1.	Organization and Significant Accounting Policies

Business

BioLife Solutions, Inc. ("BioLife,” “us,” “we,” “our,” or the “Company”) is a developer, manufacturer and marketer of proprietary clinical grade cell and tissue hypothermic storage and cryopreservation freeze media. Our proprietary HypoThermosol® and CryoStor® platform of solutions are highly valued in the biobanking, drug discovery, and regenerative medicine markets. Our biopreservation media products are serum-free and protein-free, fully defined, and are formulated to reduce preservation-induced cell damage and death. Our enabling technology provides commercial companies and clinical researchers significant improvement in shelf life and post-preservation viability and function of cells, tissues, and organs. Additionally, for our direct, distributor, and contract customers, we perform custom formulation, fill, and finish services.

Recent Developments

Restructuring of biologistex Joint Venture

On December 31, 2016, we entered into a Contribution Agreement (the “Contribution Agreement”) with Savsu Technologies, LLC, a Delaware limited liability company (“STLLC”) and biologistex CCM, LLC, a Delaware limited liability company (“biologistex” or “SAVSU”). The closing of the transactions contemplated by the Contribution Agreement occurred on December 31, 2016 (the “Closing Date”), simultaneously with the entrance into the Contribution Agreement.

Biologistex is a joint venture entered into by the Company and STLLC on or about September 29, 2014 for the purpose of acquiring, developing, maintaining, owning, operating, leasing and selling an integrated platform of a cloud-based information service and precision thermal shipping products based on STLLC’s next generation EVO smart container shipment platform. Prior to the Closing Date, biologistex was owned 52% by the Company and 48% by STLLC.

Pursuant to the Contribution Agreement, STLLC contributed certain of its patent and trademark rights, personal property and related contracts to biologistex in exchange for the issuance from biologistex to STLLC of an additional 7% membership interest in biologistex, so that upon the closing thereunder, STLLC owned 55% of biologistex and the Company owned 45% of biologistex. Other than liabilities for obligations to be performed pursuant to the contracts which were contributed to biologistex by STLLC, biologistex did not assume any liabilities of STLLC in connection with the Contribution Agreement.

In connection with the Contribution Agreement, we (i) contributed to biologistex as a capital contribution outstanding loans owed by biologistex to the Company in the aggregate amount of $6,557,776 and (ii) terminated any requirement which the Company may have had to purchase any additional inventory from STLLC or contribute any inventory to biologistex.

In addition, pursuant to the Contribution Agreement, the Company agreed that it will transfer to STLLC (i) on the first anniversary of the Closing Date, 11.11% of its membership interest in biologistex owned as of the Closing Date, such that on the first anniversary of the Closing Date the Company will own 40% of biologistex (assuming that there are no other issuances or transfers of biologistex equity interests after the Closing Date), and (ii) on the second anniversary of the Closing Date, 33.33% of its membership interest in biologistex owned as of the Closing Date, such that on the second anniversary of the Closing Date the Company will own 25% of biologistex (assuming that there are no other issuances or transfers of biologistex equity interests after the Closing Date). However, if certain liquidity events, such as change in control or initial public offering, occur with respect to biologistex between the second anniversary and third anniversary of the Closing Date, STLLC will pay to the Company an amount of the net proceeds therefrom as if the Company had only transferred to STLLC on the second anniversary of the Closing Date an amount of membership interests in biologistex equal to 11.11% of the Company’s membership interest in biologistex owned as of the Closing Date, such that the Company would be treated for such purposes as if it owned 35% of biologistex (assuming that there are no other issuances or transfers of biologistex equity interests after the Closing Date).

Accounting Treatment for the Deconsolidation of biologistex:

As a result of the Contribution Agreement, we deconsolidated the biologistex joint venture from our balance sheet on December 31, 2016 and account for our investment in SAVSU using the equity method. We recognized a $2.8 million loss on deconsolidation (including approximately $0.1 million in related restructuring charges), which consisted of a $2.2 million gain on derecognizing the assets, liabilities and equity of biologistex from our consolidated financial statements and a $5.0 million loss related to the remeasurement of the retained fair value of our investment in SAVSU. We derived the fair value of our retained investment in SAVSU using level 3 measurements in the fair value hierarchy using a midpoint between a discounted cash flow analysis and a discounted price to revenues multiples. As part of the fair value analysis, we applied a range of discount rates of 30% - 50% to multiple cash flow and terminal value scenarios. An increase in discount rate would result in a decrease in fair value. In addition, we used a range of revenue multiples of 2 times revenue – 6 times revenue, which were applied to a risk adjusted revenue projection. A decrease in revenue multiple would result in a decrease in fair value.

