BIOLIFE SOLUTIONS INC - Quarter Report: 2021 March (Form 10-Q)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BioLife Solutions, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

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

BioLife Solutions, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

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

BioLife Solutions, Inc.

Condensed Consolidated Statements of Shareholders’ Equity

(unaudited)

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

BioLife Solutions, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

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

BioLife Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Significant Accounting Policies

Business

BioLife Solutions, Inc. (“BioLife,” “us,” “we,” “our,” or the “Company”) is a developer, manufacturer and supplier of a portfolio of bioproduction tools and services including; proprietary biopreservation media, automated thawing devices, cloud-connected shipping containers, freezer technology, and biological and pharmaceutical materials storage for cell and gene therapies. Our CryoStor® freeze media and HypoThermosol® hypothermic storage media are optimized to preserve cells in the regenerative medicine market. These novel biopreservation media products are serum-free and protein-free, fully defined, and are formulated to reduce preservation-induced cell damage and death. Our ThawSTAR® product line is comprised of a family of automated thawing devices for frozen cell and gene therapies packaged in cryovials and cryobags. These products administer temperature-sensitive biologic therapies to patients by standardizing the thawing process and reducing the risks of contamination and overheating, which are inherent with the use of traditional water baths. Our evo shipping containers provide 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. Our biological and pharmaceutical materials storage services provide facilities that allow for real-time tracking of materials that can be stored at a wide range of temperatures.

Use of estimates

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

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

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

Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by BioLife Solutions, Inc. in accordance with 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, 2020.

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), Arctic Solutions, Inc. dba Custom Biogenic Systems (“CBS” acquired on November 12, 2019), and SciSafe Holdings, Inc. (“SciSafe” acquired on October 1, 2020). 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.

Segment reporting

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

Significant Accounting Policies

There have been no significant changes to the accounting policies during the three months ended March 31, 2021, as compared to the significant accounting policies described in our Annual Report on Form 10-K.

Liquidity and Capital Resources

On March 31, 2021 and December 31, 2020, we had $89.0 million and $90.4 million in cash and cash equivalents, respectively. Based on our current expectations with respect to our future revenue and expenses, we believe that our current level of cash and cash equivalents will be sufficient to meet our liquidity needs for at least the foreseeable future. However, the Company may choose to raise additional capital through a debt or equity financing in order to pursue additional acquisition or strategic investment opportunities. Additional capital, if required, may not be available on reasonable terms, if at all.

Risks and Uncertainties

On March 10, 2020, the World Health Organization declared the outbreak of the novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 (“COVID-19”) a pandemic. The COVID-19 pandemic, and the resulting restrictions intended to slow the spread of COVID-19, including stay-at-home orders, business shutdowns and other restrictions, has affected the Company’s business in several ways. The cell and gene therapy (“CGT”) industry that BioLife services has a complex and highly controlled supply chain that has been impacted by COVID-19. Challenges faced include, but are not limited to, the diversion of healthcare industry resources towards studying and treating COVID-19, logistics operations slowing down on a global scale, and changing environments related to in-person sales efforts.

The Company may also experience other negative impacts of the COVID-19 outbreak such as the lack of availability of the Company’s key personnel, additional temporary closures of the Company’s office or the facilities of the Company’s business partners, customers, third party service providers or other vendors, the inability to travel to market and sell our products, and the interruption of the Company’s supply chain, distribution channels, liquidity and capital or financial markets.

Any disruption and volatility in the global capital markets as a result of the pandemic may increase the Company’s cost of capital and adversely affect the Company’s ability to access financing when and on terms that the Company desires. In addition, a potential recession resulting from the spread of COVID-19 could materially affect the Company’s business, especially if a recession results in higher unemployment causing potential patients to not have access to health insurance.

The ultimate extent to which the COVID-19 pandemic and its repercussions impact the Company’s business will depend on future developments, which are highly uncertain. However, the foregoing and other continued disruptions to the Company’s business as a result of COVID-19 could result in a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.

On March 27, 2020, the President of the United States signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security tax payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.

On March 11, 2021, the President of the United States signed into law the “American Rescue Plan Act of 2021” (the American Rescue Plan), which included additional economic stimulus and tax credits, including the expansion of the Employee Retention Credit. BioLife continues to examine the impact that the American Rescue Plan will have on its financial condition, results of operations, and liquidity.  

As of March 30, 2020, the company started deferring the employer side of social security tax payments. At March 31, 2021, the amount of deferred social security tax payments was $432,000. We will pay back 50% of our total deferred payments in 2021 and the remaining 50% in 2022.

In the SciSafe acquisition, the Company acquired a $295,300 loan from the PPP. The loan incurs interest at 1% and is unsecured. Should any portion of the principal of the note not meet the forgiveness provisions, monthly principal and interest payments will be repayable using a monthly amortization schedule starting from the end of the covered period until maturity in October 2022. The Company intends to apply for loan forgiveness in accordance with the loan forgiveness provisions in the legislation; however, there can be no assurance that the Company will obtain full forgiveness of the loans based on the legislation.

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. No other customer accounted for more than 10% of revenue in the three months ended March 31, 2021 and 2020. All revenue from foreign customers are denominated in United States dollars.

