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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, 2020

 

  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)

 

bioli20200930_10qimg001.gif

 


 

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 registrant’s 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 6, 2020, 32,735,912 shares of the registrant’s common stock were outstanding.

 

1

 

 

BIOLIFE SOLUTIONS, INC.

 

FORM 10-Q

 

FOR THE QUARTER ENDED SEPTEMBER 30, 2020

 

TABLE OF CONTENTS

 

     

PART I.  FINANCIAL INFORMATION

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

3

 

 

 

 

Condensed Consolidated Statements of Operations for the three and nine month periods ended September 30, 2020 and 2019

4

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the three and nine month periods ended September 30, 2020 and 2019

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2020 and 2019

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

35

 

 

 

Item 4.

Controls and Procedures

35

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

36

 

 

 

Item 1A.

Risk Factors

36

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

 

 

 

Item 3.

Defaults Upon Senior Securities

36

 

 

 

Item 4.

Mine Safety Disclosures

36

 

 

 

Item 5.

Other Information

36

 

 

 

Item 6.

Exhibits

37

 

 

 

 

Signatures

38

 

2

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

BioLife Solutions, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

 

  

September 30,

  

December 31,

 

(In thousands, except per share and share data)

 

2020

  

2019

 

Assets

        

Current assets

        

Cash and cash equivalents

 $93,984  $6,448 

Restricted cash in escrow

  15,000  

––

 

Accounts receivable, trade, net

  6,095   5,345 

Inventories

  11,037   10,972 

Prepaid expenses and other current assets

  1,668   1,348 

Total current assets

  127,784   24,113 
         

Assets held for rent, net

  5,131   3,922 

Property and equipment, net

  5,300   5,572 

Operating lease right-of-use assets, net

  585   1,040 

Long-term deposits and other assets

  35   50 

Investments

  3,610   2,500 

Accrued interest receivable

  54  

––

 

Intangible assets, net

  19,882   21,982 

Goodwill

  33,506   33,637 

Total assets

 $195,887  $92,816 
         

Liabilities and Shareholders’ Equity

        

Current liabilities

        

Accounts payable

 $2,355  $3,119 

Accrued expenses and other current liabilities

  3,364   3,369 

Lease liabilities, operating, current portion

  729   804 

Contingent consideration, current portion

 

––

   377 

Warrant liability, current portion

  1,914  

––

 

Total current liabilities

  8,362   7,669 
         

Warrant liability, long-term

 

––

   39,602 

Contingent consideration, long-term

  386   1,537 

Lease liabilities, operating, long-term

  26   550 

Other long-term liabilities

  262   4 

Total liabilities

  9,036   49,362 
         

Commitments and Contingencies (Note 11)

          
         

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 at September 30, 2020 and December 31, 2019, respectively

      

Common stock, $0.001 par value; 150,000,000 shares authorized, 32,131,165 and 20,825,452 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

  32   21 

Additional paid-in capital

  282,076   143,485 

Accumulated deficit

  (95,257

)

  (100,052

)

Total shareholders’ equity

  186,851   43,454 

Total liabilities and shareholders’ equity

 $195,887  $92,816 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.  

 

3

 

 

BioLife Solutions, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 

(In thousands, except per share and share data)

 

2020

   

2019

   

2020

   

2019

 

Product revenue

  $ 10,804     $ 6,422     $ 32,020     $ 18,864  

Rental revenue

    475       182       1,341       211  

Total product and rental revenue

    11,279       6,604       33,361       19,075  

Operating expenses

                               

Cost of product and rental revenue (exclusive of intangible assets amortization)

    4,826       2,094       13,893       5,710  

Research and development

    1,725       1,032       4,865       2,082  

Sales and marketing

    1,588       1,250       4,530       3,032  

General and administrative

    3,503       2,348       9,916       6,707  

Intangible assets amortization

    706       361       2,100       465  

Acquisition costs

    179       291       417       538  

Change in fair value of contingent consideration

    (2

)

          (1,528

)

     

Total operating expenses

    12,525       7,376       34,193       18,534  

Operating income (loss)

    (1,246

)

    (772

)

    (832

)

    541  
                                 

Other income (expense)

                               

Change in fair value of warrant liability

    (1,005

)

    1,128       4,467       (14,949

)

Change in fair value of investments

    1,110             1,110        

Interest income

    16       110       63       417  

Interest expense

    (3

)

