Biolife Solutions Inc 8-K/A, filed Jan 28, 2020
Biolife Solutions Inc (BLFS)
About this 8-K/A
Biolife Solutions Inc filed this 8-K/A on January 28, 2020, reporting on events of November 10, 2019.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 28, 2020 (November 10, 2019)
BIOLIFE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
|
Delaware |
|
001-36362 |
|
94-3076866 |
|
(State or other jurisdiction of |
|
(Commission File Number) |
|
(IRS Employer Identification No.) |
3303 Monte Villa Parkway,
Bothell, WA 98021
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (425) 402-1400
|
N/A |
|
(Former name or former address, if changed since last report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
|
☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|
☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
|
☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
|
☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading symbol |
Name of exchange on which registered |
|
BioLife Solutions, Inc. Common Shares |
BLFS |
NASDAQ Capital Market |
EXPLANATORY NOTE
This Amendment No. 2 on Form 8-K/A (this “Form 8-K/A”) amends our Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on November 15, 2019 (the “Original Form 8-K”), as amended by Amendment No. 1 on Form 8-K/A filed with the SEC on January 27, 2019 (“Amendment No. 1”). This Form 8-K/A is being filed to include Exhibit 23.1 which contains the consent of UHY LLP (“UHY”) permitting the Company to incorporate by reference into certain of the Company’s effective registration statements UHY’s report, dated January 24, 2020, relating to its audit of the financial statements of Custom Biogenic Systems, Inc. (“CBS”) for the years ended December 31, 2018 and 2017 which were included in Amendment No. 1. The Company is also re-filing the unaudited financial statements of CBS as of and for the nine months ended September 30, 2019 and 2018 as Exhibit 99.2 to this Form 8-K/A to correct the heading of the last column of the balance sheet included therein. Except as set forth herein, no other modifications have been made to the information contained in the Original Form 8-K or Amendment No. 1.
|
Item 9.01 |
Financial Statements and Exhibits. |
|
(a) |
Financial Statements of Businesses Acquired. |
The unaudited financial statements of CBS as of and for the nine months ended September 30, 2019 and 2018 are re-filed as Exhibit 99.2 and are incorporated by reference herein.
|
(d) |
Exhibits. |
|
Exhibit No. |
Description |
|
23.1 |
|
|
|
|
|
99.2 |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
Biolife Solutions, Inc. |
|
|
|
Date: January 28, 2020 |
By: |
/s/ Roderick de Greef |
|
|
|
|
Name: Roderick de Greef Title: Chief Financial Officer |
|
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference into Registration Statement Nos. 333-222433, 333-208912, and 333-233912 on Form S-3, Registration Statement Nos. 333-222437, 333-205101, and 333-189551 on Form S-8, and Registration Statement No. 333-194697 on Post-Effective Amendment No. 1 to Form S-1 on Form S-3 of our report dated January 24, 2020, relating to our audit of the financial statements of Custom Biogenic Systems, Inc. for the years ended December 31, 2018 and 2017, which is included in this Form 8-K/A of BioLife Solutions, Inc. dated January 27, 2020.
/s/UHY LLP
Sterling Heights, Michigan
January 24, 2020
Exhibit 99.2
CUSTOM BIOGENIC SYSTEMS, INC.
REVIEWED FINANCIAL STATEMENTS
For the nine months ended September 30, 2019 and 2018
CUSTOM BIOGENIC SYSTEMS, INC.