Restructuring Amended and Restated Biologistex Operating Agreement:

In connection with the Contribution Agreement, on the Closing Date, the Company, STLLC and biologistex entered into an Amended and Restated Operating Agreement of biologistex (the “Amended JV Operating Agreement”), amending and restating the limited liability company operating agreement of biologistex initially entered into by such parties on September 29, 2014. The Amended JV Operating Agreement provides that as of the Closing Date, biologistex’s membership interests are owned 45% by the Company and 55% by STLLC.

Pursuant to the Amended JV Operating Agreement, biologistex will be managed by a three member management committee, initially consisting of Dana Barnard and Bruce McCormick, both designated by STLLC, and Michael Rice, designated by the Company (the “Management Committee”). Certain fundamental actions by the Management Committee require approval of members holding at least 60% of the membership interests of biologistex (including both STLLC and the Company). Biologistex’s membership interests are also subject to transfer restrictions in the Amended JV Operating Agreement, including drag-along and tag-along rights.

Services Agreement:

In connection with the Contribution Agreement, on the Closing Date, the Company and biologistex entered into a Services Agreement (the “Services Agreement”) whereby the Company will provide certain sales and marketing services to biologistex in exchange for payment by biologistex to the Company of (i) a cash fee for the first year of the contract only in the amount of $100,000, (ii) a commission (the “Commissions”), paid quarterly, equal to 20% of the gross revenues of biologistex from any customer account resulting from sales activity or a marketing lead generated by the Company (“BioLife Customer Revenue”), and (iii) reimbursement of pre-approved reasonable direct costs and expenses incurred by the Company by or on behalf of biologistex in connection with the services. After the third anniversary of the Closing Date, the Commissions will decrease to 10% of the BioLife Customer Revenue.

The Services Agreement continues until terminated by either party. The Services Agreement can be terminated (a) by mutual agreement, (b) beginning 90 days prior to the third anniversary of the Closing Date, by either party with 90 days’ notice, (c) by biologistex with 90 days’ notice if (i) there are certain changes to the management of the Company or its subsidiaries, (ii) the Company transfers all of its equity interests in biologistex or (iii) there is a change of control of the Company, (d) by the Company with 90 days’ notice if (i) STLLC transfers all of its equity interest in biologistex or (ii) there is a change of control of STLLC or (e) by either party (i) for a material breach of the Services Agreement by the other party that is not cured within 30 days or (ii) if the other party is subject to certain bankruptcy/insolvency events. If the Services Agreement is terminated by biologistex under items (b) or (c) of the preceding sentence, or by the Company under items (d) or (e) of the preceding sentence, the Company will be entitled to receive Commissions equal to 10% of the BioLife Customer Revenue during the 12 month period following such termination.

Credit Facility

On May 12, 2016, we entered into a $4 million unsecured credit facility (the “Original Note”) with our largest shareholder, WAVI Holdings, AG (“WAVI”). Under the related commitment letter, WAVI has agreed to make a series of four $1 million advances on June 1, 2016, September 1, 2016, December 1, 2016 and March 1, 2017. The Original Note is unsecured, carries an annual interest rate of 10%, and matures on June 1, 2017. In addition, we have agreed not to permit any liens on our assets, subject to certain exceptions. As partial compensation for WAVI entering into the commitment letter, we issued WAVI a detachable common stock purchase warrant exercisable to purchase up to 550,000 shares of common stock at an exercise price of $1.75 per share. The warrant expires on May 12, 2021.

Amendment of Credit Facility

On January 9, 2017, the Company issued an amended and restated promissory note (the “Note”) to WAVI. The Note, which amends and restates the Original Note, extends the maturity date of the Note from June 1, 2017 to June 1, 2022 and includes a long-term repayment schedule as follows: beginning September 1, 2017 to June 1, 2018, the Company will make four quarterly cash interest only payments of $106,250 and from September 1, 2018 through June 1, 2022, the Company will make quarterly cash principal payments of $265,625, in addition to ongoing interest payments. All other terms of the Original Note, including the $4 million principal amount of the Note and the 10% per annum interest rate on the Original Note, remain the same.

