10SB12G: Registration of securities for small business [Section 12(g)]
Published on October 20, 2005
U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-SB
GENERAL
FORM FOR REGISTRATION OF SECURITIES
OF
SMALL
BUSINESS ISSUERS UNDER SECTION 12(b)
OR
12(g)
OF THE SECURITIES ACT OF 1934
CryoPort,
Inc.
|
Nevada
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88-0313393
|
|
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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(I.R.S.
Employer
Identification
No.)
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|
|
451
Atlas Street, Brea, California
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92821
|
|
|
(Address
of Principal Executive Offices)
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(Zip
Code)
|
|
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(714)
256-6100
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||
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(Issuer’s
Telephone Number)
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||
Securities
to be registered under Section 12(b) of the Act: None
Securities
to be registered under Section 12(g) of the Act: Common
Stock, $.001 par value
TABLE
OF CONTENTS
Page
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PART
I
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3
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ITEM
1.
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DESCRIPTION
OF BUSINESS.
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4
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ITEM
2.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION….
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26
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ITEM
3.
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DESCRIPTION
OF PROPERTY
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32
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ITEM
4.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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33
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ITEM
5:
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DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
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34
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ITEM
6.
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EXECUTIVE
COMPENSATION
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36
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ITEM
7:
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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40
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ITEM
8.
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DESCRIPTION
OF SECURITIES
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40
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PART
II
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41
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|
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ITEM
1.
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MARKET
PRICE OF, AND DIVIDENDS ON, THE REGISTRANT’S COMMON EQUITY, AND OTHER
MATTERS.
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41
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ITEM
2.
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LEGAL
PROCEEDINGS
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42
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ITEM
3.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
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42
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ITEM
4.
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RECENT
SALES OF UNREGISTERED SECURITIES
|
43
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ITEM
5.
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INDEMNIFICATION
OF DIRECTORS AND OFFICERS
|
44
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PART
F/S
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46
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|
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ITEM
1.
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FINANCIAL
STATEMENTS FOR MARCH 31, 2005
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46
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ITEM
2.
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FINANCIAL
STATEMENTS FOR JUNE 30, 2005
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69
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PART
III
|
85
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|
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ITEM
1.
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INDEX
TO EXHIBITS
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85
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ITEM
2.
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DESCRIPTION
OF EXHIBITS
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87
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Page
2
PART
I
In
this registration statement the terms “CryoPort”, “Company” and similar terms
refer to CryoPort, Inc., and its wholly owned subsidiary CryoPort Systems,
Inc.
SAFE
HARBOR FOR FORWARD LOOKING STATEMENTS:
THE
COMPANY HAS MADE SOME STATEMENTS IN THIS REGISTRATION STATEMENT, INCLUDING
SOME
UNDER “BUSINESS”, “RISK FACTORS” AND “MANAGEMENT’S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS,” AND ELSEWHERE, WHICH ARE FORWARD-LOOKING STATEMENTS. THESE
STATEMENTS MAY DISCUSS THE COMPANY’S FUTURE EXPECTATIONS, CONTAIN PROJECTIONS OF
ITS PLAN OF OPERATION OR FINANCIAL CONDITION OR STATE OTHER FORWARD-LOOKING
INFORMATION. IN THIS REGISTRATION STATEMENT, FORWARD-LOOKING STATEMENTS ARE
GENERALLY IDENTIFIED BY WORDS SUCH AS “ANTICIPATE”, “PLAN”, “BELIEVE”, “EXPECT”,
“ESTIMATE”, AND THE LIKE. FORWARD-LOOKING STATEMENTS INVOLVE FUTURE RISKS AND
UNCERTAINTIES, AND THERE ARE FACTORS THAT COULD CAUSE ACTUAL RESULTS OR PLANS
TO
DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THE STATEMENTS. THE
FORWARD
LOOKING INFORMATION IS BASED ON VARIOUS FACTORS AND IS DERVIED USING NUMEROUS
ASSUMPTIONS. A READER, WHETHER INVESTING IN THE COMPANY’S SECURITIES OR NOT,
SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH
APPLY
ONLY AS OF THE DATE OF THIS REGISTRATION STATEMENT. IMPORTANT FACTORS THAT
MAY
CAUSE ACTUAL RESULTS TO DIFFER FROM PROJECTIONS INCLUDE, BUT ARE NOT LIMITED
TO,
THE FOLLOWING:
| · |
THE
SUCCESS OR FAILURE OF MANAGEMENT’S EFFORTS TO IMPLEMENT THE COMPANY’S PLAN
OF OPERATIONS;
|
| · |
THE
COMPANY’S ABILITY TO FUND ITS OPERATING
EXPENSES;
|
| · |
THE
COMPANY’S ABILITY TO COMPETE WITH OTHER COMPANIES THAT HAVE A SIMILAR PLAN
OF OPERATION;
|
| · |
THE
EFFECT OF CHANGING ECONOMIC CONDITIONS IMPACTING THE COMPANY’S PLAN OF
OPERATION; AND
|
| · |
THE
COMPANY’S ABILITY TO MEET THE OTHER RISKS AS MAY BE DESCRIBED IN ITS
FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION.
|
THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.
Page
3
ITEM
1. DESCRIPTION OF BUSINESS.
Overview:
The
principal focus of the Company is to develop a line of disposable (or one-way)
dry cryogenic shippers for the transport of biological materials. These
materials include live cell pharmaceutical products; e.g., cancer vaccines,
diagnostic materials, reproductive tissues, infectious substances and other
items that require continuous exposure to cryogenic temperature (less than
-150°C).
The
Company currently manufactures a line of reusable cryogenic dry shippers.
These
primarily serve as vehicles for the development of the cryogenic technology
that
supports the disposable product development but also are essential components
of
the infrastructure that supports testing and research activities of the
pharmaceutical and biotechnology industries. The Company’s mission is to provide
cost effective packaging systems for biological materials requiring, or
benefiting from, a cryogenic temperature environment over an extended time
period.
The
Company’s production line incorporates innovative technologies developed for
aerospace and other industries to develop products that are more cost effective,
easier to use and more functional than the traditional dry ice devices and
methods currently used for the shipment of temperature-sensitive
materials.
History:
The
Company was originally incorporated under the name G.T.5-Limited on May 25,
1990
as a Nevada corporation. The Company’s original focus was to engage in the
business of designing and building exotic body styles for automobiles compatible
with the vehicle’s existing chassis. The Company provided a series of hand
molded body style products that were based on the chassis designs of the
Ford
Mustang, Pantera, Ford Cobra and Ferrari Daytona Spider. The Company’s goal was
to provide customers with a cost effective solution to developing a great
look
to their own vehicles without the high costs associated with buying very
expensive new vehicles. Acceptance of the Company’s concept never materialized,
and revenues during the past few years declined. In 2004, the Company did
not
have any revenues. As a result, the foregoing operations were discontinued.
In
January 2005, the Company’s board of directors determined that it would be in
its best interests, and that of its shareholders, to find a suitable acquisition
candidate.
In
March
2005, the Company entered into a Share Exchange Agreement with CryoPort Systems,
Inc., a California corporation, and its stockholders, pursuant to which the
Company acquired all of the issued and outstanding shares of CryoPort Systems,
Inc. in exchange for 24,108,105 shares of the Company’s common stock (which
represents approximately 81% of its total issued and outstanding shares of
common stock following the close of the transaction). In connection with
this
transaction, the Company changed its name to CryoPort, Inc., effective March
16,
2005. In addition, the Company’s then directors and officers resigned, and the
directors and officers of CryoPort Systems were elected to fill the vacancies
created by such resignations.
Page
4
Cryoport
Systems, Inc., was originally formed in California in 1999 as a limited
liability company and was reorganized into a California corporation in December
2000. CryoPort Systems, Inc. was founded in 1999 principally to capitalize
on
servicing the transportation needs of the growing global “biotechnology
revolution”.
Business
Strategy:
The
Company’s present objective is to leverage its proprietary technology and
developmental expertise to design, develop, manufacture and sell cryogenic
shipping devices. The key elements of its strategy include:
Expand
the Company’s product offerings to address growing
markets. Given
the
need for a temperature-sensitive shipping device that can cost effectively
be
used, the Company is diligently working to develop a disposable or one-time
use
shipping device that performs as well as its reusable shippers to eliminate
the
need for a return shipment and the costs associated therewith as well as
eliminate any loss of specimen viability during the shipping
process.
Expand
the Company’s marketing and distribution channels. The
Company’s products serve the shipping needs of companies across a broad spectrum
of industries on a growing international level. It is the Company’s goal to
establish those contacts necessary to achieve a broader distribution of its
products.
Establish
strategic partnerships. In
order
to expedite the Company’s time to market and increase its market presence, the
Company is currently negotiating to establish strategic alliances to facilitate
the manufacture, promotion and distribution of its products, including
establishing alliances with shipping container manufacturers (both cryogenic
and
dry ice), integrated express companies, and freight forwarding
companies.
Industry
Overview:
The
Company’s products 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 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. This will require a greater dependence
on passively controlled temperature transport systems (i.e., systems having
no
external power source). [References: Cryopak Industries
-
Investment Package/Annual Report and US
Department of Commerce - US
Industrial Outlook.]
Page
5
The
Company believes that growth in the following markets has resulted in the
need
for increased efficiencies and greater flexibility in the temperature sensitive
packaging market:
| · |
Pharmaceutical
clinical trials, including transport of tissue culture
samples;
|
| · |
Pharmaceutical
commercial product distribution
|
| · |
Transportation
of diagnostic specimens;
|
| · |
Transportation
of infectious materials;
|
| · |
Intra
laboratory diagnostic testing;
|
| · |
Transport
of temperature-sensitive specimens by
courier;
|
| · |
Analysis
of biological samples;
|
| · |
Gene
biotechnology and vaccine
production;
|
| · |
Food
engineering; and
|
| · |
Animal
and human reproduction
|
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., -150°C) 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, vaccines and certain pharmaceutical products. In
some
instances, transport of these products requires temperatures at, or approaching,
-196°C.
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 carbon dioxide (dry ice).
Dry
ice is used in shipping extensively 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 biologicals 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°C, while the refrigerated
compartment at 8°C 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
Page
6
Containers,
Inc. and SCA Thermosafe (formerly Polyfoam Packers Corporation). 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
one and one-half 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:
| · |
Availability
of a dry ice source;
|
| · |
Handling
and storage of the dry ice;
|
| · |
Cost
of the dry ice;
|
| · |
Weight
of containers when packed with dry
ice;
|
| · |
Securing
a shipping container with a high enough R-value to hold the dry
ice and
product for the required time period;
and
|
| · |
Securing
a shipping container that meets the requirements for International
Air
Transportation Association (“IATA”), the Department of Transportation
(“DOT”), the Center for Disease Control (“CDC”), and other regulatory
agencies.
|
Due
to
the limitations of dry ice, shipment of specimens at true cryogenic temperatures
can only be accomplished using liquid nitrogen (LN2)
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 biologicals,
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.
Another
problem with these existing systems relates to the functional hold time versus
static hold time. Static hold time pertains to the fully charged shipper
with no
heat load (a deliberate introduction of heat into the shipper), sitting upright.
Functional hold time refers to the fully charged shipper, in use, and containing
samples under shipment. Although the static hold time is advertised as being
20
days, if a container is tilted or positioned on its side, the hold time is
significantly diminished because the absorbed LN2
Page
7
evaporates
to the gaseous (vapor) phase more rapidly. This results in what is known
as
“boil-off” or evaporation. The LN2
can also
simply leak out of the container when it is positioned on its side. Leaking
will
compromise the dependability of these dry shippers, particularly when used
in
circumstances requiring lengthy shipping times.
Finally,
these containers are often promoted as being durable due to their metal
construction. However, rough handling can result in the puncturing of the
outer
shell or cracking at the neck area, resulting in the loss of the high vacuum
insulation. This renders the shippers useless. A hard-shell shipping enclosure
is available as an optional accessory to provide additional protection for
these
units at an additional cost to the user. The metal construction also adds
to the
weight of the container, thereby adding substantially to shipping
costs.
The
CryoPort Solution:
During
the past several years, a number of trends have emerged in the
temperature-sensitive packaging industry as a result of economic and
technological changes. The Company has focused its product development efforts
to respond to what it perceives to be the more significant of these trends,
specifically the following:
| · |
Smaller,
more efficient packaging (increasing thermal
density);
|
| · |
Emphasis
on decreasing costs and system
simplification;
|
| · |
Need
for turnkey services;
|
| · |
Development
of international programs and
markets;
|
| · |
Centralization
of commercial products and services;
and
|
| · |
Development
of regulatory standards.
|
Smaller,
More Efficient Packaging. Advances
in both materials and manufacturing technology have made it possible to reduce
the size, weight, complexity and cost of packaging, while increasing the
capabilities of high performance packaging. These advances are the result
of
developments in the aerospace industry in the areas of high strength, low
weight
materials and thermal technology. The Company is applying this technology
in its
product development efforts, and believes that it is at the forefront of
applying this technology in the public sector. The Company’s development efforts
are focused on the application of polymers and high volume metal casting
and
forming methods that have traditionally been excluded from the cryogenic
industry because product quantities have been too low to efficiently utilize
these materials and methods.
Emphasis
on Decreasing Costs and System Simplification. Because
current dry vapor LN2
shipping
containers are expensive, many users do not keep an ample supply on hand.
Consequently, some users require that these be returned promptly. This often
results in very expensive express return shipping which will significantly
magnify as shipping volumes increase. This has created a demand for smaller,
lower cost dry vapor LN2
shipping
containers. In addition, many users have expressed a strong interest in the
production of a dry vapor LN2
shipper
that is inexpensive enough to be used in a disposable or limited usage
manner.
Page
8
As
previously noted, dry vapor LN2
shipping
containers are made of medium gauge metal that makes them vulnerable to denting
and breaking and increases shipping costs due to the added weight. Additionally,
their design requires that they be kept in an upright position to achieve
advertised hold times. If they are placed in a horizontal position,
LN2
can leak
out or boil off, substantially reducing their hold times. The Company
anticipates manufacturing its shippers in smaller sizes from lighter weight
materials that significantly reduce their weight (thereby reducing shipping
costs) and manufacturing cost, which will allow them to be used one time
for
outbound shipments and then disposed. Additionally, the patented absorbent
used
to hold the LN2
much
more efficiently retains liquid when its shippers are positioned on their
sides
or inverted. The Company has significantly reduced the boil off (loss of
liquid
nitrogen refrigerant) that all dry shippers experience when not kept
vertical.
Turnkey
Services. The
pharmaceutical industry depends on clinical trials for Food and Drug
Administration approval of new drugs. A significant number of these trials
require frozen transport of specimens obtained from patients in the study.
A
number of pharmaceutical companies now specify temperature-sensitive frozen
packaging and services as part of “turnkey” contracts with contract research
organizations. To meet the demands of their customers, freight forwarding
companies, such as World Courier, Federal Express and DHL, take responsibility
for procuring appropriate packaging, shipping by airline, and delivering
the
specimens to the point of analytical testing. This comprehensive service
addresses the stringent requirements imposed by pharmaceutical companies
to
ensure appropriate quality control for their clinical studies. The Company
believes its reusable and disposable dry shippers will greatly enhance the
reliability of the quality control required.
Development
of International Programs and Markets. The
biotechnology and pharmaceutical industries are now transnational industries
with locations in various parts of the industrially developed and developing
world. Since many products produced by these industries must be shipped in
temperature-sensitive packaging, the logistical problems presented by longer
distances, and sometimes unreliable forwarding entities, are becoming of
greater
concern. Weekends, holidays, lost containers, hot weather and indirect courier
routes all place a strain on the ability of current shipping devices to provide
appropriate temperatures when extraordinary delays are encountered. Because
the
Company’s shippers are able to maintain cryogenic temperatures of minus 150°C,
or less, for up to 10 days, its shippers are better able to insure the integrity
of specimens affected by unexpected shipping delays.
Centralization
of Commercial Products and Services. In
recent
years, the competitive environment in health care has intensified rapidly,
while
increased managed care participation, coupled with Medicare and Medicaid
reimbursement issues, have placed significant pressure to increase efficiency
on
market segments that service the health care industry. These include the
diagnostic clinical laboratory industry and pharmaceutical industry. In response
to these, and other pressures, the clinical laboratory industry experienced
a
consolidation, through both acquisition and attrition, which
Page
9
resulted
in fewer, more centralized testing locations, processing a larger volume
of
specimens. With fewer testing sites processing increased volumes, a tremendous
strain has been placed on the traditional modes for transporting these
goods.
With
respect to the pharmaceutical industry, the emergence of international
pharmaceutical conglomerates through mergers and acquisitions, such as Smith
Kline Beecham, and the dramatic growth of relatively new companies such as
Amgen, coupled with the emergence of contract research organizations, such
as
Quintiles (with testing laboratories in Atlanta, Georgia, Buenos Aires,
Edinburgh, Pretoria, Singapore and Melbourne), which contract with
pharmaceutical companies to handle, among other things, clinical trials and
testing, means that distribution networks for the transport of
temperature-sensitive products have become much more complex.
The
Company believes that it has developed, and is developing, products that
are
ideally suited to address the issues presented by these trends.
Development
of Regulatory Standards. The
shipping of diagnostic specimens, infectious substances and dangerous goods,
whether via air or ground, falls under the jurisdiction of many state, 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 International Civil Aviation
Organization (“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 carriers
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 the
Occupational Safety and Health Organization (“OSHA”) also addresses the safe
handling of Class 6.2 Substances. The Company’s DG1000 meets packing instruction
602 and 650 and is certified for the shipment of Class 6.2 Dangerous Goods
per
the requirements of the International Civil Aviation Organization (ICAO)
Technical Instructions for the Safe Transport of Dangerous Goods by Air and
the
International Air Transport Association (IATA).
The
Company’s Current Product Line:
Reusable
Cryogenic Dry Vapor Shippers. The
Company has developed three lines of reusable cryogenic dry vapor shippers
which
the Company believes solve the specific problems in, and are responsive to
the
evolving needs of the market place of temperature-critical, frozen and
refrigerated transport of biologicals. This line of shippers is capable of
maintaining cryogenic temperatures of minus 150 or less, for up to 10 days.
Page
10
These
products, which are in
full
production at the Company’s Brea facility, consist of the AR1000, the DG1000 and
the DS650. The DG1000 is designed for shipping biological material classified
as
dangerous goods by IATA standards. This shipper is IATA certified for the
shipment of Class 6.2 Dangerous Goods. The AR1000 is utilized primarily in
the
veterinary and human assisted reproduction markets. This shipper may be used
where packaging of the biological material need not comply with IATA Packing
Instructions 602 or 650. The DS650 is utilized for the shipment of specimens
for
diagnosis, treatment or evaluation of disease that must conform to the IATA
650
packaging standards. The Company has recently introduced a soft case for
the
same cryogenic Dewar; identified as the PSX1000 and the PS1000. These units
are
smaller, lighter in weight, and more easily handled than the units described
above. They are pending certification testing.
These
shippers are lightweight, low-cost, re-usable vapor phase liquid nitrogen
storage containers that combine
the best features of packaging, cryogenics and high vacuum technology. Each
of
these three shippers is composed of an aluminum metallic Dewar flask, with
a
well for holding the biological material in the inner chamber. A 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. A high
surface, low density open cell plastic foam material surrounds the inner
chamber
for retaining 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 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 LN2
up to
six 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 LN2.
The
entire Dewar vessel is then wrapped in a plurality of insulating and cushioning
materials and placed either in a hard plastic shipper shell, or in a ballistic
nylon soft shell outer case with a hinged lid, as with the Company’s
PSX1000.
The
Company believes the above product configuration satisfies the needs of the
markets that require the temperature-critical, frozen and refrigerated transport
of biological materials, such as pharmaceutical clinical trials, gene
biotechnology, infectious materials handling, and animal and human reproduction.
