BIOLIFE SOLUTIONS INC - Quarter Report: 2018 September (Form 10-Q)

 

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		September 30,				December 31,
		2018				2017
Assets
Current assets
Cash and cash equivalents		$	32,380,674			$	6,663,318
Accounts receivable, trade, net of allowance for doubtful accounts of $0 and $5,575 at September 30, 2018 and December 31, 2017, respectively			2,699,342				1,021,315
Inventories			2,910,927				1,846,746
Prepaid expenses and other current assets			298,005				399,502
Total current assets			38,288,948				9,930,881
Property and equipment
Leasehold improvements			1,284,491				1,284,491
Furniture and computer equipment			705,948				682,466
Manufacturing and other equipment			1,510,729				1,148,006
Subtotal			3,501,168				3,114,963
Less: Accumulated depreciation			(2,234,286	)			(2,008,927	)
Net property and equipment			1,266,882				1,106,036
Investment in SAVSU			6,856,980				1,070,120
Long term deposits			36,166				36,166
Total assets		$	46,448,976			$	12,143,203
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable		$	1,089,553			$	690,702
Accrued expenses and other current liabilities			162,981				200,548
Accrued compensation			712,615				491,432
Deferred rent			130,216				130,216
Total current liabilities			2,095,365				1,512,898
Deferred rent, long-term			386,113				492,207
Other long-term liabilities			37,855				45,512
Total liabilities			2,519,333				2,050,617
Commitments and contingencies (Note 9)
Shareholders’ equity
Preferred stock, $0.001 par value; 1,000,000 shares authorized, Series A, 4,250 shares designated, and 3,187 and 4,250 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively			3				4
Common stock, $0.001 par value; 150,000,000 shares authorized, 18,237,425 and 14,021,422 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively			18,237				14,021
Additional paid-in capital			115,775,040				84,036,444
Accumulated deficit			(71,863,637	)			(73,957,883	)
Total shareholders’ equity			43,929,643				10,092,586
Total liabilities and shareholders’ equity		$	46,448,976			$	12,143,203

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		Three Months Ended September 30,								Nine Months Ended September 30,
		2018				2017				2018				2017
Product sales		$	5,293,075			$	2,963,411			$	14,285,811			$	7,887,377
Cost of product sales			1,606,303				1,095,724				4,506,911				2,980,965
Gross profit			3,686,772				1,867,687				9,778,900				4,906,412
Operating expenses
Research and development			312,000				293,093				983,066				898,451
Sales and marketing			725,201				488,688				1,977,871				1,547,087
General and administrative			1,454,573				1,118,251				4,198,474				3,298,461
Total operating expenses			2,491,774				1,900,032				7,159,411				5,743,999
Operating income (loss)			1,194,998				(32,345	)			2,619,489				(837,587	)
Other income (expenses), net
Interest income			79,773				103				120,728				227
Interest expense			(1,313	)			(1,077	)			(3,545	)			(188,992	)
Write-off of deferred financing costs		––					(67,664	)		––					(67,664	)
Amortization of debt discount		––				––				––					(155,996	)
Loss from equity-method investment in SAVSU			(42,689	)			(217,735	)			(363,243	)			(707,208	)
Total other income (expenses), net			35,771				(286,373	)			(246,060	)			(1,119,633	)
Net income (loss) before provision for income taxes			1,230,769				(318,718	)			2,373,429				(1,957,220	)
Income taxes		––				––				––				––
Net income (loss) after provision for income taxes			1,230,769				(318,718	)			2,373,429				(1,957,220	)
Less: Preferred stock dividends			(79,675	)			(106,250	)			(279,183	)			(106,250	)
Net income (loss) attributable to common stockholders		$	1,151,094			$	(424,968	)		$	2,094,246			$	(2,063,470	)
Basic net income (loss) per common share		$	0.07			$	(0.03	)		$	0.13			$	(0.16	)
Diluted net income (loss) per common share		$	0.05			$	(0.03	)		$	0.10			$	(0.16	)
Weighted average shares outstanding used to compute basic earnings per share			17,273,412				13,238,248				15,529,026				13,102,238
Weighted average shares outstanding used to compute diluted earnings per share			23,656,633				13,238,248				21,051,219				13,102,238

