BIOLIFE SOLUTIONS INC - Quarter Report: 2020 March (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 March 31, 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

 

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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 May 26, 2020, 25,993,028 shares of the registrant’s common stock were outstanding.

 

 

 

		March 31,				December 31,
(In thousands, except per share and share data)		2020				2019
Assets
Current assets
Cash and cash equivalents		$	6,400			$	6,448
Accounts receivable, trade, net			8,205				5,345
Inventories			10,829				10,972
Prepaid expenses and other current assets			1,016				1,348
Total current assets			26,450				24,113
Assets held for rent, net			4,875				3,922
Property and equipment, net			5,407				5,572
Operating lease right-of-use assets, net			892				1,040
Long-term deposits and other assets			36				50
Investments			2,500				2,500
Accrued interest receivable			27			––
Intangible assets, net			21,294				21,982
Goodwill			33,506				33,637
Total assets		$	94,987			$	92,816
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable		$	3,522			$	3,119
Accrued expenses and other current liabilities			3,080				3,369
Lease liabilities, operating, current portion			826				804
Contingent consideration, current portion			365				377
Warrant liability			17,667			––
Total current liabilities			25,460				7,669
Warrant liability		––					39,602
Contingent consideration, long-term			1,486				1,537
Lease liabilities, operating, long-term			332				550
Other long-term liabilities		––					4
Total liabilities			27,278				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 March 31, 2020 and December 31, 2019, respectively			—				—
Common stock, $0.001 par value; 150,000,000 shares authorized, 21,148,771 and 20,825,452 shares issued and outstanding at March 31, 2020 and December 31 2019, respectively			21				21
Additional paid-in capital			145,432				143,485
Accumulated deficit			(77,744	)			(100,052	)
Total shareholders’ equity			67,709				43,454
Total liabilities and shareholders’ equity		$	94,987			$	92,816

 

		Three Months Ended March 31,
(In thousands, except per share and share data)		2020				2019
Product revenue		$	11,727			$	5,770
Rental revenue			435				—
Total product and rental revenue			12,162				5,770
Operating expenses
Cost of product and rental revenue (exclusive of intangible assets amortization)			4,568				1,647
Research and development			1,663				359
Sales and marketing			1,576				837
General and administrative			3,135				2,153
Intangible assets amortization			688				—
Acquisition costs			225				208
Change in fair value of contingent consideration			(63	)			—
Total operating expenses			11,792				5,204
Operating income (loss)			370				566
Other income (expense)
Change in fair value of warrant liability			21,914				(19,663	)
Interest income			29				171
Interest expense			(1	)			(3	)
Other expense			(4	)			—
Loss from equity method investment in SAVSU			—				(232	)
Total other income (expenses)			21,938				(19,727	)
Net income (loss) before provision for income taxes			22,308				(19,161	)
Income tax (benefit)			—				—
Net income (loss)			22,308				(19,161	)
Net income attributable to common stockholders:
Basic		$	18,364			$	(19,161	)
Diluted		$	(174	)		$	(19,161	)
Earnings per share attributable to common stockholders
Basic		$	0.87			$	(1.03	)
Diluted		$	(0.01	)		$	(1.03	)
Weighted average shares used to compute earnings per share attributable to common stockholders:
Basic			21,010,817				18,648,397
Diluted			21,010,817				18,648,397

 

(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/(Deficit)
Balance, December 31, 2018			—				—				18,547,406			$	19			$	113,008			$	(98,395	)		$	14,632
Stock-based compensation			—				—				—				—				531				—				531
Stock option exercises			—				—				99,697				—				161				—				161
Warrant exercises											5,000				—				97				—				97
Stock issued – on vested RSUs			—				—				64,992				—				—				—				—
Net loss			—				—				—				—				—				(19,161	)			(19,161	)
Balance, March 31, 2019			—			$	—				18,717,095			$	19			$	113,797			$	(117,556	)		$	(3,740	)
Balance, December 31, 2019			—				—				20,825,452			$	21			$	143,485			$	(100,052	)		$	43,454
Stock issued as 2019 bonus payout			—				—				—				—				314				—				314
Stock-based compensation			—				—				—				—				1,113				—				1,113
Stock option exercises			—				—				268,293				—				490				—				490
Warrant exercises			—				—				2,000				—				30				—				30
Stock issued – on vested RSUs			—				—				53,026				—				—				—				—
Net income			—				—				—				—				—				22,308				22,308
Balance, March 31, 2020			—			$	—				21,148,771			$	21			$	145,432			$	(77,744	)		$	67,709

 