Due to the Company’s unique proprietary technology and innovative design, its
shippers are less prone to losing functional hold time when not kept in an
upright position than the competing products. The
Company’s continuing R&D efforts are expected to lead to the introduction of
smaller size units constructed of lower cost materials and utilizing high
volume
manufacturing methods that will make it practical to offer disposable or
limited
use cryogenic packages.
Materials
to be transported in the AR1000 shipper are typically placed in a canister
that
is lowered into the well of the shipper, which is held in place by the cap
and
neck tube. The materials to be transported in the DG1000 and DS650 shippers
are
placed in a bio-
Page
11
cartridge,
which in turn is placed in a leak proof plastic bag. The canister, or vial
holder, and its contents are surrounded by cold LN2
vapor
from the saturated absorbent filler.
An
important feature of the DG1000 and DS650 (and soon to be incorporated into
the
PSX1000) 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
Company believes its shippers were the first cost-effective cryogenic shippers
to comply with these regulations, which it hopes will substantially enhance
product acceptance, and facilitate its marketing efforts for both its reusable
shippers and its planned disposable shippers.
Biological
Material Holders for Infectious and Dangerous Goods. The
Company has also developed a patented containment bag which is used in
connection with the shipment of infectious or dangerous goods. The inner
packaging of the DG1000 shipper contains watertight primary receptacles (one
and
one-half millimeter vials.) Up to five vials are then placed onto aluminum
holders and up to fifteen holders (75 vials) are placed into an absorbent
pouch,
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 plastic bag capable of withstanding cryogenic temperatures, and
then
sealed. This entire package is then placed in a unique, patented, secondary
containment bag, which is a plastic film based material, critical to the
function of the overall cryogenic package. These bags use a pressure-sensitive
adhesive closure much like a common overnight courier envelope. As a result,
these bags are inherently disposable, one-use-only. This bag is then placed
into
the well of the cryogenic shipper.
Artificial
Insemination Canisters. The
Company has also developed an artificial insemination canister for use with
its
AR1000 shipper. Semen straws, which resemble the familiar plastic stirrers
for
hot beverages and are similar in size, come in two sizes, based on volume
-
one-half cc and one-quarter cc. These straws are sealed at both ends and
placed
in small cylindrical “goblets” that are in turn placed into a twelve-inch long
cane. Fifteen canes can be placed in the metallic cylindrical canister that
fits
within the well of the shipper. The canister has a flexible handle and separate
vapor plug. Straws can also be stored in bulk in 65mm diameter goblets in
two
layers using a disposable canister or via the use of a lifter. With the
disposable canister or lifter, up to 720 ½ cc or 1600 ¼ cc straws can be stored
in the AR1000.
The
Company’s Future Products:
The
Company’s continuing R&D efforts are expected to lead to the introduction of
smaller size units constructed of lower cost materials and utilizing high
volume
manufacturing methods that will make it practical to offer disposable or
limited
use cryogenic packages.
The
transition from a reusable shipper to a one-way shipper is planned during
early
calendar year 2006 and will be accomplished initially by a simple reduction
in
the size of existing materials, the simplification of the outer protective
shipping package and the use of established manufacturing practices.
Subsequently, in order to enable higher volume
Page
12
production,
alternate materials which are processed differently will be employed, with
anticipated substantial cost reductions to be made to both the inner cryogenic
Dewar and the outer integrated shipping case, while maintaining most of the
Company’s proven, current manufacturing methods. This product will then be
transitioned to a fully disposable one-way shipper with an appropriate recycling
program. The one-way shipper will employ alternate materials of construction,
which will further enable both higher mass manufacturing and additional cost
reduction opportunities.
The
Company’s driving logic in developing a one-way shipper is:
| · |
To
make the cost of the cryogenic package less than, or equal to,
the total
cost of ownership (on a one time use basis including return shipping
and
handling) of a reusable unit depending on the ultimate capacity
and hold
time of the shipper.
|
| · |
To
create the opportunity to ultimately offer a seamless “bio-express”
courier service to the Company’s target markets via its strategic
partners.
|
Sales
and Marketing:
The
Company currently has an internal sales and marketing group which manages
both
its direct sales efforts and its third party resellers, which include Air
Liquide and SCA Thermosafe. The Company also has relationships with several
other distributors and agents. The Company’s current distribution channels cover
the Americas, Europe and Asia.
Customer
Base:
The
Company believes that the primary customers for its dry vapor shippers (both
reusable and the future disposable) are concentrated in the following markets
for the following reasons:
| · |
Pharmaceutical
clinical trials
|
| · |
Gene
biotechnology
|
| · | Transport of infectious materials and dangerous goods |
| · |
Pharmaceutical
distribution
|
| · |
Artificial
insemination and embryo transfer in animals;
and
|
| · |
Human
assisted reproduction artificial
insemination
|
Pharmaceutical
Clinical Trials. Every
pharmaceutical company developing a new drug that must be approved by the
Food
and Drug Administration conducts clinical trials to, among other things,
test
the safety and efficacy of the potential new drug. In connection with the
clinical trials, the companies may enroll patients from all over the world
who
regularly submit a blood specimen at the local hospital, doctor’s office or
laboratory. These samples are then sent to the specified testing laboratory,
which may be
Page
13
local
or
in another country. The testing laboratories will typically set the requirements
for the storage and shipment of blood specimens. While domestic shipping
of
these specimens is sometimes accomplished adequately using dry ice,
international shipments present several problems, as dry ice, under the best
of
circumstances, can only provide freezing for up to 36 hours, in the absence
of
re-icing (which is quite costly). Because shipments of packages internationally
can be delayed for more than 36 hours due to flight cancellations, incorrect
destinations, labor problems, ground logistics and safety reasons, dry ice
is
not always a reliable and cost effective option. Clinical trial specimens
are
often irreplaceable because each one represents 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. The Company’s shippers
are ideally suited for this market, as the hold time provided by its shipper
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.
Furthermore,
the IATA requires that all airborne shipments of laboratory specimens be
transmitted in either IATA 650 or 602 certified packaging. As a result, shippers
of long distance clinical trials specimens will be automatic candidates to
use
the DG1000, the Company’s 602-certified dangerous goods reusable shipper, or the
DS650, 650-certified diagnostic specimen reusable shipper. Once the Company
has
developed and obtained IATA certification of a disposable dry vapor shipper,
it
will be ideally suited for this market, in particular due to the elimination
of
the cost to return the reusable shipper.
Gene
Biotechnology. According
to a recent edition of the Corporate Technology Directory, there are
approximately 3600 pharmaceutical and biotechnology companies in the United
States. Of these companies, approximately 2600 are biotechnology companies
and
approximately 1000 are pharmaceutical companies. 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.
Transport
of Infectious Materials and Dangerous Goods. The
transport of potentially infectious materials demands strict adherence to
regulations that protect public safety while maintaining the viability of
the
material being shipped. All blood products are considered to be potentially
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 frozen environment. According
to a doctor at the National Institute of Health (NIH), over 2 million vials
of
potentially infective material are shipped domestically or internationally
each
year, within the NIH alone. The Company initially developed its DG1000
shipper to meet the shipping requirements of this market.
Page
14
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. The Company’s DG1000 shipper
is suited to this type of research and development.
Pharmaceutical
Distribution. The
current focus for the disposable products under development is in 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 distribution, 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, there are a substantial 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 cryogenic temperatures,
each such shipment will require a cryogenic shipping package. The Company
anticipates being in a position to service that need.
Artificial
Insemination and Embryo Transfer in Animals. The
primary animal artificial insemination market that the Company is interested
in
is the bovine market. Markets of secondary interest are the equine, swine,
sheep
and canine markets. The largest established market is dairy cattle, followed
by
beef cattle and horses. In addition, the swine breeding industry is rapidly
converting to artificial insemination for breeding purposes.
The
bovine semen shipping market can be divided into three distinct
parts:
| · |
The
shipment of very large numbers of semen straws from one large artificial
insemination company to another;
|
| · |
The
shipment of fewer straws from large artificial insemination companies
to
smaller distributors; and
|
| · |
The
“residential” shipment of small quantities of straws to small farms and
dairies.
|
The
last
two categories are ideally suited for the use of the Company’s medium capacity
AR1000 shipper or the PSX1000 shipper. The first category is viewed as one
of
limited potential as there are fewer
shipments, each containing a very
large numbers of straws. Even though the shipments in the first category
initially contain larger numbers of straws,
Page
15
they
are
often broken down into much smaller numbers of straws and shipped to end
users
in medium capacity shippers, such as The Company’s AR1000 and
PSX1000.
Although
the bovine market is the largest and most mature market for shipping semen
in
dry vapor shippers, the use of this procedure for other species such as swine
appears to be rapidly increasing.
Breeding
horses by artificial insemination or embryo transfer is also becoming
commonplace and has a growing international component. Shipping valuable
animals
for purposes of breeding is both costly and potentially injurious. The demand
for desirable equine genetics for improving breeding stock has led to the
shipment of semen or embryos to every part of the world.
Sheep,
goats, dogs and exotic species are also being increasingly bred by artificial
insemination. Airlines do not want to assume the liability of shipping live
animals and discourage the practice whenever possible. While it was previously
common for dogs to be shipped for breeding purposes, canine sperm banks are
shipping semen at an increasing rate.
Assisted
Human Reproduction. According
to The Wall Street Journal, January 6, 2000 issue, 30,000 infants are born
annually in the United States through artificial insemination and according
to
Department of Health statistics, 10 million Americans annually are affected
by
infertility problems. It is estimated that this represents at least 50,000
doses
of semen. 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, to stabilize the cells
and to ensure reproducible results. This can only be accomplished with the
use
of liquid nitrogen or LN2
dry
vapor shippers. The Company anticipates that this market will continue to
increase as this practice gains acceptance in new areas of the
world.
Competition:
Within
the Company’s intended markets for a low cost and disposable or limited usage
Dewar, there is no currently known competition. None of the traditional
suppliers of cryogenic shippers is known to have competitive equipment nor
are
they expected to have anything available within a short period of time. The
traditional suppliers, Chart Industries, Harsco, and Air Liquide have various
models of dry shippers available that sell at prices that preclude any concept
of disposability. 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 the Company does.
Research
and Development:
The
Company does not have a formal research and development division within its
structure. In some circumstances, the Company may out-source the building
of a
prototype, or a component thereof, to a third party that may have certain
areas
of
Page
16
expertise
necessary for the construction of the prototype. The Company’s research and
development expenditures during the fiscal years ended March 31, 2005 and
March
31, 2004 approximated $98,700 and $61,000, respectively.
Grant
Funding:
In
September 1999, the National Institute of Health awarded us a Phase I SBIR
grant
to evaluate the “LN2
Vapor
Cooled Dry Frozen Specimen Shipper.” The Company successfully completed the
Phase I program and the final SBIR report was submitted on March 30, 2000.
The
purpose of the study was to develop a low cost, polymer Dewar that would
be a
major element of the disposable shipper. The Company then submitted a Phase
II
SBIR grant application to continue this work in August 2001, which was awarded
in late 2002. Funding under this grant was subsequently declined due to the
need
to prioritize the Company’s product development activities in more significant
areas.
Manufacturing:
The
component parts for the Company’s products are primarily manufactured at third
party manufacturing facilities. The Company also has a warehouse at the
corporate offices in Brea, California, where the Company is capable of
manufacturing certain parts and full assembly of 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 alternative sources of supply and the establishment
of
additional or replacement suppliers may not be accomplished quickly. The
Company
anticipates that this will initially be the case with the outer shell the
Company is developing for its disposable shipper.
Proprietary
Rights and Licensing:
In
order
to remain competitive, the Company must develop and maintain protection on
the
proprietary aspects of its technologies. The Company relies on a combination
of
patents, copyrights, trademarks, trade secret laws and confidentiality
agreements to protect its intellectual property rights. The Company currently
holds two issued U.S. trademarks and three issued U.S. patents primarily
covering various aspects of its products. In addition, the Company intends
to
file for additional patents to strengthen its intellectual property
rights.
The
Company’s success depends to a significant degree upon its ability to develop
proprietary products and technologies and to obtain patent coverage for these
products and technologies. The Company intends to continue to file patent
applications covering any newly developed products, components, methods and
technologies. However, there can be no guarantee that any of its 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 its pending
Page
17
applications
or issued patents. Finally, there can be no guarantee that its issued patents
or
future issued patents, if any, will provide adequate protection from
competition, as discussed below.
Patents
provide some degree of protection for the Company’s 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 the Company
possesses or are pursuing generally cover its technologies to varying degrees.
As a result, the Company cannot ensure that patents will issue from any of
its
patent applications, or that any of its issued patents will offer meaningful
protection. In addition, the Company’s issued patents may be successfully
challenged, invalidated, circumvented or rendered unenforceable so that its
patent rights may not create an effective barrier to competition. Moreover,
the
laws of some foreign countries may not protect its proprietary rights to
the
same extent, as do the laws of the United States. There can be no assurance
that
any patents issued to the Company will provide a legal basis for establishing
an
exclusive market for its products or provide us with any competitive advantages,
or that patents of others will not have an adverse effect on its ability
to do
business or to continue to use its technologies freely.
The
Company may be subject to third parties filing claims that its technologies
or
products infringe on their intellectual property. The Company cannot predict
whether third parties will assert such claims against it or whether those
claims
will hurt its business. If the Company is forced to defend itself against
such
claims, regardless of their merit, the Company may face costly litigation
and
diversion of management’s attention and resources. As a result of any such
disputes, the Company 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
the
Company’s business or financial condition.
The
Company also relies on trade secret protection of its intellectual property.
The
Company attempts to protect trade secrets by entering into confidentiality
agreements with third parties, employees and consultants. It is possible
that
these agreements may be breached, invalidated or rendered unenforceable,
and if
so, the Company’s trade secrets could be disclosed to its competitors. Despite
the measures the Company has taken to protect its intellectual property,
parties
to its agreements may breach confidentiality provisions in its contracts
or
infringe or misappropriate its patents, copyrights, trademarks, trade secrets
and other proprietary rights. In addition, third parties may independently
discover or invent competitive technologies, or reverse engineer its trade
secrets or other technology. Therefore, the measures the Company is taking
to
protect its proprietary technology may not be adequate.
Government
Regulation:
The
Company is subject to numerous federal, state and local laws relating to
such
matters as safe working conditions, manufacturing practices, environmental
protection, fire
Page
18
hazard
control, and disposal of hazardous or potentially hazardous substances. The
Company may incur significant costs to comply with such laws and regulations
now
or in the future.
Users
of
the Company’s shippers are subject to state, federal and international
government and/or agency regulation with respect to the shipment of diagnostic
specimens, infectious substances and dangerous goods. 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.
Companies shipping certain items must comply with any applicable Department
of
Transportation and ICAO regulations, as well as rules established by IATA,
the
CDC, OSHA and any other relevant regulatory agency.
RISK
FACTORS:
You
should carefully consider all of the material risks of the Company’s business,
including those described below, in addition to the other information contained
in this registration statement. This registration statement contains
forward-looking statements that involve risks and uncertainties. The Company’s
actual results could differ materially from those contained in the
forward-looking statements. Factors that may cause such differences include,
but
are not limited to, those discussed below as well as those discussed elsewhere
in this prospectus.
Given
the Company’s recurring losses and accumulated deficit, the Company must manage
its liquidity.
The
Company’s consolidated financial statements report recurring losses and an
accumulated deficit. Based on presently known commitments and plans, the
Company
believes that the Company will be able to fund its operations and required
expenditures through the second quarter of 2006 from cash on hand, cash flow
from operations and cash from debt or equity financings or from lease financing
sources. If the Company is unable to generate a sufficient amount of sales
of
its products to fund its operations, the Company will need to seek cash from
private or public placements of debt or equity, institutional or other lending
sources, to sell certain assets or to change operating plans to accommodate
its
liquidity issues.
There
is uncertainty that the Company will continue as a going concern. The Company
has a history of operating losses and anticipates continued operating losses,
and the Company may be unable to achieve
profitability.
The
Company has a history of operating losses and anticipates continued operating
losses for the foreseeable future. For the years ended March 31, 2005 and
2004,
the Company incurred net losses of $1,038,110 and $1,002,493, respectively,
and
its operations have used $1,018,116 and $782,093 of cash, respectively. As
of
March 31, 2005 the Company had an accumulated deficit of $5,516,790. For
the
three month period ended June 30,
Page
19
2005,
the
Company incurred a net loss of $390,934, and its operations have used $299,734
of cash. As of June 30, 2005 the Company had an accumulated deficit of
$5,907,724. If the Company is unable to generate a positive cash flow in
fiscal
year 2006, the Company may be required to locate additional sources of capital.
If the Company’s revenues do not increase very substantially, or if its spending
levels exceed its expectations, the Company will not become profitable. Revenues
may not grow in the future, and the Company may not generate sufficient revenues
for profitability. If the Company becomes profitable, the Company may not
be
able to sustain profitable operations.
The
Company has substantial outstanding indebtedness, including amounts owed
to
members of current and former boards of directors, that the Company may be
unable to repay or convert to equity.
At
June
30, 2005, the Company had approximately $1,694,290 of outstanding indebtedness
in the form of short-term and long-term promissory notes and accrued interest.
Of such amount, $1,662,790 of principal amount is long-term debt and an
additional $31,500 is considered short-term debt. The Company will need to
raise
additional funds through financings or future revenue to repay its outstanding
indebtedness. Any funds that the Company raises that are applied to repay
its
outstanding indebtedness will not be available to fund its business. The
Company
may be unable to raise the funds necessary to repay its debt and the holders
of
past due amounts may seek to enforce their rights against it.
At
June
30, 2005, the Company had $642,500 in principal amount of outstanding
indebtedness to P. Mullens and J.R. Dell, current members of its board of
directors, representing working capital advances they made to it, which
indebtedness is evidenced by demand notes bearing interest at the rate of
6% per
annum and which provide for repayment in the form of scheduled monthly payments
beginning April 1, 2006. An aggregate of an additional $617,000 principal
amount
of debt that is evidenced by substantially similar notes is owed to two former
directors and $110,000 principal amount to R. Takahashi, a CryoPort Inc.
shareholder.
The
Company will continue to need additional funds, and if additional capital
is not
available, the Company may have to limit, scale back or cease its
operations.
If
the
Company does not realize some or all of its revenue expectations, or otherwise
fail to have sufficient capital for its planned operations, the Company may
be
required to secure financing arrangements or pursue strategic partners, neither
of which may be available to it on favorable terms or at all. If adequate
funds
are not available, the Company may be required to defer or limit some or
all of
its sales, marketing, and/or research and development projects.
The
Company’s cash requirements may vary materially from those now planned due to a
number of factors, including, without limitation, the amount of revenues
the
Company
Page
20
generate
from sales of its products, changes in its regulatory and marketing programs,
production costs, anticipated research and development efforts, costs resulting
from changes in the focus and direction of its research and development
programs, and competitive advances that make it harder for it to market and
sell
its products.
The
Company also expects to incur additional costs related to ongoing research
and
development activities, and the expansion of its manufacturing, sales and
marketing, and administrative functions. The Company may also need additional
funds for possible strategic acquisitions of synergistic businesses, products
and/or technologies. There is no assurance that the Company will be able
to
obtain any additional funds on acceptable terms. If adequate funds are not
available, the Company may be required to delay, scale back or eliminate
some of
its research, development, sales and marketing initiatives, which would have
a
material adverse effect on its business, results of operations and ability
to
achieve profitability.
The
Company may need to raise additional funds to develop and commercialize its
products successfully. If the Company cannot raise more funds, the Company
could
be required to reduce its capital expenditures, scale back its product
development, reduce its work force and license to others products or
technologies that the Company otherwise would seek to commercialize itself.
Although the Company may seek additional funding through collaborative
arrangements, borrowing money or the sale of additional equity securities,
the
Company may not receive additional funding on reasonable terms, or at all.
Any
sales of additional shares of the Company’s capital stock are likely to dilute
its existing shareholders.
