BIOLIFE SOLUTIONS INC - Quarter Report: 2019 June (Form 10-Q)

 

 

Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

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FORM 10-Q

 

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

For the quarterly period ended June 30, 2019

 

☐  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

 

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BioLife Solutions, Inc.

(Exact name of registrant as specified in its charter)

 

 

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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)

 

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  ☑

 

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

  

As of August 6, 2019, 19,002,764 shares of the registrant’s common stock were outstanding.

 

 

 

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		June 30,				December 31,
(In thousands, except per share and share data)		2019 (unaudited)				2018
Assets
Current assets
Cash and cash equivalents		$	19,617			$	30,657
Accounts receivable, trade, net of allowance for doubtful accounts of $26 and $0 at June 30, 2019 and December 31, 2018, respectively			3,832				3,045
Inventories			5,306				3,509
Prepaid expenses and other current assets			384				353
Total current assets			29,139				37,564
Property and equipment
Leasehold improvements			1,284				1,284
Furniture and computer equipment			577				706
Manufacturing and other equipment			1,733				1,657
Subtotal			3,594				3,647
Less: Accumulated depreciation			(2,276	)			(2,328	)
Net property and equipment			1,318				1,319
Operating lease right-of-use assets			1,079				—
Investment in SAVSU			6,100				6,548
Intangible assets, net			4,446				—
Goodwill			9,524				—
Long-term deposits			136				36
Total assets		$	51,742			$	45,467
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable		$	876			$	720
Accrued expenses and other current liabilities			204				91
Accrued compensation			963				998
Lease liability - operating, current portion			665				—
Lease liability – financing, current portion			14				—
Deferred rent, current portion			—				130
Contingent consideration - current			371				—
Total current liabilities			3,093				1,939
Deferred rent, long-term			—				349
Long-term lease liability - operating			806				—
Long-term lease liability - financing			10				—
Other long-term liabilities			7				31
Contingent consideration – long-term			1,560				—
Total liabilities			5,476				2,319
Commitments and Contingencies (Note 10)
Shareholders’ equity
Common stock, $0.001 par value; 150,000,000 shares authorized, 18,898,609 and 18,547,406 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively			19				19
Additional paid-in capital			116,013				114,160
Accumulated deficit			(69,766	)			(71,031	)
Total shareholders’ equity			46,266				43,148
Total liabilities and shareholders’ equity		$	51,742			$	45,467

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		Three Months Ended June 30,								Six Months Ended June 30,
(In thousands, except per share and share data)		2019				2018				2019				2018
Product sales		$	6,701			$	5,178			$	12,471			$	8,993
Cost of product sales			1,958				1,537				3,606				2,901
Gross profit			4,743				3,641				8,865				6,092
Operating expenses
Research and development			739				325				1,111				671
Sales and marketing			928				641				1,776				1,253
General and administrative			2,118				1,390				4,321				2,744
Acquisition costs			39			––					247			––
Total operating expenses			3,824				2,356				7,455				4,668
Operating income			919				1,285				1,410				1,424
Other income (expenses), net
Interest income			137				32				307				41
Interest expense			(1	)			(1	)			(4	)			(1	)
Loss from equity-method investment in SAVSU			(217	)			(177	)			(448	)			(321	)
Total other income (expenses), net			(81	)			(146	)			(145	)			(281	)
Income before provision for income taxes			838				1,139				1,265				1,143
Income taxes		––				––				––				––
Net income			838				1,139				1,265				1,143
Less: Preferred stock dividends		––					(93	)		––					(200	)
Net income attributable to common stockholders		$	838			$	1,046			$	1,265			$	943
Basic net income per common share		$	0.04			$	0.07			$	0.07			$	0.06
Diluted net income per common share		$	0.03			$	0.05			$	0.05			$	0.05
Basic shares used to compute earnings per share			18,819,459				15,180,169				18,734,401				14,642,378
Diluted shares used to compute earnings per share			24,539,299				20,374,358				24,439,959				19,063,595

