See accompanying
notes to condensed consolidated financial statements.
Notes to Condensed Consolidated Financial
Statements
For the Three and Nine Months Ended September
30, 2019 and 2018
(Unaudited)
Note 1. Management’s Representation and Basis of Presentation
The accompanying unaudited
condensed consolidated financial statements have been prepared by Cryoport, Inc. (the “Company”, “our”
or “we”) in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
for interim financial information, and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by
the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes
required by U.S. GAAP for complete financial statement presentation. However, the Company believes that the disclosures are adequate
to make the information presented not misleading. In the opinion of management, all adjustments (consisting primarily of normal
recurring accruals) considered necessary for a fair presentation have been included.
Operating results
for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2019. The unaudited condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2018.
The Company has evaluated
subsequent events through the date of this filing and determined that no subsequent events have occurred that would require recognition
in the unaudited condensed consolidated financial statements or disclosure in the notes thereto other than as disclosed in the
accompanying notes.
Note 2. Nature of the Business
Cryoport, Inc. (“Cryoport”)
is the market-leading provider of temperature-controlled solutions to the life sciences industry through its purpose-built proprietary
packaging, information technology, specialized cold chain logistics expertise, and biostorage services. The Company provides leading
edge solutions to the biopharma, reproductive medicine and animal health markets to ship, store and deliver biologic materials,
such as immunotherapies, stem cells, CAR-T cell therapies, vaccines and reproductive cells for clients worldwide Cryoport actively supports
pharmaceutical and biotechnology companies, points-of-care, contract research organizations, central laboratories, contract manufacturers,
university researchers and other entities service the life sciences industry.
On May 14, 2019, the
Company acquired substantially all of the assets of Cryogene Partners, a Texas general partnership doing business as Cryogene Labs
(“Cryogene”). Cyrogene operates a temperature-controlled biostorage solutions business in Houston, Texas (see Note
11). As a result of the Cryogene acquisition, the Company operates in two reportable segments: Global Logistics Solutions and Global
Bioservices. See Note 7 for segment information.
The Company is a Nevada
corporation and its common stock is traded on the NASDAQ Capital Market exchange under the
ticker symbol “CYRX.”
Note 3. Summary of Significant Accounting
Policies
Principles of Consolidation
The accompanying consolidated
financial statements include the accounts of Cryoport, Inc. and its wholly owned subsidiaries, Cryoport Systems, Inc., Cryoport
Netherlands B.V., Cryoport UK Limited and Cryogene, Inc. (collectively, the “Company”). All intercompany accounts and
transactions have been eliminated.
Cash and Cash Equivalents
Our cash and cash equivalents
represent demand deposits, and money market funds which are readily convertible into cash, have maturities of 90 days or less when
purchased and are considered highly liquid and easily tradeable.
Short-Term Investments
Our investments in equity
securities consist of mutual funds with readily determinable fair values which are carried at fair value with changes in fair value
recognized in earnings.
Investments in
debt securities are classified as available-for-sale and are carried at fair value, with unrealized gains and losses, net of tax,
reported as accumulated other comprehensive income (loss) and included as a separate component of stockholders’ equity.
Gains and losses are
recognized when realized. When we have determined that an other than temporary decline in fair value has occurred, the amount related
to a credit loss is recognized in earnings. Gains and losses are determined using the specific identification method.
Short-term investments
are classified as current assets even though maturities may extend beyond one year because they represent investments of cash available
for operations.
Use of Estimates
The preparation of
the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ
from estimated amounts. The Company’s significant estimates include the allowance for doubtful accounts, fair value of short-term
investments, fair value of assets acquired and liabilities assumed in business combinations, recoverability of goodwill and long-lived
assets, allowance for inventory obsolescence, deferred taxes and their accompanying valuations, and valuation of equity-based instruments.
Fair Value of Financial Instruments
The Company’s
financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued
expenses, finance lease liabilities and the convertible note. The carrying value for all such instruments, except finance lease
liabilities and the convertible note, approximates fair value at September 30, 2019 and December 31, 2018 due to their short-term
nature. The carrying value of finance lease liabilities approximates fair value because the interest rate approximates market rates
available to us for similar obligations with the same maturities. The convertible note approximates its fair value at September
30, 2019 and December 31, 2018.
Concentrations of Credit Risk
Financial instruments
that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments.
From time to time, we maintain cash, cash equivalent and short-term investment balances in excess of amounts insured by the Federal
Deposit Insurance Corporation (“FDIC”) and the Securities Investor Protection Corporation (“SIPC”). Primarily
all of our cash, cash equivalents and short-term investments at September 30, 2019 were in excess of amounts insured by the FDIC
and SIPC. The Company performs ongoing evaluations of these institutions to limit its concentration risk exposure. We manage such
risks in our portfolio by investing in highly liquid, highly-rated instruments, and limit investing in long-term maturity instruments.
Our investment policy
requires that purchased instruments in marketable securities may only be in highly-rated instruments, which are primarily U.S.
Treasury bills or treasury-backed securities, and also limits our investment in securities of any single issuer.
Customers
The Company grants
credit to customers within the U.S. and to a limited number of international customers and does not require collateral. Revenues
from international customers are generally secured by advance payments except for established foreign customers. The Company generally
requires advance or credit card payments for initial revenues from new customers. The Company’s ability to collect receivables
can be affected by economic fluctuations in the geographic areas and industries served by the Company. Reserves for uncollectible
amounts are provided based on past experience and a specific analysis of the accounts, which management believes is sufficient.
Accounts receivable at September 30, 2019 and December 31, 2018 are net of reserves for doubtful accounts of $140,000 and $100,000,
respectively. Although the Company expects to collect amounts due, actual collections may differ from the estimated amounts. The
Company maintains reserves for bad debt and such losses, in the aggregate, historically have not exceeded its estimates.
The Company’s
customers are in the biotechnology, pharmaceutical, animal health, reproductive medicine and other life science industries. Consequently,
there is a concentration of accounts receivable within these industries, which is subject to normal credit risk. As of September
30, 2019, there were two customers that accounted for 29.9% and 23.6%%, respectively, of net accounts receivable. As of December
31, 2018, there were two customers that accounted for 29.0% and 23.4%, respectively, of net accounts receivable. There were no
other single customers that owed us more than 10% of net accounts receivable at September 30, 2019 and December 31, 2018.
The Company has revenue
from foreign customers primarily in Europe, Japan, Canada, India and Australia. During the nine months ended September 30, 2019
and 2018, the Company had revenues from foreign customers of approximately $3.3 million and $1.3 million, respectively, which constituted
approximately 13.3% and 9.4%, respectively, of total revenues. There were two customers that accounted for 25.6% and 12.2% of revenues
during the nine months ended September 30, 2019, respectively. For the nine months ended September 30, 2018, there was one customer
that accounted for 17.2% of total revenues. No other single customer generated over 10% of revenues during the nine months ended
September 30, 2019 and 2018.
During the three months
ended September 30, 2019 and 2018, the Company had revenues from foreign customers of approximately $1.9 million and $410,800,
respectively, which constituted approximately 19.6% and 7.8%, respectively, of total revenues. There were three customers that
accounted for 23.6%, 15.0 and 10.1% of revenues during the three months ended September 30, 2019, respectively. For the three months
ended September 30, 2018, there was one customer that accounted for 20.6% of total revenues. No other single customer generated
over 10% of revenues during the three months ended September 30, 2019 and 2018.
Inventories
The Company’s
inventories consist of packaging materials and accessories that are sold to customers. Inventories are stated at the lower of cost
and net realizable value. Cost is determined using the standard cost method which approximates the first-in, first-to-expire method.
Inventories are reviewed periodically for slow-moving or obsolete status. The Company writes down the carrying value of its inventories
to reflect situations in which the cost of inventories is not expected to be recovered. Once established, write-downs of inventories
are considered permanent adjustments to the cost basis of the obsolete or excess inventories. Raw materials and finished goods
include material costs less reserves for obsolete or excess inventories. The Company evaluates the current level of inventories
considering historical trends and other factors, such as selling prices and costs of completion, disposal and transportation, and
based on the evaluation, records adjustments to reflect inventories at net realizable value. These adjustments are estimates, which
could vary significantly from actual results if future economic conditions, customer demand, competition or other relevant factors
differ from expectations. These estimates require us to make assessments about future demand for the Company’s products in
order to categorize the status of such inventories items as slow-moving, obsolete or in excess-of-need. These estimates are subject
to the ongoing accuracy of the Company’s forecasts of market conditions, industry trends, competition and other factors.
Property and Equipment
The Company provides
engineered shipping packages (“Cryoport Express® Shippers”) to its customers and charges a fee in exchange
for the use of the Cryoport Express® Shipper. The Company’s arrangements are similar to the accounting standard
for leases since they convey the right to use the Cryoport Express® Shipper over a period of time. The Company retains
the title to the Cryoport Express® Shippers and provides its customers the use of the Cryoport Express®
Shipper for a specific shipping cycle. At the culmination of the customer’s shipping cycle, the Cryoport Express®
Shipper is returned to the Company. As a result, the Company classifies the Cryoport Express® Shippers as property
and equipment for the per-use Cryoport Express® Shipper program.