Further,
if the Company issues additional equity securities, the new equity securities
may have rights or warrants or other securities exercisable for, or convertible
into its capital stock, preferences or privileges senior to those of existing
holders of its common stock. Alternatively, the Company may borrow money
from
commercial lenders, possibly at high interest rates, which will increase
the
risk of your investment in the Company.
If
the Company experiences delays, difficulties or unanticipated costs in
establishing the sales, distribution and marketing capabilities necessary
to
successfully commercialize its products, the Company will have difficulty
maintaining and increasing its sales.
The
Company is continuing to develop sales, distribution and marketing capabilities
in the Americas, Europe and Asia. It will be expensive and time-consuming
for it
to develop a global marketing and sales network. Moreover, the Company may
choose, or find it necessary, to enter into additional strategic collaborations
to sell, market and distribute its products. The Company may not be able
to
provide adequate incentive to its sales force or to establish and maintain
favorable distribution and marketing collaborations with other companies
to
promote its products. In addition, any third party with whom the Company
has
established a marketing and distribution relationship may not devote sufficient
time to the marketing and sales of its products thereby exposing the Company
to
potential expenses in exiting such distribution agreements. The Company,
Page
21
and
any
of its third-party collaborators, must also market its products in compliance
with federal, state, local and international laws relating to the providing
of
incentives and inducements. Violation of these laws can result in substantial
penalties. If the Company is unable to successfully motivate and expand its
marketing and sales force and further develop its sales and marketing
capabilities, or if its distributors fail to promote its products, the Company
will have difficulty maintaining and increasing its sales.
If
the Company is not able to compete effectively, the Company may experience
decreased demand for its products, which may result in price
reductions.
The
Company has a couple of potentially large competitors in the United States.
The
Company’s success depends upon its ability to develop and maintain a competitive
position in the temperature sensitive dry shipper markets. The Company’s
competitors have greater capabilities, experience and financial resources
than
the Company does. As a result, they may develop products quicker or at less
cost, that compete with its products.
In addition, the Company’s competitors may develop technologies that render its
products obsolete or otherwise noncompetitive.
The
Company may not be able to improve its products or develop new products or
technologies quickly enough to maintain a competitive position in its market
and
continue to commercially develop its business. Moreover, the Company may
not be
able to compete effectively, and competitive pressures may result in less
demand
for its products and impair its ability to become profitable.
If
the Company does not attract and retain skilled personnel, the Company will
not
be able to expand its business.
The
Company’s future success will depend in large part upon its ability to attract
and retain highly skilled engineering, operational, managerial and marketing
personnel, particularly as the Company expand its activities in product
development, and sales and manufacturing. The Company faces significant
competition for these types of persons from other companies. Consequently,
if
the Company is unable to attract and retain skilled personnel, the Company
will
not be able to expand its business.
The
Company’s success depends, in part, on its ability to obtain patent protection
for the Company’s products, preserve its trade secrets, and operate without
infringing the proprietary rights of others.
The
Company’s policy is to seek to protect its proprietary position by, among other
methods, filing U.S. and foreign patent applications related to its technology,
inventions and improvements that are important to the development of its
business. The Company has three
U.S. patents relating
to various aspects of its products. The Company’s patents or patent applications
may be challenged, invalidated or circumvented in the future or the rights
granted may not provide a competitive advantage. The Company intends to
vigorously protect and defend its intellectual property. Costly and
time-consuming
Page
22
litigation
brought by the Company may be necessary to enforce its patents and to protect
its trade secrets and know-how, or to determine the enforceability, scope
and
validity of the proprietary rights of others.
The
Company also relies upon trade secrets, technical know-how and continuing
technological innovation to develop and maintain its competitive position.
The
Company typically requires its employees, consultants, advisors and suppliers
to
execute confidentiality agreements in connection with their employment,
consulting, or advisory relationships with the Company. If any of these
agreements are breached, the Company may not have adequate remedies available
thereunder to protect its intellectual property or the Company may incur
substantial expenses enforcing its rights. Furthermore, the Company’s
competitors may independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to its proprietary
technology, or the Company may not be able to meaningfully protect its rights
in
unpatented proprietary technology.
The
Company cannot assure that its 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
its
ability to make, use or sell its products either in the U.S. or internationally.
In the event the Company was to require licenses to patents issued to third
parties, such licenses may not be available or, if available, may not be
available on terms acceptable to the Company. In addition, the Company cannot
assure that the Company would be successful in any attempt to redesign its
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 the Company from manufacturing and selling its products,
which would harm its business.
If
the Company experiences manufacturing delays or interruptions in production,
then the Company may experience customer dissatisfaction and its reputation
could suffer.
If
the
Company fails to produce enough products at its own manufacturing facility
or at
a third-party manufacturing facility, the Company may be unable to deliver
products to its customers on a timely basis, which could lead to customer
dissatisfaction and could harm its reputation and ability to compete. The
Company currently acquires various component parts for its products from
a
number of independent manufacturers in the United States. The Company would
likely experience significant delays or cessation in producing its products
if a
labor strike, natural disaster, local or regional conflict or other supply
disruption were to occur at any of its main suppliers. If the Company is
unable
to procure a component from one of its manufacturers, the Company may be
required to enter into arrangements with one or more alternative manufacturing
companies. In addition, because the Company depends on third-party
manufacturers, its profit margins may be lower, which will make it more
difficult for the Company to achieve profitability.
Page
23
Because
the Company relies on a limited number of suppliers, the Company may experience
difficulty in meeting its customers’ demands for its products in a timely manner
or within budget.
The
Company currently purchases key components of its products from a variety
of
outside sources. Some of these components may only be available to the Company
through a few sources, however, management has identified alternative materials
and suppliers should the need arise. The Company generally does not have
long-term agreements with any of its suppliers.
Consequently,
in the event that the Company’s suppliers delay or interrupt the supply of
components for any reason, the Company could potentially experience higher
product costs and longer lead times in order fulfillment.
If
the Company is unable to generate sufficient revenue to provide the cash
required to fund its operations in the future, the Company may be required
to
issue additional equity or convertible debt securities to provide its operations
with additional working capital, which, in turn, will have the effect of
diluting the relative ownership of its existing
stockholders
The
Company has supplemented the cash deficit arising from its operations with
the
proceeds from the sale of common stock, and will, if necessary, continue
to
supplement with cash from private or public placements of debt or equity.
The
issuance of additional equity or convertible debt securities will have the
effect of reducing the percentage ownership of its current stockholders.
In
addition, these equity or convertible debt securities may have additional
rights, preferences or privileges to those of its common stock, such as
registration rights and preferences in liquidation. In the event the Company
is
required to raise additional funds to support its operations, additional
funds
may not be available on terms favorable to its company, or at all. If adequate
funds are not available or are not available on acceptable terms, the Company
may not be able to fund its operations or otherwise continue as a going concern.
As a result, our auditors have issued a going concern opinion
The
Company’s common stock is subject to penny stock regulation, which may affect
its liquidity.
Because
the Company will initially have its shares of common stock quoted on the
Over-The-Counter Bulletin Board, its shares will be subject to regulations
of
the Securities and Exchange Commission (the “Commission”) relating to the market
for penny stocks. Penny stock, as defined by the Penny Stock Reform Act,
is any
equity security not traded on a national securities exchange or quoted on
the
NASDAQ National or Small Cap Market that has a market price of less than
$5.00
per share. The penny stock regulations generally require that a disclosure
schedule explaining the penny stock market and the risks associated therewith
be
delivered to purchasers of penny stocks and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors. The broker-dealer must make
a
Page
24
suitability
determination for each purchaser and receive the purchaser's written agreement
prior to the sale. In addition, the broker-dealer must make certain mandated
disclosures, including the actual sale or purchase price and actual bid offer
quotations, as well as the compensation to be received by the broker-dealer
and
certain associated persons. The regulations applicable to penny stocks may
severely affect the market liquidity for its common stock and could limit
your
ability to sell your securities in the secondary market.
The
sale of substantial shares of the Company’s common stock may depress its stock
price.
As
of
October 10, 2005, the Company had 29,907,697 shares of common stock outstanding,
and the last reported sales price of its common stock on the PinkSheets was
$6.34 per
share. The Company could also issue up to approximately 4,209,111 additional
shares of common stock upon the exercise of outstanding options and warrants
as
further described in the following table:
|
Description
of instrument
|
Number
of
Shares
Outstanding
|
Weighted
Average Per
Share
Exercise
Price
|
||
|
Common
shares issuable upon exercise of outstanding stock options
|
2,508,988
|
$0.45
|
||
|
Common
shares issuable upon exercise of outstanding warrants
|
1,700,123
|
$0.74
|
||
|
Total
|
4,209,111
|
$0.33
|
A
recently adopted change in the way companies must account for stock options
may
affect the Company’s earnings and cause the Company to change its compensation
practices.
The
Company currently accounts for the issuance of stock options under Accounting
Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees”. In December 2004, the Financial Accounting Standards Board (“FASB”)
adopted the Statement of Financial Accounting Standards (“SFAS”) No. 123R,
Share-Based
Payment,
which
will require the Company to account for equity under its stock plans as a
compensation expense and its net income and earnings per share will be reduced.
Currently, the Company record compensation expense only in connection with
option grants that have an exercise price below fair market value. For option
grants that have an exercise price at fair market value, the Company calculates
compensation expense and discloses their impact on net income (loss) and
earnings (loss) per share, as well as the impact of all stock-based compensation
expense, in a footnote to its consolidated financial statements. SFAS No.
123R
requires the Company to adopt the new accounting
Page
25
method
beginning in its fiscal year beginning April 1, 2006, and will require the
Company to expense stock based benefit awards, stock options, restricted
stock
and stock appreciation rights, as compensation cost.
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
|
Liquidity
and Capital Resources
Total
assets
Cryoport,
Inc. (the “Company”), was originally formed with the intention to first develop
a reusable line of cryogenic shippers and once underway, to begin the research
and development of a disposable, one-way cryogenic shipper. Since initial
formation the company has not had the funds to fully implement its business
plan. The reusable line of cryogenic shippers has been in production since
2002,
however, difficulties in penetrating the well established market for reusable
cryogenic shippers, as well as a need for continuous redevelopment of the
product line has resulted in only limited revenue generation from the sale
of
the reusable cryogenic shipper. During this time, the Company maintained
research and development activities focused on the new product line of one-way
shippers. The limited revenues produced from the reusable product line along
with limited capital funding required the Company to assign only minimal
resources to the development of the one-way cryogenic shippers. During the
last
quarter of the Company’s 2005 operations, funding was put into place to allow
the Company to focus on accelerating the development and launch of its one-way
product. The Company has since been focusing significant resources to the
development of a working prototype of this one-way shipper with the goal
of
launching the new product into the market in early calendar year 2006.
The
Company is currently discussing development of a shipper from the one-way
product line for drug delivery with vaccine manufacturers These potential
one-way shipper customers are currently using the Company’s reusable shippers in
clinical trials. To address the high volume ramp up necessary to provide
these
customers with one-way shippers, the Company is currently involved in
negotiations for a manufacturing and distribution partnership with two large,
and well established manufacturing companies.
General
Overview
The
following discussion and analysis of the Company’s financial condition and
results of operations should be read in conjunction with the audited
consolidated balance sheet as of March 31, 2005 and the related consolidated
statements of operations, cash flows and stockholders’ deficit for the years
ended March 31, 2005 and 2004, and the related notes as well as the unaudited
quarterly information as of June 30, 2005 and for each of the three month
periods ended June 30, 2005 and June 30, 2004 (see Part F/S Financial
Statements). This discussion contains forward-looking statements, within
the
definition
Page
26
of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the
Securities Act of 1934, as amended, based upon current expectations that
involve
risks and uncertainties, such as the Company’s plans, objectives, expectations
and intentions.
Going
Concern
As
reported in the Report of Independent Registered Public Accountant on the
Company’s March 31, 2005 and 2004 financial statements, the Company has incurred
recurring losses from operations and has a stockholders’ deficit. These factors,
among others, raise substantial doubt about the Company’s ability to continue as
a going concern.
There
are
significant uncertainties which negatively affect the Company’s operations.
These are principally related to (i) the limited distribution network for
the
Company’s reusable product line, (ii) the early stage development of the
Company’s one-way product and the need to enter a strategic relationship with a
larger manufacturer capable of high volume production and distribution, (iii)
the absence of any commitment or firm orders from key customers in the Company’s
target markets for the reusable or the one-way shippers, (iv) the success
in
bringing products concurrently under development to market with the Company’s
key customers. Moreover, there is no assurance as to when, if ever, the Company
will be able to conduct the Company’s operations on a profitable basis. The
Company’s limited sales to date for the Company’s product, the lack of any
purchase requirements in the existing distribution agreements and those
currently under negotiations, make it impossible to identify any trends in
the
Company’s business prospects. There is no assurance the Company will be able to
generate sufficient revenues or sell any equity securities to generate
sufficient funds when needed, or whether such funds, if available, will be
obtained on terms satisfactory to the Company.
The
Company has not generated significant revenues from operations and has no
assurance of any future significant revenues. The Company incurred net losses
of
$390,934 and $319,037 for the three month periods ended June 30, 2005 and
June
30, 2004 respectively. The Company had a cash balance of $413,212 at June
30,
2005. In addition, at June 30, 2005 the Company’s accumulated deficit was
$5,907,724 and the Company had working capital of $5,047. The management
recognizes that the Company must obtain additional capital for the further
development and launch of the one-way product and the eventual achievement
of
sustained profitable operations.
Management’s
plans include obtaining additional capital through a private placement offering
of common stock under Regulation D. In addition, the Company’s current
negotiations with a manufacturing and distribution partner for the one-way
product is expected to generate additional revenues through licensing fees.
The
Company had historically operated by efficiently minimizing operating expenses.
The Company will continue to maintain minimal operating expenditures through
stringent cost containment measures. The Company’s largest expenses relate to
personnel and meeting the legal and reporting requirements of a public company.
By utilizing part-time consultants, and asking employees to manage multiple
roles and
Page
27
responsibilities
whenever possible, operating costs have and will continue to be kept low.
Additionally, a number of the Company’s key employees and the Company’s Board of
Directors receive Company stock in lieu of cash as all or part of their
compensation in an effort to minimize monthly cash flow. With this strategy
the
Company has established a critical mass of experienced business professionals
capable of taking the Company forward.
The
Company intends to carefully and gradually add key sales, marketing,
engineering, scientific and operating personnel only as necessary. These
strategic additions will help expand the Company’s product offerings in the
reusable and one-way cryogenic shipping markets, leading us to additional
revenues and profits. As sales volumes and revenues increase, additional
administrative personnel will be necessary to meet the added workload. Other
expenses, such as sales, customer service and operations, will increase
commensurate with increased revenues. The Company’s current research and
development efforts focus on development of the one-way shipper. Due to the
ongoing nature of this research the Company is unable to ascertain with
certainty the total estimated completion dates and costs associated with
all
phases of this research. As with any research effort, there is uncertainty
and
risk associated with whether these efforts will produce results in a timely
manner so as to enhance the Company’s market position. For the years ended March
31, 2005 and 2004, research and development costs were $98,698 and $61,002,
respectively. Company sponsored research and development costs related to
future
products and redesign of present products is expensed as incurred and include
such costs as salaries, employees benefits and costs determined utilizing
the
Black-Scholes option-pricing model for options issued to the Scientific Advisory
Board and prototype design and materials costs.
Liquidity
and Capital Reserves
As
of
March 31, 2005 the Company’s current assets of $966,840 exceeded current
liabilities of $607,956 by $358,884. Approximately 41% of current liabilities
represent accrued payroll for executives who have opted to defer taking salaries
until the Company has achieved positive operating cash flows.
Total
assets increased to $1,080,428 at March 31, 2005 from $271,889 at March 31,
2004
as a result of cash received from the sale of common stock and increase in
notes
payable, partially offset by funds used in operating activities.
The
Company’s total outstanding indebtedness increased to $2,260,463 at March 31,
2005 from $2,096,979 at March 31, 2004 primarily from the increases in notes
payable which was partially offset by a decrease in current liabilities from
the
reduction in operating payables.
As
of
June 30, 2005 the Company’s current assets of $686,077 exceeded current
liabilities of $681,030 by $5,047. Approximately 44% of current liabilities
represent accrued payroll for executives who have opted to defer taking salaries
until the company has achieved positive operating cash flows.
Page
28
Total
assets decreased to $796,491 at June 30, 2005 from $1,080,428 at March 31,
2005
as a result of funds used in operating activities and usage of deposits
previously paid to vendors partially offset by an increase in accounts
receivable.
The
Company’s total outstanding indebtedness increased to $2,343,840 at June 30,
2005 from $2,260,463 at date March 31, 2005 primarily from the increases
in
accrued salaries and interest on notes payable.
The
Company does not expect to incur any material capital expenditures until
sales
volumes increase substantially. Any required future capital expenditures
for
manufacturing equipment for the launch of the one-way product will be funded
out
of future revenues or additional equity.
Critical
Accounting Policies
The
Company’s consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues
and
expenses, and related disclosure of contingent assets and liabilities. The
Company bases the Company’s estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis of making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
The
Company believes the following critical accounting policies, among others,
affect the Company’s more significant judgments and estimates used in the
preparation of the Company’s financial statements:
Allowance
for Doubtful Accounts. The
Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of the Company’s customers to make required
payments. The allowance for doubtful accounts is based on specific
identification of customer accounts and the Company’s best estimate of the
likelihood of potential loss, taking into account such factors as the financial
condition and payment history of major customers. The Company evaluates the
collectibility of the Company’s receivables at least quarterly. If the financial
condition of the Company’s customers were to deteriorate, resulting in
impairment of their ability to make payments, additional allowances may be
required. The differences could be material and could significantly impact
cash
flows from operating activities.
Inventory.
The
Company writes down the Company’s inventory 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. 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-
Page
29
downs
are
considered permanent adjustments to the cost basis of the obsolete or
unmarketable inventories.
Intangible
Assets.
The
Company has adopted SFAS No.142, “Goodwill and Other Intangible Assets.” SFAS
No. 142 requires that goodwill and intangible assets that have indefinite
lives
not be amortized but rather be tested at least annually for impairment, and
intangible assets that have finite useful lives be amortized over their useful
lives.
SFAS
No.
142 provides specific guidance for testing goodwill and intangible assets
that
will not be amortized for impairment. Goodwill will be subject to
impairment reviews by applying a fair-value-based test at the reporting unit
level, which generally represents operations one level below the segments
reported by the Company. An impairment loss will be recorded for
any
goodwill that is determined to be impaired. The Company performs
impairment testing on all existing goodwill at least annually.
Impairment
of Long-Lived Assets.
The
Company assesses the recoverability of the Company’s 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.
Accrued
Warranty Costs. The
Company estimates the costs of the standard warranty, included with the reusable
shippers at no additional cost to the customer for a period up to one year.
These estimated costs are recorded as accrued warranty costs at the time
of
product sale.
Revenue
Recognition. Product
sales revenue is recognized upon passage of title to customers, typically
upon
shipment of product. Any provision for discounts and estimated returns are
accounted for in the period the related sales are recorded.
Results
of Operations - Year Ended March 31, 2005
Net
Sales. During
the year ended March 31, 2005 the Company generated $271,429 from reusable
shipper sales compared to revenues of $84,285 in the prior year period, an
increase of $187,144, or 222%. The increase is primarily due to the new product
releases of the “soft-shelled” reusable cryogenic shippers in July 2004, and
increased sales penetration into the biotech and pharmaceutical markets for
the
Company’s reusable shippers.
During
2006, the Company expects revenues of the “soft-shelled” reusable shippers to
increase, but any such increase is not expected to impact significantly the
Company’s operating results for 2006. The statement concerning future sales is a
forward-looking statement within the definition of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as
amended, that involves certain risks and uncertainties which could result
in a
fluctuation of sales below those achieved for the year ended March 31, 2005.
Sales could be negatively impacted by potential competing products and overall
market acceptance of the Company’s products.