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

In the three months ended March 31, 2021 and 2020, we derived approximately 48% and 66%, of our revenue from CryoStor products, respectively. Due to our acquisitions in 2019, 2020, and 2021, we expect our revenue concentration related to CryoStor to be reduced for the year ended December 31, 2021.

At March 31, 2021 and December 31, 2020, one customer accounted for approximately 10% and 17% of total gross accounts receivable, respectively. No other customers accounted for more than 10% of gross accounts receivable March 31, 2021 and December 31, 2020.

At December 31, 2020, one supplier accounted for 21% of accounts payable. No other suppliers accounted for more than 10% of accounts payable at March 31, 2021 and December 31, 2020.

Recent accounting pronouncements 

In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. ASU 2020-06 also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. The Company is currently evaluating the timing and impact of the adoption of ASU 2020-06 on the Company’s 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 became effective for the Company in the year ending December 31, 2020. Due to the full valuation allowance on the Company’s net deferred tax assets, the Company did not experience a 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. 

2. Fair Value Measurement  

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

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

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

Level 3 – Unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

The fair value of the Astero contingent consideration liability was initially valued based on unobservable inputs using a Black-Scholes valuation model. These inputs included the estimated amount and timing of projected future revenue, a discount rate of 17.5%, risk-free rates between 2.29% and 2.41% and revenue volatility of 56%. Significant increases (decreases) in any of those inputs in isolation would result in a significantly higher (lower) fair value measurement. Generally, changes used in the assumptions for projected future revenue and revenue volatility would be accompanied by a directionally similar change in the fair value measurement. Conversely, changes in the discount rate would be accompanied by a directionally opposite change in the related fair value measurement. However, due to the contingent consideration having a maximum payout amount, changes in these assumptions would not affect the fair value of the contingent consideration if they increase (decrease) beyond certain amounts. Subsequent to the acquisition date, at each reporting period, the contingent consideration liability is re-measured to fair value with changes recorded in the change in fair value of contingent consideration in the consolidated statements of operations. During the most recent re-measurement of the contingent consideration liability as of December 31, 2020, the Company used a discount rate of 11.0%, a risk-free rate of 0.11% and revenue volatility of 76.6%. This contingent consideration liability is presented in the Consolidated Balance Sheet at March 31, 2021 and December 31, 2020 in the amount of $81,000. Certain assumptions used in estimating the fair value of the contingent consideration are uncertain by nature. Actual results may differ materially from estimates.

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

The fair value of the SciSafe contingent consideration liability was initially valued based on unobservable inputs using a Monte Carlo simulation. These inputs included the estimated amount and timing of projected future revenue, a discount rate of 4.5%, a risk-free rate of approximately 0.20%, asset volatility of 60%, and revenue volatility of 15%. Significant increases (decreases) in any of those inputs in isolation would result in a significantly higher (lower) fair value measurement. Generally, changes used in the assumptions for projected future revenue and revenue volatility would be accompanied by a directionally similar change in the fair value measurement. Conversely, changes in the discount rate would be accompanied by a directionally opposite change in the related fair value measurement. However, due to the contingent consideration having a maximum payout amount, changes in these assumptions would not affect the fair value of the contingent consideration if they increase (decrease) beyond certain amounts. At the acquisition date, the contingent consideration was determined to have a fair value of $3.7 million. Subsequent to the acquisition date, the contingent consideration liability was re-measured to fair value with changes recorded in the change in fair value of contingent consideration in the consolidated statements of operations. During the most recent re-measurement of the contingent consideration liability as of March 31, 2021, the Company used a discount rate of 5%, a risk-free rate of approximately 0.42%, asset volatility of 62%, and revenue volatility of 16%. The SciSafe contingent consideration, if earned, is to be paid in shares of BioLife’s common stock. As such, changes in BioLife’s stock price directly impact the fair value of the SciSafe contingent consideration at each measurement date. This contingent consideration liability is presented in the Consolidated Balance Sheet at March 31, 2021 and December 31, 2020 in the amount of $6.4 million and $6.9 million, respectively. The change in fair value of contingent consideration of $491,000 associated with this liability is presented within the consolidated statements of operations for the three months ended March 31, 2021. Certain assumptions used in estimating the fair value of the contingent consideration are uncertain by nature. Actual results may differ materially from estimates.

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

There were no remeasurements to fair value during the three months ended March 31, 2021 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, 2021 and  December 31, 2020, 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 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

SciSafe Acquisition

On September 18, 2020, BioLife entered into a Stock Purchase Agreement, by and among the Company, SciSafe Holdings, Inc., a Delaware corporation, and the stockholders of SciSafe (collectively, the “SciSafe Sellers”) in accordance with the Stock Purchase Agreement, pursuant to which the Company agreed to purchase from the SciSafe Sellers one hundred percent (100%) of the issued and outstanding capital shares or other equity interests of SciSafe (the “SciSafe Acquisition”). The SciSafe Acquisition closed October 1, 2020.

