# BIOLIFE SOLUTIONS INC (BLFS) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from BIOLIFE SOLUTIONS INC's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/834365/000143774922007869/bioli20211231_10k.htm
Accession: 0001437749-22-007869
Filing date: 2022-03-31
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/BLFS/
All MD&A years: /company/BLFS/mda/
Next year: /company/BLFS/mda/fy2022/ (FY 2022)

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:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","","2021 vs. 2020","","","2020 vs. 2019"],["(In thousands, except percentages)","","2021(1)","","","2020(2)","","","2019(3)","","","$ Change","","","% Change","","","$ Change","","","% Change"],["Product revenue"],["Freezer and thaw","","$","56,620","","","$","13,548","","","$","3,312","","","$","43,072","","","","318","%","","$","10,236","","","","309","%"],["Cell processing","","","44,965","","","","30,946","","","","23,367","","","","14,019","","","","45","%","","","7,579","","","","32","%"],["Storage and cold chain services","","","328","","","","46","","","","165","","","","282","","","","613","%","","","(119",")","","","(72",")%"],["Service revenue"],["Storage and cold chain services","","","9,817","","","","1,752","","","","-","","","","8,065","","","","460","%","","","1,752","","","","-","%"],["Rental revenue"],["Storage and cold chain services","","","7,426","","","","1,795","","","","527","","","","5,631","","","","314","%","","","1,268","","","","241","%"],["Total revenue","","$","119,156","","","$","48,087","","","$","27,371","","","$","71,069","","","","148","%","","$","20,716","","","","76","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(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."],["(2)","2020 revenue includes service revenue related to SciSafe from October 1, 2020 through December 31, 2020."],["(3)","2019 revenue includes product revenue related to Astero from April 1, 2019 through December 31, 2019; rental revenue related to SAVSU from August 8, 2019 through December 31, 2019; and product revenue related to CBS from November 12, 2019 through December 31, 2019."]]
[[/GREPCENT_TABLE]]

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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:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","","2021 vs. 2020","","","2020 vs. 2019"],["(In thousands, except percentages)","","2021","","","2020","","","2019","","","$ Change","","","%","","","$ Change","","","%"],["Cost of product, rental, and service revenue","","$","82,108","","","$","20,646","","","$","8,760","","","$","61,462","","","","298","%","","$","11,886","","","","136","%"],["Research and development","","","11,821","","","","6,720","","","","3,168","","","","5,101","","","","76","%","","","3,552","","","","112","%"],["Sales and marketing","","","14,006","","","","6,413","","","","4,701","","","","7,593","","","","118","%","","","1,712","","","","36","%"],["General and administrative","","","32,448","","","","14,607","","","","8,893","","","","17,841","","","","122","%","","","5,714","","","","64","%"],["Intangible asset amortization","","","8,202","","","","3,033","","","","1,079","","","","5,169","","","","170","%","","","1,954","","","","181","%"],["Acquisition costs","","","1,636","","","","668","","","","940","","","","968","","","","145","%","","","(272",")","","","(29",")%"],["Change in fair value of contingent consideration","","","2,875","","","","1,575","","","","50","","","","1,300","","","","83","%","","","1,525","","","","3,050","%"],["Total operating expenses","","$","153,096","","","$","53,662","","","$","27,591","","","$","99,434","","","","185","%","","$","26,071","","","","94","%"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","","2021 vs. 2020","","","2020 vs. 2019"],["(In thousands, except percentages)","","2021","","","2020","","","2019","","","$ Change","","","% Change","","","$ Change","","","% Change"],["Change in fair value of warrant liability","","$","(121",")","","$","3,601","","","$","(12,835",")","","$","(3,722",")","","","(103",")%","","$","16,436","","","","(128",")%"],["Change in fair value of investments","","","-","","","","1,319","","","","-","","","","(1,319",")","","","(100",")%","","","1,319","","","","-","%"],["Interest (expense) income, net","","","(432",")","","","58","","","","501","","","","(490",")","","","(845",")%","","","(443",")","","","(88",")%"],["Other income (expense)","","","289","","","","-","","","","(13",")","","","289","","","","-","%","","","13","","","","(100",")%"],["Loss from equity-method investment in SAVSU","","","-","","","","-","","","","(739",")","","","-","","","","-","%","","","739","","","","(100",")%"],["Gain on acquisition of SAVSU","","","-","","","","-","","","","10,108","","","","-","","","","-","%","","","(10,108",")","","","(100",")%"],["Gain on acquisition of Sexton Biotechnologies, Inc.","","","6,451","","","","-","","","","-","","","","6,451","","","","-","%","","","-","","","","-","%"],["Total other income (expense), net","","$","6,187","","","$","4,978","","","$","(2,978",")","","$","1,209","","","","24","%","","$","7,956","","","","(267",")%"]]
[[/GREPCENT_TABLE]]

