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Biolife Solutions (BLFS)

Filed: 15 Nov 21, 4:00pm
 

Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 


 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from to

 

 

Commission File Number 001-36362

 

 


BioLife Solutions, Inc.

(Exact name of registrant as specified in its charter)

 

logo.jpg


 

Delaware

94-3076866

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

 

3303 MONTE VILLA PARKWAY, SUITE 310, BOTHELL, Washington, 98021

(Address of registrants principal executive offices, Zip Code)

 

(425) 402-1400

(Telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol

Name of exchange on which registered

BioLife Solutions, Inc. Common Shares

BLFS

NASDAQ Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (S232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit said files). Yes ☑  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐  Accelerated filer ☐  Non-accelerated filer ☑  Smaller reporting company ☑ Emerging Growth Company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐  No ☑

 

As of November 9, 2021, 41,646,916 shares of the registrant’s common stock were outstanding.

 

 

 

BIOLIFE SOLUTIONS, INC.

 

FORM 10-Q

 

FOR THE QUARTER ENDED September 30, 2021

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION3
  

Item 1.

Unaudited Condensed Consolidated Financial Statements

3

   
 

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020

3

   
 

Unaudited Condensed Consolidated Statements of Operations for the three and nine month periods ended September 30, 2021 and 2020

4

   
 

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine month periods ended September 30, 2021 and 2020

5

   
 

Unaudited Condensed Consolidated Statements of Shareholders Equity for the three and nine month periods ended September 30, 2021 and 2020

6

   
 

Unaudited Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2021 and 2020

7

   
 

Notes to Unaudited Condensed Consolidated Financial Statements

8

   

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

31
   

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

38
   

Item 4.

Controls and Procedures

38
   

PART II.

OTHER INFORMATION

39

   

Item 1. 

Legal Proceedings

39

   

Item 1A.

Risk Factors

39

   

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

   

Item 3.

Defaults Upon Senior Securities

39

   

Item 4.

Mine Safety Disclosures

39

   

Item 5.

Other Information

39

   

Item 6.

Exhibits

40

   
 

Signatures

41

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

BioLife Solutions, Inc.

 

Unaudited Condensed Consolidated Balance Sheets

 

  

September 30,

  

December 31,

 

(In thousands, except per share and share data)

 

2021

  

2020

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $75,098  $90,403 

Restricted cash

  53   53 

Accounts receivable, trade, net of allowance for doubtful accounts of $287 and $85 as of September 30, 2021 and December 31, 2020, respectively

  20,232   8,006 

Inventories, net

  29,696   11,602 

Prepaid expenses and other current assets

  5,426   4,648 

Total current assets

  130,505   114,712 
         

Assets held for rent, net

  10,086   4,705 

Property and equipment, net

  17,462   10,120 

Operating lease right-of-use assets, net

  17,157   9,675 

Financing lease right-of-use assets, net

  476   17 

Long-term deposits and other assets

  386   230 

Investments

  4,372   5,872 

Intangible assets, net

  155,011   31,049 

Goodwill

  223,936   58,449 

Total assets

 $559,391  $234,829 
         

Liabilities and Shareholders Equity

        

Current liabilities:

        

Accounts payable

 $14,296  $3,672 

Line of credit

  2,161   0 

Accrued expenses and other current liabilities

  12,057   4,755 

Lease liabilities, operating, current portion

  2,648   1,107 

Lease liabilities, financing, current portion

  146   8 

Debt, current portion

  1,771   614 

Warrant liability, current portion

  0   2,780 

Contingent consideration, current portion

  2,714   2,637 

Total current liabilities

  35,793   15,573 
         

Contingent consideration, long-term

  5,524   4,515 

Lease liabilities, operating, long-term

  15,047   8,757 

Lease liabilities, financing, long-term

  329   12 

Debt, long-term

  6,122   655 

Deferred tax liabilities

  7,269   0 

Other long-term liabilities

  48   71 

Total liabilities

  70,132   29,583 
         

Commitments and Contingencies (Note 12)

          
         

Shareholders’ equity:

        

Preferred stock, $0.001 par value; 1,000,000 shares authorized, Series A, 4,250 shares designated, and 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020

  0   0 

Common stock, $0.001 par value; 150,000,000 shares authorized, 41,444,191 and 33,039,146 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

  41   33 

Additional paid-in capital

  579,929   302,598 
Accumulated other comprehensive loss  (163)  0 

Accumulated deficit

  (90,548)  (97,385)

Total shareholders’ equity

  489,259   205,246 

Total liabilities and shareholders’ equity

 $559,391  $234,829 

 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

 

 

BioLife Solutions, Inc.

 

Unaudited Condensed Consolidated Statements of Operations

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands, except per share and share data)

 

2021

  

2020

  

2021

  

2020

 
                 

Product revenue

 $29,201  $10,804  $70,445  $32,020 

Service revenue

  2,250   0   6,417   0 

Rental revenue

  2,349   475   4,989   1,341 

Total product, rental, and service revenue

  33,800   11,279   81,851   33,361 

Costs and operating expenses:

                

Cost of product revenue (exclusive of intangible assets amortization)

  21,672   4,402   43,280   12,938 

Cost of service revenue (exclusive of intangible assets amortization)

  1,768   0   4,548   0 

Cost of rental revenue (exclusive of intangible assets amortization)

  1,424   424   3,140   955 

Research and development

  3,219   1,725   8,250   4,865 

Sales and marketing

  4,065   1,588   9,228   4,530 

General and administrative

  10,081   3,503   22,058   9,916 

Intangible asset amortization

  2,525   706   5,340   2,100 

Acquisition costs

  345   179   1,616   417 

Change in fair value of contingent consideration

  (140)  (2)  1,086   (1,528)

Total operating expenses

  44,959   12,525   98,546   34,193 

Operating loss

  (11,159)  (1,246)  (16,695)  (832)
                 

Other income (expense):

                

Change in fair value of warrant liability

  0   (1,005)  (121)  4,467 

Change in fair value of investments

  0   1,110   0   1,110 

Interest (expense) income, net

  (194)  13   (331)  59 

Other expense

  (7)  (5)  (7)  (9)
Gain on acquisition of Sexton Biotechnologies, Inc.  6,451   0   6,451   0 

Total other income, net

  6,250   113   5,992   5,627 
                 
(Loss) income before income tax benefit  (4,909)  (1,133)  (10,703)  4,795 
Income tax benefit  4,988   0   17,540   0 
Net income (loss) $79  $(1,133) $6,837  $4,795 
                 
Net income (loss) attributable to common shareholders:                

Basic

 $77  $(1,133) $6,621  $4,322 

Diluted

  77   (1,133)  6,628   279 
Earnings (loss) per share attributable to common shareholders:                

Basic

 $0.00  $(0.04) $0.18  $0.17 

Diluted

 $0.00  $(0.04) $0.17  $0.01 
Weighted average shares used to compute earnings (loss) per share attributable to common shareholders:                

Basic

  40,911,801   31,639,420   37,435,224   25,418,375 

Diluted

  43,296,470   31,639,420   39,984,923   29,412,538 

 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

 

 

BioLife Solutions, Inc.

 

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands)

 

2021

  

2020

  

2021

  

2020

 
                 
Net income (loss) $79  $(1,133) $6,837  $4,795 
                 

Other comprehensive loss

  (166)  0   (163)  0 
                 

Comprehensive (loss) income

 $(87) $(1,133) $6,674  $4,795 

 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

 

BioLife Solutions, Inc.

 

Unaudited Condensed Consolidated Statements of Shareholders Equity

 

  

Nine Months Ended September 30, 2021

 
  

Series A

  

Series A

              

Accumulated

         
  

Preferred

  

Preferred

  

Common

  

Common

  

Additional

  

Other

      

Total

 
  

Stock

  

Stock

  

Stock

  

Stock

  

Paid-in

  

Comprehensive

  

Accumulated

  

Shareholders

 

(In thousands, except share data)

 

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Loss

  

Deficit

  

Equity

 

Balance, December 31, 2020

  -  $-   33,039,146  $33  $302,598  $0  $(97,385) $205,246 

Stock issued as consideration in GCI acquisition

  -   -   6,636,470   7   232,734   -   -   232,741 

Stock issued as consideration in Sexton acquisition

  -   -   530,502   -   31,977   -   -   31,977 

Fees incurred for registration filings

  -   -   -   -   (188)  -   -   (188)

Stock based compensation

  -   -   -   -   8,891   -   -   8,891 

Stock option exercises

  -   -   632,665   1   1,016   -   -   1,017 

Cashless exercises of 79,100 warrants

  -   -   70,030   -   2,901   -   -   2,901 

Stock issued – on vested RSAs

  0   -   535,378   -   -   -   -   - 

Foreign currency translation

  -   -   -   -   -   (163)  -   (163)

Net income

  -   -   -   -   -   -   6,837   6,837 

Balance, September 30, 2021

  -  $-   41,444,191  $41  $579,929  $(163) $(90,548) $489,259 

 

  

Three Months Ended September 30, 2021

 
  

Series A

  

Series A

              

Accumulated

         
  

Preferred

  

Preferred

  

Common

  

Common

  

Additional

  

Other

      

Total

 
  

Stock

  

Stock

  

Stock

  

Stock

  

Paid-in

  

Comprehensive

  

Accumulated

  

Shareholders

 

(In thousands, except share data)

 

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Income (Loss)

  

Deficit

  

Equity

 

Balance, June 30, 2021

  -  $-   40,560,720  $41  $542,864  $3  $(90,627) $452,281 

Stock issued as consideration in Sexton acquisition

  -   -   530,502   -   31,977   -   -   31,977 

Fees incurred for registration filings

  -   -   -   -   (188)  -   -   (188)

Stock based compensation

  -   -   -   -   4,868   -   -   4,868 

Stock option exercises

  -   -   244,906   -   408   -   -   408 

Stock issued – on vested RSAs

  0   -   108,063   -   -   -   -   - 

Foreign currency translation

  -   -   -   -   -   (166)  -   (166)

Net income

  -   0   -   0   0   0   79   79 

Balance, September 30, 2021

  -  $-   41,444,191  $41  $579,929  $(163) $(90,548) $489,259 

 

  

Nine Months Ended September 30, 2020

 
  

Series A

  

Series A

              

Accumulated

         
  

Preferred

  

Preferred

  

Common

  

Common

  

Additional

  

Other

      

Total

 
  

Stock

  

Stock

  

Stock

  

Stock

  

Paid-in

  

Comprehensive

  

Accumulated

  

Shareholders

 

(In thousands, except share data)

 

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Income

  

Deficit

  

Equity

 

Balance, December 31, 2019

  0  $0   20,825,452  $21  $143,485  $-  $(100,052) $43,454 

Stock issued as 2019 bonus payout

  -   -   -   -   314   -   -   314 

Sale of common stock, net of fees

  -   -   7,856,012   8   100,113   -   -   100,121 

Common stock issued for services

  -   -   3,175   -   60   -   -   60 

Stock based compensation

  -   -   -   -   3,818   -   -   3,818 

Stock option exercises

  -   -   528,793   -   1,028   -   -   1,028 

Cashless exercise of 3,871,405 warrants

  -   -   2,747,970   3   33,108   -   -   33,111 

Warrant exercises

  -   -   8,500   -   150   -   -   150 

Stock issued – on vested RSAs

  0   -   161,263   -   -   -   -   - 

Net income

  -   -   -   -   -   -   4,795   4,795 

Balance, September 30, 2020

  -  $-   32,131,165  $32  $282,076  $0  $(95,257) $186,851 

 

  

Three Months Ended September 30, 2020

 
  

Series A

  

Series A

              

Accumulated

         
  

Preferred

  

Preferred

  

Common

  

Common

  

Additional

  

Other

      

Total

 
  

Stock

  

Stock

  

Stock

  

Stock

  

Paid-in

  

Comprehensive

  

Accumulated

  

Shareholders

 

(In thousands, except share data)

 

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Income

  

Deficit

  

Equity

 

Balance, June 30, 2020

  -  $-   25,982,367  $26  $199,941  $-  $(94,124) $105,843 

Sale of common stock, net of fees

  -   -   5,951,250   6   80,201   -   -   80,207 

Common stock issued for services

  -   -   3,175   -   60   -   -   60 

Stock based compensation

  -   -   -   -   1,560   -   -   1,560 

Stock option exercises

  -   -   118,000   -   244   -   -   244 

Warrant exercises

  -   -   3,500   -   70   -   -   70 
Stock issued – on vested RSAs  0   -   72,873   -   -   -   -   - 

Net loss

  -   -   -   -   -   -   (1,133)  (1,133)

Balance, September 30, 2020

  -  $-   32,131,165  $32  $282,076  $-  $(95,257) $186,851 

 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

 

 

BioLife Solutions, Inc.