    (1

)

    (4

)

    (5

)

Other expense

    (5

)

    (13

)

    (9

)

    (13

)

Loss from equity method investment in SAVSU

          (291

)

          (739

)

Gain on Acquisition of SAVSU

          10,108             10,108  

Total other income (expenses)

    113       11,041       5,627       (5,181

)

                                 

Net income (loss) before provision for income taxes

    (1,133

)

    10,269       4,795       (4,640

)

Income tax (benefit)

                       

Net income (loss)

    (1,133

)

    10,269       4,795       (4,640

)

                                 

Net income attributable to common stockholders:

                               

Basic

  $ (1,133

)

  $ 8,380     $ 4,322     $ (4,640

)

Diluted

  $ (1,133

)

  $ 8,862     $ 279     $ (4,640

)

Earnings per share attributable to common stockholders

                               

Basic

  $ (0.04

)

  $ 0.42     $ 0.17     $ (0.24

)

Diluted

  $ (0.04

)

  $ 0.35     $ 0.01     $ (0.24

)

Weighted average shares used to compute earnings per share attributable to common stockholders:

                               

Basic

    31,639,420       19,735,364       25,418,375       19,071,722  

Diluted

    31,639,420       25,343,112       29,412,538       19,071,722  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.   

 

4

 

 

BioLife Solutions, Inc.

Condensed Consolidated Statements of Shareholders’ Equity

(unaudited)

 

  

Nine Months Ended September 30, 2020

 

(In thousands, except share data)

 

Preferred
Stock
Shares –
Series A

  

Preferred
Stock
Amount –
Series A

  

Common
Stock
Shares

  

Common
Stock
Amount

  

Additional
Paid-in
Capital

  

Accumulated
Deficit

  

Total
Shareholders’
Equity

 

Balance, December 31, 2019

    $   20,825,452  $21  $143,485  $(100,052

)

 $43,454 

Stock issued as 2019 bonus payout

              314      314 

Sale of common stock, net of costs

        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 exercises of 3,871,405 warrants

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

Warrant exercises

        8,500      150      150 

Stock issued – on vested RSUs

        161,263             

Net income

                 4,795   4,795 

Balance, September 30, 2020

    $   32,131,165  $32  $282,076  $(95,257

)

 $186,851 

 

 

   

Three Months Ended September 30, 2020

 

(In thousands, except share data)

 

Preferred
Stock
Shares –
Series A

   

Preferred
Stock
Amount –
Series A

   

Common
Stock
Shares

   

Common
Stock
Amount

   

Additional
Paid-in
Capital

   

Accumulated
Deficit

   

Total
Shareholders’
Equity

 

Balance, June 30, 2020

        $       25,982,367     $ 26     $ 199,941     $ (94,124

)

  $ 105,843  

Sale of common stock, net of costs

                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 RSUs

                72,873                          

Net loss

                                  (1,133

)

    (1,133

)

Balance, September 30, 2020

        $       32,131,165     $ 32     $ 282,076     $ (95,257

)

  $ 186,851  

 

 

   

Nine Months Ended September 30, 2019

 

(In thousands, except share data)

 

Preferred
Stock
Shares –
Series A

   

Preferred
Stock
Amount –
Series A

   

Common
Stock
Shares

   

Common
Stock
Amount

   

Additional
Paid-in
Capital

   

Accumulated
Deficit

   

Total
Shareholders’
Equity

 

Balance, December 31, 2018

        $       18,547,406     $ 19     $ 113,008     $ (98,395

)

  $ 14,632  

Stock-based compensation

                            2,179             2,179  

Shares issued as consideration in SAVSU acquisition

                1,100,000       1       19,931             19,932  

Stock option exercises

                474,237             841             841  

Warrant exercises

                116,500             2,247             2,247  

Stock issued – on vested RSUs

                106,682                          

Net loss

                                  (4,640

)

    (4,640

)

Balance, September 30, 2019

        $       20,344,825     $ 20     $ 138,206     $ (103,035

)

  $ 35,191  

 

 

   

Three Months Ended September 30, 2019

 

(In thousands, except share data)

 

Preferred
Stock
Shares –
Series A

   

Preferred
Stock
Amount –
Series A

   

Common
Stock
Shares

   

Common
Stock
Amount

   

Additional
Paid-in
Capital

   

