UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the quarterly period ended
ACT OF 1934
For the transition period from to
Commission File Number
BioLife Solutions, Inc.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
(Address of registrant’s principal executive offices, Zip Code)
(
(Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of exchange on which registered |
| | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (S232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit said files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
As of November 7, 2022,
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | 4 | |
| Item 1. |
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| Unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 |
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| Notes to Unaudited Condensed Consolidated Financial Statements |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| PART II. |
40 | |
| Item 1. |
40 | |
| Item 1A. |
40 | |
| Item 2. |
41 | |
| Item 3. |
41 | |
| Item 4. |
41 | |
| Item 5. |
41 | |
| Item 6. |
42 | |
| 43 | ||
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets
| September 30, | December 31, | |||||||
| (In thousands, except per share and share data) | 2022 | 2021 | ||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Available-for-sale securities, current portion | ||||||||
| Accounts receivable, trade, net of allowance for doubtful accounts of $ and $ as of September 30, 2022 and December 31, 2021, respectively | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Assets held for rent, net | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Financing lease right-of-use assets, net | ||||||||
| Long-term deposits and other assets | ||||||||
| Available-for-sale securities, long-term | ||||||||
| Equity investments | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Warranty liability | ||||||||
| Lease liabilities, operating, current portion | ||||||||
| Lease liabilities, financing, current portion | ||||||||
| Debt, current portion | ||||||||
| Contingent consideration, current portion | ||||||||
| Total current liabilities | ||||||||
| Contingent consideration, long-term | ||||||||
| Lease liabilities, operating, long-term | ||||||||
| Lease liabilities, financing, long-term | ||||||||
| Debt, long-term | ||||||||
| Deferred tax liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 18) | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred stock, $ par value; shares authorized, Series A, shares designated, and shares issued and outstanding as of September 30, 2022 and December 31, 2021 | ||||||||
| Common stock, $ par value; shares authorized, and shares issued and outstanding, respectively, as of September 30, 2022 and December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss, net of taxes | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
Unaudited Condensed Consolidated Statements of Operations
| Three Months Ended |
Nine Months Ended |
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| September 30, |
September 30, |
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| (In thousands, except per share and share data) |
2022 |
2021 |
2022 |
2021 |
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| Product revenue |
$ | $ | $ | $ | ||||||||||||
| Service revenue |
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| Rental revenue |
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| Total product, rental, and service revenue |
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| Costs and operating expenses: |
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| Cost of product revenue (exclusive of intangible assets amortization) |
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| Cost of service revenue (exclusive of intangible assets amortization) |
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| Cost of rental revenue (exclusive of intangible assets amortization) |
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| General and administrative |
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| Sales and marketing |
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| Research and development |
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| Intangible asset impairment charges |
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| Intangible asset amortization |
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| Acquisition costs |
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| Change in fair value of contingent consideration |
( |
) | ( |
) | ||||||||||||
| Total operating expenses |
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| Operating loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income: |
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| Change in fair value of investments |
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| Interest income (expense), net |
( |
) | ( |
) | ( |
) | ||||||||||
| Other income (expense), net |
( |
) | ( |
) | ||||||||||||
| Change in fair value of warrant liability |
( |
) | ||||||||||||||
| Gain on acquisition of Sexton Biotechnologies, Inc. |
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| Total other income, net |
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| Loss before income tax benefit |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income tax benefit |
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| Net (loss) income |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Net (loss) income attributable to common shareholders: |
||||||||||||||||
| Basic |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Diluted |
( |
) | ( |
) | ||||||||||||
| Net (loss) income per share attributable to common shareholders: |
||||||||||||||||
| Basic |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Diluted |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Weighted average shares used to compute (loss) earnings per share attributable to common shareholders: |
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| Basic |
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| Diluted |
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The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
Unaudited Condensed Consolidated Statements of Comprehensive Loss
| Three Months Ended |
Nine Months Ended |
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| September 30, |
September 30, |
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| (In thousands) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Net (loss) income |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Other comprehensive loss: |
||||||||||||||||
| Foreign currency translation adjustment, net of tax |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Unrealized loss on available-for-sale securities, net of tax |
( |
) | ( |
) | ||||||||||||
| Comprehensive (loss) income |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
Unaudited Condensed Consolidated Statements of Shareholders’ Equity
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||
| Series A | Series A | Accumulated | ||||||||||||||||||||||||||||||
| Preferred | Preferred | Common | Common | Additional | Other | Total | ||||||||||||||||||||||||||
| Stock | Stock | Stock | Stock | Paid-in | Comprehensive | Accumulated | Shareholders’ | |||||||||||||||||||||||||
| (In thousands, except share data) | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Equity | ||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Fees incurred for registration filings | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Stock option exercises | ||||||||||||||||||||||||||||||||
| Stock issued – on vested RSAs | ( | ) | ||||||||||||||||||||||||||||||
| Contingent consideration shares issued | ||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Unrealized loss on available-for-sale securities | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Three Months Ended September 30, 2022 |
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| Series A |
Series A |
Accumulated |
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| Preferred |
Preferred |
Common |
Common |
Additional |
Other |
Total |
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| Stock |
Stock |
Stock |
Stock |
Paid-in |
Comprehensive |
Accumulated |
Shareholders’ |
|||||||||||||||||||||||||
| (In thousands, except share data) |
Shares |
Amount |
Shares |
Amount |
Capital |
Loss |
Deficit |
Equity |
||||||||||||||||||||||||
| Balance, June 30, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Fees incurred for registration filings |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Stock based compensation |
- | - | ||||||||||||||||||||||||||||||
| Stock option exercises |
||||||||||||||||||||||||||||||||
| Stock issued – on vested RSAs |
||||||||||||||||||||||||||||||||
| Foreign currency translation |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Unrealized loss on available-for-sale securities |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net loss |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance, September 30, 2022 |
- | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||
| Series A | Series A | Accumulated | ||||||||||||||||||||||||||||||
| Preferred | Preferred | Common | Common | Additional | Other | Total | ||||||||||||||||||||||||||
| Stock | Stock | Stock | Stock | Paid-in | Comprehensive | Accumulated | Shareholders’ | |||||||||||||||||||||||||
| (In thousands, except share data) | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Equity | ||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Stock issued as consideration in GCI acquisition | ||||||||||||||||||||||||||||||||
| Stock issued as consideration in Sexton acquisition | ||||||||||||||||||||||||||||||||
| Fees incurred for registration filings | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Stock option exercises | ||||||||||||||||||||||||||||||||
| Stock issued – on vested RSAs | ||||||||||||||||||||||||||||||||
| Cashless exercises of warrants | ||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Three Months Ended September 30, 2021 |
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| Series A |
Series A |
Accumulated |
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| Preferred |
Preferred |
Common |
Common |
Additional |
Other |
Total |
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| Stock |
Stock |
Stock |
Stock |
Paid-in |
Comprehensive |
Accumulated |
Shareholders’ |
|||||||||||||||||||||||||
| (In thousands, except share data) |
Shares |
Amount |
Shares |
Amount |
Capital |
Income (Loss) |
Deficit |
Equity |
||||||||||||||||||||||||
| Balance, June 30, 2021 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
| Stock issued as consideration in Sexton acquisition |
||||||||||||||||||||||||||||||||
| Fees incurred for registration filings |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Stock based compensation |
- | - | ||||||||||||||||||||||||||||||
| Stock option exercises |
||||||||||||||||||||||||||||||||
| Stock issued – on vested RSAs |
||||||||||||||||||||||||||||||||
| Foreign currency translation |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net income |
- | - | ||||||||||||||||||||||||||||||
| Balance, September 30, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
Unaudited Condensed Consolidated Statements of Cash Flows
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| (In thousands) | 2022 | 2021 | ||||||
| Cash flows from operating activities | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash used in operating activities | ||||||||
| Intangible asset impairment charges | ||||||||
| Stock-based compensation | ||||||||
| Amortization of intangible assets | ||||||||
| Depreciation | ||||||||
| Non-cash lease expense | ||||||||
| Loss on disposal of property and equipment, net | ||||||||
| (Gain) loss on disposal of assets held for rent, net | ||||||||
| Change in fair value of warrant liability | ||||||||
| Change in fair value of equity investments | ( | ) | ||||||
| Change in fair value of contingent consideration | ( | ) | ||||||
| Deferred income tax benefit | ( | ) | ( | ) | ||||
| Gain on acquisition of Sexton Biotechnologies, Inc. | ( | ) | ||||||
| Other | ||||||||
| Change in operating assets and liabilities, net of effects of acquisitions | ||||||||
| Accounts receivable, trade, net | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Warranty liability | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Cash acquired in acquisition of Global Cooling, Inc. | ||||||||
| Maturities of available-for-sale securities | ||||||||
| Proceeds from sale of equipment | ||||||||
| Purchases of assets held for rent | ( | ) | ( | ) | ||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Investment in available-for-sale securities | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from term loans | ||||||||
| Payments on term loans | ( | ) | ||||||
| Proceeds from equipment loans | ||||||||
| Payments on equipment loans | ( | ) | ||||||
| Proceeds from line of credit | ||||||||
| Payments on line of credit | ( | ) | ||||||