Principles of Consolidation

The consolidated financial statements as of and for the year ended December 31, 2015 and the results of operations for 2016 up to December 31, 2016 include the accounts of the Company and its previously majority-owned subsidiary, biologistex. All intercompany balances and transactions have been eliminated in consolidation. On December 31, 2016 we deconsolidated biologistex and began to report our ownership interest of biologistex using the equity method of accounting based on the fair value of our ownership interest in biologistex at the time of the transaction.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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.

Net loss per share

Basic net loss per common share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period, excluding, unvested restricted stock outstanding during the period. Diluted earnings per share is calculated using the weighted average number of common shares outstanding plus dilutive common stock equivalents outstanding during the period. Common stock equivalents are excluded for the years ending December 31, 2016 and 2015 since the effect is anti-dilutive due to the Company’s net losses. Common stock equivalents include unvested restricted stock, stock options and warrants.

Basic weighted average common shares outstanding, and the potentially dilutive securities excluded from loss per share computations because they are antidilutive, are as follows for the years ended December 31, 2016 and 2015:

	2016		2015
Basic and diluted weighted average common stock shares outstanding		12,642,996		12,177,396
Potentially dilutive securities excluded from loss per share computations:
Common stock options		2,513,861		2,555,263
Common stock purchase warrants		7,603,141		7,195,997
Unvested Restricted Stock		98,439		––

Cash and cash equivalents

Cash equivalents consist primarily of interest-bearing money market accounts. We consider all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents. We maintain cash balances that may exceed federally insured limits. We do not believe that this results in any significant credit risk.

No cash was paid for either interest expense or income taxes for the years ended December 31, 2016 and 2015.

Investment Securities

At December 31, 2015, the Company's investments consisted primarily of commercial paper, corporate debt, and other debt securities. Investments are classified as available-for-sale and are reported at fair value based on quoted market prices with unrealized gains and losses, net of applicable taxes, recorded in accumulated other comprehensive income (loss), a component of shareholders' equity. The realized gains and losses for available-for-sale securities are included in other income and expense in the Consolidated Statements of Operations. Realized gains and losses are calculated based on the specific identification method.

The Company monitored its investment portfolio for impairment on a periodic basis. When the amortized cost basis of an investment exceeds its fair value and the decline in value is determined to be an other-than-temporary decline, and when the Company does not intend to sell the debt security and it is not more likely than not that the Company will be required to sell the debt securities prior to recovery of its amortized cost basis, the Company records an impairment charge in the amount of the credit loss and the balance, if any, to other comprehensive income (loss).

The Company had no short term investments as of December 31, 2016.

Equity Method Investments

At December 31, 2016, we account for our investment in SAVSU using the equity method of accounting as we have ability to exercise significant influence, but not control, over operating and financial policies of SAVSU. Judgment regarding the level of influence over the equity method investments includes considering key factors such as the Company's ownership interest, representation on the Management Committee, participation in policy-making decisions and material intercompany transactions. Our retained investment in SAVSU was initially recorded at fair value as of December 31, 2016 and our proportionate share of the net income or loss as reported by SAVSU is included in consolidated net loss, which had no activity as of December 31, 2016. As of December 31, 2016, SAVSU had current assets and total assets of $0.5 million and $3.2 million, respectively. As of December 31, 2016, SAVSU had no material liabilities. The carrying value of our investment in SAVSU is in excess of the underlying equity in net assets of SAVSU as of December 31, 2016, due to the company’s investment recorded at fair value while the underlying net assets of SAVSU are recorded at historical cost. Net assets of SAVSU include significant unrecorded internally developed intangibles contributed by STLLC at December 31, 2016.

Inventories

Inventories represent biopreservation solutions, raw materials used to make biopreservation solutions and are stated at the lower of cost or market. Cost is determined using the first-in, first-out (“FIFO”) method.

Accounts receivable

Accounts receivable are stated at principal amount, do not bear interest, and are generally unsecured. We provide an allowance for doubtful accounts based on an evaluation of customer account balances past due ninety days from the date of invoicing. Accounts considered uncollectible are charged against the established allowance.

Property and equipment

Property and equipment are stated at cost and are depreciated using the straight-line method over estimated useful lives of three to ten years.

Intangible asset

At December 31, 2015, our intangible asset represented exclusive distribution rights to STLLC’s Smart Containers associated with our biologistex CCM, LLC joint venture discussed previously. The intangible asset was recorded at its fair value of $2,215,385 at the date contributed to the joint venture by STLLC. We reviewed the intangible asset for impairment whenever an impairment indicator exists. We assessed recoverability by determining whether the carrying value of such asset will be recovered through the undiscounted expected future cash flows. If the future undiscounted cash flows are less than the carrying amount of these assets, we would recognize an impairment loss based on any excess of the carrying amount over the fair value of the assets. The intangible asset was not amortized due to no sales generated from the biologistex joint venture.