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		Six Months Ended June 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			$	114,160			$	(71,031	)		$	43,148
Stock based compensation															—				1,252								1,252
Stock option/warrant exercises											265,061				—				601								601
Stock issued – on vested RSUs											86,142				—				—								—
Net income																							1,265				1,265
Balance, June 30, 2019			—			$	—				18,898,609			$	19			$	116,013			$	(69,766	)		$	46,266

		Three Months Ended June 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, March 31, 2019			—			$	—				18,717,095			$	19			$	114,951			$	(70,604	)		$	44,366
Stock based compensation															—				646								646
Stock option/warrant exercises											160,364				—				416								416
Stock issued – on vested RSUs											21,150				—				—								—
Net income																							838				838
Balance, June 30, 2019			—			$	—				18,898,609			$	19			$	116,013			$	(69,766	)		$	46,266

		Six Months Ended June 30, 2018
(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, 2017			4,250			$	—				14,021,422			$	14			$	84,036			$	(73,958	)		$	10,092
Series A preferred stock redemption			(1,063	)															(1,063	)							(1,063	)
Stock based compensation																			748								748
Stock option/warrant exercises											2,003,605				2				8,897								8,899
Stock issued – on vested RSUs											76,539				—				—								—
Stock issued for services											5,939								36								36
Preferred stock dividends																							(200	)			(200	)
Net income																							1,143				1,143
Balance, June 30, 2018			3,187			$	—				16,107,505			$	16			$	92,654			$	(73,015	)		$	19,655

		Three Months Ended June 30, 2018
(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, March 31, 2018			4,250			$	—				14,145,413			$	14			$	84,518			$	(74,061	)		$	10,471
Series A preferred stock redemption			(1,063	)															(1,063	)							(1,063	)
Stock based compensation																			374								374
Stock option/warrant exercises											1,941,167				2				8,825								8,827
Stock issued – on vested RSUs											20,925				—				—								—
Preferred stock dividends																							(93	)			(93	)
Net income																							1,139				1,139
Balance, June 30, 2018			3,187			$	—				16,107,505			$	16			$	92,654			$	(73,015	)		$	19,655

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		Six Month Period Ended June 30,
(In thousands)		2019				2018
Cash flows from operating activities
Net income		$	1,265			$	1,143
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation			209				161
Stock-based compensation expense			1,252				748
Amortization of deferred rent related to lease incentives			—				(63	)
Amortization of operating lease liability			(87	)			—
Interest expense – finance type lease			2				—
Loss from equity-method investment in SAVSU			448				321
Amortization of intangible assets			104				—
Change in operating assets and liabilities
(Increase) Decrease in
Accounts receivable, trade			(632	)			(1,145	)
Inventories			(1,341	)			(275	)
Prepaid expenses and other current assets			(32	)			(103	)
Increase (Decrease) in
Accounts payable			(36	)			168
Accrued compensation and other current liabilities			(20	)			4
Deferred rent			—				(6	)
Other liabilities			(53	)			—
Net cash provided by operating activities			1,079				953
Cash flows from investing activities
Payments related to the Astero Bio Acquisition, net of cash acquired			(12,438	)			—
Investment in equity investment SAVSU			—				(1,000	)
Purchase of property and equipment			(267	)			(61	)
Net cash used in investing activities			(12,705	)			(1,061	)
Cash flows from financing activities
Payments on equipment loan			(8	)			(5	)
Payments on capital lease obligations			(7	)			(7	)
Proceeds from exercise of common stock options and warrants			601				8,899
Payments of preferred stock dividends			—				(213	)
Payments for redemption of preferred stock			—				(1,063	)
Net cash provided by financing activities			586				7,611
Net increase (decrease) in cash and cash equivalents			(11,040	)			7,503
Cash and cash equivalents - beginning of period			30,657				6,663
Cash and cash equivalents - end of period		$	19,617			$	14,166
Non-cash investing and financing activities
Series A preferred stock dividends accrued not yet paid		$	—			$	93
Stock issued for services provided in prior period included in liabilities at year-end			—				36
Receivables converted to equity investment in SAVSU			—				150
Purchase of equipment with debt		––					18
Purchase of property and equipment not yet paid		$	4			$	20

