The accompanying Notes to Consolidated Financial
Statements are an integral part of these financial statements
The accompanying Notes to Consolidated Financial
Statements are an integral part of these financial statements
The accompanying Notes to Consolidated Financial
Statements are an integral part of these financial statements
The accompanying Notes to Consolidated Financial
Statements are an integral part of these financial statements
The accompanying Notes to Consolidated Financial
Statements are an integral part of these financial statements
NOTES TO 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 marketer
of proprietary clinical grade cell and tissue hypothermic storage and cryopreservation freeze media and a related cloud hosted
biologistics cold chain management app for smart shippers. Our proprietary HypoThermosol® and CryoStor® platform
of solutions are highly valued in the biobanking, drug discovery, and regenerative medicine markets. Our biopreservation media
products are serum-free and protein-free, fully defined, and are formulated to reduce preservation-induced cell damage and death. Our
enabling technology provides commercial companies and clinical researchers significant improvement in shelf life and post-preservation
viability and function of cells, tissues, and organs. Additionally, for our direct, distributor, and contract customers,
we perform custom formulation, fill, and finish services.
Recent Developments
Reverse Stock Split
On January 17, 2014, our Board of Directors
approved an amendment to our certificate of incorporation to effect a reverse stock split by a ratio of 1 for 14, with no reduction
in the number of shares of common stock that were previously authorized in our certificate of incorporation. The reverse
stock split was effective on January 29, 2014. Unless otherwise noted, all share and per share data in these consolidated
financial statements give effect to the 1-for-14 reverse stock split of our common stock.
Public Offering of Units
On March 25, 2014, we closed a registered public
offering of 3,588,878 units for gross proceeds of $15,432,175. Each $4.30 unit consisted of one share of the Company’s common
stock and one warrant, each warrant exercisable for seven years to purchase one share of the Company’s common stock at an
exercise price of $4.75. Net of placement agent fees of $1,211,734 and offering costs of $624,211, we received net proceeds of
$13,596,230. Of the gross proceeds, $9.1 million was allocated to common stock and $6.3 million was allocated to warrants,
based on relative fair values.
Conversion of Notes and Interest to Equity
Pursuant to note conversion agreements with
WAVI Holding AG and Taurus4757 GmbH (the “Note Holders”), concurrently with the closing of the Company’s public
offering of units, the Company converted approximately $14.3 million of indebtedness, including accrued interest, to the Note Holders
into equity, issuing to the Note Holders an aggregate of 3,321,405 units having terms substantially similar to the public offering
units. In connection with the note conversion, the Company’s $14.3 million indebtedness to the Note Holders under
the terms of the Company’s previously disclosed facility agreements was extinguished, all remaining unamortized deferred
finance costs of $101,852 were recorded to additional paid in capital, and the Note Holders agreed to release all security interests.
Of the total conversion amount, $8.4 million was allocated to common stock and $5.8 million was allocated to warrants, based on
relative fair values.
Listing of Common Stock on NASDAQ Capital
Market
On March 26, 2014, our common stock was listed
on the NASDAQ Capital Market under the symbol BLFS.
biologistex Joint Venture
On September 29, 2014, we entered into an LLC
Agreement with SAVSU to create biologistex, a 20-year joint venture for the purpose of acquiring, developing, maintaining, owning,
operating, marketing and selling an integrated platform of a cloud-based information service and precision thermal shipping products
based on SAVSU’s next generation evo Smart Shippers.
The joint venture vehicle, biologistex CCM,
LLC, is structured as a Delaware limited liability company. We will make a capital contribution of $2.4 million in such
amounts and at such times as will be necessary for the purpose of funding biologistex’s purchase of products from SAVSU under
a separate Supply and Distribution Agreement. SAVSU contributed exclusive distribution rights to the Smart Shippers
under the separate Supply and Distribution Agreement. As at December 31, 2015, our remaining capital contribution commitment
is $2.2 million.
We were also required to pay SAVSU $1 million
in consideration of SAVSU’s participation in biologistex. As at December 31, 2015, we have satisfied this obligation in full.
The Company and SAVSU are the only members
of biologistex, holding 52% and 48%, respectively, of the outstanding units. Distributions of net cash flow, if any,
are to be made in proportion to the members’ ownership of units.
On September 29, 2014, biologistex and
SAVSU also entered into the Supply and Distribution Agreement whereby biologistex became the exclusive, worldwide distributor of
Smart Shippers. Pursuant to the Supply and Distribution Agreement, biologistex agrees to purchase a minimum number of Smart Shippers
for an aggregate purchase price of approximately $2.6 million. Under the terms of the agreement, SAVSU must fulfill all obligations
required of it to permit biologistex to make the products available for marketing, sales and acceptance of customer orders. The
Supply and Distribution Agreement has an initial term of 20 years unless terminated early by its terms.
