 1,215 | | | | 14 | | | 999 | | | 10 | |
Less: interest | | | (57 | ) | | | (1 | ) | | | (39 | ) | | | (1 | ) |
Total present value of lease liabilities | | $ | 1,158 | | | $ | 13 | | | $ | 960 | | | $ | 9 | |
14. Condensed Consolidated Balance Sheet Detail14. | Condensed Consolidated Balance Sheet Detail |
Property and Equipment
(In thousands) | | March 31, 2020 | | | December 31, 2019 | | | June 30, 2020 | | | December 31, 2019 | |
Property and equipment | | | | | | | | | | | | | |
Leasehold improvements | | $ | 2,137 | | | $ | 2,112 | | | $ | 2,141 | | | $ | 2,112 | |
Furniture and computer equipment | | | 810 | | | | 794 | | | 824 | | | 794 | |
Manufacturing and other equipment | | | 5,261 | | | | 5,187 | | | | 5,474 | | | | 5,187 | |
Subtotal | | | 8,208 | | | | 8,093 | | | 8,439 | | | 8,093 | |
Less: Accumulated depreciation | | | (2,801 | ) | | | (2,521 | ) | | | (3,092 | ) | | | (2,521 | ) |
Net property and equipment | | $ | 5,407 | | | $ | 5,572 | | | $ | 5,347 | | | $ | 5,572 | |
Depreciation expense for property and equipment was $285,000$292,000 and $98,000$110,000 for the three months ended March 31,June 30, 2020 and 2019, respectively, and $578,000 and $209,000 for the six months ended June 30, 2020 and 2019, respectively.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
(In thousands) | | June 30, 2020 | | | December 31, 2019 | |
Accrued expenses and other current liabilities | | $ | 284 | | | $ | 302 | |
Other payables | | | 206 | | | | 1,018 | |
Accrued compensation | | | 1,813 | | | | 1,554 | |
Deferred revenue | | | 286 | | | | 324 | |
Other | | | 17 | | | | 171 | |
Total accrued expenses and other current liabilities | | $ | 2,606 | | | $ | 3,369 | |
(In thousands) | | March 31, 2020 | | | December 31, 2019 | |
Accrued expenses and other current liabilities | | $ | 337 | | | $ | 302 | |
Other payables | | | 676 | | | | 1,018 | |
Accrued compensation | | | 1,762 | | | | 1,554 | |
Deferred revenue | | | 282 | | | | 324 | |
Other | | | 23 | | | | 171 | |
Total accrued expenses and other current liabilities | | $ | 3,080 | | | $ | 3,369 | |
15.Employee Benefit Plan | Employee Benefit Plan |
The Company sponsors a 401(k)401(k) defined contribution plan for its employees. This plan provides for pre-tax and post-tax contributions for all employees. Employee contributions are voluntary. Employees may contribute up to 100% of their annual compensation to this plan, as limited by an annual maximum amount as determined by the Internal Revenue Service. The Company matches employee contributions in amounts to be determined at the Company’s sole discretion. The Company made $84,000$95,000 and $50,000$38,000 contributions to the plan for the three months ended March 31,June 30, 2020 and 2019, respectively, and $179,000 and $88,000 contributions to the plan for the six months ended June 30, 2020 and 2019, respectively.
16. Subsequent Event
Paycheck Protection Program
We determined that we met the original eligibility requirements per the guidelines original established by the U.S. federal government as part of the CARES Act for the Pursuant to the Paycheck Protection Program (the “PPP”). As such, on April 20, 2020, the Company received $2,175,320 in support from the PPP. Because the U.S. government subsequently changed its position and guidelines related to the PPP and publicly traded companies, the Company repaid the load on April 29, 2020.
Casdin FinancingPublic Offering
On May 22, 2020,July 7, we closed our public offering of 5,951,250 shares of common stock at the Company closed on apublic offering price of $14.50 per share, purchase agreement with Casdin Capital LLC, a current stockholderwhich includes the shares purchased pursuant to the exercise in full of the Company, pursuantunderwriters' option to which Casdin invested $20 million in the Company at a price per share of $10.50. Pursuantpurchase up to the terms of the share purchase agreement, the Company issued to Casdin 1,904,762an additional 776,250 shares of Companyits common stock. The Company also granted Casdin certain registration rights requiringgross proceeds from the Companyoffering to file a registration statement with the SecuritiesBioLife, before deducting underwriting discounts and Exchange Commission covering the resale by Casdin of the shares issued in the transaction.