TABLE OF CONTENTS
| Page | |
| Unaudited Financial Statements | |
| Balance Sheets | 2 |
| Statements of Stockholder’s Equity | 3 |
| Statements of Operations | 4 |
| Statements of Cash Flows | 5 |
| Notes to Financial Statements | 6 |
|
CUSTOM BIOGENIC SYSTEMS, INC. |
|
UNAUDITED BALANCE SHEETS |
| September 30, | September 30, | |||||||
|
2019 |
2018 |
|||||||
|
ASSETS |
||||||||
|
CURRENT ASSETS |
||||||||
|
Cash |
$ | 1,438 | $ | 7,760 | ||||
|
Accounts receivable |
1,502,854 | 1,437,718 | ||||||
|
Inventory, net |
2,793,588 | 2,038,441 | ||||||
|
Prepaid expenses |
41,403 | 32,069 | ||||||
|
Total current assets |
4,339,283 | 3,515,988 | ||||||
|
PROPERTY AND EQUIPMENT, net |
3,238,708 | 3,607,545 | ||||||
|
TOTAL ASSETS |
$ | 7,577,991 | $ | 7,123,533 | ||||
|
LIABILITIES AND STOCKHOLDER'S EQUITY |
||||||||
|
CURRENT LIABILITIES |
||||||||
|
Current portion of long-term debt |
$ | 398,314 | $ | 526,609 | ||||
|
Bank overdraft |
297,486 | 213,461 | ||||||
|
Line of credit |
1,149,883 | 1,145,804 | ||||||
|
Accounts payable |
2,050,215 | 1,727,845 | ||||||
|
Accrued expenses |
247,583 | 201,703 | ||||||
|
Deposits |
282,461 | 331,210 | ||||||
|
Notes payable - related parties |
871,287 | 451,985 | ||||||
|
Total current liabilities |
5,297,229 | 4,598,617 | ||||||
|
LONG-TERM LIABILITIES, net of current portion |
1,334,187 | 1,747,311 | ||||||
|
TOTAL LIABILITIES |
6,631,416 | 6,345,928 | ||||||
|
STOCKHOLDER'S EQUITY |
946,575 | 777,605 | ||||||
|
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY |
$ | 7,577,991 | $ | 7,123,533 | ||||
|
CUSTOM BIOGENIC SYSTEMS, INC. |
|
UNAUDITED STATEMENTS OF STOCKHOLDER'S EQUITY |
|
Nine months ended September 30, 2019 and 2018 |
|
Common |
Retained |
|||||||||||
|
Stock |
Earnings |
Total |
||||||||||
|
Balance, January 1, 2018 |
$ | 100 | $ | 1,434,934 | $ | 1,435,034 | ||||||
|
Dividend distributions |
- | (30,000 | ) | (30,000 | ) | |||||||
|
Net loss |
- | (627,429 | ) | (627,429 | ) | |||||||
|
Balance, September 30, 2018 |
$ | 100 | $ | 777,505 | $ | 777,605 | ||||||
|
Common |
Retained |
|||||||||||
|
Stock |
Earnings |
Total |
||||||||||
|
Balance, January 1, 2019 |
$ | 100 | $ | 820,182 | $ | 820,282 | ||||||
|
Dividend distributions |
- | (30,000 | ) | (30,000 | ) | |||||||
|
Net income |
- | 156,293 | 156,293 | |||||||||
|
Balance, September 30, 2019 |
$ | 100 | $ | 946,475 | $ | 946,575 | ||||||
|
CUSTOM BIOGENIC SYSTEMS, INC. |
|
UNAUDITED STATEMENTS OF OPERATIONS |
|
Nine months ended September 30, |
||||||||||||||||
|
2019 |
2018 |
|||||||||||||||
|
Percent of |
Percent of |
|||||||||||||||
|
Amount |
Net Sales |
Amount |
Net Sales |
|||||||||||||
|
Net sales |
$ | 9,423,425 | 100.0 |
% |
$ | 8,723,490 | 100.0 |
% |
||||||||
|
Cost of goods sold |
6,444,614 | 68.4 | 6,077,519 | 69.7 | ||||||||||||
|
Gross profit |
2,978,811 | 31.6 | 2,645,971 | 30.3 | ||||||||||||
|
Operating expenses |
||||||||||||||||
|
Research and development |
518,442 | 5.5 | 840,052 | 9.6 | ||||||||||||
|
General and administrative |
1,690,620 | 17.9 | 1,752,005 | 20.1 | ||||||||||||
|
Sales and marketing |
477,337 | 5.1 | 569,527 | 6.5 | ||||||||||||
|
Total operating expenses |
2,686,399 | 28.5 | 3,161,584 | 36.2 | ||||||||||||
