Notes to Condensed Consolidated Financial
Statements
For the Three Months Ended March 31,
2020 and 2019
(Unaudited)
Note 1. Management’s Representation and Basis of Presentation
The accompanying unaudited
condensed consolidated financial statements have been prepared by Cryoport, Inc. (the “Company”, “Cryoport”,
“our” or “we”) in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) for interim financial information, and pursuant to the instructions to Form 10-Q and Article 10 of Regulation
S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information
and footnotes required by U.S. GAAP for complete financial statement presentation. However, the Company believes that the disclosures
are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting primarily
of normal recurring accruals) considered necessary for a fair presentation have been included.
Operating results
for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2020. The unaudited condensed consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2019.
The Company has evaluated
subsequent events through the date of this filing and determined that no subsequent events have occurred that would require recognition
in the unaudited condensed consolidated financial statements or disclosure in the notes thereto other than as disclosed in the
accompanying notes.
Note 2. Nature of the Business
Cryoport Inc. (“Cryoport”,
“we”, or “our”) is a life sciences services company that is an integral part of the supply chain supporting
the biopharma, reproductive medicine and animal health markets. We are redefining logistics for the life sciences industry by providing
a unique platform of critical solutions including highly differentiated temperature-controlled logistics, which include advanced
packaging and informatics, and biostorage services. Through our products, services and unparalleled expertise, we enable our clients
to ship, store and deliver cellular-based materials and drug products as well as other life sciences commodities in a precise,
defined temperature-controlled state.
Cryoport’s advanced
platform, comprised of comprehensive and technology-centric systems and solutions are designed to support the global high-volume
distribution of commercial biologic and cell-based products and therapies regulated by the United States Food and Drug Administration
(FDA) and other international regulatory bodies for distribution in the Americas, EMEA (Europe, the Middle East, and Africa) and
APAC (Asia-Pacific) regions. Cryoport’s solutions are also designed to support pre-clinical, clinical trials, Biologics License
Applications (BLA), Investigational New Drug Applications (IND) and New Drug Applications (NDA) with the FDA, as well as global
clinical trials initiated in other countries, where strict regulatory compliance and quality assurance is mandated. Our industry
standard setting Chain of ComplianceTM solutions, which include vital analytics, such as ‘chain-of-condition’ and ‘chain-of-custody’
information in a single data stream, empower our clients’ continuous vigilance over their respective commodities. In addition,
our Chain of ComplianceTM standard ensures full traceability of the equipment used and the processes employed, further supporting
each client’s goal of minimizing risk and maximizing success of their respective new biologics or other products and therapies
as they are introduced into the global markets.
On May 14, 2019, the
Company acquired substantially all of the assets of Cryogene Partners, a Texas general partnership doing business as Cryogene Labs
(“Cryogene”). Cryogene operates a temperature-controlled biostorage solutions business in Houston, Texas. As a result
of the Cryogene acquisition, the Company operates in two reportable segments: Global Logistics Solutions and Global Bioservices.
See Note 6 for segment information.
The Company is a Nevada
corporation and its common stock is traded on the NASDAQ Capital Market exchange under the
ticker symbol “CYRX.”
Note 3. Summary of Significant Accounting
Policies
Principles of Consolidation
The accompanying consolidated
financial statements include the accounts of Cryoport, Inc. and its wholly owned subsidiaries, Cryoport Systems, Inc., Cryoport
Netherlands B.V., Cryoport UK Limited and Cryogene, Inc. (collectively, the “Company”). All intercompany accounts and
transactions have been eliminated.
Cash and Cash Equivalents
Our cash and cash equivalents
represent demand deposits, and money market funds which are readily convertible into cash, have maturities of 90 days or less when
purchased and are considered highly liquid and easily tradeable.
Short-Term Investments
Our investments in equity
securities consist of mutual funds with readily determinable fair values which are carried at fair value with changes in fair value
recognized in earnings.
Investments in debt
securities are classified as available-for-sale and are carried at fair value, with unrealized gains and losses, net of tax, reported
as accumulated other comprehensive income (loss) and included as a separate component of stockholders’ equity.
Gains and losses are
recognized when realized. When we have determined that an other than temporary decline in fair value has occurred, the amount related
to a credit loss is recognized in earnings. Gains and losses are determined using the specific identification method.
Short-term investments
are classified as current assets even though maturities may extend beyond one year because they represent investments of cash available
for operations.
Use of Estimates
The preparation of
the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ
from estimated amounts. The Company’s significant estimates include the allowance for doubtful accounts, fair value of short-term
investments, fair value of assets acquired and liabilities assumed in business combinations, recoverability of goodwill and long-lived
assets, allowance for inventory obsolescence, deferred taxes and their accompanying valuations, and valuation of equity-based instruments.
Fair Value of Financial Instruments
The Company’s
financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued
expenses, finance lease liabilities and the convertible note. The carrying value for all such instruments, except finance lease
liabilities and the convertible note, approximates fair value at March 31, 2020 and December 31, 2019 due to their short-term nature.
The carrying value of finance lease liabilities approximates fair value because the interest rate approximates market rates available
to us for similar obligations with the same maturities.
Concentrations of Credit Risk
Financial instruments
that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments.
From time to time, we maintain cash, cash equivalent and short-term investment balances in excess of amounts insured by the Federal
Deposit Insurance Corporation (“FDIC”) and the Securities Investor Protection Corporation (“SIPC”). Primarily
all of our cash, cash equivalents and short-term investments at March 31, 2020 were in excess of amounts insured by the FDIC and
SIPC. The Company performs ongoing evaluations of these institutions to limit its concentration risk exposure. We manage such risks
in our portfolio by investing in highly liquid, highly-rated instruments, and limit investing in long-term maturity instruments.
Our investment policy
requires that purchased instruments in marketable securities may only be in highly-rated instruments, which are primarily U.S.
Treasury bills or treasury-backed securities, and also limits our investment in securities of any single issuer.
Customers
The Company grants
credit to customers within the U.S. and to a limited number of international customers and does not require collateral. Revenues
from international customers are generally secured by advance payments except for established foreign customers. The Company generally
requires advance or credit card payments for initial revenues from new customers. The Company’s ability to collect receivables
can be affected by economic fluctuations in the geographic areas and industries served by the Company. Reserves for uncollectible
amounts are provided based on past experience and a specific analysis of the accounts, which management believes to be sufficient.
Accounts receivable at March 31, 2020 and December 31, 2019 are net of reserves for doubtful accounts of $140,000. Although the
Company expects to collect amounts due, actual collections may differ from the estimated amounts. The Company maintains reserves
for bad debt and such losses, in the aggregate, historically have not exceeded its estimates.