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1.	Organization and Significant Accounting Policies

 

Business

 

BioLife Solutions, Inc. (“BioLife,” “us,” “we,” “our,” or the “Company”) is a leading developer, manufacturer and supplier of a portfolio of bioproduction tools including; proprietary biopreservation media and automated thawing devices for cell and gene therapies. Our CryoStor^® freeze media and HypoThermosol^® hypothermic storage and shipping media are highly valued in the regenerative medicine market. These novel biopreservation media products are serum-free and protein-free, fully defined, and are formulated to reduce preservation-induced cell damage and death; offering commercial companies and clinical researchers significant improvement in shelf life and post-preservation viability and function. Our recently acquired ThawSTAR^® product line is comprised of a family of automated thawing devices for frozen cell and gene therapies packaged in cryovials and cryobags. These products improve the quality of administration of high-value, temperature-sensitive biologic therapies to patients by standardizing the thawing process and reducing the risks of contamination and overheating, which are inherent with the use of traditional water baths.

 

Basis of Presentation

 

We have prepared the accompanying unaudited consolidated 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 consolidated 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 consolidated 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, 2018 on file with the SEC.

 

Changes in Significant Accounting Policies

 

The following significant accounting policies have been added or updated since our Annual Report on Form 10-K for the year ended December 31, 2018.

 

Business Combinations

 

The Company’s identifiable assets acquired and liabilities assumed in a business combination are recorded at their acquisition date fair values. The valuation requires management to make significant estimates and assumptions, especially with respect to long-lived and intangible assets. Critical estimates in valuing intangible assets include, but are not limited to:

 

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future expected cash flows, including revenue and expense projections;

 

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discount rates to determine the present value of recognized assets and liabilities and;

            

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revenue volatility to determine contingent consideration using option pricing models

 

The Company’s estimates of fair value are based upon assumptions it believes to be reasonable, but that are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.

 

Goodwill is calculated as the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets. Acquisition-related costs, including advisory, legal, accounting, valuation, and other costs, are expensed in the periods in which these costs are incurred. The results of operations of an acquired business are included in the consolidated financial statements beginning at the acquisition date.

 

The Company estimates the acquisition date fair value of the acquisition-related contingent consideration using various valuation approaches, including option pricing models, as well as significant unobservable inputs, reflecting the Company’s assessment of the assumptions market participants would use to value these liabilities. The fair value of the contingent consideration is remeasured each reporting period, with any change in the value recorded as other income or expense.

 

During the measurement period, which may be up to one year from the acquisition date, any refinements made to the fair value of the assets acquired, liabilities assumed, or contingent consideration are recorded in the period in which the adjustments are recognized.  Upon the conclusion of the measurement period or final determination of the fair value of the assets acquired, liabilities assumed, or contingent consideration, whichever comes first, any subsequent adjustments are recognized in the consolidated statements of operations.

 

Goodwill

 

Goodwill represents the excess of the purchase price over the net amount of identifiable assets acquired and liabilities assumed in a business combination measured at fair value.  Goodwill is not amortized but is tested for impairment at least annually. The Company reviews goodwill for impairment annually at the end of its fourth fiscal quarter and whenever events or changes in circumstances indicate that the fair value of a reporting unit may be less than its carrying amount (a triggering event).  The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test described in Financial Accounting Standards Board (“FASB”)  Accounting Standards Codification (“ASC”) Topic 350. The more likely than not threshold is defined as having a likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the quantitative goodwill impairment test is unnecessary and goodwill is considered to be unimpaired. However, if based on the qualitative assessment the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will proceed with performing the quantitative goodwill impairment test.  In performing the quantitative goodwill impairment test, the Company determines the fair value of each reporting unit and compares it to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired. If the carrying value of a reporting unit exceeds its fair value, the Company records an impairment loss equal to the difference.  As of June 30, 2019, management believes there are no indications of impairment.