Cashless warrant exercises
On May 14, 2020, the Company entered into separate warrant exercise agreements with WAVI Holding AGcommissions and Taurus4757 GmbH pursuant to which the warrant holders immediately exercised their respective warrants via a “cashless” exercise as agreed to by the Company. As a result of the cashless exercise, the Company issued an aggregate of 2,747,970 shares of Company common stock upon cashless exercise of an aggregate of 3,871,405 warrants.estimated offering expenses, were approximately $86 million.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” which are made pursuant to the safe harbor provisions 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”). These forward-looking statements involve a number of risks and uncertainties. We caution readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. These statements are based on current expectations of future events. Such statements include, but are not limited to, statements about our products, including our newly acquired products, customers, regulatory approvals, the potential utility of and market for our products and services, our ability to implement our business strategy and anticipated business and operations, in particular following our 2019 acquisitions, future financial and operational performance, our anticipated future growth strategy, including the acquisition of synergistic cell and gene therapy manufacturing tools and services or technologies or other companies or technologies, capital requirements, intellectual property, suppliers, joint venture partners, future financial and operating results, the impact of the COVID-19 pandemic, plans, objectives, expectations and intentions, revenues, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, regulatory filings and requirements, the estimated potential size of markets, capital requirements, the terms of any capital financing agreements, cost savings, objectives of management and other statements that are not historical facts. You can find many of these statements by looking for words like “believes,” “expects,” “anticipates,” “estimates,” “may,” “should,” “will,” “could,” “plan,” “intend,” or similar expressions in this Quarterly Report on Form 10-Q. We intend that such forward-looking statements be subject to the safe harbors created thereby.
These forward-looking statements are based on the current beliefs and expectations of our management and are subject to significant risks and uncertainties. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results may differ materially from current expectations and projections. These risks and uncertainties include those factors described in greater detail in the risk factors disclosed in our Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those anticipated in these forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or, in the case of documents referred to or incorporated by reference, the date of those documents.
All subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as may be required under applicable U.S. securities law. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
Further information on potential risk factors that could affect our financial results are included in the filings made by us from time to time with the Securities and Exchange Commission including under the sections entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
Overview
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 December 31, 2019, as amended, filed with the SEC.
We were incorporated in Delaware in 1987 under the name Trans Time Medical Products, Inc. In 2002, the Company, then known as Cryomedical Sciences, Inc., and engaged in manufacturing and marketing cryosurgical products, completed a merger with our wholly-owned subsidiary, BioLife Solutions, Inc., which was engaged as a developer and marketer of biopreservation media products for cells and tissues. Following the merger, we changed our name to BioLife Solutions, Inc.
We develop, manufacture and market bioproduction tools to the cell and gene therapy (“C>”) industry, which are designed to improve quality and de-risk biologic manufacturing and delivery. Our products are used in basic and applied research, and commercial manufacturing of biologic-based therapies. Customers use our products to maintain the health and function of biologic material during sourcing, manufacturing, storage, and distribution of cells and tissues.
We currently operate as one bioproduction tools business with product lines that support several steps in the biologic material manufacturing and delivery process. We have a diversified portfolio of tools that focus on biopreservation, frozen storage, and thawing of biologic materials. We have in-house expertise in cryobiology and continue to capitalize on opportunities to maximize the value of our product platform for our extensive customer base through both organic growth innovations and acquisitions.
Our Products
Our bioproduction tools are comprised of four main product lines
| | ● | Biopreservation media |
| ● | Automated thawing devices |
| | ● | Automated thawing devicesCloud connected “smart” shipping containers
|
| | ● | Cloud connected “smart” shipping containers
|
| ●
| Freezer and storage technology and related components |
Biopreservation media
Our proprietary biopreservation media products, HypoThermosol® FRS and CryoStor®, are formulated to mitigate preservation-induced, delayed-onset cell damage and death, which result when cells and tissues are subjected to reduced temperatures. Our technology can provide our C> customers with significant shelf life extension of biologic source material and final cell products, and can also greatly improve post-preservation cell and tissue viability and function. Our biopreservation media is serum-free, protein-free, fully defined, and manufactured under current Good Manufacturing Practices (cGMP). We strive to source wherever possible, the highest available grade, multi-compendium raw materials. We estimate our media products have been incorporated in over 400 customer clinical applications, including numerous chimeric antigen receptor (CAR) T cell and other cell types.
Stability (i.e. shelf-life) and functional recovery are crucial aspects of academic research and clinical practice in the biopreservation of biologic-based source material, intermediate derivatives, and isolated/derived/expanded cellular products and therapies. Limited stability is especially critical in the C> field, where harvested cells and tissues will lose viability over time, if not maintained appropriately at normothermic body temperature (37ºC) or stored in a hypothermic state in an effective preservation medium. Chilling (hypothermia) is used to reduce metabolism and delay degradation of harvested cells and tissues. However, subjecting biologic material to hypothermic environments induces damaging molecular stress and structural changes. Although cooling successfully reduces metabolism (i.e., lowers demand for energy), various levels of cellular damage and death occur when using suboptimal methods. Traditional biopreservation media range from simple “balanced salt” (electrolyte) formulations to complex mixtures of electrolytes, energy substrates such as sugars, osmotic buffering agents and antibiotics. The limited stability which results from the use of these traditional biopreservation media formulations is a significant shortcoming that our optimized proprietary products address with great success.
Our scientific research activities over the last 20+ years enabled a detailed understanding of the molecular basis for the hypothermic and cryogenic (low-temperature induced) damage/destruction of cells through apoptosis and necrosis. This research led directly to the development of our HypoThermosol® FRS and CryoStor® technologies. Our proprietary biopreservation media products are specifically formulated to:
| | ● | Minimize cell and tissue swelling |
| | ● | Reduce free radical levels upon formation |
| | ● | Maintain appropriate low temperature ionic balances |
| | ● | Provide regenerative, high energy substrates to stimulate recovery upon warming |
| | ● | Avoid the creation of an acidic state (acidosis) |
| | ● | Inhibit the onset of apoptosis and necrosis |
A key feature of our biopreservation media products is their “fully-defined” profile. All of our cGMP products are serum-free, protein-free and are formulated and filled using aseptic processing. We strive to use USP/Multicompendial grade or the highest quality available synthetic components. We believe that all of these features benefit prospective customers by facilitating the qualification process required to incorporate our products into their regulatory filings.
