BIOLIFE SOLUTIONS INC (BLFS)

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Overview

We are a life sciences company that develops, manufactures, and markets bioproduction products and services which are designed to improve quality and de-risk biologic manufacturing, distribution, and transportation in the cell and gene therapy industry. Our products are used in basic and applied research and commercial manufacturing of biologic-based therapies. Customers use our products to maintain the health and function of biologic material during sourcing, manufacturing, and distribution.

Our current portfolio of bioproduction products and services are comprised of two revenue lines that contain four main offerings: (i) cell processing (including biopreservation media for the preservation of cells and tissues, human platelet lysate media for the supplementation of cell expansion, cryogenic vials and automated fill machines that provide high-quality, efficient, and precise mixes of solutions) and (ii) Evo and ThawSTAR devices (including “smart”, cloud connected devices for transporting biologic payloads and automated thawing systems).

On April 17, 2024, the Company sold all of the issued and outstanding shares of common stock of Global Cooling to GCI Holdings pursuant to the Global Cooling Purchase Agreement. Upon the execution of the Global Cooling Purchase Agreement, the Global Cooling business is presented in the accompanying Consolidated Financial Statements as a discontinued operation for all periods presented. See Note 3: Discontinued operations within the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for further details regarding the divestiture.

On November 12, 2024, the Company entered into the SciSafe Purchase Agreement with the Sci Safe Buyer for the sale by Seller of all of the issued and outstanding SciSafe Shares to SciSafe Buyer. Upon the execution of the SciSafe Purchase Agreement, the SciSafe business is presented in the accompanying Consolidated Financial Statements as a discontinued operation for all periods presented. See Note 3: Discontinued operations within the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for further details regarding the divestiture.

On November 14, 2024, the Company entered into the CBS Purchase Agreement with CBS Buyer and CBS for the sale by the Company of all of the issued and outstanding CBS Shares to CBS Buyer. Upon the execution of the CBS Purchase Agreement, the CBS business is presented in the accompanying Consolidated Financial Statements as a discontinued operation for all periods presented. See Note 3: Discontinued operations within the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for further details regarding the divestiture.

We currently operate as one bioproduction products and services business which supports several steps in the biologic material manufacturing and delivery process. We have a diversified portfolio of tools and services that focuses on biopreservation, cell processing, and thawing of biologic materials. We have in-house expertise in cryobiology and the broader CGT workflow, and continue to evaluate opportunities to maximize the value of our product platforms for our extensive customer base through organic growth innovations, partnerships, and acquisitions.

Segment reporting

Management views the Company's operations and makes decisions regarding how to allocate resources as one reportable segment and one reporting unit. For additional information on the Company's segment considerations, Note 16: Segment, customer, and geographic information within the Consolidated Financial Statements in Part II, Item 8 of this Annual Report.

Critical accounting policies and estimates

We have identified the policies and estimates below as being critical to our business operations and the understanding of our results of operations. These policies require management’s most difficult, subjective, or complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The impact of any associated risks related to these policies on our business operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition,” including in the “Results of Operations” section, where such policies affect our reported and expected financial results. Although we believe that our estimates, assumptions, and judgements are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.

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Revenue recognition

To determine revenue recognition for contractual arrangements that we determine are within the scope of Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contracts with Customers, we perform the following five steps: (i) identify each contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to our performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the relevant performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price, taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. Payment terms and conditions vary, although terms generally include a requirement of payment within 30 to 90 days.

The Company primarily recognizes product revenues, service revenues, and rental revenues. Product revenues are generated from the sale of biopreservation media and ThawSTAR products. We recognize product revenue, including shipping and handling charges billed to customers, when we transfer control of our products to our customers. Shipping and handling costs are classified as part of cost of product revenue in the Consolidated Statement of Operations.

Service revenues are generated from various customer service agreements to provide warranty and other engineering services. We recognize service revenues over time as services are performed or ratably over the contract term. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount method, depending on the facts and circumstances relative to the contract. When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. 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 years ended December 31, 2024, 2023, and 2022.

The Company also generates revenue from the leasing of our evo cold chain systems to customers pursuant to rental arrangements entered into with the customer. Revenue from these arrangements is not within the scope of FASB ASC Topic 606 as it is within the scope of FASB ASC Topic 842, Leases. All customers leasing shippers currently do so under rental arrangements for durations of one year or less, with each unit having the option to continue its rental arrangement on a month-to-month basis until returned to the Company beyond the initial rental period. We account for these rental transactions as operating leases and record rental revenue on a straight-line basis over the rental term.

Intangible assets and goodwill

Intangible assets

Intangible assets with a definite life are amortized over their estimated useful lives using the straight-line method and the amortization expense is recorded within intangible asset amortization in the Consolidated Statements of Operations. If the estimate of a definite-lived intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. Definite-lived intangible assets and their related estimated useful lives are reviewed at least annually to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable.

Indefinite-lived intangibles are carried at the initially recorded fair value less any recognized impairment. Indefinite-lived intangibles are tested annually for impairment. Impairment assessments are conducted more frequently if certain conditions exist, including a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the marketplace, including changes in the prices paid for the Company’s products or changes in the size of the market for the Company’s products. If impairment indicators are present, the Company determines whether the underlying intangible asset is recoverable through estimated future

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undiscounted cash flows. If the asset is not found to be recoverable, it is written down to the estimated fair value of the asset based on the sum of the future discounted cash flows expected to result from the use and disposition of the asset.

Goodwill

We test goodwill for impairment on an annual basis, and between annual tests if events and circumstances indicate it is more likely than not that the fair value of our goodwill is less than its carrying value. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, including a decline in the Company’s market capitalization, a significant adverse change in legal factors, business climate or operational performance of the business, and an adverse action or assessment by a regulator. Goodwill is tested for impairment in the fourth quarter of each year, or more frequently as warranted by events or changes in circumstances mentioned above. Accounting guidance also permits an optional qualitative assessment for goodwill to determine whether it is more likely than not that the carrying value of a reporting unit exceeds its fair value. If, after this qualitative assessment, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then no further quantitative testing would be necessary. A quantitative assessment is performed if the qualitative assessment results in a more likely than not determination or if a qualitative assessment is not performed. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value. The Company operates as one reporting unit as of the goodwill impairment measurement date in the fourth quarter of 2024.

Contingent consideration

We estimate the acquisition date fair value of the acquisition-related contingent consideration using various valuation approaches, including option pricing models and Monte Carlo simulations, as well as significant unobservable inputs, reflecting the Company’s assessment of the assumptions market participants would use to value these liabilities. The fair value of the contingent consideration is remeasured each reporting period, with any change in the value recorded in our Consolidated Statements of Operations as change in fair value of contingent consideration.

During the year ended December 31, 2023, all contingent consideration liabilities were written off upon assessment of the probability we would achieve certain revenue targets for earnouts. For additional details on the factors considered in the write-off, see Note 4: Fair value measurement within the Consolidated Financial Statements in Part II, Item 8 of this Annual Report.

Stock-based compensation

We measure and record compensation expense using the applicable accounting guidance for share-based payments related to stock options, time-based restricted stock, market-based restricted stock awards and performance-based awards granted to our directors and employees. The fair value of market-based restricted stock awards is estimated at the date of grant using the Monte Carlo Simulation model. The Monte Carlo Simulation valuation model incorporates assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. In valuing our market-based stock awards, significant judgment is required in determining the expected volatility of our common stock. Expected volatility for our market-based restricted stock awards is based on the historical volatility of our own stock and the stock of companies within our defined peer group. Further, our expected volatility may change in the future, which could substantially change the grant-date fair value of future awards and, ultimately, the expense we record. The fair value of restricted stock, including performance awards, without a market condition is estimated using the current market price of our common stock on the date of grant.

We expense stock-based compensation for stock options, restricted stock awards, and performance awards over the requisite service period. For awards with only a service condition, we expense stock-based compensation using the straight-line method over the requisite service period for the entire award. For awards with a market condition, we expense over the vesting period regardless of the value that the award recipients will ultimately receive.

Provision for income taxes

The assessment regarding whether a valuation allowance is required considers both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. In making this assessment, significant weight is given to evidence that can be objectively verified. In its evaluation, the Company considered its cumulative loss and its forecasted losses in the near-term as significant negative evidence. Based upon a review of the four

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sources of income identified within ASC 740, Accounting for Income Taxes, the Company determined that the Company’s recorded deferred tax liabilities as of December 31, 2024 would be a sufficient source of taxable income to realize all of its deferred tax assets except for a portion of its net operating loss carryforwards. As a result, a full valuation allowance on its deferred tax assets was recorded as of December 31, 2024. The Company will continue to assess the realizability of its assets going forward and will adjust the valuation allowance as needed.

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, 2024, the Company has an unrecognized tax benefit of $1.2 million related to tax attributes being carried forward. 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.

As of December 31, 2024, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $165.2 million, which is available to reduce future taxable income. Approximately $38.7 million of NOL will expire from 2025 through 2037, and approximately $126.5 million of NOL will be carried forward indefinitely. The NOL carryforwards are subject to an annual limitation in the event of certain cumulative changes in the ownership interest. This limits the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. Subsequent ownership changes may further affect the limitation in future years.

Recent accounting standards update

See Note 1: Organization and significant accounting policies – Recent accounting pronouncements, within the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for more information.

Results of operations

The following discussion of the financial condition and results of operations should be read in conjunction with the accompanying Consolidated Financial Statements and the related footnotes thereto.

Revenue

Revenue for years ended December 31, 2024, 2023, and 2022 were comprised of the following:

Product revenue

Total product revenue was $76.0 million for the year ended December 31, 2024, representing an increase of $7.1 million, or 10%, compared with the year ended December 31, 2023. The increase in product revenue was primarily driven by the $7.7 million, or 12%, increase in cell processing products from an increase in customer demand when compared to the prior year. During the third and fourth quarters of 2023, we experienced a decrease in our revenues from our customers destocking inventory levels in addition to decreases in broader biotech funding that we did not experience during the year

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ended December 31, 2024. The increase in product revenue for the year ended December 31, 2024 was partially offset by a decrease of $0.6 million, or 19% in product revenues from our Evo and thaw product line when compared with the year ended December 31, 2023. The decrease was primarily driven by lower volumes of consumable products sold from our evo product line.

Total product revenue was $69.0 million for the year ended December 31, 2023, representing a decrease of $2.7 million, or 4%, compared with the year ended December 31, 2022. The decrease in product revenue was primarily driven by the $2.7 million, or 4%, decrease in cell processing products due to the decrease in broader biotech funding that impacted this revenue stream during the second half of 2023.

Service revenue

Service revenues, which are primarily generated from various customer service agreements to provide warranty and other engineering services, were an immaterial portion of our total revenues earned in the years ended December 31, 2024, 2023, and 2022.

Rental revenue

Rental revenue was $6.1 million for the year ended December 31, 2024, representing a decrease of $0.5 million, or 7%, compared with the year ended December 31, 2023. The decrease in rental revenue can be attributed to a decrease in fleet size from our largest customer of evo products during the current year.

Rental revenue was $6.5 million for the year ended December 31, 2023, representing an increase of $2.3 million, or 55%, compared with the year ended December 31, 2022. The increase in rental revenue can be attributed to commercial expansions from our largest customers.

Costs and operating expenses

Total costs and operating expenses for years ended December 31, 2024, 2023, and 2022 were comprised of the following:

Cost of product, rental, and service revenue

In the year ended December 31, 2024, cost of product, rental, and service revenue decreased $1.3 million, or 4%, from the year ended December 31, 2023. This decrease can be attributed to a $1.6 million decrease in supply expenses, a more favorable product mix, and increased operational efficiencies. The decrease in cost of product, rental, and service revenue was offset by a $0.2 million increase in shipping expenses compared to the year ended December 31, 2023.

Cost of product, rental, and service revenue as a percentage of revenue, inclusive of intangible asset amortization, was 38% and 43% for the years ended December 31, 2024 and 2023, respectively. The decrease in cost of product, rental, and service revenues inclusive of intangible asset amortization as a percentage of revenue can be attributed to a more favorable product mix in our biopreservation media product line and a decrease in supply expenses.

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Cost of product, rental, and service revenue as a percentage of revenue, inclusive of intangible asset amortization, was 38% for the year ended December 31, 2022. The increase in cost of product, rental, and service revenues inclusive of intangible asset amortization as a percentage of revenue for the year ended December 31, 2023 compared with the year ended December 31, 2022 can be attributed to unfavorable inventory adjustments of $1.8 million, partially offset by a decrease in material expenses from decreased revenues.

General and administrative

During the years ended December 31, 2024, 2023, and 2022, general and administrative (“G&A”) expense consisted primarily of personnel-related expenses, stock-based compensation, professional fees, such as accounting and consulting fees, and corporate insurance.

In the year ended December 31, 2024, G&A expenses decreased by $2.7 million, or 6%, compared with the year ended December 31, 2023. The decrease is primarily driven by a decrease of $1.4 million in severance expenses related to the departure of the former CEO in the prior year in addition to a decrease of $3.8 million in consulting expenses. The decreases in G&A expenses for the year ended December 31, 2024 were offset by a $1.6 million increase in bonus expenses and a $0.5 million increase in insurance expenses compared with the year ended December 31, 2023.

G&A expenses increased $10.0 million, or 30%, during the year ended December 31, 2023 compared with the year ended December 31, 2022. The increase was driven by higher costs related to the expansion of our corporate infrastructure, including an increased headcount resulting in a $1.2 million increase in salary expenses and a $1.9 million increase in stock compensation expenses. The departure of the former CEO during 2023 also increased severance expenses by $1.4 million. Finally, we also experienced increases in professional fees related to potential merger activities of $3.6 million and increases in accounting fees of $0.6 million.

Sales and marketing

During the years ended December 31, 2024, 2023, and 2022, sales and marketing expense (“S&M”) consisted primarily of personnel-related costs, consulting, trade shows, advertising, and travel expenses.

S&M expense decreased $3.1 million in the year ended December 31, 2024, or 24%, compared with the year ended December 31, 2023. The decrease is primarily due to decreases in personnel expenses, including stock-based compensation expenses of $1.8 million and $0.8 million in salaries from reduced headcount, and a $0.3 million decrease in consulting expenses.

S&M expense increased $1.0 million, or 9%, in the year ended December 31, 2023, compared with the year ended December 31, 2022. The increase is primarily due to an increase in personnel expenses, including stock-based compensation expenses, of $1.2 million.

Research and development

During the years ended December 31, 2024, 2023, and 2022, research and development (“R&D”) expense consisted primarily of personnel-related costs, consulting, research supplies, and milestone expenses related to third party research agreements.

R&D expense decreased $4.2 million in the year ended December 31, 2024, or 34%, compared with the year ended December 31, 2023. The decrease is primarily due to decreases in personnel expenses, including stock-based compensation expenses, of $2.4 million, a decrease of $0.9 million in salaries, and a decrease of $0.6 million in severance costs from reduced headcount compared to the prior fiscal year.

R&D expenses increased $3.4 million in the year ended December 31, 2023, or 39%, compared with the year ended December 31, 2022. The increase is primarily due to an increase in personnel expenses, including stock-based

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compensation expenses, of $2.2 million, increases in severance costs of $0.6 million, and a $0.4 million increase in research milestone payments in relation to our equity investment in iVexSol.

Intangible asset amortization expense

Amortization expense consists of charges related to the amortization of intangible assets associated with the acquisitions of Sexton, SAVSU Technologies, Inc. (“SAVSU”), and Astero in which we acquired definite-lived intangible assets.

Change in fair value of contingent consideration

Change in fair value of contingent consideration consists of changes in estimated fair value of our potential earnouts related to previous acquisitions. The benefit recognized in the year ended December 31, 2023 related primarily to changes in our estimated probability of achieving earnout targets set forth within the purchase agreements. The related liability was written off during the year ended December 31, 2023 due to target revenues not being met or probable to achieve in future periods.

Other income and expenses

Total other income and expenses for the years ended December 31, 2024, 2023, and 2022 were comprised of the following:

Interest expense, net.

Interest expense incurred in the year ended December 31, 2024 related primarily to the Term Loan (as defined in Note 13: Long-term debt within the Consolidated Financial Statements in Part II, Item 8 of this Annual Report), financed insurance premiums, and indirect tax liabilities. We also earn interest on cash held in our money market account and on our available-for-sale security investments. Decreases in interest expense, net during the year ended December 31, 2024 is attributed to the increases in interest income from our available-for-sale securities compared to the year ended December 31, 2023.

Change in fair value of investments.

Reflects fair value adjustments to our investment in iVexSol (as defined in Note 5: Investments within the Consolidated Financial Statements in Part II, Item 8 of this Annual Report). As of June 30, 2024, we determined that the fair value of its equity interest was less than its carrying amount, and no longer recoverable, triggering an impairment charge of $4.1 million, which represented the entirety of the value of the investment.

Gain on settlement of Global Cooling escrow.