 

Unaudited Condensed Consolidated Statements of Cash Flows

 

  

Nine Months Ended

 
  

September 30,

 

(In thousands)

 

2021

  

2020

 

Cash flows from operating activities

        

Net income

 $6,837  $4,795 

Adjustments to reconcile net income to net cash (used in) provided by operating activities

        

Depreciation

  3,035   1,454 

Amortization of intangible assets

  5,340   2,100 

Stock-based compensation

  8,891   3,818 

Non-cash lease expense

  1,795   455 

Deferred income tax benefit

  (17,540)  0 

Change in fair value of contingent consideration

  1,086   (1,528)

Change in fair value of warrant liability

  121   (4,467)

Change in fair value of investments

  0   (1,110)
Gain on acquisition of Sexton Biotechnologies, Inc.  (6,451)  0 

Stock issued for services

  0   30 

Loss on disposal of assets held for rent, net

  333   0 

Other

  504   9 
         

Change in operating assets and liabilities, net of effects of acquisitions

        

Accounts receivable, trade, net

  (7,140)  (820)

Inventories

  (1,237)  (65)

Prepaid expenses and other current assets

  1,769   68 

Accounts payable

  1,368   (604)

Accrued expenses and other current liabilities

  (2,530)  689 

Other

  0   (436)

Net cash (used in) provided by operating activities

  (3,819)  4,388 
         

Cash flows from investing activities

        

Cash acquired in acquisition of Global Cooling, Inc. and Sexton Biotechnologies, Inc.

  1,559   - 

Payments related to the acquisition of SciSafe, net of cash acquired

  -   (500)

Purchases of property and equipment

  (6,819)  (370)

Purchases of assets held for lease

  (5,412)  (1,791)

Proceeds from sale of equipment

  22   3 

Net cash used in investing activities

  (10,650)  (2,658)
         

Cash flows from financing activities

        

Proceeds from Paycheck Protection Program ("PPP") Loan

  0   2,175 

Payoff of PPP Loan

  0   (2,175)

Proceeds from equipment loans

  1,640   0 

Payments of contingent consideration

  0   (483)

Proceeds from sale of common stock, net of $6.2 million of costs in 2020

  0   100,251 

Fees paid related to issuance of common stock

  (145)  - 

Proceeds from line of credit

  26,450   0 

Payments on line of credit

  (28,657)  0 

Proceeds from exercise of common stock options

  1,017   1,028 

Proceeds from exercise of warrants

  0   40 

Payments on financed insurance premium

  (698)  0 

Other

  (280)  (30)

Net cash (used in) provided by financing activities

  (673)  100,806 
         

Net (decrease) increase in cash, cash equivalents, and restricted cash

  (15,142)  102,536 

Cash, cash equivalents, and restricted cash – beginning of period

  90,456   6,448 

Effects of currency translation on cash, cash equivalents, and restricted cash

  (163)  0 

Cash, cash equivalents, and restricted cash – end of period

 $75,151  $108,984 

Non-cash investing and financing activities

        

Cashless exercise of warrants reclassified from warrant liability to common stock

 $2,901  $33,111 

Stock issued as consideration to acquire Global Cooling, Inc. and Sexton Biotechnologies, Inc.

 $264,718  $0 

Equipment acquired under operating leases

 $6,971  $0 

Equipment acquired under finance leases

 $440  $0 
Purchase of property and equipment not yet paid $305  $29 
Reclassification of warrant liabilities to equity upon exercise $0  $110 

Financing costs paid in a prior period

 $0  $130 

Stock issued as a prepayment of services

 $0  $30 

Stock issued as bonus consideration

 $0  $314 

Purchase of equipment with debt

 $0  $270 

 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

 

 

BioLife Solutions, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

1. Organization and significant accounting policies

 

Business

 

BioLife Solutions, Inc. (“BioLife”, “us”, “we”, “our”, or the “Company”) is a developer, manufacturer, and supplier of a portfolio of bioproduction tools and services including proprietary biopreservation media, automated thawing devices, cloud-connected shipping containers, ultra-low temperature mechanical freezers, cryogenic and controlled rate freezers and biological and pharmaceutical materials storage. Our CryoStor® freeze media and HypoThermosol® hypothermic storage media 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. Our Sexton cell processing product line includes human platelet lysates (“hPL”) for cell expansion reducing risk and improving downstream performance over fetal bovine serum, human serum, and other chemically defined media, CellSeal® cryogenic vials that are purpose-built rigid containers used in cell and gene therapy (“CGT”) that can be filled manually or with high throughput systems, and automated cell processing machines that bring multiple processes traditionally performed by manual techniques under a higher level of control to protect therapies from loss or contamination. 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 administer 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 cryogenic freezer technology provides for controlled rate freezing and storage of biologic materials. Our ultra-low temperature mechanical freezers allow biological materials and vaccines to be stored at temperatures which range from negative 20℃ to negative 80℃. Our evo® shipping containers provide cloud-connected passive storage and transport containers for temperature-sensitive biologics and pharmaceuticals. Our biological and pharmaceutical materials storage services provide facilities that allow for real-time tracking of biologic materials and vaccines that can be stored at a wide range of temperatures.

 

Use of estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant estimates and assumptions by management affect the Company’s allowance for doubtful accounts, the net realizable value of inventory, fair value of warrant liability, valuation of market based awards, valuations and purchase price allocations related to investments and business combinations, expected future cash flows including growth rates, discount rates, terminal values and other assumptions and estimates used to evaluate the recoverability of long-lived assets, estimated fair values of intangible assets and goodwill, amortization methods and periods, certain accrued expenses, share-based compensation, contingent consideration from business combinations, tax reserves, and the recoverability of the Company’s net deferred tax assets and the related valuation allowance.

 

The Company regularly assesses these estimates; however, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.

 

Basis of presentation

 

The Unaudited Condensed Consolidated Financial Statements included herein have been prepared by BioLife in accordance with U.S. GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), for Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X and do not include all of the information and footnote disclosures required by U.S. GAAP. These Unaudited 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-K as of and for the fiscal year ended December 31, 2020.

 

The Unaudited 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” acquired on August 8, 2019), Arctic Solutions, Inc. doing business as Custom Biogenic Systems (“CBS” acquired on November 12, 2019), SciSafe Holdings, Inc. (“SciSafe” acquired on October 1, 2020), Global Cooling, Inc. doing business as Stirling Ultracold (“Global Cooling” or “GCI” acquired on May 3, 2021), and Sexton Biotechnologies, Inc. (“Sexton” acquired on September 1, 2021). All 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.

 

8

 

Financial Statement Reclassification

 

Certain classifications on the Unaudited Condensed Consolidated Balance Sheets related to accrued expenses and other current liabilities, debt, current portion, and debt, long-term as of December 31, 2020 were reclassified to conform to current period presentation. These reclassifications have no impact on previously reported total revenue, net (loss) income, net assets, or total operating cash flows.

 

Segment reporting

 

The Company operates and manages its business as one reportable and operating segment, which is the business of bioproduction tools and services. The Company’s Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.

 

Significant accounting policies

 

There have been no significant changes to the accounting policies during the nine months ended September 30, 2021, as compared to the significant accounting policies described in our Annual Report on Form 10-K.

 

Liquidity and capital resources

 

On September 30, 2021 and December 31, 2020, we had $75.1 million and $90.4 million in cash and cash equivalents, respectively. Based on our current expectations with respect to our future revenue and expenses, we believe that our current level of cash and cash equivalents will be sufficient to meet our liquidity needs for at least the foreseeable future. However, the Company may choose to raise additional capital through a debt or equity financing 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

 

On March 10, 2020, the World Health Organization declared the outbreak of the novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 (“COVID-19”) a pandemic. The COVID-19 pandemic, 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. The CGT industry that BioLife services has a complex and highly controlled supply chain that has been impacted by COVID-19. Challenges faced include, but are not limited to, the diversion of healthcare industry resources towards studying and treating COVID-19, logistics operations slowing down on a global scale, and changing environments related to in-person sales efforts.

 

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 vendors, the inability to travel to market and sell our products, and the interruption of the Company’s supply chain, distribution channels, liquidity and capital or financial markets.

 

Any disruption and volatility in the global capital markets as a result of the pandemic may increase the Company’s cost of capital and adversely affect the Company’s ability to access financing when and on terms that the Company desires. In addition, a potential recession resulting from the spread of 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 the COVID-19 pandemic and its repercussions impact the Company’s business will depend on future developments, which are highly uncertain. However, the foregoing and other continued disruptions to the Company’s business as a result of COVID-19 could result in a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.

 

On March 27, 2020, the President of the United States 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 tax payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.

 

9

 

As of March 30, 2020, the Company started deferring the employer side of social security tax payments as allowed by the CARES Act. As of September 30, 2021, the amount of deferred social security tax payments was $432,000. We are required to pay back 50% of our total deferred payments in 2021 and the remaining 50% in 2022.

 

On March 11, 2021, the President of the United States signed into law the “American Rescue Plan Act of 2021” (the American Rescue Plan), which included additional economic stimulus and tax credits, including the expansion of the Employee Retention Credit.

 

In the SciSafe acquisition, the Company assumed a $295,300 loan from the PPP. The loan incurs interest at 1% and is unsecured. Should any portion of the principal of the note not meet the forgiveness provisions, monthly principal and interest payments will be repayable using a monthly amortization schedule starting from the end of the covered period until maturity in October 2022. The provisions under the PPP allow for recipients to receive loan forgiveness from the Small Business Association, who is the lender of the funds. There can be no assurance that the Company will obtain full forgiveness of the loans.

 

Concentrations of credit risk and business risk

 

We derived approximately 19% and 14% of revenue from one customer in the three and nine months ended September 30, 2021, respectively, and approximately 11% and 12% from one customer in the three and nine months ended September 30, 2020, respectively. No other customer accounted for more than 10% of revenue in the three and nine months ended September 30, 2021 and 2020. All revenue from foreign customers is denominated in United States dollars.

 

The following table represents the Company’s total revenue by geographic area (based on the location of the customer):

 

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 

Revenue by customers geographic locations

 

2021

  

2020

  

2021

  

2020

 

North America

  88

%

  84

%

  87

%

  86

%

Europe, Middle East, Africa (EMEA)

  9

%

  13

%

  10

%

  12

%

Other

  3

%

  3

%

  3

%

  2

%

Total revenue

  100

%

  100

%

  100

%

  100

%

 

We derived approximately 30% and 33% of our revenue from CryoStor products in the three and nine months ended September 30, 2021, respectively, and 62% and 64% in the three and nine months ended September 30, 2020. We also derived approximately 29% and 21% of our revenue from our 780XLE freezer line in the three and nine months ended September 30, 2021, respectively. The 780XLE freezer line did not account for more than 10% of revenues during the three and nine months ended September 30, 2020.

 

As of September 30, 2021 and December 31, 2020, two customers and one customer accounted for approximately 29% and 17% of total gross accounts receivable, respectively. No other customers accounted for more than 10% of gross accounts receivable as of September 30, 2021 and December 31, 2020.

 

As of September 30, 2021 and December 31, 2020, one supplier accounted for 11% and 21% of accounts payable, respectively. No other suppliers accounted for more than 10% of accounts payable as of September 30, 2021 and December 31, 2020.

 

Recent accounting pronouncements 

 

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This update amends guidance to require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (Topic 606). At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of the amendments is permitted including adoption in an interim period. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

 

In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842): Lessors - Certain Leases with Variable Lease Payments ("ASU 2021-05"). The guidance in ASU 2021-05 amends the lease classification requirements for the lessors under certain leases containing variable payments to align with practice under Accounting Standards Codification (“ASC”) 840. The lessor should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met: 1) the lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in ASC 842-10-25-2 through 25-3; and 2) the lessor would have otherwise recognized a day-one loss. The amendments in ASU 2021-05 are effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the timing and impact of the adoption of ASU 2021-05 on the Company’s consolidated financial statements.