| Proceeds from exercise of common stock options | ||||||||
| Fees paid related to issuance of common stock | ( | ) | ( | ) | ||||
| Payments on financed insurance premium | ( | ) | ( | ) | ||||
| Other | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net decrease in cash, cash equivalents, and restricted cash | ( | ) | ( | ) | ||||
| Cash, cash equivalents, and restricted cash – beginning of period | ||||||||
| Effects of currency translation on cash, cash equivalents, and restricted cash | ( | ) | ( | ) | ||||
| Cash, cash equivalents, and restricted cash – end of period | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Purchase of property and equipment not yet paid | $ | $ | ||||||
| Cashless issuance of SciSafe earnout shares | $ | $ | ||||||
| Equipment acquired under operating leases | $ | $ | ||||||
| Unrealized gains and losses on available-for-sale securities | $ | $ | ||||||
| Stock issued as consideration to acquire Global Cooling, Inc. and Sexton Biotechnologies, Inc. | $ | $ | ||||||
| Cashless exercise of warrants reclassified from warrant liability to common stock | $ | $ | ||||||
| Equipment acquired under finance leases | $ | $ | ||||||
| Cash interest paid | $ | $ | ||||||
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
Notes to Unaudited Condensed Consolidated Financial Statements
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 cell processing fill machines, closed system cryogenic vials, human platelet lysate (“hPL”) growth media, automated thawing devices, cloud-connected shipping containers, ultra-low temperature mechanical freezers, cryogenic and controlled rate freezers and biological and pharmaceutical materials storage. Our CryoStor® freeze media and HypoThermosol® hypothermic storage media products are serum-free and protein-free, fully defined, and are formulated to reduce preservation-induced cell damage and death. Our Sexton cell processing product line includes hPL media, for cell expansion reducing risk and improving downstream performance inherent with the use of fetal bovine serum and human serum, and CellSeal® cryogenic vials, which are purpose-built rigid containers used as a primary final package for cells used in research and clinical applications. These vials can be filled manually or with high throughput systems and automated cell processing machines that bring multiple processes traditionally performed by manual techniques under a higher level of control to protect therapies from loss or contamination. Our ThawSTAR® product line is comprised of a family of automated thawing devices for frozen biologic material packaged in cryovials and cryobags. These products help to reduce thawing related damage to temperature-sensitive biologic materials by standardizing the thawing process and reducing the risks of contamination and overheating, which are inherent with the use of traditional water baths. Our cryogenic freezer technology provides for controlled rate freezing and cryogenic storage of biologic materials. Our ultra-low temperature mechanical freezers allow biological materials to be stored at temperatures which range from negative 20℃ to negative 86℃. Our evo® shipping containers provide cloud-connected passive storage and transport containers for temperature-sensitive biologics and pharmaceuticals. Our biological and pharmaceutical materials storage services provide facilities that allow for real-time tracking of biologic 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 (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of 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 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, fair value of marketable debt securities, 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, warranty reserves, certain accrued expenses, share-based compensation, contingent consideration from business combinations, and the recoverability of the Company’s deferred tax assets and the 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 Unaudited Condensed Consolidated Financial Statements included herein have been prepared by BioLife in accordance with U.S. 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 U.S. GAAP. These Unaudited 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 as of and for the fiscal year ended December 31, 2021.
The Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries, SAVSU Technologies, Inc. (“SAVSU” acquired on August 8, 2019), Arctic Solutions, Inc. doing business as Custom Biogenic Systems (“CBS” acquired on November 12, 2019), SciSafe Holdings, Inc. (“SciSafe” acquired on October 1, 2020), BioLife Solutions B.V. (formed on April 1, 2021), Global Cooling, Inc. doing business as Stirling Ultracold (“Global Cooling” or “GCI” acquired on May 3, 2021), and Sexton Biotechnologies, Inc. (“Sexton” acquired on September 1, 2021). All 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.
Foreign currency translation
The Company translates items presented on its Unaudited Condensed Consolidated Balance Sheet, Unaudited Condensed Consolidated Statements of Operations, Unaudited Condensed Consolidated Statements of Shareholders’ Equity, and Unaudited Condensed Consolidated Statements of Cash Flows into U.S. dollars. For the Company’s subsidiaries that operate in a local currency functional environment, all assets and liabilities are translated into U.S. dollars using current exchange rates at the balance sheet date; revenue and expenses are translated using average exchange rates in effect during each period. Resulting translation adjustments are reported as a separate component of Accumulated Other Comprehensive Loss in the Unaudited Condensed Consolidated Statements of Shareholders' Equity.
Segment reporting
The Company views its operations and makes decisions regarding how to allocate resources and manages its business as one reportable segment and one reporting unit. The Company’s Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.
Significant accounting policies
The following describes an update to the Company’s accounting policies for investments. For a full discussion of significant accounting policies, including additional information regarding the Company’s accounting policies for investments, refer to the Notes to the Consolidated Financial Statements included within the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The Company classifies its investment in marketable debt securities as “available-for-sale.” Available-for-sale securities are carried at fair value with unrealized holding gains or losses recorded in other comprehensive income, net of tax. Gains or losses are included in earnings in the period in which they are realized. The cost of securities sold is determined based on the specific identification method. The cost of available-for-sale debt securities is adjusted for premiums and discounts, with the accretion or amortization of such amounts included as a portion of interest. Available-for-sale debt securities with an original maturity date less than one year are classified as current investments. Available-for-sale debt securities with an original maturity date exceeding one year are classified as long-term.
Liquidity and capital resources
On September 30, 2022 and December 31, 2021, we had $
Risks and uncertainties
COVID-19 pandemic
Our domestic and international operations have been and continue to be affected by the ongoing global pandemic of a novel strain of coronavirus (“COVID-19”) and the resulting volatility and uncertainty it has caused in the U.S. and international markets. Many businesses and countries, including the U.S., continue to apply preventative and precautionary measures to mitigate the spread of the virus including government orders and other restrictions on the conduct of business operations.
In the nine months ended September 30, 2022 and year ended December 31, 2021, we experienced supply chain disruptions due to the effects of COVID-19 on our suppliers of sheet metal and electronic components that incorporate semiconductor chips. These supply chain disruptions decreased our profitability as a result of increased supplier pricing and production stoppages. We cannot be assured that a continued or prolonged global pandemic will not have other negative impacts on our manufacturing and shipping processes or our product costs. The extent to which the COVID-19 pandemic affects our future financial results and operations will depend on future developments which are highly uncertain and cannot be predicted, including the recurrence, severity and/or duration of the ongoing pandemic, and current or future domestic and international actions to contain and treat COVID-19.
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.
Concentrations of credit risk and business risk
Significant customers are those that represent more than 10% of the Company’s total revenues or gross accounts receivable balances for the periods and as of each balance sheet date presented. For each significant customer, revenue as a percentage of total revenues and gross accounts receivable as a percentage of total gross accounts receivable as of the periods presented were as follows:
| Accounts Receivable | Revenue | |||||||||||||||||||||||
| September 30, | December 31, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Customer A | % | % | * | * | * | * | ||||||||||||||||||
| Customer B | % | % | % | % | % | % | ||||||||||||||||||
* less than 10%
Revenue from foreign customers is denominated in United States dollars or euros.
The following table represents the Company’s total revenue by geographic area (based on the location of the customer):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| Revenue by customers’ geographic locations | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| United States | % | % | % | % | ||||||||||||
| Europe, Middle East, Africa (EMEA) | % | % | % | % | ||||||||||||
| Canada | % | % | % | % | ||||||||||||
| Other | % | % | % | % | ||||||||||||
| Total revenue | % | % | % | % | ||||||||||||
In the three and nine months ended September 30, 2022 and 2021, no suppliers accounted for more than 10% of purchases.
As of September 30, 2022 and December 31, 2021,
.
Recent accounting pronouncements
In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-03, Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sales Restrictions (“ASC Topic 820”). The FASB issued ASU 2022-03 to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity related securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years with early adoption permitted. We are evaluating when to adopt the amendments in ASU 2022-03. We do not expect a material impact as a result of adopting this amendment.
In March 2022, the FASB issued ASU No. 2022-02 Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings and requires disclosure of current-period gross write-offs by year of loan origination. Additionally, ASU 2022-02 updates the accounting for credit losses under ASC 326 and adds enhanced disclosures with respect to loan refinancings and restructurings in the form of principal forgiveness, interest rate concessions, other-than-insignificant payment delays, or term extensions when the borrower is experiencing financial difficulties. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022 and early adoption is permitted. We are currently evaluating the impact ASU 2022-02 will have on our consolidated financial statements.
2. Fair value measurement
In accordance with FASB ASC Topic 820, the Company measures its financial instruments at fair value on a recurring basis. The carrying values of certain of our financial instruments including cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of their short maturities. The carrying value of our marketable debt securities, which are accounted for as available-for-sale, are classified within either Level 1 or Level 2 in the fair value hierarchy because we use quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value. The carrying values of our long-term debt, which is classified within Level 2 in the fair value hierarchy, approximates fair value as our borrowings with lenders are at interest rates that approximate market rates for comparable loans. The fair values of investments and contingent consideration classified as Level 3 were derived from management assumptions (see Note 1 – “Organization and Significant Accounting Policies.”). The Company also measures certain assets and liabilities at fair value on a non-recurring basis when applying acquisition accounting. ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC Topic 820 establishes a three-tier value fair hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 – Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices included in Level 1 for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Level 3 – Unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
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
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
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. On that date, 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 as of that date.