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 the fair value adjustments to our investment in iVexSol convertible debt prior to its conversion to Series A-1 Preferred Stock. The fair value was determined by expected term of the instrument, the underlying credit worthiness of iVexSol and the valuation of various embedded features in the note, which were based on future financings of iVexSol. The expected term range of our estimate was 1 to 5 years, with projected weighting over this term.

Interest (expense) income, net. Interest expense incurred in the year ended December 31, 2021 related primarily to three term loans that were assumed in the acquisition of Global Cooling. These term loans were refinanced in the fourth quarter of 2021 to obtain more favorable interest rates to the Company. We also earn interest on cash held in our money market account. Despite having a higher average cash balance in the year ended December 31, 2020 as compared to the year ended December 31, 2019, yields in our money market account dropped steeply between February and March of 2020 due to reduced interest rates set by the United States Federal Reserve, causing interest income to be significantly lower for the remainder of 2020 and the year ended December 31, 2021.

Loss on equity method investment. Reflects the non-cash loss associated with our proportionate share of the net loss in our investment in SAVSU prior to our acquisition of the remaining shares of SAVSU and subsequent consolidation of SAVSU in our financial statements.

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

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, 2021, 2020 and 2019 was as follows:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","","2021 vs. 2020","","","2020 vs. 2019"],["(In thousands, except percentages)","","2021","","","2020","","","2019","","","$ Change","","","% Change","","","$ Change","","","% Change"],["Income tax benefit","","$","20,118","","","$","3,264","","","$","1,541","","","$","16,854","","","","516","%","","$","1,723","","","","112","%"],["Effective tax rate","","","72","%","","","547","%","","","47","%"]]
[[/GREPCENT_TABLE]]

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.

The income tax benefit recognized in the year ended December 31, 2020 primarily related to the partial release of our valuation allowance related to the acquisition of SciSafe. Our effective tax rate in 2020 was significantly higher than the U.S. statutory rate of 21% primarily due to windfall benefits on stock compensation, changes in the fair value of our warrant liability, changes in the fair value of contingent consideration, and the expiration of net operating losses.

The income tax benefit recognized in the year ended December 31, 2019 primarily related to the recognition of partial release of our valuation allowance related to the acquisitions of SAVSU and Astero. Our effective tax rate was higher than the U.S. statutory rate of 21% due primarily to changes in the fair value of our warrant liability, windfall benefits on stock compensation, and gain recognized on our acquisition of SAVSU.

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Liquidity and capital resources

We believe our cash and cash equivalents, cash generated from operations, and credit lines will satisfy, for at least the next twelve months, our liquidity requirements, both globally and domestically, including the following: working capital needs, capital expenditures, business acquisitions, 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, 2021, we had $69.9 million in cash and cash equivalents, compared to $90.4 million as of December 31, 2020. The decrease in cash is primarily due to the payoff of debt and liabilities acquired in the Global Cooling transaction, the use of capital for funding operations, and the expansion of our storage services footprint both domestically and in the Netherlands.

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. 64,130 of the additional shares were earned as of December 31, 2021 and will be issued in the year ended December 31, 2022.