On September 29, 2014, the Company and
biologistex also entered into a Services Agreement whereby we will provide services to biologistex related to operations, sales,
marketing, administration and development of a cloud-based software system for tracking and managing the products. The Services
Agreement has an initial term of 20 years unless terminated early by its terms.
Pursuant to the Services Agreement, we
agreed to manage biologistex to achieve certain minimum sales targets. biologistex will pay us monthly for expenses incurred and
certain overhead expenses.
To date, we have funded biologistex’s
obligations to us and certain of biologistex’s other obligations as an interest-free, inter-company loan to biologistex. We
anticipate that we may be required to continue funding such obligations on an ongoing basis until biologistex has achieved revenues
sufficient to pay such expenses. As at December 31, 2015, the principal balance of this loan, which is eliminated upon
consolidation, is $3.5 million.
We launched the biologistex cold-chain
management service including unlimited use of the evo Smart Shipper and the integrated track and trace cloud-based web application,
mybiologistex.com, during the third quarter of 2015, with deployment of shippers to customers and access to the biologistex web
app for validation.
Principles of Consolidation
The consolidated financial statements include
the accounts of the Company and its majority-owned subsidiary. All intercompany balances and transactions have been eliminated
in consolidation.
Use of estimates
The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
Net loss per share
Basic net loss per common share is calculated
by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share
is calculated using the weighted average number of common shares outstanding plus dilutive common stock equivalents outstanding
during the period. Common stock equivalents are excluded for the years ending December 31, 2015 and 2014 since the effect
is anti-dilutive due to the Company’s net losses. Common stock equivalents include stock options and warrants.
Basic weighted average common shares outstanding,
and the potentially dilutive securities excluded from loss per share computations because they are antidilutive, are as follows
for the years ended December 31, 2015 and 2014:
|
|
2015
|
|
|
2014
|
|
Basic and diluted weighted average common stock shares outstanding
|
|
|
12,177,396
|
|
|
|
10,447,030
|
|
Potentially dilutive securities excluded from loss per share computations:
|
|
|
|
|
|
|
|
|
Common stock options
|
|
|
2,555,263
|
|
|
|
1,390,770
|
|
Common stock purchase warrants
|
|
|
7,195,997
|
|
|
|
7,428,141
|
|
Cash and cash equivalents
Cash equivalents consist primarily of interest-bearing
money market accounts. We consider all highly liquid debt instruments purchased with an initial maturity of three months or less
to be cash equivalents. We maintain cash balances that may exceed federally insured limits. We do not believe that this results
in any significant credit risk.
No cash was paid for either interest expense
or income taxes for the years ended December 31, 2015 and 2014.
Investments
The Company's investments consist primarily
of commercial paper, corporate debt, and other debt securities. Investments are classified as available-for-sale and are reported
at fair value based on quoted market prices with unrealized gains and losses, net of applicable taxes, recorded in accumulated
other comprehensive income (loss), a component of shareholders' equity. The realized gains and losses for available-for-sale securities
are included in other income and expense in the Consolidated Statements of Operations. Realized gains and losses are calculated
based on the specific identification method.
The Company monitors its investment portfolio
for impairment on a periodic basis. When the amortized cost basis of an investment exceeds its fair value and the decline
in value is determined to be an other-than-temporary decline, and when the Company does not intend to sell the debt security and
it is not more likely than not that the Company will be required to sell the debt securities prior to recovery of its amortized
cost basis, the Company records an impairment charge in the amount of the credit loss and the balance, if any, to other comprehensive
income (loss).
Inventories
Inventories represent biopreservation solutions,
raw materials used to make biopreservation solutions and finished evo Smart Shippers, and are stated at the lower of cost or market.
Cost is determined using the first-in, first-out (“FIFO”) method.
Accounts receivable
Accounts receivable are stated at principal
amount, do not bear interest, and are generally unsecured. We provide an allowance for doubtful accounts based on an evaluation
of customer account balances past due ninety days from the date of invoicing. Accounts considered uncollectible are charged against
the established allowance.
Property and equipment
Property and equipment are stated at cost
and are depreciated using the straight-line method over estimated useful lives of three to ten years.
Intangible asset
Our intangible asset represents exclusive
distribution rights to the Smart Containers associated with our biologistex CCM, LLC joint venture discussed previously. The intangible
asset was recorded at its fair value of $2,215,385 at the date contributed. We will review the intangible asset for impairment
whenever an impairment indicator exists. We will assess recoverability by determining whether the carrying value of such asset
will be recovered through the undiscounted expected future cash flows. If the future undiscounted cash flows are less than the
carrying amount of these assets, we will recognize an impairment loss based on any excess of the carrying amount over the fair
value of the assets. We did not recognize any intangible asset impairment charges in 2015 or 2014. We will amortize this asset
over its estimated useful life of 20 years, the life of the distribution agreement with SAVSU with expected amortization of $0.1
million per year. Amortization is expected to begin in the first quarter of 2016 with the initial commercial shipments of the Smart
Containers. Amortization is based on the pattern in which the economic benefits of the intangible asset will be consumed or on
a straight-line basis when the consumption pattern is not apparent.
