UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly
period ended June 30, 2019
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Commission File Number: 001-34632
CRYOPORT, INC.
(Exact Name of Registrant as Specified
in its Charter)
Nevada
|
|
88-0313393
|
(State or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S. Employer
Identification
No.)
|
17305 Daimler St.
Irvine, CA 92614
(Address of principal executive offices)
(949) 470-2300
(Registrant’s telephone number,
including area code)
Securities registered pursuant to Section
12(b) of the Act:
Title of each class:
|
|
Trading Symbol(s)
|
|
Name of each exchange on which registered:
|
Common Stock
|
|
CYRX
|
|
The Nasdaq Capital Market
|
Registered Warrants
|
|
CYRXW
|
|
The Nasdaq Capital Market
|
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes
x
No
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer
|
¨
|
|
Accelerated filer
|
x
|
|
|
|
|
|
Non-accelerated filer
|
¨
|
|
Smaller reporting company
|
x
|
|
|
|
|
|
Emerging growth company
|
¨
|
|
|
|
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the Registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
No
x
As of August
2, 2019 there were 35,592,828 shares of the registrant’s common stock outstanding.
TABLE OF CONTENTS
Cryoport, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
80,642,213
|
|
|
$
|
37,327,125
|
|
Short-term investments
|
|
|
14,103,653
|
|
|
|
9,930,968
|
|
Accounts receivable, net
|
|
|
6,095,858
|
|
|
|
3,543,666
|
|
Inventories
|
|
|
306,438
|
|
|
|
220,514
|
|
Prepaid expenses and other current assets
|
|
|
526,648
|
|
|
|
752,269
|
|
Total current assets
|
|
|
101,674,810
|
|
|
|
51,774,542
|
|
Property and equipment, net
|
|
|
10,338,007
|
|
|
|
4,357,498
|
|
Operating lease right-of-use assets
|
|
|
4,160,747
|
|
|
|
—
|
|
Goodwill
|
|
|
11,149,663
|
|
|
|
—
|
|
Other intangible assets, net
|
|
|
5,415,499
|
|
|
|
137,220
|
|
Deposits
|
|
|
407,369
|
|
|
|
350,837
|
|
Total assets
|
|
$
|
133,146,095
|
|
|
$
|
56,620,097
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and other accrued expenses
|
|
$
|
3,416,805
|
|
|
$
|
1,709,397
|
|
Accrued compensation and related expenses
|
|
|
1,534,468
|
|
|
|
1,262,478
|
|
Current portion of operating lease liabilities
|
|
|
534,586
|
|
|
|
—
|
|
Current portion of finance lease liabilities
|
|
|
25,940
|
|
|
|
23,191
|
|
Deferred revenue
|
|
|
221,776
|
|
|
|
66,315
|
|
Total current liabilities
|
|
|
5,733,575
|
|
|
|
3,061,381
|
|
|
|
|
|
|
|
|
|
|
Convertible note, net of discount of $277,375 and $288,400, respectively
|
|
|
14,722,625
|
|
|
|
14,711,580
|
|
Operating lease liabilities, net of current portion
|
|
|
3,920,739
|
|
|
|
—
|
|
Finance lease liabilities, net of current portion
|
|
|
18,981
|
|
|
|
33,156
|
|
Deferred rent liability, net of current portion
|
|
|
—
|
|
|
|
267,415
|
|
Total liabilities
|
|
|
24,395,920
|
|
|
|
18,073,532
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 2,500,000 shares authorized:
|
|
|
|
|
|
|
|
|
Class A convertible preferred stock — $0.001 par value; 800,000 shares authorized; none issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Class B convertible preferred stock — $0.001 par value; 585,000 shares authorized; none issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.001 par value; 100,000,000 shares authorized; 35,485,570 and 30,319,038 issued and outstanding at June 30, 2019 and December 31, 2018, respectively
|
|
|
35,486
|
|
|
|
30,319
|
|
Additional paid-in capital
|
|
|
254,580,262
|
|
|
|
179,501,577
|
|
Accumulated deficit
|
|
|
(145,903,877
|
)
|
|
|
(140,988,484
|
)
|
Accumulated other comprehensive income
|
|
|
38,304
|
|
|
|
3,153
|
|
Total stockholders’ equity
|
|
|
108,750,175
|
|
|
|
38,546,565
|
|
Total liabilities and stockholders’ equity
|
|
$
|
133,146,095
|
|
|
$
|
56,620,097
|
|
See accompanying notes to condensed consolidated
financial statements.
Cryoport, Inc. and Subsidiaries
Condensed Consolidated Statements of
Operations
(unaudited)
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
$
|
8,463,588
|
|
|
$
|
4,627,011
|
|
|
$
|
15,116,500
|
|
|
$
|
8,650,200
|
|
Cost of revenues
|
|
|
4,125,199
|
|
|
|
2,123,304
|
|
|
|
7,324,210
|
|
|
|
3,962,130
|
|
Gross margin
|
|
|
4,338,389
|
|
|
|
2,503,707
|
|
|
|
7,792,290
|
|
|
|
4,688,070
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
3,258,781
|
|
|
|
2,668,845
|
|
|
|
5,955,640
|
|
|
|
4,737,355
|
|
Sales and marketing
|
|
|
2,843,073
|
|
|
|
1,851,456
|
|
|
|
5,251,065
|
|
|
|
3,435,884
|
|
Engineering and development
|
|
|
540,933
|
|
|
|
448,591
|
|
|
|
1,030,529
|
|
|
|
778,321
|
|
Total operating costs and expenses
|
|
|
6,642,787
|
|
|
|
4,968,892
|
|
|
|
12,237,234
|
|
|
|
8,951,560
|
|
Loss from operations
|
|
|
(2,304,398
|
)
|
|
|
(2,465,185
|
)
|
|
|
(4,444,944
|
)
|
|
|
(4,263,490
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(333,910
|
)
|
|
|
—
|
|
|
|
(672,638
|
)
|
|
|
—
|
|
Warrant inducement and repricing expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(899,410
|
)
|
Other income, net
|
|
|
119,441
|
|
|
|
7,120
|
|
|
|
210,913
|
|
|
|
22,888
|
|
Loss before provision for income taxes
|
|
|
(2,518,867
|
)
|
|
|
(2,458,065
|
)
|
|
|
(4,906,669
|
)
|
|
|
(5,140,012
|
)
|
Provision for income taxes
|
|
|
(9,624
|
)
|
|
|
(12,825
|
)
|
|
|
(8,724
|
)
|
|
|
(13,638
|
)
|
Net loss
|
|
$
|
(2,528,491
|
)
|
|
$
|
(2,470,890
|
)
|
|
$
|
(4,915,393
|
)
|
|
$
|
(5,153,650
|
)
|
Net loss per share – basic and diluted
|
|
$
|
(0.08
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.19
|
)
|
Weighted average shares outstanding – basic and diluted
|
|
|
31,176,166
|
|
|
|
27,808,873
|
|
|
|
30,811,109
|
|
|
|
27,294,384
|
|
See accompanying notes to condensed consolidated
financial statements.
Cryoport, Inc. and Subsidiaries
Condensed Consolidated Statements of
Comprehensive Loss
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Net loss
|
|
$
|
(2,528,491
|
)
|
|
$
|
(2,470,890
|
)
|
|
$
|
(4,915,393
|
)
|
|
$
|
(5,153,650
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on available-for-sale debt securities
|
|
|
37,905
|
|
|
|
—
|
|
|
|
59,612
|
|
|
|
—
|
|
Reclassification of realized gain on available-for-sale debt securities to earnings
|
|
|
(18,913
|
)
|
|
|
—
|
|
|
|
(12,846
|
)
|
|
|
—
|
|
Foreign currency translation adjustments
|
|
|
(1,535
|
)
|
|
|
—
|
|
|
|
(11,615
|
)
|
|
|
—
|
|
Other comprehensive income
|
|
|
17,457
|
|
|
|
—
|
|
|
|
35,151
|
|
|
|
—
|
|
Total comprehensive loss
|
|
$
|
(2,511,034
|
)
|
|
$
|
(2,470,890
|
)
|
|
$
|
(4,880,242
|
)
|
|
$
|
(5,153,650
|
)
|
Cryoport, Inc. and Subsidiaries
Condensed Consolidated Statements of
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Class
A
|
|
|
Class
B
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Preferred
Stock
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid–In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Equity (Deficit)
|
|
Balance at March 31, 2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
27,593,118
|
|
|
$
|
27,593
|
|
|
$
|
156,541,327
|
|
|
$
|
(134,115,643
|
)
|
|
$
|
—
|
|
|
$
|
22,453,277
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,470,890
|
)
|
|
|
—
|
|
|
|
(2,470,890
|
)
|
Stock-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,428,230
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,428,230
|
|
Issuance of common stock
for board of director compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,157
|
|
|
|
1
|
|
|
|
17,499
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,500
|
|
Proceeds
from exercise of stock options and warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
856,378
|
|
|
|
857
|
|
|
|
2,992,742
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,993,599
|
|
Balance June 30,
2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
28,450,653
|
|
|
$
|
28,451
|
|
|
$
|
160,979,798
|
|
|
$
|
(136,586,533
|
)
|
|
$
|
—
|
|
|
$
|
24,421,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
30,677,500
|
|
|
$
|
30,678
|
|
|
$
|
182,230,799
|
|
|
$
|
(143,375,386
|
)
|
|
$
|
20,847
|
|
|
$
|
38,906,938
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,528,491
|
)
|
|
|
—
|
|
|
|
(2,528,491
|
)
|
Other comprehensive income,
net of taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,457
|
|
|
|
17,457
|
|
Stock-based compensation
expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,959,588
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,959,588
|
|
Proceeds from public offering,
net of costs of $106,300
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,312,500
|
|
|
|
4,313
|
|
|
|
68,803,133
|
|
|
|
—
|
|
|
|
—
|
|
|
|
68,807,446
|
|
Issuance of common stock
for board of director compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,920
|
|
|
|
2
|
|
|
|
32,165
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32,167
|
|
Proceeds
from exercise of stock options and warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
493,650
|
|
|
|
493
|
|
|
|
1,554,577
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,555,070
|
|
Balance at June
30, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
35,485,570
|
|
|
$
|
35,486
|
|
|
$
|
254,580,262
|
|
|
$
|
(145,903,877
|
)
|
|
$
|
38,304
|
|
|
$
|
108,750,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
25,701,924
|
|
|
$
|
25,702
|
|
|
$
|
149,293,947
|
|
|
$
|
(131,432,883
|
)
|
|
$
|
—
|
|
|
$
|
17,886,766
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,153,650
|
)
|
|
|
—
|
|
|
|
(5,153,650
|
)
|
Stock-based compensation
expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,460,239
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,460,239
|
|
Warrant repricing expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
899,410
|
|
|
|
—
|
|
|
|
—
|
|
|
|
899,410
|
|
Proceeds from tender offer,
net of costs of $99,357
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,580,388
|
|
|
|
1,580
|
|
|
|
4,640,227
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,641,807
|
|
Issuance of common stock
for board of director compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,095
|
|
|
|
3
|
|
|
|
34,997
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,000
|
|
Proceeds
from exercise of stock options and warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,165,246
|
|
|
|
1,166
|
|
|
|
3,650,978
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,652,144
|
|
Balance June 30,
2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
28,450,653
|
|
|
$
|
28,451
|
|
|
$
|
160,979,798
|
|
|
$
|
(136,586,533
|
)
|
|
$
|
—
|
|
|
$
|
24,421,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
30,319,038
|
|
|
$
|
30,319
|
|
|
$
|
179,501,577
|
|
|
$
|
(140,988,484
|
)
|
|
$
|
3,153
|
|
|
$
|
38,546,565
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,915,393
|
)
|
|
|
—
|
|
|
|
(4,915,393
|
)
|
Other
comprehensive income, net of taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,151
|
|
|
|
35,151
|
|
Stock-based compensation
expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,355,824
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,355,824
|
|
Proceeds from public offering,
net of costs of $106,300
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,312,500
|
|
|
|
4,313
|
|
|
|
68,803,133
|
|
|
|
—
|
|
|
|
—
|
|
|
|
68,807,446
|
|
Issuance of common stock
for board of director compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,239
|
|
|
|
3
|
|
|
|
49,663
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49,666
|
|
Proceeds
from exercise of stock options and warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
850,793
|
|
|
|
851
|
|
|
|
2,870,065
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,870,916
|
|
Balance at June
30, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
35,485,570
|
|
|
$
|
35,486
|
|
|
$
|
254,580,262
|
|
|
$
|
(145,903,877
|
)
|
|
$
|
38,304
|
|
|
$
|
108,750,175
|
|
See accompanying notes to condensed consolidated
financial statements.
Cryoport, Inc. and Subsidiaries
Condensed Consolidated Statements of
Cash Flows
(unaudited)
|
|
For the Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,915,393
|
)
|
|
$
|
(5,153,650
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
797,255
|
|
|
|
379,193
|
|
Amortization of debt discount
|
|
|
30,793
|
|
|
|
—
|
|
Unrealized gain on investments in equity securities
|
|
|
(75,348
|
)
|
|
|
—
|
|
Realized gain on Treasury notes and bills
|
|
|
(29,911
|
)
|
|
|
—
|
|
Stock-based compensation expense
|
|
|
3,405,490
|
|
|
|
2,495,239
|
|
Warrant inducement and repricing expense
|
|
|
—
|
|
|
|
899,410
|
|
Loss on disposal of property and equipment
|
|
|
100,254
|
|
|
|
62,446
|
|
Provision for bad debt
|
|
|
42,042
|
|
|
|
35,675
|
|
Changes in operating assets and liabilities, net of effects of acquisition:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,594,234
|
)
|
|
|
(2,029,128
|
)
|
Inventories
|
|
|
(85,924
|
)
|
|
|
17,506
|
|
Prepaid expenses and other current assets
|
|
|
225,402
|
|
|
|
25,369
|
|
Change in operating lease right-of-use assets and lease liabilities
|
|
|
(14,977
|
)
|
|
|
—
|
|
Deposits
|
|
|
(56,532
|
)
|
|
|
—
|
|
Accounts payable and other accrued expenses
|
|
|
1,712,648
|
|
|
|
961,787
|
|
Accrued compensation and related expenses
|
|
|
271,779
|
|
|
|
(22,595
|
)
|
Deferred revenue
|
|
|
(64,830
|
)
|
|
|
—
|
|
Net cash used in operating activities
|
|
|
(1,251,486
|
)
|
|
|
(2,328,748
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(2,578,145
|
)
|
|
|
(969,083
|
)
|
Purchases of short-term investments
|
|
|
(6,020,660
|
)
|
|
|
—
|
|
Maturities of short-term investments
|
|
|
2,000,000
|
|
|
|
—
|
|
Patent and trademark costs
|
|
|
(43,029
|
)
|
|
|
(27,172
|
)
|
Cash paid for acquisition
|
|
|
(20,429,651
|
)
|
|
|
—
|
|
Net cash used in investing activities
|
|
|
(27,071,485
|
)
|
|
|
(996,255
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from June 2019 public offering, net of offering costs
|
|
|
68,807,446
|
|
|
|
—
|
|
Proceeds from February 2018 tender offer, net of offering costs
|
|
|
—
|
|
|
|
4,641,807
|
|
Proceeds from exercise of stock options and warrants
|
|
|
2,870,916
|
|
|
|
3,652,144
|
|
Payment of deferred financing costs
|
|
|
(19,748
|
)
|
|
|
—
|
|
Repayment of finance lease liabilities
|
|
|
(11,426
|
)
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
71,647,188
|
|
|
|
8,293,951
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
(9,129
|
)
|
|
|
—
|
|
Net change in cash and cash equivalents
|
|
|
43,315,088
|
|
|
|
4,968,948
|
|
Cash and cash equivalents — beginning of period
|
|
|
37,327,125
|
|
|
|
15,042,189
|
|
Cash and cash equivalents — end of period
|
|
$
|
80,642,213
|
|
|
$
|
20,011,137
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Financing Activities:
|
|
|
|
|
|
|
|
|
Change in net unrealized gain on available-for-sale securities
|
|
$
|
59,612
|
|
|
$
|
—
|
|
Reclassification of realized gain on available-for-sale debt securities to earnings
|
|
$
|
12,846
|
|
|
$
|
—
|
|
See accompanying notes to condensed consolidated
financial statements.
Cryoport,
Inc. and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
For the Three and Six Months Ended June
30, 2019 and 2018
(Unaudited)
Note 1. Management’s Representation and Basis of Presentation
The accompanying unaudited
condensed consolidated financial statements have been prepared by Cryoport, Inc. (the “Company”, “our”
or “we”) in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
for interim financial information, and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by
the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes
required by U.S. GAAP for complete financial statement presentation. However, the Company believes that the disclosures are adequate
to make the information presented not misleading. In the opinion of management, all adjustments (consisting primarily of normal
recurring accruals) considered necessary for a fair presentation have been included.
Operating results
for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year
ending December 31, 2019. The unaudited condensed consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2018.
The Company has evaluated
subsequent events through the date of this filing and determined that no subsequent events have occurred that would require recognition
in the unaudited condensed consolidated financial statements or disclosure in the notes thereto other than as disclosed in the
accompanying notes.
Note 2. Nature of the Business
Cryoport, Inc. (“Cryoport”)
is the market-leading provider of temperature-controlled solutions to the life sciences industry through its purpose-built proprietary
packaging, information technology, specialized cold chain logistics expertise, and biostorage services. The Company provides leading
edge solutions to the biopharma, reproductive medicine and animal health markets to ship, store and deliver biologic materials,
such as immunotherapies, stem cells, CAR-T cell therapies, vaccines and reproductive cells for clients worldwide Cryoport actively supports
pharmaceutical and biotechnology companies, points-of-care, contract research organizations, central laboratories, contract manufacturers,
university researchers and other entities service the life sciences industry.
On May 14, 2019, the
Company acquired substantially all of the assets of Cryogene Partners, a Texas general partnership doing business as Cryogene Labs
(“Cryogene”). Cyrogene operates a temperature-controlled biostorage solutions business in Houston, Texas (see Note
11). As a result of the Cryogene acquisition, the Company operates in two reportable segments: Global Logistics Solutions and Global
Bioservices. See Note 7 for segment information.
The Company is a Nevada
corporation and its
common stock is traded on the NASDAQ Capital Market exchange under the
ticker symbol “CYRX.”
Note 3. Summary of Significant Accounting
Policies
Principles of Consolidation
The accompanying consolidated
financial statements include the accounts of Cryoport, Inc. and its wholly owned subsidiaries, Cryoport Systems, Inc., Cryoport
Netherlands B.V., Cryoport UK Limited and Cryogene, Inc. (collectively, the “Company”). All intercompany accounts and
transactions have been eliminated.
Cash and Cash Equivalents
Our cash and cash equivalents
represent demand deposits, and money market funds which are readily convertible into cash, have maturities of 90 days or less when
purchased and are considered highly liquid and easily tradeable.
Short-Term Investments
Our investments in equity
securities consist of mutual funds with readily determinable fair values which are carried at fair value with changes in fair value
recognized in earnings.