The Company’s
customers are in the biotechnology, pharmaceutical, animal health, reproductive medicine and other life science industries. Consequently,
there is a concentration of accounts receivable within these industries, which is subject to normal credit risk. As of March 31,
2020, there were two customers that accounted for 36.2% and 13.6%, respectively, of net accounts receivable. As of December 31,
2019, there were two customers that accounted for 31.0% and 20.7%, respectively, of net accounts receivable. There were no other
single customers that owed us more than 10% of net accounts receivable at March 31, 2020 and December 31, 2019.
The Company has revenue
from foreign customers primarily in Europe, Japan, Canada, India and Australia. During the three months ended March 31, 2020 and
2019, the Company had revenues from foreign customers of approximately $2.1 million and $483,800, respectively, which constituted
approximately 21.4% and 13.1%, respectively, of total revenues. There were three customers that accounted for 17.9%, 16.7% and
10.8% of revenues during the three months ended March 31, 2020, respectively. There were two customers that accounted for 24.7%
and 10.6% of revenues during the three months ended March 31, 2019, respectively. No other single customer generated over 10% of
revenues during the three months ended March 31, 2020 and 2019.
Inventories
The Company’s
inventories consist of packaging materials and accessories that are sold to customers. Inventories are stated at the lower of cost
and net realizable value. Cost is determined using the standard cost method which approximates the first-in, first-to-expire method.
Inventories are reviewed periodically for slow-moving or obsolete status. The Company writes down the carrying value of its inventories
to reflect situations in which the cost of inventories is not expected to be recovered. Once established, write-downs of inventories
are considered permanent adjustments to the cost basis of the obsolete or excess inventories. Raw materials and finished goods
include material costs less reserves for obsolete or excess inventories. The Company evaluates the current level of inventories
considering historical trends and other factors, such as selling prices and costs of completion, disposal and transportation, and
based on the evaluation, records adjustments to reflect inventories at net realizable value. These adjustments are estimates, which
could vary significantly from actual results if future economic conditions, customer demand, competition or other relevant factors
differ from expectations. These estimates require us to make assessments about future demand for the Company’s products in
order to categorize the status of such inventories items as slow-moving, obsolete or in excess-of-need. These estimates are subject
to the ongoing accuracy of the Company’s forecasts of market conditions, industry trends, competition and other factors.
Property and Equipment
The Company provides
engineered shipping packages (“Cryoport Express® Shippers”) to its customers and charges a fee in exchange
for the use of the Cryoport Express® Shipper. The Company’s arrangements are similar to the accounting standard
for leases since they convey the right to use the Cryoport Express® Shipper over a period of time. The Company retains
the title to the Cryoport Express® Shippers and provides its customers the use of the Cryoport Express®
Shipper for a specific shipping cycle. At the culmination of the customer’s shipping cycle, the Cryoport Express®
Shipper is returned to the Company. As a result, the Company classifies the Cryoport Express® Shippers as property
and equipment for the per-use Cryoport Express® Shipper program.
Property and equipment
are recorded at cost. Cryoport Express® Shippers, which include SmartPak IITM Condition Monitoring Systems
and/or data loggers, comprise 18% and 20% of the Company’s net property and equipment balance at March 31, 2020 and December
31, 2019, respectively, and are depreciated using the straight-line method over their estimated useful lives of three years. Mechanical
and liquid nitrogen freezers acquired in the Cryogene acquisition comprise 23% of the Company’s net property and equipment
balance at March 31, 2020 and are depreciated using the straight-line method over their estimated useful lives of seven to twelve
years. Equipment and furniture are depreciated using the straight-line method over their estimated useful lives (generally three
to fifteen years) and leasehold improvements are amortized using the straight-line method over the estimated useful life of the
asset or the lease term, whichever is shorter.
Betterments, renewals and extraordinary
repairs that extend the lives of the assets are capitalized; other repairs and maintenance charges are expensed as incurred. The
cost and related accumulated depreciation and amortization applicable to assets retired are removed from the accounts, and the
gain or loss on disposition is recognized in the consolidated statements of operations.
Leases
The Company determines
if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets represent the Company’s
right to use an underlying asset during the lease term, and operating lease liabilities represent the Company’s obligation
to make lease payments arising from the lease. Operating leases are included in ROU assets, current operating lease liabilities,
and long-term operating lease liabilities on our consolidated balance sheets. Finance leases are included in property and equipment,
current finance lease liabilities, and long-term finance lease liabilities on our consolidated balance sheets.
Lease ROU assets and
lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease term
at commencement date calculated using our incremental borrowing rate applicable to the lease asset, unless the implicit rate is
readily determinable. ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives
received. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise
that option. Leases with a term of 12 months or less are not recognized on the condensed consolidated balance sheet. The Company’s
leases do not contain any residual value guarantees. Lease expense for minimum lease payments is recognized on a straight-line
basis over the lease term.
The Company accounts
for lease and non-lease components as a single lease component for all its leases.
Goodwill
The Company
evaluates goodwill on an annual basis in the fourth quarter or more frequently if management believes indicators of
impairment exist. Such indicators could include, but are not limited to: (1) a significant adverse change in legal factors or
in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. The Company
compares the fair value of the reporting unit with its carrying amount and then recognizes an impairment charge for the
amount by which the carrying amount exceeds the reporting units fair value up to the total amount of goodwill allocated to
the reporting unit. The Company assessed triggering events indicating potential goodwill impairment and after assessment,
concluded that there was no impairment during the three months ended March 31, 2020.
Intangible Assets
Intangible assets
are comprised of patents, trademarks, software development costs and the intangible assets acquired in the Cryogene acquisition
which include a non-compete agreement, technology, customer relationships and trade name/trademark. The Company capitalizes costs
of obtaining patents and trademarks, which are amortized, using the straight-line method over their estimated useful life of five
years once the patent or trademark has been issued. The Company capitalizes certain costs related to software developed for internal
use. Software development costs incurred during the preliminary or maintenance project stages are expensed as incurred, while costs
incurred during the application development stage are capitalized and amortized using the straight-line method over the estimated
useful life of the software, which is five years. Capitalized costs include purchased materials and costs of services. The non-compete
agreement, technology, customer relationships and Cryogene trade name/trademark acquired in the Cryogene acquisition are amortized
using the straight-line method over the estimated useful lives (see Note 7).
The
Company evaluates the recoverability of identifiable intangible assets whenever events or changes in circumstances indicate that
an intangible asset's carrying amount may not be recoverable. Such circumstances could include, but are not limited to: (1) a significant
decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or
(3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset. The Company
measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum
of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be
recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds its fair value.
The estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows.
The evaluation of asset impairment requires the Company to make assumptions about future cash flows over the life of the asset
being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts.
There was no impairment of intangible assets during the three months ended March 31, 2020.
Other Long-lived Assets
If indicators of impairment
exist, we assess the recoverability of the affected long-lived assets by determining whether the carrying value of such assets
can be recovered through undiscounted future operating cash flows. If impairment is indicated, we measure the amount of such impairment
by comparing the fair value to the carrying value. We believe the future cash flows to be received from the long-lived assets will
exceed the assets’ carrying value, and accordingly, we have not recognized any impairment losses through March 31, 2020.