Consideration transferred

The SciSafe Acquisition was accounted for as a purchase of a business under FASB ASC Topic 805, “Business Combinations”. At the closing of the SciSafe Acquisition, the Company agreed to issue to the SciSafe Sellers 611,683 shares of common stock valued at $29.29 per share and a cash payment of $15 million, with $1.5 million held in escrow to account for adjustments for net working capital and as a security for, and a source of payment of, the Company’s indemnity rights. Pending the occurrence of certain events, the Company will issue to the SciSafe Sellers an additional 626,000 shares of common stock, which shall be issuable to SciSafe Sellers upon SciSafe achieving certain specified revenue targets in each year from 2021 to 2024. Under the acquisition method of accounting, the assets acquired and liabilities assumed from SciSafe 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 $3.7 million was determined using a Monte Carlo simulation. The fair value of the net tangible assets acquired is approximately $2.8 million, the fair value of the deferred tax liability acquired is approximately $3.3 million, the fair value of the intangible assets acquired is approximately $12.1 million, and the residual goodwill is approximately $24.9 million. The fair value calculations required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.

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 estimated fair values (amounts in thousands).

On September 30, 2020, the Company advanced SciSafe $500,000 in cash for working capital purposes. This cash and a payable due to the Company were both assumed in the transaction and are both reflected in the fair value of net assets acquired.

The fair value of SciSafe’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 estimated fair values of customer relationships were estimated using a multi-period excess earnings approach. The estimated fair value of the tradenames is based on the relief from royalty method which estimates the value of the trade names based on the hypothetical royalty payments that are saved by owning the asset. The estimated fair values of non-compete agreements were estimated using a “with and without” approach, comparing projected cash flows under scenarios assuming the non-compete agreements were and were not in place. The fair value of property, plant and equipment was determined using the “market approach”. The fair value of the milestone contingent consideration was determined using a scenario analysis valuation method which incorporates BioLife’s assumptions with respect to the likelihood of achievement of certain revenue milestones, revenue volatility, credit risk, timing of earnout share issuances and a risk-adjusted discount rate to estimate the present value of the expected earnout share issuances.

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.

Indemnification Asset

In 2020, the Company recognized a $130,000 liability for a non-income tax contingency related to the acquisition of SciSafe. At the date of acquisition, we recognized an indemnification asset at the same time and on the same basis as the recognized liability, to the extent that collection is reasonably assured, in accordance with ASC 805. When indemnified, subsequent changes in the indemnified item are offset by changes in the indemnification asset. We assess the realizability of the indemnification asset each reporting period. Changes in the principal portion of non-income tax contingencies, as well as changes in any related indemnification asset, are included in operating income. The indemnification asset is included within prepaid expenses and other current assets on the balance sheet.

Acquired Goodwill

The goodwill of $24.9 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. The goodwill recorded is not expected to be deductible for income tax purposes.

4. Inventory  

Inventory consists of the following at March 31, 2021 and December 31, 2020:

5. Assets held for rent

Assets held for rent consist of the following at March 31, 2021 and December 31, 2020:

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 $184,000 and $128,000 in depreciation expense related to assets held for rent during the three months ended March 31, 2021 and 2020, respectively.

6. Goodwill and Intangible Assets 

Goodwill

Goodwill represents the difference between the purchase price and the estimated fair value of identifiable assets acquired and liabilities assumed. Goodwill acquired in a business combination 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 Company has not identified any triggering events which indicate an impairment of goodwill in the three months ended March 31, 2021.

Intangible Assets

Intangible assets, net consisted of the following at March 31, 2021:

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

Amortization expense for finite-lived intangible assets was $933,000 and $688,000 for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, 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 months ended March 31, 2021, and the status of stock options outstanding at March 31, 2021:

We recognized stock compensation expense of $9,000 and $61,000 related to service vesting-based options during the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, there was $24.5 million of aggregate intrinsic value of outstanding service vesting-based stock options, including $24.3 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, 2021. This amount will change based on the fair market value of the Company’s stock. During the quarters ended March 31, 2021 and 2020 intrinsic value of service vesting-based awards exercised was $3.3 million and $3.0 million, respectively. The weighted average remaining contractual life of service vesting-based options outstanding and exercisable at March 31, 2021 is 3.8 years. Total unrecognized compensation cost of service vesting-based stock options at March 31, 2021 of $16,000 is expected to be recognized over a weighted average period of 0.7 years.

Performance-based Stock Options

The following is a summary of performance-based stock option activity under our stock option plan for the three months ended March 31, 2021, and the status of performance-based stock options outstanding at March 31, 2021:

No stock compensation expense was recognized during the three months ended March 31, 2021 and 2020 related to performance-based options. As of March 31, 2021, there was $20.9 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, 2021. 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 ended March 31, 2021 was $2.9 million. The weighted average remaining contractual life of performance-based options outstanding and exercisable at March 31, 2021 is 0.7 years. All compensation cost of performance-based stock options outstanding at March 31, 2021 has been recognized.

There were no stock options granted to employees and non-employee directors in the three month periods ended March 31, 2021 and 2020.

Restricted Stock

Service vesting-based restricted stock

The following is a summary of service vesting-based restricted stock activity for the three months ended March 31, 2021, and the status of unvested service vesting-based restricted stock outstanding at March 31, 2021:

The aggregate fair value of the service vesting-based awards granted during the three months ended March 31, 2021 and 2020 was $2.2 million and $1.7 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 $2.6 million and $813,000 for the three months ended March 31, 2021 and 2020, respectively.

We recognized stock compensation expense of $1.4 million and $394,000 related to service vesting-based restricted stock awards for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, there was $17.0 million in unrecognized compensation costs related to service vesting-based restricted stock awards. We expect to recognize those costs over 3.2 years.