Internal Use Software
We capitalize costs associated with the
development of the biologistex web and mobile applications, which we consider internal-use software. Capitalization of costs began
in the first quarter of 2015, when we reached the application development stage. Such capitalized costs include external direct
costs utilized in developing or obtaining the applications and payroll and payroll-related expenses for employees, who are directly
associated with the development of the applications. Capitalization will cease once we have completed all substantial testing,
at which time the applications are complete and ready for their intended use.
In 2015, we capitalized $1.7 million in
costs related to the development of the biologistex web and mobile applications. Of this amount, $0.3 million was unpaid as of
December 31, 2015. Maintenance and enhancement costs, including those costs in the post-implementation stages, will be expensed
as incurred, unless such costs relate to substantial upgrades and enhancements to the software that result in added functionality,
in which case the costs are capitalized. Capitalized costs will be amortized on a straight-line basis over estimated useful life
of three years once the software has been commercially deployed.
Deferred rent
For our operating leases, we recognize
rent expense on a straight-line basis over the terms of the leases and, accordingly, we record the difference between cash rent
payments and the recognition of rent expense as a deferred rent liability. Landlord-funded leasehold improvements, to
the extent the improvements are not landlord property upon lease termination, are also recorded as deferred rent liabilities and
are amortized as a reduction of rent expense over the non-cancelable term of the related operating lease.
Revenue recognition
We recognize product revenue, including
shipping and handling charges billed to customers, upon shipment of product when title and risk of loss pass to customers. Shipping
and handling costs are classified as part of cost of product sales. We may also receive fees from our contract manufacturing customers
for validation of the manufacturing process. This typically occurs prior to production for those customers and revenue is recognized
upon successful completion of all obligations related to the validation process.
Income taxes
We account for income taxes using an asset
and liability method which generally requires recognition of deferred tax assets and liabilities for the expected future tax effects
of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities
are recognized for the future tax effects of differences between tax bases of assets and liabilities, and financial reporting amounts,
based upon enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable
income. We evaluate the likelihood of realization of deferred tax assets and provide an allowance where, in management’s
opinion, it is more likely than not that the asset will not be realized.
We have not recorded any liabilities for
uncertain tax positions or any related interest and penalties. Our tax returns are open to audit for years ending December 31,
2012 to 2015.
Advertising
Advertising costs are expensed as incurred
and totaled $69,091 and $19,584 for the years ended December 31, 2015 and 2014, respectively.
Operating segments
As described above, our activities are
directed in the life sciences field of biopreservation products and services. As of December 31, 2015 and 2014 this is the
Company’s only operating unit and segment.
Concentrations of credit risk and business
risk
In 2015 and 2014, we derived approximately
10% and 11%, respectively, of our revenue from our relationship with one distributor of our products. In 2014, we also derived
18% of our revenue from our relationship with one contract-manufacturing customer. Revenue from customers located in foreign countries
represented 21% and 16% of total revenue during the years ended December 31, 2015 and 2014, respectively.
At December 31,
2015, three customers accounted for 53% of gross accounts receivable. At December 31, 2014, two customers accounted for 28%
of gross accounts receivable.
Research and development
Research and development costs are expensed
as incurred.
Stock Based Compensation
We use the Black-Scholes option pricing
model as our method of valuation for stock option awards. Restricted stock unit grants are valued at the fair value of our common
stock on the date of grant. Share-based compensation expense is based on the value of the portion of the stock-based award that
will vest during the period, adjusted for expected forfeitures. Our determination of the fair value of stock option
awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number
of highly complex and subjective variables. These variables include, but are not limited to, the expected life of the award, expected
stock price volatility over the term of the award and historical and projected exercise behaviors. The estimation of share-based
awards that will ultimately vest requires judgment, and to the extent actual or updated results differ from our current estimates,
such amounts will be recorded in the period estimates are revised. Although the fair value of stock option awards is determined
in accordance with authoritative guidance, the Black-Scholes option pricing model requires the input of highly subjective assumptions
and other reasonable assumptions could provide differing results. Share-based compensation expense is recognized ratably
over the applicable requisite service period based on the fair value of such share-based awards on the grant date.