There were no remeasurements to fair value during the three and nine months ended September 30, 2022 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 and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, based on the three-tier fair value hierarchy:
(In thousands)
| As of September 30, 2022 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | ||||||||||||||||
| Cash equivalents: | ||||||||||||||||
| Money market accounts | $ | $ | $ | $ | ||||||||||||
| Available-for-sale securities: | ||||||||||||||||
| U.S. government securities | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Other debt securities | ||||||||||||||||
| Total | ||||||||||||||||
| Liabilities: | ||||||||||||||||
| Contingent consideration - business combinations | ||||||||||||||||
| Debt | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| As of December 31, 2021 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | ||||||||||||||||
| Money market accounts | $ | $ | $ | $ | ||||||||||||
| Total | ||||||||||||||||
| Liabilities: | ||||||||||||||||
| Contingent consideration - business combinations | ||||||||||||||||
| Debt | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
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:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| (In thousands) | 2022 | 2021 | ||||||
| Beginning balance as of December 31, 2021 and 2020 | $ | $ | ||||||
| Change in fair value recognized in net (loss) income | ( | ) | ||||||
| Payment of contingent consideration earned | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
The following table presents the changes in fair value of warrant liabilities which are measured using Level 3 inputs:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| (In thousands) | 2022 | 2021 | ||||||
| Beginning balance as of December 31, 2021 and 2020 | $ | $ | ||||||
| Exercised warrants | ( | ) | ||||||
| Change in fair value recognized in net (loss) income | ||||||||
| Ending balance | $ | $ | ||||||
3. Investments
Available-for-sale securities
The Company’s portfolio of available-for-sale marketable securities consists of the following:
| September 30, 2022 | ||||||||||||||||
| Amortized | Gross unrealized | Estimated | ||||||||||||||
| (In thousands) | Cost | Gains | Losses | Fair Value | ||||||||||||
| Available-for-sale securities, current portion | ||||||||||||||||
| U.S. government securities | $ | $ | - | $ | $ | |||||||||||
| Corporate debt securities | - | |||||||||||||||
| Other debt securities | - | |||||||||||||||
| Total short-term | - | |||||||||||||||
| Available-for-sale securities, long-term | ||||||||||||||||
| Other debt securities | - | |||||||||||||||
| Total marketable securities | $ | $ | - | $ | $ | |||||||||||
| Amortized | Estimated | |||||||
| (In thousands) | Cost | Fair Value | ||||||
| Due in one year or less | $ | $ | ||||||
| Due after one year through five years | ||||||||
| Total | $ | $ | ||||||
There were no outstanding available-for-sale marketable securities as of December 31, 2021.
Equity investments
The Company periodically invests in non-marketable equity securities of private companies without a readily determinable fair value to promote business and strategic objectives. These securities included Series A-1 and A-2 Preferred Stock in iVexSol, Inc. with a fair value of $
4. Inventory
Inventory consists of the following as of September 30, 2022 and December 31, 2021:
| (In thousands) | 2022 | 2021 | ||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
5. Leases
The Company has various operating lease agreements for office space, warehouses, manufacturing, and production locations as well as vehicles and other equipment. Our real estate leases have remaining lease terms of to years. We exclude options that are not reasonably certain to be exercised from our lease terms, ranging from one to five years. Our lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms. For certain leases, we receive incentives from our landlords, such as rent abatements, which effectively reduce the total lease payments owed for these leases. Vehicle and other equipment operating leases have terms between and years.
Our financing leases relate 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 as of September 30, 2022 and December 31, 2021:
| September 30, | December 31, | |||||||
| (In thousands) | 2022 | 2021 | ||||||
| Weighted average discount rate - operating leases | % | % | ||||||
| Weighted average discount rate - finance leases | % | % | ||||||
| Weighted average remaining lease term in years - operating leases | ||||||||
| Weighted average remaining lease term in years - finance leases | ||||||||
The components of lease expense for the three and nine months ended September 30, 2022 and 2021 were as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (In thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Operating lease costs | $ | $ | $ | $ | ||||||||||||
| Short-term lease costs | ||||||||||||||||
| Total operating lease costs | ||||||||||||||||
| Variable lease costs | ||||||||||||||||
| Total lease costs | $ | $ | $ | $ | ||||||||||||
Maturities of our lease liabilities as of September 30, 2022 are as follows:
| (In thousands) | Operating Leases | Financing Leases | ||||||
| 2022 (3 months remaining) | $ | $ | ||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less: interest | ( | ) | ( | ) | ||||
| Total present value of lease liabilities | $ | $ | ||||||
6. Assets held for rent
Assets held for rent consist of the following as of September 30, 2022 and December 31, 2021:
| (In thousands) | 2022 | 2021 | ||||||
| Shippers placed in service | $ | $ | ||||||
| Fixed assets held for rent | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Net | ||||||||
| Shippers and related components in production | ||||||||
| Total | $ | $ | ||||||
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 $
7. Property and equipment
Property and equipment consist of the following as of September 30, 2022 and December 31, 2021:
| September 30, | December 31, | |||||||
| (In thousands) | 2022 | 2021 | ||||||
| Property and equipment | ||||||||
| Leasehold improvements | $ | $ | ||||||
| Furniture and computer equipment | ||||||||
| Manufacturing and other equipment | ||||||||
| Construction in-progress | ||||||||
| Subtotal | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense for property and equipment was $
8. 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 is determined to have an indefinite useful life and is not amortized, but instead is tested for impairment at least annually in accordance with ASC 350.
Intangible assets
Intangible assets, net consisted of the following as of September 30, 2022 and December 31, 2021:
| (In thousands, except weighted average useful life) | September 30, 2022 | |||||||||||||||
| Intangible assets: | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Weighted Average Useful Life (in years) | ||||||||||||
| Customer Relationships | $ | $ | ( | ) | $ | |||||||||||
| Tradenames | ( | ) | ||||||||||||||
| Technology - acquired | ( | ) | ||||||||||||||
| Non-compete agreements | ( | ) | ||||||||||||||
| In-process research and development(1) | - | N/A | ||||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||||||
| (In thousands, except weighted average useful life) | December 31, 2021 | |||||||||||||||
| Intangible assets: | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Weighted Average Useful Life (in years) | ||||||||||||
| Customer Relationships | $ | $ | ( | ) | $ | |||||||||||
| Tradenames | ( | ) | ||||||||||||||
| Technology - acquired | ( | ) | ||||||||||||||
| Non-compete agreements | ( | ) | ||||||||||||||
| In-process research and development(1) | N/A | |||||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||||||
(1) In-process R&D represents the fair value of incomplete research and development. We will begin to amortize the asset upon completion of development.
Amortization expense for definite-lived intangible assets was $
| (In thousands) | Amortization | |||
| For the Years Ending December 31, | Expense | |||
| 2022 (3 months remaining) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
Interim impairment testing
In the six months ended June 30, 2022, the Company experienced a significant decline in its market capitalization. In July 2022, the Company abandoned an in-process research and development project within the asset group acquired in the acquisition of Global Cooling and revised its forecasts for net income and net cash flows to be generated by that asset group. The Company determined that these three events constituted interim triggering events that required further analysis with respect to potential impairment to goodwill, indefinite-lived intangibles, and definite-lived intangibles. The Company performed an interim quantitative impairment test as of the June 30, 2022 balance sheet date.
To assess any potential impairment of goodwill, the Company compared the carrying value of its single reporting unit against its market capitalization, noting that the market capitalization exceeded the carrying value. As such, goodwill was not impaired as of June 30, 2022.
The abandonment of the aforementioned in-process research and development project resulted in a $
In order to determine the fair value of our in-process research and development intangible assets not related to the abandoned project, the Company utilized an average of a discounted cash flow analysis and comparable public company analysis. The key assumptions associated with determining the estimated fair value include projected future revenue growth rates, earnings before interest, taxes, depreciation and amortization ("EBITDA") margins, the terminal growth rate, and the discount rate. As a result of the changes in these assumptions, we recognized a $
In order to determine the fair value of the acquired technology, customer relationships, tradename, and non-compete definite-lived intangible assets, the Company utilized the excess earnings approach, distributor method, relief from royalty method, and with and without approach, respectively. The key assumptions associated with determining the estimated fair value include (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. As a result of the analysis, we recognized non-cash impairment charges of $
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating the fair value of the Company’s reporting unit, indefinite-lived intangible assets, and definite-lived intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include projected future revenue growth rates, EBITDA margins, terminal growth rates, discount rates, royalty rates and other market factors. If current expectations of future growth rates, margins and cash flows are not met, or if market factors outside of our control change significantly, then our reporting unit, indefinite-lived intangible assets, and definite-lived intangible assets might become impaired in the future, negatively impacting our operating results and financial position. As the carrying amounts of the Company’s indefinite-lived and definite-lived intangible assets were impaired as of June 30, 2022 and written down to fair value, those amounts are more susceptible to an impairment risk if there are unfavorable changes in assumptions and estimates.
The Company performed a qualitative impairment assessment as of September 30, 2022. Based on the results of the assessment, it was determined the fair value of the Company’s indefinite-lived intangible assets was greater than the carrying value and therefore noted no impairment indicators existed as of September 30, 2022.
9. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following as of September 30, 2022 and December 31, 2021:
| September 30, | December 31, | |||||||
| (In thousands) | 2022 | 2021 | ||||||
| Accrued compensation | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred revenue, current | ||||||||
| Accrued taxes | ||||||||
| Other | ||||||||
| Total accrued expenses and other current liabilities | $ | $ | ||||||
10. Warranty reserve liability
The Company reserves estimated exposures on known claims, as well as anticipated claims, for product warranty and rework cost, based on historical product liability claims. Claim costs are deducted from the accrual when paid. Factors that could have an impact on the warranty accrual in any given period include the following: changes in manufacturing quality, changes in product costs, changes in product mix and any significant changes in sales volume.