Accumulated
Deficit

   

Total
Shareholders’
Equity

 

Balance, June 30, 2019

        $       18,898,609     $ 19     $ 115,357     $ (113,304

)

  $ 2,072  

Stock-based compensation

                            829             829  

Shares issued as consideration in SAVSU acquisition

                1,100,000       1       19,931             19,932  

Stock option exercises

                238,176             378             378  

Warrant exercises

                87,500             1,711             1,711  

Stock issued – on vested RSUs

                20,540                          

Net income

                                  10,269       10,269  

Balance, September 30, 2019

        $       20,344,825     $ 20     $ 138,206     $ (103,035

)

  $ 35,191  

 

 The accompanying notes are an integral part of these condensed consolidated financial statements.   

 

5

 

 

BioLife Solutions, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

  

Nine Months Ended

September 30,

 

(In thousands)

 

2020

  

2019

 

Cash flows from operating activities

        

Net income (loss)

 $4,795  $(4,640

)

Adjustments to reconcile net income to net cash provided by operating activities

        

Depreciation

  1,454   373 

Amortization of intangible assets

  2,100   465 

Non cash lease expense

  455   361 

Stock-based compensation

  3,818   2,179 

Loss from equity method investment in SAVSU

     739 

Gain on acquisition of SAVSU

     (10,108

)

Change in fair value of investments

  (1,110

)

   

Change in fair value of contingent consideration

  (1,528

)

   

Change in fair value of warrant liability

  (4,467

)

  14,949 

Stock issued for services

  30    

Other

  9   15 
         

Change in operating assets and liabilities

        

Accounts receivable, trade, net

  (820

)

  (372

)

Inventories

  (65

)

  (1,730

)

Prepaid expenses and other current assets

  68

 

  (272

)

Accounts payable

  (604

)

  377 

Other payables

  (406

)

  (87

)

Accrued compensation and other current liabilities

  689   65 

Other

  (30

)

  (98

)

Net cash provided by operating activities

  4,388   2,216 
         

Cash flows from investing activities

        
Payments related to the SciSafe acquisition  (500)   

Cash acquired on acquisition of SAVSU

     1,251 

Payments related to the Astero Bio acquisition, net of cash acquired

     (12,439

)

Investment in iVexSol

     (1,000

)

Purchase of property and equipment

  (370

)

  (356

)

Purchase of assets held for rent, net

  (1,791

)

  (453

)

Proceeds from sale of equipment

  3    

Net cash used in investing activities

  (2,658

)

  (12,997

)

         

Cash flows from financing activities

        

Proceeds from PPP Loan

  2,175    

Payoff of PPP Loan

  (2,175

)

   

Payments of contingent consideration

  (483

)

   
Proceeds from sale of common stock, net of $6.2 million of costs  100,251    

Proceeds from exercise of common stock options

  1,028   841 

Proceeds from exercise of warrants

  40   553 

Payments of costs related to stock issuance

     (44

)

Other

  (30

)

  (21

)

Net cash provided by financing activities

  100,806   1,329 
         

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

  102,536   (9,452

)

Cash, cash equivalents and restricted cash - beginning of period

  6,448   30,657 

Cash, cash equivalents and restricted cash - end of period

 $108,984  $21,205 
         

Non-cash investing and financing activities

        

Cashless exercise of warrants reclassed from warrant liability to common stock

 $33,111  $ 

Reclassification of warrant liability to equity upon exercise

 $110  $1,694 

Purchase of property & equipment not yet paid

 $29  $146 
Financing costs paid in a prior period $130  $ 

Deferred financing costs not yet paid

 $  $53 

Stock issued as prepayment of services

 $30  $ 

Purchase of equipment with debt

 $270  $ 

Stock issued as bonus consideration

 $314  $ 

Stock issued as consideration to acquire SAVSU

 $  $19,932 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6

 

BIOLIFE SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

 

 

 

1.