		Three Months Ended March 31,
(In thousands)		2020				2019
Cash flows from operating activities
Net income (loss)		$	22,308			$	(19,161	)
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation			413				98
Amortization of intangible assets			688				—
Stock-based compensation			1,113				531
Non cash lease expense			148				124
Gain from equity method investment in SAVSU			—				232
Change in fair value of contingent consideration			(63	)			—
Change in fair value of warrant liability			(21,914	)			19,663
Change in operating assets and liabilities
Accounts receivable, trade			(2,929	)			118
Inventories			143				(551	)
Prepaid expenses and other current assets			317				6
Accounts payable			561				—
Accrued expenses and other current liabilities			304				(469	)
Other			(402	)			555
Net cash provided by operating activities			687				1,146
Cash flows from investing activities
Purchase of property and equipment			(146	)			—
Purchase of assets held for rent, net			(1,081	)			(156	)
Net cash used in investing activities			(1,227	)			(156	)
Cash flows from financing activities
Proceeds from exercise of common stock options			490				161
Proceeds from exercise of warrants			9				23
Other			(7	)			(7	)
Net cash provided by financing activities			492				177
Net increase (decrease) in cash and cash equivalents			(48	)			1,167
Cash and cash equivalents - beginning of period			6,448				30,657
Cash and cash equivalents - end of period		$	6,400			$	31,824
Non-cash investing and financing activities
Reclassification of warrant liability to equity upon exercise		$	21			$	73
Purchase of property & equipment not yet paid		$	6			$	46
Stock issued as 2019 bonus payout		$	314				—

 

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, automated thawing devices, cloud-connected shipping containers, and freezer technology for cell and gene therapies. Our CryoStor® freeze media and HypoThermosol® hypothermic storage are optimized to preserve cells in the regenerative medicine market. These novel biopreservation media products are serum-free and protein-free, fully defined, and are formulated to reduce preservation-induced cell damage and death; offering commercial companies and clinical researchers significant improvement in shelf life and post-preservation viability and function. Our ThawSTAR® product line is comprised of a family of automated thawing devices for frozen cell and gene therapies packaged in cryovials and cryobags. These products improve the quality of administration of high-value, temperature-sensitive biologic therapies to patients by standardizing the thawing process and reducing the risks of contamination and overheating, which are inherent with the use of traditional water baths. Our evo shipping containers are innovative high-performance cloud-connected passive storage and transport containers for temperature-sensitive biologics and pharmaceuticals. Our cryogenic freezer technology provides for controlled rate freezing and storage of biologic materials.

 

Basis of Presentation

 

The condensed consolidated financial statements included herein have been prepared by BioLife Solutions, Inc. in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), for Quarterly Reports on Form 10-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” acquired on August 8, 2019), and Arctic Solutions, Inc. dba Custom Biogenic Systems (“CBS” 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 months ended March 31, 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 three months ended March 31, 2020, as compared to the significant accounting policies described in our Annual Report on Form 10-K.

 

Liquidity and Capital Resources

 

On March 31, 2020 and December 31, 2019, we had $6.4 million in cash and cash equivalents. We acquired Astero on April 1, 2019 for $12.5 million in cash and contingent consideration of up to $8.5 million (which payment requirement has not been triggered or otherwise paid to date). We anticipate paying $484,000 for the earnout related to 2019 revenues of Astero in the second quarter of 2020. On August 8, 2019, we acquired SAVSU for 1,100,000 shares of common stock. On November 12, 2019, we acquired CBS for $11.0 million in cash, $4.0 million in shares of our common stock, and up to $15.0 million in contingent consideration payable in cash or stock (which payment requirement has not been triggered or otherwise paid to date).

 

 

On May 22, 2020, the Company closed on a share purchase agreement with Casdin Capital LLC, a current stockholder of the Company (“Casdin”), pursuant to which Casdin invested $20 million in the Company. Based on our current expectations with respect to our future revenue and expenses, we believe that our current level of cash and cash equivalents including proceeds from the Casdin investment, will be sufficient to meet our liquidity needs for at least the next 12 months. However, if our revenues do not grow as expected, including as a result of the COVID-19 pandemic, and if we are not able to manage expenses sufficiently, we may be required to obtain additional equity or debt financing if our cash resources are depleted. Further, the Company may choose to raise additional capital through a debt or equity financing in an attempt to mitigate the heightened level of business uncertainty caused by the COVID-19 pandemic, or in order to pursue additional acquisition or strategic investment opportunities. Additional capital, if required, may not be available on reasonable terms, if at all. 