|
Operating income (loss) |
292,412 | 3.1 | (515,613 | ) | (5.9 | ) | ||||||||||
|
Other income (expense) |
||||||||||||||||
|
Other income |
126 | - | - | - | ||||||||||||
|
Interest expense |
(136,245 | ) | (1.4 | ) | (111,816 | ) | (1.3 | ) | ||||||||
|
Total other income (expense) |
(136,119 | ) | (1.4 | ) | (111,816 | ) | (1.3 | ) | ||||||||
|
Net income (loss) |
$ | 156,293 | 1.7 |
% |
$ | (627,429 | ) | (7.2 |
)% |
|||||||
|
CUSTOM BIOGENIC SYSTEMS, INC. |
|
UNAUDITED STATEMENTS OF CASH FLOWS |
|
Nine months |
||||||||
|
ended September 30, |
||||||||
|
2019 |
2018 |
|||||||
|
OPERATING ACTIVITIES |
||||||||
|
Net income (loss) |
$ | 156,293 | $ | (627,429 | ) | |||
|
Adjustments to reconcile net income (loss) to net cash flows from operating activities: |
||||||||
|
Depreciation and amortization |
372,554 | 330,061 | ||||||
|
Loss on sale of fixed assets |
7,967 | 7,937 | ||||||
|
Bad debt expense |
6,459 | - | ||||||
|
Changes in: |
||||||||
|
Accounts receivable |
(297,118 | ) | 180,198 | |||||
|
Inventory |
118,852 | 151,011 | ||||||
|
Prepaid expenses |
(28,908 | ) | (19,426 | ) | ||||
|
Deposits |
23,556 | 64,065 | ||||||
|
Accounts payable and accrued expenses |
(226,755 | ) | 577,575 | |||||
|
Net cash provided by operating activities |
132,900 | 663,992 | ||||||
|
INVESTING ACTIVITIES |
||||||||
|
Proceeds from sale of fixed assets |
25,000 | 253,665 | ||||||
|
Expenditures for property and equipment |
(115,619 | ) | (400,891 | ) | ||||
|
Expenditures for construction in process |
(23,380 | ) | (12,473 | ) | ||||
|
Net cash used in investing activities |
(113,999 | ) | (159,699 | ) | ||||
|
FINANCING ACTIVITIES |
||||||||
|
Net activity under bank overdraft |
54,366 | (8,401 | ) | |||||
|
Borrowings under line of credit |
4,146,976 | 4,274,656 | ||||||
|
Payments on line of credit |
(4,248,951 | ) | (4,286,830 | ) | ||||
|
Payments on notes payable |
(400,579 | ) | (370,262 | ) | ||||
|
Payments on capital lease |
- | (37,506 | ) | |||||
|
Borrowings on notes payable - related parties |
541,500 | 46,286 | ||||||
|
Payments on notes payable - related parties |
(82,079 | ) | (84,879 | ) | ||||
|
Dividend distributions |
(30,000 | ) | (30,000 | ) | ||||
|
Net cash (used in) provided by financing activities |
(18,767 | ) | (496,936 | ) | ||||
|
NET CHANGE IN CASH |
134 | 7,357 | ||||||
|
CASH, Beginning of year |
1,304 | 403 | ||||||
|
CASH, End of year |
$ | 1,438 | $ | 7,760 | ||||
CUSTOM BIOGENIC SYSTEMS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of certain accounting policies followed in the preparation of these financial statements. The policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
Company Operations
Custom Biogenic Systems, Inc. (the “Company”) is engaged in the manufacture and sale of cryogenic freezing and long-term storage products mostly within the healthcare and biomedical industries to customers around the world, with majority of sales shipped to North America and Europe.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company, from time to time during the periods covered by these financial statements, may have bank balances in excess of its insured limits. Management has deemed this as a normal business risk.