Reflects the non-cash gain associated with our post-closing adjustments for indemnifications and negotiated terms in connection with our acquisition of Global Cooling in 2023, and subsequent release and cancellation of these shares of our common stock from the third-party escrow account established in connection with that transaction. For additional information, see Note 12 within the Consolidated Financial Statements in Part II, Item 8 of this Annual Report.

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Income Tax Benefit

Income tax benefit for the years ended December 31, 2024, 2023, and 2022 was as follows:

The income tax benefit recognized in the year ended December 31, 2024 primarily related to losses generated in 2024. Our effective tax rate for 2024 was lower than the U.S. statutory rate of 21% primarily due to the change in our valuation allowance.

Liquidity and capital resources

We believe our cash, cash equivalents, cash generated from operations, available-for-sale securities, and credit lines will satisfy, for at least the foreseeable future, our liquidity requirements, both globally and domestically, including the following: working capital needs, capital expenditures, contractual obligations, commitments, principal and interest payments on debt, and other liquidity requirements associated with our operations.

Significant cash and non-cash expenses related to divestitures

On April 17, 2024, we consummated the Global Cooling Divestiture. In connection with the closing of the transaction, we provided $6.7 million in cash funding to effectuate the transaction and paid $0.6 million to the brokers, attorneys, and other external parties. In addition, we recognized $6.1 million in cash expenditures from operations during the third quarter of 2024 to meet certain post-closing requirements, costs to sell Global Cooling, the assumption of certain liabilities and debt, and severance expenses related to the Reduction in Force ("RIF") implemented on the business of Global Cooling, which reduced our workforce by 47 employees. For additional information on the details of this transaction, the RIF and its related costs, see Note 3: Discontinued operations within the Consolidated Financial Statements in Part II, Item 8 of this Annual Report.

On November 12, 2024, we consummated the SciSafe Divestiture. In connection with the closing of this transaction, we received net proceeds of $71.3 million. We also incurred additional expenses related to this transaction, including $0.5 million to the brokers, attorneys, and other external parties for legal and other transaction services, and incurred $0.4 million in severance costs. We also paid the former stockholders of SciSafe approximately $3.3 million in cash to waive all rights with respect to certain potential earn-out payments and recognized $4.0 million in stock compensation expense in connection with the acceleration of unvested shares for all of our former employees that remained with SciSafe upon the closing of this transaction. For additional information on the divestiture of SciSafe, see Note 3: Discontinued operations within the Consolidated Financial Statements in Part II, Item 8 of this Annual Report.

On November 14, 2024, we consummated the CBS Divestiture. In connection with the closing of the transaction, we received net proceeds of $3.4 million. We also incurred additional expenses related to the transaction, including $0.1 million to the brokers, attorneys, and other external parties for legal and other transaction services. We also recognized $2.0 million in stock compensation expense in connection with the acceleration of unvested shares for all former employees that remained with CBS upon the closing of this transaction. For additional information on the divestiture of CBS, see Note 3: Discontinued operations within the Consolidated Financial Statements in Part II, Item 8 of this Annual Report.

Change in cash, cash equivalents, and available-for-sale securities

On December 31, 2024, we had $109.2 million in cash, cash equivalents, and available-for-sale securities, compared to $44.7 million as of December 31, 2023, as follows:

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The increase in cash and cash equivalents of $67.5 million as of December 31, 2024 as compared with the year ended December 31, 2023 is primarily due to the proceeds received from the disposals of SciSafe and CBS, which were $71.3 million and $3.4 million, respectively. This increase was partially offset by cash used in financing activities of $6.8 million.

Our available-for-sale securities consist of U.S. government securities, corporate debt securities, and other debt securities. Management classifies investments at the time of purchase and reevaluates such classification at each balance sheet date. The decrease in available-for-sale securities of $3.0 million primarily resulted from the sale of $3.5 million in available-for-sale security investments.

On October 19, 2023, we entered into a Securities Purchase Agreement with Casdin Partners Master Fund, L.P. ("Casdin") whereby we sold, and Casdin purchased, 927,165 shares of our common stock at a share price of $11.19 per share for an aggregate purchase price of $10.4 million.

Cash flows

We have elected to present the Consolidated Statements of Cash Flows on a consolidated basis rather than a continuing operations basis with effect to the divestitures of Global Cooling, SciSafe, and CBS. The discussions regarding changes in cash activity in this section are therefore reflective of consolidated results inclusive of operating results of the divested entities.

Operating activities

In the year ended December 31, 2024, our operating activities provided cash of $8.4 million, reflecting non-cash charges totaling $28.6 million primarily related to stock-based compensation, gain recognized on disposals of subsidiaries, depreciation, amortization, and changes in fair value of investments. Significant changes in operating assets and liabilities include an increase of accounts receivable of $2.9 million, an increase of prepaid expenses of $2.4 million, and a decrease in accrued expenses of $6.5 million.

In the year ended December 31, 2023, our operating activities used cash of $12.5 million reflecting a net loss of $68.0 million and non-cash charges totaling $55.5 million primarily related to stock-based compensation, impairment of assets, depreciation, amortization, changes in fair value of contingent consideration, gain on settlement of Global Cooling escrow, and non-cash lease charges. Significant changes in operating assets and liabilities include a decrease of accounts receivable of $15.3 million, an increase in inventory of $8.6 million, and a decrease in accounts payable of $8.4 million.

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Investing activities

Our investing activities provided $58.3 million of cash in the year ended December 31, 2024. We had $73.4 million in proceeds from the divestitures of SciSafe and CBS, offset by cash payments of $13.0 million for the divestiture of Global Cooling. We additionally incurred $5.3 million in capital expenditures and purchases of assets held for rent to maintain and expand the Company's operations.

In the year ended December 31, 2023, investing activities provided $17.8 million of cash. We had $29.1 million in net proceeds of available-for-sale securities to fund capital projects and operations. Capital expenditures and purchases of assets held for rent to maintain and expand the Company's operations used $11.2 million.

Financing activities

In the year ended December 31, 2024, cash used by financing activities was $6.8 million. The use of cash in financing activities was primarily related to $9.0 million in payments on our Term Loan, equipment loans, and financed insurance premiums. This was offset by proceeds from financed insurance premiums of $2.1 million.

In the year ended December 31, 2023, cash provided by financing activities was $10.6 million. The increase in cash provided by financing activities compared to the prior year was primarily due to a private placement of $10.4 million and proceeds from financed insurance premiums of $2.6 million, offset by payments on financed insurance premiums of $2.4 million.

Contractual obligations

Our cash flows from operations are dependent on a number of factors, including fluctuations in our operating results, accounts receivable collections, inventory management, and the timing of tax and other payments. As a result, the impact of contractual obligations on our liquidity and capital resources in future periods should be analyzed in conjunction with such factors. Despite these uncertainties, we believe that our balances of cash, cash equivalents, and available-for-sale securities in addition to our cash flows from operations are adequate to meet our liquidity requirements in the foreseeable future.

The following summarizes certain of our contractual obligations as of December 31, 2024 and the effect such obligations are expected to have on our cash flows in the next fiscal year:

Long-term debt, including interest

These amounts represent expected cash payments, including principal and interest. Debt obligations are described in Note 13: Long-term debt of the Consolidated Financial Statements in Part II, Item 8 of this Annual Report. As of December 31, 2024, our total obligations were $15.9 million, of which $10.9 million was short-term.

Lease obligations

We have various operating and financing lease agreements for office space, warehouses, manufacturing, research equipment, machinery, and production locations as well as vehicles and other equipment. Lease obligations are described in Note 7: Leases of the Consolidated Financial Statements in Part II, Item 8 of this Annual Report. As of December 31, 2024, our total obligations were $14.2 million, of which $1.5 million was short-term.

Purchase obligations

Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable pricing provisions and the approximate timing of the transactions. As of December 31, 2024, our total obligations were $3.7 million, of which $3.1 million was short-term.

Sales Tax

We are in the process of evaluating a state sales tax liability analysis for states in which we have economic nexus, and collecting exemption documentation from our customers. It is probable that we will be subject to sales tax liabilities plus

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interest and penalties relating to historical activity in certain states. We have estimated a contingent liability for sales tax which is recorded in the Consolidated Balance Sheet. The liability includes significant judgments and estimates that may change in the future, and the liability may exceed our current estimate. We may be subject to examination by the relevant state tax authorities and we can provide no assurances that outcomes from these examinations will not have a significant effect on our operating results, financial condition, and cash flows.

Capital requirements

Our future capital requirements will depend on many factors, including the following:

•the expansion of our cell and gene therapy business

•the ability to sustain product revenue and profits of our cell and gene therapy products and services;

•the degree to which we implement additional automated production equipment throughout our facilities;

•our ability to acquire additional cell and gene therapy products and services;

•the scope of and progress made in our research and development activities; and

•the success of any proposed financing efforts.

Absent acquisitions of additional products, product candidates, or intellectual property, we believe our current cash, cash equivalents, and available-for-sale securities balances, in addition to our cash flows from operations, are adequate to meet our cash needs for the foreseeable future. We expect to incur continued spending related to our other existing product lines and expansion of our commercial capabilities for the foreseeable future. Our future capital requirements may include, but are not limited to, purchases of property and equipment, the acquisition of additional cell and gene therapy products and technologies, and continued investment in our intellectual property portfolio.

We actively evaluate various strategic transactions on an ongoing basis, including acquiring complementary products, technologies or businesses that would complement our existing portfolio. We continue to seek to acquire such potential assets that may offer us the best opportunity to create value for our shareholders. In order to acquire such assets, we may need to seek additional financing to fund these investments. If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, including because of any such acquisition-related financing needs or lower demand for our products, we may seek to sell common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt funding. The sale of equity and convertible debt securities may result in dilution to our stockholders, and those securities may have rights senior to those of our common shares. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights. We may require additional capital beyond our currently anticipated amounts. Additional capital may not be available on reasonable terms, if at all.

Risks and uncertainties

The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the reporting date and revenues and expenses during the reporting periods. These estimates represent management's judgment about the outcome of future events. The global business environment continues to be impacted by cost pressure, the overall effects of economic uncertainty on customers' purchasing patterns, increasing tariffs on U.S. imports, high interest rates, and other factors. It is not possible to accurately predict the future impact of such events and circumstances. Actual results could differ from our estimates.

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Overview

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We are a life sciences company that develops, manufactures and supplies bioproduction tools and services which are designed to improve quality and de-risk biologic manufacturing, storage, distribution, and transportation in the cell and gene therapy industry and broader biopharma market. Our products are used in basic and applied research and commercial manufacturing of biologic-based therapies. Customers use our products to maintain the health and function of biologic material during sourcing, manufacturing, storage, and distribution.

Our current portfolio of bioproduction tools and services are comprised of three revenue lines that contain seven main offerings: (i) cell processing (including biopreservation media for the preservation of cells and tissues, human platelet lysate media for the supplementation of cell expansion, cryogenic vials and automated fill machines that provide high-quality, efficient, and precise mixes of solutions), (ii) freezers and thaw systems (including a full line of mechanical ultra-low temperature (“ULT”), isothermal, and liquid nitrogen freezers and accessories, automated thaw devices which provide controlled, consistent thawing of frozen biologics in vials and cryobags), and (iii) Biostorage services (including biological and pharmaceutical storage services and transport, and “smart”, cloud connected devices for transporting biologic payloads).

We currently operate as one bioproduction tools and services business which supports several steps in the biologic material manufacturing and delivery process. We have a diversified portfolio of tools and services that focus on biopreservation, cell processing, frozen biologic storage products and services, cold-chain transportation, and thawing of biologic materials. We have in-house expertise in cryobiology and continue to capitalize on opportunities to maximize the value of our product platform for our extensive customer base through both organic growth innovations and acquisitions.

Subsequent to the second quarter of 2023, we began to seek divestment of our Freezer Business from our current product portfolio. For additional information regarding our ongoing initiative to divest the Freezer Business, see “Item 1A. Risk Factors” of this Annual Report for additional details.

Segment reporting

Management views the Company's operations and makes decisions regarding how to allocate resources as one reportable segment and one reporting unit.

Critical accounting policies and estimates

We have identified the policies and estimates below as being critical to our business operations and the understanding of our results of operations. These policies require management’s most difficult, subjective, or complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The impact of any associated risks related to these policies on our business operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition,” including in the “Results of Operations” section, where such policies affect our reported and expected financial results. Although we believe that our estimates, assumptions, and judgements are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.

Revenue recognition

To determine revenue recognition for contractual arrangements that we determine are within the scope of Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contracts with Customers, we perform the following five steps: (i) identify each contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to our performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the relevant performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price, taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. Payment terms and conditions vary, although terms generally include a requirement of payment within 30 to 90 days.

The Company primarily recognizes product revenues, service revenues, and rental revenues. Product revenues are generated from the sale of biopreservation media, ThawSTAR, and freezer products. We recognize product revenue,

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including shipping and handling charges billed to customers, when we transfer control of our products to our customers. Shipping and handling costs are classified as part of cost of product revenue in the Consolidated Statement of Operations. Service revenues are generated from the storage of biological and pharmaceutical materials. We recognize service revenues over time as services are performed or ratably over the contract term. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount method, depending on the facts and circumstances relative to the contract. When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. 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 years ended December 31, 2023, 2022, and 2021.

The Company also generates revenue from the leasing of our property and equipment, operating right-of-use assets, and evo cold chain systems to customers pursuant to service contracts or rental arrangements entered into with the customer. Revenue from these arrangements is not within the scope of FASB ASC Topic 606 as it is within the scope of FASB ASC Topic 842, Leases. All customers leasing shippers currently do so under month-to-month rental arrangements. We account for these rental transactions as operating leases and record rental revenue on a straight-line basis over the rental term.

Business combinations

Amounts paid for acquisitions are allocated to the tangible and intangible assets acquired and liabilities assumed, if any, based on their fair values at the dates of acquisition. This purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets and deferred revenue obligations. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions determined by management. Any excess of purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as any contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our Consolidated Statements of Operations. The fair value of contingent consideration includes estimates and judgments made by management regarding the probability that future contingent payments will be made, the extent of royalties to be earned in excess of the defined minimum royalties, etc. Management updates these estimates and the related fair value of contingent consideration at each reporting period based on the estimated probability of achieving the earnout targets and applying a discount rate that captures the risk associated with the expected contingent payments. To the extent our estimates change in the future regarding the likelihood of achieving these targets we may need to record material adjustments to our accrued contingent consideration. Changes in the fair value of contingent consideration are recorded in our Consolidated Statements of Operations. We use the income approach to determine the fair value of certain identifiable intangible assets including customer relationships and developed technology. This approach determines fair value by estimating after-tax cash flows attributable to these assets over their respective useful lives and then discounting these after-tax cash flows back to a present value. We base our assumptions on estimates of future cash flows, expected growth rates, expected trends in technology, etc. We base the discount rates used to arrive at a present value as of the date of acquisition on the time value of money and certain industry-specific risk factors. We believe the estimated purchased customer relationships, developed technologies, trademarks, tradenames, and patents amounts so determined represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the assets.

Intangible assets and goodwill

Intangible assets

Intangible assets with a definite life are amortized over their estimated useful lives using the straight-line method and the amortization expense is recorded within intangible asset amortization in the Consolidated Statements of Operations. If the estimate of a definite-lived intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. Definite-lived intangible assets and their related estimated useful lives are reviewed at least annually to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable.

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Indefinite-lived intangibles are carried at the initially recorded fair value less any recognized impairment. Indefinite-lived intangibles are tested annually for impairment. Impairment assessments are conducted more frequently if certain conditions exist, including a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the marketplace, including changes in the prices paid for the Company’s products or changes in the size of the market for the Company’s products. If impairment indicators are present, the Company determines whether the underlying intangible asset is recoverable through estimated future undiscounted cash flows. If the asset is not found to be recoverable, it is written down to the estimated fair value of the asset based on the sum of the future discounted cash flows expected to result from the use and disposition of the asset.

Goodwill

We test goodwill for impairment on an annual basis, and between annual tests if events and circumstances indicate it is more likely than not that the fair value of our goodwill is less than its carrying value. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, including a decline in the Company’s market capitalization, a significant adverse change in legal factors, business climate or operational performance of the business, and an adverse action or assessment by a regulator. Goodwill is tested for impairment in the fourth quarter of each year, or more frequently as warranted by events or changes in circumstances mentioned above. Accounting guidance also permits an optional qualitative assessment for goodwill to determine whether it is more likely than not that the carrying value of a reporting unit exceeds its fair value. If, after this qualitative assessment, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then no further quantitative testing would be necessary. A quantitative assessment is performed if the qualitative assessment results in a more likely than not determination or if a qualitative assessment is not performed. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value. The Company operates as one reporting unit as of the goodwill impairment measurement date in the fourth quarter of 2023.