 

Risks and Uncertainties

 

On March 10, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The virus and actions taken to mitigate its spread have had and are expected to continue to have a broad adverse impact on the economies and financial markets of many countries, including the geographical areas in which the Company operates and conducts its business. In particular, the Seattle area, including the location of our corporate headquarters and our media production facility and warehouse, is at one of the epicenters of the coronavirus outbreak in the U.S. We are currently following the recommendations of local health authorities to minimize exposure risk for our team members and visitors.  However, the scale and scope of this pandemic is unknown and the duration of the business disruption and related financial impact cannot be reasonably estimated at this time. While we have implemented specific business continuity plans to reduce the potential impact of COVID-19 and believe that we have sufficient biopreservation media inventory to meet previously forecasted demand for the next six to nine months, there is no guarantee that our continuity plan, once in place, will be successful or that our inventory will meet forecasted or actual demand.

 

We have already experienced certain disruptions to our business such as temporary closure of our offices and similar disruptions may occur for our customers or suppliers that may materially affect our ability to obtain supplies or other components for our products, produce our products or deliver inventory in a timely manner. This would result in lost product revenue, additional costs, or penalties, or damage our reputation. Similarly, COVID-19 could impact our customers and/or suppliers as a result of a health epidemic or other outbreak occurring in other locations which could reduce their demand for our products or their ability to deliver needed supplies for the production of our products. The extent to which COVID-19 or any other health epidemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. Accordingly, COVID-19 could have a material adverse effect on our business, results of operations, financial condition and prospects.

 

There are many uncertainties regarding the current pandemic of the novel coronavirus (“COVID-19”), and the Company is closely monitoring the impact of COVID-19 on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, business partners and distribution channels. While COVID-19 did not materially affect the Company’s financial results and business operations in the Company’s first quarter ended March 31, 2020, the Company is unable to predict the impact that COVID-19 may have on its financial position and operations moving forward due to numerous uncertainties. We estimate that we received approximately $1.5-$2.0 million in incremental media revenue resulting from what we believe were safety stock purchases of media. These estimates may change as new events occur and additional information is obtained, and actual results could differ materially from these estimates under different assumptions or conditions. The Company will continue to assess the evolving impact of COVID-19 and will make adjustments to its operations as necessary.  

 

Concentrations of credit risk and business risk

 

In the three months ended March 31, 2020, we derived approximately 25% of our product revenue from two customers. In the three months ended March 31, 2019, we derived approximately 34% of our product revenue from two customers. No other customer accounted for more than 10% of revenue in the three months ended March 31, 2020 or 2019. In the three months ended March 31, 2020 and 2019, we derived approximately 66% and 90%, of our revenue from CryoStor products, respectively. Due to our acquisitions in 2019, we expect both our revenue concentration related to CryoStor, and our customer concentration to be reduced for the year ended December 31, 2020. At March 31, 2020, two customers accounted for approximately 33% 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):

 

 

Recent accounting pronouncements 

 

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 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. The Company is considering early adoption in 2020. Due to the full valuation allowance on the Company’s net deferred tax assets, the Company is currently expecting no material impact from the adoption of ASU 2019-12 on its consolidated financial statements.

 

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 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 will adopt the standard prospectively on January 1, 2020. The Company adopted this guidance January 1, 2020 and there was no material impact on its consolidated financial statements.

 

 

2. Fair Value Measurement  

 

In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” (“ASC Topic 820”), the Company measures its cash and cash equivalents and investments at fair value on a recurring basis. The Company also measures certain assets and liabilities at fair value on a non-recurring basis when applying acquisition accounting. ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC Topic 820 establishes a three-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 March 31, 2020 and December 31, 2019, the Company valued the Astero and CBS contingent consideration and warrant liability at fair value.

 

There were no remeasurements to fair value during the three months ended March 31, 2020 of financial assets and liabilities that are not measured at fair value on a recurring basis.

 

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

 

(In thousands)

 

 

 

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

 

 

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

 

 

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

 

 

 

3. Acquisitions

 

Astero Acquisition 

 

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

 

In connection with the acquisition, the Company paid (i) a base payment in the amount of $12.5 million consisting of (x) an initial cash payment of $8.0 million at the closing of the transactions, subject to adjustment for working capital, net debt and transaction expenses, and (y) a deferred cash payment that was paid into escrow of $4.5 million 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 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):

 

 

 

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.

 

 

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

 

 

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. Some of the more significant assumptions inherent in valuing the contingent consideration, include, but are not limited to (i) the amount and timing of projected future revenue, (ii) the volatility rate selected to measure the risks inherent in the revenue, and (iii) risk free interest rate.

 

Acquired Goodwill

 

The goodwill of $9.5 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. All but $1.1 million of the goodwill recorded is not expected to be deductible for income tax purposes.