Page
30
Gross
Profit/Loss. Gross
loss for the year ended March 31, 2005 decreased by $112,299, or 33% to $228,221
compared to $340,520 for the year ended March 31, 2004. The decrease in the
gross loss is due to the increase in sales.
Cost
of
sales for the year ended March 31, 2005 increased to $499,650 from $424,805
for
the year ended March 31, 2004 as the result of the increase in sales volumes
offset by lower warranty costs and increased production efficiency. During
both
periods cost of sales exceeded sales due to plant underutilization.
During
2006, management expects the gross loss to decrease further as a result of
anticipated increased sales. The statement concerning future gross profit/loss
is a forward looking statement within the definition of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Act
of
1934, as amended, that involves certain risks and uncertainties which could
result in a fluctuation of gross margins below those achieved for the year
ended
March 31, 2005. Gross profit/loss could be negatively impacted by potential
competing products and overall market acceptance of the Company’s
products.
Selling,
General and Administrative Expenses. Selling,
general and administrative expenses increased
by $191,887 to $622,797 for the year ended March 31, 2005 as compared to
$430,910 for the year ended March 31, 2004 due mainly to:
(i)
increased sales and marketing costs of $27,921 related to increased trade
shows
and commission expenses, (ii) increased general and administrative costs
of
$163,965 related to additional accrued executive salaries and expenses related
to stock option compensation, litigation settlement costs and additional
legal
fees related to the share exchange agreement.
Research
and Development Expenses. Research
and development expenses increased by $37,696 to $98,698 for the year ended
March 31, 2005 as compared to $61,002 for the year ended March 31, 2004 in
connection with the re-engineering activity related to the current reusable
product as well as increased development activity on the one-way
product.
Net
Loss. As
a
result of the factors described above, in fiscal year 2004, the Company’s net
loss was $1,038,110 or ($0.06) per share, compared to a net loss of $1,002,493
or ($0.08) per share in fiscal year 2004.
Results
of Operations - Three Months Ended June 30, 2005
Net
Sales. During
the three months ended June 30, 2005 the Company generated $122,493 from
reusable shipper sales compared to revenues of $66,227 in the same period
of the
prior year, an increase of $56,266, or 85%. The increase is primarily due
to
increased sales penetration into the biotech and pharmaceutical markets for
the
Company’s reusable shippers.
Gross
Profit/Loss. Gross
loss for the three month period ended June 30, 2005 decreased by $120,714,
or
85% to $21,463 compared to $142,177 for the three month period ended June
30,
2004. The decrease in the gross loss is due to the increased sales combined
with
increased production overhead efficiencies and plant utililization.
Page
31
Cost
of
sales for the three month period ended June 30, 2005 decreased to $143,956
from
$208,404 for the three month period ended June 30, 2004 as the result of
increased plant utilization and production efficiency and lower warranty
costs.
During both periods cost of sales exceeded sales due to plant
underutilization.
Selling,
General and Administrative Expenses. Selling,
general and administrative expenses increased by $126,605 to $268,764 for
the
three month period ended June 30, 2005 as compared to $142,159 for the three
month period ended June 30, 2004 due mainly to: (i) increased sales and
marketing costs of $41,336 related to increased trade shows, travel and
consultant expenses, (ii) increased general and administrative costs of $89,479
related to additional legal and accounting fees related to the share exchange
agreement and public filing costs.
Research
and Development Expenses. Research
and development expenses increased by $67,288 to $79,353 for the three month
period ended June 30, 2005 as compared to $12,065 for the three month period
ended June 30, 2004 in connection increased development activity on the one-way
product .
Net
Loss. As
a
result of the factors described above, the net loss for the quarter ended
June
30, 2005 increased by $71,897, or 23% to $390,934 or ($0.01) per share compared
to $319,037 or ($0.02) per share for the quarter ended June 30, 2004.
Forward
Looking Statements
This
Report on Form 10SB contains forward-looking statements
within
the definition of Section 27A of the Securities Act of 1933, as amended,
and
Section 21E of the Securities Act of 1934, as amended. Such forward-looking
statements which the Company makes involve known and unknown risks,
uncertainties and other factors which may cause the Company's actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Factors that could cause actual results to differ materially
from
the forward-looking statements include quarterly and yearly fluctuations
in
results, the progress of research and the development of that research and
the
other risks detailed from time to time in the Company’s reports, including this
filing. These forward-looking statement speak only as the date hereof, and
should not be given undue reliance. Actual results may vary
significantly.
The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
ITEM
3. DESCRIPTION
OF PROPERTY.
The
Company’s corporate, research and development, and warehouse facilities are
located in one Company-leased office and warehouse building with a square
footage of approximately 8,000 square feet. The facilities are located at
451
Atlas Street, Brea, California 92821. The Company currently makes lease payments
of $7,500.00 per
Page
32
month.
The lease is a two year lease with rent due at the beginning of each month.
The
landlord is Brea Hospital Properties, LLC. The facilities are in good condition
and are suitable for the Company’s current requirements. The Company currently
does not own any real property.
|
ITEM
4.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
|
Security
Ownership of Certain Beneficial Owners:
The
following table sets forth information with respect to the beneficial ownership
of the Company’s common stock as of October 10, 2005, by each person or group of
affiliated persons known to the Company to beneficially own 5% or more of
its
common stock, each director, each named executive officer, and all of its
directors and named executive officers as a group. As of October 10, 2005,
there
were 29,907,697
shares
of
common stock outstanding. Unless otherwise indicated, the address of each
beneficial owner listed below is c/o CryoPort, Inc., 451 Atlas Street, Brea,
California 92821.
The
following table gives effect to the shares of common stock issuable within
60
days of October 10, 2005, upon the exercise of all options and other rights
beneficially owned by the indicated stockholders on that date. Unless otherwise
indicated, the persons named in the table have sole voting and sole investment
control with respect to all shares beneficially owned:
|
Beneficial
Owner
|
Number
of Shares
Beneficially
Owned
|
Percentage
of Shares
Beneficially
Owned
|
||||||
|
Executive
Officers and Directors:
|
||||||||
|
Peter
Berry
|
1,253,370
|
(1)
|
4.6%
|
|
||||
|
Patrick
Mullens, M.D.
|
2,592,153
|
8.7%
|
|
|||||
|
Jeffrey
Dell, M.D.
|
1,515,989
|
5.1%
|
|
|||||
|
Dee
S. Kelly
|
91,752
|
(1)
|
*
|
|||||
|
Adam
M. Michelin
|
0
|
0.0%
|
|
|||||
|
Gary
C. Cannon
|
0
|
0.0%
|
|
|||||
|
All
directors and named executive officers as a group (6
persons)
|
5,453,264
|
17.2%
|
|
|||||
|
Other
5% Stockholders:
|
||||||||
|
Raymond
Takahashi, M.D.
|
2,518,012
|
(1)
|
8.3%
|
|
||||
|
David
Petreccia, M.D.
|
2,081,751
|
(1)
|
7.0%
|
|
||||
|
Dante
Panella
|
1,950,000
|
6.6%
|
|
|||||
*Less
than 1% of outstanding shares of the Company’s common stock.
Page
33
|
(1)
|
Includes
shares which individuals shown above have the right to acquire
as of
October 10, 2005, or within 60 days thereafter, pursuant to outstanding
stock options and/or warrants as follows: Mr. Berry - 1,253,370
shares;
Dr. Takahashi - 583,333 shares; Dr. Petreccia - 83,333 shares;
and Ms.
Kelly 91,752 shares.
|
Change
in Control Agreements:
There
are
no understandings, arrangements or agreements known by management at this
time
which would result in a change in control of CryoPort,
Inc. or
any subsidiary.
|
ITEM
5:
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS.
|
Directors
and Executive Officers:
As
of
October 10, 2005, the directors and executive officers of the Company, their
ages, positions, and terms of office are as follows:
Directors
and Officers:
|
Name
|
Age
|
Position
|
Date
Elected
|
|
Peter
Berry
|
58
|
Chief
Executive Officer, President and Director
|
2003
|
|
Dee
Kelly, CPA
|
44
|
Vice
President of Finance
|
2003
|
|
Patrick
Mullens, M.D.
|
59
|
Chairman
of the Board, Director
|
2000
|
|
Gary
C. Cannon
|
54
|
Secretary
and Director
|
2005
|
|
Jeffrey
Dell, M.D.
|
58
|
Director
|
2000
|
|
Adam
M. Michelin
|
62
|
Director
|
2005
|
The
officers of the Company hold office until their successors are elected and
qualified, or until their death, resignation or removal.
None
of
the directors or officers holds a directorship in any other reporting
company.
None
of
the directors or officers listed above has:
| · |
had
a bankruptcy petition filed by or against any business of which
that
person was a general partner of executive officer either at the
time of
the bankruptcy or within two years prior to that
time;
|
| · |
had
any conviction in a criminal proceeding, or been subject to a pending
criminal proceeding;
|
| · |
been
subject to any order, judgment, or decree by any court of competent
jurisdiction, permanently or temporarily enjoining, barring, suspending
or
otherwise limiting such person’s involvement in any type of business,
securities or banking
activities;
|
Page
34
| · |
been
found by a court of competent jurisdiction, the Commission, or
the
Commodity Futures Trading Commission to have violated a federal
or state
securities or commodities law.
|
Background
of Directors and Officers:
Patrick
Mullens MD, became
the Company’s Chairman of the Board and a member of the Company’s Board of
Directors in March 2005 in connection with the Share Exchange Agreement with
CryoPort Systems, Inc. Dr. Mullens served as the Company’s Chairman until June
22, 2005. Dr. Mullens was the founder of CryoPort Systems, Inc. and served
as
its President from 2000 to 2003 and has served as Chairman of the Board since
2000. Dr. Mullens is a Doctor of Pathology (Yale and UCLA), with over 30
years’
cryobiology experience. He has also served as Laboratory Director and Officer
with the United States Public Health Service. He was Chief of Pathology at
Brea
Community Hospital from 1999 to 2004. Since 2004 he has worked at Premier
Pathology Laboratories, Inc.
Peter
Berry,
became
the Company’s President, Chief Executive Officer and a member of the Company’s
Board of Directors in connection with the Share Exchange Agreement. Mr. Berry
joined CryoPort Systems, Inc. as a consultant in 2002 and became its President,
Chief Executive Officer, Chief Operating Officer and a member of its Board
of
Directors in 2003. Prior to joining the Company, Mr. Berry was Vice President
Sales & Marketing for BOC Cryostar, AG in Switzerland. Mr. Berry has over 30
years executive experience in cryogenic equipment with Union Carbide, BOC
Group
and MVE International. He also has business start up, turnaround,
sales/marketing and operations background experience, both domestic and
international, in manufacturing and service based industries.
Dee
S. Kelly CPA,
became
Vice President of Finance. Ms. Kelly has 22 years experience in public and
private accounting. She served 5 years in the Healthcare Group of Ernst &
Young, LLP. She has also held financial management positions with international
bio-tech and medical device manufacturers. Ms. Kelly recently served as Vice
President, Controller for Equifax Financial Services, Inc. Ms. Kelly joined
the
Company in 2003. Prior to joining the Company, Ms. Kelly was Corporate
Controller for Masimo Corporation, a manufacturer of patient monitoring
devices.
Gary
C. Cannon,
became
the Company’s Secretary and a member of the Company’s Board of Directors in June
2005. Prior to joining the Company, Mr. Cannon was securities counsel and
compliance officer for The Affordable Energy Group, Inc. from November 2004
to
May 2005, and general and securities counsel for World Transport Authority,
Inc.
from July 2003 to November 2004. Mr. Cannon was in private practice from
August
2000 to July 2003, and has practiced law for the past 18 years, representing
all
sizes of businesses in such areas as, formation, mergers and acquisitions,
financing transactions, tax planning, and employee relations. Mr. Cannon
has
done extensive securities work and has served as a compliance officer for
companies with respect to the Sarbanes-Oxley Act, and other compliance matters.
Mr. Cannon obtained his Juris
Page
35
Doctorate
from National University School of Law, his Masters of Business degree from
National University and his Bachelor of Arts from United States International
University.
Jeffrey
Dell, M.D.,
became a
member of the Company’s Board of Directors in March 2005 in connection with the
Share Exchange Agreement. Dr. Dell has served as a Director of CryoPort Systems,
Inc. since December 2000. For the past 22 years, Dr. Dell has been a
cardiologist in clinical practice at St. Jude Hospital, Fullerton CA. He
holds a
masters degree in physics from the University of Chicago with specialization
in
solid state / liquid crystal physics.
Adam
M. Michelin,
became
a member of the Company’s Board of Directors in June 2005. Mr. Michelin is
currently the Chief Executive Officer, and a principal, of the Enterprise
Group,
a position he has held since March 2005. Prior to the Enterprise Group, Mr.
Michelin was a principal with Kibel Green, Inc. for a period of 11 years.
Mr.
Michelin has over 30 years of practice in the areas of executive leadership,
operations and is very experienced in evaluating, structuring and implementing
solutions for companies in operational and/or financial crisis. Mr. Michelin
received his Juris Doctorate from the University of West Los Angeles and
his
Bachelor of Science from Tri State University. Mr. Michelin has also done
MBA
course work at New York University.
Board
Committees:
The
Company formally established an audit committee and adopted an Audit Committee
Charter at its board of directors meeting held on August 19, 2005. Adam M.
Michelin, who qualifies as the “audit committee financial expert,” as defined in
the applicable Securities and Exchange Commission rules and is “independent” as
defined by the applicable rules under the NASDAQ Listing standards, was elected
chairman of the committee. The Company is currently reviewing the requirements
for and the need to set up an executive committee and other committees to
help
its board of directors oversee the operations of the Company.
ITEM
6. EXECUTIVE
COMPENSATION.
Executive
Compensation:
The
following table sets forth the compensation earned for all services rendered
to
the Company in all capacities for each of the three fiscal years ended March
31,
2005, 2004 and 2003, respectively by the Company’s Chief Executive and Vice
President of Finance.
Page
36
Summary
Compensation Table
|
Annual
Compensation(1)
|
Long-Term
Compensation
|
|||||||||||||
|
Name
and Position
|
Fiscal
Year
|
Salary
|
Bonus
|
Number
of Shares
Underlying
Options
|
||||||||||
|
Peter
Berry
|
2005
|
$
|
90,915
|
$
|
(4)
|
|
367,970
|
|||||||
|
CEO
and President
|
2004
|
$
|
89,250
|
|
|
|
500,000
|
|||||||
|
2003
|
$
|
38,658
|
(2)
|
|
$
|
(3)
|
|
500,000
|
||||||
|
Dee
S. Kelly
|
||||||||||||||
|
Vice-President
Finance
|
2005
|
$
|
60,000
|
n/a
|
36,752
|
|||||||||
|
2004
|
$
|
28,300
|
n/a
|
75,000
|
||||||||||
| (1) |
The
column for “Other Annual Compensation” has been omitted because there is
no compensation required to be reported in that column. The aggregate
amount of perquisites and other personal benefits provided to
each
executive officer listed above is less than the lesser of $50,000
and 10%
of his or her total annual salary and
bonus.
|
| (2) |
Includes
$35,950 paid to Mr. Berry as a
consultant.
|
| (3) |
A
bonus of up to 100% of salary ($84,000) was eliminated along with
a
reduction in salary from $84,000 per year to $60,000 per year,
in exchange
for the grant of 250,000 additional stock
options.
|
| (4) |
A
bonus of up to 200% of salary ($93,000) can be earned based on
agreed
targets in 2005. This bonus amount will not be calculated until
October
31, 2005. It is estimated that it will be approximately $140,000
based on
events and results thus far.
|
Option
Grants in Last Fiscal Year:
The
following table sets forth information concerning individual grants of options
made during the fiscal year ended March 31, 2005 to each of the Company’s
executive officers named in the Summary Compensation Table. The Company has
never granted any restricted shares:
|
Individual
Grants
|
|||||||||||||
|
Name
|
Number
of
Shares
Underlying
Options
Granted
|
%
of Total
Options
Granted
to
Employees
in
Fiscal
Year
|
Exercise
Price
Per
Share
|
Expiration
Date
|
|||||||||
|
Peter
Berry
|
367,970
|
57%
|
|
|
$0.04
|
8/1/09
|
|||||||
|
Dee
S. Kelly
|
36,752
|
6%
|
|
|
$0.04
|
8/1/09
|
|||||||
|
_____________
|
|||||||||||||
Page
37
Aggregated
Option Exercises in the Fiscal Year Ended March 31, 2005 and Year-End Option
Values:
The
following table sets forth information concerning the number and value of
unexercised options held by each of the Company’s executive officers named in
the Summary Compensation Table at March 31, 2005. None of these executive
officers exercised options during the fiscal year ended March 31,
2005:
|
Shares
Acquired
on
Exercise
|
Value
Realized
|
Number
of Shares Underlying
Unexercised
Options at
March
31, 2005
|
Value
of Unexercised
In-the-Money
Options at
March
31, 2005
(1)
|
||||||||||||||||
|
Name
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
|||||||||||||||
|
Peter
Berry
|
n/a
|
n/a
|
1,159,626
|
208,344
|
$
|
421,673
|
$
|
52,086
|
|||||||||||
|
Dee
S. Kelly
|
n/a
|
n/a
|
73,752
|
20,000
|
$
|
29,794
|
$
|
3,800
|
|||||||||||
_____________________
(1) The
values of the unexercised in-the-money options have been calculated on the
basis
of the estimated fair market value at March 31, 2005, of $0.75 based on average
selling price of recent unregistered common stock sales, less the applicable
exercise price, multiplied by the number of shares acquired on
exercise.
Employment
Agreement and Change-in-Control Arrangements:
Peter
Berry is subject to an employment agreement with the Company dated November
1,
2002, as amended March 17, 2003, pursuant to which he has been employed as
the
Company’s President and Chief Operating Officer. The Agreement provides for an
initial annual base salary of $84,000, which increased to $88,000 and $93,000
in
years two and three, respectively. In the event that the Agreement is renewed
at
the end of the initial term for an additional year, Mr. Berry’s base salary will
be increased to $186,000. The Agreement provides that during the initial
term
Mr. Berry is eligible to earn an annual bonus equal to 100% of his then current
base salary upon attaining mutually agreed upon goals. If the Agreement is
renewed at the end of the initial term for an additional year, the eligible
bonus is 40% of the new base salary. Pursuant to the Agreement, the Company
granted Mr. Berry a stock option to purchase up to 500,000 shares of common
stock at an exercise price of $.50 per share, which option vested as to 125,000
shares on the first anniversary of the date of grant, and thereafter vests
in 36
equal monthly installments through November 11, 2006. In the event that the
Company terminates Mr. Berry’s employment without “cause”, as defined in the
Agreement, or fails to renew the Agreement except for “cause”, then upon such
termination, the Company is obligated to pay to Mr. Berry as severance an
amount
equal to his then current base salary, plus any earned incentive bonus. In
March
2003, the Agreement was amended to reflect Mr. Berry’s agreement to a reduced
base salary during the first year of $60, 000, and agreement to forego
eligibility for an incentive bonus for such year. In
Page
38
exchange
for the foregoing, the Company granted Mr. Berry an additional stock option
to
purchase an additional 250,000 shares of its common stock at a price of $.50
per
share. The option was vested as to 125,000 shares on the date of grant, and
62,500 shares on each of September 30, 2003 and March 31, 2004. All other
terms
of the Agreement remained unchanged. The agreement was further amended by
board
consent, due to the financial condition of the company in 2004 at Mr. Berry’s
request, to eliminate the 100% bonus provision per the contract in year two
and
defer this bonus into the third year of the employment contract. This entitled
Mr. Berry to earn up to 200% of his then salary in the third contract year.