The Company had no intangible assets as of December 31, 2016 due to the deconsolidation of biologistex.

Internal Use Software

We capitalized costs associated with the development of the biologistex web and mobile applications, which we considered internal-use software. Capitalization of costs began in the first quarter of 2015, when we reached the application development stage. Such capitalized costs included external direct costs utilized in developing or obtaining the applications and payroll and payroll-related expenses for employees, who are directly associated with the development of the applications. Capitalization ceases once we have completed all substantial testing, at which time the applications are complete and ready for their intended use. The Company did not amortize any software development costs due to no sales generated from the biologistex joint venture.

In 2016 and 2015, we capitalized $0.7 million and $1.7 million, respectively, in costs related to the development of the biologistex web and mobile applications. Maintenance and enhancement costs were expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the software that result in added functionality, in which case the costs are capitalized.

The Company had no internal use software as of December 31, 2016 due to the deconsolidation of biologistex.

Deferred rent

For our operating leases, we recognize rent expense on a straight-line basis over the terms of the leases and, accordingly, we record the difference between cash rent payments and the recognition of rent expense as a deferred rent liability. Landlord-funded leasehold improvements, to the extent the improvements are not landlord property upon lease termination, are also recorded as deferred rent liabilities and are amortized as a reduction of rent expense over the non-cancelable term of the related operating lease.

Revenue recognition

We recognize product revenue, including shipping and handling charges billed to customers, upon shipment of product when title and risk of loss pass to customers. Shipping and handling costs are classified as part of cost of product sales. We may also receive fees from our contract manufacturing customers for validation of the manufacturing process. This typically occurs prior to production for those customers and revenue is recognized upon successful completion of all obligations related to the validation process.

Income taxes

We account for income taxes using an asset and liability method which generally requires recognition of deferred tax assets and liabilities for the expected future tax effects of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are recognized for the future tax effects of differences between tax bases of assets and liabilities, and financial reporting amounts, based upon enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable income. We evaluate the likelihood of realization of deferred tax assets and provide an allowance where, in management’s opinion, it is more likely than not that the asset will not be realized. We have not recorded any liabilities for uncertain tax positions or any related interest and penalties. Our tax returns are open to audit for years ending December 31, 2013 to 2016.

Advertising

Advertising costs are expensed as incurred and totaled $74,916 and $69,091 for the years ended December 31, 2016 and 2015, respectively.

Fair value of financial instruments

The principal balance of the note payable and related accrued interest approximate their fair value (determined based on level 3 inputs in the fair value hierarchy) because the interest rate of the note payable approximates market interest rates.

Operating segments

As described above, our activities are directed in the life sciences field of biopreservation products and services. As of December 31, 2016 and 2015 this is the Company’s only operating unit and segment.

Concentrations of credit risk and business risk

In 2016 and 2015, we derived approximately 12% and 10%, respectively, of our revenue from our relationship with one distributor of our products. Revenue from customers located in foreign countries represented 17% and 21% of total revenue during the years ended December 31, 2016 and 2015, respectively. All revenue from foreign customers are denominated in United States dollars. At December 31, 2016, three customers accounted for 45% of gross accounts receivable. At December 31, 2015, three customers accounted for 53% of gross accounts receivable.

Research and development

Research and development costs are expensed as incurred.

Stock Based Compensation

We use the Black-Scholes option pricing model as our method of valuation for stock option awards. Restricted stock unit grants are valued at the fair value of our common stock on the date of grant. Share-based compensation expense is based on the value of the portion of the stock-based award that will vest during the period, adjusted for expected forfeitures. Our determination of the fair value of stock option awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected life of the award, expected stock price volatility over the term of the award and historical and projected exercise behaviors. The estimation of share-based awards that will ultimately vest requires judgment, and to the extent actual or updated results differ from our current estimates, such amounts will be recorded in the period estimates are revised. Although the fair value of stock option awards is determined in accordance with authoritative guidance, the Black-Scholes option pricing model requires the input of highly subjective assumptions and other reasonable assumptions could provide differing results. Share-based compensation expense is recognized ratably over the applicable requisite service period based on the fair value of such share-based awards on the grant date.

