CryoPort, Inc. — FY2012 Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2012; the filing was signed June 27, 2012. This is an annual filing, not a stand-alone fourth-quarter report. Unless otherwise noted, financial figures are in U.S. dollars.
Business context
CryoPort provides cryogenic shipping containers and related services for temperature-sensitive biological and pharmaceutical materials. Its reusable dry-vapor shippers are designed to maintain temperatures below −150°C for at least 10 days; the company’s per-use model combines shipper leasing with order, tracking and monitoring services. FedEx and DHL are strategic shipping relationships, but neither agreement guarantees minimum orders. CryoPort introduced a higher-volume shipper in January 2012.
Financial performance and liquidity
| Metric | FY2012 | FY2011 |
|---|---|---|
| Revenue | $555,637 | $475,504 |
| Cost of revenue | $1,392,460 | $1,302,988 |
| Gross loss | $836,823 | $827,484 |
| Operating expenses | $6,597,855 | $4,769,590 |
| Operating loss | $7,434,678 | $5,597,074 |
| Net loss | $7,832,928 | $6,152,278 |
| Net loss per share | $0.27 | $0.46 |
| Cash used in operating activities | $6,780,134 | $4,811,411 |
- Revenue rose 16.9%. Gross loss remained substantial: cost of revenue was about 251% of sales, attributed primarily to fixed manufacturing costs and underutilized capacity.
- Selling, general and administrative expense increased by $1.79 million, principally with added hiring and sales, marketing and promotional activity. Research and development expense was $491,849, up from $449,129.
- FY2012 fourth-quarter unaudited revenue was $177,000 and net loss was $1.669 million.
- At March 31, 2012, cash and cash equivalents were $4.618 million, working capital was $4.024 million, total assets were $6.214 million and total liabilities were $2.484 million. Cash was $9.278 million a year earlier.
- Investing activities used $388,061; financing activities provided $2.507 million. The company reported $3.261 million of cash and cash equivalents as of June 19, 2012.
- Convertible debentures were $337,902 current on the balance sheet; the filing said the remaining October 2007 debentures were scheduled for full repayment by June 2012. Related-party notes and accrued interest totaled approximately $1.471 million, with substantial maturities scheduled for 2015.
Changes and financing
- Despite higher sales, the net loss increased by $1.681 million as operating expenses grew; loss per share improved because weighted-average shares increased from 13.3 million to 29.0 million.
- Customer ordering increased, but a prior-year customer’s share of revenue fell from 36% to 1% after one of its products no longer required cryogenic shipping. Three customers accounted for 31% of FY2012 revenue, versus 68% in FY2011.
- A February–March 2012 private placement raised $4.640 million net of offering costs, issuing 9.478 million shares and warrants to buy an equal number of shares at $0.69. The transaction required waivers from debenture holders and included additional warrants issued to them.
- Common shares outstanding rose to 37.761 million at year-end. The filing also disclosed substantial outstanding warrants and potential share issuance, creating dilution risk.
Outlook, risks and unusual items
- Going concern: The auditor’s report and management stated that recurring losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. Management estimated that cash on hand and forecast sales could fund planned operations into the fourth quarter of FY2013, but stated that additional financing may be needed if sales targets are missed. No financing was assured.
- Management’s plans included growing CryoPort Express adoption, reducing non-sales-generating costs and using third parties for recycling and refurbishment. It provided no firm revenue or profitability guidance; the filing cited no minimum purchase commitments from key distribution partners.
- Customer adoption can take months or longer due to vendor qualification and testing. Execution also depends on expanding courier relationships, scaling operations, and increasing sales while addressing persistent unprofitable unit economics.
- Former CEO Larry Stambaugh resigned effective April 5, 2012. The board was conducting a search; CFO Robert Stefanovich was serving as principal executive officer when the report was signed. The company disclosed a $180,000 severance payment.
- Contingency: The KLATU Networks consulting agreement provides for a termination payment of at least $2 million plus twice the defined “cost of work” if CryoPort terminates without cause or liquidates. FY2012 fees paid to KLATU were $494,408.
- Other key risks include reliance on third-party manufacturers and software development, regulatory compliance, product and shipment liability, intellectual-property disputes, competition from better-resourced companies, financing constraints and potential dilution. General liability coverage was $1 million per occurrence, subject to a $2 million annual limit; product liability coverage was $1 million per year.
- Management reported effective disclosure controls and internal control over financial reporting as of March 31, 2012. No material legal proceeding was identified in the filing.
Most important facts for investors to verify
- Whether actual cash burn and sales performance support management’s stated runway into Q4 FY2013, and whether additional capital was subsequently required.
- Whether revenue growth and customer adoption improved sufficiently to reduce the persistent gross loss and operating losses.
- Actual order volumes and revenue contribution from FedEx, DHL and the largest customers, given the absence of minimum purchase commitments and customer concentration.
- The current status and terms of convertible and related-party debt, and the potential dilution from warrants, options and future financing.
- Whether the KLATU agreement remains in force and what payment exposure could arise upon termination or liquidation.
- Whether a permanent CEO was appointed and whether the company’s cost-reduction and commercialization plans were implemented.