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		Nine Months Ended September 30,
		2018				2017
Cash flows from operating activities
Net income (loss)		$	2,373,429			$	(1,957,220	)
Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation			244,927				259,895
Stock-based compensation expense			1,130,945				957,711
Stock issued for services		––					71,250
Write-off of deferred financing costs		––					67,664
Amortization of deferred rent related to lease incentives			(95,248	)			(95,249	)
Amortization of debt discount		––					155,996
Loss from equity-method investment in SAVSU			363,243				707,208
Change in operating assets and liabilities
(Increase) Decrease in
Accounts receivable, trade			(1,678,027	)			(159,851	)
Inventories			(1,064,181	)			(103,274	)
Prepaid expenses and other current assets			(48,606	)			(101,479	)
Increase (Decrease) in
Accounts payable			342,875				(227,732	)
Accrued compensation and other current liabilities			204,653				138,885
Accrued interest		––					152,143
Deferred rent			(11,490	)			(63,836	)
Net cash provided by (used in) operating activities			1,762,520				(197,889	)
Cash flows from investing activities
Investment in SAVSU			(6,000,000	)		––
Purchase of property and equipment			(339,068	)			(91,443	)
Net cash used in investing activities			(6,339,068	)			(91,443	)
Cash flows from financing activities
Proceeds from private equity transaction			19,999,994			––
Proceeds from related party debt		––					1,000,000
Payments on equipment loan			(9,267	)			(10,628	)
Payments on capital lease obligations			(9,812	)			(7,631	)
Proceeds from exercise of common stock options and warrants			11,724,247				784,273
Payments of preferred stock dividends			(305,758	)		––
Payments of costs related to stock issuances			(42,500	)			(9,303	)
Payments for redemption of preferred stock			(1,063,000	)		––
Deferred costs related to potential stock issuance		––					(42,664	)
Net cash provided by financing activities			30,293,904				1,714,047
Net increase in cash and cash equivalents			25,717,356				1,424,715
Cash and cash equivalents - beginning of period			6,663,318				1,405,826
Cash and cash equivalents - end of period		$	32,380,674			$	2,830,541
Non-cash investing and financing activities
Series A preferred stock dividends accrued not yet paid		$	79,675			$	106,250
Stock issued for services provided in prior period included in liabilities at year-end			35,625				35,624
Receivables converted to equity investment in SAVSU			150,103			––
Preferred stock issued on conversion of related party note payable and accrued interest		––					4,250,000
Capital lease obligations incurred for purchases of equipment		––					52,327
Purchase of equipment with debt			17,604				39,243
Legal fees for private equity transaction not yet paid			42,500			––
Purchase of property and equipment not yet paid			49,101			––

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		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, 2017			4,250			$	4				14,021,422			$	14,021			$	84,036,444			$	(73,957,883	)		$	10,092,586
Redemption of preferred stock			(1,063	)			(1	)											(1,062,999	)							(1,063,000	)
Stock based compensation																			1,130,945								1,130,945
Stock issued for private equity transaction, net of $85,000 legal fees											1,428,571				1,429				19,913,565								19,914,994
Stock option/warrant exercises											2,684,899				2,684				11,721,563								11,724,247
Stock issued – on vested RSUs											96,594				97				(97	)							—
Stock issued for services											5,939				6				35,619								35,625
Preferred stock dividends																							(279,183	)			(279,183	)
Net income																							2,373,429				2,373,429
Balance, September 30, 2018			3,187			$	3				18,237,425			$	18,237			$	115,775,040			$	(71,863,637	)		$	43,929,643

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1.	Organization and Significant Accounting Policies

 

Business

 

BioLife Solutions, Inc. (“BioLife,” “us,” “we,” “our,” or the “Company”) is the leading developer, manufacturer and supplier of proprietary, clinical-grade biopreservation media for cells and tissues. Our HypoThermosol® hypothermic storage and CryoStor® cryopreservation freeze media are highly valued in the regenerative medicine, biobanking and drug discovery markets. 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.