Property and equipment
are recorded at cost. Cryoport Express® Shippers, which include SmartPak IITM Condition Monitoring Systems
and/or data loggers, comprise 23% and 34% of the Company’s net property and equipment balance at September 30, 2019 and December
31, 2018, respectively, are depreciated using the straight-line method over their estimated useful lives of three years. Mechanical
and liquid nitrogen freezers acquired in the Cryogene acquisition comprise 26% of the Company’s net property and equipment
balance at September 30, 2019, and are depreciated using the straight-line method over their estimated useful lives of seven to
twelve years. Equipment and furniture are depreciated using the straight-line method over their estimated useful lives (generally
three to fifteen years) and leasehold improvements are amortized using the straight-line method over the estimated useful life
of the asset or the lease term, whichever is shorter.
Betterments, renewals
and extraordinary repairs that extend the lives of the assets are capitalized; other repairs and maintenance charges are expensed
as incurred. The cost and related accumulated depreciation and amortization applicable to assets retired are removed from the accounts,
and the gain or loss on disposition is recognized in the consolidated statements of operations.
Leases
The Company determines
if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets represent the Company’s
right to use an underlying asset during the lease term, and operating lease liabilities represent the Company’s obligation
to make lease payments arising from the lease. Operating leases are included in ROU assets, current operating lease liabilities,
and long-term operating lease liabilities on our consolidated balance sheets. Finance leases are included in property and equipment,
current finance lease liabilities, and long-term finance lease liabilities on our consolidated balance sheets.
Lease ROU assets and
lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease term
at commencement date calculated using our incremental borrowing rate applicable to the lease asset, unless the implicit rate is
readily determinable. ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives
received. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise
that option. Leases with a term of 12 months or less are not recognized on the condensed consolidated balance sheet. The Company’s
leases do not contain any residual value guarantees. Lease expense for minimum lease payments is recognized on a straight-line
basis over the lease term.
The Company accounts
for lease and non-lease components as a single lease component for all its leases.
Goodwill
The Company evaluates
goodwill on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. Such
indicators could include, but are not limited to: (1) a significant adverse change in legal factors or in business climate, (2)
unanticipated competition, or (3) an adverse action or assessment by a regulator. The Company first assesses qualitative factors
to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including
goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying
amount, management conducts a two-step quantitative goodwill impairment test. The first step of the impairment test involves comparing
the fair value of the applicable reporting unit with its carrying value. If the carrying amount of a reporting unit exceeds the
reporting unit’s fair value, management performs the second step of the goodwill impairment test. The second step of the
goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying
value of that goodwill. The amount, by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized
as an impairment loss. No triggering events indicating goodwill impairment occurred during the nine months ended September 30,
2019.
Intangible Assets
Intangible assets
are comprised of patents, trademarks, software development costs and the intangible assets acquired in the Cryogene acquisition
which include a non-compete agreement, technology, customer relationships and trade name/trademark. The Company capitalizes costs
of obtaining patents and trademarks, which are amortized, using the straight-line method over their estimated useful life of five
years once the patent or trademark has been issued. The Company capitalizes certain costs related to software developed for internal
use. Software development costs incurred during the preliminary or maintenance project stages are expensed as incurred, while costs
incurred during the application development stage are capitalized and amortized using the straight-line method over the estimated
useful life of the software, which is five years. Capitalized costs include purchased materials and costs of services. The non-compete
agreement, technology, customer relationships and Cryogene trade name/trademark acquired in the Cryogene acquisition are amortized
using the straight-line method over the estimated useful lives (see Note 11).
The
Company evaluates the recoverability of identifiable intangible assets whenever events or changes in circumstances indicate that
an intangible asset's carrying amount may not be recoverable. Such circumstances could include, but are not limited to: (1) a
significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset
is used, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset.
The Company measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it.
Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment
loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds
its fair value. The estimate of fair value is based on various valuation techniques, including the discounted value of estimated
future cash flows. The evaluation of asset impairment requires the Company to make assumptions about future cash flows over the
life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and
estimated amounts. There was no impairment of intangible assets during the nine months ended September 30, 2019.
Other Long-lived Assets
If indicators of impairment
exist, we assess the recoverability of the affected long-lived assets by determining whether the carrying value of such assets
can be recovered through undiscounted future operating cash flows. If impairment is indicated, we measure the amount of such impairment
by comparing the fair value to the carrying value. We believe the future cash flows to be received from the long-lived assets will
exceed the assets’ carrying value, and accordingly, we have not recognized any impairment losses through September 30, 2019.
Deferred Financing Costs
Deferred financing
costs represent costs incurred in connection with the issuance of debt instruments and equity financings. Deferred financing costs
related to the issuance of debt are amortized over the term of the financing instrument using the effective interest method and
are presented in the consolidated balance sheets as an offset against the related debt. Offering costs from equity financings are
netted against the gross proceeds received from the equity financings.
Income Taxes
The Company accounts
for income taxes under the provision of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 740, Income Taxes, or ASC 740. As of September 30, 2019 and December 31, 2018, there were no unrecognized
tax benefits included in the accompanying condensed consolidated balance sheets that would, if recognized, affect the effective
tax rates.
Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. A valuation allowance is provided for certain deferred
tax assets if it is more likely than not that the Company will not realize tax assets through future operations. Based on the weight
of available evidence, the Company’s management has determined that it is more likely than not that the net deferred tax
assets will not be realized. Therefore, the Company has recorded a full valuation allowance against the net deferred tax assets.
The Company’s income tax provision consists of state minimum taxes.
The Company’s
policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual
for interest or penalties on its condensed consolidated balance sheets at September 30, 2019 and December 31, 2018 and has not
recognized interest and/or penalties in the condensed consolidated statements of operations for the three and nine months ended
September 30, 2019 and 2018. The Company is subject to taxation in the U.S. and various state jurisdictions. As of September 30,
2019, the Company is no longer subject to U.S. federal examinations for years before 2015 and for California franchise and income
tax examinations for years before 2014. However, to the extent allowed by law, the taxing authorities may have the right to examine
prior periods where net operating losses were generated and carried forward and make adjustments up to the amount of the net operating
loss carry forward amount. The Company is not currently under examination by U.S. federal or state jurisdictions.
Revenue Recognition
Revenues are recognized
when control is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in
exchange for those goods and services. Revenue recognition is evaluated through the following five steps: (i) identification of
the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination
of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition
of revenue when or as a performance obligation is satisfied.
Performance Obligations
At contract inception,
an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified
for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance
obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly
stated or are implied by customary business practices. Revenue is recognized when our performance obligation has been met. The
Company considers control to have transferred upon delivery because the Company has a present right to payment at that time, the
Company has transferred use of the asset, and the customer is able to direct the use of, and obtain substantially all of the remaining
benefits from, the asset.
For arrangements under
which the Company provides biological specimen storage services and logistics support and management to the customer, the Company
satisfies its performance obligations as those services are performed whereby the customer simultaneously receives and consumes
the benefits of such services under the agreement.
Revenue generated from
short-term logistics and engineering consulting services provided to customers is recognized when the Company satisfies the contractually
defined performance obligations.
Our performance obligations
on our orders and under the terms of agreements with customers are generally satisfied within one year from a given reporting date
and, therefore, we omit disclosure of the transaction price allocated to remaining performance obligations on open orders.
Shipping and handling
activities related to contracts with customers are accounted for as costs to fulfill our promise to transfer the associated products
pursuant to the accounting policy election allowed under Topic 606 and are not considered a separate performance obligation to
our customers. Accordingly, the Company records amounts billed for shipping and handling as a component of revenue. Shipping and
handling fees and costs are included in cost of revenues in the accompanying condensed consolidated statements of operations.
Revenues are recognized
net of any taxes collected from customers, which are subsequently remitted to governmental agencies.
Significant Payment Terms
Pursuant to the Company’s
contracts with its customers, amounts billed for services or products delivered by the Company are generally due and payable in
full within 15 to 60 days from the date of the invoice (except for any amounts disputed by the customer in good faith). Accordingly,
the Company determined that its contracts with customers do not include extended payment terms or a significant financing component.
Variable Consideration
In some cases, the
nature of the Company’s contracts may give rise to variable consideration, including discounts and allowances or other similar
items that generally decrease the transaction price.
Variable consideration
is estimated at the most likely amount that is expected to be earned. Estimated amounts are included in the transaction price to
the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated
with the variable consideration is resolved. Estimates of variable consideration and determination of whether to include estimated
amounts in the transaction price are based largely on an assessment of the anticipated performance and all information (historical,
current and forecasted) that is reasonably available.
Revenues are recorded
net of variable consideration, such as discounts and allowances.
Warranties
The Company’s
products and services are provided on an “as is” basis and no warranties are included in the contracts with customers.
Also, the Company does not offer separately priced extended warranty or product maintenance contracts.