Warranty guarantees

Our freezer and thaw and certain cell processing products are warranted to provide assurance that the product will function as expected and to ensure customer confidence in design and overall quality. Warranty coverage on our products is generally provided for specified periods of time and on select products' hours of usage, and generally covers parts, labor, and other expenses for non-maintenance repairs. Warranty coverage generally does not cover operator abuse or improper use.

At the time of sale, we recognize expense and record a warranty accrual by product line for estimated costs in connection with forecasted future warranty claims. Our estimate of the cost of future warranty claims is based primarily on the estimated number of products under warranty, historical average costs incurred to service warranty claims, the trend in the historical ratio of warranty claims for each part covered, and the historical length of time between the sale and resulting warranty claim. If applicable, historical claims experience may be adjusted for known product design improvements or for the impact of unusual product quality issues. We periodically assess the adequacy of our warranty accruals based on changes in our estimates and assumptions and record any necessary adjustments if the cost of actual claim experience differs from our estimate and indicates that adjustments to our warranty accrual are necessary. Factors that could have an impact on actual future claims and our warranty accrual include, but are not limited to, items such as performance of new products; product failure rates; factors impacting product usage, such as changes in sales volumes and shifts in product mix; manufacturing quality and product design issues, including significant manufacturing or design defects not discovered until after the product is delivered to customers; higher or lower than expected service and component part costs to satisfactorily address the repair, and, if applicable, changes to the warranty coverage periods. Additionally, from time to time, we also establish warranty accruals for our estimate of the costs necessary to settle major rework campaigns on a product-specific basis during the period in which the circumstances giving rise to the major rework campaign become known and when the costs to satisfactorily address the situation are both probable and estimable. The warranty accrual for the cost of a major rework campaign is primarily based on an estimate of the cost to repair each affected unit and the number of affected units expected to be repaired.

We believe that our analysis of historical warranty claim trends and knowledge of potential manufacturing and/or product design improvements or issues provide sufficient information to establish a reasonable estimate for the cost of future warranty claims at the time of sale and our warranty accruals as of the date of our Consolidated Balance Sheets. We believe that our $7.9 million warranty accrual as of December 31, 2023 is adequate and historically has been adequate; however, due to the inherent uncertainty in the accrual estimation process, including forecasting future warranty claims, costs

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associated with servicing future warranty claims, and unexpected major rework campaigns that may arise in the future, our actual warranty costs incurred may differ from our warranty accrual estimate. An unexpected increase in warranty claims and/or in the costs associated with servicing those claims would result in an increase in our warranty accruals and a decrease in our net earnings.

Contingent consideration

We estimate the acquisition date fair value of the acquisition-related contingent consideration using various valuation approaches, including option pricing models and Monte Carlo simulations, as well as significant unobservable inputs, reflecting the Company’s assessment of the assumptions market participants would use to value these liabilities. The fair value of the contingent consideration is remeasured each reporting period, with any change in the value recorded in our Consolidated Statements of Operations as change in fair value of contingent consideration.

During the year ended December 31, 2023, all contingent consideration liabilities were written off upon assessment of the probability we would achieve certain revenue targets for earnouts. For additional details on the factors considered in the write-off, see Note 3: Fair value measurement within the consolidated financial statements in Part II, Item 8 of this Annual Report.

Stock-based compensation

We measure and record compensation expense using the applicable accounting guidance for share-based payments related to stock options, time-based restricted stock, market-based restricted stock awards and performance-based awards granted to our directors and employees. The fair value of market-based restricted stock awards is estimated at the date of grant using the Monte Carlo Simulation model. The Monte Carlo Simulation valuation model incorporates assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. In valuing our market-based stock awards, significant judgment is required in determining the expected volatility of our common stock. Expected volatility for our market-based restricted stock awards is based on the historical volatility of our own stock and the stock of companies within our defined peer group. Further, our expected volatility may change in the future, which could substantially change the grant-date fair value of future awards and, ultimately, the expense we record. The fair value of restricted stock, including performance awards, without a market condition is estimated using the current market price of our common stock on the date of grant.

We expense stock-based compensation for stock options, restricted stock awards, and performance awards over the requisite service period. For awards with only a service condition, we expense stock-based compensation using the straight-line method over the requisite service period for the entire award. For awards with a market condition, we expense over the vesting period regardless of the value that the award recipients will ultimately receive.

Provision for income taxes

The assessment regarding whether a valuation allowance is required considers both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. In making this assessment, significant weight is given to evidence that can be objectively verified. In its evaluation, the Company considered its cumulative loss and its forecasted losses in the near-term as significant negative evidence. Based upon a review of the four sources of income identified within ASC 740, Accounting for Income Taxes, the Company determined that the Company’s recorded deferred tax liabilities as of December 31, 2023 would be a sufficient source of taxable income to realize all of its deferred tax assets except for a portion of its net operating loss carryforwards. As a result, a full valuation allowance on its deferred tax assets was recorded as of December 31, 2023. The Company will continue to assess the realizability of its assets going forward and will adjust the valuation allowance as needed.

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, 2023, the Company has an unrecognized tax benefit of $2.2 million related to tax attributes being carried forward. 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.

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As of December 31, 2023, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $151.9 million, which is available to reduce future taxable income. Approximately $39.2 million of NOL will expire from 2024 through 2037, and approximately $112.7 million of NOL will be carried forward indefinitely. The NOL carryforwards are subject to an annual limitation in the event of certain cumulative changes in the ownership interest. This limits the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. Subsequent ownership changes may further affect the limitation in future years.

Recent accounting standards update

See Note 1: Organization and significant accounting policies – recent accounting pronouncements, within the consolidated financial statements in Part II, Item 8 of this Annual Report for more information.

Discussions of 2021 results and year-to-year comparisons between 2022 and 2021 that are omitted in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 31, 2023.

Results of operations

The following discussion of the financial condition and results of operations should be read in conjunction with the accompanying Consolidated Financial Statements and the related footnotes thereto.

Revenue

Revenue for years ended December 31, 2023, 2022, and 2021 were comprised of the following:

(1)2021 revenue includes product revenue related to Global Cooling from May 3, 2021 through December 31, 2021 and product revenue related to Sexton from September 1, 2021 through December 31, 2021.

Total Revenue decline in the year ended December 31, 2023, as compared to the year ended December 31, 2022, was driven primarily by reduced purchases of ultra-low temperature and LN2 freezers. The Company has seen a decrease in customer purchases of these products as customers have reacted to preserve cash and abstain from acquiring inventory due to increased interest rates across the broader CGT market. Customers also reevaluated safety stock levels in the year ended December 31, 2023 for cell processing products, causing revenue levels to fall approximately 4% from the year ended December 31, 2022.

Revenue concentrations with one customer decreased to 16% in the year ended December 31, 2023 from 18% from the same customer in the year ended December 31, 2022. This concentration remained relatively consistent despite significant changes in product mix, as the customer's reduction in demand for capital purchases was less pronounced than others in 2023.

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Revenue is impacted by the relatively high degree of customer concentration, the timing of orders, the development efforts of our customers or end-users and regulatory approvals for biologics that incorporate our products, which may result in significant quarterly fluctuations. Such fluctuations are expected, but they may not be predictive of future revenue or otherwise indicative of a trend.

Costs and operating expenses

Total costs and operating expenses for years ended December 31, 2023, 2022, and 2021 were comprised of the following:

Cost of product, rental, and service revenue

In the year ended December 31, 2023, cost of product, rental, and service revenue decreased $11.4 million, or 11%, from the year ended December 31, 2022. This decrease was primarily driven by decreased sales compared to the prior year. We expect the cost of product, rental, and service revenue to fluctuate in future quarters based on production volumes and product mix.

Cost of product, rental, and service revenue as a percentage of revenue was 69% and 70% for the years ended December 31, 2023 and 2022, respectively. Cost of product, rental, and service revenue in the years ended December 31, 2023 and 2022 includes zero and $251,000, respectively, in inventory step-up expense recorded in the purchase accounting of our Global Cooling, CBS, and AsteroBio Corporation (“Astero”) acquisitions.

General and administrative expenses

During the years ended December 31, 2023, 2022, and 2021, general and administrative (“G&A”) expense consisted primarily of personnel-related expenses, stock-based compensation, professional fees, such as accounting and consulting fees, and corporate insurance.

In the year ended December 31, 2023, G&A expenses increased by $8.1 million, or 17%, compared with the year ended December 31, 2022. Of this increase, $3.7 million, or 31%, was driven by increased consulting fees related to our strategic transaction on the Freezer Business. The remaining costs primarily relate to an increase of $1.4 million in severance related to the departure of the former CEO and other staff in addition to a reduction in headcount that occurred in the quarter ended September 30, 2023.

Sales and marketing expenses

During the years ended December 31, 2023, 2022, and 2021, sales and marketing expense (“S&M”) consisted primarily of personnel-related costs, stock based compensation, consulting, advertising, and travel expenses.

S&M expense increased $3.0 million in the year ended December 31, 2023, or 14%, compared with the year ended December 31, 2022. The increase is primarily due to $2.0 million of increased stock compensation and $0.7 million of increased advertising.

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Research and development expenses

During the years ended December 31, 2023, 2022, and 2021, research and development (“R&D”) expense consisted primarily of personnel-related costs, consulting, research supplies, and milestone expenses related to third party research agreements.

R&D expense increased $4.0 million in the year ended December 31, 2023, or 27%, compared with the year ended December 31, 2022. The increase is primarily due to $2.5 million of increased stock-based compensation expenses and $1.0 million of scrapped research materials related to an adjustment in the design of a future freezer product release that rendered certain components obsolete.

Asset impairment charges

Asset impairment charges in the year ended December 31, 2023 consist of the impairment incurred of $15.5 million during the quarter ended September 30, 2023. Asset impairment charges in the year ended December 31, 2022 consist of the impairments incurred of $69.9 million and $40.5 million during the quarter ended June 30, 2022 and impairment assessment date of October 1, 2022, respectively. These impairment charges impacted both definite and indefinite-lived intangible assets acquired during the acquisition of Global Cooling and Custom Biogenic Systems. See Note 2: Impairment of property and equipment and definite-lived intangible assets within the consolidated financial statements in Part II, Item 8 of this Annual Report for more information on the events and assessment leading to these non-cash impairment charges during the years ended December 31, 2023 and 2022.

Intangible asset amortization expense

Amortization expense consists of charges related to the amortization of intangible assets associated with the acquisitions of Global Cooling, Custom Biogenic Systems (“CBS”), SciSafe, Sexton, SAVSU Technologies, Inc. (“SAVSU”), and Astero in which we acquired definite-lived intangible assets.

Acquisition costs

Acquisition costs consist of legal, accounting, third-party valuations, and other due diligence costs related to our Global Cooling and Sexton acquisitions.

Change in fair value of contingent consideration

Change in fair value of contingent consideration consists of changes in estimated fair value of our potential earnouts related to our SciSafe and Custom Biogenic Systems acquisitions. The benefit recognized in the year ended December 31, 2023 relates primarily to changes in our estimated probability of achieving earnout targets set forth within the purchase agreements.

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Other income and expenses

Total other income and expenses for the years ended December 31, 2023, 2022, and 2021 were comprised of the following:

Change in fair value of warrant liability.

Reflects the changes in fair value associated with the periodic “mark-to-market” valuation of certain warrants that were issued in 2014. See Note 1: Organization and significant accounting policies, “Certain Warrants which have Features that may Result in Cash Settlement” within the consolidated financial statements in Part II, Item 8 of this Annual Report for more information.

Change in fair value of investments.

Reflects fair value adjustments to our investment in iVexSol.

Interest expense, net.

Interest expense incurred in the year ended December 31, 2023 related primarily to the loan obtained in September 2022 and two loans that were assumed in the acquisition of Global Cooling. We also earn interest on cash held in our money market account. Increases in interest expenses during the year ended December 31, 2023 can also be attributed primarily to interest incurred on the Term Loan (as defined under Note 13: Long-term debt within the consolidated financial statements in Part II, Item 8 of this Annual Report) drawn in the quarter ended September 30, 2022.

Gain on settlement of Global Cooling escrow.

Reflects the non-cash gain associated with our post-closing adjustments for indemnifications and negotiated terms in connection with our acquisition of Global Cooling, and subsequent release and cancellation of these shares of our common stock from the third-party escrow account established in connection with that transaction. For additional information, see Note 12 within the consolidated financial statements in Part II, Item 8 of this Annual Report.

Gain on acquisition of Sexton Biotechnologies, Inc.

Reflects the non-cash gain associated with our investment in Sexton due to the step-acquisition of the remaining shares of Sexton and subsequent consolidation of Sexton in our financial statements.

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Income Tax (Expense) Benefit

Income tax benefit for the years ended December 31, 2023, 2022, and 2021 was as follows:

The income tax benefit recognized in the year ended December 31, 2023 primarily related to losses generated in 2023. Our effective tax rate for 2023 was lower than the U.S. statutory rate of 21% primarily due to the change in our valuation allowance.

The income tax benefit recognized in the year ended December 31, 2022 primarily related to losses generated in 2022. Our effective tax rate for 2022 was lower than the U.S. statutory rate of 21% primarily due to our valuation allowance.

Liquidity and capital resources

We believe our cash, cash equivalents, restricted cash, cash generated from operations, available-for-sale securities, and credit lines will satisfy, for at least the next twelve months from the date of this filing, our liquidity requirements, both globally and domestically, including the following: working capital needs, capital expenditures, ongoing initiative for divestiture of the Freezer Business, contractual obligations, commitments, principal and interest payments on debt, and other liquidity requirements associated with our operations.

On December 31, 2023, we had $52.3 million in cash, cash equivalents, and available-for-sale securities, compared to $64.1 million as of December 31, 2022, as follows:

The increase in cash and cash equivalents of $16.0 million as of December 31, 2023 is primarily due to the sale and maturity of our available for sale securities of $27.8 million, change in accounts receivable of $15.4 million, and proceeds from financing activities of $10.6 million. These increases were partially impacted by $14.0 million in net loss after non-cash adjustments, use of cash in accounts payable and inventory of $17.0 million, and acquisition of property and equipment and assets held for rent of $11.2 million.

Our available-for-sale securities consist of U.S. government securities, corporate debt securities, and other debt securities. Management classifies investments at the time of purchase and reevaluates such classification at each balance sheet date. The decrease in available-for-sale securities of $27.8 million resulted from the maturity of $52.7 million of available-for-sale securities during the year, offset by purchases of similar instruments of $27.1 million.

On October 19, 2023, we entered into a Securities Purchase Agreement with Casdin Partners Master Fund, L.P. ("Casdin") whereby the Company sold, and Casdin purchased, 927,165 shares of common stock of the Company at a share price of $11.19 per share for an aggregate purchase price of $10.4 million.

On September 20, 2022, the Company, and certain of its subsidiaries, entered into a term loan agreement, which provided for up to $60 million in aggregate principal to be drawn with $30 million being available upon closing and an additional

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$30 million available in three separate tranches, subject to the Company meeting revenue milestones by a certain date or at the discretion of the lender by a certain date. The Company borrowed $20 million upon closing. As of December 31, 2023, the Company had not drawn additional funding outlined within the Loan Agreement. For additional information on terms, see Note 13: Long-term debt within the consolidated financial statements in Part II, Item 8 of this Annual Report.

Cash flows

Operating activities

In the year ended December 31, 2023, our operating activities used cash of $12.5 million reflecting net loss of $66.4 million and non-cash charges totaling $53.9 million primarily related to stock-based compensation, impairment of assets, depreciation, amortization, changes in fair value of contingent consideration, gain on settlement of Global Cooling escrow, and non-cash lease charges. Significant changes in operating assets and liabilities include a decrease of accounts receivable of $15.3 million, an increase in inventory of $8.6 million, and a decrease in accounts payable of $8.4 million.

In the year ended December 31, 2022, our operating activities used cash of $8.5 million reflecting net loss of $139.8 million and non-cash charges totaling $146.2 million primarily related to impairment of intangible assets, depreciation, amortization, changes in fair value of contingent consideration, deferred income tax benefit, stock-based compensation, and non-cash lease charges. An increase in accrued expenses and current liabilities of $5.7 million was primarily driven by a $3.7 million non-income tax liability estimated for sales taxes owed and approximately $1.8 million increase in accrued compensation for increased headcount compared to the prior year. The increase in accrued expenses and current liabilities was offset by a $6.9 million reduction in warranty liability and $1.6 million reduction in accounts payable.

Investing activities

Our investing activities generated $17.8 million of cash in the year ended December 31, 2023. We had $29.1 million in net proceeds of available-for-sale securities to fund capital projects and operations. Capital expenditures and purchases of assets held for rent to maintain and expand the Company's operations used $11.2 million.

Our investing activities used $58.1 million of cash in the year ended December 31, 2022. We invested $44.6 million in available-for-sale securities in addition to continued investment in capital expenditures and purchases of assets held for rent, using an additional $13.9 million.