Organization and Significant Accounting Policies

 

Business

 

BioLife Solutions, Inc. (“BioLife,” “us,” “we,” “our,” or the “Company”) is a leading developer, manufacturer and supplier of a portfolio of cell and gene therapy bioproduction products and services including proprietary biopreservation media, automated thawing devices, cloud-connected shipping containers, and freezer technology. Our CryoStor® freeze media and HypoThermosol® hypothermic storage are optimized to preserve cells during distribution and storage. These novel biopreservation media products are serum-free and protein-free, fully defined, and are formulated to reduce preservation-induced cell damage and death; offering commercial companies and clinical researchers significant improvement in shelf life and post-preservation viability and function. Our ThawSTAR® product line is comprised of a family of automated thawing devices for frozen cell and gene therapies packaged in cryovials and cryobags. These products improve the quality of high-value, temperature-sensitive biologic therapies by standardizing the thawing process and reducing the risks of contamination and overheating which are inherent with the use of traditional water baths. Our evo® shipping containers are innovative high-performance cloud-connected passive storage and transport containers for temperature-sensitive biologics and pharmaceuticals. Our cryogenic freezer technology provides for controlled rate freezing and storage of biologic materials.

 

Basis of Presentation

 

The condensed consolidated financial statements included herein have been prepared by BioLife Solutions, Inc. in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X and do not include all of the information and footnote disclosures required by GAAP. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Astero Bio Corporation (“Astero,” and the Astero product line, “ThawSTAR” acquired on April 1, 2019), SAVSU Technologies, Inc. (“SAVSU” and the product line “evo” acquired on August 8, 2019), and Arctic Solutions, Inc. dba Custom Biogenic Systems (“CBS” and the freezer and accessory product lines acquired on November 12, 2019). All significant intercompany accounts and transactions have been eliminated in consolidation.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal, recurring adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows. The results of operations for the interim periods presented are not necessarily indicative of results to be expected for the entire year.

 

Financial Statement Reclassification

 

Certain classifications on the Condensed Consolidated Statements of Cash Flows related to non cash lease expense and accrued expenses and other current liabilities for the three and nine months ended September 30, 2019 were reclassified to conform to current period presentation. These reclassifications have no impact on previously reported total revenue, net income (loss), net assets, or total operating cash flows.

 

Significant Accounting Policies

 

There have been no significant changes to the accounting policies during the nine months ended September 30, 2020, as compared to the significant accounting policies described in our Annual Report on Form 10-K.

 

 

Liquidity and Capital Resources

 

On September 30, 2020 and December 31, 2019, we had $109 million and $6.4 million in cash, cash equivalents and restricted cash, respectively. We acquired Astero on April 1, 2019 for $12.5 million in cash and contingent consideration of up to $8.5 million. We paid $483,000 of contingent consideration related to 2019 revenues of Astero in the second quarter of 2020. On August 8, 2019, we acquired the remaining shares of SAVSU which we did not own for 1,100,000 shares of common stock. On November 12, 2019, we acquired CBS for $11.0 million in cash, $4.0 million in shares of our common stock, and up to $15.0 million in contingent consideration payable in cash or stock (which payment requirement has not been triggered or otherwise paid to date). On October 1, 2020, we acquired SciSafe Holdings, Inc. (“SciSafe”) for $15.0 million in cash, 611,383 shares of common stock, and up to 626,000 additional shares of common stock as contingent consideration (which payment requirement has not been triggered or otherwise paid to date).

 

On July 7, 2020, the Company closed its public offering of 5,951,250 shares of common stock at the public offering price of $14.50 per share, which includes the shares purchased pursuant to the exercise in full of the underwriters' option to purchase up to an additional 776,250 shares of its common stock. The net proceeds from the offering to BioLife, after deducting underwriting discounts and commissions and estimated underwriter offering expenses of $6.1 million, were approximately $80.2 million.

 

As of September 30, 2020, amounts included in restricted cash in escrow represent those required to be held by a third party for the purchase of SciSafe by the Company. On October 1, 2020, the purchase was completed and the funds held in escrow were disbursed to the selling shareholders.

 

Based on our current expectations with respect to our future revenue and expenses, we believe that our current level of cash and cash equivalents including proceeds from the public offering, 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 an attempt to mitigate the heightened level of business uncertainty caused by the COVID-19 pandemic, or in order to pursue additional acquisition or strategic investment opportunities. Additional capital, if required, may not be available on reasonable terms, if at all.