Investments in debt
securities are classified as available-for-sale and are carried at fair value, with unrealized gains and losses, net of tax, reported
as accumulated other comprehensive income (loss) and included as a separate component of stockholders’ equity.
Gains and losses are
recognized when realized. When we have determined that an other than temporary decline in fair value has occurred, the amount related
to a credit loss is recognized in earnings. Gains and losses are determined using the specific identification method.
Short-term investments
are classified as current assets even though maturities may extend beyond one year because they represent investments of cash available
for operations.
Use of Estimates
The preparation of
the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ
from estimated amounts. The Company’s significant estimates include the allowance for doubtful accounts, fair value of short-term
investments, fair value of assets acquired and liabilities assumed in business combinations, recoverability of goodwill and long-lived
assets, allowance for inventory obsolescence, deferred taxes and their accompanying valuations, and valuation of equity-based instruments.
Fair Value of Financial Instruments
The Company’s
financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued
expenses, finance lease liabilities and the convertible note. The carrying value for all such instruments, except finance lease
liabilities and the convertible note, approximates fair value at June 30, 2019 and December 31, 2018 due to their short-term nature.
The carrying value of finance lease liabilities approximates fair value because the interest rate approximates market rates available
to us for similar obligations with the same maturities. The convertible note bears an interest rate that fluctuates with the changes
in LIBOR and, because the variable interest rates approximate market borrowing rates available to us, we believe the carrying value
of the convertible note approximates its fair value at June 30, 2019 and December 31, 2018.
Concentrations of Credit Risk
Financial instruments
that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments.
From time to time, we maintain cash, cash equivalent and short-term investment balances in excess of amounts insured by the Federal
Deposit Insurance Corporation (“FDIC”) and the Securities Investor Protection Corporation (“SIPC”). Primarily
all of our cash, cash equivalents and short-term investments at June 30, 2019 were in excess of amounts insured by the FDIC and
SIPC. The Company performs ongoing evaluations of these institutions to limit its concentration risk exposure. We manage such risks
in our portfolio by investing in highly liquid, highly-rated instruments, and limit investing in long-term maturity instruments.
Our investment policy
requires that purchased instruments in marketable securities may only be in highly-rated instruments, which are primarily U.S.
Treasury bills or treasury-backed securities, and also limits our investment in securities of any single issuer.
Customers
The Company grants
credit to customers within the U.S. and to a limited number of international customers and does not require collateral. Revenues
from international customers are generally secured by advance payments except for established foreign customers. The Company generally
requires advance or credit card payments for initial revenues from new customers. The Company’s ability to collect receivables
can be affected by economic fluctuations in the geographic areas and industries served by the Company. Reserves for uncollectible
amounts are provided based on past experience and a specific analysis of the accounts, which management believes is sufficient.
Accounts receivable at June 30, 2019 and December 31, 2018 are net of reserves for doubtful accounts of $140,000 and $100,000,
respectively. Although the Company expects to collect amounts due, actual collections may differ from the estimated amounts. The
Company maintains reserves for bad debt and such losses, in the aggregate, historically have not exceeded its estimates.
The
Company’s customers are in the biotechnology, pharmaceutical, animal health, reproductive medicine and other life
science industries. Consequently, there is a concentration of accounts receivable within these industries, which is subject
to normal credit risk. As of June 30, 2019, there were two customers that accounted for 28.1% and 26.3%, respectively, of net
accounts receivable. As of December 31, 2018, there were two customers that accounted for 29.0% and 23.4%, respectively, of
net accounts receivable. There were no other single customers that owed us more than 10% of net accounts receivable at June
30, 2019 and December 31, 2018.
The Company has revenue
from foreign customers primarily in Europe, Japan, Canada, India and Australia. During the six months ended June 30, 2019 and 2018,
the Company had revenues from foreign customers of approximately $1.4 million and $894,000, respectively, which constituted approximately
9.3% and 10.3%, respectively, of total revenues. There were two customers that accounted for 26.9% and 10.5% of revenues during
the six months ended June 30, 2019, respectively. For the six months ended June 30, 2018, there was one customer that accounted
for 15.1% of total revenues. No other single customer generated over 10% of revenues during the six months ended June 30, 2019
and 2018.
During the three months
ended June 30, 2019 and 2018, the Company had revenues from foreign customers of approximately $928,100 million and $365,800, respectively,
which constituted approximately 11.0% and 7.9%, respectively, of total revenues. There were two customers that accounted for 28.6%
and 10.4% of revenues during the three months ended June 30, 2019, respectively. For the three months ended June 30, 2018, there
was one customer that accounted for 21.0% of total revenues. No other single customer generated over 10% of revenues during the
three months ended June 30, 2019 and 2018.
Inventories
The Company’s
inventories consist of packaging materials and accessories that are sold to customers. Inventories are stated at the lower of cost
and net realizable value. Cost is determined using the standard cost method which approximates the first-in, first-to-expire method.
Inventories are reviewed periodically for slow-moving or obsolete status. The Company writes down the carrying value of its inventories
to reflect situations in which the cost of inventories is not expected to be recovered. Once established, write-downs of inventories
are considered permanent adjustments to the cost basis of the obsolete or excess inventories. Raw materials and finished goods
include material costs less reserves for obsolete or excess inventories. The Company evaluates the current level of inventories
considering historical trends and other factors, such as selling prices and costs of completion, disposal and transportation, and
based on the evaluation, records adjustments to reflect inventories at net realizable value. These adjustments are estimates, which
could vary significantly from actual results if future economic conditions, customer demand, competition or other relevant factors
differ from expectations. These estimates require us to make assessments about future demand for the Company’s products in
order to categorize the status of such inventories items as slow-moving, obsolete or in excess-of-need. These estimates are subject
to the ongoing accuracy of the Company’s forecasts of market conditions, industry trends, competition and other factors.
Property and Equipment
The Company provides
engineered shipping packages (“Cryoport Express
®
Shippers”) to its customers and charges a fee in exchange
for the use of the Cryoport Express
®
Shipper. The Company’s arrangements are similar to the accounting standard
for leases since they convey the right to use the Cryoport Express
®
Shipper over a period of time. The Company retains
the title to the Cryoport Express
®
Shippers and provides its customers the use of the Cryoport Express
®
Shipper for a specific shipping cycle. At the culmination of the customer’s shipping cycle, the Cryoport Express
®
Shipper is returned to the Company. As a result, the Company classifies the Cryoport Express
®
Shippers as property
and equipment for the per-use Cryoport Express
®
Shipper program.
Property and equipment
are recorded at cost. Cryoport Express
®
Shippers, which include SmartPak II
TM
Condition Monitoring Systems
and/or data loggers, which comprise 24% and 34% of the Company’s net property and equipment balance at June 30, 2019 and
December 31, 2018, respectively, are depreciated using the straight-line method over their estimated useful lives of three years.
Mechanical and liquid nitrogen freezers acquired in the Cryogene acquisition comprise 27% of the Company’s net property and
equipment balance at June 30, 2019, and are depreciated using the straight-line method over their estimated useful lives of seven
to twelve years. Equipment and furniture are depreciated using the straight-line method over their estimated useful lives (generally
three to fifteen years) and leasehold improvements are amortized using the straight-line method over the estimated useful life
of the asset or the lease term, whichever is shorter.
Betterments, renewals
and extraordinary repairs that extend the lives of the assets are capitalized; other repairs and maintenance charges are expensed
as incurred. The cost and related accumulated depreciation and amortization applicable to assets retired are removed from the accounts,
and the gain or loss on disposition is recognized in the consolidated statements of operations.
Leases
The Company determines
if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets represent the Company’s
right to use an underlying asset during the lease term, and operating lease liabilities represent the Company’s obligation
to make lease payments arising from the lease. Operating leases are included in ROU assets, current operating lease liabilities,
and long-term operating lease liabilities on our consolidated balance sheets. Finance leases are included in property and equipment,
current finance lease liabilities, and long-term finance lease liabilities on our consolidated balance sheets.
Lease ROU assets and
lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease term
at commencement date calculated using our incremental borrowing rate applicable to the lease asset, unless the implicit rate is
readily determinable. ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives
received. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise
that option. Leases with a term of 12 months or less are not recognized on the condensed consolidated balance sheet. The Company’s
leases do not contain any residual value guarantees. Lease expense for minimum lease payments is recognized on a straight-line
basis over the lease term.
The Company accounts
for lease and non-lease components as a single lease component for all its leases.
Goodwill
The Company evaluates
goodwill on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. Such
indicators could include, but are not limited to: (1) a significant adverse change in legal factors or in business climate, (2)
unanticipated competition, or (3) an adverse action or assessment by a regulator. The Company first assesses qualitative factors
to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including
goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying
amount, management conducts a two-step quantitative goodwill impairment test. The first step of the impairment test involves comparing
the fair value of the applicable reporting unit with its carrying value. If the carrying amount of a reporting unit exceeds the
reporting unit’s fair value, management performs the second step of the goodwill impairment test. The second step of the
goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying
value of that goodwill. The amount, by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized
as an impairment loss. No triggering events indicating goodwill impairment occurred during the six months ended June 30, 2019.
Intangible Assets
Intangible
assets are comprised of patents, trademarks, software development costs and the intangible assets acquired in the Cryogene
acquisition which include a non-compete agreement, technology, customer relationships and trade name/trademark. The Company
capitalizes costs of obtaining patents and trademarks, which are amortized, using the straight-line method over their
estimated useful life of five years once the patent or trademark has been issued. The Company capitalizes certain costs
related to software developed for internal use. Software development costs incurred during the preliminary or maintenance
project stages are expensed as incurred, while costs incurred during the application development stage are capitalized and
amortized using the straight-line method over the estimated useful life of the software, which is five years. Capitalized
costs include purchased materials and costs of services. The non-compete agreement, technology, customer relationships and
Cryogene trade name/trademark acquired in the Cryogene acquisition are amortized using the straight-line method over the
estimated useful lives (see Note 11).
The Company evaluates
the recoverability of identifiable intangible assets whenever events or changes in circumstances indicate that an intangible asset's
carrying amount may not be recoverable. Such circumstances could include, but are not limited to: (1) a significant decrease in
the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation
of costs significantly in excess of the amount originally expected for the acquisition of an asset. The Company measures the carrying
amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future
net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment
loss would be calculated as the amount by which the carrying value of the asset exceeds its fair value. The estimate of fair value
is based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset
impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions
require significant judgment and actual results may differ from assumed and estimated amounts. There was no impairment of intangible
assets during the six months ended June 30, 2019.
Other Long-lived Assets
If indicators of impairment
exist, we assess the recoverability of the affected long-lived assets by determining whether the carrying value of such assets
can be recovered through undiscounted future operating cash flows. If impairment is indicated, we measure the amount of such impairment
by comparing the fair value to the carrying value. We believe the future cash flows to be received from the long-lived assets will
exceed the assets’ carrying value, and accordingly, we have not recognized any impairment losses through June 30, 2019.
Deferred Financing Costs
Deferred financing
costs represent costs incurred in connection with the issuance of debt instruments and equity financings. Deferred financing costs
related to the issuance of debt are amortized over the term of the financing instrument using the effective interest method and
are presented in the consolidated balance sheets as an offset against the related debt. Offering costs from equity financings are
netted against the gross proceeds received from the equity financings.
Income Taxes
The Company accounts
for income taxes under the provision of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 740,
Income Taxes
, or ASC 740. As of June 30, 2019 and December 31, 2018, there were no unrecognized
tax benefits included in the accompanying condensed consolidated balance sheets that would, if recognized, affect the effective
tax rates.
Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. A valuation allowance is provided for certain deferred
tax assets if it is more likely than not that the Company will not realize tax assets through future operations. Based on the weight
of available evidence, the Company’s management has determined that it is more likely than not that the net deferred tax
assets will not be realized. Therefore, the Company has recorded a full valuation allowance against the net deferred tax assets.
The Company’s income tax provision consists of state minimum taxes.
The Company’s
policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual
for interest or penalties on its condensed consolidated balance sheets at June 30, 2019 and December 31, 2018 and has not recognized
interest and/or penalties in the condensed consolidated statements of operations for the three and six months ended June 30, 2019
and 2018. The Company is subject to taxation in the U.S. and various state jurisdictions. As of June 30, 2019, the Company is no
longer subject to U.S. federal examinations for years before 2015 and for California franchise and income tax examinations for
years before 2014. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where
net operating losses were generated and carried forward and make adjustments up to the amount of the net operating loss carry forward
amount. The Company is not currently under examination by U.S. federal or state jurisdictions.
Revenue Recognition
Revenues are recognized
when control is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in
exchange for those goods and services. Revenue recognition is evaluated through the following five steps: (i) identification of
the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination
of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition
of revenue when or as a performance obligation is satisfied.
Performance Obligations
At contract inception,
an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified
for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance
obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly
stated or are implied by customary business practices. Revenue is recognized when our performance obligation has been met. The
Company considers control to have transferred upon delivery because the Company has a present right to payment at that time, the
Company has transferred use of the asset, and the customer is able to direct the use of, and obtain substantially all of the remaining
benefits from, the asset.
For arrangements under
which the Company provides biological specimen storage services and logistics support and management to the customer, the Company
satisfies its performance obligations as those services are performed whereby the customer simultaneously receives and consumes
the benefits of such services under the agreement.
Revenue generated from
short-term logistics and engineering consulting services provided to customers is recognized when the Company satisfies the contractually
defined performance obligations.
Our performance obligations
on our orders and under the terms of agreements with customers are generally satisfied within one year from a given reporting date
and, therefore, we omit disclosure of the transaction price allocated to remaining performance obligations on open orders.
Shipping and handling
activities related to contracts with customers are accounted for as costs to fulfill our promise to transfer the associated products
pursuant to the accounting policy election allowed under Topic 606 and are not considered a separate performance obligation to
our customers. Accordingly, the Company records amounts billed for shipping and handling as a component of revenue. Shipping and
handling fees and costs are included in cost of revenues in the accompanying condensed consolidated statements of operations.
Revenues are recognized
net of any taxes collected from customers, which are subsequently remitted to governmental agencies.
Significant Payment Terms
Pursuant to the Company’s
contracts with its customers, amounts billed for services or products delivered by the Company are generally due and payable in
full within 15 days from the date of the invoice (except for any amounts disputed by the customer in good faith). Accordingly,
the Company determined that its contracts with customers do not include extended payment terms or a significant financing component.
Variable Consideration
In some cases, the
nature of the Company’s contracts may give rise to variable consideration, including discounts and allowances or other similar
items that generally decrease the transaction price.
Variable consideration
is estimated at the most likely amount that is expected to be earned. Estimated amounts are included in the transaction price to
the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated
with the variable consideration is resolved. Estimates of variable consideration and determination of whether to include estimated
amounts in the transaction price are based largely on an assessment of the anticipated performance and all information (historical,
current and forecasted) that is reasonably available.
Revenues are recorded
net of variable consideration, such as discounts and allowances.
Warranties
The Company’s
products and services are provided on an “as is” basis and no warranties are included in the contracts with customers.
Also, the Company does not offer separately priced extended warranty or product maintenance contracts.
Incremental Direct Costs
The Company expenses
incremental direct costs of obtaining a contract (sales commissions) when incurred because the amortization period is generally
12 months or less. The Company does not incur costs to fulfill a customer contract that meet the requirements for capitalization.
Contract Assets
Typically, we invoice
the customer and recognize revenue once we have satisfied our performance obligation. Accordingly, our contract assets comprise
accounts receivable, which are recognized when payment is unconditional and only the passage of time is required before payment
is due. Generally, we do not have material amounts of other contract assets since revenue is recognized as control of goods is
transferred or as services are performed.
Contract Liabilities (Deferred Revenue)
Contract liabilities
are recorded when cash payments are received in advance of the Company’s performance. Deferred revenue was $221,800 and $66,300
at June 30, 2019 and December 31, 2018, respectively. During the three months and six months ended June 30, 2019, the Company
recognized revenues of $86,900 and $153,200, respectively, from the related contact liabilities outstanding as the services were
performed.
Nature
of Goods and Services
The Global Logistics Solutions segment
provides Cryoport Express
®
Shippers to its customers and charges a fee in exchange for the use of the Cryoport Express
®
Shipper under long-term agreements with customers. The Company’s arrangements convey to the customers the right to use the
Cryoport Express
®
Shippers over a period of time. The Company retains title to the Cryoport Express
®
Shippers and provides its customers the use of the Cryoport Express
®
Shipper for a specified shipping cycle. At
the culmination of the customer’s shipping cycle, the Cryoport Express
®
Shipper is returned to the Company.
The Global Bioservices
segment provides comprehensive and integrated temperature-controlled biostorage solutions to customers in the life sciences industry
and charges a fee under long-term agreements with customers. These services include (1) biological specimen cryopreservation storage
and maintenance, (2) archiving, monitoring, tracking, receipt and delivery of samples, (3) transport of frozen biological specimens
to and from customer locations, and (4) management of incoming and outgoing biological specimens.
The vast majority of
our revenues are covered under long-term agreements. We have determined that individual Statements of Work or Scope of Work (“SOW”),
whose terms and conditions taken with a Master Services Agreement (“MSA”), create the Topic 606 contracts which are
generally short-term in nature (e.g., 15-day shipping cycle) for the Global Logistics Solutions segment and up to 12 months for
the Global Bioservices segment. Our agreements (including SOWs) generally do not have multiple performance obligations and,
therefore, do not require an allocation of a single price amongst multiple goods or services. Prices under these agreements
are generally fixed. The Global Logistics Solutions segment recognizes revenue for the use of the Cryoport Express
®
Shipper at the time of the delivery of the Cryoport Express
®
Shipper to the end user of the enclosed materials,
and at the time that collectability is probable. The Global Bioservices segment recognizes revenue as services are rendered over
time and at the time that collectability is probable.
The Company also provides
logistics support and management to some customers, which may include onsite logistics personnel. Revenue is recognized for these
services as services are rendered over time and at the time that collectability is probable.
The Company also provides
short-term logistics and engineering consulting services to some customers, with fees tied to the completion of contractually
defined services. We recognize revenue from these services over time as the customer simultaneously receives and consumes the benefit
of these services as they are performed.
Revenue Disaggregation
The Company operates
in two reportable segments and evaluates financial performance on a Company-wide basis. We consider sales disaggregated by end-market
to depict how the nature, amount, timing and uncertainty of revenues and cash flows are impacted by changes in economic factors.