 

Intangible Assets

 

Intangible assets consist of developed technology, customer relationships, and tradenames and trademarks, resulting from the Company’s acquisitions. Intangible assets are recorded at fair value on the date of acquisition and amortized over their estimated useful lives on a straight-line basis.

 

Significant Accounting Policies Update

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 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.

 

We adopted ASU 2016-02 and related ASUs (collectively ASC 842) effective January 1, 2019 using the additional transition option for the modified retrospective method and did not restate comparative periods. Consequently, periods before January 1, 2019 will continue to be reported in accordance with the prior accounting guidance, ASC 840, Leases. We elected the package of practical expedients, which permits us to retain prior conclusions about lease identification, lease classification and initial direct costs for leases that commenced before January 1, 2019. The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. We also elected the practical expedient to combine lease and non-lease components for all of our leases other than net lease real estate leases.

 

The adoption of this standard resulted in the recording of operating lease right-of-use assets of $1.3 million and short-term and long-term lease liabilities of $1.8 million as of January 1, 2019. The difference between right-of-use assets and lease liabilities relates to liabilities of $0.5 million for deferred rent and lease incentives liabilities that were included on our Balance Sheet prior to adoption of ASC 842. These amounts were eliminated at the time of adoption and are included in the lease liabilities. Adoption of ASC 842 did not have a material impact on the Company’s net earnings and had no impact on cash flows.

 

Principles of Consolidation

 

The consolidated financial statements for the three and six months ended June 30, 2019 include the accounts of the Company and as of April 1, 2019, its wholly-owned subsidiary, Astero Bio Corporation. All intercompany balances and transactions have been eliminated in consolidation. The acquisition of Astero closed on April 1, 2019 and thus the financial statements for the three and six months ended June 30, 2018 and the balance sheet as of December 31, 2018, only include accounts of the Company.

 

Equity Method Investments

 

We account for our ownership in SAVSU Technologies, Inc. (“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 consolidated 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 consolidated statements of operations. For the three and six months ended June 30, 2019, SAVSU’s net loss totaled $0.5 million and $1.0 million, respectively which our ownership resulted in a $0.2 million and $0.4 million loss, respectively. For the three and six months ended June 30, 2018, SAVSU’s net loss totaled $0.6 million and $1.1 million, respectively, of which our ownership resulted in a $0.2 million and $0.3 million loss, respectively.

 

Concentrations of credit risk and business risk

 

In the three months ended June 30, 2019, we derived approximately 17% of our product revenue from one customer and in the six months ended June 30, 2019, we derived approximately 20% of our revenue from one customer. In the three months ended June 30, 2018, we derived approximately 38% of our product revenue from three customers and in the six months ended June 30, 2018, we derived approximately 27% of our revenue from two customers. No other customer accounted for more than 10% of revenue in the three and six months ended June 30, 2019 or 2018. In the three months ended June 30, 2019 and 2018, we derived approximately 82% and 87%, of our revenue from CryoStor products, respectively. In each of the six months ended June 30, 2019 and 2018, we derived approximately 86%, of our revenue from CryoStor products. At June 30, 2019, two customers accounted for approximately 28% of total gross accounts receivable. At December 31, 2018, three customers accounted for approximately 71% of total gross accounts receivable. 

 

Revenue from customers located in Canada represented 17% and 20% and in all other foreign countries represented 12% and 14% of total revenue during the three and six months ended June 30, 2019, respectively. Revenue from customers located in Canada represented 11% and 12% and in all other foreign countries represented 11% and 11% of total revenue during the three and six months ended June 30, 2018, respectively. All revenue from foreign customers is denominated in United States dollars.

 

Recent Accounting Pronouncements

 

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 June 30, 2019 and December 31, 2018, 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 June 30, 2019 and December 31, 2018, based on the three-tier fair value hierarchy:

 

 

 

 

The fair values of cash and cash equivalents classified as Level 1 were derived from quoted market prices as active markets for these instruments exist. The fair value of contingent consideration classified as Level 3 is described in Note 3. There was no change in contingent consideration from the acquisition date to June 30, 2019, during the three and six months ended June 30, 2019. 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 six months ended June 30, 2019 and the twelve months ended December 31, 2018. 