The results of independent testing demonstrate that our biopreservation media products significantly extend shelf-life and improve cell and tissue post-thaw viability and function. Our products have demonstrated improved biopreservation outcomes, including greatly extended shelf-life and post-thaw viability, across a broad array of cell and tissue types.
Competing biopreservation media products are often formulated with simple isotonic media cocktails, animal serum, potentially a single sugar or human protein. A key differentiator of our proprietary HypoThermosol FRS formulation is the engineered optimization of the key ionic component concentrations for low temperature environments, as opposed to normothermic body temperature around 37°C, as found in culture media or saline-based isotonic formulas. Competing cryopreservation freeze media is often comprised of a single permeating cryoprotectant such as dimethyl sulfoxide (“DMSO”). Our CryoStor formulations incorporate multiple permeating and non-permeating cryoprotectant agents which allow for multiple mechanisms of protection and reduces the dependence on a single cryoprotectant. We believe that our products offer significant advantages over in-house formulations, or commercial “generic” preservation media, including, time saving, improved quality of components, more rigorous quality control release testing, more cost effective and improved preservation efficacy.
We estimate that annual revenue from each customer commercial application in which our products are used could range from $0.5 million to $2.0 million, if such application is approved and our customer commences large scale commercial manufacturing of the biologic based therapy.
Automated, Water-Free Thawing Products
In April 2019, we acquired Astero Bio Corporation (“Astero”), to expand our bioprocessing tools portfolio and diversify our revenue streams. The Astero ThawSTAR® line includes automated vial and cryobag thawing products that control the heat and timing of the thawing process of biologic material. Our customizable, automated, water-free thawing products uses algorithmic programmed, heating plates to consistently bring biologic material from a frozen state to a liquid state in a controlled and consistent manner. This helps reduce damage during the temperature transition. The ThawSTAR products can reduce risks of contamination versus using a traditional water bath.
evo®evo® Cloud Connected Shipping Containers
In August 2019, we acquired the remaining shares of SAVSU Technologies, Inc. (“SAVSU”) we did not previously own. SAVSU is a leading developer and supplier of next generation cold chain management tools for cell and gene therapies. The evo.is cloud app allows biologic products to be traced and tracked in real time. Our evo platform consists of rentable cloud-connected shippers and include technologies that enable tracking software provides real-time information on geolocation, payload temperature, ambient temperature, tilt of shipper, humidity, altitude, and real-time alerts when a shipper has been opened. Our internally developed evo.is software allows customers to customize alert notifications both in data measurements and user requirements. The evo Dry Vapor Shipper (“DVS”) is specifically marketed to cell and gene therapies. The evo DVS has improved form factor and ergonomics over the traditional dewar, including extended thermal performance, reduced liquid nitrogen recharge time, improved payload extractors and ability to maintain temperature for longer periods on its side.
We utilize couriers who already have established logistic channels and distribution centers. Our strategy greatly reduces the cash need to build out specialized facilities around the world. Our partnerships with several white glove couriers allow us to scale our sales and marketing effort by utilizing their salesforce. Our courier partnerships market our evo platform to their existing cell and gene therapy customers as a cost effective and innovative solution. We also market directly to our existing and prospective customers who can utilize the evo platform through our courier partnerships.
Liquid Nitrogen Freezer and Storage Devices
In November 2019, we acquired Custom Biogenic Systems, Inc. (“CBS”) a global leader in the design and manufacture of state-of-the-art liquid nitrogen laboratory freezers, cryogenic equipment and accessories. The addition of CBS allows for product line growth, diversification of revenue and reduction of supply chain costs for our evo dry vapor shippers.
Included in CBS’s product line of liquid nitrogen freezers are the Isothermal LN2 freezers, constructed with a patented system which stores liquid nitrogen in a jacketed space in the walls of the freezer. This dry storage method eliminates liquid nitrogen contact with stored specimens, reduces the risk of cross-contamination and provides increased user safety in a laboratory setting. To accommodate customer requirements, we offer customizable features including wide bodied and extended height.
Our freezer offerings also include high capacity rate freezers which are fully customizable to customer needs with temperature range of -180°C to +50°C and freezing rates of 0.01 to 99.9 per minute. Password protected software aids in compliance with 21 CFR Part 11 and unlimited programming capability, these high capacity rate freezers provide a searchable database for freeze run history and allow freeze data to be saved.