Accounts Receivable
The Company carries its accounts receivable at their invoiced amounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts, when deemed necessary, based on the history of past write-offs and collections and current credit conditions. The Company will place customer accounts on hold if payments violate terms of agreement. At September 30, 2019 and 2018, management determined no allowance was deemed necessary. Generally, the Company does not require collateral for its accounts receivable. The Company does not charge interest on past due accounts receivable.
CUSTOM BIOGENIC SYSTEMS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventory Valuation
Inventories are valued at lower of cost or net realizable value, with cost being determined on a first-in, first-out basis. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. General and administrative expenses are not inventoried, but are charged to expense when purchased. Provisions are recorded to reduce inventory for obsolete or slow-moving inventory based on assumptions about future demand and marketability of products, inventory levels and turns and product spoilage. As of September 31, 2019 and 2018, the Company had an inventory reserve in the amount of $210,000 and $140,000, respectively.
Property and Equipment
Management capitalizes expenditures for property and equipment. Expenditures for maintenance and repairs are charged to operating expenses. Property and equipment are carried at cost. Adjustments of the asset and the related accumulated depreciation and amortization accounts are made for property and equipment retirements and disposals, with the resulting gain or loss included in the statements of operations.
Depreciation and Amortization
Depreciation and amortization of property and equipment are computed using the straight-line method over the estimated useful lives of assets at acquisition. Leasehold improvements are amortized over the shorter of the assets’ useful lives or the term of the lease.
Depreciation and amortization for the nine months ended September 31, 2019 and 2018 was $372,554 and $330,061, respectively.
Revenue Recognition
Sales are recorded when the products are shipped to customers. Provision for discounts and rebates to customers and other adjustments are provided for in the same period as the related sales.
Shipping and Handling Costs
The Company records the amount of shipping and handling costs billed of customers as revenue. The cost incurred for shipping and handling is included in cost of sales.
CUSTOM BIOGENIC SYSTEMS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising and Promotion
Advertising and promotion costs are expensed as incurred. Advertising and promotion expense for the nine months ended September 30, 2019 and 2018 was $106,126 and $187,852, respectively.
Sales and Use Taxes
The Company records sales net of sales and use taxes.
Product Warranty
The Company accrues an estimate of its exposure to warranty claims based on both current and historical product sales data and warranty costs incurred. The majority of the Company’s products carry a warranty ranging from ninety days to five years. The Company assesses the adequacy of its recorded warranty liability annually and adjusts the amount as necessary. The warranty liability is included in accrued expenses in the accompanying balance sheet. Warranty expenses are recorded in cost of sales. See Note 13 for additional disclosure.
Income Taxes
Custom Biogenic Systems, Inc. has elected to be treated as a Subchapter S Corporation under the Internal Revenue Code. Under these provisions, the Company generally does not pay federal corporate income taxes on its taxable income. Instead, the stockholder is liable for individual federal and state income taxes the Company’s taxable income. Accordingly, no provision for federal or state corporate income taxes has been reflected in the financial statements.
Variable Interest Entities
Under alternatives available to private companies, the Company has elected not to evaluate any related parties under common control to determine if any such entities are variable interest entities that might be required to be consolidated in the financial statements of the Company.
CUSTOM BIOGENIC SYSTEMS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Subsequent Events
The Company has performed a review of events subsequent to the balance sheet date through January 24, 2020, the date the financial statements were available to be issued.
NOTE 2 – RELATED PARTY TRANSACTIONS
Notes Payable
At September 30, 2019 and 2018, the Company was indebted to its sole shareholder in the amount of $694,402 and $328,692, respectively. The note is unsecured, non-interest bearing, is classified as short-term on the balance, and is due on demand. See Note 7 for a schedule of minimum long-term debt payments.
At September 30, 2019 and 2018, the Company was indebted to a related party through common ownership in the amount of $176,885 and $109,174, respectively. The note is unsecured, non-interest bearing, is classified as short-term on the balance sheets, and is due on demand. See Note 7 for a schedule of minimum long-term debt payments.
