August 10, 2020 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______.

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.)

112 Westwood Place, Suite 350

Brentwood, TN 37027

(Address of principal executive offices , including zip code)

(949) 470-2300

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 , $0.001 par value	CYRX	The Nasdaq Stock Market LLC (The Nasdaq Capital Market)
Warrants to purchase Common Stock	CYRXW	The Nasdaq Stock Market LLC (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 ☒ 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 ☒ 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	☒
Non-accelerated filer	☐	Smaller reporting company	☒
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 ☒

As of July 31, 2020 there were 38,778,015 shares of the registrant’s common stock outstanding.

Table of Contents

TABLE OF CONTENTS


	Page
PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Condensed Consolidated Balance Sheets at June 30, 2020 (Unaudited) and December 31, 2019	3

Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019	4

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2020 and 2019	5

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2020 and 2019	6

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019	7

Notes to Condensed Consolidated Financial Statements (Unaudited)	8

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	38

ITEM 4. Controls and Procedures	38

PART II. OTHER INFORMATION	39

ITEM 1. Legal Proceedings	39

ITEM 1A. Risk Factors	39

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	40

ITEM 3. Defaults Upon Senior Securities	40

ITEM 4. Mine Safety Disclosures	40

ITEM 5. Other Information	40

ITEM 6. Exhibits	41

SIGNATURES	42

Table of Contents

Cryoport, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets


	June 30,		December 31,
	2020		2019
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	44,326,038	$	47,234,770
Short-term investments		163,891,831		47,060,786
Accounts receivable, net		7,038,733		7,098,191
Inventories		538,376		473,961
Prepaid expenses and other current assets		891,652		1,096,855
Total current assets		216,686,630		102,964,563
Property and equipment, net		13,702,732		11,833,057
Operating lease right-of-use assets		5,868,513		4,460,319
Intangible assets, net		4,984,012		5,177,578
Goodwill		10,999,722		10,999,722
Deposits		534,978		437,299
Total assets	$	252,776,587	$	135,872,538

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and other accrued expenses	$	6,509,745	$	2,498,375
Accrued compensation and related expenses		1,852,186		1,903,720
Deferred revenue		330,272		367,867
Operating lease liabilities		691,386		665,901
Finance lease liabilities		57,946		24,617
Total current liabilities		9,441,535		5,460,480
Convertible senior notes, net of discount of $4.0 million		110,977,419		—
Operating lease liabilities, net of current portion		5,497,430		4,101,236
Finance lease liabilities, net of current portion		146,570		8,539
Deferred tax liability		56,945		20,935
Total liabilities		126,119,899		9,591,190

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; 38,565,193 and 37,339,787 issued and outstanding at June 30, 2020 and December 31, 2019, respectively		38,565		37,340
Additional paid-in capital		295,423,521		285,609,022
Accumulated deficit		(169,065,602)		(159,319,963)
Accumulated other comprehensive income (loss)		260,204		(45,051)
Total stockholders’ equity		126,656,688		126,281,348
Total liabilities and stockholders’ equity	$	252,776,587	$	135,872,538

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Cryoport, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Revenues	$	9,389,006	$	8,463,588	$	19,163,081	$	15,116,500
Cost of revenues		4,262,010		4,125,199		8,778,121		7,324,210
Gross margin		5,126,996		4,338,389		10,384,960		7,792,290

Operating costs and expenses:
General and administrative		5,733,149		3,258,781		9,763,191		5,955,640
Sales and marketing		3,292,845		2,843,073		6,374,272		5,251,065
Engineering and development		1,946,443		540,933		3,679,169		1,030,529
Total operating costs and expenses		10,972,437		6,642,787		19,816,632		12,237,234