Equity
Compensation Plan Information:
The
Company currently maintains one equity compensation plan, referred to as
the
2002 Stock Incentive Plan (the “2002 Plan”). As the Company do not have a formal
compensation committee, the Board of Directors is responsible for granting
options under this plan. The 2002 Plan, which was approved by its shareholders
in October 2002, allows for the grant of options to purchase up to 5,000,000
shares of its common stock. The 2002 Plan provides for the granting of options
to purchase shares of the Company’s common stock at prices not less than the
fair market value of the stock at the date of grant and generally expire
ten
years after the date of grant. The stock options are subject to vesting
requirements, generally 3 or 4 years. The 2002 Plan also provides for the
granting of restricted shares of common stock subject to vesting requirements.
No restricted shares have been granted pursuant to the 2002 Plan as of May
31,
2005.
The
following table sets forth certain information as of March 31, 2005 concerning
the Company’s common stock that may be issued upon the exercise of options or
pursuant to purchases of stock under its 2002 Plan:
|
Plan
Category
|
(a)
Number of Securities
to be Issued Upon the Exercise of Outstanding Options
|
(b)
Weighted-Average
Exercise Price of Outstanding Options
|
(c)
Available
for Future Issuance Under Equity Compensation Plans (Excluding
Securities
Reflected in Column (a))
|
|||
|
Equity
compensation plans approved by stockholders
|
2,508,988
|
$0.45
|
2,491,012
|
|||
|
Equity
compensation plans not approved by stockholders
|
N/A
|
N/A
|
N/A
|
|||
|
2,508,988
|
$0.45
|
2,491,012
|
Page
39
Compensation
of Directors:
Historically,
the Company has not compensated its directors for their attendance at meetings.
As the Board of Directors plans to establish formal audit, compensation and
nominating committees, comprised of independent directors, it is anticipated
that non-employee directors will receive both cash fees and stock option
grants.
ITEM
7. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.
In
June
2005, the Company engaged Mr. Gary Cannon’s services as outside counsel at the
rate of $6,000 per month. Mr. Cannon is the Company’s secretary and a member of
its board of directors.
As
of
June 30, 2005, the Company had $642,500 in principal amount of outstanding
indebtedness to P. Mullens and J.R. Dell, current members of its board of
directors, representing working capital advances they made to it, which
indebtedness is evidenced by demand notes bearing interest at the rate of
6% per
annum and which provide for repayment in the form of scheduled monthly payments
beginning April 1, 2006. An aggregate of an additional $617,000 principal
amount
of debt that is evidenced by substantially similar notes is owed to two former
directors and $110,000 principal amount to R. Takahashi, a CryoPort Inc.
shareholder. No new borrowings have been made by the Company as of October
10,
2005.
ITEM
8. DESCRIPTION
OF SECURITIES.
General:
The
Company is authorized to issue 100,000,000 shares of common stock, with each
share having a par value of $0.001. As of March 31, 2005, there were 29,708,105
shares of common stock issued and outstanding held by 270 shareholders of
record. There were no shares of preferred stock issued or outstanding at
such
date.
Common
Stock:
The
Company’s Articles of Incorporation, filed on May 25, 1990, authorizes the
issuance of 5,000,000 shares of Common Stock at a par value of $.001 per
share.
The Articles of Incorporation were amended and restated on October 12, 2004,
to
authorize the issuance of 100,000,000 shares of Common Stock at a par value
of
$.001 per share. As of October 10, 2005, there were 29,907,697 shares of
common
stock issued and outstanding shares held by 281 shareholders of record. Holders
of Common Stock are entitled to one vote for each share on all matters to
be
voted on by the stockholders. Holders of Common Stock have no cumulative
voting
rights. Holders of shares of Common Stock are entitled to share ratable in
dividends, if any, as may be declared from time to time by the Board of
Directors in its discretion, from funds legally available therefore. In the
event of liquidation, dissolution, or winding up of the Company, the holders
of
shares of Common Stock are entitled to share pro rata all assets remaining
after
payment in full of all
Page
40
liabilities.
Holders of Common Stock have no pre-emptive or other subscription rights,
and
there are no conversion rights or redemption or sinking fund provisions with
respect to such shares. All of the outstanding Common Stock is, and the shares
offered by the Company pursuant to this offering will be, issued and delivered,
fully paid and non-assessable.
Preferred
Stock:
There
is
no preferred stock authorized.
Warrants:
As
of
October 10, 2005 there were outstanding warrants to purchase up to
1,700,123 shares
of
the Company’s common stock. The outstanding warrants were issued by CryoPort
Systems, Inc. in connection with various debt and equity financings and assumed
by the Company in connection with the Share Exchange Agreement. These warrants
are exercisable at prices ranging from $6.50 to $0.30 per share, with a weighted
average exercise price of $0.74 per share, and have expiration dates ranging
from February 2006 to December 2010.
Stock
Options:
As
of
October 10, 2005, there were outstanding options to purchase up to a total
of
2,508,988 shares of the Company’s common stock. The options were granted by
CryoPort Systems, Inc. pursuant to the 2002 Plan. In connection with the
Share
Exchange Agreement, the Company assumed the 2002 Plan and the obligations
associated with all outstanding stock options. These options are exercisable
at
prices ranging from $0.04 to $1.00 per share, with an average exercise price
of
$0.45 per share.
Transfer
Agent and Registrar:
The
Transfer Agent and Registrar for the Company’s Common Stock is Integrity Stock
Transfer, 2920 N. Green Valley Parkway, Building 5 - Suite 527, Henderson,
Nevada, 89014.
PART
II
|
ITEM
1.
|
MARKET
PRICE OF, AND DIVIDENDS ON, THE REGISTRANT’S COMMON EQUITY, AND OTHER
MATTERS.
|
The
Company’s shares in common stock have never traded on any securities exchange.
The Company plans to make an application to permit its common stock to trade
on
the over-the-counter bulletin board (OTCBB) when this registration statement
on
Form 10-SB shall become effective. There can be no assurance that an active
public market for the Company’s common stock will develop or be
sustained.
Page
41
Presently,
the Company’s common stock is traded through the PinkSheets under the symbol
CYRX.PK. The Company’s stock is considered penny stock and is, therefore,
subject to the Securities Enforcement Remedies and Penny Stock Reform Act
of
1990. Penny stock is defined as any equity security not traded on a national
stock exchange or quoted on NASDAQ and that has a market price of less than
$5.00 per share. Additional disclosure is required in connection with any
trades
involving a stock defined as a penny stock (subject to certain exceptions),
including the delivery, prior to any such transaction, of a disclosure schedule
explaining the penny stock market and the associated risks. Broker-dealers
who
recommend such low-priced securities to persons other than established customers
and accredited investors satisfy special sales practice requirements, including
a requirement that they make an individualized written suitability determination
for the purchase and receive the purchaser's written consent prior to the
transaction.
Prior
to
January, 2005, there was no published price for the Company’s common stock on
the PinkSheets. Based on information from BigCharts.com, for the fiscal quarter
ended March 31, 2005, the quoted high and low price of the Company’s common
stock were $5.80 and $0.39, respectively. As of October 10, 2005, the quoted
price of the Company’s stock was $6.34.
Dividends:
The
Company has not paid any dividends on its common stock and does not expect
to do
so in the foreseeable future. The Company intends to apply any future earnings
to expanding its operations and related activities.
The
payment of cash dividends in the future will be at the discretion of the
Board
of Directors and will depend on such factors as earnings levels, capital
requirements, the Company’s financial condition and other factors deemed
relevant by the Board of Directors. In addition, the Company’s ability to pay
dividends may become limited under future loan or financing agreements of
the
Company that may restrict or prohibit the payment of dividends.
ITEM
2. LEGAL
PROCEEDINGS.
The
Company is not currently a party to any pending, nor is the Company aware
of any
threatened, legal, governmental, administrative or judicial
proceedings.
ITEM
3. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS.
In
May,
2005, the Company retained the independent registered public accounting firm
of
Corbin and Company, LLP to audit its financial statements for the fiscal
years
ended March 31, 2005 and 2004. There were no disagreements with Corbin and
Company on accounting or financial disclosures. The Company had no existing
relationship with an independent accountant prior to its engagement of Corbin
and Company, LLP.
Page
42
ITEM
4. RECENT
SALES OF UNREGISTERED SECURITIES.
The
following is a summary of transactions by the Company during the past three
years 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”).
In
connection with the consummation of the Company’s Share Exchange Agreement dated
March 16, 2005, with the shareholders of CryoPort Systems, Inc., the Company
issued a total of 24,108,105 shares of its common stock to the shareholders
of
CryoPort Systems, Inc. in exchange for all issued and outstanding shares
of
CryoPort Systems, Inc.
In
fiscal
2005, the Company sold 11,962,522 shares of common stock at prices ranging
from
$0.04 to $0.75 resulting in proceeds of $1,609,971, net of offering costs
of
$80,113.
In
fiscal
2004, the Company sold 840,638 shares of common stock at prices ranging from
$0.50 to $0.70 resulting in gross proceeds of $459,984.
In
June
2005, 50,000 warrants were exercised at a price of $0.30 per share and 71,592
shares were issued pursuant to a cashless warrant exercise of 82,134 warrants
at
$0.30 per share.
In
August
2005, the Company settled a pending wrongful termination lawsuit involving
a
former employee with consideration being paid to the plaintiff in the form
of
265,420 shares of the Company’s common stock valued at $10,617 based on $0.04
per share (estimated fair value at date of settlement), and $25,000 in cash,
which is included in accrued liabilities in the accompanying balance sheet
at
March 31, 2005, to be paid 90 days subsequent to the Company operating under
a
positive cash flow basis.
In
June
2005, 50,000 warrants were exercised at a price of $0.30 per share and 71,592
shares were issued pursuant to a cashless warrant exercise of 82,134 warrants
at
$0.30 per share.
In
August
2005, the Company entered into Agency Agreements with various brokers to
raise
funds in a private placement offering of common stock under Regulation D.
In
connection with this agreement, 78,000 shares of the Company’s common stock were
sold to investors at a price of $3.50 per share for gross proceeds of $273,000
to the Company, net of issuance costs of $32,340.
Page
43
The
issuances of the securities of the Company in the above transactions were
deemed
to be exempt from registration under the Securities Act by virtue of Section
4(2) thereof or Regulation D promulgated thereunder, as a transaction by
an
issuer not involving a public offering. With respect to each transaction
listed
above, no general solicitation was made by either the Company or any person
acting on the Company’s behalf; the securities sold are subject to transfer
restrictions; and the certificates for the shares contained an appropriate
legend stating such securities have not been registered under the Securities
Act
and may not be offered or sold absent registration or pursuant to an exemption
therefrom. No underwriters were involved in connection with the sales of
securities referred to in this Part I, Item 10.
ITEM
5. INDEMNIFICATION
OF DIRECTORS AND OFFICERS.
Pursuant
to the provisions of Section 78.7502 of the Nevada Revised Statutes (the
“NRS”),
every Nevada corporation has authority to indemnify any person who was or
is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, except an action by or in the right
of the
corporation, by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys’ fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with the action,
suit
or proceeding if such person acted in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests
of the
corporation, and, with respect to any criminal action or proceeding, had
no
reasonable cause or belief his conduct was unlawful.
Pursuant
to the provisions of Section 78.7502, every Nevada corporation also has the
authority to indemnify any person who was or is a party or is threatened
to be
made a party to any threatened, pending or completed action or suit by or
in the
right of the corporation to procure a judgment in its favor by reason of
the
fact that such person is or was a director, officer, employee or agent of
the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint
venture, trust or other enterprise against expenses including amounts paid
in
settlement and attorneys’ fees actually and reasonably incurred by such person
in connection with the defense or settlement of the action or suit if such
person acted in good faith and in a manner which such person reasonably believed
to be in or not opposed to the best interests of the corporation. No
indemnification shall be made, however, for any claim, issue or matter as
to
which a person has been adjudged by a court of competent jurisdiction to
be
liable to the corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court determines that in view of all
the
circumstances, the person is fairly and reasonably entitled to indemnity
for
such expenses as the court deems proper.
To
the
extent any person referred to in the two immediately preceding paragraphs
is
successful on the merits or otherwise in defense of any action, suit or
proceeding, the
Page
44
NRS
provides that such person must be indemnified by the corporation against
expenses including attorneys’ fees, actually and reasonably incurred by him in
connection with the defense.
Section
78.751 of the NRS requires the corporation to obtain a determination that
any
discretionary indemnification is proper under the circumstances. The
corporation’s stockholders must make such a determination; its board of
directors by majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding; or under certain circumstances,
by
independent legal counsel. The Company’s amended and restated bylaws provide
that the Company shall indemnify its directors, officers, employees and agents
to the fullest extent provided by the NRS.
In
addition, Section 78.138.7 of the NRS provides that directors and officers
are
not personally liable to the corporation, its stockholders, or its creditors
for
any damages resulting from their breach of fiduciary duties unless it is
proven
that the act or omission constituted a breach of fiduciary duty and the breach
involved intentional misconduct, fraud or a knowing violation of
law.
Page
45
PART
F/S
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors of
CryoPort,
Inc.
We
have
audited the accompanying consolidated balance sheet of CryoPort, Inc. (the
“Company”) as of March 31, 2005, and the related consolidated statements of
operations, stockholders' deficit and cash flows for each of the years in
the
two-year period ended March 31, 2005. 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,
2005, and the results of its operations and its cash flows for each of the
years
in the two-year period ended March 31, 2005 in conformity with accounting
principles generally accepted in the United States of America.
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 financial statements, the Company has incurred recurring losses, and
has a
stockholders' deficit of $1,180,035 at March 31, 2005. These factors,
among others, raise substantial doubt as to the Company's ability to continue
as
a going concern. Management's plans in regard to these matters are
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.
CORBIN
& COMPANY, LLP
Irvine,
California
August
22, 2005, except for Note 12 as to
which
the
date is September 23, 2005
F-1
CRYOPORT,
INC.
CONSOLIDATED
BALANCE SHEET
|
March
31,
|
||||
|
ASSETS
|
2005
|
|||
|
Current
assets:
|
||||
|
Cash
|
$
|
720,195
|
||
|
Accounts
receivable, net
|
44,547
|
|||
|
Inventories
|
150,980
|
|||
|
Prepaid
expenses and other current assets
|
51,118
|
|||
|
Total
current assets
|
966,840
|
|||
|
Fixed
assets, net
|
96,940
|
|||
|
Intangible
assets, net
|
16,648
|
|||
|
|
$
|
1,080,428
|
||
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||
|
Current
liabilities:
|
||||
|
Accounts
payable
|
$
|
162,985
|
||
|
Accrued
expenses
|
104,040
|
|||
|
Accrued
warranty costs
|
70,500
|
|||
|
Accrued
salaries
|
246,431
|
|||
|
Current
portion of notes payable
|
24,000
|
|||
|
Total
current liabilities
|
607,956
|
|||
|
Related
party notes and accrued interest payable
|
1,609,067
|
|||
|
Notes
payable and accrued interest, net of current portion
|
43,440
|
|||
|
Total
liabilities
|
2,260,463
|
|||
|
Commitments
and contingencies
|
||||
|
Stockholders'
deficit:
|
||||
|
Common
stock, $0.001 par value; 100,000,000 shares
|
||||
|
authorized;
29,708,105
|
||||
|
shares
issued and outstanding
|
29,708
|
|||
|
Additional
paid-in capital
|
4,307,047
|
|||
|
Accumulated
deficit
|
(5,516,790
|
)
|
||
|
Total
stockholders' deficit
|
(1,180,035
|
)
|
||
|
|
$
|
1,080,428
|
||
accompanying
notes to consolidated financial statements
F-2
CRYOPORT,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
For
The Years Ended March 31,
|
|||||||
|
|
2005
|
2004
|
|||||
|
Net
sales
|
$
|
271,429
|
$
|
84,285
|
|||
|
Cost
of sales
|
499,650
|
424,805
|
|||||
|
Gross
loss
|
(228,221
|
)
|
(340,520
|
)
|
|||
|
Operating
expenses:
|
|||||||
|
Selling,
general and administrative expenses
|
622,797
|
430,910
|
|||||
|
Research
and development expenses
|
98,698
|
61,002
|
|||||
|
Total
operating expenses
|
721,495
|
491,912
|
|||||
|
Loss
from operations
|
(949,716
|
)
|
(832,432
|
)
|
|||
|
Other
expense:
|
|||||||
|
Interest
expense
|
(85,768
|
)
|
(67,791
|
)
|
|||
|
Loss
on disposition of assets
|
(1,826
|
)
|
(94,609
|
)
|
|||
|
Other
|
—
|
(6,861
|
)
|
||||
|
Total
other expense
|
(87,594
|
)
|
(169,261
|
)
|
|||
|
Loss
before income taxes
|
(1,037,310
|
)
|
(1,001,693
|
)
|
|||
|
Income
taxes
|
800
|
800
|
|||||
|
Net
loss
|
$
|
(1,038,110
|
)
|
$
|
(1,002,493
|
)
|
|
|
Net
loss available to common stockholders per common share:
|
|||||||
|
Basic
and diluted loss per common share
|
$
|
(0.06
|
)
|
$
|
(0.08
|
)
|
|
|
Basic
and diluted weighted average common
|
|||||||
|
shares
outstanding
|
17,907,557
|
12,952,375
|
|||||
accompanying
notes to consolidated financial statements
F-3
CRYOPORT,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
For
The Years Ended March 31, 2005 and 2004
|
Additional
|
Total
|
|||||||||||||||
|
Common
Stock
|
Paid-in
|
Accumulated
|
Stockholders'
|
|||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Deficit
|
||||||||||||
|
Balance,
April 1, 2003
|
12,547,092
|
$
|
12,547
|
$
|
2,112,209
|
$
|
(3,476,187
|
)
|
$
|
(1,351,431
|
)
|
|||||
|
Issuance
of common stock for cash
|
840,638
|
841
|
459,143
|
—
|
459,984
|
|||||||||||
|
Stock
options issued to consultants
|
—
|
—
|
68,850
|
—
|
68,850
|
|||||||||||
|
Net
loss
|
—
|
—
|
—
|
(1,002,493
|
)
|
(1,002,493
|
)
|
|||||||||
|
Balance,
March 31, 2004
|
13,387,730
|
13,388
|
2,640,202
|
(4,478,680
|
)
|
(1,825,090
|
)
|
|||||||||
|
Issuance
of common stock for cash, net of
|
||||||||||||||||
|
issuance
costs of $80,113
|
11,962,522
|
11,963
|
1,598,008
|
—
|
1,609,971
|
|||||||||||
|
Issuance
of common stock in connection
|
||||||||||||||||
|
with
a legal settlement
|
265,420
|
265
|
10,352
|
—
|
10,617
|
|||||||||||
|
Common
stock returned by founders
|
||||||||||||||||
|
to
reduce dilution
|
(1,507,567
|
)
|
(1,508
|
)
|
1,508
|
—
|
—
|
|||||||||
|
Common
stock issued in merger
|
||||||||||||||||
|
with
GT5
|
5,600,000
|
5,600
|
(5,600
|
)
|
—
|
—
|
||||||||||
|
Stock
options issued to consultants
|
—
|
—
|
62,577
|
—
|
62,577
|
|||||||||||
|
Net
loss
|
—
|
—
|
—
|
(1,038,110
|
)
|
(1,038,110
|
)
|
|||||||||
|
Balance,
March 31, 2005
|
29,708,105
|
$
|
29,708
|
$
|
4,307,047
|
$
|
(5,516,790
|
)
|
$
|
(1,180,035
|
)
|
|||||
accompanying
notes to consolidated financial statements
F-4
CRYOPORT,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
For
The Years Ended March 31,
|
|||||||
|
2005
|
2004
|
||||||
|
Cash
flows from operating activities:
|
|||||||
|
Net
loss
|
$
|
(1,038,110
|
)
|
$
|
(1,002,493
|
)
|
|
|
Adjustments
to reconcile net loss to net cash
|
|||||||
|
used
in operating activities:
|
|||||||
|
Depreciation
and amortization
|
92,596
|
91,948
|
|||||
|
Loss
on disposal of assets
|
1,826
|
94,609
|
|||||
|
Fair
value of stock options issued to consultants
|
62,577
|
68,850
|
|||||
|
Fair
value of common stock issued in connection
|
|||||||
|
with
a legal settlement
|
10,617
|
—
|
|||||
|
Changes
in operating assets and liabilities:
|
|||||||
|
Accounts
receivable, net
|
(32,163
|
)
|
(10,178
|
)
|
|||
|
Inventories
|
(97,863
|
)
|
(5,629
|
)
|
|||
|
Prepaid
expenses and other current assets
|
(43,942
|
)
|
(2,735
|
)
|
|||
|
Other
assets
|
—
|
7,905
|
|||||
|
Accounts
payable
|
(131,429
|
)
|
(110,154
|
)
|
|||
|
Accrued
expenses
|
12,258
|
8,033
|
|||||
|
Accrued
warranty costs
|
38,625
|
(15,375
|
)
|
||||
|
Accrued
salaries
|
24,428
|
26,742
|
|||||
|
Accrued
interest
|
82,464
|
66,384
|
|||||
|
Net
cash used in operating activities
|
(1,018,116
|
)
|
(782,093
|
)
|
|||
|
Cash
flows used in investing activities:
|
|||||||
|
Purchases
of fixed assets
|
(14,879
|
)
|
(16,589
|
)
|
|||
|
Cash
flows from financing activities:
|
|||||||
|
Proceeds
from borrowings under notes payable
|
190,000
|
241,000
|
|||||
|
Repayments
of notes payable
|
(52,864
|
)
|
(2,000
|
)
|
|||
|
Proceeds
from issuance of common stock, net
|
1,609,971
|
459,984
|
|||||
|
Net
cash provided by financing activities
|
1,747,107
|
698,984
|
|||||
|
Net
change in cash
|
714,112
|
(99,698
|
)
|
||||
|
Cash,
beginning of year
|
6,083
|
105,781
|
|||||
|
Cash,
end of year
|
$
|
720,195
|
$
|
6,083
|
|||
|
Supplemental
disclosure of cash flow information:
|
|||||||
|
Cash
paid during the year for:
|
|||||||
|
Interest
|
$
|
3,304
|
$
|
1,407
|
|||
|
Income
taxes
|
$
|
800
|
$
|
800
|
|||
accompanying
notes to consolidated financial statements
F-5
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
1 - ORGANIZATION AND BUSINESS
Organization
Cryoport,
Inc. (the “Company”) was originally incorporated under the name G.T.5-Limited
(“GT5”) on May 25, 1990 as a Nevada Corporation. The Company was engaged in the
business of designing and building exotic body styles for automobiles compatible
with the vehicle’s existing chassis.