 

SAVSU Acquisition 

 

On August 8, 2019, we closed the acquisition of SAVSU pursuant to a Share Exchange Agreement. Pursuant to the Share Exchange Agreement, SAVSU Origin, LLC agreed to transfer to us and we agreed to acquire from the seller 8,616 shares of common stock of SAVSU, representing the remaining 56% of the outstanding shares of SAVSU that we did not previously own, in exchange for 1,100,000 shares of BioLife common stock. As a result of the acquisition, SAVSU became a wholly-owned subsidiary on August 8, 2019, the acquisition date.

 

 

Consideration transferred

 

The SAVSU acquisition was accounted for as a purchase of a business under FASB ASC Topic 805, “Business Combinations”. The acquisition of 56% of SAVSU was funded through a transfer of 1,100,000 shares of BioLife common stock, which had a fair value of $18.12 per share or $19.9 million at time of closing. The total value of 100% of SAVSU consisting of the fair value of the stock issued and the fair value of our existing investment in SAVSU was $35.8 million at time of closing. Prior to the acquisition, we accounted for our investment of SAVSU using the equity method of accounting which resulted in a recorded book value of $5.8 million at the acquisition date. We remeasured to fair value the equity interest in SAVSU held immediately before the business combination. The fair value of our equity interest was determined to be $15.9 million on our existing 44% ownership based on the fair value of shares transferred at the time of acquisition for the 56% we did not previously own. As a result, we recorded a non-operating gain of $10.1 million.

 

Under the acquisition method of accounting, the assets acquired and liabilities assumed from SAVSU were recorded as of the acquisition date, at their respective fair values, and consolidated with those of BioLife. The fair value of the net tangible assets acquired is estimated to be approximately $4.2 million, the fair value of the intangible assets acquired is estimated to be approximately $12.2 million, and the residual goodwill is estimated to be approximately $19.5 million. The fair value estimates required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates. BioLife believes these estimates to be reasonable. Actual results may differ from these estimates.

 

Total consideration paid for the acquisition of SAVSU is as follows (amounts in thousands):

 

 

This stock consideration plus the fair value of our existing equity investment in SAVSU of $15.9 million results in the total purchase price for accounting purposes of $35.8 million.

 

Fair Value of Net Assets Acquired

 

The table below represents the purchase price allocation to the net assets acquired based on their estimated fair values (amounts in thousands). Such amounts were estimated using the most recent financial statements from SAVSU as of August 7, 2019.

 

 

 

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

 

 

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

 

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

 

 

Acquired Goodwill

 

The goodwill of $21.0 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. None of the goodwill recorded is expected to be deductible for income tax purposes.

 

Custom Biogenic Systems Acquisition 

 

On November 10, 2019, we entered into an Asset Purchase Agreement, by and among the Company, Arctic Solutions, Inc., a Delaware corporation and wholly-owned subsidiary of the Company, and Custom Biogenic Systems, Inc., a Michigan corporation (“CBS Seller”), pursuant to which we agreed to purchase from the CBS Seller substantially all of CBS Seller’s assets, properties and rights (the “CBS Acquisition”). The CBS Seller, a privately held company with operations located near Detroit, Michigan, designs and manufactures liquid nitrogen laboratory freezers and cryogenic equipment and also offers a related cloud-based monitoring system that continuously assesses biologic sample storage conditions and alerts equipment owners if a fault condition occurs. The Acquisition closed on November 12, 2019.

 

In connection with the CBS Acquisition, we paid to CBS Seller (i) a base payment in the amount of $15.0 million, consisting of a cash payment of $11.0 million paid at the closing of the CBS Acquisition, less a cash holdback escrow of $550,000 to satisfy certain indemnification claims, and an aggregate number of shares of our common stock, with an aggregate fair value equal to $4.0 million, less a holdback escrow of shares of Common Stock with an aggregate value equal to $3.0 million to satisfy potential payments related to any product liability claims outstanding as of March 13, 2019, and (ii) potential earnout payments in calendar years 2020, 2021, 2022, 2023 and 2024 of up to an aggregate of, but not exceeding, $15.0 million payable to CBS Seller upon achieving certain specified revenue targets in each year for certain product lines.

 

The CBS acquisition was accounted for as a purchase of a business under FASB ASC Topic 805, “Business Combinations”. Under the acquisition method of accounting, the acquired assets and liabilities assumed from CBS were recorded as of the acquisition date, at their fair values, and consolidated with BioLife. The fair value of the net tangible assets acquired is $6.0 million, the fair value of the identifiable intangibles is $6.8 million, and the residual goodwill is $3.1 million. The fair value estimates required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates. BioLife believes these estimates to be reasonable. Actual results may differ from these estimates.