Loss from operations		(5,845,441)		(2,304,398)		(9,431,672)		(4,444,944)
Other income (expense):
Interest expense		(398,256)		(333,910)		(400,707)		(672,638)
Other income, net		490,784		119,441		169,598		210,913
Loss before provision for income taxes		(5,752,913)		(2,518,867)		(9,662,781)		(4,906,669)
Provision for income taxes		(49,833)		(9,624)		(82,858)		(8,724)
Net loss	$	(5,802,746)	$	(2,528,491)	$	(9,745,639)	$	(4,915,393)
Net loss per share – basic and diluted	$	(0.15)	$	(0.08)	$	(0.26)	$	(0.16)
Weighted average shares outstanding – basic and diluted		38,281,087		31,176,166		37,914,818		30,811,109

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Cryoport, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Net loss	$	(5,802,746)	$	(2,528,491)	$	(9,745,639)	$	(4,915,393)
Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on available-for-sale debt securities		(144,647)		37,905		335,746		59,612
Reclassification of realized gain on available-for-sale debt securities to earnings		(15,563)		(18,913)		(26,552)		(12,846)
Foreign currency translation adjustments		(2,795)		(1,535)		(3,939)		(11,615)
Other comprehensive income (loss)		(163,005)		17,457		305,255		35,151
Total comprehensive loss	$	(5,965,751)	$	(2,511,034)	$	(9,440,384)	$	(4,880,242)

Table of Contents

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, 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 March 31, 2020	—	$	—	—	$	—	37,930,255	$	37,930	$	290,106,664	$	(163,262,856)	$	423,209	$	127,304,947
Net loss	—		—	—		—	—		—		—		(5,802,746)		—		(5,802,746)
Other comprehensive loss, net of taxes	—		—	—		—	—		—		—		—		(163,005)		(163,005)
Stock-based compensation expense	—		—	—		—	—		—		2,280,830		—		—		2,280,830
Issuance of common stock for board of director compensation	—		—	—		—	699		1		20,666		—		—		20,667
Proceeds from exercise of stock options and warrants	—		—	—		—	634,239		634		3,015,361		—		—		3,015,995
Balance at June 30, 2020	—	$	—	—	$	—	38,565,193	$	38,565	$	295,423,521	$	(169,065,602)	$	260,204	$	126,656,688

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

Balance at December 31, 2019	—	$	—	—	$	—	37,339,787	$	37,340	$	285,609,022	$	(159,319,963)	$	(45,051)	$	126,281,348
Net loss	—		—	—		—	—		—		—		(9,745,639)		—		(9,745,639)
Other comprehensive income, net of taxes	—		—	—		—	—		—		—		—		305,255		305,255
Stock-based compensation expense	—		—	—		—	—		—		3,880,542		—		—		3,880,542
Issuance of common stock for board of director compensation	—		—	—		—	1,968		2		41,331		—		—		41,333
Proceeds from exercise of stock options and warrants	—		—	—		—	1,223,438		1,223		5,892,626		—		—		5,893,849
Balance at June 30, 2020	—	$	—	—	$	—	38,565,193	$	38,565	$	295,423,521	$	(169,065,602)	$	260,204	$	126,656,688

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Cryoport, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)


	For the Six Months Ended
	June 30,
	2020		2019
Cash Flows From Operating Activities:
Net loss	$	(9,745,639)	$	(4,915,393)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,668,710		797,255
Amortization of debt discount		60,105		30,793
Unrealized gain on investments in equity securities		(336,578)		(75,348)
Realized loss on investments in equity securities		804,772		—
Realized gain on available-for-sale investments		(16,892)		(29,911)
Stock-based compensation expense		3,921,875		3,405,490
Loss on disposal of property and equipment		121,336		100,254
Provision for bad debt		33,976		42,042
Changes in operating assets and liabilities:
Accounts receivable		25,482		(2,594,234)
Inventories		(64,415)		(85,924)
Prepaid expenses and other current assets		205,203		225,402
Deposits		(97,679)		(14,977)
Change in operating lease right-of-use assets and lease liabilities		13,485		(56,532)
Accounts payable and other accrued expenses		3,149,770		1,712,648
Accrued compensation and related expenses		(51,534)		271,779
Deferred revenue		(37,595)		(64,830)
Deferred tax liability		36,010		—
Net cash used in operating activities		(309,608)		(1,251,486)

