Cryoport, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended June 30, 2013; comparative figures are for the three months ended June 30, 2012. The filing was signed August 14, 2013. Cryoport provides frozen-shipping logistics and related services to biotechnology and life-sciences customers.
Financial performance
| Metric | Three months ended June 30, 2013 | Three months ended June 30, 2012 |
|---|---|---|
| Revenue | $487,963 | $191,299 |
| Gross profit (loss) | $54,642; 11% margin | ($162,319); (85%) margin |
| Operating expenses | $1,314,717 | $1,378,224 |
| Operating loss | ($1,260,075) | ($1,540,543) |
| Net loss | ($1,323,537); ($0.03) per share | ($1,545,807); ($0.04) per share |
| Cash used in operations | ($1,170,991) | ($1,424,817) |
| Cash used in investing | ($131,259) | ($43,871) |
| Cash from (used in) financing | $966,676 | ($177,280) |
Revenue increased 155%, primarily from expanded logistics services for Zoetis, which began in February 2013, as well as more customers and shipments. Gross margin improved as revenue increased, freight costs fell as a share of sales, and fixed manufacturing costs declined. Cost of revenue remained high at 89% of revenue. SG&A fell 4% to $1.22 million; R&D declined to $92,643.
Financial position and liquidity
- At June 30, 2013, cash was $227,530, down from $563,104 at March 31. Working capital was negative $2,554,600, compared with negative $1,539,103 at March 31.
- Total assets were $1,662,414 and total liabilities were $4,685,024; stockholders’ deficit was $3,022,610.
- Current convertible debentures payable and accrued interest, net of debt discount, were $2,175,980. Related-party notes payable and accrued interest totaled approximately $1.40 million, including $96,000 classified as current. The related-party notes bear 6% interest and mature on various dates through March 1, 2015.
- Bridge Notes had aggregate principal of $2,252,651 at June 30, with accrued interest of $30,328. They mature December 31, 2013; stated interest is 5% from February 1, 2013 through payment. The quarter’s financing included $958,151 of convertible-debt proceeds and $100,000 from option exercises.
Material changes, outlook, and risks
- Going concern: Management reported substantial doubt about the company’s ability to continue as a going concern, citing recurring losses, an accumulated deficit of $67.6 million, negative working capital, and quarterly operating cash use of $1.17 million. Management said cash on hand, subsequent bridge financing, service revenue, and cost controls were expected to support planned operations into the third quarter of fiscal 2014; additional capital would be needed thereafter. There is no assurance financing will be timely, available, or on acceptable terms.
- By August 12, 2013, the company had issued an additional $410,000 of Bridge Notes after quarter-end, including $200,000 from GBR Investments, LLC, managed by director Richard Rathmann. Those notes included warrants. The filing also describes $100,000 investments by GBR on July 12 and August 12.
- In July 2013, the Zoetis agreement was expanded to cover all domestic shipments of the specified poultry vaccine and shipments to all Zoetis international distribution centers.
- Customer concentration is material: one customer represented 30% of quarterly revenue. International revenue was approximately $144,000, or 29% of revenue, versus $81,000, or 42%, in the prior-year quarter. Customer onboarding may take nine months or longer.
- On June 28, Cryoport granted officers options to purchase an aggregate 5,548,577 shares at $0.27 per share outside the company’s incentive plans. The quarter also included 500,000 shares issued on option exercise and warrants for 1,052,630 shares at $0.19 per share in connection with $200,000 of Bridge Notes. These securities present potential dilution; the filing reported 38,260,628 common shares outstanding as of August 12.
- A consulting agreement with KLATU Networks provides that if Cryoport terminates without cause or liquidates, KLATU may be entitled to additional compensation of at least $2 million plus twice the defined “cost of work.” Management said it had no intention of terminating the agreement without cause. Routine claims and litigation were described as not expected to have a material adverse effect; the legal-proceedings item reported none.
- Management said disclosure controls were effective as of June 30, 2013 and reported no material changes in internal control over financial reporting during the quarter.
Investor verification priorities
- Confirm subsequent financing raised, available cash, and whether funding covered operations beyond the stated third-quarter fiscal 2014 horizon.
- Track revenue growth and gross-margin progress, including the contribution and continuation of Zoetis and the impact of customer concentration.
- Review Bridge Note repayment, conversion, interest, and warrant terms, along with other debt maturities and related-party obligations.
- Assess potential dilution from officer options, warrants, and any later equity or debt financing.
- Evaluate the KLATU agreement’s potential termination or liquidation payment and the assumptions supporting the company’s going-concern plans.