  

Total consideration transferred (in thousands):

 

 

Fair Value of Net Assets Acquired

 

The table below represents the purchase price allocation to the net assets acquired based on their fair values (amounts in thousands). Such amounts were estimated using the most recent financial statements from CBS as of November 11, 2019.

 

 

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

 

 

 

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

 

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

 

Acquired Goodwill

 

The goodwill of $3.0 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. All of the goodwill recorded is expected to be deductible for income tax purposes.

 

 

4. Inventory  

 

Inventory consists of the following at March 31, 2020 and December 31, 2019:

 

 

 

5. Assets held for rent

 

Assets held for rent consist of the following at March 31, 2020 and December 31, 2019:

 

 

Shippers and related components in production include shippers complete and ready to be deployed and placed in service upon a customer order, shippers in the process of being assembled, and components available to build shippers. We recognized $128,000 in depreciation expense related to assets held for rent during the three months ended March 31, 2020. We did not have any depreciation expense related to assets held for rent during the three months ended March 31, 2019

 

 

6. Goodwill and Intangible Assets 

 

Goodwill

 

Goodwill represents the difference between the purchase price and the estimated fair value of identifiable assets acquired and liabilities assumed. Goodwill acquired in a business combination and determined to have an indefinite useful life is not amortized, but instead is tested for impairment at least annually in accordance with ASC 350. The following table represents the change in the carrying value of goodwill for the three months ended March 31, 2020:

 

 

We adjusted goodwill from the CBS acquisition related to an immaterial error of $131,000 in payables that were paid during closing and incorrectly recorded as liabilities in our purchase price accounting as of December 31, 2019. We reduced our goodwill and accounts payable by $131,000.

 

Intangible Assets

 

Intangible assets, net consisted of the following at March 31, 2020:

 

 

(1)   In-process R&D represents the fair value of incomplete research and development that has not yet reached technological feasibility. We will amortize the asset upon technological feasibility, which has reached technological feasibility and been placed in service in the second quarter of 2020.

 

Intangible assets, net consisted of the following at December 31, 2019:

 

  

(1)   In-process R&D represents the fair value of incomplete research and development that has not yet reached technological feasibility. We will amortize the asset upon technological feasibility, which has reached technological feasibility and been placed in service in the second quarter of 2020.

 

Amortization expense for finite-lived intangible assets was $688,000 for the three months ended March 31, 2020. We had no amortization expense for finite-lived intangible assets for the three months ended March 31, 2019. In-process research and development was put into service in the second quarter of 2020, as such we have included the amortization in the schedule below based on an estimated life of 9 years. As of March 31, 2020, the Company expects to record the following amortization expense:

 

 

 

7. Share-based Compensation          

 

Service Vesting-Based Stock Options

 

The following is a summary of service vesting based stock option activity for the three month period ended March 31, 2020, and the status of stock options outstanding at March 31, 2020:

 

 

We recognized stock compensation expense of $61,000 and $144,000 related to service vesting-based options during the three month periods ending March 31, 2020 and 2019, respectively. As of March 31, 2020, there was $9.9 million of aggregate intrinsic value of outstanding service vesting-based stock options, including $9.5 million of aggregate intrinsic value of exercisable service vesting-based stock options. Intrinsic value is the total pretax intrinsic value for all “in-the-money” options (i.e., the difference between the Company’s closing stock price on the last trading day of the quarter and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on March 31, 2020. This amount will change based on the fair market value of the Company’s stock. During the quarters ended March 31, 2020 and 2019 intrinsic value of service vesting-based awards exercised was $3.0 million and $1.4 million, respectively. Total unrecognized compensation cost of service vesting-based stock options at March 31, 2020 of $86,000 is expected to be recognized over a weighted average period of 1.2 years.

 

Performance-based Stock Options

 

The following is a summary of performance-based stock option activity under our stock option plans for the three months ended March 31, 2020, and the status of performance-based stock options outstanding at March 31, 2020:

 

 

As of March 31, 2020, there was $5.7 million of aggregate intrinsic value of outstanding and exercisable performance-based stock options. Intrinsic value is the total pretax intrinsic value for all “in-the-money” options (i.e., the difference between the Company’s closing stock price on the last trading day of the quarter and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on March 31, 2020. This amount will change based on the fair market value of the Company’s stock. The weighted average remaining contractual life of performance-based options outstanding and exercisable at March 31, 2020, is 1.7 years. All compensation cost of performance-based stock options outstanding at March 31, 2020 has been recognized.

 

There were no stock options granted to employees and non-employee directors in the three month periods ended March 31, 2020 and 2019.

