cryoport_10k-033110.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
________________________
FORM 10-K
(Mark
One)
x ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For
the fiscal year ended March 31, 2010
OR
o 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: 000-51578
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.)
|
|
|
|
|
20382
Barents Sea Circle, Lake Forest, California
|
92630
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
(949)
470-2300
|
|
(Registrant's
telephone number, including area code)
|
|
|
|
Securities
registered pursuant to Section 12(b) of the Act:
|
|
Title
of Each Class
|
Name
of Each Exchange on Which Registered
|
|
Common
Stock, $.001 par value
|
OTC
Bulletin Board
|
|
Securities
registered pursuant to Section 12(g) of the Act:
|
|
Common
Stock, $0.001
Warrants
to Purchase Common Stock
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
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
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted 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 and post such
files). Yes o
No
x
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405) is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (check
one):
|
Large
accelerated filer o
|
|
Accelerated
filer
o
|
|
Non-accelerated
filer o
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes o No x
The
aggregate market value of Common Stock held by non-affiliates as of September
30, 2009 was $ 22,027,889
(1)
Number of
shares of Common Stock outstanding as of June 15, 2010: 8,150,255
DOCUMENTS INCORPORATED BY
REFERENCE
Part III
of this report incorporates certain information by reference from the
registrant’s proxy statement for the annual meeting of stockholders, which proxy
statement will be filed no later than 120 days after the close of the
registrant’s fiscal year ended March 31, 2010.
_________
|
(1)
|
Excludes
2,630,740 shares of common stock held by directors and officers, and any
stockholder whose ownership exceeds five percent of the shares outstanding
as of September 30, 2009.
|
CRYOPORT,
INC.
Fiscal
Year 2010 10-K Annual Report
Table
of Contents
| PART
I |
|
Item 1
|
Business
|
1
|
|
Item 1A
|
Risk
Factors
|
13
|
|
Item 1B
|
Unresolved
Staff Comments
|
25
|
|
Item 2
|
Properties
|
25
|
|
Item 3
|
Legal
Proceedings
|
25
|
|
Item 4
|
[Removed
and Reserved]
|
25
|
|
|
|
|
| PART
II |
|
Item 5
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
26
|
|
Item 6
|
Selected
Financial Data
|
27
|
|
Item 7
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
28
|
|
Item 7A
|
Quantitative
and Qualitative Disclosures About Market Risk
|
37
|
|
Item 8
|
Financial
Statements and Supplementary Data
|
37
|
|
Item 9
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosures
|
37
|
|
Item
9A(T)
|
Controls
and Procedures
|
37
|
|
Item
9B
|
Other
Information
|
38
|
|
|
|
|
| PART
III |
|
Item
10
|
Directors,
Executive Officers and Corporate Governance
|
40
|
|
Item
11
|
Executive
Compensation
|
40
|
|
Item
12
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
40
|
|
Item
13
|
Certain
Relationships and Related Transactions, and Director
Independence
|
40
|
|
Item
14
|
Principal
Accountant Fees and Services
|
40
|
|
|
|
|
| PART
IV |
|
Item
15
|
Exhibits
and Consolidated Financial Statement
|
41
|
|
|
Schedules
|
|
|
Signatures
|
46
|
NOTE
REGARDING REVERSE STOCK SPLIT
On
February 5, 2010, we filed a Certificate of Amendment to our Articles of
Incorporation with the Secretary of State of the State of Nevada to effect a
reverse split of our common stock at a ratio of ten for one. All
historical share and per share amounts have been adjusted to reflect the reverse
stock split.
PART I
In this Annual Report, the terms “we”,
“us”, “our”, “Company” and “CryoPort” refer to CryoPort, Inc., and our wholly
owned subsidiary, CryoPort Systems, Inc. This Annual Report contains
forward-looking statements that involve risks and uncertainties. The
inclusion of forward-looking statements should not be regarded as a
representation by us or any other person that the objectives or plans will be
achieved because our actual results may differ materially from any
forward-looking statement. The words “may,” “should,” “plans,”
“believe,” “anticipate,” “estimate,” “expect,” their opposites and similar
expressions are intended to identify forward-looking statements, but the absence
of these words does not necessarily mean that a statement is not
forward-looking. We caution readers that such statements are not
guarantees of future performance or events and are subject to a number of
factors that may tend to influence the accuracy of the statements, including but
not limited to, those risk factors outlined in the section titled “Risk Factors”
as well as those discussed elsewhere in this Annual Report. You
should not unduly rely on these forward-looking statements, which speak only as
of the date of this Annual Report. We undertake no obligation to
publicly revise any forward-looking statement to reflect circumstances or events
after the date of this Annual Report or to reflect the occurrence of
unanticipated events. You should, however, review the factors and
risks we describe in the reports that we file from time to time with the
Securities and Exchange Commission (“SEC”) after the date of this Annual
Report.
In addition, we own or have rights to
the registered trademark CryoPort® (both alone and with a design logo) and
CryoPort Express® (both alone and with a design logo). All other
Company names, registered trademarks, trademarks and service marks included in
this Annual Report are trademarks, registered trademarks, service marks or trade
names of their respective owners.
Item
1. BUSINESS
Overview
We are a
provider of an innovative cold chain frozen shipping system dedicated to
providing superior, affordable cryogenic shipping solutions that ensure the
safety, status and temperature, of high value, temperature sensitive
materials. We have developed cost effective reusable cryogenic
transport containers (referred to as "shippers") capable of transporting
biological, environmental and other temperature sensitive materials at
temperatures below 0° Celsius. These dry vapor shippers and shipping
system are one of the first significant alternatives to dry ice shipping and
achieve 10-plus day holding times compared to one to two day holding
times with dry ice.
Our value
proposition comes from both providing safe transportation with an
environmentally friendly, long lasting shipper, and through our value added
services that offer a simple hassle-free solution for our
customers. These value-added services include an internet-based web
portal that enables the customer to initiate scheduling, shipping and tracking
of the progress and status of a shipment, and provides in-transit temperature
and custody transfer monitoring services of the shipper. The CryoPort
service also provides a fully ready charged shipper containing all freight
bills, customs documents and regulatory paperwork for the entire journey of the
shipper to our customers at their pickup and delivery
locations.
Our
principal focus has been the further development and commercial launch of
CryoPort Express® Portal, an innovative IT solution for shipping and tracking
high-value specimens through overnight shipping companies, and our CryoPort
Express® Shipper, a dry vapor cryogenic shipper for the transport of biological
and pharmaceutical materials. A dry vapor cryogenic shipper is a
container that uses liquid nitrogen in dry vapor form, which is suspended inside
a vacuum insulated bottle as a refrigerant, to provide storage temperatures
below minus 150° Celsius. The dry vapor shipper is designed using
innovative, proprietary, and patented technology which prevents spillage of
liquid nitrogen and pressure build up as the liquid nitrogen
evaporates. A proprietary foam retention system is employed to ensure
that liquid nitrogen stays inside the vacuum container, even when placed
upside-down or on its side, as is often the case when in the custody of a
shipping company. Biological specimens are stored in a specimen
chamber, referred to as a “well,” inside the container and refrigeration is
provided by harmless cold nitrogen gas evolving from the liquid nitrogen
entrapped within the foam retention system surrounding the
well. Biological specimens transported using our cryogenic shipper
can include clinical samples, diagnostics, live cell pharmaceutical products
(such as cancer vaccines, semen and embryos, infectious substances) and other
items that require and/or are protected through continuous exposure to frozen or
cryogenic temperatures.
During
our early years, our limited revenue was derived from the sale of our reusable
product line. Our current business plan focuses on per-use
leasing of the shipping container and added-value services that will be used by
us to provide an end-to-end and cost-optimized shipping solution to life science
companies moving pharmaceutical and biological samples in clinical trials and
pharmaceutical distribution.
We
recently entered into our first strategic relationship with a global courier on
January 13, 2010 when we signed an agreement with Federal Express
Corporation (“FedEx”) pursuant to which we will lease to FedEx such number of
our cryogenic shippers that FedEx shall, from time to time, order for its
customers. Under this agreement, FedEx has the right to and shall, on a
non-exclusive basis, promote, market and sell transportation of our shippers and
our related value-added goods and services, such as our data logger, web portal
and planned CryoPort Express® Smart
Pak System.
We are a
Nevada corporation originally incorporated under the name G.T.5-Limited (“GT5”)
on May 25, 1990. In connection with a Share Exchange Agreement, on
March 15, 2005 we changed our name to CryoPort, Inc. and acquired all of
the issued and outstanding shares of common stock of CryoPort Systems, Inc., a
California corporation, in exchange for 2,410,811 shares of our common stock
(which represented approximately 81% of the total issued and outstanding shares
of common stock following the close of the transaction). CryoPort Systems,
Inc., which was originally formed in 1999 as a California limited liability
company, and subsequently reorganized into a California corporation on
December 11, 2000, remains the operating company under CryoPort,
Inc. Our principal executive offices are located at 20382 Barents Sea
Circle, Lake Forest, California 92630. The telephone number of our
principal executive offices is (949) 470-2300, and our main corporate
website is www.cryoport.com. The information on, or that can be accessed
through, our website is not part of this Annual Report.
Our
Products and Pipeline
Our product offering and service
offering consists of our CryoPort Express®
Shippers, reusable dry vapor shippers, the web portal allowing ease of entry and
our Smart Pak data logger, a temperature monitoring system (which, together with
our CryoPort Express®
Shippers, comprise our new business model referred to as the CryoPort
Express®
System) and a containment bag which is used in connection with the shipment of
infectious or dangerous goods using the CryoPort Express®
Shipper.
The CryoPort
Express® Shippers
Our
CryoPort Express® Shippers are cryogenic dry vapor shippers capable of
maintaining cryogenic temperatures of minus 150° Celsius or below for a period
of 10 or more days. A dry cryogenic shipper is a device that uses
liquid nitrogen contained inside a vacuum insulated bottle which serves as a
refrigerant to provide storage temperatures below minus 150°
Celsius. Our CryoPort Express® shipper is designed to ensure that
there is no pressure build up as the liquid nitrogen evaporates or spillage of
liquid nitrogen. We have developed a proprietary foam retention
system to ensure that liquid nitrogen stays inside the vacuum container, which
allows the shipper to be designated as a dry shipper meeting International Air
Transport Association (“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 cold nitrogen gas
evolving from the liquid nitrogen entrapped within the foam retention
system. Specimens that may be transported using our cryogenic shipper
include live cell pharmaceutical products such as cancer vaccines, diagnostic
materials, semen and embryos, infectious substances and other items that require
continuous exposure to frozen or cryogenic temperatures (e.g., temperatures
below minus 150° Celsius).
The technology underlying the CryoPort
Express® Shipper was developed by modifying and advancing technology from our
first generation of reusable cryogenic dry shippers. While our
CryoPort Express® Shippers share many of the characteristics and basic design
details of our earlier shippers, we are manufacturing our CryoPort Express®
Shippers from alternative, lower cost and lower weight materials, which will
reduce overall operating costs. We maintain ongoing development
efforts related to our shippers which are principally focused on material
properties, particularly those properties related to the low temperature
requirement, the vacuum retention characteristics, such as the permeability of
the materials, and lower cost and lower weight materials in an effort to meet
the market needs for achieving a lower cost frozen and cryogenic shipping
solution. Other advances additional to the development work on the
cryogenic container include both an improved liquid nitrogen retention system
and a secondary protective, spill proof packaging system. This
secondary system, outer packaging has a low cost that lends itself to
disposability, and it is made of recyclable materials. Further, it
adds an additional liquid nitrogen retention capability to further assure
compliance with IATA and ICAO regulations that prohibit egress of liquid
nitrogen from the shipping package. IACO stands for the International
Civil Aviation Organization, which is a United Nations organization that
develops regulations for the safe transport of dangerous goods by
air.
Our CryoPort Express® Shippers are
lightweight, low-cost, re-usable dry vapor liquid nitrogen storage containers
that we believe combine the best features of packaging, cryogenics and high
vacuum technology. A CryoPort Express® Shipper is composed of an
aluminum metallic dewar flask, with a well for holding the biological material
in the inner chamber. The dewar flask, or “thermos bottle,” is an
example of a practical device in which the conduction, convection and radiation
of heat are reduced as much as possible. The inner chamber of the
shipper is surrounded by a high surface, low-density open cell plastic foam
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
several times faster than currently used materials, while providing the shipper
with a hold time and capacity to transport biological materials safely and
conveniently. The annular space between the inner and outer dewar
chambers is evacuated to a very high vacuum (10-6 Torr). The
specimen-holding chamber has a primary cap to enclose the specimens, and a
removable and replaceable secondary cap to further enclose the specimen-holding
container and to contain the liquid nitrogen. The entire dewar vessel
is then wrapped in a plurality of insulating and cushioning materials and placed
in a disposable outer packaging made of recyclable material.
We
believe the CryoPort solution is the best and most cost effective solution
available in the market that satisfies customer needs and regulatory
requirements relating to the shipment of temperature-critical, frozen and
refrigerated transport of biological materials, such as the pharmaceutical
clinical trials, gene biotechnology, infectious materials handling, and animal
and human reproduction markets. Due to our proprietary technology and
innovative design, our shippers are less prone to losing functional hold time
when not kept in an upright position than the competing products because such
proprietary technology and innovative design prevent the spilling or leakage of
the liquid nitrogen when the container is tipped or on its side which would
adversely affect the functional hold time of the container.
An
important feature of the CryoPort Express® Shippers is their compliance with the
stringent packaging requirements of IATA Packing Instructions 602 and 650,
respectively. These instructions include the internal pressure
(hydraulic) and drop performance requirements.
The CryoPort
Express®
System
The CryoPort Express® System is
comprised of the CryoPort
Express®
Shipper, the CryoPort Express® Smart Pak data logger, CryoPort Express® Portal, which
programmatically manages order entry and all aspects of shipping operations, and
CryoPort Express® Analytics, which monitors
shipment performance metrics and evaluates temperature-monitoring data collected
by the data logger during shipment. The CryoPort Express® System is
focused on improving the reliability of frozen shipping while reducing the
customers’ overall operating costs. This is accomplished by providing
a complete end-to-end solution for the transport and monitoring of frozen or
cryogenically preserved biological or pharmaceutical materials shipped though
overnight shipping companies.
CryoPort
Express®
Portal
The CryoPort Express® Portal is
used by CryoPort, our customers and our business partners to automate the entry
of orders, prepare customs documentation and to facilitate status and location
monitoring of shipped orders while in transit. As an
example, the CryoPort Express® Portal is fully integrated with IT
systems at FedEx and runs in a browser requiring no software
installation. It is used by CryoPort to manage shipping 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 industry. Certain features of the CryoPort Express®
Portal reduce operating costs and facilitate the scaling of CryoPort’s
business, but more importantly they offer significant value to the customer in
terms of cost avoidance and risk mitigation. Examples these features
include automation of order entry, development of Key Performance Indicators
(“KPI”) to support our 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 becomes aware of it. In the future we will add rate
and mode optimization and in-transit monitoring of temperature, location and
state of health (discussed below), via wireless communications.
The CryoPort Express® Portal also
serves as the communications nerve center for the management, collection and
analysis of Smart Pak data harvested from Smart Pak data loggers in the field.
Data is converted into pre-designed reports containing valuable and often
actionable information that becomes the quality control standard or “pedigree”
of the shipment. This high value information can be utilized by
CryoPort to provide consultative services to the customer relating to
cryogenics.
The
CryoPort Express® Smart
Pak
Temperature monitoring is a high value
feature from our customers' perspective as it is an effective and reliable
method to determine that the shipment materials were not damaged or degraded
during shipment due to temperature fluctuations. Phase II of our
Smart Pak System which is a self-contained automated data logger capable of
recording the internal and external temperatures of samples shipped in our
CryoPort Express® Shipper was launched in fiscal year 2010.
Phase III of our Smart Pak System is
anticipated to launch in fiscal year 2011, and consists of adding a smart
chip to each shipper with wireless connectivity to enable our customers to
monitor a shipper’s location, specimen temperature and overall state of health
via our web portal. A key feature of the Phase III product is
automatic downloading of data which requires no customer
intervention.
CryoPort
Express®
Analytics
Our continued development of the
CryoPort Express® Portal is a strategic element of our business strategy and
the CryoPort Express® Portal system has been designed to support
planned future features with this thought in mind. Analytics is a
term used by IT professionals to refer to performance benchmarks or Key
Performance Indicators (KPI’s) that management utilizes to measure performance
against desired standards. Examples 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 an exception if a
shipment is taking longer than it should based on historical
metrics. The analytical results will be utilized by CryoPort to
render consultative customer services.
Biological
Material Holders
We
have also developed a patented containment bag which is used in connection with
the shipment of infectious or dangerous goods using the CryoPort Express®
Shipper. Up to five vials, watertight primary receptacles, are placed onto
aluminum holders and up to fifteen holders (75 vials) are placed into an
absorbent pouch which is designed to absorb the entire contents of all the vials
in the event of leakage. This pouch containing up to 75 vials is then
placed in a watertight secondary packaging Tyvek bag capable of withstanding
cryogenic temperatures, and then sealed. This bag is then placed
into the well of the cryogenic shipper.
Other
Product Candidates and Development Activities
We are continuing our research and
development efforts which are expected to lead to the introduction of additional
dry vapor shippers, including larger and smaller size units constructed of lower
cost materials and utilizing high volume manufacturing methods. We
are also exploring the use of alternative phase change materials in place of
liquid nitrogen in order to seek entry into the ambient temperature and chilled
(2° to 8° Celsius) shipping markets.
Government
Regulation
The
shipping of diagnostic specimens, infectious substances and dangerous goods,
whether via air or ground, falls under the jurisdiction of many states, federal
and international agencies. The quality of the containers, packaging
materials and insulation that protect a specimen determine whether or not it
will arrive in a usable condition. Many of the regulations for transporting
dangerous goods in the United States are determined by international rules
formulated under the auspices of the United Nations. For example, the ICAO
is the United Nations organization that develops regulations (Technical
Instructions) for the safe transport of dangerous goods by air. If shipment
is by air, compliance with the rules established by IATA is required. IATA
is a trade association made up of airlines and air cargo couriers that publishes
annual editions of the IATA Dangerous Goods Regulations. These regulations
interpret and add to the ICAO Technical Instructions to reflect industry
practices. Additionally, the CDC has regulations (published in the Code of
Federal Regulations) for interstate shipping of specimens, and OSHA also
addresses the safe handling of Class 6.2 Substances. Our CryoPort
Express®
Shipper meets Packing Instructions 602 and 650 and is certified for the shipment
of Class 6.2 Dangerous Goods per the requirements of the ICAO Technical
Instructions for the Safe Transport of Dangerous Goods by Air and IATA. Our
present and planned future versions of the CryoPort Smart Pak data logger will
likely be subject to regulation by FAA, FCC, FDA, IATA and possibly other
agencies which may be difficult to determine on a global basis.
We are
also subject to numerous other federal, state and local laws relating to such
matters as safe working conditions, manufacturing practices, environmental
protection, fire hazard control, and disposal of hazardous or potentially
hazardous substances. We may incur significant costs to comply with such
laws and regulations now or in the future.
Manufacturing
and Raw Materials
Manufacturing. The
component parts for our products are primarily manufactured at third party
manufacturing facilities. We also have a warehouse at our corporate offices
in Lake Forest, California, where we are capable of manufacturing certain parts
and fully assemble our products. Most of the components that we use in the
manufacture of our products are available from more than one qualified
supplier. For some components, however, there are relatively few alternate
sources of supply and the establishment of additional or replacement suppliers
may not be accomplished immediately, however, we have identified alternate
qualified suppliers which we believe could replace existing
suppliers. Should this occur, we believe that with our current level of
dewars and production rate we have enough to cover a four to six week gap
in maximum
disruption of production.
Primary manufacturers used by us
include Spaulding Composites Company, Peterson Spinning and Stamping, Lydall
Industrial Thermal Solutions, and Ludwig, Inc. There are no specific
agreements with any manufacturer nor are there any long term commitments to any
manufacturer. We believe that most of the manufactures currently used by us
could be replaced within a short period of time as none have a proprietary
component or a substantial capital investment specific to our
products.
Our production and manufacturing
process incorporates innovative technologies developed for aerospace and other
industries which are cost effective, easier to use and more functional than the
traditional dry ice devices and other methods currently used for the shipment of
temperature-sensitive materials. Our manufacturing process uses
non-hazardous cleaning solutions which are provided and disposed of by a
supplier approved by the Environmental Protection Agency (the “EPA”). EPA
compliance costs for us are therefore negligible.
Raw
Materials. Various common raw materials are used in the
manufacture of our products and in the development of our
technologies. These raw materials are generally available from
several alternate distributors and manufactures. We have not
experienced any significant difficulty in obtaining these raw materials and we
do not consider raw material availability to be a significant factor in our
business.
Patents
and Proprietary Rights
In order
to remain competitive, we must develop and maintain protection on the
proprietary aspects of its technologies. We rely on a combination of patents,
copyrights, trademarks, trade secret laws and confidentiality agreements to
protect our intellectual property rights. We currently own four registered
United States trademarks and three issued United States patents primarily
covering various aspects of our products. In addition, we have filed a patent
application for various aspects of our shipper and web-portal, which includes,
in part, various aspects of our business model referred to as the CryoPort
Express® System, and we intend to file additional patent applications to
strengthen our intellectual property rights. The technology covered by the above
indicated issued patents relates to matters specific to the use of liquid
nitrogen dewars in connection with the shipment of biological materials. The
concepts include those of disposability, package configuration details, liquid
nitrogen retention systems, systems related to thermal performance, systems
related to packaging integrity, and matters generally relevant to the
containment of liquid nitrogen. Similarly, the trademarks mentioned relate to
the cryogenic temperature shipping activity. Issued patents and trademarks
currently owned by us include:
|
|
Type:
|
|
No.
|
|
Issued
|
|
Expiration
|
|
|
Patent
|
|
6,467,642
|
|
Oct.
22, 2002
|
|
Oct.
21, 2022
|
|
|
Patent
|
|
6,119,465
|
|
Sep.
19, 2000
|
|
Sep.
18, 2020
|
|
|
Patent
|
|
6,539,726
|
|
Apr.
1, 2003
|
|
Mar
31, 2023
|
|
|
Trademark
|
|
7,583,478,7
|
|
Oct.
9, 2002
|
|
Oct.
8, 2012
|
|
|
Trademark
|
|
7,586,797,8
|
|
Apr.
16, 2002
|
|
Apr.
16, 2012
|
|
|
Trademark
|
|
7,748,667,3
|
|
Feb.
3, 2009
|
|
Feb.
3, 2019
|
|
|
Trademark
|
|
7,737,451,1
|
|
Mar.
17, 2009
|
|
Mar.
17, 2019
|
Our
success depends to a significant degree upon our ability to develop proprietary
products and technologies and to obtain patent coverage for these products and
technologies. We intend to file trademark and patent applications covering any
newly developed products, methods and technologies. However, there can be no
guarantee that any of our pending or future filed applications will be issued as
patents. There can be no guarantee that the U.S. Patent and Trademark Office or
some third party will not initiate an interference proceeding involving any of
our pending applications or issued patents. Finally, there can be no guarantee
that our issued patents or future issued patents, if any, will provide adequate
protection from competition.
Patents
provide some degree of protection for our proprietary technology. However, the
pursuit and assertion of patent rights involve complex legal and factual
determinations and, therefore, are characterized by significant uncertainty. In
addition, the laws governing patent issuance and the scope of patent coverage
continue to evolve. Moreover, the patent rights we possess or are pursuing
generally cover our technologies to varying degrees. As a result, we cannot
ensure that patents will issue from any of our patent applications, or that any
of its issued patents will offer meaningful protection. In addition, our issued
patents may be successfully challenged, invalidated, circumvented or rendered
unenforceable so that our patent rights may not create an effective barrier to
competition. Moreover, the laws of some foreign countries may not protect our
proprietary rights to the same extent, as do the laws of the United States.
There can be no assurance that any patents issued to us will provide a legal
basis for establishing an exclusive market for our products or provide us with
any competitive advantages, or that patents of others will not have an adverse
effect on our ability to do business or to continue to use our technologies
freely.
We may be
subject to third parties filing claims that our technologies or products
infringe on their intellectual property. We cannot predict whether third parties
will assert such claims against us or whether those claims will hurt our
business. If we are forced to defend against such claims, regardless of their
merit, we may face costly litigation and diversion of management’s attention and
resources. As a result of any such disputes, we may have to develop, at a
substantial cost, non-infringing technology or enter into licensing agreements.
These agreements may be unavailable on terms acceptable to it, or at all, which
could seriously harm our business or financial condition.
We also
rely on trade secret protection of our intellectual property. We attempt to
protect trade secrets by entering into confidentiality agreements with third
parties, employees and consultants, although, in the past, we have not always
obtained such agreements. It is possible that these agreements may be breached,
invalidated or rendered unenforceable, and if so, our trade secrets could be
disclosed to our competitors. Despite the measures we have taken to protect our
intellectual property, parties to such agreements may breach confidentiality
provisions in our contracts or infringe or misappropriate our patents,
copyrights, trademarks, trade secrets and other proprietary rights. In addition,
third parties may independently discover or invent competitive technologies, or
reverse engineer our trade secrets or other technology. Therefore, the measures
we are taking to protect our proprietary technology may not be
adequate.
Customers
and Distribution
As a result of growing globalization,
including with respect to such areas as life science clinical trials and
distribution of pharmaceutical products, the requirement for effective solutions
for keeping certain clinical samples and pharmaceutical products at frozen
temperatures takes on added significance due to extended shipping times, custom
delays and logistics challenges. Today, such goods are traditionally
shipped in Styrofoam cardboard insulated containers packed with dry ice,
gel/freezer packs or a combination thereof. The current dry ice solutions
have limitations that severely limit their effective and efficient use for both
short and long-distances (e.g., international). Conventional dry ice
shipments often require labor intensive “re-icing” operations resulting in
higher labor and shipping costs.
We believe our patented cryogenic
shippers make us well positioned to take advantage of the growing demand for
effective and efficient international transport of temperature sensitive
materials resulting from continued globalization. Of particular
significance is the trend within the pharmaceutical and biotechnology
industries toward globalization. We believe this presents a new and
unique opportunity for pharmaceutical companies, particularly early or
developmental stage companies, to conduct some of their clinical trials in
foreign countries where the cost may be cheaper and/or because the foreign
countries significantly larger population provides a larger pool of potential
patients suffering from the indication that the drug candidate is being designed
to treat. We also plan to provide domestic shipping solutions in situations
and regions where there is a high priority placed on maintaining the integrity
of materials shipped at cryogenic temperatures and where we can be cost
effective.
To date, most of our customers have
been in the pharmaceutical or medical industries. As we initially focus our
efforts to increase revenues, we believe that the primary target customers for
our CryoPort Express®
System are concentrated in the following markets, for the following
reasons:
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Pharmaceutical
clinical trials / Contract Research Organizations;
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Gene
biotechnology;
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Transport
of infectious materials and dangerous goods;
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Pharmaceutical
distribution; and
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Fertility
clinics/artificial insemination.
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Pharmaceutical Clinical
Trials. Every pharmaceutical company developing a
new drug must be approved by the FDA who conducts clinical trials to, among
other things, test the safety and efficacy of the potential new
drug. Presently, a significant amount of clinical trial activity is managed
by a number of large Clinical Research Organizations (“CROs”). Due to the
growing downsizing trend in the pharmaceutical industry, CROs are going to
obtain an increasing share of the clinical trial market.
In connection with the clinical trials,
due to globalization the companies may enroll patients from all over the world
who regularly submit a blood or other specimen at the local hospital, doctor’s
office or laboratory. These samples are then sent to specified testing
laboratories, which may be local or in another country. The testing
laboratories will typically set the requirements for the storage and shipment of
blood specimens. In addition, several of the drugs used by the patients
require frozen shipping to the sites of the clinical trials. While both
domestic and international shipping of these specimens is accomplished using dry
ice today, international shipments especially present several problems, as dry
ice, under the best of circumstances, can only provide freezing for one to
two days, in the absence of re-icing (which is quite costly). Because
shipments of packages internationally can take longer than one to two
days or be delayed due to flight cancellations, incorrect destinations,
labor problems, ground logistics, customs delays and safety reasons, dry ice is
not always a reliable and cost effective option. Clinical trial specimens
are often irreplaceable because each one represents clinical data at a
prescribed point in time, in a series of specimens on a given patient, who may
be participating in a trial for years. Sample integrity during the shipping
process is vital to retaining the maximum number of patients in each
trial. Our shippers are ideally suited for this market, as our longer hold
time ensures that specimens can be sent over long distances with minimal concern
that they will arrive in a condition that will cause their exclusion from the
trial. There are also many instances in domestic shipments where the
CryoPort Express®
Shipper will provide higher reliability and be cost effective.
Furthermore, the IATA requires that all
airborne shipments of laboratory specimens be transmitted in either IATA
Instruction 650 or 602 certified packaging. We have developed and obtained
IATA certification of the CryoPort Express®
System, which is ideally suited for this market, in particular due to the
elimination of the cost to return the reusable shipper.
Gene
Biotechnology. The gene biotechnology market
includes basic and applied research and development in diverse areas such as
stem cells, cloning, gene therapy, DNA tumor vaccines, tissue engineering,
genomics, and blood products. Company’s participating in the foregoing fields
rely on the frozen transport of specimens in connection with their research and
development efforts, for which our CryoPort Express®
Shippers are ideally suited.
Transport of Infectious Materials
and Dangerous Goods. The transport of infectious
materials must be classified as such and must maintain strict adherence to
regulations that protect public safety while maintaining the viability of the
material being shipped. Some blood products are considered infective and
must be treated as such. Pharmaceutical companies, private research
laboratories and hospitals ship tissue cultures and microbiology specimens,
which are also potentially infectious materials, between a variety of entities,
including private and public health reference laboratories. Almost all
specimens in this infectious materials category require either a refrigerated or
a frozen environment. We believe our CryoPort Express®
Shipper is ideally suited to meet the shipping requirements of this
market.
Partly in response to the attack on the
World Trade Center and the anthrax scare, government officials and health care
professionals are focusing renewed attention on the possibility of attacks
involving biological and chemical weapons such as anthrax, smallpox and sarin
gas. Efforts expended on research and development to counteract biowarfare
agents requires the frozen transport of these agents to and from facilities
conducting the research and development. Vaccine research, including
methods of vaccine delivery, also requires frozen transport. We believe our
CryoPort Express®
Shipper is ideally suited to this type of research and development.
Pharmaceutical
Distribution. The current focus for the CryoPort
Express®
System also includes the area of pharmaceutical distribution. There are a
significant number of therapeutic drugs and vaccines currently or soon to be,
undergoing clinical trials. After the FDA approves them for commercial
marketing, it will be necessary for the manufacturers to have a reliable and
economical method of distribution to the physician who will administer the
product to the patient. Although there are not now a large number of drugs
requiring cryogenic transport, there are a number in the development
pipeline. It is likely that the most efficient and reliable method of
distribution will be to ship a single dosage to the administering
physician. These drugs are typically identified to individual patients and
therefore will require a complete tracking history from the manufacturer to the
patient. The most reliable method of doing this is to ship a unit dosage
specifically for each patient. Because the drugs require maintenance at
frozen or cryogenic temperatures, each such shipment will require a frozen or
cryogenic shipping package. CryoPort anticipates being in a position to
service that need.
Fertility
Clinics. We estimate that artificial insemination
procedures in the United States account for at least 50,000 doses of semen
annually. Since relatively few sperm banks provide donor semen, frozen shipping
is almost always involved. As with animal semen, human semen must be stored
and shipped at cryogenic temperatures to retain viability, stabilize the
cells, and ensure reproducible results. This can only be accomplished
with the use of liquid nitrogen or LN2 dry vapor shippers. CryoPort
anticipates that this market will continue to increase as this practice gains
acceptance in new areas of the world.
In addition to the above markets, our
longer-term plans include expanding into new markets including, the diagnostics,
food, environmental, semiconductor and petroleum industries.
Sales
and Marketing
We currently have one internal
sales person who manages our direct sales. Our current distribution
channels cover the Americas, Europe and Asia. During the fiscal year ended
March 31, 2010, annual net revenues from BD Biosciences and CDx Holdings,
Inc. accounted for 32.1% and 18.7%, respectively, of our net
revenues.
Our
geographical sales for the year ended March 31, 2010 were as
follows:
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USA
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43.6%
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Europe
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52.3%
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Canada
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4.1%
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We
recently entered into an agreement with FedEx and we plan to further expand our
sales and marketing efforts through the establishment of additional strategic
relationships with global couriers and, subject to available financial
resources, the hiring of additional sales and marketing
personnel.