 

Basis of Presentation

 

We have prepared the accompanying unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to these rules and regulations, we have condensed or omitted certain information and footnote disclosures we normally include in our annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In management’s opinion, we have made all adjustments (consisting only of normal, recurring adjustments) necessary to fairly present our financial position, results of operations and cash flows. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full year. These financial statements and accompanying notes should be read in conjunction with the financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2017 on file with the SEC.

 

There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in the financial statements in our Annual Report on Form 10-K for the year ended December 31, 2017, except the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606).

 

Significant Accounting Policies Update

 

Revenue Recognition

 

On January 1, 2018, we adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) using the modified retrospective approach applied to those contracts in effect as of January 1, 2018. Under this transition method, results for reporting periods beginning after January 1, 2018 are presented under the new standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under Topic 605, Revenue Recognition. Adoption of the new standard did not have an impact on the amounts reported in our financial statements and there were no other significant changes impacting the timing or measurement of our revenue or our business processes and controls.

 

To determine revenue recognition for contractual arrangements that we determine are within the scope of Topic 606, 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. Our revenues are primarily generated from the sale of our biopreservation media products. We generally recognize product revenue, including shipping and handling charges billed to customers, when we transfer control of our products to our customers as our contracts have a single performance obligation (transfer of control generally occurs upon shipment of our product). We are not required to disclose the value of unsatisfied performance obligations as our contracts have a duration of one year or less.

 

We invoice and receive payment from our customers after we recognize revenue, resulting in receivables from our customers that are presented as accounts receivable on our balance sheet. Accounts receivable consist of short-term amounts due from our customers (generally 30 to 90 days) and are stated at the amount we expect to collect. We establish an allowance for doubtful accounts based on our assessment of the collectability of specific customer accounts. Changes in accounts receivable are primarily due to the timing and magnitude of orders of our products, the timing of when control of our products is transferred to our customers and the timing of cash collections.

 

 

Equity Method Investments

 

We account for our ownership in our SAVSU Technologies, Inc. joint venture (“SAVSU”) using the equity method of accounting. This method states that if the investment provides us the ability to exercise significant influence, but not control, over the investee, we account for the investment under the equity method. Significant influence is generally deemed to exist if the Company’s ownership interest in the voting stock of the investee ranges between 20% and 50%, although other factors, such as representation on the investee’s board of directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment is recorded at its initial carrying value in the balance sheet and is periodically adjusted for capital contributions, dividends received and our share of the investee’s earnings or losses together with other-than-temporary impairments which are recorded as a component of other income (expense), net in the statements of operations. On January 22, 2018, as a result of SAVSU signing a global distribution agreement with World Courier, we amended our agreement with SAVSU to fix our equity position at 35%, prior to any dilution created by financing activities post December 31, 2016, and terminated the sales and marketing services agreement. Our ownership in SAVSU was 35% at December 31, 2017. As a result of an additional $6 million in cash contributions made by us and additional contributions made by the majority stockholder, our effective ownership was 44.4% at September 30, 2018. Additionally, we have an 18-month purchase option which provides us, at our sole discretion, with the right to acquire the 56% ownership interest of SAVSU not already owned, in exchange for the greater of 1,000,000 shares of our common stock, or approximately $23 million of our common stock, calculated on the day of exercise. For the three and nine months ended September 30, 2018, SAVSU’s net loss totaled $16,000 and $1.1 million, respectively. For the three and nine months ended September 30, 2017, SAVSU’s net loss totaled $0.5 million and $1.6 million, respectively.