 

 

Restricted Stock

 

Service vesting-based restricted stock

 

Service vesting-based restricted stock generally vests over a four-year period, with 25% vesting on the first anniversary of the date of grant and the remainder vesting in equal quarterly installments thereafter. The following is a summary of service vesting-based restricted stock activity for the three month period ended March 31, 2020, and the status of unvested service vesting-based restricted stock outstanding at March 31, 2020:

 

 

The aggregate fair value of the service vesting-based awards granted during the three months ended March 31, 2020 and 2019 was $1.7 million and $2.6 million, respectively, which represents the market value of BioLife common stock on the date that the restricted stock awards were granted. The aggregate fair value of the service vesting-based restricted stock awards that vested was $813,000 and $853,000 for the three months ended March 31, 2020 and March 31, 2019, respectively.

 

We recognized stock compensation expense of $394,000 and $255,000 related to service vesting-based restricted stock awards for the three months ended March 31, 2020 and March 31, 2019, respectively. As of March 31, 2020, there was $5.7 million in unrecognized compensation costs related to service vesting-based restricted stock awards. We expect to recognize those costs over 3.3 years.

 

Performance-based restricted stock

 

On March 25, 2020 the Company granted 82,805 shares of performance-based stock to its executives in the form of restricted stock. The shares granted contain a performance condition based on several Company metrics related to 2020 performance. The performance-based restricted stock awards will vest as to between 0% and 125% of the number of restricted shares granted to each recipient. The grant date fair value of this award was $9.18 per share. The fair value of this award will be expensed on a straight-line basis over the requisite service period ending on December 31, 2020.

 

We recognized stock compensation expense of $189,000 for the three months ended March 31, 2020 related to performance-based restricted stock awards. As of March 31, 2020, there was $571,000 in unrecognized non-cash compensation costs related to performance-based restricted stock awards expected to vest. We expect to recognize those costs over 0.8 years.

 

Performance-based restricted stock in lieu of cash

 

On March 25, 2020 the board of directors granted 34,154 restricted stock awards, at a fair value grant date of $9.18 per share, in lieu of the 2019 cash performance bonus for our executive compensation plan. The award vests in full on September 25, 2020 regardless of employment status on that date. All expenses related to these awards were incurred in the year ended December 31, 2019.

 

Market-based restricted stock

 

On February 25, 2019 the Company granted 94,247 shares and on April 1, 2019 granted 29,604 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on Total Shareholder Return (“TSR”). The TSR market condition measures the Company’s performance against a peer group. The market-based restricted stock awards will vest as to between 0% and 200% of the number of restricted shares granted to each recipient based on our total shareholder return during the period beginning on January 1, 2019 through December 31, 2020 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 69%, 0% dividend yield and a risk-free interest rate of 2.5%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. The fair value of this award will be expensed on a straight-line basis over the grant date to the vesting date of December 31, 2020.

 

On March 25, 2020 the Company granted 109,140 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on TSR. The TSR market condition measures the Company’s performance against a peer group. The market-based restricted stock awards will vest as to between 0% and 200% of the number of restricted shares granted to each recipient based on our total shareholder return during the period beginning on January 1, 2020 through December 31, 2021 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 78%, 0% dividend yield and a risk-free interest rate of 0.3%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. The fair value of this award will be expensed on a straight-line basis over the grant date to the vesting date of December 31, 2021.

 

 

We recognized stock compensation expense of $469,000 and $132,000 for the three months ended March 31, 2020 and 2019, respectively, related to market-based restricted stock awards. As of March 31, 2020, there was $2.6 million in unrecognized non-cash compensation costs related to market-based restricted stock awards expected to vest. We expect to recognize those costs over 1.2 years.

 

We recorded total stock compensation expense for the three month periods ended March 31, 2020 and 2019, as follows:

 

 

 

8. Warrants  

 

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

 

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

 

The following table summarizes warrant activity for the three months ended March 31, 2020:

 

 

On May 14, 2020, the Company entered into separate warrant exercise agreements with WAVI Holding AG and Taurus4757 GmbH pursuant to which the warrant holders immediately exercised their respective warrants via a “cashless” exercise as agreed to by the Company. As a result of the cashless exercise, the Company issued an aggregate of 2,747,970 shares of Company common stock upon cashless exercise of an aggregate of 3,871,405 warrants. There are 85,600 warrants remaining at an exercise price of $4.75.

 

 

9. Income Taxes

 

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

 

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 March 31, 2020. 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.

 

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") into law. The Company has reviewed the aspects of this law as it relates to income taxes and have concluded that at this time, the CARES Act will have no material impact to the Company’s 2020 provision for income taxes. The Company will continue to evaluate the impact of the CARES Act on its financial position, results of operations and cash flows.