Industry
and Competition
Our
products and services are sold into a rapidly growing niche of the packaging
industry focused on the temperature sensitive packaging and shipping of
biological materials. Expenditures for “value added” packaging for frozen
transport have been increasing for the past several years and, due in part to
continued globalization, are expected to continue to increase even more in the
future as more domestic and international biotechnology firms introduce
pharmaceutical products that require continuous refrigeration at cryogenic
temperatures. We believe this will require a greater dependence on
passively controlled temperature transport systems (i.e., systems having no
external power source).
We
believe that growth in the following markets has resulted in the need for
increased efficiencies and greater flexibility in the temperature sensitive
packaging market:
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Pharmaceutical
clinical trials, including transport of tissue culture
samples;
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Pharmaceutical
commercial product distribution;
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Transportation
of diagnostic specimens;
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Transportation
of infectious materials;
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Intra
laboratory diagnostic testing;
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Transport
of temperature-sensitive specimens by courier;
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Analysis
of biological samples;
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Environmental
sampling;
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Gene
and stem cell biotechnology and vaccine production; and
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Food
engineering.
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Many of
the biological products in these above markets require transport in a frozen
state as well as the need for shipping containers which have the ability to
maintain a frozen, cryogenic environment (e.g., minus 150° Celsius) for a period
ranging from two to ten days (depending on the distance and mode of
shipment). These products include semen, embryo, tissue, tissue cultures,
cultures of viruses and bacteria, enzymes, DNA materials, vaccines and certain
pharmaceutical products. In some instances, transport of these products
requires temperatures at, or approaching, minus 196° Celsius.
One
problem faced by many companies operating in these specialized markets is the
limited number of cryogenic shipping systems serving their needs, particularly
in the areas of pharmaceutical companies conducting clinical trials. The
currently adopted protocol and the most common method for packaging frozen
transport in these industries is the use of solid state carbon dioxide (dry
ice). Dry ice is used extensively in shipping to maintain a frozen state
for a period of one to four days. Dry ice is used in the transport of many
biological products, such as pharmaceuticals, laboratory specimens and certain
infectious materials that do not require true cryogenic temperatures. The
common approach to shipping these items via ground freight is to pack the
product in a container, such as an expanded polystyrene (Styrofoam) box or a
molded polyurethane box, with a variable quantity of dry ice. The box is
taped or strapped shut and shipped to its destination with freight charges based
on its initial shipping weight.
With
respect to shipments via specialized courier services, there is no standardized
method or device currently in use for the purpose of transporting
temperature-sensitive frozen biological specimens. One common method for
courier transport of biological materials is to place frozen specimens,
refrigerated specimens, and ambient specimens into a compartmentalized
container, similar in size to a 55 quart Coleman or Igloo cooler. The
freezer compartment in the container is loaded with a quantity of dry ice at
minus 78° Celsius, while the refrigerated compartment at 8° Celsius utilizes ice
substitutes.
Two
manufacturers of the polystyrene and polyurethane containers frequently used in
the shipping and courier transport of dry ice frozen specimens are Insulated
Shipping Containers, Inc. and Tegrant (formerly SCA Thermosafe). When these
containers are used with dry ice, the average sublimation rate (e.g., the rate
at which dry ice turns from a solid to a gaseous state) in a container with a
1 1/2
inch wall thickness is slightly less than three pounds per 24 hours. Other
existing refrigerant systems employ the use of gel packs and ice substitutes for
temperature maintenance. Gels and eutectic solutions (phase changing
materials) with a wide range of phasing temperatures have been developed in
recent years to meet the needs of products with varying specific temperature
control requirements.
The use
of dry ice and ice substitutes, however, regardless of external packaging used,
are frequently inadequate because they do not provide low enough storage
temperatures and, in the case of dry ice, last for only a few days without
re-icing. As a result, companies run the risk of increased costs due to
lost specimens and additional shipping charges due to the need to
re-ice.
Some of
the other disadvantages to using dry ice for shipping or transporting
temperature sensitive products are as follows:
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Availability
of a dry ice source;
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Handling
and storage of the dry ice;
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Cost
of the dry ice;
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Compliance
with local, state and federal regulations relating to the storage and use
of dry ice;
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Weight
of containers when packed with dry ice;
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Securing
a shipping container with a high enough R-value (which is a measure of
thermal resistance) to hold the dry ice and product for the required time
period;
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Securing
a shipping container that meets the requirements of IATA, the DOT,
the CDC, and other regulatory agencies; and
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The
emission of green house gases into the
environment.
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Due to
the limitations of dry ice, shipment of specimens at true cryogenic temperatures
can only be accomplished using liquid nitrogen dry vapor shippers, or by
shipping over actual liquid nitrogen. While such shippers provide solutions
to the issues encountered when shipping with dry ice, they too are experiencing
some criticisms by users or potential users. For example, the cost for
these products typically can range from $650 to $3,000 per unit, which can
substantially limit their use for the transport of many common biologics,
particularly with respect to small quantities such as is the case with direct to
the physician drug delivery. Because of the initial cost and limited
production of these containers, they are designed to be reusable. However,
the cost of returning these heavy containers can be significant, particularly in
international markets, because most applications require only one-way
shipping. We expect to provide a cost effective solution compared to dry
ice. We believe we will provide an overall cost savings of 10% to 20% for
international and specialty shipments compared to dry ice, while at the same
time providing a higher level of support and related services.
Another
problem with these existing systems relates to the hold time of the unit in a
normal, upright position versus the hold time when the unit is placed on its
side or inverted. If a container is laying on its side or is inverted the
liquid nitrogen is prone to leaking out of the container due to a combination of
factors, including a shift in the equilibrium height of the liquid nitrogen
in the absorbent material and the relocation of the point of
gravity, which affects the hold time and compromises the dependability of
the dry shipper, particularly when used in circumstances requiring lengthy
shipping times. Due to the use of our proprietary technology, our CryoPort
Express®
Shippers are not prone to leakage when on their side or inverted, thereby
protecting the integrity of our shipper’s hold time.
Within
our intended markets for our CryoPort Express® Shippers, there is limited known
competition. We intend to become competitive by reason of our
improved technology in our products and through the use of our service enabled
business model. The CryoPort Express® System provides a simple and
cost effective solution for the frozen or cryogenic transport of biological or
pharmaceutical materials. This solution if comprised of our
innovative dewar and is supported by the CryoPort Express® Portal, our web-based
order-entry system, which manages the scheduling and shipping of the CryoPort
Express® Shippers. In addition to the traditional dry ice shipping,
suppliers, such as MVE/Chart Industries, Taylor Wharton and Air Liquide, offer
various models of dry vapor liquid nitrogen shippers that are not cost
efficient for multi-use and multi-shipment purposes due to their
significantly greater unit costs and unit weight (which may substantially
increase the shipping cost). On the other hand, they are more
established and have larger organizations and have greater financial,
operational, sales and marketing resources and experience in research and
development than we do. Factors that we believe give us a competitive
advantage are attributable to our shipping container which allows our shipper to
retain liquid nitrogen when placed in non-upright positions, the overall
“leak-proofness” of the our package which determines compliance with shipping
regulations and the overall weight and volume of the package which determines
shipping costs, and our business model represented by the merged integration of
our shipper with CryoPort Express Portal and Smart Pak datalogger into a
seamless shipping, tracking and monitoring solution. Other companies
that offer potentially competitive products include Industrial Insulation
Systems, which offers cryogenic transport units and has partnered with Marathon
Products Inc., a manufacturer and global supplier of wireless temperature data
collecting devices used for documenting environmentally sensitive products
through the cold chain and Kodiak Thermal Technologies, Inc. which offers, among
other containers, a repeat use active-cool container that uses free piston
stirling cycle technology. While not having their own shipping
devices, BioStorage Technologies is potentially a competitive company through
their management services offered for cold-chain logistics and long term
biomaterial storage. Cryogena offers a single use disposable LN2 shipper
with better performance than dry-ice, but it does not perform as well and is not
as cost-effective as the CryoPort solution when all costs are considered. In
addition, BioMatrica, Inc. is developing and offering technology that stabilizes
biological samples and research materials at room temperature. They
presently offer these technologies primarily to research and academic
institutions, however, their technology may eventually enter the broader
cold-chain market.
Research
and Development
Our
research and development efforts are focused on continually improving the
features of the CryoPort Express® System including the web based customer
service portal and the CryoPort Express® Shippers. Further these efforts are
expected to lead to the introduction of shippers of varying sizes based on
market requirements, constructed of lower cost materials and utilizing high
volume manufacturing methods that will make it practical to provide the
cryogenic packages offered by the CryoPort Express® System. Other research and
development effort has been directed toward improvements to the liquid nitrogen
retention system to render it more reliable in the general shipping environment
and to the design of the outer packaging. Alternative phase change materials in
place of liquid nitrogen may be used to increase the potential markets these
shippers can serve such as ambient and 2-8°C markets. Our research and
development expenditures during for the fiscal years ended March 31, 2010 and
2009 were $284,847 and $297,378, respectively.
Corporate
Governance
Our Board is committed to legal and
ethical conduct in fulfilling its responsibilities. The Board expects
all directors, as well as officers and employees, to act ethically at all times
and to adhere to the policies comprising the Company's Code of Business Conduct
and Ethics. The Board of Directors (the "Board") of the Company
adopted the corporate governance policies and charters. Copies of the
following corporate governance documents are posted on our website, and are
available free of charge, at www.cryoport.com:
(1) Code
of Business Conduct and Ethics (2) Charter of the Nominating and Governance
Committee of the Board of Directors, (3) Charter of the Audit Committee of the
Board of Directors, and (4) Charter of the Compensation Committee
of the Board of Directors. If you would like a printed copy of any of
these corporate governance documents, please send your request to CryoPort,
Inc., Attention: Corporate Secretary, 20382
Barents Sea Circle, Lake Forest CA 92630.
Human
Resources
As of
March 31, 2010, we had seven full-time employees and six consultants. Three of
the consultants work for us on a full-time basis. Each of our
employees has signed a confidentiality agreement and none are covered by a
collective bargaining agreement. We have never experienced
employment-related work stoppages and consider our employee relations to be
good.
ITEM
1A. RISK FACTORS
This Annual Report on Form 10-K
contains forward-looking information based on our current
expectations. Because our actual results may differ materially from
any forward-looking statements made by or on behalf of CryoPort, this section
includes a discussion of important factors that could affect our actual future
results, including, but not limited to, our potential product and service
revenues, acceptance of our products and services, expenses, net income(loss)
and earnings(loss) per common share.
Risks Related to Our Business
We
have incurred significant losses to date and may continue to incur
losses.
We have incurred net losses in each
fiscal year since we commenced operations. The following table represents
net losses incurred in each of our last two fiscal years:
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Net
Loss
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Fiscal
Year Ended March 31, 2010
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$ |
5,651,561 |
|
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Fiscal
Year Ended March 31, 2009
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$ |
16,705,151 |
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As of
March 31, 2010, we had an accumulated deficit of
$45,943,809. While we expect to continue to derive revenues from our
current products and services, in order to achieve and sustain profitable
operations, we must successfully commercialize and launch our CryoPort
Express®
System, significantly expand our market presence and increase revenues. We
may continue to incur losses in the future and may never generate revenues
sufficient to become profitable or to sustain profitability. Continuing
losses may impair our ability to raise the additional capital required to
continue and expand our operations.
Our
auditors have expressed doubt about our ability to continue as a going
concern.
The
Report of Independent Registered Public Accounting Firm to our March 31,
2010 consolidated financial statements includes an explanatory paragraph stating
that the recurring losses and negative cash flows from operations since
inception and our limited working capital and cash and cash equivalent
balance at March 31, 2010 raise substantial doubt about our ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
If
we are unable to obtain additional funding, we may have to reduce or discontinue
our business operations.
As of
June 15, 2010, we had cash and cash equivalents of $2,197,878. We have expended
substantial funds on the research and development of our products and IT
systems. As a result, we have historically experienced negative cash flows
from operations and we expect to continue to experience negative cash flows from
operations in the future. Therefore, our ability to continue and expand
our operations is highly dependent on the amount of cash and cash equivalents on
hand combined with our ability to raise additional capital to fund our future
operations.
We
anticipate, based on currently proposed plans and assumptions relating to our
ability to market and sell our products (but not including any additional
strategic relationships with global couriers), that our cash on hand, together
with projected cash flows, will satisfy our operational and capital requirements
through September 2010. There are a number of uncertainties associated
with our financial projections that could reduce or delay our future projected
revenues and cash-inflows, including, but not limited to, our ability to
complete the commercialization and launch of our CryoPort Express®
System, launch our relationship with FedEx, increase our customer base and
revenues and enter into strategic relationships with additional global couriers.
If our projected revenues and cash-inflows are reduced or delayed, we may
not have sufficient capital to operate through September 2010 unless we raise
more capital. Additionally, if we are unable to realize satisfactory
revenue in the near future, we will be required to seek additional financing to
continue our operations beyond that period. We will also require
additional financing to expand into other markets and further develop and market
our products. We have no current arrangements with respect to any
additional financing. Consequently, there can be no assurance that any
additional financing on commercially reasonable terms, or at all, will be
available when needed. The inability to obtain additional capital may
reduce our ability to continue to conduct business operations. Any
additional equity financing may involve substantial dilution to our then
existing stockholders. In addition, raising additional funding may be
complicated by certain provisions in the securities purchase agreements and
related transaction documents, as amended, entered into in connection with our
prior convertible debenture financings. The uncertainties surrounding our
future cash inflows have raised substantial doubt regarding our ability to
continue as a going concern.
If
we are not successful in establishing strategic relationships with global
couriers, we may not be able to successfully increase revenues and cashflow
which could adversely affect our operations.
We
believe that our near term success is best achieved by establishing strategic
relationships with global couriers, such as our recent agreement with FedEx.
Such relationships will enable us to provide a seamless, end-to-end
shipping solution to customers and allow us to leverage the couriers’
established express, ground and freight infrastructures and penetrate new
markets with minimal investment. Further, we expect that the global
couriers will utilize their sales forces to promote and sell our frozen shipping
services. If we are not successful in launching our relationship with
FedEx or establishing additional relationships with global couriers, our sales
and marketing efforts will be significantly impacted and anticipated revenue
growth will be substantially delayed which could have an adverse affect on our
operations.
Our
agreement with FedEx may not result in a significant increase in our revenues or
cashflow.
On
January 13, 2010, we entered into an agreement with FedEx pursuant to which
we will lease to FedEx such number of our cryogenic shippers that FedEx shall,
from time to time, order for its customers. FedEx has the right to
and shall, on a non-exclusive basis, promote, market and sell transportation of
our shippers and our related value-added goods and services, such as our data
logger, web portal and planned CryoPort Express Smart Pak System. Because
our agreement with FedEx does not contain any requirement that FedEx lease a
minimum number of shippers from us during the term of the agreement, we may not
experience a significant increase in our revenues or cashflows as a result of
this agreement. Further, while we are working with FedEx to implement
and launch our relationship, we may experience delays in such implementation
which could adversely affect our revenues.
Current
economic conditions and capital markets are in a period of disruption and
instability which could adversely affect our ability to access the capital
markets, and thus adversely affect our business and liquidity.
The
current economic conditions and financial crisis have had, and will continue to
have, a negative impact on our ability to access the capital markets, and thus
have a negative impact on our business and liquidity. The shortage of
liquidity and credit combined with substantial losses in worldwide equity
markets could lead to an extended worldwide recession. We may face
significant challenges if conditions in the capital markets do not improve.
Our ability to access the capital markets has been and continues to be
severely restricted at a time when we need to access such markets, which could
have a negative impact on our business plans, including the commercialization
and launch of our CryoPort Express®
System and other research and development activities. Even if we are able
to raise capital, it may not be at a price or on terms that are favorable to
us. We cannot predict the occurrence of future financial disruptions or
how long the current market conditions may continue.
The
sale of substantial shares of our common stock may depress our stock
price.
As of
March 31, 2010, there were 8,136,619 shares of our common stock
outstanding. Substantially all of these shares of common stock are
eligible for trading in the public market. The market price of our common
stock may decline if our stockholders sell a large number of shares of our
common stock in the public market, or the market perceives that such sales may
occur.
We could
also issue up to 8,276,519 additional shares of our common stock including
shares to be issued upon conversion of the outstanding balance of our
convertible debentures and upon the exercise of outstanding warrants and options
or reserved for future issuance under our stock incentive plans, as further
described in the following table:
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Number of Shares of Common Stock
Issuable or Reserved For Issuance
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Common
stock issuable upon conversion of the outstanding balance of our
convertible debentures
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1,076,856
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Common
stock issuable upon exercise of outstanding warrants
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5,540,532
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Common
stock issuable upon exercise of outstanding options
or reserved for future incentive awards under our stock incentive
plans
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1,659,131
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Total
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8,276,519
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Of the
total options and warrants outstanding as of March 31, 2010, options and
warrants exercisable for an aggregate of 38,782 shares of common
stock would be considered dilutive to the value of our stockholders’
interest in CryoPort because we would receive upon exercise of such options and
warrants an amount per share that is less than the market price of our common
stock on March 31, 2010.
We
will have difficulty increasing our revenues if we experience delays,
difficulties or unanticipated costs in establishing the sales, distribution and
marketing capabilities necessary to successfully commercialize our
products.
We are
continuing to develop sales, distribution and marketing capabilities in the
Americas, Europe and Asia. It will be expensive and time-consuming for us
to develop a global marketing and sales network. Moreover, we may choose,
or find it necessary, to enter into additional strategic collaborations to sell,
market and distribute our products. We may not be able to provide adequate
incentive to our sales force or to establish and maintain favorable distribution
and marketing collaborations with other companies to promote our products.
In addition, any third party with whom we have established a marketing and
distribution relationship may not devote sufficient time to the marketing and
sales of our products thereby exposing us to potential expenses in exiting such
distribution agreements. We, and any of our third party collaborators,
must also market our products in compliance with federal, state, local and
international laws relating to the provision of incentives and
inducements. Violation of these laws can result in substantial
penalties. Therefore, if we are unable to successfully motivate and expand
our marketing and sales force and further develop our sales and marketing
capabilities, or if our distributors fail to promote our products, we will have
difficulty increasing our sales.
Our
ability to grow and compete in our industry will be hampered if we are unable to
retain the continued service of our key professionals or to identify, hire and
retain additional qualified professionals.
A
critical factor to our business is our ability to attract and retain qualified
professionals including key employees and consultants. We are continually
at risk of losing current professionals or being unable to hire additional
professionals as needed. If we are unable to attract new qualified
employees, our ability to grow will be adversely affected. If we are
unable to retain current employees or strategic consultants, our financial
condition and ability to maintain operations may be adversely
affected.
We
are dependent on new products and services, the lack of which would harm our
competitive position.
Our
future revenue stream depends to a large degree on our ability to bring new
products and services to market on a timely basis. We must continue to
make significant investments in research and development in order to continue to
develop new products and services, enhance existing products and services, and
achieve market acceptance of such products and services. We may incur
problems in the future in innovating and introducing new products and
services. Our development stage products and services may not be
successfully completed or, if developed, may not achieve significant customer
acceptance. If we are unable to successfully define, develop and introduce
new, competitive products and services and enhance existing products and
services, our future results of operations would be adversely affected.
Development and manufacturing schedules for technology products and services are
difficult to predict, and we might not achieve timely initial customer shipments
of new products or launch of services. The timely availability
of these products and services and their acceptance by customers are important
to our future success. A delay in new or enhanced product or service
introductions could have a significant impact on our results of
operations.
Because
of these risks, our research and development efforts may not result in any
commercially viable products or services. If significant portions of these
development efforts are not successfully completed, or any new or enhanced
products or services are not commercially successful, our business, financial
condition and results of operations may be materially harmed.
If
we successfully develop products and/or services, but those products and/or
services do not achieve and maintain market acceptance, our business will not be
profitable.
The
degree of acceptance of our CryoPort Express®
Shipper and/or CryoPort Express® System, or any future product or services, by
our current target markets, and any other markets to which we attempt to sell
our products and services, and our profitability and growth will depend on a
number of factors including, among others:
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our
shipper’s ability to perform and preserve the integrity of the materials
shipped;
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relative
convenience and ease of use of our shipper and/or web
portal;
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availability
of alternative products;
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pricing
and cost effectiveness; and
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effectiveness
of our or our collaborators’ sales and marketing
strategy.
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If any
products or services we may develop do not achieve market acceptance, then we
may not generate sufficient revenue to achieve or maintain
profitability.
In
addition, even if our products and services achieve market acceptance, we may
not be able to maintain that market acceptance over time if new products or
services are introduced that are more favorably received than our products and
services, are more cost effective, or render our products obsolete.
Our
success depends, in part, on our ability to obtain patent protection for our
products and business model, preserve our trade secrets, and operate without
infringing the proprietary rights of others.
Our
policy is to seek to protect our proprietary position by, among other methods,
filing United States patent applications related to our technology, inventions
and improvements that are important to the development of our business. We
have three issued U.S. patents and one recently filed provisional patent
application, all relating to various aspects of our products and services.
Our patents or provisional patent application may be challenged, invalidated or
circumvented in the future or the rights granted may not provide a competitive
advantage. We intend to vigorously protect and defend our intellectual
property. Costly and time-consuming litigation brought by us may be
necessary to enforce our patents and to protect our trade secrets and know-how,
or to determine the enforceability, scope and validity of the proprietary rights
of others.
We also
rely upon trade secrets, technical know-how and continuing technological
innovation to develop and maintain our competitive position. In the past
our employees, consultants, advisors and suppliers have not always executed
confidentiality agreements and invention assignment and work for hire agreements
in connection with their employment, consulting, or advisory
relationships. Consequently, we may not have adequate remedies available
to us to protect our intellectual property should one of these parties attempt
to use our trade secrets or refuse to assign any rights he or she may have in
any intellectual property he or she developed for us. Additionally, our
competitors may independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our proprietary
technology, or we may not be able to meaningfully protect our rights in
unpatented proprietary technology.
We cannot
assure you that our current and potential competitors and other third parties
have not filed (or in the future will not file) patent applications for (or have
not received or in the future will not receive) patents or obtain additional
proprietary rights that will prevent, limit or interfere with our ability to
make, use or sell our products either in the United States or
internationally. In the event we are required to license patents issued to
third parties, such licenses may not be available or, if available, may not be
available on terms acceptable to us. In addition, we cannot assure you
that we would be successful in any attempt to redesign our products or processes
to avoid infringement or that any such redesign could be accomplished in a
cost-effective manner. Accordingly, an adverse determination in a judicial
or administrative proceeding or failure to obtain necessary licenses could
prevent us from manufacturing and selling our products or offering our services,
which would harm our business.
We are
not aware of any third party that is infringing any of our patents or trademarks
nor do we believe that we are infringing on the patents or trademarks of any
other person or organization.
Our
products may contain errors or defects, which could result in damage to our
reputation, lost revenues, diverted development resources and increased service
costs and litigation.
Our
products must meet stringent requirements and we must develop our products
quickly to keep pace with the rapidly changing market. Products and
services as sophisticated as ours could contain undetected errors or defects,
especially when first introduced or when new models or versions are
released. In general, our products may not be free from errors or
defects after commercial shipments have begun, which could result in damage to
our reputation, lost revenues, diverted development resources, increased
customer service and support costs, and litigation. The costs incurred in
correcting any product errors or defects may be substantial and could adversely
affect our business, results of operations and financial condition.
If
we experience manufacturing delays or interruptions in production, then we may
experience customer dissatisfaction and our reputation could
suffer.
If we
fail to produce enough shippers at our own manufacturing facility or at a third
party manufacturing facility, or if we fail to complete our shipper recycling
processes as planned, we may be unable to deliver shippers to our customers on a
timely basis, which could lead to customer dissatisfaction and could harm our
reputation and ability to compete. We currently acquire various component
parts for our shippers from various independent manufacturers in the United
States. We would likely experience significant delays or cessation in
producing our shippers if a labor strike, natural disaster or other supply
disruption were to occur at any of our main suppliers. If we are unable to
procure a component from one of our manufacturers, we may be required to enter
into arrangements with one or more alternative manufacturing companies which may
cause delays in producing our shippers. In addition, because we depend on
third party manufacturers, our profit margins may be lower, which will make it
more difficult for us to achieve profitability. To date, we have not
experienced any material delay that has adversely impacted our operations.
As our business develops and the quantity of production increases, it becomes
more likely that such problems could arise.
Because
we rely on a limited number of suppliers, we may experience difficulty in
meeting our customers’ demands for our products in a timely manner or within
budget.
We
currently purchase key components of our products from a variety of outside
sources. Some of these components may only be available to us through a
few sources, however, management has identified alternative materials and
suppliers should the need arise. We generally do not have long-term
agreements with any of our suppliers.
Consequently,
in the event that our suppliers delay or interrupt the supply of components for
any reason, we could potentially experience higher product costs and longer lead
times in order fulfillment. Suppliers that we materially rely upon include
Spaulding Composites Company and Lydall Thermal Acoustical Sales.
Our
CryoPort Express®
Portal may be subject to intentional disruption that could adversely impact our
reputation and future sales.
We have
implemented our CryoPort Express®
Portal which is used by our customers and business partners to automate the
entry of orders, prepare customs documentation and facilitate status and
location monitoring of shipped orders while in transit. Although we
believe we have sufficient controls in place to prevent intentional disruptions,
we could be a target of attacks specifically designed to impede the performance
of the CryoPort Express®
Portal. Similarly, experienced computer programmers may attempt to
penetrate our CryoPort Express®
Portal in an effort to search for and misappropriate proprietary or confidential
information or cause interruptions of our services. Because the techniques
used by such computer programmers to access or sabotage networks change
frequently and may not be recognized until launched against a target, we may be
unable to anticipate these techniques. Our activities could be adversely
affected and our reputation, brand and future sales harmed if these
intentionally disruptive efforts are successful.
Our
products and services may expose us to liability in excess of our current
insurance coverage.
Our
products and services involve significant risks of liability, which may
substantially exceed the revenues we derive from them. We cannot predict
the magnitude of these potential liabilities.
We
currently maintain general liability insurance, with coverage in the amount of
$1 million per occurrence, subject to a $2 million annual limitation, and
product liability insurance with a $1 million annual coverage limitation.
Claims may be made against us that exceed these limits.
Our
liability policy is an “occurrence” based policy. Thus, our policy is
complete when we purchased it and following cancellation of the policy it
continues to provide coverage for future claims based on conduct that took place
during the policy term. However, our insurance may not protect us against
liability because our policies typically have various exceptions to the claims
covered and also require us to assume some costs of the claim even though a
portion of the claim may be covered. In addition, if we expand into new
markets, we may not be aware of the need for, or be able to obtain insurance
coverage for such activities or, if insurance is obtained, the dollar amount of
any liabilities incurred could exceed our insurance coverage. A partially
or completely uninsured claim, if successful and of significant magnitude, could
have a material adverse effect on our business, financial condition and results
of operations.
Complying
with certain regulations that apply to shipments using our products can limit
our activities and increase our cost of operations.
Shipments
using our products and services are subject to various regulations in the
countries in which we operate. For example, shipments using our products
may be required to comply with the shipping requirements promulgated by the
Centers for Disease Control (“CDC”), the Occupational Safety and Health
Organization (“OSHA”), the Department of Transportation (“DOT”) as well as rules
established by the International Air Transportation Association (“IATA”) and the
International Civil Aviation Organization (“ICAO”). Additionally, our data
logger may be subject to regulation and certification by the Food and Drug
Administration (“FDA”), Federal Communications Commission (“FCC”), and Federal
Aviation Administration (“FAA”). We will need to ensure that our products
and services comply with relevant rules and regulations to make our
products and services marketable, and in some cases compliance is difficult
to determine. Significant changes in such regulations could require costly
changes to our products and services or prevent use of our shippers for an
extended period of time while we seek to comply with changed regulations.
If we are unable to comply with any of these rule or regulations or fail to
obtain any required approvals, our ability to market our products and services
may be adversely affected. In addition, even if we are able to comply with
these rules and regulations, compliance can result in increased costs. In
either event, our financial results and condition may be adversely
affected. We depend on our business partners and unrelated and frequently
unknown third party agents in foreign countries to act on our behalf to complete
the importation process and to make delivery of our shippers to the final
user. The failure of these third parties to perform their duties could
result in damage to the contents of the shipper resulting in customer
dissatisfaction or liability to us, even if we are not at fault.
If
we cannot compete effectively, we will lose business.
Our
products, services and solutions are positioned to be competitive in the
cold-chain shipping market. While there are technological and marketing
barriers to entry, we cannot guarantee that the barriers we are capable of
producing will be sufficient to defend the market share we wish to gain against
current and future competitors. The principal competitive factors in this
market include:
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acceptance
of our business model and a per use consolidated
fee structure;
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ongoing
development of enhanced technical features and
benefits;
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reductions
in the manufacturing cost of competitors’ products;
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the
ability to maintain and expand distribution channels;
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brand
name;
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the
ability to deliver our products to our customers when
requested;
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the
timing of introductions of new products and services;
and
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financial
resources.
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Current
and prospective competitors have substantially greater resources, more
customers, longer operating histories, greater name recognition and more
established relationships in the industry. As a result, these competitors
may be able to develop and expand their networks and product offerings more
quickly, devote greater resources to the marketing and sale of their products
and adopt more aggressive pricing policies. In addition, these competitors
have entered and will likely continue to enter into business relationships to
provide additional products competitive to those we provide or plan to
provide.
We
may not be able to compete with our competitors in the industry because many of
them have greater resources than we do.
We expect
to continue to experience significant and increasing levels of competition in
the future. In addition, there may be other companies which are currently
developing competitive products and services or which may in the future develop
technologies and products that are comparable, superior or less costly than our
own. For example, some cryogenic equipment manufacturers with greater
resources currently have solutions for storing and transporting cryogenic liquid
and gasses and may develop storage solutions that compete with our
products. Additionally, some specialty couriers with greater resources
currently provide dry ice transportation and may develop other products in the
future, both of which compete with our products. A competitor that has
greater resources than us may be able to bring its product to market faster than
we can and offer its product at a lower price than us to establish market
share. We may not be able to successfully compete with a competitor that
has greater resources and such competition may adversely affect our
business.
Risks
Relating to Our Current Financing Arrangements
Our
outstanding convertible debentures impose certain restrictions on how we conduct
our business. In addition, all of our assets, including our intellectual
property, are pledged to secure this indebtedness. If we fail to meet our
obligations to the debenture holders, our payment obligations may be accelerated
and the collateral securing the indebtedness may be sold to satisfy these
obligations.
We issued
convertible debentures in October 2007 (the “October 2007 Debentures”) and in
May 2008 (the “May 2008 Debentures,” and together with the October 2007
Debentures, the “Debentures”). The Debentures were issued to
four institutional investors and have an outstanding principal balance of
$3,230,568 as of March 31, 2010. In addition, in October 2007 and May
2008, we issued to these institutional investors warrants to purchase, as of
March 31, 2010, an aggregate of 3,055,097 shares of our common stock (without
regard to beneficial ownership limitations contained in the transaction
documents and certain anti-dilution provisions). As collateral to secure
our repayment obligations to the holders of the Debentures we have granted such
holders a first priority security interest in generally all of our assets,
including our intellectual property.
The
Debentures, warrant agreements and related transactional documents (including
subsequent amendments) contain various covenants that presently restrict our
operating flexibility. Pursuant to the foregoing documents, we may not,
among other things:
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Other
than the reverse stock split we effected on February 5, 2010, which the
holder of our Debentures consented to, effect future reverse stock splits
of our outstanding common stock;
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incur
additional indebtedness, except for certain permitted
indebtedness. Permitted indebtedness is defined to include lease
obligations and purchase money indebtedness of up to an aggregate of
$200,000 and indebtedness that is expressly subordinated to the Debentures
and matures following the maturity date of the
Debentures;
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incur
additional liens on any of our assets except for certain permitted liens
including but not limited liens for taxes, assessments and government
charges not yet due and liens incurred in connection with permitted
indebtedness;
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pay
cash dividends;
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redeem
any outstanding shares of our common stock or any outstanding options or
warrants to purchase shares of our common stock except in connection with
a the repurchase of stock from former directors and officers provided such
repurchases do not exceed $100,000 during the term of the
Debentures;
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enter
into transactions with affiliates other than on arms-length terms;
and
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make
any revisions to the terms of existing contractual agreements for the
Related Party Notes Payable and the Line of Credit (as each is referred to
in our Form 10-Q for the period ended June 30,
2009).