Incremental Direct Costs
The Company expenses
incremental direct costs of obtaining a contract (sales commissions) when incurred because the amortization period is generally
12 months or less. The Company does not incur costs to fulfill a customer contract that meet the requirements for capitalization.
Contract Assets
Typically, we invoice
the customer and recognize revenue once we have satisfied our performance obligation. Accordingly, our contract assets comprise
accounts receivable, which are recognized when payment is unconditional and only the passage of time is required before payment
is due. Generally, we do not have material amounts of other contract assets since revenue is recognized as control of goods is
transferred or as services are performed.
Contract Liabilities (Deferred Revenue)
Contract liabilities
are recorded when cash payments are received in advance of the Company’s performance. Deferred revenue was $423,537 and $66,300
at September 30, 2019 and December 31, 2018, respectively. During the three months and nine months ended September 30, 2019,
the Company recognized revenues of $129,200 and $233,400, respectively, from the related contact liabilities outstanding as the
services were performed.
Nature of Goods and Services
The Global Logistics
Solutions segment provides Cryoport Express® Shippers to its customers and charges a fee in exchange for the use
of the Cryoport Express® Shipper under long-term master service agreements with customers. The Company’s arrangements
convey to the customers the right to use the Cryoport Express® Shippers over a period of time. The Company retains
title to the Cryoport Express® Shippers and provides its customers the use of the Cryoport Express®
Shipper for a specified shipping cycle. At the culmination of the customer’s shipping cycle, the Cryoport Express®
Shipper is returned to the Company.
The Global Bioservices
segment provides comprehensive and integrated temperature-controlled biostorage solutions to customers in the life sciences industry
and charges a fee under long-term master service agreements with customers. These services include (1) biological specimen cryopreservation
storage and maintenance, (2) archiving, monitoring, tracking, receipt and delivery of samples, (3) transport of frozen biological
specimens to and from customer locations, and (4) management of incoming and outgoing biological specimens.
The vast majority of
our revenues are covered under long-term master service agreements. We have determined that individual Statements of Work or Scope
of Work (“SOW”), whose terms and conditions taken with a Master Services Agreement (“MSA”), create the
Topic 606 contracts which are generally short-term in nature (e.g., 15-day shipping cycle) for the Global Logistics Solutions segment
and up to 12 months for the Global Bioservices segment. Our agreements (including SOWs) generally do not have multiple performance
obligations and, therefore, do not require an allocation of a single price amongst multiple goods or services. Prices
under these agreements are generally fixed. The Global Logistics Solutions segment recognizes revenue for the use of the Cryoport
Express® Shipper at the time of the delivery of the Cryoport Express® Shipper to the end user of
the enclosed materials, and at the time that collectability is probable. The Global Bioservices segment recognizes revenue as services
are rendered over time and at the time that collectability is probable.
The Company also provides
logistics support and management to some customers, which may include onsite logistics personnel. Revenue is recognized for these
services as services are rendered over time and at the time that collectability is probable.
The Company also provides
short-term logistics and engineering consulting services to some customers, with fees tied to the completion of contractually
defined services. We recognize revenue from these services over time as the customer simultaneously receives and consumes the benefit
of these services as they are performed.
Revenue Disaggregation
The Company operates
in two reportable segments and evaluates financial performance on a Company-wide basis. We consider sales disaggregated by end-market
to depict how the nature, amount, timing and uncertainty of revenues and cash flows are impacted by changes in economic factors.
The following table disaggregates our revenues by major source for the three and nine months ended September 30, 2019 and
2018:
|
|
Three
Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(000’s omitted)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Global Logistics Solutions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biopharmaceutical
|
|
$
|
7,460
|
|
|
$
|
4,472
|
|
|
$
|
20,059
|
|
|
$
|
11,603
|
|
Reproductive medicine
|
|
|
735
|
|
|
|
584
|
|
|
|
2,191
|
|
|
|
1,585
|
|
Animal health
|
|
|
219
|
|
|
|
229
|
|
|
|
705
|
|
|
|
748
|
|
Total Global Logistics Solutions
|
|
|
8,414
|
|
|
|
5,285
|
|
|
|
22,955
|
|
|
|
13,936
|
|
Global Biostorage
|
|
|
1,169
|
|
|
|
—
|
|
|
|
1,745
|
|
|
|
—
|
|
Total revenues
|
|
$
|
9,583
|
|
|
$
|
5,285
|
|
|
$
|
24,700
|
|
|
$
|
13,936
|
|
Our geographical revenues,
by origin, for the three and nine months ended September 30, 2019 and 2018, were as follows:
|
|
Three
Months Ended
September 30,
|
|
|
Nine
Months Ended
September 30,
|
|
(000’s omitted)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Americas
|
|
$
|
7,708
|
|
|
$
|
4,875
|
|
|
$
|
21,413
|
|
|
$
|
12,631
|
|
Europe, the Middle East and Africa (EMEA)
|
|
|
1,699
|
|
|
|
360
|
|
|
|
2,786
|
|
|
|
998
|
|
Asia Pacific (APAC)
|
|
|
176
|
|
|
|
50
|
|
|
|
501
|
|
|
|
307
|
|
Total revenues
|
|
$
|
9,583
|
|
|
$
|
5,285
|
|
|
$
|
24,700
|
|
|
$
|
13,936
|
|
Engineering and Development Expenses
Expenditures relating to engineering and
development are expensed in the period incurred to engineering and development expense in the statement of operations.
Stock-Based Compensation
The Company accounts
for stock-based payments in accordance with stock-based payment accounting guidance which requires all stock-based payments to
be recognized based upon their fair values. The fair value of stock-based awards is estimated at the grant date using the Black-Scholes
Option Pricing Model (“Black-Scholes”) and the portion that is ultimately expected to vest is recognized as compensation
cost over the requisite service period. The determination of fair value using Black-Scholes is affected by the Company’s
stock price as well as assumptions regarding a number of complex and subjective variables, including expected stock price volatility,
risk-free interest rate, expected dividends and expected term. The Company accounts for forfeitures of unvested awards as they
occur.
The Company’s
stock-based compensation plans are discussed further in Note 13.
Basic and Diluted Net Loss Per Share
We calculate basic and
diluted net income (loss) per share using the weighted average number of common shares outstanding during the periods presented.
In periods of a net loss position, basic and diluted weighted average common shares are the same. For the diluted earnings per
share calculation, we adjust the weighted average number of common shares outstanding to include dilutive stock options, warrants
and shares associated with the conversion of convertible debt outstanding during the periods.
The following shows the amounts used in computing net loss per
share for the three and nine months ended September 30:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Net loss
|
|
$
|
(12,468,547
|
)
|
|
$
|
(2,143,687
|
)
|
|
$
|
(17,383,940
|
)
|
|
$
|
(7,297,337
|
)
|
Weighted average common shares issued and outstanding - basic and diluted
|
|
|
35,674,162
|
|
|
|
28,769,867
|
|
|
|
32,449,940
|
|
|
|
27,791,616
|
|
Basic and diluted net loss per share
|
|
$
|
(0.35
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.54
|
)
|
|
$
|
(0.26
|
)
|
The following table
sets forth the number of shares excluded from the computation of diluted loss per share, as their inclusion would have been anti-dilutive:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Stock options
|
|
|
4,437,527
|
|
|
|
5,711,337
|
|
|
|
3,821,040
|
|
|
|
5,704,439
|
|
Warrants
|
|
|
917,757
|
|
|
|
1,524,376
|
|
|
|
857,111
|
|
|
|
1,370,272
|
|
Convertible note
|
|
|
1,158,183
|
|
|
|
—
|
|
|
|
1,158,183
|
|
|
|
—
|
|
|
|
|
6,513,467
|
|
|
|
7,325,713
|
|
|
|
5,836,334
|
|
|
|
7,074,711
|
|
Foreign Currency Transactions
Management has determined
that the functional currency of its subsidiaries is the local currency. Assets and liabilities of the Netherlands and UK subsidiaries
are translated into U.S. dollars at the period-end exchange rates. Income and expenses are translated at an average exchange rate
for the period and the resulting translation gain (loss) adjustments are accumulated as a separate component of stockholders’
equity. The translation gain (loss) adjustment totaled $(19,300) and $(31,000) for the three and nine months ended September 30,
2019. Foreign currency gains and losses from transactions denominated in other than respective local currencies are included in
earnings. Foreign currency gains and losses for all periods presented were not significant.
Balance Sheet Arrangements
We do not currently have any
off balance sheet arrangements.
Recently Adopted Accounting Pronouncements
In June 2018, the FASB
issued ASU 2018-07, “Compensation – Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting”
which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the
scope of Topic 718, “Compensation-Stock Compensation”, to include share-based payment transactions for acquiring
goods and services from nonemployees. Some of the areas for simplification apply only to nonpublic entities. The amendments specify
that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed
in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not
apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with
selling goods or services to customers as part of a contract accounted for under Topic 606, “Revenue from Contracts with
Customers”. The Company adopted ASU 2018-07 effective January 1, 2019, and the adoption of the standard did not have an impact
on the Company’s condensed consolidated financial statements.