To accompany the offerings of cryogenic freezer equipment, we supply equipment for storing critically important biological materials. This storage equipment includes upright freezer racks, chest freezer racks, liquid nitrogen freezer racks, canisters/cassettes and frames as well as laboratory boxes and dividers. Due to our onsite design and manufacturing capability, racks and canisters can be customized to address customers’ varying requirements,
In order to provide customers with a proactive approach to safety and monitoring of equipment containing liquefied gas, CBS offers Versalert, a patented wireless remote asset monitoring system that can monitor and record temperatures from -200°C to +50°C, and monitor and record two additional variables using 0-5v or 4-20mA inputs. With an intelligent mesh network with three times the range of competing products, the system enables customers to view current equipment conditions and receive alarm notification on smartphones, tablets or personal computers and maintain permanent electronic records for regulatory compliance and legal verification.
Critical Accounting Policies and Estimates
A “critical accounting policy” is one which is both important to the portrayal of our financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a description of our critical accounting policies that affect our more significant judgments and estimates used in the preparation of our consolidated financial statements, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations and our significant accounting policies in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC.
Results of Operations
We didThe recent COVID-19 outbreak, and the resulting restrictions intended to slow the spread of COVID-19, including stay-at-home orders, business shutdowns and other restrictions, has affected the Company’s business in several ways. In the last two weeks of March 2020, the Company received higher than average orders for its cryopreservation media products. The Company estimates that a total of between $1.5 to $2.0 million of orders for cryopreservation were shipped to customers wanting to have product on hand in the event of any potential supply disruptions. At this time, the Company is unable to determine whether the incremental cryopreservation “safety stock” orders represent a permanent inventory layer for our customers, or whether it was simply a “pull forward” of demand, which could result in lower cryopreservation orders in subsequent periods. Further, while the sales of our automated thaw and freezer product lines were not observe significant impacts on our results of operations formaterially effected in the three months ended March 31, 2020, we believe the sales of these capital equipment products were negatively impacted in the three months ended June 30, 2020, due to customer facility closures which resulted in delaying deliveries and recognizing revenue. We also believe that new capital equipment decisions may be further delayed due to the global outbreak of novel strain of coronavirus, SARS-CoV-2,pandemic, which causes coronavirus disease 2019 (“COVID-19”). Wewould impact our automated thaw and freezer product lines, although at this time, the Company cannot estimate that we received approximately $1.5-$2.0 million in incremental media revenue resulting from what we believe were safety stock purchases of media. The ultimate impacts of COVID-19 on our business and results of operations are currently unknown. We expect to continue to actively monitor the situation and may take further precautionary and preemptive actions as may be required by federal, state or local authorities or that we determine are in the best interests of public health and safety and that of our patient community, employees, partners, suppliers and stockholders. We cannot predict the effects that such actions, or the impact of COVID-19 on global business operations and economic conditions, may have on our business or strategy, including the effects on our financial and operating results.impact.
The following discussion of the financial condition and results of operations should be read in conjunction with the accompanying condensed consolidated financial statements and the related footnotes thereto.
Revenues
In 2019, we acquired three companies which resulted in increased revenue diversification compared to prior years, in which nearly all revenue was derived from our biopreservation media product line. In the three and six months ended March 31,June 30, 2020, we saw a more diversified revenue, both in terms of product and customer concentration, a trend we expect to see continue through 2020.
The following table represents revenues by product line for the three and six months ended March 31,June 30, 2020 and 2019:
| | | Three Months Ended March 31, | | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
(In thousands, except percentages) | | 2020 | | | 2019 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | |
Biopreservation media | | $ | 8,672 | | | $ | 5,770 | | | $ | 6,667 | | | $ | 6,327 | | | $ | 15,339 | | | $ | 12,097 | |
Automated thawing | | | 394 | | | | — | | | 376 | | | 374 | | | 770 | | | 374 | |
evo shippers | | | 438 | | | | — | | | 439 | | | — | | | 877 | | | — | |
Freezers and accessories | | | 2,658 | | | | — | | | | 2,438 | | | | — | | | | 5,096 | | | | — | |
Total revenue | | $ | 12,162 | | | $ | 5,770 | | | $ | 9,920 | | | $ | 6,701 | | | $ | 22,082 | | | $ | 12,471 | |
Revenue increased by $6.4$3.2 million, or 111%48%, in the three months ended March 31,June 30, 2020 compared with 2019, and by $9.6 million, or 77% in the six months ended June 30, 2020, compared to 2019. The increase is due to the acquisitions throughout 2019 and an increase in product revenue of our biopreservation media products. Product revenue of our biopreservation media products increased by $2.9 million,$340,000, or 50%5% in the three months ended March 31,June 30, 2020 compared with the same period in 2019, and increased by $3.2 million, or 27% in the six months ended June 30, 2020 compared to the same period in 2019. We estimate that we received approximately $1.5-$2.0$1.5 to $2.0 million in incremental media revenue resulting from what we believe were safety stock purchases of media as a result of COVID-19. Our biopreservation media products continued to be adopted by customers in the C> market and we realized a higher selling price per liter and more volume in 2020 compared to 2019. Revenue is impacted by the relatively high degree of customer concentration, the timing of orders, the development efforts of our customers or end-users and regulatory approvals for biologics that incorporate our products, which may result in significant quarterly fluctuations. Such quarterly fluctuations are expected, but they may not be predictive of future revenue or otherwise indicative of a trend. We also expect to see quarterly fluctuations based on large customer ordering patterns throughout 2020. Due to the COVID-19 pandemic, while the sales of our automated thaw and freezer product lines were not materially effected in the three months ended March 31, 2020, we believe the sales of these capital equipment products were negatively impacted in the second quarter ended June 30, 2020, due to customer facility closures resulting in delayed deliveries. We also believe that new capital equipment decisions may be delayed due to the pandemic, which would impact our automated thaw and freezer product lines, although at this time, the Company cannot estimate the financial impact.