The fair value of options at the date of
grant is determined under the Black-Scholes option pricing model. During the years ended December 31, 2015 and 2014,
the following weighted-average assumptions were used:
Assumptions
|
|
2015
|
|
|
2014
|
|
Risk-free rate
|
|
|
1.77
|
%
|
|
|
2.01
|
%
|
Annual rate of dividends
|
|
|
––
|
|
|
|
––
|
|
Historical volatility
|
|
|
105.20
|
%
|
|
|
105.20
|
%
|
Expected life
|
|
|
7.0 years
|
|
|
|
7.0 years
|
|
The risk-free interest rate was based on
the U.S. Treasury yield curve in effect at the time of grant. We do not anticipate declaring dividends in the foreseeable
future. Volatility was based on historical data. We utilize the simplified method in determining option lives.
The simplified method is used due to the fact that we have had significant structural changes in our business such that our historical
exercise data may not provide a reasonable basis to estimate option lives.
We recognize compensation expense for only
the portion of options that are expected to vest. Therefore, management applies an estimated forfeiture rate that is
derived from historical employee termination data. The estimated forfeiture rate applied for the years ended December
31, 2015 and 2014 was 7.00%. If the actual number of forfeitures differs from those estimated by management, additional
adjustments to compensation expense may be required in future periods. Our stock price volatility, option lives and
expected forfeiture rates involve management’s best estimates at the time of such determination, all of which impact the
fair value of the option calculated under the Black-Scholes methodology and, ultimately, the expense that will be recognized over
the life of the option.
Recent accounting pronouncements
In January 2016, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update No. 2016-01, Recognition and Measurement of Financial Assets
and Financial Liabilities: Topic 825 (ASU 2016-01). The updated guidance enhances the reporting model for financial instruments,
which includes amendments to address aspects of recognition, measurement, presentation and disclosure. Adoption of ASU 2016-01
is required for fiscal reporting periods beginning after December 15, 2017, including interim reporting periods within those fiscal
years. The Company is currently evaluating the potential impact of the pending adoption of ASU 2016-01 on its consolidated financial
statements.
In November 2015, FASB issued Accounting
Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes: Topic 740 (ASU 2015-17). Current GAAP requires the
deferred taxes for each jurisdiction to be presented as a net current asset or liability and net noncurrent asset or liability.
This requires a jurisdiction-by-jurisdiction analysis based on the classification of the assets and liabilities to which the underlying
temporary differences relate, or, in the case of loss or credit carryforwards, based on the period in which the attribute is expected
to be realized. Any valuation allowance is then required to be allocated on a pro rata basis, by jurisdiction, between current
and noncurrent deferred tax assets. The new guidance requires that all deferred tax assets and liabilities, along with any related
valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net
noncurrent deferred tax asset or liability. The guidance does not change the existing requirement that only permits offsetting
within a jurisdiction. Adoption of ASU 2015-17 is required for fiscal reporting periods beginning after December 15, 2016, including
interim reporting periods within those fiscal years, and either prospective or retrospective application is permitted. Early adoption
of ASU 2015-17 is permitted. At the time of adoption, all of the Company's deferred tax assets and liabilities, along with any
related valuation allowance, will be classified as noncurrent on its Consolidated Balance Sheet. The Company does not plan to early
adopt ASU 2015-17.
In July 2015, the FASB issued ASU No. 2015-11,
Simplifying the Measurement of Inventory: Topic 330 (ASU 2015-11). Topic 330 currently requires an entity to measure inventory
at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately
normal profit margin. ASU 2015-11 requires that inventory measured using either the first-in, first-out (FIFO) or average cost
method be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary
course of business, less reasonably predictable costs of completion, disposal, and transportation. Adoption of ASU 2015-11 is required
for fiscal reporting periods beginning after December 15, 2016, including interim reporting periods within those fiscal years.
The Company does not expect adoption of ASU 2015-11 to have a material impact on its consolidated financial statements.
On May 28, 2014, FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers, Topic 606, requiring an entity to recognize the amount of revenue to which it expects to
be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue
recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect
transition method. Early adoption is not permitted. The updated standard becomes effective for us in the first quarter of fiscal
2018. We have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have
on our consolidated financial statements and related disclosures.
With the exception of the new revenue standard
discussed above, there have been no new accounting pronouncements not yet effective that have significance, or potential significance,
to our Consolidated Financial Statements.