In February 2016, the
FASB issued ASU 2016-02, “Leases”, as amended by ASU No. 2018-11, “Leases: Targeted Improvements”, (ASC
842), which provides for a comprehensive change to lease accounting. The new guidance amends the existing accounting standards
for leases to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease
liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities
by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective
of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
We adopted the standard
effective January 1, 2019 using the modified retrospective approach with the effective date as the date of initial application.
Consequently, prior period balances and disclosures have not been restated. Also, the Company has implemented additional internal
controls to enable future preparation of financial information in accordance with ASC 842.
The standard had a
material impact on our condensed consolidated balance sheets, which resulted in the recognition of ROU assets of $1.8 million,
lease liabilities of $2.1 million and a reduction in deferred rent liabilities of $309,600 for operating leases, while our accounting
for finance leases remained substantially unchanged. However, the adoption of the new standard did not materially impact our consolidated
results of operations and cash flows. Also, the adoption of ASC 842 did not have an impact on the Company’s beginning accumulated
deficit balance.
ASC 842 provides a
number of optional practical expedients in transition. For leases that commenced prior to January 1, 2019, the Company elected:
(1) the “package of practical expedients”, which permits it not to reassess under the new standard its prior conclusions
about lease identification, lease classification, and initial direct costs, and (2) the use-of-hindsight in determining the lease
term and in assessing impairment of ROU assets. In addition, ASC 842 provides practical expedients for an entity’s ongoing
accounting that the Company has elected, comprised of the following: (1) the election for classes of underlying asset to not separate
non-lease components from lease components, and (2) the election for short-term lease recognition exemption for all leases that
qualify.
For additional information
regarding the Company’s leases, see Note 10.
Accounting Guidance Issued but Not
Adopted at September 30, 2019
In August 2018, the
FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement," which is part of the FASB disclosure framework project to improve the effectiveness
of disclosures in the notes to the financial statements. The amendments in the new guidance remove, modify, and add certain disclosure
requirements related to fair value measurements covered in Topic 820, "Fair Value Measurement." The new standard is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted for either the entire standard or only the requirements
that modify or eliminate the disclosure requirements, with certain requirements applied prospectively, and all other requirements
applied retrospectively to all periods presented. We are currently evaluating the impact of adopting this guidance.
In January 2017, the
FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”,
which is intended to simplify the subsequent accounting for goodwill acquired in a business combination. Prior guidance required
utilizing a two-step process to review goodwill for impairment. A second step was required if there was an indication that an impairment
may exist, and the second step required calculating the potential impairment by comparing the implied fair value of the reporting
unit's goodwill (as if purchase accounting were performed on the testing date) with the carrying amount of the goodwill. The new
guidance eliminates the second step from the goodwill impairment test. Under the new guidance, an entity should perform its annual,
or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and then recognize
an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value (although the loss
should not exceed the total amount of goodwill allocated to the reporting unit). The guidance requires prospective adoption and
will be effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We are currently
evaluating the impact of adopting this guidance.
In June 2016, the FASB
issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments." This ASU replaces the incurred loss impairment
methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range
of reasonable and supportable information for credit loss estimates on certain types of financial instruments, including trade
receivables. In addition, new disclosures are required. The ASU is effective for fiscal years beginning after December 15, 2019.
We are currently evaluating the impact of adopting this guidance. The Company currently believes the main impact of the new standard
will relate to the Company’s assessment of its allowance for doubtful accounts on trade receivables.
Note 4. Cash, Cash Equivalents and Short-Term Investments
Cash, cash equivalents and short-term investments
consisted of the following as of September 30, 2019 and December 31, 2018:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Cash
|
|
$
|
3,229,359
|
|
|
$
|
37,223,698
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market mutual fund
|
|
|
41,355,795
|
|
|
|
103,427
|
|
Total cash and cash equivalents
|
|
|
44,585,154
|
|
|
|
37,327,125
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
U.S. Treasury notes and bills
|
|
|
23,087,860
|
|
|
|
7,925,975
|
|
Mutual funds
|
|
|
25,829,476
|
|
|
|
2,004,993
|
|
Total short-term investments
|
|
|
48,917,336
|
|
|
|
9,930,968
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
93,502,490
|
|
|
$
|
47,258,093
|
|
Available-for-sale investments
The amortized cost, gross unrealized gains,
gross unrealized losses and fair value of available-for-sale investments by type of security at September 30, 2019 were as follows:
|
|
Amortized Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
U.S. Treasury notes
|
|
$
|
23,102,470
|
|
|
$
|
44,621
|
|
|
$
|
(59,231
|
)
|
|
$
|
23,087,860
|
|
Total available-for-sale investments
|
|
$
|
23,102,470
|
|
|
$
|
44,621
|
|
|
$
|
(59,231
|
)
|
|
$
|
23,087,860
|
|
The following table summarizes the fair
value of available-for-sale investments based on stated contractual maturities as of September 30, 2019:
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Due within one year
|
|
$
|
10,981,991
|
|
|
$
|
11,017,210
|
|
Due between one and two years
|
|
|
12,120,479
|
|
|
|
12,070,650
|
|
Total
|
|
$
|
23,102,470
|
|
|
$
|
23,087,860
|
|
The amortized cost, gross unrealized gains,
gross unrealized losses and fair value of available-for-sale investments by type of security at December 31, 2018 were as follows:
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
U.S. Treasury bills
|
|
$
|
2,948,777
|
|
|
$
|
19,523
|
|
|
$
|
—
|
|
|
$
|
2,968,300
|
|
U.S. Treasury notes
|
|
|
4,953,616
|
|
|
|
4,059
|
|
|
|
—
|
|
|
|
4,957,675
|
|
Total available-for-sale investments
|
|
$
|
7,902,393
|
|
|
$
|
23,582
|
|
|
$
|
—
|
|
|
$
|
7,925,975
|
|
The following table summarizes the fair
value of available-for-sale investments based on stated contractual maturities as of December 31, 2018:
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Due within one year
|
|
$
|
5,913,327
|
|
|
$
|
5,936,515
|
|
Due between one and two years
|
|
|
1,989,066
|
|
|
|
1,989,460
|
|
Total
|
|
$
|
7,902,393
|
|
|
$
|
7,925,975
|
|
The primary objective
of our investment portfolio is to enhance overall returns in an efficient manner while maintaining safety of principal, prudent
levels of liquidity and acceptable levels of risk. Our investment policy limits interest-bearing security investments to certain
types of debt and money market instruments issued by institutions with primarily investment-grade credit ratings, and it places
restrictions on maturities and concentration by asset class and issuer.
We review our available-for-sale
investments for other-than-temporary declines in fair value below our cost basis each quarter and whenever events or changes in
circumstances indicate that the cost basis of an asset may not be recoverable. The evaluation is based on a number of factors,
including the length of time and the extent to which the fair value has been below our cost basis, as well as adverse conditions
related specifically to the security such as any changes to the credit rating of the security and the intent to sell or whether
we will more likely than not be required to sell the security before recovery of its amortized cost basis. Our assessment of whether
a security is other-than-temporarily impaired could change in the future based on new developments or changes in assumptions related
to that particular security.
During the nine months
ended September 30, 2019, we had realized gains of $62,500 on available-for-sale investments.
Equity Investments
We held investments
in equity securities with readily determinable fair values of $48.9 million at September 30, 2019. These investments consist of
mutual funds that invest primarily in tax-free municipal bonds and treasury inflation protected securities.
Unrealized gains (losses)
during 2019 related to equity securities held at September 30, 2019 are as follows:
Net losses recognized during the nine months on equity securities
|
|
$
|
(87,850
|
)
|
Less: net gains (losses) recognized on equity securities sold during the nine months
|
|
|
—
|
|
Unrealized losses recognized during the nine months on equity securities still held at September 30, 2019
|
|
$
|
(87,850
|
)
|
Note 5. Fair Value Measurements
We measure fair value
based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used
to measure fair value. These tiers include the following:
Level 1: Quoted
prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date. The fair
value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable
prices that are based on inputs not quoted on active markets, but corroborated by market data. These inputs include quoted prices
for similar assets or liabilities; quoted market prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable
inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3
inputs.
In determining
fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs
to the extent possible, as well as consider counterparty credit risk in the assessment of fair value.
We did not elect the
fair value option, as allowed, to account for financial assets and liabilities that were not previously carried at fair value.
Therefore, material financial assets and liabilities that are not carried at fair value, such as trade accounts receivable and
payable, are reported at their historical carrying values.