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These
provisions could have important consequences for us, including, but not limited
to, (i) making it more difficult for us to obtain additional debt financing, or
obtain new debt financing on terms favorable to us, because a new lender will
have to be willing to be subordinate to the debenture holders, (ii) causing
us to use a portion of our available cash for debt repayment and service rather
than other perceived needs, and/or (iii) impacting our ability to take
advantage of significant, perceived business opportunities. Our failure to
timely repay our obligations under the Debentures, which require monthly
principal payments of $200,000 commencing March 1, 2011 and which mature on
August 1, 2012, or meet the covenants set forth in the Debentures and related
transaction documents could give rise to a default under the Debentures or such
transaction documents. In the event of an uncured default, all amounts
owed to the holders may be declared immediately due and payable and the
debenture holders will have the right to enforce their security interest in the
assets securing the Debentures. In such event, the Debenture holders could
take possession of any or all of our assets in which they hold a security
interest, and dispose of those assets to the extent necessary to pay off our
debts, which would materially harm our business.
Certain
of our existing stockholders own and have the right to acquire a substantial
number of shares of common stock.
As of
March 31, 2010, our directors, executive officers and debenture holders
beneficially owned 4,266,712 shares (without regard to beneficial ownership
limitations contained in certain warrants) of common stock assuming their
exercise of all outstanding warrants, options and conversion of all convertible
debt; or approximately 34.4% of our outstanding common stock. Of these
shares of common stock, 2,059,680, or approximately 19.1% of our outstanding
common stock, will be beneficially owned by Enable Growth Partners LP (and
affiliated funds), and 2,072,273 shares, or approximately 19.4% of our
outstanding common stock, will be owned by BridgePointe Master Fund, Ltd. (each
calculated without regard to the shares of common stock that may be acquired by
the other upon the exercise of its warrants); provided, however, there are
provisions in their warrant agreements that prohibit exercise of warrants to the
extent that their respective beneficial ownership would exceed 4.99% as a result
of such conversion or exercise (which limitation may be waived and increased to
9.99% upon not less than 61 days prior notice). As such, the
concentration of beneficial ownership of our stock may have the effect of
delaying or preventing a change in control of CryoPort and may adversely affect
the voting or other rights of other holders of our common stock.
Our
stock and warrant price is and will continue to be volatile.
The
market price of our common stock has been and, along with the warrants is likely
to be, highly volatile and could fluctuate widely in price in response to
various factors, many of which are beyond our control, including, but not
limited to:
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technological
innovations or new products and services by us or our
competitors;
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additions
or departures of key personnel;
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sales
of our common stock;
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our
ability to integrate operations, technology, products and
services;
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our
ability to execute our business plan;
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operating
results below expectations;
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loss
of any strategic relationship;
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industry
developments;
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economic
and other external factors; and
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period-to-period
fluctuations in our financial
results.
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You may
consider any one of these factors to be material. The price of our common
stock and warrants may fluctuate widely as a result of any of the above listed
factors. In addition, the securities markets have from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These market fluctuations
may also materially and adversely affect the market price of our common stock
and warrants.
If
equity research analysts do not publish research or reports about our business
or if they issue unfavorable commentary or downgrade our common stock and
warrants, the price of our common stock and warrants could decline.
The
trading market for our common stock and warrants relies in part on the research
and reports that equity research analysts publish about us and our
business. We do not control these analysts. The price of our common
stock and warrants could decline if one or more equity analyst downgrades our
stock or if analysts issue other unfavorable commentary or cease publishing
reports about us or our business.
We
have not paid dividends on our common stock in the past and do not expect to pay
dividends in the foreseeable future. Any return on investment may be
limited to the value of our common stock.
We have
never paid cash dividends on our common stock and do not anticipate paying cash
dividends in the foreseeable future. The payment of dividends on our
common stock will depend on our earnings, financial condition and other business
and economic factors affecting us at such time as the Board of Directors may
consider the payment of any such dividends. In addition, we may not pay
any dividends without obtaining the prior consent of the holders of
our Debentures. If we do not pay dividends, our common stock may be
less valuable because a return on your investment will only occur if the price
of our common stock appreciates.
As
a result of our recent 10-to-1 reverse stock split, the liquidity of our common
stock and market capitalization could be adversely affected.
On
February 5, 2010, we effected a 10-to-1 reverse stock split. A
reverse stock split is often viewed negatively by the market and, consequently,
can lead to a decrease in our overall market capitalization. In addition,
because the reverse split will significantly reduce the number of shares of our
common stock that are outstanding, the liquidity of our common stock could be
adversely affected and you may find it more difficult to purchase or sell shares
of our common stock.
We
may need additional capital, and the sale of additional shares of common stock
or other equity securities could result in additional dilution to our
stockholders.
We
believe that our current cash and cash equivalents and anticipated cash flow
from operations will be sufficient to meet our anticipated cash needs for a
period of 6 months. We may, however, require additional cash resources due
to changed business conditions or other future developments, including any
investments or acquisitions we may decide to pursue. If our resources are
insufficient to satisfy our cash requirements, we may seek to sell additional
equity or debt securities or obtain a credit facility. The sale of
additional equity securities, or debt securities convertible into equity
securities, could result in additional dilution to our stockholders. The
incurrence of indebtedness would result in increased debt service obligations
and could result in operating and financing covenants that would restrict our
operations.
Provisions
in our bylaws and Nevada law might discourage, delay or prevent a change of
control of our company or changes in our management and, as a result, may
depress the trading price of our common stock.
Provisions
of our bylaws and Nevada law may discourage, delay or prevent a merger,
acquisition or other change in control that stockholders may consider favorable,
including transactions in which you might otherwise receive a premium for your
shares of our common stock. The relevant bylaw provisions may also prevent
or frustrate attempts by our stockholders to replace or remove our
management. These provisions include advance notice requirements for
stockholder proposals and nominations, and the ability of our Board of Directors
to make, alter or repeal our bylaws.
Absent
approval of our Board of Directors, our bylaws may only be amended or repealed
by the affirmative vote of the holders of at least a majority of our outstanding
shares of capital stock entitled to vote.
In
addition, Section 78.438 of the Nevada Revised Statutes prohibits a
publicly-held Nevada corporation from engaging in a business combination with an
interested stockholder (generally defined as a person which together with its
affiliates owns, or within the last three years has owned, 10% of our voting
stock, for a period of three years after the date of the transaction in which
the person became an interested stockholder) unless the business combination is
approved in a prescribed manner.
The
existence of the foregoing provisions and other potential anti-takeover measures
could limit the price that investors might be willing to pay in the future for
shares of our common stock. They could also deter potential acquirers of
our company, thereby reducing the likelihood that you could receive a premium
for your common stock in an acquisition.
Even
though we are not incorporated in California, we may become subject to a number
of provisions of the California General Corporation Law.
Section
2115(b) of the California Corporations Code imposes certain requirements of
California corporate law on corporations organized outside California that, in
general, are doing more than 50% of their business in California and have more
than 50% of their outstanding voting securities held of record by persons
residing in California. While we are not currently subject to Section
2115(b), we may become subject to it in the future.
The
following summarizes some of the principal differences which would apply if we
become subject to Section 2115(b).
Under
both Nevada and California law, cumulative voting for the election of directors
is permitted. However, under Nevada law cumulative voting must be expressly
authorized in the Articles of Incorporation and our Amended and Restated
Articles of Incorporation do not authorize cumulative voting. If we become
subject to Section 2115(b), we may be required to permit cumulative voting if
any stockholder properly requests to cumulate his or her votes.
Under
Nevada law, directors may be removed by the stockholders only by the vote of
two-thirds of the voting power of the issued and outstanding stock entitled to
vote. However, California law permits the removal of directors by the
vote of only a majority of the outstanding shares entitled to
vote. If we become subject to Section 2115(b), the removal of a
director may be accomplished by a majority vote, rather than a vote of
two-thirds, of the stockholders entitled to vote.
Under
California law, the corporation must take certain steps to be allowed to provide
for greater indemnification of its officers and directors than is provided in
the California Corporation Code. If we become subject to Section
2115(b), our ability to indemnify our officers and directors may be limited by
California law.
Nevada
law permits distributions to stockholders as long as, after the distribution,
(i) the corporation would be able to pay its debts as they become due and (ii)
the corporation’s total assets are at least equal to its liabilities and
preferential dissolution obligations. Under California law, distributions may be
made to stockholders as long as the corporation would be able to pay its debts
as they mature and either (i) the corporation’s retained earnings equals or
exceeds the amount of the proposed distributions, or (ii) after the
distributions, the corporation’s tangible assets are at least 125% of its
liabilities and the corporation’s current assets are at least equal to its
current liabilities (or, 125% of its current liabilities if the corporation’s
average operating income for the two most recently completed fiscal years was
less than the average of the interest expense of the corporation for those
fiscal years). If we become subject to Section 2115(b), we will have
to satisfy more stringent financial requirements to be able to pay dividends to
our stockholders. Additionally, stockholders may be liable to the
corporation if we pay dividends in violation of California law.
California
law permits a corporation to provide “supermajority vote” provisions in its
Articles of Incorporation, which would require specific actions to obtain
greater than a majority of the votes, but not more than 66 2/3
percent. Nevada law does not permit supermajority vote
provisions. If we become subject to Section 2115(b), it is possible
that our stockholders would vote to amend our Articles of Incorporation and
require a supermajority vote for us to take specific actions.
Under
California law, in a disposition of substantially of all the corporation’s
assets, if the acquiring party is in control of or under common control with the
disposing corporation, the principal terms of the sale must be approved by 90
percent of the stockholders. Although Nevada law does contain certain
rules governing interested stockholder business combinations, it does not
require similar stockholder approval. If we become subject to Section
2115(b), we may have to obtain the vote of a greater percentage of the
stockholders to approve a sale of our assets to a party that is in control of,
or under common control with, us.
California
law places certain additional approval rights in connection with a merger if all
of the shares of each class or series of a corporation are not treated equally
or if the surviving or parent party to a merger represents more than 50 percent
of the voting power of the other corporation prior to the
merger. Nevada law does not require such approval. If we
become subject to Section 2115(b), we may have to obtain a the vote of a greater
percentage of the stockholders to approve a merger that treats shares of a class
or series differently or where a surviving or parent party to the merger
represents more than 50% of the voting power of the other corporation prior to
the merger.
California
law requires the vote of each class to approve a reorganization or a conversion
of a corporation into another entity. Nevada law does not require a
separate vote for each class. If we become subject to Section 2115(b), we may
have to obtain the approval of each class if we desire to reorganize or convert
into another type of entity.
California
law provides greater dissenters’ rights to stockholders than Nevada
law. If we become subject to Section 2115(b), more stockholders may
be entitled to dissenters’ rights, which may limit our ability to merge with
another entity or reorganize.
Our
stock is deemed to be penny stock.
Our stock
is currently traded on the OTC Bulletin Board and is subject to the “penny stock
rules” adopted pursuant to Section 15(g) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”). The penny stock rules apply to
companies not listed on a national exchange whose common stock trades at less
than $5.00 per share or which have tangible net worth of less than $5,000,000
($2,000,000 if the company has been operating for three or more years).
Such rules require, among other things, that brokers who trade “penny stock” to
persons other than “established customers” complete certain documentation, make
suitability inquiries of investors and provide investors with certain
information concerning trading in the security, including a risk disclosure
document and quote information under certain circumstances. Penny stocks
sold in violation of the applicable rules may entitle the buyer of the stock to
rescind the sale and receive a full refund from the broker.
Many
brokers have decided not to trade “penny stock” because of the requirements of
the penny stock rules and, as a result, the number of broker-dealers willing to
act as market makers in such securities is limited. In the event that we
remain subject to the “penny stock rules” for any significant period, there may
develop an adverse impact on the market, if any, for our securities.
Because our securities are subject to the “penny stock rules,” investors
will find it more difficult to dispose of our securities. Further, for
companies whose securities are traded in the OTC Bulletin Board, it is more
difficult: (i) to obtain accurate quotations, (ii) to obtain coverage
for significant news events because major wire services, such as the Dow Jones
News Service, generally do not publish press releases about such companies, and
(iii) to obtain needed capital.
If
we fail to maintain effective internal controls over financial reporting, the
price of our common stock may be adversely affected.
Our
internal controls over financial reporting may have weaknesses and conditions
that could require correction or remediation, the disclosure of which may have
an adverse impact on the price of our common stock. We are required to
establish and maintain appropriate internal controls over financial
reporting. Failure to establish those controls (or any failure of those
controls once established) could adversely impact our public disclosures
regarding our business, financial condition or results of operations. In
addition, management’s assessment of internal controls over financial reporting
may identify weaknesses and conditions that need to be addressed in our internal
controls over financial reporting or other matters that may raise concerns for
investors. Any actual or perceived weaknesses and conditions that need to
be addressed in our internal control over financial reporting, disclosure of
management’s assessment of our internal controls over financial reporting, or
disclosure of our independent registered public accounting firm’s attestation to
the effectiveness of our internal controls over financial reporting, when
required, may have an adverse impact on the price of our common
stock.
Standards for
compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are
uncertain, and if we fail to comply in a timely manner, our business could be
harmed and our stock price could decline.
Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of
2002 require an annual assessment of our internal controls over financial
reporting, and attestation of our assessment by our independent registered
public accounting firm. The standards that must be met for management to
assess the internal controls over financial reporting as effective are evolving
and complex, and require significant documentation, testing, and possible
remediation to meet the detailed standards. We expect to continue to incur
significant expenses and to devote resources to continued Section 404
compliance during the remainder of fiscal 2011 and on an ongoing basis. It
is difficult for us to predict how long it will take or how costly it will be to
complete the assessment of the effectiveness of our internal controls over
financial reporting to the satisfaction of our independent registered public
accounting firm for each year, and to remediate any deficiencies in our internal
controls over financial reporting. As a result, we may not be able to
complete the assessment and remediation process on a timely basis. In
addition, the attestation process by our independent registered public
accounting firm will be new for fiscal 2011 and we may encounter problems or
delays in completing the implementation of any requested improvements and
receiving an attestation of our assessment by our independent registered public
accounting firm. In the event that our Chief Executive Officer, Chief
Financial Officer or independent registered public accounting firm determines
that our internal controls over financial reporting are not effective as defined
under Section 404, we cannot predict how regulators will react or how the
market price of our common stock will be affected; however, we believe that
there is a risk that investor confidence and share value may be negatively
impacted.
If
we fail to remain current in our reporting requirements, our securities could be
removed from the OTC Bulletin Board, which would limit the ability of
broker-dealers to sell our securities and the ability of stockholders to sell
their securities in the secondary market.
Companies
trading on the OTC Bulletin Board must be reporting issuers under
Section 12 of the Exchange Act, and must be current in their reports under
Section 13, in order to maintain price quotation privileges on the OTC
Bulletin Board. If we fail to remain current on our reporting
requirements, we could be removed from the OTC Bulletin Board. As a
result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary
market.
ITEM
1B. UNRESOLVED STAFF
COMMENTS
Not applicable.
ITEM
2. PROPERTIES
We do not own real property. We
currently lease two facilities, with approximately 12,000 square feet of corporate, research and
development, and warehouse facilities, located at 20382 Barents Sea Circle, Lake Forest, CA
92630 and five (5) executive offices located
at 402 West Broadway, San Diego, CA 92101. The
Company currently makes base lease payments of approximately $10,000 per month, due at the beginning of
each month. On August 24, 2009, the Company entered
into the second amendment to the lease for its manufacturing and office space.
The amendment extended the lease for twelve months from the end of the existing
lease term with a right to cancel the lease with a minimum of 120 day written
notice at anytime as of November 30, 2009.In June 2010, Company entered into the
third amendment to the lease for its manufacturing and office space. The
amendment extended the lease for sixty months commencing July 1, 2010 with a
right to cancel the lease with a minimum of 120 day written notice at anytime as
of December 31, 2012. On April 15, 2010, the Company entered into office service
agreements with Regus Management Group, LLC (Lessor) for five (5) executive offices located at 402
West Broadway, San Diego, CA 92101. The office service agreements are for
periods ranging from 3 to 7 months ending October 31, 2010. The office service
agreements require base lease payments of approximately $5,100 per month.
We believe that these
facilities are adequate, suitable and of sufficient capacity to support our
immediate needs. Additional space may be required, however, as we expand our research and
development, manufacturing and selling and marketing
activities.
ITEM
3. LEGAL
PROCEEDINGS
In the
ordinary course of business, we are at times subject to various legal
proceedings and disputes. We currently are not aware of any such
legal proceedings or claim that we believe will have, individually or in the
aggregate, a material adverse effect on our business, operating results or cash
flows.
ITEM
4. [REMOVED AND
RESERVED]
Not
applicable.
PART II
|
ITEM
5.
|
MARKET FOR
REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDERS’ MATTERS AND ISSUER
PURCHASES OF EQUITY
SECURITIES
|
(a) Market
Information. The Company’s common stock is quoted on the OTC
Bulletin Board under the symbol “CYRX.OB.” The following table shows
the high and low sales price of the Company’s common stock for each quarter in
the two years ended March 31, 2010:
|
|
|
Common
Stock
Sales
Price
|
|
|
|
High
|
|
Low
|
|
Fiscal
Year 2010
|
|
|
|
|
|
Quarter
Ended March 31, 2010
|
|
$10.50
|
|
$1.65
|
|
Quarter
Ended December 31, 2009
|
|
$5.40
|
|
$3.80
|
|
Quarter
Ended September 30, 2009
|
|
$7.00
|
|
$3.70
|
|
Quarter
Ended June 30, 2009
|
|
$9.00
|
|
$4.10
|
|
Fiscal
Year 2009
|
|
|
|
|
|
Quarter
Ended March 31, 2009
|
|
$6.50
|
|
$3.00
|
|
Quarter
Ended December 31, 2008
|
|
$7.90
|
|
$4.20
|
|
Quarter
Ended September 30, 2008
|
|
$10.10
|
|
$5.00
|
|
Quarter
Ended June 30, 2008
|
|
$12.00
|
|
$6.10
|
(b) Holders. As of
June 15, 2010, the number of stockholders of record of the Company's common
stock was 162.
(c) Dividends. No
dividends on common stock have been declared or paid by the
Company. The Company intends to employ all available funds for the
development of its business and, accordingly, does not intend to pay any cash
dividends in the foreseeable future.
(d) Securities Authorized for Issuance
Under Equity Compensation. The information included under Item
12 of Part III of this Annual Report is hereby incorporated by reference into
this Item 5 of Part II of this Annual Report.
(e) Recent Sale of
Unregistered Securities. The following is a
summary of transactions by the Company during the past quarter involving the
issuance and sale of the Company’s securities that were not registered under the
Securities Act of 1933, as amended (the “Securities Act”). All securities sold
by the Company were sold to individuals, trusts or others who were accredited
investors as defined under Regulation D under the Securities Act, as
amended.
On
February 25, 2010, as a result of the Company’s public offering of units, the
exercise price of certain outstanding warrants held by a former investment
banker was reduced to $3.30 per share which resulted in a proportionate increase
the number of shares of common stock that may be purchased upon the exercise of
such warrants of 55,644 shares of common stock. In addition, the
Company issued fully vested warrants to purchase 17,500 shares of common stock
representing 7% of the warrants issued to Enable and Bridgepointe in the public
offering.
During
the three months ended March 31, 2010, the Company issued fully vested warrants
to purchase 15,000 shares of common stock to Emergent Financial for continued
shareholder support services. The exercise price of the warrants was $1.91
per share.
ITEM
6. SELECTED FINANCIAL
DATA
The
following selected financial data has been derived from audited consolidated
financial statements of the Company for each of the five years in the period
ended March 31, 2010. These selected financial summaries should be
read in conjunction with the financial information contained for each of the two
years in the period ended March 31, 2010, included in the consolidated financial
statements and notes thereto, Management's Discussion and Analysis of Results of
Operations and Financial Condition, and other information provided elsewhere
herein.
|
Years
Ended March 31,
(in
thousands, except per share data)
|
| |
|
2010
|
|
|
2009
|
|
|
2008 |
|
|
2007
|
|
|
2006
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
118
|
|
|
$
|
35
|
|
|
$
|
84
|
|
|
$
|
67
|
|
|
$
|
152
|
|
|
Cost
of revenues
|
|
|
718
|
|
|
|
546
|
|
|
|
386
|
|
|
|
177
|
|
|
|
316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
loss
|
|
|
(600
|
)
|
|
|
(511
|
)
|
|
|
(302
|
)
|
|
|
(110
|
) |
|
|
(164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
3,313
|
|
|
|
2,387
|
|
|
|
2,551
|
|
|
|
1,899
|
|
|
|
1,023
|
|
|
Research
and development
|
|
|
284
|
|
|
|
297
|
|
|
|
166
|
|
|
|
88
|
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
3,597
|
|
|
|
2,684
|
|
|
|
2,717
|
|
|
|
1,987
|
|
|
|
1,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(4,197
|
) |
|
|
(3,195
|
) |
|
|
(3.019
|
) |
|
|
(2,097
|
) |
|
|
(1,441
|
) |
|
Other
(expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
8
|
|
|
|
32
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(7,029
|
) |
|
|
(2,693
|
) |
|
|
(1,593
|
) |
|
|
(228
|
) |
|
|
(80
|
) |
|
Loss
on sale of fixed assets
|
|
|
(9
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on extinguishment of debt
|
|
|
—
|
|
|
|
(10,847
|
) |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Change
in fair value of derivative liabilities
|
|
|
5,577
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before income taxes
|
|
|
(5,650
|
) |
|
|
(16,703
|
) |
|
|
(4,562
|
) |
|
|
(2,325
|
) |
|
|
(1,521
|
) |
|
Income
taxes
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,652
|
) |
|
$
|
(16,705
|
) |
|
$
|
(4,564
|
) |
|
$
|
(2,327
|
)
|
|
$ |
(1,522
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share, basic and diluted
|
|
$
|
(1.13
|
) |
|
$
|
(4.05
|
) |
|
$
|
(1.16
|
) |
|
$
|
(0.75
|
) |
|
$
|
(0.51
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used in computing net loss per common share, basic and
diluted
|
|
|
5,011
|
|
|
|
4,124
|
|
|
|
3,943
|
|
|
|
3,094
|
|
|
|
2,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of March 31,
(in
thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2010
|
|
|
2009
|
|
|
2008 |
|
|
2007
|
|
|
2006
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents
|
|
$
|
3,630
|
|
|
$
|
250
|
|
|
$
|
2,231
|
|
|
$
|
264
|
|
|
$
|
5
|
|
|
Working
capital (deficit)
|
|
|
1,995
|
|
|
|
(3,693
|
)
|
|
|
981
|
|
|
|
(478
|
)
|
|
|
(538
|
)
|
|
Total
assets
|
|
|
4,777
|
|
|
|
1,573
|
|
|
|
3,461
|
|
|
|
484
|
|
|
|
294
|
|
|
Convertible
notes, net
|
|
|
2,502
|
|
|
|
3,883
|
|
|
|
902
|
|
|
|
96
|
|
|
|
—
|
|
|
Other
long-term obligations
|
|
|
1,478
|
|
|
|
1,601
|
|
|
|
1,711
|
|
|
|
1,857
|
|
|
|
1,679
|
|
|
Accumulated
deficit
|
|
|
(45,944
|
) |
|
|
(30,634
|
) |
|
|
(13,929
|
) |
|
|
(9,365
|
) |
|
|
(7,039
|
) |
|
Total
stockholders’ deficit
|
|
|
(915
|
) |
|
|
(4,776
|
) |
|
|
—
|
|
|
|
(2,288
|
)
|
|
|
(2,150
|
)
|
|
ITEM
7.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
|
This
Annual Report on Form 10-K 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. Discussions containing forward-looking statements
may be found in the material set forth under “Business,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and in
other sections of this Form 10-K. Words such as “may,” “will,” “should,”
“could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,”
“potential,” “continue” or similar words 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 Annual
Report on Form 10-K, 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 Annual Report on Form 10-K. We
expressly disclaim any intent or obligation to update any forward-looking
statements after the date hereof to conform such statements to actual results or
to changes in our opinions or expectations. Readers are urged to carefully
review and consider the various disclosures made by us, which attempt to advise
interested parties of the risks, uncertainties, and other factors that affect
our business, set forth in detail in Item 1A of Part I, under the heading
“Risk Factors.”
The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes to those statements
contained elsewhere in this Annual Report on Form 10-K.
Overview
We are a
provider of an innovative cold chain frozen shipping system dedicated to
providing superior, affordable cryogenic shipping solutions that ensure the
safety, status and temperature, of high value, temperature sensitive
materials. We have developed cost effective reusable cryogenic
transport containers (referred to as "shippers") capable of transporting
biological, environmental and other temperature sensitive materials at
temperatures below 0° Celsius. These dry vapor shippers are one of
the first significant alternatives to dry ice shipping and achieve 10-plus day
holding times compared to one to two day holding times with dry
ice.
Our value
proposition comes from both providing safe transportation and an
environmentally friendly, long lasting shipper, and through our value added
services that offer a simple hassle-free solution for our
customers. These value-added services include an internet-based web
portal that enables the customer to initiate scheduling, shipping and tracking
of the progress and status of a shipment, and provides in-transit temperature
and custody transfer monitoring services of the shipper. The CryoPort
service also provides a fully ready charged shipper containing all freight
bills, customs documents and regulatory paperwork for the entire journey of the
shipper to our customers at their pick up location.
Our
principal focus has been the further development and commercial launch of
CryoPort Express® Portal, an innovative IT solution for shipping and tracking
high-value specimens through overnight shipping companies, and our CryoPort
Express® Shipper, a dry vapor cryogenic shipper for the transport of biological
and pharmaceutical materials. A dry vapor cryogenic shipper is a
container that uses liquid nitrogen in dry vapor form, which is suspended inside
a vacuum insulated bottle as a refrigerant, to provide storage temperatures
below minus 150° Celsius. The dry vapor shipper is designed using
innovative, proprietary, and patented technology which prevents spillage of
liquid nitrogen and pressure build up as the liquid nitrogen
evaporates. A proprietary foam retention system is employed to ensure
that liquid nitrogen stays inside the vacuum container, even when placed
upside-down or on its side, as is often the case when in the custody of a
shipping company. Biological specimens are stored in a specimen
chamber, referred to as a “well,” inside the container and refrigeration is
provided by harmless cold nitrogen gas evolving from the liquid nitrogen
entrapped within the foam retention system surrounding the
well. Biological specimens transported using our cryogenic shipper
can include clinical samples, diagnostics, live cell pharmaceutical products
(such as cancer vaccines, semen and embryos, infectious substances) and other
items that require and/or are protected through continuous exposure to frozen or
cryogenic temperatures (below minus 150° Celsius).
During
our early years, our limited revenue was derived from the sale of our reusable
product line. Our current business plan focuses on per-use
leasing of the shipping container and added-value services that will be used by
us to provide an end-to-end and cost-optimized shipping solution to life science
companies moving pharmaceutical and biological samples in clinical trials and
pharmaceutical distribution.
We have
incurred losses since inception and had an accumulated deficit of
$45,943,809 through March 31, 2010.
Results
of Operations
Years
Ended March 31, 2010 and 2009
Revenues. Net revenues were
$117,956 in fiscal 2010, as compared to $35,124 in fiscal 2009. The low revenues
in these years were primarily due to the Company’s shift initiated in mid-2006
in its sales and marketing focus from the reusable shipper product
line. The Company discontinued sales of the reusable shippers to
allow resources to focus on further development and launch of the CryoPort
Express® System and its introduction into the biopharmaceutical industry sector
during fiscal 2009, which resulted in the increase in sales period over
period. The slow increase in shipper revenues during the two fiscal
years was also the result of delays in the Company securing adequate funding for
the manufacturing and full commercialization of the CryoPort Express®
System.
Gross loss and cost of
revenues. Gross loss for 2010 was 508%, or $599,754 as compared to
1,455%, or $511,028, for fiscal 2009. The decrease in gross loss in fiscal 2010
as compared to fiscal 2009 was primarily the result of the increase in revenues
from per-use leasing of the shipping containers. During both periods,
cost of sales exceeded sales due to fixed manufacturing costs and plant
underutilization.
Cost of
revenues was $717,710 in fiscal 2010, as compared to $546,152 in fiscal 2009.
The increase in costs of revenues sold during each of the two years is primarily
the result of the write off due to the discontinuation of the reusable shippers
and increased focus on the CryoPort Express® System. During both
periods, cost of sales exceeded sales due to fixed manufacturing costs and plant
underutilization.
Research and development
expenses. Research and development expenses were $284,847 in fiscal 2010,
$297,378 in fiscal 2009. and Current period expenses included
consulting costs associated with software development for the web based system
to be used with the CryoPort Express® Shipper, and other research and
development activity related to the CryoPort Express® System, as the Company
strove to develop improvements in both the manufacturing processes and product
materials for the purpose of achieving additional product cost
efficiencies.
Selling, general and administrative
expenses. Selling, general and administrative expenses were $3,312,635 in
fiscal 2010, $2,387,287 in fiscal 2009. The $925,348 increase in fiscal 2010 as
compared to fiscal 2009 was primarily attributable to higher general and
administrative expenses associated with an increase in salaries and wages of
$485,000 and consulting fees of $435,000 associated with the Company’s strategic
partnering activities and debt restructuring.
Stock-based compensation
costs. Total stock-based compensation costs for the years ended
March 31, 2010 and 2009 were $559,561 and $289,497, respectively. During
the year ended March 31, 2010, we granted options to employees and
directors to purchase 190,553 shares of common stock and warrants to
purchase 21,000 shares of common stock at a weighted average exercise price of
$3.53 per share. The exercise prices of options and warrants were
equal to the fair market value of our common stock at the time of
grant.
Interest income. Interest
income was $8,164 in fiscal 2010 and $32,098 in fiscal 2009. The decrease in
interest income in fiscal 2010 was primarily attributable to the overall
reduction in interest rates and lower cash balances.
Interest expense. Interest
expense was $7,028,684 in fiscal 2010, $2,693,383 in fiscal 2009. Interest
expense in fiscal 2010 included amortization of debt discount of $6,417,346 and
amortized financing fees of $159,516, primarily due to the convertible
debentures issued in October 2007, May 2008 and the Private Placement
Debentures. Included in fiscal 2010 and fiscal 2009 is the impact of the change
in accounting principle as required by the Debt with Conversion and Other
Options Topic of the FASB Accounting Standards Codification, which required
retrospective application.
Loss on extinguishment of
debt. The loss on extinguishment of debt of $10,846,573 in fiscal 2009 is
due to the resulting change in valuation of the debt and related
warrants associated with amendments to the October 2007 Debentures entered into
in April 2008, August 2008 and January 2009 and the change in valuation of the
debt and related warrants associated with the January 2009 amendment to the May
2008 Debentures The loss consists of a combined total loss on
extinguishment of debt on the October 2007 Debentures of $9,449,498 and
$1,397,075 on the May 2008 Debenture. There was no loss on extinguishment of
debt during the year ended March 31, 2010.
Gain (loss) on derivative
valuation. Derivative valuation was a gain of $5,576,979 in fiscal 2010.
In fiscal 2010, the gain was due to an adoption of a new accounting
principle, which resulted in a reclassification of the fair value of warrants
and embedded conversion features from equity to derivative liabilities that are
marked to fair value at each reporting period. The impact of the change in
accounting principle and change in market value of the derivative liabilities
during the current period resulted in the recognition of a gain
Income taxes. We incurred net
operating losses for the years ended March 31, 2010 and2009 and consequently did
not pay any federal, state or foreign income taxes. At March 31, 2010, we had
federal and state net operating loss carryforwards of approximately
$27,463,000 and $27,621,000, respectively, which we have fully reserved due
to the uncertainty of realization. Our federal tax loss carryforwards will begin
to expire in fiscal 2019, unless utilized. Our California tax loss carryforwards
will begin to expire in fiscal 2013, unless utilized. We also have federal and
California research tax credit carryforwards of approximately $14,000 and
$13,000, respectively. Our federal research tax credits will begin to expire in
fiscal 2026, unless utilized. Our California research tax credit carryforwards
do not expire and will carryforward indefinitely until utilized.
Liquidity
and Capital Resources
As of
March 31, 2010, the Company had cash and cash equivalents of $3,629,886 and
working capital of $1,994,934. The Company’s working capital at March
31, 2010 included $334,363 of derivative liabilities, the balance of which
represented the fair value of warrants related to the Company’s convertible
debentures and also issued to consultants which were reclassified from equity
during the year ended March 31, 2010. As of March 31, 2009, the
Company had cash and cash equivalents of $249,758 and negative working capital
of $3,693,015. Historically, we have financed our operations
primarily through sales of our debt and equity securities. Since March 2005, we
have received net proceeds of approximately $15.7 million from sales of our
common stock and the issuance of promissory notes, warrants and
debt.
During
fiscal 2010, we used $2,853,359 of cash for operations primarily as a result of
the net loss of 5,651,561 including a non-cash gain of $5,576,979 due to the
change in valuation of our derivative liabilities and non cash expenses of
$6,417,346 due primarily to discount amortization related to our convertible
debt instruments. Offsetting the cash impact of our net operating loss
(excluding non-cash items) was an increase in accrued interest payable of
$335,830 primarily due to our Private Placement Debentures and an increase
in accounts payable of $300,454 due primarily to increased general and
administrative expenses.