Deferred Financing Costs
Deferred financing
costs represent costs incurred in connection with the issuance of debt instruments and equity financings. Deferred financing costs
related to the issuance of debt are amortized over the term of the financing instrument using the effective interest method and
are presented in the consolidated balance sheets as an offset against the related debt. Offering costs from equity financings are
netted against the gross proceeds received from the equity financings.
Income Taxes
The Company accounts
for income taxes under the provision of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 740, Income Taxes, or ASC 740. As of March 31, 2020 and December 31, 2019, there were no unrecognized
tax benefits included in the accompanying condensed consolidated balance sheets that would, if recognized, affect the effective
tax rates.
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 effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. A valuation allowance is provided for certain deferred
tax assets if it is more likely than not that the Company will not realize tax assets through future operations. Based on the weight
of available evidence, the Company’s management has determined that it is more likely than not that the net deferred tax
assets will not be realized. Therefore, the Company has recorded a full valuation allowance against the net deferred tax assets.
The Company’s income tax provision consists of state minimum taxes.
The Company’s
policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual
for interest or penalties on its condensed consolidated balance sheets at March 31, 2020 and December 31, 2019 and has not recognized
interest and/or penalties in the condensed consolidated statements of operations for the three months ended March 31, 2020 and
2019. The Company is subject to taxation in the U.S. and various state jurisdictions. As of March 31, 2020, the Company is no longer
subject to U.S. federal examinations for years before 2015 and for California franchise and income tax examinations for years before
2014. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating
losses were generated and carried forward and make adjustments up to the amount of the net operating loss carry forward amount.
The Company is not currently under examination by U.S. federal or state jurisdictions.
On March 27, 2020, the United States enacted
the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The Cares Act is an emergency economic stimulus package
that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect
of COVID-19. The CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant
provisions are removal of certain limitations on utilization of net operating losses, increasing the loss carryback period for
certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions of
the previously enacted Tax Cuts and Jobs Act. At March 31, 2020, the Company has not booked any income tax provision/(benefit)
for the impact for the CARES Act due the Company’s history of net operating losses generated and the maintenance of a full
valuation allowance against its net deferred tax assets. The Company will continue to analyze the impact that the CARES Act
will have, if any, on its financial position, results of operations or cash flows.
Revenue Recognition
Revenues are recognized
when control is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in
exchange for those goods and services. Revenue recognition is evaluated through the following five steps: (i) identification of
the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination
of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition
of revenue when or as a performance obligation is satisfied.
Performance Obligations
At contract inception,
an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified
for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance
obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly
stated or are implied by customary business practices. Revenue is recognized when our performance obligation has been met. The
Company considers control to have transferred upon delivery because the Company has a present right to payment at that time, the
Company has transferred use of the asset, and the customer is able to direct the use of, and obtain substantially all of the remaining
benefits from, the asset.
For arrangements under
which the Company provides biological specimen storage services and logistics support and management to the customer, the Company
satisfies its performance obligations as those services are performed whereby the customer simultaneously receives and consumes
the benefits of such services under the agreement.
Revenue generated from
short-term logistics and engineering consulting services provided to customers is recognized when the Company satisfies the contractually
defined performance obligations.
Our performance obligations
on our orders and under the terms of agreements with customers are generally satisfied within one year from a given reporting date
and, therefore, we omit disclosure of the transaction price allocated to remaining performance obligations on open orders.
Shipping and handling
activities related to contracts with customers are accounted for as costs to fulfill our promise to transfer the associated products
pursuant to the accounting policy election allowed under Topic 606 and are not considered a separate performance obligation to
our customers. Accordingly, the Company records amounts billed for shipping and handling as a component of revenue. Shipping and
handling fees and costs are included in cost of revenues in the accompanying condensed consolidated statements of operations.
Revenues are
recognized net of any taxes collected from customers, which are subsequently remitted to governmental agencies.
Significant Payment Terms
Pursuant to the Company’s
contracts with its customers, amounts billed for services or products delivered by the Company are generally due and payable in
full within 15 to 60 days from the date of the invoice (except for any amounts disputed by the customer in good faith). Accordingly,
the Company determined that its contracts with customers do not include extended payment terms or a significant financing component.
Variable Consideration
Variable consideration
is estimated at the most likely amount that is expected to be earned. Estimated amounts are included in the transaction price to
the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated
with the variable consideration is resolved. Estimates of variable consideration and determination of whether to include estimated
amounts in the transaction price are based largely on an assessment of the anticipated performance and all information (historical,
current and forecasted) that is reasonably available
Revenues are recorded
net of variable consideration, such as discounts and allowances.
Warranties
The Company’s
products and services are provided on an “as is” basis and no warranties are included in the contracts with customers.
Also, the Company does not offer separately priced extended warranty or product maintenance contracts.
Incremental Direct Costs
The Company expenses
incremental direct costs of obtaining a contract (sales commissions) when incurred because the amortization period is generally
12 months or less. The Company does not incur costs to fulfill a customer contract that meet the requirements for capitalization.
Contract Assets
Typically, we invoice
the customer and recognize revenue once we have satisfied our performance obligation. Accordingly, our contract assets comprise
accounts receivable, which are recognized when payment is unconditional and only the passage of time is required before payment
is due. Generally, we do not have material amounts of other contract assets since revenue is recognized as control of goods is
transferred or as services are performed.
Contract Liabilities (Deferred Revenue)
Contract liabilities
are recorded when cash payments are received in advance of the Company’s performance. Deferred revenue was $341,200 and $367,900
at March 31, 2020 and December 31, 2019, respectively. During the three months ended March 31, 2020, the Company recognized
revenues of $152,800 from the related contact liabilities outstanding as the services were performed.
Nature of Goods and Services
The Global Logistics
Solutions segment provides Cryoport Express® Shippers to its customers and charges a fee in exchange for the use
of the Cryoport Express® Shipper under long-term master service agreements with customers. The Company’s arrangements
convey to the customers the right to use the Cryoport Express® Shippers over a period of time. The Company retains
title to the Cryoport Express® Shippers and provides its customers the use of the Cryoport Express®
Shipper for a specified shipping cycle. At the culmination of the customer’s shipping cycle, the Cryoport Express®
Shipper is returned to the Company.
The Global Bioservices
segment provides comprehensive and integrated temperature-controlled biostorage solutions to customers in the life sciences industry
and charges a fee under long-term master service agreements with customers. These services include (1) biological specimen cryopreservation
storage and maintenance, (2) archiving, monitoring, tracking, receipt and delivery of samples, (3) transport of frozen biological
specimens to and from customer locations, and (4) management of incoming and outgoing biological specimens.