At September 30, 2018, the Company was indebted to related parties in the amount of $14,119. The note was unsecured and was classified as short-term on the balance sheet. During the period ended September 30, 2019 the note was paid in full.
Lease Agreement
The Company leases its operating facilities from a related party on a month-to-month basis. The lease calls for monthly payments of $10,000 and total rental expense related to the lease during the periods ended September 30, 2019 and 2018 was $95,645 and $89,900 respectively.
Guarantee
The Company guarantees the debt of a related party through common ownership, which is secured by real estate owned by a related party. In the event of a default by the related party, the Company could be obligated to repay the full amount outstanding. At September 30, 2019 and 2018, the outstanding balance is $827,686 and $872,056, respectively. Management anticipates the related party will be able to meet their debt obligation, therefore; no accrual has been made on the financial statements at September 30, 2019 and 2018.
CUSTOM BIOGENIC SYSTEMS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 3 – INVENTORY
Inventory consisted of the following at September 30:
|
2019 |
2018 |
|||||||
|
Raw materials |
$ | 792,898 | $ | 621,433 | ||||
|
Work in process |
483,064 | 143,628 | ||||||
|
Finished goods |
1,727,626 | 1,413,380 | ||||||
|
Inventory Reserve |
(210,000 | ) | (140,000 | ) | ||||
| $ | 2,793,588 | $ | 2,038,441 | |||||
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30:
|
2019 |
2018 |
|||||||
|
Equipment |
$ | 4,617,910 | $ | 4,570,023 | ||||
|
Computers & equipment |
384,029 | 389,679 | ||||||
|
Furniture & fixtures |
38,709 | 36,909 | ||||||
|
Autos & trucks |
77,319 | 97,462 | ||||||
|
Building improvements |
717,456 | 684,703 | ||||||
| 5,835,423 | 5,778,776 | |||||||
|
Less: Accumulated depreciation and amortization |
2,639,417 | 2,190,554 | ||||||
| 3,196,006 | 3,588,222 | |||||||
|
Construction in process |
42,702 | 19,323 | ||||||
| $ | 3,238,708 | $ | 3,607,545 | |||||
NOTE 5 – LINE OF CREDIT
At September 30, 2019 and 2018, the Company had drawn $1,149,883 and $1,145,804, respectively, under a line-of-credit agreement with a financial institution. Under the agreement, the Company may borrow up to $1,500,000 on a revolving basis through November 2019. The line of credit bears interest at LIBOR plus 2.5% (LIBOR was 2.05% at September 30, 2019) and is secured by the Company’s general assets. The agreement is subject to a financial covenant related to a fixed charge coverage ratio. At covenant measurement date, December 31, 2018, the Company was not in compliance with the financial covenant. Subsequent to December 31, 2018, the financial institution issued a waiver for the covenant violation.
CUSTOM BIOGENIC SYSTEMS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 6 – ACCRUED EXPENSES
Accrued expenses consisted of the following at September 30:
|
2019 |
2018 |
|||||||
|
Accrued payroll |
$ | 75,235 | $ | 83,907 | ||||
|
Interest payable |
13,116 | 15,829 | ||||||
|
Sales tax payable |
11,522 | 23,967 | ||||||
|
Property taxes |
3,710 | - | ||||||
|
Accrued warranty expense |
144,000 | 78,000 | ||||||
| $ | 247,583 | $ | 201,703 | |||||
NOTE 7 – LONG-TERM DEBT
|
September 30, |
||||||||
|
2019 |
2018 |
|||||||
|
The Company has a note payable to a financial institution. The note is payable in monthly installments of $15,974, including interest at 3.59%, and matures in November 2019. The note is secured by the Company’s general assets and is cross-collateralized and cross-defaulted with other notes and a line of credit from the same financial institution. The agreement is subject to a financial covenant related to a fixed charge coverage ratio. At December 31, 2018, the Company was not in compliance with the financial covenant. Subsequent to December 31, 2018, the financial institution issued a waiver for the covenant violation. |
$ | 31,825 | $ | 218,644 | ||||
|