 

3.	Acquisition of Astero Bio Corporation

 

On April 1, 2019, the acquisition date, BioLife completed the acquisition of all the outstanding shares of Astero Bio Corporation (“Astero”), pursuant to the terms of a Stock Purchase Agreement by and among BioLife and 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.

 

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 in cash over the next three years based on attainment of specific revenue targets (“contingent consideration”). 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 $1.9 million was determined using the option pricing model based on the most recent guidance from the Appraisal Foundation. 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 $4.6 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):

 

 

Transaction costs related to the acquisition are expensed as incurred and are not included in the calculation of consideration transferred. The Company incurred $39,000 and $247,000 in transaction costs for the three- and six-month periods ended June 30, 2019, respectively.

 

 

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). We may make appropriate adjustments to the fair value measurements of the intangible assets and contingent consideration and residual goodwill, if any, as additional information is received prior to the completion of the measurement period, which is up to one year from the acquisition date. Such amounts were estimated using the most recent financial statements from Astero as of March 31, 2019.

 

 

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

 

 

Fair value measurement methodologies used to calculate the value of any asset can be broadly classified into one of three approaches, referred to as the cost, market and income approaches. In any fair value measurement analysis, all three approaches must be considered, and the approach or approaches deemed most relevant will then be selected for use in the fair value measurement of that asset. The fair value of identifiable intangible assets was determined by third-party appraisal primarily using variations of the “income approach,” which is based on the present value of the future after-tax cash flows attributable to each identifiable intangible asset. The fair value of inventories was determined using both the “cost approach” and the “market approach”. 

 

Some of the more significant assumptions inherent in the development of intangible asset fair values, from the perspective of a market participant, include, but are not limited to (i) the amount and timing of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to measure the risks inherent in the future cash flows, (iii) the assessment of the asset’s life cycle, and (iv) the competitive trends impacting the asset.

 

Acquired Goodwill

 

The goodwill of $9.5 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. Substantially all of the goodwill recorded is not expected to be deductible for income tax purposes.

 

Revenue, Net Income and Pro Forma Presentation

 

The Company recorded revenue from Astero of $374,000 and a net loss of $542,000 in its consolidated statements of operations for the three and six months ended June 30, 2019. The Company has included the operating results of Astero in its consolidated statements of operations since the April 1, 2019 acquisition date. The following pro forma financial information presents the combined results of operations of BioLife and Astero as if the acquisition had occurred on January 1, 2018 after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are directly attributable to the Astero Acquisition, factually supportable and have a recurring impact. These pro forma adjustments for the six months ended June 30, 2019 and 2018 include a $104,000 and $208,000 net increase in amortization expense, respectively, to record amortization expense for the $4.6 million of acquired identifiable intangible assets, adjustments to stock-based compensation of $108,000 and $216,000, respectively and $47,000 and $94,000, respectively for salary increases related to employment agreements signed in conjunction with the acquisition. In addition, acquisition-related transaction costs of $247,000 and a $103,000 purchase accounting adjustment to record inventory at net realizable value were excluded from pro forma net income for the six months ended June 30, 2019. The pro forma financial information does not reflect any adjustments for anticipated expense savings resulting from the acquisition and is not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on January 1, 2018 or of future results:

 

 

 

 

4.

Inventory

 

Inventory consists of the following at June 30, 2019 and December 31, 2018:

 

 

5.	Deferred Rent

 

Deferred rent consists of the following at December 31, 2018. We eliminated our deferred rent at January 1, 2019 as a result of the implementation of ASU 2016-02 (see Note 12):

 

 

During the three and six month periods ended June 30, 2019, the Company recorded no deferred rent amortization of landlord funded leasehold improvements. During the three and six month periods ended June 30, 2018, the Company recorded $32,000 and $63,000, respectively, in deferred rent amortization of these landlord funded leasehold improvements.