The following table disaggregates our revenues by major source for the three and six months ended June 30, 2019 and 2018:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(000’s omitted)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Global Logistics Solutions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biopharmaceutical
|
|
$
|
6,959
|
|
|
$
|
3,849
|
|
|
$
|
12,599
|
|
|
$
|
7,131
|
|
Reproductive medicine
|
|
|
671
|
|
|
|
499
|
|
|
|
1,455
|
|
|
|
1,001
|
|
Animal health
|
|
|
257
|
|
|
|
279
|
|
|
|
486
|
|
|
|
518
|
|
Global Biostorage
|
|
|
577
|
|
|
|
—
|
|
|
|
577
|
|
|
|
—
|
|
Total revenues
|
|
$
|
8,464
|
|
|
$
|
4,627
|
|
|
$
|
15,117
|
|
|
$
|
8,650
|
|
Our geographical revenues,
by origin, for the three and six months ended June 30, 2019 and 2018, were as follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(000’s omitted)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Americas
|
|
$
|
7,536
|
|
|
$
|
4,261
|
|
|
$
|
13,705
|
|
|
$
|
7,778
|
|
Europe, the Middle East and Africa (EMEA)
|
|
|
724
|
|
|
|
271
|
|
|
|
1,087
|
|
|
|
638
|
|
Asia Pacific (APAC)
|
|
|
204
|
|
|
|
95
|
|
|
|
325
|
|
|
|
234
|
|
Total revenues
|
|
$
|
8,464
|
|
|
$
|
4,627
|
|
|
$
|
15,117
|
|
|
$
|
8,650
|
|
Engineering and Development Expenses
Expenditures relating to engineering and
development are expensed in the period incurred.
Stock-Based Compensation
The Company accounts
for stock-based payments in accordance with stock-based payment accounting guidance which requires all stock-based payments to
be recognized based upon their fair values. The fair value of stock-based awards is estimated at the grant date using the Black-Scholes
Option Pricing Model (“Black-Scholes”) and the portion that is ultimately expected to vest is recognized as compensation
cost over the requisite service period. The determination of fair value using Black-Scholes is affected by the Company’s
stock price as well as assumptions regarding a number of complex and subjective variables, including expected stock price volatility,
risk-free interest rate, expected dividends and projected employee stock option exercise behaviors. The Company accounts for forfeitures
of unvested awards as they occur.
The Company’s
stock-based compensation plans are discussed further in Note 13.
Basic and Diluted Net Loss Per Share
We calculate basic and
diluted net income (loss) per share using the weighted average number of common shares outstanding during the periods presented.
In periods of a net loss position, basic and diluted weighted average common shares are the same. For the diluted earnings per
share calculation, we adjust the weighted average number of common shares outstanding to include dilutive stock options, warrants
and shares associated with the conversion of convertible debt outstanding during the periods.
The following shows the amounts used in computing net loss per
share for the three and six months ended June 30:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Net loss
|
|
$
|
(2,528,491
|
)
|
|
$
|
(2,470,890
|
)
|
|
$
|
(4,915,393
|
)
|
|
$
|
(5,153,650
|
)
|
Weighted average common shares issued and outstanding - basic and diluted
|
|
|
31,176,166
|
|
|
|
27,808,873
|
|
|
|
30,811,109
|
|
|
|
27,294,384
|
|
Basic and diluted net loss per share
|
|
$
|
(0.08
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.19
|
)
|
The following table
sets forth the number of shares excluded from the computation of diluted loss per share, as their inclusion would have been anti-dilutive:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Stock options
|
|
|
3,926,229
|
|
|
|
3,228,636
|
|
|
|
3,443,629
|
|
|
|
2,985,721
|
|
Warrants
|
|
|
1,058,049
|
|
|
|
1,543,052
|
|
|
|
996,702
|
|
|
|
1,460,316
|
|
Convertible note
|
|
|
1,372,998
|
|
|
|
—
|
|
|
|
1,372,998
|
|
|
|
—
|
|
|
|
|
6,357,276
|
|
|
|
4,771,688
|
|
|
|
5,813,329
|
|
|
|
4,446,037
|
|
Foreign Currency Transactions
Management has determined
that the functional currency of its subsidiaries is the local currency. Assets and liabilities of the Netherlands and UK subsidiaries
are translated into U.S. dollars at the period-end exchange rates. Income and expenses are translated at an average exchange rate
for the period and the resulting translation gain (loss) adjustments are accumulated as a separate component of stockholders’
equity. The translation gain (loss) adjustment totaled $(1,500) and $(11,600) for the three and six months ended June 30, 2019.
Foreign currency gains and losses from transactions denominated in other than respective local currencies are included in earnings.
Foreign currency gains and losses for all periods presented were not significant.
Balance Sheet Arrangements
We do not currently have any
off balance sheet arrangements.
Reclassifications
Certain prior year amounts have been reclassified
to conform to the current year presentation.
Recently Adopted Accounting Pronouncements
In June 2018, the FASB
issued ASU 2018-07, “Compensation – Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting”
which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the
scope of Topic 718, “Compensation-Stock Compensation
”
, to include share-based payment transactions for acquiring
goods and services from nonemployees. Some of the areas for simplification apply only to nonpublic entities. The amendments specify
that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed
in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not
apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with
selling goods or services to customers as part of a contract accounted for under Topic 606, “Revenue from Contracts with
Customers”. The Company adopted ASU 2018-07 effective January 1, 2019, and the adoption of the standard did not have an impact
on the Company’s condensed consolidated financial statements.
In February 2016, the
FASB issued ASU 2016-02, “Leases”, as amended by ASU No. 2018-11, “Leases: Targeted Improvements”, (ASC
842), which provides for a comprehensive change to lease accounting. The new guidance amends the existing accounting standards
for leases to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease
liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities
by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective
of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
We adopted the standard
effective January 1, 2019 using the modified retrospective approach with the effective date as the date of initial application.
Consequently, prior period balances and disclosures have not been restated. Also, the Company has implemented additional internal
controls to enable future preparation of financial information in accordance with ASC 842.
The standard had a
material impact on our condensed consolidated balance sheets, which resulted in the recognition of ROU assets of $1.8 million,
lease liabilities of $2.1 million and a reduction in deferred rent liabilities of $308,600 for operating leases, while our accounting
for finance leases remained substantially unchanged. However, the adoption of the new standard did not materially impact our consolidated
results of operations and cash flows. Also, the adoption of ASC 842 did not have an impact on the Company’s beginning accumulated
deficit balance.
ASC 842 provides a
number of optional practical expedients in transition. For leases that commenced prior to January 1, 2019, the Company elected:
(1) the “package of practical expedients”, which permits it not to reassess under the new standard its prior conclusions
about lease identification, lease classification, and initial direct costs, and (2) the use-of-hindsight in determining the lease
term and in assessing impairment of ROU assets. In addition, ASC 842 provides practical expedients for an entity’s ongoing
accounting that the Company has elected, comprised of the following: (1) the election for classes of underlying asset to not separate
non-lease components from lease components, and (2) the election for short-term lease recognition exemption for all leases that
qualify.
For additional information
regarding the Company’s leases, see Note 10.
Accounting Guidance Issued but Not
Adopted at June 30, 2019
In August 2018, the
FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework
—
Changes to the Disclosure
Requirements for Fair Value Measurement," which is part of the FASB disclosure framework project to improve the effectiveness
of disclosures in the notes to the financial statements. The amendments in the new guidance remove, modify, and add certain disclosure
requirements related to fair value measurements covered in Topic 820, "Fair Value Measurement." The new standard is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted for either the entire standard or only the requirements
that modify or eliminate the disclosure requirements, with certain requirements applied prospectively, and all other requirements
applied retrospectively to all periods presented. We are currently evaluating the impact of adopting this guidance.
In January 2017, the
FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”,
which is intended to simplify the subsequent accounting for goodwill acquired in a business combination. Prior guidance required
utilizing a two-step process to review goodwill for impairment. A second step was required if there was an indication that an impairment
may exist, and the second step required calculating the potential impairment by comparing the implied fair value of the reporting
unit's goodwill (as if purchase accounting were performed on the testing date) with the carrying amount of the goodwill. The new
guidance eliminates the second step from the goodwill impairment test. Under the new guidance, an entity should perform its annual,
or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and then recognize
an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value (although the loss
should not exceed the total amount of goodwill allocated to the reporting unit). The guidance requires prospective adoption and
will be effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We are currently
evaluating the impact of adopting this guidance.
In June 2016, the FASB
issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments." This ASU replaces the incurred loss impairment
methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range
of reasonable and supportable information for credit loss estimates. In addition, new disclosures are required. The ASU is effective
for fiscal years beginning after December 15, 2019. We are currently evaluating the impact of adopting this guidance.
Note 4. Cash, Cash Equivalents and Short-Term Investments
Cash, cash equivalents and short-term investments
consisted of the following as of June 30, 2019 and December 31, 2018:
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
Cash
|
|
$
|
79,472,844
|
|
|
$
|
37,223,698
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market mutual fund
|
|
|
1,169,369
|
|
|
|
103,427
|
|
Total cash and cash equivalents
|
|
|
80,642,213
|
|
|
|
37,327,125
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
U.S. Treasury notes and bills
|
|
|
9,996,693
|
|
|
|
7,925,975
|
|
Mutual funds
|
|
|
4,106,960
|
|
|
|
2,004,993
|
|
Total short-term investments
|
|
|
14,103,653
|
|
|
|
9,930,968
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
94,745,866
|
|
|
$
|
47,258,093
|
|
Available-for-sale investments
The amortized cost, gross unrealized gains,
gross unrealized losses and fair value of available-for-sale investments by type of security at June 30, 2019 were as follows:
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
U.S. Treasury bills
|
|
$
|
978,688
|
|
|
$
|
19,517
|
|
|
$
|
—
|
|
|
$
|
998,205
|
|
U.S. Treasury notes
|
|
|
8,947,658
|
|
|
|
50,830
|
|
|
|
—
|
|
|
|
8,998,488
|
|
Total available-for-sale investments
|
|
$
|
9,926,346
|
|
|
$
|
70,347
|
|
|
$
|
—
|
|
|
$
|
9,996,693
|
|
The amortized cost, gross unrealized gains,
gross unrealized losses and fair value of available-for-sale investments by type of security at December 31, 2018 were as follows:
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
U.S. Treasury bills
|
|
$
|
2,948,777
|
|
|
$
|
19,523
|
|
|
$
|
—
|
|
|
$
|
2,968,300
|
|
U.S. Treasury notes
|
|
|
4,953,616
|
|
|
|
4,059
|
|
|
|
—
|
|
|
|
4,957,675
|
|
Total available-for-sale investments
|
|
$
|
7,902,393
|
|
|
$
|
23,582
|
|
|
$
|
—
|
|
|
$
|
7,925,975
|
|
The following table summarizes the fair
value of available-for-sale investments based on stated contractual maturities as of June 30, 2019:
|
|
Amortized
Cost
|
|
|
Fair Value
|
|
Due within one year
|
|
$
|
9,926,346
|
|
|
$
|
9,996,693
|
|
As of June 30, 2019
and December 31, 2018, there were no available-for-sale investments in an unrealized loss position.
The primary objective
of our investment portfolio is to enhance overall returns in an efficient manner while maintaining safety of principal, prudent
levels of liquidity and acceptable levels of risk. Our investment policy limits interest-bearing security investments to certain
types of debt and money market instruments issued by institutions with primarily investment-grade credit ratings, and it places
restrictions on maturities and concentration by asset class and issuer.
We review our available-for-sale
investments for other-than-temporary declines in fair value below our cost basis each quarter and whenever events or changes in
circumstances indicate that the cost basis of an asset may not be recoverable. The evaluation is based on a number of factors,
including the length of time and the extent to which the fair value has been below our cost basis, as well as adverse conditions
related specifically to the security such as any changes to the credit rating of the security and the intent to sell or whether
we will more likely than not be required to sell the security before recovery of its amortized cost basis. Our assessment of whether
a security is other-than-temporarily impaired could change in the future based on new developments or changes in assumptions related
to that particular security.
During the six months
ended June 30, 2019, we had realized gains of $29,900 on available-for-sale investments.
Equity Investments
We held investments
in equity securities with readily determinable fair values of $4.1 million at June 30, 2019. These investments consist of mutual
funds that invest primarily in tax-free municipal bonds and treasury inflation protected securities.
Unrealized gains (losses)
during 2019 related to equity securities held at June 30, 2019 are as follows:
Net gains recognized during the six months on equity securities
|
|
$
|
75,348
|
|
Less: net gains (losses) recognized on equity securities sold during the six months
|
|
|
—
|
|
Unrealized gains recognized during the six months on equity securities still held at June 30, 2019
|
|
$
|
75,348
|
|
Note 5. Fair Value Measurements
We measure fair value
based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used
to measure fair value. These tiers include the following:
Level 1:
Quoted
prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date. The fair
value hierarchy gives the highest priority to Level 1 inputs.
Level 2:
Observable
prices that are based on inputs not quoted on active markets, but corroborated by market data. These inputs include quoted prices
for similar assets or liabilities; quoted market prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3:
Unobservable
inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3
inputs.
In determining
fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs
to the extent possible, as well as consider counterparty credit risk in the assessment of fair value.
We did not elect the
fair value option, as allowed, to account for financial assets and liabilities that were not previously carried at fair value.
Therefore, material financial assets and liabilities that are not carried at fair value, such as trade accounts receivable and
payable, are reported at their historical carrying values.
The carrying values
of our assets that are required to be measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018 approximate
fair value because of our ability to immediately convert these instruments into cash with minimal expected change in value which
are classified in the table below in one of the three categories of the fair value hierarchy described above:
|
|
Fair Value Measurements
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual fund
|
|
$
|
1,169,369
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,169,369
|
|
Marketable equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
4,106,960
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,106,960
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury bills
|
|
|
998,205
|
|
|
|
—
|
|
|
|
—
|
|
|
|
998,205
|
|
U.S. Treasury notes
|
|
|
8,998,488
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,998,488
|
|
|
|
$
|
15,273,022
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15,273,022
|
|
|
|
Fair Value Measurements
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual fund
|
|
$
|
103,427
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
103,427
|
|
Marketable equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
2,004,993
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,004,993
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
|
4,957,675
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,957,675
|
|
U.S. Treasury bills
|
|
|
2,968,300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,968,300
|
|
|
|
$
|
10,034,395
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,034,395
|
|
Our equity
securities and available-for-sale debt securities, including U.S. treasury notes and U.S. treasury bills are valued using inputs
observable in active markets for identical securities and are therefore classified as Level I within the fair value hierarchy.
We did
not have any financial liabilities measured at fair value on a recurring basis as of June 30, 2019.
Note 6. Convertible Note
On December 14, 2018,
we entered into a Securities Purchase and Registration Rights Agreement (the “SPA”) with Petrichor Opportunities Fund
I LP (the “Investor”) in connection with (i) the issuance and sale of 1,000,000 shares of the Company’s common
stock, par value $0.001 per share (the “Investment Shares”), at a price equal to $10.00 per share and (ii) the issuance
of a $15,000,000 floating rate convertible note (the “Note”) of the Company, with such Note convertible on the terms
stated therein into shares of Common Stock (the “Note Shares”) (together, the “Transaction”). In connection
with the Transaction, the Company paid Petrichor Opportunities Fund I LP a commitment fee of $250,000 on the aggregate total purchase
price for the Transaction.
The Note is the senior
unsecured obligation of the Company. Unless earlier converted or redeemed, the Note will mature on December 14, 2023. The Note
accrues interest at a rate equal to the greater of (a) three-month London Interbank Offered Rate (LIBOR) or (b) two percent, plus
the applicable margin of six percent on the outstanding balance of the Note, payable quarterly on the first business day of each
calendar quarter.
Prior to the maturity,
a holder of the Note will have the right to convert all or any portion of the Note, including any accrued but unpaid interest,
into shares of Common Stock at a conversion price of $13.11 per share (the “Conversion Price”), subject to certain
adjustments as set forth in the Note. The Company determined that the Note’s conversion option includes a down round price
protection feature which triggers upon the occurrence of a future event. As a result, the Company will account for the conversion
option in accordance with ASU 2017-11 and related accounting guidance, which requires the Company to recognize a contingent beneficial
conversion feature in earnings at such time the conversion price is adjusted. If, at any time on or prior to December 14, 2021,
the volume-weighted average price of the Common Stock exceeds $17.48 for 15 consecutive trading days and certain additional conditions
are satisfied, the Note will automatically convert into shares of Common Stock at the Conversion Price, subject to certain conditions.
At any time after
June 14, 2019, the Company has the right to redeem all, but not less than all, of the outstanding Note for cash prior to the Maturity
Date, at a redemption premium on such amount as follows: (a) prior to December 14, 2019, 112%; (b) after December 14, 2019 but
on or prior to December 14, 2020, 109%; and (c) after December 14, 2020, 106% (the “Redemption Premium”).
Upon the occurrence
of certain events of default as set forth in the Note (other than events of default relating to bankruptcy, insolvency, reorganization
or liquidation proceedings) or a change of control, a holder of the Note may require the Company to redeem all or any portion of
its Note at the applicable Redemption Premium. If certain events of default relating to bankruptcy, insolvency, reorganization
or liquidation proceedings occur, all outstanding principal and accrued and unpaid interest (plus any accrued and unpaid late charges)
will automatically become due and payable at the applicable Redemption Premium.
The Note contains
certain covenants and restrictions, including, among others, that, for so long as the Note is outstanding, the Company will not
incur any indebtedness (other than permitted indebtedness under the Note), permit liens on its properties (other that permitted
liens under the Note), make payments on junior securities, make dividends or transfer certain assets or permit its unrestricted
cash to be less than a minimum amount.
Pursuant to the
SPA, the Company agreed to register the Investment Shares and the Note Shares by filing a registration statement with the SEC
by the 45th calendar day after the closing date of the Transaction.
The registration statement was filed on January 28, 2019 and was declared effective by the SEC on February 14, 2019.
The issuance costs
for this Transaction, including the commitment fee paid to the Investor totaled approximately $480,000. As these costs were incurred
to raise both debt and equity, the total costs have been allocated on a pro-rata basis to the debt and equity financings based
on their relative fair values. The pro-rata portion of these fees related to the Note will be amortized over the five-year stated
life of the Note. During the three and six months ended June 30, 2019, the Company amortized $15,400 and $30,800, respectively,
of the debt discount to interest expense for the Note.
On July 9, 2019, the
Company entered into Amendment No. 1 to the Note. Pursuant to the amendment, the terms of the Note were amended such that (i) after
June 30, 2019, the interest rate on the Note is reduced to 6.00%; (ii) after June 30, 2019, accrued interest on the Note will be
converted into common stock of the Company in connection with any conversion of the Note, provided that solely with respect to
such accrued but unpaid interest, the conversion price will be an amount equal to the average volume-weighted average price of
the Company’s common stock for the 15 consecutive trading days prior to the conversion date; (iii) the mandatory conversion
date is December 14, 2019; (iv) the maximum percentage provisions relating to a mandatory conversion of the Note were removed;
(v) the Note is no longer required to be senior to any other indebtedness of the Company and its subsidiaries; and (vi) the limitation
on the Company and its subsidiaries from incurring indebtedness was removed. Since the Note is convertible into shares of the Company’s common stock on December 14, 2019, the
Company determined that the classification as a long-term liability is appropriate as the debt will not be settled in cash.
Interest expense was
$315,800 and $638,300 for the three and six months ended June 30, 2019, respectively, of which $315,800 is included in accounts
payable and other accrued expenses in the accompanying condensed consolidated balance sheet as of June 30, 2019.