Financing activities

In the year ended December 31, 2023, cash provided by financing activities was $10.6 million. The increase in cash provided by financing activities compared to the prior year is primarily due to a private placement of $10.4 million and proceeds from financed insurance premiums of $2.6 million, offset by payments on financed insurance premiums of $2.4 million.

In the year ended December 31, 2022, cash provided by financing activities was $16.3 million. The increase in cash provided by financing activities compared to the prior year is primarily due to drawing $20 million on a term loan obtained on September 20, 2022, offset by payments on outstanding debt of $1.7 million and payments on financed insurance premiums of $1.4 million.

Contractual obligations

Our cash flows from operations are dependent on a number of factors, including fluctuations in our operating results, accounts receivable collections, inventory management, and the timing of tax and other payments. As a result, the impact

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of contractual obligations on our liquidity and capital resources in future periods should be analyzed in conjunction with such factors. Despite these uncertainties, we believe that our balances of cash, cash equivalents, available-for-sale securities, and restricted cash in addition to our cash flows from operations are adequate to meet our liquidity requirements in the next 12 months.

The following summarizes certain of our contractual obligations as of December 31, 2023 and the effect such obligations are expected to have on our cash flows in the next fiscal year:

Long-term debt, including interest

These amounts represent expected cash payments, including principal and interest. Debt obligations are described in Note 13 of the Consolidated Financial statements in Part II, Item 8 of this Annual Report. As of December 31, 2023, our total obligations were $25.2 million, of which $6.8 million was short-term.

Lease obligations

We have various operating and financing lease agreements for office space, warehouses, manufacturing, research equipment, machinery, and production locations as well as vehicles and other equipment. Lease obligations are described in Note 6 of the Consolidated Financial statements in Part II, Item 8 of this Annual Report. As of December 31, 2023, our total obligations were $17.5 million, of which $3.2 million was short-term.

Purchase obligations

Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable pricing provisions and the approximate timing of the transactions. As of December 31, 2023, our total obligations were $13.9 million, of which $13.7 million was short-term.

Sales Tax

We are in the process of evaluating a state sales tax liability analysis for states in which we have economic nexus, and collecting exemption documentation from our customers. It is probable that we will be subject to sales tax liabilities plus interest and penalties relating to historical activity in certain states. We have estimated a contingent liability for sales tax which is recorded in the Consolidated Balance Sheet. The liability includes significant judgments and estimates that may change in the future, and the liability may exceed our current estimate. We may be subject to examination by the relevant state tax authorities and we can provide no assurances that outcomes from these examinations will not have a significant effect on our operating results, financial condition, and cash flows.

Capital requirements

Our future capital requirements will depend on many factors, including the following:

•the expansion of our cell and gene therapy tools and services business

•the ability to sustain product revenue and profits of our cell and gene therapy products and services;

•The degree to which we implement additional automated production equipment throughout our facilities;

•our ability to acquire additional cell and gene therapy products and services;

•the scope of and progress made in our research and development activities; and

•the success of any proposed financing efforts.

Absent acquisitions of additional products, product candidates, or intellectual property, we believe our current cash, cash equivalents, and available-for-sale securities balances, in addition to our cash flows from operations, are adequate to meet our cash needs for at least the next 12 months as of the date of this filing. We expect operating expenses in the year ending December 31, 2024 to decrease as we continue to seek opportunities for the divestiture of our freezer product lines from our current product portfolio. We expect to incur continued spending related to the expansion of our other existing product lines and expansion of our commercial capabilities for the foreseeable future. Our future capital requirements may include, but are not limited to, purchases of property and equipment, the acquisition of additional cell and gene therapy products and technologies, and continued investment in our intellectual property portfolio.

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We actively evaluate various strategic transactions on an ongoing basis, including acquiring complementary products, technologies or businesses that would complement our existing portfolio. We continue to seek to acquire such potential assets that may offer us the best opportunity to create value for our shareholders. In order to acquire such assets, we may need to seek additional financing to fund these investments. If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, including because of any such acquisition-related financing needs or lower demand for our products, we may seek to sell common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt funding. The sale of equity and convertible debt securities may result in dilution to our stockholders, and those securities may have rights senior to those of our common shares. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights. We may require additional capital beyond our currently anticipated amounts. Additional capital may not be available on reasonable terms, if at all.

Sexton Biotechnologies, Inc. acquisition

On August 9, 2021, BioLife entered into an Agreement and Plan of Merger (the “Sexton Merger Agreement”) with BLFS Merger Sub, Inc., a Delaware corporation (“Sexton Merger Sub”), Fortis Advisors LLC, in its capacity as the representative of the stockholders of Sexton (the “Sexton Seller Representative”) and Sexton Biotechnologies, Inc., a Delaware corporation.

On September 1, 2021, the Company completed the merger of Sexton Merger Sub with and into Sexton and Sexton became a wholly owned subsidiary of the Company (the “Sexton Merger”). As consideration for the Sexton Merger (the “Sexton Merger Consideration”), holders of common stock, preferred stock and options of Sexton, other than the Company (collectively, the “Sexton Participating Holders”), were entitled to receive an aggregate of 530,502 newly issued shares of the Company’s common stock, subject to certain post-closing adjustments, of which 477,452 shares of Common Stock were issued to the Sexton Participating Holders at the Closing, and 53,050 shares of Common Stock, or approximately 10% of the Merger consideration, were deposited into an escrow account for indemnification and post-closing purchase price adjustment purposes. Prior to the merger, the Company held preferred stock in Sexton, which was accounted for using a measurement alternative that measures the securities at cost minus impairment, if any. The Company accounted for the merger as a step acquisition, which required remeasurement of the Company’s existing ownership in Sexton to fair value prior to completing the acquisition method of accounting. Using step acquisition accounting, the Company increased the value of its existing equity interest to its fair value, resulting in the recognition of a non-cash gain of $6.5 million, which was included in the gain on acquisition of Sexton Biotechnologies, Inc. in the Consolidated Statements of Operations in the year ended December 31, 2021. The Company utilized a market-based valuation approach to determine the fair value of the existing equity interest based on the total merger consideration offered and the Company’s stock price at acquisition.

The Sexton Merger was accounted for as a purchase of a business under FASB ASC Topic 805, Business Combinations. The fair value of the net tangible assets acquired was approximately $4.1 million, the deferred tax liability acquired was approximately $1.5 million, the fair value of the intangible assets acquired was approximately $8.8 million, and the residual goodwill was approximately $28.5 million. The fair value calculations required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.

Global Cooling, Inc. acquisition

On March 19, 2021, the Company entered into an Agreement and Plan of Merger (the “GCI Merger Agreement”) with BLFS Merger Subsidiary, Inc., a Delaware corporation (“GCI Merger Sub”), Global Cooling, a Delaware corporation and Albert Vierling and William Baumel, in their capacity as the representatives of the stockholders of GCI (collectively, the “GCI Seller Representative”).

On May 3, 2021, pursuant to the GCI Merger Agreement, subject to the terms and conditions set forth therein, the transactions contemplated by the GCI Merger Agreement were consummated (the “GCI Closing”), GCI Merger Sub merged with and into GCI (the “GCI Merger” and, together with other transactions contemplated by the GCI Merger Agreement, the “GCI Transactions”), with GCI continuing as the surviving corporation in the GCI Merger and a wholly owned subsidiary of the Company. In the GCI Merger, all of the issued and outstanding shares of capital stock of GCI immediately prior to the filing of the Certificate of Merger with the Secretary of State of the State of Delaware (other than those properly exercising any applicable dissenter’s rights under Delaware law) were converted into the right to receive the

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GCI Merger Consideration (as defined below). The Company paid the GCI Merger Consideration to the holders of common stock and preferred stock of GCI (collectively, the “GCI Stockholders”).

The aggregate merger consideration paid pursuant to the GCI Merger Agreement to the GCI Stockholders was 6,646,870 newly issued shares of common stock, provided, however, that the GCI Merger Consideration otherwise payable to GCI Stockholders was subject to the withholding of the GCI Escrow Shares (as defined below) and was subject to reduction for indemnification obligations. The GCI Merger Consideration allocable to one GCI stockholder was reduced by 10,400 shares to satisfy an outstanding note receivable of $374,000. In accordance with ASC 805, the Company recognized the settlement of pre-existing relationships in the forms of cash deposits, trade receivables, and trade payables, which are included in the consideration transferred. The GCI Merger Consideration is not subject to any purchase price adjustments.

At the GCI Closing, approximately nine percent (9%) of the GCI Merger Consideration (the “Escrow Shares”, along with any other dividends, distributions or other income on the GCI Escrow Shares, the “GCI Escrow Property”) otherwise issuable to the GCI Stockholders (allocated pro rata among the GCI Stockholders based on the GCI Merger Consideration otherwise issuable to them at the GCI Closing), was deposited into a segregated escrow account in accordance with an escrow agreement entered into in connection with the GCI Transactions (the “GCI Escrow Agreement”).

The GCI Escrow Property was held for a period of up to twenty-four (24) months after the GCI Closing as the sole and exclusive source of payment for any post-GCI Closing indemnification claims (other than fraud claims). On September 28, 2022, BioLife asserted an indemnification claim pursuant to the GCI Merger Agreement. On June 5, 2023, the Company entered into a Settlement Agreement with the representatives of the GCI Stockholders, pursuant to which the parties agreed to release 65% of the General Escrow Shares, totaling 216,024 shares, to the Company from the GCI Escrow Account. These shares were returned to the Company and subsequently cancelled. As a result of the settlement, the Company recorded a $5.1 million gain recognizing the return of the shares during the second quarter of 2023.

The GCI Merger was accounted for as a purchase of a business under FASB ASC Topic 805, Business Combinations. The fair value of the net tangible assets acquired was $740,000, the deferred tax liability acquired was $24.1 million, the fair value of the intangible assets acquired was $120.5 million, and the residual goodwill was $137.8 million. The fair value calculations for intangible assets required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.

Supply chain considerations

Our domestic and international supply chain operations were affected during the years ended December 31, 2021 and 2022 by the global COVID-19 pandemic and the resulting volatility and uncertainty it caused in the U.S. and international markets. The onset of the COVID-19 pandemic caused supply chains globally to become constrained, and these constraints historically impacted our business through both increased difficulty in obtaining semiconductor chips and increased pricing on available parts across our product lines during the years ended December 31, 2021 and 2022. However, during the year ended December 31, 2023, both availability and pricing of semiconductor chips have improved and no longer pose constraints on our supply chain. We currently have sufficient supply for electrical component parts within our operations and do not foresee constraints to return over our supply chain.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Form 10-K contains “forward-looking statements”. These forward-looking statements involve a number of risks and uncertainties. We caution readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. These statements are based on current expectations of future events. Such statements include, but are not limited to, statements about our products, including our newly acquired products, customers, regulatory approvals, the potential utility of and market for our products and services, our ability to implement our business strategy and anticipated business and operations, in particular following our acquisitions in recent years, future financial and operational performance, our anticipated future growth strategy, including the acquisition of synergistic cell and gene therapy manufacturing tools and services or technologies, or other companies or technologies, capital requirements, intellectual property, suppliers, joint venture partners, future financial and operating results, the impact of the COVID-19 pandemic, plans, objectives, expectations and intentions, revenues, costs and expenses, interest rates, outcome of contingencies, business strategies, regulatory filings and requirements, the estimated potential size of markets, capital requirements, the terms of any capital financing agreements and other statements that are not historical facts. You can find many of these statements by looking for words like “believes”, “expects”, “anticipates”, “estimates”, “may”, “should”, “will”, “could”, “plan”, “intend”, or similar expressions in this Form 10-K. We intend that such forward-looking statements be subject to the safe harbors created thereby.

These forward-looking statements are based on the current beliefs and expectations of our management and are subject to significant risks and uncertainties. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results may differ materially from current expectations and projections. Factors that might cause such a difference include those discussed under “Risk Factors”, as well as those discussed elsewhere in the Form 10-K.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-K or, in the case of documents referred to or incorporated by reference, the date of those documents.

All subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events, except as may be required under applicable U.S. securities law. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

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We are a life sciences company that develops and commercializes innovative technologies used in the manufacture, storage and transportation of biological materials and provides storage solutions for biological and pharmaceutical materials.

We develop, manufacture, and market bioproduction tools and services to the cell and gene therapy (“CGT”) industry and broader biopharma market, which are designed to improve quality and de-risk biologic manufacturing, storage, and distribution. Our products are used in basic and applied research and commercial manufacturing of biologic-based therapies. Customers use our products to maintain the health and function of biologic material during sourcing, manufacturing, storage, and distribution.

Our current portfolio of bioproduction tools and services are comprised of three revenue lines that contain seven main offerings: (i) cell processing (including biopreservation media for the preservation of cells and tissues, human platelet lysate media for the supplementation of cell expansion, cryogenic vials and automated fill machines that provide high-quality, efficient, and precise mixes of solutions), (ii) freezers and thaw systems (including a full line of mechanical ultra-low temperature (“ULT”), isothermal, and liquid nitrogen freezers and accessories, automated thaw devices which provide controlled, consistent thawing of frozen biologics in vials and cryobags), and (iii) storage and storage services (including biological and pharmaceutical storage services, and “smart”, cloud connected devices for transporting biologic payloads).

We currently operate as one bioproduction tools and services business which supports several steps in the biologic material manufacturing and delivery process. We have a diversified portfolio of tools and services that focus on biopreservation, cell processing, frozen biologic storage products and services, cold-chain transportation, and thawing of biologic materials. We have in-house expertise in cryobiology and continue to capitalize on opportunities to maximize the value of our product platform for our extensive customer base through both organic growth innovations and acquisitions.

The consolidated financial statements as of December 31, 2021 and for the years ended December 31, 2021 and 2020 have been corrected to correct immaterial prior period errors as discussed in Note 2, Correction of immaterial errors to our consolidated financial statements included in this Annual Report on Form 10-K. Accordingly, Management’s Discussion and Analysis reflects the impact of those corrections.

Sexton Biotechnologies, Inc. acquisition

On August 9, 2021, BioLife entered into an Agreement and Plan of Merger (the “Sexton Merger Agreement”) with BLFS Merger Sub, Inc., a Delaware corporation (“Sexton Merger Sub”), Fortis Advisors LLC, in its capacity as the representative of the stockholders of Sexton (the “Sexton Seller Representative”) and Sexton Biotechnologies, Inc., a Delaware corporation.

On September 1, 2021, the Company completed the merger of Sexton Merger Sub with and into Sexton and Sexton became a wholly owned subsidiary of the Company (the “Sexton Merger”). As consideration for the Sexton Merger (the “Sexton Merger Consideration”), holders of common stock, preferred stock and options of Sexton, other than the Company (collectively, the “Sexton Participating Holders”), are entitled to receive an aggregate of 530,502 newly issued shares of the Company’s common stock, subject to certain post-closing adjustments, of which 477,452 shares of Common Stock were issued to the Sexton Participating Holders at the Closing, and 53,050 shares of Common Stock, or approximately 10% of the Merger consideration, were deposited into an escrow account for indemnification and post-closing purchase price adjustment purposes. Prior to the merger, the Company held preferred stock in Sexton, which was accounted for using a measurement alternative that measures the securities at cost minus impairment, if any. The Company accounted for the merger as a step acquisition, which required remeasurement of the Company’s existing ownership in Sexton to fair value prior to completing the acquisition method of accounting. Using step acquisition accounting, the Company increased the value of its existing equity interest to its fair value, resulting in the recognition of a non-cash gain of $6.5 million, which was included in the gain on acquisition of Sexton Biotechnologies, Inc. in the Consolidated Statements of Operations in the year ended December 31, 2021. The Company utilized a market-based valuation approach to determine the fair value of the existing equity interest based on the total merger consideration offered and the Company’s stock price at acquisition.

The Sexton Merger was accounted for as a purchase of a business under FASB ASC Topic 805, Business Combinations. The fair value of the net tangible assets acquired was approximately $4.1 million, the deferred tax liability acquired was approximately $1.5 million, the fair value of the intangible assets acquired was approximately $8.8 million, and the residual goodwill was approximately $28.5 million. The fair value calculations required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.

Global Cooling, Inc. acquisition

On March 19, 2021, the Company entered into an Agreement and Plan of Merger (the “GCI Merger Agreement”) with BLFS Merger Subsidiary, Inc., a Delaware corporation (“GCI Merger Sub”), Global Cooling, a Delaware corporation and Albert Vierling and William Baumel, in their capacity as the representatives of the stockholders of GCI (collectively, the “GCI Seller Representative”).