A rollforward of our warranty liability is as follows:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| (In thousands) | 2022 | 2021 | ||||||
| Beginning balance as of December 31, 2021 and 2020 | $ | $ | ||||||
| Warranty reserve acquired in the acquisition of Global Cooling | ||||||||
| Provision for warranties | ||||||||
| Settlements of warranty claims | ( | ) | ( | ) | ||||
| Ending Balance | $ | $ | ||||||
11. Long-term debt
2022 term loan 3
On September 20, 2022, the Company, and certain of its subsidiaries, entered into a term loan agreement, which provided for up to $
Long-term debt consisted of the following as of September 30, 2022 and December 31, 2021:
| September 30, | December 31, | ||||||||||||
| (In thousands) | Maturity Date | Interest Rate | 2022 | 2021 | |||||||||
| 2022 term loan 1 | (1) | % | $ | $ | |||||||||
| 2022 term loan 2 | Various | % | |||||||||||
| 2022 term loan 3 | Jun-26 | % | |||||||||||
| Insurance premium financing | Apr-23 | % | |||||||||||
| Freezer equipment loan | Dec-25 | % | |||||||||||
| Manufacturing equipment loans | Oct-25 | % | |||||||||||
| Freezer installation loan | Various | % | |||||||||||
| Other loans | Various | Various | |||||||||||
| Total debt, excluding unamortized debt issuance costs | |||||||||||||
| Less: unamortized debt issuance costs | ( | ) | ( | ) | |||||||||
| Total debt | |||||||||||||
| Less: current portion | ( | ) | ( | ) | |||||||||
| Total long-term debt | $ | $ | |||||||||||
(1) 2022 term loan 1 carried a maturity date of September 2024 as of the year ended December 31, 2021. As of September 30, 2022, the entirety of the outstanding principal and accrued interest was repaid.
2022 term loan 3 is secured by substantially all assets of BioLife, SAVSU, CBS, SciSafe, Global Cooling and Sexton, other than intellectual property. 2022 term loan 2 is secured by substantially all assets of Global Cooling and is effectively subordinated to the security interest established by the lenders of 2022 term loan 3. Equipment loans are secured by the financed equipment.
As of September 30, 2022, the scheduled maturities of loans payable for each of the next five years and thereafter were as follows:
| (In thousands) | Amount | |||
| 2022 (3 months remaining) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total debt, excluding unamortized debt issuance costs | ||||
| Less: unamortized debt issuance costs | ( | ) | ||
| Total debt | $ | |||
12. Warrants
In March 2014, pursuant to a registered public offering and note conversion agreement with certain note holders, the Company issued warrants to purchase
In May 2016, in connection with a credit facility, the Company issued a warrant to purchase
In May 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
In March 2021, all remaining outstanding warrants were exercised via a “cashless” exercise. As a result of the cashless exercise, the Company issued an aggregate of
The following table summarizes warrant activity for the nine months ended September 30, 2022 and 2021:
| Nine Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Shares | Wtd. Avg. Exercise Price | Shares | Wtd. Avg. Exercise Price | |||||||||||||
| Beginning balance | $ | $ | ||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Ending balance | $ | $ | ||||||||||||||
13. 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. Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price, taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. Payment terms and conditions vary, although terms generally include a requirement of payment within 30 to 90 days. During the three and nine months ended September 30, 2022, the Company recognized approximately $
The Company primarily recognizes product revenues, service revenues, and rental revenues. Product revenues are generated from the sale of cell processing tools, freezers, thawing devices, and cold chain products. We recognize product revenue, including shipping and handling charges billed to customers, at a point in time when we transfer control of our products to our customers, which is upon shipment for substantially all transactions. Shipping and handling costs are classified as part of cost of product revenue in the Consolidated Statements of Operations. Service revenue is generated from the storage of biological and pharmaceutical materials. We recognize service revenue over time as services are performed or ratably over the contract term. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount method, depending on the facts and circumstances relative to the contract. When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in ASC Topic 606, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of and during the three and nine months ended September 30, 2022.
The Company also generates revenue from the leasing of our property, plant, and equipment, operating right-of-use assets, and evo cold chain systems within its storage and storage services product line 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 Company 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. These agreements may include extension and termination clauses. These Service Contracts do not allow for customers to purchase the underlying assets.
The Company 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 the Company 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 the Company’s property, plant, and equipment or operating right-of-use assets.
Applying the practical expedient from ASC Topic 842, consistent with the previous guidance, the Company will continue to recognize operating right-of-use asset embedded lessor arrangements on its Unaudited Condensed Consolidated Balance Sheets in operating right-of-use assets.
None of the Embedded Leases identified by the Company qualify as a sales-type or direct finance lease. None of the operating leases for which the Company 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.
Embedded Leases may contain both lease and non-lease components. We have elected to utilize the practical expedient from ASC Topic 842 to account for lease and non-lease components together as a single combined lease component as the timing and pattern of transfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately, would be classified as an operating lease. Non-lease components of the Company’s rental arrangements include reimbursements of lessor costs.
Total bioproduction tools and services revenue for the three and nine months ended September 30, 2022 and 2021 were comprised of the following:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (In thousands, except percentages) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Product revenue | ||||||||||||||||
| Freezer and thaw | $ | $ | $ | $ | ||||||||||||
| Cell processing | ||||||||||||||||
| Storage and storage services | ||||||||||||||||
| Service revenue | ||||||||||||||||
| Storage and storage services | ||||||||||||||||
| Cell processing | ||||||||||||||||
| Rental revenue | ||||||||||||||||
| Storage and storage services | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
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 as of 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 September 30, 2022.
The balances in the table below are partially based on judgments involved in estimating future orders from customers pursuant to their respective contracts:
| Year Ending December 31, | ||||||||||||||||
| (In thousands) | 2022 (3 months remaining) | 2023 | 2024 | Total | ||||||||||||
| Rental revenue | $ | $ | $ | $ | ||||||||||||
| Service revenue | $ | $ | $ | $ | ||||||||||||
14. Share-based compensation
Service vesting-based stock options
The following is a summary of service vesting-based stock option activity for the September 30, 2022, and the status of service vesting-based stock options outstanding as of September 30, 2022:
| Nine Months Ended | ||||||||
| September 30, 2022 | ||||||||
| Shares | Wtd. Avg. Exercise Price | |||||||
| Outstanding as of beginning of year | $ | |||||||
| Exercised | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Outstanding as of September 30, 2022 | $ | |||||||
| Stock options exercisable as of September 30, 2022 | $ | |||||||
We recognized stock compensation expense related to service-based options of during the three and nine months ended September 30, 2022 and $
Performance-based stock options
stock compensation expense was recognized during the three and nine months ended September 30, 2022 and 2021 related to performance-based options. There were
Restricted stock
Service vesting-based restricted stock
The following is a summary of service vesting-based restricted stock activity for the nine months ended September 30, 2022, and the status of unvested service vesting-based restricted stock outstanding as of September 30, 2022:
| Nine Months Ended | ||||||||
| September 30, 2022 | ||||||||
| Shares | Wtd. Avg. Grant Date Fair Value | |||||||
| Outstanding as of beginning of year | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Non-vested as of September 30, 2022 | $ | |||||||
The aggregate fair value of the service vesting-based awards granted was $
We recognized stock compensation expense related to service vesting-based awards of $
Market-based restricted stock
The following is a summary of market-based restricted stock activity under our stock option plan for the nine months ended September 30, 2022 and the status of market-based restricted stock outstanding as of September 30, 2022:
| Nine Months Ended | ||||||||
| September 30, 2022 | ||||||||
| Shares | Wtd. Avg. Grant Date Fair Value | |||||||
| Outstanding as of beginning of year | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Non-vested as of September 30, 2022 | $ | |||||||
On March 25, 2020, the Company granted
On February 8, 2021, the Company granted
On February 24, 2022, the Company granted
We recognized stock compensation expense of $
The aggregate fair value of the market-based awards granted was and $
Total stock compensation expense
We recorded total stock compensation expense for the three and nine months ended September 30, 2022 and 2021, as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Cost of revenue | $ | $ | $ | $ | ||||||||||||
| General and administrative costs | ||||||||||||||||
| Sales and marketing costs | ||||||||||||||||
| Research and development costs | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
15. Acquisitions
Sexton acquisition
General terms and effects
On August 9, 2021, BioLife entered into an Agreement and Plan of Merger (the “Sexton Merger Agreement”) with BLFS Merger Sub, Inc., a Delaware corporation (“Sexton Merger Sub”), Fortis Advisors LLC, in its capacity as the representative of the stockholders of Sexton (the “Sexton Seller Representative”) and Sexton, a Delaware corporation. The acquisition strengthens BioLife’s offerings in the cell and gene therapy and broader biopharma markets.