Cash flows

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","","2021 vs. 2020","","","2020 vs. 2019"],["(In thousands)","","2021","","","2020","","","2019","","","$ Change","","","% Change","","","$ Change","","","% Change"],["Operating activities","","$","(4,593",")","","$","6,645","","","$","1,213","","","$","(11,238",")","","","(169",")%","","$","5,432","","","","448","%"],["Investing activities","","","(13,192",")","","","(24,715",")","","","(27,018",")","","","11,523","","","","(47",")%","","","2,303","","","","(9",")%"],["Financing activities","","","(2,778",")","","","102,078","","","","1,596","","","","(104,856",")","","","(103",")%","","","100,482","","","","6,296","%"],["Net (decrease) increase in cash and cash equivalents","","$","(20,563",")","","$","84,008","","","$","(24,209",")","","$","(104,571",")","","","(124",")%","","$","108,217","","","","(447",")%"]]
[[/GREPCENT_TABLE]]

Operating activities

In the year ended December 31, 2021, our operating activities used cash of $4.6 million reflecting net loss of $7.6 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.

In the year ended December 31, 2020, our operating activities provided cash of $6.6 million reflecting net income of $2.7 million and non-cash charges totaling $5.8 million primarily related to depreciation, amortization, changes in the fair value of investments, changes in fair value of contingent consideration, income tax benefit related to the acquisition of SciSafe, change in the fair value of the warrant liability, and stock-based compensation charges. An increase in accounts receivable of $1.8 million was primarily driven by the 76% year-to-date increase in revenues and an increase in inventory used $629,000 to support future revenue. These cash items used for operating activities were offset by cash items provided by operating activities that included an increase in accrued liabilities of $780,000. The remaining cash used in operating activities resulted from unfavorable changes in various other working capital accounts.

In the year ended December 31, 2019, our operating activities provided cash of $1.2 million, reflecting a net loss of $1.7 million and non-cash charges totaling $7.3 million primarily related to depreciation, amortization, gain on acquisition of SAVSU, changes in fair value contingent consideration, income tax benefit related to the acquisition of SAVSU, fair value change in warrant liability and stock-based compensation charges. An increase in accounts receivable used $290,000 of cash and was primarily driven by the 39% year-to-date increase in revenues and an increase in inventory used $3.8 million to support future revenue. These cash items used for operating activities were offset by cash items provided by operating activities that included an increase in accounts payable of $768,000. The remaining cash used in operating activities resulted from unfavorable changes in various other working capital accounts.

Investing activities

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.

Our investing activities used $24.7 million of cash in the year ended December 31, 2020. We used $15.0 million in cash for the SciSafe acquisition. We also invested $1.0 million and $995,000 in our strategic investments in iVexSol and PanTHERA, respectively. Capital expenditures, deposits on future capital expenditures, purchases of assets held for rent, and deposits made on assets held for rent used $7.8 million.

Our investing activities used $27.0 million of cash in the year ended December 31, 2019. We used $12.4 million, acquired $1.3 million, and used $11.0 million in cash for the Astero, SAVSU, and CBS acquisitions, respectively. We also invested $1.0 million and $1.5 million in our strategic investments in iVexSol and Sexton, respectively. Capital expenditures used $2.3 million in our manufacturing facilities and to increase SAVSU’s assets held for rent.

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Financing activities

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.

In the year ended December 31, 2020, cash provided by financing activities was $102.1 million. We received $100.1 million from the sale of common shares and $1.5 million from the proceeds of warrant and stock option exercises. We used $483,000 for contingent consideration related to the Astero acquisition.

In the year ended December 31, 2019, cash provided by financing activities of $1.6 million included $1.8 million from the proceeds of warrant and stock option exercises.

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 the year ended December 31, 2021, many businesses and countries, including the U.S., continued applying preventative and precautionary measures to mitigate the spread of the virus including government orders and other restrictions on the conduct of business operations.