Performance-based restricted stock

We recognized stock compensation benefit of $186,000 for the three months ended March 31, 2021 related to 20,285 performance-based restricted stock awards that were awarded but did not vest. We recognized stock compensation expense of $189,000 for the three months ended March 31, 2020 related to performance-based restricted stock awards.

Market-based restricted stock

The following is a summary of market-based restricted stock option activity under our stock option plan for the three months ended March 31, 2021, and the status of market-based restricted stock options outstanding at March 31, 2021:

On February 25, 2019, the Company granted 94,247 shares and on April 1, 2019 granted 29,604 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on Total Shareholder Return (“TSR”). The TSR market condition measures the Company’s performance against a peer group. On February 8, 2021, the Company determined the TSR attainment was 200% of the targeted shares and 231,268 shares were granted and immediately vested to current executives of the Company based on our total shareholder return during the period beginning on January 1, 2019 through December 31, 2020 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined at the grant date using a Monte Carlo simulation with the following assumptions: a historical volatility of 69%, 0% dividend yield and a risk-free interest rate of 2.5%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. The fair value of this award of $3.1 million was expensed on a straight-line basis over the grant date to the vesting date of December 31, 2020.

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

On February 8, 2021, the Company granted 30,616 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on TSR. The TSR market condition measures the Company’s performance against a peer group. The market-based restricted stock awards will vest as to between 0% and 200% of the number of restricted shares granted to each recipient based on our total shareholder return during the period beginning on January 1, 2021 through December 31, 2022 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 68%, 0% dividend yield and a risk-free interest rate of 0.1%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest 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, 2022.

We recognized stock compensation expense of $285,000 and $469,000 for the three months ended March 31, 2021 and 2020, respectively, related to market-based restricted stock awards. As of March 31, 2021, there was $2.0 million in unrecognized non-cash compensation costs related to market-based restricted stock awards expected to vest. We expect to recognize those costs over 1.5 years.

We recorded total stock compensation expense for the three months ended March 31, 2021 and 2020, 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 expired in March 2021.

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

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

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

The following table summarizes warrant activity for the three months ended March 31, 2021:

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, 2021. 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.

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.

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

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

11. Commitments and Contingencies

Employment agreements

We have employment agreements with certain key employees. None of these employment agreements is for a definitive period, but rather each will continue indefinitely until terminated in accordance with its terms. The agreements provide for a base annual salary, payable in monthly (or shorter) installments. Under certain conditions and for certain of these officers, we may be required to pay additional amounts upon terminating the 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, 2021.

12. Revenue

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

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

The following table includes estimated rental revenue expected to be recognized in the future related to embedded leases as well as estimated service revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting periods. The Company is electing not to disclose the value of the remaining unsatisfied performance obligation with a duration of one year or less as permitted by the practical expedient in ASU 2014-09, “Revenue from Contracts with Customers”. The estimated revenue in the following table does not include contracts with the original durations of one year or less, amounts of variable consideration attributable to royalties, or contract renewals that are unexercised as of March 31, 2021.

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

13. Leases

Lessee arrangements

We lease approximately 32,106 square feet in our Bothell, Washington headquarters. In November of 2020, the Company entered into an amendment to the current lease agreement associated with this facility to extend the term of the lease until July 31, 2031. The amendment included a $2.6 million tenant allowance that the Company expects to receive as improvements are made between 2021 and 2023. This lease includes two options to extend the term of the lease, each of which is for an additional period of five years, with the first extension term commencing, if at all, on August 1, 2031, and the second extension term commencing, if at all, immediately following the expiration of the first extension term. In accordance with the amended lease agreement, our monthly base rent is approximately $65,000 at March 31, 2021, with scheduled annual increases each August. We are also required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses.

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

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

We lease approximately 106,998 square feet in our Detroit, Michigan location under a month-to-month arrangement. The monthly base rent is approximately $35,000 at March 31, 2021.

We lease approximately 49,300 square feet at three locations in the United States. The terms of the three leases go through February 28, 2026, March 31, 2024 and January 31, 2023, respectively, and have no options to extend the terms. In accordance with the first lease, the Company’s monthly base rent is approximately $14,000 at March 31, 2021, with scheduled increases each March. In accordance with the second lease, the Company’s monthly base rent is approximately $13,000 at March 31, 2021, with scheduled increases each April. In accordance with the third lease, the Company’s monthly base rent is approximately $8,000 at March 31, 2021. For each lease, the Company is also required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses.

We lease approximately 16,153 square feet in the United States. The term of the lease continues until June 30, 2024 and has no option to extend the term. In accordance with the amended lease agreement, the Company’s monthly base rent is approximately $13,000 at March 31, 2021, with scheduled increases each July. The Company is also required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses.

We lease approximately 26,800 square feet in the United States. The term of our lease begins on the earlier of the completion of certain work set forth in the agreement and June 1, 2021 and continues until the last day of the calendar month that occurs 10 years and 5 months after the lease begins. In accordance with the lease agreement, the monthly base rent is approximately $27,000 at commencement, with scheduled increases each June, and includes provisions for rent increases of approximately 2.5% on the first day of the first month that follows the first anniversary of the beginning of the lease of each year and on each anniversary date thereafter.

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

Our financing lease is related to research equipment, machinery, and other equipment.