Note 7. Segment Reporting
We currently operate
in two reportable segments: Global Logistics Solutions and Global Bioservices. The Global Logistics Solutions segment provides
temperature-controlled logistics solutions to the life sciences industry through its purpose-built proprietary packaging, information
technology and specialized cold chain logistics expertise. The Company provides leading edge logistics solutions to the biopharma,
reproductive medicine and animal health markets to ship, store and deliver biologic materials, such as immunotherapies, stem cells,
CAR-T cell therapies, vaccines and reproductive cells for clients worldwide. The Global Bioservices segment provides a comprehensive
temperature-controlled sample management solution to the life science industry, including specimen storage, sample processing,
collection, and retrieval. The spectrum of temperature-controlled solutions provided by the Company ranges from ambient, or controlled
room temperature (20°C to 25°C), refrigerated (2°C to 8°C), to frozen and cryogenic (below 0°C to as low as
−150°C). Our Chief Executive Officer is the chief operating decision maker for both segments.
The Company derives
the results of the segments directly from its internal management reporting system. The accounting policies of the operating segments
are substantially the same as those described in the summary of significant accounting policies. The Company evaluates segment
performance on the basis of revenues and profit or loss. Management uses these operating results, in part, to evaluate the performance
of, and to allocate resources to, each of the segments.
The Company’s
reportable segments are strategic business units that offer different products and services. They are managed separately because
each business requires different sales and marketing strategies and operational skillsets. The Global Bioservices segment is currently
comprised of the Cryogene business that was acquired in May 2019 (see Note 11), and the management at the time of the acquisition
was retained. Prior to this acquisition, the Company had a single reportable segment: Global Logistics Solutions.
Reportable segment information is presented
in the following tables:
|
|
Three Months Ended June 30, 2019
|
|
|
|
Global Logistics Solutions
|
|
|
Global Bioservices
|
|
|
Total
|
|
Revenues
|
|
$
|
7,887,044
|
|
|
$
|
576,544
|
|
|
$
|
8,463,588
|
|
Interest expense
|
|
|
(333,910
|
)
|
|
|
—
|
|
|
|
(333,910
|
)
|
Depreciation and amortization
expense
|
|
|
(367,246
|
)
|
|
|
(129,444
|
)
|
|
|
(496,690
|
)
|
Segment net income (loss)
|
|
|
(2,687,228
|
)
|
|
|
158,737
|
|
|
|
(2,528,491
|
)
|
Other significant items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
|
108,798,388
|
|
|
|
24,347,707
|
|
|
|
133,146,095
|
|
Goodwill
|
|
|
—
|
|
|
|
11,149,663
|
|
|
|
11,149,663
|
|
Expenditures for long-lived assets
|
|
|
(1,327,407
|
)
|
|
|
(152,254
|
)
|
|
|
(1,479,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
Global Logistics Solutions
|
|
|
Global Bioservices
|
|
|
Total
|
|
Revenues
|
|
$
|
14,539,956
|
|
|
$
|
576,544
|
|
|
$
|
15,116,500
|
|
Interest expense
|
|
|
(672,638
|
)
|
|
|
—
|
|
|
|
(672,638
|
)
|
Depreciation and amortization
expense
|
|
|
(667,811
|
)
|
|
|
(129,444
|
)
|
|
|
(797,255
|
)
|
Segment net income (loss)
|
|
|
(5,074,130
|
)
|
|
|
158,737
|
|
|
|
(4,915,393
|
)
|
Other significant items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
|
108,798,388
|
|
|
|
24,347,707
|
|
|
|
133,146,095
|
|
Goodwill
|
|
|
—
|
|
|
|
11,149,663
|
|
|
|
11,149,663
|
|
Expenditures for long-lived assets
|
|
|
(2,468,920
|
)
|
|
|
(152,254
|
)
|
|
|
(2,621,174
|
)
|
Revenues from one customer of the Company’s
Global Bioservices segment represents approximately 83.3% of that segment’s net revenues but it does not exceed 10% of the Company’s
consolidated net revenues for the three and six months ended June 30, 2019.
Note 8. Goodwill and Other
Intangible Assets
Goodwill
During the
three months ended June 30, 2019, the Company recorded $11.1 million of goodwill which is related to the acquisition of
Cryogene. See Note 11 for further information on this acquisition transaction. As of June 30, 2019, the carrying value of
goodwill is $11.1 million which is allocated to the Global Bioservices reportable segment.
Other
Intangible Assets
The following table presents
our other intangible assets as of June 30, 2019:
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying Amount
|
|
|
Weighted
Average
Amortization
Period (years)
|
|
Non-compete agreement
|
|
$
|
390,000
|
|
|
$
|
6,500
|
|
|
$
|
383,500
|
|
|
5
|
|
Technology
|
|
|
510,000
|
|
|
|
8,500
|
|
|
|
501,500
|
|
|
5
|
|
Customer relationships
|
|
|
3,900,000
|
|
|
|
27,083
|
|
|
|
3,872,917
|
|
|
12
|
|
Cryogene trade name/trademark
|
|
|
480,000
|
|
|
|
2,667
|
|
|
|
477,333
|
|
|
15
|
|
Cryoport patents and trademarks
|
|
|
227,624
|
|
|
|
47,375
|
|
|
|
180,249
|
|
|
—
|
|
Total
|
|
$
|
5,507,624
|
|
|
$
|
92,125
|
|
|
$
|
5,415,499
|
|
|
|
|
The following table presents
our other intangible assets as of December 31, 2018:
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying Amount
|
|
|
Weighted
Average
Amortization
Period (years)
|
|
Cryoport patents and trademarks
|
|
$
|
184,595
|
|
|
$
|
47,375
|
|
|
$
|
137,220
|
|
|
|
—
|
|
Amortization expense
for intangible assets for the three and six months ended June 30, 2019 was $44,800.
Expected future amortization of intangible assets as
of June 30, 2019 is as follows:
Years Ending December 31,
|
|
Amount
|
|
Remainder of 2019
|
|
$
|
268,500
|
|
2020
|
|
|
537,000
|
|
2021
|
|
|
537,000
|
|
2022
|
|
|
537,000
|
|
2023
|
|
|
537,000
|
|
Thereafter
|
|
|
2,998,999
|
|
|
|
$
|
5,415,499
|
|
Note 9. Commitments and Contingencies
Facility and Equipment Leases
We lease 27,600 square
feet of corporate, research and development, and logistics facilities in Irvine, California under an operating lease expiring February
2023, subject to our option to extend the lease for two additional five-year periods. The initial base rent is approximately $24,700
per month. We also lease 8,100 square feet of logistics facilities in Livingston, New Jersey under an operating lease expiring
December 2024, subject to our option to extend the lease for an additional five-year period. The initial base rent is approximately
$7,600 per month. In addition, we lease 7,600 square feet of logistics facilities in Hoofddorp, The Netherlands under an operating
lease expiring May 2023, subject to our option to extend the lease for two additional five-year periods. The initial base rent
is approximately $5,400 per month. We also lease a total of 21,476 square feet of corporate and logistics facilities in Houston,
Texas in two adjacent buildings under operating leases expiring in January 2024. The aggregate initial base rent is approximately
$22,000 per month. These lease agreements contain certain scheduled annual rent increases which are accounted for on a straight-line
basis. In addition, we lease certain equipment which expires through January 2024.
Employment Agreements
We have entered into
employment agreements with certain of our officers under which payment and benefits would become payable in the event of termination
by us for any reason other than cause, or upon a change in control of our Company, or by the employee for good reason.
Litigation
The Company may become
a party to product litigation in the normal course of business. The Company accrues for open claims based on its historical experience
and available insurance coverage. In the opinion of management, there are no legal matters involving the Company that would have
a material adverse effect upon the Company’s consolidated financial condition or results of operations.
Indemnities and Guarantees
The Company has made
certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified party, in relation
to certain actions or transactions. The guarantees and indemnities do not provide for any limitation of the maximum potential future
payments the Company could be obligated to make. Historically, the Company has not been obligated nor incurred any payments for
these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying consolidated
balance sheets.
The Company indemnifies
its directors, officers, employees and agents, as permitted under the laws of the States of California and Nevada. In connection
with its facility and equipment leases, the Company has indemnified its lessors for certain claims arising from the use of the
facilities and equipment. The duration of the guarantees and indemnities varies, and is generally tied to the life of the agreements.
Note 10. Leases
The Company has operating
and finance leases for corporate offices and certain equipment. These leases have remaining lease terms of two years to approximately
six years, some of which include options to extend the leases for multiple renewal periods of five years each. As of June 30, 2019
and December 31, 2018, assets recorded under finance leases were $71,000, and accumulated depreciation associated with finance
leases was $17,100 and $6,800, respectively.
The components of
lease cost were as follows:
|
|
Six Months Ended
|
|
|
|
June 30, 2019
|
|
Operating lease cost
|
|
$
|
279,500
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
5,074
|
|
Interest on finance lease liabilities
|
|
|
1,544
|
|
|
|
|
6,618
|
|
Total lease cost
|
|
$
|
286,118
|
|
Other
information related to leases was as follows:
|
|
Six Months Ended
|
|
Supplemental Cash Flows Information
|
|
June 30, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
269,107
|
|
Operating cash flows from finance leases
|
|
$
|
1,544
|
|
Financing cash flows from finance leases
|
|
$
|
11,426
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
|
$
|
2,544,000
|
|
Finance leases
|
|
$
|
—
|
|
|
|
|
|
|
Weighted-Average Remaining Lease Term
|
|
|
|
|
Operating leases
|
|
|
7.4 years
|
|
Finance leases
|
|
|
1.8 years
|
|
|
|
|
|
|
Weighted-Average Discount Rate
|
|
|
|
|
Operating leases
|
|
|
7.4
|
%
|
Finance leases
|
|
|
6.0
|
%
|
Future minimum lease payments under non-cancellable
leases as of June 30, 2019 were as follows:
Years Ending December 31,
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
2019 (excluding the six months ended June 30, 2019)
|
|
$
|
421,422
|
|
|
$
|
12,970
|
|
2020
|
|
|
856,023
|
|
|
|
25,940
|
|
2021
|
|
|
858,657
|
|
|
|
8,647
|
|
2022
|
|
|
864,364
|
|
|
|
—
|
|
2023
|
|
|
528,889
|
|
|
|
—
|
|
Thereafter
|
|
|
2,355,538
|
|
|
|
—
|
|
Total future minimum lease payments
|
|
|
5,884,893
|
|
|
|
47,557
|
|
Less imputed interest
|
|
|
(1,429,568
|
)
|
|
|
(2,636
|
)
|
Total
|
|
$
|
4,455,325
|
|
|
$
|
44,921
|
|
Reported as of June 30, 2019
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
Current operating lease liabilities
|
|
$
|
534,586
|
|
|
$
|
25,940
|
|
Noncurrent operating lease liabilities
|
|
|
3,920,739
|
|
|
|
18,981
|
|
Total
|
|
$
|
4,455,325
|
|
|
$
|
44,921
|
|
Disclosures related to periods prior to adoption of ASC
842
The future minimum obligations under operating
and capital leases in effect as of December 31, 2018 having a noncancelable term in excess of one year as determined prior to the
adoption of ASC 842 are as follows:
Years Ending December 31,
|
|
Operating
Leases
|
|
|
Capital
Leases
|
|
2019
|
|
$
|
525,592
|
|
|
$
|
25,940
|
|
2020
|
|
|
537,742
|
|
|
|
25,940
|
|
2021
|
|
|
538,893
|
|
|
|
8,647
|
|
2022
|
|
|
542,790
|
|
|
|
—
|
|
2023
|
|
|
198,219
|
|
|
|
—
|
|
Thereafter
|
|
|
109,773
|
|
|
|
—
|
|
Total minimum lease payments
|
|
$
|
2,453,009
|
|
|
|
60,527
|
|
Amount representing interest at 6%
|
|
|
|
|
|
|
(4,180
|
)
|
Present value of future minimum capital lease obligations
|
|
|
|
|
|
|
56,347
|
|
Current portion
|
|
|
|
|
|
|
(23,191
|
)
|
|
|
|
|
|
|
$
|
33,156
|
|
Note 11. Acquisition of Cryogene Partners
On May 14, 2019, Cryogene,
Inc., a Texas corporation (“Buyer”) and a wholly owned subsidiary of the Company entered into an Asset Purchase Agreement
(the “Asset Purchase Agreement”) for the acquisition of the assets of Cryogene Partners, a Texas general partnership
doing business as Cryogene Labs (“Cryogene”). The closing of the transaction contemplated in the Asset Purchase Agreement
occurred simultaneously with the execution of the Asset Purchase Agreement on May 14, 2019.
Pursuant to the terms
and subject to the conditions of the Asset Purchase Agreement, the Company acquired substantially all of the assets of Cryogene,
including, without limitation, tangible personal property, intellectual property assets, and certain contracts related to Cryogene’s
temperature-controlled biostorage solutions business located in Houston, Texas (the foregoing, the “Purchased Assets”),
and assumed certain related liabilities.
The aggregate purchase
price for the Purchased Assets was $20.5 million in cash, subject to adjustment as described in the Asset Purchase Agreement (the
“Total Consideration”), $1 million of which was deposited into an escrow account to serve as an escrow fund for any
indemnifiable losses of the Company under the Asset Purchase Agreement.
As a result of this
acquisition, the Company is expected to extend its integrated logistics solutions and services to provide comprehensive temperature-controlled
sample management solutions to the life sciences industry, including specimen storage, sample processing, collection, and retrieval.
Preliminary Purchase Price Allocation
We funded this acquisition
through available cash and accounted for it as an acquisition of a business in accordance with FASB ASC Topic 805, “Business
Combinations”. Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair
values. Fair values were determined by management based in part on an independent valuation performed by a third-party valuation
specialist. The Company has performed a preliminary valuation analysis of the fair value of Cyrogene’s assets and liabilities.
The following table summarizes the allocation of the purchase price as of the acquisition date:
Total purchase price
|
|
$
|
20,429,651
|
|
|
|
|
|
|
Purchase price allocation:
|
|
|
|
|
Property and equipment, net
|
|
|
4,257,340
|
|
Intangible assets
|
|
|
5,280,000
|
|
Deferred revenue
|
|
|
(220,291
|
)
|
Other liabilities
|
|
|
(37,061
|
)
|
Goodwill
|
|
|
11,149,663
|
|
|
|
|
|
|
|
|
$
|
20,429,651
|
|
The following table
summarizes the preliminary fair value of intangible assets acquired at the date of acquisition and their estimated useful lives
and amortization expense based on their respective useful lives:
|
|
|
|
|
|
|
|
|
|
|
Annual
|
|
|
|
Estimated
|
|
|
Estimated
|
|
|
Amortization
|
|
|
Amortization
|
|
|
|
Fair Value
|
|
|
Useful Life
|
|
|
Method
|
|
|
Expense
|
|
Non-compete agreement
|
|
$
|
390,000
|
|
|
5
|
|
|
|
Straight-line
|
|
|
$
|
78,000
|
|
Technology
|
|
|
510,000
|
|
|
5
|
|
|
|
Straight-line
|
|
|
|
102,000
|
|
Customer relationships
|
|
|
3,900,000
|
|
|
12
|
|
|
|
Straight-line
|
|
|
|
325,000
|
|
Trade name/trademark
|
|
|
480,000
|
|
|
15
|
|
|
|
Straight-line
|
|
|
|
32,000
|
|
Total
|
|
$
|
5,280,000
|
|
|
|
|
|
|
|
|
|
$
|
537,000
|
|
Goodwill is calculated
as the excess of the purchase price over the fair value of net assets acquired and represents the future economic benefits arising
from other assets acquired that could not be individually identified and separately recognized. Among the factors that contributed
to a purchase price in excess of the fair value of the net tangible and intangible assets acquired were the acquisition of an assembled
workforce, the expected synergies, and other benefits that we believe will result from combining the operations of Cryogene with
our operations. Goodwill of approximately $11,150,000 related to the acquisition has been recorded in the Global Bioservices reportable
segment. The goodwill recognized is expected to be deductible for income tax purposes.
Our estimate of the
fair value of the specifically identifiable assets acquired and liabilities assumed as of the date of acquisition is subject to
the finalization of management’s analysis related to certain matters, including receipt of the final valuations and settlement
of the escrow funds. The final determination of these fair values will be completed as additional information becomes available
but no later than one year from the acquisition date. Although the final determination may result in asset and liability fair values
that are different than the preliminary estimates of these amounts included herein, it is not expected that those differences will
be material to our consolidated financial position.
Acquisition-related
transaction costs (included in general and administrative expenses) totaled approximately $266,400.
The operating results
of the Cryogene acquisition have been included in our unaudited condensed consolidated financial statements from the acquisition
date through June 30, 2019. Our results for the six months ended June 30, 2019, include Cryogene sales of $576,500 and net
income of $158,700.
The following unaudited
pro forma information presents our combined results as if the Cryogene acquisition had occurred on January 1, 2018. The unaudited
pro forma financial information was prepared to give effect to events that are (1) directly attributable to the acquisition,
(2) factually supportable, and (3) expected to have a continuing impact on the combined company’s results. There
were no transactions between the Company and Cryogene during the periods presented that are required to be eliminated. The unaudited
pro forma condensed combined financial information does not reflect any cost savings, operating synergies, or revenue enhancements
that the combined companies may achieve as a result of the acquisition or the costs to integrate the operations or the costs necessary
to achieve cost savings, operating synergies, or revenue enhancements.
The following
table presents the unaudited, pro forma consolidated results of operations for the three and six months ended June 30, 2018
as if the acquisition of the assets of Cryogene had occurred as of January 1, 2018. The pro forma information provided below
is compiled from the financial statements of Cryogene Partners, which includes pro forma adjustments for intangible assets
amortization expense and transaction costs.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2018
|
|
|
June 30, 2018
|
|
Revenues
|
|
$
|
5,565,500
|
|
|
$
|
10,534,200
|
|
Net loss
|
|
$
|
(2,684,100
|
)
|
|
$
|
(5,252,800
|
)
|
Basic and diluted earnings per share
|
|
$
|
(0.10
|
)
|
|
$
|
(0.19
|
)
|
The pro forma results
are not necessarily indicative of the consolidated results of operations that we would have reported had the acquisition been completed
as of January 1, 2018 and should not be taken as representative of our condensed consolidated results of operations following the
acquisition. In addition, the unaudited proforma consolidated financial information is not intended to project the future results
of operations of the Company.
Note 12. Stockholders’ Equity
Authorized Stock
The Company has 100,000,000
authorized shares of common stock with a par value of $0.001 per share, and 2,500,000 undesignated or "blank check" preferred
stock, with a par value of $0.001, of which, 800,000 shares have been designated as Class A Convertible Preferred Stock and 585,000
shares have been designated as Class B Convertible Preferred Stock.
Common Stock Issued for Services
During the six months
ended June 30, 2019, 3,239 shares of common stock with a fair value of $49,666 were issued to three members of the board of directors
as compensation for services.
During the six months
ended June 30, 2018, 3,095 shares of common stock with a fair value of $35,000 were issued to two members of the board of directors
as compensation for services.