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On May 3, 2021, pursuant to the GCI Merger Agreement, subject to the terms and conditions set forth therein, the transactions contemplated by the GCI Merger Agreement were consummated (the “GCI Closing”), GCI Merger Sub merged with and into GCI (the “GCI Merger” and, together with other transactions contemplated by the GCI Merger Agreement, the “GCI Transactions”), with GCI continuing as the surviving corporation in the GCI Merger and a wholly owned subsidiary of the Company. In the GCI Merger, all of the issued and outstanding shares of capital stock of GCI immediately prior to the filing of the Certificate of Merger with the Secretary of State of the State of Delaware (other than those properly exercising any applicable dissenter’s rights under Delaware law) were converted into the right to receive the GCI Merger Consideration (as defined below). The Company paid the GCI Merger Consideration to the holders of common stock and preferred stock of GCI (collectively, the “GCI Stockholders”).

The aggregate merger consideration paid pursuant to the GCI Merger Agreement to the GCI Stockholders was 6,646,870 newly issued shares of common stock, provided, however, that the GCI Merger Consideration otherwise payable to GCI Stockholders is subject to the withholding of the GCI Escrow Shares (as defined below) and is subject to reduction for indemnification obligations. The GCI Merger Consideration allocable to one GCI stockholder was reduced by 10,400 shares to satisfy an outstanding note receivable of $374,000. In accordance with ASC 805, the Company recognized the settlement of pre-existing relationships in the forms of cash deposits, trade receivables, and trade payables, which are included in the consideration transferred. The GCI Merger Consideration is not subject to any purchase price adjustments.

At the GCI Closing, approximately nine percent (9%) of the GCI Merger Consideration (the “Escrow Shares”, along with any other dividends, distributions or other income on the GCI Escrow Shares, the “GCI Escrow Property”) otherwise issuable to the GCI Stockholders (allocated pro rata among the GCI Stockholders based on the GCI Merger Consideration otherwise issuable to them at the GCI Closing), was deposited into a segregated escrow account in accordance with an escrow agreement entered into in connection with the GCI Transactions (the “GCI Escrow Agreement”).

The GCI Escrow Property will be held for a period of up to twenty-four (24) months after the GCI Closing as the sole and exclusive source of payment for any post-GCI Closing indemnification claims (other than fraud claims), unless earlier released in accordance with the terms of the GCI Escrow Agreement.

The GCI Merger was accounted for as a purchase of a business under FASB ASC Topic 805, Business Combinations. The fair value of the net tangible assets acquired was $740,000, the deferred tax liability acquired was $24.1 million, the fair value of the intangible assets acquired was $120.5 million, and the residual goodwill was $137.8 million. The fair value calculations for intangible assets required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.

SciSafe Holdings, Inc. acquisition

On September 18, 2020, BioLife entered into a Stock Purchase Agreement, by and among the Company, SciSafe Holdings, Inc., a Delaware corporation, and the stockholders of SciSafe (collectively, the “SciSafe Sellers”), pursuant to which the Company agreed to purchase from the SciSafe Sellers one hundred percent (100%) of the issued and outstanding capital shares or other equity interests of SciSafe (the “SciSafe Acquisition”). The SciSafe Acquisition closed October 1, 2020.

In connection with the SciSafe Acquisition, the Company issued to the SciSafe 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 SciSafe Sellers an additional 626,000 shares of common stock, which are issuable to SciSafe Sellers upon SciSafe achieving certain specified revenue targets in each year from 2021 to 2024. The revenue target set for 2022 was met and, therefore, has resulted in 116,973 shares of common stock becoming issuable to the SciSafe Sellers. These shares will be issued during the year ended December 31, 2023.

The SciSafe Acquisition was accounted for as a purchase of a business under FASB ASC Topic 805, Business Combinations. The fair value of the contingent consideration was $3.7 million, the fair value of the net tangible assets acquired was $2.8 million, the deferred tax liability was $3.3 million, the fair value of the intangible assets acquired was $12.1 million, and the residual goodwill was $24.9 million. The fair value calculations for intangible assets required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.

Critical accounting policies and estimates

We have identified the policies and estimates below as being critical to our business operations and the understanding of our results of operations. These policies require management’s most difficult, subjective, or complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The impact of any associated risks related to these policies on our business operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition,” including in the “Results of Operations” section, where such policies affect our reported and expected financial results. Although we believe that our estimates, assumptions, and judgements are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.

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Revenue recognition

To determine revenue recognition for contractual arrangements that we determine are within the scope of Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contracts with Customers, we perform the following five steps: (i) identify each contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to our performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the relevant performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price, taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. Payment terms and conditions vary, although terms generally include a requirement of payment within 30 to 90 days.

The Company primarily recognizes product revenues, service revenues, and rental revenues. Product revenues are generated from the sale of biopreservation media, ThawSTAR, and freezer products. We recognize product revenue, including shipping and handling charges billed to customers, when we transfer control of our products to our customers. Shipping and handling costs are classified as part of cost of product revenue in the Consolidated Statement of Operations. Service revenues are generated from the storage of biological and pharmaceutical materials. We recognize service revenues over time as services are performed or ratably over the contract term. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount method, depending on the facts and circumstances relative to the contract. When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. 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 years ended December 31, 2022, 2021, and 2020.

The Company also generates revenue from the leasing of our property, plant, and equipment, operating right-of-use assets, and evo cold chain systems to customers pursuant to service contracts or rental arrangements entered into with the customer. Revenue from these arrangements is not within the scope of FASB ASC Topic 606 as it is within the scope of FASB ASC Topic 842, Leases. All customers leasing shippers currently do so under month-to-month rental arrangements. We account for these rental transactions as operating leases and record rental revenue on a straight-line basis over the rental term.

Business combinations

Amounts paid for acquisitions are allocated to the tangible and intangible assets acquired and liabilities assumed, if any, based on their fair values at the dates of acquisition. This purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets and deferred revenue obligations. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions determined by management. Any excess of purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as any contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our Consolidated Statements of Operations. The fair value of contingent consideration includes estimates and judgments made by management regarding the probability that future contingent payments will be made, the extent of royalties to be earned in excess of the defined minimum royalties, etc. Management updates these estimates and the related fair value of contingent consideration at each reporting period based on the estimated probability of achieving the earnout targets and applying a discount rate that captures the risk associated with the expected contingent payments. To the extent our estimates change in the future regarding the likelihood of achieving these targets we may need to record material adjustments to our accrued contingent consideration. Changes in the fair value of contingent consideration are recorded in our Consolidated Statements of Operations. We use the income approach to determine the fair value of certain identifiable intangible assets including customer relationships and developed technology. This approach determines fair value by estimating after-tax cash flows attributable to these assets over their respective useful lives and then discounting these after-tax cash flows back to a present value. We base our assumptions on estimates of future cash flows, expected growth rates, expected trends in technology, etc. We base the discount rates used to arrive at a present value as of the date of acquisition on the time value of money and certain industry-specific risk factors. We believe the estimated purchased customer relationships, developed technologies, trademarks, tradenames, patents, and in process research and development amounts so determined represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the assets.

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Intangible assets and goodwill

Intangible assets

Intangible assets with a definite life are amortized over their estimated useful lives using the straight-line method and the amortization expense is recorded within intangible asset amortization in the Consolidated Statements of Operations. If the estimate of a definite-lived intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. Definite-lived intangible assets and their related estimated useful lives are reviewed at least annually to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable.

Indefinite-lived intangibles are carried at the initially recorded fair value less any recognized impairment. In-process research and development (“IPR&D”) is initially capitalized at fair value as an intangible asset with an indefinite life. When the IPR&D project is complete, it is reclassified as a definite-lived intangible asset and is amortized over its estimated useful life. If an IPR&D project is abandoned, a charge would be recorded for the value of the related intangible asset to our Consolidated Statement of Operations in the period it is abandoned. Indefinite-lived intangibles are tested annually for impairment. Impairment assessments are conducted more frequently if certain conditions exist, including a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the marketplace, including changes in the prices paid for the Company’s products or changes in the size of the market for the Company’s products. If impairment indicators are present, the Company determines whether the underlying intangible asset is recoverable through estimated future undiscounted cash flows. If the asset is not found to be recoverable, it is written down to the estimated fair value of the asset based on the sum of the future discounted cash flows expected to result from the use and disposition of the asset.

Goodwill

We test goodwill for impairment on an annual basis, and between annual tests if events and circumstances indicate it is more likely than not that the fair value of our goodwill is less than its carrying value. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, including a decline in the Company’s market capitalization, a significant adverse change in legal factors, business climate or operational performance of the business, and an adverse action or assessment by a regulator. Goodwill is tested for impairment in the fourth quarter of each year, or more frequently as warranted by events or changes in circumstances mentioned above. Accounting guidance also permits an optional qualitative assessment for goodwill to determine whether it is more likely than not that the carrying value of a reporting unit exceeds its fair value. If, after this qualitative assessment, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then no further quantitative testing would be necessary. A quantitative assessment is performed if the qualitative assessment results in a more likely than not determination or if a qualitative assessment is not performed. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value. The Company operates as one reporting unit as of the goodwill impairment measurement date in the fourth quarter of 2022.

Warranty guarantees

Our freezer and thaw and certain cell processing products are warranted to provide assurance that the product will function as expected and to ensure customer confidence in design and overall quality. Warranty coverage on our products is generally provided for specified periods of time and on select products' hours of usage, and generally covers parts, labor, and other expenses for non-maintenance repairs. Warranty coverage generally does not cover operator abuse or improper use.

At the time of sale, we recognize expense and record a warranty accrual by product line for estimated costs in connection with forecasted future warranty claims. Our estimate of the cost of future warranty claims is based primarily on the estimated number of products under warranty, historical average costs incurred to service warranty claims, the trend in the historical ratio of warranty claims for each part covered, and the historical length of time between the sale and resulting warranty claim. If applicable, historical claims experience may be adjusted for known product design improvements or for the impact of unusual product quality issues. We periodically assess the adequacy of our warranty accruals based on changes in our estimates and assumptions and record any necessary adjustments if the cost of actual claim experience differs from our estimate and indicates that adjustments to our warranty accrual are necessary. Factors that could have an impact on actual future claims and our warranty accrual include, but are not limited to, items such as performance of new products; product failure rates; factors impacting product usage, such as changes in sales volumes and shifts in product mix; manufacturing quality and product design issues, including significant manufacturing or design defects not discovered until after the product is delivered to customers; higher or lower than expected service and component part costs to satisfactorily address the repair, and, if applicable, changes to the warranty coverage periods. Additionally, from time to time, we also establish warranty accruals for our estimate of the costs necessary to settle major rework campaigns on a product-specific basis during the period in which the circumstances giving rise to the major rework campaign become known and when the costs to satisfactorily address the situation are both probable and estimable. The warranty accrual for the cost of a major rework campaign is primarily based on an estimate of the cost to repair each affected unit and the number of affected units expected to be repaired.

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We believe that our analysis of historical warranty claim trends and knowledge of potential manufacturing and/or product design improvements or issues provide sufficient information to establish a reasonable estimate for the cost of future warranty claims at the time of sale and our warranty accruals as of the date of our Consolidated Balance Sheets. We believe that our $8.3 million warranty accrual as of December 31, 2022 is adequate and historically has been adequate; however, due to the inherent uncertainty in the accrual estimation process, including forecasting future warranty claims, costs associated with servicing future warranty claims, and unexpected major rework campaigns that may arise in the future, our actual warranty costs incurred may differ from our warranty accrual estimate. An unexpected increase in warranty claims and/or in the costs associated with servicing those claims would result in an increase in our warranty accruals and a decrease in our net earnings.

Contingent consideration

We estimate the acquisition date fair value of the acquisition-related contingent consideration using various valuation approaches, including option pricing models and Monte Carlo simulations, as well as significant unobservable inputs, reflecting the Company’s assessment of the assumptions market participants would use to value these liabilities. The fair value of the contingent consideration is remeasured each reporting period, with any change in the value recorded in our Consolidated Statements of Operations as change in fair value of contingent consideration.

Stock-based compensation

We measure and record compensation expense using the applicable accounting guidance for share-based payments related to stock options, time-based restricted stock, market-based restricted stock awards and performance-based awards granted to our directors and employees. The fair value of market-based restricted stock awards is estimated at the date of grant using the Monte Carlo Simulation model. The Monte Carlo Simulation valuation model incorporates assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. In valuing our market-based stock awards, significant judgment is required in determining the expected volatility of our common stock. Expected volatility for our market-based restricted stock awards is based on the historical volatility of our own stock and the stock of companies within our defined peer group. Further, our expected volatility may change in the future, which could substantially change the grant-date fair value of future awards and, ultimately, the expense we record. The fair value of restricted stock, including performance awards, without a market condition is estimated using the current market price of our common stock on the date of grant.

We expense stock-based compensation for stock options, restricted stock awards, and performance awards over the requisite service period. For awards with only a service condition, we expense stock-based compensation using the straight-line method over the requisite service period for the entire award. For awards with a market condition, we expense over the vesting period regardless of the value that the award recipients will ultimately receive.

Provision for income taxes

The assessment regarding whether a valuation allowance is required considers both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. In making this assessment, significant weight is given to evidence that can be objectively verified. In its evaluation, the Company considered its cumulative loss and its forecasted losses in the near-term as significant negative evidence. Based upon a review of the four sources of income identified within ASC 740, Accounting for Income Taxes, the Company determined that the Company’s recorded deferred tax liabilities as of December 31, 2022 would be a sufficient source of taxable income to realize all of its deferred tax assets except for a portion of its net operating loss carryforwards. As a result, a full valuation allowance on its deferred tax assets was recorded as of December 31, 2022. The Company will continue to assess the realizability of its assets going forward and will adjust the valuation allowance as needed.

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, 2022, the Company has an unrecognized tax benefit of $610,000 related to tax attributes being carried forward. 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.

As of December 31, 2022, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $128.6 million, which is available to reduce future taxable income. Approximately $39.5 million of NOL will expire from 2023 through 2037, and approximately $89.1 million of NOL will be carried forward indefinitely. The NOL carryforwards are subject to an annual limitation in the event of certain cumulative changes in the ownership interest. This limits the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. Subsequent ownership changes may further affect the limitation in future years.

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Recent accounting standards update

See Note 1: “Organization and significant accounting policies – recent accounting pronouncements,” to our Consolidated Financial Statements included in this report for more information.

Discussions of 2020 results and year-to-year comparisons between 2021 and 2020 that are omitted in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022.

Results of operations

The following discussion of the financial condition and results of operations should be read in conjunction with the accompanying Consolidated Financial Statements and the related footnotes thereto.

Revenue

Revenue for years ended December 31, 2022, 2021, and 2020 were comprised of the following:

Revenue growth in the year ended December 31, 2022, as compared to the year ended December 31, 2021, was driven primarily by organic growth in our cell processing product and storage and cold chain services rental product lines, which grew by 45% and 51%, respectively. During the year ended December 31, 2021, revenues diversified significantly compared to the year ended December 31, 2020. This diversification was primarily driven by the acquisition of Global Cooling and Sexton in May and September of 2021, respectively. Most notably, the Company’s freezer and thaw revenues increased by 318% as a result of the acquisition of Global Cooling and growth in LN2 freezer sales in 2021.

Revenue concentrations with one customer increased to 18% in the year ended December 31, 2022 from 17% from the same customer in the year ended December 31, 2021, primarily as a result of increased sales to a prominent international distributor. Revenue concentrations with one customer increased to 17% in the year ended December 31, 2021 from 13% from a different customer in the year ended December 31, 2020, primarily as a result of concentrations of freezer sales to a prominent international distributor.

In the year ended December 31, 2022, revenue increased by $42.6 million, or 36%, from the year ended December 31, 2021. Of this increase, $27.7 million, or 23%, of the increase was driven by organic growth. Of the $27.7 million, $19.4 million is derived from our cell processing product line, $1.6 million from our freezer and thaw product and services product lines, and $6.7 million from our storage and cold chain services product line. The remaining $14.9 million, or 13%, was driven by earning full year revenues from the acquisitions of Global Cooling and Sexton compared to partial revenues earned during the prior year.

Revenue is impacted by the relatively high degree of customer concentration, the timing of orders, the development efforts of our customers or end-users and regulatory approvals for biologics that incorporate our products, which may result in significant quarterly fluctuations. Such fluctuations are expected, but they may not be predictive of future revenue or otherwise indicative of a trend.

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Costs and operating expenses

Total costs and operating expenses for years ended December 31, 2022, 2021, and 2020 were comprised of the following:

Cost of product, rental, and service revenue

In the year ended December 31, 2022, cost of product, rental, and service revenue increased $25.8 million or 31% from the year ended December 31, 2021. This increase was primarily driven by increased sales.

We expect the cost of product, rental, and service revenue to fluctuate in future quarters based on production volumes, product mix, and the impact of any future acquisitions.

Cost of product, rental, and service revenue as a percentage of revenue was 70%, 69%, and 43% for the years ended December 31, 2022, 2021, and 2020, respectively. Cost of product, rental, and service revenue in the years ended December 31, 2022, 2021, and 2020 includes $251,000, $1.1 million, and $411,000, respectively, in inventory step-up expense recorded in the purchase accounting of our Global Cooling, CBS, and AsteroBio Corporation (“Astero”) acquisitions.