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

Operating cash paid for amounts included in the measurement of operating lease liabilities in the three months ended March 31, 2021 and 2020 were $537,000 and $217,000, respectively.

The components of lease expense for the three months ended March 31, 2021 is as follows:

Maturities of our operating lease liabilities as of March 31, 2021 is as follows:

Lessor arrangements

Rental arrangements

The Company generates revenue from the leasing of our evo cold chain systems, which are typically cloud-connected shippers with enabling cold chain cloud applications, to customers pursuant to rental arrangements entered into with the customer. Revenue from the rental of cold chain systems is within the scope of FASB ASC Topic 842, “Leases”. All customers leasing shippers currently do so under month-to-month rental arrangements. We account for these rental transactions as operating leases and record rental revenue on a straight-line basis over the rental term.

Embedded leases

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

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

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

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

14. Condensed Consolidated Balance Sheet Detail

Property and Equipment

Depreciation expense for property and equipment was $575,000 and $285,000 for the three months ended March 31, 2021 and 2020, respectively.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

Other Long-Term Liabilities

Other long-term liabilities consist of the following:

Loans Payable

Loans payable consisted of the following:

As of March 31, 2021, the scheduled maturities of loans payable for each of the next five years and thereafter were as follows:

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 $135,000 and $84,000 contributions to the plan for the three months ended March 31, 2021 and 2020, respectively. 

16. Subsequent Event

On April 1, 2021, we entered into a lease agreement for approximately 47,533 square feet in the Netherlands. The term of our lease began on April 1, 2021 and continues until March 31, 2026, with options to extend the lease for an additional five years at each expiration date. In accordance with the lease agreement, the monthly base rent is approximately €28,726 (approximately $33,734 as of March 31, 2021) at commencement and includes provisions for rent increases tied to the Netherlands consumer price index in January of each year.

GCI Acquisition

On May 3, 2021, the Company completed the acquisition of Global Cooling, Inc. (“Global Cooling”), which became a wholly owned subsidiary of the Company. Global Cooling is a manufacturer of ultra-low temperature freezers. At the closing of the acquisition, the Company issued to the sellers 6,038,252 shares of common stock with an additional 598,218 shares of common stock retained in escrow as the sole and exclusive source of payment for any post-closing indemnification claims (other than fraud claims). The escrow shares, as reduced for any valid indemnification claims, are to be issued no later than 24 months after the closing of the transaction.

In connection with the acquisition and effective as of the closing, Maurice “Dusty” Tenney, the Chief Executive Officer of Global Cooling prior to the acquisition, was appointed as President and Chief Operating Officer of the Company. In connection therewith, Michael Rice, the Company’s Chief Executive Officer and President, resigned from his position as President and Roderick de Greef, the Company’s Chief Financial Officer and Chief Operating Officer, resigned from his position as Chief Operating Officer. Mr. Rice will continue to serve as the Company’s Chief Executive Officer and Mr. de Greef will continue to serve as the Company’s Chief Financial Officer.

We incurred $902,000 of related acquisition costs for the three month period ending March 31, 2021, which are reflected in our Condensed Consolidated Statement of Operations. We expect to report Global Cooling as a consolidated entity as of June 30, 2021. The acquisition qualifies as a business combination and will be accounted for using the acquisition method of accounting.

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 three and six months ended June 30, 2021.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements involve a number of risks and uncertainties. We caution readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. These statements are based on current expectations of future events. Such statements include, but are not limited to, statements about our products, including our newly acquired products, customers, regulatory approvals, the potential utility of and market for our products and services, our ability to implement our business strategy and anticipated business and operations, in particular following our 2019, 2020, 2021 acquisitions, future financial and operational performance, our anticipated future growth strategy, including the acquisition of synergistic cell and gene therapy manufacturing tools and services or technologies or other companies or technologies, capital requirements, intellectual property, suppliers, joint venture partners, future financial and operating results, the impact of the COVID-19 pandemic, plans, objectives, expectations and intentions, revenues, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, regulatory filings and requirements, the estimated potential size of markets, capital requirements, the terms of any capital financing agreements, cost savings, objectives of management and other statements that are not historical facts. You can find many of these statements by looking for words like “believes,” “expects,” “anticipates,” “estimates,” “may,” “should,” “will,” “could,” “plan,” “intend,” or similar expressions in this Quarterly Report on Form 10-Q. We intend that such forward-looking statements be subject to the safe harbors created thereby.

These forward-looking statements are based on the current beliefs and expectations of our management and are subject to significant risks and uncertainties. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results may differ materially from current expectations and projections. These risks and uncertainties include those factors described in greater detail in the risk factors disclosed in our Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those anticipated in these forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or, in the case of documents referred to or incorporated by reference, the date of those documents.

All subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as may be required under applicable U.S. securities law. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

Overview

Management’s discussion and analysis provides additional insight into the Company and is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC.

We develop, manufacture, and market bioproduction tools and services to the cell and gene therapy (“CGT”) industry, which are designed to improve quality and de-risk biologic manufacturing and delivery. We also provide biological and pharmaceutical storage services to the CGT industry. Our products are used in basic and applied research, and commercial manufacturing of biologic-based therapies. Customers use our products to maintain the health and function of biologic material during sourcing, manufacturing, storage, and distribution of cells and tissues.