Common Stock Reserved for Future
Issuance
As of June 30, 2019, approximately 8.2 million shares of common stock were issuable upon conversion or exercise of rights granted under prior financing arrangements, stock options and warrants, as follows:
Exercise of stock options
|
|
|
6,772,625
|
|
Exercise of warrants
|
|
|
1,392,146
|
|
Total shares of common stock reserved for future issuances
|
|
|
8,164,771
|
|
In addition, we reserved
1,372,998 shares of common stock issuable upon conversion of our Note, which reflects 120% of the maximum number of Note Shares
issuable upon conversion of the Note (see Note 6).
June 2019 Public Offering
On June 24, 2019, the
Company completed an underwritten public offering (the “Offering”) of 4,312,500 shares of its common stock, par value
$0.001 per share (the “Shares”). The Shares were issued and sold pursuant to an underwriting agreement (the “Underwriting
Agreement”), dated June 19, 2019, by and among the Company, on the one hand, and Jefferies LLC and SVB Leerink LLC, as representatives
of certain underwriters (collectively, the “Underwriters”) at a public offering price per share of $17.00. The Shares
include 562,500 shares issued and sold pursuant to the Underwriters’ exercise in full of their option to purchase additional
shares of common stock pursuant to the Underwriting Agreement. The Company received net proceeds of approximately $68.8 million
from the Offering after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.
Certain of the Underwriters
and their affiliates have provided in the past to the Company and its affiliates and may provide from time to time in the future
certain commercial banking, financial advisory, investment banking and other services for the Company and such affiliates in the
ordinary course of their business, for which they have received and may continue to receive customary fees and commissions.
The Offering was made
pursuant to the Company’s effective registration statement on Form S-3 previously filed with the Securities and Exchange
Commission and a prospectus supplement.
February 2018 Tender Offer
On February 8, 2018,
we completed an exchange offer with respect to the Company’s outstanding warrants to purchase one share of common stock at
an exercise price of $3.57 per share (the “Original Warrants”). Through February 2, 2018, we offered holders of the
Original Warrants the opportunity to exchange such Original Warrants for an equal number of warrants to purchase one share of common
stock at an exercise price of $3.00 per share (the “New Warrants”), conditioned upon the immediate exercise of such
New Warrants.
Pursuant to the February
2018 Tender Offer, warrants to purchase 1,580,388 shares of the Company’s common stock were tendered by holders of warrants
and were amended and exercised in connection therewith, resulting in the issuance by the Company of an aggregate of 1,580,388 shares
of its common stock for aggregate gross proceeds of $4.7 million.
The Original Warrants
were issued (i) in July 2015 in connection with the Company’s registered public offering of 2,090,750 units (each unit consisting
of one share of the Company’s common stock and one Original Warrant), and (ii) in January 2016 in connection with the mandatory
exchange of all of the Company’s outstanding Class A Convertible Preferred Stock and Class B Convertible Preferred Stock
into 4,977,038 units (each unit consisting of one share of the Company’s common stock and one Original Warrant).
The terms of the New
Warrants included (i) an exercise price of $3.00 per share and (ii) an exercise period that expired concurrently with the expiration
of the Offer at 5:00 p.m. (Eastern Time) on February 2, 2018 (the “Expiration Date”). In addition, the shares issuable
upon exercise of the New Warrants (the “New Warrant Shares”) were subject to a 60-day lock-up period.
The purpose of the
Offer was to raise funds to support the Company’s growth plans by providing the holders of the Original Warrants an incentive
to exchange their Original Warrants for New Warrants and exercise the New Warrants to purchase shares of the Company’s common
stock at a reduced exercise price as compared to the Original Warrants. The Company received all of the proceeds from the immediate
exercise of the New Warrants, which will be used by the Company for business growth, including as working capital and for other
general corporate purposes.
As a result of reducing
the exercise price of certain warrants in connection with the February 2018 Tender Offer, a warrant repricing expense of $899,400
was incurred which was determined using the Black-Scholes option pricing model and was calculated as the difference between the
fair value of the warrants prior to, and immediately after, the reduction in the exercise price on the date of repricing. Such
amount is included in warrant inducement and repricing expense in the condensed consolidated statement of operations for the six
months ended June 30, 2018. In connection with this offering, the Company incurred $99,400 in offering costs that were offset against
the proceeds from this offering.
Note 13. Stock-Based Compensation
Warrant Activity
We typically issue warrants to purchase
shares of our common stock to investors as part of a financing transaction or in connection with services rendered by placement
agents and consultants. Our outstanding warrants expire on varying dates through November 2021. A summary of warrant activity is
as follows:
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Price/Share
|
|
|
Weighted-
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value (1)
|
|
Outstanding — December 31, 2018
|
|
|
2,049,534
|
|
|
$
|
4.03
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(636,478
|
)
|
|
|
4.08
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(20,910
|
)
|
|
|
17.68
|
|
|
|
|
|
|
|
|
|
Outstanding — June 30, 2019
|
|
|
1,392,146
|
|
|
$
|
3.81
|
|
|
|
1.1
|
|
|
$
|
20,202,100
|
|
Vested (exercisable) — June 30, 2019
|
|
|
1,392,146
|
|
|
$
|
3.81
|
|
|
|
1.1
|
|
|
$
|
20,202,100
|
|
(1)
|
Aggregate intrinsic value represents the difference between the exercise price of the warrant and the closing market price
of our common stock on June 28, 2019, which was $18.32 per share.
|
Total intrinsic value of warrants exercised during
the three months ended June 30, 2019 was $6.6 million.
Stock Options
We have five stock
incentive plans: the 2002 Stock Incentive Plan (the “2002 Plan”), the 2009 Stock Incentive Plan (the “2009 Plan”),
the 2011 Stock Incentive Plan (the “2011 Plan”), the 2015 Omnibus Equity Incentive Plan (the “2015 Plan”),
and the 2018 Omnibus Equity Incentive Plan (the “2018 Plan”), (collectively, the “Plans”). The 2002 Plan,
the 2009 Plan, the 2011 Plan and the 2015 Plan (the “Prior Plans”) have been superseded by the 2018 Plan. In May 2018,
the stockholders approved the 2018 Plan for issuance up to 3,730,179 shares. The Prior Plans will remain in effect until all awards
granted under such Prior Plans have been exercised, forfeited, cancelled, or have otherwise expired or terminated in accordance
with the terms of such awards, but no awards will be made pursuant to the Prior Plans after the effectiveness of the 2018 Plan.
As of June 30, 2019, the Company had 2,859,532 shares available for future awards under the 2018 Plan.
During the six months
ended June 30, 2019, we granted stock options at exercise prices equal to or greater than the quoted market price of our common
stock on the grant date. The fair value of each option grant was estimated on the date of grant using Black-Scholes with the following
weighted average assumptions:
Expected life (years)
|
|
5.2 – 6.2
|
Risk-free interest rate
|
|
1.8% – 2.6%
|
Volatility
|
|
75% – 99%
|
Dividend yield
|
|
0%
|
The expected option
life assumption is estimated based on the simplified method. Accordingly, the Company has utilized the average of the contractual
term of the options and the weighted average vesting period for all options to calculate the expected option term. The risk-free
interest rate assumption is based upon observed interest rates appropriate for the expected term of our employee stock options.
In April 2019, the Company amended its expected volatility assumption from using exclusively a historical volatility. The
Company calculates its expected volatility assumption based on a blended volatility using an average of its historical and implied
volatilities over the expected life of the stock-based award. The selection of the blended volatility assumption was based
upon the Company’s assessment that blended volatility is more representative of the Company’s future stock price trends
as it weighed in the longer term historical volatility with the near-term future implied volatility. We do not anticipate
paying dividends on the common stock in the foreseeable future.
We recognize stock-based
compensation expense over the vesting period using the straight-line single option method. Stock-based compensation expense is
recognized only for those awards that vest. We account for the forfeitures of unvested awards as they occur.
Total stock-based compensation
expense related to all of our share-based payment awards is comprised of the following:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Cost of revenues
|
|
$
|
101,999
|
|
|
$
|
57,947
|
|
|
$
|
164,752
|
|
|
$
|
93,404
|
|
General and administrative
|
|
|
1,343,984
|
|
|
|
1,007,090
|
|
|
|
2,284,123
|
|
|
|
1,734,813
|
|
Sales and marketing
|
|
|
443,253
|
|
|
|
303,766
|
|
|
|
782,328
|
|
|
|
533,331
|
|
Engineering and development
|
|
|
102,519
|
|
|
|
76,926
|
|
|
|
174,287
|
|
|
|
133,691
|
|
|
|
$
|
1,991,755
|
|
|
$
|
1,442,729
|
|
|
$
|
3,405,490
|
|
|
$
|
2,495,239
|
|
A summary of stock
option activity is as follows:
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Price/Share
|
|
|
Weighted-
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value (1)
|
|
Outstanding — December 31, 2018
|
|
|
5,757,305
|
|
|
$
|
5.16
|
|
|
|
|
|
|
|
|
|
Granted (weighted-average fair value of $8.86 per share)
|
|
|
1,333,850
|
|
|
|
12.96
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(245,802
|
)
|
|
|
3.52
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(72,728
|
)
|
|
|
10.61
|
|
|
|
|
|
|
|
|
|
Outstanding — June 30, 2019
|
|
|
6,772,625
|
|
|
$
|
6.70
|
|
|
|
7.3
|
|
|
$
|
78,736,800
|
|
Vested (exercisable) — June 30, 2019
|
|
|
4,239,076
|
|
|
$
|
4.85
|
|
|
|
6.2
|
|
|
$
|
57,095,400
|
|
Expected to vest after June 30, 2019 (unexercisable)
|
|
|
2,533,549
|
|
|
$
|
9.78
|
|
|
|
9.0
|
|
|
$
|
21,641,400
|
|
|
(1)
|
Aggregate intrinsic value represents the difference between the exercise price of the option and
the closing market price of our common stock on June 28, 2019, which was $18.32 per share.
|
Total intrinsic value
of options exercised during the three months ended June 30, 2019 was $2.6 million.
As of June 30, 2019,
there was unrecognized compensation expense of $17.4 million related to unvested stock options, which we expect to recognize
over a weighted average period of 3.0 years.
Note 14. Subsequent Event
Convertible Note
On July 9, 2019, the
Company entered into Amendment No. 1 to the Company’s convertible note previously issued to Petrichor on December 14, 2018.
Pursuant to the amendment, the terms of the note were amended such that (i) after June 30, 2019, the interest rate on the note
is reduced to 6.00%; (ii) after June 30, 2019, accrued interest will be converted into common stock of the Company in connection
with any conversion of the Note; provided that solely with respect to such accrued but unpaid interest, the conversion price will
be an amount equal to the average volume-weighted average price of the Company’s common stock for the 15 consecutive trading
days prior to the conversion date; (iii) the mandatory conversion date is December 14, 2019; (iv) the maximum percentage provisions
relating to a mandatory conversion of the Note were removed; (v) the Note is no longer required to be senior to any other indebtedness
of the Company and its subsidiaries; and (vi) the limitation on the Company and its subsidiaries from incurring indebtedness were
removed. See Note 6. Since the Note is convertible into shares of the Company’s common stock on December 14, 2019, the
Company determined that the classification as a long-term liability is appropriate as the debt will not be settled in cash.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
In this Form 10-Q,
the terms “Cryoport,” “Company” and similar terms refer to Cryoport, Inc., and its wholly owned subsidiary,
Cryoport Systems, Inc.
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS:
This Quarterly
Report on Form 10-Q contains forward-looking statements that have been made pursuant to the provisions of the Private Securities
Litigation Reform Act of 1995 and concern matters that involve risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. In some cases, you can identify these statements by terminology
such as “may,” “will,” “should,” “could,” “expect,” “plan,”
“anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue”
or similar words which are intended to identify forward-looking statements, although not all forward-looking statements contain
these words. Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable
as of the date of this Quarterly Report, we cannot guarantee future results, levels of activity, performance or achievements, and
our actual results may differ substantially from the views and expectations set forth in this Quarterly Report. You should be aware
that these statements are projections or estimates as to future events and are subject to a number of factors that may tend to
influence the accuracy of the statements. These forward-looking statements should not be regarded as a representation by the
Company or any other person that the events or plans of the Company will be achieved. You should not unduly rely on these
forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to publicly
revise any forward-looking statement to reflect circumstances or events after the date of this Quarterly Report or to reflect the
occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports we file from time
to time with the Securities and Exchange Commission (“SEC”), including those contained in our Report on Form 10-K for
the year ended December 31, 2018, as filed with the SEC on March 13, 2019 and those reports filed after the date of this Quarterly
Report. Actual results may differ materially from any forward looking statement.
The
following management’s discussion and analysis of the Company’s financial condition and results of
operations (“MD&A”) should be read in conjunction with the condensed consolidated balance sheet as of June
30, 2019 (unaudited) and the consolidated balance sheet as of December 31, 2018 (audited) and the related unaudited
condensed consolidated statements of operations, comprehensive loss and stockholders’ equity for the three and six
months ended June 30, 2019 and 2018, and cash flows for the six months ended June 30, 2019 and 2018 and the related
notes thereto (see Item 1. Financial Statements), as well as the audited consolidated financial statements of the
Company for years ended December 31, 2018 and 2017, included in the Company’s Form 10-K for the year ended December 31,
2018.
General Overview
Overview
Cryoport is a life
sciences services company focused on providing critical solutions, such as temperature-controlled logistics, biostorage services
to the biopharma, reproductive medicine and animal health markets. Our differentiated products and services enable our clients
to ship, store and deliver biologics and other life sciences commodities in a continual temperature-controlled state, including
ultra-low cryogenic and other temperature ranges.
Cryoport’s advanced,
comprehensive and technology-centric systems and solutions were designed to support the global high-volume distribution of commercial
biologic and cell-based products regulated by the United States Food and Drug Administration (FDA) and other international regulatory
bodies for distribution in the Americas, EMEA (Europe, the Middle East, and Africa) and APAC (Asia-Pacific) regions. Cryoport’s
solutions are also designed to support pre-clinical, clinical trials, Biologics License Applications (BLA), Investigational
New Drug Applications (IND) and New Drug Applications (NDA) with the FDA as well global clinical trials initiated in other countries,
where strict regulatory compliance and quality assurance is mandated. Our industry standard setting Chain of Compliance
TM
solution, which includes vital analytics, such as ‘chain-of-condition’ and ‘chain-of-custody’ information
in a single data stream, empowers our clients’ continuous vigilance over their commodities. In addition, our Chain of Compliance
TM
standard ensures full traceability of the equipment used and the processes employed, further supporting each client’s goal
to minimize risk and maximize success of their new biologics or other commodities as they are introduced into the global markets.
As part of our services,
our technologies provide the ability for Cryoport personnel and our clients to monitor conditions of the internal shipping environment,
location and other specified critical variables for each shipment in near real time. In accordance with client requirements, information
is recorded and archived for each shipment for scientific, quality assurance and regulatory purposes in a secure cloud-based system
that can be accessed globally. This information provides an audit trail that can verify the in-shipment condition in which the
life sciences commodity, material, product, vaccine or therapy was shipped and/or stored.
One of the most
important features of our Cryoport Express
®
Solutions is the sophisticated, cloud-based, logistics management platform,
which is branded as the Cryoportal
®
Logistics Management Platform. The Cryoportal
®
supports the management
of shipments through a single interface, which includes order entry, document preparation, customs documentation, courier management,
near real-time shipment tracking, issue resolution, and regulatory compliance requirements. In addition, it provides unique and
incisive information dashboards and validation documentation for every shipment through data collected by the SmartPak II™
Condition Monitoring System). The Cryoportal
®
can record and retain a fully documented history of all Cryoport Express
®
Shippers, including ‘chain-of-custody’, ‘chain-of-condition’, ‘chain-of-identity’, and Chain
of Compliance
TM
information for each shipment, which is used to ensure that the stability of shipped biologic commodities
are maintained throughout the shipping cycle. At the client’s option, recorded information is archived, allowing the client
to meet exacting requirements necessary for scientific work and/or for proof of regulatory compliance during the logistics process.
Our Cryoport Express
®
Solutions include a family of Cryoport Express
®
Shippers ranging from liquid nitrogen dry vapor shippers (-150℃)
to our C3
TM
Shippers (2-8℃), which are powered by phase-change materials. Cryoport Express
®
Shippers
are precision engineered assemblies that are reliable, cost-effective and reusable or recyclable. Our liquid nitrogen dry vapor
Cryoport Express
®
Shippers utilize an innovative application of ‘dry vapor’ liquid nitrogen technology
and, most often, include a SmartPak II
TM
Condition Monitoring System. Cryoport Express
®
Shippers meet
International Air Transport Association (“IATA”) requirements for transport, including Class 6.2 infectious substances.
Cryoport Express
®
Shippers are also International Safe Transit Association (“ISTA”) “Transit Tested”
certified.
As part of our services,
we assist and/or provide clients with secondary packaging that is placed inside the main chamber of our Cryoport Express
®
Shippers. In addition to vials, canes, straws, goblets, plates, etc., we also offer engineering and consulting services to assist
clients in creating and developing customized secondary packaging that meet their specific requirements.