Costs and Operating Expenses
Total costs and operating expenses for three and six months ended March 31,June 30, 2020 and 2019 were comprised of the following:
| | | Three Months Ended March 31, | | | | | | | Three Months Ended June 30, | | | | | |
(In thousands) | | 2020 | | | 2019 | | | % Change | | | 2020 | | | 2019 | | | % Change | |
Operating expenses: | | | | | | | | | | | | | | | | | | | |
| Cost of product and rental revenue | | $ | 4,568 | | | $ | 1,647 | | | | 177 | % | | $ | 4,499 | | | $ | 1,968 | | | 129 | % |
Research and development | | | 1,663 | | | | 359 | | | | 363 | % | | 1,477 | | | 691 | | | 114 | % |
Sales and marketing | | | 1,576 | | | | 837 | | | | 88 | % | | 1,366 | | | 945 | | | 45 | % |
General and administrative | | | 3,135 | | | | 2,153 | | | | 46 | % | | 3,278 | | | 2,207 | | | 49 | % |
Intangible assets amortization | | | 688 | | | | — | | | | 100 | % | | 706 | | | 104 | | | 579 | % |
Acquisition costs | | | 225 | | | | 208 | | | | 8 | % | | 13 | | | 39 | | | (67 | %) |
Change in fair value of contingent consideration | | | (63 | ) | | | — | | | | (100 | %) | | | (1,463 | ) | | | — | | | | — | % |
Total costs and operating expenses | | $ | 11,792 | | | $ | 5,204 | | | | 127 | % | | $ | 9,876 | | | $ | 5,954 | | | 66 | % |
% of revenue | | | 97 | % | | | 90 | % | | | | | | 99 | % | | 89 | % | | | |
| | | Six Months Ended June 30, | | | | | |
(In thousands) | | 2020 | | | 2019 | | | % Change | |
Operating expenses: | | | | | | | | | | | | |
Cost of product and rental revenue | | $ | 9,067 | | | $ | 3,616 | | | | 151 | % |
Research and development | | | 3,140 | | | | 1,050 | | | | 199 | % |
Sales and marketing | | | 2,942 | | | | 1,782 | | | | 65 | % |
General and administrative | | | 6,413 | | | | 4,359 | | | | 47 | % |
Intangible assets amortization | | | 1,394 | | | | 104 | | | | 1,240 | % |
Acquisition costs | | | 238 | | | | 247 | | | | (4 | %) |
Change in fair value of contingent consideration | | | (1,526 | ) | | | — | | | | — | % |
Total costs and operating expenses | | $ | 21,668 | | | $ | 11,158 | | | | 94 | % |
% of revenue | | | 98 | % | | | 89 | % | | | | |
Cost of product and rental revenue
In the three and six months ended March 31,June 30, 2020 cost of revenue increased $2.9$2.5 million and $5.5 million, or 177%129% and 151%, respectively, when compared to the same period in 2019, due primarily to the increase in revenue mentioned above. We expect that cost of product revenue may fluctuate in future quarters based on production volumes and product mix. The product lines acquired in 2019 have a higher cost of product revenue than our biopreservation media products.
Cost of product revenue as a percentage of revenue was 38%45%, and 29% for the three months ended March 31,June 30, 2020 and 2019, respectively. Cost of product revenue as a percentage of revenue was 41%, and 29% for the six months ended June 30, 2020 and 2019, respectively. Cost of product revenue in the three and six months ended June 30, 2020 includes $196,000$190,000 and $386,000 in inventory step-up related amortization recorded in the purchase accounting of our Astero and CBS acquisitions. The increase in cost of product revenue as a percentage of revenue is a result of the inventory step-up, and higher costs of product revenue as a percentage of revenue for the product lines acquired in 2019 through the Astero, Savsu and CBS acquisitions.
Research and Development Expenses
Research and development (“R&D”) expense consist primarily of salaries and other personnel-related costs, consulting and external product development services.
R&D expense for the three and six months ended March 31,June 30, 2020 increased $1.3$786,000 and $2.1 million, in 2019, or 363%114% and 199%, respectively, compared with the same periodperiods in 2019. The increase is primarily due to our three acquisitions in 2019 and stock compensation expense.
We expect our R&D expense to increase as we continue to expand, develop and refine the product lines we acquired in 2019.
Sales and Marketing Expenses
Sales and marketing expense (“S&M”) consists primarily of salaries and other personnel-related costs, stock compensation expense, trade shows, travel, sales commissions and advertising.
S&M expense for the three and six months ended March 31,June 30, 2020 increased $0.7$421,000 and $1.2 million, or 88%45% and 65%, respectively, compared with the same periodperiods in 2019. The increase reflects the S&M costs we absorbed related to our acquisitions, stock compensation expense and an increase in our direct selling costs.