We currently operate as one bioproduction tools and services business with product lines that support several steps in the biologic material manufacturing and delivery process. We have a diversified portfolio of tools and services that focus on biopreservation, frozen storage, and thawing of biologic materials. We have in-house expertise in cryobiology and continue to capitalize on opportunities to maximize the value of our product platform for our extensive customer base through both organic growth innovations and acquisitions.

Our Products

Our bioproduction tools and services are comprised of five main offerings:

Biopreservation media

Our proprietary biopreservation media products, HypoThermosol® FRS and CryoStor®, are formulated to mitigate preservation-induced, delayed-onset cell damage and death, which result when cells and tissues are subjected to reduced temperatures. Our technology can provide our CGT customers with significant shelf-life extension of biologic source material and final cell products, and can also greatly improve post-preservation cell and tissue viability and function. Our biopreservation media is serum-free, protein-free, fully defined, and manufactured under current Good Manufacturing Practices (cGMP). We strive to source wherever possible, the highest available grade, multi-compendium raw materials. We estimate our media products have been incorporated in over 450 customer clinical applications, including numerous chimeric antigen receptor (CAR) T cell and other cell types.

Stability (i.e. shelf-life) and functional recovery are crucial aspects of academic research and clinical practice in the biopreservation of biologic-based source material, intermediate derivatives, and isolated/derived/expanded cellular products and therapies. Limited stability is especially critical in the CGT field, where harvested cells and tissues will lose viability over time, if not maintained appropriately at normothermic body temperature (37ºC) or stored in a hypothermic state in an effective preservation medium. Chilling (hypothermia) is used to reduce metabolism and delay degradation of harvested cells and tissues. However, subjecting biologic material to hypothermic environments induces damaging molecular stress and structural changes. Although cooling successfully reduces metabolism (i.e., lowers demand for energy), various levels of cellular damage and death occur when using suboptimal methods. Traditional biopreservation media range from simple “balanced salt” (electrolyte) formulations to complex mixtures of electrolytes, energy substrates such as sugars, osmotic buffering agents and antibiotics. The limited stability, which results from the use of these traditional biopreservation media formulations, is a significant shortcoming that our optimized proprietary products address with great success.

Our scientific research activities over the last 20+ years enabled a detailed understanding of the molecular basis for the hypothermic and cryogenic (low-temperature induced) damage/destruction of cells through apoptosis and necrosis. This research led directly to the development of our HypoThermosol® FRS and CryoStor® technologies. Our proprietary biopreservation media products are specifically formulated to: 

A key feature of our biopreservation media products is their “fully-defined” profile. All of our cGMP products are serum-free, protein-free and are formulated and filled using aseptic processing. We strive to use USP/Multicompendial grade or the highest quality available synthetic components. All of these features benefit prospective customers by facilitating the qualification process required to incorporate our products into their regulatory filings.

The results of independent testing demonstrate that our biopreservation media products significantly extend shelf-life and improve cell and tissue post-thaw viability and function. Our products have demonstrated improved biopreservation outcomes, including greatly extended shelf-life and post-thaw viability, across a broad array of cell and tissue types.

Competing biopreservation media products are often formulated with simple isotonic media cocktails, animal serum, potentially a single sugar or human protein. A key differentiator of our proprietary HypoThermosol FRS formulation is the engineered optimization of the key ionic component concentrations for low temperature environments, as opposed to normothermic body temperature around 37°C, as found in culture media or saline-based isotonic formulas. Competing cryopreservation freeze media is often comprised of a single permeating cryoprotectant such as dimethyl sulfoxide (“DMSO”). Our CryoStor formulations incorporate multiple permeating and non-permeating cryoprotectant agents which allow for multiple mechanisms of protection and reduces the dependence on a single cryoprotectant. We believe that our products offer significant advantages over in-house formulations, or commercial “generic” preservation media, including, time saving, improved quality of components, more rigorous quality control release testing, more cost effective and improved preservation efficacy.

We estimate that annual revenue from each customer commercial application in which our products are used could range from $500,000 to $2.0 million, if such application is approved and our customer commences large scale commercial manufacturing of the biologic based therapy. 

Automated, Water-Free Thawing Products

In April 2019, we acquired Astero Bio Corporation (“Astero”), to expand our bioprocessing tools portfolio and diversify our revenue streams. The Astero ThawSTAR® line includes automated vial and cryobag thawing products that control the heat and timing of the thawing process of biologic material. Our customizable, automated, water-free thawing products uses algorithmic programmed, heating plates to consistently bring biologic material from a frozen state to a liquid state in a controlled and consistent manner. This helps reduce damage during the temperature transition. The ThawSTAR products can reduce risks of contamination versus using a traditional water bath.

evo® Cloud Connected Shipping Containers

In August 2019, we acquired the remaining shares of SAVSU Technologies, Inc. (“SAVSU”) we did not previously own. SAVSU is a leading developer and supplier of next generation cold chain management tools for cell and gene therapies. The evo.is cloud app allows biologic products to be traced and tracked in real time. Our evo platform consists of rentable cloud-connected shippers and include technologies that enable tracking software provides real-time information on geolocation, payload temperature, ambient temperature, tilt of shipper, humidity, altitude, and real-time alerts when a shipper has been opened. Our internally developed evo.is software allows customers to customize alert notifications both in data measurements and user requirements. The evo Dry Vapor Shipper (“DVS”) is specifically marketed to cell and gene therapies. The evo DVS has improved form factor and ergonomics over the traditional dewar, including extended thermal performance, reduced liquid nitrogen recharge time, improved payload extractors and ability to maintain temperature for longer periods on its side.

