Cryoport, Inc. — FY2014 Form 10-K
Reporting period: Fiscal year ended March 31, 2014, filed June 25, 2014. The filing also reports the quarter ended March 31, 2014; it is not a standalone quarterly filing. Cryoport provides cryogenic shipping and logistics services to life sciences customers through reusable dry-vapor shippers, its Cryoportal software, temperature monitoring, and logistics support.
Financial performance and liquidity
| Metric | FY2014 | FY2013 |
|---|---|---|
| Revenue | $2.660 million | $1.101 million |
| Gross profit (loss) | $437,000; 16.4% margin | ($487,000); (44.3%) margin |
| Operating loss | ($5.078 million) | ($6.324 million) |
| Net loss | ($19.565 million); ($0.40) per share | ($6.382 million); ($0.17) per share |
| Cash used in operating activities | $4.381 million | $4.785 million |
| Cash and cash equivalents at year-end | $370,000 | $563,000 |
| Working capital | ($2.903 million) | ($1.539 million) |
FY2014 revenue rose 141.7%, while gross margin improved to positive territory. The operating loss narrowed by $1.246 million, but net loss increased sharply because of a $13.714 million non-cash induced debt-conversion expense. Cost of revenue was $2.223 million; selling, general and administrative expense was $5.106 million; research and development expense was $409,000.
For the March 2014 quarter, revenue was $835,000, gross profit $143,000, operating loss $1.274 million, and net loss $1.441 million. The filing does not provide a clear standalone Q4 cash-flow figure.
At March 31, 2014, total assets were $1.710 million, total liabilities $4.014 million, and stockholders’ deficit $2.304 million. Current convertible debentures and accrued interest were $1.622 million; current related-party notes payable were $1.358 million. Financing activities provided $4.326 million during the year, primarily through convertible debt. The company had no positive working capital and continued to depend on external financing.
Material changes and business developments
- Zoetis revenue increased to $821,000 from $62,000 in FY2013 after the company expanded its managed logistics services to a second poultry vaccine. Zoetis represented a significant growth driver.
- Reproductive medicine/IVF revenue grew 158% to $614,000 from $238,000. One customer accounted for 30.8% of FY2014 revenue; the United States generated 83.7% of revenue.
- In September and October 2013, holders converted $4.127 million of bridge-note principal and accrued interest into 20.636 million common-stock units, each consisting of one share and a warrant. The resulting induced-conversion expense was $13.714 million. Shares outstanding increased from 37.761 million to 59.980 million over the fiscal year.
- The company signed a February 2014 services agreement with Liventa Bioscience for cryogenic logistics in orthopedic cell-based therapies. Management did not expect significant Liventa service use before the second half of FY2015.
- Revenue growth improved scale, but gross profit remained well below operating expenses; the company was not profitable.
Outlook, risks and unusual items
- Going concern: The auditor and management stated that recurring losses, negative operating cash flows, and limited cash raise substantial doubt about Cryoport’s ability to continue as a going concern. Management expected available resources and financing then being raised to support planned operations only into the second quarter of FY2015; additional capital was required thereafter. No assurance was given that financing would be available on acceptable terms or at all.
- Subsequent financing: Through June 13, 2014, a preferred-stock offering had generated $839,600 gross cash proceeds, approximately $628,700 after estimated cash offering expenses. Holders converted $1.743 million of 5% bridge-note principal, plus accrued interest, into preferred-stock units. As of June 13, cash and cash equivalents were $415,200. The 5% bridge notes were otherwise due June 30, 2014.
- Dilution and capital structure: The May 2014 Class A Preferred Stock carries a $12-per-share liquidation preference, cumulative dividends at $0.96 per share annually, and converts into 30 common shares per preferred share after September 1, 2014. It has 30 votes per share. At March 31, 2014, 61.2 million warrants and 11.9 million options were outstanding, in addition to the common shares already issued.
- Execution and concentration risks: Customer qualification can take nine months or longer; growth depends on customer adoption, sales execution, and partners such as FedEx, DHL, and OCASA, whose agreements do not require minimum shipment volumes. One customer accounted for 30.8% of annual revenue.
- Other risks: The company relies on third-party carriers, suppliers, and an outside software developer; it faces regulatory, product-liability, competition, cyber-security, and intellectual-property risks. Insurance may not cover all potential claims.
- Contingency: Under its KLATU consulting agreement, termination by Cryoport without cause or liquidation could trigger additional compensation of at least $2 million plus twice the defined cost of work. The company stated it had no intention of terminating the agreement without cause.
- No formal quantified guidance: The filing gives no specific revenue or earnings forecast. Management discussed pursuing additional capital, increasing sales and marketing, growing customer adoption, and reducing costs; sustained profitability was not assured.
Most important facts for investors to verify
- Current cash runway, financing availability, and the status and terms of subsequent preferred-stock and debt transactions.
- Whether operating cash burn is declining and gross margin can improve enough to cover operating expenses.
- Whether Zoetis, Liventa, and carrier partnerships produce sustained shipment volumes and revenue diversification.
- The potential dilution, voting influence, and liquidation claims associated with preferred stock, warrants, and options.
- The customer concentration, June 30, 2014 bridge-note obligations, and potential KLATU termination or liquidation payment.