CryoPort, Inc. — Form 10-Q Summary
Business and period: CryoPort provides cryogenic shipping containers and related shipping, tracking, and monitoring services for temperature-sensitive biological and pharmaceutical materials. This report covers the quarter and six months ended September 30, 2011, compared with the corresponding 2010 periods; the fiscal year ends March 31.
Financial performance and position
- Revenue: Second-quarter revenue was $110,713, down 11% from $124,409. Six-month revenue was $234,464, down 15% from $275,869.
- Gross loss and margins: Second-quarter gross loss was $252,837 (228% of revenue), versus $253,808 (204%) a year earlier. Six-month gross loss was $483,366 (206%), versus $496,883 (180%). Cost of revenue exceeded revenue, which management attributed to fixed manufacturing costs and underutilization.
- Operating expenses and losses: Second-quarter SG&A rose to $1.56 million from $1.11 million, largely due to hiring and sales and marketing activity. Six-month SG&A increased to $3.19 million from $2.06 million. Operating loss was $1.94 million for the quarter and $3.90 million for six months. Net loss was $2.03 million for the quarter ($0.07 per share) and $4.08 million for six months ($0.15 per share); year-earlier net losses were $1.51 million and $2.84 million, respectively.
- Cash flow: Six-month operating cash use was $3.19 million, investing cash use was $202,353, and financing cash use was $931,322. Cash declined by $4.32 million, from $9.28 million at March 31 to $4.95 million at September 30.
- Liquidity: Working capital was $2.83 million, down from $6.76 million at March 31. The company had no line-of-credit balance at quarter-end after repaying it in August.
- Debt and obligations: Convertible debenture principal was $1.43 million, with monthly principal and interest payments of $200,000 and repayment expected by June 2012. Related-party notes had $795,500 principal outstanding; the balance-sheet amount, including accrued interest, was $1.50 million. Convertible debentures are secured by a first-priority interest in generally all company assets, including intellectual property.
- Other metrics: Derivative liabilities were $107,529, down from $156,497 at March 31; the resulting six-month fair-value gain was $48,968. The company reported 28.13 million shares outstanding at September 30 and 28.28 million as of November 10.
Material changes and management commentary
- Revenue declined despite a growing number of active customers. Management attributed the decline mainly to one customer’s product no longer requiring cryogenic shipping; that customer represented 3% of current-period revenue versus 42% in the prior-year quarter and 53% in the prior-year six-month period.
- Management increased sales and marketing staffing, adding eleven employees, ten in sales and marketing, and incurred related recruiting and promotional costs. It described these efforts as intended to expand the customer base and commercialize the CryoPort Express system.
- Management stated that existing cash, access to additional capital, and expected revenue growth should fund operating needs for the next twelve months. It cautioned that failure to obtain additional capital or financing would significantly affect operations.
- The company disclosed a KLATU consulting agreement provision that may require, upon termination without cause or liquidation, additional compensation of at least $2 million plus two times defined “cost of work.” Management stated it had no intention of terminating the agreement without cause.
- Other risks include continued operating losses, low revenue relative to costs, customer and industry concentration, dependence on commercialization and customer adoption, supplier disruption, and potentially limited financing access. Management reported no material legal proceedings and no material adverse legal matters known to it.
Investor verification priorities
- Confirm cash runway and financing needs against the reported $3.19 million six-month operating cash burn and management’s twelve-month liquidity assessment.
- Track customer adoption, repeat use, revenue growth, and the effect of the former major customer’s reduced shipping needs.
- Assess whether revenue can rise enough to absorb fixed manufacturing costs and improve the substantially negative gross margin.
- Review the convertible debenture repayment schedule, asset collateral, related-party debt terms, and the KLATU termination-fee provision.
- Monitor share issuance and potential dilution: warrant exercises raised $456,133 during the six months, and 150,000 additional shares were issued for $115,500 after quarter-end through the filing date.