On September 1, 2021, the Company completed the merger of Sexton Merger Sub with and into Sexton and Sexton became a wholly-owned subsidiary of the Company (the “Sexton Merger”). As consideration for the Sexton Merger (the “Sexton Merger Consideration”), holders of common stock, preferred stock and options of Sexton, other than the Company (collectively, the “Sexton Participating Holders”), are entitled to receive an aggregate of
Total consideration transferred (in thousands, except number of shares and stock price):
| Merger consideration shares | ||||
| BioLife stock price (as of September 1, 2021) | $ | |||
| Value of issued shares | $ | |||
| Plus: Fair value of BioLife’s existing investment in Sexton | $ | |||
| Less: Net working capital adjustment | $ | ( | ) | |
| Merger Consideration | $ |
Transaction costs related to the acquisition are expensed as incurred and are not included in the calculation of consideration transferred.
Fair value of net assets acquired
Under the acquisition method of accounting, the assets acquired and liabilities assumed from Sexton were calculated as of the merger date, at their respective fair values, and consolidated with those of BioLife. The gross contractual accounts receivable acquired in the acquisition was $
The table below represents the fair value of the net assets acquired and liabilities assumed, which were recorded as of the merger date (amounts in thousands).
| Cash | $ | |||
| Accounts receivable, net | ||||
| Inventories | ||||
| Prepaid expenses and other current assets | ||||
| Property, plant and equipment, net | ||||
| Operating lease right-of-use assets, net | ||||
| Developed technology | ||||
| Customer relationships | ||||
| Tradenames | ||||
| Non-compete agreements | ||||
| Goodwill | ||||
| Accounts payable | ( | ) | ||
| Lease liabilities, operating | ( | ) | ||
| Deferred tax liability | ( | ) | ||
| Other liabilities | ( | ) | ||
| Fair value of net assets acquired | $ |
We recorded a measurement period adjustment in the fourth quarter of the year ended December 31, 2021 of $
The fair value of Sexton’s identifiable intangible assets and useful lives are as follows (amounts in thousands, except years):
| Fair Value | Useful Life (Years) | |||||||||
| Developed technology | $ | - | ||||||||
| Customer relationships | ||||||||||
| Tradenames | ||||||||||
| Non-compete agreements | ||||||||||
| Total identifiable intangible assets | $ | |||||||||
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 developed technology were estimated using a multi-period excess earnings approach. The estimated fair values of customer relationships and non-compete agreements were estimated using a “with and without” approach, comparing projected cash flows under scenarios assuming the customer relationships and non-compete agreements were and were not in place. 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.
Some of the more significant assumptions inherent in the development of intangible asset fair values, from the perspective of a market participant, include, but are not limited to (i) the amount and timing of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to measure the risks inherent in the future cash flows, (iii) the assessment of the asset’s life cycle, and (iv) the competitive trends impacting the asset.
Acquired goodwill
The goodwill of $
Global Cooling acquisition
General terms and effects
On March 19, 2021, the Company entered into an Agreement and Plan of Merger (the “GCI Merger Agreement”) with BLFS Merger Subsidiary, Inc., a Delaware corporation (“GCI Merger Sub”), Global Cooling, a Delaware corporation and Albert Vierling and William Baumel, in their capacity as the representatives of the stockholders of GCI (collectively, the “GCI Seller Representative”). The acquisition strengthens BioLife’s offerings in the cell and gene therapy and broader biopharma markets.
On May 3, 2021, pursuant to the GCI Merger Agreement, subject to the terms and conditions set forth therein, the transactions contemplated by the GCI Merger Agreement were consummated (the “GCI Closing”), GCI Merger Sub merged with and into GCI (the “GCI Merger” and, together with other transactions contemplated by the GCI Merger Agreement, the “GCI Transactions”), with GCI continuing as the surviving corporation in the GCI Merger and a wholly-owned subsidiary of the Company. In the GCI Merger, all of the issued and outstanding shares of capital stock of GCI immediately prior to the filing of the Certificate of Merger with the Secretary of State of the State of Delaware (other than those properly exercising any applicable dissenter’s rights under Delaware law) were converted into the right to receive the GCI Merger Consideration (as defined below). The Company paid the GCI Merger Consideration to the holders of common stock and preferred stock of GCI (collectively, the “GCI Stockholders”).
Merger consideration
The aggregate merger consideration paid pursuant to the GCI Merger Agreement to the GCI Stockholders was
Total consideration transferred (in thousands, except number of shares, stock price, and consideration percentage):
| BioLife shares outstanding (as of March 19, 2021) | ||||
| Merger consideration percentage | % | |||
| Merger consideration shares | ||||
| less: Merger consideration shares withheld to satisfy outstanding GCI stockholder obligations to GCI | ||||
| Subtotal | ||||
| BioLife stock price (as of May 3, 2021) | $ | |||
| Value of issued shares | $ | |||
| plus: Settlement of BioLife prepaid deposits | $ | |||
| plus: Net settlement of BioLife accounts receivable | $ | |||
| Merger Consideration | $ |
Transaction costs related to the acquisition are expensed as incurred and are not included in the calculation of consideration transferred.
Escrow shares
At the GCI Closing, approximately nine percent (
The GCI Escrow Property will be held for a period of up to twenty-four (
Fair value of net assets acquired
Under the acquisition method of accounting, the assets acquired and liabilities assumed from Global Cooling were calculated as of the merger date, at their respective fair values, and consolidated with those of BioLife. The gross contractual accounts receivable acquired in the acquisition was $
The table below represents the fair value of the net assets acquired and liabilities assumed, which were recorded as of the merger date (amounts in thousands).
| Cash | $ | |||
| Accounts receivable, net | ||||
| Inventories | ||||
| Prepaid expenses and other current assets | ||||
| Property, plant and equipment, net | ||||
| Operating lease right-of-use assets, net | ||||
| Financing lease right-of-use assets, net | ||||
| Long-term deposits and other assets | ||||
| Developed technology | ||||
| Customer relationships | ||||
| Tradenames | ||||
| Non-compete agreements | ||||
| In-process research and development | ||||
| Goodwill | ||||
| Accounts payable | ( | ) | ||
| Line of credit | ( | ) | ||
| Lease liabilities, operating | ( | ) | ||
| Lease liabilities, financing | ( | ) | ||
| Long-term debt | ( | ) | ||
| Deferred tax liability | ( | ) | ||
| Other liabilities | ( | ) | ||
| Fair value of net assets acquired | $ |
We recorded a measurement period adjustment in the fourth quarter of the year ended December 31, 2021 of $
The fair value of Global Cooling’s identifiable intangible assets and useful lives are as follows (amounts in thousands, except years):
| Fair Value | Useful Life (Years) | |||||||
| Developed technology | $ | |||||||
| Customer relationships | ||||||||
| Tradenames | ||||||||
| Non-compete agreements | ||||||||
| In-process research and development | N/A | |||||||
| Total identifiable intangible assets | $ | |||||||
Fair value measurement methodologies used to calculate the value of any asset can be broadly classified into one of three approaches, referred to as the cost, market and income approaches. In any fair value measurement analysis, all three approaches must be considered, and the approach or approaches deemed most relevant will then be selected for use in the fair value measurement of that asset. The fair values of developed technology and in-process research and development were estimated using a multi-period excess earnings approach. The fair values of customer relationships were estimated using the “distributor method”. The 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 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 inventory and property, plant and equipment were determined using the “market approach”.
Some of the more significant assumptions inherent in the development of intangible asset fair values, from the perspective of a market participant, include, but are not limited to (i) the amount and timing of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to measure the risks inherent in the future cash flows, (iii) the assessment of the asset’s life cycle, and (iv) the competitive trends impacting the asset.
In July 2022, the Company abandoned an in-process research and development project within the asset group acquired in the acquisition of Global Cooling and revised its forecasts for net income and net cash flows to be generated by that asset group. The Company determined that these events constituted interim triggering events that required further analysis with respect to potential impairment to indefinite-lived intangibles and definite-lived intangibles. The Company performed an interim quantitative impairment test as of the June 30, 2022 balance sheet date, noting that the values of indefinite-lived intangibles and definite-lived intangibles were impaired by $
Acquired goodwill
The goodwill of $
Pro forma presentation
The following unaudited pro forma financial information presents the combined results of operations of Sexton as if the acquisition had occurred on January 1, 2021 after giving effect to certain pro forma adjustments. These pro forma adjustments include intangible amortization, stock-based compensation expense and salary expense related to a key employee, and the income tax effect of the adjustments made:
| Three Months | Nine Months | |||||||
| 2021 | 2021 | |||||||
| (In thousands) | (unaudited) | (unaudited) | ||||||
| Total revenue | $ | $ | ||||||
| Net (loss) income | $ | ( | ) | $ | ||||
The following unaudited pro forma financial information presents the combined results of operations of Global Cooling as if the acquisition had occurred on January 1, 2021 after giving effect to certain pro forma adjustments. These pro forma adjustments include intangible amortization, amortization of increased inventory basis, depreciation expense, lease expense, transaction costs, interest expense, stock-based compensation expense and salary expense related to a key employee, and the income tax effect of the adjustments made:
| Three Months | Nine Months | |||||||
| 2021 | 2021 | |||||||
| (In thousands) | (unaudited) | (unaudited) | ||||||
| Total revenue | $ | $ | ||||||
| Net (loss) income | $ | $ | ( | ) | ||||
16. 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.