 

Risks and Uncertainties

 

COVID-19 Pandemic

 

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. Further, while the sales of our automated thaw and freezer product lines were not materially affected in the three months ended March 31, 2020, we believe the sales of these capital equipment products were negatively impacted in the second quarter ended June 30, 2020, and to a lesser degree the third quarter ended September 30, 2020, due to customer facility closures resulting in delayed deliveries and continued limitations on our in-person, direct selling process. Our automated thaw product line continued to be negatively impacted, while we saw an increase in sales in our freezer product line in the third quarter ended September 30, 2020 compared to the second quarter ended June 30, 2020. We believe that new capital equipment decisions may be delayed due to the pandemic, which would impact our automated thaw and freezer product lines, although at this time, the Company cannot estimate the financial impact.

 

The Company reviews capital and amortizing intangible assets (long-lived assets) for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company determined that the economic uncertainty caused by the COVID-19 pandemic was a trigger for an impairment review in the quarter ended June 30, 2020 of certain long-lived assets based on the expected near-term weakness in ThawSTAR and freezer revenue resulting from the impact of COVID-19.

 

As a result of the Company’s outlook for near term revenue from the ThawSTAR and freezer product lines, estimated undiscounted cash flow projections were developed to determine if any impairment of the related intangible assets was warranted. After conducting such review, the Company determined that there was no impairment of the remaining long-lived assets as of June 30, 2020. Given the inherent uncertainties of the COVID-19 pandemic and the estimates used in these cash flow projections, changes based on facts and circumstances in future quarters could give rise to impairment.

 

The Company revised the revenue projections for the ThawSTAR and freezer product lines in the second quarter ended June 30, 2020 to determine the impact on the fair value of the contingent consideration related to the existing earnout provisions. Based on results of the third quarter ended September 30, 2020 related to these two product lines, we did not make further adjustments to our revenue projections. The Company reduced the fair value of the combined contingent consideration liability from $388,000 at June 30, 2020, to $386,000 at September 30, 2020 due to the time value of money and actual results for the third quarter ended September 30, 2020.

 

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 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. The Company will continue to monitor the impact that the CARES Act may have on the Company’s business, financial condition, results of operations, or liquidity.

 

As of March 30, 2020, the company started deferring the employer side of social security tax payments. We will pay back 50% of our total deferred payments in 2021 and the remaining 50% in 2022.

 

 

Concentrations of credit risk and business risk

 

In the three months ended September 30, 2020, we derived approximately 11% of our product revenue from one customer and in the nine months ended September 30, 2020, we derived approximately 12% of our revenue from one customer. In the three months ended September 30, 2019, we derived approximately 33% of our product revenue from three customers and in the nine months ended September 30, 2019, we derived approximately 17% of our revenue from one customer. No other customer accounted for more than 10% of revenue in the nine months ended September 30, 2020 or 2019. In the three months ended September 30, 2020 and 2019, we derived approximately 62% and 81%, of our revenue from CryoStor products, respectively. Due to our acquisitions in 2019 and 2020, we expect both our revenue concentration related to CryoStor and our customer concentrations to be reduced for the year ended December 31, 2020. At September 30, 2020, two customers accounted for approximately 32% of total gross accounts receivable. At December 31, 2019, two customers accounted for approximately 25% of total gross accounts receivable. 

 

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

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 

Revenue by customers’ geographic locations

 

2020

  

2019

  

2020

  

2019

 

United States

  73

%

  76

%

  73

%

  70

%

Canada

  11

%

  12

%

  13

%

  17

%

Europe, Middle East, Africa (EMEA)

  13

%

  11

%

  12

%

  11

%

Other

  3

%

  1

%

  2

%

  2

%

Total revenue

  100

%

  100

%

  100

%

  100

%

 

Recent accounting pronouncements 

 

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, 2022, including interim periods within those fiscal years. The Company is evaluating the impact of the guidance on its financial statements. 

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 includes amendments that aim to improve the effectiveness of fair value measurement disclosures. The amendments in this guidance modify the disclosure requirements on fair value measurements based on the concepts in FASB Concepts Statement, “Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements,” including the consideration of costs and benefits. The amendments become effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company adopted this guidance January 1, 2020 and there was no material impact on its consolidated financial statements.

 

In August 2018, the FASB issued ASU No. 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”, which clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted this guidance January 1, 2020 and there was no material impact on its consolidated financial statements.

 

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.” ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, including, but not limited to, the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, the exceptions related to the recognition of a deferred tax liability related to an equity method investment and the exception to methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. ASU 2019-12 becomes effective for the Company in the year ended December 31, 2021, including interim periods. Due to the full valuation allowance on the Company’s net deferred tax assets, the Company is currently expecting no material impact from the adoption of ASU 2019-12 on its consolidated financial statements.