On
March
15, 2005, the Company entered into a Share Exchange Agreement (the “Agreement”)
with Cryoport Systems, Inc. (“Cryoport Systems”), a California corporation, and
its stockholders whereby the Company acquired all of the issued and outstanding
shares of Cryoport Systems in exchange for 24,108,105 shares of its common
stock
(which represents approximately 81% of the total issued and outstanding shares
of common stock following the close of the transaction). Cryoport Systems
was
originally formed in 1999 as a California limited liability company and was
reorganized into a California corporation on December 11, 2000. Cryoport
Systems
was founded to capitalize on servicing the transportation needs of the growing
global “biotechnology revolution.” Effective March 16, 2005, the Company changed
its name to Cryoport, Inc. The transaction has been recorded as a reverse
acquisition (see Note 2).
The
principal focus of the Company is to develop a line of disposable (or one-way)
dry cryogenic shippers for the transport of biological materials. These
materials include live cell pharmaceutical products; e.g., cancer vaccines,
diagnostic materials, reproductive tissues, infectious substances and other
items that require continuous exposure to cryogenic temperature (less than
-150°C).
The
Company currently manufactures a line of reusable cryogenic dry shippers.
These
primarily serve as vehicles for the development of the cryogenic technology
that
supports the disposable product development but also are essential components
of
the infrastructure that supports testing and research activities of the
pharmaceutical and biotechnology industries. Our mission is to provide cost
effective packaging systems for biological materials requiring, or benefiting
from, a cryogenic temperature environment over an extended period of time.
Going
Concern
The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplate continuation of the Company as a going concern. The Company
has not generated significant revenues from operations and has no assurance
of
any future revenues. The Company incurred net losses of $1,038,110 and
$1,002,493 during the years ended March 31, 2005 and 2004 respectively. The
Company has a cash balance of $720,195 at March 31, 2005. In addition, at
March
31, 2005, the Company’s accumulated deficit was $5,516,790. These factors, among
others, raise substantial doubt about the Company’s ability to continue as a
going concern.
F-6
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
1 - ORGANIZATION AND BUSINESS, continued
The
Company’s management recognizes that the Company must obtain additional capital
for the eventual achievement of sustained profitable operations. Management’s
plans include obtaining additional capital through equity 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 or that the
Company will be successful in its efforts to negotiate an extension of its
existing debt. The accompanying consolidated financial statements do not
include
any adjustments that might result from the outcome of this
uncertainty.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The acquisition of Cryoport Systems by the Company has been accounted for
as a
reverse acquisition, whereby the assets and liabilities of Cryoport Systems
are
reported at their historical cost. The Company had no assets or operations
at
the date of acquisition. The reverse acquisition resulted in a change in
reporting entity for accounting and reporting purposes. Accordingly, the
accompanying consolidated financial statements have been retroactively restated
for all periods presented to report the historical financial position, results
of operations and cash flows of Cryoport Systems. Since the Company’s
stockholders retained 5,600,000 shares of common stock in connection with
the
reverse acquisition, such shares have been reflected as if they were issued
to
the Company on the date of acquisition for no consideration as part of a
corporate reorganization.
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 accounting
principles generally accepted in the United States of America 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,
allowances for inventory obsolescence, accrued warranty costs, deferred tax
assets and their accompanying valuations and product liability
reserves.
F-7
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Concentrations
of Credit Risk
Cash
The
Company maintains its cash accounts in financial institutions. Accounts at
these
institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”)
up to $100,000. At March 31, 2005, the Company had approximately $582,538
of
balances which were in excess of the FDIC insurance limit. The Company performs
ongoing evaluations of these institutions to limit its concentration risk
exposure.
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.
Sales to international customers are secured by advance payments or letters
of
credit. 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 and estimated sales returns are provided
based on past experience and a specific analysis of the accounts which
management believes are sufficient. Accounts receivable at March 31, 2005
and
2004 are net of reserves for doubtful accounts and sales returns of
approximately $5,000. Although the Company expects to collect amounts due,
actual collections may differ from the estimated amounts.
The
Company has foreign sales primarily in Europe, Latin America and Canada.
Foreign
sales are primarily under exclusive distribution agreements with international
distributors. During 2005 and 2004, the Company had foreign sales of
approximately $53,500 and $6,100, respectively, which constituted approximately
20% and 7% of net sales, respectively.
The
majority of the Company’s customers are in the bio-tech and animal breeding
industries. Consequently, there is a concentration of receivables within
these
industries, which is subject to normal credit risk.
Fair
Value of Financial Instruments
The
Company’s consolidated financial instruments consist of cash, accounts
receivable, related party notes payable, payables, accrued expenses and a
note
payable to a third party. The carrying value for all such instruments, except
the related party notes payable, approximates fair value at March 31, 2005.
The
fair value of related party notes payable is not determinable as the transaction
is with related parties.
F-8
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Inventories
Inventories
are stated at the lower of standard cost or current estimated market value.
Cost
is determined using the first-in, first-out method. Work in process and finished
goods include material, labor and applied overhead. The Company periodically
reviews its inventories and records a provision for excess and obsolete
inventories based primarily on the Company’s estimated forecast of product
demand and production requirements. Once established, write-downs of inventories
are considered permanent adjustments to the cost basis of the obsolete or
excess
inventories.
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
Patents
and Trademarks
Patents
and trademarks are amortized using the straight-line method over their estimated
useful life of five years.
F-9
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Long-Lived
Assets
The
Company’s management assesses the recoverability of its long-lived assets upon
the occurrence of a triggering event by determining whether the depreciation
and
amortization of long-lived assets over their remaining lives can be recovered
through projected undiscounted future cash flows. The amount of long-lived
asset
impairment, if any, is measured based on fair value and is charged to operations
in the period in which long-lived asset impairment is determined by management.
At March 31, 2005, the Company’s management believes there is no impairment of
its long-lived assets. There can be no assurance however, that market conditions
will not change or demand for the Company’s products will continue, which could
result in impairment of its long-lived assets in the future.
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 expensed as incurred.
The
following represents the activity in the warranty accrual during the years
ended
March 31:
|
2005
|
2004
|
||||||
|
Beginning
warranty accrual
|
$
|
31,875
|
$
|
47,250
|
|||
|
Increase
in accrual (charged to cost of sales)
|
65,625
|
37,875
|
|||||
|
Charges
to accrual (product replacements)
|
(27,000
|
)
|
(53,250
|
)
|
|||
|
Ending
warranty accrual
|
$
|
70,500
|
$
|
31,875
|
|||
Revenue
Recognition
Revenue
is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101,
Revenue
Recognition in Financial Statements,
as
revised by SAB 104. The Company recognizes revenue when products are shipped
to
a customer and the risks and rewards of ownership and title have passed based
on
the terms of the sale. The Company records a provision for sales returns
and
claims based upon historical experience. Actual returns and claims in any
future
period may differ from the Company’s estimates.
F-10
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Accounting
for Shipping and Handling Revenue, Fees and Costs
The
Company classifies amounts billed for shipping and handling as revenue in
accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-10,
Accounting
for Shipping and Handling Fees and Costs.
Shipping and handling fees and costs are included in cost of sales.
Advertising
Costs
The
Company expenses the cost of advertising when incurred as a component of
consolidated selling, general and administrative expenses. In 2005 and 2004,
the
Company expensed $13,227 and $9,668, respectively, in advertising
costs.
Research
and Development Expenses
The
Company expenses internal research and development costs as incurred. Third
party research and development costs are expensed when the contracted work
has
been performed.
Stock-Based
Compensation
The
Company accounts for equity instruments issued to non-employees in accordance
with the provisions of Statement of Financial Accounting Standards (“SFAS”) No.
123, Accounting
for Stock-Based Compensation,
and
EITF Issue No. 96-18, Accounting
for Equity Instruments that are Issued to Other Than Employees for Acquiring,
or
in Conjunction with Selling Goods or 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.
SFAS
No.
123 allows an entity to continue to measure compensation cost related to
stock
and stock options issued to employees using the intrinsic method accounting
prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting
for Stock Issued to Employees.
Under
APB No. 25, compensation cost, if any, is recognized over the respective
vesting
period based on the difference, on the date of grant, between the fair value
of
the Company's common stock and the grant price. Entities electing to remain
with
the accounting method of APB No. 25 must make pro forma disclosures of net
income and earnings per share, as if the fair value method of accounting
defined
in SFAS No. 123 had been applied.
F-11
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
The
Company has a stock-based employee compensation plan, which is described
more
fully in Note---- 10. The Company accounts for employee options granted under
this plan under the recognition and measurement principles of APB No. 25,
and
related interpretations. No stock-based employee compensation cost is reflected
in the accompanying consolidated statements of operations, as all employee
options granted for the years ended March 31, 2005 and 2004 were issued at
or
above the estimated fair market value of the Company’s common stock on the date
of grant. The following table illustrates the effect on net loss and loss
per
share if the Company had applied the fair value recognition provisions of
SFAS
No. 123 to stock-based employee compensation.
|
For
The Years Ended March 31,
|
|||||||
|
|
2005
|
2004
|
|||||
|
Net
loss as reported
|
$
|
(1,038,110
|
)
|
$
|
(1,002,493
|
)
|
|
|
Deduct:
|
|||||||
|
Total
stock-based employee compensation under
|
|||||||
|
fair
value based method for all awards, net
|
|||||||
|
of
related tax effects
|
(123,327
|
)
|
(146,099
|
)
|
|||
|
Pro
forma net loss
|
$
|
(1,161,437
|
)
|
$
|
(1,148,592
|
)
|
|
|
Basic
and diluted loss per share - as reported
|
$
|
(0.06
|
)
|
$
|
(0.08
|
)
|
|
|
Basic
and diluted loss per share - pro forma
|
$
|
(0.07
|
)
|
$
|
(0.09
|
)
|
|
Income
Taxes
The
Company accounts for income taxes in accordance with SFAS No. 109, Accounting
for Income Taxes.
Under
the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to
be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and
liabilities of a change in tax rates is recognized in income in the period
that
includes the enactment date. A valuation allowance is provided for certain
deferred tax assets if it is more likely than not that the Company will not
realize tax assets through future operations. The Company is a subchapter
"C"
corporation and files a federal income tax return. The Company files separate
state income tax returns for California and Nevada.
F-12
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Basic
and Diluted Loss Per Share
Basic
loss per common share is computed based on the weighted average number of
shares
outstanding for the period. Diluted loss per share is computed by dividing
net
loss by the weighted average shares outstanding assuming all potential dilutive
common shares were issued. Basic and diluted loss per share are the same
as the
effect of stock options and warrants on loss per share are anti-dilutive
and
thus not included in the diluted loss per share calculation. The impact under
the treasury stock method of dilutive convertible debt, stock options and
warrants would have resulted in an increase of 1,288,173 and 161,111 incremental
shares for the years ended March 31, 2005 and 2004.
The
following is a reconciliation of the numerators and denominators of the basic
and diluted loss per share computations for the years ended March
31:
|
2005
|
2004
|
||||||
|
Numerator
for basic and diluted loss per share:
|
|||||||
|
Net
loss available to common stockholders
|
$
|
(1,038,110
|
)
|
$
|
(1,002,493
|
)
|
|
|
Denominator
for basic and diluted loss per common share:
|
|||||||
|
Weighted
average common shares outstanding
|
17,907,557
|
12,952,375
|
|||||
|
|
|||||||
|
Net
loss per common share available to common
|
|||||||
|
stockholders
|
$
|
(0.06
|
)
|
$
|
(0.08
|
)
|
|
Recent
Accounting Pronouncements
In
November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
151, Inventory
Costs, an amendment of ARB No. 43, Chapter 4.
The
amendments made by SFAS No. 151 clarify that abnormal amounts of facility
expense, freight, handling costs, and wasted materials (spoilage) should
be
recognized as current-period charges and require the allocation of fixed
production overheads to inventory based on the normal capacity of the production
facilities. The guidance is effective for inventory costs incurred during
fiscal
years beginning after June 15, 2005. Earlier application is permitted for
inventory costs incurred during fiscal years beginning after November 23,
2004.
The Company is in the process of evaluating whether the adoption of SFAS
No. 151
will have a significant impact on the Company's overall results of operations
or
financial position.
F-13
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
In
December 2004, the FASB issued SFAS
No.
123 (revised
2004), Share-Based
Payment (“Statement
123(R)”) to provide investors and other users of financial statements with more
complete and neutral financial information by requiring that the compensation
cost relating to share-based payment transactions be recognized in financial
statements. That cost will be measured based on the fair value of the equity
or
liability instruments issued. Statement 123(R) covers a wide range of
share-based compensation arrangements including share options, restricted
share
plans, performance-based awards, share appreciation rights, and employee
share
purchase plans. Statement 123(R) replaces SFAS No. 123 and supersedes APB
25.
The
Company will be required to apply Statement 123(R) in 2006. The Company is
in
the process of evaluating whether the adoption of Statement 123(R) will have
a
significant impact on the Company's overall results of operations or financial
position.
In
December 2004, the FASB issued SFAS No. 153, Exchange
of Nonmonetary Assets - an amendment of APB Opinion No 29, Accounting for
Nonmonetary Transactions.
SFAS
No. 153 eliminates the exception for non-monetary exchanges of similar
productive assets, which were previously required to be recorded on a carryover
basis rather than a fair value basis. Instead, this statement provides that
exchanges of non-monetary assets that do not have commercial substance be
reported at carryover basis rather than a fair value basis. A non-monetary
exchange is considered to have commercial substance if the future cash flows
of
the entity are expected to change significantly as a result of the exchange.
The
provisions of this statement are effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The Company does
not
expect the adoption of SFAS No. 153 to have an impact on its financial condition
or
results of operations.
NOTE
3 - INVENTORY
Inventory
at March 31, 2005 consists of the following:
|
2005
|
||||
|
Raw
materials
|
$
|
111,538
|
||
|
Work
in process
|
21,582
|
|||
|
Finished
goods
|
17,860
|
|||
|
|
$
|
150,980
|
||
F-14
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
4 - FIXED ASSETS
Fixed
assets consist of the following at March 31:
|
2005
|
||||
|
Furniture
and fixtures
|
$
|
18,768
|
||
|
Machinery
and equipment
|
407,376
|
|||
|
Leasehold
improvements
|
7,900
|
|||
|
|
434,044
|
|||
|
Less
accumulated depreciation and amortization
|
(337,104
|
)
|
||
|
|
$
|
96,940
|
||
Depreciation
and amortization expense for fixed assets for the years ended March 31, 2005
and
2004 was $83,344 and $82,696, respectively.
NOTE
5 - INTANGIBLE ASSETS
Intangible
assets consist of the following at March 31:
|
2005
|
||||
|
Assets
subject to amortization:
|
||||
|
Patents
and trademarks
|
$
|
46,268
|
||
|
Less
accumulated amortization
|
(29,620
|
)
|
||
|
|
$
|
16,648
|
||
Amortization
expense for intangible assets for the years ended March 31, 2005 and 2004
was
$9,252 and $9,252, 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,
|
|||||
|
2006
|
$
|
9,252
|
|||
|
2007
|
7,396
|
||||
F-15
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
6 - INCOME TAXES
The
tax
effects of temporary differences that give rise to deferred taxes at
March 31, 2005 are as follows:
|
Deferred
tax asset:
|
||||
|
Net
operating loss carryforward
|
$
|
2,150,000
|
||
|
Accrued
expenses and reserves
|
235,000
|
|||
|
Expenses
recognized for granting of options and warrants
|
56,000
|
|||
|
Total
gross deferred tax asset
|
2,441,000
|
|||
|
Less
valuation allowance
|
(2,441,000
|
)
|
||
|
|
$
|
—
|
||
The
valuation allowance increased by approximately $441,000 and $461,000 during
the
years ended March 31, 2005 and 2004, respectively. No current provision for
income taxes for the years ended March 31, 2005 and 2004 is required,
except for minimum state taxes, since the Company incurred taxable losses
during
such years.
The
provision for income taxes for fiscal 2005 and 2004 was $800 and differs
from
the amount computed by applying the U.S. Federal income tax rate of 34% to
loss
before income taxes as a result of the following:
|
2005
|
2004
|
||||||
|
Computed
tax benefit at federal statutory rate
|
$
|
(355,000
|
)
|
$
|
(340,000
|
)
|
|
|
State
income tax benefit, net of federal effect
|
(62,000
|
)
|
(60,000
|
)
|
|||
|
Increase
in valuation allowance
|
441,000
|
461,000
|
|||||
|
Other
|
(23,200
|
)
|
(60,200
|
)
|
|||
|
|
$
|
800
|
$
|
800
|
|||
As
of
March 31, 2005, the Company had net operating loss carry forwards
of
approximately $5,700,000 and $2,870,000 for federal and state income tax
reporting purposes, which expire at various dates through 2025 and 2015,
respectively.
F-16
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
6 - INCOME TAXES, continued
The
utilization of the net operating loss carry forwards might be limited due
to
restrictions imposed under federal and state laws upon a change in ownership.
The amount of the limitation, if any, has not been determined at this time.
A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. As a result
of
the Company’s continued losses and uncertainties surrounding the realization of
the net operating loss carry forwards, the Company has recorded a valuation
allowance equal to the net deferred tax asset amount as of March 31, 2005.
NOTE
7 - COMMITMENTS AND CONTINGENCIES
Operating
Leases
The
Company has leased its facility in Brea, California on a month-to-month basis
with varying monthly payments. Subsequent to year-end, on April 1, 2005,
the
Company entered into a noncancelable operating lease requiring monthly payments
of $7,500 and expiring on April 1, 2007.