 

10

 

In May 2021, the FASB issued ASU No. 2021-04, Issuers Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, which clarifies the accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. Specifically, ASU 2021-04 requires the issuer to treat a modification of an equity-classified warrant as an exchange of the original warrant. The difference between the fair value of the modified warrant and the fair value of the warrant immediately before modification is then recognized as an issuance cost or discount of the related transaction. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted. ASU 2021-04 should be applied prospectively to modifications or exchanges occurring after the effective date. Either the full or modified retrospective adoption method is allowed. We do not have any equity-classified written call options that would be subject to this guidance. Therefore, we do not expect any impact on our consolidated financial statements and related disclosures.

 

In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entitys Own Equity (Subtopic 815-40). ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. ASU 2020-06 also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. The Company adopted this guidance and it did not have a material impact on the company’s financial position, results of operation or cash flows.

 

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform—Scope, which clarified the scope and application of the original guidance. The Company will adopt these standards when LIBOR is discontinued. The ASU can be adopted no later than December 1, 2022, with early adoption permitted. The Company has not yet adopted this ASU and is evaluating the effect of adopting this new accounting guidance.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 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 2016-13 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company is evaluating the impact of the guidance on its 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-tier fair value 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.

 

11

 

The fair value of the Astero Contingent Consideration liability was initially valued based on unobservable inputs using a Black-Scholes valuation model. These inputs included the estimated amount and timing of projected future revenue, a discount rate of 17.5%, risk-free rates between 2.29% and 2.41% and revenue volatility of 56%. Significant increases (decreases) in any of those inputs in isolation would result in a significantly higher (lower) fair value measurement. Generally, changes used in the assumptions for projected future revenue and revenue volatility would be accompanied by a directionally similar change in the fair value measurement. Conversely, changes in the discount rate would be accompanied by a directionally opposite change in the related fair value measurement. However, due to the Contingent Consideration having a maximum payout amount, changes in these assumptions would not affect the fair value of the Contingent Consideration if they increase (decrease) beyond certain amounts. Subsequent to the acquisition date, as of each reporting period, the Contingent Consideration liability is re-measured to fair value with changes recorded in the Change in Fair Value of Contingent Consideration in the Unaudited Condensed Consolidated Statements of Operations. During the most recent re-measurement of the Contingent Consideration liability as of September 30, 2021, the Company assessed the probability of meeting previously determined metrics as unlikely. The Company recognized reductions of $0 and $81,000 in the Change in Fair Value of Contingent Consideration in the Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021, respectively. This Contingent Consideration liability is presented in the Consolidated Balance Sheet as of December 31, 2020 in the amount of $81,000. Certain assumptions used in estimating the fair value of the Contingent Consideration are uncertain by nature. Actual results may differ materially from estimates.

 

The fair value of the CBS Contingent Consideration liability was initially valued based on unobservable inputs using a Monte Carlo simulation. These inputs included the estimated amount and timing of projected future revenue, a discount rate of 26.0%, a risk-free rate of approximately 1.74% and revenue volatility of 70%. Significant increases (decreases) in any of those inputs in isolation would result in a significantly higher (lower) fair value measurement. Generally, changes used in the assumptions for projected future revenue and revenue volatility would be accompanied by a directionally similar change in the fair value measurement. Conversely, changes in the discount rate would be accompanied by a directionally opposite change in the related fair value measurement. However, due to the Contingent Consideration having a maximum payout amount, changes in these assumptions would not affect the fair value of the Contingent Consideration if they increase (decrease) beyond certain amounts. Subsequent to the acquisition date, as of each reporting period, the Contingent Consideration liability is re-measured to fair value with changes recorded in the Change in Fair Value of Contingent Consideration in the Unaudited Condensed Consolidated Statements of Operations. During the most recent re-measurement of the Contingent Consideration liability as of September 30, 2021, the Company used a discount rate of 21.0%, a risk-free rate of 0.23% and revenue volatility of 63%. This Contingent Consideration Liability is presented in the Unaudited Condensed Consolidated Balance Sheet as of September 30, 2021 and December 31, 2020 in the amount of $140,000. Certain assumptions used in estimating the fair value of the Contingent Consideration are uncertain by nature. Actual results may differ materially from estimates.

 

The fair value of the SciSafe Contingent Consideration liability was initially valued based on unobservable inputs using a Monte Carlo simulation. These inputs included the estimated amount and timing of projected future revenue, a discount rate of 4.5%, a risk-free rate of approximately 0.20%, asset volatility of 60%, and revenue volatility of 15%. Significant increases (decreases) in any of those inputs in isolation would result in a significantly higher (lower) fair value measurement. Generally, changes used in the assumptions for projected future revenue and revenue volatility would be accompanied by a directionally similar change in the fair value measurement. Conversely, changes in the discount rate would be accompanied by a directionally opposite change in the related fair value measurement. However, due to the Contingent Consideration having a maximum payout amount, changes in these assumptions would not affect the fair value of the Contingent Consideration if they increase (decrease) beyond certain amounts. As of the acquisition date, the Contingent Consideration was determined to have a fair value of $3.7 million. Subsequent to the acquisition date, the Contingent Consideration liability is re-measured to fair value with changes recorded in the Change in Fair Value of Contingent Consideration in the Unaudited Condensed Consolidated Statements of Operations. During the most recent re-measurement of the Contingent Consideration liability as of September 30, 2021, the Company used a discount rate of 6.8%, a risk-free rate of approximately 0.47%, asset volatility of 61%, and revenue volatility of 22%. The SciSafe Contingent Consideration, if earned, is to be paid in shares of BioLife’s common stock. As such, changes in BioLife’s stock price directly impact the fair value of the SciSafe Contingent Consideration as of each measurement date. This Contingent Consideration liability is presented in the Unaudited Condensed Consolidated Balance Sheet as of September 30, 2021 and December 31, 2020 in the amount of $8.1 million and $6.9 million, respectively. The Change in Fair Value of Contingent Consideration of a decrease of $141,000 and an increase of $1.2 million associated with this liability is presented within the Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021, respectively. Certain assumptions used in estimating the fair value of the Contingent Consideration are uncertain by nature. Actual results may differ materially from estimates.

 

For the warrant liability, the significant Level 3 inputs included the contractual remaining 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 expired March 25, 2021. For the volatility of the Company’s stock as of December 31, 2020, we used historical volatility for the remaining term of each warrant. These amounts ranged from 56.8% to 84.6%. We did not make any adjustments to the historical volatility. Certain assumptions used in estimating the fair value of the warrants are uncertain by nature. On March 25, 2021, the expiration date of all remaining warrants, all remaining warrants were exercised via a “cashless” exercise and the warrant liability was revalued to its intrinsic value, as the Company’s stock price was observable as of that date.

 

There were no remeasurements to fair value during the nine months ended September 30, 2021 of financial assets and liabilities that are not measured at fair value on a recurring basis.

 

12

 

The following tables set forth the Company’s financial assets measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020, based on the three-tier fair value hierarchy:

 

(In thousands)

As of September 30, 2021

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Assets:

                

Money market accounts

 $70,152  $0  $0  $70,152 

Total

  70,152   0   0   70,152 

Liabilities:

                

Contingent consideration - business combinations

  0   0   8,238   8,238 

Total

 $0  $0  $8,238  $8,238 

 

As of December 31, 2020

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Assets:

                

Money market accounts

 $90,403  $0  $0  $90,403 

Total

  90,403   0   0   90,403 

Liabilities:

                

Contingent consideration - business combinations

  0   0   7,152   7,152 

Warrant liability

  0   0   2,780   2,780 

Total

 $0  $0  $9,932  $9,932 

 

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 contingent consideration and warrant liabilities 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 fair value of contingent consideration liabilities which are measured using Level 3 inputs:

 

  

Nine Months Ended

 
  

September 30,

 

(In thousands)

 

2021

  

2020

 

Beginning balance

 $7,152  $1,914 
Change in fair value recognized in net income (loss)  1,086   (1,528)

Ending balance

 $8,238  $386 

 

The following table presents the changes in fair value of warrant liabilities which are measured using Level 3 inputs:

 

  

Nine Months Ended

 
  

September 30,

 

(In thousands)

 

2021

  

2020

 

Beginning balance

 $2,780  $39,602 

Exercised warrants

  (2,901)  (33,221)
Change in fair value recognized in net income (loss)  121   (4,467)

Ending balance

 $0  $1,914 

 

13

 

 

3. Acquisitions

 

Sexton acquisition

 

General terms and effects

 

On August 9, 2021, BioLife entered into an Agreement and Plan of Merger (the “Sexton Merger Agreement”) with BLFS Merger Sub, Inc., a Delaware corporation (“Sexton Merger Sub”), Fortis Advisors LLC, in its capacity as the representative of the stockholders of Sexton (the “Sexton Seller Representative”) and Sexton Biotechnologies, Inc., a Delaware corporation.

 

On September 1, 2021, the Company completed the merger of Sexton Merger Sub with and into Sexton and Sexton became a wholly-owned subsidiary of the Company (the “Sexton Merger”). As consideration for the Sexton Merger (the “Sexton Merger Consideration”), holders of common stock, preferred stock and options of Sexton, other than the Company (collectively, the “Sexton Participating Holders”), are entitled to receive an aggregate of 530,502 newly issued shares of the Company’s common stock, subject to certain post-closing adjustments, of which 477,452 shares of Common Stock were issued to the Sexton Participating Holders at the Closing, and 53,050 shares of Common Stock, or approximately 10% of the Merger consideration, were deposited into an escrow account for indemnification and post-closing purchase price adjustment purposes. Prior to the merger, the Company held preferred stock in Sexton, which was accounted for using a measurement alternative that measures the securities at cost minus impairment, if any. The Company accounted for the merger as a step acquisition, which required remeasurement of the Company’s existing ownership in Sexton to fair value prior to completing the acquisition method of accounting. Using step acquisition accounting, the Company increased the value of its existing equity interest to its fair value, resulting in the recognition of a non-cash gain of $6.5 million, which was included in the gain on acquisition of Sexton Biotechnologies, Inc. in the Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021. The Company utilized a market-based valuation approach to determine the fair value of the existing equity interest based on the total merger consideration offered and the Company’s stock price at acquisition.

 

Total consideration transferred (in thousands, except number of shares and stock price):

 

Merger consideration shares

  530,502 

BioLife stock price (as of September 1, 2021)

 $60.50 

Value of issued shares

 $32,095 

plus: Fair value of BioLife’s existing investment in Sexton

 $7,951 

less: Net working capital adjustment

 $(118)

Merger Consideration

 $39,928 

 

Transaction costs related to the acquisition are expensed as incurred and are not included in the calculation of consideration transferred.

 

Fair value of net assets acquired

 

As the Company finalizes its estimation of the fair value of the assets acquired and liabilities assumed, additional adjustments may be recorded during the measurement period (a period not to exceed 12 months). The initial accounting is incomplete as of September 30, 2021 for the acquired assets and liabilities as the Company is currently in the process of completing the assessment of intangible assets, goodwill, income taxes, and other assets and liabilities including contractual rights and obligations acquired that continue to be evaluated based on facts that existed as of the acquisition date. Our valuations will be finalized when certain information arranged to be obtained has been received and our review of that information has been completed.

 

Under the acquisition method of accounting, the assets acquired and liabilities assumed from Sexton were estimated as of the merger date, at their respective fair values, and consolidated with those of BioLife. The estimated fair value of the net tangible assets acquired is approximately $4.1 million, the estimated fair value of the deferred tax liability acquired is approximately $1.3 million, the estimated fair value of the intangible assets acquired is approximately $8.8 million, and the estimated residual goodwill is approximately $28.3 million. The gross contractual accounts receivable acquired in the acquisition was $509,000. Of the acquired accounts receivable, $17,000 is estimated to be uncollectable. The fair value calculations required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.

 

The table below represents the estimated fair value of the net assets acquired and liabilities assumed, which were recorded as of the merger date (amounts in thousands).

