CryoPort, Inc. — Form 10-Q Summary
Business and period: CryoPort provides reusable cryogenic shipping containers and related shipping, tracking, and temperature-monitoring services for life-sciences materials. This unaudited report covers the fiscal quarter and nine months ended December 31, 2011; comparisons are with the corresponding 2010 periods.
Key financial results
| Metric | Three months ended Dec. 31, 2011 | Nine months ended Dec. 31, 2011 |
|---|---|---|
| Revenue | $144,254; up 44.9% year over year | $378,718; up 0.9% year over year |
| Gross loss | $200,448; gross margin approximately -139% | $683,814; gross margin approximately -181% |
| Operating loss | $2,061,474 | $5,963,553 |
| Net loss | $2,079,565, or $0.07 per share | $6,163,529, or $0.22 per share |
| Operating expenses | $1,861,026 | $5,279,739 |
For the nine months, operating cash flow was negative $4,673,462; investing cash flow was negative $369,070; and financing cash flow was negative $1,439,822. Cash and cash equivalents fell to $2,796,089 from $9,278,443 at March 31, 2011. Working capital was $846,356, versus $6,759,755 at fiscal year-end.
At December 31, total liabilities were $3,603,209 and stockholders’ equity was $620,873. Debt included $795,044 of current convertible debentures, net of discount, and $1,483,994 of related-party notes and accrued interest, including $96,000 current. The convertible debentures had $830,568 outstanding principal, were secured by substantially all company assets, and were scheduled to be paid by June 2012. The $90,000 line of credit was repaid in August 2011.
Changes and management commentary
- Quarterly revenue grew as more customers used the service. Nine-month revenue was nearly flat despite a 79.3% increase in customers ordering; lower revenue from one customer whose product no longer required cryogenic shipping offset growth.
- Cost of revenues remained substantially above revenue, which management attributed to fixed manufacturing costs and underutilized production capacity.
- SG&A rose to $4,933,102 for the nine months from $3,138,337, primarily reflecting 12 additional employees, including 10 in sales and marketing, recruitment, and promotional consulting. R&D was broadly stable at $346,637.
- Nine-month net loss widened from $4,295,261 to $6,163,529. Management cited higher operating costs; lower interest expense partly offset this. Gains from changes in derivative fair value were noncash and stock-price-sensitive.
- Management said existing cash, access to additional capital, and expected sales growth should fund operations for the next 12 months, but warned that inability to obtain additional financing would significantly affect operations. The filing provides no quantified revenue or earnings guidance.
Outlook, risks, and unusual items
- Subsequent financing: On February 17, 2012, the company agreed to sell 9,119,100 units at $0.55 each for gross proceeds of approximately $5.016 million, subject to escrow release. Each unit includes one common share and a five-year warrant. Placement commissions were $432,410, plus expenses, and the agents also received warrants. Proceeds were intended for working capital.
- The financing required consent and a waiver from convertible-note holders because it otherwise would trigger defaults. In exchange, holders received warrants for 280,000 shares; $444,168 was placed in escrow for scheduled payments on one note. The unit and warrant issuance create potential dilution.
- Registration-statement delays under the financing agreement can require monthly payments equal to 2% or 3% of investors’ initial investment, in cash or shares.
- Customer adoption may take months because life-sciences customers must qualify vendors and shipping processes. Revenue is concentrated in a small customer base, although the three largest customers’ share of revenue declined year over year. Foreign sales represented 54% of nine-month revenue.
- Termination of the KLATU consulting agreement without cause, or liquidation, could trigger additional compensation of at least $2 million plus twice the defined cost of work. The company said it had no intention of terminating the agreement.
- Other risks include continued cash burn, production underutilization, dependence on financing, supplier disruption, and the potential variability of Level 3 derivative valuations. The company reported no material litigation and stated disclosure controls were effective as of December 31, 2011.
Key facts for investors to verify
- Whether the February 2012 financing closed in full, how much net cash was received, and the associated share and warrant dilution.
- Cash runway and access to further capital in light of the nine-month operating cash outflow and upcoming debt payments.
- Progress toward improving gross margins and converting customer growth into sustained revenue growth.
- Customer concentration, retention, and the timing of qualification and adoption by new life-sciences customers.
- Potential obligations under the KLATU agreement and the secured convertible debentures.