The cost of product, rental, and service revenue as a percentage of revenue was relatively consistent between the years ended December 31, 2022 and 2021, at 70% and 69%, respectively. Despite these percentages being relatively consistent, the Company experienced decreases in warranty expenses in the year ended December 31, 2022 that were offset by increases in material and overhead costs driven by increases in personnel expenses, including stock-based compensation expenses, during the year. Additionally, material cost increases derived from our difficulties in obtaining sheet metal and electrical components incorporating semiconductor chips for the manufacture of our ULT freezer products due to the effects of COVID-19 during the year ended December 31, 2021 were mitigated during the current year. Through the diversification of suppliers, we experienced improved pricing from the year ended December 31, 2021. We were still experiencing constraints in supply for semiconductor chips as of December 31, 2022. Though our costs to obtain semiconductor components normalized throughout the year, we were still experiencing constraints in obtaining electrical component parts. These constraints are expected to improve through diversification of our semiconductor supply chain partnerships. We have sufficient supply for electrical component parts within our operations for the foreseeable future.

Research and development expenses

During the years ended December 31, 2022, 2021, and 2020, research and development (“R&D”) expense consisted primarily of personnel-related costs, consulting, and external product development services.

R&D expense increased $3.0 million in the year ended December 31, 2022, or 25%, compared with the year ended December 31, 2021. The increase is primarily due to $2.5 million of increased personnel costs in cash and stock-based compensation expenses from the full year ownership of Global Cooling and Sexton.

We expect sustained R&D expense increases through the year ended December 31, 2023 as we continue to expand, develop, and refine our product lines, particularly in the completion of our GCI vault project.

Sales and marketing expenses

Sales and marketing expense (“S&M”) consisted primarily of personnel-related costs, stock based compensation expense, trade shows, sales commissions, and advertising.

S&M expense increased $7.6 million in the year ended December 31, 2022, or 54%, compared with the year ended December 31, 2021. The increase is primarily due to $5.0 million of increased personnel expenses from cash and stock compensation. The increase was also driven by a $1.5 million increase in advertising and trade show costs from the expansion of our product outreach.

We expect S&M expense to increase as we expand our product line offerings and our presence in the markets in which we participate.

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General and administrative expenses

General and administrative (“G&A”) expense consists primarily of personnel-related expenses, non-cash stock-based compensation for administrative personnel and members of the board of directors, professional fees, such as accounting and legal, and corporate insurance.

In the year ended December 31, 2022, G&A expenses increased by $14.0 million, or 42%, compared with the year ended December 31, 2021. Of this increase, $7.7 million, or 55%, was driven by increased personnel expenses from cash and stock-based compensation. The remaining costs primarily relate to an increase of $3.2 million in professional services fees and $1.2 million on the losses incurred from asset disposal.

We expect G&A expense to increase as we continue to execute on our growth strategy.

Intangible asset impairment charges

Intangible asset impairment charges consist of the impairments incurred of $69.9 million and $40.5 million during the quarter ended June 30, 2022 and impairment assessment date of October 1, 2022, respectively. These impairment charges impacted both definite and indefinite-lived intangible assets acquired during the acquisition of Global Cooling. See Note 11: Goodwill and intangible assets of our accompanying Consolidated Financial Statements for more information on the events and assessment leading to these non-cash impairment charges during the year ended December 31, 2022.

Intangible asset amortization expense

Amortization expense consists of charges related to the amortization of intangible assets associated with the acquisitions of Global Cooling, Custom Biogenic Systems (“CBS”), SciSafe, Sexton, SAVSU Technologies, Inc. (“SAVSU”), and Astero in which we acquired definite-lived intangible assets.

Acquisition costs

Acquisition costs consist of legal, accounting, third-party valuations, and other due diligence costs related to our Global Cooling, SciSafe, and Sexton acquisitions.

Change in fair value of contingent consideration

Change in fair value of contingent consideration consists of changes in estimated fair value of our potential earnouts related to our SciSafe, CBS, and Astero acquisitions.

Other income and expenses

Total other income and expenses for the years ended December 31, 2022, 2021, and 2020 were comprised of the following:

Change in fair value of warrant liability. Reflects the changes in fair value associated with the periodic “mark-to-market” valuation of certain warrants that were issued in 2014. See Note 1: “Organization and Significant Accounting Policies” of our accompanying Consolidated Financial Statements “Certain Warrants which have Features that may Result in Cash Settlement” for more information.

Change in fair value of investments. Reflects fair value adjustments to our investment in iVexSol.

Interest (expense) income, net. Interest expense incurred in the year ended December 31, 2022 related primarily to the loan obtained in September 2022 and two loans that were assumed in the acquisition of Global Cooling. We also earn interest on cash held in our money market account. Increases in interest expenses during the year ended December 31, 2022 can also be attributed to the increases in interest rates set by the United States Federal Reserve, causing the variable interest component on our 2022 term loan to be exposed to increasing interest rates.

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Gain on acquisition of Sexton Biotechnologies, Inc. Reflects the non-cash gain associated with our investment in Sexton due to the step-acquisition of the remaining shares of Sexton and subsequent consolidation of Sexton in our financial statements.

Income Tax Benefit

Income tax benefit for the years ended December 31, 2022, 2021 and 2020 was as follows:

The income tax benefit recognized in the year ended December 31, 2022 primarily related to losses generated in 2022. Our effective tax rate for 2022 was lower than the U.S. statutory rate of 21% primarily due to the change in our valuation allowance.

The income tax benefit recognized in the year ended December 31, 2021 primarily related to losses generated in 2021 and the recognition of the release of our valuation allowance related to the acquisition of Global Cooling. Our effective tax rate for 2021 was higher than the U.S. statutory rate of 21% primarily due to windfall benefits on stock compensation, 162(m) limitations on executive compensation, and the change in our valuation allowance.

Liquidity and capital resources

We believe our cash, cash equivalents, restricted cash, cash generated from operations, available-for-sale securities, and credit lines will satisfy, for at least the next twelve months from the date of this filing, our liquidity requirements, both globally and domestically, including the following: working capital needs, capital expenditures, contractual obligations, commitments, principal and interest payments on debt, and other liquidity requirements associated with our operations. We have not identified any material liquidity concerns as a result of the COVID-19 pandemic.

On December 31, 2022, we had $64.1 million in cash, cash equivalents, and available-for-sale securities, compared to $69.9 million as of December 31, 2021. The decrease in cash and cash equivalents is primarily due to significant investments made in available-for-sale securities, increased investment in property, plant, and equipment, decrease in working capital related accounts compared to the prior year, offset by the draw of $20 million during Q3 2022 on a term loan.

On September 20, 2022, the Company, and certain of its subsidiaries, entered into a term loan agreement, which provided for up to $50 million in aggregate principal to be drawn. The agreement provides for borrowings of up to $30 million upon closing and options to borrow up to $10 million between closing and June 30, 2023, up to $10 million upon the achievement of certain revenue milestones, and an additional $10 million upon the Company’s request subject to fulfilling certain requirements of the lender. The Company borrowed $20 million upon closing. For additional information on terms, see Note 13: Long-term debt.

On March 10, 2023, Silicon Valley Bank (“SVB”), the issuer of our term loan, was closed upon the appointment of the Federal Deposit Insurance Corporation (“FDIC”) as the receiver of SVB. In addition to the term loan, we have deposit accounts held at SVB captured within our cash, cash equivalents, and available-for-sale securities. However, as of March 13, 2023, all deposit amounts, regardless of amount in excess of FDIC-insured limits, were guaranteed to customers, mitigating any liquidity constraints.

On May 22, 2020, the Company closed on a share purchase agreement with Casdin Capital LLC, a current stockholder of the Company, pursuant to which Casdin invested $20.0 million in the Company at $10.50 per share.

On July 7, 2020, the Company closed its public offering of 5,951,250 shares of common stock at the public offering price of $14.50 per share, which includes the shares purchased pursuant to the exercise in full of the underwriters' option to purchase up to an additional 776,250 shares of its common stock. The net proceeds from the public offering to BioLife, after deducting underwriting discounts and commissions and estimated underwriter offering expenses of $6.1 million, were approximately $80.2 million.

On October 1, 2020, we acquired SciSafe for $15.0 million in cash, 611,683 shares of common stock, and up to 626,000 additional shares of common stock as contingent consideration. As of December 31, 2022 and 2021, 116,973 shares and 64,130 shares were earned, respectively. These shares will be issued during the year ended December 31, 2023.

Cash flows

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Operating activities

In the year ended December 31, 2022, our operating activities used cash of $8.5 million reflecting net loss of $139.8 million and non-cash charges totaling $146.2 million primarily related to impairment of intangible assets, depreciation, amortization, changes in fair value of contingent consideration, deferred income tax benefit, stock-based compensation, and non-cash lease charges. An increase in accrued expenses and current liabilities of $5.7 million was primarily driven by a $3.7 million non-income tax liability estimated for sales taxes owed and approximately $1.8 million increase in accrued compensation for increased headcount compared to the prior year. The increase in accrued expenses and current liabilities was offset by a $6.9 million reduction in warranty liability and $1.6 million reduction in accounts payable.

In the year ended December 31, 2021, our operating activities used cash of $4.6 million reflecting net loss of $8.9 million and non-cash charges totaling $6.6 million primarily related to depreciation, amortization, changes in the fair value of investments, changes in fair value of contingent consideration, deferred income tax benefit, stock-based compensation, and non-cash lease charges. An increase in accounts receivable of $10.1 million was primarily driven by the 148% year-to-date increase in revenues. The remaining cash provided by operating activities resulted from favorable changes in various other working capital accounts.

Investing activities

Our investing activities used $58.1 million of cash in the year ended December 31, 2022. We invested $44.6 million in available-for-sale securities in addition to continued investment in capital expenditures and purchases of assets held for rent, using an additional $13.9 million.

Our investing activities used $13.2 million of cash in the year ended December 31, 2021. We acquired $1.6 million in cash in the acquisitions of Global Cooling and Sexton. Capital expenditures and purchases of assets held for rent used $14.8 million as we continue to invest in our manufacturing and storage facilities.

Financing activities

In the year ended December 31, 2022, cash provided by financing activities was $16.3 million. The increase in cash provided by financing activities compared to the prior year is primarily due to drawing $20 million on a term loan obtained on September 20, 2022, offset by payments on outstanding debt of $1.7 million and payments on financed insurance premiums of $1.4 million.

In the year ended December 31, 2021, cash used by financing activities was $2.8 million. We used $4.2 million to pay off the line of credit assumed in the acquisition of Global Cooling. Other significant cash flows include $1.6 million provided by lenders to finance equipment for our continued expansion, $1.4 million provided by the exercise of stock options, and $1.0 million used to pay financed insurance premiums.

Contractual obligations

Our cash flows from operations are dependent on a number of factors, including fluctuations in our operating results, accounts receivable collections, inventory management, and the timing of tax and other payments. As a result, the impact of contractual obligations on our liquidity and capital resources in future periods should be analyzed in conjunction with such factors. Despite these uncertainties, we believe that our balances of cash, cash equivalents, available-for-sale securities, and restricted cash in addition to our cash flows from operations are adequate to meet our liquidity requirements in the next 12 months.

The following summarizes certain of our contractual obligations as of December 31, 2022 and the effect such obligations are expected to have on our cash flows in the next fiscal year:

Long-term debt, including interest

These amounts represent expected cash payments, including principal and interest. Debt obligations are described in Note 13 of the Consolidated Financial Statements. As of December 31, 2022, our total obligations were $25.6 million, of which $1.8 million was short-term.

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Lease obligations

We have various operating and financing lease agreements for office space, warehouses, manufacturing, research equipment, machinery, and production locations as well as vehicles and other equipment. Lease obligations are described in Note 6 of the Consolidated Financial Statements. As of December 31, 2022, our total obligations were $18.1 million, of which $3.0 million was short-term.

Purchase obligations

Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable pricing provisions and the approximate timing of the transactions. As of December 31, 2022, our total obligations were $507,000, of which $304,000 was short-term.

Purchase orders or contracts for the purchase of supplies and other goods and services are not included in the discussion above. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current procurement or developmental needs and fulfilled by our vendors within short time horizons.

Capital requirements

Our future capital requirements will depend on many factors, including the following:

Absent acquisitions of additional products, product candidates, or intellectual property, we believe our current cash balances are adequate to meet our cash needs for at least the next 12 months as of the date of this filing. We expect operating expenses in the year ending December 31, 2023 to increase as we continue to expand our CGT tools business. We expect to incur continued spending related to the research and development of new technology, expansion of our existing product lines, and expansion of our commercial capabilities for the foreseeable future, with an increased emphasis on the development of new products during the year ended December 31, 2023. Our future capital requirements may include, but are not limited to, purchases of property, plant and equipment, the acquisition of additional cell and gene therapy products and technologies to complement our existing manufacturing capabilities, and continued investment in our intellectual property portfolio.

We actively evaluate various strategic transactions on an ongoing basis, including acquiring complementary products, technologies or businesses that would complement our existing portfolio. We continue to seek to acquire such potential assets that may offer us the best opportunity to create value for our shareholders. In order to acquire such assets, we may need to seek additional financing to fund these investments. If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, including because of any such acquisition-related financing needs or lower demand for our products, we may seek to sell common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt funding. The sale of equity and convertible debt securities may result in dilution to our stockholders, and those securities may have rights senior to those of our common shares. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights. We may require additional capital beyond our currently anticipated amounts. Additional capital may not be available on reasonable terms, if at all.

Impacts of COVID-19

Our domestic and international operations have been and continue to be affected by the ongoing global pandemic of COVID-19 and the resulting volatility and uncertainty it has caused in the U.S. and international markets.

During year ended December 31, 2021, we experienced difficulties in obtaining sheet metal and electrical components incorporating semiconductor chips for the manufacture of our ULT freezer products due to the effects of COVID-19. These supply chain disruptions decreased the Company’s profitability as a result of increased supplier pricing and production stoppages. During the year ended December 31, 2022, supply chain bottlenecks were mitigated through the diversification of suppliers, resulting in improved pricing from the year ended December 31, 2021. We were still experiencing constraints in supply for semiconductor chips as of December 31, 2022. Though our costs to obtain semiconductor components normalized throughout the year, we were still experiencing constraints in obtaining electrical component parts. These constraints are expected to improve through diversification of our semiconductor supply chain partnerships. We have sufficient supply for electrical component parts within our operations for the foreseeable future.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Form 10-K contains “forward-looking statements”. These forward-looking statements involve a number of risks and uncertainties. We caution readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. These statements are based on current expectations of future events. Such statements include, but are not limited to, statements about our products, including our newly acquired products, customers, regulatory approvals, the potential utility of and market for our products and services, our ability to implement our business strategy and anticipated business and operations, in particular following the 2021, 2020, and 2019 acquisitions, future financial and operational performance, our anticipated future growth strategy, including the acquisition of synergistic cell and gene therapy manufacturing tools and services or technologies, or other companies or technologies, capital requirements, intellectual property, suppliers, joint venture partners, future financial and operating results, the impact of the COVID-19 pandemic, plans, objectives, expectations and intentions, revenues, costs and expenses, interest rates, outcome of contingencies, business strategies, regulatory filings and requirements, the estimated potential size of markets, capital requirements, the terms of any capital financing agreements and other statements that are not historical facts. You can find many of these statements by looking for words like “believes”, “expects”, “anticipates”, “estimates”, “may”, “should”, “will”, “could” “plan”, “intend”, or similar expressions in this Form 10-K. We intend that such forward-looking statements be subject to the safe harbors created thereby.

These forward-looking statements are based on the current beliefs and expectations of our management and are subject to significant risks and uncertainties. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results may differ materially from current expectations and projections. Factors that might cause such a difference include those discussed under “Risk Factors”, as well as those discussed elsewhere in the Form 10-K.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-K or, in the case of documents referred to or incorporated by reference, the date of those documents.

All subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events, except as may be required under applicable U.S. securities law. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

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We are a life sciences company that develops and commercializes innovative technologies used in the manufacture, storage and transportation of biological materials and provides storage solutions for biological and pharmaceutical materials.

We develop, manufacture, and market bioproduction tools and services to the cell and gene therapy (“CGT”) industry and broader biopharma market, which are designed to improve quality and de-risk biologic manufacturing, storage, and distribution. Our products are used in basic and applied research and commercial manufacturing of biologic-based therapies. Customers use our products to maintain the health and function of biologic material during sourcing, manufacturing, storage, and distribution.

Our current portfolio of bioproduction tools and services are comprised of three revenue lines that contain seven main offerings: (i) cell processing (including biopreservation media for the preservation of cells and tissues, human platelet lysate media for the supplementation of cell expansion, cryogenic vials and automated fill machines that provide high-quality, efficient, and precise mixes of solutions), (ii) freezers and thaw systems (including a full line of mechanical ULT, isothermal, and liquid nitrogen freezers and accessories, automated thaw devices which provide controlled, consistent thawing of frozen biologics in vials and cryobags), and (iii) storage and cold chain services (including biological and pharmaceutical storage services, and “smart”, cloud connected devices for transporting biologic payloads).