We expect S&M expense to increase, as we expand our direct selling efforts to support the broader product line offerings resulting from our 2019 acquisitions.
General and Administrative Expenses
General and administrative (“G&A”) expense consists primarily of personnel-related expenses, non-cash stock-based compensation for administrative personnel and members of the board of directors, professional fees, such as accounting and legal, and corporate insurance.
G&A expenses for the three and six months ended March 31,June 30, 2020 increased by $1.0$1.1 million and $2.1 million, or 46%49% and 47%, respectively, compared with the same periodperiods in 2019. The increase reflects the assumption of G&A expenses related to our 2019 acquisitions, and the continued buildout of our administrative infrastructure, primarily through increased headcount and information technology expenditures, to support expected future growth and stock compensation expense.
We expect G&A expense to increase reflecting the infrastructure and costs related to supporting the larger expected enterprise created as a result of our 2019 acquisitions.
Intangible asset amortization expense
Amortization expense consists of charges related to the amortization of intangible assets associated with acquisitions, Astero, SAVSU and CBS in which we acquired definite-lived intangible assets.
Acquisition costs
Acquisition costs consist of legal, accounting, third-party valuations, and other due diligence costs incurred related to our Astero, SAVSU and CBS acquisitions.
Change in fair value of contingent consideration
Change in fair value of contingent consideration consists of changes in estimated fair value of our potential earnouts related to our Astero acquisition.and CBS acquisitions. Due to COVID-19 and the near-term reduction in capital expenditures by our customers, we reduced our expected revenue in the earnout period related to Astero and CBS in the second quarter of 2020. We recorded a gain in the change of fair value of contingent consideration of $1.5 million.
Other Income and Expense
Total other income and expenses for the three and six months ended March 31,June 30, 2020 and 2019 were comprised of the following:
| | | Three Months Ended March 31, | | | | | | | | | | | Three Months Ended June 30, | | | | | | | | |
(In thousands, except percentages) | | 2020 | | | 2019 | | | $ Change | | | % Change | | | 2020 | | | 2019 | | | $ Change | | | % Change | |
Change in fair value of warrant liability | | $ | 21,914 | | | $ | (19,663 | ) | | $ | 41,577 | | | | 211 | % | | $ | (16,442 | ) | | $ | 3,586 | | | $ | (20,028 | ) | | (559 | %) |
Interest income (expense), net | | | 28 | | | | 168 | | | | (140 | ) | | | (83 | %) | | 18 | | | 137 | | | (119 | ) | | (87 | %) |
Other | | | (4 | ) | | | — | | | | (4 | ) | | | — | | | — | | | (1 | ) | | 1 | | | 100 | % |
| | | | | | | | | | | | | | | | | | |
Loss on equity method investment – SAVSU | | | — | | | | (232 | ) | | | (232 | ) | | | 100 | % | | | — | | | | (217 | ) | | | 217 | | | 100 | % |
Total other income (expenses) | | $ | 21,938 | | | $ | (19,727 | ) | | $ | 41,665 | | | | 211 | % | | $ | (16,424 | ) | | $ | 3,505 | | | $ | (19,929 | ) | | (569 | %) |
| | | Six Months Ended June 30, | | | | | | | | | |
(In thousands, except percentages) | | 2020 | | | 2019 | | | $ Change | | | % Change | |
Change in fair value of warrant liability | | $ | 5,472 | | | $ | (16,077 | ) | | $ | 21,549 | | | | 134 | % |
Interest income (expense), net | | | 47 | | | | 307 | | | | (260 | ) | | | (85 | %) |
Other | | | (5 | ) | | | (4 | ) | | | (1 | ) | | | (25 | %) |
Loss on equity method investment – SAVSU | | | — | | | | (448 | ) | | | 448 | | | | 100 | % |
Total other income (expenses) | | $ | 5,514 | | | $ | (16,222 | ) | | $ | 21,736 | | | | 134 | % |
Change in fair value of warrant liability. Reflects the changes in fair value associated with the periodic “mark to market” valuation of certain warrants that were issued in 2014. On May 14, 2020, we issued an aggregate of 2,747,970 shares of Company common stock upon cashless exercise of an aggregate of 3,871,405 warrants, reducing our warrant liability by $33.1 million, which represents the fair value of the warrants at the time or exercise. Due to the changeincrease in our stock price during the three months ended June 30, 2020 from March 31, 2020, the fair value of the warrant liability had increased at the time of the cashless warrant exercise compared to our fair value warrant liability at March 31, 2020. A non-cash loss of $16.4 million was recorded in Other income (expenses) due to the change in fair value of our warrant liability. During the six months ended June 30, 2020 from December 31, 2019, we had a lower warrant liability and a corresponding, unrealized, non-cash gain of $21.9$5.5 million due to the cashless exercises and change in fair value of our warrant liability.
Interest income (expense)(expense), net. We earn interest on cash held in our money market account. We had a lower weighted average cash balance in our money market account for the three and six months ended March 31,June 30, 2020 compared to 2019. Interest expense is related to equipment financing.
Loss on equity method investment. The non-cash loss associated with our proportionate share of the net loss in our investment in SAVSU prior to our acquisition of the remaining shares of SAVSU and subsequent consolidation of SAVSU in our financial statements.