The Company’s tax provision for interim periods is determined using an estimate of the annual effective income tax rate, adjusted for discrete items, if any, that occur in the relevant period. The income tax benefit of $
The Company’s US projected effective income tax rate without discrete items was
Realization of deferred tax assets is dependent upon the generation of future taxable income, the timing and amount of which are uncertain. In determining the need for a valuation allowance, the Company’s management evaluates both positive and negative evidence when concluding whether it is more likely than not that deferred tax assets are realizable. After reviewing the evidence available, the Company’s management believes there is uncertainty regarding the future realizability of the U.S. net operating loss carryforward and is projecting a full valuation allowance of $
17. Net (loss) income 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 loss 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:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (In thousands, except share and earnings per share data) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Basic earnings (loss) per common share | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Amount attributable to unvested restricted shares | ( | ) | ( | ) | ||||||||||||
| Amount attributable to warrants outstanding | ( | ) | ||||||||||||||
| Net (loss) income allocated to common shareholders | ( | ) | ( | ) | ||||||||||||
| Denominator: | ||||||||||||||||
| Weighted-average common shares issued and outstanding | ||||||||||||||||
| Basic (loss) earnings per common share | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Diluted earnings (loss) per common share | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Amount attributable to unvested restricted shares | ( | ) | ( | ) | ||||||||||||
| Amount attributable to warrants | ( | ) | ||||||||||||||
| Diluted (loss) earnings per common share | ( | ) | ( | ) | ||||||||||||
| Denominator: | ||||||||||||||||
| Weighted-average common shares issued and outstanding | ||||||||||||||||
| Dilutive potential common shares from: | ||||||||||||||||
| Stock options | ||||||||||||||||
| Restricted shares | ||||||||||||||||
| Warrants | ||||||||||||||||
| Diluted weighted average shares issued and outstanding | ||||||||||||||||
| Diluted (loss) earnings per common share | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
The following table sets forth the number of weighted-average common shares excluded from the computation of diluted loss per share, as their inclusion would have been anti-dilutive:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Stock options and restricted stock awards | ||||||||||||||||
| Total | ||||||||||||||||
18. 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 employee or upon the employee 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 significant pending or threatened litigation that is anticipated to result in unfavorable judgments against the Company.
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 September 30, 2022.
19. Employee benefit plan
The Company sponsors 401(k) defined contribution plans for its employees. These plans provide for pre-tax and post-tax contributions for all employees. Employee contributions are voluntary. Employees may contribute up to
20. Subsequent events
On September 28, 2022, we entered into an operating lease agreement for approximately
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 2021, 2020, and 2019 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 as of and for the fiscal year ended December 31, 2021 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 as of and for the fiscal year ended December 31, 2021 filed with the SEC.
We are a life sciences company that develops, manufactures, and markets bioproduction tools and services to the cell and gene therapy (“CGT”) industry and broader biopharma market, which are designed to improve quality and de-risk biologic manufacturing, storage, distribution, and transportation. 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.
Our current portfolio of bioproduction tools and services are comprised of three revenue lines that contain seven main offerings: (i) cell processing (including biopreservation media for the preservation of cells and tissues, human platelet lysate media for the supplementation of cell expansion, cryogenic vials and automated fill machines that provide high-quality, efficient, and precise mixes of solutions), (ii) freezers and thaw systems (including a full line of mechanical ultra-low temperature (“ULT”), isothermal, and liquid nitrogen freezers and accessories, automated thaw devices which provide controlled, consistent thawing of frozen biologics in vials and cryobags), and (iii) storage and storage services (including biological and pharmaceutical storage services, and “smart”, cloud connected devices for transporting biologic payloads).
We currently operate as one bioproduction tools and services business which supports several steps in the biologic material manufacturing and delivery process. We have a diversified portfolio of tools and services that focus on biopreservation, cell processing, frozen biologic storage products and services, cold-chain transportation, 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 three revenue lines that contain seven main offerings:
| ● |
Cell processing |
||
| ○ |
Biopreservation media |
||
| ○ |
Human platelet lysate media (“hPL”), cryogenic vials, and automated cell-processing fill machines |
||
| ● |
Freezers and thaw systems |
||
| ○ |
Ultra-low temperature freezers |
||
| ○ |
Cryogenic freezers and accessories |
||
| ○ |
Automated thawing devices |
||
| ● |
Storage and storage services |
||
| ○ |
Biological and pharmaceutical material storage |
||
| ○ |
Cloud connected “smart” shipping containers |
||
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 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 more than 570 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 30+ 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:
| ● |
Minimize cell and tissue swelling |
|
| ● |
Reduce free radical levels upon formation |
|
| ● |
Maintain appropriate low temperature ionic balances |
|
| ● |
Provide regenerative, high energy substrates to stimulate recovery upon warming |
|
| ● |
Avoid the creation of an acidic state (acidosis) |
|
| ● |
Inhibit the onset of apoptosis and necrosis |
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.
Human platelet lysate media, cryogenic vials and automated cell-processing fill machines
In September 2021, we acquired Sexton Biotechnologies, Inc., a producer of bioproduction tools. Sexton's bioproduction tools portfolio includes hPL for cell expansion reducing risk and improving downstream performance over fetal bovine serum, human serum, and other chemically defined media, CellSeal® closed system vials that are purpose-built rigid containers used in CGT that can be filled manually or with high throughput systems, and automated cell processing machines bring multiple processes traditionally performed by manual techniques under a higher level of control to protect therapies from loss or contamination.
Compressor-free ULT freezers
In May 2021, we acquired Global Cooling, Inc. (“Global Cooling”), a manufacturer of class defining ultra-low temperature freezers. Global Cooling carries a portfolio of freezers that range in size from portable units to stationary upright freezers to accommodate a wide variety of use cases. Users can configure these freezers to achieve temperatures between -20°C and -86°C. The portfolio was designed to be environmentally friendly and energy efficient, using as little as 2.8 kWh/day at temperatures of -80°C. The freezers do not use compressor-based or cascade refrigeration systems. Instead, they use patented free-piston Stirling engine technology that uses fewer moving parts, resulting in maintenance cost savings for end users.
Liquid nitrogen freezers 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.
Included in CBS’s product line of liquid nitrogen freezers are controlled-rate freezers and 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.
Automated, water-free thawing products
In April 2019, we acquired Astero Bio Corporation (“Astero”). 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 cell structure damage during the temperature transition. The ThawSTAR® products can reduce risks of contamination versus using a traditional water bath.
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 six storage facilities in the USA and one facility in the Netherlands.
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”) has an improved form factor and ergonomics over traditional dewars, including extended thermal performance, reduced liquid nitrogen recharge time, improved payload extractors and ability to maintain temperature for longer periods during transit or otherwise in a non-upright orientation.
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.
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 Unaudited Condensed 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, 2021 filed with the SEC and Note 1 to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on form 10-Q.
Results of operations
The following discussion of the financial condition and results of operations should be read in conjunction with the accompanying Unaudited Condensed Consolidated Financial Statements and the related footnotes thereto.
Revenues
Total bioproduction tools and services revenue for three and nine months ended September 30, 2022 and 2021 was comprised of the following:
| Three Months Ended |
||||||||||||||||
| September 30, |
||||||||||||||||
| (In thousands, except percentages) |
2022 |
2021 |
$ Change |
% Change |
||||||||||||
| Product revenue |
||||||||||||||||
| Freezer and thaw |
$ | 15,326 | $ | 17,610 | $ | (2,284 | ) | (13 | )% |
|||||||
| Cell processing |
18,082 | 11,505 | 6,577 | 57 | % |
|||||||||||
| Storage and storage services |
260 | 86 | 174 | 202 | % |
|||||||||||
| Service revenue |
||||||||||||||||
| Storage and storage services |
4,312 | 2,250 | 2,062 | 92 | % |
|||||||||||
| Cell processing |
18 | - | 18 | NM | ||||||||||||
| Rental revenue |
||||||||||||||||
| Storage and storage services |
2,749 | 2,349 | 400 | 17 | % |
|||||||||||
| Total revenue |
$ | 40,747 | $ | 33,800 | $ | 6,947 | 21 | % |
||||||||
| Nine Months Ended |
||||||||||||||||
| September 30, |
||||||||||||||||
| (In thousands, except percentages) |
2022 |
2021 |
$ Change |
% Change |
||||||||||||
| Product revenue |
||||||||||||||||
| Freezer and thaw |
$ | 49,331 | $ | 40,021 | $ | 9,310 | 23 | % |
||||||||
| Cell processing |
48,336 | 30,131 | 18,205 | 60 | % |
|||||||||||
| Storage and storage services |
560 | 293 | 267 | 91 | % |
|||||||||||
| Service revenue |
||||||||||||||||
| Storage and storage services |
11,099 | 6,417 | 4,682 | 73 | % |
|||||||||||
| Cell processing |
18 | - | 18 | NM | ||||||||||||
| Rental revenue |
||||||||||||||||
| Storage and storage services |
8,156 | 4,989 | 3,167 | 63 | % |
|||||||||||
| Total revenue |
$ | 117,500 | $ | 81,851 | $ | 35,649 | 44 | % |
||||||||
Product revenue
Product revenue was $33.7 million for the three months ended September 30, 2022, representing an increase of $4.5 million, or 15%, compared with the same period in 2021, and was $98.2 million for the nine months ended September 30, 2022, representing an increase of $27.8 million, or 39%, compared with the same period in 2021. Organic revenue grew 38% in the nine months ended September 30, 2022 due to the continued adoption of our cell processing products by customers in the CGT market.
Product revenue from our freezer and thaw products decreased by $2.3 million and increased by $9.3 million, or 13% and 23%, in the three and nine months ended September 30, 2022, respectively, compared with the same period in 2021. Of the increase noted in the nine months ended September 30, 2022, $7.3 million is attributable to revenue generated by our ULT freezer products, which were acquired in May 2021. Organic freezer and thaw revenue increased by 10% in the nine months ended September 30, 2022 due to strong cryogenic freezer sales.