 

 

2.

Fair Value Measurement

 

In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” (“ASC Topic 820”), the Company measures its cash and cash equivalents and investments at fair value on a recurring basis. The Company also measures certain assets and liabilities at fair value on a non-recurring basis when applying acquisition accounting. ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC Topic 820 establishes a three-tier value fair hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1 – Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2 – Observable inputs other than quoted prices included in Level 1 for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

 

Level 3 – Unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Valuations based on inputs that are unobservable and involve management judgment and the reporting entity’s own assumptions about market participants and pricing. As of September 30, 2020 and December 31, 2019, the Company’s Level 3 financial instruments measured at fair value on the Condensed Consolidated Balance Sheets consisted of convertible debt in iVexSol held at fair value, the contingent consideration liability related to the acquisitions of Astero and CBS and a warrant liability.

 

 

For the investment in convertible debt, the significant Level 3 inputs are the expected term of the instrument, the underlying credit worthiness of the issuer and the valuation of various embedded features in the note, which are based on future financings of the issuer. We considered a range of probability-weighted financing or payoff settlements between 5% and 50% with outcomes occurring over a range of 1 to 2 years. The estimated market interest rate of approximately 8.0% was based on an average of indexes of below investment grade debt. The market rate was calibrated to the rate implied in the original issuance in September 2019 and adjusted for changes in market rates quarterly. Certain assumptions used in estimating the fair value of the convertible debt are uncertain by nature. Actual results may differ materially from estimates.

 

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 2.30% and 2.43% and revenue volatility of 90%. 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, at 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 Condensed Consolidated Statements of Operations. During the most recent re-measurement of the contingent consideration liability as of September 30, 2020, the Company used a discount rate of 12.5%, risk-free rates between approximately 0.08% and 0.12% and revenue volatility of 64%. This contingent consideration liability is presented in the Condensed Consolidated Balance Sheet at September 30, 2020 and December 31, 2019 in the amount of $80,000 and $1.1 million, respectively. 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, at 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 Condensed Consolidated Statements of Operations. During the most recent re-measurement of the contingent consideration liability as of September 30, 2020, the Company used a discount rate of 23.0%, a risk-free rate of approximately 0.25% and revenue volatility of 63%. This contingent consideration liability is presented in the Condensed Consolidated Balance Sheet at September 30, 2020 and December 31, 2019 in the amount of $306,000 and $856,000, 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 include the estimated term of the warrants and the volatility of the Company’s common stock. For the estimated term of the warrants, we used the actual terms of the warrants, which are all currently less than one year.  For the volatility off the Company’s stock we used historical volatility for the remaining term of each warrant.  These amounts ranged from 64.0% 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. Actual results may differ materially from estimates.

 

There were no remeasurements to fair value during the nine months ended September 30, 2020 of financial assets and liabilities that are not measured at fair value on a recurring basis.

 

The following tables set forth the Company’s financial assets measured at fair value on a recurring basis as of  September 30, 2020 and  December 31, 2019, based on the three-tier fair value hierarchy:

 

(In thousands)

As of September 30, 2020

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Assets:

                

Money market accounts

 $93,984  $  $  $93,984 

Restricted cash held in escrow

  15,000         15,000 

Convertible debt held at fair value

        2,110   2,110 

Total

  108,984      2,110   111,094 

Liabilities:

                

Contingent consideration - business combinations

        386   386 

Warrant liability

        1,914   1,914 

Total

 $  $  $2,300  $2,300 

 

As of December 31, 2019

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Assets:

                

Money market accounts

 $6,448  $  $  $6,448 

Convertible debt held at fair value

        1,000   1,000 

Total

  6,448      1,000   7,448 

Liabilities:

                

Contingent consideration - business combinations

        1,914   1,914 

Warrant liability

        39,602   39,602 

Total

 $  $  $41,516  $41,516 

 

 

The fair values of money market funds classified as Level 1 were derived from quoted market prices as active markets for these instruments exist. The fair values of investments, warrant liability and contingent consideration classified as Level 3 were derived from management assumptions. There have been no transfers of assets or liabilities between the fair value measurement levels. The following tables present the changes in investments held at fair value which are measured using Level 3 inputs:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

(In thousands)

                