2.
|
Accumulated Other Comprehensive Loss
|
The following table shows the changes in
Accumulated Other Comprehensive Loss by component for the years ended December 31, 2015 and 2014:
|
|
2015
|
|
|
2014
|
|
Beginning balance
|
|
$
|
(6,448
|
)
|
|
$
|
––
|
|
Unrealized Gain (loss) on investments, current period
|
|
|
5,997
|
|
|
|
(6,448
|
)
|
Ending balance
|
|
$
|
(451
|
)
|
|
$
|
(6,448
|
)
|
3.
|
Fair Value Measurement
|
In accordance with FASB ASC Topic 820,
"Fair Value Measurements and Disclosures," (“ASC Topic 820”), the Company measures its cash and cash equivalents
and short term investments at fair value on a recurring basis. ASC Topic 820 clarifies that fair value is an exit price, representing
the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would
use in pricing an asset or liability. As a basis for considering such assumptions, ASC Topic 820 establishes a three-tier value
fair hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 – Observable inputs that
reflect quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Observable inputs other
than quoted prices included in Level 1 for similar assets or liabilities, quoted prices in markets that are not active or other
inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets
or liabilities.
Level 3 – Unobservable data points
for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
As of December 31, 2015 and 2014, the Company
does not have liabilities that are measured at fair value.
The following tables set forth the Company's
financial assets measured at fair value on a recurring basis as of December 31, 2015 and December 31,
2014, based on the three-tier fair value hierarchy:
As of December 31, 2015
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
Bank deposits
|
|
$
|
440,809
|
|
|
$
|
—
|
|
|
$
|
440,809
|
|
Money market funds
|
|
|
1,732,449
|
|
|
|
—
|
|
|
|
1,732,449
|
|
Cash and cash equivalents
|
|
|
2,173,258
|
|
|
|
—
|
|
|
|
2,173,258
|
|
Corporate debt securities
|
|
|
1,401,453
|
|
|
|
—
|
|
|
|
1,401,453
|
|
Commercial paper
|
|
|
249,888
|
|
|
|
—
|
|
|
|
249,888
|
|
Short term investments
|
|
|
1,651,341
|
|
|
|
—
|
|
|
|
1,651,341
|
|
Total
|
|
$
|
3,824,599
|
|
|
$
|
—
|
|
|
$
|
3,824,599
|
|
As of December 31, 2014
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
Bank deposits
|
|
$
|
972,891
|
|
|
$
|
—
|
|
|
$
|
972,891
|
|
Money market funds
|
|
|
1,565,867
|
|
|
|
—
|
|
|
|
1,565,867
|
|
Cash and cash equivalents
|
|
|
2,538,758
|
|
|
|
—
|
|
|
|
2,538,758
|
|
Corporate debt securities
|
|
|
6,799,702
|
|
|
|
—
|
|
|
|
6,799,702
|
|
Commercial paper
|
|
|
599,934
|
|
|
|
—
|
|
|
|
599,934
|
|
Short term investments
|
|
|
7,399,636
|
|
|
|
—
|
|
|
|
7,399,636
|
|
Total
|
|
$
|
9,938,394
|
|
|
$
|
—
|
|
|
$
|
9,938,394
|
|
The fair values of bank deposits, money
market funds, corporate debt securities and commercial paper classified as Level 1 were derived from quoted market prices as active
markets for these instruments exist. The Company has no level 2 or level 3 financial assets. The Company did not have any transfers
between Level 1 and Level 2 of the fair value hierarchy during the twelve months ended December 31, 2015 and December 31,
2014.
Investments in debt securities at December
31, 2015, are investment grade and carried a long-term rating of BBB+ or higher.
4.
|
Short Term Investments
|
The amortized cost and fair value of short term investments
as of December 31, 2015 were as follows:
|
|
Amortized Cost
|
|
|
Gross Unrealized
Gains
|
|
|
Gross Unrealized
Losses
|
|
|
Fair Value
|
|
Corporate debt securities
|
|
$
|
1,401,904
|
|
|
$
|
—
|
|
|
$
|
(451
|
)
|
|
$
|
1,401,453
|
|
Commercial paper
|
|
|
249,888
|
|
|
|
—
|
|
|
|
—
|
|
|
|
249,888
|
|
Total marketable securities
|
|
$
|
1,651,792
|
|
|
$
|
—
|
|
|
$
|
(451
|
)
|
|
$
|
1,651,341
|
|
As of December 31, 2015, there are
no short term investments, classified and accounted for as available-for-sale securities that have been in a continuous unrealized
loss position in excess of twelve months.