 

Straight line rent adjustment for the three and six months ended June 30, 2018 represents the difference between cash rent payments and the recognition of rent expense on a straight-line basis over the terms of the lease. 

 

6.	Share-based Compensation

 

Service Vesting-Based Stock Options

 

The following is a summary of service vesting-based stock option activity for the six month period ended June 30, 2019 and the status of service vesting-based options outstanding at June 30, 2019:

 

 

We recognized stock compensation expense related to service vesting-based options of $95,000 and $149,000 during the three months ended June 30, 2019 and 2018, respectively, and $240,000 and $303,000 during the six months ended June 30, 2019 and June 30, 2018, respectively. As of June 30, 2019, there was $27.2 million of aggregate intrinsic value of outstanding service vesting-based stock options, including $24.1 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 June 30, 2019. 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 June 30, 2019 and 2018 was $2.0 million and $724,000, respectively, and during the six months ended June 30, 2019 and 2018 was $3.5 million and $1.0 million, respectively. There were no service based-vesting options granted granted during the six months ended June 30, 2019 and 2018. The weighted average remaining contractual life of service vesting-based options outstanding and exercisable at June 30, 2019, is 5.2 years and 5.1 years, respectively. Total unrecognized compensation cost of service vesting-based stock options at June 30, 2019 of $279,000 is expected to be recognized over a weighted average period of 1.4 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 could have 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% vested on March 8, 2019.

 

The following is a summary of performance-based stock option activity for the six month period ended June 30, 2019, and the status of performance-based options outstanding at June 30, 2019:

 

 

We recognized stock compensation expense related to performance-based options of none and $127,000 during the three month periods ending June 30, 2019 and 2018, respectively, and none and $252,000 during the six month periods ending June 30, 2019 and 2018. As of June 30, 2019, there was $14.8 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 June 30, 2019. This amount will change based on the fair market value of the Company’s stock. Intrinsic value of performance-based awards exercised during the three months and six months ended June 30, 2019 was none and in the three and six months ended June 30, 2018 was $285,000. The weighted average remaining contractual life of performance-based options outstanding and exercisable at June 30, 2019, is 2.5 years. All compensation cost of performance-based stock options outstanding at June 30, 2019 has been recognized.

 

There were no stock options granted to employees and non-employee directors in the three and six month periods ended June 30, 2019 and 2018.

 

 

Restricted Stock

 

Service vesting-based restricted stock

 

The following is a summary of service vesting-based restricted stock activity for the six month period ended June 30, 2019, and the status of unvested service vesting-based restricted stock outstanding at June 30, 2019:

 

 

The aggregate fair value of the service vesting-based awards granted during the three months ended June 30, 2019 and 2018 was $548,000 and $154,000, respectively, and during the six months ended June 30, 2019 and 2018 was $3.2 million and $1.1 million, 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 service vesting-based awards that vested during the three months ended June 30, 2019 and 2018 was $369,000 and $174,000, respectively and during the six months ended June 30, 2019 and 2018 was $1.2 million and $481,000, respectively.

 

We recognized stock compensation expense of $268,000 and $98,000 related to service vesting-based awards for the three months ended June 30, 2019 and 2018, respectively and $522,000 and $193,000 related to service vesting-based awards for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, there was $3.6 million in unrecognized compensation costs related to service vesting-based awards. We expect to recognize those costs over 3.4 years.

 

Performance-based restricted stock

 