Liquidity and Capital Resources
On March 31,June 30, 2020 and December 31, 2019, we had $29.9 million and $6.4 million in cash and cash equivalents.equivalents, respectfully. We acquired Astero on April 1, 2019 for $12.5 million in cash and contingent consideration of up to $8.5 million (which payment requirement has not been triggered or otherwisemillion. We paid to date). We anticipate paying $484,000$483,000 for the earnout related to 2019 revenues of Astero in the second quarter of 2020. On August 8, 2019, we acquired the remaining shares of SAVSU which we did not own for 1,100,000 shares of common stock. On November 12, 2019, we acquired CBS for $11.0 million in cash, $4.0 million in shares of our common stock, and up to $15.0 million in contingent consideration payable in cash or stock (which payment requirement has not been triggered or otherwise paid to date).
On May 22, 2020, the Company closed on a share purchase agreement with Casdin Capital LLC, a current stockholder of the Company, pursuant to which Casdin invested $20 million in the Company. On July 7, we closed our public offering of 5,951,250 shares of common stock at the public offering price of $14.50 per share, which includes the shares purchased pursuant to the exercise in full of the underwriters' option to purchase up to an additional 776,250 shares of its common stock. The net proceeds from the offering to BioLife, after deducting underwriting discounts and commissions and estimated offering expenses, were approximately $81 million. Based on our current expectations with respect to our future revenue and expenses, we believe that our current level of cash and cash equivalents including proceeds from the Casdin investment, will be sufficient to meet our liquidity needs for at least the next 12 months. However, if our revenues do not grow as expected, including as a result of the COVID-19 pandemic, and if we are not able to manage expenses sufficiently, we may be required to obtain additional equity or debt financing if our cash resources are depleted.financing. Further, the Company may choose to raise additional capital through a debt or equity financing in an attempt to mitigate the heightened level of business uncertainty caused by the COVID-19 pandemic, or in order to pursue additional acquisition or strategic investment opportunities. Additional capital, if required, may not be available on reasonable terms, if at all.
Cash Flows
| | | Three Months Ended March 31, | | | | | | | Six Months Ended June 30, | | | | | |
(In thousands) | | 2020 | | | 2019 | | | $ Change | | | 2020 | | | 2019 | | | $ Change | |
Operating activities | | $ | 687 | | | $ | 1,146 | | | $ | (459 | ) | | $ | 4,890 | | | $ | 1,079 | | | $ | 3,328 | |
Investing activities | | | (1,227 | ) | | | (156 | ) | | | (1,071 | ) | | (1,683 | ) | | (12,705 | ) | | 11,022 | |
Financing activities | | | 492 | | | | 177 | | | | 315 | | | | 20,224 | | | | 586 | | | | 20,121 | |
Net increase (decrease) in cash and cash equivalents | | $ | (48 | ) | | $ | 1,167 | | | $ | (1,215 | ) | | $ | 23,431 | | | $ | (11,040 | ) | | $ | 34,471 | |
Net Cash Provided by Operating Activities
During the threesix months ended March 31,June 30, 2020, net cash provided by operating activities was $687,000$4.9 million compared to $1.1 million for the threesix months ended March 31,June 30, 2019. The decreaseincrease in cash provided by operating activities was the result of increase operatingtiming of collections from our increased revenue, partially offset by increased expenses from our 2019 acquisitions.
Net Cash Used In Investing Activities
Net cash used by investing activities totaled $1.2$1.7 million during the threesix months ended March 31,June 30, 2020 compared to $156,000$12.7 million for the threesix months ended March 31,June 30, 2019. The increaseCash used in investing activities in the six months ended June 30, 2020 was primarily from the resultpurchasing of purchasing assets held for rent for SAVSU. In the six months ended June 30, 2019, we used $12.4 million to purchase Astero. Both period investing activities included similar amounts of purchases of property and equipment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities totaled $492,000$20.2 million during the threesix months ended March 31,June 30, 2020, compared to $177,000$586,000 during the threesix months ended March 31,June 30, 2019. Net cash provided by financing activities in the threesix months ended March 31,June 30, 2020 and 2019 was primarily the result of our $20 million sale of common stock to Casdin Capital, partially offset by $483,000 of contingent consideration paid for the Astero acquisition. Both the 2020 and 2019 periods included proceeds received from stock option exercises and warrant exercises.
Off-Balance Sheet Arrangements
As of March 31,June 30, 2020, we did not have any off-balance sheet arrangements.
Contractual Obligations
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 December 31, 2019, as filed with the SEC. There have been no significant changes to these obligations in the three and six months ended March 31,June 30, 2020.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Form 10-Q were not effective due to the existence of a material weakness in our internal controls over complex equity transactions because we have insufficient technical resources to appropriately analyze and account for complex financial instruments, specifically with regard to our prior interpretation of ASC 480, “Distinguishing Liabilities from Equity”, as it related to the initial classification and subsequent accounting of certain of our outstanding warrants as equity instruments dating back to March 2014, and ASC 718, “Stock Compensation” as it related to the accounting for stock awards with market-based vesting conditions. Errors in the accounting for these transactions resulted in the restatement of previously issued financial statements.