We currently operate as one bioproduction tools and services business which supports several steps in the biologic material manufacturing and delivery process. We have a diversified portfolio of tools and services that focus on biopreservation, cell processing, frozen biologic storage products and services, cold-chain transportation, and thawing of biologic materials. We have in-house expertise in cryobiology and continue to capitalize on opportunities to maximize the value of our product platform for our extensive customer base through both organic growth innovations and acquisitions.

Sexton Biotechnologies, Inc. acquisition

On August 9, 2021, BioLife entered into an Agreement and Plan of Merger (the “Sexton Merger Agreement”) with BLFS Merger Sub, Inc., a Delaware corporation (“Sexton Merger Sub”), Fortis Advisors LLC, in its capacity as the representative of the stockholders of Sexton (the “Sexton Seller Representative”) and Sexton Biotechnologies, Inc., a Delaware corporation.

On September 1, 2021, the Company completed the merger of Sexton Merger Sub with and into Sexton and Sexton became a wholly-owned subsidiary of the Company (the “Sexton Merger”). As consideration for the Sexton Merger (the “Sexton Merger Consideration”), holders of common stock, preferred stock and options of Sexton, other than the Company (collectively, the “Sexton Participating Holders”), are entitled to receive an aggregate of 530,502 newly issued shares of the Company’s common stock, subject to certain post-closing adjustments, of which 477,452 shares of Common Stock were issued to the Sexton Participating Holders at the Closing, and 53,050 shares of Common Stock, or approximately 10% of the Merger consideration, were deposited into an escrow account for indemnification and post-closing purchase price adjustment purposes. Prior to the merger, the Company held preferred stock in Sexton, which was accounted for using a measurement alternative that measures the securities at cost minus impairment, if any. The Company accounted for the merger as a step acquisition, which required remeasurement of the Company’s existing ownership in Sexton to fair value prior to completing the acquisition method of accounting. Using step acquisition accounting, the Company increased the value of its existing equity interest to its fair value, resulting in the recognition of a non-cash gain of $6.5 million, which was included in the gain on acquisition of Sexton Biotechnologies, Inc. in the Consolidated Statements of Operations in the year ended December 31, 2021. The Company utilized a market-based valuation approach to determine the fair value of the existing equity interest based on the total merger consideration offered and the Company’s stock price at acquisition.

The Sexton Merger was accounted for as a purchase of a business under FASB ASC Topic 805, Business Combinations. The fair value of the net tangible assets acquired was approximately $4.1 million, the deferred tax liability acquired was approximately $1.5 million, the fair value of the intangible assets acquired was approximately $8.8 million, and the residual goodwill was approximately $28.5 million. The fair value calculations required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.

Global Cooling, Inc. acquisition

On March 19, 2021, the Company entered into an Agreement and Plan of Merger (the “GCI Merger Agreement”) with BLFS Merger Subsidiary, Inc., a Delaware corporation (“GCI Merger Sub”), Global Cooling, a Delaware corporation and Albert Vierling and William Baumel, in their capacity as the representatives of the stockholders of GCI (collectively, the “GCI Seller Representative”).

On May 3, 2021, pursuant to the GCI Merger Agreement, subject to the terms and conditions set forth therein, the transactions contemplated by the GCI Merger Agreement were consummated (the “GCI Closing”), GCI Merger Sub merged with and into GCI (the “GCI Merger” and, together with other transactions contemplated by the GCI Merger Agreement, the “GCI Transactions”), with GCI continuing as the surviving corporation in the GCI Merger and a wholly-owned subsidiary of the Company. In the GCI Merger, all of the issued and outstanding shares of capital stock of GCI immediately prior to the filing of the Certificate of Merger with the Secretary of State of the State of Delaware (other than those properly exercising any applicable dissenter’s rights under Delaware law) were converted into the right to receive the GCI Merger Consideration (as defined below). The Company paid the GCI Merger Consideration to the holders of common stock and preferred stock of GCI (collectively, the “GCI Stockholders”).

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The aggregate merger consideration paid pursuant to the GCI Merger Agreement to the GCI Stockholders was 6,646,870 newly issued shares of common stock, provided, however, that the GCI Merger Consideration otherwise payable to GCI Stockholders is subject to the withholding of the GCI Escrow Shares (as defined below) and is subject to reduction for indemnification obligations. The GCI Merger Consideration allocable to one GCI stockholder was reduced by 10,400 shares to satisfy an outstanding note receivable of $374,000. In accordance with ASC 805, the Company recognized the settlement of pre-existing relationships in the forms of cash deposits, trade receivables, and trade payables, which are included in the consideration transferred. The GCI Merger Consideration is not subject to any purchase price adjustments.

At the GCI Closing, approximately nine percent (9%) of the GCI Merger Consideration (the “Escrow Shares”, along with any other dividends, distributions or other income on the GCI Escrow Shares, the “GCI Escrow Property”) otherwise issuable to the GCI Stockholders (allocated pro rata among the GCI Stockholders based on the GCI Merger Consideration otherwise issuable to them at the GCI Closing), was deposited into a segregated escrow account in accordance with an escrow agreement to be entered into in connection with the GCI Transactions (the “GCI Escrow Agreement”).

The GCI Escrow Property will be held for a period of up to twenty-four (24) months after the GCI Closing as the sole and exclusive source of payment for any post-GCI Closing indemnification claims (other than fraud claims), unless earlier released in accordance with the terms of the GCI Escrow Agreement.

The GCI Merger was accounted for as a purchase of a business under FASB ASC Topic 805, Business Combinations. The fair value of the net tangible assets acquired was $740,000, the deferred tax liability acquired was $24.1 million, the fair value of the intangible assets acquired was $120.5 million, and the residual goodwill was $137.8 million. The fair value calculations required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.

SciSafe Holdings, Inc. acquisition

On September 18, 2020, BioLife entered into a Stock Purchase Agreement, by and among the Company, SciSafe Holdings, Inc., a Delaware corporation, and the stockholders of SciSafe (collectively, the “SciSafe Sellers”), pursuant to which the Company agreed to purchase from the SciSafe Sellers one hundred percent (100%) of the issued and outstanding capital shares or other equity interests of SciSafe (the “SciSafe Acquisition”). The SciSafe Acquisition closed October 1, 2020.

In connection with the SciSafe Acquisition, the Company issued to the SciSafe 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 SciSafe Sellers an additional 626,000 shares of common stock, which are issuable to SciSafe Sellers upon SciSafe achieving certain specified revenue targets in each year from 2021 to 2024. The revenue target set for 2021 was met and, therefore, has resulted in 64,130 shares of common stock becoming issuable to the SciSafe Sellers.

The SciSafe Acquisition was accounted for as a purchase of a business under FASB ASC Topic 805, Business Combinations. The fair value of the contingent consideration was $3.7 million, the fair value of the net tangible assets acquired was $2.8 million, the deferred tax liability was $3.3 million, the fair value of the intangible assets acquired was $12.1 million, and the residual goodwill was $24.9 million. The fair value estimates required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.

Custom Biogenic Systems, Inc. Acquisition

On November 10, 2019, we entered into an Asset Purchase Agreement, by and among the Company, Arctic Solutions, Inc., a Delaware corporation and wholly-owned subsidiary of the Company, and Custom Biogenic Systems, Inc., a Michigan corporation (“CBS Seller”), pursuant to which we agreed to purchase from the CBS Seller substantially all of CBS Seller’s assets, properties and rights (the “CBS Acquisition”). The CBS Seller, a privately held company with operations located near Detroit, Michigan, designs and manufactures liquid nitrogen laboratory freezers and cryogenic equipment and also offers a related cloud-based monitoring system that continuously assesses biologic sample storage conditions and alerts equipment owners if a fault condition occurs. The Acquisition closed on November 12, 2019.

In connection with the CBS Acquisition, we paid to CBS Seller a base payment in the amount of $15.0 million, consisting of a cash payment of $11.0 million paid at the closing of the CBS Acquisition, less a cash holdback escrow of $550,000 to satisfy certain indemnification claims, and an aggregate number of shares of our common stock, with an aggregate fair value equal to $4.0 million, less a holdback escrow of shares of Common Stock with an aggregate value equal to $3.0 million to satisfy potential payments related to any product liability claims outstanding as of March 13, 2019 and potential earnout payments in calendar years 2020, 2021, 2022, 2023 and 2024 of up to an aggregate of, but not exceeding, $15.0 million payable to CBS Seller upon achieving certain specified revenue targets in each year for certain product lines. The revenue targets set for 2020 and 2021 were not met and no amounts were paid or are considered payable for the earnouts related to those years.

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The CBS acquisition was accounted for as a purchase of a business under FASB ASC Topic 805, Business Combinations. Under the acquisition method of accounting, the acquired assets and liabilities assumed from CBS were recorded as of the acquisition date, at their fair values, and consolidated with BioLife. The fair value of the net tangible assets acquired was $6.0 million, the fair value of the identifiable intangibles was $6.8 million, and the residual goodwill was $3.1 million. The fair value estimates required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.

SAVSU Technologies, Inc. Acquisition

On August 7, 2019, the Company consummated the acquisition (the “SAVSU Acquisition”) of the remaining shares of SAVSU Technologies, Inc., a Delaware corporation, pursuant to a Share Exchange Agreement (the “Exchange Agreement”) by and among the Company, SAVSU and SAVSU Origin LLC, a Delaware limited liability company (“Origin”). Pursuant to the Exchange Agreement, Origin agreed to transfer to the Company and the Company agreed to acquire from Origin 8,616 shares of common stock of SAVSU, representing the remaining 56% of the outstanding shares of SAVSU that the Company did not own, in exchange for 1,100,000 shares of common stock of the Company. On August 8, 2019, the Company completed the SAVSU Acquisition, and SAVSU became a wholly owned subsidiary of the Company.

SAVSU is a leading developer and supplier of next generation cold chain management tools for CGT. The evo® cloud connect platform allows biologic products to be traced and tracked in real time. Our evo platform consists of rentable cloud connected shippers and evo technology tracking software provides real-time information on geolocation, payload temperature, ambient temperature, tilt of shipper, humidity, altitude, and real-time alerts when a shipper has been opened. Our internally developed evo software allows customers to customize alert notifications both in data measurements and user requirements. The evo Dry Vapor Shipper (“DVS”) is specifically marketed to CGT companies. The evo DVS has improved form factor and ergonomics over the traditional dewar, including extended thermal performance, reduced liquid nitrogen recharge time, improved payload extractors and ability to maintain temperature for longer periods on its side. The evo DVS does not require to be shipped in a pallet format, enabling shipping on narrow-bodied aircraft which is not an option for competitors who use palletized shipments. Our integrated system of internal and external packing innovations reduces risk of payload breakage due to shock while in transportation.

The Company paid to Origin 1,100,000 shares of unregistered common stock totaling $19.9 million (based on a share price of $18.12 at the time of acquisition) for the 56% we did not previously own.

The SAVSU Acquisition was accounted for as a purchase of a business under ASC 805, Business Combinations. Under the acquisition method of accounting, the acquired assets and liabilities assumed from SAVSU were recorded as of the acquisition date, at their fair values, and consolidated with BioLife. The fair value of the net tangible assets acquired was $4.2 million, the fair value of the identifiable intangibles was $12.2 million, and the residual goodwill was $19.5 million. The fair value estimates required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.

Astero Bio Corporation Acquisition

On April 1, 2019, BioLife completed the acquisition of all the outstanding shares of Astero (the “Astero Acquisition”). Astero’s ThawSTAR product line is comprised of a family of automated thawing devices for frozen cell and gene therapies packaged in cryovials and cryobags. The products improve the quality of administration of high-value, temperature-sensitive biologic therapies to patients by standardizing the thawing process and reducing the risks of contamination and overheating, which are inherent with the use of traditional water baths.

In connection with the Astero Acquisition, the Company paid a base payment in the amount of $12.5 million consisting of an initial cash payment of $8.0 million at the closing of the transactions contemplated by the Purchase Agreement, subject to adjustment for working capital, net debt and transaction expenses, and a deferred cash payment that was paid into escrow of $4.5 million payable upon the earlier of Astero meeting certain product development milestones or one year after the date of the Closing. In addition to the consideration paid, the sellers were eligible to receive earnout payments in calendar years 2021, 2020, and 2019 of up to an aggregate of $3.5 million, which would have been payable upon Astero achieving certain specified revenue targets in each year and a separate earnout payment of $5.0 million for calendar year 2021 which would have been payable upon Astero achieving a cumulative revenue target over the three-year period from 2019 to 2021. In the second quarter of 2020 we paid $483,000 for the earnout related to 2019 revenues. Revenue targets for 2020, 2021, and the cumulative period from 2019 to 2021 were not met and no amounts were paid or are considered payable for the earnouts related to those years.

The Astero acquisition was accounted for as a purchase of a business under FASB ASC Topic 805, Business Combinations. Under the acquisition method of accounting, the assets acquired and liabilities assumed from Astero were recorded as of the acquisition date, at their respective fair values, and consolidated with those of BioLife. The fair value of the contingent consideration of $1.5 million was determined using an option pricing model. The fair value of the net tangible assets acquired was $324,000, the fair value of the intangible assets acquired was $4.1 million, and the residual goodwill was $9.5 million. The fair value estimates required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.

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Critical accounting policies and estimates

We have identified the policies and estimates below as being critical to our business operations and the understanding of our results of operations. These policies require management’s most difficult, subjective or complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The impact of any associated risks related to these policies on our business operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition,” including in the “Results of Operations” section, where such policies affect our reported and expected financial results. Although we believe that our estimates, assumptions, and judgements are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.

Revenue recognition

To determine revenue recognition for contractual arrangements that we determine are within the scope of Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contracts with Customers, we perform the following five steps: (i) identify each contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to our performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the relevant performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price, taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. Payment terms and conditions vary, although terms generally include a requirement of payment within 30 to 90 days.

The Company primarily recognizes product revenues, service revenues, and rental revenues. Product revenues are generated from the sale of biopreservation media, ThawSTAR, and freezer products. We recognize product revenue, including shipping and handling charges billed to customers, when we transfer control of our products to our customers. Shipping and handling costs are classified as part of cost of product revenue in the Consolidated Statement of Operations. Service revenues are generated from the storage of biological and pharmaceutical materials. We recognize service revenues over time as services are performed or ratably over the contract term. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount method, depending on the facts and circumstances relative to the contract. When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. 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 years ended December 31, 2021, 2020, and 2019.

The Company also generates revenue from the leasing of our property, plant, and equipment, operating right-of-use assets, and evo cold chain systems to customers pursuant to service contracts or rental arrangements entered into with the customer. Revenue from these arrangements is not within the scope of FASB ASC Topic 606 as it is within the scope of FASB ASC Topic 842, Leases. All customers leasing shippers currently do so under month-to-month rental arrangements. We account for these rental transactions as operating leases and record rental revenue on a straight-line basis over the rental term.

Business combinations

Amounts paid for acquisitions are allocated to the tangible and intangible assets acquired and liabilities assumed, if any, based on their fair values at the dates of acquisition. This purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets and deferred revenue obligations. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions determined by management. Any excess of purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as any contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our Consolidated Statements of Operations. The fair value of contingent consideration includes estimates and judgments made by management regarding the probability that future contingent payments will be made, the extent of royalties to be earned in excess of the defined minimum royalties, etc. Management updates these estimates and the related fair value of contingent consideration at each reporting period based on the estimated probability of achieving the earnout targets and applying a discount rate that captures the risk associated with the expected contingent payments. To the extent our estimates change in the future regarding the likelihood of achieving these targets we may need to record material adjustments to our accrued contingent consideration. Changes in the fair value of contingent consideration are recorded in our Consolidated Statements of Operations. We use the income approach to determine the fair value of certain identifiable intangible assets including customer relationships and developed technology. This approach determines fair value by estimating after-tax cash flows attributable to these assets over their respective useful lives and then discounting these after-tax cash flows back to a present value. We base our assumptions on estimates of future cash flows, expected growth rates, expected trends in technology, etc. We base the discount rates used to arrive at a present value as of the date of acquisition on the time value of money and certain industry-specific risk factors. We believe the estimated purchased customer relationships, developed technologies, trademarks, tradenames, patents, and in process research and development amounts so determined represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the assets.

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Intangible assets and goodwill

Intangible assets

Intangible assets with a definite life are amortized over their estimated useful lives using the straight-line method and the amortization expense is recorded within intangible asset amortization in the Consolidated Statements of Operations. If the estimate of a definite-lived intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. Definite-lived intangible assets and their related estimated useful lives are reviewed at least annually to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. The Company determined that no adverse conditions existed that would indicate that the carrying value of these assets may not be recoverable.