During
fiscal 2009, we used $2,586,470 of cash from operations primarily as a result of
the net loss of $16,705,151 offset by loss on extinguishment of debt of
$10,846,573, amortization of debt discount on convertible notes of $2,223,116,
amortization of deferred financing costs related to the convertible notes of
$42,284 non-cash stock-based compensation costs of $948,569, depreciation and
amortization expense of $81,984 and a change in operating assets and liabilities
of $17,618.
Net cash
used in investing activities totaled $138,874 during fiscal 2010, primarily
attributable to the decrease in restricted cash of $10,000, offset by the
purchase of equipment $31,926 and the purchase of intangible
assets of $116,948. Net cash provided by investing
activities totaled $485 during fiscal 2009, primarily attributable to the
decrease in restricted cash of $108,844, offset by the purchase of equipment of
$58,578 and the purchase of intangible assets of $49,781.
Net cash
provided by financing activities totaled $6,372,361 in fiscal 2010, primarily
resulting from the receipt of the proceeds net of cash paid for offering costs
from our public offering of common stock of $4,046,863, the proceeds from the
issuance of our Private Placement Debentures of $1,321,500 and gross
proceeds from exercise of options and warrants of $1,437,100, which were
partially offset by payment of deferred financing costs of $92,520 and payments
on our related party notes payable and notes payable to officer
of $120,000 and $143,950, respectively. Net cash provided
by financing activities totaled $604,712 in fiscal 2009, primarily related to
receipt of the proceeds from our May 2008 Debentures of $1,122,500 and proceeds
from exercise of options and warrants of $3,307, which were partially offset by
payment on the October 2007 Convertible Debentures of $117,720, payment of
deferred financing costs of $191,875, payments on our notes payable of $186,000
and payments on the line of credit of $25,500.
As
discussed in Note 1 of the accompanying consolidated financial statements, there
exists substantial doubt regarding the Company’s ability to continue as a going
concern. The Company will need to raise additional capital through
one or more methods, including but not limited to, issuing additional equity, in
order to fund our working capital needs and complete the commercial launch of
our CryoPort Express® System. On February 25, 2010 we completed a
public offering of units consisting of 1,666,667 shares of common stock and
warrants to purchase 1,666,667 shares of common stock at an exercise price of
$3.30, for gross proceeds of $5,000,001 and net proceeds of approximately
$3,742,097. As a result of these recent financings and the public
offering, the Company had an aggregate cash and cash equivalents balance of
$3,629,886 as of March 31, 2010 which will be used to fund the working capital
required for minimal operations including limited inventory build up as well as
limited sales efforts to advance the Company’s commercialization of the CryoPort
Express® Shippers until additional capital is obtained. Management has estimated that cash on
hand as of March 31, 2010, will be sufficient to allow the Company to continue
its operations only into the second quarter of fiscal
2011. Company’s management recognizes that the Company must
obtain additional capital for the achievement of sustained profitable
operations. Management’s plans include obtaining additional capital
through equity and debt funding sources; however, no assurance can be given that
additional capital, if needed, will be available when required or upon terms
acceptable to the Company.
We have
never been profitable, and we might never become profitable. As of
March 31, 2010, our accumulated deficit was $45,943,809 (including a
non-cash valuation adjustment of $9,657,893, including a net loss of $5,651,561
for the year ended March 31, 2010) and our stockholders’ deficit was
$914,575.
Contractual
Obligations
The
following table summarizes our contractual obligations as of June 15, 2010 (in
thousands):
|
|
|
Payments
due by period
|
|
|
|
|
Total
|
|
|
Less than
1
year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
More than
5
years
|
|
|
Operating
Lease Obligations
|
|
$ |
495 |
|
|
$ |
90 |
|
|
$ |
177 |
|
|
$ |
201 |
|
|
$ |
27 |
|
|
Convertible
Debentures (1)
|
|
|
3,231 |
|
|
|
200 |
|
|
|
3,031 |
|
|
|
— |
|
|
|
— |
|
|
Other
Long-term Debt Obligations (2)
|
|
|
1,010 |
|
|
|
150 |
|
|
|
206 |
|
|
|
192 |
|
|
|
462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$ |
4,736 |
|
|
$ |
440 |
|
|
$ |
3,414 |
|
|
$ |
393 |
|
|
$ |
489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
Company issued convertible debentures in October 2007 (the “October 2007
Debentures”) and in May 2008 (the “May 2008 Debentures,” and together with
the October 2007 Debentures, the “Debentures”). The Debentures were issued
to four institutional investors and have an outstanding principal balance
of $3,230,568 as of March 31, 2010. As collateral to secure our
repayment obligations to the holders of the Debentures we have granted
such holders a first priority security interest in generally all of our
assets, including our intellectual property.
|
|
(2)
|
Represents
unsecured indebtedness owed to five related parties, including four former
members of the board of directors, for capital advances made to the
Company from February 2001 through March 2005. These notes bear interest
at the rate of 6% per annum and provide for aggregate monthly principal
payments which began April 1, 2006 of $2,500, and which increased by an
aggregate of $2,500 every nine months to a maximum of $10,000 per
month. As of March 31, 2010, the aggregate principal payments
totaled $10,000 per month. Any remaining unpaid principal and
accrued interest is due at maturity on various dates through March 1,
2015.
|
Critical Accounting Policies and
Estimates
Management’s
discussion and analysis of financial condition and results of operations, as
well as disclosures included elsewhere in this Annual Report on Form 10-K, are
based upon our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. Our significant
accounting policies are described in the notes to the audited consolidated
financial statements contained elsewhere in this Annual Report on Form 10-K.
Included within these policies are our “critical accounting policies.” Critical
accounting policies are those policies that are most important to the
preparation of our consolidated financial statements and require management’s
most subjective and complex judgment due to the need to make estimates about
matters that are inherently uncertain. Although we believe that our estimates
and assumptions are reasonable, actual results may differ significantly from
these estimates. Changes in estimates and assumptions based upon actual results
may have a material impact on our results of operations and/or financial
condition.
We
believe that the critical accounting policies that most impact the consolidated
financial statements are as described below.
Revenue
Recognition
Per
Use Revenues
We
recognize revenues from product sales when there is persuasive evidence that an
arrangement exists, when title has passed, the price is fixed or determinable,
and we are reasonably assured of collecting the resulting receivable. The
Company records a provision for claims based upon historical experience.
Actual claims in any future period may differ from the Company’s
estimates. During its early years, the Company's limited revenue was
derived from the sale of our reusable product line. The Company's current
business plan focuses on per-use leasing of the shipping container and
value-added services that will be used by us to provide an end-to-end and
cost-optimized shipping solution.
The
Company provides shipping containers to their customers and charges a fee in
exchange for the use of the container. The Company’ arrangements are
similar to the accounting standard for leases since they convey the right to use
the containers over a period of time. The Company retains title to the
containers and provides its customers the use of the container for a specified
shipping cycle. At the culmination of the customer’s shipping cycle, the
container is returned to the Company. As a result of our new business plan,
during the quarter ended September 30, 2009, the Company reclassified the
containers from inventory to fixed assets upon commencement of the
loaned-container program.
Inventory
The
Company writes down its inventories for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand, future
pricing and market conditions. Inventory reserve costs are subject to
estimates made by the Company based on historical experience, inventory
quantities, age of inventory and any known expectations for product
changes. If actual future demands, future pricing or market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required and the differences could be
material. Such differences might significantly impact cash flows from
operating activities. Once established, write-downs are considered
permanent adjustments to the cost basis of the obsolete or unmarketable
inventories.
During
its early years, the Company's limited revenue was derived from the sale of our
reusable product line. The Company's current business plan focuses on per-use
leasing of the shipping container and value-added services that will be used by
us to provide an end-to-end and cost-optimized shipping solution.
The
Company provides shipping containers to its customers and charges a fee in
exchange for the use of the container. The Company’ arrangements are
similar to the accounting standard for leases since they convey the right to use
the containers over a period of time. The Company retains title to the
containers and provides its customers the use of the container for a specified
shipping cycle. At the culmination of the customer’s shipping cycle, the
container is returned to the Company. As a result of our current business
plan, during the quarter ended September 30, 2009, the Company reclassified the
containers from inventory to fixed assets upon commencement of the
loaned-container program.
Fixed
Assets
Fixed
assets are stated at cost, net of accumulated depreciation and amortization.
Depreciation and amortization of fixed assets are provided using the
straight-line method over the following useful lives:
|
|
Furniture
and fixtures
|
7
years
|
|
|
|
Machinery
and equipment
|
5-7
years
|
|
|
|
Leasehold
improvements
|
Lesser
of lease term or estimated useful life
|
|
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 current operations.
Intangible
Assets
Intangible
assets are comprised of patents and trademarks and software development
costs. 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. 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 including the valuation
Impairment
of Long-Lived Assets
The
Company assesses the recoverability of its long-lived assets by determining
whether the depreciation and amortization of long-lived assets over their
remaining lives can be recovered through projected undiscounted cash
flows. The amount of long-lived asset impairment is measured based on
fair value and is charged to operations in the period in which long-lived asset
impairment is determined by management. Manufacturing fixed assets
are subject to obsolescence potential as result of changes in customer demands,
manufacturing process changes and changes in materials used. The
Company is not currently aware of any such changes that would cause impairment
to the value of its manufacturing fixed assets.
Stock-based
Compensation
We
recognize compensation costs for all stock-based awards made to employees and
directors. The fair value of stock-based awards is estimated at grant date using
an option pricing model and the portion that is ultimately expected to vest is
recognized as compensation cost over the requisite service period.
We use
the Black-Scholes option-pricing model to estimate the fair value of stock-based
awards. The determination of fair value using the Black-Scholes option-pricing
model is affected by our 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. We estimate the expected term based on the contractual term
of the awards and employees’ exercise and expected post-vesting termination
behavior.
At
March 31, 2010, there was $471,401 of total unrecognized compensation cost
related to non-vested stock options, which is expected to be recognized over a
remaining weighted average vesting period of approximately 1.69
years.
All
transactions in which goods or services are the consideration received by
non-employees for the issuance of equity instruments are accounted for based on
the fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable. The measurement date
used to determine the fair value of the equity instrument issued is the earlier
of the date on which the third-party performance is complete or the date on
which it is probable that performance will occur.
Derivative
Liabilities
Our
issued and outstanding common stock purchase warrants and embedded conversion
features previously treated as equity pursuant to the derivative treatment
exemption were no longer afforded equity treatment, and the fair value of these
common stock purchase warrants and embedded conversion features, some of which
have exercise price reset features and some that were issued with convertible
debt, from equity to liability status as if these warrants were treated as a
derivative liability since their date of issue. The common stock
purchase warrants were not issued with the intent of effectively hedging any
future cash flow, fair value of any asset, liability or any net investment in a
foreign operation. The warrants do not qualify for hedge accounting, and as
such, all future changes in the fair value of these warrants will be recognized
currently in earnings until such time as the warrants are exercised or expire.
These common stock purchase warrants do not trade in an active securities
market, and as such, we estimate the fair value of these warrants using the
Black-Scholes option pricing model.
Convertible
Debentures
If a
conversion feature of conventional convertible debt is not accounted for as a
derivative instrument and provides for a rate of conversion that is below market
value, this feature is characterized as a beneficial conversion feature
(“BCF”). A BCF is recorded by the Company as a debt
discount. In those circumstances, the convertible debt will be
recorded net of the discount related to the BCF. The Company
amortizes the discount to interest expense over the life of the debt using the
effective interest method.
Deferred
Financing Costs
Deferred
financing costs represent costs incurred in connection with the issuance of the
convertible notes payable. Deferred financing costs are being
amortized over the term of the financing instrument on a straight-line basis,
which approximates the effective interest method.
Income
Taxes
We
account 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 March 31, 2010 and 2009, there were no
unrecognized tax benefits included in the balance sheet that would, if
recognized, affect the effective tax rate. Based on the weight of available
evidence, the Company's Management has determined that it is not more likely
than not that the net deferred tax assets assets will 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.
Our
practice is to recognize interest and/or penalties related to income tax matters
in income tax expense. We had no accrual for interest or penalties on our
consolidated balance sheets at March 31, 2010 and 2009, respectively and
have not recognized interest and/or penalties in the consolidated statement of
operations for the year ended March 31, 2010. We are subject to taxation in
the United States and various state jurisdictions. As of March 31,
2010, the Company is no longer subject to U.S. federal examinations for year
before 2006; and for California franchise and income tax examinations before
2005. 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.
Adoption
of Accounting Principle
Equity-linked
instruments (or embedded features) that otherwise meet the definition of a
derivative are not accounted for as derivatives if certain criteria are met, one
of which is that the instrument (or embedded feature) must be indexed to the
entity’s own stock. Our warrant and convertible debt agreements contain
adjustment (or ratchet) provisions and accordingly, we determined that
these instruments are not indexed to our common stock. As a result,
we are required to account for these instruments as derivative liabilities. We
applied these provisions to outstanding instruments as of April 1, 2009. The
cumulative effect at April 1, 2009 to record, at fair value, a liability
for the warrants and embedded conversion features, including the effects on the
discounts on the convertible notes of $2,595,095, resulted in
an aggregate reduction to equity of $13,875,623 consisting
of a reduction to additional paid-in capital of $4,217,730 and an increase
in the accumulated deficit of $9,657,893 to reflect the change in the
accounting. The warrants and embedded conversion features are carried
at fair value and adjusted quarterly through earnings.
The
following table summarizes the effect of the adoption of accounting principle on
the consolidated balance sheet as of April 1, 2009:
|
|
|
As
Previously
Reported
|
|
|
As
Adjusted
|
|
|
Cumulative
Adjustment
|
|
Liabilities
and Stockholders’ Deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
New
Accounting Pronouncements
In August
2010, the FASB issued Accounting Standards Update No. 2010-05, Measuring
Liabilities at Fair Value, or ASU 2010-05, which amends ASC 820 to provide
clarification of a circumstance in which a quoted price in an active market for
an identical liability is not available. A reporting entity is required to
measure fair value using one or more of the following methods: 1) a valuation
technique that uses a) the quoted price of the identical liability when traded
as an asset or b) quoted prices for similar liabilities (or similar liabilities
when traded as assets) and/or 2) a valuation technique that is consistent with
the principles of ASC 820. ASU 2010-05 also clarifies that when estimating the
fair value of a liability, a reporting entity is not required to adjust to
include inputs relating to the existence of transfer restrictions on that
liability. The adoption did not have a material impact on our consolidated
financial statements.
|
ITEM
7A.
|
QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Changes in United States interest rates
would affect the interest earned on our cash and cash equivalents and
interest expense on our revolving credit facility.
Based on our overall cash and cash
equivalents interest rate
exposure at March 31,
2010, a near-term change
in interest rates, based on historical movements, would not have a
material adverse effect on our financial position or results of
operations.
All outstanding amounts under our
Revolving Credit Facility bear interest at a variable rate equal to the lender’s
prime rate plus a margin of 1.50% or 5.0%, whichever is
higher. Interest is payable on a monthly basis and may expose us to
market risk due to changes in interest rates. As of March 31, 2010, we had
$90,388 outstanding
under our Revolving Credit Facility. The interest rate at March 31, 2010
was 5.00%. A 10% change in interest rates on our Revolving Credit
Facility would not have had a material effect on our net loss for the year ended
March 31, 2010.
We have operated primarily in the
United States. Accordingly, we have not had any significant exposure to foreign
currency rate fluctuations.
|
ITEM
8.
|
FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
|
Reference
is made to the consolidated financial statements included in this Report at
pages F-1 through F-31.
|
ITEM
9.
|
CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
|
None.
|
ITEM
9A(T).
|
CONTROLS AND
PROCEDURES
|
(a) Evaluation of Disclosure
Controls and Procedures. The term “disclosure controls and
procedures” (defined in Rule 13a-15(e) under the Securities and Exchange
Act of 1934 (the “Exchange Act”) refers to the controls and other procedures of
a company that are designed to ensure that information required to be disclosed
by a company in the reports that it files under the Exchange Act is recorded,
processed, summarized and reported within the required time periods. Under the
supervision and with the participation of our management, including our chief
executive officer and chief financial officer, we have conducted an evaluation
of the effectiveness of the design and operation of our disclosure controls and
procedures, as of March 31, 2010. Based on this evaluation, our
president and chief executive officer and our chief financial officer concluded
that our disclosure controls and procedures were effective as of March 31, 2010
to ensure the timely disclosure of required information in our Securities and
Exchange Commission filings.
Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. In addition, the design of any
system of control is based upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all future events, no matter how
remote. Accordingly, even effective internal control over financial
reporting can only provide reasonable assurance of achieving their control
objectives.
(b) Management’s Report
on Internal Control Over Financial Reporting. Management’s
Report on Internal Control Over Financial Reporting which appears on the
following page, is incorporated herein by this reference.
(c) Changes in Internal Control over
Financial Reporting. There have been no changes in our
internal control over financial reporting during the fourth quarter of the
fiscal year ended March 31, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
|
ITEM
9B.
|
OTHER
INFORMATION
|
None.
CRYOPORT,
INC.
MANAGEMENT’S REPORT
ON
INTERNAL
CONTROL OVER FINANCIAL REPORTING
The
management of the Company is responsible for establishing and maintaining
effective internal control over financial reporting and for the assessment of
the effectiveness of internal control over financial reporting. The
Company’s internal control over financial reporting is a process designed, as
defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of consolidated financial statements for external purposes
in accordance with generally accepted accounting principles.
The
Company’s internal control over financial reporting is supported by written
policies and procedures that:
|
|
·
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the Company’s
assets;
|
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of consolidated financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of the Company’s management and directors;
and
|
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the consolidated financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
connection with the preparation of the Company’s annual consolidated financial
statements, management of the Company has undertaken an assessment of the
effectiveness of the Company’s internal control over financial reporting based
on criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“the COSO
Framework”). Management’s assessment included an evaluation of the
design of the Company’s internal control over financial reporting and testing of
the operational effectiveness of the Company’s internal control over financial
reporting.
Based on
this assessment, management has concluded that the Company’s internal control
over financial reporting was effective as of March 31, 2010.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation b the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report
in this Annual Report.
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/Larry G.
Stambaugh
|
|
By:
|
|
/s/
Catherine
M. Doll
|
|
|
|
|
|
Larry
G. Stambaugh,
|
|
|
|
Catherine M.
Doll
|
|
|
|
|
|
President
& Chief Executive Officer, and Director
|
|
|
|
Chief
Financial Officer
|
|
|
June 21,
2010
PART
III
|
ITEM
10.
|
DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE
GOVERNANCE
|
The information required by this Item
regarding our directors, executive officers and committees of our board of
directors is incorporated by reference to the information set forth under the
captions “Election of Directors” and “Executive Compensation and Related
Matters” in our 2010 Definitive Proxy Statement to be filed within 120 days
after the end of our fiscal year ended March 31, 2010 (the “2010 Definitive
Proxy Statement”).
Information
required by this Item regarding Section 16(a) reporting compliance is
incorporated by reference to the information set forth under the caption
“Section 16(a) Beneficial Ownership Reporting Compliance” in our 2009 Proxy
Statement.
Information
required by this Item regarding our code of ethics is incorporated by reference
to the information set forth under the caption “Corporate Governance” in Part I
of this Annual Report on Form 10-K.
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
The information required by this Item
is incorporated by reference to the information set forth under the caption
“Executive Compensation and Related Matters” in our 2010 Definitive Proxy
Statement to be filed within 120 days after the end of our fiscal year
ended March 31, 2010.
|
ITEM
12.
|
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
|
The
information required by this Item is incorporated by reference to the
information set forth under the caption “Security Ownership of Directors and
Executive Officers and Certain Beneficial Owners” in our 2010 Definitive Proxy
Statement to be filed within 120 days after the end of our fiscal year
ended March 31, 2010.
|
ITEM
13.
|
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The
information required by this Item is incorporated by reference to the
information set forth under the captions “Certain Relationships and Related
Transactions” and “Compensation Committee Interlocks and Insider Participation”
in our 2010 Definitive Proxy Statement to be filed within 120 days after
the end of our fiscal year ended March 31, 2010.
|
ITEM
14.
|
PRINCIPAL ACCOUNTING
FEES AND SERVICES
|
The
information required by this Item is incorporated by reference to the
information set forth under the caption “Independent Registered Public
Accounting Firm Fees” in our 2010 Definitive Proxy Statement to be filed within
120 days after the end of our fiscal year ended March 31,
2010.
PART IV
ITEM 15: Exhibits and Financial Statement
Schedules.
| |
(1)
|
Index to Consolidated Financial Statements
The financial statements required by this item are submitted
in a separate section beginning on page F-1 of this
report.
|
|
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets at March 31, 2010 and 2009
|
F-3
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations the years ended March 31, 2010 and
2009
|
F-4
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Stockholders’ Deficit for each years ended March 31,
2010 and 2009
|
F-5
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended March 31, 2010 and
2009
|
F-6
|
|
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
F-8
|
|
|
|
|
|
|
|
2.
|
Financial
Statement Schedules
|
|
|
|
|
All
financial statement schedules are omitted because they were not required
or the required information is included in the Consolidated Financial
Statements and the related Notes thereto.
|
|
|
|
|
|
|
|
3.
|
Exhibit
Index
|
|
|
|
|
See
Exhibit Index
|
|
CRYOPORT,
INC.
INDEX
TO CONSO
LIDATED FINANCIAL
STATEMENTS
|
|
|
|
|
Page
|
|
Report of Independent Registered Public Accounting
Firm
|
F-2
|
|
Consolidated Balance Sheets as of March 31,
2010 and 2009
|
F-3
|
|
Consolidated Statements of Operations for the
years ended March 31, 2010 and 2009
|
F-4
|
|
Consolidated Statements of
Stockholders’ Deficit for the years ended March 31, 2010 and
2009
|
F-5
|
|
Consolidated Statements of Cash Flows for the
years ended March 31, 2010 and 2009
|
F-6
|
|
Notes to Consolidated Financial
Statements
|
F-8
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the
Board of Directors of
CryoPort,
Inc.
We have
audited the accompanying consolidated balance sheets of CryoPort, Inc. (the
“Company”) as of March 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of CryoPort, Inc. at March 31,
2010 and 2009, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
As
discussed in Note 1 to the consolidated financial statements, management adopted
a new accounting policy for derivative instruments in fiscal 2010.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has incurred recurring losses
and negative cash flows from operations since inception. Although the
Company has working capital of $1,994,934 and cash and cash equivalents balance
of $3,629,886 at March 31, 2010, management has estimated that cash on hand,
which include proceeds from the offering received in the fourth quarter of
fiscal 2010, will only be sufficient to allow the Company to continue its
operations only into the second quarter of fiscal 2011. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
/s/ KMJ
Corbin & Company LLP
Costa
Mesa, California
June 21,
2010
CRYOPORT,
INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
March 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
3,629,886 |
|
|
$ |
249,758 |
|
|
Restricted
cash
|
|
|
90,404 |
|
|
|
101,053 |
|
|
Accounts
receivable, net of allowances of $1,500 in 2010 and $600 in
2009
|
|
|
81,036 |
|
|
|
2,546 |
|
|
Inventory
|
|
|
— |
|
|
|
530,241 |
|
|
Other
current assets
|
|
|
104,014 |
|
|
|
170,399 |
|
|
Total
current assets
|
|
|
3,905,340 |
|
|
|
1,053,997 |
|
|
Property
and equipment, net
|
|
|
559,241 |
|
|
|
189,301 |
|
|
Intangible
assets, net
|
|
|
311,965 |
|
|
|
264,364 |
|
|
Deferred
financing costs
|
|
|
— |
|
|
|
3,600 |
|
|
Deposits
and other assets
|
|
|
— |
|
|
|
61,294 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
4,776,546 |
|
|
$ |
1,572,556 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
823,653 |
|
|
$ |
218,433 |
|
|
Accrued
compensation and related expenses
|
|
|
312,002 |
|
|
|
206,180 |
|
|
Accrued
warranty costs
|
|
|
— |
|
|
|
18,743 |
|
|
Convertible
notes payable, net of discount of $13,586 in
2009
|
|
|
— |
|
|
|
46,414 |
|
|
Current
portion of convertible debentures payable and accrued interest,
net of discount of
$0
in 2010 and $662,583 in 2009
|
|
|
200,000 |
|
|
|
3,836,385 |
|
|
Line
of credit and accrued interest
|
|
|
90,388 |
|
|
|
90,310 |
|
|
Current
portion of related party notes payable
|
|
|
150,000 |
|
|
|
150,000 |
|
|
Current
portion of note payable to former officer
|
|
|
— |
|
|
|
90,000 |
|
|
Derivative
liabilities
|
|
|
334
,363 |
|
|
|
— |
|
|
Other
accrued expenses
|
|
|
— |
|
|
|
90,547 |
|
|
Total
current liabilities
|
|
|
1,910,406 |
|
|
|
4,747,012 |
|
|
Related
party notes payable and accrued interest, net of current
portion
|
|
|
1,478,256 |
|
|
|
1,533,760 |
|
|
Note
payable to former officer and accrued interest, net of current
portion
|
|
|
— |
|
|
|
67,688 |
|
|
Convertible
debentures payable, net of current portion and discount
of $728,109 in 2010 and $2,227,205 in 2009,
respectively
|
|
|
2,302,459 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
6 |
|
|
Total
liabilities
|
|
|
5,691,121 |
|
|
|
6,348,460 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders’
deficit:
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value; 250,000,000 shares authorized; 8,136,619 and
4,186,194 shares issued and outstanding at March 31, 2010 and 2009,
respectively.
|
|
|
8,137 |
|
|
|
4,186 |
|
|
Additional
paid-in capital
|
|
|
45,021,097 |
|
|
|
25,854,265 |
|
|
Accumulated
deficit
|
|
|
(45,943,809
|
) |
|
|
(30,634,355
|
) |
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ deficit
|
|
|
(914,575
|
) |
|
|
(4,775,904
|
) |
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit
|
|
$ |
4,776,546 |
|
|
$ |
1,572,556 |
|
See
accompanying notes.
CRYOPORT,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
| |
|
Years
Ended March 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Revenues
|
|
$
|
117,956
|
|
|
$
|
35,124
|
|
|
Cost
of revenues
|
|
|
717,710
|
|
|
|
546,152
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
loss
|
|
|
(599,754)
|
|
|
|
(511,028)
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
3,312,635
|
|
|
|
2,387,287
|
|
|
Research
and development
|
|
|
284,847
|
|
|
|
297,378
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses
|
|
|
3,597,482
|
|
|
|
2,684,665
|
|
|
Loss
from operations
|
|
|
(4,197,
236)
|
|
|
|
(3,195,693)
|
|
|
Other
(expense) income:
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
8,164
|
|
|
|
32,098
|
|
|
Interest
expense
|
|
|
(7,028,684)
|
|
|
|
(2,693,383)
|
|
|
Loss
on sale of property and equipment
|
|
|
(9,184)
|
|
|
|
—
|
|
|
Loss
on extinguishment of debt
|
|
|
—
|
|
|
|
(10,846,573)
|
|
|
Change
in fair value of derivative liabilities
|
|
|
5,576,979
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other expense, net
|
|
|
(1,452,725)
|
|
|
|
(13,507,858)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(5,649,
961)
|
|
|
|
(16,703,551)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
1,600
|
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,651,561)
|
|
|
$
|
(16,705,151)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share, basic and diluted
|
|
$
|
(1.13)
|
|
|
$
|
(4.05)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average common shares outstanding
|
|
|
5,011,057
|
|
|
|
4,123,819
|
|
See
accompanying notes.
