Cryoport, Inc. — Form 10-Q summary
Business context and reporting period. Cryoport provides frozen-shipping logistics, reusable cryogenic shippers, and related software and logistics services to life-sciences customers. This filing covers the quarter and six months ended September 30, 2013 (the second quarter of fiscal 2014); financial statements are unaudited.
Key financial metrics
| Metric | Three months ended Sep. 30, 2013 | Six months ended Sep. 30, 2013 | Comparable 2012 period |
|---|---|---|---|
| Revenue | $579,827 | $1,067,790 | $233,597; $424,896 |
| Gross profit (margin) | $72,102 (12%) | $126,744 (12%) | Loss of $110,843 (−48%); loss of $273,162 (−64%) |
| Operating expenses | $1,358,849 | $2,673,566 | $1,442,989; $2,821,214 |
| Operating loss | $1,286,747 | $2,546,822 | $1,553,832; $3,094,376 |
| Net loss | $14,959,648 | $16,283,185 | $1,552,702; $3,098,511 |
| Operating cash used | — | $2,317,831 | $2,655,869 |
Revenue grew 148% for the quarter and 151% for the six-month period. Management attributed growth principally to expanded logistics services for Zoetis, which began in February 2013, and more customers and shipments. Gross margin improved as revenue increased and freight costs as a share of revenue and fixed manufacturing costs declined. Interest expense for the quarter was $512,776 and for the six months was $594,995. Basic and diluted loss per share was $0.38 for the quarter and $0.42 for six months, versus $0.04 and $0.08, respectively.
Liquidity, debt, and material changes
- At September 30, cash and cash equivalents were $532,469; current assets were $1,004,128 and current liabilities $1,042,583, leaving negative working capital of $38,455. Cash was $563,104 at March 31.
- Six-month cash use was $2,317,831 in operations and $137,496 in investing. Financing provided $2,424,692, mainly from convertible debt proceeds, partly offset by financing costs and related-party note repayments.
- The Company converted $3,977,175 of Bridge Notes principal and interest into 19,885,874 units at $0.20 each. Each unit included one common share and a warrant to buy one share at $0.37. The induced conversion generated a $13,161,017 non-cash debt-conversion expense, driving most of the increase in reported net loss.
- Related-party notes payable and accrued interest totaled $1,388,612 at September 30, including $603,500 principal; scheduled principal payments were $8,000 per month, with remaining amounts due through March 2015. The Bridge Notes converted during September; additional $150,000 of notes issued after quarter-end also converted in October.
- Common shares outstanding were 58,146,502 at September 30 and 58,896,639 as of November 6, 2013. The filing also reports 7,623,272 stock options granted during the six months, including substantial grants to three officers.
Outlook, risks, and contingencies
Management stated that recurring operating losses and cash use raise substantial doubt about the Company’s ability to continue as a going concern. It expected cash at September 30, post-quarter-end bridge financing, service revenue, and cost controls to fund planned operations into the third quarter of fiscal 2014, but said additional capital would be needed thereafter and that it was pursuing financing alternatives. There is no assurance financing will be available on acceptable terms or that commercialization, customer adoption, or cost reductions will produce sustained profitability.
- Customer qualification in regulated life-sciences markets can take nine months or longer. One customer represented 29% of quarterly revenue and 30% of six-month revenue in 2013; foreign revenue was about 30% in both periods.
- Management cited supply-chain exposure for certain components, although it believed qualified alternatives existed and current shipper inventory could cover a four-to-six-week production disruption.
- A KLATU consulting agreement provides for potentially substantial additional compensation if the Company terminates without cause or liquidates: at least $2 million plus twice the defined “cost of work.” Management said it had no intention of terminating without cause. No material litigation was reported; routine claims were not expected to materially affect results.
- Subsequent events included the October conversion of $150,027 of notes and interest into 750,137 units, with $552,750 of conversion expense expected in the next quarter. On November 14, the Company and directors rescinded conversion of $44,556 of director fees into units.
Important facts for investors to verify
- Cash runway and the status, size, and terms of additional financing, given the going-concern warning.
- Whether revenue growth—particularly from Zoetis and distribution partnerships—continues and improves gross margins and operating cash flow.
- The full dilution impact of issued shares, warrants, and officer options, including post-quarter-end securities.
- The accounting and valuation basis for the $13.2 million induced-conversion charge and expected subsequent-period conversion expense.
- Customer concentration, collection of receivables, and potential obligations under the KLATU agreement.