 

Concentrations of credit risk and business risk

 

In the three and nine months ended September 30, 2018, we derived approximately 41% of our product revenue from three customers and approximately 28% of our revenue from two customers, respectively. In the three and nine months ended September 30, 2017, we derived approximately 22% of our product revenue from two customers and 10% of our product revenue from one customer, respectively. No other customer accounted for more than 10% of revenue in the three and nine months ended September 30, 2018 or 2017. At September 30, 2018, four customers accounted for approximately 54% of total gross accounts receivable. At December 31, 2017, two customers accounted for approximately 41% of total gross accounts receivable.

 

Revenue from customers located in foreign countries represented 8% and 10% of total revenue during the three and nine months ended September 30, 2018, respectively, and 16% and 17% during the three and nine months ended September 30, 2017, respectively. All revenue from foreign customers is denominated in United States dollars.

 

Recent Accounting Pronouncements

 

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). The updated guidance clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. We adopted the new standard on January 1, 2018, with no material impact on our financial statements.

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases: Topic 842 (ASU 2016-02) that replaces existing lease guidance. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. Under the new guidance, leases will continue to be classified as either finance or operating, with classification affecting the pattern of expense recognition in the Statements of Operations. Lessor accounting is largely unchanged under ASU 2016-02. The new guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2018. Early adoption will be permitted for all entities. The Company will adopt ASU 2016-02 on January 1, 2019.

 

The FASB has issued several additional ASUs that provide additional clarification to certain issues existing after the original ASU was released. In July 2018, the FASB issued ASU 2018-11 Leases (Topic 842) Targeted Improvements which provides entities with an additional and optional transition method to adopt the new lease standard and provide lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if certain criteria are met. Also, in July 2018, the FASB issued ASU 2018-10 Codification Improvements to Topic 842 to make amendments addressing sixteen issues related to various aspects of ASU 2016-02. The effective date and transition requirements for the amendments in ASU 2018-11 and ASU 2018-10 will be the same as the effective date and transition requirements in ASU 2016-02. The Company is evaluating the effect of ASU 2018-11 and ASU 2018-10 on its financial statements. While the Company is continuing to evaluate the effects of this ASU, the Company expects to record material right of use assets and lease liabilities on its balance sheet upon adoption. The new standard will also require expanded qualitative and quantitative disclosures regarding the Company’s leases.

 

In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities: Topic 825 (ASU 2016-01). The updated guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. We adopted the new standard on January 1, 2018, with no material impact on our financial statements.

 

With the exception of the new standards discussed above, there have been no new accounting pronouncements not yet effective that have significance, or potential significance, to our 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 short-term investments at fair value on a recurring basis. 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.

 

As of September 30, 2018 and December 31, 2017, the Company does not have liabilities that are measured at fair value.

 

The following tables set forth the Company’s financial assets measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017, based on the three-tier fair value hierarchy:

 

 

 

The fair values of bank deposits and money market funds classified as Level 1 were derived from quoted market prices as active markets for these instruments exist. The Company has no level 2 or level 3 financial assets. The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during the nine months ended September 30, 2018 and the twelve months ended December 31, 2017. 

 

 

 

3.

Inventory

 

Inventory consists of the following at September 30, 2018 and December 31, 2017:

 

 

4.	Deferred Rent

 

Deferred rent consists of the following at September 30, 2018 and December 31, 2017:

 

 

During the three and nine month periods ended September 30, 2018, the Company recorded $31,749 and $95,248, respectively, in deferred rent amortization of these landlord funded leasehold improvements. During the three and nine month periods ended September 30, 2017, the Company recorded $31,749 and $95,249, respectively, in deferred rent amortization of these landlord funded leasehold improvements.

 

Straight line rent adjustment represents the difference between cash rent payments and the recognition of rent expense on a straight-line basis over the terms of the lease.