CRYOPORT,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2008
|
|
|
40,928,225 |
|
|
|
40,929 |
|
|
|
13,888,094 |
|
|
|
(13,929,204
|
) |
|
|
(181 |
) |
|
Adjust
beginning balance for reverse stock split effected in February
2010
|
|
|
(36,835,402 |
) |
|
|
(36,836 |
) |
|
|
36,836 |
|
|
|
— |
|
|
|
— |
|
|
Issuance
of common stock for conversion of convertible debentures including accrued
interest
|
|
|
3,890 |
|
|
|
4 |
|
|
|
5,442 |
|
|
|
— |
|
|
|
5,446 |
|
|
Cancellation
of common stock issued for debt principal reduction
|
|
|
(14,014 |
) |
|
|
(14 |
) |
|
|
(117,
706 |
) |
|
|
— |
|
|
|
(117,720 |
) |
|
Issuance
of common stock for extinguishment of debt
|
|
|
40,000 |
|
|
|
40 |
|
|
|
163,960 |
|
|
|
— |
|
|
|
164,000 |
|
|
Change
in fair value of warrants issued in connection with debt
modifications
|
|
|
— |
|
|
|
— |
|
|
|
9,824,686 |
|
|
|
— |
|
|
|
9,824,686 |
|
|
Issuance
of common stock to consultants
|
|
|
40,224 |
|
|
|
40 |
|
|
|
249,062 |
|
|
|
— |
|
|
|
249,102 |
|
|
Exercise
of stock options and warrants for cash
|
|
|
8,269 |
|
|
|
8 |
|
|
|
3,299 |
|
|
|
— |
|
|
|
3,307 |
|
|
Cashless
exercise of warrants
|
|
|
15,002 |
|
|
|
15 |
|
|
|
(15 |
) |
|
|
— |
|
|
|
— |
|
|
Debt
discount related to convertible debentures
|
|
|
— |
|
|
|
— |
|
|
|
991,884 |
|
|
|
— |
|
|
|
991,884 |
|
|
Share-based
compensation related to stock options and warrants issued to consultants,
employees and directors
|
|
|
— |
|
|
|
— |
|
|
|
808,723 |
|
|
|
— |
|
|
|
808,723 |
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16,705,151 |
) |
|
|
(16,705,151 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2009
|
|
|
4,186,194 |
|
|
|
4,186 |
|
|
|
25,854,265 |
|
|
|
(30,634,355 |
) |
|
|
(4,775,904 |
) |
|
Cumulative
effect related to adoption of new accounting principle
|
|
|
— |
|
|
|
— |
|
|
|
(4,217,730 |
) |
|
|
(9,657,893 |
) |
|
|
(13,875,623 |
) |
|
Issuance
of common stock for conversion of convertible notes payable including
accrued interest
|
|
|
519,186 |
|
|
|
519 |
|
|
|
1,459,682 |
|
|
|
— |
|
|
|
1,460,201 |
|
|
Issuance
of common stock for conversion of convertible debentures and accrued
interest
|
|
|
1,236,316 |
|
|
|
1,237 |
|
|
|
4,267,446 |
|
|
|
— |
|
|
|
4,268,683 |
|
|
Reclassification
of derivative liability to additional paid-in capital upon conversion of
convertible notes and debentures
|
|
|
— |
|
|
|
— |
|
|
|
2,728,459 |
|
|
|
— |
|
|
|
2,728,459 |
|
|
Reclassification
of derivative liability to additional paid-in capital upon effectively
fixing conversion feature and warrant price
|
|
|
— |
|
|
|
— |
|
|
|
9,009,329 |
|
|
|
— |
|
|
|
9,009,329 |
|
|
Estimated
fair value of warrants issued as commission for debt
financing
|
|
|
— |
|
|
|
— |
|
|
|
63,396 |
|
|
|
— |
|
|
|
63,396 |
|
|
Issuance
of common stock for services
|
|
|
33,490 |
|
|
|
33 |
|
|
|
166,061 |
|
|
|
— |
|
|
|
166,094 |
|
|
Exercise
of warrants for cash, net
|
|
|
479,033 |
|
|
|
479 |
|
|
|
1,359,989 |
|
|
|
— |
|
|
|
1,360,468 |
|
|
Cashless
exercise of warrants and stock options
|
|
|
15,753 |
|
|
|
16 |
|
|
|
(16 |
) |
|
|
— |
|
|
|
— |
|
|
Issuance
of units in public offering, net of offering costs of
$1,257,904
|
|
|
1,666,667 |
|
|
|
1,667 |
|
|
|
3,740,430 |
|
|
|
— |
|
|
|
3,742,097 |
|
|
Share-based
compensation related to stock options and warrants issued to consultants,
employees and directors
|
|
|
— |
|
|
|
— |
|
|
|
589,786 |
|
|
|
— |
|
|
|
589,786 |
|
|
Fractional
share adjustment for stock split
|
|
|
(20 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,651,561 |
) |
|
|
(5,651,561 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2010
|
|
|
8,136,619 |
|
|
$ |
8,137 |
|
|
$ |
45,021,097 |
|
|
$ |
(45,943,809 |
) |
|
$ |
(914,575 |
) |
See
accompanying notes.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
| |
|
Years
Ended March 31, 2010
|
|
|
|
|
2010
|
|
|
2009
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(5,651,561 |
) |
|
$ |
(16,705,151 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
150,093 |
|
|
|
81,984
|
|
|
Amortization
of deferred financing costs
|
|
|
159,516 |
|
|
|
42,284 |
|
|
Amortization
of debt discount
|
|
|
6,417,346 |
|
|
|
2,223,116 |
|
|
Stock
issued to consultants
|
|
|
166,094 |
|
|
|
249,102 |
|
|
Fair
value of stock options and warrants issued to consultants, employees and
directors
|
|
|
865,895 |
|
|
|
699,467 |
|
|
Change
in fair value of derivative instruments
|
|
|
(5,576,979 |
) |
|
|
— |
|
|
Loss
on extinguishment of debt
|
|
|
— |
|
|
|
10,846,573 |
|
|
Loss
on sale of assets
|
|
|
9,184 |
|
|
—
|
|
|
Loss
on disposal of Cryogenic shippers
|
|
|
21,285 |
|
|
—
|
|
|
Interest
accrued on restricted cash
|
|
|
649 |
|
|
|
(6,227 |
) |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(78,490 |
) |
|
|
18,865 |
|
|
Inventory
|
|
|
81,012 |
|
|
|
(408,289 |
) |
|
Prepaid
expenses and other assets
|
|
|
(50,219 |
) |
|
|
7,329 |
|
|
Accounts
payable
|
|
|
300,454 |
|
|
|
(15,865 |
) |
|
Accrued
expenses
|
|
|
(90,547 |
) |
|
|
(8,101 |
) |
|
Accrued
warranty costs
|
|
|
(18,743 |
) |
|
|
(11,250 |
) |
|
Accrued compensation
and related expense
|
|
|
105,822 |
|
|
|
68,077 |
|
|
Accrued
interest
|
|
|
335,830 |
|
|
|
331,616 |
|
|
Net
cash used in operating activities
|
|
|
(2,853,359 |
) |
|
|
(2,586,470 |
) |
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Decrease
in restricted cash
|
|
|
10,000 |
|
|
|
108,844 |
|
|
Purchases
of intangibles
|
|
|
(116,948 |
) |
|
|
(49,781 |
) |
|
Purchases
of property and equipment
|
|
|
(31,926 |
) |
|
|
(58,578 |
) |
|
Net
cash (used in) provided by investing activities
|
|
|
(138,874 |
) |
|
|
485 |
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock, net of cash paid for issuance
costs
|
|
|
4,046,863 |
|
|
—
|
|
|
Proceeds
from borrowings under convertible notes
|
|
|
1,321,500 |
|
|
|
1,122,500 |
|
|
Repayment
of convertible debt
|
|
|
— |
|
|
|
(117,720 |
) |
|
Repayment
of line of credit
|
|
|
— |
|
|
|
(25,500 |
) |
|
Repayment
of deferred financing costs
|
|
|
(92,520 |
) |
|
|
(191,875 |
) |
|
Repayment
of notes payable
|
|
—
|
|
|
|
(12,000 |
) |
|
Payment
of related party notes payable
|
|
|
(120,000 |
) |
|
|
(120,000 |
) |
|
Repayments
of note payable to officer
|
|
|
(143,950 |
) |
|
|
(54,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
Payment
of fees associated with the exercise of warrants
|
|
|
(76,632 |
) |
|
|
— |
|
|
Proceeds
from exercise of options and warrants
|
|
|
1,437,100 |
|
|
|
3,307 |
|
|
Net
cash provided by financing activities
|
|
|
6,372,361 |
|
|
|
604,712 |
|
|
Net
change in cash and cash equivalents
|
|
|
3,380,128 |
|
|
|
(1,981,273 |
) |
|
Cash and
cash equivalents, beginning of year
|
|
|
249,758 |
|
|
|
2,231,031 |
|
|
Cash
and cash equivalents, end of year
|
|
$ |
3,629,886 |
|
|
$ |
249,758 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
Interest
|
|
|
13,875 |
|
|
|
95,360 |
|
|
Income
taxes
|
|
|
1,600 |
|
|
|
800 |
|
CRYOPORT, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Offering
costs in connection with equity financing
|
|
$ |
304,766 |
|
|
$ |
— |
|
|
Deferred
financing costs in connection with convertible debt financing and debt
modifications
|
|
$ |
— |
|
|
$ |
3,600 |
|
|
Warrants
issued as deferred financing costs in connection with convertible debt
financing
|
|
$ |
— |
|
|
$ |
117,530 |
|
|
Purchase
of intangible assets with warrants
|
|
$ |
— |
|
|
$ |
232,964 |
|
|
Debt
discount in connection with convertible debt
financing
|
|
$ |
1,080,201 |
|
|
$ |
1,263,586 |
|
|
Conversion
of debt and accrued interest to common stock
|
|
$ |
5,728,884 |
|
|
$ |
5,446 |
|
|
Reclassification
of embedded conversion feature to equity upon conversion
|
|
$ |
2,728,459 |
|
|
$ |
— |
|
|
Cashless
exercise of warrants and stock options
|
|
$ |
16 |
|
|
$ |
150 |
|
|
Cancellation
of shares issued for debt principal reduction
|
|
$ |
— |
|
|
$ |
117,720 |
|
|
Change
in fair value of warrants issued in connection of debt
modification
|
|
$ |
— |
|
|
$ |
9,824,686 |
|
|
Cumulative
effect of accounting change to debt discount for derivative
liabilities
|
|
$ |
2,595,095 |
|
|
$ |
— |
|
|
Cumulative
effect of accounting change to accumulated deficit for derivative
liabilities
|
|
$ |
9,657,893 |
|
|
$ |
— |
|
|
Cumulative
effect of accounting change to additional paid-in capital for derivative
liabilities
|
|
$ |
4,217,730 |
|
|
$ |
— |
|
|
Reclassification
of inventory to property and equipment
|
|
$ |
449,229 |
|
|
$ |
— |
|
|
Fair
value of shares issued in connection with debt
modifications
|
|
$ |
— |
|
|
$ |
164,000 |
|
|
Addition
of principal due to debt modifications
|
|
$ |
646,369 |
|
|
$ |
1,012,232 |
|
|
Reclassification
of derivative liabilities to additional paid in capital upon effectively
fixing conversion feature and warrant price
|
|
$ |
9,009,329 |
|
|
$ |
— |
|
See
accompanying notes.
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1. Organization and Summary of Significant Accounting
Policies
The
Company
CryoPort,
Inc. (the “Company” or “we”) is a provider of an innovative cold chain frozen
shipping system dedicated to providing superior, affordable cryogenic shipping
solutions that ensure the safety, status and temperature of high value,
temperature sensitive materials. The Company has developed
cost-effective reusable cryogenic transport containers (referred to as a
“shipper”) capable of transporting biological, environmental and other
temperature sensitive materials at temperatures below 0°
Celsius. These dry vapor shippers are one of the first significant
alternatives to using dry ice and achieve 10-plus day holding times compared to
one to two day holding times with dry ice (assuming no re-icing during
transit). The Company’s value proposition comes from both providing safe
transportation and an environmentally friendly, long lasting shipper, and
through its value-added services that offer a simple hassle-free solution for
its customers. These value-added services include an internet-based
web portal that enables the customer to initiate scheduling, shipping and
tracking the progress and status of a shipment, and provide
in-transit temperature and custody transfer monitoring of the
shipper. The CryoPort service also provides a fully ready charged
shipper containing all freight bills, customs documents and regulatory paperwork
for the entire journey of the shipper to its customers at their pick up
location.
The
Company's principal focus has been the further development and commercial launch
of CryoPort Express® Portal, an innovative IT solution for shipping and tracking
high-value specimens through overnight shipping companies, and its CryoPort
Express® Shipper, a dry vapor cryogenic shipper for the transport of
biological and pharmaceutical materials. A dry vapor cryogenic
shipper is a container that uses liquid nitrogen in dry vapor form, which is
suspended inside a vacuum insulated bottle as a refrigerant, to provide storage
temperatures below minus 150° Celsius. The dry vapor shipper is designed using
innovative, proprietary, and patent pending technology which prevents spillage
of liquid nitrogen and pressure build up as the liquid nitrogen
evaporates. A proprietary foam retention system is employed to ensure
that liquid nitrogen stays inside the vacuum container, even when placed
upside-down or on its side as is often the case when in the custody of a
shipping company. Biological specimens are stored in a specimen
chamber, referred to as a “well,” inside the container and refrigeration is
provided by harmless cold nitrogen gas evolving from the liquid nitrogen
entrapped within the foam retention system surrounding the
well. Biological specimens transported using our cryogenic shipper
can include clinical samples, diagnostics, live cell pharmaceutical products
(such as cancer vaccines, semen and embryos, and infectious substances) and
other items that require and/or are protected through continuous exposure to
frozen or cryogenic temperatures (less than minus 150 ° Celsius).
The Company recently entered into its
first strategic relationship with a global courier on January 13, 2010 when
it signed an agreement with Federal Express Corporation (“FedEx”) pursuant to
which the Company will lease to FedEx such number of its cryogenic shippers that
FedEx shall, from time to time, order for FedEx’s customers. Under this
agreement, FedEx has the right to and shall, on a non-exclusive basis, promote,
market and sell transportation of the Company’s shippers and its related
value-added goods and services, such as its data logger, web portal and planned
CryoPort Express® Smart Pak System.
Going
Concern
As
reported in the Report of Independent Registered Public Accounting Firm on the
Company’s March 31, 2010 and 2009 consolidated financial statements, the Company
has incurred recurring losses and negative cash flows from operations since
inception. The Company has not generated significant revenues from
operations and has no assurance of any future significant
revenues. The Company generated revenues of only $117,956, incurred a
net loss of $5,651,561 and used cash of $2,853,359 in its operating activities
during the year ended March 31, 2010. These factors raise
substantial doubt about the Company’s ability to continue as a going
concern.
During
the period from March 30, 2009 through March 31, 2010, the Company raised gross
proceeds of $1,381,500 under the Private Placement Debentures (see Note 8)
and gross proceeds of $1,437,100 (see Note 10) from the exercise of options
and warrants. On February 25, 2010 the Company completed a public offering of
units consisting of 1,666,667 shares of common stock and 1,666,667 warrants to
purchase one share of common stock at an exercise price of $3.30, for gross
proceeds of $5,000,001 and net proceeds of $3,742,097. Each unit consisting of
one share, together with one warrant to purchase one share, was priced at $3.00.
As a result of these recent financings and the public offering, the Company had
an aggregate cash and cash equivalents and of $3,629,886 as of March 31, 2010
which will be used to fund the working capital required for minimal operations
including limited shipper build up as well as limited sales efforts to advance
the Company’s commercialization of the CryoPort Express® Shippers until
additional capital is obtained. Management has estimated that cash on
hand as of March 31, 2010, will be sufficient to allow the Company to continue
its operations only into the second quarter of fiscal 2011. The
Company’s management recognizes that the Company must obtain additional capital
for the achievement of sustained profitable operations. Management’s
plans include obtaining additional capital through equity and debt funding
sources; however, no assurance can be given that additional capital, if needed,
will be available when required or upon terms acceptable to the
Company.
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
(“GAAP”)
Reverse
Stock Split
On February
5, 1010, we effected a 10-for-1 reverse stock split of all of our issued and
outstanding shares of common stock (the "Reverse Stock Split") by filing a
Certificate of Amendment to Amended and Restated Articles of Incorporation
with the Secretary of State of Nevada. The par value and number of
authorized shares of our common stock remained unchanged. The number of shares
and per share amounts included in the consolidated financial statements and the
accompanying notes have been adjusted to reflect the Reverse Stock Split
retroactively. Unless otherwise indicated, all references to number of shares,
per share amounts and earnings per share information contained in this report
give effect to the Reverse Stock Split.
Principles
of Consolidation
The
consolidated financial statements include the accounts of CryoPort, Inc. and its
wholly owned subsidiary, CryoPort Systems, Inc. All intercompany accounts and
transactions have been eliminated.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with 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 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 allowances
for doubtful accounts and sales returns, recoverability of long-lived assets,
accrued warranty costs, deferred tax assets and their accompanying valuations,
product liability reserves, valuation of derivative liabilities
and valuation of common stock, warrants and stock options issued for
products or services.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist of cash and cash equivalents, restricted
cash, accounts receivable, related-party notes payable, note payable to officer,
a line of credit, convertible notes payable, accounts payable and accrued
expenses. The carrying value for all such instruments approximates
fair value at March 31, 2010 and 2009. The difference between the fair value and
recorded values of the related party notes payable is not
significant.
Cash
and Cash Equivalents
The
Company considers highly liquid investments with original maturities of 90 days
or less to be cash equivalents.
Concentration
of Credit Risk
Cash
and cash equivalents
The
Company maintains its cash accounts in financial
institutions. Accounts at these institutions are insured by the
Federal Deposit Insurance Corporation (“FDIC”). Effective October 3,
2008, the Emergency Economic Stabilization Act of 2008 raised the FDIC deposit
coverage limits to $250,000 per owner from $100,000 per owner through January 1,
2014. At March 31, 2010 and 2009, the Company had $3,490,116 and $121,042
which exceeded the FDIC insurance limit, respectively, of cash balances,
including restricted cash. The Company performs ongoing evaluations of these
institutions to limit its concentration risk exposure.
Restricted
cash
The
Company has invested cash in a one year restricted certificate of deposit
bearing interest at 1% which serves as collateral for borrowings under a line of
credit agreement (see Note 6). At March 31, 2010 and 2009, the
balance in the certificate of deposit was $90,404 and $101,053,
respectively.
Customers
The
Company grants credit to customers within the United States of America 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 a limited number of 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 is
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 are sufficient. Accounts receivable at March 31, 2010 and
2009 are net of reserves for doubtful accounts of approximately of $1,500 and
$600, respectively. Although the Company expects to collect amounts due, actual
collections may differ from the estimated amounts.
The
Company has foreign revenues primarily in Europe, Canada, India and
Australia. During 2010 and 2009, the Company had foreign revenues of
approximately $66,500 and $6,500, respectively, which constituted approximately
56% and 19% of total revenues, respectively.
The
majority of the Company’s customers are in the biotechnology, pharmaceutical and
life science industries. Consequently, there is a concentration of receivables
within these industries, which is subject to normal
credit risk. At March 31, 2010, annual net revenues from BD Biosciences and
CDx Holdings, Inc. accounted for 32.1% and 18.7%, respectively, of our total
revenues. At March 31, 2009, there were no significant customer
concentrations. The Company maintains reserves for bad debt and such losses, in
the aggregate, historically have not exceeded our
estimates.
Inventory
Prior to
our new business strategy inventories were stated at the lower of standard cost
or current estimated market value. Cost was determined using the
standard cost method which approximates the first-in, first-to-expire
method.
Inventories
were reviewed periodically for slow-moving or obsolete status. We adjusted our
inventory to reflect situations in which the cost of inventory was not expected
to be recovered. Once established, write-downs of inventories were considered
permanent adjustments to the cost basis of the obsolete or excess
inventories. Raw materials, work in process and finished goods
included material costs less reserves for obsolete or excess
inventories. We evaluated the current level of inventory considering
historical trends and other factors, and based on our evaluation, recorded
adjustments to reflect inventory at its net realizable value. These adjustments
were estimates, which could vary significantly from actual results if future
economic conditions, customer demand, competition or other relevant factors
differ from expectations. These estimates required us to make assessments about
the future demand for our products in order to categorize the status of such
inventory items as slow-moving, obsolete or in excess-of-need. These estimates
were subject to the ongoing accuracy of our forecasts of market conditions,
industry trends, competition and other factors. Differences between our
estimated reserves and actual inventory adjustments were not significant, and
were accounted for in the current period as a change in estimate in accordance
with generally accepted accounting principles.
In 2010,
the Company changed its operations and now provides shipping containers to its
customers and charges a fee in exchange for the use of the container. The
Company’s arrangements are similar to the accounting standard for leases since
they convey the right to use the containers over a period of time. The
Company retains title to the containers and provides its customers the use of
the container for a specified shipping cycle. At the culmination of the
customer’s shipping cycle, the container is returned to the Company. As a
result, during the quarter ended September 30, 2009, the Company reclassified
the containers from inventory to fixed assets upon commencement of the per-use
container program.
Property
and Equipment
Property
and equipment are recorded at cost. Cryogenic Shippers are depreciated using the
straight-line method over their estimated useful lives of three years. Equipment
and furniture are depreciated using the straight-line method over their
estimated useful lives (generally three to seven 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. Equipment
acquired under capital leases is amortized over the estimated useful life of the
assets or term of the lease, whichever is shorter and included in depreciation
expense.
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 current operations.
Intangible
Assets
Intangible
assets are comprised of patents and trademarks and software development
costs. 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. 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 including the valuation of warrants issued to consultants.
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 March 31,
2010.
Deferred
Financing Costs
In
February, 2010 the Company completed a public offering of units consisting of
1,666,667 shares of common stock and 1,666,667 warrants to purchase one share of
common stock at an exercise price of $3.30, for gross proceeds of $5,000,001 and
net proceeds of approximately $3,742,097. Each unit consisting of one share,
together with one warrant to purchase one share, was priced at $3.00. In
connection with this public offering we incurred financing costs of $1,257,904
which consisted primarily of placement agent fees, accounting, legal and filing
fees and were netted against the proceeds of the offering upon
completion.
In
connection with the issuance of convertible notes payable (see Note 8), we paid
financing costs, which consisted primarily of placement agent fees, accounting,
legal and filing fees and are being amortized over the life of the debt.
Amortization of the deferred financing costs using the effective interest method
was $159,516 and $42,284 for the years ended March 31, 2010 and 2009,
respectively, and were included in interest expense. As of March 31, 2010
and 2009, deferred financing costs, net of accumulated amortization were
approximately $0 and $3,600, respectively.
Accrued
Warranty Costs
Estimated
costs of the Company’s standard warranty, included with products at no
additional cost to the customer for a period up to one year, are recorded as
accrued warranty costs at the time of product sale. Costs related to
servicing the standard warranty are charged to the accrual as
incurred.
The
following represents the activity in the warranty accrual during the years ended
March 31:
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
Beginning
warranty accrual
|
|
|
|
|
|
|
|
|
Increase
in accrual (charged to cost of sales)
|
|
|
|
|
|
|
|
|
Charges
to accrual (product replacements)
|
|
|
|
|
|
|
|
|
Reversal
of remaining accrual due to expected future claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
Debentures
If a
conversion feature of conventional convertible debt is not accounted for as a
derivative instrument and provides for a rate of conversion that is below market
value, this feature is characterized as a beneficial conversion feature
(“BCF”). A BCF is recorded by the Company as a debt discount. The
convertible debt is recorded net of the discount related to the
BCF. The Company amortizes the discount to interest expense over the
life of the debt using the effective interest rate method.
Derivative
Liabilities
Effective
April 1, 2009, certain of the Company's issued and outstanding common
stock purchase warrants and embedded conversion features previously treated as
equity pursuant to the derivative treatment exemption were no longer afforded
equity treatment, and the fair value of these common stock purchase warrants and
embedded conversion features, some of which have exercise price reset features
and some that were issued with convertible debt, were reclassified from equity
to liability status as if these warrants were treated as a derivative liability
since their date of issue. The common stock purchase warrants were
not issued with the intent of effectively hedging any future cash flow, fair
value of any asset, liability or any net investment in a foreign operation. The
warrants do not qualify for hedge accounting, and as such, all future changes in
the fair value of these warrants are recognized currently in earnings until such
time as the warrants are exercised, expire or the related rights have been
waived. These common stock purchase warrants do not trade in an active
securities market, and as such, the Company estimates the fair value
of these warrants using the Black-Scholes option pricing model (see “Adoption of
New Accounting Principle” section below and Note 9).
Commitments and
Contingencies
The
Company is subject to routine claims and litigation incidental to our business.
In the opinion of management, the resolution of such claims is not expected to
have a material adverse effect on our operating results or financial
position.
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 March 31, 2010 and 2009, there were no
unrecognized tax benefits included in the balance sheet that would, if
recognized, affect the effective tax rate. Based on the weight of available
evidence, the Company's Management has determined that it is not more likely
than not that the net deferred tax assets assets will 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 consolidated balance sheets at March 31, 2010 and
2009, respectively and have not recognized interest and/or penalties in the
consolidated statement of operations for the years ended March 31, 2010 and
2009. The Company is subject to taxation in the United States and various state
jurisdictions. As of March 31, 2010, the Company is no longer subject
to U.S. federal examinations for years before 2006; and for California franchise
and income tax examinations for years before 2005. 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.
Supply
Concentration Risks
The
component parts for our products are primarily manufactured at third party
manufacturing facilities. The Company also has a warehouse at our corporate
offices in Lake Forest, California, where the Company is capable of
manufacturing certain parts and fully assemble its products. Most of the
components that the Company uses in the manufacture of its products
are available from more than one qualified supplier. For some components,
however, there are relatively few alternate sources of supply and the
establishment of additional or replacement suppliers may not be accomplished
immediately, however, the Company has identified alternate qualified suppliers
which the Company believes could replace existing suppliers. Should this
occur, the Company believes that with its current level of shippers and
production rate the Company has enough to cover a four to six week gap in
maximum disruption of production.
Primary
manufacturers used by us include Spaulding Composites Company, Peterson Spinning
and Stamping, Lydall Industrial Thermal Solutions, and Ludwig, Inc. There
are no specific agreements with any manufacturer nor are there any long term
commitments to any manufacturer. The Company believes that any of the
manufactures currently used by it could be replaced within a short period of
time as none have a proprietary component or a substantial capital investment
specific to its products.
Revenue
Recognition
The
Company provides shipping containers to their customers and charges a fee in
exchange for the use of the container. The Company’ arrangements are
similar to the accounting standard for leases since they convey the right to use
the containers over a period of time. The Company retains title to the
containers and provides its customers the use of the container for a specified
shipping cycle. At the culmination of the customer’s shipping cycle, the
container is returned to the Company.
The
Company recognizes revenue for the use of the shipper at the time of the
delivery of the shipper to the end user of the enclosed materials, and at the
time that collectibility is reasonably certain.
Accounting
for Shipping and Handling Revenue, Fees and Costs
The
Company classifies amounts billed for shipping and handling as revenue. Shipping
and handling fees and costs are included in cost of sales.
Research
and Development Expenses
Expenditures
relating to research and development are expensed in the period incurred.
Research and development expenses to date have consisted primarily of costs
associated with the continually improving the features of the CryoPort Express®
System including the web based customer service portal and the CryoPort Express®
Shippers. Further, these efforts are expected to lead to the introduction of
shippers of varying sizes based on market requirements, constructed of lower
cost materials and utilizing high volume manufacturing methods that will make it
practical to provide the cryogenic packages offered by the CryoPort Express®
System. Other research and development effort has been directed toward
improvements to the liquid nitrogen retention system to render it more reliable
in the general shipping environment and to the design of the outer packaging.
Alternative phase change materials in place of liquid nitrogen may be used to
increase the potential markets these shippers can serve such as ambient and
2-8°C markets.
Stock-based
Compensation
The
Company recognizes compensation expense for all stock-based awards made to
employees and directors. The fair value of stock-based awards is estimated at
grant date using an option pricing model and the portion that is ultimately
expected to vest is recognized as compensation cost over the requisite service
period.
Since
stock-based compensation is recognized only for those awards that are ultimately
expected to vest, the Company has applied an estimated forfeiture rate to
unvested awards for the purpose of calculating compensation cost. These
estimates will be revised, if necessary, in future periods if actual forfeitures
differ from estimates. Changes in forfeiture estimates impact compensation cost
in the period in which the change in estimate occurs. The estimated forfeiture
rates at March 31, 2010 and 2009 was zero as the Company has not had a
significant history of forfeitures and does not expect forfeitures in the
future.
The
Company uses the Black-Scholes option-pricing model to estimate the fair value
of stock-based awards. The determination of fair value using the Black-Scholes
option-pricing model is affected by its 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.
At
March 31, 2010, there was $471,401 of total unrecognized compensation cost
related to non-vested stock options, which is expected to be recognized over a
remaining weighted average vesting period of approximately 1.69
years.
The
Company’s stock-based compensation plans are discussed further in Note
11.
Issuance
of Stock for Non-Cash Consideration
The
Company accounts for equity issuances to non-employees in accordance with
accounting guidance for equity instruments that are issued to other than
employees for acquiring, or in conjunction with selling, goods and services. All
transactions in which goods or services are the consideration received for the
issuance of equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable. The measurement date used to determine
the fair value of the equity instrument issued is the earlier of the date on
which the third-party performance is complete or the date on which it is
probable that performance will occur.
Basic
and Diluted Loss Per Share
Basic
loss per common share is computed based on the weighted average number of shares
outstanding during the period. Diluted loss per share is computed by
dividing net loss by the weighted average shares outstanding assuming all
dilutive potential common shares were issued. For the years ended
March 31, 2010 and 2009, the Company was in a loss position and the basic and
diluted loss per share are the same since the effect of stock options, warrants
and convertible notes payable on loss per share was anti-dilutive and thus not
included in the diluted loss per share calculation. The impact under the
treasury stock method of dilutive stock options and warrants and the
if-converted method of convertible debt would have resulted in weighted average
common shares outstanding of 8,472,977 and 5,756,525 for the years ended March
31, 2010 and 2009, respectively.
In
addition, in computing the dilutive effect of convertible securities, the
numerator is adjusted to add back the after-tax amount of interest, if any,
recognized in the period associated with any convertible debt.
Segment
Reporting
We
currently operate in only one segment.
Adoption
of New Accounting Principle
Equity-linked
instruments (or embedded features) that otherwise meet the definition of a
derivative are not accounted for as derivatives if certain criteria are met, one
of which is that the instrument (or embedded feature) must be indexed to the
entity’s own stock. The Company’s warrant and convertible debt agreements
contain adjustment (or ratchet) provisions and accordingly, the Company
determined that these instruments are not indexed to the Company’s common
stock. As a result of the adoption of new accounting guidance, the
Company is required to account for these instruments as derivative liabilities.
The Company applied these provisions to outstanding instruments as of April 1,
2009. The cumulative effect at April 1, 2009 was to record, at
fair value, a liability for the warrants and embedded conversion features,
including the effects on the discounts on the convertible notes of
$2,595,095, resulted in an aggregate reduction to equity
of $13,875,623 consisting of a reduction to additional paid-in capital
of $4,217,730 and an increase in the accumulated deficit of $9,657,893 to
reflect the change in the accounting. The warrants and embedded
conversion features are carried at fair value and adjusted each period through
earnings.
During
February 2010, the Company reclassified $9,009,329 in derivatives liabilities to
additional paid-in capital due to the modification in terms resulting from the
2010 Amendment, as defined (see Note 9).
The
following table summarizes the effect of the adoption of the accounting
principle on the consolidated balance sheet as of April 1, 2009:
|
|
|
As
Previously
Reported
|
|
|
As
Adjusted
|
|
|
Cumulative
Adjustment
|
|
Liabilities
and Stockholders’ Deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
New
Accounting Pronouncements
In August
2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-05,
Measuring Liabilities at Fair Value, or ASU 2010-05, which amends ASC 820 to
provide clarification of a circumstance in which a quoted price in an active
market for an identical liability is not available. A reporting entity is
required to measure fair value using one or more of the following methods: 1) a
valuation technique that uses a) the quoted price of the identical liability
when traded as an asset or b) quoted prices for similar liabilities (or similar
liabilities when traded as assets) and/or 2) a valuation technique that is
consistent with the principles of ASC 820. ASU 2010-05 also clarifies that when
estimating the fair value of a liability, a reporting entity is not required to
adjust to include inputs relating to the existence of transfer restrictions on
that liability. The adoption did not have a material impact on our consolidated
financial statements.
Note
2. Inventory
Inventories
consist of the following:
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
its early years, the Company's limited revenue was derived from the sale of our
reusable product line. The Company's current business plan focuses on per-use
leasing of shipping containers and value-added services that will be used by us
to provide an end-to-end and cost-optimized shipping solutions.
The
Company provides shipping containers to its customers and charges a fee in
exchange for the use of the container. The Company’s arrangements are
similar to the accounting standard for leases since they convey the right to use
the containers over a period of time. The Company retains title to the
containers and provides its customers the use of the container for a specified
shipping cycle. At the culmination of the customer’s shipping cycle, the
container is returned to the Company. As a result, during the quarter
ended September 30, 2009, the Company reclassified its containers from inventory
to property and equipment upon commencement of the per-use leasing
program.
Note
3. Property and Equipment
Equipment and leasehold improvements
and related accumulated depreciation and amortization are as
follows:
|
|
|
March 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Cryogenic
shippers
|
|
$ |
449,734 |
|
|
$ |
- |
|
|
Furniture
and fixtures
|
|
|
3,284 |
|
|
|
23,253 |
|
|
Machinery
and equipment
|
|
|
340,169 |
|
|
|
640,748 |
|
|
Leasehold
improvements
|
|
|
19,426 |
|
|
|
19,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
812,613 |
|
|
|
683,427 |
|
|
Less
accumulated depreciation and amortization
|
|
|
(253,372 |
) |
|
|
(494,126 |
) |
|
|
|
$ |
559,241 |
|
|
$ |
189,301 |
|
During
its early years, the Company's limited revenue was derived from the sale of our
reusable product line. The Company's current business plan focuses on
per-use leasing of shipping containers and added-value services that will be
used by us to provide an end-to-end and cost-optimized shipping
solutions.
Total
depreciation and amortization expense related to property and equipment amounted
to $80,746 and $63,129 for the years ended March 31, 2010 and 2009,
respectively.
Note
4. Intangible Assets
Intangible
assets are comprised of patents and trademarks and software developed for
internal uses. The gross book values and accumulated amortization as
of March 31, 2010 and 2009 were as follows:
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
and trademarks
|
|
$
|
91,354
|
|
|
$
|
47,375
|
|
|
Software
development costs
|
|
|
355,081
|
|
|
|
282,112
|
|
|
|
|
|
446,435
|
|
|
|
329,487
|
|
|
Less
accumulated amortization
|
|
|
(134,470
|
)
|
|
|
(65,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
311,965
|
|
|
$
|
264,364
|
|
Amortization
expense for intangible assets for the years ended March 31, 2010 and 2009 was
$69,347 and $18,855, respectively. All of the Company’s intangible assets are
subject to amortization.
Estimated
future annual amortization expense pursuant to these intangible assets is as
follows:
|
Years
Ending March 31,
|
|
Patents
and Trademarks
|
|
|
Software
|
|
|
Total
Intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
5,088
|
|
|
$
|
70,993
|
|
|
$
|
76,081
|
|
|
2012
|
|
|
5,088
|
|
|
|
70,993
|
|
|
|
76,081
|
|
|
2013
|
|
|
5,088
|
|
|
|
70,993
|
|
|
|
76,081
|
|
|
2014
|
|
|
5,061
|
|
|
|
52,306
|
|
|
|
57,367
|
|
|
2015
|
|
|
1,636
|
|
|
|
5,112
|
|
|
|
6,748
|
|
|
Thereafter
|
|
|
19,607
|
|
|
|
-
|
|
|
|
19,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,568
|
|
|
$
|
270,397
|
|
|
$
|
311,965
|
|
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note
5. Fair Value Measurements
The
Company determines the fair value of its derivative instruments using a
three-level hierarchy for fair value measurements which these assets and
liabilities must be grouped, based on significant levels of observable or
unobservable inputs. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect the Company’s market
assumptions. This hierarchy requires the use of observable market data when
available. These two types of inputs have created the following fair-value
hierarchy:
Level 1 —
Valuations based on unadjusted quoted market prices in active markets for
identical securities. Currently the Company does not have any items classified
as Level 1.
Level 2 —
Valuations based on observable inputs (other than Level 1 prices), such as
quoted prices for similar assets at the measurement date; quoted prices in
markets that are not active; or other inputs that are observable, either
directly or indirectly. The Company classifies its restricted cash
balance as a Level 2 item. At March 31, 2010 and 2009 the balance in the
restricted cash account was $90,404 and $101,053, respectively.
Level 3 —
Valuations based on inputs that are unobservable and significant to the overall
fair value measurement, and involve management judgment. The Company uses the
Black-Scholes option pricing model to determine the fair value of the
instruments. If the inputs used to measure fair value fall in
different levels of the fair value hierarchy, a financial security’s hierarchy
level is based upon the lowest level of input that is significant to the fair
value measurement.