Changes in Internal Control Over Financial Reporting. There was no change in our internal control over financial reporting that occurred during the quarter ended March 31,June 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Control. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within BioLife Solutions have been detected.
PART II: Other Information
Item 1. LEGAL PROCEEDINGS
From time to time, we are or may bebecome subject to legal proceedings and claims in the ordinary course of business. We are not currently aware of any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.
Item 1A. RISK FACTORS
The matters discussed in this Quarterly Report on Form 10-Q include forward-looking statements that involve risks or uncertainties. These statements are neither promises nor guarantees, but are based on various assumptions by management regarding future circumstances, over many of which BioLife has little or no control. A number of important risks and uncertainties, including those identified under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the period ended December 31, 2019 and in subsequent filings, could cause our actual results to differ materially from those in the forward-looking statements. ThereOther than the risk factor below, there are no material changes to the risk factors described in our Annual Report on Form 10-K for the period ended December 31, 2019.
A pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide, including the outbreak of the novel strain of coronavirus disease, COVID-19, could adversely affect our business.
If a pandemic, epidemic or outbreak of an infectious disease occurs in the United States or worldwide, our business may be adversely affected. In December 2019, a novel strain of coronavirus, SARS-CoV-2, was identified in Wuhan, China. Since then, SARS-CoV-2, and the resulting disease, COVID-19, has spread to most countries and all 50 states within the United States. The COVID-19 pandemic has safety concerns.
Numerous state and local jurisdictions have imposed, and others in the future may impose, “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Such orders or restrictions have resulted in reduced operations at our facilities, modified operations at our manufacturing facility, work slowdowns and delays, travel restrictions and cancellation of events, among other effects, thereby significantly and negatively impacting our operations. Other disruptions or potential disruptions include restrictions on the ability of our sales representatives and other personnel to travel and access customers; inability of our suppliers to manufacture components and parts and to deliver these to us on a timely basis, or at all; disruptions in our production schedule and ability to manufacture and assemble products; inventory shortages or obsolescence; delays in actions of regulatory bodies; delays in clinical trials; diversion of or limitations on employee resources that would otherwise be focused on the operations of our business, including because of sickness of employees or their families or the desire of employees to avoid contact with groups of people; delays in growing or reductions in our sales organization, including through delays in hiring, lay-offs, furloughs or other losses of sales representatives or salary and compensation reductions; restrictions in our ability to ship our products to customers; business adjustments or disruptions of certain third parties, including suppliers, medical institutions and clinical investigators with whom we conduct business; increase in bad debts due to an adverse impact of the pandemic on our clients’ cash flows and resulting decrease in collectability of our account receivables; and additional government requirements or other incremental mitigation efforts that may further impact our or our suppliers’ capacity to manufacture and sell our products. The extent to which the COVID-19 pandemic impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity and spread of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.
While the potential economic impact brought by and the duration of any pandemic, epidemic or outbreak of an infectious disease, including COVID-19, may be difficult to assess or predict, the widespread COVID-19 pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of an infectious disease, including COVID-19, could materially affect our business. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in the “Risk Factors” section of our Annual Report filed with the SEC on Form 10-K for the fiscal year ended December 31, 2019.
We are and may become the subject of various claims, litigation or investigations which could have a material adverse effect on our business, financial condition, results of operations or price of our common stock.
We are and may become subject to various claims (including “whistleblower” complaints), litigation or investigations, including commercial disputes and employee claims, and from time to time may be involved in governmental or regulatory investigations or similar matters. Any claims asserted against us or our management, regardless of merit or eventual outcome, could harm our reputation and have an adverse impact on our relationship with our clients, distribution partners and other third parties and could lead to additional related claims. Furthermore, there is no guarantee that we will be successful in defending ourselves in pending or future litigation or similar matters under various laws. Any judgments or settlements in any pending litigation or future claims, litigation or investigation could have a material adverse effect on our business, financial condition, results of operations and price of our common stock.
Item 2. 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. 4. MINE SAFETY DISCLOSURES
None.
Item 5. 5. OTHER INFORMATION
None.
Item 6. Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BIOLIFE SOLUTIONS, INC. |
| |
| |
Dated: May 29,August 10, 2020 | /s/ Roderick de Greef |
| Roderick de Greef |
| Chief Financial Officer and Chief Operating Officer
(Duly authorized officer and principal
financial and accounting officer) |
BIOLIFE SOLUTIONS, INC.
INDEX TO EXHIBITS
Exhibit No.
| | Description
|
| | (Duly authorized officer and principal financial and accounting officer) |
31.1
| | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
| | |
31.2
| | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
| | |
32.1
| | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
| | |
32.2
| | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
| | |
101.INS
| | XBRL Instance Document
|
| | |
101.SCH
| | XBRL Taxonomy Extension Schema
|
| | |
101.CAL
| | XBRL Taxonomy Extension Calculation Linkbase
|
| | |
101.DEF
| | XBRL Taxonomy Extension Definition Linkbase
|
| | |
101.LAB
| | XBRL Taxonomy Extension Label Linkbase
|
| | |
101.PRE
| | XBRL Taxonomy Extension Presentation Linkbase
|
