Summary of Significant Accounting Policies

Recently Issued Accounting Standards

January 2017,

the Financial Accounting Standards Board (FASB) issued ASU

2017

“

Simplifying the Test for Goodwill Impairment

” which removes Step

from the goodwill impairment test. It is effective for annual and interim periods beginning after

December 15, 2019.

Early adoption is permitted for interim or annual goodwill impairment test performed with a measurement date after

January 1, 2017.

The Company has

not

yet determined the effect that ASU

2017

will have on its results of operations, statement of financial position or financial statement disclosures.

February 2016,

the FASB issued ASU

2016

02,

“Leases (Topic

842

)”

. ASU

2016

requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. ASU

2016

is effective for fiscal years beginning after

December 15, 2018

and interim periods therein. The Company has

not

yet determined the effect that ASU

2016

will have on its results of operations, statement of financial position or financial statement disclosures.

Recently Adopted Accounting Standards

July 2017,

the FASB issued ASU

No.

2017

11,

“

Earnings Per Share (Topic

260

); Distinguishing Liabilities from Equity (Topic

480

); Derivatives and Hedging (Topic

815

): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception

”. ASU

2017

allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity's own stock. As a result, financial instruments (or embedded conversion features) with down round features

may

longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. ASU

2017

is effective for fiscal years beginning after

December 15, 2018,

and interim periods within those fiscal years. Early adoption is permitted. The guidance in ASU

2017

can be applied using a full or modified retrospective approach. The Company has elected to early adopt ASU

2017

effective

April 1, 2018.

Prior to

April 1, 2018,

the Company did

not

have any convertible instruments with embedded conversion features that contained a down round provision, so prior periods will

not

be impacted. On

April 16, 2018,

the Company signed the Amended and Restated Credit Agreement with Boyalife Asset Holding II, Inc. The agreement is a convertible instrument which has an embedded conversion feature containing a down round provision. Adoption of ASU

2017

resulted in the exclusion of the down round feature in determining if the embedded conversion feature was indexed to the Company’s own stock. Refer to Note

for additional information.

Sequencing Policy

Under ASC

815

35,

the Company has adopted a sequencing policy. In the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC

815

due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the

first

allocation of shares. Pursuant to ASC

815,

issuance of securities to the Company’s employees or directors are

not

subject to the sequencing policy.

January 1, 2018,

the Company adopted Accounting Standards Update (ASU)

No.

2014

09,

Revenue from Contracts with Customers (Topic

606

)

using the modified retrospective method applied to those contracts which were

not

completed as of

January 1, 2018.

Results for reporting period beginning after

January 1, 2018

are presented under ASU

No.

2014

09,

while prior period amounts are

not

adjusted and continue to be reported in accordance with our historic accounting under “Revenue Recognition” (Topic

605

). The Company recorded a net increase to accumulated deficit of

$79,000

as of

January 1, 2018

due to the cumulative impact of adopting Accounting Standard Codification (ASC) Topic

606,

with the impact related to service obligations requiring deferral. ASC

606

requires the Company to defer costs related to obligations on service contracts with limited performance obligations. Under previous guidance, these service obligations were amortized on a straight-line basis.

Revenue Recognition

Revenue is recognized based on the

five

-step process outlined in ASC

606:

Step

– Identify the Contract with the Customer

– A contract exists when (a) the parties to the contract have approved the contract and are committed to perform their respective obligations, (b) the entity can identify each party’s rights regarding the goods or services to be transferred, (c) the entity can identify the payment terms for the goods or services to be transferred, (d) the contract has commercial substance and it is probable that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

Step

– Identify Performance Obligations in the Contract

– Upon execution of a contract, the Company identifies as performance obligations each promise to transfer to the customer either (a) goods or services that are distinct or (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services, the Company must apply judgement to determine whether the goods or services are capable of being distinct within the context of the contract. If these criteria are

not

met, the goods or services are accounted for as a combined performance obligation.

Step

– Determine the Transaction Price

– – The contract terms and customary business practices are used to determine the transaction price. The transaction price is the amount of consideration expected to be received in exchange for transferring goods or services to the customer. The Company’s contracts include fixed consideration.

Step

– Allocate the Transaction Price

– After the transaction price has been determined, the next step is to allocate the transaction price to each performance obligation in the contract. If the contract only has

one

performance obligation, the entire transaction price will be applied to that obligation. If the contract has multiple performance obligations, the transaction price is allocated to the performance obligations based on the relative standalone selling price (SSP) at contract inception.

Step

– Satisfaction of the Performance Obligations (and Recognize Revenue)

– When an asset is transferred and the customer obtains control of the asset (or the services are rendered), the Company recognizes revenue. At contract inception, the Company determines if each performance obligation is satisfied at a point in time or over time. For device sales, revenue is recognized at a point in time when the goods are transferred to the customer and they obtain control of the asset. For maintenance contracts, revenue is recognized over time as the performance obligations in the contracts are completed.