The
following table presents the Company’s warrants and embedded conversion features
measured at fair value on a recurring basis as of March 31, 2010 and April 1,
2009 (the Company’s adoption date of derivative liability accounting) classified
using the valuation hierarchy:
|
|
|
Level
3
|
|
|
Level
3
|
|
|
|
|
Carrying
Value
|
|
|
Carrying
Value
|
|
|
|
|
March
31, 2010
|
|
|
April
1, 2009
|
|
|
|
|
|
|
|
|
|
|
Embedded
Conversion Option
|
|
$
|
—
|
|
|
$
|
3,900,134
|
|
|
Warrants
|
|
|
334,363
|
|
|
|
12,570,584
|
|
|
|
|
$
|
334,363
|
|
|
$
|
16,470,718
|
|
The
following table provides a reconciliation of the beginning and ending balances
for the Company’s derivative liabilities measured at fair value using Level 3
inputs:
|
Balance
at April 1, 2009
|
|
$
|
—
|
|
|
Cumulative
effect of change in accounting principle
|
|
|
16,470,718
|
|
|
Derivative
liability added – warrants
|
|
|
389,781
|
|
|
Derivative
liability added – conversion option
|
|
|
788,631
|
|
|
Reclassification
of conversion feature to equity upon conversions of notes
|
|
|
(2,728,459)
|
|
|
Reclassification
of conversion feature and warrants to equity upon modification of terms
(no longer derivative instruments)
|
|
|
(9,009,329)
|
|
|
Change
in fair value, net
|
|
|
(5,576,979)
|
|
|
Balance
at March 31, 2010
|
|
$
|
334,363
|
|
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note
6. Line of Credit
On
November 5, 2007, the Company secured financing for a $200,000 one-year
revolving line of credit (the “Line”) secured by a $200,000 Certificate of
Deposit with Bank of the West. On November 6, 2008, the Company secured a
one-year renewal of the Line for a reduced amount of $100,000 which is secured
by a $100,000 Certificate of Deposit with Bank of the West. On October 19, 2009,
the Company secured a one-year renewal of the Line for a reduced amount of
$90,000 which is secured by a $90,000 Certificate of Deposit with Bank of the
West. All borrowings under the revolving line of credit bear variable interest
based either the prime rate plus 1.5% per annum (totaling 4.75%
as of March 31, 2010) or 5.0%, whichever is higher. The Company utilizes the
funds advanced from the Line for capital equipment purchases to support the
commercialization of the Company’s CryoPort Express® One-Way Shipper. As of
March 31, 2010 and 2009, the outstanding balance of the Line was $90,388 and
$90,310, including accrued interest of $388 and $310,
respectively. No funds were drawn against the Line during the years
ended March 31, 2010 or 2009. The Company recorded interest expense
of $4,094 and $3,099 for the years ended March 31, 2010 and 2009,
respectively.
Note
7. Related Party Transactions
Related
Party Notes Payable
As of
March 31, 2010 and 2009, the Company had aggregate principal balances
of $1,009,500 and $1,129,500, respectively, in outstanding unsecured
indebtedness owed to five related parties, including four former members of the
board of directors, representing working capital advances made to the Company
from February 2001 through March 2005. These notes bear interest at the rate of
6% per annum and provide for aggregate monthly principal payments which began
April 1, 2006 of $2,500, and which increased by an aggregate of $2,500 every
nine months to a maximum of $10,000 per month. As of March 31, 2010,
the aggregate principal payments totaled $10,000 per month. Any
remaining unpaid principal and accrued interest is due at maturity on various
dates through March 1, 2015.
Related-party
interest expense under these notes was $64,496 and $71,676 for the years ended
March 31, 2010 and 2009, respectively. Accrued interest related
to these notes, which is included in related party notes payable in the
accompanying consolidated balance sheets, amounted to $618,756 and $554,260 as
of March 31, 2010 and 2009, respectively. As of March 31, 2010, the Company had
not made the required payments under the related-party notes which were due on
January 1, February 1, and March 1, 2010. However, pursuant to the
note agreements, the Company has a 120-day grace period to pay missed payments
before the notes are in default. On April 15, 2010, May 16, 2010
and June 14, 2010 the Company paid the January 1, 2010, February 1, 2010
and the March 1, 2010 note payments due on these related
party notes, respectively. Management expects to continue to pay all payments
due prior to the expiration of the 120-day grace periods.
Scheduled
maturities of related party debt as of March 31, 2010 are as
follows:
|
|
|
|
|
|
2011
|
|
$
|
150,000
|
|
|
2012
|
|
|
104,000
|
|
|
2013
|
|
|
96,000
|
|
|
2014
|
|
|
96,000
|
|
|
2015
|
|
|
96,000
|
|
|
Thereafter
|
|
|
467,500
|
|
|
|
|
|
|
|
|
|
|
$
|
1,009,500
|
|
Note
Payable to Former Officer
In August
2006, Peter Berry, the Company’s former Chief Executive Officer, agreed to
convert his deferred salaries to a long-term note payable. Under the terms of
this note, the Company began to make monthly payments of $3,000 to Mr. Berry in
January 2007. The loan was fully paid in March 2010. Interest of 6% per annum on
the outstanding principal balance of the note began to accrue on January 1,
2008. As of March 31, 2010 and 2009, the total amount of the note and
accrued interest under this arrangement was $0 and $157,688, respectively, of
which, $0 and $67,688, respectively, is recorded as a long-term liability in the
accompanying consolidated balance sheets. Mr. Berry agreed to a final
settlement of $143,950 resulting in a reversal of interest expense recognized in
prior years of $11,821. Interest expense related to this note was
$8,133 and $10,573 for the years ended March 31, 2010 and 2009, respectively.
Accrued interest related to this note payable amounted to $0 and $13,738 at
March 31, 2010 and 2009, respectively, and is included in the note payable to
former officer in the accompanying consolidated balance sheets. In January 2009,
Mr. Berry agreed to defer the monthly payments of the note due from January 31,
2009 through June 30, 2009. Effective August 26, 2009, pursuant to a letter
agreement (i) the Company agreed to pay Mr. Berry the sum of $30,000 plus
accrued interest representing past due payments from January to May 2009
previously waived by Mr. Berry, (ii) Mr. Berry agreed to waive payments due to
him through December 2009, and (iii) the Company agreed to pay to Mr.
Berry the sum of $42,000 plus accrued interest on January 1, 2010,
representing payments due to him from June 2009 thru December 2009. As of March
31, 2010 and 2009 these unpaid payments totaled $0 and $18,000, respectively,
and are included in the current liability portion of the note payable in the
accompanying consolidated balance sheets. In February 2009, Mr. Berry
resigned his position as Chief Executive Officer and on July 30,
2009. Mr. Berry resigned his position from the Board.
Consulting
agreement with Former Officer
On March
1, 2009, the Company entered into a Consulting Agreement with Peter Berry, the
Company’s former Chief Executive Officer. Mr. Berry provided the
Company with consulting services as an independent contractor, for a ten (10)
month period from March 1, 2009 through December 31, 2009, as an advisor to the
Chief Executive Officer and the Board of Directors.
Related-party
consulting fees for these services were $292,010 for the year ended March 31,
2010.
Related
party legal services
Since
June 2005, the Company had retained the legal services of Gary C. Cannon,
Attorney at Law, for a monthly retainer fee. From June 2005 to May
2009, Mr. Cannon also served as the Company’s Secretary and a member of the
Company’s Board of Directors. Mr. Cannon continued to serve as
Corporate Legal Counsel for the Company and served as a member of the Advisory
Board. In December 2007, Mr. Cannon’s monthly retainer for legal
services was increased from $6,500 per month to $9,000 per month. The
total amount paid to Mr. Cannon for retainer fees and out-of-pocket expenses for
the year ended March 31, 2010 and 2009 was $34,350 and $81,000,
respectively. From October 2008 through March 31, 2009 Mr. Cannon
agreed to defer a portion of his monthly payments. As of March 31,
2010 and March 31, 2009 a total of $0 and $15,000, respectively, had been
deferred and was included in accounts payable in the accompanying consolidated
balance sheets. Board fees expensed for Mr. Cannon were $5,388 and $26,850 for
the years ended March 31, 2010 and March 31, 2009, respectively. At March 31,
2010 and March 31, 2009, $7,788 and $14,400, respectively, of deferred board
fees was included in accrued compensation and related expenses. During the
year ended March 31, 2010, Mr. Cannon was granted a total of 2,557
warrants with an average exercise price of $5.90 per share. For the year
ended March 31, 2009, Mr. Cannon was granted a total of 9,515 warrants with an
average exercise price of $6.70 per share. All warrants granted to Mr. Cannon
were issued with an exercise price of greater than or equal to the stock price
of the Company’s shares on the grant date. On May 4, 2009, Mr. Cannon resigned
from the Company’s Board of Directors and in July 2009 Mr. Cannon was given 30
days notice that he was terminated as the general legal counsel and advisor to
the Company.
Consulting
agreement with Officer
On July
29, 2009, the Board of Directors of the Company appointed Ms. Catherine M. Doll,
a consultant, to the offices of Chief Financial Officer, Treasurer and Assistant
Corporate Secretary, which became effective on August 20, 2009.
Ms. Doll,
is the owner and chief executive officer of The Gilson Group,
LLC. The Gilson Group, LLC provided the Company financial and
accounting consulting services including, SEC and financial reporting including
the filing of the S-1, budgeting and forecasting and finance and accounting
systems implementations and conversions.
Related-party
consulting fees for these services were $234,650 for the year ended March 31,
2010. On October 9, 2009, the Compensation and Governance
Committee granted Ms. Doll an option to purchase 2,000 shares of common stock at
an exercise price of $4.50 per share (the closing price of the Company’s stock
on the date of grant) valued at $8,480 as calculated using the Black Scholes
option pricing model and is included in selling, general and administrative
expense. The assumptions used under the Black-Scholes pricing model included: a
risk free rate of 2.36%; volatility of 182%; an expected exercise term of 4.25
years; and no annual dividend rate. The right to exercise the stock options
vested as to 33 1/3% of the underlying shares of common stock upon grant,
with the remaining underlying shares vesting in equal installments on the first
and second anniversary of the grant date.
Note
8. Convertible Notes Payable
The
Company’s convertible debenture balances are shown below:
|
|
|
March
31,
2010
|
|
|
March
31,
2009
|
|
|
October
2007 Debentures
|
|
$
|
3,150,975
|
|
|
$
|
5,356,073
|
|
|
May
2008 Debentures
|
|
|
79,593
|
|
|
|
1,325,556
|
|
|
Private
Placement Debentures
|
|
|
—
|
|
|
|
60,000
|
|
|
Accrued
interest on convertible debentures
|
|
|
—
|
|
|
|
44,544
|
|
|
|
|
|
3,230,568
|
|
|
|
6,786,173
|
|
|
Debt
discount
|
|
|
(728,109)
|
|
|
|
(2,903,374)
|
|
|
Total
convertible debentures and notes payable, net
|
|
$
|
2,502,459
|
|
|
$
|
3,882,799
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term:
|
|
|
|
|
|
|
|
|
|
Convertible
notes payable, net of discount of $13,586 in 2009
|
|
$
|
—
|
|
|
$
|
46,414
|
|
|
Current
portion of convertible debentures payable and accrued interest, net of
discount of $662,583 in 2009
|
|
|
200,000
|
|
|
|
3,836,385
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
|
Convertible
debentures payable, net of current portion and discount of $728,109 in
2010 and $2,227,205 in 2009, respectively
|
|
|
2,302,459
|
|
|
|
—
|
|
|
Total
convertible debentures and notes payable, net
|
|
$
|
2,502,459
|
|
|
$
|
3,882,799
|
|
During
the years ended March 31, 2010 and 2009, the Company recognized an aggregate of
$6,417,346 and $2,223,116 in interest expense, respectively, due to amortization
of debt discount related to the warrants and embedded conversion features
associated with the Company’s outstanding convertible debentures and convertible
notes payable. As of March 31, 2010, the principal amount of
$3,230,568 of the Company’s convertible notes payable was convertible into
1,076,856 shares of the Company’s common stock.
October
2007 and May 2008 Debentures
The
Company issued convertible debentures in October 2007 (the “October 2007
Debentures”) and in May 2008 (the “May 2008 Debentures,” and together with the
October 2007 Debentures, the “Debentures”). The Debentures were issued to four
institutional investors and have an outstanding principal balance of $3,230,568
as of March 31, 2010. In addition, in October 2007 and May 2008, the
Company issued to these institutional investors warrants to purchase, as of
March 31, 2010, an aggregate of 3,055,097 shares of the Company’s common stock
(the “Debenture Warrants”). As collateral to secure our repayment
obligations to the holders of the Debentures we have granted such holders a
first priority security interest in generally all of our assets, including our
intellectual property.
Fiscal
Year 2009 Activity
During
the year ended March 31, 2009, the Company incurred a loss on extinguishment of
debt of $6,902,941 due to the April 30, 2008 Amendment of the October 2007
Debentures (the “April Amendment”). The April Amendment provided for
a nine month deferral of principal payments, an increase in the number of shares
to be purchased under each of the October 2007 Warrants and a decrease in the
Exercise Price of the October 2007 Warrants from $9.00, $9.20 and
$16.00 to $6.00 each. In addition, the Company eliminated the
unamortized balance of deferred financing costs related to the October 2007
Debentures.
On August
29, 2008, the Company entered into an “Amendment to Debentures, Agreement and
Waiver” (the “August Amendment”) with the holders of the October 2007
Debentures. The August Amendment waived quarterly interest payments that would
otherwise have been due on October 1, 2008 and January 1, 2009 and deferred the
monthly redemption dates from July 31, 2008 through November 30, 2008 to
commence upon December 31, 2008, and were to terminate upon full redemption of
the October 2007 Debentures. In consideration for entering into the August
Amendment, the outstanding principal amount of the October 2007 Debentures was
increased to an amount equal to 115% of the sum of (i) the outstanding principal
amount of as of August 29, 2008, the date of the August Amendment, plus (ii) an
amount equal to the additional amount of interest that would have accrued on the
October 2007 Debenture from July 1, 2008 through December 31,
2008. The August Amendment was accounted for as an extinguishment of
debt and the Company recorded the amended October 2007 Debentures at their then
fair value of $2,203,086 at the date of extinguishment. The
difference between the fair value of the amended October 2007 Debentures and the
carrying value of the original October 2007 Debentures at the date of debt
extinguishment, which amounted to $91,728, was recorded as an offset against the
loss on debt extinguishment for the year ended March 31, 2009.
During
the year ended March 31, 2009, the Company incurred a loss on extinguishment of
debt of $4,035,360 as a result of the January 27, 2009 Amendment of the
Debentures (the “January Amendment”). The Debentures were amended to
reflect changes to the monthly redemptions of principal, the quarterly payments
of interest and changes to the Debenture Warrants related to the original
October 2007 and May 2008 Debentures. Under the terms of the January
Amendment, the conversion price of the debentures was reset from $8.40 to $5.10,
monthly principal redemptions were deferred until August 1, 2009 and the
remaining principal due on each of the debentures was to be paid thereafter on
the first date of each month in twelve equal installments through July 1, 2010,
the amended maturity date. During the deferral period interest
payments due from January 1, 2009 through July 1, 2009 could be paid monthly by
the Company in common stock shares at a conversion rate of $4.00 if the Company
had met certain equity conditions prior to the due date of the interest
payments. If the equity conditions were not met, the Company added
the monthly interest payments to the principal balance of the
Debentures.
Further,
the January Amendment reset the exercise price of the May 2008 Debenture
Warrants from the then current exercise prices of $6.00, $9.20 and $13.50 per
share to $6.00 per share and extended the expiration dates of both the October
2007 and May 2008 Debenture Warrants to January 1, 2014. The number of shares to
be purchased under the Debenture Warrants was proportionately increased under
the terms of the amendments so that the original dollar amounts to be raised by
the Company through the exercise of each of the warrants and the proportional
number of warrants issued to each Debenture Holder remained the
same. As a result, the number of shares of common stock to be
purchased under the October 2007 Warrants increased by 285,190
to 1,728,326 and the number of shares of common stock to be purchased under
the May 2008 Warrants increased by 265,577 to 562,996. Under the
terms of the January Amendment, in February 2009, the Company issued a total of
40,000 restricted common shares valued at $164,000 to the holders of the
Debentures, which shares were accounted for as a payment to the debt holders in
connection with the debt extinguishment and included in the loss on debt
extinguishment for the year ended March 31, 2009.
Fiscal Year 2010
Activity
During
the year ended March 31, 2010, the Company converted interest payments due on
the Debentures totaling $171,253 into 42,814 shares of common stock using
the conversion rate of $4.00.
In May
2009, approximately $713,000 of the October 2007 Debentures was converted
by a note holder. Using the conversion rate of $5.10 per share
per the terms of the debenture, 139,804 shares of common stock were issued to
the investor. In addition, the fair value of $593,303 related to the conversion
feature was reclassed from the liability for derivative instruments to
additional paid-in capital (see Note 10) and accelerated the recognition of
$508,886 of unamortized debt discount as interest expense.
On July
30, 2009, the Company entered into a Consent, Waiver and Agreement with the
holders of the Debentures (the “July Agreement”). Pursuant to the terms of
the July Agreement, the Holders (i) consented to the Company’s issuance of
convertible notes and warrants in connection with a bridge financing of up to
$1,500,000 which commenced in March 2009 (the “Bridge Financing”), and (ii)
waived, as it relates to the Bridge Financing, a covenant contained in the
Debentures not to incur any further indebtedness, except as otherwise permitted
by the Debentures. This Bridge Financing is more particularly
described below under the caption “Private Placement Debentures.” In
addition, in connection with the July Agreement, the Company and Holders
confirmed that (i) the exercise price of the Debenture Warrants had been
reduced, pursuant to the terms of the Debenture Warrants, to $5.10 as a result
of the Bridge Financing, and (ii) as a result of the foregoing decrease in the
exercise price, pursuant to the terms of the Debenture Warrants, the number of
shares underlying the Debenture Warrants held by Holders of the Debentures had
been proportionally increased by 404,350 pursuant to the terms of the warrant
agreements. As a result of the foregoing adjustments, the Company
recognized a loss in other expense due to the change in fair value of derivative
liabilities of $1,608,540 and a corresponding increase to the liability for
derivative instruments.
On
September 17, 2009, the Company entered into an Amendment to Debentures and
Warrants, Agreement and Waiver (the “September Amendment”) with the holders of
the Company’s outstanding Debentures and associated Debenture Warrants to
purchase common stock, as such Debentures and Debenture Warrants have been
amended. The effective date of the September Amendment was September 1,
2009. The purpose of the September Amendment was to restructure the
Company’s obligations under the outstanding Debentures in order to reduce the
amount of the required monthly principal payment and temporarily defer the
commencement of monthly principal payments (which was scheduled to commence
September 1, 2009) and ceased the continuing interest payments for a period
time. The following is a summary of the material terms of the September
Amendment:
1. The Company
was required to obtain stockholder approval of an amendment to its Amended and
Restated Articles of Incorporation to increase the number of authorized shares
of its common stock to 250,000,000. Such approval was obtained at the
shareholders’ meeting on October 9, 2009, and an amendment was filed with the
Nevada Secretary of State on November 2, 2009.
2. As of
September 1, 2009, the principal amount of the Debentures was increased by
$482,792, which was added to the outstanding principal balances and $403,214 was
recorded as a debt discount and will be amortized over the remaining life of the
Debentures. The increase reflected all accrued and unpaid interest as of
such date, plus all interest that would have accrued on the principal amount (as
increased as of September 1, 2009, to reflect the then accrued but unpaid
interest) from September 1, 2009, to July 1, 2010 (the maturity date of the
Debentures). The Company had no obligation under the Debentures to
make further payments of interest, and interest ceased to accrue, during the
period September 1, 2009 to July 1, 2010.
3. The
conversion price of the Debentures was decreased from $5.10 per share to $4.50
per share, which resulted in an increase in the number shares of common stock
which the Debentures may be converted into, an increase in the liability for
derivative instruments of $802,200 and a corresponding loss was recorded in
other expense, net due to the change in fair value of derivatives.
4. The
commencement of the Company’s obligation to make monthly payments of principal
was deferred from September 1, 2009, to January 1, 2010, at which time the
Company was to make monthly pro rata payments to the Holders in the aggregate
amount of $200,000 with a balloon payment due on the maturity date of July 1,
2010. Prior to the Amendment, the Company was obligated to repay the
entire outstanding principal amount of the debentures in twelve equal monthly
payments commencing on August 1, 2009. On January 12,
2010, the Company entered into an Amendment to Debentures and Warrants,
Agreement and Waiver with the Holders of the Company Debentures, which was
subsequently amended in February 2010, as discussed below).
5. The Holders’
existing right to maintain a fully diluted ownership equal to 31.5% has been
increased by the Amendment to a fully diluted ownership of 34.5%.
6. The exercise
price of the outstanding Debenture Warrants was decreased from $5.10 per share
to $4.50 per share, which also resulted in a corresponding pro rata increase in
the number of shares that would be purchased upon exercise of the Debenture
Warrants to an aggregate of 3,055,095 shares. The reduction in
exercise price of the Debenture Warrants to $4.50 per share and the 359,423
share increase in the number of Debenture Warrants resulted in an increase in
the liability for derivative instruments of $1,679,990 and a corresponding loss
was recorded in other expense, net due to the change in fair value of derivative
liabilities.
7. The
following additional covenants were added to the Debentures (replacing similar
covenants which had terminated as of June 30, 2009) and remained in full force
so long as any of the Debentures remain outstanding (the “Covenant
Period”):
a. The
Company was to maintain a total cash balance of no less than $100,000 at all
times during the Covenant Period;
b. The
Company was to have an average monthly operating cash burn of no more than
$500,000 during the Covenant Period. Operating cash burn was defined by taking
net income (or loss), added back all non-cash items, and excluded changes in
assets, liabilities and financing activities;
c. The
Company was to have a minimum current ratio of 0.5 to 1 at all times during the
Covenant Period. This calculation was to be made by excluding the current
portion of the convertible notes payable and accrued interest, and liability
from derivative instruments from current liability for the current
ratio;
d. Accounts
payable was not to exceed $750,000 at any time during the Covenant
Period;
e. Accrued
salaries was not to exceed $350,000 at any time during the Covenant Period;
and
f. The
Company was not make any revisions to the terms of the existing contractual
agreements for the Notes Payable to Former Officer, Related Party Notes Payable
and the Line of Credit (as each is referred to in the Company’s Form 10-Q for
the period ended June 30, 2009); other than the previous amendment to the
payment terms of a note payable to the Company’s former CEO.
8. The Company
was not to deliver a redemption notice with respect to the outstanding
Debentures until such time as the closing price of the Company’s common stock
shall have exceeded $7.00 (as adjusted for stock splits or similar transactions)
for ten consecutive trading days prior to the delivery of the redemption
notice.
On
September 22, 2009, the holders of the October 2007 Debentures converted
$100,000 of principal into 22,222 shares of the Company’s common stock at a
conversion price of $4.50. As a result of the conversion, the Company
reclassified $52,799 of the derivative liability related to the embedded
conversion feature to additional paid in capital and accelerated the recognition
of $41,277 of unamortized debt discount as interest expense.
On
October 9, 2009, the holders of the October 2007 Debentures converted $90,000
principal into 20,000 shares of the Company’s common stock at a conversion price
of $4.50. As a result of the conversion, the Company reclassified
$37,001 of the derivative liability related to the embedded conversion feature
to additional paid in capital and accelerated the recognition of $33,708 of
unamortized debt discount as interest expense.
On
November 17, 2009, the holders of the October 2007 Debentures converted $180,000
principal into 40,000 shares of the Company’s common stock at a conversion price
of $4.50. As a result of the conversion, the Company reclassified
$80,368 of the derivative liability related to the embedded conversion feature
to additional paid in capital and accelerated the recognition of $59,262 of
unamortized debt discount as interest expense.
On
November 24, 2009, the holders of the October 2007 Debentures converted $100,000
principal into 22,222 shares of the Company’s common stock at a conversion price
of $4.50. As a result of the conversion, the Company reclassified
$38,224 of the derivative liability related to the embedded conversion feature
to additional paid in capital and accelerated the recognition of $32,034 of
unamortized debt discount as interest expense.
On
January 11, 2010, the holders of the October 2007 Debentures converted $100,000
principal into 22,222 shares of the Company’s common stock at a conversion price
of $4.50. As a result of the conversion, the Company reclassified
$88,001 of the derivative liability related to the embedded conversion feature
to additional paid in capital and accelerated the recognition of $25,989 of
unamortized debt discount as interest expense.
On
January 15, 2010, the holders of the October 2007 Debentures converted $100,000
principal into 22,222 shares of the Company’s common stock at a conversion price
of $4.50. As a result of the conversion, the Company reclassified
$114,693 of the derivative liability related to the embedded conversion feature
to additional paid in capital and accelerated the recognition of $25,451 of
unamortized debt discount as interest expense.
On
February 19, 2010, the Company entered into an Amended and Restated Amendment
Agreements with the holders of the Company’s Debentures (as hereinafter
defined), which was amended on February 23, 2010 (collectively, the “2010
Amendment”), pursuant to which the Company amended and restated the amendment
agreements entered into on January 12, 2010 and February 1, 2010 with the
holders. Pursuant to the 2010 Amendment, the debenture holders
confirmed their prior agreement to defer until March 1, 2010 the Company’s
obligation to make the January 1, 2010 and February 1, 2010 debenture
amortization payments (each in the aggregate amount of $200,000) and their
consent to the Company’s recent 10-to-1 reverse stock split. The following is a
summary of the material terms of the 2010 Amendment:
|
|
•
|
each
holder converted $1,357,215 in principal amount of the outstanding
principal balance of such holder’s debenture in exchange for a number of
shares of common stock determined by dividing such principal amount by the
unit offering price in the Company’s equity financing on February 25, 2010
(see Note 10). Based on the public offering price of $3.00 per unit, each
holder received a total of 452,405 shares of common stock upon
conversion. As a result of the conversion of an aggregate of
$2,714,430 outstanding principal, the Company reclassified a portion of
the derivative liability related to the conversion feature of the
Debentures of $1,450,605 to additional paid in capital and accelerated the
recognition of $554,720 of debt discount as interest
expense;
|
|
|
•
|
with
respect to the remaining outstanding balance of the debentures after the
foregoing conversions, the Company is not obligated to make any principal
or interest payments until March 1, 2011, at which time the Company will
be obligated to start making monthly principal and interest payments of
$200,000 for a period of seventeen (17) months with a final balloon
payment due on August 1, 2012. In addition, the future interest of
$163,573 (in the aggregate) that would accrue on the outstanding principal
balance from July 1, 2010 (the date to which accrued interest was
previously added to principal) to March 1, 2011 was added to the current
principal balance of the debentures with a corresponding increase to the
debt discount to be amortized over the remaining life of the
debt;
|
|
|
•
|
the
conversion price of the remaining outstanding balance of each debenture
was reset to $3.00 based on the public offering
price;
|
|
|
•
|
the
exercise price of the warrants currently held by the debenture holders was
reset to $3.30 per share which is equal to the exercise price of the
warrants included as part of the units sold in the public offering (110%
of the unit offering price) and the exercise period was extended to
January 1, 2015;
|
|
|
•
|
the
termination of certain anti-dilution provisions contained in the
debentures and warrants held by the debenture holders and their right to
maintain a fully-diluted ownership of our common stock equal to 34.5%,
which, along with the reset of the conversion price to $3.00 per share and
warrant exercise price to $3.30 per share, resulted in the
reclassification of $9,009,329 of derivative liability related to the
embedded conversion features and warrants to additional paid in capital
since the modification to the terms of the warrants no longer required
derivative accounting;
|
|
|
•
|
the
termination of certain financial covenants as described above;
and
|
|
|
•
|
each
executed a lock-up agreement covering a period of 180 days following the
effective date of the registration statement; provided, however, that in
the event that on any trading day during the lock-up period the trading
price of the Company’s common stock exceeds 200% of the offering price of
the units, then each holder may sell at sales prices equal to or greater
than 200% of such unit offering price a number of shares of common stock
on that trading day (such day referred to as an “Open Trading Day”) equal
to up to 10% of the aggregate trading volume of the Company’s common stock
on the primary market on which it is trading on such Open Trading Day, and
(ii) in the event on any trading day during the lock-up period the trading
price of the Company’s common stock exceeds 300% of the unit offering
price (also referred to as an Open Trading Day), each holder may sell at
sales prices equal to or greater than 300% of such unit offering price an
unlimited number of shares of common stock on such Open Trading
Day. Sales under the foregoing clause (ii) on any particular
Open Trading Day shall not be aggregated with sales under the foregoing
clause (i) on the same Open Trading Day for purposes of calculating the
10% limitation under clause (i).
|
During
the years ended March 31, 2010 and 2009, the Company recognized an aggregate of
$5,291,574 and $2,223,116 in interest expense, respectively, due to amortization
of debt discount related to the warrants and embedded conversion features
associated with the Company’s outstanding Debentures.
Private
Placement Debentures
In March
2009, the Company entered into an Agency Agreement with a broker to raise
capital in a private placement offering of one-year convertible debentures
pursuant to Regulation D of the Securities Act of 1933 and the Rules promulgated
thereunder (the “Private Placement Debentures”). As of March
31, 2010, the Company had received total gross proceeds of $1,381,500 under
this private placement offering of convertible debentures which includes gross
proceeds of $1,321,500 raised during the year ended March 31, 2010.
The
Company had the option to make principal redemptions on the maturity dates of
the debentures in shares of common stock at a conversion price of $5.10 per
share. At any time, holders were able to convert the debentures into shares of
common stock at the conversion price of $5.10. The conversion price was subject
to adjustment in the event the Company issued its next equity financing of at
least $2,500,000 at a price below $5.10 per share. The Private
Placement Debentures were converted to shares of common stock in February 2010
(see below).
Per the
terms of the convertible debenture agreements, the notes had a term of one year
from issuance and were redeemable by the Company with two days
notice. The notes bore interest at 8% per annum and were convertible
into shares of the Company’s common stock at a conversion rate of $5.10 per
share. In connection with the Private Placement Debentures, the
Company issued to investors an aggregate of 54,177 five-year warrants to
purchase shares of the Company’s common stock at $5.10 per share (the “Private
Placement Warrants”), which included 51,824 warrants issued to investors during
the year ended March 31, 2010, and were accounted for as derivative liabilities
(see Note 9). The Company had determined the aggregate fair value of the issued
warrants as of the dates of each grant, based on the Black-Scholes pricing
model, to be approximately $291,570 for the year ended March 31, 2010. The
exercise price of the warrants is subject to adjustment in the event the Company
issues its next equity financing of at least $2,500,000 at a price below $5.10
per share. At March 31, 2010, the aggregate fair value of the Private
Placement Warrants was $98,787 and was accounted for as a derivative liability
(see Note 9).
In
connection with the issuance of the Private Placement Debentures, the Company
recognized a debt discount and derivative liability at the dates of issuance in
the aggregate amount of $1,125,772 related to the fair value of the warrants and
embedded conversion features, which included $1,080,201 of debt discount
recorded during the year ended March 31, 2010 comprised of $788,631
related to the fair value of the embedded conversion features and $291,570
related to the fair value of the warrants. Prior to conversion, the
debt discount was amortized to interest expense over the life of the debentures
and the derivative liability was revalued each reporting period with changes in
fair value recognized in earnings.
On
February 25, 2010, immediately prior to the Company’s public offering, the
holders of the Private Placement Debentures converted the principal balance of
$1,381,500 and accrued interest of $78,701 into 519,187 shares of the Company’s
common stock at a conversion price of $2.81 in prepayment of all amounts
due. As a result of the conversion, the Company reclassified the
derivative liability related to the conversion feature of the Private Placement
Debentures of $273,465 to additional paid in capital and recognized
the remaining debt discount of approximately $331,002 as interest
expense. In addition, pursuant to the anti-dilution provisions
contained in the Private Placement Warrant agreements, the exercise price of the
Private Placement Warrants was reset from $5.10 per share to $2.81 per share and
the Company recorded a loss of $2,756 in other expense, net and a corresponding
increase in derivative liabilities (see Note 9).
During
the year ended March 31, 2010, the Company issued 16,253 warrants with an
exercise price of $5.10 per share for commissions due in connection with the
Company’s Private Placement Debentures. The Company determined the
aggregate fair value of the issued warrants, based on the Black-Scholes pricing
model, to be $63,396, or $3.90 per share as of the effective date of grant, and
was recorded in equity with a corresponding charge to deferred financing fees to
be amortized to interest expense over the remaining life of the
debt. The remaining balance of $21,132 was charged to interest
expense upon conversion of the Private Placement Debentures in February
2010.
During
the year ended March 31, 2010, the Company recognized an aggregate of $1,125,772
in interest expense due to amortization of debt discount related to the warrants
and embedded conversion features associated with the Company’s outstanding
Private Placement Debentures. There were no
corresponding amounts recognized during the year ended March 31, 2009 related to
the Private Placement Debentures.