Product revenue from our cell processing products increased by $6.6 million and $18.2 million, or 57% and 60%, in the three and nine months ended September 30, 2022, respectively, compared with the same period in 2021. Of the increase noted in the three and nine months ended September 30, 2022, $1.1 million and $3.5 million of the increases are respectively attributable to revenue generated by our hPL, cryogenic vial, and automated fill machine products, which were acquired on September 1, 2021. Organic cell processing revenue increased 49% in the nine months ended September 30, 2022, as our cell processing products continue to be adopted by customers in the CGT market.
Product revenue from our storage and storage services increased by $174,000 and increased by $267,000, or a 202% increase and a 91% increase, in the three and nine months ended September 30, 2022, respectively, compared with the same periods in 2021.
Service revenue
Service revenue was $4.3 million and $11.1 million for the three and nine months ended September 30, 2022, respectively, representing increases of $2.1 million and $4.7 million, or 92% and 74%, compared with the same period in 2021. The entirety of these increases were generated organically. The increase relates primarily to $2.7 million of revenue generated by our Netherlands biorepository storage expansion which became operational in the fourth quarter of 2021.
Rental revenue
Rental revenue was $2.7 million and $8.2 million for the three and nine months ended September 30, 2022, respectively, representing an increase of $400,000 and $3.2 million, or 17% and 63%, compared with 2021. The entirety of these increases were generated organically. Increases in rental revenues are attributable to increased rental volumes to existing customers and the leasing of dedicated storage spaces and other assets through our biological and pharmaceutical services product line.
Costs and operating expenses
Total costs and operating expenses for three and nine months ended September 30, 2022 and 2021 were comprised of the following:
| Three Months Ended |
||||||||||||||||
| September 30, |
||||||||||||||||
| (In thousands, except percentages) |
2022 |
2021 |
$ Change |
% Change |
||||||||||||
| Cost of product, rental, and service revenue |
$ | 27,009 | $ | 24,864 | $ | 2,145 | 9 | % |
||||||||
| General and administrative |
11,581 | 10,081 | 1,500 | 15 | % |
|||||||||||
| Sales and marketing |
5,277 | 4,065 | 1,212 | 30 | % |
|||||||||||
| Research and development |
3,425 | 3,219 | 206 | 6 | % |
|||||||||||
| Intangible asset amortization |
2,513 | 2,525 | (12 | ) | - | |||||||||||
| Acquisition costs |
1 | 345 | (344 | ) | (100 | )% |
||||||||||
| Change in fair value of contingent consideration |
2,346 | (140 | ) | 2,486 | NM | |||||||||||
| Total operating expenses |
$ | 52,152 | $ | 44,959 | $ | 7,193 | 16 | % |
||||||||
| Nine Months Ended |
||||||||||||||||
| September 30, |
||||||||||||||||
| (In thousands, except percentages) |
2022 |
2021 |
$ Change |
% Change |
||||||||||||
| Cost of product, rental, and service revenue |
$ | 77,649 | $ | 50,968 | $ | 26,681 | 52 | % |
||||||||
| General and administrative |
34,128 | 22,058 | 12,070 | 55 | % |
|||||||||||
| Sales and marketing |
15,583 | 9,228 | 6,355 | 69 | % |
|||||||||||
| Research and development |
10,634 | 8,250 | 2,384 | 29 | % |
|||||||||||
| Intangible asset impairment charges |
69,900 | - | 69,900 | NM | ||||||||||||
| Intangible asset amortization |
8,236 | 5,340 | 2,896 | 54 | % |
|||||||||||
| Acquisition costs |
18 | 1,616 | (1,598 | ) | (99 | )% |
||||||||||
| Change in fair value of contingent consideration |
(3,348 | ) | 1,086 | (4,434 | ) | NM | ||||||||||
| Total operating expenses |
$ | 212,800 | $ | 98,546 | $ | 114,254 | 116 | % |
||||||||
Cost of product, rental, and service revenue
Cost of revenue increased $2.1 million and $26.7 million for the three and nine months ended September 30, 2022, or 9% and 52%, respectively, compared to the same period in 2021, due primarily to the acquisitions of Global Cooling and Sexton. Warranty expense recognized in cost of revenue decreased $3.6 million and $2.7 million for the three and nine months ended September 30, 2022, or 94% and 61%, respectively, compared to the same period in 2021 due to the Company’s progress in addressing quality issues that were identified within the ULT freezer product line in the third and fourth quarters of 2021. We expect that cost of product revenue may fluctuate in future quarters based on production volumes, raw material and transportation costs, customer mix, and product mix.
Cost of revenue net of intangible amortization related to acquired technology was 69% as a percentage of revenue for both the three and nine months ended September 30, 2022, and 78% and 66% as a percentage of revenue for the three and nine months ended September 30, 2021, respectively. In the three months ended September 30, 2021, the Company revised estimates for warranty expense based on quality issues identified within the ULT freezer product line, resulting in $3.8 million of warranty expense being recognized in that quarter.
General and administrative expenses
General and administrative (“G&A”) expense consists primarily of personnel-related costs, non-cash stock-based expense 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 and nine months ended September 30, 2022 increased $1.5 million and $12.1 million, or 15% and 55%, respectively, compared with the same period in 2021. The increase reflects the assumption of G&A expenses related to our acquisitions of Global Cooling in Q2 2021 and Sexton in Q3 2021, increased headcount and non-cash stock-based compensation expense, accounting fees, and insurance 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.
Sales and marketing expenses
Sales and marketing expense (“S&M”) consists primarily of salaries and other personnel-related costs, non-cash stock-based expense, consulting, trade shows, travel, sales commissions, and advertising.
S&M expense for the three and nine months ended September 30, 2022 increased $1.2 million and $6.4 million, or 30% and 69%, respectively, compared with the same period in 2021. The increase is primarily due to our acquisitions of Global Cooling in Q2 2021 and Sexton in Q3 2021, increased non-cash stock-based expense and increased expenses related to travel and tradeshows.
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.
Research and development expenses
Research and development (“R&D”) expense consist primarily of salaries and other personnel-related costs, non-cash stock-based expense, consulting, and external product development services.
R&D expense for the three and nine months ended September 30, 2022 increased $206,000 and $2.4 million, or 6% and 29%, respectively, compared with the same period in 2021. The increase is primarily due to our acquisitions of Global Cooling in Q2 2021 and Sexton in Q3 2021.
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.
Intangible asset impairment charges
Relates to the non-cash write-down of both indefinite-lived intangible assets and definite-lived intangible assets that resulted from a quantitative fair value assessment performed as of June 30, 2022. Macroeconomic conditions and persisting supply chain challenges have increased the cost of inputs used in the manufacture of our ULT freezer products. In the wake of these increased costs, the Company’s updated forecasts for projected net income and net cash flows were lowered, resulting in a lower future expected value of the asset group containing our ULT freezer products. In addition, the Company has opted to focus our ULT research and development group towards launching the next generation of ULT freezers, which involved suspending the development of an early-stage product.
Intangible asset amortization expense
Amortization expense consists of charges related to the amortization of intangible assets associated with the acquisitions of Astero, SAVSU, CBS, SciSafe, Global Cooling, and Sexton in which we acquired definite-lived intangible assets.
Acquisition costs
Acquisition costs consist of legal, accounting, and other due diligence costs incurred related primarily to our Global Cooling and Sexton 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. The expense and benefit recognized in the three and nine months ended September 30, 2022, respectively, relate primarily to changes in BioLife’s share price, as certain contingent consideration arrangements are payable in BioLife’s shares.
Other income and expense
Total other income and expenses for the three and nine months ended September 30, 2022 and 2021 were comprised of the following:
| Three Months Ended |
||||||||||||||||
| September 30, |
||||||||||||||||
| (In thousands, except percentages) |
2022 |
2021 |
$ Change |
% Change |
||||||||||||
| Change in fair value of investments |
$ | 697 | $ | - | $ | 697 | NM |
|
||||||||
| Interest income (expense), net |
10 | (194 | ) | 204 | (105 | )% |
||||||||||
| Other income (expense), net |
142 | (7 | ) | 149 | NM |
|
||||||||||
| Gain on acquisition of Sexton Biotechnologies, Inc. |
- | 6,451 | (6,451 | ) | NM |
|
||||||||||
| Total other income, net |
$ | 849 | $ | 6,250 | $ | (5,401 | ) | (86 | )% |
|||||||
| Nine Months Ended |
||||||||||||||||
| September 30, |
||||||||||||||||
| (In thousands, except percentages) |
2022 |
2021 |
$ Change |
% Change |
||||||||||||
| Interest income (expense), net |
$ | (181 | ) | $ | (331 | ) | $ | 150 | (45 | )% |
||||||
| Change in fair value of investments |
697 | - | 697 | NM |
|
|||||||||||
| Other income (expense), net |
270 | (7 | ) | 277 | NM |
|
||||||||||
| Change in fair value of warrant liability |
- | (121 | ) | 121 | NM |
|
||||||||||
| Gain on acquisition of Sexton Biotechnologies, Inc. |
- | 6,451 | (6,451 | ) | NM |
|
||||||||||
| Total other income, net |
$ | 786 | $ | 5,992 | $ | (5,206 | ) | (87 | )% |
|||||||
Change in fair value of investments. Reflects the change in fair value of the Company’s equity investments.