 

Cash

 $1,516 

Accounts receivable, net

  492 

Inventory

  1,310 

Prepaid expenses and other current assets

  670 

Property, plant and equipment, net

  737 

Operating lease right-of-use assets, net

  470 

Developed technology

  4,132 

Customer relationships

  2,276 

Tradenames

  2,324 

Non-compete agreements

  90 

Goodwill

  28,273 

Accounts payable

  (291

)

Lease liabilities, operating

  (470

)

Deferred tax liability

  (1,284

)

Other liabilities

  (317

)

Fair value of net assets acquired

 $39,928 

 

14

 

The fair value of Sexton’s identifiable intangible assets and useful lives are as follows (amounts in thousands, except years):

 

  

Fair

Value

  

Useful

Life (Years)

 

Developed technology

 $4,132  5-9 

Customer relationships

  2,276   2  

Tradenames

  2,324   11  

Non-compete agreements

  90   1  

Total identifiable intangible assets

 $8,822      

 

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 estimated fair values of developed technology were estimated using a multi-period excess earnings approach. The estimated fair values of customer relationships and non-compete agreements were estimated using a “with and without” approach, comparing projected cash flows under scenarios assuming the customer relationships and non-compete agreements were and were not in place. The estimated fair value of the tradenames is based on the relief from royalty method, which estimates the value of the trade names based on the hypothetical royalty payments that are saved by owning the asset.

 

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.

 

Acquired goodwill

 

The goodwill of $28.3 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. The goodwill recorded is not deductible for income tax purposes.

 

Global Cooling acquisition

 

General terms and effects

 

On March 19, 2021, the Company entered into an Agreement and Plan of Merger (the “GCI Merger Agreement”) with BLFS Merger Subsidiary, Inc., a Delaware corporation (“GCI Merger Sub”), Global Cooling, a Delaware corporation and Albert Vierling and William Baumel, in their capacity as the representatives of the stockholders of GCI (collectively, the “GCI Seller Representative”).

 

On May 3, 2021, pursuant to the GCI Merger Agreement, subject to the terms and conditions set forth therein, the transactions contemplated by the GCI Merger Agreement were consummated (the “GCI Closing”), GCI Merger Sub merged with and into GCI (the “GCI Merger” and, together with other transactions contemplated by the GCI Merger Agreement, the “GCI Transactions”), with GCI continuing as the surviving corporation in the GCI Merger and a wholly-owned subsidiary of the Company. In the GCI Merger, all of the issued and outstanding shares of capital stock of GCI immediately prior to the filing of the Certificate of Merger with the Secretary of State of the State of Delaware (other than those properly exercising any applicable dissenter’s rights under Delaware law) were converted into the right to receive the GCI Merger Consideration (as defined below). The Company paid the GCI Merger Consideration to the holders of common stock and preferred stock of GCI (collectively, the “GCI Stockholders”).

 

Merger consideration

 

The aggregate merger consideration paid pursuant to the GCI Merger Agreement to the GCI Stockholders was 6,646,870 newly issued shares of common stock, provided, however, that the GCI Merger Consideration otherwise payable to GCI Stockholders is subject to the withholding of the GCI Escrow Shares (as defined below) and is subject to reduction for indemnification obligations. The GCI Merger Consideration allocable to one GCI stockholder was reduced by 10,400 shares to satisfy an outstanding note receivable of $374,000. In accordance with ASC 805, the Company recognized the settlement of pre-existing relationships in the forms of cash deposits, trade receivables, and trade payables, which are included in the consideration transferred. The GCI Merger Consideration is not subject to any purchase price adjustments.

 

15

 

Total consideration transferred (in thousands, except number of shares, stock price, and consideration percentage):

 

BioLife shares outstanding (as of March 19, 2021)

  33,401,359 

Merger consideration percentage

  19.9%

Merger consideration shares

  6,646,870 

less: Merger consideration shares withheld to satisfy outstanding GCI stockholder obligations to GCI

  10,400 

Subtotal

  6,636,470 

BioLife stock price (as of May 3, 2021)

 $35.07 

Value of issued shares

 $232,741 

plus: Settlement of BioLife prepaid deposits

 $2,152 

plus: Net settlement of BioLife accounts receivable

 $16 

Merger Consideration

 $234,909 

 

Transaction costs related to the acquisition are expensed as incurred and are not included in the calculation of consideration transferred.

 

Escrow shares

 

At the GCI Closing, approximately nine percent (9%) of the GCI Merger Consideration (the “Escrow Shares”, along with any other dividends, distributions or other income on the GCI Escrow Shares, the “GCI Escrow Property”) otherwise issuable to the GCI Stockholders (allocated pro rata among the GCI Stockholders based on the GCI Merger Consideration otherwise issuable to them at the GCI Closing), was deposited into a segregated escrow account in accordance with an escrow agreement to be entered into in connection with the GCI Transactions (the “GCI Escrow Agreement”).

 

The GCI Escrow Property will be held for a period of up to twenty-four (24) months after the GCI Closing as the sole and exclusive source of payment for any post-GCI Closing indemnification claims (other than fraud claims), unless earlier released in accordance with the terms of the GCI Escrow Agreement.

 

Fair value of net assets acquired

 

As the Company finalizes its estimation of the fair value of the assets acquired and liabilities assumed, additional adjustments may be recorded during the measurement period (a period not to exceed 12 months). The initial accounting is incomplete as of September 30, 2021 for the acquired assets and liabilities as the Company is currently in the process of completing the assessment of the tax attributes of the business combination. The finalization of the acquisition accounting valuation assessment may result in a change in the valuation of the deferred tax assets and liabilities and goodwill, which could have a material impact on the Company’s results of operations and financial position.

 

Under the acquisition method of accounting, the assets acquired and liabilities assumed from Global Cooling were estimated as of the merger date, at their respective fair values, and consolidated with those of BioLife. The estimated fair value of the net tangible assets acquired is approximately $740,000, the estimated fair value of the deferred tax liability acquired is approximately $23.5 million, the estimated fair value of the intangible assets acquired is approximately $120.5 million, and the estimated residual goodwill is approximately $137.2 million. The gross contractual accounts receivable acquired in the acquisition was $7.1 million. Of the acquired accounts receivable, $53,000 was estimated to be uncollectable. The fair value calculations required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.

 

The table below represents the estimated fair value of the net assets acquired and liabilities assumed, which were recorded as of the merger date (amounts in thousands).

 

Cash

 $43 

Accounts receivable, net

  7,076 

Inventory

  15,547 

Prepaid expenses and other current assets

  639 

Property, plant and equipment, net

  3,512 

Operating lease right-of-use assets, net

  1,741 

Financing lease right-of-use assets, net

  114 

Long-term deposits and other assets

  4 

Developed technology

  18,140 

Customer relationships

  7,020 

Tradenames

  26,640 

Non-compete agreements

  1,240 

In-process research and development

  67,440 

Goodwill

  137,215 

Accounts payable

  (9,837

)

Line of credit

  (4,231

)

Lease liabilities, operating

  (1,880

)

Lease liabilities, financing

  (114

)

Long-term debt

  (4,410

)

Deferred tax liability

  (23,526

)

Other liabilities

  (7,464

)

Fair value of net assets acquired

 $234,909 

 

16

 

The fair value of Global Cooling’s identifiable intangible assets and useful lives are as follows (amounts in thousands, except years):

 

  

Fair

Value

  

Useful

Life (Years)

 

Developed technology

 $18,140   6 

Customer relationships

  7,020   12 

Tradenames

  26,640   15 

Non-compete agreements

  1,240   4 

In-process research and development

  67,440   N/A 

Total identifiable intangible assets

 $120,480     

 

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 estimated fair values of developed technology and in-process research and development were estimated using a multi-period excess earnings approach. The estimated fair values of customer relationships were estimated using the “distributor method”. The estimated fair value of the tradenames is based on the relief from royalty method, which estimates the value of the trade names based on the hypothetical royalty payments that are saved by owning the asset. The estimated fair values of non-compete agreements were estimated using a “with and without” approach, comparing projected cash flows under scenarios assuming the non-compete agreements were and were not in place. The fair value of inventory and property, plant and equipment were determined using 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.

 

Acquired goodwill

 

The goodwill of $137.2 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. The goodwill recorded is not deductible for income tax purposes.

 

The Company recorded revenue from Sexton of $425,000 and a net loss of $227,000 from September 1, 2021, the date of acquisition, to September 30, 2021. The Company recorded revenue from Global Cooling of $28.5 million and a net loss of $7.6 million from May 3, 2021, the date of acquisition, to September 30, 2021. The Company has included the operating results of the acquisitions in its Unaudited Condensed Consolidated Statements of Operations since their respective acquisition date.

 

The following unaudited pro forma financial information presents the combined results of operations of Sexton as if the acquisition had occurred on January 1, 2020 after giving effect to certain pro forma adjustments. These pro forma adjustments include intangible amortization, stock-based compensation expense and salary expense related to a key employee, and the income tax effect of the adjustments made:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands)

 

2021
(unaudited)

  

2020

(unaudited)

  

2021

(unaudited)

  

2020

(unaudited)

 

Total revenue

 $34,524  $11,697  $85,189  $34,707 

Net (loss) income

 $(685) $(1,850) $4,612  $2,056 

 

The following unaudited pro forma financial information presents the combined results of operations of Global Cooling as if the acquisition had occurred on January 1, 2020 after giving effect to certain pro forma adjustments. These pro forma adjustments include intangible amortization, amortization of increased inventory basis, depreciation expense, lease expense, transaction costs, interest expense, stock-based compensation expense and salary expense related to a key employee, and the income tax effect of the adjustments made:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands)

 

2021

(unaudited)

  

2020

(unaudited)

  

2021

(unaudited)

  

2020

(unaudited)

 

Total revenue

 $33,800  $21,204  $106,427  $58,056 
Net income (loss) $79  $(3,393) $(1,939) $4,912 

 

17

 
 

4. Inventory

 

Inventory consists of the following as of September 30, 2021 and December 31, 2020:

 

(In thousands)

 

2021

  

2020

 

Raw materials

 $16,445  $2,855 

Work in progress

  4,597   2,006 

Finished goods

  8,654   6,741 

Total

 $29,696  $11,602 

 

 

5. Assets held for rent

 

Assets held for rent consist of the following as of September 30, 2021 and December 31, 2020:

 

(In thousands)

 

2021

  

2020

 

Shippers placed in service

 $5,433  $3,171 

Fixed assets held for rent

  3,603   0 

Accumulated depreciation

  (1,284)  (411)

Net

  7,752   2,760 

Shippers and related components in production

  2,334   1,945 

Total

 $10,086  $4,705 

 

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 $410,000 and $873,000 in depreciation expense related to assets held for rent during the three and nine months ended September 30, 2021, respectively, and $186,000 and $581,000 during the three and nine months ended September 30, 2020, respectively.

 

 

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 is determined to have an indefinite useful life and is not amortized, but instead is tested for impairment at least annually in accordance with ASC 350. The Company has not identified any triggering events which indicate an impairment of goodwill in the nine months ended September 30, 2021.

 

18

 

Intangible assets

 

Intangible assets, net consisted of the following as of September 30, 2021:

 

(In thousands, except weighted average useful life)

 

September 30, 2021

     

Finite-lived intangible assets:

 

Gross Carrying

Value

  

Accumulated

Amortization

  

Net Carrying

Value

  

Weighted

Average Useful

Life (in years)

 

Customer Relationships

 $17,516  $(1,177) $16,339   10.8 

Tradenames

  35,574   (1,672)  33,902   14.4 

Technology - acquired

  41,942   (6,300)  35,642   6.1 

Non-compete agreements

  1,990   (302)  1,688   3.3 

In-process research and development⁽¹⁾

  67,440   -   67,440   N/A 

Total intangible assets

 $164,462  $(9,451) $155,011   10.1 

 

(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.

 

Intangible assets, net consisted of the following as of December 31, 2020:

 

  

December 31, 2020

     

Finite-lived intangible assets:

 

Gross Carrying

Value

  

Accumulated

Amortization

  

Net Carrying

Value

  

Weighted Average

Useful Life

(in years)

 

Customer Relationships

 $8,220  $(330) $7,890   12.8 

Tradenames

  6,610   (508)  6,102   14.0 

Technology - acquired

  19,670   (3,232)  16,438   7.1 

Non-compete agreements

  660   (41)  619   3.8 

Total intangible assets

 $35,160  $(4,111) $31,049   9.7 

 

Amortization expense for finite-lived intangible assets was $2.5 million and $5.3 million for the three and nine months ended September 30, 2021, respectively, and $706,000 and $2.1 million for the three and nine months ended September 30, 2020, respectively. As of September 30, 2021, the Company expects to record the following amortization expense for finite-lived intangible assets:

 

(In thousands)

    

For the Years Ending December 31,

 

Estimated

Amortization

Expense

 

2021 (3 months remaining)

 $2,858 

2022

  11,403 

2023

  10,934 

2024

  10,109 

2025

  9,730 

Thereafter

  42,537 

Total

 $87,571 

 

 

7. Line of credit and long-term debt

 

At September 30, 2021 the Company maintained a line of credit, which was assumed in the acquisition of Global Cooling, with a bank which had an original expiration date of June 2023. The outstanding balance bore interest at a floating rate equal to the 3-month LIBOR rate plus 5.50%. The maximum allowed on the line of credit was $5,000,000. The line was secured by substantially all assets of Global Cooling. On October 14, 2021, the Company paid off the entirety of the outstanding balance on the line of credit and all related interest.