In 2019, we engaged an independent executive compensation firm, FW Cook, to review current compensation practices and make updated recommendations to the Compensation Committee and the full Board of Directors. With consideration to the recommendations of FW Cook, including an evaluation of the compensation practices of a like-situated peer group of public life science companies, our Compensation Committee recommended and our Board of Directors approved a compensation program which included apportioning a portion of management’s equity compensation to performance-based restricted stock awards. Specifically, our executive officers were granted service-based restricted stock awards (94,247 shares of restricted stock in the aggregate vesting over four years) and performance-based restricted stock awards (94,247 shares of restricted stock in the aggregate). The performance-based restricted stock awards will vest as to between 0% and 200% of the number of restricted shares granted to each recipient based on our total shareholder return during the period beginning on January 1, 2019 through December 31, 2020 as compared to the total shareholder return of 20 of our peers (such peers having been determined by our Compensation Committee with assistance of FW Cook immediately prior to the grant date). The 94,247 performance-based restricted stock awards will be awarded if we are in the 50th percentile of total shareholder return versus the peer group. The maximum number of performance-based restricted stock awards that may be granted (188,494 shares in the aggregate) will be awarded if we are in the 80th percentile of total shareholder return versus the peer group and no units will be awarded for less than 30th percentile of total shareholder return versus the peer group. We granted an additional 29,604 performance based awards on April 1, 2019 to two newly hired employees from the Astero acquisition.

 

 

For the period ended June 30, 2019, the aggregate fair value of the performance-based restricted stock awards expected to vest was $2.2 million. We recognized stock compensation expense of $283,000 and $490,000 for the three and six months ended June 30, 2019, respectively. As of June 30, 2019, there was $1.7 million in unrecognized non-cash compensation costs related to performance-based restricted stock awards expected to vest. We expect to recognize those costs over 1.5 years.

 

Total Stock Compensation Expense

 

We recorded total stock compensation expense for the three and six month periods ended June 30, 2019 and 2018, as follows:

 

 

 

 

7.

Warrants

 

At June 30, 2019 and December 31, 2018, we had 4,048,505 and 4,080,005 warrants outstanding, respectively and exercisable with a weighted average exercise price of $4.34 and $4.35, respectively. During the three and six month period ended June 30, 2019, 24,000 and 29,000 warrants were exercised with a weighted average exercise price of $4.75, yielding proceeds of $114,000 and $138,000, respectively. The outstanding warrants have expiration dates between March 2021 and May 2021. 

 

8.	Income Taxes

 

We have recorded a full valuation allowance against our deferred tax assets. As we continue to have multiple quarters of positive net income, we will 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 as of June 30, 2019. 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.

 

9.	Net Income (Loss) per Common 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 six month periods ended June 30, 2019 and 2018, we excluded a nominal amount of 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:

 

 

10.	Commitments & Contingencies

 

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, Vice President of Sales – Thaw Technologies, Vice President of Product Development – Thaw Technologies 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.

 

 

 

11.

Revenue

 

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

 

The following table disaggregates revenue by market segment and distributors:

 

 

 The following table disaggregates revenue by product category:

 

 

12.

Leases

 

Our operating leases are primarily related to our Bothell, Washington headquarters space lease. 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. We have not included these extension options in our ROU assets or lease liabilities as we are reasonably certain we will not enter into the renewal option in their current terms. Our financing lease is related to research equipment. We used a weighted average discount rate of 6.5%, our market collateralized borrowing rate, and 8.1%, the weighted average implied interest on our leases, to determine our operating and financing lease liabilities, respectively. The weighted average remaining term of our operating and financing leases are 2.0 years and 1.7 years, respectively. The operating lease costs and cash paid in the three months ended June 30, 2019 was $142,000 and $186,000, respectively. The operating lease costs and cash paid in the six months ended June 30, 2019 was $285,000 and $371,000, respectively.

 

Maturities of lease liabilities as of June 30, 2019

 

 

13.	Subsequent Event

 

On July 8, 2019, we announced that we exercised our option to acquire the remaining 56% of the outstanding shares of privately held SAVSU Technologies that we do not currently own in exchange for 1.1 million shares of BioLife common stock. The acquisition closed on August 7, 2019.

 

Due to the limited time since the acquisition date and the effort required to assess the fair value of assets acquired and liabilities assumed, the initial accounting for the business combination is incomplete at the time of this filing. As a result, the Company is unable to provide the amounts recognized for the major classes of assets acquired and liabilities assumed, acquisition contingencies and goodwill. Also, the Company is unable to provide pro forma revenues and earnings of the combined entity. This information is expected to be included in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019. 

 

 

 

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