We utilize couriers who already have established logistic channels and distribution centers. Our strategy greatly reduces the cash need to build out specialized facilities around the world. Our partnerships with several white glove couriers allow us to scale our sales and marketing effort by utilizing their salesforce. Our courier partnerships market our evo platform to their existing cell and gene therapy customers as a cost effective and innovative solution. We also market directly to our existing and prospective customers who can utilize the evo platform through our courier partnerships.

Liquid Nitrogen Freezer and Storage Devices

In November 2019, we acquired Custom Biogenic Systems, Inc. (“CBS”) a global leader in the design and manufacture of state-of-the-art liquid nitrogen laboratory freezers, cryogenic equipment and accessories. The addition of CBS allows for product line growth, diversification of revenue and the potential for reduction of supply chain costs for our evo dry vapor shippers.

Included in CBS’s product line of liquid nitrogen freezers are the Isothermal LN2 freezers, constructed with a patented system which stores liquid nitrogen in a jacketed space in the walls of the freezer. This dry storage method eliminates liquid nitrogen contact with stored specimens, reduces the risk of cross-contamination and provides increased user safety in a laboratory setting. To accommodate customer requirements, we offer customizable features including wide bodied and extended height.

To accompany the offerings of cryogenic freezer equipment, we supply equipment for storing critically important biological materials. This storage equipment includes upright freezer racks, chest freezer racks, liquid nitrogen freezer racks, canisters/cassettes and frames as well as laboratory boxes and dividers. Due to our onsite design and manufacturing capability, racks and canisters can be customized to address customers’ varying requirements.

In order to provide customers with a proactive approach to safety and monitoring of equipment containing liquefied gas, CBS offers Versalert, a patented wireless remote asset monitoring system that can monitor and record temperatures. Versalert has an intelligent mesh network system that enables customers to view current equipment conditions and receive alarm notification on smartphones, tablets or personal computers and maintain permanent electronic records for regulatory compliance and legal verification.

Biological and Pharmaceutical Storage

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

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

Critical Accounting Policies and Estimates

A “critical accounting policy” is one which is both important to the portrayal of our financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a description of our critical accounting policies that affect our more significant judgments and estimates used in the preparation of our consolidated financial statements, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations and our significant accounting policies in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC.

Results of Operations

The following discussion of the financial condition and results of operations should be read in conjunction with the accompanying condensed consolidated financial statements and the related footnotes thereto.

Revenues

Revenue was $16.8 million for the three months ended March 31, 2021, representing an increase of $4.7 million, or 39%, in the three months ended March 31, 2021 compared with the same period in 2020.

In 2019 and 2020, we acquired four companies which resulted in increased revenue diversification. In prior years, nearly all revenue was derived from our biopreservation media product line. In the three months ended March 31, 2021, we generated diversified revenue, both in terms of product and customer concentration, a trend we expect to see continue through 2021. The increase is due to the acquisition of SciSafe in Q4 2020, the launch of High Capacity Rate Freezers in our freezers and accessories product line, increased isothermal freezer sales, and an increase in product revenue of our biopreservation media products. Product revenue of our biopreservation media products increased by $255,000, or 3% in the three months ended March 31, 2021 compared with the same period in 2020. Our biopreservation media products continued to be adopted by customers in the CGT market and we realized a higher selling price per liter in 2021 compared to 2020. Revenue is impacted by the relatively high degree of customer concentration, the timing of orders, the development efforts of our customers or end-users and regulatory approvals for biologics that incorporate our products, which may result in significant quarterly fluctuations. Such quarterly fluctuations are expected, but they may not be predictive of future revenue or otherwise indicative of a trend.

Costs and Operating Expenses

Total costs and operating expenses for three months ended March 31, 2021 and 2020 were comprised of the following:

Cost of product, rental, and service revenue

In the three months ended March 31, 2021 cost of revenue increased $3.0 million, or 65% when compared to the same period in 2020, due primarily to increased revenues driven by lower margin product lines. We expect that cost of product revenue may fluctuate in future quarters based on production volumes and product mix.

Cost of revenue as a percentage of revenue was 45%, and 38% for the three months ended March 31, 2021 and 2020, respectively. The increase in cost of revenue as a percentage of revenue is a result of increased revenues from lower margin product lines acquired in the 2019 and 2020 acquisitions.

Research and Development Expenses

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

R&D expense for the three months ended March 31, 2021 increased $324,000, or 19%, compared with the same period in 2020. The increase is primarily due to increased headcount and usage of R&D materials.

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

Sales and Marketing Expenses

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

S&M expense for the three months ended March 31, 2021 increased $445,000, or 28%, compared with the same period in 2020. The increase reflects the S&M costs we absorbed related to our SciSafe acquisition, increased headcount, and an increase commission expense as a result of increased revenues.

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

General and Administrative Expenses

General and administrative (“G&A”) expense consists primarily of personnel-related costs, non-cash stock-based compensation for administrative personnel and members of the board of directors, professional fees, such as accounting and legal, and corporate insurance.