 

Long-term debt consisted of the following as of September 30, 2021 and December 31, 2020:

 

       

September 30,

  

December 31,

 

(In thousands)

Maturity Date

 

Interest Rate

  

2021

  

2020

 

2019 term loan

Sep-23

  10.5% $1,750  $0 

2018 term loan

Sep-23

  10.5%  2,813   0 

Insurance premium financing

Apr-22

  4.0%  726   0 

Paycheck Protection Program loan

May-22

  1.0%  295   295 

Freezer equipment loan

Dec-25

  5.7%  652   365 

Manufacturing equipment loans

Oct-25

  5.7%  376   439 

Freezer installation loan

Various

  6.3%  1,395   156 

Other loans

Various

 

Various

   10   14 

Total debt

      8,017   1,269 

Less: Unamortized debt issuance costs

      (124)  0 

Total debt, net of unamortized debt issuance costs

     $7,893  $1,269 

 

19

 

The 2019 and 2018 term loans are secured by substantially all assets of Global Cooling.

 

As of September 30, 2021, the scheduled maturities of loans payable for each of the next five years and thereafter were as follows:

 

 

(In thousands)

 

Amount

 

2021 (3 months remaining)

 $950 

2022

  1,208 

2023

  2,038 

2024

  1,944 

2025

  543 

Thereafter

  1,334 

Total

 $8,017 

 

Debt covenants and default provisions

 

The line of credit, 2019 term loan, and 2018 term loan assumed in the acquisition of Global Cooling contain affirmative and negative covenants that are customary for financings of their respective types. As of September 30, 2021, the Company was not in compliance with certain reporting and financial covenants. To remedy the non-compliance related to the financial covenants associated with the line of credit, the Company paid off the entirety of the outstanding balance on the line of credit and all related interest on October 14, 2021. To remedy the non-compliance related to the financial covenants associated with the 2019 and 2018 term loans, the Company entered into amended and restated term notes.

 

On October 1, 2021, the Company entered into amended and restated term notes (the “Loan Agreements”) with Advantage Capital (“Advantage”) and Enhanced Capital (“Enhanced”). Pursuant to the Loan Agreements, Advantage provided two term notes in the amount of $1.4 million (“Advantage Term Note I”) and $1.4 million (“Advantage Term Note II”) (collectively the “Advantage Term Notes”). Enhanced provided one term note in the amount of $1.8 million (the “Enhanced Term Note”). The Advantage and Enhanced Term Notes were used to refinance the term notes outstanding under the amended and restated term notes dated December 7, 2018 and October 1, 2019, respectively, mature on December 18, 2027 and September 7, 2024, respectively, and bear interest at a fixed rate of 4%. The Advantage and Enhanced Term Notes are interest-only with one balloon principal payment at maturity and can be pre-paid without penalty at any time. All financial covenants included in the original agreements previously in effect were removed by the Loan Agreements.

 

 

 

8. Share-based compensation  

 

Service vesting-based stock options

 

The following is a summary of service vesting based stock option activity for the nine months ended September 30, 2021, and the status of stock options outstanding as of September 30, 2021:

 

  

Nine Months Ended

 
  

September 30, 2021

 
  

Shares

  

Wtd. Avg.

Exercise Price

 

Outstanding as of beginning of year

  844,455  $2.00 

Exercised

  (131,590)  1.48 

Forfeited

  (1,146)  5.69 

Expired

  (35,714)  1.73 

Outstanding as of September 30, 2021

  676,005  $2.12 
         

Stock options exercisable as of September 30, 2021

  671,964  $2.11 

 

20

 

We recognized $6,000 and $21,000 in stock compensation expense related to service vesting-based options during the three and nine months ended September 30, 2021, respectively, and $15,000 and $104,000 during the three and nine months ended September 30, 2020, respectively. As of September 30, 2021, there was $27.2 million of aggregate intrinsic value of outstanding service vesting-based stock options, including $27.0 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 September 30, 2021. This amount will change based on the fair market value of the Company’s stock. The intrinsic value of service vesting-based awards exercised was $1.4 million and $5.2 million during the three and nine months ended September 30, 2021, respectively, and $2.2 million and $6.8 million during the three and nine months ended September 30, 2020, respectively. The weighted average remaining contractual life of service vesting-based options outstanding and exercisable as of September 30, 2021 is 3.3 years. As of September 30, 2021, there was $4,000 in unrecognized compensation costs related to service vesting-based stock options. We expect to recognize those costs over 0.2 years.

 

Performance-based stock options

 

The following is a summary of performance-based stock option activity under our stock option plan for the nine months ended September 30, 2021, and the status of performance-based stock options outstanding as of September 30, 2021:

 

  

Nine Months Ended

 
  

September 30, 2021

 
  

Shares

  

Wtd. Avg.

Exercise Price

 

Outstanding as of beginning of year

  686,001  $1.64 

Exercised

  (501,075)  1.64 

Outstanding as of September 30, 2021

  184,926  $1.64 
         

Stock options exercisable as of September 30, 2021

  184,926  $1.64 

 

NaN stock compensation expense was recognized during the three and nine months ended September 30, 2021 and 2020 related to performance-based options. As of September 30, 2021, there was $7.5 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 September 30, 2021. This amount will change based on the fair market value of the Company’s stock. The intrinsic value of performance-based awards exercised was $9.7 million and $19.5 million during the three and nine months ended September 30, 2021, respectively, and $0 and $239,000 during the three and nine months ended September 30, 2020, respectively. The weighted average remaining contractual life of performance-based options outstanding and exercisable as of September 30, 2021 is 0.2 years. All compensation cost of performance-based stock options outstanding as of September 30, 2021 has been recognized.

 

There were 0 stock options granted to employees and non-employee directors in the three and nine months ended September 30, 2021 and 2020.

 

Restricted stock

 

Service vesting-based restricted stock

 

The following is a summary of service vesting-based restricted stock activity for the nine months ended September 30, 2021, and the status of unvested service vesting-based restricted stock outstanding as of September 30, 2021:

 

  

Nine Months Ended

 
  

September 30, 2021

 
  

Shares

  

Wtd. Avg.

Grant Date

Fair Value

 

Outstanding as of beginning of year

  930,854  $19.31 

Granted

  751,363   47.50 

Vested

  (241,590)  15.97 

Forfeited

  (79,079)  34.86 

Non-vested as of September 30, 2021

  1,361,548  $34.56 

 

The aggregate fair value of the service vesting-based awards granted was $31.1 million and $35.7 million during the three and nine months ended September 30, 2021, respectively, and $4.2 million and $7.4 million during the three and nine months ended September 30, 2020 was, respectively, which represents the market value of BioLife common stock on the date that the restricted stock awards were granted. The aggregate fair value of the service vesting-based restricted stock awards that vested was $5.1 million and $10.3 million during the three and nine months ended September 30, 2021, respectively, and $1.6 million and $2.9 million during the three and nine months ended September 30, 2020, respectively.

 

21

 

We recognized $4.4 million and $8.0 million in stock compensation expense related to service vesting-based restricted stock awards during the three and nine months ended September 30, 2021, respectively, and $754,000 and $1.6 million during the three and nine months ended September 30, 2020, respectively. As of September 30, 2021, there was $41.7 million in unrecognized compensation costs related to service vesting-based restricted stock awards. We expect to recognize those costs over 3.3 years.

 

Performance-based restricted stock

 

We recognized stock compensation benefit of $0 and $186,000 for the three and nine months ended September 30, 2021 related to 20,285 performance-based restricted stock awards that were awarded but did not vest. We recognized stock compensation expense of $191,000 and $569,000 during the three and nine months ended September 30, 2020, respectively, related to performance-based restricted stock awards. As of September 30, 2021, there were 0 unrecognized non-cash compensation costs related to performance-based restricted stock awards.

 

Market-based restricted stock

 

The following is a summary of market-based restricted stock option activity under our stock option plan for the nine months ended September 30, 2021 and the status of market-based restricted stock options outstanding as of September 30, 2021:

 

  

Nine Months Ended

 
  

September 30, 2021

 
  

Shares

  

Wtd. Avg.

Grant Date

Fair Value

 

Outstanding as of beginning of year

  224,774  $19.20 

Granted

  152,665   30.85 

Vested

  (231,268)  26.98 

Non-vested as of September 30, 2021

  146,171  $20.78 

 

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. On February 8, 2021, the Company determined the TSR attainment was 200% of the targeted shares and 231,268 shares were granted and immediately vested to current executives of the Company 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 as of the grant date 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-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 rate 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 of $3.1 million was 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 certain 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 rate 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 is being expensed on a straight-line basis over the grant date to the vesting date of December 31, 2021.

 

22

 

On February 8, 2021, the Company granted 30,616 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, 2021 through December 31, 2022 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 68%, 0% dividend yield and a risk-free interest rate of 0.1%. 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 rate 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 is being expensed on a straight-line basis over the grant date to the vesting date of December 31, 2022.

 

On May 3, 2021, the Company granted 6,415 shares of market-based stock to one executive 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, 2021 through December 31, 2022 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 68%, 0% dividend yield and a risk-free interest rate of 0.2%. 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 rate 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 is being expensed on a straight-line basis over the grant date to the vesting date of December 31, 2022.

 

We recognized $413,000 and $1.1 million in stock compensation expense related to market-based restricted stock awards during the three and nine months ended September 30, 2021, respectively, and $600,000 and $1.5 million during the three and nine months ended September 30, 2020, respectively. As of September 30, 2021, there was $1.4 million in unrecognized non-cash compensation costs related to market-based restricted stock awards expected to vest. We expect to recognize those costs over 1.1 years.

 

We recorded total stock compensation expense for the three and nine months ended September 30, 2021 and 2020, as follows:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Research and development costs

 $551  $291  $1,171  $687 

Sales and marketing costs

  560   256   1,012   581 

General and administrative costs

  3,015   868   5,662   2,144 

Cost of revenue

  742   145   1,047   406 

Total

 $4,868  $1,560  $8,892  $3,818 

 

 

9. Warrants

 

In March 2014, in a registered public offering and in accordance with a separate note conversion agreement with certain note holders, the Company issued warrants to purchase 6,910,283 shares of common stock at $4.75 per share. The warrants expired in March 2021.

 

In May 2016, in connection with a credit facility with WAVI Holding AG, a significant stockholder of the Company, the Company issued a warrant to purchase 550,000 shares of common stock at $1.75 per share. The warrant was immediately exercisable and had an original expiration date of May 2021.

 

On May 14, 2020, the Company entered into separate warrant exercise agreements with WAVI Holding AG 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.

 

On March 25, 2021, all remaining outstanding warrants were exercised via a “cashless” exercise. As a result of the cashless exercise, the Company issued an aggregate of 70,030 shares of Company common stock upon cashless exercise of an aggregate of 79,100 warrants.

 

The following table summarizes warrant activity for the nine months ended September 30, 2021:

 

  

Shares

  

Wtd. Avg.

Exercise Price

 

Outstanding as of December 31, 2020

  79,100  $4.75 

Exercised

  (79,100)  4.75 

Outstanding and exercisable as of September 30, 2021

  0  $0 

 

23

 

 

10. Income taxes

 

The Company accounts for income taxes under ASC Topic 740 – Income Taxes. Under this standard, deferred tax assets and liabilities are recognized for future tax benefits or consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

 

The Company’s tax provision for interim periods is determined using an estimate of the annual effective income tax rate, adjusted for discrete items, if any, that occur in the relevant period. The income tax benefit of $17.5 million for the nine months ended September 30, 2021 resulted in an effective income tax rate of 161%. Included in the $17.5 million were discrete tax benefits of $8.5 million related to the Global Cooling acquisition on May 3, 2021 and $6.3 million related to stock compensation windfall tax benefits.