Balance, beginning of period

 $1,000  $  $1,000  $ 

Purchases

     1,000      1,000 

Change in fair value recognized in net income

  1,110      1,110    

Balance, end of period

 $2,110  $1,000  $2,110  $1,000 

 

The following tables present the changes in fair value of contingent consideration liabilities which are measured using Level 3 inputs:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

(In thousands)

                

Balance, beginning of period

 $388  $1,492  $1,914  $ 

Additions

           1,492 

Change in fair value recognized in net income

  (2

)

     (1,528

)

   

Payments earned, reclassified to accrued liabilities

            

Balance, end of period

 $386  $1,492  $386  $1,492 

 

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

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

(In thousands)

                

Balance, beginning of period

 $963  $44,194  $39,602  $28,516 

Exercised warrants

  (54

)

  (1,295

)

  (33,221

)

  (1,694

)

Change in fair value recognized in net income

  1,005   (1,128

)

  (4,467

)

  14,949 

Balance, end of period

 $1,914  $41,771  $1,914  $41,771 

 

 

 

 

3.

Acquisitions 

 

Astero Acquisition 

 

On April 1, 2019, BioLife completed the acquisition of all the outstanding shares of Astero. Astero’s ThawSTAR product line is comprised of a family of automated thawing devices for frozen cell and gene therapies packaged in cryovials and cryobags. The products improve the quality of administration of high-value, temperature-sensitive biologic therapies to patients by standardizing the thawing process and reducing the risks of contamination and overheating, which are inherent with the use of traditional water baths.

 

In connection with the acquisition, the Company paid (i) a base payment in the amount of $12.5 million consisting of an initial cash payment of $8.0 million at the closing of the transactions, subject to adjustment for working capital, net debt and transaction expenses, and a deferred cash payment that was paid into escrow and subsequently paid to Astero of $4.5 million which was payable upon the earlier of Astero meeting certain product development milestones or one year after the date of the Closing and (ii) earnout payments in calendar years 2019, 2020 and 2021 of up to an aggregate of $3.5 million, which shall be payable upon Astero achieving certain specified revenue targets in each year (in the second quarter of 2020 we paid $483,000 for the earnout related to 2019 revenues) and a separate earnout payment of $5.0 million for calendar year 2021, which shall be payable upon Astero achieving a cumulative revenue target over the three-year period from 2019 to 2021.

 

Consideration transferred

 

The Astero acquisition was accounted for as a purchase of a business under FASB ASC Topic 805, “Business Combinations”. The Astero acquisition was funded through payment of approximately $12.5 million in cash and under the terms of the share purchase agreement, Astero shareholders are eligible to receive up to an additional $8.5 million of contingent consideration in cash over the next three years based on attainment of specific revenue targets. Under the acquisition method of accounting, the assets acquired and liabilities assumed from Astero were recorded as of the acquisition date, at their respective fair values, and consolidated with those of BioLife. The fair value of the contingent consideration of $1.5 million was determined using an option pricing model. The fair value of the net tangible assets acquired is estimated to be approximately $324,000, the fair value of the intangible assets acquired is estimated to be approximately $4.1 million, and the residual goodwill is estimated to be approximately $9.5 million. The fair value estimates required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates. BioLife believes these estimates to be reasonable. Actual results may differ from these estimates.

 

Total consideration recorded for the acquisition of Astero is as follows (amounts in thousands):

 

Cash consideration

 $12,521 

Contingent consideration

  1,491 

Working capital adjustment

  (71

)

Total consideration transferred

 $13,941 

 

 

Fair Value of Net Assets Acquired

 

The table below represents the purchase price allocation to the net assets acquired based on their estimated fair values (amounts in thousands). Such amounts were estimated using the most recent financial statements from Astero as of March 31, 2019.

 

Cash and cash equivalents

 $11 

Accounts receivable, net

  154 

Inventory

  456 

Customer relationships

  160 

Tradenames

  470 

Developed technology

  2,840 

In-process research and development

  650 

Goodwill

  9,515 

Other assets

  99 

Accounts payable

  (250

)

Other liabilities

  (164

)

Fair value of net assets acquired

 $13,941 

 

The fair value of Astero’s identifiable intangible assets and estimated useful lives have been estimated as follows (amounts in thousands except years):

 

  

Estimated Fair

Value

  

Estimated

Useful

Life (Years)

 

Customer relationships