As of December 31, 2015, the amortized
cost and fair value of short term investments by contractual maturity were as follows:
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Due in 1 year or less
|
|
$
|
1,651,792
|
|
|
$
|
1,651,341
|
|
Total marketable securities
|
|
$
|
1,651,792
|
|
|
$
|
1,651,341
|
|
The amortized cost and fair value of short term investments
as of December 31, 2014 were as follows:
|
|
Amortized Cost
|
|
|
Gross Unrealized
Gains
|
|
|
Gross Unrealized
Losses
|
|
|
Fair Value
|
|
Corporate debt securities
|
|
$
|
6,806,150
|
|
|
$
|
—
|
|
|
$
|
(6,448
|
)
|
|
$
|
6,799,702
|
|
Commercial paper
|
|
|
599,934
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
599,934
|
|
Total marketable securities
|
|
$
|
7,406,084
|
|
|
$
|
—
|
|
|
$
|
(6,448
|
)
|
|
$
|
7,399,636
|
|
Inventories consist of the following at December 31, 2015
and 2014:
|
|
2015
|
|
|
2014
|
|
Raw materials
|
|
$
|
299,952
|
|
|
$
|
362,656
|
|
Work in progress
|
|
|
666,124
|
|
|
|
79,012
|
|
Finished goods
|
|
|
868,559
|
|
|
|
523,556
|
|
Total
|
|
$
|
1,834,635
|
|
|
$
|
965,224
|
|
Deferred rent consists of the following
at December 31, 2015 and 2014:
|
|
2015
|
|
|
2014
|
|
Landlord-funded leasehold improvements
|
|
$
|
1,124,790
|
|
|
$
|
1,124,790
|
|
Less accumulated amortization
|
|
|
(375,530
|
)
|
|
|
(248,531
|
)
|
Total (current portion $130,216 at December 31, 2015 and 2014)
|
|
|
749,260
|
|
|
|
876,259
|
|
Straight line rent adjustment
|
|
|
165,414
|
|
|
|
128,782
|
|
Total deferred rent
|
|
$
|
914,674
|
|
|
$
|
1,005,041
|
|
During 2014, the Company recorded $125,000
in deferred rent relating to leasehold improvements funded by the Company’s landlord as incentives under the facility lease,
offset by payments to the landlord of $47,237. During 2015, the Company did not receive landlord funded lease incentives. During
the years ended December 31, 2015 and 2014, the Company recorded $126,999 and $115,468, respectively, in deferred rent amortization
of these landlord funded leasehold improvements.
In addition, during the years ended December
31, 2015 and 2014, the Company recorded deferred rent of $36,632 and $39,509, which represented the difference between cash rent
payments and the recognition of rent expense on a straight-line basis over the terms of the lease.
Income tax benefit reconciled to tax calculated at statutory
rates is as follows:
|
|
2015
|
|
|
2014
|
|
Federal tax (benefit) at statutory rate
|
|
$
|
(1,698,428
|
)
|
|
$
|
(1,122,270
|
)
|
Change in valuation allowance
|
|
|
1,430,291
|
|
|
|
1,122,900
|
|
Add back tax benefit on loss attributable to non-controlling interest in subsidiary
|
|
|
265,690
|
|
|
|
––
|
|
Other
|
|
|
2,447
|
|
|
|
(630
|
)
|
Benefit for income taxes, net
|
|
$
|
––
|
|
|
$
|
––
|
|
At December 31, 2015 and 2014, the components of the Company’s
deferred taxes are as follows:
|
|
2015
|
|
|
2014
|
|
Deferred tax assets (liabilities)
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
11,080,303
|
|
|
$
|
10,046,713
|
|
Accrued compensation
|
|
|
120,344
|
|
|
|
170,161
|
|
Depreciation
|
|
|
21,835
|
|
|
|
14,282
|
|
Section 263a inventory adjustment
|
|
|
79,110
|
|
|
|
20,233
|
|
Stock-based compensation
|
|
|
565,349
|
|
|
|
434,740
|
|
Suspended loss of subsidiary
|
|
|
246,241
|
|
|
|
––
|
|
Other
|
|
|
25,323
|
|
|
|
22,085
|
|
Total
|
|
|
12,138,505
|
|
|
|
10,708,214
|
|
Less: Valuation allowance
|
|
|
(12,138,505
|
)
|
|
|
(10,708,214
|
)
|
Net deferred tax asset
|
|
$
|
––
|
|
|
$
|
––
|
|
The Company has the following net operating
loss tax carryforwards available at December 31, 2015:
Year of Expiration
|
|
Net Operating
Losses
|
|
2018
|
|
$
|
1,425,000
|
|
2019
|
|
|
1,234,000
|
|
2020
|
|
|
2,849,000
|
|
2021
|
|
|
4,168,000
|
|
2023
|
|
|
1,217,000
|
|
2024
|
|
|
646,000
|
|
2025
|
|
|
589,000
|
|
2026
|
|
|
873,000
|
|
2027
|
|
|
2,607,000
|
|
2028
|
|
|
2,512,000
|
|
2029
|
|
|
2,196,000
|
|
2030
|
|
|
1,232,000
|
|
2031
|
|
|
1,028,000
|
|
2032
|
|
|
437,000
|
|
2033
|
|
|
37,000
|
|
2034
|
|
|
6,427,000
|
|
2035
|
|
|
3,112,000
|
|
Total
|
|
$
|
32,589,000
|
|
In the event of a significant change in
the ownership of the Company, the utilization of such loss and tax credit carryforwards could be substantially limited.