The vast majority of
our revenues are covered under long-term master service agreements. We have determined that individual Statements of Work or Scope
of Work (“SOW”), whose terms and conditions taken with a Master Services Agreement (“MSA”), create the
Topic 606 contracts which are generally short-term in nature (e.g., 15-day shipping cycle) for the Global Logistics Solutions segment
and up to 12 months for the Global Bioservices segment. Our agreements (including SOWs) generally do not have multiple performance
obligations and, therefore, do not require an allocation of a single price amongst multiple goods or services. Prices
under these agreements are generally fixed. The Global Logistics Solutions segment recognizes revenue for the use of the Cryoport
Express® Shipper at the time of the delivery of the Cryoport Express® Shipper to the end user of
the enclosed materials, and at the time that collectability is probable. The Global Bioservices segment recognizes revenue as services
are rendered over time and at the time that collectability is probable.
The Company also provides
logistics support and management to some customers, which may include onsite logistics personnel. Revenue is recognized for these
services as services are rendered over time and at the time that collectability is probable.
The Company also provides
short-term logistics and engineering consulting services to some customers, with fees tied to the completion of contractually
defined services. We recognize revenue from these services over time as the customer simultaneously receives and consumes the benefit
of these services as they are performed.
Revenue Disaggregation
The Company operates
in two reportable segments and evaluates financial performance on a Company-wide basis. We consider sales disaggregated by end-market
to depict how the nature, amount, timing and uncertainty of revenues and cash flows are impacted by changes in economic factors.
The following table disaggregates our revenues by major source for the three months ended March 31, 2020 and 2019:
|
|
Three Months Ended
March 31,
|
|
(000’s omitted)
|
|
2020
|
|
|
2019
|
|
Global Logistics Solutions:
|
|
|
|
|
|
|
|
|
Biopharmaceutical
|
|
$
|
7,517
|
|
|
$
|
5,640
|
|
Reproductive Medicine
|
|
|
763
|
|
|
|
784
|
|
Animal Health
|
|
|
225
|
|
|
|
229
|
|
Total Global Logistics Solutions
|
|
|
8,505
|
|
|
|
6,653
|
|
Global Bioservices
|
|
|
1,269
|
|
|
|
—
|
|
Total revenues
|
|
$
|
9,774
|
|
|
$
|
6,653
|
|
Our geographical revenues,
by origin, for the three months ended March 31, 2020 and 2019, were as follows:
|
|
Three Months Ended
March 31,
|
|
(000’s omitted)
|
|
2020
|
|
|
2019
|
|
Americas
|
|
$
|
7,685
|
|
|
$
|
6,169
|
|
Europe, the Middle East and Africa (EMEA)
|
|
|
1,932
|
|
|
|
364
|
|
Asia Pacific (APAC)
|
|
|
157
|
|
|
|
120
|
|
Total revenues
|
|
$
|
9,774
|
|
|
$
|
6,653
|
|
Engineering and Development Expenses
Expenditures relating to engineering and
development are expensed in the period incurred to engineering and development expense in the statement of operations.
Stock-Based Compensation
The Company accounts
for stock-based payments in accordance with stock-based payment accounting guidance which requires all stock-based payments to
be recognized based upon their fair values. The fair value of stock-based awards is estimated at the grant date using the Black-Scholes
Option Pricing Model (“Black-Scholes”) and the portion that is ultimately expected to vest is recognized as compensation
cost over the requisite service period. The determination of fair value using Black-Scholes is affected by the Company’s
stock price as well as assumptions regarding a number of complex and subjective variables, including expected stock price volatility,
risk-free interest rate, expected dividends and expected term. The Company accounts for forfeitures of unvested awards as they
occur.
The Company’s
stock-based compensation plans are discussed further in Note 11.
Basic and Diluted Net Loss Per Share
We calculate basic and
diluted net income (loss) per share using the weighted average number of common shares outstanding during the periods presented.
In periods of a net loss position, basic and diluted weighted average common shares are the same. For the diluted earnings per
share calculation, we adjust the weighted average number of common shares outstanding to include dilutive stock options, warrants
and shares associated with the conversion of convertible debt outstanding during the periods.
The following shows the amounts used in computing net loss per
share for the three months ended March 31, 2020 and 2019:
|
|
Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(3,942,893
|
)
|
|
$
|
(2,386,902
|
)
|
Weighted average common shares issued and outstanding - basic and diluted
|
|
|
37,548,549
|
|
|
|
30,441,996
|
|
Basic and diluted net loss per share
|
|
$
|
(0.11
|
)
|
|
$
|
(0.08
|
)
|
The following table
sets forth the number of shares excluded from the computation of diluted loss per share, as their inclusion would have been anti-dilutive:
|
|
Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Stock options
|
|
|
3,867,924
|
|
|
|
2,986,999
|
|
Warrants
|
|
|
502,632
|
|
|
|
1,155,365
|
|
Convertible note
|
|
|
—
|
|
|
|
1,372,998
|
|
|
|
|
4,370,556
|
|
|
|
5,515,362
|
|
Segment Reporting
We currently operate in two reportable
segments, Global Logistics Solutions and Global Bioservices. The chief operating decision maker is our Chief Executive Officer.
Foreign Currency Transactions
Management has determined
that the functional currency of its subsidiaries is the local currency. Assets and liabilities of the Netherlands and United Kingdom
subsidiaries are translated into U.S. dollars at the period-end exchange rates. Income and expenses are translated at an average
exchange rate for the period and the resulting translation gain (loss) adjustments are accumulated as a separate component of stockholders’
equity. The translation gain (loss) adjustment totaled $(2,270) and $(10,080) for the three months ended March 31, 2020 and 2019,
respectively. Foreign currency gains and losses from transactions denominated in other than respective local currencies are included
in earnings. Foreign currency gains and losses for all periods presented were not significant.
Off-Balance Sheet Arrangements
We do not currently have any
off-balance sheet arrangements.
Recently Adopted Accounting Pronouncements
In December 2019,
the FASB issued ASU 2019-12 Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The Board issued this Update
as part of its Simplification Initiative to improve areas of GAAP and reduce cost and complexity while maintaining usefulness.
The main provision that impacts the Company is the removal of the exception to the incremental approach of intra-period tax allocation
when there is a loss from continuing operations and income or gain from other items (for example, discontinued operations and
other comprehensive income). ASU 2019-12 is effective for annual periods, and interim periods within those annual periods, beginning
after December 15, 2020. Early adoption is permitted, including adoption in an interim period. The Company has elected to early
adopt ASU 2019-12. By early adopting, ASU 2019-12 becomes effective as of the beginning of 2020, however, there is no cumulative
effect to be recognized with the early adoption.
In August 2018, the
FASB issued ASU 2018--13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement," which is part of the FASB disclosure framework project to improve the effectiveness
of disclosures in the notes to the financial statements. The amendments in the new guidance remove, modify, and add certain disclosure
requirements related to fair value measurements covered in Topic 820, "Fair Value Measurement." The new standard is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted for either the entire standard or only the requirements
that modify or eliminate the disclosure requirements, with certain requirements applied prospectively, and all other requirements
applied retrospectively to all periods presented. We adopted this guidance on January 1, 2020.