 

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

 

 

10. Net Income (Loss) per Common Share                  

 

The Company considers its unexercised warrants and unvested restricted shares, which contain non-forfeitable rights to dividends, participating securities, and includes such participating securities in its computation of earnings per share pursuant to the two-class method. Basic earnings per share for the two classes of stock (common stock and warrants) is calculated by dividing net income by the weighted average number of shares of common stock and warrants outstanding during the reporting period. Diluted earnings per share is calculated using the weighted average number of shares of common stock plus the potentially dilutive effect of common equivalent shares outstanding determined under both the two class method and the treasury stock method, whichever is more dilutive.

In periods when we have a net loss, common stock equivalents are excluded from our calculation of earnings per share as their inclusion would have an antidilutive effect. For the three month period ended March 31, 2020, we excluded 1.9 million common stock options, 2.7 million warrants, and a nominal amount of unvested stock awards from our calculation of diluted weighted average shares because they were antidilutive. For the three month period ended March 31, 2019, we excluded 2.7 million common stock options, 3.0 million warrants, and a nominal amount of unvested stock awards from our calculation of diluted weighted average shares because they were antidilutive.

 

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

 

 

 

11. Commitments and Contingencies

 

Employment agreements

 

We have employment agreements with our Chief Executive Officer, Chief Financial and Operating Officer, Chief Science Officer, Chief Quality Officer, Chief Marketing Officer, Chief Revenue Officer, Vice President, Freezer Technologies, Vice President of Sales, Thaw Technologies, Vice President of Product Development, Thaw Technologies, and Vice President, Cold Chain Technologies Sales. None of these employment agreements is for a definitive period, but rather each will continue indefinitely until terminated in accordance with its terms. The agreements provide for a base annual salary, payable in monthly (or shorter) installments. In addition, the agreement with the Chief Executive Officer provides for incentive bonuses at the discretion of the Board of Directors. Under certain conditions and for certain of these officers, we may be required to pay additional amounts upon terminating the officer or upon the officer resigning for good reason.

 

Litigation

 

From time to time, the Company is subject to various legal proceedings that arise in the ordinary course of business, none of which are currently material to the Company’s business. The Company’s industry is characterized by frequent claims and litigation, including claims regarding intellectual property. As a result, the Company may be subject to various legal proceedings from time to time. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. Management is not aware of any pending or threatened litigation.

 

Indemnification

 

As permitted under Delaware law and in accordance with the Company’s bylaws, the Company is required to indemnify its officers and directors for certain errors and occurrences while the officer or director is or was serving in such capacity. The Company is also party to indemnification agreements with its directors. The Company believes the fair value of the indemnification rights and agreements is minimal. Accordingly, the Company has not recorded any liabilities for these indemnification rights and agreements as of March 31, 2020.

 

12. Revenue

 

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

 

We generate revenue from the sale of bioproduction products, equipment devices, and related consumables used with these equipment devices to customers in the life science and biopharmaceutical industries. Under ASC 606, “Revenue from Contracts with Customers,” revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to customers.

 

The Company also generates revenue from the leasing of our evo cold chain systems, which are typically cloud-connected shippers with enabling cold chain cloud applications, to customers pursuant to rental arrangements entered into with the customer. Revenue from the rental of cold chain systems is not within the scope of FASB ASC Topic 606 as it is within the scope of FASB ASC Topic 842, “Leases”. All customers leasing shippers currently do so under month-to-month rental arrangements. We account for these rental transactions as operating leases and record rental revenue on a straight-line basis over the rental term.

 

The following table represents revenues by product line:  

 

 

 

13. Leases

 

We lease approximately 32,106 square feet in our Bothell, Washington headquarters. The term of our lease continues until July 31, 2021 with two options to extend the term of the lease, each of which is for an additional period of five years, with the first extension term commencing, if at all, on August 1, 2021, and the second extension term commencing, if at all, immediately following the expiration of the first extension term. In accordance with the amended lease agreement, our monthly base rent is approximately $63,000 at March 31, 2020, with scheduled annual increases each August and again in October for the most recent amendment. We are also required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses.

 

We lease approximately 1,250 square feet in our Menlo Park, California location. The term of our lease continues until July 1, 2020. In accordance with the lease agreement, the monthly base rent is approximately $5,000 at March 31, 2020. We are also required to pay an amount equal to the Company’s proportionate electrical expenses.

 

We lease approximately 9,932 square feet in our Albuquerque, New Mexico location. The term of our lease continues until December 31, 2021 with two options to extend the terms of the lease, each of which is for an additional period of three years, with the first extension term commencing, if at all, on December 1, 2021, and the second extension term commencing, if at all, December 1, 2024. In accordance with the lease agreement, the monthly base rent is approximately $9,000 at March 31, 2020, with a monthly increase if the term is extended.