The following table summarizes warrant activity for the years
ended December 31, 2015 and 2014:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
Outstanding at beginning of year
|
|
|
7,428,141
|
|
|
$
|
4.49
|
|
|
|
517,858
|
|
|
$
|
1.02
|
|
Granted
|
|
|
––
|
|
|
|
––
|
|
|
|
6,910,283
|
|
|
|
4.75
|
|
Exercised
|
|
|
(232,144
|
)
|
|
|
1.03
|
|
|
|
––
|
|
|
|
––
|
|
Forfeited/Expired
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
Outstanding and exercisable at end of year
|
|
|
7,195,997
|
|
|
$
|
4.60
|
|
|
|
7,428,141
|
|
|
$
|
4.49
|
|
As discussed in Note 1, during the year
ended December 31, 2014, we issued 3,588,878 warrants with an expiration date of March 25, 2021 in connection with the Company’s
public offering of units on March 25, 2014. Each whole warrant is exercisable for a period of seven years to acquire
one share of common stock with an exercise price of $4.75 per share. In addition, we issued 3,321,405 warrants with an expiration
date of March 25, 2021 in connection with the conversion of approximately $14.3 million of indebtedness to the Company’s
existing Note Holders into equity on March 25, 2014. Each whole warrant is exercisable for a period of seven years to acquire one
share of common stock with an exercise price of $4.75 per share.
The outstanding warrants have expiration
dates between August 2016 and March 2021.
9.
|
Stock-Based Compensation
|
Stock Compensation Plans
Our stock-based compensation programs are
long-term retention programs that are intended to attract, retain and provide incentives for talented employees, officers and directors,
and to align stockholder and employee interests. We have the following stock-based compensation plans and programs:
During 1998, we adopted the 1998 Stock
Option Plan (the “1998 Plan”). An aggregate of 285,714 shares of common stock were reserved for issuance upon the exercise
of options granted under the 1998 Plan. In September 2005, the shareholders approved an increase in the number of shares available
for issuance to 714,285 shares. The 1998 Plan expired on August 31, 2008. The options are exercisable for up to ten years
from the grant date. As of December 31, 2015, there were outstanding options to purchase 359,995 share of Company common stock
under the 1998 Plan.
Subsequent to the expiration of the 1998
Plan, the Company issued, outside of the 1998 Plan, non-incentive stock options for an aggregate of 1,243,584 shares of Company
common stock. Of this amount, 782,960 remain outstanding.
During 2013, we adopted the 2013 Performance
Incentive Plan (the “2013 Plan”), which allows us to grant options or restricted stock units to all employees, including
executive officers, outside consultants and non-employee directors. An aggregate of 3.1 million shares of common stock are reserved
for issuance upon the exercise of options granted under the 2013 Plan. Option vesting periods are generally four years for the
2013 Plan. Options granted under this plan generally expire ten years from the effective date of grant. As of December 31, 2015,
there were outstanding options to purchase 1,412,308 shares of Company common stock and no unvested restricted stock units outstanding
under the 2013 Plan.
Issuance of Shares
When options and warrants are exercised,
it is the Company’s policy to issue new shares.
Stock Option Activity
The following is a summary of stock option
activity under our stock option plans for 2015 and 2014, and the status of stock options outstanding at December 31, 2015
and 2014:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
Outstanding at beginning of year
|
|
|
1,390,770
|
|
|
$
|
1.50
|
|
|
|
1,417,309
|
|
|
$
|
1.36
|
|
Granted
|
|
|
1,300,881
|
|
|
|
2.06
|
|
|
|
95,000
|
|
|
|
3.36
|
|
Exercised
|
|
|
(131,388
|
)
|
|
|
1.23
|
|
|
|
(68,520
|
)
|
|
|
1.22
|
|
Forfeited
|
|
|
(3,438
|
)
|
|
|
3.77
|
|
|
|
(49,895
|
)
|
|
|
1.51
|
|
Expired - vested
|
|
|
(1,562
|
)
|
|
|
3.77
|
|
|
|
(3,124
|
)
|
|
|
2.23
|
|
Outstanding at end of year
|
|
|
2,555,263
|
|
|
$
|
1.80
|
|
|
|
1,390,770
|
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercisable at year end
|
|
|
1,185,582
|
|
|
$
|
1.42
|
|
|
|
1,225,358
|
|
|
$
|
1.33
|
|
Weighted average fair value of options
granted was $1.75 and $2.84 per share for the years ended December 31, 2015 and 2014, respectively.