The adoption of this guidance did not have an impact on the Company’s Condensed Consolidated Financial Statements or disclosures.
In January 2017,
the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment”, which is intended to simplify the subsequent accounting for goodwill acquired in a business combination.
Prior guidance required utilizing a two-step process to review goodwill for impairment. A second step was required if there
was an indication that an impairment may exist, and the second step required calculating the potential impairment by
comparing the implied fair value of the reporting unit's goodwill (as if purchase accounting were performed on the testing
date) with the carrying amount of the goodwill. The new guidance eliminates the second step from the goodwill impairment
test. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair
value of a reporting unit with its carrying amount, and then recognize an impairment charge for the amount by which the
carrying amount exceeds the reporting unit’s fair value (although the loss should not exceed the total amount of
goodwill allocated to the reporting unit). The guidance requires prospective adoption and will be effective for annual or
interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We adopted
this guidance on January 1, 2020. The adoption of this guidance did not have an impact on the Company’s
Condensed Consolidated Financial Statements or disclosures.
Accounting Guidance Issued but Not
Adopted at March 31, 2020
In January 2020, the
FASB issued ASU 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures
(Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.”
The new guidance clarifies the interaction of accounting for the transition into and out of the equity method and the accounting
for measuring certain purchased options and forward contracts to acquire investments. ASU 2020-01 is effective for fiscal years
beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted, including
adoption in an interim period. We are currently evaluating the impact of adopting this guidance.
In December 2019, the
FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” as part of
its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019-12 eliminate certain exceptions related
to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition
of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting
for income taxes. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2020. Early adoption is permitted, including adoption in any interim period. We are currently evaluating the impact of adopting
this guidance.
In June 2016, the FASB
issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments." This ASU replaces the incurred loss impairment
methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader
range of reasonable and supportable information for credit loss estimates on certain types of financial instruments, including
trade receivables. In addition, new disclosures are required. The ASU, as subsequently amended, is effective for fiscal years beginning
after December 15, 2022 for smaller reporting companies,
as defined by the SEC. As a smaller reporting company, we are currently evaluating the impact of adopting this guidance. The Company
currently believes the main impact of the new standard will relate to the Company’s assessment of its allowance for doubtful
accounts on trade receivables.
Note 4. Cash, Cash Equivalents and Short-Term Investments
Cash, cash equivalents and short-term investments
consisted of the following as of March 31, 2020 and December 31, 2019:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Cash
|
|
$
|
6,537,678
|
|
|
$
|
546,893
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market mutual fund
|
|
|
44,084,776
|
|
|
|
43,687,877
|
|
Total cash and cash equivalents
|
|
|
50,622,454
|
|
|
|
47,234,770
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
U.S. Treasury notes and bills
|
|
|
32,675,970
|
|
|
|
21,094,100
|
|
Mutual funds
|
|
|
14,133,989
|
|
|
|
25,966,686
|
|
Total short-term investments
|
|
|
46,809,959
|
|
|
|
47,060,786
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
97,432,413
|
|
|
$
|
94,295,556
|
|
Available-for-sale investments
The amortized cost, gross unrealized gains,
gross unrealized losses and fair value of available-for-sale investments by type of security at March 31, 2020 were as follows:
|
|
Amortized
Cost
|
|
|
Unrealized Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
U.S. Treasury notes
|
|
$
|
32,232,999
|
|
|
$
|
442,971
|
|
|
$
|
—
|
|
|
$
|
32,675,970
|
|
Total available-for-sale investments
|
|
$
|
32,232,999
|
|
|
$
|
442,971
|
|
|
$
|
—
|
|
|
$
|
32,675,970
|
|
The following table summarizes the fair
value of available-for-sale investments based on stated contractual maturities as of March 31, 2020:
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Due within one year
|
|
$
|
12,094,926
|
|
|
$
|
12,154,380
|
|
Due between one and two years
|
|
|
20,138,073
|
|
|
|
20,521,590
|
|
Total
|
|
$
|
32,232,999
|
|
|
$
|
32,675,970
|
|
The amortized cost, gross unrealized gains,
gross unrealized losses and fair value of available-for-sale investments by type of security at December 31, 2019 were as follows:
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
U.S. Treasury notes
|
|
$
|
21,121,659
|
|
|
$
|
26,552
|
|
|
$
|
(54,111
|
)
|
|
$
|
21,094,100
|
|
Total available-for-sale investments
|
|
$
|
21,121,659
|
|
|
$
|
26,552
|
|
|
$
|
(54,111
|
)
|
|
$
|
21,094,100
|
|
The following table summarizes the fair
value of available-for-sale investments based on stated contractual maturities as of December 31, 2019:
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Due within one year
|
|
$
|
12,043,525
|
|
|
$
|
12,046,700
|
|
Due between one and two years
|
|
|
9,078,134
|
|
|
|
9,047,400
|
|
Total
|
|
$
|
21,121,659
|
|
|
$
|
21,094,100
|
|
The primary objective
of our investment portfolio is to enhance overall returns in an efficient manner while maintaining safety of principal, prudent
levels of liquidity and acceptable levels of risk. Our investment policy limits interest-bearing security investments to certain
types of debt and money market instruments issued by institutions with primarily investment-grade credit ratings, and it places
restrictions on maturities and concentration by asset class and issuer.
We review our available-for-sale
investments for other-than-temporary declines in fair value below our cost basis each quarter and whenever events or changes in
circumstances indicate that the cost basis of an asset may not be recoverable. The evaluation is based on a number of factors,
including the length of time and the extent to which the fair value has been below our cost basis, as well as adverse conditions
related specifically to the security such as any changes to the credit rating of the security and the intent to sell or whether
we will more likely than not be required to sell the security before recovery of its amortized cost basis. Our assessment of whether
a security is other-than-temporarily impaired could change in the future based on new developments or changes in assumptions related
to that particular security.
During the three months
ended March 31, 2020, we had realized gains of $10,934 on available-for-sale investments.
Equity Investments
We held investments
in equity securities with readily determinable fair values of $14.1 million at March 31, 2020. These investments consist of mutual
funds that invest primarily in tax-free municipal bonds and treasury inflation protected securities.
Unrealized gains (losses)
during 2020 related to equity securities held at March 31, 2020 are as follows:
Net losses recognized during the three months on equity securities
|
|
$
|
(648,760
|
)
|
Less: net gains (losses) recognized during the period on equity securities
sold during the period
|
|
|
(793,175
|
)
|
Unrealized gains recognized during the three months on equity securities still
held at March 31, 2020
|
|
$
|
144,415
|
|
Note 5. Fair Value Measurements
We measure fair value
based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used
to measure fair value. These tiers include the following:
Level 1: Quoted
prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date. The fair
value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable
prices that are based on inputs not quoted on active markets, but corroborated by market data. These inputs include quoted prices
for similar assets or liabilities; quoted market 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 assets or liabilities.