The Company has a note payable to a financial institution. The note is payable in monthly installments of $6,548, plus interest at LIBOR plus 2.75%, and matures in June 2023. The note is secured by the Company’s general assets and is cross-collateralized and cross-defaulted with other notes and a line of credit from the same financial institution. The agreement is subject to a financial covenant related to a fixed charge coverage ratio. At December 31, 2018, the Company was not in compliance with the financial covenant. Subsequent to December 31, 2018, the financial institution issued a waiver for the covenant violation. |
294,643 | 373,214 | ||||||
|
Subtotal |
$ | 326,468 | $ | 591,858 | ||||
CUSTOM BIOGENIC SYSTEMS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 7 – LONG-TERM DEBT (Continued)
|
September 30, |
||||||||
|
2019 |
2018 |
|||||||
|
Subtotal from previous page |
$ | 326,468 | $ | 591,858 | ||||
|
The Company has a note payable to a financial institution. The note is payable in monthly installments of $3,571, plus interest at LIBOR plus 2.75%, and matures in December 2023. The note is secured by the Company’s general assets and is cross-collateralized and cross-defaulted with other notes and a line of credit from the same financial institution. The agreement is subject to a financial covenant related to a fixed charge coverage ratio. At December 31, 2018, the Company was not in compliance with the financial covenant. Subsequent to December 31, 2018, the financial institution issued a waiver for the covenant violation. |
178,571 | 221,429 | ||||||
|
The Company has a note payable to a financial institution. The note is payable in monthly installments of $812, including interest at 4.9%, secured by the vehicle purchased under the note, and matures in May 2020. During the nine months ended September 30, 2019, the Company paid the remaining balance of the loan. |
- | 14,810 | ||||||
|
The Company has a note payable to a financial institution in the original amount of $600,000. The note is payable in monthly installments of $9,807, plus interest at LIBOR plus 2.75%, and matures in November 2022. The note is secured by the Company’s general assets and is cross-collateralized and cross-defaulted with other notes and the line of credit from the same financial institution. The agreement is subject to a financial covenant related to a fixed charge coverage ratio. At December 31, 2018, the Company was not in compliance with the financial covenant. Subsequent to December 31, 2018, the financial institution issued a waiver for the covenant violation. |
382,460 | 500,520 | ||||||
|
Subtotal |
$ | 887,499 | $ | 1,328,617 | ||||
CUSTOM BIOGENIC SYSTEMS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 7 – LONG-TERM DEBT (Continued)
|
September 30, |
||||||||
|
2019 |
2018 |
|||||||
|
Subtotal from previous page |
$ | 887,499 | $ | 1,328,617 | ||||
|
During the nine months ended September 30, 2018, the Company entered into a note payable to a financial institution in the amount of $959,733. The note is payable in monthly installments of $12,953, including interest 7.31% and matures June 2025 with a final payment $192,244. The loan is secured by financed assets. |
845,002 | 945,303 | ||||||
|
Notes payable to related parties from Note 2 |
871,287 | 451,985 | ||||||
|
Subtotal |
2,603,788 | 2,725,905 | ||||||
|
Less: related party debt |
871,287 | 451,985 | ||||||
|
Less: current portion of long-term debt |
398,314 | 526,609 | ||||||
| $ | 1,334,187 | $ | 1,747,311 | |||||
Minimum future payments for the notes described above and in Note 2 for the next five years and in the aggregate are as follows:
|
Years ended September 30, |
Amount |
|||
|
2020 |
$ | 1,269,601 | ||
|
2021 |
341,919 | |||
|
2022 |
351,134 | |||
|
2023 |
253,056 | |||
|
2024 |
148,969 | |||
|
Subsequent to 2024 |
239,109 | |||
| $ | 2,603,788 | |||
NOTE 8 – CAPITAL LEASE
At December 31, 2017, the Company had a capital lease payable to a financial institution in the amount of $183,221. The asset and liability under the lease were recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. During the nine months ended September 30, 2018, the capital lease was refinanced into a new note payable as described in Note 7.
Interest expense included in the capital lease payments for the nine months ended September 30, 2018 was $7,353. Depreciation expense for the asset under the capital lease for the nine months ended September 30, 2018 was $25,450.
CUSTOM BIOGENIC SYSTEMS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 9 – OPERATING LEASE
The Company leases certain office equipment under an operating lease agreement ending February 2021. The lease agreement calls for monthly payments of $296 including taxes. This lease agreement replaces another lease agreement which expired in February, 2018. Total lease expense under these agreements for the periods ended September 30, 2019 and 2018 was $2,666 and $2,676, respectively.
The following is a schedule of minimum future lease payments under the non-cancelable operating lease above for the next two years:
|
Years ended September 30, |
Amount |
|||
|
2020 |
$ | 3,554 | ||
|
2021 |
1,481 | |||
|
Total minimum future lease payments |
$ | 5,035 | ||
NOTE 10 – COMMON STOCK
Custom Biogenic Systems, Inc. had authorized 10,000 shares of $1 par value common stock. At both September 30, 2019 and 2018, the Company had 100 shares issued and outstanding.
NOTE 11 – ECONOMIC DEPENDENCY
The Company sold a substantial portion of its services to one customer during the nine months ended September 30, 2019 and 2018. For the nine months ended September 30, 2019 and 2018, sales to this customer approximated 15% and 16% of net sales, respectively. Accounts receivable to this customer amounted to $204,757 and $306,107 at September 30, 2019 and 2018, respectively.
The Company purchased a substantial portion of their supplies and services from two and three of their suppliers during the nine months ended September 30, 2019 and 2018, respectively. For the nine months ended September 30, 2019 and 2018, purchases from these suppliers approximated 45% and 49% of total purchases, respectively. Accounts payable to these customers amounted to $996,072 and $800,002 at September 30, 2019 and 2018, respectively.
CUSTOM BIOGENIC SYSTEMS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 12 – 401(K) RETIREMENT PLAN
The Company sponsors a traditional 401(k) plan covering substantially all employees at least 19 years old with one full year of service. Eligible employees may contribute up to the IRS limit. Under the plan, the Company can make contributions at the discretion of management. During the nine months ended September 30, 2019 and 2018, the Company did not make a matching contribution. The Company has funded or accrued all calculated contributions as of the balance sheet dates.
NOTE 13 – PRODUCT WARRANTIES
The following summarizes the changes in the Company’s aggregate liability under product warranties for the periods ended September 30:
|
2019 |
2018 |
|||||||
|
Warranty accrual, beginning of year |
$ | 93,000 | $ | 75,000 | ||||
|
Charged to costs and expenses |
251,005 | 84,187 | ||||||
|
Actual warranty expenditures |
(200,005 | ) | (81,187 | ) | ||||
|
Warranty accrual, end of year |
$ | 144,000 | $ | 78,000 | ||||
NOTE 14 – CASH FLOWS
The following is a schedule of interest paid for the periods ended September 30:
|
2019 |
2018 |
|||||||
|
Interest paid |
$ | 136,245 | $ | 111,816 | ||||
Non-cash transactions:
During the period ended September 30, 2018 the Company refinanced a capital lease into a new note payable in the amount of $814,018. See long term debt disclosure at Note 7.
During the period ended September 30, 2018, the Company refinanced outstanding balance on a capital lease identified in Note 8 into a new note payable disclosed in Note 7 in the amount of $145,715.
CUSTOM BIOGENIC SYSTEMS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 15 − LITIGATION
The Company is subject to outstanding claims that arise in the ordinary course of business and to other legal proceedings. Management anticipates that any potential liability of the Company, which may arise with respect to these matters, will not materially affect the Company’s financial statements.
NOTE 16 – SUBSEQUENT EVENTS
Subsequent to the balance sheet date, the Company sold substantially all of its assets to an unrelated third party. A portion of the proceeds from the sale were used to pay off all outstanding notes payable and the line of credit identified in Note 2, 5 and 7.
Page 16