 

The income tax benefit of $5.0 million for the three months ended September 30, 2021 resulted in an effective income tax rate of 98%. The income tax benefit included $3.1 million of discrete tax benefits related to stock compensation windfall tax benefits.

 

The Company’s US projected effective income tax rate without discrete items was 18%, which is lower than the US federal statutory rate of 21% primarily due to the impact of a projected partial valuation allowance on net operating loss carryforwards, non-deductible transaction costs and executive compensation offset by state tax benefits and research tax credits.

 

Realization of deferred tax assets is dependent upon the generation of future taxable income, the timing and amount of which are uncertain. In determining the need for a valuation allowance, the Company’s management evaluates both positive and negative evidence when concluding whether it is more likely than not that deferred tax assets are realizable. After reviewing the evidence available, the Company’s management believes there is uncertainty regarding the future realizability of the U.S. net operating loss carryforward and is projecting a partial valuation allowance of $1.2 million by year end. If operating results improve and projections indicate future utilization of the tax attributes, all or a portion of the valuation allowance would be released, resulting in a corresponding non-cash income tax benefit. The Company will also maintain a full valuation allowance on its current losses in the Netherlands due to a lack of earnings history.

 

In connection with the Global Cooling acquisition on May 3, 2021, the Company recognized a deferred tax liability estimated to be $23.5 million. As a result, the Company recorded an income tax benefit of $8.5 million for the full release of the valuation allowance on our existing deferred tax assets as a result of the offset of the deferred tax liabilities established for intangible assets from the acquisition. In connection with the Sexton acquisition on August 9, 2021, the Company recorded a deferred tax liability estimated to be $1.3 million with an offset to goodwill.

 

Future utilization of the net operating loss and tax credit carryforwards may be subject to a substantial annual limitation in the event of a change in ownership as set forth in Section 382 of the Internal Revenue Code of 1986, as amended. It is possible that there have been past changes in ownership as defined under Section 382, which would limit the Company’s ability to utilize NOLs and other tax attributes. The Company is currently in the process a completing a Section 382 study and a state nexus study, which may result in adjustments to the accounting for the acquisition of Global Cooling and Sexton.

 

 

11. Net (loss) income per common share

 

The Company considers its unexercised warrants and unvested restricted shares, which contain non-forfeitable rights to dividends, participating securities, and includes such participating securities in its computation of earnings per share pursuant to the two-class method. Basic earnings per share for the two classes of stock (common stock and warrants) is calculated by dividing net income by the weighted average number of shares of common stock and warrants outstanding during the reporting period. Diluted earnings per share is calculated using the weighted average number of shares of common stock plus the potentially dilutive effect of common equivalent shares outstanding determined under both the two-class method and the treasury stock method, whichever is more dilutive. In periods when we have a net loss, common stock equivalents are excluded from our calculation of earnings per share as their inclusion would have an antidilutive effect.

 

24

 

The following table presents computations of basic and diluted earnings per share under the two-class method:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands, except share and earnings per share data)

 

2021

  

2020

  

2021

  

2020

 

Basic earnings (loss) per common share

                

Numerator:

                

Net income (loss)

 $79  $(1,133) $6,837  $4,795 

Amount attributable to unvested restricted shares

  (2)  0   (212)  (138)

Amount attributable to warrants outstanding

  0   0   (4)  (335)

Net income (loss) allocated to common shareholders

  77   (1,133)  6,621   4,322 
                 

Denominator:

                

Weighted-average common shares issued and outstanding

  40,911,801   31,639,420   37,435,224   25,418,375 

Basic earnings (loss) per common share

 $0.00  $(0.04) $0.18  $0.17 
                 

Diluted earnings (loss) per common share

                

Numerator:

                

Net income (loss)

 $79  $(1,133) $6,837  $4,795 

Amount attributable to unvested restricted shares

  (2)  0   (205)  0 

Amount attributable to warrants

  0   0   (4)  (49)

Less: gain related to change in fair value of warrants

  0   0   0   (4,467)

Diluted earnings (loss) per common share

  77   (1,133)  6,628   279 
                 

Denominator:

                

Weighted-average common shares issued and outstanding

  40,911,801   31,639,420   37,435,224   25,418,375 

Dilutive potential common shares from:

                

Stock options

  1,069,207   0   1,330,207   1,754,051 

Restricted shares

  1,315,462   0   1,195,154   285,975 

Warrants

  0   0   24,338   1,954,137 

Diluted weighted average shares issued and outstanding

  43,296,470   31,639,420   39,984,923   29,412,538 

Diluted earnings (loss) per common share

 $0.00  $(0.04) $0.17  $0.01 

 

The following table sets forth the number of weighted-average common shares excluded from the computation of diluted loss per share, as their inclusion would have been anti-dilutive: 

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Stock options and restricted stock awards

  0   2,183,537   0   0 

Warrants

  0   62,769   0   0 

Total

  0   2,246,306   0   0 

 

 

12. Commitments and contingencies

 

Employment agreements

 

We have employment agreements with certain key employees. 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. Under certain conditions and for certain of these officers, we may be required to pay additional amounts upon terminating the employee or upon the employee 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 September 30, 2021.

 

 

 

13. Revenue

 

To determine revenue recognition for contractual arrangements that we determine are within the scope of Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contracts with Customers, we perform the following five steps: (i) identify each contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to our performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the relevant performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. The Company primarily recognizes product revenues, service revenues, and rental revenues. Product revenues are generated from the sale of biopreservation media, ThawStar, and freezer products. We recognize product revenue, including shipping and handling charges billed to customers, when we transfer control of our products to our customers (transfer of control generally occurs upon shipment of our product). Shipping and handling costs are classified as part of cost of product revenue in the statement of operations. Service revenues are generated from the storage of biological and pharmaceutical materials. We recognize service revenues over time as services are performed or ratably over the contract term.

 

The Company also generates revenue from the leasing of our property, plant, and equipment, operating right-of-use assets, and evo cold chain systems to customers pursuant to service contracts or rental arrangements entered into with the customer. Revenue from these arrangements 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.

 

Total bioproduction tools and services revenue for three and nine months ended September 30, 2021 and 2020 was comprised of the following:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands, except percentages)

 

2021

  

2020

  

2021

  

2020

 

Product revenue

                

Freezer and thaw

 $17,610  $3,371  $40,021  $9,237 

Cell processing

  11,505   7,414   30,131   22,753 

Storage and cold chain services

  86   19   293   30 

Service revenue

                

Storage and cold chain services

  2,250   0   6,417   0 

Rental revenue

                

Storage and cold chain services

  2,349   475   4,989   1,341 

Total revenue

 $33,800  $11,279  $81,851  $33,361 

 

The following table includes estimated rental revenue expected to be recognized in the future related to embedded leases as well as estimated service revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting periods. The Company is electing not to disclose the value of the remaining unsatisfied performance obligation with a duration of one year or less as permitted by the practical expedient in ASU 2014-09, Revenue from Contracts with Customers. The estimated revenue in the following table does not include contracts with the original durations of one year or less, amounts of variable consideration attributable to royalties, or contract renewals that are unexercised as of September 30, 2021.

 

The balances in the table below are partially based on judgments involved in estimating future orders from customers subject to the exercise of material rights pursuant to respective contracts: 

 

  

Year Ending December 31,

 

(In thousands)

 

2021

  

2022

  

2023

  

2024

  

Total

 

Rental revenue

 $2,983  $7,733  $422  $0  $11,138 

Service revenue

 $40  $31  $31  $10  $112 

 

 

14. Leases

 

Lessee arrangements

 

We lease approximately 32,106 square feet in our Bothell, Washington headquarters. In November of 2020, the Company entered into an amendment to the lease agreement associated with this facility to extend the term of the lease until July 31, 2031. The amendment included a $2.6 million tenant allowance that the Company expects to receive as improvements are made between 2021 and 2023. This lease includes 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, 2031, 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 $70,000 as of September 30, 2021, with scheduled annual increases each August. We are also required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses.

 

We lease approximately 3,460 square feet in our Menlo Park, California location. The term of our lease continues until December 31, 2021. In accordance with the lease agreement, the monthly base rent is approximately $11,000 as of September 30, 2021. We are also required to pay an amount equal to the Company’s proportionate electrical expenses and common area maintenance fees.

 

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, on December 1, 2024. In accordance with the lease agreement, the monthly base rent is approximately $9,000 as of September 30, 2021, with an increase at the beginning of each extension term if the lease term is extended.

 

We lease approximately 106,998 square feet in our Detroit, Michigan location under a month-to-month arrangement. The monthly base rent is approximately $35,000 as of September 30, 2021.

 

26

 

We lease approximately 16,800 square feet in the United States. The term of the lease continues until February 28, 2026 and has no option to extend the term. In accordance with the lease agreement, the Company’s monthly base rent is approximately $14,000 as of September 30, 2021, with scheduled increases each March. We are also required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses.

 

We lease approximately 20,000 square feet in the United States. The term of the lease continues until March 31, 2024 and has no option to extend the term. In accordance with the lease agreement, the Company’s monthly base rent is approximately $14,000 as of September 30, 2021, with scheduled increases each April. We are also required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses.

 

We lease approximately 12,500 square feet in the United States. The term of the lease continues until January 31, 2023 and has no option to extend the term. In accordance with the lease agreement, the Company’s monthly base rent is approximately $8,000 as of September 30, 2021. We are also required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses.

 

We lease approximately 16,153 square feet in the United States. The term of the lease continues until June 30, 2024 and has no option to extend the term. In accordance with the amended lease agreement, the Company’s monthly base rent is approximately $13,000 as of September 30, 2021, with scheduled increases each July. We are also required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses.

 

We lease approximately 26,800 square feet in the United States. The term of the lease continues until November 1, 2031 with two options to extend the terms of the lease, each of which is for an additional period of five years, with the first extension term commencing, if at all, on November 1, 2031, and the second extension term commencing, if at all, on November 1, 2036. In accordance with the lease agreement, the monthly base rent is approximately $27,000 as of September 30, 2021, with scheduled increases each June, and includes provisions for rent increases of approximately 2.5% on the first day of the first month that follows the first anniversary of the beginning of the lease of each year and on each anniversary date thereafter.

 

We lease approximately 47,533 square feet in the Netherlands. The term of our lease began on April 1, 2021 and continues until March 31, 2026, with options to extend the lease for an additional five years at each expiration date. In accordance with the lease agreement, the monthly base rent is approximately €29,000 (approximately $33,000 as of September 30, 2021) and includes provisions for rent increases tied to the Netherlands consumer price index in January of each year.

 

We lease approximately 50,000 square feet in our Athens, Ohio location. The term of our lease continues until March 31, 2028 with a negotiable renewal between parties. In accordance with the amended lease agreement, our monthly base rent is approximately $23,000 as of September 30, 2021, with scheduled annual increases each April. We are also required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses.

 

We lease approximately 1,807 square feet in Columbus, Ohio under a month-to-month arrangement. The monthly base rent is approximately $4,000 as of September 30, 2021.

 

We lease approximately 22,764 square feet in Nelsonville, Ohio. The term of the lease continues until May 31, 2022, with options to extend the lease for an additional year as of each expiration date. In accordance with the lease agreement, the Company’s monthly base rent is approximately $10,000 as of September 30, 2021.

 

We lease approximately 11,415 square feet in Indianapolis, Indiana. The term of our lease continues until September 30, 2024 with an option to extend the term of the lease for an additional period of one year. In accordance with the lease agreement, our monthly base rent is approximately $13,000 as of September 30, 2021. We are also required to pay an amount equal to the Company’s proportionate share of certain operating expenses.

 

Operating leases recorded on our Unaudited Condensed Consolidated Balance Sheets are primarily related to our Bothell, Washington headquarters space lease and our SciSafe space leases in the United States. We have not included extension options in our ROU assets or lease liabilities as we are not reasonably certain we will enter into the renewal options in their current terms. Our Detroit, Michigan; Menlo Park, California; Columbus, Ohio; and Nelsonville, Ohio leases are not recorded on our Unaudited Condensed Consolidated Balance Sheets as the term expires in one year or less.