G&A expenses for the three months ended March 31, 2021 increased by $1.7 million, or 54%, compared with the same period in 2020. The increase reflects the assumption of G&A expenses related to our acquisition of SciSafe in Q4 2020, and the continued buildout of our administrative infrastructure, primarily through increased headcount and information technology expenditures, to support expected future growth, and stock compensation expense.

We expect G&A expense to increase reflecting the infrastructure and costs related to supporting the larger expected enterprise created as a result of our growth strategy.

Intangible asset amortization expense

Amortization expense consists of charges related to the amortization of intangible assets associated with the acquisitions of Astero, SAVSU, CBS, and SciSafe in which we acquired definite-lived intangible assets.

Acquisition costs

Acquisition costs consist of legal, accounting, third-party valuations, and other due diligence costs incurred related to our Astero, SAVSU, CBS, SciSafe, and Global Cooling acquisitions.

Change in fair value of contingent consideration

Change in fair value of contingent consideration consists of changes in estimated fair value of our potential earnouts related to our Astero, CBS, and SciSafe acquisitions.

Other Income and Expense

Total other income and expenses for the three months ended March 31, 2021 and 2020 were comprised of the following:

Change in fair value of warrant liability. Reflects the changes in fair value associated with the periodic “mark to market” valuation of certain warrants that were issued in 2014. All outstanding warrants were exercised via a “cashless” exercise on March 25, 2021. Due to the change in our stock price during the three months ended March 31, 2020 from December 31, 2019, we had a lower warrant liability and a corresponding unrealized, non-cash gain of $21.9 million due to the change in fair value of our warrant liability.

Interest income (expense), net. We earn interest on cash held in our money market account. Interest expense in the three months ended March 31, 2021 grew compared to 2020, due to equipment financing.

Liquidity and Capital Resources

On March 31, 2021 and December 31, 2020, we had $89.0 million and $90.4 million in cash and cash equivalents, respectively. Based on our current expectations with respect to our future revenue and expenses, we believe that our current level of cash and cash equivalents will be sufficient to meet our liquidity needs for at least the foreseeable future. However, the Company may choose to raise additional capital through a debt or equity financing in order to pursue additional acquisition or strategic investment opportunities. Additional capital, if required, may not be available on reasonable terms, if at all.

Cash Flows

Net Cash Provided by Operating Activities

During the three months ended March 31, 2021, net cash provided by operating activities was $1.8 million compared to $687,000 for the three months ended March 31, 2020. The increase in cash provided by operating activities was the result of the timing of collection and disbursement of working capital related items in accounts receivable and accrued expenses and other current liabilities.

Net Cash Used In Investing Activities

Net cash used by investing activities totaled $4.4 million during the three months ended March 31, 2021 compared to $1.2 million for the three months ended March 31, 2020. The increase in investing activities was the result of purchasing equipment and assets held for rent to facilitate future revenue growth.

Net Cash Provided by Financing Activities

Net cash provided by financing activities totaled $1.2 million during the three months ended March 31, 2021, compared to $492,000 during the three months ended March 31, 2020. Net cash provided by financing activities in the three months ended March 31, 2021 and 2020 was primarily the result of proceeds received from equipment loans and stock option exercises.

Off-Balance Sheet Arrangements

As of March 31, 2021, we did not have any off-balance sheet arrangements. 

Contractual Obligations

We previously disclosed certain contractual obligations and contingencies and commitments relevant to us within the financial statements and Management Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC. There have been no significant changes to these obligations in the three months ended March 31, 2021.

Item 3. Quantitative and Qualitative Disclosures about Market Risk    

Not applicable.

Item 4. Controls and Procedures    

Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Form 10-Q were not effective, due to the material weakness in our internal controls over financial reporting. As previously reported, we identified a material weakness in our internal control over financial reporting as of December 31, 2019 with regard to our controls over the accounting for financial instruments containing characteristics of both liabilities and equity. Although substantial progress has been made in remediating this material weakness, it has not been fully remediated as of March 31, 2021, and therefore this control weakness continues to constitute a material weakness. Specifically, due to insufficient technical resources, the Company’s controls were not operating effectively to allow management to timely identify errors related to the recording of certain transactions involving financial instruments as previously described.

Changes in Internal Control Over Financial Reporting. There was no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Control. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within BioLife Solutions have been detected.

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

Based on management’s review and the oversight of the Audit Committee, we have determined that, although substantial progress has been made in remediating this material weakness, the weakness has not been fully remediated as of March 31, 2021.

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

PART II: Other Information

Item 1. LEGAL PROCEEDINGS

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not currently aware of any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.

Item 1A. RISK FACTORS

The matters discussed in this Quarterly Report on Form 10-Q include forward-looking statements that involve risks or uncertainties. These statements are neither promises nor guarantees, but are based on various assumptions by management regarding future circumstances, over many of which BioLife has little or no control. A number of important risks and uncertainties, including those identified under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the period ended December 31, 2020 and in subsequent filings, could cause our actual results to differ materially from those in the forward-looking statements. There are no material changes to the risk factors described in our Annual Report on Form 10-K for the period ended December 31, 2020.

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

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

None.

Item 5. OTHER INFORMATION

None.

Item 6. Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

BIOLIFE SOLUTIONS, INC.

INDEX TO EXHIBITS