 

We lease approximately 106,998 square feet in our Detroit, Michigan location. The term of our lease continues until November 30, 2020 with one option to extend the term of the lease, for an additional sixty months, with the extension term commencing, if at all, on November 12, 2020. These extension options are not accounted for under ASC Topic 842, “Leases” because we are not reasonably certain we will enter into the renewal options in their current terms and the current term is less than 12 months. With adequate notice prior to expiration of the option notice period, we have the right to purchase the premises for a purchase price that is mutually acceptable to landlord and tenant as agreed to by the parties on or before the expiration of the option notice period. In the event that the parties are unable to mutually agree on the option purchase price then each party shall obtain, at its sole cost and expense, an appraisal of the premises and the option purchase price will be the average of the two appraisals. For the avoidance of doubt, our right to elect to purchase the premises for the option purchase price will terminate upon the expiration of the option notice period, but we will not be obligated to close on the purchase of the premises prior to the expiration of the initial term. In accordance with the lease agreement, the monthly base rent is approximately $15,000 at March 31, 2020, with scheduled annual increases if the term is extended.

 

Operating leases recorded on our condensed consolidated balance sheet are primarily related to our Bothell, Washington headquarters space lease and our Albuquerque, New Mexico, SAVSU, space lease. We have not included extension options in our right of use assets or lease liabilities as we are not reasonably certain we will enter into the renewal options in their current terms. Our Detroit, Michigan and Menlo Park, California lease are not recorded on our condensed consolidated balance sheet as the term expires in one year or less.

 

Our financing lease is related to research equipment.

 

We used a weighted average discount rate of 6.5%, our market collateralized borrowing rate, and 8.1%, the weighted average implied interest on our leases, to determine our operating and financing lease liabilities, respectively. The weighted average remaining term of our operating and financing leases are 1.5 years and 0.9 years, respectively. We initially recognized $1.3 million in operating lease right of use assets and initially recognized $1.8 million in operating lease liabilities. Through the SAVSU acquisition we acquired $233,000 in operating lease right of use assets and acquired $232,000 in operating lease liabilities. The operating lease costs recognized in the three months ended March 31, 2020 were $229,000, which consist of $170,000 in operating lease costs and $59,000 in short-term lease costs, we did not have any variable lease costs. The operating lease cash paid in the three months ended March 31, 2020 of $217,000. Rent expense for the three months ended March 31, 2019, was recognized under prior GAAP (ASC 840) and amounted to $142,000.

 

Maturities of our operating lease liabilities as of March 31, 2020 is as follows:

 

 

 

14. Condensed Consolidated Balance Sheet Detail

 

Property and Equipment

 

 

Depreciation expense for property and equipment was $285,000 and $98,000 for the three months ended March 31, 2020 and 2019, respectively.

 

Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities consist of the following:

 

 

 

15. Employee Benefit Plan

 

The Company sponsors a 401(k) defined contribution plan for its employees. This plan provides for pre-tax and post-tax contributions for all employees. Employee contributions are voluntary. Employees may contribute up to 100% of their annual compensation to this plan, as limited by an annual maximum amount as determined by the Internal Revenue Service. The Company matches employee contributions in amounts to be determined at the Company’s sole discretion. The Company made $84,000 and $50,000 contributions to the plan for the three months ended March 31, 2020 and 2019, respectively. 

 

 

16. Subsequent Event

 

Paycheck Protection Program 

 

We determined that we met the original eligibility requirements per the guidelines original established by the U.S. federal government as part of the CARES Act for the Pursuant to the Paycheck Protection Program (the “PPP”). As such, on April 20, 2020, the Company received $2,175,320 in support from the PPP. Because the U.S. government subsequently changed its position and guidelines related to the PPP and publicly traded companies, the Company repaid the load on April 29, 2020.

 

Casdin Financing

 

On May 22, 2020, the Company closed on a share purchase agreement with Casdin Capital LLC, a current stockholder of the Company, pursuant to which Casdin invested $20 million in the Company at a price per share of $10.50. Pursuant to the terms of the share purchase agreement, the Company issued to Casdin 1,904,762 shares of Company common stock. The Company also granted Casdin certain registration rights requiring the Company to file a registration statement with the Securities and Exchange Commission covering the resale by Casdin of the shares issued in the transaction.

 

Cashless warrant exercises

 

On May 14, 2020, the Company entered into separate warrant exercise agreements with WAVI Holding AG and Taurus4757 GmbH pursuant to which the warrant holders immediately exercised their respective warrants via a “cashless” exercise as agreed to by the Company. As a result of the cashless exercise, the Company issued an aggregate of 2,747,970 shares of Company common stock upon cashless exercise of an aggregate of 3,871,405 warrants.