During the year ended December 31, 2015,
stock options covering 131,388 shares of common stock with a total intrinsic value of $127,312 were exercised. During the year
ended December 31, 2014, stock options covering 68,520 shares of common stock with a total intrinsic value of $155,704 were exercised.
As of December 31, 2015, there was $1,252,704
of aggregate intrinsic value of outstanding stock options, including $1,106,275 of aggregate intrinsic value of exercisable stock
options. Intrinsic value is the total pretax intrinsic value for all “in-the-money” options (i.e., the difference
between the Company’s closing stock price on the last trading day of 2015 and the exercise price, multiplied by the number
of shares) that would have been received by the option holders had all option holders exercised their options as of December 31,
2015. This amount will change based on the fair market value of the Company’s stock.
The following table summarizes information about stock options
outstanding at December 31, 2015:
Range of
|
|
|
Number Outstanding at
|
|
|
Weighted Average Remaining
|
|
|
Weighted Average
|
|
Exercise Prices
|
|
|
December 31, 2015
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
$
|
0.49-$1.00
|
|
|
|
167,853
|
|
|
|
1.95
|
|
|
$
|
0.92
|
|
$
|
1.01-$1.30
|
|
|
|
670,651
|
|
|
|
3.63
|
|
|
$
|
1.14
|
|
$
|
1.31-$2.00
|
|
|
|
290,167
|
|
|
|
4.57
|
|
|
$
|
1.43
|
|
$
|
2.01-$10.75
|
|
|
|
1,426,592
|
|
|
|
9.25
|
|
|
$
|
2.28
|
|
|
|
|
|
|
2,555,263
|
|
|
|
6.76
|
|
|
$
|
1.80
|
|
The weighted average remaining contractual
life of exercisable options at December 31, 2015, is 3.8 years. Total unrecognized compensation cost at December 31, 2015
of $2,075,593 is expected to be recognized over a weighted average period of 3.2 years.
Restricted Stock Units
As of December 31, 2015, there were no
restricted stock units outstanding. There were no restricted stock units granted, exercised or forfeited during 2014 or 2015.
10.
|
Commitments and Contingencies
|
Leases
On August 19, 2014 we signed an amendment
to our lease agreement, which expanded the premises leased by the Company from the landlord from approximately 26,000 to approximately
30,000 rentable square feet. The term of the lease continues until July 31, 2021 with two options to extend the term of the lease,
each of which is for an additional period of five years, with the first extension term commencing, if at all, on August 1, 2021,
and the second extension term commencing, if at all, immediately following the expiration of the first extension term. In accordance
with the amended lease agreement, our monthly base rent increased to approximately $59,700 effective January 1, 2015, with scheduled
annual increases each August and again in October for the most recent amendment. The Company is also required to pay an amount
equal to the Company’s proportionate share of certain taxes and operating expenses.
The following is a schedule of future minimum
lease payments required under the facility leases as of December 31, 2015:
Year Ending
|
|
|
|
December 31
|
|
|
|
|
|
|
|
|
2016
|
|
$
|
676,000
|
|
2017
|
|
|
690,000
|
|
2018
|
|
|
704,000
|
|
2019
|
|
|
718,000
|
|
2020
|
|
|
733,000
|
|
Thereafter
|
|
|
433,000
|
|
Total
|
|
$
|
3,954,000
|
|
Rental expense for this facility lease
for the years ended December 31, 2015 and 2014 totaled $809,464 and $728,086, respectively. These amounts include
the Company’s proportionate share of property taxes and other operating expenses as defined by the lease.
Employment agreements
We have employment agreements with the
Chief Executive Officer, Chief Financial Officer, Chief Technology Officer, Vice President, Marketing and Vice President, Global
Sales. None of these employment agreements is for a definitive period, but rather each will continue indefinitely until terminated
in accordance with its terms. The agreements provide for a base annual salary, payable in monthly (or shorter) installments. In
addition, the agreement with the Chief Executive Officer provides for incentive bonuses at the discretion of the Board of Directors.
Under certain conditions and for certain of these officers, we may be required to pay additional amounts upon terminating the officer
or upon the officer resigning for good reason.
biologistex
Our agreement to form the biologistex joint
venture requires us to make an initial capital contribution of $2.4 million. As of December 31, 2015 the remaining capital contribution
commitment is $2.2 million. In addition, we agreed to pay SAVSU $1 million in consideration of SAVSU’s participation in biologistex.
As of December 31, 2015, we have recorded the entire amount and have no further commitment. In addition, biologistex is required
to purchase approximately $2.6 million in Smart Containers from SAVSU, of which $0.2 million has been purchased as of December
31, 2015. See “Note 1. Organization and Significant Accounting Policies – Recent Developments – biologistex Joint
Venture” for more information.
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.