Convertible
debentures mature in fiscal years ending after March 31, 2010 as
follows:
|
|
|
Amount
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
200,000
|
|
|
2012
|
|
|
2,400,000
|
|
|
2013
|
|
|
630,568
|
|
|
2014
|
|
|
—
|
|
|
2015
|
|
|
—
|
|
|
Thereafter
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
$
|
3,230,568
|
|
Note
9. Derivative Liabilities
As
described in Note 1, the Company adopted a new accounting principle which
required certain instruments to be accounted for as derivative
liabilities. The Company’s derivative liabilities balance as of March 31,
2010 was $334,363.
In
accordance with current accounting guidance (see Note 1), the Company’s
outstanding warrants to purchase shares of common stock and embedded conversion
features in convertible notes payable previously treated as equity were no
longer afforded equity treatment because these instruments have reset or ratchet
provisions that are triggered in the event the Company raises additional capital
at a lower price, among other adjustments. As such, effective April 1, 2009 the
Company reclassified the fair value of these common stock purchase warrants and
embedded conversion features, from equity to liability status as if these
warrants and conversion features were treated as derivative liabilities since
their dates of issuance or modification. Any change in fair value subsequent to
April 1, 2009 is recorded as non-operating, non-cash income or expense at each
reporting date. If the fair value of the derivatives was higher at the
subsequent balance sheet date, the Company recorded a non-operating, non-cash
charge. If the fair value of the derivatives was lower at the subsequent balance
sheet date, the Company recorded non-operating, non-cash income. The cumulative
effect at April 1, 2009 to record, at fair value, a liability for the warrants
and embedded conversion features, and related adjustments to discounts on
convertible notes of $2,595,095, resulted in an aggregate reduction to equity of
$13,875,623 consisting of a reduction to additional paid-in capital of
$4,217,730 and an increase in the accumulated deficit of $9,657,893 to reflect
the adoption of new accounting guidance.
Fiscal
Year 2010 Activity
In July
2009, as a result of the July Agreement, the exercise price of the Debenture
Warrants was decreased from $6.00 per share to $5.10 per share, which resulted
in an increase in the liability for derivative instruments of $1,608,540 and a
corresponding loss was recorded in other expense, net due to the change in fair
value of derivative liabilities (see Note 8).
In
September 2009, as a result of the September Amendment, the conversion price of
the Debentures and the exercise price of the Debenture Warrants was decreased
from $5.10 per share to $4.50 per share, pursuant to the terms of the
Debentures, which resulted in an aggregate increase in the liability for
derivative instruments of $1,679,990 and a corresponding loss was recorded in
other expense, net due to the change in fair value of derivative liabilities. In
addition, the conversion price of the Debentures was decreased from $5.10 per
share to $4.50 per share, which resulted in an increase in the number shares of
common stock which the Debentures may be converted into, an increase in the
liability for derivative instruments of $802,200 and a corresponding loss was
recorded in other expense, net and included in the change in fair value of
derivative liabilities (see Note 8).
In
February 2010, as a result of the conversion of all outstanding amounts due
under the Private Placement Debentures, the Company reclassified the derivative
liability for the embedded conversion feature of $273,465 to additional paid in
capital. In addition, pursuant to the anti-dilution provisions
contained in the Private Placement Warrant agreements, the exercise price of the
Private Placement Warrants was reset from $5.10 per share to $2.81 per
share. The Company recorded an increase in the liability for
derivative instrument of $2,756 and a corresponding loss was recorded in other
expense, net and included in the change in fair value of derivative
liabilities. The Company determined the aggregate fair value of the
warrants, based on the Black-Scholes pricing model, to be $98,786 as of March
31, 2010. See Note 8 for a discussion of the fair value of the
warrants and embedded conversion features as of the dates of
issuance.
In
February 2010, as a result of the 2010 Amendment, the exercise price of the
Debenture Warrants was decreased from $4.50 per share to $3.30 per share,
pursuant to the terms of the Debentures, which resulted in an increase in the
liability for derivative instruments of $231,093 and a corresponding loss was
recorded in other expense, net due to the change in fair value of derivative
liabilities. In addition, the conversion price of the Debentures was
decreased from $4.50 per share to $3.00 per share which resulted in an increase
in the number of shares of common stock which the Debentures may be converted
into, an increase in the liability for derivative instrument of $1,376,043 and a
corresponding loss was recorded in other expense, net and included in the change
in fair value of derivative liabilities (see Note 8).
In
February 2010, as a result of the 2010 Amendment and partial conversion of the
Debentures, the Company reclassified a portion of the derivative liability
related to the conversion feature of the Debentures of $1,653,299 to additional
paid in capital. In addition, due to the modification of the terms of
the Debentures, the remaining derivative liabilities for the embedded conversion
features and warrants of $9,009,329 was reclassified to additional paid in
capital as they no longer require derivative treatment (see Note
8).
During
the year ended March 31, 2010, the Company issued to various placement agents in
lieu of cash fees an aggregate of 20,000 warrants to purchase shares of the
Company’s common stock with a fair value of $87,448. The exercise prices of
these warrants are equal to $3.30, as reset from $5.10 on February 25, 2010
pursuant to the anti-dilution provisions contained in the warrant agreements and
an additional 10,909 warrant shares were issued for an aggregate total of 30,909
warrants. The Company determined the aggregate fair value of the issued
warrants, based on the Black-Scholes pricing model, to be $55,961 as of March
31, 2010. Since the exercise price of the warrants is subject to adjustment in
the event the Company issues the next equity financing, the warrants are
accounted for as a derivative liability.
During
the year ended March 31, 2010, the Company modified the terms of an aggregate of
54,676 warrants to purchase shares of the Company’s common stock which were
previously issued to various placement agents in lieu of cash fees. On April 5,
2009, in connection with the termination of a consulting agreement, the Company
modified the terms of 54,676 warrants issued in October 2007 and May 2008. The
exercise price of the warrants was reduced from $8.40 per share to $6.00 per
share and the expiration date was extended to 5 years from the date of
modification. As a result of the modification, the Company recognized expense of
$10,763 in other expense, net based on the change in the Black-Scholes fair
value before and after modification. On February 25, 2010, the
exercise price of the warrants was reduced from $6.00 per share to $3.30 per
share pursuant to the anti-dilution provisions contained in the warrant
agreements and an additional 44,735 warrant shares were issued, for an aggregate
total of 99,411 warrant shares. The Company recorded an increase in
the liability for derivative instrument of $5,225 and a corresponding loss was
recorded in other expense, net and included in the change in fair value of
derivative liabilities. The Company determined the aggregate fair
value of the issued warrants, based on the Black-Scholes pricing model, to be
$179,616 as of March 31, 2010. Since the exercise price of the
warrants is subject to adjustment in the event the Company issues the next
equity financing, the warrants are accounted for as a derivative
liability.
During
the year ended March 31, 2010, the Company recognized a net gain of $5,576,979
due to the change in fair value of its derivative instruments. See Note 8, for
the components of changes in derivative liabilities. During the year ended March
31, 2009, there were no derivative liabilities and therefore no recognized
changes in fair value. The Company’s common stock purchase warrants do not trade
in an active securities market, and as such, the Company estimated the fair
value of these warrants using the Black-Scholes option pricing model using the
following assumptions:
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|
|
March
31,
|
|
|
|
2010
|
|
Expected
dividends
|
|
|
—
|
|
|
Expected
term (in years)
|
|
|
3.50 –
5.00
|
|
|
Risk-free
interest rate
|
|
|
1.42% –
2.69%
|
|
|
Expected
volatility
|
|
|
178% –
204%
|
|
Historical
volatility was computed using daily pricing observations for recent periods that
correspond to the remaining term of the warrants, which had an original term of
five years from the date of issuance. The expected life is based on the
remaining term of the warrants. The risk-free interest rate is based on U.S.
Treasury securities with a maturity corresponding to the remaining term of the
warrants.
The
Company estimated the fair value of the embedded conversion features related to
its convertible debentures using the Black-Scholes option pricing model using
the following assumptions:
|
|
|
March
31,
|
|
|
|
2010
|
|
Expected
dividends
|
|
|
—
|
|
|
Expected
term (in years)
|
|
|
0.09
– 2.43
|
|
|
Risk-free
interest rate
|
|
|
0.06%
– 1.65%
|
|
|
Expected
volatility
|
|
|
81% –
150%
|
|
Historical
volatility was computed using daily pricing observations for recent periods that
correspond to the remaining life of the related debentures. The expected life is
based on the remaining term of the related debentures. The risk-free interest
rate is based on U.S. Treasury securities with a maturity corresponding to the
remaining term of the related debentures.
Note
10. Stockholders’ Equity
Common
Stock
The
Company’s authorized capital consists of 250,000,000 shares of common stock,
$0.001 par value per share. On February 5, 2010, the Company filed a
Certificate of Amendment to Amended and Restated Articles of Incorporation with
the Secretary of State of the State of Nevada to effect a 10-to-1 reverse stock
split of the Company’s issued and outstanding shares of common
stock. As of March 31, 2010 and 2009, 8,136,619 and 4,186,194 shares
of common stock were issued and outstanding, respectively.
Fiscal
Year 2009 Activity
In
October 2007, the Company engaged the firm of Carpe DM, Inc. to perform the
services as the Company’s investor relations and public relations representative
for a monthly fee of $7,500 per month. Pursuant to the terms of this
36 month consulting agreement, the Company issued 15,000 shares of common stock
at a price of $8.00 per share and a total value of $120,000, the resale of which
is registered on a Form S-8 registration statement and 25,000 fully vested and
non-forfeitable warrants at an exercise price of $15.00 per share for a period
of two and one-half years, valued at $229,834 as calculated using the
Black-Scholes option pricing model. On November 13, 2007, the Company
filed the Form S-8 as required by this agreement with the Securities and
Exchange Commission. The Company recorded the combined value of $349,834 for the
issued shares and warrants as prepaid expense and was amortized over the life of
the services agreement which was terminated during fiscal year
2010. As of March 31, 2010 and 2009, the unamortized balance of the
value of the shares and warrants issued to Carpe DM, Inc. was $0 and $174,928,
respectively. Amortization expense related to the value of the shares
and warrants was $174,928 and $116,604 for the years ended March 31, 2010 and
2009, respectively and is included in selling, general and administrative
expenses.
In April
2008, the Company rescinded and cancelled 14,014 shares of registered common
stock for principal redemptions of the October 2007 Debentures totaling $117,720
and submitted the cash payments in the same amounts to those holders. Pursuant
to a one-time waiver of certain equity conditions, the remaining $70,588
of the March 31 principal redemption was adjusted to reflect a one-time
conversion rate of $7.00 and, in April 2008 the Company issued the holder 1,681
additional registered shares in consideration. In addition, the March 31, 2008
interest payments were adjusted to reflect a one-time conversion price of $7.00
and in April 2008 the Company issued the October 2007 Debenture holders 2,209
additional common stock shares. The additional interest expense for the October
2007 Debentures of $5,446 related to the one-time conversion rate adjustments of
the March 31, 2008 principal and interest payments from $8.40 to $7.00 was
included in accrued interest for the October 2007 Debentures as of March 31,
2008.
During
fiscal 2009, the Company issued 24,472 shares of restricted common stock in lieu
of fees paid to various consultants for services performed. These shares were
issued at an average price of $6.90 (based on the underlying stock prices on the
dates of issuances) for a total cost of $168,769 which has been included in
selling, general and administrative expenses for the year ended March 31,
2009.
During
fiscal 2009, the Company issued 8,269 shares of common stock resulting from
exercises of stock options and warrants at an average price of $0.40 per share
for proceeds of $3,307 and issued 15,002 shares of common stock from the
cashless exercises of a total of 15,700 stock options.
Under the
terms of the January Amendment, in February 2009, the Company issued a total of
40,000 restricted common stock shares to the October 2007 and May 2008 Debenture
Holders. The total fair value of the shares issues totaled $164,000 and has been
included in the loss on extinguishment of debt for the year ended March 31,
2009.
In March
2009, the Company issued 15,752 S-8 registered shares of common stock in lieu of
fees paid for services performed by consultants. On March 28, 2009, the Company
filed the Form S-8 with the Securities and Exchange Commission. These shares
were issued at a value of $5.10 per share for a total cost of $80,333 which has
been included in selling, general and administrative expenses for the year ended
March 31, 2009.
Fiscal Year 2010 Activity
On
September 28, 2009, the Company issued 2,353 shares of common stock, in lieu of
$12,000 in fees paid for services performed by Carpe DM, Inc., which were issued
at a value of $5.10 per share (also see additional Carpe DM transactions in
“Fiscal Year 2009
Activity” above).
In May
2009, $713,000 of the October 2007 Debentures was converted by the note
holders. Using the conversion rate of $5.10 per share per the terms
of the Debenture, 139,804 shares of registered common stock were issued to the
investors.
In July
2009, the Company engaged an agent to solicit the holders of certain warrants to
exercise their rights to purchase shares of the Company’s common
stock. Pursuant to the terms of the engagement, the Company agreed to
pay the agent compensation of 5% of the gross proceeds totaling $76,632,
which is included equity and netted against the gross proceeds in the
accompanying consolidated balance sheet at March 31, 2010. In
addition, the Company issued to the agent a warrant to purchase a number of
shares of the Company’s common stock equal to 5% of the number of shares issued
in the exercise of the warrants, or a total of 23,952 warrants with a fair value
of $98,256 or $4.10 per share. The warrant has an exercise price of
$5.10 and will permit the agent or its designees to purchase shares of common
stock on or prior to October 1, 2014. The fair value of warrants has
been recorded as an offset to additional paid in capital on the accompanying
consolidated balance sheet. During the year ended March 31, 2010, the
Company issued 479,033 shares of its common stock for gross cash proceeds of
$1,437,100 from the exercise of warrants which resulted from the
solicitation.
During
July 2009, the Company entered into the July Agreement with the holders of the
Company’s Debentures (see Note 8). Pursuant to the terms of the July Agreement,
the Holders (i) consented to the Company’s issuance of convertible notes and
warrants in connection with the Bridge Financing of up to $1,500,000 which
commenced in March 2009, and (ii) waived, as it relates to the Bridge Financing,
a covenant contained in the Debentures not to incur any further indebtedness,
except as otherwise permitted by the Debentures. This Bridge Financing is more
particularly described in Note 8 above under the caption “Private Placement
Debentures.” In addition, in connection with the July Agreement, the Company and
Holders confirmed that (i) the exercise price of the warrants issued to the
Holders in connection with their purchase of the Debentures had been reduced,
pursuant to the terms of the warrants, to $5.10 as a result of the Bridge
Financing, and (ii) as a result of the foregoing decrease in the exercise price,
pursuant to the terms of the warrants, the number of shares underlying the
warrants held by Holders of the Debentures had been proportionally increased by
404,350 pursuant to the terms of the warrant agreements (see Note
8).
In August
2009, the Company issued warrants to purchase 600 shares of common stock in lieu
of payment to Gary C. Cannon, who then served as Corporate Legal Counsel for the
Company and as a member of the Advisory Board, to purchase shares of the
Company’s common stock at an exercise price of $5.10 per share with a five year
term. The exercise prices of these warrants are greater than or equal to the
stock price of the Company’s shares as of the date of grant. The fair market
value of the warrants based on the Black-Scholes pricing model of $2,799 was
recorded as consulting and compensation expense and included in selling, general
and administrative expenses during the year ended March 31, 2010. In July 2009,
Mr. Cannon was given a 30 day notice of his termination as general legal counsel
and advisor to the Company. During November 2009, the Company issued 4,314
shares of common stock to Mr. Cannon in lieu of payment for services for a total
expense of $22,000 which has been included in selling, general and
administrative expenses.
Effective
September 1, 2009, in connection with the September Amendment with the holders
of the Debentures, the exercise price of the Debenture Warrants was
reduced to $4.50 per share which resulted in a proportionate increase in the
number of shares that may be purchased upon the exercise of such warrants of
359,423 shares (see Note 8).
In
September 2009, $100,000 of the October 2007 Debentures was converted by the
note holder. Using the conversion rate of $4.50 per share per the
terms of the Debentures, 22,222 share of registered common stock were issued to
the investor.
On
October 30, 2009, the Company issued 5,881 shares of common stock, in lieu of
fees paid for services performed by the Board of Directors. These
shares were issued at a value of $4.30 per share, for a total value of
$25,288.
During
October and November 2009, the holders of the October 2007 Debentures converted
$370,000 principal into 82,222 shares of the Company’s common stock at a
conversion price of $4.50 per share per the terms of the Debentures (See Note
8).
During
January, 2010, the holders of the October 2007 Debentures converted $200,000
principal into 44,444 shares of the Company’s common stock at a conversion price
of $4.50 per share per the terms of the Debentures (see Note 8).
On
February 19, 2010, we entered into the 2010 Amendment with the holders of our
Debentures (see Note 8). Pursuant to the 2010 Amendment, the holders
each converted $1,357,215 in principal amount of the outstanding principal
balance of such holder’s debenture in exchange for a number of shares of common
stock determined by dividing such principal amount by the unit offering
price. Based on the public offering price of $3.00 per unit, each
holder received a total of 452,405 shares of common stock upon
conversion. The conversion price of the remaining outstanding balance
of each debenture was reset to $3.00 based on the Company’s public offering
price. As a result of the conversion of an aggregate of $2,714,430
outstanding principal, the Company reclassified a portion of the derivative
liability related to the conversion feature of the Debentures of $1,450,605 to
additional paid in capital. In addition, pursuant to the 2010
Amendment, certain anti-dilution provisions contained in the debentures and
warrants held by the debenture holders were terminated along with the right to
maintain a fully-diluted ownership of our common stock equal to 34.5%, which
resulted in the reclassification of $9,009,329 of derivative liability related
to the embedded conversion features and warrants to additional paid in
capital. Pursuant to the terms of the 2010 Amendment, the exercise
price of the warrants currently held by the debenture holders was reset to equal
the exercise price of the warrants included as part of the units sold in the
Company’s public offering (110% of the unit offering price or $3.30 per share)
and the exercise period was extended to January 1, 2015.
On
February 25, 2010 the Company completed a public offering of units consisting of
1,666,667 shares of the Company’s common stock and 1,666,667 warrants to
purchase one share of the Company’s common stock for gross proceeds of
$5,000,001 and net cash proceeds of approximately $3,742,097. Each unit
consisting of one share, together with one warrant to purchase one share, was
priced at $3.00. The warrants issued as part of the offering have an
exercise price of $3.30 and a term of 5 years. In addition, the
Company issued a warrant to purchase 83,333 shares of the Company’s common stock
to the underwriter’s representative at an exercise price of $3.75 with a 5 year
term and have a fair value of $199,043 based on the Black-Scholes pricing
model. Pursuant to the offering, the Company issued to an investment
banker warrants to purchase 17,500 shares of the Company’s common stock with a
fair value of $41,939, which represented 7% of the warrants issued to the
holders of the Company’s Debentures participating in the public offering, at an
exercise price of $3.30 per share and a 5 year term.
During
the year ended March 31, 2010, the Company issued to the purchasers of the
Private Placement Debentures warrants to purchase an aggregate of 51,824 shares
of common stock at an initial exercise price of $5.10. In February
2010, immediately prior to the Company’s public offering, the holders of the
Private Placement Debentures converted the aggregate principal balance of
$1,381,500 and accrued interest of $78,701 into 519,186 shares of the Company’s
common stock at a conversion price of $2.81 in prepayment of all amounts
due. As a result of the conversion of all outstanding amounts, the
Company reclassified the derivative liability for the embedded conversion
feature of $273,465 to additional paid in capital. In addition,
pursuant to the anti-dilution provisions contained in the Private Placement
Warrant agreements, the exercise price of the Private Placement Warrants was
reset from $5.10 per share to $2.81 per share (see Notes 8 and 9).
On March
23, 2010, the Company issued warrants to purchase 15,000 shares of the Company’s
common stock with a fair value of $27,426 to an agent for continued shareholder
support at an exercise price of $1.91 per share. The warrants were
recorded in equity with a corresponding charge to general and administrative
expense.
During
the year ended March 31, 2010, the Company issued 20,000 warrants to purchase
shares of the Company’s common stock to various placement agents. The
warrants were issued in April 2009 with a fair value of $87,448 and an exercise
price of $5.10 and were classified as derivative liabilities. The
exercise price of these warrants was reset to $3.30 per share from $5.10 per
share on February 25, 2010 pursuant to the anti-dilution provisions contained in
the warrant agreements, and an additional 10,909 warrant shares were issued for
an aggregate total of 30,909 warrants (see Note 9).
During
the year ended March 31, 2010, the Company modified the terms of 54,676 warrants
to purchase shares of the Company’s common stock which were previously issued to
various placement agents and currently classified as derivative liabilities. In
April 2009, the exercise price of the warrants was reduced from $8.40 per share
to $6.00 per share and the expiration date was extended to 5 years from the date
of modification. On February 25, 2010, the exercise price of the
warrants was reduced from $6.00 per share to $3.30 per share pursuant to the
anti-dilution provisions contained in the warrant agreements and an additional
44,735 warrant shares were issued, for an aggregate total of 99,411 warrant
shares. See Note 9 for a discussion of the accounting
impact.
During
the year ended March 31, 2010, the Company issued 4,719 shares of common stock
upon the cashless exercise of a total of 11,640 warrants at an average exercise
price of $2.80 per share and 11,034 shares of common stock upon the cashless
exercise of a total of 11,900 options at an average exercise price of $0.40 per
share.
During
the year ended March 31, 2010, the Company issued 20,942 shares of common stock
the resale of which was registered pursuant to Form S-8 in lieu of fees paid for
services performed by consultants. On April 13, 2009 and June 11,
2009, the Company filed the related Forms S-8 with the SEC. These
shares were issued at a value of $5.10 per share with a total value of $106,806
which has been included in selling, general and administrative expenses for the
year ended March 31, 2010.
During
the year ended March 31, 2010, the Company converted interest payments due on
the Debentures totaling $171,253 into 42,814 shares of common stock using
the conversion rate of $4.00 per share.
During
the year ended March 31, 2010, a total of 21,000 warrants and 190,553 stock
options with a weighted average fair value of $3.53 per share were granted to
employees and directors (see Note 11).
During
the year ended March 31, 2010, the Company issued 16,253 warrants with a fair
value of $63,396 or $3.90 per share for commissions due in connection with the
Company’s Private Placement Debentures (see Note 8).
The
following summary information reflects warrants outstanding as of March 31, 2010
(other than those issued to the Company’s employees, officers, directors and
related consultants presented in the Stock Compensation Plan Section below) and
other related details:
|
|
|
Warrants
Outstanding
|
|
Year
of Grant
(as
of March 31)
|
|
Exercise
Price
|
|
Number
Outstanding,
Vested
and Exercisable
|
|
Remaining
Contractual
Life
(Years)
|
|
|
|
|
|
|
|
|
|
2003
|
|
$5.00
|
|
20,000
|
|
0.68
|
|
2008
|
|
$1.50
- $35.00
|
|
1,778,573
|
|
3.71
|
|
2009
|
|
$2.81
- $8.50
|
|
659,881
|
|
3.25
|
|
2010
|
|
$1.91
- $5.10
|
|
2,769,223
|
|
5.14
|
|
|
|
|
|
5,227,677
|
|
|
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note
11. Stock Compensation Plan
The
Company accounts for share-based payments to employees and directors in
accordance with share-based payment accounting literature which requires all
share-based payments to employees and directors, including grants of employee
stock options and warrants, to be recognized in the consolidated financial
statements based upon their fair values. The Company uses the Black-Scholes
option pricing model to estimate the grant-date fair value of share-based
awards. Fair value is determined at the date of grant. The consolidated
financial statement effect of forfeitures is estimated at the time of grant and
revised, if necessary, if the actual effect differs from those estimates. The
estimated average forfeiture rate for the years ended March 31, 2010 and 2009
was zero, as the Company has not had a significant history of forfeitures and
does not expect forfeitures in the future.
Cash
flows resulting from the tax benefits resulting from tax deductions in excess of
the compensation cost recognized for those options or warrants to be classified
as financing cash flows. Due to the Company’s loss position, there
were no such tax benefits during the years ended March 31, 2010 and
2009.
Plan
Descriptions
The
Company maintains two stock option plans, the 2002 Stock Incentive Plan (the
“2002 Plan”) and the 2009 Stock Incentive Plan (the “2009 Plan”). The 2002 Plan
provides for grants of incentive stock options and nonqualified options to
employees, directors and consultants of the Company to purchase the Company’s
shares at the fair value, as determined by management and the board of
directors, of such shares on the grant date. The options are subject to various
vesting conditions and generally vest over a three-year period beginning on the
grant date and have seven to ten-year term. The 2002 Plan also provides for the
granting of restricted shares of common stock subject to vesting requirements.
The Company is authorized to issue up to 500,000 shares under this plan and has
393,736 shares available for future issuances as of March 31, 2010.
On
October 9, 2009, the Company’s stockholders approved and adopted the 2009 Plan,
which had previously been approved by the Company’s Board of Directors on August
31, 2009. The 2009 Plan provides for the grant of incentive stock options,
nonqualified stock options, restricted stock rights, restricted stock,
performance share units, performance shares, performance cash awards, stock
appreciation rights, and stock grant awards (collectively, “Awards”) to
employees, officers, non-employee directors, consultants and independent
contractors of the Company. The 2009 Plan also permits the grant of awards that
qualify for the “performance-based compensation” exception to the $1,000,000
limitation on the deduction of compensation imposed by Section 162(m) of the
Internal Revenue Code. A total of 1,200,000 shares of the Company’s common stock
are authorized for the granting of Awards under the 2009 Plan. The number of
shares available for future awards, as well as the terms of outstanding awards,
is subject to adjustment as provided in the 2009 Plan for stock splits, stock
dividends, recapitalizations and other similar events. Awards may be granted
under the 2009 Plan until October 9, 2019 or until all shares available for
awards under the 2009 Plan have been purchased or acquired. The Company is
authorized to issue up to 1,200,000 shares under this plan and has 1,023,047
shares available for future issuances as of March 31, 2010.
In
addition to the stock options issued pursuant to the Company’s two stock option
plans, the Company has granted warrants to employees, officers, non-employee
directors, consultants and independent contractors. The warrants are
generally not subject to vesting requirements and have ten-year
terms. At March 31, 2010 there were 16,667 warrants outstanding
subject to vesting conditions.
As of
March 31, 2010, a total of 65,395 and 176,953 shares of common stock were
reserved for issuance under the 2002 and 2009 Stock Plans, respectively, and a
total of 312,855 shares of common stock were reserved for issuance upon exercise
of outstanding warrants. A summary of the Company’s employee and
director stock option and warrant activity and related information during the
2010 fiscal year follows:
|
|
|
Number
of
Shares
|
|
|
Weighted-Average
Exercise Price
|
|
Remaining
Contractual Life
|
|
Aggregate
Intrinsic Value
|
|
|
Outstanding
at April 1, 2009
|
|
|
523,388 |
|
|
$ |
6.88 |
|
6.82 |
|
|
|
Granted
|
|
|
211,553 |
|
|
$ |
3.54 |
|
|
|
|
|
Exercised
|
|
|
(15,753 |
) |
|
$ |
1.12 |
|
|
|
$ |
79,964 |
|
|
Canceled
|
|
|
(163,985 |
) |
|
$ |
5.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and expected to vest at March 31, 2010
|
|
|
555,203 |
|
|
$ |
6.22 |
|
7.55 |
|
$ |
29,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at March 31, 2010
|
|
|
378,533 |
|
|
$ |
7.46 |
|
7.00 |
|
$ |
29,907 |
|
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The
following summary information reflects stock options and warrants outstanding,
vesting and related details as of March 31, 2010:
| |
|
|
|
|
Stock
Options and Warrants Outstanding
|
|
| Year of Grant |
|
|
|
|
Number
|
|
|
Remaining
Contractual
|
|
|
Vested
and
|
|
|
(as
of March 31)
|
|
Exercise
Price
|
|
|
Outstanding
|
|
|
Life
(Years)
|
|
|
Exercisable
|
|
|
2002
|
|
$ |
10.00 |
|
|
|
5,000 |
|
|
|
3.59 |
|
|
|
5,000 |
|
|
2003
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
2004
|
|
|
6.00 |
|
|
|
20,000 |
|
|
|
4.26 |
|
|
|
20,000 |
|
|
2005
|
|
|
0.40
– 6.00 |
|
|
|
26,795 |
|
|
|
3.34 |
|
|
|
26,795 |
|
|
2006
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
2007
|
|
|
2.80
– 10.00 |
|
|
|
111,335 |
|
|
|
6.45 |
|
|
|
111,335 |
|
|
2008
|
|
|
7.50
– 10.80 |
|
|
|
88,780 |
|
|
|
7.77 |
|
|
|
88,780 |
|
|
2009
|
|
|
5.10
– 10.50 |
|
|
|
91,740 |
|
|
|
7.13 |
|
|
|
75,073 |
|
|
2010
|
|
$ |
2.20
– 8.30 |
|
|
|
211,553 |
|
|
|
8.46 |
|
|
|
51,550 |
|
|
|
|
|
|
|
|
|
555,203 |
|
|
|
|
|
|
|
378,533 |
|
The
Company uses the Black-Scholes option-pricing model to recognize the value of
stock-based compensation expense for all share-based payment awards. Determining
the appropriate fair-value model and calculating the fair value of stock-based
awards at the grant date requires considerable judgment, including estimating
stock price volatility, expected option life and forfeiture rates. The Company
develops estimates based on historical data and market information, which can
change significantly over time. The Black-Scholes model requires the Company to
make several key judgments including:
|
|
•
|
The
expected option term reflects the application of the simplified method set
out in SAB No. 107 Share-Based Payment (SAB 107), which was issued in
March 2005. In December 2007, the SEC released Staff Accounting Bulletin
No. 110 (SAB 110), which extends the use of the “simplified” method, under
certain circumstances, in developing an estimate of expected term of
“plain vanilla” share options. Accordingly, the Company has utilized the
average of the contractual term of the options and the weighted average
vesting period for all options and warrants to calculate the expected
option term.
|
|
|
•
|
Estimated
volatility also reflects the historical volatility pattern of the
Company’s share price.
|
|
|
•
|
The
dividend yield is based on the Company’s historical pattern of dividends
as well as expected dividend
patterns.
|
|
|
•
|
The
risk-free rate is based on the implied yield of U.S. Treasury notes as of
the grant date with a remaining term approximately equal to the expected
term.
|
|
|
•
|
Estimated
forfeiture rate of 0% per year is based on the Company’s historical
forfeiture activity of unvested stock options. The Company used
the following assumptions for stock options and warrants granted during
the years ended March 31, 2010 and
2009:
|
| |
Years
Ended March 31,
|
|
|
|
2010
|
|
2009
|
|
|
Risk-free
interest rate
|
1.38%
– 3.04%
|
|
1.52%
– 3.15%
|
|
|
Expected
volatility
|
179% –
197%
|
|
201% –
266%
|
|
|
Expected
life (in years)
|
3.50
– 6.02
|
|
5.00
|
|
|
Expected
dividend yield
|
N/A
|
|
N/A
|
|
For the
years ended March 31, 2010 and 2009, the following represent the Company’s
weighted average fair value displayed by grant year:
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
Fair
Value of
|
|
|
|
|
|
|
|
Options
and
|
|
|
Grant
Year
|
|
Granted
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2010
|
|
|
211,553
|
|
|
$
|
3.53
|
|
|
March
31, 2009
|
|
|
91,470
|
|
|
$
|
5.08
|
|
There
were 21,000 warrants and 190,553 stock options for an aggregate of 211,553
shares granted to employees and directors during the year ended March 31, 2010
and 91,740 warrants and no stock options for an aggregate of 91,470 shares
granted to employees and directors during the year ended March 31,
2009. In connection with the warrants and options granted and the
vesting of prior warrants issued, during the years ended March 31, 2010 and
2009, the Company recorded total charges of $559,561 and $289,497, respectively,
which have been included in selling, general and administrative expenses in the
accompanying consolidated statements of operations. The Company
issues new shares from its authorized shares upon exercise of warrants or
options.
As of
March 31, 2010 and 2009, there was $471,401 and $287,722, respectively, of total
unrecognized compensation cost, related to non-vested stock options and
warrants, which is expected to be recognized over a remaining weighted average
vesting period of 1.69 years.
The
aggregate intrinsic value of stock options and warrants exercised during the
years ended March 31, 2010 and 2009 was $79,964 and $203,012,
respectively.