The carrying values
of our assets that are required to be measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018
approximate fair value because of our ability to immediately convert these instruments into cash with minimal expected change in
value which are classified in the table below in one of the three categories of the fair value hierarchy described above:
|
|
Fair Value Measurements
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual fund
|
|
$
|
41,355,795
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
41,355,795
|
|
Marketable equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
25,829,476
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,829,476
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
|
23,087,860
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,087,860
|
|
|
|
$
|
90,273,131
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
90,273,131
|
|
|
|
Fair Value Measurements
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual fund
|
|
$
|
103,427
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
103,427
|
|
Marketable equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
2,004,993
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,004,993
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
|
4,957,675
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,957,675
|
|
U.S. Treasury bills
|
|
|
2,968,300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,968,300
|
|
|
|
$
|
10,034,395
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,034,395
|
|
Our equity
securities and available-for-sale debt securities, including U.S. treasury notes and U.S. treasury bills are valued using inputs
observable in active markets for identical securities and are therefore classified as Level 1 within the fair value hierarchy.
We did
not have any financial liabilities measured at fair value on a recurring basis as of September 30, 2019.
Note 6. Convertible Note
On December 14, 2018,
we entered into a Securities Purchase and Registration Rights Agreement (the “SPA”) with Petrichor Opportunities Fund
I LP (the “Investor”) in connection with (i) the issuance and sale of 1,000,000 shares of the Company’s common
stock, par value $0.001 per share (the “Investment Shares”), at a price equal to $10.00 per share and (ii) the issuance
of a $15,000,000 floating rate convertible note (the “Note”) of the Company, with such Note convertible on the terms
stated therein into shares of Common Stock (the “Note Shares”) (together, the “Transaction”). In connection
with the Transaction, the Company paid Petrichor Opportunities Fund I LP a commitment fee of $250,000 on the aggregate total purchase
price for the Transaction.
The Note is the senior
unsecured obligation of the Company. Unless earlier converted or redeemed, the Note will mature on December 14, 2023. The Note
accrues interest at a rate equal to the greater of (a) three-month London Interbank Offered Rate (LIBOR) or (b) two percent, plus
the applicable margin of six percent on the outstanding balance of the Note, payable quarterly on the first business day of each
calendar quarter.
Prior to the maturity,
a holder of the Note will have the right to convert all or any portion of the Note, including any accrued but unpaid interest,
into shares of Common Stock at a conversion price of $13.11 per share (the “Conversion Price”), subject to certain
adjustments as set forth in the Note. The Company determined that the Note’s conversion option includes a down round price
protection feature which triggers upon the occurrence of a future event. As a result, the Company will account for the conversion
option in accordance with ASU 2017-11 and related accounting guidance, which requires the Company to recognize a contingent beneficial
conversion feature in earnings at such time the conversion price is adjusted. If, at any time on or prior to December 14, 2021,
the volume-weighted average price of the Common Stock exceeds $17.48 for 15 consecutive trading days and certain additional conditions
are satisfied, the Note will automatically convert into shares of Common Stock at the Conversion Price, subject to certain conditions.
At any time after
June 14, 2019, the Company has the right to redeem all, but not less than all, of the outstanding Note for cash prior to the Maturity
Date, at a redemption premium on such amount as follows: (a) prior to December 14, 2019, 112%; (b) after December 14, 2019 but
on or prior to December 14, 2020, 109%; and (c) after December 14, 2020, 106% (the “Redemption Premium”).
Upon the occurrence
of certain events of default as set forth in the Note (other than events of default relating to bankruptcy, insolvency, reorganization
or liquidation proceedings) or a change of control, a holder of the Note may require the Company to redeem all or any portion of
its Note at the applicable Redemption Premium. If certain events of default relating to bankruptcy, insolvency, reorganization
or liquidation proceedings occur, all outstanding principal and accrued and unpaid interest (plus any accrued and unpaid late charges)
will automatically become due and payable at the applicable Redemption Premium.
The Note contains
certain covenants and restrictions, including, among others, that, for so long as the Note is outstanding, the Company will not
incur any indebtedness (other than permitted indebtedness under the Note), permit liens on its properties (other that permitted
liens under the Note), make payments on junior securities, make dividends or transfer certain assets or permit its unrestricted
cash to be less than a minimum amount.
Pursuant to the SPA, the Company agreed to register the Investment Shares and the Note Shares by filing a registration
statement with the SEC by the 45th calendar day after the closing date of the Transaction.
The registration statement was filed on January 28, 2019 and was declared effective by the SEC on February 14, 2019.
The issuance costs
for this Transaction, including the commitment fee paid to the Investor totaled approximately $480,000. As these costs were incurred
to raise both debt and equity, the total costs have been allocated on a pro-rata basis to the debt and equity financings based
on their relative fair values. The pro-rata portion of these fees related to the Note will be amortized over the five-year stated
life of the Note. During the three and nine months ended September 30, 2019, the Company amortized $16,000 and $46,800, respectively,
of the debt discount to interest expense for the Note.
On July 9, 2019, the
Company entered into Amendment No. 1 to the Note. Pursuant to the amendment, the terms of the Note were amended such that (i) after
June 30, 2019, the interest rate on the Note is reduced to 6.00%; (ii) after June 30, 2019, accrued interest on the Note will be
converted into common stock of the Company in connection with any conversion of the Note, provided that solely with respect to
such accrued but unpaid interest, the conversion price will be an amount equal to the average volume-weighted average price of
the Company’s common stock for the 15 consecutive trading days prior to the conversion date; (iii) the mandatory conversion
date is December 14, 2019; (iv) the maximum percentage provisions relating to a mandatory conversion of the Note were removed;
(v) the Note is no longer required to be senior to any other indebtedness of the Company and its subsidiaries; and (vi) the limitation
on the Company and its subsidiaries from incurring indebtedness was removed. We accounted for Amendment No. 1 to the Note as a
modification of debt because the cash flows under the amended term loans were not substantially different than the cash flows under
the original term loans. Accordingly, a new effective interest that equates the revised cash flows to the carrying amount of the
original debt was computed and is being applied prospectively. We did not incur any fees to the Investor in connection with the
amended term loan. The existing unamortized debt discount is being amortized over the remaining term of the Note using the effective
interest method. Since the Note is convertible into shares of the Company’s common stock on December 14, 2019, the Company
determined that the classification as a long-term liability is appropriate as the debt will not be settled in cash.
Interest expense was
$246,000 and $884,400 for the three and nine months ended September 30, 2019, respectively, of which $246,000 is included in accounts
payable and other accrued expenses in the accompanying condensed consolidated balance sheet as of September 30, 2019.
Note 7. Segment Reporting
We currently operate
in two reportable segments: Global Logistics Solutions and Global Bioservices. The Global Logistics Solutions segment provides
temperature-controlled logistics solutions to the life sciences industry through its purpose-built proprietary packaging, information
technology and specialized cold chain logistics expertise. The Company provides leading edge logistics solutions to the biopharma,
reproductive medicine and animal health markets to ship, store and deliver biologic materials, such as immunotherapies, stem cells,
CAR-T cell therapies, vaccines and reproductive cells for clients worldwide. The Global Bioservices segment provides a comprehensive
temperature-controlled sample management solution to the life science industry, including specimen storage, sample processing,
collection, and retrieval. The spectrum of temperature-controlled solutions provided by the Company ranges from ambient, or controlled
room temperature (20°C to 25°C), refrigerated (2°C to 8°C), to frozen and cryogenic (below 0°C to as low as
−150°C). Our Chief Executive Officer is the chief operating decision maker for both segments.
The Company derives
the results of the segments directly from its internal management reporting system. The accounting policies of the operating segments
are substantially the same as those described in the summary of significant accounting policies. The Company evaluates segment
performance on the basis of revenues and profit or loss. Management uses these operating results, in part, to evaluate the performance
of, and to allocate resources to, each of the segments.
The Company’s
reportable segments are strategic business units that offer different products and services. They are managed separately because
each business requires different sales and marketing strategies and operational skillsets. The Global Bioservices segment is currently
comprised of the Cryogene business that was acquired in May 2019 (see Note 11), and the management at the time of the acquisition
was retained. Prior to this acquisition, the Company had a single reportable segment: Global Logistics Solutions.