 

5.	Share-based Compensation

 

Service Vesting-Based Stock Options

 

The following is a summary of service vesting-based related stock option activity for the nine month period ended September 30, 2018, and the status of service vesting-based options outstanding at September 30, 2018:

 

 

We recognized stock compensation expense related to service vesting-based options of $146,567 and $146,355 during the three months ended September 30, 2018 and 2017, respectively, and $448,882 and $463,217 during the nine months ended September 30, 2018 and September 30, 2017, respectively. As of September 30, 2018, there was $32,868,498 of aggregate intrinsic value of outstanding service vesting-based stock options, including $25,429,311 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, 2018. This amount will change based on the fair market value of the Company’s stock. Intrinsic value of service vesting-based awards exercised during the three months ended September 30, 2018 and 2017 was $2,094,344 and none, respectively, and during the nine months ended September 30, 2018 and 2017 was $3,088,117 and $91,817, respectively. Weighted average grant date fair value for service based-vesting options granted during the three months ended September 30, 2018 and 2017 was none and for the nine months ended September 30, 2018 and 2017 was none and $1.13 per share, respectively. The weighted average remaining contractual life of service vesting-based options outstanding and exercisable at September 30, 2018, is 5.8 years and 5.5 years, respectively. Total unrecognized compensation cost of service vesting-based stock options at September 30, 2018 of $678,908 is expected to be recognized over a weighted average period of 1.6 years.

 

 

Performance-based Stock Options

 

The Company’s Board of Directors implemented a Management Performance Bonus Plan for 2017. Based on achieving varying levels of specified revenue for the year ended December 31, 2017, up to 1,000,000 options to purchase shares of the Company’s common stock may be vested. The options have an exercise price of $1.64, and if revenue levels for 2017 were met, would vest 50% on the release of the Company’s audited financial statements for 2017, and 50% one year thereafter. If the minimum performance targets were not achieved, no options would vest. On February 27, 2018, the Company’s Board of Directors determined that, subject to the completion of the 2017 audit, the specified revenue target had been achieved. Accordingly, 999,997 options to purchase shares of the Company’s common stock vest as follows: 50% of the options vested on March 8, 2018 and the remaining 50% will vest on March 8, 2019.

 

The following is a summary of performance-based stock option activity for the nine month period ended September 30, 2018, and the status of performance-based options outstanding at September 30, 2018:

 

 

 

We recognized stock compensation expense related to performance-based options of $128,296 and $128,298 during the three month periods ending September 30, 2018 and 2017, respectively, and $380,705 and $380,708 during the nine month periods ending September 30, 2018 and 2017, respectively. As of September 30, 2018, there was $15,304,852 of aggregate intrinsic value of outstanding performance-based stock options, including $7,374,916 of aggregate intrinsic value of 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, 2018. This amount will change based on the fair market value of the Company’s stock. Intrinsic value of performance-based awards exercised during the three months and nine months ended September 30, 2018 was none and $285,250, respectively, and no performance-based options were exercised in the three and nine months ended September 30, 2017. The weighted average remaining contractual life of performance-based options outstanding and exercisable at September 30, 2018, is 3.2 years. Total unrecognized compensation cost of performance-based stock options at September 30, 2018 of $128,296 is expected to be recognized over a weighted average period of 0.3 years.

 

 

The fair value of share-based payments made with stock options to employees and non-employee directors was estimated on the measurement date using the Black-Scholes model using the following weighted average assumptions.

 

 

Restricted Stock

 

The following is a summary of restricted stock activity for the nine month period ended September 30, 2018, and the status of unvested restricted stock outstanding at September 30, 2018:

 

 

The aggregate fair value of the awards granted during the three and nine months ended September 30, 2018 was $147,900 and $1,272,948, respectively, and during the three and nine months ended September 30, 2017 was none and $364,936, respectively, which represents the market value of our common stock on the date that the restricted stock awards were granted. The aggregate fair value of the restricted stock awards that vested for the three months ended September 30, 2018 and 2017 was $392,858 and $38,567, respectively, and for the nine months ended September 30, 2018 and 2017 was $873,594 and $99,725, respectively.