Cash Flows From Investing Activities:
Purchases of property and equipment		(2,542,151)		(2,578,145)
Purchases of short-term investments		(136,252,019)		(6,020,660)
Sales/maturities of short-term investments		19,278,866		2,000,000
Cash paid for acquisition		—		(20,429,651)
Patent and trademark costs		(74,934)		(43,029)
Net cash used in investing activities		(119,590,238)		(27,071,485)

Cash Flows From Financing Activities:
Proceeds from exercise of stock options and warrants		5,893,849		2,870,916
Proceeds from issuance of convertible senior notes		115,000,000		—
Proceeds from June 2019 public offering, net of offering costs		—		68,807,446
Payment of deferred financing costs		(3,870,500)		(19,748)
Repayment of finance lease liabilities		(32,241)		(11,426)
Net cash provided by financing activities		116,991,108		71,647,188

Effect of exchange rates on cash and cash equivalents		6		(9,129)
Net change in cash and cash equivalents		(2,908,732)		43,315,088
Cash and cash equivalents — beginning of period		47,234,770		37,327,125
Cash and cash equivalents — end of period	$	44,326,038	$	80,642,213

Supplemental Disclosure of Non-Cash Financing Activities:
Net unrealized gain on available-for-sale securities	$	335,746	$	59,612
Reclassification of realized gain on available-for-sale debt securities to earnings	$	26,552	$	12,846
Convertible debt costs included in accounts payable and accrued liabilities	$	212,186	$	—
Fixed assets included in accounts payable and accrued liabilities	$	649,414	$	—
Purchase of equipment through finance lease obligations	$	204,516	$	—

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Cryoport, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2020 and 2019

(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”, “Cryoport”, “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, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. 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, 2019.

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”, “we”, or “our”) is a life sciences services company that is an integral part of the temperature-controlled supply chain supporting the biopharma, reproductive medicine and animal health markets. We are redefining logistics for the life sciences industry by providing a unique platform of critical solutions including highly differentiated temperature-controlled supply chain solutions, which include advanced packaging, informatics, specialty logistics services and biostorage services. Through our products, services and unparalleled expertise, we enable our clients to ship, store and deliver cellular-based materials and drug products as well as other life sciences commodities in a precise, defined temperature-controlled state.

Cryoport’s advanced platform, comprised of comprehensive and technology-centric systems and solutions are designed to support the global high-volume distribution of commercial biologic and cell-based products and therapies 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 as global clinical trials initiated in other countries, where strict regulatory compliance and quality assurance is mandated. Our industry standard setting Chain of Compliance^TM solutions, which include vital analytics, such as ‘chain-of-condition’ and ‘chain-of-custody’ information in a single data stream, empower our clients’ continuous vigilance over their respective 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 of minimizing risk and maximizing success of their respective new biologics or other products and therapies as they are introduced into the global markets.

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”). Cryogene operates a temperature-controlled biostorage solutions business in Houston, Texas. As a result of the Cryogene acquisition, the Company operates in two reportable segments: Global Logistics Solutions and Global Bioservices. See Note 6 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.”

Table of Contents

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.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including revenues, expenses, reserves and allowances, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets.

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 senior notes. The carrying value for all such instruments, except finance lease liabilities and the convertible senior notes, approximates fair value at June 30, 2020 and December 31, 2019 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. For additional information related to fair value measurements, including the convertible senior notes, see Note 8.