Level 3: Unobservable
inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3
inputs.
In determining
fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs
to the extent possible, as well as consider counterparty credit risk in the assessment of fair value.
We did not elect the
fair value option, as allowed, to account for financial assets and liabilities that were not previously carried at fair value.
Therefore, material financial assets and liabilities that are not carried at fair value, such as trade accounts receivable and
payable, are reported at their historical carrying values.
The carrying values
of our assets that are required to be measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 approximate
fair value because of our ability to immediately convert these instruments into cash with minimal expected change in value which
are classified in the table below in one of the three categories of the fair value hierarchy described above:
|
|
Fair Value Measurements
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual fund
|
|
$
|
44,084,776
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
44,084,776
|
|
Marketable equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
14,133,989
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,133,989
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
|
32,675,970
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32,675,970
|
|
|
|
$
|
90,084,735
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
90,084,735
|
|
|
|
Fair Value Measurements
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual fund
|
|
$
|
43,687,877
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43,687,877
|
|
Marketable equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
25,966,686
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,966,686
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
|
21,094,100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,094,100
|
|
|
|
$
|
90,748,663
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
90,748,663
|
|
Our equity
securities and available-for-sale debt securities, including U.S. treasury notes and U.S. treasury bills are valued using inputs
observable in active markets for identical securities and are therefore classified as Level 1 within the fair value hierarchy.
We did
not have any financial liabilities measured at fair value on a recurring basis as of March 31, 2020.
Note 6. Segment Reporting
We currently
operate in two reportable segments: Global Logistics Solutions and Global Bioservices. The Global Logistics Solutions segment
provides temperature-controlled logistics solutions to the life sciences industry through its purpose-built proprietary
packaging, information technology and specialized cold chain logistics expertise. The Company provides leading edge logistics
solutions to the biopharma, reproductive medicine and animal health markets to ship, store and deliver biologic materials,
such as immunotherapies, stem cells, CAR-T cell therapies, vaccines and reproductive cells for clients worldwide. The Global
Bioservices segment provides a comprehensive temperature-controlled sample management solution to the life science industry,
including specimen storage, sample processing, collection, and retrieval. The spectrum of
temperature-controlled solutions provided by the Company ranges from ambient, or controlled room temperature (15°C to
25°C), refrigerated (2°C to 8°C), to frozen and cryogenic (below 0°C to as low as −150°C). Our
Chief Executive Officer is the chief operating decision maker for both segments.
The Company derives
the results of the segments directly from its internal management reporting system. The accounting policies of the operating segments
are substantially the same as those described in the summary of significant accounting policies. The Company evaluates segment
performance on the basis of revenues and profit or loss. Management uses these operating results, in part, to evaluate the performance
of, and to allocate resources to, each of the segments.
The Company’s
reportable segments are strategic business units that offer different products and services. They are managed separately because
each business requires different sales and marketing strategies and operational skillsets. The Global Bioservices segment is currently
comprised of the Cryogene business that was acquired in May 2019, and the management at the time of the acquisition was retained.
Prior to this acquisition, the Company had a single reportable segment: Global Logistics Solutions and therefore only the segment
information for the three months ended March 31, 2020 is disclosed.
Reportable segment information is presented
in the following tables:
|
|
Three Months Ended March 31, 2020
|
|
|
|
Global Logistics Solutions
|
|
|
Global Bioservices
|
|
|
Total
|
|
Revenues
|
|
$
|
8,504,913
|
|
|
$
|
1,269,162
|
|
|
$
|
9,774,075
|
|
Interest expense
|
|
|
(2,451
|
)
|
|
|
—
|
|
|
|
(2,451
|
)
|
Depreciation and amortization expense
|
|
|
(395,009
|
)
|
|
|
(429,420
|
)
|
|
|
(824,429
|
)
|
Segment operating profit or loss
|
|
|
(3,633,688
|
)
|
|
|
47,457
|
|
|
|
(3,586,231
|
)
|
Other significant items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
|
114,570,694
|
|
|
|
25,552,557
|
|
|
|
140,123,251
|
|
Goodwill
|
|
|
—
|
|
|
|
10,999,722
|
|
|
|
10,999,722
|
|
Expenditures for long-lived assets
|
|
|
(1,136,360
|
)
|
|
|
(271,205
|
)
|
|
|
(1,407,565
|
)
|
Revenues from one
customer of the Company’s Global Bioservices segment represents approximately 82.9% of that segment’s net revenues
and 10.8% of the Company’s consolidated net revenues for the three months ended March 31, 2020.
Note 7. Goodwill and Intangible
Assets
Goodwill
As of March 31, 2020,
the carrying value of goodwill is $11.0 million which is allocated to the Global Bioservices reportable segment.
Intangible Assets
The following table presents
our intangible assets as of March 31, 2020:
|
|
Gross Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Amount
|
|
|
Weighted Average Amortization Period (years)
|
|
Non-compete agreement
|
|
$
|
390,000
|
|
|
$
|
65,000
|
|
|
$
|
325,000
|
|
|
|
5
|
|
Technology
|
|
|
510,000
|
|
|
|
85,000
|
|
|
|
425,000
|
|
|
|
5
|
|
Customer relationships
|
|
|
3,900,000
|
|
|
|
270,833
|
|
|
|
3,629,167
|
|
|
|
12
|
|
Cryogene trade name/trademark
|
|
|
480,000
|
|
|
|
26,667
|
|
|
|
453,333
|
|
|
|
15
|
|
Cryoport patents and trademarks
|
|
|
288,057
|
|
|
|
47,375
|
|
|
|
240,682
|
|
|
|
—
|
|
Total
|
|
$
|
5,568,057
|
|
|
$
|
494,875
|
|
|
$
|
5,073,182
|
|
|
|
|
|
The following table presents
our intangible assets as of December 31, 2019:
|
|
Gross Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Amount
|
|
|
Weighted Average Amortization Period (years)
|
|
Non-compete agreement
|
|
$
|
390,000
|
|
|
$
|
45,500
|
|
|
$
|
344,500
|
|
|
|
5
|
|
Technology
|
|
|
510,000
|
|
|
|
59,500
|
|
|
|
450,500
|
|
|
|
5
|
|
Customer relationships
|
|
|
3,900,000
|
|
|
|
189,583
|
|
|
|
3,710,417
|
|
|
|
12
|
|
Cryogene trade name/trademark
|
|
|
480,000
|
|
|
|
18,667
|
|
|
|
461,333
|
|
|
|
15
|
|
Cryoport patents and trademarks
|
|
|
258,203
|
|
|
|
47,375
|
|
|
|
210,828
|
|
|
|
—
|
|
Total
|
|
$
|
5,538,203
|
|
|
$
|
360,625
|
|
|
$
|
5,177,578
|
|
|
|
|
|
Amortization expense
for intangible assets for the three months ended March 31, 2020 and 2019, was $134,300 and $0, respectively.