 

Our financing leases relate to research equipment, machinery, and other equipment.

 

The table below presents certain information related to the weighted average discount rate and weighted average remaining lease term for the Company’s leases:

 

  

September 30,

  

December 31,

 

(In thousands)

 

2021

  

2020

 

Weighted average discount rate - operating leases

  3.6

%

  3.3

%

Weighted average discount rate - finance leases

  6.1

%

  5.7

%

Weighted average remaining lease term in years - operating leases  7.9   1.5 
Weighted average remaining lease term in years - finance leases  3.2   0.9 

 

27

 

Operating cash paid for amounts included in the measurement of operating lease liabilities in the three and nine months ended September 30, 2021 was $702,000 and $2.0 million, respectively, and in the three and nine months ended September 30, 2020 was $219,000 and $653,000, respectively.

 

The components of operating lease expense for the three and nine months ended September 30, 2021 are as follows:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands)

 

2021

  

2020

  

2021

  

2020

 

Operating lease costs

 $805  $170  $1,998  $509 

Short-term lease costs

  498   59   1,158   176 

Total operating lease costs

  1,303   229   3,156   685 
                 

Variable lease costs

  193   0   477   0 

Total lease expense

 $1,496  $229  $3,633  $685 

 

Maturities of our operating lease liabilities as of September 30, 2021 are as follows:

 

(In thousands)

 

Operating

Leases

  

Financing

Leases

 
2021 (3 months remaining) $890  $43 

2022

  3,108   171 

2023

  2,760   171 

2024

  2,523   101 

2025

  2,245   37 

Thereafter

  8,780   1 

Total lease payments

  20,306   524 

Less: interest

  (2,611)  (49)

Total present value of lease liabilities

 $17,695  $475 

 

Lessor arrangements

 

Rental arrangements

 

The Company 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 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.

 

Embedded leases

 

BioLife enters into various customer service agreements (collectively, “Service Contracts”) with customers to provide biological and pharmaceutical storage services. In certain of these Service Contracts, the property, plant, and equipment or operating right-of-use assets used to store the customer product are used only for the benefit of one customer. This is primarily driven by the customer’s desire to ensure that sufficient storage capacity is available in a specific geographic location for a set period of time.

 

BioLife has assessed its Service Contracts and concluded that certain of the contracts for the storage of customer products met the criteria to be considered a leasing arrangement (“Embedded Leases”), with BioLife as the lessor. The specific Service Contracts that met the criteria were those that provided a single customer with the ability to substantially direct the use of BioLife property, plant, and equipment or operating right-of-use assets.

 

Under ASC 842, consistent with the previous guidance, BioLife will continue to recognize operating right-of-use asset embedded lessor arrangements on its Unaudited Condensed Consolidated Balance Sheets in operating right-of-use assets.

 

None of the Embedded Leases identified by BioLife qualify as a sales-type or direct finance lease. None of the operating leases for which BioLife is the lessor include options for the lessee to purchase the underlying asset at the end of the lease term or residual value guarantees, nor are any such operating leases with related parties.

 

 

15. Unaudited Condensed Consolidated Balance Sheet detail

 

Property and equipment

 

  

September 30,

  

December 31,

 

(In thousands)

 

2021

  

2020

 

Property and equipment

        

Leasehold improvements

 $3,301  $2,393 

Furniture and computer equipment

  1,793   902 

Manufacturing and other equipment

  13,798   10,076 

Construction in-progress

  4,747   591 

Subtotal

  23,639   13,962 

Less: Accumulated depreciation

  (6,177)  (3,842)

Net property and equipment

 $17,462  $10,120 

 

28

 

Depreciation expense for property and equipment was $691,000 and $2.1 million for the three and nine months ended September 30, 2021, respectively, and $296,000 and $873,000 for the three and nine months ended September 30, 2020, respectively.

 

Accrued expenses and other current liabilities

 

Accrued expenses and other current liabilities consist of the following:

 

  

September 30,

  

December 31,

 

(In thousands)

 

2021

  

2020

 

Accrued expenses

 $1,435  $472 

Accrued taxes

  62   112 

Accrued compensation

  4,167   2,898 

Warranty reserve liability

  5,552   212 

Deferred revenue, current

  710   931 

Other

  131   130 

Total accrued expenses and other current liabilities

 $12,057  $4,755 

 

Warranty reserve liability

 

We reserve estimated exposures on known claims, as well as on a portion of anticipated claims, for product warranty and rework cost, based on historical product liability claims. Claim costs are deducted from the accrual when paid. Factors that could have an impact on the warranty accrual in any given period include the following: changes in manufacturing quality, changes in product costs, changes in product mix and any significant changes in sales volume.

 

A rollforward of our warranty liability is as follows:

 

  

Nine Months Ended

 
  

September 30,

 

(In thousands)

 

2021

  

2020

 

Beginning balance

 $212  $191 

Warranty reserve acquired in the acquisition of Global Cooling

  3,353   0 
Provision for warranties

 

  4,446   109 

Settlements of warranty claims

  (2,459)  (92)

Ending Balance

 $5,552  $208 

 

 

16. Employee benefit plan

 

The Company sponsors a 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 $237,000 and $587,000 in contributions to the plan for the three and nine months ended September 30, 2021, respectively, and $89,000 and $268,000 for the three and nine months ended September 30, 2020, respectively.

 

 

17. Subsequent events

 

On October 8, 2021, the Company entered into an amendment to the current lease agreement associated with our Bothell, Washington location. The amendment expands the leased premises by approximately 8,342 square feet and includes a $417,000 tenant allowance that the Company expects to receive as improvements are made. The term of the amendment will begin on the earlier of October 1, 2022 or six months following the date upon which all improvements are completed and continues until July 31, 2031. In accordance with the amendment, the monthly base rent will increase by approximately $19,000 at commencement and the lease includes provisions for standard 3% rent increases each year.

 

On October 31, 2021, the Company entered into a lease agreement associated with our Albuquerque, New Mexico location. The lease agreement extends the current lease through December 31, 2022. In accordance with the lease, the monthly base rent will increase to approximately $10,000 at January 1, 2022 and includes two options to extend the terms of the lease, each of which is for an additional period of one year, with the first extension term commencing, if at all, on January 1, 2023, and the second extension term commencing, if at all, on January 1, 2024.

 

29

 

 

Item 2. Managements 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, 2020, and 2021 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 as of and for the fiscal year ended December 31, 2020 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.

 

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 as of and for the fiscal year ended December 31, 2020 filed with the SEC.

 

We develop, manufacture, and market bioproduction tools and services to the cell and gene therapy (“CGT”) industry, which are designed to improve quality and de-risk biologic manufacturing and delivery. We also provide biological and pharmaceutical storage services to the CGT industry. 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 vaccines, cells, and tissues.

 

We currently operate as one bioproduction tools and services business with product lines that support several steps in the biologic material manufacturing, storage, and delivery process. We have a diversified portfolio of tools and services 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 and services are comprised of three revenue lines that contain six main offerings:

 

 

Cell processing

 

Biopreservation media

 

Human platelet lysate media (“hPL”), cryogenic vials, and automated cell-processing fill machines
 

Freezers and thaw systems

 

Freezer and storage technology and related components

 

Automated thawing devices

 

Storage and cold chain services

 

Biological and pharmaceutical material storage

 

Cloud connected “smart” shipping containers

 

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 CGT 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 525 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 CGT 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. 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 $500,000 to $2.0 million, if such application is approved and our customer commences large scale commercial manufacturing of the biologic based therapy.

 

Human platelet lysate media, cryogenic vials and automated cell-processing fill machines

 

In September 2021, we acquired Sexton Biotechnologies, Inc., a producer of bioproduction tools. Sexton's bioproduction tools portfolio includes human platelet lysates (“hPL”) for cell expansion reducing risk and improving downstream performance over fetal bovine serum, human serum, and other chemically defined media, CellSeal® closed system vials that are purpose-built rigid containers used in CGT that can be filled manually or with high throughput systems, and automated cell processing machines bring multiple processes traditionally performed by manual techniques under a higher level of control to protect therapies from loss or contamination.

 

Compressor-free ultra low temperature (ULT) freezers

 

In May 2021, we acquired Global Cooling, Inc. (“Global Cooling”), a manufacturer of class defining ultra-low temperature freezers. Global Cooling carries a portfolio of freezers that range in size from portable units to stationary upright freezers to accommodate a wide variety of use cases. Users can configure these freezers to achieve temperatures between -20°C and -86°C. The portfolio was designed to be environmentally friendly and energy efficient, using as little as 2.8 kWh/day at temperatures of -80°C. The freezers do not use compressor-based or cascade refrigeration systems. Instead, they use patented free-piston Stirling engine technology that uses fewer moving parts, resulting in maintenance cost savings for end users.

 

Liquid nitrogen freezers 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.

 

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.

 

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. Versalert has an intelligent mesh network system that 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.

 

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.

 

Biological and pharmaceutical storage

 

In October 2020, we acquired SciSafe Holdings, Inc. (“SciSafe”), a premier provider of biological and pharmaceutical storage. In addition to providing storage services, SciSafe provides cold chain logistics that ensures materials are kept at target temperatures from the moment that the materials leave the customer’s premises to their ultimate return. State-of-the-art monitoring systems employed by SciSafe allow for customers to monitor the storage temperatures of their materials throughout the entire logistics chain.

 

We operate five storage facilities in the USA and one facility in the Netherlands.

 

 

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.

 

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 Unaudited Condensed 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 Unaudited Condensed Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC.

 

Results of operations

 

The following discussion of the financial condition and results of operations should be read in conjunction with the accompanying Unaudited Condensed Consolidated Financial Statements and the related footnotes thereto.

 

Revenues

 

Total bioproduction tools and services revenue for three and nine months ended September 30, 2021 and 2020 was comprised of the following:

 

  

Three Months Ended

         
  

September 30,

         

(In thousands, except percentages)

 

2021

  

2020

  

$ Change

  

% Change

 

Product revenue

                

Freezer and thaw

 $17,610  $3,371  $14,239   422

%

Cell processing

  11,505   7,414   4,091   55

%

Storage and cold chain services

  86   19   67   353

%

Service revenue

                

Storage and cold chain services

  2,250   -   2,250   -

%

Rental revenue

                

Storage and cold chain services

  2,349   475   1,874   395

%

Total revenue

 $33,800  $11,279  $22,521   200

%

 

 

  

Nine Months Ended

         
  

September 30,

         

(In thousands, except percentages)

 

2021

  

2020

  

$ Change

  

% Change

 

Product revenue

                

Freezer and thaw

 $40,021  $9,237  $30,784   333

%

Cell processing

  30,131   22,753   7,378   32

%

Storage and cold chain services

  293   30   263   877

%

Service revenue

                

Storage and cold chain services

  6,417   -   6,417   -

%

Rental revenue

                

Storage and cold chain services

  4,989   1,341   3,648   272

%

Total revenue

 $81,851  $33,361  $48,490   145

%

 

 

Product revenue

 

Product revenue was $29.2 million for the three months ended September 30, 2021, representing an increase of $18.4 million, or 170%, compared with 2020, and was $70.4 million for the nine months ended September 30, 2021, representing an increase of $38.4 million, or 120%, compared with 2020.

 

Product revenue from our cell processing products increased by $4.1 million and $7.4 million, or 55% and 32%, respectively, in the three and nine months ended September 30, 2021 compared with the same period in 2020. In addition to our recent acquisition of Sexton generating an additional $425,000 for this product line, our cell processing products continued to be adopted by customers in the CGT market and we realized a higher selling price per liter in the three months ended September 30, 2021 compared to 2020.

 

Product revenue from our freezer and thaw products increased by $14.2 million and $30.8 million, or 422% and 333%, respectively, in the three and nine months ended September 30, 2021 compared with the same period in 2020. The acquisition of Global Cooling in Q2 2021 contributed $14.0 million and $27.3 million, or 416% and 296% of the total freezer and thaw revenue growth, to the three and nine months ended September 30, 2021. Other significant contributors to this growth include isothermal freezer sales and the launch of our High-Capacity Rate Freezer line in the nine months ended September 30, 2021.

 

Service revenue

 

Service revenue was $2.3 million and $6.4 million for the three and nine months ended September 30, 2021. There was no service revenue in the three and nine months ended September 30, 2020. The increase in service revenues is directly attributable to the acquisition of SciSafe in Q4 2020.