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

Table of Contents

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, 2020 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 to be sufficient. Accounts receivable at June 30, 2020 and December 31, 2019 are net of reserves for doubtful accounts of $170,000 and $140,000 , 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, 2020, there were two customers that accounted for 35.0% and 12.4%, respectively, of net accounts receivable. As of December 31, 2019, there were two customers that accounted for 31.0% and 20.7%, respectively, of net accounts receivable. There were no other single customers that owed us more than 10% of net accounts receivable at June 30, 2020 and December 31, 2019.

The Company has revenue from foreign customers primarily in Europe, Canada and China. During the six months ended June 30, 2020 and 2019, the Company had revenues from foreign customers of approximately $4.1 million and $1.4 million, respectively, which constituted approximately 21.3% and 9.3%, respectively, of total revenues. There were three customers that accounted for 17.0%, 16.6% and 11.0% of revenues during the six months ended June 30, 2020, respectively. For the six months ended June 30, 2019, there were two customers that accounted for 26.9% and 10.5% of total revenues, respectively. No other single customer generated over 10% of revenues during the six months ended June 30, 2020 and 2019.

During the three months ended June 30, 2020 and 2019, the Company had revenues from foreign customers of approximately $2.0 million and $928,100, respectively, which constituted approximately 21.2% and 11.0%, respectively, of total revenues. There were three customers that accounted for 16.6%, 16.0% and 11.3% of revenues during the three months ended June 30, 2020, respectively. There were two customers that accounted for 28.6% and 10.4% of revenues during the three months ended June 30, 2019, respectively. No other single customer generated over 10% of revenues during the three months ended June 30, 2020 and 2019.

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.

Table of Contents

Property and Equipment

The Company provides engineered shipping packages ("Cryoport Express^® Shippers”) to its customers and charges fees 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 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, where it is cleaned, disassembled, tested, recertified and placed into inventory for reuse. 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, comprise 19% of the Company’s net property and equipment balance at June 30, 2020 and December 31, 2019, respectively, and are depreciated using the straight-line method over their estimated useful lives of three years. Cryogene mechanical and liquid nitrogen freezers comprise 21% and 25%, of the Company’s net property and equipment balance at June 30, 2020 and December 31, 2019, respectively 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 compares the fair value of the reporting unit with its carrying amount and then recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value up to the total amount of goodwill allocated to the reporting unit. The Company assessed triggering events indicating potential goodwill impairment and after assessment, concluded that there was no impairment during the six months ended June 30, 2020.

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

Table of Contents

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 7).

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, 2020.

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, 2020.

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, 2020 and December 31, 2019, 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, 2020 and December 31, 2019 and has not recognized interest and/or penalties in the condensed consolidated statements of operations for the six months ended June 30, 2020 and 2019. The Company is subject to taxation in the U.S. and various state jurisdictions. As of June 30, 2020, the Company is no longer subject to U.S. federal examinations for years before 2016 and for California franchise and income tax examinations for years before 2015. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where net

Table of Contents

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.

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The Cares Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. The CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions are removal of certain limitations on utilization of net operating losses, increasing the loss carryback period for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act. At June 30, 2020, the Company has not booked any income tax provision/(benefit) for the impact for the CARES Act due the Company’s history of net operating losses generated and the maintenance of a full valuation allowance against its net deferred tax assets. The Company will continue to analyze the impact that the CARES Act will have, if any, on its financial position, results of operations or cash flows.

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 to 60 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.

Table of Contents

Variable Consideration

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 generally provided on an “as is” basis and generally 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 $330,300 and $367,900 at June 30, 2020 and December 31, 2019, respectively. During the three and six months ended June 30, 2020, the Company recognized revenues of $76,800 and $229,600, respectively from the related contract 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 master service 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 master service 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 master service 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

Table of Contents

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, 2020 and 2019:


	Three Months Ended June 30,				Six Months Ended June 30,
(000's omitted )	2020		2019		2020		2019
Global Logistics Solutions:
Biopharmaceutical	$	7,283	$	6,959	$	14,800	$	12,599
Reproductive medicine		601		671		1,363

Form: 10-Q

Documents