Expected future amortization of intangible assets as
of March 31, 2020 is as follows:
Years Ending December 31,
|
|
Amount
|
|
Remainder of 2020
|
|
$
|
402,750
|
|
2021
|
|
|
537,000
|
|
2022
|
|
|
537,000
|
|
2023
|
|
|
537,000
|
|
2024
|
|
|
432,000
|
|
Thereafter
|
|
|
2,386,750
|
|
|
|
$
|
4,832,500
|
|
Note 8. Commitments and Contingencies
Facility and Equipment Leases
We lease 27,600 square
feet of corporate, research and development, and logistics facilities in Irvine, California under an operating lease expiring February
2023, subject to our option to extend the lease for two additional five-year periods. The initial base rent is approximately $24,700
per month. We also lease 8,100 square feet of logistics facilities in Livingston, New Jersey under an operating lease expiring
December 2024, subject to our option to extend the lease for an additional five-year period. The initial base rent is approximately
$7,600 per month. In addition, we lease 7,600 square feet of logistics facilities in Hoofddorp, the Netherlands under an operating
lease expiring May 2023, subject to our option to extend the lease for two additional five-year periods. The initial base rent
is approximately $5,400 per month. We also lease a total of 21,476 square feet of corporate and logistics facilities in Houston,
Texas in two adjacent buildings under operating leases expiring in January 2024. The aggregate initial base rent is approximately
$22,000 per month. We also lease a 4,190 square foot corporate facility in Brentwood, Tennessee under an operating lease expiring
August 2024. The initial base rent is approximately $11,000 per month. These lease agreements contain certain scheduled annual
rent increases which are accounted for on a straight-line basis. In addition, we lease certain equipment which expires through
January 2024.
Employment Agreements
We have entered into
employment agreements with certain of our officers under which payment and benefits would become payable in the event of termination
by us for any reason other than cause, or upon a change in control of our Company, or by the employee for good reason.
Litigation
The
Company may become a party to product litigation in the normal course of business. The Company accrues for open claims based on
its historical experience and available insurance coverage. We record a loss contingency when it is
probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We also disclose material contingencies
when we believe a loss is not probable but reasonably possible. Accounting for contingencies requires us to use judgment related
to both the likelihood of a loss and the estimate of the amount or range of loss. The outcomes of our legal proceedings are inherently
unpredictable, subject to significant uncertainties, and could be material to our financial condition, results of operations, and
cash flows for a particular period.
Indemnities and Guarantees
The Company has
made certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified
party, in relation to certain actions or transactions. The guarantees and indemnities do not provide for any limitation of
the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been
obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these
indemnities and guarantees in the accompanying consolidated balance sheets.
The Company indemnifies
its directors, officers, employees and agents, as permitted under the laws of the States of California and Nevada. In connection
with its facility and equipment leases, the Company has indemnified its lessors for certain claims arising from the use of the
facilities and equipment. The duration of the guarantees and indemnities varies and is generally tied to the life of the agreements.
Note 9. Leases
The Company has operating
and finance leases for corporate offices and certain equipment. These leases have remaining lease terms of two years to approximately
six years, some of which include options to extend the leases for multiple renewal periods of five years each. As of March 31,
2020 and December 31, 2019, assets recorded under finance leases were $273,700 and $71,000, respectively, and accumulated depreciation
associated with finance leases was $28,600 and $22,800, respectively.
The components of
lease cost were as follows:
|
|
Three Months
Ended
|
|
|
|
March 31, 2020
|
|
Operating lease cost
|
|
$
|
290,114
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
5,756
|
|
Interest on finance lease liabilities
|
|
|
2,449
|
|
|
|
|
8,205
|
|
Total lease cost
|
|
$
|
298,319
|
|
Other information related to leases was as follows:
|
|
Three Months
Ended
|
|
Supplemental Cash Flows Information
|
|
March 31, 2020
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
283,129
|
|
Operating cash flows from finance leases
|
|
$
|
16,720
|
|
Financing cash flows from finance leases
|
|
$
|
14,299
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
|
$
|
1,804,281
|
|
Finance leases
|
|
$
|
202,619
|
|
Weighted-Average Remaining Lease Term
|
|
|
|
|
Operating leases
|
|
|
7.5 years
|
|
Finance leases
|
|
|
3.5 years
|
|
Weighted-Average Discount Rate
|
|
|
|
|
Operating leases
|
|
|
6.7
|
%
|
Finance leases
|
|
|
5.4
|
%
|
Future minimum lease payments under non-cancellable
leases as of March 31, 2020 were as follows:
Years Ending December 31,
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
2020 (excluding the three months ended March 31, 2020)
|
|
$
|
1,353,640
|
|
|
$
|
61,783
|
|
2021
|
|
|
2,035,644
|
|
|
|
65,083
|
|
2022
|
|
|
2,104,540
|
|
|
|
56,437
|
|
2023
|
|
|
1,574,355
|
|
|
|
56,436
|
|
2024
|
|
|
1,469,710
|
|
|
|
3,586
|
|
2025
|
|
|
1,099,779
|
|
|
|
—
|
|
Thereafter
|
|
|
4,497,242
|
|
|
|
—
|
|
Total future minimum lease payments
|
|
|
14,134,910
|
|
|
|
243,325
|
|
Less imputed interest
|
|
|
(7,752,491
|
)
|
|
|
(21,821
|
)
|
Total
|
|
$
|
6,382,419
|
|
|
$
|
221,504
|
|
Reported as of March 31, 2020
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
Current lease liabilities
|
|
$
|
813,574
|
|
|
$
|
72,207
|
|
Noncurrent lease liabilities
|
|
|
5,568,845
|
|
|
|
149,297
|
|
Total
|
|
$
|
6,382,419
|
|
|
$
|
221,504
|
|
Note 10. Stockholders’ Equity
Authorized Stock
The Company has 100,000,000
authorized shares of common stock with a par value of $0.001 per share, and 2,500,000 undesignated or "blank check" preferred
stock, with a par value of $0.001, of which, 800,000 shares have been designated as Class A Convertible Preferred Stock and 585,000
shares have been designated as Class B Convertible Preferred Stock.
Common Stock Issued for Services
During the three months
ended March 31, 2020, 1,269 shares of common stock with a fair value of $20,700 were issued to two members of the board of directors
as compensation for services.
During the three months
ended March 31, 2019, 1,319 shares of common stock with a fair value of $17,500 were issued to two members of the board of directors
as compensation for services.