 

Rental revenue

 

Rental revenue was $2.3 million and $5.0 million for the three and nine months ended September 30, 2021, representing an increase of $1.9 million and $3.6 million, or 395% and 272%, compared with 2020. Increases in rental revenues are attributable to increased rental volumes to existing customers in our evo® shipping line and the leasing of dedicated storage spaces and other assets through SciSafe, which was acquired in Q4 2020.

 

Costs and operating expenses

 

Total costs and operating expenses for three and nine months ended September 30, 2021 and 2020 were comprised of the following:

 

  

Three Months Ended

         
  

September 30,

         

(In thousands, except percentages)

 

2021

  

2020

  

$ Change

  

% Change

 

Cost of product, rental, and service revenue

 $24,864  $4,826  $20,038   415

%

Research and development

  3,219   1,725   1,494   87

%

Sales and marketing

  4,065   1,588   2,477   156

%

General and administrative

  10,081   3,503   6,578   188

%

Intangible asset amortization

  2,525   706   1,819   258

%

Acquisition costs

  345   179   166   93

%

Change in fair value of contingent consideration

  (140)  (2)  (138)  6,900

%

Total operating expenses

 $44,959  $12,525  $32,434   259

%

 

  

Nine Months Ended

         
  

September 30,

         

(In thousands, except percentages)

 

2021

  

2020

  

$ Change

  

% Change

 

Cost of product, rental, and service revenue

 $50,968  $13,893  $37,075   267

%

Research and development

  8,250   4,865   3,385   70

%

Sales and marketing

  9,228   4,530   4,698   104

%

General and administrative

  22,058   9,916   12,142   122

%

Intangible asset amortization

  5,340   2,100   3,240   154

%

Acquisition costs

  1,616   417   1,199   288

%

Change in fair value of contingent consideration

  1,086   (1,528)  2,614   (171

)%

Total operating expenses

 $98,546  $34,193  $64,353   188

%

 

 

Cost of product, rental, and service revenue

 

Cost of revenue increased $20.0 million and $37.1 million, or 415% and 267%, respectively, compared to the same periods in 2020, due primarily to the acquisitions of Global Cooling, SciSafe, and Sexton. In addition to the acquisitions, the Company experienced higher than expected warranty expense and material costs. We expect that cost of product revenue may fluctuate in future quarters based on production volumes and product mix.

 

Cost of revenue as a percentage of revenue was 74% and 62% for the three and nine months ended September 30, 2021, respectively, and 43% and 42% for the three and nine months ended September 30, 2020, respectively. The increase in cost of revenue as a percentage of revenue is a result of increased revenues from lower margin product lines acquired in the 2020 and 2021 acquisitions.

 

Research and development expenses

 

Research and development (“R&D”) expense consist primarily of salaries and other personnel-related costs, non-cash stock-based expense, consulting, and external product development services.

 

R&D expense for the three and nine months ended September 30, 2021 increased $1.5 million and $3.4 million, or 87% and 70%, respectively, compared with the same period in 2020. The increase is primarily due to our acquisition of Global Cooling in Q2 2021, increased headcount and non-cash stock expense, research material purchases, consulting fees, and a payment to PanTHERA, a company in which BioLife holds an invested interest, for development milestones achieved.

 

We expect our R&D expense to increase as we continue to expand, develop, and refine the product lines we acquired in 2019, 2020, and 2021.

 

Sales and marketing expenses

 

Sales and marketing expense (“S&M”) consists primarily of salaries and other personnel-related costs, non-cash stock-based expense, consulting, trade shows, travel, sales commissions, and advertising.

 

S&M expense for the three and nine months ended September 30, 2021 increased $2.5 million and $4.7 million, or 156% and 104%, respectively, compared with the same period in 2020. The increase is primarily due to our acquisitions of Global Cooling in Q2 2021 and SciSafe in Q4 2020, increased headcount and non-cash stock-based expense, advertising, content creation, consulting fees, and an increase commission expense as a result of increased revenues.

 

We expect S&M expense to increase, as we expand our direct selling efforts to support the broader product line offerings resulting from our acquisitions in 2019, 2020, and 2021.

 

General and administrative expenses

 

General and administrative (“G&A”) expense consists primarily of personnel-related costs, non-cash stock-based expense 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 nine months ended September 30, 2021 increased $6.6 million and $12.1 million, or 188% and 122%, respectively, compared with the same period in 2020. The increase reflects the assumption of G&A expenses related to our acquisitions of Global Cooling in Q2 2021 and SciSafe in Q4 2020, increased headcount and non-cash stock-based compensation expense, insurance expense, accounting fees, and information technology 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 growth strategy.

 

Intangible asset amortization expense

 

Amortization expense consists of charges related to the amortization of intangible assets associated with the acquisitions of Astero, SAVSU, CBS, SciSafe, Global Cooling, and Sexton 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, CBS, SciSafe, Global Cooling, and Sexton 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, CBS, and SciSafe acquisitions.

 

Other income and expense

 

Total other income and expenses for the three and nine months ended September 30, 2021 and 2020 were comprised of the following:

 

  

Three Months Ended

         
  

September 30,

         

(In thousands, except percentages)

 

2021

  

2020

  

$ Change

  

% Change

 

Change in fair value of warrant liability

 $-  $(1,005) $1,005   (100

)%

Interest (expense) income, net

  (194)  13   (207)  (1,592

)%

Other expense

  (7)  (5)  (2)  40

%

Gain on acquisition of Sexton Biotechnologies, Inc.  6,451   -   6,451   -

%

Total other income, net $6,250  $113  $6,137   5,431

%

 

  

Nine Months Ended

         
  

September 30,

         

(In thousands, except percentages)

 

2021

  

2020

  

$ Change

  % Change 

Change in fair value of warrant liability

 $(121) $4,467  $(4,588)  (103

)%

Interest (expense) income, net

  (331)  59   (390)  (661

)%

Other expense

  (7)  (9)  2   (22

)%

Gain on acquisition of Sexton Biotechnologies, Inc.  6,451   -   6,451   -

%

Total other income, net $5,992  $5,627  $365   6

%

 

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. All outstanding warrants were exercised via a “cashless” exercise on March 25, 2021. Due to the change in our stock price during the nine months ended September 30, 2020 from December 31, 2019, we had a lower warrant liability and a corresponding unrealized, non-cash gain of $4.5 million due to the change in fair value of our warrant liability.

 

Interest income (expense), net. We earn interest on cash held in our money market account. Interest expense in the three and nine months ended September 30, 2021 grew compared to 2020 due to debt acquired in the acquisition of Global Cooling and equipment financing.

 

Gain on acquisition of Sexton Biotechnologies, Inc. Reflects the markup in the carrying value of BioLife’s investment in Sexton to fair value as a result of incremental equity acquisition.

 

Liquidity and capital resources

 

On September 30, 2021 and December 31, 2020, we had $75.1 million and $90.4 million in cash and cash equivalents, respectively. Based on our current expectations with respect to our future revenue and expenses, we believe that our current level of cash and cash equivalents will be sufficient to meet our liquidity needs for at least the foreseeable future. However, the Company may choose to raise additional capital through a debt or equity financing 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

 

  

Nine Months Ended

     
  

September 30,

     

(In thousands)

 

2021

  

2020

  

$ Change

 

Operating activities

 $(3,819) $4,388  $(8,207)

Investing activities

  (10,650)  (2,658)  (7,992)

Financing activities

  (673)  100,806   (101,479)
Net (decrease) increase in cash and cash equivalents $(15,142) $102,536  $(117,678)

 

 

Net cash (used in) provided by operating activities

 

During the nine months ended September 30, 2021, net cash used by operating activities was $3.8 million compared to net cash provided by operating activities of $4.4 million for the nine months ended September 30, 2020. The increase in cash used by operating activities was the result of the timing of collection and disbursement of working capital related items in accounts receivable, inventory, prepaid expenses and other current assets, accounts payable, and accrued expenses and other current liabilities.

 

Net cash used in investing activities

 

Net cash used by investing activities totaled $10.7 million during the nine months ended September 30, 2021 compared to $2.7 million for the nine months ended September 30, 2020. The increase in cash used by investing activities was the result of increased purchases of equipment and assets held for rent to facilitate future revenue growth, primarily related to the expansion and establishment of SciSafe facilities in the US and Europe.

 

Net cash (used in) provided by financing activities

 

Net cash used by financing activities totaled $673,000 during the nine months ended September 30, 2021, compared to net cash provided by financing activities of $100.8 million during the nine months ended September 30, 2020. Net cash used by financing activities in the nine months ended September 30, 2021 was primarily the result of net payments on the line of credit, payments on financed insurance premiums, and payments on loans proceeds received from equipment loans, offset by proceeds received from the exercise of stock options. Net cash provided by financing activities in the nine months ended September 30, 2020 was primarily the result of our $86 million capital raise in July of 2020 net of $6.2 million of issuance costs and our $20 million sale of common stock to Casdin Capital.

 

Off-balance sheet arrangements

 

As of September 30, 2021, 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, 2020, as filed with the SEC. There have been no significant changes to these obligations in the three and nine months ended September 30, 2021.

 

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 material weakness in our internal controls over financial reporting. As previously reported, we identified a material weakness in our internal control over financial reporting as of December 31, 2019 with regard to our controls over the accounting for financial instruments containing characteristics of both liabilities and equity. Although substantial progress has been made in remediating this material weakness, it has not been fully remediated as of September 30, 2021, and therefore this control weakness continues to constitute a material weakness. Specifically, due to insufficient technical resources, the Company’s controls were not operating effectively to allow management to timely identify errors related to the recording of certain transactions involving financial instruments as previously described.

 

Changes in Internal Control Over Financial Reporting. There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2021 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.

 

 

Remediation. With respect to the material weakness described above, management has continued to test and evaluate the elements of the remediation plan implemented to date. These elements include:

 

 

Implementing a risk assessment process by which management identifies transactions involving financial instruments that give rise to specific risks of inappropriate accounting;

 

 

Hiring of additional resources, including third-party consultants, to address complex accounting matters primarily related to the expanding scope of our business operations; and,

 

 

Enhancing the design and implementation of key internal controls in response to identified risks.

 

Based on management’s review and the oversight of the Audit Committee, we have determined that, although substantial progress has been made in remediating this material weakness, the weakness has not been fully remediated as of September 30, 2021.

 

As we continue to evaluate and test the remediation plan outlined above, we may also identify additional measures to address the material weakness or modify certain of the remediation procedures described above. We also may implement additional changes to our internal control over financial reporting as may be appropriate in the course of remediating the material weakness. Management, with the oversight of the Audit Committee, will continue to take steps necessary to remedy the material weakness to reinforce the overall design and capability of our control environment.

 

PART II: Other information

 

Item 1. LEGAL PROCEEDINGS

 

From time to time, we may be 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, 2020 and in subsequent filings, could cause our actual results to differ materially from those in the forward-looking statements. There are no material changes to the risk factors described in our Annual Report on Form 10-K for the period ended December 31, 2020.

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

Item 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

Item 4. MINE SAFETY DISCLOSURES

 

None.

 

Item 5. OTHER INFORMATION

 

None.

 

 

Item 6. Exhibits

 

Exhibit No.

 

Description

   

10.1*

 

Employment Agreement dated November 4, 2021 between the Company and Troy Wichterman (filed herewith)

   

10.2*

 

Amended Employment Agreement dated November 4, 2021 between the Company and Roderick de Greef (filed herewith)

   

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 – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

   

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

   

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

   

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

   

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

   

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

   

104

 

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

   

*

 

Management contract or compensatory plan or arrangement.

 

 

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.

 

 

 

 

Date: November 15, 2021

/s/ Troy Wichterman

 

Troy Wichterman

 

Chief Financial Officer
 (Duly authorized officer and principal
 financial and accounting officer)

 

 

BIOLIFE SOLUTIONS, INC.

 

INDEX TO EXHIBITS

 

   

Exhibit No.

 

Description

   

10.1*

 

Employment Agreement dated November 4, 2021 between the Company and Troy Wichterman (filed herewith)

   

10.2*

 

Amended Employment Agreement dated November 4, 2021 between the Company and Roderick de Greef (filed herewith)

   

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 – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

   

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

   

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

   

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

   

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

   

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

   

104

 

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

   

*

 

Management contract or compensatory plan or arrangement.

 

41