Note
12. Commitments and Contingencies
Lease
Commitments
On July
2, 2007, the Company entered into a lease agreement with Viking Investors -
Barents Sea, LLC (Lessor) for a building with approximately 11,881 square feet
of manufacturing and office space located at 20382 Barents Sea Circle, Lake
Forest, CA, 92630. The lease agreement is for a period of two years with renewal
options for three, one-year periods, beginning September 1, 2007. The lease
required base lease payments of approximately $10,000 per month plus operating
expenses. In connection with the lease agreement, the Company issued to the
lessor a warrant to purchase 1,000 shares of common stock at an exercise price
of $15.50 per share for a period of two years, valued at $15,486 as calculated
using the Black Scholes option pricing model. The assumptions used under the
Black-Scholes pricing model included: a risk free rate of 4.75%; volatility of
293%; an expected exercise term of 5 years; and no annual dividend
rate. The Company capitalized and amortized the value of the warrant over
the life of the lease and recorded the unamortized value of the warrant in other
long-term assets. For the years ended March 31, 2010 and 2009, the
Company amortized $2,970 and $7,104, respectively. As of March 31,
2010 the fair value of the warrant has been fully amortized. On August 24,
2009, the Company entered into the second amendment to the lease for its
manufacturing and office space. The amendment extended the lease for twelve
months from the end of the existing lease term with a right to cancel the lease
with a minimum of 120 day written notice at anytime as of November 30,
2009. In June 2010, Company entered into the third amendment to the lease
for its manufacturing and office space. The amendment extended the lease for
sixty months commencing July 1, 2010 with a right to cancel the lease with a
minimum of 120 day written notice at anytime as of December 31,
2012.
In the
event the Company does exercise its option to cancel the lease, the Company
shall reimburse the Lessor for the unearned leasing commissions. Rent expense on
the facilities and equipment during 2010 and 2009 was $144,728 and
$182,765, respectively.
Future
annual minimum payments under operating leases are as follows:
|
|
|
|
|
|
2011
|
|
$
|
89,812
|
|
|
2012
|
|
|
86,253
|
|
|
2013
|
|
|
90,177
|
|
|
2014
|
|
|
96,594
|
|
|
2015
|
|
|
104,793
|
|
|
Thereafter
|
|
|
26,733
|
|
|
|
|
|
|
|
|
|
|
$
|
494,362
|
|
The
above schedule of future annual minimum payments has been adjusted to reflect
the lease amendment entered into with the Lessor subsequent to year end (see
Note 15).
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 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 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 lease, the Company has
indemnified its lessor for certain claims arising from the use of the facility.
The duration of the guarantees and indemnities varies, and is generally tied to
the life of the agreement. These 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.
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note
13. Income Taxes
Significant
components of the Company’s deferred tax assets as of March 31, 2010 and 2009
are shown below:
|
|
|
2010
|
|
|
2009
|
|
|
Deferred
tax asset:
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
$
|
10,938,000
|
|
|
$
|
5,031,000
|
|
|
Research
credits
|
|
|
24,000
|
|
|
|
|
|
|
Expenses
recognized for granting of options and
warrants
|
|
|
800,000
|
|
|
|
862,000
|
|
|
Accrued
expenses and reserves
|
|
|
104,000
|
|
|
|
178,000
|
|
|
Valuation
allowance
|
|
|
(11,866,000)
|
|
|
|
(6,071,000)
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Based on
the weight of available evidence, the Company’s management has determined that
it is not more likely than not that the net deferred tax assets will 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
income tax provision differs from that computed using the federal statutory rate
applied to income before taxes as follows:
|
|
|
2010
|
|
|
2009
|
|
|
Computed
tax benefit at federal statutory rate
|
|
$
|
(1,920,000)
|
|
|
$
|
(5,679,000)
|
|
|
State
tax, net of federal benefit
|
|
|
(645,000)
|
|
|
|
1,000
|
|
|
Non
deductible extinguishment of debt
|
|
|
|
|
|
|
3,688,000
|
|
|
Permanent
items and other
|
|
|
(3,226,400)
|
|
|
|
1,036,600
|
|
|
Valuation
allowance
|
|
|
5,793,000
|
|
|
|
955,000
|
|
|
|
|
$
|
1,600
|
|
|
$
|
1,600
|
|
At
March 31, 2010, the Company has federal and state net operating loss carry
forwards of approximately $27,463,000 and $27,421, 000 which will begin to
expire in 2019 and 2013, respectively, unless previously utilized. At
March 31, 2010, the Company has federal and California research and development
tax credits of approximately $14,000 and $13,000, respectively. The
federal research tax credit begins to expire in 2026 unless previously utilized
and the California research tax credit has no expiration date.
Utilization
of the net operating loss and research and development carry forwards might be
subject to a substantial annual limitation due to ownership change limitations
that may have occurred or that could occur in the future, as required by Section
382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as
similar state and foreign provisions. These ownership changes may limit the
amount of NOL and R&D credit carryforwards that can be utilized annually to
offset future taxable income and tax, respectively. In general, an
“ownership change” as defined by Section 382 of the Code results from a
transaction or series of transactions over a three-year period resulting in an
ownership change of more than 50 percentage points of the outstanding stock of a
company by certain stockholders or public groups. Since the Company’s
formation, the Company has raised capital through the issuance of capital stock
on several occasions which, combined with the purchasing stockholders’
subsequent disposition of those shares, may have resulted in such an ownership
change, or could result in an ownership change in the future upon subsequent
disposition.
The
Company has not completed a study to assess whether an ownership change has
occurred. If the Company has experienced an ownership change, utilization of the
NOL or R&D credit carryforwards would be subject to an annual limitation
under Section 382 of the Code, which is determined by first multiplying the
value of the Company’s stock at the time of the ownership change by the
applicable long-term, tax-exempt rate, and then could be subject to additional
adjustments, as required. Any limitation may result in expiration of
a portion of the NOL or R&D credit carryforwards before utilization.
Further, until a study is completed and any limitation is known, no amounts are
being considered as an uncertain tax position or disclosed as an unrecognized
tax benefit under FIN 48. Due to the existence of the valuation
allowance, future changes in the Company’s unrecognized tax benefits will not
impact its effective tax rate. Any carryforwards that will expire
prior to utilization as a result of such limitations will be removed from
deferred tax assets with a corresponding reduction of the valuation
allowance.
In June
2006, the Financial Accounting Standards Board (“FASB”) issued Financial
Interpretation (“FIN”) 48, “Accounting for Uncertainty in Income Taxes,”
(codified primarily in FASB ASC Topic 740, Income Taxes) which clarifies the accounting
for uncertainty in income taxes recognized in the financial statements in
accordance with Statement of Financial Accounting Standards (“SFAS”) 109, “Accounting for Income Taxes,” (codified
primarily in FASB ASC Topic 740, Income
Taxes). FIN 48 provides that a tax benefit from an uncertain
tax position may be recognized when it is more likely than not that the position
will be sustained upon examination, including resolutions of any related appeals
or litigation processes, based on the technical merits. Income tax positions
must meet a more likely than not recognition threshold. The
Company did not record any unrecognized tax benefits upon adoption of Accounting
for Uncertainty in Income Taxes. The Company's policy is to recognize
interest and penalties that would be assessed in relation to the settlement
value of unrecognized tax benefits as a component of income tax
expense.
The
Company does not have any unrecognized tax benefits that will significantly
decrease or increase within 12 months of March 31, 2010. The
Company is subject taxation in the US and the state of California.
As of
March 31, 2010, the Company is no longer subject to U.S. federal examinations
for year before 2006; and for California franchise and income tax examinations
before 2005. 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.
Note
14. Quarterly Results of Operations (unaudited)
The
following table sets forth a summary of our unaudited quarterly operating
results for each of the last eight quarters in the period ended March 31,
2010. This data has been derived from our unaudited consolidated interim
financial statements which, in our opinion, have been prepared on substantially
the same basis as the audited financial statements contained elsewhere in this
report and include all normal recurring adjustments necessary for a fair
presentation of the financial information for the periods presented. These
unaudited quarterly results should be read in conjunction with our financial
statements and notes thereto included elsewhere in this report. The operating
results in any quarter are not necessarily indicative of the results that may be
expected for any future period (in thousands except earnings per
share).
| |
|
Quarter
Ended
|
|
| |
|
Mar.
31,
2010
|
|
|
Dec.
31,
2009
|
|
|
Sept.
30,
2009
|
|
|
June 30,
2009
|
|
|
Mar.
31,
2009
|
|
|
Dec.
31,
2008
|
|
|
Sept.
30,
2008
|
|
|
June 30,
2008
|
|
| |
|
(Unaudited)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
$ |
75 |
|
|
$ |
21 |
|
|
$ |
8 |
|
|
$ |
14 |
|
|
$ |
7 |
|
|
$ |
9 |
|
|
$ |
6 |
|
|
$ |
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
259 |
|
|
|
133 |
|
|
|
177 |
|
|
|
149 |
|
|
|
127 |
|
|
|
166 |
|
|
|
135 |
|
|
|
118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
loss
|
|
|
(184 |
) |
|
|
(112 |
) |
|
|
(169 |
) |
|
|
(135 |
) |
|
|
(120 |
) |
|
|
(157 |
) |
|
|
(129 |
) |
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
15 |
|
|
|
89 |
|
|
|
93 |
|
|
|
88 |
|
|
|
68 |
|
|
|
13 |
|
|
|
105 |
|
|
|
111 |
|
|
Selling,
general and administrative
|
|
|
1,114 |
|
|
|
690 |
|
|
|
779 |
|
|
|
729 |
|
|
|
497 |
|
|
|
551 |
|
|
|
780 |
|
|
|
560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses
|
|
|
1,129 |
|
|
|
779 |
|
|
|
872 |
|
|
|
817 |
|
|
|
(565 |
) |
|
|
564 |
|
|
|
885 |
|
|
|
671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,313 |
) |
|
|
(891 |
) |
|
|
(1,041 |
) |
|
|
(952 |
) |
|
|
(685 |
) |
|
|
(721 |
) |
|
|
(1,014 |
) |
|
|
(776 |
) |
|
Other
income (expense), net
|
|
|
747 |
|
|
|
3,342 |
|
|
|
(6,144 |
) |
|
|
602 |
|
|
|
(4,774 |
) |
|
|
(733 |
) |
|
|
(555 |
) |
|
|
(7,446 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
$ |
(566 |
) |
|
$ |
2,451 |
|
|
$ |
(7,185 |
) |
|
$ |
(350 |
) |
|
$ |
(5,459 |
) |
|
$ |
(1,
454 |
) |
|
$ |
(1,569 |
) |
|
$ |
(8,222 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(566
|
) |
|
$ |
2,451 |
|
|
$ |
(7,187
|
) |
|
$ |
(350
|
) |
|
$ |
(5,460
|
) |
|
$ |
(1,
454
|
) |
|
$ |
(1,569
|
) |
|
$ |
(8,223 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.09
|
) |
|
|
0.50
|
|
|
|
(1.56
|
) |
|
|
(0.08
|
) |
|
|
(1.32
|
) |
|
|
(0.35
|
)
|
|
|
(0.38
|
) |
|
|
(2.00
|
) |
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,242
|
|
|
|
4,912
|
|
|
|
4,615
|
|
|
|
4,294
|
|
|
|
4,149
|
|
|
|
4,121
|
|
|
|
4,117
|
|
|
|
4,102
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
6,242
|
|
|
|
6,577
|
|
|
|
4,615
|
|
|
|
4,294
|
|
|
|
4,149
|
|
|
|
4,121
|
|
|
|
4,117
|
|
|
|
4,102
|
|
Note
15. Subsequent Events
On April
1, 2010 the Company granted to Chris Campbell, Vice President of Sales a stock
option to purchase 15,000 shares of the Company’s common stock at an exercise
price of $2.00 per share valued at $27,963 as calculated using the Black Scholes
option pricing model. The assumptions used under the Black-Scholes pricing model
included: a risk free rate of 2.59%; volatility of 193%; an expected exercise
term of 3.5 years; and no annual dividend rate. These options vest
beginning April 1, 2011 over 5 years.
On April
15, 2010, the Company entered into office service agreements with Regus
Management Group, LLC (Lessor) for five (5) executive offices located at 402
West Broadway, San Diego, CA 92101. The office service
agreements are for periods ranging from 3 to 7 months ending October 31, 2010.
The office service agreements require base lease payments of approximately
$5,100 per month.
In April
2010, the Company issued 13,636 shares of unrestricted common stock in lieu of
fees paid to various consultants for services incurred in fiscal year 2010
pursuant to the Company’s Form S-8 filed on April 27, 2010. These
shares were issued at a value of $1.76 per share for a total cost of $24,000
which is included in accounts payable and selling, general and administrative as
of and for the year ended March 31, 2010.
On May
11, 2010 the Company granted to Bret Bollinger, Vice President of Operations a
fully vested stock option to purchase 20,000 shares of the company’s common
stock at an exercise price of $1.89 per share for fiscal year 2010 annual
incentive. This option is valued at $34,034 as calculated using the Black
Scholes option pricing model. The assumptions used under the Black-Scholes
pricing model included: a risk free rate of 2.26%; volatility of 174%; an
expected exercise term of 3.5 years; and no annual dividend
rate. This cost is included in selling, general and administrative
for the year ended March 31, 2010.
In May
2010, the Company granted a warrant to a consultant to purchase 40,000 shares of
common stock with an exercise price of $1.89 valued at $68,068 as calculated using
the Black Scholes option pricing model. The assumptions used under the
Black-Scholes pricing model included: a risk free rate of 2.26%; volatility of
174%; an expected exercise term of 3.5 years; and no annual dividend
rate. With 20,000 shares vesting upon issuance and the remaining 20,000
shares vesting upon completion of certain key milestones to be developed by the
CEO.
In May
2010, we obtained a key man life insurance policies on the Company’s Chief
Executive Officer. Annual premiums on this policy total approximately
$33,000.
In June
2010, Company entered into the third amendment to the lease for its
manufacturing and office space. The amendment extended the lease for sixty
months commencing July 1, 2010 with a right to cancel the lease with a minimum
of 120 day written notice at anytime as of December 31, 2012.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
CRYOPORT,
INC.
|
|
|
|
|
|
|
|
Dated: June
21, 2010
|
By:
/s/ LARRY G.
STAMBAUGH
|
|
|
Larry
G. Stambaugh,
|
|
|
President
& Chief Executive Officer, and
Director
|
POWER
OF ATTORNEY
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Larry G. Stambaugh, President and Chief Executive
Officer, and Catherine M. Doll, Chief Financial Officer, and each of them, his
true and lawful attorneys-in-fact and agents, with the full power of
substitution and re-substitution, for him and in his name, place and stead, in
any and all capacities, to sign any amendments to this report, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto each said attorney-in-fact
and agent full power and authority to do and perform each and every act in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or either of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
|
Signature
|
Capacity
|
Date
|
|
|
|
|
|
|
|
|
|
/s/ Larry G.
Stambaugh
|
President
& Chief Executive
|
June
21, 2010
|
|
Larry
G. Stambaugh
|
Officer
(Principal Executive
|
|
|
|
Officer),
and Director
|
|
|
|
|
|
|
/s/ Catherine M.
Doll
|
Chief
Financial Officer
|
June
21, 2010
|
|
Catherine
M. Doll
|
(Principal
Financial and
|
|
|
|
Principal
Accounting Officer)
|
|
|
|
|
|
|
/s/ Carlton M.
Johnson
|
Director
|
June
21, 2010
|
|
Carlton
M. Johnson
|
|
|
|
|
|
|
|
/s/ Adam
Michelin
|
Director
|
June
21, 2010
|
|
Adam
Michelin
|
|
|
|
|
|
|
|
/s/ J. Hank
Bonde
|
Director
|
June
21, 2010
|
|
J.
Hank Bonde
|
|
|
EXHIBIT
INDEX
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
Form
of Underwriting Agreement***
|
|
|
|
|
3.1
|
|
Corporate
Charter for G.T.5-Limited issued by the State of Nevada on March 15, 2005.
Incorporated by reference to CryoPort’s Registration Statement on Form
10-SB/A4 dated February 23, 2006.
|
|
|
|
|
3.2
|
|
Articles
of Incorporation for G.T.5-Limited filed with the State of Nevada in May
25, 1990. Incorporated by reference to CryoPort’s Registration Statement
on Form 10-SB/A4 dated February 23, 2006.
|
|
|
|
|
3.3
|
|
Amendment
to Articles of Incorporation of G.T.5-Limited increasing the authorized
shares of common stock from 5,000,000 to 100,000,000 shares of common
stock filed with the State of Nevada on October 12, 2004. Incorporated by
reference to CryoPort’s Registration Statement on Form 10-SB/A4 dated
February 23, 2006.
|
|
|
|
|
3.4
|
|
Amendment
to Articles of Incorporation changing the name of the corporation from
G.T.5-Limited to CryoPort, Inc. filed with the State of Nevada on March
16, 2005. Incorporated by reference to CryoPort’s Registration Statement
on Form 10-SB/A4 dated February 23, 2006.
|
|
|
|
|
3.4.1
|
|
Amended
and Restated Articles of Incorporation dated October 19, 2008.
Incorporated by reference to CryoPort’s Current Report on Form 8-K filed
October 19, 2007.
|
|
|
|
|
3.4.2
|
|
Certificate
of Amendment to Articles of Incorporation filed with the State of Nevada
on November 2, 2009.***
|
|
|
|
|
3.4.3
|
|
Certificate
of Amendment to Amended and Restated Articles of Incorporation.
Incorporated by reference to CryoPort’s Current Report on Form 8-K filed
February 5, 2010.
|
|
|
|
|
3.5
|
|
Amended
and Restated By-Laws of CryoPort, Inc. adopted by the Board of Directors
on June 22, 2005 and amended by the Certificate of Amendment of
Amended and Restated Bylaws of CryoPort, Inc. adopted by the Board of
Directors on October 9, 2009.***
|
|
|
|
|
3.6
|
|
Articles
of Incorporation of CryoPort Systems, Inc. filed with the State of
California on December 11, 2000, including Corporate Charter for
CryoPort Systems, Inc. issued by the State of California on December 13,
2000. Incorporated by reference to CryoPort’s Registration Statement on
Form 10-SB/A4 dated February 23, 2006.
|
|
|
|
|
3.7
|
|
By-Laws
of CryoPort Systems, Inc. adopted by the Board of Directors on December
11, 2000. Incorporated by reference to CryoPort’s Registration Statement
on Form 10-SB/A4 dated February 23, 2006.
|
|
|
|
|
3.8
|
|
CryoPort,
Inc. Stock Certificate Specimen. Incorporated by reference to CryoPort’s
Registration Statement on Form 10-SB/A4 dated February 23,
2006.
|
|
|
|
|
3.9
|
|
Code
of Conduct for CryoPort, Inc. Incorporated by reference to CryoPort’s
Registration Statement on Form 10-SB/A4 dated February 23,
2006.
|
|
|
|
|
3.10
|
|
Code
of Ethics for Senior Officers of CryoPort, Inc. and subsidiaries.
Incorporated by reference to CryoPort’s Registration Statement on Form
10-SB/A4 dated February 23, 2006.
|
|
|
|
|
3.11
|
|
Statement
of Policy on Insider Trading. Incorporated by reference to CryoPort’s
Registration Statement on Form 10-SB/A4 dated February 23,
2006.
|
|
|
|
|
3.12
|
|
CryoPort,
Inc. Audit Committee Charter, under which the Audit Committee will
operate, adopted by the Board of Directors on August 19, 2005.
Incorporated by reference to CryoPort’s Registration Statement on Form
10-SB/A4 dated February 23, 2006.
|
|
|
|
|
3.13
|
|
CryoPort
Systems, Inc. 2002 Stock Incentive Plan adopted by the Board of Directors
on October 1, 2002. Incorporated by reference to CryoPort’s Registration
Statement on Form 10-SB/A4 dated February 23,
2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
3.14
|
|
Stock
Option Agreement ISO—Specimen adopted by the Board of Directors on October
1, 2002. Incorporated by reference to CryoPort’s Registration Statement on
Form 10-SB/A4 dated February 23, 2006.
|
|
|
|
|
3.15
|
|
Stock
Option Agreement NSO—Specimen adopted by Board of Directors on October 1,
2002. Incorporated by reference to CryoPort’s Registration Statement on
Form 10-SB/A4 dated February 23, 2006.
|
|
|
|
|
3.16
|
|
Warrant
Agreement—Specimen adopted by the Board of Directors on October 1, 2002.
Incorporated by reference to CryoPort’s Registration Statement on Form
10-SB/A4 dated February 23, 2006.
|
|
|
|
|
3.17
|
|
Patents
and Trademarks
|
|
|
|
|
3.17.1
|
|
CryoPort
Systems, Inc. Patent #6,467,642 information sheet and Assignment to
CryoPort Systems, Inc. document. On File with CryoPort.
|
|
|
|
|
3.17.2
|
|
CryoPort
Systems, Inc. Patent #6,119,465 information sheet and Assignment to
CryoPort Systems, Inc. document. On File with CryoPort.
|
|
|
|
|
3.17.3
|
|
CryoPort
Systems, Inc. Patent #6,539,726 information sheet and Assignment to
CryoPort Systems, Inc. document. On File with CryoPort.
|
|
|
|
|
3.17.4
|
|
CryoPort
Systems, Inc. Trademark #7,583,478,7 information sheet and Assignment to
CryoPort Systems, Inc. document. On File with CryoPort.
|
|
|
|
|
3.17.5
|
|
CryoPort
Systems, Inc. Trademark #7,586,797,8 information sheet and Assignment to
CryoPort Systems, Inc. document. On File with CryoPort.
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3.17.6
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CryoPort
Systems, Inc. Trademark #7,748,667,3 information sheet and Assignment to
CryoPort Systems, Inc. document. On File with CryoPort.
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3.17.7
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CryoPort
Systems, Inc. Trademark #7,737,454,1 information sheet and Assignment to
CryoPort Systems, Inc. document. On File with CryoPort.
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4.1
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Form
of Debenture—Original Issue Discount 8% Secured Convertible Debenture
dated September 28, 2007. Incorporated by reference to CryoPort’s
Registration Statement on Form SB-2 dated November 9,
2007.
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4.1.1
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Amendment
to Convertible Debenture dated February 19, 2008. Incorporated by
reference to CryoPort’s Current Report on Form 8-K dated March 7, 2008 and
referred to as Exhibit 10.1.10.
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4.1.2
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Amendment
to Convertible Debenture dated April 30, 2008. CryoPort’s Current Report
on
Form
8-K dated April 30, 2008 and referred to as Exhibit
10.1.11.
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4.1.2.1
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Annex
to Amendment to Convertible Debenture dated April 30, 2008. CryoPort’s
Current Report on Form 8-K dated April 30, 2008 and referred to as Exhibit
10.1.11.1.
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4.1.3
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Amendment
to Convertible Debenture dated August 29, 2008. Incorporated by reference
to CryoPort’s Current Report on Form 8-K dated August 29,
2008.
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4.1.4
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Amendment
to Convertible Debenture effective January 27, 2009 and dated February 20,
2009. Incorporated by reference to CryoPort’s Current Report on Form 8-K
dated February 19, 2009.
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4.1.5
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Amendment
to Debentures and Warrants with Enable Growth Partners LP, Enable
Opportunity Partners LP, Pierce Diversified Strategy Master Fund LLC, Ena,
BridgePointe Master Fund Ltd. and CryoPort Inc. dated September 1, 2009.
Incorporated by reference to CryoPort’s Current Report on Form 8-K dated
September 17, 2009.
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4.2
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Form
of Common Stock Purchase Warrant dated September 28, 2007. Incorporated by
reference to CryoPort’s Registration Statement on Form SB-2 dated November
9, 2007.
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4.3
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Original
Issue Discount 8% Secured Convertible Debenture dated May 30, 2008.
Incorporated by reference to CryoPort’s Current Report on Form 8-K dated
June 9, 2008.
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4.4
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Common
Stock Purchase Warrant dated May 30, 2008. Incorporated by reference to
CryoPort’s Current Report on Form 8-K dated June 9,
2008
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4.5
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Common
Stock Purchase Warrant dated May 30, 2008. Incorporated by reference to
CryoPort’s Current Report on Form 8-K dated June 9,
2008
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4.6
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Form
of Warrant and Warrant Certificate***
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10.1.1
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Stock
Exchange Agreement associated with the merger of G.T.5-Limited and
CryoPort Systems, Inc. signed on March 15, 2005. Incorporated by reference
to CryoPort’s Registration Statement on Form 10-SB/A4 dated February 23,
2006.
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10.1.2
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Commercial
Promissory Note between CryoPort, Inc. and D. Petreccia executed on August
26, 2005. Incorporated by reference to CryoPort’s Registration Statement
on Form 10-SB/A4 dated February 23, 2006.
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10.1.3
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Commercial
Promissory Note between CryoPort, Inc. and J. Dell executed on September
1, 2005. Incorporated by reference to CryoPort’s Registration Statement on
Form 10-SB/A4 dated February 23, 2006.
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10.1.4
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Commercial
Promissory Note between CryoPort, Inc. and M. Grossman executed on August
25, 2005. Incorporated by reference to CryoPort’s Registration Statement
on Form 10-SB/A4 dated February 23, 2006.
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10.1.5
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Commercial
Promissory Note between CryoPort, Inc. and P. Mullens executed on
September 2, 2005. Incorporated by reference to CryoPort’s Registration
Statement on Form 10-SB/A4 dated February 23,
2006.
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10.1.6
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Commercial
Promissory Note between CryoPort, Inc. and R. Takahashi executed on August
25, 2005. Incorporated by reference to CryoPort’s Registration Statement
on Form 10-SB/A4 dated February 23, 2006.
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10.1.7
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Exclusive
and Representation Agreement between CryoPort Systems, Inc. and CryoPort
Systems, Ltda. executed on August 9, 2001. Incorporated by reference to
CryoPort’s Registration Statement on Form 10-SB/A4 dated February 23, 2006
and referred to as Exhibit 10.1.8.
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10.1.8
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Secured
Promissory Note and Loan Agreement between Ventana Group, LLC and
CryoPort, Inc. dated May 12, 2006. Incorporated by reference to CryoPort’s
Registration Statement on Form 10-SB/A4 dated February 23, 2006 and
referred to as Exhibit 10.1.9.
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10.2
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Business
Alliance Agreement dated April 27, 2007, by CryoPort, Inc. and American
Biologistics Company LLC. Incorporated by reference to CryoPort’s Current
Report on Form 8-K dated April 27, 2007 and referred to as
Exhibit 10.3.
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10.2.1
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Corrected
Business Alliance Agreement dated April 27, 2007, by CryoPort, Inc. and
American Biologistics Company LLC. Incorporated by reference to CryoPort’s
Current Report on Form 8-K/A dated May 2, 2007 and referred to as Exhibit
10.3.1.
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10.3
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Consultant
Agreement dated April 18, 2007 between CryoPort, Inc. and Malone and
Associates, LLC. Incorporated by reference to CryoPort’s Quarterly Report
on Form 10-QSB for the quarter ended June 30, 2007 and referred to as
Exhibit 10.4.
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10.4
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Lease
Agreement dated June 26, 2007 between CryoPort, Inc. and Viking
Investors—Barents Sea LLC. Incorporated by reference to CryoPort’s
Quarterly Report on Form 10-QSB for the quarter ended June 30, 2007 and
referred to as Exhibit 10.5.
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10.4.1
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Second
Amendment To Lease: Renewal dated August 24, 2009, between CryoPort, Inc.
and Viking Inventors-Barents Sea LLC.***
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10.5
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Securities
Purchase Agreement dated September 27, 2007. Incorporated by reference to
CryoPort’s Registration Statement on Form SB-2 dated November 9, 2007 and
referred to as Exhibit 10.6.
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10.6
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Registration
Rights Agreement dated September 27, 2007. Incorporated by reference to
CryoPort’s Registration Statement on Form SB-2 dated November 9, 2007 and
referred to as Exhibit 10.7.
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10.7
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Security
Agreement dated September 27, 2007. Incorporated by reference to
CryoPort’s Registration Statement on Form SB-2 dated November 9, 2007 and
referred to as Exhibit 10.8.
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10.8
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Sitelet
Agreement between FedEx Corporate Services, Inc. and CryoPort Systems,
Inc. dated January 23, 2008. Incorporated by reference to CryoPort’s
Current Report on Form 8-K dated February 1, 2008 and referred to as
Exhibit 10.9.
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10.9
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Securities
Purchase Agreement dated May 30, 2008. Incorporated by reference to
CryoPort’s Current Report on Form 8-K dated June 9, 2008 and referred to
as Exhibit 10.10.
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10.10
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Registration
Rights Agreement dated May 30, 2008. Incorporated by reference to
CryoPort’s Current Report on Form 8-K dated June 9, 2008 and referred to
as Exhibit 10.11.
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10.11
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Waiver
dated May 30, 2008. Incorporated by reference to CryoPort’s Current Report
on Form 8-K dated June 9, 2008 and referred to as Exhibit
10.12.
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10.12
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|
Security
Agreement dated May 30, 2008. Incorporated by reference to CryoPort’s
Current Report on Form 8-K dated June 9, 2008 and referred to as Exhibit
10.13.
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10.13
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|
Board
of Directors Agreement between Larry G. Stambaugh and CryoPort, Inc. dated
December 10, 2008. Incorporated by reference to CryoPort’s Current Report
on Form 8-K dated December 5, 2008 and referred to as Exhibit
10.15.
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10.14
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|
Rental
Agreement with FedEx Corporate Services and CryoPort, Inc. dated May 15,
2009 (CryoPort has filed a Confidential Treatment Request under Rule 24b-5
of the Exchange Act, for parts of this document). Incorporated by
reference to CryoPort’s Annual Report on Form 10-K for the year ended
March 31, 2009 and referred to as Exhibit 10.16.
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10.15
|
|
Settlement
Agreement and Mutual Release with Dee Kelly and CryoPort, Inc. dated July
24, 2009. Incorporated by reference to CryoPort’s Current Report on Form
8-K dated July 20, 2009 and referred to as Exhibit
10.14.
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10.16
|
|
Consent,
Waiver and Agreement with Enable Growth Partners LP, Enable Opportunity
Partners LP, Pierce Diversified Strategy Master Fund LLC, Ena,
BridgePointe Master Fund Ltd. and CryoPort Inc. and its subsidiary dated
July 30, 2009. Incorporated by reference to CryoPort’s Current Report on
Form 8-K dated July 29, 2009 and referred to as Exhibit
10.15.
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10.17
|
|
Employment
Agreement with Larry G. Stambaugh and CryoPort, Inc. dated August 1, 2009.
Incorporated by reference to CryoPort’s Current Report dated August 21,
2009 and referred to as Exhibit 10.19.
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10.18
|
|
Letter
Accepting Consulting Agreement dated October 1, 2007 with Carpe DM, Inc.
and CryoPort, Inc. Incorporated by reference to CryoPort, Inc.’s
Registration Statement on Form S-8 dated March 25, 2009 and referred
to as Exhibit 10.1.
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10.19
|
|
Master
Consulting and Engineering Services Agreement dated October 9, 2007 with
KLATU Networks, LLC and CryoPort, Inc. Incorporated by reference to
CryoPort, Inc.’s Registration Statement on Form S-8 dated March 25, 2009
and referred to as Exhibit 10.2
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10.20
|
|
Investment
Banker Termination Agreement dated April 6, 2009 with Bradley Woods &
Co. Ltd., SEPA Capital Corp., Edward Fine, and CryoPort, Inc. Incorporated
by reference to CryoPort, Inc.’s Registration Statement on Form S-8 dated
April 13, 2009 and referred to as Exhibit 10.1.
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10.21
|
|
Attorney-Client
Retainer Agreement with Gary Curtis Cannon and CryoPort, Inc. dated
December 1, 2007. Incorporated by reference to CryoPort, Inc.’s
Registration Statement on Form S-8 dated June 11, 2009 and referred to as
Exhibit 10.3.
|
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10.22
|
|
CryoPort,
Inc., 2009 Stock Incentive Plan. Incorporated by reference to CryoPort’s
Current Report on Form 8-K dated October 9, 2009 and referred to as
Exhibit 10.21.
|
|
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10.23
|
|
CryoPort,
Inc., Form Incentive Stock Option Award Agreement under the CryoPort,
Inc., 2009 Stock Incentive Plan. Incorporated by reference to CryoPort’s
Current Report on Form 8-K dated October 9, 2009 and referred to
as Exhibit 10.22.
|
|
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|
10.24
|
|
Form
of Warrant to be entered into between the Registrant and Rodman &
Renshaw, LLC.***
|
|
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|
|
23.1
|
|
Consent
of Independent Registered Public Accounting Firm—KMJ Corbin & Company
LLP.*
|
|
|
|
|
24
|
|
Power
of Attorney***
|
| |
|
|
| 31.1 |
|
Certification
of Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of
2002*
|
| |
|
|
| 31.2 |
|
Certification
of Chief Financial Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of
2002*
|
| |
|
|
| 32.1 |
|
Certification
Pursuant to U.S.C. §1350 of Chief Executive
Officer.*
|
| |
|
|
| 32.2 |
|
Certification
Pursuant to U.S.C. §1350 of Chief Financial
Officer.*
|
|
**
|
To
be filed by amendment
|