As
of
March 31, 2005, future minimum rental payments required under the existing
noncancelable operating lease are as follows:
|
Years
Ending
|
Operating
|
||||
|
March
31,
|
Lease
|
||||
|
2006
|
$
|
90,000
|
|||
|
2007
|
90,000
|
||||
|
Total
minimum lease payments
|
$
|
180,000
|
|||
Total
rental expense was approximately $20,000
and $29,715
for the years ended March 31, 2005 and 2004, respectively.
Litigation
The
Company becomes 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 on
the
Company’s financial condition or results of operations.
F-17
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
7 - COMMITMENTS AND CONTINGENCIES, continued
During
2004, a former employee initiated a wrongful termination lawsuit against
the
Company. The Company expensed all costs related to this matter as incurred
in
the accompanying consolidated financial statements. In August 2005, both
parties
agreed to settle the lawsuit with consideration being paid to the plaintiff
in
the form of 265,420 shares of the Company’s common stock valued at $10,617 based
on $0.04 per share (estimated fair value at date of settlement), and $25,000
in
cash, which is included in accrued liabilities in the accompanying balance
sheet
at March 31, 2005, to be paid 90 days subsequent to the Company operating
under
a positive cash flow basis. The total settlement cost of $35,617 is reflected
in
selling, general and administrative expenses in the accompanying statements
of
operations for the year ended March 31, 2005.
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.
In connection with its business merger, the Company has indemnified the merger
candidate for certain claims arising from the failure of the Company to perform
any of its representation or obligations under the agreements. 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 balance sheets.
NOTE
8 - NOTES PAYABLE
The
Company has an unsecured, non-interest bearing note payable to a third party.
The Company is currently making monthly payments of $2,000 as agreed upon
with
the third party. As of March 31, 2005 and 2004, the remaining unpaid balance
was
$67,440 and $75,304, respectively.
As
of
March 31, 2005 and 2004, the Company had $1,369,500 and $1,224,500,
respectively, in outstanding unsecured indebtedness owed to five related
parties
including current and former 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 total monthly
principal payments of $2,500, which increase by $2,500 every six months to
a
maximum of $10,000 beginning April 1, 2006. Any remaining unpaid principal
and
accrued interest is due at maturity on various dates through March 1, 2015.
F-18
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
8 - NOTES PAYABLE, continued
Related
party interest expense under these notes was $82,464 and $66,384 for the
years
ended March 31, 2005 and 2004, respectively. Accrued interest, which is included
in notes payable in the accompanying balance sheet, related to these notes
amounted to $239,567 and $157,103 as of March 31, 2005 and 2004,
respectively.
Future
maturities of notes payable at March 31, 2005 are as follows:
|
Years
Ending
|
Related
|
Third
|
|||||||||
|
March
31,
|
Party
|
Party
|
Total
|
||||||||
|
2006
|
$
|
—
|
$
|
24,000
|
$
|
24,000
|
|||||
|
2007
|
45,000
|
24,000
|
69,000
|
||||||||
|
2008
|
105,000
|
19,440
|
124,440
|
||||||||
|
2009
|
120,000
|
—
|
120,000
|
||||||||
|
2010
|
120,000
|
—
|
120,000
|
||||||||
|
Thereafter
|
979,500
|
—
|
979,500
|
||||||||
|
$
|
1,369,500
|
$
|
67,440
|
$
|
1,436,940
|
||||||
NOTE
9 - COMMON STOCK
In
fiscal
2005, the Company sold 11,962,522 shares of common stock at prices ranging
from
$0.04 to $0.75 resulting in proceeds of $1,609,971, net of offering costs
of
$80,113.
In
connection with the pending reverse acquisition, the Company issued 1,000,000
shares to a majority stockholder in exchange for the stockholder’s surrender of
1,354,891 shares of Cryoport Systems’ common stock held by the
stockholder.
In
fiscal
2004, the Company sold 840,638 shares of common stock at prices ranging from
$0.50 to $0.70 resulting in gross proceeds of $459,984.
NOTE
10 - STOCK OPTIONS
Effective
October 1, 2002, the Company adopted the 2002 Stock Option Plan (the “2002
Plan”). The stockholders of the Company approved the 2002 Plan on October 1,
2002. Under the 2002 Plan, incentive stock options and nonqualified options
may
be granted to officers, employees and consultants of the Company for the
purchase of up to 5,000,000 shares of the Company’s common stock. The exercise
price per share under the incentive stock option plan shall not be less than
100% of the fair market value per share on the date of grant. The exercise
price
per share under the non-qualified stock option plan shall not be less than
85%
of the fair market value per share on the date of grant. Expiration dates
for
the grants may not exceed 10 years from the date of grant. The 2002
Plan
terminates on October 1, 2012.
F-19
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
10 - STOCK OPTIONS, continued
Under
the
terms of the 2002 Plan, the Company granted options to purchase 367,970 and
500,000 shares of the Company’s common stock under incentive stock option
agreements in 2005 and 2004, respectively, and granted options to purchase
466,018 and 525,000 shares of the Company’s common stock under non-qualified
stock option agreements in 2005 and 2004, respectively. All options granted
have
an exercise price equal to the fair market value at the date of grant, vest
upon
grant and expire five years from the date of grant. Therefore, there was
no
compensation expense recognized for options issued to employees during 2005
and
2004. Pursuant to SFAS No. 123, total compensation expense recognized for
options issued to consultants was $62,577 and $68,850 during 2005 and 2004,
respectively. As of March 31, 2005, 2,508,988 options at an average
exercise price of $.45 per share were outstanding under the 2002 Plan. There
were no options granted subsequent to March 31, 2005. The Company
had
2,491,012 options available for grant under the 2002 Plan at March 31,
2005.
The
following is a summary of stock option activity during the years ended
March 31, 2005 and 2004:
|
2005
|
2004
|
||||||||||||
|
Weighted
|
Weighted
|
||||||||||||
|
Average
|
Average
|
||||||||||||
|
Exercise
|
Exercise
Price
|
||||||||||||
|
Options
|
Price
|
Options
|
Price
|
||||||||||
|
Outstanding,
beginning of year
|
1,675,000
|
$
|
0.59
|
650,000
|
$
|
0.62
|
|||||||
|
Granted
|
833,988
|
0.17
|
1,025,000
|
0.58
|
|||||||||
|
Exercised
|
—
|
—
|
—
|
—
|
|||||||||
|
Expired/forfeited
|
—
|
—
|
—
|
—
|
|||||||||
|
Outstanding,
end of year
|
2,508,988
|
$
|
0.45
|
1,675,000
|
$
|
0.59
|
|||||||
|
Exercisable,
end of year
|
2,050,644
|
$
|
0.44
|
814,164
|
$
|
0.60
|
|||||||
|
Weighted
average fair value of
|
|||||||||||||
|
options
granted
|
$
|
0.08
|
$
|
0.31
|
|||||||||
F-20
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
10 - STOCK OPTIONS, continued
The
following table summarizes information about stock options outstanding and
exercisable at March 31, 2005:
|
Weighted
Average
|
|||||||||||||
|
Remaining
|
Weighted
|
||||||||||||
|
Number
of
|
Contractual
Life
|
Average
|
|||||||||||
|
Exercise
Price
|
Shares
|
(Years)
|
Exercisable
|
Exercise
Price
|
|||||||||
|
$
1.00
|
150,000
|
2.7
|
150,000
|
|
$1.00
|
||||||||
|
$0.50-$0.75
|
1,715,375
|
3.2
|
1,257,031
|
|
$0.56
|
||||||||
|
$
0.04
|
643,613
|
4.3
|
643,613
|
|
$0.04
|
||||||||
|
|
2,508,988
|
2,050,644
|
|||||||||||
The
fair
value of each option granted during 2005 and 2004 to employees and directors
is
estimated using the Black-Scholes option-pricing model on the date of grant
using the following assumptions: (i) no dividend yield, (ii) average
volatilities in both years of 60%, (iii) weighted-average risk-free interest
rate of approximately 3.21% and 3.29%, respectively, and (iv) expected
lives of five years.
NOTE
11 - STOCK WARRANTS
From
time
to time, the Company issues warrants pursuant to various consulting agreements
and other compensatory arrangements.
During
the year ended March 31, 2005, the Company issued warrants to purchase 318,333
shares of the Company’s common stock at an exercise price of $0.30 per share. No
warrants were exercised as of March 31, 2005. As these warrants were issued
in
connection with fund raising activities and considered issuance costs, no
consulting expense was recognized for these warrants in the accompanying
statement of operations. All of the warrants are fully vested and are
exercisable from April 1, 2006 to June 16, 2006.
During
the year ended March 31, 2005, the Company issued warrants to purchase
102,508 shares of the Company’s common stock at an exercise price of $0.75 per
share. As these warrants were issued in connection with fund raising activities,
no consulting expense was recognized for these warrants in the accompanying
statement of operations. All of the warrants are fully vested and are
exercisable from April 1, 2006 through June 16, 2006.
F-21
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
11 - STOCK WARRANTS, continued
During
the year ended March 31, 2004, the Company issued warrants to purchase
20,000 shares of the Company’s common stock at an exercise price of $0.75 per
share. All of the warrants are fully vested and are exercisable through May
7,
2006. As these warrants were issued in connection with fund raising activities
and considered issuance costs, no consulting expense was recognized for these
warrants in the accompanying statement of operations. No warrants were exercised
as of March 31, 2005.
Certain
warrants issued in conjunction with fundraising activities contain a cashless
exercise provision. Under the provision, the holder of the warrant surrenders
those warrants whose fair market value is sufficient to affect the exercise
of
the entire warrant quantity. The warrant holder then is issued shares based
on
the remaining net warrant and no proceeds are obtained by the Company. The
surrendered warrants are cancelled by the Company in connection with this
transaction.
The
fair
value of each warrant granted during 2005 and 2004 to consultants and other
service providers is estimated using the Black-Scholes option-pricing model
on
the date of grant using the following assumptions: (i) no dividend
yield,
(ii) average volatility in both years of 60%, (iii) weighted-average
risk-free interest rate of approximately 1.7% to 4% and 1.8%, respectively,
and
(iv) expected life of two to three years and three years, respectively.
The
following represents a summary of the warrant activity for the years ended
March 31, 2005 and 2004:
|
2005
|
2004
|
||||||||||||
|
Weighted
|
Weighted
|
||||||||||||
|
Average
|
Average
|
||||||||||||
|
Exercise
|
Exercise
|
||||||||||||
|
Warrants
|
Price
|
Warrants
|
Price
|
||||||||||
|
Outstanding,
beginning of year
|
1,411,416
|
$
|
0.83
|
1,391,416
|
$
|
0.83
|
|||||||
|
Issued
|
420,841
|
0.41
|
20,000
|
0.75
|
|||||||||
|
Exercised
|
—
|
—
|
—
|
—
|
|||||||||
|
Expired/forfeited
|
—
|
—
|
—
|
—
|
|||||||||
|
Outstanding
and exercisable,
|
|||||||||||||
|
end
of year
|
1,832,257
|
$
|
0.74
|
1,411,416
|
$
|
0.83
|
|||||||
|
Weighted
average fair value of
|
|||||||||||||
|
warrants
granted
|
$
|
0.34
|
$
|
0.15
|
|||||||||
F-22
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2005 and 2004
NOTE
11 - STOCK WARRANTS, continued
The
following table summarizes information about warrants outstanding and
exercisable at March 31, 2005:
|
Number
of
|
Weighted
|
|||||||||
|
Warrants
|
Average
|
|||||||||
|
Outstanding
|
Remaining
|
Weighted
|
||||||||
|
and
|
Contractual
Life
|
Average
|
||||||||
|
Exercise
Price
|
Exercisable
|
(Years)
|
Exercise
Price
|
|||||||
|
$
6.50
|
11,000
|
1.9
|
|
$6.50
|
||||||
|
$
2.50
|
100,000
|
2.2
|
|
$2.50
|
||||||
|
$0.80
- $1.00
|
143,750
|
3.3
|
|
$0.87
|
||||||
|
$0.50
- $0.75
|
1,259,173
|
4.2
|
|
|
$0.64
|
|||||
|
$
0.30
|
318,334
|
2.0
|
|
$0.30
|
||||||
|
|
1,832,257
|
|||||||||
NOTE
12 - SUBSEQUENT EVENTS
In
June
2005, 50,000 warrants were exercised at a price of $0.30 per share.
In
June
2005, 71,592 shares were issued pursuant to a cashless warrant exercise of
82,134 warrants at $0.30 per share.
In
August
2005, the Company entered into Agency Agreements with various brokers to
raise
funds in a private placement offering of common stock under Regulation D.
In
connection with this agreement, 78,000 shares of the Company’s common stock were
sold to investors at a price of $3.50 per share for gross proceeds of $273,000
to the Company, net of issuance costs of $32,340.
F-23
CRYOPORT,
INC.
CONSOLIDATED
BALANCE SHEET
|
June
30, 2005
|
||||
|
ASSETS
|
(Unaudited)
|
|||
|
Current
assets:
|
||||
|
Cash
|
$
|
413,212
|
||
|
Accounts
receivable, net
|
103,444
|
|||
|
Inventories
|
157,071
|
|||
|
Prepaid
expenses and other current assets
|
12,350
|
|||
|
Total
current assets
|
686,077
|
|||
|
Fixed
assets, net
|
95,959
|
|||
|
Intangible
assets, net
|
14,455
|
|||
|
|
$
|
796,491
|
||
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||
|
Current
liabilities:
|
||||
|
Accounts
payable
|
$
|
169,002
|
||
|
Accrued
expenses
|
109,213
|
|||
|
Accrued
warranty costs
|
70,128
|
|||
|
Accrued
salaries
|
301,187
|
|||
|
Current
portion of related party notes payable
|
7,500
|
|||
|
Current
portion of note payable
|
24,000
|
|||
|
Total
current liabilities
|
681,030
|
|||
|
Related
party notes payable and accrued interest payable,
|
||||
|
net
of current portion
|
1,622,350
|
|||
|
Note
payable, net of current portion
|
40,440
|
|||
|
Total
liabilities
|
2,343,820
|
|||
|
Commitments
and contingencies
|
||||
|
Stockholders'
deficit:
|
||||
|
Common
stock, $0.001 par value; 100,000,000 shares
|
||||
|
authorized;
29,829,697 shares issued and outstanding
|
29,830
|
|||
|
Additional
paid-in capital
|
4,330,565
|
|||
|
Accumulated
deficit
|
(5,907,724
|
)
|
||
|
Total
stockholders' deficit
|
(1,547,329
|
)
|
||
|
|
$
|
796,491
|
||
See
accompanying notes to unaudited consolidated financial
statements
F-24
CRYOPORT,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
For
The Three Months Ended
|
|||||||
|
June
30,
|
|||||||
|
2005
|
2004
|
||||||
|
(Unaudited)
|
(Unaudited)
|
||||||
|
Net
sales
|
$
|
122,493
|
$
|
66,227
|
|||
|
Cost
of sales
|
143,956
|
208,404
|
|||||
|
Gross
loss
|
(21,463
|
)
|
(142,177
|
)
|
|||
|
Operating
expenses:
|
|||||||
|
Selling,
general and administrative expenses
|
268,764
|
142,159
|
|||||
|
Research
and development expenses
|
79,354
|
12,065
|
|||||
|
Total
operating expenses
|
348,118
|
154,224
|
|||||
|
Loss
from operations
|
(369,581
|
)
|
(296,401
|
)
|
|||
|
Other
expense:
|
|||||||
|
Interest
expense
|
(21,353
|
)
|
(20,810
|
)
|
|||
|
Loss
on disposition of assets
|
—
|
(1,826
|
)
|
||||
|
Total
other expense
|
(21,353
|
)
|
(22,636
|
)
|
|||
|
Loss
before income taxes
|
(390,934
|
)
|
(319,037
|
)
|
|||
|
Income
taxes
|
—
|
—
|
|||||
|
Net
loss
|
$
|
(390,934
|
)
|
$
|
(319,037
|
)
|
|
|
Net
loss available to common stockholders per common share:
|
|||||||
|
Basic
and diluted loss per common share
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
|
|
Basic
and diluted weighted average common
|
|||||||
|
shares
outstanding
|
29,732,491
|
17,541,219
|
|||||
See
accompanying notes to unaudited consolidated financial
statements
F-25
CRYOPORT,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
For
The Three Months Ended
|
|||||||
|
June
30,
|
|||||||
|
2005
|
2004
|
||||||
|
(Unaudited)
|
(Unaudited)
|
||||||
|
Cash
flows from operating activities:
|
|||||||
|
Net
loss
|
$
|
(390,934
|
)
|
$
|
(319,037
|
)
|
|
|
Adjustments
to reconcile net loss to net cash
|
|||||||
|
used
in operating activities:
|
|||||||
|
Depreciation
and amortization
|
22,423
|
23,165
|
|||||
|
Loss
on disposal of assets
|
—
|
1,826
|
|||||
|
Estimated
fair value of stock options issued to
|
|||||||
|
consultants
|
8,640
|
15,644
|
|||||
|
Changes
in operating assets and liabilities:
|
|||||||
|
Accounts
receivable
|
(58,897
|
)
|
(16,730
|
)
|
|||
|
Inventories
|
(6,091
|
)
|
31,305
|
||||
|
Prepaid
expenses and other current assets
|
38,768
|
776
|
|||||
|
Accounts
payable
|
6,017
|
(15,688
|
)
|
||||
|
Accrued
expenses
|
5,173
|
8
|
|||||
|
Accrued
warranty costs
|
(372
|
)
|
9,657
|
||||
|
Accrued
salaries
|
54,756
|
(4,886
|
)
|
||||
|
Accrued
interest
|
20,783
|
20,616
|
|||||
|
Net
cash used in operating activities
|
(299,734
|
)
|
(253,344
|
)
|
|||
|
Cash
flows used in investing activities:
|
|||||||
|
Purchases
of fixed assets
|
(19,249
|
)
|
(4,005
|
)
|
|||
|
Cash
flows from financing activities:
|
|||||||
|
Proceeds
from borrowings under notes payable
|
—
|
145,000
|
|||||
|
Repayment
of notes payable
|
(3,000
|
)
|
(614
|
)
|
|||
|
Proceeds
from issuance of common stock
|
15,000
|
141,000
|
|||||
|
Net
cash provided by financing activities
|
12,000
|
285,386
|
|||||
|
Net
change in cash
|
(306,983
|
)
|
28,037
|
||||
|
Cash,
beginning of period
|
720,195
|
6,083
|
|||||
|
Cash,
end of period
|
$
|
413,212
|
$
|
34,120
|
|||
|
Supplemental
disclosure of cash flow information:
|
|||||||
|
Cash
paid during the period for:
|
|||||||
|
Interest
|
$
|
—
|
$
|
—
|
|||
|
Income
taxes
|
$
|
800
|
$
|
—
|
|||
See
accompanying notes to unaudited consolidated financial
statements
F-26
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended June 30, 2005 and 2004
(Unaudited)
NOTE
1 - MANAGEMENT’S REPRESENTATION
The
consolidated financial statements included herein have been prepared by
Cryoport, Inc. (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
normally included in the financial statements prepared in accordance with
accounting principles generally accepted in the United States of America
(“GAAP”) has been omitted pursuant to such rules and regulations. However, the
Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, all adjustments
(consisting primarily of normal recurring accruals) considered necessary for
a
fair presentation have been included.
Operating
results for the three months ended June 30, 2005 are not necessarily indicative
of the results that may be expected for the year ending March 31, 2006. It
is
suggested that the consolidated financial statements be read in conjunction
with
the audited consolidated financial statements and related notes for the fiscal
year ended March 31, 2005.
NOTE
2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization
The
Company was originally incorporated under the name G.T.5-Limited on May 25,
1990
as a Nevada Corporation. The Company was engaged in the business of designing
and building exotic body styles for automobiles compatible with the vehicle’s
existing chassis.