Our advanced technologies
and dedicated personnel allow us to continue to expand our services footprint with a growing suite of services, products and competencies
serving the life sciences industry, which currently include: information technology, primary and secondary packaging, near real-time
monitoring, analytics, logistics distribution, consulting, laboratory relocation, fleet management, embedded logistics support,
validation services (especially for shipping lanes and packaging). A sample of our client facing, value-added competencies addressing
specific client requirements are as follows:
|
·
|
“
Personalized Medicine and Cell-based Immunotherapy Solutions,”
designed for autologous therapies
in which our Cryoport Express
®
Solutions serve as an enabling technology for the safe and efficient transportation
of leukapheresis or apheresis blood products as well as the manufactured autologous cellular-based immunotherapies by providing
a comprehensive logistics solution for the verified chain of condition and chain of custody, chain of identity, and Chain of Compliance
TM
transport from, (a) the collection of the patient’s blood or cells at a point-of-care setting, to (b) a central processing
facility where they are manufactured into a personalized medicine, to (c) the safe, cryogenically preserved delivery of these often
irreplaceable cells to a point-of-care treatment facility. If required, Cryoport Express
®
Shippers can then serve
as a temporary freezer/repository supporting the efficient distribution of the personalized medicine to the patient when and where
the medical provider needs it, without the expense and inconvenience of on-sight, cryopreservation storage freezers.
|
|
·
|
“Allogeneic Therapy Solutions,”
designed for allogeneic therapies in which our Cryoport Express
®
Solutions serve as an enabling technology for the safe and efficient transportation of health donor blood products as well
as the manufactured allogeneic therapies by providing a comprehensive logistic solutions for the verified chain of condition, chain
of custody, chain of identity, and Chain of Compliance
TM
transport from, (a) the blood collection center, to (b) the
manufacturing facility for the allogeneic therapy, to (c) a storage and fulfillment facility, or (d) to a point-of-care treatment
facility. Again, if required, the Cryoport Express
®
Shipper can then serve as a temporary freezer/repository to
allow the efficient distribution of the personalized medicine to the patient.
|
|
·
|
“Embedded Solutions,”
our most comprehensive solution, which involves our management of the entire
temperature-controlled logistics process for our client using Cryoport technology and Cryoport employees working on-sight at the
client’s location to manage all of the client’s temperature-controlled logistics needs.
|
|
·
|
“Fleet Management,”
our fleet management support service is designed to reduce our clients upfront
and recurring costs through optimized utilization of resources and minimization of equipment loss. We offer both complete and partial
temperature-controlled outsourced fleet management services, including fleet evaluation and disposition (if required), inventory
control, fleet maintenance and ongoing fleet requalification and validation.
|
|
·
|
“Packaging Development,”
using ‘Design-of-Experiment’ and ‘Quality-by-Design’
processes, Cryoport can design, engineer and employ customized packaging and/or accessories to ensure effective distribution of
our client’s critical commodities using our in-house team of packaging engineering competencies in the cryogenic, 2-8
℃
and other temperature-controlled ranges to meet or exceed our client’s specifications. Packaging development may include
integration of our SmartPak II™ Condition Monitoring System and the accommodation of our Cryoportal
®
Logistics
Management Platform into our clients’ packaging configurations, providing full access to our logistics management support
competencies.
|
|
·
|
“Consulting Services,”
provides our clients an opportunity to leverage our in-house talent to: design
custom logistics plans, perform lane assessment, lane validation, carrier validation; design custom packaging and validation, permitting
clinical trial logistics design; commercial launch planning; systems integration; and end user training.
|
|
·
|
“Laboratory Relocation,”
for large moves of life sciences commodities, we use redundant temperature-controlled
shippers and environmentally controlled trucks. Along with our logistics partners, we ensure the integrity of client materials
during all logistics phases, including loading, transport, unloading and placement. Our service includes lane and carrier permitting
and validation. Our large sample capacity Cryoport Express
®
CryoMax™ Shipper has a holding time of up to 20
days and includes the benefit of our near real time SmartPak II™ Condition Monitoring System, which supplies monitoring information
to our Cryoportal
®
Logistic Management Platform, providing LiveView information on the client’s transport.
By employing our 24/7/365 client support team to actively monitoring shipments and mitigate risks, we ensure safe shipping and
relocation of large-scale collections.
|
|
·
|
“powered by cryoport
SM
,”
available to providers of shipping and delivery services who
seek to offer a “branded” cryogenic logistics solution as part of their service offerings. “powered by cryoport
SM
”
appears prominently on the offering software interface and packaging. This option for the client to private label its service is
available upon committing to certain requirements, such as minimum annual shipping volumes.
|
In addition to the
offerings above, Cryoport is continuously evaluating, expanding and improving its range of services and solutions in response to
market needs and client demand.
We recently added
bioservices services to our portfolio of solutions in response to our clients’ needs for comprehensive and integrated
solutions offerings and the expected growth in the global biostorage and bioservices markets, which are driven by the
acceleration of clinical trials and the commercialization of regenerative medicine therapies on a global basis. Through the
recent acquisition of the Cryogene business, we now provide comprehensive temperature-controlled sample management solution
to the life science industry, including specimen storage, sample processing, collection, and retrieval. The spectrum of
temperature-controlled solutions provided by the Company ranges from ambient, or controlled room temperature (20°C
to 25°C), refrigerated (2°C to 8°C), to frozen and cryogenic (below 0°C to as low as −150°C). See
note 11 to the accompanying condensed consolidated financial statements included in Item 1 of this report for further
discussion of the Cryogene acquisition.
Competitive Advantages
With our first-to-market
and technology-driven logistics services for the life sciences industry and over a decade of experience, we have established a
unique lead over potential competitors. Furthermore, we are not aware of any company that offers Cryoport’s full suite of
solutions. Working with our tools in information technology, packaging and temperature-controlled logistics, we approach our growing
markets with innovation, creative thinking and advanced technologies.
The most common alternatives
to Cryoport’s solutions are “older technologies” and/or systems. In fact, a portion of the biopharma market and
much of the animal health market still uses hazardous liquid nitrogen or dry ice with no ongoing validation processes for their
equipment or procedures. In the case of dry ice, the technology delivers temperatures of approximately -80℃ with standard
deviations up to 14℃. Consequently, it provides an environment that allows cellular activity to continue and cells to degrade,
impacting cell line performance and cell viability. Liquid nitrogen, on the other hand, while effective in holding cryogenic temperatures,
is bulky, heavy, expensive and requires special handling to avoid spillage and accommodate weight. Both dry ice and liquid nitrogen
are classified “hazardous” by IATA (International Air Transportation Association) and, therefore, are also classified
as “dangerous goods,” requiring additional permits and fees. Cryoport solutions on the other hand are classified as
non-hazardous.
Through our experience,
we know that logistics distribution can have a large impact on product/commodity conditions. This is especially important for high
value and at times irreplaceable commodities that we transport, whether in support of a clinical trial or the commercial distribution
of a product. We therefore go beyond traditional ISTA (International Safe Transit Association) packaging validation and have implemented
Quality-by-Design processes that allow us to assess in-field events, the impact of logistics on the commodity being shipped, and
the equipment being used for each individual shipments.
We have been qualified
as a trusted temperature-controlled logistics solutions provider for hundreds of life sciences companies and institutions and,
currently, support over 400 clinical trials in the regenerative medicine space. Cryoport has logged over 260,000 shipments to over
100 countries with hundreds of different types of life sciences materials. This experience and reputation, combined with over a
decade of know-how and technology, provides us with significant competitive advantages. In fact, since our inception, we have experienced
minimal client attrition.
In addition, Novartis
and Kite Pharmaceuticals Inc. (a Gilead company) have both entrusted Cryoport to manage the global clinical shipments of its cell
therapies trials and the commercial shipments of its CAR T-cell therapies, KYMRIAH
®
and YESCARTA
®
,
respectively, which were the first two CAR T-cell therapies approved by the FDA. During the quarter ended June 30, 2019, bluebird
bio’s ZYNTEGLO™ received European Conditional Marketing Authorization, representing the third commercially approved
product that Cryoport is expecting to support. Shipment volumes for ZYNTEGLO™ are expected to ramp in 2020 with the commercial
launch.
Our competitive position is further enhanced
by our “powered by cryoport
SM
” partnership agreements and alliances further described below.
We continuously enhance
and broaden our solutions offering in order to maintain and extend what we believe to be a significant lead in the marketplace.
We believe that it would take a serious potential competitor an extended period of time and investment to build out the tools,
solutions, and competencies we possess along with our know-how. In addition to our lead as the first-to-market mover and leader
in market share in the regenerative medicine space, we think our biggest competitive advantage falls into our trade secrets and
our speed to market with new solutions. Our market leading position enables us to be uniquely tuned to the markets we serve, which
enables us to anticipate and quickly react to client needs and market demand. We try to employ the best people in the industry,
and we foster the development and implementation of new technologies to maintain that lead. In every aspect possible, we strive
to be a ‘green,’ environmentally responsible company, which we consider to be a competitive advantage.
Strategic Logistics Alliances and Collaborations
We have been successful
in establishing strategic distribution alliances around the world, under our “
powered by Cryoport
SM
”
strategy, as a long-term method of marketing our solutions to the life sciences industry. We have focused our efforts on leading
companies in the logistics services industry as well as participants in the life sciences industry. The “
powered by Cryoport
SM
”
strategy with our alliance partners reflects our solutions being integrated into our alliance partner’s services.
Cryoport supports the
three largest integrators in the world, FedEx, DHL and UPS, with its advanced cryogenic logistics solutions for the life sciences
industry and for logistics support. These three integrators collectively, have more than 87% of the express logistics aircraft
in service and who, respectively, have been expanding other parts of their temperature-controlled offerings for the life sciences
industry. To support each integrator’s marketing efforts, we operate with each independently and confidentially in support
of each company’s respective strategy.
We also have relationships
using our “
powered by cryoport
SM
” strategy with the following alliance partners:
McKesson
Specialty Health, a division of McKesson Corporation.
In February 2018, we announced a strategic collaboration with McKesson
Specialty Health. Adding Cryoport’s integrated cold-chain capabilities and near real-time monitoring, the McKesson and Cryoport
collaboration provides an end-to-end solution for complex products which require high-touch patient access and adherence support
as well as temperature-controlled product transportation. McKesson Specialty Health works together with stakeholders across the
healthcare delivery system to preserve and strengthen specialty care. Cryoport’s solutions coupled with McKesson’s
end-to-end patient access and support services are focused on helping patients avoid delays in treatment through accelerated patient
on-boarding, prior authorizations, end-user training and comprehensive adherence and educational support programs.
World Courier,
a part of AmerisourceBergen.
In July 2018 we announced World Courier’s integration of Cryoport’s full suite
of temperature-controlled solutions into its global network. World Courier is a global specialty logistics company that designs
world-class supply chain programs. The integration allows Cryoport’s Chain of Compliance
TM
solutions availability
to World Courier clients. The integrated platform combines the strengths of both the Cryoport and World Courier systems to their
respective biopharmaceutical clients, allowing each client to proactively minimize risks to their cell and gene therapies through
the entire biopharma supply chain in order to maintain the efficacy of their valuable commodities. Our integrated solutions will
be offered through World Courier’s global network of more than 140 company-owned offices operating across 50 countries, as
well as directly through Cryoport’s business development team.
Be The Match
BioTherapies
®
.
I
n October 2018, we announced a strategic partnership with Be The Match BioTherapies to
deliver end-to-end supply chain services to the cell and gene therapy industry. Be The Match BioTherapies is the only cell and
gene therapy solutions provider with customizable services to support the end-to-end cell therapy supply chain. Backed by the industry-leading
experience of the National Marrow Donor Program/Be The Match, and a research partnership with the CIBMTR
®
(Center
for International Blood and Marrow Transplant Research
®
), the organization designs solutions that advance cell and
gene therapies in any stage of development. By pairing Cryoport’s expertise in temperature-controlled logistics with Be The
Match BioTherapies’ expertise in apheresis center onboarding and management, case management and logistics, clinical research,
and outcomes data collection and analysis, the two organizations will offer full end-to-end supply chain and outcomes support for
companies developing and delivering autologous and allogeneic cell and gene therapies. An important part of the agreement is to
integrate Be The Match BioTherapies’ MatchSource
®
cell therapy supply chain software and Cryoport’s
Cryoportal
®
Logistics Management Platform. The outcome is a platform that manages more cell therapy products than
any other solution in the marketplace, enabling cell and gene therapy companies to more rapidly discover, develop and deliver next-generation
therapies. Our collaboration will support both organizations’ efforts to standardize critical elements of the cell therapy
supply chain, as well as processes in apheresis and transplant center networks.
EVERSANA™
. In July 2019,
we announced the formation of a strategic alliance with EVERSANA™. EVERSANA™ is a leading independent provider of global
services to the life science industry. EVERSANA™ integrated solutions are rooted in the patient experience and span all stages
of the product lifecycle to deliver long-term, sustainable value for patients, prescribers, channel partners and payers. The company
serves more than 500 organizations, including innovative start-ups and established pharmaceutical companies. Through this alliance,
we expect to provide EVERSANA™ and its clients with our full suite of logistics solutions under our 'powered by cryoport™'
marketing model. This includes our Cryoport Express® Shippers, Cryoportal® Logistics Management Platform, leading-edge
SmartPak II™ Condition Monitoring System and our advanced logistics management.
Cryoport’s Positioning in the
Life Sciences Industry
Life sciences technology
advancements are expected to have a significant impact on global society over the next 25 years. The industry is growing in a way
where research and manufacturing pipelines span across the globe. This also increases the need to mitigate supply chain risks,
especially for cellular-based therapies/products and other life sciences commodities today and tomorrow.
Over the past several
years, Cryoport has assumed the leadership position in supporting the rapidly growing regenerative medicine market with its temperature-controlled
logistics solutions. According to the Alliance for Regenerative Medicine (“ARM”) update for the second quarter of 2019,
there were 932 regenerative medicine companies worldwide, conducting a total of 1,069 clinical trials of which 94 were in Phase
III. The total targeted enrollment of patients in regenerative medicine clinical trials worldwide were 59,757 patients according
to ARM’s State of the Industry Briefing in January of 2019. Total global financings in this space totaled $2.6 billion in
Q2 2019 and $4.8 billion for the first six months. The FDA stated that by 2025 it predicts that it will be approving 10 to 20 cell
and gene therapy products per year. This data further amplifies the significant position regenerative medicine is taking in the
development of new therapies and products in the life sciences industry.
The total cold chain
logistics market for the life sciences industry has historically grown faster per annum than the total life sciences logistics
market. For 2018, global cold chain logistics spending, overall, was forecasted to be $15.0 billion; with approximately $3.4 billion
in spending supporting global clinical trials. By 2022, the global life sciences cold chain logistics market is forecast to grow
to $18.6 billion for a 24% increase. The majority of the growth is a result of the recent advancements in the development of biologics
and cell-based therapies. As a result, scientists, intermediaries, and manufacturers require means for cryogenically transporting
and storing their work and products, such as CAR-T cell therapies, where temperatures must be maintained below the “glass
point” (generally, below minus 136℃). In addition, our Cryoport Express
®
C3™ solution was specifically
developed to address the front-end logistics of some autologous therapies that transport whole blood to the point of manufacturing,
requiring a stable 2-8℃ temperature range. It is more robust than any competing shipper today with its exacting and reliable
design. These solutions incorporate our Cryoportal
®
Logistics Management Platform and the SmartPak II
TM
Condition Monitoring System, giving our clients a seamless logistics record of all vital information for each therapy shipped on
a worldwide basis.
We think Cryoport is
appropriately positioned as a life sciences services company focused on providing solutions such as temperature-controlled logistics,
bioservices and end-product fulfillment, to the regenerative medicine, reproductive medicine and animal health markets. Our
differentiated products and services enable our clients to ship, store and deliver biologics and other commodities required to
remain in a continual cryogenic or temperature-controlled state, such as CAR-T therapies and other cell therapies, gene therapies,
embryos for reproductive medicine, vaccines, and stem cells. Our standard setting Chain of Compliance
TM
, which includes
vital analytics, including ‘chain-of-condition’ and ‘chain-of-custody’ information, in a single data stream,
allows our clients continuous vigilance over their commodities to minimize risk and maximize success through traceability of the
equipment used and the processes employed in supporting each client’s therapy or other commodity.
Life Sciences Agreements
Our clients include
life sciences companies and institutions that have engaged us to support their clinical studies and trials as well as the global
distribution of their commercial biologics, vaccines and other products with our temperature-controlled logistics and bioservices
solutions. Our most significant agreements are as follows:
Zoetis.
In
December 2012, we signed an agreement with Pfizer Inc. relating to Zoetis Inc. (formerly the animal health business unit of
Pfizer Inc.) pursuant to which we are now managing all cryogenic shipments of Zoetis’ key poultry vaccines. Under this arrangement,
we provide on-site logistics personnel and our Cryoportal
®
Logistics Management Platform to manage shipments from
the Zoetis manufacturing site in the United States to domestic customers as well as various international distribution centers.
The Company manages Zoetis’ total fleet of shippers used for this purpose, including liquid nitrogen shippers. In July 2013,
the Agreement was amended to expand Cryoport’s scope to manage all logistics of Zoetis’ key frozen poultry vaccine
to all Zoetis’ international distribution centers as well as all domestic shipments. In October 2013, the Agreement was further
amended to further expand Cryoport’s role to include the logistics management for a second poultry vaccine. In April 2019,
the Agreement was amended and extended through March 2022, subject to certain termination and extension provisions.
Novartis
. In
May 2017, we signed an agreement with Novartis Inc. to manage the global clinical and commercial shipments of its CAR-T cell therapies,
including the commercial launch of CAR-T cell therapy, KYMRIAH
®
(CTL019), for children and young adults with B-cell
ALL that is refractory or has relapsed at least twice. On August 30, 2017 Novartis received from the FDA the first ever CAR-T cell
approval for the first indication of KYMRIAH
®
. Subsequently on May 1, 2018 the FDA approved KYMRIAH
®
for the treatment for adult patients with relapsed/refractory DLBCL. Following the U.S. approvals, on August 27, 2018 the
EU approved KYMRIAH
®
for both ALL and DLBCL, Canadian approval on September 6, 2018, and Australian approval on
December 20, 2018. Most recently, in April 2019, KYMRIAH
®
received approval from the Japanese regulator authority.
Novartis has treated patients in 11 countries and has over 500 employees dedicated to the support of KYMRIAH
®
.
Under our agreement with Novartis, Cryoport provides cryogenic packaging and shipping using its Cryoport Express
®
Shippers, monitoring using its SmartPak II
TM
Condition Monitoring System technology and communications and information
recording using its Cryoportal
®
Logistics Management Platform to manage shipments from the Novartis manufacturing
sites to their clinical and commercial sites for patient administration globally.
Kite/Gilead
.
In July
2017, we signed an agreement with Kite Pharmaceuticals
Inc. (a Gilead company) to manage the clinical and commercial shipments of its CAR-T cell therapy, YESCARTA
®
(Axicabtagene
Ciloleucel). On October 18, 2017, YESCARTA
®
became the first CAR-T therapy approved by the FDA for the treatment
of adult patients with relapsed or refractory large B-cell lymphoma. Additionally, YESCARTA
®
received EU approval
on August 27, 2018 for relapsed/refractory DLBCL and PMBCL. As of the end of the second quarter, Kite had 120 certified centers
authorized to treat patients globally. Through these centers over 700 patients have been treated with YESCARTA
®
.
Under our agreement with Kite, Cryoport provides cryogenic packaging and shipping using its Cryoport Express
®
Shippers,
monitoring using its SmartPak II
TM
Condition Monitoring System technology and communications and information recording
using its Cryoportal
®
Logistics Management Platform to manage shipments from the Kite manufacturing sites to their
clinical and commercial sites of patient administration globally.
bluebird bio
.
We are currently supporting bluebird bio’s clinical activity with our temperature-controlled logistics solutions and expect
to support bluebird bio’s commercial activity of its gene therapy, ZYNTEGLO
TM
once launched. On June 3, 2019, the
EU approved ZYNTEGLO
TM
for patients 12 years and older with certain forms of Transfusion-Dependent BetaThalassemia (TDT).
ZYNTEGLO
TM
is a one-time autologous gene therapy that adds functional copies of a modified form of the BetaGlobin gene
into a patient’s own hematopoietic (blood) stem cells (HSC’s). bluebird bio has announced that the commercial shipments
will begin in early 2020, with the first shipments planned for Germany, followed by the UK and Italy. bluebird bio has also announced
plans to file for the U.S. approval of ZYNTEGLO
TM
by the end of 2019.
Cryoportal™
Logistics Management Platform
The Cryoportal
®
Logistics Management Platform records and retains a fully traceable and documented history of all serialized equipment and components
as part of our Chain of Compliance
TM
solution, as well as “chain-of-condition” and “chain-of-custody”
for every shipment, helping ensure that quality, safety, efficacy, and stability of shipped commodities are maintained throughout
the process. Additionally, the Cryoportal
®
is used by Cryoport, our clients and business partners to automate the
entry of orders, documentation preparation, to assist in managing logistics operations and to reduce administrative costs typically
provisioned through manual labor relating to order-entry, order processing, preparation of shipping documents and back-office accounting.