Reportable segment information is presented
in the following tables:
|
|
Three Months Ended September 30, 2019
|
|
|
|
Global Logistics
Solutions
|
|
|
Global
Bioservices
|
|
|
Total
|
|
Revenues
|
|
$
|
8,414,454
|
|
|
$
|
1,168,880
|
|
|
$
|
9,583,334
|
|
Interest expense
|
|
|
(248,410
|
)
|
|
|
—
|
|
|
|
(248,410
|
)
|
Depreciation and amortization expense
|
|
|
(395,517
|
)
|
|
|
(397,399
|
)
|
|
|
(792,916
|
)
|
Segment operating profit or loss
|
|
|
(12,477,805
|
)
|
|
|
126,055
|
|
|
|
(12,351,750
|
)
|
Other significant items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
|
109,735,086
|
|
|
|
25,322,764
|
|
|
|
135,057,850
|
|
Goodwill
|
|
|
—
|
|
|
|
11,149,663
|
|
|
|
11,149,663
|
|
Expenditures for long-lived assets
|
|
|
(1,241,322
|
)
|
|
|
(527,715
|
)
|
|
|
(1,769,037
|
)
|
|
|
Nine Months Ended September 30, 2019
|
|
|
|
Global Logistics
Solutions
|
|
|
Global
Bioservices
|
|
|
Total
|
|
Revenues
|
|
$
|
22,954,410
|
|
|
$
|
1,745,424
|
|
|
$
|
24,699,834
|
|
Interest expense
|
|
|
(921,048
|
)
|
|
|
—
|
|
|
|
(921,048
|
)
|
Depreciation and amortization expense
|
|
|
(1,063,327
|
)
|
|
|
(526,844
|
)
|
|
|
(1,590,171
|
)
|
Segment operating profit or loss
|
|
|
(17,081,689
|
)
|
|
|
284,995
|
|
|
|
(16,796,694
|
)
|
Other significant items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
|
109,735,086
|
|
|
|
25,322,764
|
|
|
|
135,057,850
|
|
Goodwill
|
|
|
—
|
|
|
|
11,149,663
|
|
|
|
11,149,663
|
|
Expenditures for long-lived assets
|
|
|
(3,601,248
|
)
|
|
|
(745,934
|
)
|
|
|
(4,347,182
|
)
|
Revenues from one
customer of the Company’s Global Bioservices segment represents approximately 82.7% of that segment’s net revenues
and 10.1% of the Company’s consolidated net revenues for the three months ended September 30, 2019.
Note 8. Goodwill and Intangible
Assets
Goodwill
During the nine months
ended September 30, 2019, the Company recorded $11.1 million of goodwill which is related to the acquisition of Cryogene. See Note
11 for further information on this acquisition transaction. As of September 30, 2019, the carrying value of goodwill is $11.1 million
which is allocated to the Global Bioservices reportable segment.
Intangible Assets
The following table presents
our intangible assets as of September 30, 2019:
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
|
Weighted
Average
Amortization
Period (years)
|
|
Non-compete agreement
|
|
$
|
390,000
|
|
|
$
|
26,000
|
|
|
$
|
364,000
|
|
|
|
5
|
|
Technology
|
|
|
510,000
|
|
|
|
34,000
|
|
|
|
476,000
|
|
|
|
5
|
|
Customer relationships
|
|
|
3,900,000
|
|
|
|
108,333
|
|
|
|
3,791,667
|
|
|
|
12
|
|
Cryogene trade name/trademark
|
|
|
480,000
|
|
|
|
10,667
|
|
|
|
469,333
|
|
|
|
15
|
|
Cryoport patents and trademarks
|
|
|
233,065
|
|
|
|
47,375
|
|
|
|
185,690
|
|
|
|
—
|
|
Total
|
|
$
|
5,513,065
|
|
|
$
|
226,375
|
|
|
$
|
5,286,690
|
|
|
|
|
|
The following table presents
our intangible assets as of December 31, 2018:
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
|
Weighted
Average
Amortization
Period (years)
|
|
Cryoport patents and trademarks
|
|
$
|
184,595
|
|
|
$
|
(47,375
|
)
|
|
$
|
137,220
|
|
|
|
—
|
|
Amortization expense
for intangible assets for the three and nine months ended September 30, 2019 was $134,300 and $179,000, respectively.
Expected future amortization of intangible assets as
of September 30, 2019 is as follows:
Years Ending December 31,
|
|
|
Amount
|
|
Remainder of 2019
|
|
|
$
|
134,250
|
|
2020
|
|
|
|
537,000
|
|
2021
|
|
|
|
537,000
|
|
2022
|
|
|
|
537,000
|
|
2023
|
|
|
|
537,000
|
|
Thereafter
|
|
|
|
3,004,440
|
|
|
|
|
$
|
5,286,690
|
|
Note 9. Commitments and Contingencies
Facility and Equipment Leases
We lease 27,600 square
feet of corporate, research and development, and logistics facilities in Irvine, California under an operating lease expiring February
2023, subject to our option to extend the lease for two additional five-year periods. The initial base rent is approximately $24,700
per month. We also lease 8,100 square feet of logistics facilities in Livingston, New Jersey under an operating lease expiring
December 2024, subject to our option to extend the lease for an additional five-year period. The initial base rent is approximately
$7,600 per month. In addition, we lease 7,600 square feet of logistics facilities in Hoofddorp, The Netherlands under an operating
lease expiring May 2023, subject to our option to extend the lease for two additional five-year periods. The initial base rent
is approximately $5,400 per month. We also lease a total of 21,476 square feet of corporate and logistics facilities in Houston,
Texas in two adjacent buildings under operating leases expiring in January 2024. The aggregate initial base rent is approximately
$22,000 per month. We also lease a 4,190 square foot corporate facility in Brentwood, Tennessee under an operating lease expiring
August 2024. The initial base rent is approximately $11,000 per month. These lease agreements contain certain scheduled annual
rent increases which are accounted for on a straight-line basis. In addition, we lease certain equipment which expires through
January 2024.
Employment Agreements
We have entered into
employment agreements with certain of our officers under which payment and benefits would become payable in the event of termination
by us for any reason other than cause, or upon a change in control of our Company, or by the employee for good reason.
Litigation
The Company may become
a party to product litigation in the normal course of business. The Company accrues for open claims based on its historical experience
and available insurance coverage. In the opinion of management, there are no legal matters involving the Company that would have
a material adverse effect upon the Company’s consolidated financial condition or results of operations.
Indemnities and Guarantees
The Company has made
certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified party, in relation
to certain actions or transactions. The guarantees and indemnities do not provide for any limitation of the maximum potential future
payments the Company could be obligated to make. Historically, the Company has not been obligated nor incurred any payments for
these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying consolidated
balance sheets.
The Company indemnifies
its directors, officers, employees and agents, as permitted under the laws of the States of California and Nevada. In connection
with its facility and equipment leases, the Company has indemnified its lessors for certain claims arising from the use of the
facilities and equipment. The duration of the guarantees and indemnities varies, and is generally tied to the life of the agreements.
Note 10. Leases
The Company has operating
and finance leases for corporate offices and certain equipment. These leases have remaining lease terms of two years to approximately
six years, some of which include options to extend the leases for multiple renewal periods of five years each. As of September
30, 2019 and December 31, 2018, assets recorded under finance leases were $71,000, and accumulated depreciation associated with
finance leases was $20,300 and $6,800, respectively.
The components of
lease cost were as follows:
|
|
Nine Months Ended
|
|
|
|
September 30, 2019
|
|
Operating lease cost
|
|
$
|
506,300
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
7,612
|
|
Interest on finance lease liabilities
|
|
|
2,194
|
|
|
|
|
9,806
|
|
Total lease cost
|
|
$
|
516,106
|
|
Other information related to leases was as follows:
|
|
Nine Months Ended
|
|
|
|
September 30, 2019
|
|
Supplemental Cash Flows Information
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
598,800
|
|
Operating cash flows from finance leases
|
|
$
|
2,194
|
|
Financing cash flows from finance leases
|
|
$
|
17,261
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
|
$
|
2,623,200
|
|
Finance leases
|
|
$
|
—
|
|
|
|
|
|
|
Weighted-Average Remaining Lease Term
|
|
|
|
|
Operating leases
|
|
|
7.0 years
|
|
Finance leases
|
|
|
1.6 years
|
|
|
|
|
|
|
Weighted-Average
Discount Rate
|
|
|
|
|
Operating
leases
|
|
|
7.25
|
%
|
Finance leases
|
|
|
6.0
|
%
|
Future minimum lease payments under non-cancellable
leases as of September 30, 2019 were as follows:
Years Ending December 31,
|
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
2019 (excluding the nine months ended September 30, 2019)
|
|
|
$
|
202,839
|
|
|
$
|
6,485
|
|
2020
|
|
|
|
986,576
|
|
|
|
25,940
|
|
2021
|
|
|
|
993,458
|
|
|
|
8,647
|
|
2022
|
|
|
|
1,003,353
|
|
|
|
—
|
|
2023
|
|
|
|
673,392
|
|
|
|
—
|
|
Thereafter
|
|
|
|
2,454,586
|
|
|
|
—
|
|
Total future minimum lease payments
|
|
|
|
6,314,204
|
|
|
|
41,072
|
|
Less imputed interest
|
|
|
|
(1,484,749
|
)
|
|
|
(1,986
|
)
|
Total
|
|
|
$
|
4,829,455
|
|
|
$
|
39,086
|
|
Reported as of September 30, 2019
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
Current lease liabilities
|
|
$
|
562,866
|
|
|
$
|
24,252
|
|
Noncurrent lease liabilities
|
|
|
4,266,589
|
|
|
|
14,834
|
|
Total
|
|
$
|
4,829,455
|
|
|
$
|
39,086
|
|
Note 11. Acquisition of Cryogene Partners
On May 14, 2019, Cryogene,
Inc., a Texas corporation (“Buyer”) and a wholly owned subsidiary of the Company entered into an Asset Purchase Agreement
(the “Asset Purchase Agreement”) for the acquisition of the assets of Cryogene Partners, a Texas general partnership
doing business as Cryogene Labs (“Cryogene”). The closing of the transaction contemplated in the Asset Purchase Agreement
occurred simultaneously with the execution of the Asset Purchase Agreement on May 14, 2019.