Disaggregation of Revenue

The Company’s primary revenue streams include device sales, service revenue from device maintenance contracts and clinical services.

Device Sales

Device sales include devices and consumables for BioArchive, AXP

®,

MXP,

-Series™ Products and Manual Disposables. Most devices are sold with contract terms stating that title passes and the customer takes control at the time of shipment. Revenue is then recognized when the devices are shipped and the performance obligation has been satisfied. If devices are sold under contract terms that specify that the customer does

not

take ownership until the goods are received revenue is recognized when the customer receives the assets.

Service Revenue

Service revenue consists primarily of maintenance contracts for BioArchive, AXP and

-Series Products. Devices sold have warranty periods of

one

two

years. After the warranty expires, the Company offers annual maintenance contracts for the remaining life of the devices. Under these contracts, customers pay in advance. These prepayments are recorded as deferred revenue and recognized over time as the contract performance obligations are satisfied. For AXP and

-Series products, the Company offers

one

type of maintenance contract providing preventative maintenance and repair services. Revenue under these contracts is recognized ratably over time, as the customer has the right to use the service at any time during the annual contract period and services are unlimited. For BioArchive, the Company offers

three

types of maintenance contracts; Gold, Silver and Preventative Maintenance Only. Under the Gold contract, preventative maintenance and repair services are unlimited and revenue is recognized ratably over time. For the Silver and Preventative Maintenance contracts, available services are limited and revenue is recognized during the contract period when the underlying performance obligations are satisfied. If the services are

not

used during the contract period, any remaining revenue is recognized when the contract expires. The renewal date for maintenance contract varies by customer, depending when the customer signed their initial contract.

Clinical Services

Service revenue in our Clinical Development Segment includes point of care procedures and cord blood processing and storage in our clinical segment. Point of care procedures are recognized when the procedures are performed. Cord blood processing and storage is recognized as the performance obligations are satisfied. Processing revenue is recognized when that performance obligation is completed immediately after the baby’s birth, with storage revenue recorded as deferred revenue and recognized ratably over time for up to

years. As of

June 30, 2018,

the total deferred cord blood storage revenue is

$269,000

and is included in other non-current liabilities in the condensed consolidated balance sheets. The customer

may

pay for both services at the time of processing. The amount of the transaction price allocated to each of the performance obligations is determined by using the standalone selling price of each component.

The following table summarizes the revenues of the Company’s reportable segments for the

three

and

six

months ended

June 30, 2018:

	Three Months Ended June 30, 2018
	Device Revenue		Service Revenue		Other Revenue		Total Revenue
Device Segment:
AXP	$	879,000	$	66,000	$	--	$	945,000
BioArchive		449,000		311,000		--		760,000
Manual Disposables		229,000		--		--		229,000
Other		8,000		--		16,000		24,000
Total Device Segment		1,565,000		377,000		16,000		1,958,000
Clinical Development Segment:
Manual Disposables		1,000		--		--		1,000
Bone Marrow		--		38,000		--		38,000
Other		--		7,000		--		7,000
Total Clinical Development		1,000		45,000		--		46,000
Total	$	1,566,000	$	422,000	$	16,000	$	2,004,000

	Six Months Ended June 30, 2018
	Device Revenue		Service Revenue		Other Revenue		Total Revenue
Device Segment:
AXP	$	1,564,000	$	131,000	$	--	$	1,695,000
BioArchive		872,000		655,000		--		1,527,000
Manual Disposables		462,000		--		--		462,000
Other		46,000		--		33,000		79,000
Total Device Segment		2,944,000		786,000		33,000		3,763,000
Clinical Development Segment:
Manual Disposables		23,000		--		--		23,000
Bone Marrow		--		61,000		--		61,000
Other		--		24,000		--		24,000
Total Clinical Development		23,000		85,000		--		108,000
Total	$	2,967,000	$	871,000	$	33,000	$	3,871,000

Performance Obligations

There is

right of return provided for distributors or customers. For all distributors, the Company has

control over the movement of goods to the end customer. The Company’s distributors control the timing, terms and conditions of the transfer of goods to the end customer. Additionally, for sales of products made to distributors, the Company considers a number of factors in determining whether revenue is recognized upon transfer of title to the distributor, or when payment is received. These factors include, but are

not

limited to, whether the payment terms offered to the distributor are considered to be non-standard, the distributor history of adhering to the terms of its contractual arrangements with the Company, the level of inventories maintained by the distributor, whether the Company has a pattern of granting concessions for the benefit of the distributor, and whether there are other conditions that

may

indicate that the sale to the distributor is

not

substantive. Additionally, the Company currently recognizes revenue primarily on the sell-in method with its distributors.

Payments from domestic customers are normally due in

two

months or less after the title transfers, the service contract is executed or the services have been rendered. For international customers, payment terms

may

extend up to

120

days. All sales have fixed pricing and there are currently

variable components included in the Company’s revenue.