It is also used to support the high level of customer service expected by the life sciences industry. Certain features of the Cryoportal
®
are designed to reduce operating costs and facilitate the scaling of Cryoport’s business. Examples of these features include
automation of order entry, development of key performance indicators (“KPI’s”) to support efforts for continuous
process improvements in our business, and programmatic exception monitoring to detect and sometimes anticipate delays in the shipping
process, often before the customer or the shipping company is aware of them. These features offer significant value to our customers
in terms of cost avoidance and risk mitigation.
The Cryoportal
®
Logistics Management Platform also serves as the communications center for the management, collection and analysis of SmartPak
II
TM
Condition Monitoring System data collected in near real time from the field. Collected data is converted into information
reports containing valuable and actionable information that becomes the quality control or “pedigree” of the shipment.
This information can be utilized by Cryoport to provide valuable feedback in near real time to our clients relating to their shipments.
Additionally, our SmartPak II
TM
Condition Monitoring System provides the ability to apply Quality by Design fundamentals
to our logistics solutions enabling intervention and risk mitigation capabilities to be employed.
The Cryoportal
®
Logistics Management Platform has been developed as a “carrier-agnostic” system, allowing clients and the Cryoport
Logistics Management team to work with any combination of integrators, freight forwarders, couriers and/or brokers depending on
the specific requirements and/or client preferences. To increase operational efficiencies, the Cryoportal
®
Logistics
Management Platform is integrated with the tracking systems of FedEx, DHL and UPS and other key logistics providers.
The Cryoportal
®
was developed for time-and temperature-sensitive shipments that are required to be maintained at specific temperatures, beginning
with the most demanding cryogenic temperatures (-150℃) and moving upward to ambient (20-25℃) to ensure that the shipped
samples/commodities/products are not subject to degradation or out of designated “safe” range temperatures. While our
current focus is on cryogenic (-150℃) as well as 2-8℃ logistics within the life sciences industry, the use of the Cryoportal
®
Logistics Management Platform can and may be extended into other temperature-controlled ranges for the life sciences. To our knowledge,
the Cryoportal
®
Logistics Management Platform is unique to temperature-controlled logistics in the life sciences
industry. It is robust and has considerable capabilities. We frequently receive favorable feedback about the Cryoportal
®
from our clients and partners.
Cryoport Express
®
Shippers
Our Cryoport
Express
®
Shippers are a family of shippers engineered specifically to serve the life sciences industry. Engineering
of these devices, which are made up of proprietary packaging, dewar vacuum flasks, near real time electronic monitoring systems
and engineered shock absorbing overpackaging requires multiple and varied engineering disciplines. Each Cryoport Express
®
Shipper is ISTA (International Safe Transit Association) validated and IATA, UN, International Civil Aviation Organization (“ICAO”)
compliant. Cryoport Express
®
Shippers are the highest level, most comprehensive logistics shippers serving the life
sciences industry.
Cryogenic Cryoport
Express
®
Shippers employ liquid nitrogen v
apor shipper vacuum flask tanks
capable of maintaining cryogenic temperatures of minus 150℃ or below for a dynamic shipping period of 10 days or more.
A dry vapor cryogenic shipper is a device that uses liquid nitrogen contained inside a vacuum insulated vessel (
vacuum
flask tank),
which serves as a refrigerant to provide stable storage temperatures below minus 150℃. Our Cryoport Express
®
Shippers are designed to ensure that there is no pressure build up as the liquid nitrogen evaporates. We have developed a proprietary
retention system to ensure that liquid nitrogen stays inside the vacuum container, which allows the shipper to be designated as
a dry vapor shipper meeting IATA requirements. Biological or pharmaceutical specimens are stored in a specimen chamber, referred
to as a “well” inside the container and refrigeration is provided by gas evolving from the liquid nitrogen entrapped
within the proprietary retention system. Specimens that may be transported using our cryogenic shipper include: live cells, scientific
or pharmaceutical commodities such as cancer therapies, vaccines, diagnostic materials, semen, eggs, embryos, infectious substances,
and other commodities that require continuous exposure to cryogenic temperatures, i.e., temperatures below minus 150℃.
An important
feature of our Cryoport Express
®
Shippers is their compliance with the stringent packaging requirements of IATA
Packing Instructions 602 and 650, respectively. These specifications include meeting internal pressure (hydraulic) and drop performance
requirements. Under IATA guidelines, Cryoport Express® Shippers are classified as “Non-hazardous.” Dry ice and
liquid nitrogen are classified as “Dangerous Goods.” Our shippers are also in compliance with International Civil Aviation
Organization (“ICAO”) regulations that prohibit egress of liquid nitrogen residue from the shipping packages. The ICAO
is a United Nations organization that develops regulations for the safe transport of dangerous goods by air.
We currently
offer dry vapor shippers with varying storage capacities, including our Cryoport Express
®
Standard Shipper, Cryoport
Express
®
High Volume Shipper, Cryoport Express
®
Sliderite
®
Shipper, Cryoport Express
®
CXVC1 Shipper and Cryoport Express
®
CryoMax™, which has a capacity of 36,400 2.0 ml vials. Our Cryoport Express
®
Shippers are composed of aluminum (aircraft-grade) material, with an engineered well for holding high value biologics or other
materials in its inner chamber.
Cryoport Express
®
Dry Vapor Shippers
Cryoport
Express
®
Dry Vapor Shippers are lighter than liquid nitrogen flasks. They are engineered units that consist of dewar
flasks, electronics, and engineered outer packaging. Cryoport Express™ Shippers include re-usable dry vapor liquid nitrogen
storage containers (vacuum flask tanks) that, we believe, combine the best features of life sciences packaging, cryogenics science
and vacuum insulation technology. Cryoport Express
®
Dry Vapor Shippers are composed of aluminum metallic dewar flasks,
with wells for holding the biological material in the inner chambers. The dewar vessel is a device in which the conduction, convection
and radiation of heat are reduced as much as possible giving it the capability of maintaining its contents at a near-constant temperature
over relatively long periods of time. The inner chamber of the shippers is surrounded by a high surface, low-density material which
retains the liquid nitrogen in-situ by absorption, adsorption, and surface tension. Absorption is defined as the taking up of matter
in bulk by other matter, as in the dissolving of a gas by a liquid, whereas adsorption is the surface retention of solid, liquid
or gas molecules, atoms or ions by a solid or liquid. This material absorbs liquid nitrogen relatively rapidly, while providing
our shippers with hold times and capacities to transport biological materials safely and conveniently. The specimen-holding chamber
has a primary cap to enclose the specimens/commodities, and a removable and replaceable secondary cap to further enclose the specimen/commodity-holding
container and to contain the liquid nitrogen dry vapor. The entire dewar vessel is then wrapped in a plurality of insulating and
cushioning materials and placed in an outer packaging that been engineered specifically for absorbing shock and the challenges
encountered in transportation. This outer packaging also houses the Smart Pak II™ Condition Monitoring System which communicates
with the Cryoportal™ Logistics Management Platform.
Cryoport Express
®
C3™ Shippers
Non-cryogenic,
temperature-controlled Cryoport Express
®
Shippers employ sourced components that are modified and assembled to meet
the requirements of the task for which they were designed. An example is the Cryoport Express
®
C3™ Shipper.
Cryoport
Express
®
C3™ Shippers are designed to maintain a controlled temperature range of 2°-8°C for up
to 96 hours under dynamic shipping conditions. These reusable shippers are offered as part of our
Cryoport. Certified. Cool.
or
C3
TM
Solution. It includes our Cryoport’s SmartPak II™ Condition Monitoring System and the
Cryoportal
®
Logistics Management Platform. This solution was introduced to support the growing need in the regenerative
therapy market and to enable our clients to utilize our solutions for both, the transportation of leukapheresis and apheresis blood
products as well as the manufactured autologous cellular-based immunotherapies.
Cryoport Express
®
Shipper Summary
We believe
Cryoport Express® Shippers used in Cryoport Express
®
Solutions do the best job in the life sciences industry
to mitigate risks. We believe that our Cryoport Express® Solutions are the most advanced and most cost-effective temperature-controlled
logistics solutions available to the life sciences industry. We believe Cryoport Express
®
Solutions satisfy client
needs and scientific and regulatory requirements relating to each shipment of time- and temperature-critical, frozen and/or refrigerated
transport of biological materials, such as stem cells, cell lines, pharmaceutical clinical trial samples, gene biotechnology, infectious
materials handling, animal and human reproduction markets. We believe that due to our proprietary technology, innovative design
and systems, our Cryoport Express
®
Shippers are less prone to losing critical functional hold time than competing
products.
Cryoport Express
®
SmartPak
II
TM
Condition Monitoring System
For our clients, condition
monitoring is a high-value feature as it is an effective and reliable method to determine that their commodity/product was not
damaged and did not experience degradation during shipment due to temperature fluctuations or other undesirable conditions. Our
SmartPak II™ Condition Monitoring System is designed to track the key aspects of each shipment that could affect the quality
and/or timing of delivery of the commodity/product to its intended destination. This includes near real-time tracking using GPS,
cellular and Wi-Fi technologies, technology monitoring of internal and external temperatures, humidity, barometric pressure, shock,
orientation of the shipper, as well as exposure to light as a measure of security breaches, compromised packaging or shipper openings
during transit. Our exacting temperature sensors are positioned within our Cryoport Express
®
Shippers to record
the most accurate readings. The resultant temperature mapping includes both the temperature inside the chamber (which is closest
to the actual biomaterial) and the external temperature. Our advanced SmartPak II™ Condition Monitoring System is engineered
to work in tandem with our Cryoportal
®
Logistics Management Platform, enabling predictive and proactive monitoring
of materials shipped. The data collected and resulting analytics, combined with the mapping of shipment check-in points, provide
a holistic view of the complete shipping process. At the client’s election, shipments can have a full ‘chain-of-custody’,
chain-of-condition, and chain-of-identity along with other data monitoring analytics. Archival storage is available for every shipment.
Chain-of-Condition, Chain-of-Custody,
and Chain-of-Identity
Chain-of-Condition
information is essential for many life sciences customers. Our monitoring services are provided by our SmartPak II
TM
Condition Monitoring System, which provides data on the condition of our Cryoport Express
®
Shipper and the conditions
in which commodities/products are being shipped, which is critical for temperature-sensitive biologics.
Chain-of-Custody relates
to the traceability of which party has the physical custody of the Cryoport Express
®
Shipper during each segment
of transport. With the assistance of an overlay on carrier check-ins and our algorithms, our SmartPak II
TM
Condition
Monitoring System supplies a data monitor that reports chain-of-custody information, which is another essential information element
required for temperature-sensitive biologics.
Chain-of-Identity refers
to the traceability of the identity of each client’s or patient’s therapy that is inside of the Cryoport Express
®
Shipper, which can be tracked through the Cryoportal
®
Logistics Management Platform
The Cryoportal
®
Logistics Management Platform acts as the data repository for all shipment and condition information. Our customers can access
their information via the cloud-based Cryoportal
®
Logistics Management Platform through an internet connection anywhere
in the world and all data is securely retained for quality assurance and regulatory purposes.
Chain of Compliance™
During 2018 we introduced
Cryoport’s Chain of Compliance™ solution, as a new industry standard. Cryoport’s Chain of Compliance™ goes
beyond Chain of Condition and Chain of Custody by providing traceability of the equipment and processes supporting each client
or patient therapy. The Chain of Compliance
TM
enables Cryoport to recall every transport that an individual Cryoport
Express
®
Shipper has taken, the client it supported, the commodity transported, it’s performance during transit,
and each step that Cryoport performs before the shipper is put back into service. This includes container performance and requalification
history, commodity history, courier handling and performance history, calibration history, and correlation competencies that can
link in field events to equipment performance. A review of these requirements are as follows:
|
1.
|
Container
performance history:
All transportation equipment should have a validated hold time
standard that can change over time for multi-use equipment. Data supporting an accurate
calculation of the hold time of a cold chain container should include the nitrogen evaporation
rate, liquid nitrogen capacity, vacuum integrity, dynamic hold time, as well as the actual
in field temperature, humidity, shock, and orientation data.
|
|
2.
|
Commodity history:
In addition to the performance of the equipment utilized for a given
shipment, a complete historical record of the contents shipped in any given container should be tracked such that it can be certified
that a given piece of equipment has only been used for the distribution of non-infectious human materials.
|
|
3.
|
Container (re)qualification history:
Additionally, accurate records should be maintained
as to the requalification or testing of the performance of the equipment to be utilized. These records should also include any
repairs or maintenance performed on the equipment, any deviations or damage during use, as well as any contamination or sterility
issues over the entire historical usage of the equipment.
|
|
4.
|
Calibration history:
All calibration data for any electronic components of a given package
should be traceable back to the equipment. This should include thermocouple calibration or validation data, battery performance,
software or firmware updates by date and version, and serialized accessories that are archived by part number.
|
|
5.
|
Correlation:
Lastly, the ability to cross reference in-field handling events including shock,
damage, delays, orientation, and anti-tamper competencies to the impact on the commodity shipped is a key requirement and should
include the ability to cross reference the historical custody of the container. This should include all locations receiving the
container, as well as the courier for freight partners who were responsible for the delivery of the container from origin to destination.
|
The main reason that
the FDA and other regulatory bodies are interested in Cryoport’s Chain of Compliance
TM
is that it provides the
ability to collect, interpret, and leverage comprehensive data enabling a significantly more intelligent supply chain. Rather than
reactively trying to determine what has gone wrong after multiple failures, it becomes possible to take a proactive approach. Moreover,
we believe that effective implementation provides historical traceability of logistics processes, equipment, and third-party support
entities, which enables the critical assessment of the complete supply chain to minimize failures and risk.
Cryoport Express
®
Analytics
Cryoport Express
®
Analytics information is captured by the Cryoportal
®
Logistics Management Platform to provide us and our clients
access to important information from the shipments, which and assist in the management of our clients’ logistics needs. We
use anonymized information to support planning for future features of our solutions offering. Analytics is a term used by IT professionals
to refer to performance benchmarks or KPI’s that management utilizes to measure performance against desired standards. Examples
for analytics tracked through the Cryoportal
®
include time-based metrics for order processing time and on-time deliveries
by our shipping partners, as well as profiling shipping lanes to determine average transit times and predicting potential shipping
exceptions based on historical metrics. Our analytics are utilized internally to proactively improve our client services and develop
new offerings. Cryoport Express
®
Analytics information is also used by Cryoport Consulting to support some of its
work.
Logistics Expertise, Consulting and
Support
Cryoport’s client
services professionals provide 24/7/365 live logistics and monitoring services with specialized knowledge in the domestic and global
logistics of life sciences material requiring controlled temperatures. Cryoport logistics professionals have validated shipping
lanes in and out of well over 100 countries to ensure shipments maintain temperatures and arrive securely and on time.
Cryoport Consulting
provides consulting services to assist life sciences companies in developing strategies for global cold chain logistics management
and contingency options to protect their valuable, and often irreplaceable, biological commodities. Cryoport Consulting addresses
the demand created by the worldwide advances in cellular based therapies, including immunotherapies, stem cells and CAR-T cells.
Cell-based immunotherapies are driving broad shifts and challenges for the life sciences industry, including how to obtain, properly
store and carefully transport the growing number of new, individualized, temperature sensitive therapies. Improper temperature
maintenance or temperature excursions during any portion of a logistics cycle can adversely affect the viability of these biologically
based commodities. Consequently, strategic, global logistics planning for cryogenic cold chain solutions has taken on a strategic
importance to the life sciences industry and a rapidly growing demand for consulting expertise.
Other Development Activities
We continue to build
out our ecosystem through partnerships and alliances. We are, also, continuing our research, engineering and development efforts
to continue to advance our technology applications for temperature-controlled logistics and bioservices. We are further expanding
the functionality of our Cryoportal
®
Logistics Management Platform and will advance our Smart Pak II™ Condition
Monitoring technology to ensure our continued leadership and the highest level of effectiveness and efficiency in the temperature-controlled
logistics for the life sciences industry.
As a result of the Cryogene
acquisition in May 2019, we currently operate in two reportable segments: Global Logistics Solutions and Global Bioservices.
The Global Logistics Solutions segment provides temperature-controlled logistics solutions to the life sciences industry through
its purpose-built proprietary packaging, information technology and specialized cold chain logistics expertise. The Company provides
leading edge logistics solutions to the biopharma, reproductive medicine and animal health markets to ship, store and deliver biologic
materials, such as immunotherapies, stem cells, CAR-T cell therapies, vaccines and reproductive cells for clients worldwide.
The Global Bioservices segment provides a comprehensive temperature-controlled sample management solution to the life science industry,
including specimen storage, sample processing, collection, and retrieval. The spectrum of temperature-controlled solutions
provided by the Company ranges from ambient, or controlled room temperature (20°C to 25°C), refrigerated (2°C to 8°C),
to frozen and cryogenic (below 0°C to as low as −150°C). Our Chief Executive Officer is the chief operating
decision maker for both segments.
Results of Operations
Three months ended June 30, 2019 compared to three months
ended June 30, 2018:
The following table summarizes certain
information derived from our condensed consolidated statements of operations:
|
|
Three Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
($
in 000’s)
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
8,464
|
|
|
$
|
4,627
|
|
|
$
|
3,837
|
|
|
|
82.9
|
%
|
Cost of revenues
|
|
|
(4,125
|
)
|
|
|
(2,123
|
)
|
|
|
(2,002
|
)
|
|
|
94.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
4,339
|
|
|
|
2,504
|
|
|
|
1,835
|
|
|
|
73.3
|
%
|
General and administrative
|
|
|
(3,259
|
)
|
|
|
(2,669
|
)
|
|
|
(590
|
)
|
|
|
22.1
|
%
|
Sales and marketing
|
|
|
(2,843
|
)
|
|
|
(1,851
|
)
|
|
|
(992
|
)
|
|
|
53.6
|
%
|
Engineering and development
|
|
|
(541
|
)
|
|
|
(449
|
)
|
|
|
(92
|
)
|
|
|
20.6
|
%
|
Interest expense
|
|
|
(334
|
)
|
|
|
—
|
|
|
|
(334
|
)
|
|
|
100
|
%
|
Other income, net
|
|
|
119
|
|
|
|
7
|
|
|
|
112
|
|
|
|
1,578
|
%
|
Provision for income taxes
|
|
|
(9
|
)
|
|
|
(13
|
)
|
|
|
4
|
|
|
|
(25.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,528
|
)
|
|
$
|
(2,471
|
)
|
|
$
|
(57
|
)
|
|
|
(2.3
|
)%
|
Total revenues
|
|
Three Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
($ in 000’s)
|
|
|
|
|
|
|
|
Global Logistics Solutions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biopharmaceutical
|
|
$
|
6,959
|
|
|
$
|
3,849
|
|
|
$
|
3,110
|
|
|
|
80.8
|
%
|
Reproductive medicine
|
|
|
671
|
|
|
|
499
|
|
|
|
172
|
|
|
|
34.3
|
%
|
Animal health
|
|
|
257
|
|
|
|
279
|
|
|
|
(22
|
)
|
|
|
(7.6
|
)%
|
Global Bioservices
|
|
|
577
|
|
|
|
—
|
|
|
|
577
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
8,464
|
|
|
$
|
4,627
|
|
|
$
|
3,837
|
|
|
|
82.9
|
%
|
Revenues
.