The fair value of options at the date of grant is determined under the Black-Scholes option pricing model. During the years ended December 31, 2016 and 2015, the following weighted-average assumptions were used:

Assumptions	2016			2015
Risk-free rate		1.51	%		1.77	%
Annual rate of dividends		––			––
Historical volatility		75	%		105.20	%
Expected life		7.0 years			7.0 years

The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant. We do not anticipate declaring dividends in the foreseeable future. Volatility was based on historical data. We utilize the simplified method in determining option lives. The simplified method is used due to the fact that we have had significant structural changes in our business such that our historical exercise data may not provide a reasonable basis to estimate option lives.

We recognize compensation expense for only the portion of options that are expected to vest. Therefore, management applies an estimated forfeiture rate that is derived from historical employee termination data. The estimated forfeiture rate applied for the year ended December 31, 2016 was 8.1% and in 2015 was 7.0%. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods. Our stock price volatility, option lives and expected forfeiture rates involve management’s best estimates at the time of such determination, all of which impact the fair value of the option calculated under the Black-Scholes methodology and, ultimately, the expense that will be recognized over the life of the option.

Recent accounting pronouncements

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). The updated guidance clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. Adoption of ASU 2016-15 is required for fiscal reporting periods beginning after December 15, 2017, including interim reporting periods within those fiscal years with early adoption being permitted. We do not expect the adoption of ASU 2016-15 to have a material impact on our consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU-2016-09). The updated guidance simplifies and changes how companies account for certain aspects of share-based payment awards to employees, including accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of certain items in the statement of cash flows. Adoption of ASU 2016-09 is required for fiscal reporting periods beginning after December 15, 2016, including interim reporting periods within those fiscal years with early adoption being permitted. The Company is currently evaluating the potential impact of the pending adoption of ASU 2016-09 on its consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases: Topic 842 (ASU 2016-02) that replaces existing lease guidance. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. Under the new guidance, leases will continue to be classified as either finance or operating, with classification affecting the pattern of expense recognition in the Consolidated Statements of Operations. Lessor accounting is largely unchanged under ASU 2016-02. Adoption of ASU 2016-02 is required for fiscal reporting periods beginning after December 15, 2018, including interim reporting periods within those fiscal years with early adoption being permitted. The new standard is required to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. The Company is currently evaluating the potential impact of the pending adoption of ASU 2016-02 on its consolidated financial statements.

In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities: Topic 825 (ASU 2016-01). The updated guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. Adoption of ASU 2016-01 is required for fiscal reporting periods beginning after December 15, 2017, including interim reporting periods within those fiscal years. The Company does not expect adoption of ASU 2016-01 to have a material impact on its consolidated financial statements.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes: Topic 740 (ASU 2015-17). Current GAAP requires the deferred taxes for each jurisdiction to be presented as a net current asset or liability and net noncurrent asset or liability. This requires a jurisdiction-by-jurisdiction analysis based on the classification of the assets and liabilities to which the underlying temporary differences relate, or, in the case of loss or credit carryforwards, based on the period in which the attribute is expected to be realized. Any valuation allowance is then required to be allocated on a pro rata basis, by jurisdiction, between current and noncurrent deferred tax assets. The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The guidance does not change the existing requirement that only permits offsetting within a jurisdiction. Adoption of ASU 2015-17 is required for fiscal reporting periods beginning after December 15, 2016, including interim reporting periods within those fiscal years, and either prospective or retrospective application is permitted. Early adoption of ASU 2015-17 is permitted. At the time of adoption, all of the Company’s deferred tax assets and liabilities, along with any related valuation allowance, will be classified as noncurrent on its Consolidated Balance Sheet. The Company does not expect adoption of ASU 2015-17 to have a material impact on its consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory: Topic 330 (ASU 2015-11). Topic 330 currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. ASU 2015-11 requires that inventory measured using either the first-in, first-out (FIFO) or average cost method be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Adoption of ASU 2015-11 is required for fiscal reporting periods beginning after December 15, 2016, including interim reporting periods within those fiscal years. The Company does not expect adoption of ASU 2015-11 to have a material impact on its consolidated financial statements.

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, Topic 606, requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard becomes effective for us in the first quarter of fiscal 2018. The Company does not expect adoption of ASU 2014-09 to have a material impact on its consolidated financial statements.

With the exception of the new standards discussed above, there have been no new accounting pronouncements not yet effective that have significance, or potential significance, to our Consolidated Financial Statements.