Contract Balances

The Company records a receivable when the titles of goods have transferred, maintenance contracts have been fully executed or when services have been rendered. Generally, all sales are contract sales (with either an underlying contract or purchase order). The Company does

not

have any material contract assets. When invoicing occurs prior to revenue recognition a contract liability is recorded (as deferred revenue on the Balance Sheet). Revenues recognized during the quarter that were included in the beginning balance of deferred revenue were

$207,000.

Short term deferred revenues increased from

$384,000

$718,000

during the

six

months ended

June 30, 2018

due to the renewal of annual maintenance contracts for several large customers.

Backlog of Remaining Customer Performance Obligations

The following table includes revenue expected to be recognized and recorded as sales in the future from the backlog of performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.

	Remainder of 2018		2019		2020		2021 and beyond		Total
Service revenue	$	749,000	$	683,000	$	209,000	$	--	$	1,641,000
Clinical revenue		7,000		15,000		15,000		232,000		269,000
Total	$	756,000	$	698,000	$	224,000	$	232,000	$	1,910,000

Revenues are net of normal discounts. Shipping and handling fees billed to customers are included in net revenues, while the related costs are included in cost of revenues.

Goodwill, Intangible Assets and Im

pairment Assessments

For goodwill and indefinite-lived intangible assets (clinical protocols), the carrying amounts are periodically reviewed for impairment (at least annually) and whenever events or changes in circumstances indicate that the carrying value of these assets

may

not

be recoverable. According to Accounting Standard Codification (

ASC)

350,

Intangibles-Goodwill and Other

, the Company can opt to perform a qualitative assessment or a quantitative assessment; however, if the qualitative assessment determines that it is more likely than

not

(i.e., a likelihood of more than

percent) the fair value is less than the carrying amount, a quantitative assessment must be performed. If the quantitative assessment determines that the fair value is less than the carrying amount, the Company would perform an analysis (step

) to measure such impairment.

In the

second

quarter of

2018,

the Company experienced a significant and sustained decline in its stock price. The decline resulted in the Company’s market capitalization falling significantly below the recorded value of its consolidated net assets. As a result, the Company performed a quantitative assessment as of

June 30, 2018

and computed a fair value for its intangible assets and goodwill. In performing the assessment, the Company used current market capitalization, discounted future cash flows, internal forecasts and other factors as the best evidence of fair value. These assumptions represent Level

inputs. The assessment determined that the carrying amount for the Company’s goodwill exceeded the estimated fair value. Additionally, the Company’s indefinite-lived intangible assets relating to the clinical protocols was also determined to be impaired.

The Company recorded an impairment charge of

$12,695,000

to goodwill and

$14,507,000

to intangible assets during the quarter ended

June 30, 2018,

as shown in the following table.

	Intangible Assets			Goodwill
Balance at December 31, 2017, net	$	21,629,000		$	13,976,000

Amortization and foreign exchange (current year)		(83,000	)		--

Impairment loss		(14,507,000	)		(12,695,000	)

Balance at June 30, 2018, net	$	7,039,000		$	1,281,000

Fair Value Measurements

In accordance with ASC

820,

“

Fair Value Measurements and Disclosures

,” fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.

The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. The guidance establishes

three

levels of inputs that

may

be used to measure fair value:

Level

Quoted market prices in active markets for identical assets or liabilities.

Level

Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level

Unobservable inputs reflecting the reporting entity’s own assumptions.

The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short duration. The fair value of the Company’s derivative obligation liability is classified as Level

within the fair value hierarchy since the valuation model of the derivative obligation is based on unobservable inputs.

Segment Reporting

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (CODM), or decision making group, whose function is to allocate resources to and assess the performance of the operating segments. The Company has identified its chief executive officer and chief operating officer as the CODM. In determining its reportable segments, the Company considered the markets and the products or services provided to those markets.

The Company has

two

reportable business segments:

●

The Clinical Development Division, is developing autologous (utilizing the patient’s own cells) stem cell-based therapeutics that address significant unmet medical needs for applications within the vascular, cardiology and orthopedic markets.

●

The Device Division, engages in the development and commercialization of automated technologies for cell-based therapeutics and bio-processing. The device division is operated through the Company’s ThermoGenesis subsidiary.

Net Loss per Share

Net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding. The calculation of the basic and diluted earnings per share is the same for all periods presented, as the effect of the potential common stock equivalents is anti-dilutive due to the Company’s net loss position for all periods presented. Anti-dilutive securities consisted of the following at

June 30:

	2018		2017
Vested Series A warrants		404,412		404,412
Unvested Series A warrants (1)		698,529		698,529
Warrants – other		13,197,267		3,725,782
Stock options		1,200,470		397,388
Restricted stock units		--		59,694
Total		15,500,678		5,285,805

(

)

The unvested Series A warrants were subject to vesting based upon the amount of funds actually received by the Company in the

second

close of the

August 2015

financing which never occurred. The warrants will remain outstanding but unvested until they expire in

February 2021.