Pursuant to the terms
and subject to the conditions of the Asset Purchase Agreement, the Company acquired substantially all of the assets of Cryogene,
including, without limitation, tangible personal property, intellectual property assets, and certain contracts related to Cryogene’s
temperature-controlled biostorage solutions business located in Houston, Texas (the foregoing, the “Purchased Assets”),
and assumed certain related liabilities.
The aggregate purchase
price for the Purchased Assets was $20.5 million in cash, subject to adjustment as described in the Asset Purchase Agreement (the
“Total Consideration”), $1.0 million of which was deposited into an escrow account to serve as an escrow fund for any
indemnifiable losses of the Company under the Asset Purchase Agreement.
As a result of this
acquisition, the Company is expected to extend its integrated logistics solutions and services to provide comprehensive temperature-controlled
sample management solutions to the life sciences industry, including specimen storage, sample processing, collection, and retrieval.
Preliminary Purchase Price Allocation
We funded this acquisition
through available cash and accounted for it as an acquisition of a business in accordance with FASB ASC Topic 805, “Business
Combinations”. Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair
values. Fair values were determined by management based in part on an independent valuation performed by a third-party valuation
specialist. The Company has performed a preliminary valuation analysis of the fair value of Cyrogene’s assets and liabilities.
The following table summarizes the allocation of the purchase price as of the acquisition date:
Total purchase price
|
|
$
|
20,429,651
|
|
|
|
|
|
|
Purchase price allocation:
|
|
|
|
|
Property and equipment, net
|
|
|
4,257,340
|
|
Intangible assets
|
|
|
5,280,000
|
|
Deferred revenue
|
|
|
(220,291
|
)
|
Other liabilities
|
|
|
(37,061
|
)
|
Goodwill
|
|
|
11,149,663
|
|
|
|
|
|
|
|
|
$
|
20,429,651
|
|
The following table
summarizes the preliminary fair value of intangible assets acquired at the date of acquisition and their estimated useful lives
and amortization expense based on their respective useful lives:
|
|
|
|
|
|
|
|
|
|
|
Annual
|
|
|
|
Estimated
|
|
|
Estimated
|
|
|
Amortization
|
|
|
Amortization
|
|
|
|
Fair Value
|
|
|
Useful Life
|
|
|
Method
|
|
|
Expense
|
|
Non-compete agreement
|
|
$
|
390,000
|
|
|
|
5
|
|
|
|
Straight-line
|
|
|
$
|
78,000
|
|
Technology
|
|
|
510,000
|
|
|
|
5
|
|
|
|
Straight-line
|
|
|
|
102,000
|
|
Customer relationships
|
|
|
3,900,000
|
|
|
|
12
|
|
|
|
Straight-line
|
|
|
|
325,000
|
|
Trade name/trademark
|
|
|
480,000
|
|
|
|
15
|
|
|
|
Straight-line
|
|
|
|
32,000
|
|
Total
|
|
$
|
5,280,000
|
|
|
|
|
|
|
|
|
|
|
$
|
537,000
|
|
Goodwill is calculated
as the excess of the purchase price over the fair value of net assets acquired and represents the future economic benefits arising
from other assets acquired that could not be individually identified and separately recognized. Among the factors that contributed
to a purchase price in excess of the fair value of the net tangible and intangible assets acquired were the acquisition of an assembled
workforce, the expected synergies, and other benefits that we believe will result from combining the operations of Cryogene with
our operations. Goodwill of approximately $11.1 million related to the acquisition has been recorded in the Global Bioservices
reportable segment. The goodwill recognized is expected to be deductible for income tax purposes.
Our estimate of the
fair value of the specifically identifiable assets acquired and liabilities assumed as of the date of acquisition is subject to
the finalization of management’s analysis related to certain matters, including receipt of the final valuations and settlement
of the escrow funds. The final determination of these fair values will be completed as additional information becomes available
but no later than one year from the acquisition date. Although the final determination may result in asset and liability fair values
that are different than the preliminary estimates of these amounts included herein, it is not expected that those differences will
be material to our consolidated financial position.
Acquisition-related
transaction costs (included in general and administrative expenses) totaled approximately $266,400.
The operating results
of the Cryogene acquisition have been included in our unaudited condensed consolidated financial statements from the acquisition
date through September 30, 2019. Our results for the nine months ended September 30, 2019, include Cryogene sales of $1.7
million and net income of $285,000.
The following unaudited
pro forma information presents our combined results as if the Cryogene acquisition had occurred on January 1, 2018. The unaudited
pro forma financial information was prepared to give effect to events that are (1) directly attributable to the acquisition,
(2) factually supportable, and (3) expected to have a continuing impact on the combined company’s results. There
were no transactions between the Company and Cryogene during the periods presented that are required to be eliminated. The unaudited
pro forma condensed combined financial information does not reflect any cost savings, operating synergies, or revenue enhancements
that the combined companies may achieve as a result of the acquisition or the costs to integrate the operations or the costs necessary
to achieve cost savings, operating synergies, or revenue enhancements.
The following
table presents the unaudited, pro forma consolidated results of operations for the three and nine months ended September 30,
2018 as if the acquisition of the assets of Cryogene had occurred as of January 1, 2018. The pro forma information provided
below is compiled from the financial statements of Cryogene Partners, which includes pro forma adjustments for intangible
assets amortization expense and transaction costs.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2018
|
|
|
September 30, 2018
|
|
Revenues
|
|
$
|
6,266,000
|
|
|
$
|
16,800,200
|
|
Net loss
|
|
$
|
(2,310,800
|
)
|
|
$
|
(7,162,900
|
)
|
Basic and diluted earnings per share
|
|
$
|
(0.08
|
)
|
|
$
|
(0.26
|
)
|
The pro forma results
are not necessarily indicative of the consolidated results of operations that we would have reported had the acquisition been completed
as of January 1, 2018 and should not be taken as representative of our condensed consolidated results of operations following the
acquisition. In addition, the unaudited proforma consolidated financial information is not intended to project the future results
of operations of the Company.
Note 12. Stockholders’ Equity
Authorized Stock
The Company has 100,000,000
authorized shares of common stock with a par value of $0.001 per share, and 2,500,000 undesignated or “blank check” preferred
stock, with a par value of $0.001, of which, 800,000 shares have been designated as Class A Convertible Preferred Stock and 585,000
shares have been designated as Class B Convertible Preferred Stock.
Common Stock Issued for Services
During the nine months
ended September 30, 2019, 4,488 shares of common stock with a fair value of $70,300 were issued to three members of the board of
directors as compensation for services.
During the nine months
ended September 30, 2018, 4,481 shares of common stock with a fair value of $52,500 were issued to two members of the board of
directors as compensation for services.
Common Stock Reserved for Future
Issuance
As of September 30,
2019, approximately 7.9 million shares of common stock were issuable upon conversion or exercise of rights granted under prior
financing arrangements, stock options and warrants, as follows:
Exercise of stock options
|
|
|
6,768,434
|
|
Exercise of warrants
|
|
|
1,134,883
|
|
Total shares of common stock reserved for future issuances
|
|
|
7,903,317
|
|
In addition, we reserved
1,158,183 shares of common stock issuable upon conversion of our Note, including estimated shares for accrued interest as of September
30, 2019 (see Note 6).
Share Repurchase Program
In October
2019, the Company’s Board of Directors authorized a share repurchase program (the Repurchase Program) authorizing repurchase
of common stock in the amount of up to $15.0 million from time to time, in amounts, at prices, and at such times as management
deems appropriate and will depend on a number of factors, including the market price of Cryoport’s common stock, general
market and economic conditions, and applicable legal requirements. The repurchase program will expire on December 31, 2020 and
may be extended, suspended, modified or discontinued at any time. Any repurchases will be funded from cash on hand and future cash
flows from operations.
June 2019 Public Offering
On June 24, 2019, the
Company completed an underwritten public offering (the “Offering”) of 4,312,500 shares of its common stock, par value
$0.001 per share (the “Shares”). The Shares were issued and sold pursuant to an underwriting agreement (the “Underwriting
Agreement”), dated June 19, 2019, by and among the Company, on the one hand, and Jefferies LLC and SVB Leerink LLC, as representatives
of certain underwriters (collectively, the “Underwriters”) at a public offering price per share of $17.00. The Shares
include 562,500 shares issued and sold pursuant to the Underwriters’ exercise in full of their option to purchase additional
shares of common stock pursuant to the Underwriting Agreement. The Company received net proceeds of approximately $68.8 million
from the Offering after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.
Certain of the Underwriters
and their affiliates have provided in the past to the Company and its affiliates and may provide from time to time in the future
certain commercial banking, financial advisory, investment banking and other services for the Company and such affiliates in the
ordinary course of their business, for which they have received and may continue to receive customary fees and commissions.
The Offering was made
pursuant to the Company’s effective registration statement on Form S-3 previously filed with the Securities and Exchange
Commission and a prospectus supplement.