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.
Interest expense, net. We earn interest on cash held in our money market account. Interest expense in the three and nine months ended September 30, 2022 grew compared to 2021 due to debt acquired in the acquisition of Global Cooling and equipment financing.
Gain on acquisition of Sexton Biotechnologies, Inc. Reflects the markup in the carrying value of BioLife’s investment in Sexton to fair value as a result of incremental equity acquisition.
Liquidity and capital resources
On September 30, 2022 and December 31, 2021, we had $62.1 million and $69.9 million in cash, cash equivalents, and available-for-sale securities, respectively. We additionally have the ability to borrow up to $30 million under our 2022 term loan 3. See Note 11 – “Long-term debt” for additional details on borrowing requirements under 2022 term loan 3. Based on our current expectations with respect to our future revenue and expenses, we believe that our current level of cash, cash equivalents, and other liquid assets will be sufficient to meet our liquidity needs for at least the next twelve months from the date of the filing of this Form 10-Q. 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
| Nine Months Ended |
||||||||||||
| September 30, |
||||||||||||
| (In thousands) |
2022 |
2021 |
$ Change |
|||||||||
| Operating activities |
$ | (16,345 | ) | $ | (3,819 | ) | $ | (12,526 | ) | |||
| Investing activities |
(43,223 | ) | (10,650 | ) | (32,573 | ) | ||||||
| Financing activities |
16,941 | (673 | ) | 17,614 | ||||||||
| Net decrease in cash and cash equivalents |
$ | (42,627 | ) | $ | (15,142 | ) | $ | (27,485 | ) | |||
Net cash used in operating activities
Net cash used by operating activities was $16.3 million during the nine months ended September 30, 2022 compared to $3.8 million during the nine months ended September 30, 2021. The increase in cash used by operating activities was primarily the result of the timing of collection and disbursement of working capital related items in accounts receivable, inventories, and accounts payable.
Net cash used in investing activities
Net cash used by investing activities totaled $43.2 million during the nine months ended September 30, 2022 compared to $10.7 million for the nine months ended September 30, 2021. The increase in cash used by investing activities was the result of significant investments in available-for-sale marketable securities made in Q2 2022 and Q3 2022.
Net cash provided by (used in) financing activities
Net cash provided by financing activities totaled $16.9 million during the nine months ended September 30, 2022, compared to $673,000 during the nine months ended September 30, 2021. The increase in cash provided by financing activities was the result of a term loan draw of $20 million made in Q3 2022.
Off-balance sheet arrangements
As of September 30, 2022, 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, 2021, as filed with the SEC. There have been no significant changes to these obligations in the three and nine months ended September 30, 2022.
Item 3. Quantitative and qualitative disclosures about market risk
Interest rate risk
Our exposure to market risk for changes in interest rates relates primarily to our investments in available-for-sale securities and our long-term debt. We invest our excess cash in investment grade short to intermediate-term fixed income securities. These securities may have their fair market value adversely affected due to a rise in interest rates, and we may suffer losses if forced to sell securities that have declined in market value due to changes in interest rates. Our long-term debt primarily bears interest at a fixed rate, with a variable component subject to an interest rate ceiling. Fluctuations in interest rates therefore do not materially impact our consolidated financial statements from long-term debt. For additional information about our long-term debt and available-for-sale securities, see Notes 3 and 11 to the consolidated financial statements in Part I, Item 1 of this Quarterly Report.
Foreign currency exchange risk
For a discussion of market risks related to foreign currency exchange rates, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2021. During the three and nine months ended September 30, 2022, there were no material changes or developments that would materially alter the market risk assessment of our exposures to foreign currency exchange rates performed as of December 31, 2021.
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 weaknesses in our internal controls over financial reporting. As previously reported, we identified material weaknesses in our internal controls over financial reporting as of December 31, 2021 with regard to (i) inappropriately designed entity-level controls impacting the control environment, risk assessment, and monitoring activities to prevent or detect material misstatements to the consolidated financial statements attributed to an insufficient number of qualified resources and inadequate oversight and accountability over the performance of controls, ineffective identification and assessment or risks impacting internal control over financial reporting, and ineffective monitoring controls; (ii) information system logical access within certain key financial systems; (iii) accounting policies and procedures and related controls over complex financial statement areas; (iv) accounting policies, procedures, and related controls over assets held for lease; (v) accounting policies, procedures, and related controls over the preparation and review of projected financial information used in determining the valuation of acquired intangible assets and contingent consideration in business combinations as well as the quantitative impairment analysis of indefinite-lived intangible assets; and (vi) policies, procedures, and related controls over the presentation and disclosure of amounts presented in the consolidated financial statements in accordance with the applicable financial reporting requirements.
Changes in Internal Control Over Financial Reporting. Other than the remediation of a previously identified material weakness as described below, there was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2022 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 weaknesses described above, management plans to implement the following measures:
| ● |
The Company reassigned all system administrator rights to personnel who do not perform key accounting duties; |
| ● |
The Company plans to hire and retain additional individuals with the appropriate skills related to technical accounting and internal control over financial reporting; |
| ● |
The Company will enhance its reconciliations and management review controls with the added stability of new hires and the implementation of technology solutions to automate visibility and enforcement of the independent review and documentation of journal entries, including proper segregation of duties, thus mitigating risks of both unintentional errors and fraud; and |
| ● |
The Company plans to develop processes and procedures to enhance the precision of management review of financial statement information. |
As we continue to evaluate and test the remediation plan outlined above, we may also identify additional measures to address the material weaknesses 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 weaknesses. Management, with the oversight of the Audit Committee, will continue to take steps necessary to remedy the material weaknesses to reinforce the overall design and capability of our control environment.
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.
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, 2021 and in subsequent filings, could cause our actual results to differ materially from those in the forward-looking statements. Other than the risk factor listed below, there have been no material changes to the risk factors described in our Annual Report on Form 10-K for the period ended December 31, 2021.
Our inability to protect our systems and data from continually evolving cybersecurity risks or other technological risks, including as a result of breaches of our associated third parties, could affect our ability to conduct our business.
In conducting our business, we process, transmit and store sensitive business information and personal information about our customers, vendors, and other parties. This information may include account access credentials, credit and debit card numbers, bank account numbers, social security numbers, driver’s license numbers, names and addresses and other types of sensitive business or personal information. Some of this information is also processed and stored by our third-party service providers to whom we outsource certain functions and other agents, including our customers, which we refer to collectively as our associated third parties.
We are a regular target of malicious third-party attempts, some of which have been successful, to identify and exploit system vulnerabilities, and/or penetrate or bypass our security measures, in order to gain unauthorized access to our networks and systems or those of our associated third parties. Such access has led and could lead in the future to the compromise of sensitive, business, personal or confidential information or instructions to transfer funds by us or customers to unauthorized recipients. As a result, we proactively employ multiple methods at different layers of our systems to defend our systems against intrusion and attack and to protect the data we collect. These measures have been breached in the past and we cannot be certain that they will be successful and sufficient to counter current and emerging technology threats that are designed to breach our systems in order to gain access to confidential information.
Our computer systems and our associated third parties’ computer systems have been, and could be in the future, subject to breach, and our data protection measures may not prevent unauthorized access. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and are often difficult to detect. Threats to our systems and our associated third parties’ systems can derive and have derived from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure. Computer viruses and other malware can be distributed and has and could in the future infiltrate our systems or those of our associated third parties. In addition, denial of service or other attacks could be launched against us for a variety of purposes, including to interfere with our services or create a diversion for other malicious activities. Our defensive measures in the past, have not, and in the future, may not, prevent downtime, unauthorized access or use of sensitive data. Further, while we select our third party service providers carefully, and we seek to ensure that our customers adequately protect their systems and data, we do not control their actions and are not able to oversee their processes. Any problems experienced by our associated third parties, including those resulting from breakdowns or other disruptions in the services provided by such parties or cyber-attacks and security breaches, could adversely affect our ability to conduct our business and our financial condition.
We could also be subject to liability for claims relating to misuse of personal information, such as violation of data privacy laws. We cannot provide assurance that the contractual requirements related to security and privacy that we impose on our service providers who have access to customer data will be followed or will be adequate to prevent the unauthorized use or disclosure of data. Any failure to adequately enforce or provide these protective measures could result in liability, protracted and costly litigation, governmental intervention and fines.
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.
None.
| Exhibit No. |
Description |
|
| 10.1* |
||
| 31.1 |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
| 31.2 |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
| 32.1 |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
| 32.2 |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
| 101.INS |
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
|
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) |
|
| * | Certain sensitive financial, commercial and strategic information relating to the Company has been redacted in the marked portions of the exhibit. |
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. |
|
| Date: November 9, 2022 |
/s/ Troy Wichterman |
| Troy Wichterman |
|
| Chief Financial Officer |
|
| (Duly authorized officer and principal |
|
| financial and accounting officer) |
BIOLIFE SOLUTIONS, INC.
INDEX TO EXHIBITS
| Exhibit No. |
Description |
|
| 10.1* |
Loan and Security Agreement, dated September 20, 2022, between BioLife Solutions, Inc. and Silicon Valley Bank (filed herewith) |
|
| 31.1 |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
| 31.2 |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
| 32.1 |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
| 32.2 |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
| 101.INS |
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
|
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) |
|
| * | Certain sensitive financial, commercial and strategic information relating to the Company has been redacted in the marked portions of the exhibit. |