 

We recognized stock compensation expense of $108,277 and $39,290 related to restricted stock awards for the three months ended September 30, 2018 and 2017, respectively, and $301,058 and $113,786 related to restricted stock awards for the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, there was $1,245,763 in unrecognized compensation costs related to restricted stock awards. We expect to recognize those costs over 3.2 years.

 

We recorded total stock compensation expense for the three and nine month periods ended September 30, 2018 and 2017, as follows:

 

 

 

 

6.

Warrants

 

At September 30, 2018 and December 31, 2017, we had 4,306,005 and 6,688,849 warrants outstanding, respectively, and exercisable with a weighted average exercise price of $4.37 and $4.50, respectively. During the three and nine month period ended September 30, 2018, 557,153 and 2,382,844 warrants were exercised with a weighted average exercise price of $4.75, yielding proceeds of $2.6 million and $11.3 million, respectively. Subsequent to quarter end through November 7, 2018, an additional 225,000 warrants were exercised with a weighted average exercise price of $4.75, yielding $1.1 million in proceeds to the Company. The outstanding warrants have expiration dates between March 2021 and May 2021. 

 

7.	Income Taxes

 

We have recorded a full valuation allowance against our deferred tax assets. As we trend towards positive net income, we will continue to assess our valuation allowance. Based on all available evidence, we determined that we have not yet attained a sustained level of profitability. Therefore, we have maintained the full valuation allowance at September 30, 2018. We may release all, or a portion, of the valuation allowance in the near-term, dependent on the verifiable positive evidence observed in future quarters.

 

8.	Earnings Per Share

 

Basic earnings per share is calculated by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using the weighted average number of common shares outstanding plus dilutive common stock equivalents outstanding as determined by the treasury method during the period. 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. For the three and nine month periods ended September 30, 2018, we excluded a nominal amount of unvested stock awards from our calculation of diluted weighted average shares because they were antidilutive. For the three and nine month periods ended September 30, 2017, we excluded 3.4 million common stock options, 7.4 million warrants, and 259,000 unvested stock awards from our calculation of diluted weighted average shares because they were antidilutive.

 

The following table shows the calculation of basic and diluted earnings per shares:

 

 

9.	Commitments & Contingencies

 

Leases

 

We lease approximately 30,000 square feet in our Bothell, Washington headquarters. The term of our lease continues until July 31, 2021 with two options to extend the term of the lease, each of which is for an additional period of five years, with the first extension term commencing, if at all, on August 1, 2021, and the second extension term commencing, if at all, immediately following the expiration of the first extension term. In accordance with the amended lease agreement, our monthly base rent is approximately $59,000 at September 30, 2018, with scheduled annual increases each August and again in October for the most recent amendment. We are also required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses. 

 

Employment Agreements

 

We have employment agreements with our Chief Executive Officer, Chief Financial Officer, Chief Technology Officer, Vice President of Operations, Vice President of Marketing, and Vice President of Sales. None of these employment agreements is for a definitive period, but rather each will continue indefinitely until terminated in accordance with its terms. The agreements provide for a base annual salary, payable in monthly (or shorter) installments. Under certain conditions and for certain of these officers, we may be required to pay additional amounts upon terminating the officer or upon the officer resigning for good reason. 

 

 

Litigation

 

From time to time, the Company is subject to various legal proceedings that arise in the ordinary course of business, none of which are currently material to the Company’s business.

 

10.	Preferred Stock

 

As of September 30, 2018, we accrued a dividend of $79,675 on the series A preferred stock which is included in accrued expenses and other current liabilities in the balance sheet at September 30, 2018. The dividend was paid subsequent to quarter end on October 1, 2018. There are 3,187 Series A shares outstanding as of September 30, 2018.

 

11.

Revenue

 

We currently operate as one operating segment focusing on biopreservation media.

 

The following table disaggregates revenue by market segment and distributors:

 

 

 

 

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