In the year ended December 31, 2021, we experienced supply chain disruptions due to the effects of COVID-19 on our suppliers of sheet metal and electronic components that incorporate semiconductor chips. These supply chain disruptions decreased the Company’s profitability as a result of increased supplier pricing and production stoppages. We believe that the supply chain risks that were present have been significantly mitigated through the diversification of sheet metal suppliers and strategic agreements with electronic component suppliers. However, we cannot be assured that a continued or prolonged global pandemic will not have other negative impacts on our manufacturing and shipping processes or our product costs. The extent to which the COVID-19 pandemic affects our future financial results and operations will depend on future developments which are highly uncertain and cannot be predicted, including the recurrence, severity and/or duration of the ongoing pandemic, and current or future domestic and international actions to contain and treat COVID-19.

We are following public and private sector policies and initiatives to reduce the transmission of COVID-19, such as the imposition of travel restrictions and the promotion of social distancing and work-from-home arrangements. We are taking a variety of measures to ensure the availability and functioning of our critical infrastructure, to promote the safety and security of our employees and to support the communities in which we operate. These measures include increasing our raw materials, manufacturing safe stock inventory for our biopreservation media and expanding availability of our biological and pharmaceutical storage, requiring remote working arrangements for employees who are not integral to physically making and shipping our products or who do not need specialized equipment to perform their work, restricting on-site visits by non-employees and implementing social distancing protocols and investing in personal protective equipment. Beginning April 2, 2020, BioLife became actively engaged in managing the company COVID-19 response and protocols in accordance with federal, state and local regulations. BioLife has mandated mask wearing for all team members on-site throughout the pandemic per the guidelines and regulations in place. COVID-19 response is actively managed through daily reporting, contact tracing and quarantine guidelines as published by the CDC and state health departments in order to maintain safe working conditions. As a part of our COVID-19 response, on-site visitors have been limited to essential visitors only in order to reduce risk of transmission. Additionally, throughout the pandemic, BioLife has encouraged positions not essential to being on-site to work remotely in order to further reduce transmission rates and potential contact.

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.

The following summarizes certain of our contractual obligations as of December 31, 2021 and the effect such obligations are expected to have on our cash flows in future periods:

[[GREPCENT_TABLE]]
[["(In thousands)","","Less than 1 year","","","1 - 3 years","","","3 - 5 years","","","More than 5 years","","","Total"],["Long-term debt, including interest\u207d\u00b9\u207e","","$","1,175","","","$","3,618","","","$","1,009","","","$","2,623","","","$","8,425"],["Operating leases\u207d\u00b2\u207e","","","3,443","","","","6,034","","","","4,503","","","","8,364","","","","22,344"],["Financing leases\u207d\u00b2\u207e","","","171","","","","272","","","","39","","","","-","","","","482"],["Purchase obligations\u207d\u00b3\u207e","","","254","","","","507","","","","-","","","","-","","","","761"],["Total","","$","5,043","","","$","10,431","","","$","5,551","","","$","10,987","","","$","32,012"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","These amounts represent expected cash payments, including principal and interest. Debt obligations are described in Note 7 of the Consolidated Financial Statements."],["(2)","Lease obligations are described in Note 5 of the Consolidated Financial Statements."],["(3)","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."]]
[[/GREPCENT_TABLE]]

Purchase orders or contracts for the purchase of supplies and other goods and services are not included in the table 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.

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Table of Contents

Capital requirements

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

[[GREPCENT_TABLE]]
[["","\u25cf","the expansion of our cell and gene therapy tools and services business;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the ability to sustain product revenue and profits of our cell and gene therapy products and services;"],["","\u25cf","The degree to which we implement additional automated production equipment throughout our facilities;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","our ability to acquire additional cell and gene therapy products and services;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the scope of and progress made in our research and development activities; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the success of any proposed financing efforts."]]
[[/GREPCENT_TABLE]]

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. We expect operating expenses in the year ending December 31, 2022 to increase as we continue to expand our CGT tools business. We expect to incur continued spending related to the development and expansion of our 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, 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.