February 2018 Tender Offer
On February 8, 2018,
we completed an exchange offer with respect to the Company’s outstanding warrants to purchase one share of common stock at
an exercise price of $3.57 per share (the “Original Warrants”). Through February 2, 2018, we offered holders of the
Original Warrants the opportunity to exchange such Original Warrants for an equal number of warrants to purchase one share of common
stock at an exercise price of $3.00 per share (the “New Warrants”), conditioned upon the immediate exercise of such
New Warrants.
Pursuant to the February
2018 Tender Offer, warrants to purchase 1,580,388 shares of the Company’s common stock were tendered by holders of warrants
and were amended and exercised in connection therewith, resulting in the issuance by the Company of an aggregate of 1,580,388 shares
of its common stock for aggregate gross proceeds of $4.7 million.
The Original Warrants
were issued (i) in July 2015 in connection with the Company’s registered public offering of 2,090,750 units (each unit consisting
of one share of the Company’s common stock and one Original Warrant), and (ii) in January 2016 in connection with the mandatory
exchange of all of the Company’s outstanding Class A Convertible Preferred Stock and Class B Convertible Preferred Stock
into 4,977,038 units (each unit consisting of one share of the Company’s common stock and one Original Warrant).
The terms of the New
Warrants included (i) an exercise price of $3.00 per share and (ii) an exercise period that expired concurrently with the expiration
of the Offer at 5:00 p.m. (Eastern Time) on February 2, 2018 (the “Expiration Date”). In addition, the shares issuable
upon exercise of the New Warrants (the “New Warrant Shares”) were subject to a 60-day lock-up period.
The purpose of the
Offer was to raise funds to support the Company’s growth plans by providing the holders of the Original Warrants an incentive
to exchange their Original Warrants for New Warrants and exercise the New Warrants to purchase shares of the Company’s common
stock at a reduced exercise price as compared to the Original Warrants. The Company received all of the proceeds from the immediate
exercise of the New Warrants, which will be used by the Company for business growth, including as working capital and for other
general corporate purposes.
As a result of reducing
the exercise price of certain warrants in connection with the February 2018 Tender Offer, a warrant repricing expense of $899,400
was incurred which was determined using the Black-Scholes option pricing model and was calculated as the difference between the
fair value of the warrants prior to, and immediately after, the reduction in the exercise price on the date of repricing. Such
amount is included in warrant inducement and repricing expense in the condensed consolidated statement of operations for the nine
months ended September 30, 2018. In connection with this offering, the Company incurred $99,400 in offering costs that were offset
against the proceeds from this offering.
Note 13. Stock-Based Compensation
Warrant Activity
We typically issue warrants to purchase
shares of our common stock to investors as part of a financing transaction or in connection with services rendered by placement
agents and consultants. Our outstanding warrants expire on varying dates through November 2021. A summary of warrant activity is
as follows:
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Price/Share
|
|
|
Weighted-
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value (1)
|
|
Outstanding — December 31, 2018
|
|
|
|
2,049,534
|
|
|
$
|
4.03
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
(893,691
|
)
|
|
|
3.97
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
(20,960
|
)
|
|
|
17.78
|
|
|
|
|
|
|
|
|
|
Outstanding — September 30, 2019
|
|
|
|
1,134,883
|
|
|
$
|
3.83
|
|
|
|
0.8
|
|
|
$
|
14,209,600
|
|
Vested (exercisable) — September 30, 2019
|
|
|
|
1,134,883
|
|
|
$
|
3.83
|
|
|
|
0.8
|
|
|
$
|
14,209,600
|
|
|
(1)
|
Aggregate intrinsic value represents the difference between the exercise price of the warrant and the closing market price
of our common stock on September 30, 2019, which was $16.36 per share.
|
Total intrinsic value of warrants exercised during
the nine months ended September 30, 2019 was $10.8 million.
Stock Options
We have five stock
incentive plans: the 2002 Stock Incentive Plan (the “2002 Plan”), the 2009 Stock Incentive Plan (the “2009 Plan”),
the 2011 Stock Incentive Plan (the “2011 Plan”), the 2015 Omnibus Equity Incentive Plan (the “2015 Plan”),
and the 2018 Omnibus Equity Incentive Plan (the “2018 Plan”), (collectively, the “Plans”). The 2002 Plan,
the 2009 Plan, the 2011 Plan and the 2015 Plan (the “Prior Plans”) have been superseded by the 2018 Plan. In May 2018,
the stockholders approved the 2018 Plan for issuance up to 3,730,179 shares. The Prior Plans will remain in effect until all awards
granted under such Prior Plans have been exercised, forfeited, cancelled, or have otherwise expired or terminated in accordance
with the terms of such awards, but no awards will be made pursuant to the Prior Plans after the effectiveness of the 2018 Plan.
As of September 30, 2019, the Company had 2,753,790 shares available for future awards under the 2018 Plan.
During the nine months
ended September 30, 2019, we granted stock options at exercise prices equal to the quoted market price of our common stock on the
grant date. The fair value of each option grant was estimated on the date of grant using Black-Scholes with the following weighted
average assumptions:
Expected life (years)
|
|
5.2 – 6.2
|
|
Risk-free interest rate
|
|
1.4% - 2.6%
|
|
Volatility
|
|
70.6% – 99.2%
|
|
Dividend yield
|
|
|
0%
|
|
The expected option
life assumption is estimated based on the simplified method. Accordingly, the Company has utilized the average of the contractual
term of the options and the weighted average vesting period for all options to calculate the expected option term. The risk-free
interest rate assumption is based upon observed interest rates appropriate for the expected term of our employee stock options.
In April 2019, the Company amended its expected volatility assumption from using exclusively a historical volatility. The Company
calculates its expected volatility assumption based on a blended volatility using an average of its historical and implied volatilities
over the expected life of the stock-based award. The selection of the blended volatility assumption was based upon the Company’s
assessment that blended volatility is more representative of the Company’s future stock price trends as it weighed in the
longer term historical volatility with the near-term future implied volatility. We do not anticipate paying dividends on the common
stock in the foreseeable future.
We recognize stock-based
compensation expense over the vesting period using the straight-line method. Stock-based compensation expense is recognized only
for those awards that vest. We account for the forfeitures of unvested awards as they occur.
Total stock-based compensation
expense related to all of our share-based payment awards is comprised of the following:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Cost of revenues
|
|
$
|
522,377
|
|
|
$
|
80,153
|
|
|
$
|
687,129
|
|
|
$
|
173,557
|
|
General and administrative
|
|
|
7,432,609
|
|
|
|
1,018,321
|
|
|
|
9,716,732
|
|
|
|
2,753,134
|
|
Sales and marketing
|
|
|
3,803,687
|
|
|
|
320,794
|
|
|
|
4,586,015
|
|
|
|
854,125
|
|
Engineering and development
|
|
|
976,876
|
|
|
|
79,395
|
|
|
|
1,151,163
|
|
|
|
213,086
|
|
|
|
$
|
12,735,549
|
|
|
$
|
1,498,663
|
|
|
$
|
16,141,039
|
|
|
$
|
3,993,902
|
|
For the three months
and nine months ended September 30, 2019, we recognized expense of $10.8 million due to the accelerated vesting under the terms
of certain outstanding stock option grants as a result of the Company meeting certain financial performance criteria defined in
such grants, including reaching positive adjusted EBITDA for two consecutive quarters. Of this amount, $383,800, $6.2 million,
$3.4 million, and $873,000 are included in cost of revenues, general and administrative, sales and marketing, and engineering and
development, respectively.
A summary of stock
option activity is as follows:
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Price/Share
|
|
|
Weighted-
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value (1)
|
|
Outstanding — December 31, 2018
|
|
|
5,757,305
|
|
|
$
|
5.16
|
|
|
|
|
|
|
|
|
|
Granted (weighted-average fair value of $9.15 per share)
|
|
|
1,441,050
|
|
|
|
13.44
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(355,735
|
)
|
|
|
4.34
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(74,186
|
)
|
|
|
10.61
|
|
|
|
|
|
|
|
|
|
Outstanding — September 30, 2019
|
|
|
6,768,434
|
|
|
$
|
6.90
|
|
|
|
7.1
|
|
|
$
|
64,389,600
|
|
Vested (exercisable) — September 30, 2019
|
|
|
6,042,128
|
|
|
$
|
6.14
|
|
|
|
6.8
|
|
|
$
|
61,788,900
|
|
Expected to vest after September 30, 2019 (unexercisable)
|
|
|
726,306
|
|
|
$
|
13.23
|
|
|
|
9.4
|
|
|
$
|
2,600,700
|
|
|
(1)
|
Aggregate intrinsic value represents the difference between the exercise price of the option and
the closing market price of our common stock on September 30, 2019, which was $16.36 per share.
|
Total intrinsic value
of options exercised during the three months ended September 30, 2019 was $4.3 million.
As of September 30,
2019, there was unrecognized compensation expense of $6.0 million related to unvested stock options, which we expect to recognize
over a weighted average period of 1.8 years.