Common Stock Reserved for Future
Issuance
As of March 31, 2020,
approximately 8.4 million shares of common stock were issuable upon conversion or exercise of rights granted under prior financing
arrangements, stock options and warrants, as follows:
Exercise of stock options
|
|
|
7,790,952
|
|
Exercise of warrants
|
|
|
639,635
|
|
Total shares of common stock reserved for future issuances
|
|
|
8,430,587
|
|
Share Repurchase Program
In
October 2019, the Company’s Board of Directors approved a share repurchase program authorizing the repurchase of the
Company’s common stock in the amount of up to $15.0 million from time to time, in amounts, at prices, and at such times
as management deems appropriate and will depend on a number of factors, including the market price of the Company’s
common stock, general market and economic conditions, and applicable legal requirements. The repurchase program will expire
on December 31, 2020 and may be extended, suspended, modified or discontinued at any time. Any repurchases will be funded
from cash on hand and future cash flows from operations. The Company did not purchase any shares under this program in
2019 and has not purchased any shares under this program in 2020.
June 2019 Public Offering
On June 24, 2019, the
Company completed an underwritten public offering (the “Offering”) of 4,312,500 shares of its common stock, par value
$0.001 per share (the “Public Offering Shares”). The Public Offering Shares were issued and sold pursuant to an underwriting
agreement (the “Underwriting Agreement”), dated June 19, 2019, by and among the Company, on the one hand, and Jefferies
LLC and SVB Leerink LLC, as representatives of certain underwriters (collectively, the “Underwriters”) at a public
offering price per share of $17.00. The Public Offering Shares include 562,500 shares issued and sold pursuant to the Underwriters’
exercise in full of their option to purchase additional shares of common stock pursuant to the Underwriting Agreement. The Company
received net proceeds of approximately $68.8 million from the Offering after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company.
Note 11. Stock-Based Compensation
Warrant Activity
We typically issue warrants to purchase
shares of our common stock to investors as part of a financing transaction or in connection with services rendered by placement
agents and consultants. Our outstanding warrants expire on varying dates through July 2020. A summary of warrant activity is as
follows:
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Price/Share
|
|
|
Weighted-
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value (1)
|
|
Outstanding — December 31, 2019
|
|
|
1,001,028
|
|
|
$
|
3.83
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(361,393
|
)
|
|
|
3.97
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding — March 31, 2020
|
|
|
639,635
|
|
|
$
|
3.75
|
|
|
|
0.3
|
|
|
$
|
8,518,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested (exercisable) — March 31, 2020
|
|
|
639,635
|
|
|
$
|
3.75
|
|
|
|
0.3
|
|
|
$
|
8,518,900
|
|
|
(1)
|
Aggregate intrinsic value represents the difference between the exercise price of the warrant and the closing market price
of our common stock on March 31, 2020, which was $17.07 per share.
|
Total intrinsic value of warrants exercised during
the three months ended March 31, 2020 was $4.6 million.
Stock Options
We have five stock
incentive plans: the 2002 Stock Incentive Plan (the “2002 Plan”), the 2009 Stock Incentive Plan (the “2009 Plan”),
the 2011 Stock Incentive Plan (the “2011 Plan”), the 2015 Omnibus Equity Incentive Plan (the “2015 Plan”),
and the 2018 Omnibus Equity Incentive Plan (the “2018 Plan”), (collectively, the “Plans”). The 2002 Plan,
the 2009 Plan, the 2011 Plan and the 2015 Plan (the “Prior Plans”) have been superseded by the 2018 Plan. In May 2018,
the stockholders approved the 2018 Plan for issuances up to an aggregate of 3,730,179 shares. The Prior Plans will remain in effect
until all awards granted under such Prior Plans have been exercised, forfeited, cancelled, or have otherwise expired or terminated
in accordance with the terms of such awards, but no awards will be made pursuant to the Prior Plans after the effectiveness of
the 2018 Plan. As of March 31, 2020, the Company had 1,314,636 shares available for future awards under the 2018 Plan.
During the three months
ended March 31, 2020, we granted stock options at exercise prices equal to the quoted market price of our common stock on the grant
date. The fair value of each option grant was estimated on the date of grant using Black-Scholes with the following weighted average
assumptions:
Expected life (years)
|
|
|
6.0 – 6.3
|
|
Risk-free interest rate
|
|
|
0.5% - 1.7%
|
|
Volatility
|
|
|
69.8% – 77.3%
|
|
Dividend yield
|
|
|
0%
|
|
The expected
option life assumption is estimated based on the simplified method. Accordingly, the Company has utilized the average of the
contractual term of the options and the weighted average vesting period for all options to calculate the expected option
term. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of our
employee stock options. In April 2019, the Company amended its expected volatility assumption from using exclusively a
historical volatility. The Company calculates its expected volatility assumption based on a blended volatility using an
average of its historical and implied volatilities over the expected life of the stock-based award. The selection of the
blended volatility assumption was based upon the Company’s assessment that blended volatility is more representative of
the Company’s future stock price trends as it weighed in the longer term historical volatility with the near-term
future implied volatility. We do not anticipate paying dividends on the common stock in the foreseeable future.
We recognize stock-based
compensation expense over the vesting period using the straight-line method. Stock-based compensation expense is recognized only
for those awards that vest. We account for the forfeitures of unvested awards as they occur.
Total stock-based compensation
expense related to all of our share-based payment awards is comprised of the following:
|
|
Three months ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cost of revenues
|
|
$
|
68,596
|
|
|
$
|
62,753
|
|
General and administrative
|
|
|
1,075,169
|
|
|
|
940,139
|
|
Sales and marketing
|
|
|
368,328
|
|
|
|
339,075
|
|
Engineering and development
|
|
|
108,285
|
|
|
|
71,768
|
|
|
|
$
|
1,620,378
|
|
|
$
|
1,413,735
|
|
A summary of stock
option activity is as follows:
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Price/Share
|
|
|
Weighted-
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value (1)
|
|
Outstanding — December 31, 2019
|
|
|
6,679,581
|
|
|
$
|
7.14
|
|
|
|
|
|
|
|
|
|
Granted (weighted-average fair value of $10.98 per share)
|
|
|
1,345,800
|
|
|
|
17.01
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(227,806
|
)
|
|
|
6.35
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(6,623
|
)
|
|
|
10.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding — March 31, 2020
|
|
|
7,790,952
|
|
|
$
|
8.86
|
|
|
|
7.2
|
|
|
$
|
64,397,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested (exercisable) — March 31, 2020
|
|
|
5,851,416
|
|
|
$
|
6.45
|
|
|
|
6.3
|
|
|
$
|
62,254,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to vest after March 31, 2020 (unexercisable)
|
|
|
1,939,536
|
|
|
$
|
16.15
|
|
|
|
9.7
|
|
|
$
|
3,083,800
|
|
|
(1)
|
Aggregate intrinsic value represents the difference between the exercise price of the option and
the closing market price of our common stock on March 31, 2020, which was $17.07 per share.
|
Total intrinsic value
of options exercised during the three months ended March 31, 2020 was $2.8 million.
As of March 31, 2020,
there was unrecognized compensation expense of $19.8 million related to unvested stock options, which we expect to recognize
over a weighted average period of 3.4 years.