Indefinite-lived intangibles are carried at the initially recorded fair value less any recognized impairment. In-process research and development (“IPR&D”) is initially capitalized at fair value as an intangible asset with an indefinite life. When the IPR&D project is complete, it is reclassified as a definite-lived intangible asset and is amortized over its estimated useful life. If an IPR&D project is abandoned, a charge would be recorded for the value of the related intangible asset to our Consolidated Statement of Operations in the period it is abandoned. Indefinite-lived intangibles are tested annually for impairment. Impairment assessments are conducted more frequently if certain conditions exist, including a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the marketplace, including changes in the prices paid for the Company’s products or changes in the size of the market for the Company’s products. If impairment indicators are present, the Company determines whether the underlying intangible asset is recoverable through estimated future undiscounted cash flows. If the asset is not found to be recoverable, it is written down to the estimated fair value of the asset based on the sum of the future discounted cash flows expected to result from the use and disposition of the asset. The Company performed a quantitative impairment test of one of the IPR&D assets acquired during 2021 during the fourth quarter of 2021 and determined that no impairment existed. The Company performed a qualitative test for the other IPR&D assets acquired during 2021 and determined that no impairment existed.

Goodwill

We test goodwill for impairment on an annual basis, and between annual tests if events and circumstances indicate it is more likely than not that the fair value of our goodwill is less than its carrying value. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, including a decline in the Company’s market capitalization, a significant adverse change in legal factors, business climate or operational performance of the business, and an adverse action or assessment by a regulator. Goodwill is tested for impairment in the fourth quarter of each year, or more frequently as warranted by events or changes in circumstances mentioned above. Accounting guidance also permits an optional qualitative assessment for goodwill to determine whether it is more likely than not that the carrying value of a reporting unit exceeds its fair value. If, after this qualitative assessment, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then no further quantitative testing would be necessary. A quantitative assessment is performed if the qualitative assessment results in a more likely than not determination or if a qualitative assessment is not performed. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value. The Company operates as one reporting unit as of the goodwill impairment measurement date in the fourth quarter of 2021. As of the testing date and the period after that date through the issuance date of our financial statements, the Company has observed no indicators of potential goodwill impairment at any point during the period based on its qualitative assessment.

Warranty guarantees

Our freezer and thaw and certain cell processing products are warranted to provide assurance that the product will function as expected and to ensure customer confidence in design and overall quality. Warranty coverage on our products is generally provided for specified periods of time and on select products' hours of usage, and generally covers parts, labor, and other expenses for non-maintenance repairs. Warranty coverage generally does not cover operator abuse or improper use.

At the time of sale, we recognize expense and record a warranty accrual by product line for estimated costs in connection with forecasted future warranty claims. Our estimate of the cost of future warranty claims is based primarily on the estimated number of products under warranty, historical average costs incurred to service warranty claims, the trend in the historical ratio of warranty claims for each part covered, and the historical length of time between the sale and resulting warranty claim. If applicable, historical claims experience may be adjusted for known product design improvements or for the impact of unusual product quality issues. We periodically assess the adequacy of our warranty accruals based on changes in our estimates and assumptions and record any necessary adjustments if the cost of actual claim experience differs from our estimate and indicates that adjustments to our warranty accrual are necessary. Factors that could have an impact on actual future claims and our warranty accrual include, but are not limited to, items such as performance of new products; product failure rates; factors impacting product usage, such as changes in sales volumes and shifts in product mix; manufacturing quality and product design issues, including significant manufacturing or design defects not discovered until after the product is delivered to customers; higher or lower than expected service and component part costs to satisfactorily address the repair, and, if applicable, changes to the warranty coverage periods. Additionally, from time to time, we also establish warranty accruals for our estimate of the costs necessary to settle major rework campaigns on a product-specific basis during the period in which the circumstances giving rise to the major rework campaign become known and when the costs to satisfactorily address the situation are both probable and estimable. The warranty accrual for the cost of a major rework campaign is primarily based on an estimate of the cost to repair each affected unit and the number of affected units expected to be repaired.

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We believe that our analysis of historical warranty claim trends and knowledge of potential manufacturing and/or product design improvements or issues provide sufficient information to establish a reasonable estimate for the cost of future warranty claims at the time of sale and our warranty accruals as of the date of our Consolidated Balance Sheets. We believe that our $9.4 million warranty accrual as of December 31, 2021 is adequate and historically has been adequate; however, due to the inherent uncertainty in the accrual estimation process, including forecasting future warranty claims, costs associated with servicing future warranty claims, and unexpected major rework campaigns that may arise in the future, our actual warranty costs incurred may differ from our warranty accrual estimate. An unexpected increase in warranty claims and/or in the costs associated with servicing those claims would result in an increase in our warranty accruals and a decrease in our net earnings.

Contingent consideration

We estimate the acquisition date fair value of the acquisition-related contingent consideration using various valuation approaches, including option pricing models and Monte Carlo simulations, as well as significant unobservable inputs, reflecting the Company’s assessment of the assumptions market participants would use to value these liabilities. The fair value of the contingent consideration is remeasured each reporting period, with any change in the value recorded in our Consolidated Statements of Operations as change in fair value of contingent consideration.

Stock-based compensation

We measure and record compensation expense using the applicable accounting guidance for share-based payments related to stock options, time-based restricted stock, market-based restricted stock awards and performance-based awards granted to our directors and employees. The fair value of stock options is determined by using the Black-Scholes option-pricing model. The fair value of market-based restricted stock awards is estimated, at the date of grant, using the Monte Carlo Simulation model. The Black-Scholes and Monte Carlo Simulation valuation models incorporate assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. In valuing our stock options and market-based stock awards, significant judgment is required in determining the expected volatility of our common stock. Expected volatility for stock options is based on the historical and implied volatility of our own common stock while the volatility for our market-based restricted stock awards is based on the historical volatility of our own stock and the stock of companies within our defined peer group. Further, our expected volatility may change in the future, which could substantially change the grant-date fair value of future awards and, ultimately, the expense we record. The fair value of restricted stock, including performance awards, without a market condition is estimated using the current market price of our common stock on the date of grant.

We expense stock-based compensation for stock options, restricted stock awards, and performance awards over the requisite service period. For awards with only a service condition, we expense stock-based compensation using the straight-line method over the requisite service period for the entire award. For awards with a market condition, we expense over the vesting period regardless of the value that the award recipients will ultimately receive.

Provision for income taxes

The assessment regarding whether a valuation allowance is required considers both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. In making this assessment, significant weight is given to evidence that can be objectively verified. In its evaluation, the Company considered its cumulative loss and its forecasted losses in the near-term as significant negative evidence. Based upon a review of the four sources of income identified within ASC 740, Accounting for Income Taxes, the Company determined that the Company’s recorded deferred tax liabilities as of December 31, 2021 would be a sufficient source of taxable income to realize all of its deferred tax assets except for a portion of its net operating loss carryforwards. As a result, a partial valuation allowance on its deferred tax assets was recorded as of December 31, 2021. The Company will continue to assess the realizability of its assets going forward and will adjust the valuation allowance as needed.

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, 2021, the Company has an unrecorded tax benefit of $255,000 related to tax attributes being carried forward. 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.

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As of December 31, 2021, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $120.6 million, which is available to reduce future taxable income. Approximately $39.5 million of NOL will expire from 2022 through 2037, and approximately $81.1 million of NOL will be carried forward indefinitely. The NOL carryforwards are subject to an annual limitation in the event of certain cumulative changes in the ownership interest. This limits the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. Subsequent ownership changes may further affect the limitation in future years.

Recent accounting standards update

See Note 1: “Organization and significant accounting policies – recent accounting pronouncements,” to our Consolidated Financial Statements included in this report for more information.

Results of operations

The following discussion of the financial condition and results of operations should be read in conjunction with the accompanying Consolidated Financial Statements and the related footnotes thereto.

Revenue

Revenues diversified significantly in the year ended December 31, 2021 as compared to the year ended December 31, 2020. This diversification was primarily driven by the acquisition of Global Cooling and Sexton in May and September of 2021, respectively. Most notably, the Company’s freezer and thaw revenues increased by 318% as a result of the acquisition of Global Cooling and growth in LN2 freezer sales. Revenues also diversified significantly in the year ended December 31, 2020 as compared to the year ended December 31, 2019. This diversification was primarily driven by the acquisition of SciSafe in October of 2020 and the recognition of a full year of revenue from the acquisition of Custom Biogenic Systems in November of 2019. Given the Company’s acquisition strategy, we expect product diversification to continue in future periods as the Company executes its strategy and makes additional acquisitions.

Revenue concentrations with one customer increased to 17% in the year ended December 31, 2021 from 13% from a different customer in the year ended December 31, 2020, primarily as a result of concentrations of sales to a prominent international distributor. Revenue concentrations with one customer decreased to 13% in the year ended December 31, 2020 from 15% from the same customer in the year ended December 31, 2019, primarily due to the expansion of the Company’s customer base through the aforementioned acquisitions. We expect customer concentrations to diminish as revenues increase and we expand our presence in the global markets in which we participate.

Revenue for years ended December 31, 2021, 2020, and 2019 were comprised of the following:

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In the year ended December 31, 2021, revenue increased by $71.1 million, or 148%, from the year ended December 31, 2020. Of this increase, $40.9 million, or 85%, was driven by inorganic growth from the acquisitions of Global Cooling and Sexton. The remaining $30.2 million, or 63%, of the increase was driven primarily by organic growth in our biological and pharmaceutical storage and biopreservation media product lines of $13.0 million and $12.2 million, respectively.

In the year ended December 31, 2020, revenue increased by $20.7 million, or 76%, from the year ended December 31, 2019. Of this increase, $1.8 million, or 6%, was driven by inorganic growth from the acquisition of SciSafe. The remaining $18.9 million, or 70%, of the increase was driven primarily by organic growth in our biopreservation media product line of $7.6 million and the recognition of a full year of revenue from the acquisition of Custom Biogenic Systems in November of 2019, which contributed $9.7 million of incremental revenue in 2020.

Revenue is impacted by the relatively high degree of customer concentration, the timing of orders, the development efforts of our customers or end-users and regulatory approvals for biologics that incorporate our products, which may result in significant quarterly fluctuations. Such fluctuations are expected, but they may not be predictive of future revenue or otherwise indicative of a trend.

Costs and operating expenses

Total costs and operating expenses for years ended December 31, 2021, 2020, and 2019 were comprised of the following:

Cost of product, rental, and service revenue

In the year ended December 31, 2021, cost of product, rental, and service revenue increased $61.5 million or 298% from the year ended December 31, 2020. Of this increase, $44.2 million, or 214%, was driven by inorganic growth from the acquisitions of Global Cooling and Sexton. The remaining $17.3 million, or 84%, of the increase was driven primarily by organic growth in our biopreservation media and biological and pharmaceutical storage product lines.

In the year ended December 31, 2020, cost of product, rental, and service revenue increased $11.9 million or 136% from the year ended December 31, 2019. Of this increase, $1.2 million, or 14%, was driven by inorganic growth from the acquisition of SciSafe. The remaining $10.7 million, or 122%, of the increase driven primarily by organic growth in our biopreservation media product line and the recognition of a full year of costs from the acquisition of Custom Biogenic Systems in November of 2019.

We expect the cost of product, rental, and service revenue to fluctuate in future quarters based on production volumes, product mix, and the impact of any future acquisitions.

Cost of product, rental, and service revenue as a percentage of revenue was 69%, 43%, and 32% for the years ended December 31, 2021, 2020, and 2019, respectively. Cost of product, rental, and service revenue in the years ended December 31, 2021, 2020, and 2019 includes $1.1 million, $411,000, and $289,000, respectively, in inventory step-up expense recorded in the purchase accounting of our Global Cooling, Custom Biogenic Systems, and AsteroBio acquisitions.

The increase in cost of product, rental, and service revenue as a percentage of revenue to 69% in the year ended December 31, 2021 from 43% in the year ended December 31, 2020 is primarily a result of the acquisitions of Global Cooling and Sexton, which were acquired in May and September of 2021, respectively. Of the increase noted, $43.0 million was recognized by Global Cooling and $1.2 million was recognized by Sexton. $9.8 million of the costs recognized by Global Cooling were incurred in relation to warranty expenses. In the third and fourth quarters of 2021, Global Cooling experienced supply chain disruptions related to sheet metal and electronic components that incorporate semiconductor chips that led to increased supplier pricing and delays in production that led to a lower margin profile than we believe to otherwise be achievable. We believe that the supply chain risks that were present in these quarters have been significantly mitigated through the diversification of sheet metal suppliers and strategic agreements with electronic component suppliers.

The increase in cost of product, rental, and service revenue as a percentage of revenue to 43% in the year ended December 31, 2020 from 32% in the year ended December 31, 2019 is primarily a result of the acquisition of SciSafe, which was acquired in October of 2020 and the recognition of a full year of costs from the acquisition of Custom Biogenic Systems in November of 2019. Of the increase noted, SciSafe recognized $1.2 million, whereas the incremental costs recognized by Custom Biogenic Systems in the year ended December 31, 2021 amounted to $7.2 million.

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Research and development expenses

During the years ended December 31, 2021, 2020, and 2019, research and development (“R&D”) expense consisted primarily of personnel-related costs, consulting, and external product development services.

R&D expense increased $5.1 million in the year ended December 31, 2021, or 76%, compared with the year ended December 31, 2020. The increase is primarily due to in-process research and development costs associated with the freezer technology acquired in the acquisition of Global Cooling.

R&D expense increased $3.6 million in the year ended December 31, 2020, or 112%, compared with the year ended December 31, 2019. The increase is primarily due to recognition of a full year of research and development activity from the acquisitions of Custom Biogenic Systems, SAVSU, and AsteroBio in the year ended December 31, 2019. Additionally, the Company invested increased levels of capital into the refinement of its cold chain shipper products in the year ended December 31, 2020.

We expect our R&D expense to increase as we continue to expand, develop, and refine our product lines.

Sales and marketing expenses

Sales and marketing expense (“S&M”) consisted primarily of personnel-related costs, stock compensation expense, trade shows, sales commissions and advertising.

S&M expense increased $7.6 million in the year ended December 31, 2021, or 118%, compared with the year ended December 31, 2020. Of this increase, $4.4 million, or 68%, was incurred by Global Cooling. The remaining costs primarily relate to additional headcount of $1.2 million, commission expense associated with organic revenue growth of $413,000, and stock-based compensation of $691,000.

S&M expense increased $1.7 million in the year ended December 31, 2020, or 36%, compared with the year ended December 31, 2019. Of this increase, $336,000 was composed of incremental costs associated with a full year’s ownership of Custom Biogenic Systems, $306,000 was composed of incremental costs associated with a full year’s ownership of SAVSU, and $139,000 was composed of incremental costs associated with a full year’s ownership of AsteroBio. The remaining costs primarily relate to additional headcount of $506,000.

We expect S&M expense to increase, as we expand our product line offerings and our presence in the markets in which we participate.

General and administrative expenses

General and administrative (“G&A”) expense consists primarily of personnel-related expenses, non-cash stock-based compensation for administrative personnel and members of the board of directors, professional fees, such as accounting and legal, and corporate insurance.

In the year ended December 31, 2021, G&A expenses increased by $17.8 million, or 122%, compared with the year ended December 31, 2020. Of this increase, $4.2 million, or 29%, was incurred by Global Cooling. The remaining costs primarily relate to stock-based compensation awarded to attract and retain talent of $4.4 million, accounting fees of $1.4 million, insurance expense of $524,000, and the continued buildout of our administrative infrastructure, predominantly through increased headcount of $4.6 million, to support expected future growth.

In the year ended December 31, 2020, G&A expenses increased by $5.7 million, or 64%, compared with the year ended December 31, 2019. Of this increase, $1.3 million, or 22%, was composed of incremental costs associated with a full year’s ownership of Custom Biogenic Systems and $471,000, or 8%, associated with a full year’s ownership of SAVSU. The remaining costs primarily relate to stock-based compensation awarded to attract and retain talent and the continued buildout of our administrative infrastructure, predominantly through increased headcount, to support expected future growth.

We expect G&A expense to increase as we continue to execute on our growth strategy.

Intangible asset amortization expense

Amortization expense consists of charges related to the amortization of intangible assets associated with the acquisitions of Global Cooling, Custom Biogenic Systems, SciSafe, SAVSU, and AsteroBio in which we acquired definite-lived intangible assets.

Acquisition costs

Acquisition costs consist of legal, accounting, third-party valuations, and other due diligence costs related to our Global Cooling, Custom Biogenic Systems, SciSafe, Sexton, SAVSU, and AsteroBio acquisitions.

Change in fair value of contingent consideration

Change in fair value of contingent consideration consists of changes in estimated fair value of our potential earnouts related to our SciSafe, CBS, and Astero acquisitions.

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Other income and expenses

Total other income and expenses for the years ended December 31, 2021, 2020, and 2019 were comprised of the following: