Biolife Solutions Inc 8-K/A, filed Dec 14, 2020
Biolife Solutions Inc (BLFS)
About this 8-K/A
Biolife Solutions Inc filed this 8-K/A on December 14, 2020, reporting on events of October 1, 2020.
Items reported
- Item 9.01: Financial statements and exhibits
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(State or other jurisdiction of
incorporation) |
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(Commission File Number)
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(IRS Employer Identification No.)
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Title of each class
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Trading symbol
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Name of exchange on which registered
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The
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Item 9.01
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Financial Statements and Exhibits.
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(a)
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Financial Statements of Businesses Acquired.
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(b)
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Pro Forma Financial Information.
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(d)
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Exhibits.
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Exhibit No.
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Description
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23.1
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99.1
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99.2
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99.3
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104
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Cover Page Interactive Data File (formatted as Inline XBRL).
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BioLife Solutions, Inc.
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Date: December 14, 2020
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By:
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/s/ Roderick de Greef
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Name: Roderick de Greef
Title: Chief Financial and Chief Operating Officer
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Exhibit 23.1
Consent of Independent Auditor
BioLife Solutions, Inc.
Bothell, Washington
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-233912 and 333-222433) and on Form S-8 (Nos. 333-222437, 333-205101, and 333-189551) of BioLife Solutions, Inc. of our report dated December 14, 2020 relating to the consolidated financial statements of SciSafe Holdings Limited (now known as SciSafe Holdings, Inc.), which appears in this Current Report on Form 8-K/A of BioLife Solutions, Inc.
/s/ BDO USA, LLP
Woodbridge, New Jersey
December 14, 2020
Exhibit 99.1
SCISAFE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31, 2019
SCISAFE HOLDINGS LIMITED
TABLE OF CONTENTS
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Page |
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Independent Auditor’s Report |
1 |
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Consolidated Financial Statements |
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Consolidated Balance Sheet as of December 31, 2019 |
2 |
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Consolidated Statement of Income for the Year Ended December 31, 2019 |
3 |
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Consolidated Statement of Stockholders’ Equity for the Year Ended December 31, 2019 |
4 |
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Consolidated Statement of Cash Flows for the Year Ended December 31, 2019 |
5 |
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Notes to Consolidated Financial Statements |
6 |
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors
SciSafe Holdings, Inc.
Cranbury, New Jersey
We have audited the accompanying consolidated financial statements of SciSafe Holdings Limited (now known as SciSafe Holdings, Inc., see Note 1 to the consolidated financial statements) and its subsidiaries (the “Company”), which comprise the consolidated balance sheet as of December 31, 2019, and the related consolidated statements of income, changes in stockholders equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SciSafe Holdings Limited and its subsidiaries as of December 31, 2019, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
On January 1, 2019, the Company adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) and adopted Accounting Standards Update 2016-02, Leases (Topic 842). The effects of these adoptions are described in Note 2 to the consolidated financial statements.
/s/ BDO USA, LLP
Woodbridge, New Jersey
December 14, 2020
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SCISAFE HOLDINGS LIMITED |
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CONSOLIDATED BALANCE SHEET |
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December 31, |
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2019 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
$ | 383,411 | ||
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Accounts receivable, net of allowance for doubtful accounts of $71,970 |
547,826 | |||
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Prepaid expenses |
42,428 | |||
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Other current assets |
16,000 | |||
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Total current assets |
989,665 | |||
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Property and equipment, net |
2,230,463 | |||
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Operating lease right-of-use assets, net |
1,515,890 | |||
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Financing lease right-of-use assets, net |
23,954 | |||
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Deposits |
124,568 | |||
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TOTAL ASSETS |
$ | 4,884,540 | ||
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
$ | 424,037 | ||
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Accrued expenses and other current liabilities |
249,846 | |||
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Deferred revenue, current portion |
30,528 | |||
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Lease liabilities, operating, current portion |
349,348 | |||
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Lease liabilities, financing, current portion |
5,509 | |||
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Related party payable |
49,250 | |||
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Accrued interest on stockholder loans |
436,205 | |||
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Stockholder loans |
875,954 | |||
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Other current liabilities |
105,000 | |||
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Total current liabilities |
2,525,677 | |||
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LONG-TERM LIABILITIES |
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Deferred revenue, long-term |
101,672 | |||
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Lease liabilities, operating, long-term |
1,198,359 | |||
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Lease liabilities, financing, long-term |
17,998 | |||
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Deferred tax liability |
242,122 | |||
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TOTAL LIABILITIES |
4,085,828 | |||
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Commitments and contingencies (Note 10) |
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STOCKHOLDERS' EQUITY |
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Common stock, $1.00 par value; 50,000 shares authorized, 900 shares issued and outstanding |
900 | |||
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Retained earnings |
797,812 | |||
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TOTAL STOCKHOLDERS' EQUITY |
798,712 | |||
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ | 4,884,540 | ||
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements
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SCISAFE HOLDINGS LIMITED |
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CONSOLIDATED STATEMENT OF INCOME |
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Year ended December 31, |
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2019 |
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Service revenue |
$ | 5,493,432 | ||
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Cost of service revenue |
3,553,821 | |||
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Gross profit |
1,939,611 | |||
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Operating expenses |
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General and administrative |
1,184,013 | |||
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Sales and marketing |
113,540 | |||
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Total operating expenses |
1,297,553 | |||
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Operating income |
642,058 | |||
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Other income (expense) |
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Interest income |
8 | |||
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Interest expense |
(64,627 | ) | ||
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Total other income (expense) |
(64,619 | ) | ||
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Net income before provision for income taxes |
577,439 | |||
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Income taxes |
162,463 | |||
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Net income |
$ | 414,976 | ||
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements
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SCISAFE HOLDINGS LIMITED |
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CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY |
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Year ended December 31, 2019 |
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Common Stock Shares |
Common Stock Amount |
Retained Earnings |
Total Stockholders' Equity |
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Balance, January 1, 2019 |
900 | $ | 900 | $ | 382,836 | $ | 383,736 | |||||||||
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Net income |
- | - | 414,976 | 414,976 | ||||||||||||
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Balance, December 31, 2019 |
900 | $ | 900 | $ | 797,812 | $ | 798,712 | |||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements
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SCISAFE HOLDINGS LIMITED |
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CONSLIDATED STATEMENT OF CASH FLOWS |
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Year ended December 31, |
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2019 |
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OPERATING ACTIVITIES |
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Net income |
$ | 414,976 | ||
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Adjustments to reconcile net income to net cash flows provided by operating activities: |
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Depreciation and amortization |
307,738 | |||
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Bad debt expense |
18,624 | |||
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Non-cash lease expense |
342,381 | |||
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Deferred income tax expense |
126,748 | |||
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Changes in: |
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Accounts receivable |
(38,347 | ) | ||
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Prepaid expenses |
103,263 | |||
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Other current assets |
(16,000 | ) | ||
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Accounts payable |
(58,315 | ) | ||
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Accrued expenses and other current liabilities |
125,114 | |||
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Accrued interest on stockholder loans |
19,627 | |||
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Lease liabilities |
(338,322 | ) | ||
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Deferred revenue |
132,200 | |||
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Other current liabilities |
25,000 | |||
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Net cash provided by operating activities |
1,164,687 | |||
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INVESTING ACTIVITIES |
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Purchases of property and equipment |
(749,327 | ) | ||
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Security deposits |
(159,568 | ) | ||
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Net cash used in investing activities |
(908,895 | ) | ||
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FINANCING ACTIVITIES |
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Principal payments on finance type lease |
(447 | ) | ||
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Net cash used in financing activities |
(447 | ) | ||
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NET CHANGE IN CASH AND CASH EQUIVALENTS |
255,345 | |||
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CASH AND CASH EQUIVALENTS, Beginning of year |
128,066 | |||
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CASH AND CASH EQUIVALENTS, End of year |
$ | 383,411 | ||
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Supplemental disclosures |
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Cash interest paid |
$ | 45,000 | ||
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Income taxes paid |
$ | 2,945 | ||
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Non-cash investing and financing activities |
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Purchase of property and equipment not yet paid |
$ | 161,901 | ||
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Equipment acquired under operations leases(1) |
$ | 1,858,271 | ||
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Equipment acquired under financing leases |
$ | 23,954 | ||
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(1) Includes leases that commenced during the year ended December 31, 2019, as well as balances related to leases in existence as of the date of the adoption of Topic 842 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements
SCISAFE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
NOTE 1 – BUSINESS OVERVIEW
Company Operations
SciSafe Holdings Limited (the “Parent”) was incorporated as a British Virgin Islands holding company in July of 2010. The Parent has 50,000 authorized shares and has total issued share capital of 900 common stock shares at $1.00 par value. The Parent was formed for the purpose of being a holding company for subsidiaries that are providers of pharmaceutical storage services. At the time of formation, the shareholders of the Parent entered into a loan agreement whereby the shareholders agreed to loan the Parent up to $900,000 (see Note 4). On March 31, 2020, the Parent filed a Certificate of Corporate Domestication as well as a Certificate of Incorporation with the State of Delaware. In connection with these filings, the name of the corporation was changed to SciSafe Holdings, Inc. SciSafe Holdings, Inc. has 50,000 common stock shares authorized at $1.00 par value and issued 900 common stock shares to the existing shareholders of the Parent. On June 25, 2020, a Certificate of Discontinuance was issued by the Registrar of Corporate Affairs of the British Virgin Islands stating that SciSafe Holdings Limited was discontinued in the British Virgin Islands as a company.
SciSafe Inc. (Delaware) was incorporated as a Delaware corporation in July of 2010 for the purpose of holding the common shares of SciSafe, Inc. (New Jersey). SciSafe Inc. (Delaware) is a wholly-owned subsidiary of the Parent and has 3,000 authorized and issued shares with no par value that are held by the Parent.
SciSafe, Inc. (New Jersey) was incorporated as a New Jersey corporation in August of 2010. SciSafe, Inc. (New Jersey) is a wholly-owned subsidiary of SciSafe Inc. (Delaware) and has 1,000 authorized and issued shares with no par value that are held by the SciSafe Inc. (Delaware). SciSafe, Inc. (New Jersey) provides dedicated pharmaceutical and biological specimen storage in its fully current Good Manufacturing Practices (“cGMP”) compliant facilities. SciSafe, Inc. (New Jersey) specializes in specimen storage for International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use stability testing, drug stability testing, pharmaceutical stability testing, vaccine storage, bulk pharmaceutical storage, retain sample storage, clinical trials storage, biostorage, cryogenic storage, cryopreservation for samples such as cord blood storage and stem cell storage.
Collectively, SciSafe Holdings Limited, SciSafe Inc. (Delaware) and SciSafe, Inc. (New Jersey) are referred to as the Company.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The following is a summary of certain accounting policies followed in the preparation of these consolidated financial statements. The policies conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently applied in the preparation of the consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of SciSafe Holdings Limited and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of 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 period. Actual results could differ from those estimates.
Significant estimates and assumptions by management affect the Company’s allowance for doubtful accounts and depreciation methods and periods.
The Company regularly assesses these estimates, however, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.
COVID-19 Pandemic
On March 10, 2020, the World Health Organization declared the outbreak of the novel coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 (“COVID-19”) a pandemic. The COVID-19 pandemic, and the resulting restrictions intended to slow the spread of COVID-19, including stay-at-home orders, business shutdowns and other restrictions, has not materially affected the Company’s business, although at this time, the Company cannot estimate the financial impact.
The Company may experience other negative impacts of the COVID-19 outbreak such as the lack of availability of the Company’s key personnel, temporary closures of the Company’s office or the facilities of the Company’s business partners, customers, third party service providers or other vendors, the inability to travel to market and sell its services, and the interruption of the Company’s supply chain, liquidity and capital or financial markets.
Any disruption and volatility in the global capital markets as a result of the pandemic may increase the Company’s cost of capital and adversely affect the Company’s ability to access financing when and on terms that the Company desires.
The ultimate extent to which the COVID-19 pandemic and its repercussions impact the Company’s business will depend on future developments, which are highly uncertain and cannot be reasonably estimated. However, the foregoing and other continued disruptions to the Company’s business as a result of COVID-19 could result in a material adverse effect on the Company’s business, results of operations, financial condition, and cash flows.
On March 27, 2020, the President of the United States signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security tax payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The Company will continue to monitor the impact that the CARES Act may have on the Company’s business, financial condition, results of operations, or liquidity.
The Company determined that it met the original eligibility requirements per the guidelines originally established by the U.S. federal government as part of the CARES Act for the Pursuant to the Paycheck Protection Program (the “PPP”). As such, in May 2020, the Company received $295,300 in support from the PPP to fund operations during COVID-19. The Company has a good-faith belief that it properly satisfied all eligibility requirements for the PPP loan and intends to use the loan funds on qualifying expenses, which includes the Company’s payments for payroll, leases, and utilities. The Company intends to apply for loan forgiveness in accordance with the loan forgiveness provisions in the legislation; however, there can be no assurance that the Company will obtain full forgiveness of the loans based on the legislation.
Concentration of Credit Risk and Business Risk
The Company, from time to time during the years covered by these consolidated financial statements, may have bank balances in excess of its insured limits. Management has deemed this as a normal business risk.
All revenue from foreign customers are denominated in United States dollars.
In the fiscal year ended December 31, 2019, the company derived approximately 37% of revenue from two customers. No other single customer generated over 10% of revenues during the years ended December 31, 2019.
At December 31, 2019, two customers accounted for approximately 22% of total gross accounts receivable. No other single customer owed the Company more than 10% of net accounts receivable at December 31, 2019.
Cash and cash equivalents
Cash equivalents that are readily convertible to cash are stated at cost, which approximates fair value. The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents consist of investments in money market funds as of December 31, 2019.
Accounts Receivable and Allowance for Doubtful Accounts
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. At December 31, 2019, the allowance for doubtful accounts was $71,970. The Company will place customer accounts on hold if they violate the payment terms of agreement. Generally, the Company does not require collateral for its accounts receivable. The Company does not charge interest on past due accounts receivable.
Property and Equipment
Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For consolidated financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of two to ten years. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized.
The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. There was no impairment as of or for the year ended December 31, 2019.
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 included in cost of service revenue for the year ended December 31, 2019 was $307,738.
Revenue Recognition
Adoption of Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”
On January 1, 2019, the Company adopted ASC 606 using the modified retrospective method for all contracts not completed as of the date of adoption, which had no impact on revenues. There was no impact upon adoption of ASC 606 to net cash and cash equivalents provided by (used in) operating, investing, or financing activities. Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the services promised within each contract and determines those that are performance obligations, and assesses whether each promised service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Service Revenue
The Company generates revenue primarily from pharmaceutical and biological specimen storage in its fully cGMP compliant facilities. In addition, the Company generates revenue from the storage of evidence in outstanding lawsuits. The Company measures revenue based upon the consideration specified in the client arrangement, and revenue is recognized when the performance obligations in the client arrangement are satisfied. Substantially all of the Company’s revenue is related to storage services and is recognized by the Company over time as the Company satisfies the performance obligations over time. Revenue is recognized over time as the customer simultaneously receives and consumes the benefits provided by the Company’s performance. The Company's right to payment is for an amount that corresponds directly with the value to the customer of the Company’s performance to-date.
During the year ended December 31, 2019, the Company had a contract with one of its customers where the Company performs biological storage and related services pursuant to a master services agreement and statement of work entered into during fiscal year 2019, amended in September 2020, at a warehouse facility that is sub-leased by the customer using equipment at the facility that is owned by the customer. The Company earns a monthly services fee of $145,834 for the biological storage and related services and is entitled to charge $12,000 per month to cover expenses incurred by the Company. The Company agreed to pay the customer’s monthly sublease rent of approximately $42,000 on behalf of the customer to the customer’s third-party vendor. The Company determined that payment of its customer’s rent is akin to consideration payable to a customer and is presented net in service revenue as the Company does not obtain a distinct good or service from the third party vendor and the payment is made to the third party is for the benefit of the Company’s customer. The Company has also evaluated the nature of the arrangement with its customer and determined that a lease does not exist as of December 31, 2019.
Deferred Revenues
The Company records deferred revenues when cash payments are received in advance of performance.
Practical Expedients and Exemptions
Applying the practical expedient in paragraph 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component or variable consideration as of and during the year ended December 31, 2019.
Financial Statement Impact of Adopting ASC 606
The Company adopted ASC 606 using the modified retrospective method. There was no adjustment to opening retained earnings due to the impact of adopting Topic 606.
Cost of Service Revenue
Cost of service revenue consists primarily of salaries and benefits associated with employee efforts expended directly on the collecting, storing, and returning of customers’ biological specimens as well as rent, maintenance costs, utility costs, depreciation, insurance, supplies, and shipping costs.
Shipping and Handling
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 service revenue.
Advertising
Advertising costs are expensed as incurred. Advertising expense for the year ended December 31, 2019 was $90,485.
Sales and Use Taxes
The Company records service revenues net of sales and use taxes.
Lease Accounting
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases: ASC Topic 842 (“ASU 2016-02”) that replaces existing lease guidance. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. Under the new guidance, leases will continue to be classified as either financing or operating, with classification affecting the pattern of expense recognition in the consolidated Statements of Operations. Lessor accounting is largely unchanged under ASU 2016-02.
The Company adopted ASU 2016-02 and related ASUs (collectively ASC 842) effective January 1, 2019. The Company elected the package of practical expedients, which permits the Company to retain prior conclusions about lease identification, lease classification and initial direct costs for leases that commenced before January 1, 2019. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. The Company also elected the practical expedient to combine lease and non-lease components for all leases other than net lease real estate leases.
The Company used a weighted average discount rate of 5.8% to determine the Company’s operating and financing lease liabilities. The weighted average remaining term for both the Company’s operating and financing leases is 3.9 years. The adoption of this standard resulted in the recording of operating lease right-of-use assets of $1,858,271 and lease liabilities of $1,886,029 as of January 1, 2019. Differences between right-of-use assets and lease liabilities relate to deferred rent liabilities that were included on the Company’s Balance Sheet prior to adoption of ASC Topic 842. These amounts were eliminated at the time of adoption and are included in the lease liabilities. Adoption of ASC Topic 842 did not have a material impact on the Company’s net earnings and had no impact on cash flows. Substantially all of the Company’s operating lease costs relate to fixed rent expense.
Income Taxes
The Company accounts for income taxes under an asset and liability approach that requires recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Under this method, deferred tax assets and liabilities are recognized for the future tax effects of differences between tax bases of assets and liabilities, and financial reporting amounts, based upon enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable income. The Company evaluates the likelihood of realization of deferred tax assets and provides an allowance where, in management’s opinion, it is more likely than not that the asset will not be realized.
The Company evaluates its uncertain income tax positions and may record a liability for any unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in an income tax return. No liability has been recorded for uncertain tax positions or related interest or penalties at December 31, 2019.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For private companies, ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is evaluating the impact of the guidance on its financial statements.
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.” ASU 2018-13 includes amendments that aim to improve the effectiveness of fair value measurement disclosures. The amendments in this guidance modify the disclosure requirements on fair value measurements based on the concepts in FASB Concepts Statement, “Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements,” including the consideration of costs and benefits. The amendments become effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company will adopt this guidance in the first quarter of 2020 and expects there to be no material impact on its financial statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.” ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, including, but not limited to, the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, the exceptions related to the recognition of a deferred tax liability related to an equity method investment and the exception to methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. ASU 2019-12 becomes effective for the Company in the year ending December 31, 2021, including interim periods. The Company is considering early adoption in 2020
NOTE 3 – FAIR VALUE MEASUREMENT
In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” (“ASC Topic 820”), the Company measures its cash and cash equivalents and investments at fair value on a recurring basis. ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC Topic 820 establishes a three-tier value fair hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 – Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices included in Level 1 for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Level 3 – Unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Valuations based on inputs that are unobservable and involve management judgment and the reporting entity’s own assumptions about market participants and pricing.
The Company’s cash equivalents are carried at fair value, determined according to the fair value hierarchy described above as a Level 1 investment. As of December 31, 2019, these cash equivalents amounted to $52,337. No other assets or liabilities were required to be measured at fair value on a recurring basis as of December 31, 2019.
NOTE 4 – RELATED PARTY TRANSACTIONS
Related Party Payable
At December 31, 2019, the Company was indebted to a related party in the amount of $49,250. The payable is unsecured, is classified as current on the balance sheet and is non-interest bearing. See further discussion in Note 11 regarding the subsequent settlement of the related party payable.
Stockholder Loans
At December 31, 2019, the Company was indebted to stockholders in the amount of $875,954. The loan was entered into in September 2010 with an initial term of 6 years, is secured by the assets of SciSafe, Inc. (New Jersey), does not require scheduled payments, does not have covenants, is classified as current on the balance sheet and bears a simple annual interest rate of 5%. At December 31, 2019, there was $436,205 of accrued interest outstanding on the loan. See further discussion in Note 11 regarding the subsequent settlement of the stockholder loans.
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
|
2019 |
||||
|
Machinery and equipment |
$ | 2,956,030 | ||
|
Leasehold improvements |
301,062 | |||
|
Vehicles |
18,898 | |||
| 3,275,990 | ||||
|
Less: accumulated depreciation |
(1,045,527 | ) | ||
|
Net property and equipment |
$ | 2,230,463 | ||
NOTE 6 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following at December 31:
|
2019 |
||||
|
Taxes payable |
$ | 141,271 | ||
|
Accrued compensation |
81,967 | |||
|
Credit cards payable |
23,793 | |||
|
Other payables |
2,815 | |||
|
Total accrued expenses and other current liabilities |
$ | 249,846 | ||
NOTE 7 – LEASES
The Company leases approximately 32,500 square feet at its two locations in Cranbury, New Jersey. The terms of the two leases go through March 31, 2024 and January 31, 2023, respectively, and have no options to extend the terms. In accordance with the first lease, the Company’s monthly base rent is approximately $12,883 at December 31, 2019, with scheduled increases each April. In accordance with the second lease, the Company’s monthly base rent is approximately $7,656 at December 31, 2019, with a one-time scheduled increase in February 2021. For each lease, the Company is also required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses.
The Company also leases approximately 16,153 square feet at its Billerica, Massachusetts location. The term of the lease continues until June 31, 2024 and has no option to extend the term. In accordance with the amended lease agreement, the Company’s monthly base rent is approximately $12,451 at December 31, 2019, with scheduled increases each July. The Company is also required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses.
The Company’s financing lease is related to machinery and equipment.
The Company used a weighted average discount rate of 5.8% to determine the Company’s operating and financing lease liabilities. The weighted average remaining term for both operating and financing leases is 3.9 years. As the Company’s implicit rate in its leases is not readily determinable, in determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the commencement date to determine the Company’s operating and financing lease liabilities. Cash paid for operating and financing leases in the year ended December 31, 2019 was $418,222 and $560, respectively.
As of December 31, 2019, assets recorded under financing leases were $23,954, and accumulated amortization associated with financing leases was $447. As of December 31, 2019, assets recorded under operating leases was $1,858,271, and accumulated amortization associated with operating leases was $342,381. Substantially all of the Company’s operating lease costs relate to fixed rent expense.
Maturities for the Company’s lease liabilities as of December 31, 2019 are as follows:
|
Operating Leases |
Financing Leases |
|||||||
|
2020 |
$ | 429,283 | $ | 6,716 | ||||
|
2021 |
429,301 | 6,716 | ||||||
|
2022 |
422,261 | 6,716 | ||||||
|
2023 |
336,299 | 6,154 | ||||||
|
2024 |
126,285 | - | ||||||
|
Total lease payments |
1,743,429 | 26,302 | ||||||
|
Less: interest |
(195,722 | ) | (2,795 | ) | ||||
|
Total present value of lease liabilities |
$ | 1,547,707 | $ | 23,507 | ||||
NOTE 8 – INCOME TAXES
The provision for income taxes consisted of the following:
|
2019 |
||||
|
Current tax |
||||
|
Federal |
$ | (1,543 | ) | |
|
State |
37,258 | |||
|
Total current tax |
35,715 | |||
|
Deferred tax |
||||
|
Federal |
120,515 | |||
|
State |
6,233 | |||
|
Total deferred tax |
126,748 | |||
|
Income tax expense |
$ | 162,463 | ||
A reconciliation of income taxes computed using the U.S. federal statutory rate to that reflected in income is as follows:
|
2019 |
||||
|
Federal tax expense on net income at statutory rate |
21.0 | % | ||
|
State taxes |
6.1 | % | ||
|
Other |
1.0 | % | ||
|
Total |
28.1 | % | ||
The principal components of the Company’s net deferred tax liability is as follows:
|
2019 |
||||
|
Deferred tax assets related to: |
||||
|
Accruals and reserves |
$ | 29,261 | ||
|
Right-of-use lease liability |
421,435 | |||
|
Deferred interest |
117,000 | |||
|
Total deferred tax assets |
567,696 | |||
|
Deferred tax liabilities related to: |
||||
|
Right-of-use assets |
(413,021 | ) | ||
|
Fixed assets |
(396,797 | ) | ||
|
Total deferred tax liabilities |
(809,818 | ) | ||
|
Net deferred tax liability |
$ | (242,122 | ) | |
The Company determines its uncertain tax positions based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be sustained upon examination by the relevant income tax authorities. The Company is generally subject to examination by U.S. federal and local income tax authorities for all tax years in which loss carryforward is available.
The Company applies judgment in the determination of the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. As of December 31, 2019, the Company did not have any material uncertain tax positions.
NOTE 9 – 401(K) RETIREMENT PLAN
The Company sponsors a traditional 401(k) plan covering substantially all employees at least 21 years old who have completed six months 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 year ended December 31, 2019, the Company contributed approximately $29,636 in matching contributions. The Company has funded or accrued all calculated contributions as of the balance sheet date.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Other Current Liabilities
The Company did not file certain information returns on Internal Revenue Service (“IRS”) Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business for the years ended December 31, 2010 through 2019. Failure to furnish any information with respect to any foreign business entity required, within the time prescribed by the IRS, subjects the Company to certain late-filing penalties. There can be no assurance of abatement, so the Company has accrued $105,000 for potential penalties related to these filings, which is reflected as a current liability on the consolidated financial statements.
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 11 – SUBSEQUENT EVENTS
The Company has performed a review of events subsequent to the balance sheet date through December 14, 2020, the date the financial statements were available to be issued.
Refer to Note 2 for further discussion of COVID-19 and the CARES Act.
On March 31, 2020, SciSafe Holdings Limited domesticated from the British Virgin Islands and incorporated in the state of Delaware. SciSafe Holdings Limited also changed its name to SciSafe Holdings, Inc. at the time of domestication and incorporation. In June 2020, SciSafe Holdings Limited ceased being a company in the British Virgin Islands. See Note 2 for additional information.
On September 18, 2020, the Company entered into a Stock Purchase Agreement with BioLife Solutions, Inc. (“BioLife”) where BioLife agreed to purchase one hundred (100%) of the issued and outstanding capital shares or equity interests of the Company. On October 1, 2020, the Company sold all of its stock to BioLife and became a wholly owned subsidiary of BioLife. At the closing of the transaction, BioLife issued to the sellers of the Company 611,683 shares of common stock valued at $29.29 per share and a cash payment of $15 million, with $1.5 million held in escrow to account for adjustments for net working capital and as a security for, and a source of payment of, the Company’s indemnity rights. Pending the occurrence of certain events, BioLife will issue to the sellers of the Company an additional 626,000 shares of common stock, which shall be issuable to sellers of the Company upon SciSafe achieving certain specified revenue targets in each year from 2021 to 2024. A portion of the proceeds from the sale were used to pay off the outstanding related party payable, stockholder loans and the associated accrued interest on the stockholder loans that were identified in Note 4.
Exhibit 99.2
SCISAFE HOLDINGS, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the nine months ended September 30, 2020 and 2019
SCISAFE HOLDINGS, INC.
TABLE OF CONTENTS
|
|
Page |
|
|
|
|
Unaudited Condensed Financial Statements |
|
|
Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 |
1 |
|
Condensed Consolidated Statements of Income for the nine months ended September 30, 2020 and 2019 |
2 |
|
Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2020 and 2019 |
3 |
|
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 |
4 |
|
Notes to Condensed Consolidated Financial Statements |
5 |
|
SCISAFE HOLDINGS, INC. |
|
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
|
September 30, |
December 31, |
|||||||
|
2020 |
2019 |
|||||||
|
ASSETS |
||||||||
|
CURRENT ASSETS |
||||||||
|
Cash and cash equivalents |
$ | 1,063,360 | $ | 383,411 | ||||
|
Accounts receivable, net of allowance for doubtful accounts of $71,970 as of September 30, 2020 and December 31, 2019 |
944,935 | 547,826 | ||||||
|
Prepaid expenses |
30,622 | 42,428 | ||||||
|
Other current assets |
- | 16,000 | ||||||
|
Total current assets |
2,038,917 | 989,665 | ||||||
|
Property and equipment, net |
2,995,181 | 2,230,463 | ||||||
|
Operating lease right-of-use assets, net |
1,273,531 | 1,515,890 | ||||||
|
Financing lease right-of-use assets, net |
18,964 | 23,954 | ||||||
|
Deposits |
124,568 | 124,568 | ||||||
|
TOTAL ASSETS |
$ | 6,451,161 | $ | 4,884,540 | ||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
|
CURRENT LIABILITIES |
||||||||
|
Accounts payable |
$ | 884,959 | $ | 424,037 | ||||
|
Accrued expenses and other current liabilities |
315,150 | 249,846 | ||||||
|
Deferred revenue, current portion |
121,108 | 30,528 | ||||||
|
Other payable |
500,000 | - | ||||||
|
Lease liabilities, operating, current portion |
392,832 | 349,348 | ||||||
|
Lease liabilities, financing, current portion |
5,753 | 5,509 | ||||||
|
Related party payable |
49,250 | 49,250 | ||||||
|
Accrued interest on stockholder loans |
475,030 | 436,205 | ||||||
|
Stockholder loans |
875,954 | 875,954 | ||||||
|
Other current liabilities |
130,000 | 105,000 | ||||||
|
Total current liabilities |
3,750,036 | 2,525,677 | ||||||
|
LONG-TERM LIABILITIES |
||||||||
|
Deferred revenue, long-term |
113,474 | 101,672 | ||||||
|
Lease liabilities, operating, long-term |
919,517 | 1,198,359 | ||||||
|
Lease liabilities, financing, long-term |
13,652 | 17,998 | ||||||
|
PPP loan payable |
295,300 | - | ||||||
|
Deferred tax liability |
325,455 | 242,122 | ||||||
|
TOTAL LIABILITIES |
5,417,434 | 4,085,828 | ||||||
|
Commitments and contingencies (Note 10) |
||||||||
|
STOCKHOLDERS' EQUITY |
||||||||
|
Common stock, $1.00 par value; 50,000 shares authorized, 900 shares issued and outstanding |
900 | 900 | ||||||
|
Retained earnings |
1,032,827 | 797,812 | ||||||
|
TOTAL STOCKHOLDERS' EQUITY |
1,033,727 | 798,712 | ||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ | 6,451,161 | $ | 4,884,540 | ||||
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these condensed consolidated financial statements
|
SCISAFE HOLDINGS, INC. |
|
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
|
Nine months ended September 30, |
||||||||
|
2020 |
2019 |
|||||||
|
Service revenue |
$ | 4,526,046 | $ | 4,013,393 | ||||
|
Cost of service revenue |
3,126,510 | 2,628,542 | ||||||
|
Gross profit |
1,399,536 | 1,384,851 | ||||||
|
Operating expenses |
||||||||
|
General and administrative |
867,254 | 808,162 | ||||||
|
Sales and marketing |
153,265 | 71,976 | ||||||
|
Total operating expenses |
1,020,519 | 880,138 | ||||||
|
Operating income |
379,017 | 504,713 | ||||||
|
Other income (expense) |
||||||||
|
Interest income |
236 | 1 | ||||||
|
Interest expense |
(48,825 | ) | (48,470 | ) | ||||
|
Total other income (expense) |
(48,589 | ) | (48,469 | ) | ||||
|
Net income before provision for income taxes |
330,428 | 456,244 | ||||||
|
Income taxes |
95,413 | 121,847 | ||||||
|
Net income |
$ | 235,015 | $ | 334,397 | ||||
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these condensed consolidated financial statements
|
SCISAFE HOLDINGS, INC. |
|
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) |
|
Nine months ended September 30, 2020 and 2019 |
|
Common Stock Shares |
Common Stock Amount |
Retained Earnings |
Total Stockholders' Equity |
|||||||||||||
|
Balance, January 1, 2019 |
900 | $ | 900 | $ | 382,836 | $ | 383,736 | |||||||||
|
Net income |
- | - | 334,397 | 334,397 | ||||||||||||
| Balance, September 30, 2019 | 900 | 900 | 717,233 | 718,133 | ||||||||||||
| Balance, January 1, 2020 | 900 | 900 | 797,812 | 798,712 | ||||||||||||
|
Net income |
- | - | 235,015 | 235,015 | ||||||||||||
|
Balance, September 30, 2020 |
900 | $ | 900 | $ | 1,032,827 | $ | 1,033,727 | |||||||||
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these condensed consolidated financial statements
|
SCISAFE HOLDINGS, INC. |
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) |
|
Nine months ended September 30, |
||||||||
|
2020 |
2019 |
|||||||
|
OPERATING ACTIVITIES |
||||||||
|
Net income |
$ | 235,015 | $ | 334,397 | ||||
|
Adjustments to reconcile net income to net cash flows provided by operating activities: |
||||||||
|
Depreciation and amortization |
317,552 | 230,178 | ||||||
|
Bad debt expense |
- | 10,190 | ||||||
|
Non-cash lease expense |
274,732 | 256,035 | ||||||
|
Loss on disposal of assets |
6,120 | - | ||||||
|
Deferred income tax expense |
83,333 | 95,061 | ||||||
|
Changes in: |
||||||||
|
Accounts receivable |
(397,109 | ) | (354,154 | ) | ||||
|
Prepaid expenses |
11,806 | 19,620 | ||||||
|
Other current assets |
16,000 | (53,916 | ) | |||||
|
Accounts payable |
(22,464 | ) | (37,369 | ) | ||||
|
Accrued expenses and other current liabilities |
65,303 | 98,332 | ||||||
|
Accrued interest on stockholder loans |
38,825 | 38,470 | ||||||
|
Lease liabilities |
(267,732 | ) | (255,413 | ) | ||||
|
Deferred revenue |
102,382 | 132,200 | ||||||
|
Other current liabilities |
25,000 | - | ||||||
| 488,763 | 513,631 | |||||||
|
INVESTING ACTIVITIES |
||||||||
|
Purchases of property and equipment |
(600,012 | ) | (369,433 | ) | ||||
|
Security deposits |
- | (159,568 | ) | |||||
|
Net cash used in investing activities |
(600,012 | ) | (529,001 | ) | ||||
|
FINANCING ACTIVITIES |
||||||||
|
Proceeds from other payable |
500,000 | - | ||||||
|
Proceeds from PPP loan |
295,300 | - | ||||||
|
Principal payments on finance type lease |
(4,102 | ) | - | |||||
|
Net cash provided by financing activities |
791,198 | - | ||||||
|
NET CHANGE IN CASH |
679,949 | (15,370 | ) | |||||
|
CASH AND CASH EQUIVALENTS, Beginning of period |
383,411 | 128,066 | ||||||
|
CASH AND CASH EQUIVALENTS, End of period |
$ | 1,063,360 | $ | 112,696 | ||||
|
Supplemental disclosures |
||||||||
|
Cash interest paid |
$ | 10,000 | $ | 10,000 | ||||
|
Income taxes paid |
$ | 13,278 | $ | 2,945 | ||||
|
Non-cash investing and financing activities |
||||||||
|
Purchase of property and equipment not yet paid |
$ | 483,386 | $ | 106,635 | ||||
|
Equipment acquired under operations leases(1) |
$ | - | $ | 1,858,271 | ||||
|
Equipment acquired under financing leases |
$ | - | $ | 23,954 | ||||
|
(1) Includes leases that commenced during the nine months ended September 30, 2019, as well as balances related to leases in existence as of the date of the adoption of Topic 842 |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these condensed consolidated financial statements
SCISAFE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020 and 2019
NOTE 1 – BUSINESS OVERVIEW
Company Operations
SciSafe Holdings, Inc. (the “Parent”) was incorporated as a British Virgin Islands holding company in July of 2010. The Parent has 50,000 authorized shares and has total issued share capital of 900 common stock shares at $1.00 par value. The Parent was formed for the purpose of being a holding company for subsidiaries that are providers of pharmaceutical storage services. At the time of formation, the shareholders of the Parent entered into a loan agreement whereby the shareholders agreed to loan the Parent up to $900,000 (see Note 4). On March 31, 2020, the Parent filed a Certificate of Corporate Domestication as well as a Certificate of Incorporation with the State of Delaware. In connection with these filings, the name of the corporation was changed from SciSafe Holdings Limited to SciSafe Holdings, Inc. On June 25, 2020, a Certificate of Discontinuance was issued by the Registrar of Corporate Affairs of the British Virgin Islands stating that SciSafe Holdings Limited was discontinued in the British Virgin Islands as a company.
SciSafe Inc. (Delaware) was incorporated as a Delaware corporation in July of 2010 for the purpose of holding the common shares of SciSafe, Inc. (New Jersey). SciSafe Inc. (Delaware) is a wholly-owned subsidiary of the Parent and has 3,000 authorized and issued shares with no par value that are held by the Parent.
SciSafe, Inc. (New Jersey) was incorporated as a New Jersey corporation in August of 2010. SciSafe, Inc. (New Jersey) is a wholly-owned subsidiary of SciSafe Inc. (Delaware) and has 1,000 authorized and issued shares with no par value that are held by the SciSafe Inc. (Delaware). SciSafe, Inc. (New Jersey) provides dedicated pharmaceutical and biological specimen storage in its fully current Good Manufacturing Practices (“cGMP”) compliant facilities. SciSafe, Inc. (New Jersey) specializes in specimen storage for International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use stability testing, drug stability testing, pharmaceutical stability testing, vaccine storage, bulk pharmaceutical storage, retain sample storage, clinical trials storage, biostorage, cryogenic storage, cryopreservation for samples such as cord blood storage and stem cell storage.
Collectively, SciSafe Holdings, Inc., SciSafe Inc. (Delaware) and SciSafe, Inc. (New Jersey) are referred to as the Company.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The following is a summary of certain accounting policies followed in the preparation of these consolidated financial statements. The policies conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently applied in the preparation of the financial statements.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal, recurring adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows. The results of operations for the interim periods presented are not necessarily indicative of results to be expected for the entire year.
Principles of Consolidation
The consolidated financial statements include the accounts of SciSafe Holdings, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of 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 period. Actual results could differ from those estimates.
Significant estimates and assumptions by management affect the Company’s allowance for doubtful accounts and depreciation methods and periods.
The Company regularly assesses these estimates, however, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.
COVID-19 Pandemic
On March 10, 2020, the World Health Organization declared the outbreak of the novel coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 (“COVID-19”) a pandemic. The COVID-19 pandemic, and the resulting restrictions intended to slow the spread of COVID-19, including stay-at-home orders, business shutdowns and other restrictions, has not materially affected the Company’s business, although at this time, the Company cannot estimate the financial impact.
The Company may also experience other negative impacts of the COVID-19 outbreak such as the lack of availability of the Company’s key personnel, temporary closures of the Company’s office or the facilities of the Company’s business partners, customers, third party service providers or other vendors, the inability to travel to market and sell its services, and the interruption of the Company’s supply chain, liquidity and capital or financial markets.
Any disruption and volatility in the global capital markets as a result of the pandemic may increase the Company’s cost of capital and adversely affect the Company’s ability to access financing when and on terms that the Company desires.
The ultimate extent to which the COVID-19 pandemic and its repercussions impact the Company’s business will depend on future developments, which are highly uncertain and cannot be reasonably determined. However, the foregoing and other continued disruptions to the Company’s business as a result of COVID-19 could result in a material adverse effect on the Company’s business, results of operations, financial condition, and cash flows.
On March 27, 2020, the President of the United States signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security tax payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The Company will continue to monitor the impact that the CARES Act may have on the Company’s business, financial condition, results of operations, or liquidity.
The Company determined that it met the original eligibility requirements per the guidelines originally established by the U.S. federal government as part of the CARES Act for the Pursuant to the Paycheck Protection Program (the “PPP”). As such, in May 2020, the Company received $295,300 in support from the PPP to fund operations during COVID-19. The Company has a good-faith belief that it properly satisfied all eligibility requirements for the PPP loan and intends to use the loan funds on qualifying expenses, which includes the Company’s payments for payroll, leases, and utilities. The Company intends to apply for loan forgiveness in accordance with the loan forgiveness provisions in the legislation; however, there can be no assurance that the Company will obtain full forgiveness of the loans based on the legislation.
Concentration of Credit Risk and Business Risk
The Company, from time to time during the years covered by these consolidated financial statements, may have bank balances in excess of its insured limits. Management has deemed this as a normal business risk.
All revenue from foreign customers are denominated in United States dollars.
In the nine months ended September 30, 2020 and 2019, the company derived approximately 31% of revenue from two customers and 38% of revenue from two customers, respectively. No other single customer generated over 10% of revenues during the nine months ended September 30, 2020 and 2019.
At September 30, 2020, two customers accounted for 23% of net accounts receivable. At September 30, 2019, three customers accounted for 51% of net accounts receivable. No other customers accounted for more than 10% of net accounts receivable.
Cash and cash equivalents
Cash equivalents that are readily convertible to cash are stated at cost, which approximates fair value. The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents consist of investments in money market funds as of September 30, 2020 and December 31, 2019.
On September 30, 2020, BioLife Solutions, Inc. (“BioLife”) advanced the Company $500,000 for general corporate purposes prior to the closing of the transaction described in Note 11. These amounts are included in cash and cash equivalents and an outstanding payable to BioLife which is included in other payable on the balance sheet as of September 30, 2020.
Accounts Receivable and Allowance for Doubtful Accounts
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. At September 30, 2020 and December 31, 2019, the allowance for doubtful accounts was $71,970. The Company will place customer accounts on hold if they violate the payment terms of agreement. Generally, the Company does not require collateral for its accounts receivable. The Company does not charge interest on past due accounts receivable.
Property and Equipment
Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For consolidated financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of two to ten years. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized.
The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. There was no impairment as of or for the nine months ended September 30, 2020 and 2019.
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 included in cost of service revenue for the nine months ended September 30, 2020 and 2019 was $317,552 and $230,178, respectively.
Revenue Recognition
Adoption of Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”
On January 1, 2019, the Company adopted ASC 606 using the modified retrospective method for all contracts not completed as of the date of adoption, which had no impact on revenues. There was no impact upon adoption of ASC 606 to net cash and cash equivalents provided by (used in) operating, investing, or financing activities. Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the services promised within each contract and determines those that are performance obligations, and assesses whether each promised service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Service Revenue
The Company generates revenue primarily from pharmaceutical and biological specimen storage in its fully cGMP compliant facilities. In addition, the Company generates revenue from the storage of evidence in outstanding lawsuits. The Company measures revenue based upon the consideration specified in the client arrangement, and revenue is recognized when the performance obligations in the client arrangement are satisfied. Substantially all of the Company’s revenue is related to storage services and is recognized by the Company over time as the Company satisfies the performance obligations over time. Revenue is recognized over time as the customer simultaneously receives and consumes the benefits provided by the Company’s performance. The Company's right to payment is for an amount that corresponds directly with the value to the customer of the Company’s performance to-date.
During the year ended December 31, 2019, the Company had a contract with one of its customers where the Company performs biological storage and related services pursuant to a master services agreement and statement of work entered into during fiscal year 2019, amended in September 2020, at a warehouse facility that is sub-leased by the customer using equipment at the facility that is owned by the customer. The Company earned a monthly services fee of $145,834 during 2019 for the biological storage and related services and is entitled to charge $12,000 per month to cover expenses incurred by the Company. The Company agreed to pay the customer’s monthly sublease rent of approximately $42,000 on behalf of the customer to the customer’s third-party vendor. The Company determined that payment of its customer’s rent is akin to consideration payable to a customer and is presented net in service revenue as the Company does not obtain a distinct good or service from the third party vendor and the payment is made to the third party is for the benefit of the Company’s customer. The Company has also evaluated the nature of the arrangement with its customer and determined that a lease does not exist as of September 30, 2020 and December 31, 2019.
In accordance with the September 2020 amendment, the updated fee structure provided increasing discounts to the customer on a quarterly basis, as the level of service remaining consistent over the contractual period through December 31, 2021, revenue was recognized ratably over the service period. The Company also estimated the expected costs paid on behalf of the customer to the customer’s third-party vendor over the term of the arrangement. The service revenue continues to be presented net of these costs.
Deferred Revenues
The Company records deferred revenues when cash payments are received in advance of performance.
Practical Expedients and Exemptions
Applying the practical expedient in paragraph 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component or variable consideration as of and during the year ended December 31, 2019.
Financial Statement Impact of Adopting ASC 606
The Company adopted ASC 606 using the modified retrospective method. There was no adjustment to opening retained earnings due to the impact of adopting Topic 606.
Cost of Service Revenue
Cost of service revenue consists primarily of salaries and benefits associated with employee efforts expended directly on the collecting, storing, and returning of customers’ biological specimens as well as rent, maintenance costs, utility costs, depreciation, insurance, supplies, and shipping costs.
Shipping and Handling
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 service revenue.
Advertising
Advertising costs are expensed as incurred. Advertising expense for the nine months ended September 30, 2020 and 2019 was $98,226 and $62,466, respectively.
Sales and Use Taxes
The Company records service revenues net of sales and use taxes.
Lease Accounting
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases: ASC Topic 842, “Leases” (“ASU 2016-02”) that replaces existing lease guidance. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. Under the new guidance, leases will continue to be classified as either financing or operating, with classification affecting the pattern of expense recognition in the consolidated Statements of Operations. Lessor accounting is largely unchanged under ASU 2016-02.
The Company adopted ASU 2016-02 and related ASUs (collectively Accounting Standards Codification (“ASC”) 842) effective January 1, 2019. The Company elected the package of practical expedients, which permits the Company to retain prior conclusions about lease identification, lease classification and initial direct costs for leases that commenced before January 1, 2019. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. The Company also elected the practical expedient to combine lease and non-lease components for all leases other than net lease real estate leases.
The Company used a weighted average discount rate of 5.8% to determine the Company’s operating and financing lease liabilities. The weighted average remaining term for both the Company’s operating and financing leases is 2.9 years. The adoption of this standard resulted in the recording of operating lease right-of-use assets of $1,858,271 and lease liabilities of $1,886,029 as of January 1, 2019. Differences between right-of-use assets and lease liabilities relate to deferred rent liabilities that were included on the Company’s Balance Sheet prior to adoption of ASC Topic 842. These amounts were eliminated at the time of adoption and are included in the lease liabilities. Adoption of ASC Topic 842 did not have a material impact on the Company’s net earnings and had no impact on cash flows. Substantially all of the Company’s operating lease costs relate to fixed rent expense.
Income Taxes
The Company accounts for income taxes under an asset and liability approach that requires recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Under this method, deferred tax assets and liabilities are recognized for the future tax effects of differences between tax bases of assets and liabilities, and financial reporting amounts, based upon enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable income. The Company evaluates the likelihood of realization of deferred tax assets and provides an allowance where, in management’s opinion, it is more likely than not that the asset will not be realized.
The Company evaluates its uncertain income tax positions and may record a liability for any unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in an income tax return. No liability has been recorded for uncertain tax positions or related interest or penalties at September 30, 2020 and December 31, 2019.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For private companies, ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.
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.” ASU 2018-13 includes amendments that aim to improve the effectiveness of fair value measurement disclosures. The amendments in this guidance modify the disclosure requirements on fair value measurements based on the concepts in FASB Concepts Statement, “Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements,” including the consideration of costs and benefits. The amendments become effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company adopted this guidance effective January 1, 2020. There was no material impact on the financial statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.” ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, including, but not limited to, the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, the exceptions related to the recognition of a deferred tax liability related to an equity method investment and the exception to methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. ASU 2019-12 becomes effective for the Company in the year ending December 31, 2021, including interim periods.
NOTE 3 – FAIR VALUE MEASUREMENT
In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” (“ASC Topic 820”), the Company measures its cash and cash equivalents and investments at fair value on a recurring basis. ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC Topic 820 establishes a three-tier value fair hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 – Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices included in Level 1 for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Level 3 – Unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Valuations based on inputs that are unobservable and involve management judgment and the reporting entity’s own assumptions about market participants and pricing.
The Company’s cash equivalents are carried at fair value, determined according to the fair value hierarchy described above as a Level 1 investment. As of December 31, 2019, these cash equivalents amounted to $52,337. No other assets or liabilities were required to be measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019.
NOTE 4 – RELATED PARTY TRANSACTIONS
Related Party Payable
At September 30, 2020 and December 31, 2019, the Company was indebted to a related party in the amount of $49,250. The payable is unsecured, is classified as current on the balance sheet and is non-interest bearing. See further discussion in Note 11 regarding the subsequent settlement of the related party payable.
Stockholder Loans
At September 30, 2020 and December 31, 2019, the Company was indebted to stockholders in the amount of $875,954. The loan was entered into in September 2010 with an initial term of 6 years, is secured by the assets of SciSafe, Inc. (New Jersey), does not require scheduled payments, does not have covenants, is classified as current on the balance sheet and bears a simple annual interest rate of 5%. At September 30, 2020 and December 31, 2019, there was $475,030 and $436,205 of accrued interest outstanding on the loan, respectively. See further discussion in Note 11 regarding the subsequent settlement of the stockholder loans.
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
September 30, |
December 31, |
|||||||
|
2020 |
2019 |
|||||||
|
Machinery and equipment |
$ | 4,006,537 | $ | 2,956,030 | ||||
|
Leasehold improvements |
301,063 | 301,062 | ||||||
|
Vehicles |
39,608 | 18,898 | ||||||
| 4,347,208 | 3,275,990 | |||||||
|
Less: accumulated depreciation |
(1,352,027 | ) | (1,045,527 | ) | ||||
|
Net property and equipment |
$ | 2,995,181 | $ | 2,230,463 | ||||
NOTE 6 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
|
September 30, |
December 31, |
|||||||
|
2020 |
2019 |
|||||||
|
Taxes payable |
$ | 134,937 | $ | 141,271 | ||||
|
Accrued compensation |
90,451 | 81,967 | ||||||
|
Other payables |
55,267 | 2,815 | ||||||
|
Credit cards payable |
34,495 | 23,793 | ||||||
|
Total accrued expenses and other current liabilities |
$ | 315,150 | $ | 249,846 | ||||
NOTE 7 – LEASES
The Company leases approximately 32,500 square feet at its two locations in Cranbury, New Jersey. The terms of the two leases go through March 31, 2024 and January 31, 2023, respectively, and have no options to extend the terms. In accordance with the first lease, the Company’s monthly base rent is $13,267 at September 30, 2020, with scheduled increases each April. In accordance with the second lease, the Company’s monthly base rent is $7,656 at September 30, 2020, with a one-time scheduled increase in February 2021. For each lease, the Company is also required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses.
The Company also leases approximately 16,153 square feet at its Billerica, Massachusetts location. The term of the lease continues until June 31, 2024 and has no option to extend the term. In accordance with the amended lease agreement, the Company’s monthly base rent is $12,788 at September 30, 2020, with scheduled increases each July. The Company is also required to pay an amount equal to the Company’s proportionate share of certain taxes and operating expenses.
The Company’s financing lease is related to machinery and equipment.
The Company used a weighted average discount rate of 5.8% to determine the Company’s operating and financing lease liabilities. The weighted average remaining term for both operating and financing leases is 2.9 years. As the Company’s implicit rate in its leases is not readily determinable, in determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the commencement date to determine the Company’s operating and financing lease liabilities. Cash paid for operating leases in the nine months ended September 30, 2020 and 2019 were $326,207 and $312,268, respectively. Cash paid for financing leases in the nine months ended September 30, 2020 and 2019 were $5,037 and $-0-, respectively.
As of September 30, 2020 and December 31, 2019, assets recorded under financing leases were $23,954, and accumulated amortization associated with financing leases was $4,549 and $447, respectively. As of September 30, 2020 and December 31, 2019, assets recorded under operating leases were $1,890,645 and $1,858,271, and accumulated amortization associated with operating leases was $617,114 and $342,381, respectively. Substantially all of the Company’s operating lease costs relate to fixed rent expense.
Maturities for the Company’s lease liabilities as of September 30, 2020 are as follows:
|
Operating Leases |
Financing Leases |
|||||||
|
2020 |
$ | 114,839 | $ | 1,679 | ||||
|
2021 |
447,237 | 6,716 | ||||||
|
2022 |
422,261 | 6,716 | ||||||
|
2023 |
336,299 | 6,154 | ||||||
|
2024 |
126,285 | - | ||||||
|
Total lease payments |
1,446,921 | 21,265 | ||||||
|
Less: interest |
(134,572 | ) | (1,860 | ) | ||||
|
Total present value of lease liabilities |
$ | 1,312,349 | $ | 19,405 | ||||
NOTE 8 – INCOME TAXES
The provision for income taxes consisted of the following for the nine months ended September 30:
|
2020 |
2019 |
|||||||
|
Current tax |
||||||||
|
Federal |
$ | (23,931 | ) | $ | (1,157 | ) | ||
|
State |
36,011 | 27,943 | ||||||
|
Total current tax |
12,080 | 26,786 | ||||||
|
Deferred tax |
||||||||
|
Federal |
91,008 | 90,386 | ||||||
|
State |
(7,675 | ) | 4,675 | |||||
|
Total deferred tax |
83,333 | 95,061 | ||||||
|
Income tax expense |
$ | 95,413 | $ | 121,847 | ||||
A reconciliation of income taxes computed using the U.S. federal statutory rate to that reflected in income is as follows at September 30:
|
2020 |
2019 |
|||||||
|
Federal tax expense on net income at statutory rate |
21.0 | % | 21.0 | % | ||||
|
State taxes |
6.3 | % | 6.1 | % | ||||
|
Other |
1.6 | % | 1.0 | % | ||||
|
Total |
28.9 | % | 28.1 | % | ||||
The principal components of the Company’s net deferred tax liabilities consisted of the following:
|
September 30, |
December 31, |
|||||||
|
2020 |
2019 |
|||||||
|
Deferred tax assets related to: |
||||||||
|
Accruals and reserves |
$ | 29,408 | $ | 29,261 | ||||
|
Right-of-use lease liability |
357,207 | 421,435 | ||||||
|
Deferred expenses - PPP loan |
79,206 | - | ||||||
|
Deferred revenue |
29,318 | - | ||||||
|
Deferred interest |
127,413 | 117,000 | ||||||
|
Other |
688 | - | ||||||
|
Total deferred tax assets |
623,240 | 567,696 | ||||||
|
Deferred tax liabilities related to: |
||||||||
|
Right-of-use assets |
(346,677 | ) | (413,021 | ) | ||||
|
Fixed assets |
(602,018 | ) | (396,797 | ) | ||||
|
Total deferred tax liabilities |
(948,695 | ) | (809,818 | ) | ||||
|
Net deferred tax liability |
$ | (325,455 | ) | $ | (242,122 | ) | ||
The Company determines its uncertain tax positions based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be sustained upon examination by the relevant income tax authorities. The Company is generally subject to examination by U.S. federal and local income tax authorities for all tax years in which loss carryforward is available.
The Company applies judgment in the determination of the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. As of September 30, 2020, the Company did not have any material uncertain tax positions.
NOTE 9 – 401(K) RETIREMENT PLAN
The Company sponsors a traditional 401(k) plan covering substantially all employees at least 21 years old who have completed six months 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, 2020 and 2019, the Company contributed $27,602 and $21,101 in matching contributions, respectively. The Company has funded or accrued all calculated contributions as of the balance sheet date.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Other Current Liabilities
The Company did not file certain information returns on Internal Revenue Service (“IRS”) Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business for the years ended December 31, 2010 through 2019. Failure to furnish any information with respect to any foreign business entity required, within the time prescribed by the IRS, subjects the Company to certain late-filing penalties. There can be no assurance of abatement, so the Company has accrued $130,000 for potential penalties related to these filings, which is reflected as a current liability on the financial statements.
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 11 – SUBSEQUENT EVENTS
On September 18, 2020, the Company entered into a Stock Purchase Agreement with BioLife Solutions, Inc. (“BioLife”) where BioLife agreed to purchase one hundred (100%) of the issued and outstanding capital shares or equity interests of the Company. On October 1, 2020, the Company sold all of its stock to BioLife and became a wholly owned subsidiary of BioLife. At the closing of the transaction, BioLife issued to the sellers of the Company 611,683 shares of common stock valued at $29.29 per share and a cash payment of $15 million, with $1.5 million held in escrow to account for adjustments for net working capital and as a security for, and a source of payment of, the Company’s indemnity rights. Pending the occurrence of certain events, BioLife will issue to the sellers of the Company an additional 626,000 shares of common stock, which shall be issuable to the sellers of the Company upon SciSafe achieving certain specified revenue targets in each year from 2021 to 2024. A portion of the proceeds from the sale were used to pay off the outstanding related party payable, stockholder loans and the associated accrued interest on the stockholder loans that were identified in Note 4.
Exhibit 99.3
BioLife Solutions, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheets
September 30, 2020
(In thousands)
|
Historical |
Historical |
Pro Forma |
Notes |
Pro Forma |
|||||||||||||
|
BioLife |
SciSafe |
Adjustments |
(1) |
Combined |
|||||||||||||
|
ASSETS |
|||||||||||||||||
|
CURRENTASSETS |
|||||||||||||||||
|
Cash and cash equivalents |
$ | 93,984 | $ | 1,063 | $ | (563 | ) |
(a) |
$ | 94,484 | |||||||
|
Restricted cash in escrow |
15,000 | - | (14,175 | ) |
(b) |
825 | |||||||||||
|
Accounts receivable, trade, net |
6,095 | 945 | - | 7,040 | |||||||||||||
|
Inventories |
11,037 | - | - | 11,037 | |||||||||||||
|
Prepaid expenses and other current assets |
1,668 | 31 | (500 | ) |
(c) |
1,199 | |||||||||||
|
Total current assets |
127,784 | 2,039 | (15,238 | ) | 114,585 | ||||||||||||
|
Assets held for rent, net |
5,131 | - | - | 5,131 | |||||||||||||
|
Property and equipment, net |
5,300 | 2,995 | 405 |
(d) |
8,700 | ||||||||||||
|
Operating lease right-of-use assets, net |
585 | 1,274 | - | 1,859 | |||||||||||||
|
Financing lease right-of-use assets, net |
- | 19 | - | 19 | |||||||||||||
|
Long-term deposits and other assets |
35 | 124 | - | 159 | |||||||||||||
|
Investments |
3,610 | - | - | 3,610 | |||||||||||||
|
Accrued interest receivable |
54 | - | - | 54 | |||||||||||||
|
Intangible assets, net |
19,882 | - | 12,100 |
(e) |
31,982 | ||||||||||||
|
Goodwill |
33,506 | - | 21,389 |
(f) |
54,895 | ||||||||||||
|
TOTAL ASSETS |
$ | 195,887 | $ | 6,451 | $ | 18,656 | $ | 220,994 | |||||||||
|
LIABILITIES AND STOCKHOLDER'S EQUITY |
|||||||||||||||||
|
CURRENT LIABILITIES |
|||||||||||||||||
|
Accounts payable |
$ | 2,355 | $ | 885 | $ | - | $ | 3,240 | |||||||||
|
Accrued expenses and other current liabilities |
3,364 | 315 | 100 |
(g) |
3,779 | ||||||||||||
|
Other payable |
- | 500 | (500 | ) |
(c) |
- | |||||||||||
|
Lease liabilities, operating, current portion |
729 | 393 | - | 1,122 | |||||||||||||
|
Lease liabilities, financing, current portion |
- | 6 | - | 6 | |||||||||||||
|
Related party payable |
- | 49 | (49 | ) |
(h) |
- | |||||||||||
|
Accrued interest on stockholder loans |
- | 475 | (475 | ) |
(h) |
- | |||||||||||
|
Stockholder loans |
- | 876 | (876 | ) |
(h) |
- | |||||||||||
|
Other current liabilities |
1,914 | 251 | - | 2,165 | |||||||||||||
|
Total current liabilities |
8,362 | 3,750 | (1,800 | ) | 10,312 | ||||||||||||
|
LONG-TERM LIABILITIES |
|||||||||||||||||
|
Contingent consideration, long-term |
386 | - | 3,674 |
(i) |
4,060 | ||||||||||||
|
Lease liabilities, operating, long-term |
26 | 920 | - | 946 | |||||||||||||
|
Lease liabilities, financing, long-term |
- | 14 | - | 14 | |||||||||||||
|
PPP loan payable |
- | 295 | - | 295 | |||||||||||||
|
Deferred tax liability |
- | 325 | (325 | ) |
(j) |
- | |||||||||||
|
Other long-term liabilities |
262 | 113 | - | 375 | |||||||||||||
|
TOTAL LIABILITIES |
9,036 | 5,417 | 1,549 | 16,002 | |||||||||||||
|
STOCKHOLDER'S EQUITY |
|||||||||||||||||
|
Common stock |
32 | 1 | (1 | ) |
(k) |
32 | |||||||||||
|
Additional paid-in capital |
282,076 | - | 17,916 |
(l) |
299,992 | ||||||||||||
|
Retained earnings/(accumulated deficit) |
(95,257 | ) | 1,033 | (808 | ) |
(k) |
(95,032 | ) | |||||||||
|
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY |
$ | 195,887 | $ | 6,451 | $ | 18,656 | $ | 220,994 | |||||||||
BioLife Solutions, Inc.
Unaudited Pro Forma Condensed Combined Statements of Operations
For the Nine Months Ended September 30, 2020
(In thousands, except share and per share data)
|
Historical |
Historical |
Pro Forma |
Notes |
Pro Forma |
|||||||||
|
BioLife |
SciSafe |
Adjustments |
(1) |
Combined |
|||||||||
|
Product and rental revenue |
$ |
33,361 |
$ |
- |
$ |
- |
$ |
33,361 |
|||||
|
Service revenue |
- |
4,526 |
- |
4,526 |
|||||||||
|
Total product and rental revenue |
33,361 |
4,526 |
- |
37,887 |
|||||||||
|
Operating expenses |
|||||||||||||
|
Cost of product and rental revenue (exclusive of intangible assets amortization) |
13,893 |
- |
- |
13,893 |
|||||||||
|
Cost of service revenue |
- |
3,127 |
170 |
(d), (m) |
3,297 |
||||||||
|
Research and development |
4,865 |
- |
- |
4,865 |
|||||||||
|
Sales and marketing |
4,530 |
153 |
11 |
(m) |
4,694 |
||||||||
|
General and administrative |
9,916 |
867 |
1,214 |
(m), (n) |
11,997 |
||||||||
|
Intangible assets amortization |
2,100 |
- |
789 |
(e) |
2,889 |
||||||||
|
Acquisition costs |
417 |
- |
(134) |
(o) |
283 | ||||||||
|
Change in fair value of contingent consideration |
(1,528) |
- |
- |
(1,528) |
|||||||||
|
Total operating expenses |
34,193 |
4,147 |
2,050 |
40,390 |
|||||||||
|
Operating income (loss) |
(832) |
379 |
(2,050) |
(2,503) |
|||||||||
|
Other income (expense) |
|||||||||||||
|
Change in fair value of warrant liability |
4,467 |
- |
- |
4,467 |
|||||||||
|
Change in fair value of investments |
1,110 |
- |
- |
1,110 |
|||||||||
|
Interest income |
63 |
- |
- |
63 |
|||||||||
|
Interest expense |
(4) |
(49) |
49 |
(p) |
(4) |
||||||||
|
Other expense |
(9) |
- |
- |
(9) |
|||||||||
|
Total other income (expenses) |
5,627 |
(49) |
49 |
5,627 |
|||||||||
|
Net income (loss) before provision for income taxes |
4,795 |
330 |
(2,001) |
3,124 |
|||||||||
|
Income taxes (benefit) |
- |
95 |
(903) |
(q) |
(808) |
||||||||
|
Net income (loss) |
$ |
4,795 |
$ |
235 |
$ |
(1,098) |
$ |
3,932 |
|||||
|
Net income attributable to common stockholders |
|||||||||||||
|
Basic |
$ |
4,322 |
$ |
3,551 |
|||||||||
|
Diluted |
$ |
279 |
$ |
(575) |
|||||||||
|
Earnings per share attributable to common stockholders |
|||||||||||||
|
Basic |
$ |
0.17 |
$ |
0.14 |
|||||||||
|
Diluted |
$ |
0.01 |
$ |
(0.02) |
|||||||||
|
Weighted average shares used to compute earnings per share attributable to common stockholders |
|||||||||||||
|
Basic |
25,418,375 |
611,683 |
26,030,058 |
||||||||||
|
Diluted |
29,412,538 |
611,683 |
30,024,221 |
||||||||||
|
(1) |
See Note 4 to the accompanying notes to unaudited pro forma condensed combined financial statements |
BioLife Solutions, Inc.
Unaudited Pro Forma Condensed Combined Statements of Operations
For the Twelve Months Ended December 31, 2019
(In thousands, except share and per share data)
|
Historical |
Historical |
Pro Forma |
Notes |
Pro Forma |
|||||||||
|
BioLife |
SciSafe |
Adjustments |
(1) |
Combined |
|||||||||
|
Product and rental revenue |
$ |
27,371 |
$ |
- |
$ |
- |
$ |
27,371 |
|||||
|
Service revenue |
- |
5,493 |
- |
5,493 |
|||||||||
|
Total product and rental revenue |
27,371 |
5,493 |
- |
32,864 |
|||||||||
|
Operating expenses |
|||||||||||||
|
Cost of product and rental revenue (exclusive of intangible assets amortization) |
8,760 |
- |
- |
8,760 |
|||||||||
|
Cost of service revenue |
- |
3,554 |
228 |
(d), (m) |
3,782 |
||||||||
|
Research and development |
3,168 |
- |
- |
3,168 |
|||||||||
|
Sales and marketing |
4,701 |
114 |
15 |
(m) |
4,830 |
||||||||
|
General and administrative |
8,893 |
1,183 |
1,619 |
(m), (n) |
11,695 |
||||||||
|
Intangible assets amortization |
1,079 |
- |
1,051 |
(e) |
2,130 |
||||||||
|
Acquisition costs |
940 |
- |
- |
940 | |||||||||
|
Change in fair value of contingent consideration |
50 |
- |
- |
50 |
|||||||||
|
Total operating expenses |
27,591 |
4,851 |
2,913 |
35,355 |
|||||||||
|
Operating income (loss) |
(220) |
642 |
(2,913) |
(2,491) |
|||||||||
|
Other income (expense) |
|||||||||||||
|
Change in fair value of warrant liability |
(12,835) |
- |
- |
(12,835) |
|||||||||
|
Interest income |
506 |
- |
- |
506 |
|||||||||
|
Interest expense |
(5) |
(65) |
65 |
(p) |
(5) |
||||||||
|
Other expense |
(13) |
- |
- |
(13) |
|||||||||
|
Loss from equity-method investment in SAVSU |
(739) |
- |
- |
(739) |
|||||||||
|
Gain on acquisition of SAVSU |
10,108 |
- |
- |
10,108 |
|||||||||
|
Total other income (expenses) |
(2,978) |
(65) |
65 |
(2,978) |
|||||||||
|
Net income (loss) before provision for income taxes |
(3,198) |
577 |
(2,848) |
(5,469) |
|||||||||
|
Income taxes (benefit) |
(1,541) |
162 |
(1,065) |
(q) |
(2,444) |
||||||||
|
Net income (loss) |
$ |
(1,657) |
$ |
415 |
$ |
(1,783) |
$ |
(3,025) |
|||||
|
Net income attributable to common stockholders |
|||||||||||||
|
Basic |
$ |
(1,657) |
$ |
(3,025) |
|||||||||
|
Diluted |
$ |
(1,657) |
$ |
(3,025) |
|||||||||
|
Earnings per share attributable to common stockholders |
|||||||||||||
|
Basic |
$ |
(0.09) |
$ |
(0.15) |
|||||||||
|
Diluted |
$ |
(0.09) |
$ |
(0.15) |
|||||||||
|
Weighted average shares used to compute earnings per share attributable to common stockholders |
|||||||||||||
|
Basic |
19,460,299 |
611,683 |
20,071,982 |
||||||||||
|
Diluted |
19,460,299 |
611,683 |
20,071,982 |
||||||||||
|
(1) |
See Note 4 to the accompanying notes to unaudited pro forma condensed combined financial statements |
|
(2) |
Common stock equivalents are excluded since the effect is anti-dilutive due to the Company’s pro forma net losses |
BioLife Solutions, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
|
1. |
Description of the Transaction |
As previously disclosed, on September 18, 2020, BioLife Solutions, Inc. (the “Company” or “BioLife”), entered into a Stock Purchase Agreement (the “Purchase Agreement”), by and among the Company, SciSafe Holdings, Inc., a Delaware corporation (“SciSafe”), and the stockholders of SciSafe (collectively, the “Sellers”) in accordance with the Purchase Agreement, pursuant to which the Company agreed to purchase from the Sellers one hundred percent (100%) of the issued and outstanding capital shares or other equity interests of SciSafe (the “Acquisition”).
On October 1, 2020, the Company completed the Acquisition, and SciSafe became a wholly owned subsidiary of the Company. At the closing of the Acquisition, the Company issued to the Sellers 611,683 shares of common stock valued at $29.29 per share and a cash payment of $15 million, with $1.5 million held in escrow to account for adjustments for net working capital and as a security for, and a source of payment of, the Company’s indemnity rights. Pending the occurrence of certain events, the Company will issue to the Sellers an additional 626,000 shares of common stock, which shall be issuable to Sellers upon SciSafe achieving certain specified revenue targets in each year from 2021 to 2024.
The purchase price is subject to a post-closing working capital adjustment provision. On or before the 90th day following the closing date, BioLife shall deliver to the Sellers a detailed net working capital calculation as of September 30, 2020 and a proposed adjustment amount. If the calculated net working capital exceeds $350,000 (the “Target Net Working Capital”), BioLife will pay to the Sellers an amount equal to such excess. If the calculated net working capital is less than the Target Net Working Capital, BioLife will recover such deficit from amounts held in escrow.
|
2. |
Basis of Presentation |
The accompanying unaudited pro forma condensed combined financial statements combine the historical condensed consolidated financial statements of Biolife and those of SciSafe after giving effect to the Acquisition, using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805, “Business Combinations”, and applying the assumptions and adjustments described in the accompanying notes. The accompanying unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of SEC Regulation S-X.
The unaudited pro forma condensed combined statements of operations combine BioLife’s operating results for the nine months ended September 30, 2020 and twelve months ended December 31, 2019, with the operating results of SciSafe for the nine months ended September 30, 2020 and twelve months ended December 31, 2019, respectively. The unaudited pro forma condensed balance sheets combine BioLife’s balance sheet as of September 30, 2020 with the balance sheet of SciSafe as of September 30, 2020.
The unaudited pro forma condensed combined statements of operations and balance sheets give effect to the Acquisition as if such acquisition had occurred on January 1, 2019. The historical consolidated financial statements have been adjusted in the pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable and (3) with respect to the pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results following the business combination. The unaudited pro forma condensed combined financial information herein should be read in conjunction with the historical financial statements and the related notes thereto of BioLife which are presented in the Annual Report on Form 10-K for the year ended December 31, 2019, as well as the historical financial statements of SciSafe included in exhibit 99.1 and 99.2 to the Company’s form 8-K/A. The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the operating results that would have been achieved if the Acquisition had been consummated as of January 1, 2019, nor are they necessarily indicative of the future operating results of the combined company. No effect has been given in these pro forma financial statements for synergistic benefits that may be realized through the combination or costs that may be incurred in integrating operations.
|
3. |
Estimated consideration and preliminary purchase price allocation |
BioLife accounted for the Acquisition as the purchase of a business under U.S. GAAP. Under the acquisition method of accounting, the assets of SciSafe will be recorded as of the acquisition date, at their fair values, and consolidated with BioLife. The preliminary fair value of the net tangible assets acquired is $2.3 million, the preliminary fair value of the identifiable intangibles is $12.1 million, and the preliminary residual goodwill is $21.4 million. The fair value estimates required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates and revenue volatility. BioLife believes these estimates to be reasonable. Actual results may differ from these estimates.
Total consideration transferred (in thousands):
|
Cash consideration |
|
$ |
15,000 |
|
|
Stock consideration |
|
|
17,916 |
|
|
Contingent consideration |
|
|
3,674 |
|
|
Estimated working capital adjustment |
(825 |
) |
||
|
Total consideration transferred |
|
$ |
35,765 |
|
Transaction costs related to the acquisition are expensed as incurred and are not included in the calculation of consideration transferred.
The table below represents the estimated preliminary purchase price allocation to the net assets acquired based on their estimated fair values, as well as the associated estimated useful lives of the acquired intangible assets (amounts in thousands). Such amounts were estimated using the most recent financial statements from SciSafe as of September 30, 2020.
|
Cash |
$ |
500 |
||
|
Accounts receivable, net |
|
|
945 |
|
|
Prepaid expenses and other current assets |
|
|
31 |
|
|
Property, plant and equipment, net |
|
|
3,400 |
|
|
Customer relationships |
|
|
7,420 |
|
|
Tradenames |
|
|
4,020 |
|
|
Non-compete agreements |
|
|
660 |
|
|
Goodwill |
|
|
21,389 |
|
|
Other assets |
1,417 |
|||
|
Accounts payable |
|
|
(885 |
) |
|
Other liabilities |
|
|
(3,132 |
) |
|
Fair value of net assets acquired |
|
$ |
35,765 |
|
The fair value of SciSafe’s identifiable intangible assets and weighted average useful lives have been preliminary estimated as follows (amounts in thousands):
|
Estimated Fair Value |
Estimated Useful Life (Years) |
||||
|
Customer relationships |
$ |
7,420 |
12 |
||
|
Tradenames |
4,020 |
15 |
|||
|
Non-compete agreements |
660 |
4 |
|||
|
Total identifiable intangible assets |
$ |
12,100 |
|||
Fair value measurement methodologies used to calculate the value of any asset can be broadly classified into one of three approaches, referred to as the cost, market and income approaches. In any fair value measurement analysis, all three approaches must be considered, and the approach or approaches deemed most relevant will then be selected for use in the fair value measurement of that asset. The estimated fair values of customer relationships were estimated using a multi-period excess earnings approach. The estimated fair value of the tradenames is based on the relief from royalty method which estimates the value of the trade names based on the hypothetical royalty payments that are saved by owning the asset. The estimated fair values of non-compete agreements were estimated using a “with and without” approach, comparing projected cash flows under scenarios assuming the non-compete agreements were and were not in place. The fair value of property, plant and equipment was determined using the “market approach”. The fair value of the milestone contingent consideration was determined using a scenario analysis valuation method which incorporates BioLife’s assumptions with respect to the likelihood of achievement of certain revenue milestones, revenue volatility, credit risk, timing of earnout share issuances and a risk-adjusted discount rate to estimate the present value of the expected earnout share issuances.
Some of the more significant assumptions inherent in the development of intangible asset fair values, from the perspective of a market participant, include, but are not limited to (i) the amount and timing of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to measure the risks inherent in the future cash flows, (iii) the assessment of the asset’s life cycle, and (iv) the competitive trends impacting the asset.
These preliminary estimates of fair value and estimated useful lives may be different from the amounts included in the final acquisition accounting, and the difference could have a material impact on the accompanying unaudited pro forma condensed combined financial statements.
|
4. |
Pro Forma Adjustments |
This note should be read in conjunction with Notes 1 and 2. Adjustments included in the pro forma adjustments column of the pro forma condensed combined statement of operations and the pro forma condensed combined balance sheet include the following, as indicated in the “Notes” column thereto:
|
|
||
|
(a) |
Reflects amounts that were paid at closing to the former stockholders to satisfy a portion of the outstanding related stockholder loans and accrued interest on the stockholder loans. The remainder of the outstanding balance on these liabilities was settled in the closing of the transaction. |
|
|
(b) |
An adjustment to restricted cash of $15.0 million held in escrow at September 30, 2020 for the estimated non-contingent cash portion of the transaction price reduced by the estimated working capital adjustment. |
|
|
(c) |
Reflects working capital advances of $500,000 made by BioLife to SciSafe prior to the consummation of the transaction. |
|
|
(d) |
The adjustment represents the estimated fair market value of SciSafe’s fixed assets by $405,000 from historical cost basis and related adjustments to depreciation. The fair value calculation is preliminary and subject to change and will be depreciated over the remaining useful life of the assets. |
|
|
(e) |
Reflects the preliminary fair value estimate of identifiable intangible assets to be acquired by BioLife of approximately $12.1 million, with a continuing annual amortization impact of approximately $1.1 million. The fair value calculation is preliminary and subject to change. The identifiable intangible assets include non-compete agreements, customer relationships, and trade names. The fair value of the identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of all the expected future cash flows. |
|
|
(f) |
Reflects the adjustments to record goodwill related to the transaction. |
|
| (g) | Reflects estimated incremental acquisition costs which are not reflected in the historical financial statements of either SciSafe or BioLife related to the transaction. | |
|
(h) |
No stockholder loans or related party payables was assumed under the stock purchase agreement. The associated accrued interest and interest expense was eliminated in the pro forma adjustments due to the existing SciSafe debt not assumed by BioLife in the transaction. |
|
|
(i) |
Represents preliminary fair value of contingent consideration. BioLife assessed the payoff structure of contingent consideration and determined the payoff was nonlinear. In addition, the earnout payoff structure is path dependent and therefore a Monte Carlo simulation was appropriate. The Monte Carlo model requires assumptions including volatility, credit risk, and time value discount rates. The fair value calculation is preliminary and subject to change. |
|
|
(j) |
To record the partial release of the BioLife valuation allowance and the corresponding deferred tax assets related to the Merger. In accordance with ASC 805, a change in the acquirer’s valuation allowance that stems from a business combination should be recognized as an element of the acquirer’s income tax expense or benefit. As the release of the valuation allowance is a tax benefit that will not have a continuing impact, BioLife has shown that adjustment as a reduction to the deferred tax liability on the Pro Forma Balance Sheet. |
|
|
(k) |
Represents the elimination of historical equity of SciSafe. |
|
|
(l) |
Represents the fair value of the stock less the par value. |
|
|
(m) |
Represents stock award expense for the stock compensation paid in the transaction and stock awards to SciSafe management and employees. |
|
|
(n) |
Represents salary increase of $150,000 for the twelve months ended December 31, 2019 and salary increase of $112,500 for the nine months ended September 30, 2020 related to one key executive retained from SciSafe. |
|
|
(o) |
Represents the elimination of acquisition costs directly related to the SciSafe transaction as these expenses will not have a continuing impact. |
|
|
(p) |
Represents interest accrued on stockholder loans that were settled in the transaction. |
|
|
(q) |
To reflect the income tax impact of the unaudited pro forma adjustments using the blended U.S. federal and state statutory tax rate. |