We generated revenues from customers in all of our target life sciences markets, biopharma, reproductive medicine and animal health.
Revenues increased $3.8 million or 82.9% to $8.5 million for the three months ended June 30, 2019, as compared to $4.6 million
for the three months ended June 30, 2018. This increase was primarily driven by the ramp in commercial revenue from the therapies
launched by Novartis and Kite/Gilead in late 2017, the continuing increase in the number of biopharmaceutical customers utilizing
our services and the increase in clinical trials supported for these customers. Biopharmaceutical revenue increased $3.1 million
or 80.8%, to $7.0 million for the three months ended June 30, 2019 as compared to $3.8 million for the three months ended June
30, 2018. Commercial revenue increased to $1.9 million for the three months ended June 30, 2019 as compared to $446,000 for
the three months ended June 30, 2018. During the three months ended June 30, 2019, we added approximately 29 new biopharma clients
and added 30 clinical trials, net of completed or terminated trials, of which 16 trials were in the Americas, 8 in EMEA and 6 in
APAC. We now support 413 clinical trials (353 in the Americas, 53 in EMEA and 7 in APAC) compared to 283 clinical trials supported
as of June 30, 2018 (257 in the Americas and 25 in EMEA and 1 in APAC). The number of Phase III clinical trials supported increased
to 52 trials as of June 30, 2019 (39 in the Americas,12 in EMEA and 1 in APAC). This compares to 41 Phase III trials (34 in the
Americas and 7 in EMEA) supported as of June 30, 2018. This increased activity in the clinical trial space is expected to drive
future revenue growth as these clinical trials advance and resulting therapies are commercialized. Revenues in the reproductive
medicine market increased by 34.3% for the three months ended June 30, 2019, as compared to 2018. This increase was driven by a
18.6% increase in revenues in the U.S. market through continued success of our CryoStork
®
-branded offering
and a 36.0% increase in revenues in the international markets, which was primarily a result of our marketing initiatives and growing
brand recognition in this market, driving stronger demand in the Americas and EMEA. Our revenue from animal health decreased 7.6%
for the three months ended June 30, 2019, as compared to the same period in 2018, as a result of non-recurring activity in the previous
year. Global Bioservices revenue was $576,500 for the second quarter of 2019 as a result of the acquisition of the Cryogene business
in May 2019.
Gross margin
and cost of revenues.
Gross margin for the three months ended June 30, 2019 was 51.3% of revenues, as compared to 54.1%
of revenues for the three months ended June 30, 2018
.
The decrease in gross margin by almost three percentage points is
primarily due to the increased operating costs of our new global logistics centers in Livingston, New Jersey and Hoofddorp, The
Netherlands that commenced operations during the third quarter of 2018. Our cost of revenues are primarily comprised of freight
charges, payroll and associated expenses related to our global logistics centers, third-party charges for our European and Asian
staging centers in the Netherlands and Singapore, depreciation expenses of our Cryoport Express
®
Shippers and supplies
and consumables used for our solutions. Cost of revenues increased $2.0 million, or 94.3%, to $4.1 million for the three months
ended June 30, 2019, as compared to $2.1 million in the same period in 2018. The increase in cost of revenues was primarily due
to freight charges from the increased volume of shipments and an increase in operating costs for our global logistics centers.
General
and administrative expenses
.
General and administrative expenses increased $589,900 the three months ended June 30,
2019 or 22.1% as compared to the same period in 2018. This increase is primarily due to an increase in stock-based
compensation of $322,200, an increase in public company related expenses of $147,800 including legal fees, an increase in
salaries and associated employee costs of $86,300, of which $83,400 relates to Cryogene as a result of the acquisition in May
2019, an increase in insurance premiums of $40,200, and an increase in travel and lodging expense of $28,700. These increases
were partially offset by a decrease in facility cost allocations of $25,500.
Sales and marketing.
Sales and marketing expenses, which includes logistics operations, increased $991,600 or 53.6% and is primarily due to an increase
in salaries and associated employee costs of $545,400 which includes recruiting and relocation fees of $15,400 for the expansion
of our domestic logistics force, an increase in stock-based compensation of $139,500, an increase in trade shows of $111,000, an
increase in facility cost allocations of $81,300, an increase in travel and lodging expense of $68,700 and an increase in marketing
and advertising promotions of $26,200.
Engineering and
development expenses
.
Engineering and development expenses increased $92,300 or 20.6% for the three months ended June 30,
2019, as compared to the same period in 2018. The increase is primarily due to an increase in prototype expenses of $39,500, an
increase in wages and associated employee costs to add a software development product manager and senior engineers of $29,900,
an increase in stock-based compensation of $25,600 and an increase in facility cost allocation of $19,900. These increases were
partially offset by a reduction of $25,100 in testing and development expenses. We continually strive to improve and expand the
features of our Cryoport Express
®
Solutions. Our primary developments are directed towards facilitating the safe,
reliable and efficient shipment of life science commodities through innovative and technology-based solutions. We supplement our
internal engineering and development resources with subject matter experts and consultants.
Interest expense
.
Interest expense increased $333,900 for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018
due to the interest on the convertible note issued in December 2018.
Other income,
net
. The other income, net for the three months ended June 30, 2019 is primarily due to investment income on our cash and
cash equivalents and short-term investments.
Six months ended June 30, 2019 compared to six months
ended June 30, 2018:
The following table summarizes certain
information derived from our condensed consolidated statements of operations:
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
($
in 000’s)
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
15,117
|
|
|
$
|
8,650
|
|
|
$
|
6,467
|
|
|
|
74.8
|
%
|
Cost of revenues
|
|
|
(7,324
|
)
|
|
|
(3,962
|
)
|
|
|
(3,362
|
)
|
|
|
84.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
7,793
|
|
|
|
4,688
|
|
|
|
3,105
|
|
|
|
66.2
|
%
|
General and administrative
|
|
|
(5,956
|
)
|
|
|
(4,738
|
)
|
|
|
(1,218
|
)
|
|
|
25.7
|
%
|
Sales and marketing
|
|
|
(5,251
|
)
|
|
|
(3,436
|
)
|
|
|
(1,815
|
)
|
|
|
52.8
|
%
|
Engineering and development
|
|
|
(1,031
|
)
|
|
|
(778
|
)
|
|
|
(253
|
)
|
|
|
32.4
|
%
|
Interest expense
|
|
|
(673
|
)
|
|
|
—
|
|
|
|
(673
|
)
|
|
|
100
|
%
|
Warrant inducement and repricing expense
|
|
|
—
|
|
|
|
(899
|
)
|
|
|
899
|
|
|
|
(100
|
)%
|
Other income, net
|
|
|
211
|
|
|
|
23
|
|
|
|
188
|
|
|
|
821.5
|
%
|
Provision for income taxes
|
|
|
(9
|
)
|
|
|
(14
|
)
|
|
|
5
|
|
|
|
(36.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,916
|
)
|
|
$
|
(5,154
|
)
|
|
$
|
238
|
|
|
|
(4.6
|
)%
|
Total revenues
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
($ in 000’s)
|
|
|
|
|
|
|
|
Global Logistics Solutions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biopharmaceutical
|
|
$
|
12,599
|
|
|
$
|
7,131
|
|
|
$
|
5,468
|
|
|
|
76.7
|
%
|
Reproductive medicine
|
|
|
1,455
|
|
|
|
1,001
|
|
|
|
454
|
|
|
|
45.3
|
%
|
Animal health
|
|
|
486
|
|
|
|
518
|
|
|
|
(32
|
)
|
|
|
(6.2
|
)%
|
Global Bioservices
|
|
|
577
|
|
|
|
—
|
|
|
|
577
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
15,117
|
|
|
$
|
8,650
|
|
|
$
|
6,467
|
|
|
|
74.8
|
%
|
Revenues
.
We generated revenues from customers in all of our target life sciences markets, biopharma, reproductive medicine and animal health.
Revenues increased $6.5 million or 74.8% to $15.1 million for the six months ended June 30, 2019, as compared to $8.7 million for
the six months ended June 30, 2018. This increase was primarily driven by the ramp in commercial revenue from the therapies launched
by Novartis and Kite/Gilead in late 2017, the continuing increase in the number of biopharmaceutical customers utilizing our services
and the increase in clinical trials supported for these customers. Biopharmaceutical revenue increased $5.5 million or 76.7%, to
$12.6 million for the six months ended June 30, 2019, as compared to $7.1 million for the six months ended June 30, 2018. Commercial
revenue increased to $3.3 million for the six months ended June 30, 2019, as compared to $740,400 for the six months ended June
30, 2018. During the six months ended June 30, 2019, we added approximately 51 new biopharma clients and added 56 clinical trials,
net of completed or terminated trials, of which 37 trials were in the Americas, 13 in EMEA and 6 in APAC. This increased activity
in the clinical trial space is expected to drive future revenue growth as these clinical trials advance and resulting therapies
are commercialized. Revenues in the reproductive medicine market increased by 45.3% for the six months ended June 30, 2019, as
compared to 2018. This increase was driven by a 40.6% increase in revenues in the U.S. market through continued success of our
CryoStork
®
-branded offering and a 61.2% increase in revenues in the international markets, which was primarily
a result of our marketing initiatives and growing brand recognition in this market, driving stronger demand in the Americas and
EMEA. Our revenue from animal health decreased 6.2% for the six months ended June 30, 2019, as compared to the same period in 2018
as a result of non-recurring activity in the previous year. Global Bioservices revenue was $576,500 for the six months ended June
30, 2019, as a result of the acquisition of the Cryogene business in May 2019.
Gross margin
and cost of revenues.
Gross margin for the six months ended June 30, 2019 was 51.5% of revenues, as compared to 54.2% of
revenues for the six months ended June 30, 2018. The decrease in gross margin by almost three percentage points is primarily due
to the increased operating costs of our new global logistics centers in Livingston, New Jersey and Hoofddorp, The Netherlands that
commenced operations during the third quarter of 2018. Our cost of revenues are primarily comprised of freight charges, payroll
and associated expenses related to our global logistics centers, third-party charges for our European and Asian staging centers
in the Netherlands and Singapore, depreciation expenses of our Cryoport Express
®
Shippers and supplies and consumables
used for our solutions. Cost of revenues increased $3.4 million, or 84.9%, to $7.3 million for the six months ended June 30, 2019,
as compared to $4.0 million in the same period in 2018. The increase in cost of revenues was primarily due to freight charges from
the increased volume of shipments and an increase in operating costs for our global logistics centers.
General and
administrative expenses
.
General and administrative expenses increased $1.2 million for the six months ended June 30,
2019 or 25.7% as compared to the same period in 2018. This increase is primarily due to an increase in stock-based
compensation of $534,600, an increase in salaries and associated employee costs of $364,200, of which $83,400 relates to Cryogene as a result of the acquisition in May
2019, an increase in public company
related expenses of $229,700 including legal fees, an increase in insurance premiums of $74,800, and an increase in travel
and lodging expense of $29,900. These increases were partially offset by a decrease in facility cost allocations of
$34,300.
Sales and marketing.
Sales and marketing expenses, which includes logistics operations, increased $1.8 million or 52.8% and is primarily due to an increase
in salaries and associated employee costs of $1.1 million which includes recruiting and relocating fees of $47,400 for the expansion
of our domestic logistics force, an increase in stock-based compensation of $249,000, an increase in facility cost allocations
of $248,500, an increase in travel and lodging expense of $99,400 and an increase in marketing, trade shows and advertising promotions.
Engineering and
development expenses
.
Engineering and development expenses increased $252,200 or 32.4% for six months ended June 30, 2019,
as compared to the same period in 2018. The increase is primarily due to $121,800 in wages and associated employee costs to add
a software development product manager and senior engineers, an increase in facility cost allocation of $65,200, an increase in
prototype expenses of $57,000, and an increase in stock-based compensation of $40,600. These increases were partially offset by
a reduction of $29,400 in testing and development expenses and a reduction in travel and lodging expense of $9,500. We continually
strive to improve and expand the features of our Cryoport Express
®
Solutions. Our primary developments are directed
towards facilitating the safe, reliable and efficient shipment of life science commodities through innovative and technology-based
solutions. We supplement our internal engineering and development resources with subject matter experts and consultants.
Warrant inducement
and repricing expense.
Warrant inducement and repricing expense for six months ended June 30, 2018 was due to the repricing
of certain warrants for the tender offer that was completed in February 2018.
Interest expense
.
Interest expense increased $672,600 for six months ended June 30, 2019, as compared to the six months ended June 30, 2018 due to
the interest on the convertible note issued in December 2018.
Other income,
net
. The other income, net for the six months ended June 30, 2019 is primarily due to investment income on our cash and
cash equivalents and short-term investments.
Liquidity and Capital Resources
As of June 30, 2019,
the Company had cash and cash equivalents of $80.6 million, $14.1 million in short-term investments and had working capital
of $95.9 million. Historically, we have financed our operations primarily through sales of equity securities and debt instruments.
For the six months
ended June 30, 2019, we used $1.3 million of cash for operations primarily as a result of the net loss of $4.9 million offset by
non-cash expenses of $4.3 million primarily comprised of stock-based compensation expense and depreciation and amortization. Also
contributing to the cash impact of our net operating loss, excluding non-cash items, was an increase in accounts receivable of
$2.6 million offset by an increase in accounts payable and accrued expenses of $1.7 million and an increase in accrued compensation
of $271,800.
Net cash used
in investing activities of $27.1 million during the six months ended June 30, 2019 was primarily due to the $20.4
million acquisition of the Cryogene business on May 14, 2019, $6.0 million purchase of short-term investments, and $2.6
million for the capitalization of software development costs for our Cryoportal
TM
Logistics Management Platform,
and additional purchases of Cryoport Express
®
Shippers, Smart Pak II
TM
Condition Monitoring Systems
and computer equipment, partially offset by the maturity of short-term investments of $2 million.
Net cash
provided by financing activities totaled $71.6 million during the six months ended June 30, 2019, primarily as a result of
$68.8 million in net proceeds from the June 2019 public offering and $2.9 million in proceeds from the exercise of stock
options and warrants, which was partially offset by payments $19,700 for deferred financing costs and $11,400 for finance
lease liabilities.
The Company’s
management believes that, based on its current plans and assumptions, the current cash and cash equivalents on hand, short-term
investments, together with projected cash flows, will satisfy our operational and capital requirements for at least the next twelve
months. The Company’s management recognizes that the Company may need to obtain additional capital to fund its operations
and potential acquisitions until sustained profitable operations are achieved. Additional funding plans may include obtaining additional
capital through equity and/or debt funding sources. No assurance can be given that additional capital, if needed, will be available
when required or upon terms acceptable to the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
In the normal course
of business and by the nature of our global operations, we are exposed to risks associated with foreign currency exchange rate
fluctuations relating to payments we make to vendors and employees based in Europe.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and
Procedures.
We maintain disclosure
controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the timelines specified in the Securities and Exchange Commission’s rules and forms,
and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls
and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide
reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily
was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Securities
and Exchange Commission Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management,
including our Principal Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Principal Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2019 at
the reasonable assurance level.
The foregoing
assessment excludes our acquisition on May 14, 2019 of Cryogene Partners, for which we paid $20.4 million at closing. See
Note 11 to the condensed consolidated financial statements for additional information. This exclusion is in accordance with
the general guidance issued by the Staff of the SEC that an assessment of a recent business acquisition may be omitted from
management’s report on internal control over financial reporting in the first year of consolidation.
Changes in internal control over financial
reporting.
There were no changes
in our internal controls over financial reporting during the fiscal quarter ended June 30, 2019 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 1A.
RISK FACTORS
The risks described
in
Part I
,
Item 1A
,
Risk Factors
, in our Annual report on Form 10-K for the year ended December 31, 2018
and the following risk factors, could materially and adversely affect our business, financial condition and results of operations.
These risk factors do not identify all of the risks that we face. Our business, financial condition and results of operations could
also be affected by factors that are not presently known to us or that we currently consider to be immaterial.
Risks Relating
to the Cryogene Acquisition
The integration
and operation of acquired businesses, including Cryogene, may disrupt our business and create additional expenses, and we may not
achieve the anticipated benefits of the acquisitions.
Integration of an
acquired business involves numerous risks, including assimilation of operations of the acquired business, such as Cryogene, and
difficulties in the convergence of systems and processes, the diversion of management’s attention from other business concerns,
risks of entering markets in which we have had no or only limited direct experience, assumption of unknown or unquantifiable liabilities,
difficulties in completing strategic initiatives already underway in the acquired company, and unfamiliarity with partners of the
acquired company, each of which could have a material adverse effect on our business, results of operations and financial condition.
The integration of a company the size of Cryogene into our business may be more difficult and time consuming than anticipated,
and we may be unable to achieve the expected synergies and operating efficiencies within the expected time frames or at all. We
cannot assure that these risks or other unforeseen factors will not offset the intended benefits of the acquisitions, in whole
or in part.
We may be adversely
affected by the occurrence of natural disasters or other events at Cryogene’s biostorage facility that disrupt our business
operations.
Cryogene operates
a 21,476 square foot state-of-the-art biostorage facility located in Houston, Texas, specializing in the secure storage of biological
specimens, materials and samples. If natural disasters or similar events, like hurricanes, fires or explosions or large-scale accidents
or power outages, were to occur that prevented us from using all or a significant portion of Cryogene’s biostorage facility,
that damaged critical infrastructure, or that otherwise disrupted operations at such facility, this could affect our ability to
maintain ongoing operations and cause us to incur significant expenses. Insurance coverage may not be adequate to fully cover losses
in any particular case. Accordingly, the occurrence of natural disasters or other events at Cryogene’s biostorage facility
could materially and adversely affect our business, financial condition and results of operations.
We may face
claims for liability related to the damage of customer specimens, materials and samples attributed to the failure of Cryogene’s
storage systems or services, exposing us to significant financial or reputational harm.
Cryogene specializes
in the secure storage of biological specimens, materials and samples covering the full range of temperatures from cryogenic through
controlled room temperature. Any damage to these specimens, materials and samples may be attributed to a failure of Cryogene’s
storage systems or services, which could lead to claims for damages made by customers and could also harm our relationship with
customers and damage our reputation in the life sciences industry, resulting in material harm to our business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 9, 2019
|
|
|
|
|
|
|
By:
|
/s/ Jerrell W. Shelton
|
|
|
|
|
|
Jerrell W. Shelton
|
|
|
Chief Executive Officer
|
|
|
|
Dated: August 9, 2019
|
|
|
|
|
|
|
By:
|
/s/ Robert S. Stefanovich
|
|
|
|
|
|
Robert S. Stefanovich
|
|
|
Chief Financial Officer
|
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