On
March
15, 2005, the Company entered into a Share Exchange Agreement (the “Agreement”)
with Cryoport Systems, Inc. (“Cryoport Systems”), a California corporation, and
its stockholders whereby the Company acquired all of the issued and outstanding
shares of Cryoport Systems in exchange for 24,108,105 shares of its common
stock
(which represents approximately 81% of the total issued and outstanding shares
of common stock following the close of the transaction). Cryoport Systems was
originally formed in 1999 as a California limited liability company and was
reorganized into a California corporation on December 11, 2000. Cryoport Systems
was founded to capitalize on servicing the transportation needs of the growing
global “biotechnology revolution”. Effective March 16, 2005, the Company changed
its name to Cryoport, Inc. The transaction was recorded as a reverse
acquisition.
F-27
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Years Ended June 30, 2005 and 2004
NOTE
2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
The
principal focus of the Company is to develop a line of disposable (or one-way)
dry cryogenic shippers for the transport of biological materials. These
materials include live cell pharmaceutical products; e.g., cancer vaccines,
diagnostic materials, reproductive tissues, infectious substances and other
items that require continuous exposure to cryogenic temperature (less than
-150°C).
The
Company currently manufactures a line of reusable cryogenic dry shippers. These
primarily serve as vehicles for the development of the cryogenic technology
that
supports the disposable product development but also are essential components
of
the infrastructure that supports testing and research activities of the
pharmaceutical and biotechnology industries. The Company’s mission is to provide
cost effective packaging systems for biological materials requiring, or
benefiting from, a cryogenic temperature environment over an extended period
of
time.
Going
Concern
The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplate continuation of the Company as a going concern. The Company
has not generated significant revenues from operations and has no assurance
of
any future revenues. The Company incurred a net loss of $390,934 during the
three-month period ended June 30, 2005 and had a cash balance of $413,212 at
June 30, 2005. In addition, at June 30, 2005, the Company’s accumulated deficit
was $5,907,724 and the Company had working capital of $5,047. These factors,
among others, raise substantial doubt about the Company’s ability to continue as
a going concern.
The
Company’s management recognizes that the Company must obtain additional capital
for the eventual achievement of sustained profitable operations. Management’s
plans include obtaining additional capital through equity 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 or that the
company will be successful in its efforts to negotiate the extension of its
existing debt. The accompanying consolidated financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
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.
F-28
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Years Ended June 30, 2005 and 2004
NOTE
2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Use
of
Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America 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,
allowances for inventory obsolescence, accrued warranty costs, deferred tax
assets and their accompanying valuations and product liability
reserves.
Concentrations
of Credit Risk
Cash
The
Company maintains its cash accounts in financial institutions. Accounts at
these
institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”)
up to $100,000. At June 30, 2005, the Company had approximately $370,000 of
balances which were in excess of the FDIC insurance limit. The Company performs
ongoing evaluations of these institutions to limit its concentration risk
exposure.
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.
Sales to other international customers are secured by advance payments, letters
of credit, or cash against documents. 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. Although the Company expects to collect
amounts due, actual collections may differ from the estimated
amounts.
The
Company has foreign sales primarily in Europe, Latin America and Canada. Foreign
sales are primarily under exclusive distribution agreements with international
distributors. During the three month periods ended June 30, 2005 and 2004,
the
Company had foreign sales of approximately $45,000 and $24,000 which constituted
approximately 37% and 36%, respectively, of net sales.
F-29
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Years Ended June 30, 2005 and 2004
NOTE
2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
The
majority of the Company’s customers are in the Bio-tech and animal breeding
industries. Consequently, there is a concentration of receivables within these
industries, which is subject to normal credit risk.
Fair
Value of Financial Instruments
The
Company’s consolidated financial instruments consist of cash, accounts
receivable, related party notes payable, payables, accrued expenses and a note
payable to a third party. The carrying value for all such instruments, except
the related party notes payable, approximates fair value at June 30, 2005.
The
fair value of related party notes payable is not determinable as the
transactions are with related parties.
Inventories
Inventories
are stated at the lower of standard cost or current estimated market value.
Cost
is determined using the first-in, first-out method. The Company periodically
reviews its inventories and records a provision for excess and obsolete
inventories based primarily on the Company’s estimated forecast of product
demand and production requirements. Once established, write-downs of inventories
are considered permanent adjustments to the cost basis of the obsolete or excess
inventories. Work in process and finished goods include material, labor and
applied overhead. Inventories at June 30, 2005 consist of the
following:
|
Raw
materials
|
$
|
119,979
|
||
|
Work
in process
|
21,582
|
|||
|
Finished
goods
|
15,510
|
|||
|
$
|
157,071
|
Fixed
Assets
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
|
F-30
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Years Ended June 30, 2005 and 2004
NOTE
2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
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 applicable to assets retired are
removed from the accounts, and the gain or loss on disposition is recognized
in
current operations.
Intangible
Assets
Patents
and Trademarks
Patents
and trademarks are amortized, using the straight-line method, over their
estimated useful life of five years.
Long-Lived
Assets
The
Company’s management assesses the recoverability of its long-lived assets upon
the occurrence of a triggering event by determining whether the depreciation
and
amortization of long-lived assets over their remaining lives can be recovered
through projected undiscounted future cash flows. The amount of long-lived
asset
impairment, if any, is measured based on fair value and is charged to operations
in the period in which long-lived asset impairment is determined by management.
At June 30, 2005, the Company’s management believes there is no impairment of
its long-lived assets. There can be no assurance however, that market conditions
will not change or demand for the Company’s products will continue, which could
result in impairment of its long-lived assets in the future.
Accrued
Warranty Costs
Estimated
costs of the 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 extended warranty
plan are expensed as incurred.
The
following represents the activity in the warranty accrual account during the
three month period ended June 30:
|
2005
|
2004
|
||||||
|
Beginning
warranty accrual
|
$
|
70,500
|
$
|
31,875
|
|||
|
Increase
in accrual (charged to cost of sales)
|
11,250
|
9,675
|
|||||
|
Charges
to accrual (product replacements)
|
(11,622
|
)
|
—
|
||||
|
Ending
warranty accrual
|
$
|
70,128
|
$
|
41,550
|
|||
F-31
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Years Ended June 30, 2005 and 2004
NOTE
2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Revenue
Recognition
Revenue
is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101,
Revenue
Recognition in Financial Statements,
as
revised by SAB 104. The Company recognizes revenue when products are shipped
to
a customer and the risks and rewards of ownership and title have passed based
on
the terms of the sale. The Company records a provision for sales returns and
claims based upon historical experience. Actual returns and claims in any future
period may differ from the Company’s estimates.
Accounting
for Shipping and Handling Revenue, Fees and Costs
The
Company classifies amounts billed for shipping and handling as revenue in
accordance with EITF 00-10, Accounting
for Shipping and Handling Fees and Costs.
Shipping and handling fees and costs are included in cost of sales.
Advertising
Costs
The
Company expenses the cost of advertising when incurred as a component of
selling, general and administrative expenses. During the three month periods
ended June 30, 2005 and 2004, the Company expensed approximately $5,600 and
$4,800, respectively, in advertising costs.
Research
and Development Expenses
The
company expenses internal research and development costs as incurred. Third
party research and development costs are expensed when the contracted work
has
been performed.
Stock-Based
Compensation
The
Company accounts for equity instruments issued to non-employees in accordance
with the provisions of Statement of Financial Accounting Standards (“SFAS”) No.
123, Accounting
for Stock-Based Compensation,
and
Emerging Issue Task Force (“EITF”) Issue No. 96-18, Accounting
for Equity Instruments that are Issued to Other Than Employees for Acquiring,
or
in Conjunction with Selling Goods or 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.
F-32
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Years Ended June 30, 2005 and 2004
NOTE
2 - OGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
SFAS
No.
123 allows an entity to continue to measure compensation cost related to stock
and stock options issued to employees using the intrinsic method accounting
prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting
for Stock Issued to Employees.
Under
APB 25, compensation cost, if any, is recognized over the respective vesting
period based on the difference, on the date of grant, between the fair value
of
the Company's common stock and the grant price. Entities electing to remain
with
the accounting method of APB 25 must make pro forma disclosures of net income
and earnings per share, as if the fair value method of accounting defined in
SFAS No. 123 had been applied.
The
Company has a stock-based employee compensation plan. The Company will account
for employee options granted under this plan under the recognition and
measurement principles of APB 25, and related interpretations. No stock-based
employee compensation cost is reflected in the consolidated statements of
operations, as all employee options granted or vesting during the three month
periods ended June 30, 2005 and 2004 were issued at or above the fair market
value of the Company’s common stock on the date of grant. The following table
illustrates the effect on net loss and loss per share if the Company had applied
the fair value recognition provisions of SFAS No. 123 to stock-based employee
compensation.
|
For
The Three Months Ended
|
|||||||
|
June
30,
|
|||||||
|
2005
|
2004
|
||||||
|
Net
loss as reported
|
$
|
(390,934
|
$
|
(319,037
|
)
|
||
|
Deduct:
|
|||||||
|
Total
stock-based employee compensation under
|
|||||||
|
fair
value based method for all awards, net
|
|||||||
|
of
related tax effects
|
(2,667
|
)
|
(8,992
|
)
|
|||
|
Pro
forma net loss
|
$
|
(393,601
|
)
|
$
|
(328,029
|
)
|
|
|
Basic
and diluted loss per share - as reported
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
|
|
Basic
and diluted loss per share - pro forma
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
|
F-33
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Years Ended June 30, 2005 and 2004
NOTE
2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Income
Taxes
The
Company accounts for income taxes in accordance with SFAS No. 109, Accounting
for Income Taxes.
Under
the asset and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in
the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the
enactment date. A valuation allowance is provided for certain deferred tax
assets if it is more likely than not that the Company will not realize tax
assets through future operations. The Company is a subchapter "C" corporation
and files a federal income tax return. The Company files separate state income
tax returns for California and Nevada.
Basic
and Diluted Loss Per Share
The
Company has adopted SFAS No. 128, Earnings
Per Share
(see
Note 9).
Basic
loss per common share is computed based on the weighted average number of shares
outstanding for 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. Basic and diluted loss per share is the same as
the
effect of stock options and warrants on loss per share are anti-dilutive and
thus not included in the diluted loss per share calculation. The impact under
the treasury stock method of dilutive convertible debt and stock options and
warrants would have resulted in an increase of 1,276,389 and 166,319 shares
for
the periods ended June 30, 2005 and 2004, respectively.
Recent
Accounting Pronouncements
In
November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
151, Inventory
Costs, an amendment of ARB No. 43, Chapter 4.
The
amendments made by SFAS No. 151 clarify that abnormal amounts of facility
expense, freight, handling costs, and wasted materials (spoilage) should be
recognized as current-period charges and require the allocation of fixed
production overheads to inventory based on the normal capacity of the production
facilities. The guidance is effective for inventory costs incurred during fiscal
years beginning after June 15, 2005. Earlier application is permitted for
inventory costs incurred during fiscal years beginning after November 23, 2004.
The Company is in the process of evaluating whether the adoption of SFAS No.
151
will have a significant impact on the Company's overall results of operations
or
financial position.
F-34
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Years Ended June 30, 2005 and 2004
NOTE
2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
In
December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment (“Statement
123(R)”) to provide investors and other users of financial statements with more
complete and neutral financial information by requiring that the compensation
cost relating to share-based payment transactions be recognized in financial
statements. That cost will be measured based on the fair value of the equity
or
liability instruments issued. Statement 123(R) covers a wide range of
share-based compensation arrangements including share options, restricted share
plans, performance-based awards, share appreciation rights, and employee share
purchase plans. Statement 123(R) replaces SFAS No. 123 and supersedes APB
25.
The
Company will be required to apply Statement 123(R) in 2006. The Company is
in
the process of evaluating whether the adoption of Statement 123(R) will have
a
significant impact on the Company's overall results of operations or financial
position.
In
December 2004, the FASB issued SFAS No. 153, Exchange
of Nonmonetary Assets - an amendment of APB Opinion No 29, Accounting for
Nonmonetary Transactions.
SFAS
No. 153 eliminates the exception for non-monetary exchanges of similar
productive assets, which were previously required to be recorded on a carryover
basis rather than a fair value basis. Instead, this statement provides that
exchanges of non-monetary assets that do not have commercial substance be
reported at carryover basis rather than a fair value basis. A non-monetary
exchange is considered to have commercial substance if the future cash flows
of
the entity are expected to change significantly as a result of the exchange.
The
provisions of this statement are effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The Company does
not
expect the adoption of SFAS No. 153 to have an impact on its financial condition
or results of operations.
NOTE
3 - ACCOUNTS RECEIVABLE
Accounts
receivable at June 30, 2005 is net of reserves for doubtful accounts and sales
returns of approximately $5,000.
NOTE
4 - FIXED ASSETS
Fixed
assets consist of the following at June 30, 2005:
|
Furniture
and fixtures
|
$
|
22,982
|
||
|
Machinery
and equipment
|
415,658
|
|||
|
Leasehold
improvements
|
14,653
|
|||
|
|
453,293
|
|||
|
Less
accumulated depreciation and amortization
|
(357,334
|
)
|
||
|
$
|
95,959
|
F-35
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Years Ended June 30, 2005 and 2004
NOTE
4 - FIXED ASSETS, continued
Depreciation
and amortization expense for fixed assets for the three month periods ended
June
30, 2005 and 2004 was $20,230 and $20,852, respectively.
NOTE
5 - INTANGIBLE ASSETS
Intangible
assets consist of the following at June 30, 2005:
|
Assets
subject to amortization:
|
||||
|
Patents
and trademarks
|
$
|
46,268
|
||
|
Less
accumulated amortization
|
(31,813
|
)
|
||
|
$
|
14,455
|
|||
Amortization
expense for intangible assets for the three month periods ended June 30, 2005
and 2004 was $2,193 and $2,313, respectively. All of the Company’s intangible
assets are subject to amortization.
NOTE
6 - COMMITMENTS AND CONTINGENCIES
Litigation
The
Company becomes 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 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 leases, the Company
has
indemnified its lessor for certain claims arising from the use of the
facilities. Additionally, the Company indemnifies a financial institution under
the line of credit agreement against certain claims as a result of the violation
of any law. In connection with its business acquisitions, the Company has
indemnified the sellers for certain claims arising from the failure of the
Company to perform any of its representation or obligations under
the
F-36
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Years Ended June 30, 2005 and 2004
NOTE 6 - COMMITMENTS AND CONTINGENCIES, continued
agreements.
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 sheet.
NOTE
7 - NOTES PAYABLE
The
Company has a non-interest bearing note payable to a third party for $77,304,
which was due in April 2003. The Company is currently making monthly payments
of
$2,000 as agreed with the lender. As of June 30, 2005, the remaining unpaid
balance was $64,440.
As
of
June 30, 2005, the Company had $1,369,500 in outstanding unsecured indebtedness
owed to five related parties including current and former 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 total monthly principal payments of $2,500, which increase by $2,500
every six months to a maximum of $10,000 beginning April 1, 2006. 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 $20,783 and $20,616 for the three
months ended June 30, 2005 and 2004, respectively. Accrued interest, which
is
included in notes payable in the accompanying consolidated balance sheet,
related to these notes amounted to $260,350 as of June 30, 2005.
NOTE
8 - EQUITY
In
June
2005, 50,000 warrants were exercised at a price of $0.30 per share.
In
June
2005, 71,592 shares were issued pursuant to a cashless warrant exercise of
82,134 warrants.
During
the three months ended June 30, 2005 and 2004, compensation expense from the
vesting of options issued to non-employees totaled $8,640 and $15,644,
respectively, and has been included in selling, general and administrative
expenses in the accompanying consolidated statements of operations.
F-37
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Years Ended June 30, 2005 and 2004
NOTE
9 - LOSS PER SHARE
The
following is a reconciliation of the numerators and denominators of the basic
and diluted loss per share computations for the three month periods ended June
30:
|
2005
|
2004
|
||||||
|
Numerator
for basic and diluted earnings per share:
|
|||||||
|
Net
loss available to common stockholders
|
$
|
(390,934
|
)
|
$
|
(319,037
|
)
|
|
|
Denominator
for basic and diluted loss per common share:
|
|||||||
|
Weighted
average common shares outstanding
|
29,732,491
|
17,541,219
|
|||||
|
Net
loss per common share available to common
|
|||||||
|
stockholder
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
|
NOTE
10 - SUBSEQUENT EVENTS
In
August
2005, the Company entered into Agency Agreements with various brokers to raise
funds in a private placement offering of common stock under Regulation D. In
connection with this agreement, 78,000 shares of the Company’s common stock were
sold to investors at a price of $3.50 per share for gross proceeds of $273,000
to the Company, net of issuance costs of $32,340.
F-38
SIGNATURES
In
accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf
by the
undersigned, thereunto duly authorized.
|
CryoPort
Systems, Inc.
(Registrant)
|
||
| |
|
|
| Date: October 19, 2005 | By: | /s/ PETER BERRY |
|
Peter Berry, |
||
| CEO and President | ||
Page
84
PART
III
ITEM
1. INDEX TO EXHIBITS
|
Exhibit
No.
|
Description
|
Page
or Method of Filing
|
|
|
3.1
|
State
of Nevada Corporate Charter for
G.T. 5- Limited
|
Filed
Herewith
|
|
|
3.2
|
Articles
of Incorporation Of
G.T 5-Limited
|
Filed
Herewith
|
|
|
3.3
|
Amendment
to Articles of Incorporation of
G T. 5-Limited issue 100M shares
|
Filed
Herewith
|
|
|
3.4
|
Amendment
of Articles of Incorporation of
G.T.5-Limited name change to CryoPort,
Inc
|
Filed
Herewith
|
|
|
3.5
|
Amended
and Restated By-Laws Of
CryoPort, Inc.
|
Filed
Herewith
|
|
|
3.6
|
Articles
of Incorporation CryoPort
Systems, Inc.
|
Filed
Herewith
|
|
|
3.7
|
By-Laws
of CryoPort Systems, Inc.
|
Filed
Herewith
|
|
|
3.8
|
CryoPort,
Inc. Stock Certificate Specimen
|
Filed
Herewith
|
|
|
3.9
|
Code
of Conduct for CryoPort, Inc.
|
Filed
Herewith
|
|
|
3.10
|
Code
of Ethics for Senior Officers
|
Filed
Herewith
|
|
|
3.11
|
Statement
of Policy on Insider Trading
|
Filed
Herewith
|
|
|
3.12
|
CryoPort,
Inc. Audit Committee Charter
|
Filed
Herewith
|
|
|
3.13
|
CryoPort
Systems, Inc. 2002 Stock Incentive
Plan
|
Filed
Herewith
|
|
|
3.14
|
Stock
Option Agreement ISO - Specimen
|
Filed
Herewith
|
|
|
3.15
|
Stock
Option Agreement NSO -Specimen
|
Filed
Herewith
|
|
|
3.16
|
Warrant
Agreement - Specimen
|
Filed
Herewith
|
|
|
3.17
|
Patents
and Trademarks
|
||
|
3.17.1
|
CryoPort
Systems, Inc. Patent #6,467,642
|
On
File with Company
|
Page
85
|
3.17.2
|
CryoPort
Systems, Inc. Patent #6,119,465
|
On
File with Company
|
|
|
3.17.3
|
CryoPort
Systems, Inc. Patent #6,539,726
|
On
File with Company
|
|
|
3.17.4
|
CryoPort
Systems, Inc. Trademark #7,583,478,7
|
On
File with Company
|
|
|
3.17.5
|
CryoPort
Systems, Inc. Trademark #7,586,797,8
|
On
File with Company
|
|
|
10.1
|
Contracts
|
||
|
10.1.1
|
Stock
Exchange Agreement associated with the merger of G.T.5-Limited
and
CryoPort Systems, Inc. dated 03/05/01.
|
Filed
Herewith
|
|
|
10.1.2
|
Commercial
Promissory Notes between CryoPort,
Inc. and D. Petreccia
|
Filed
Herewith
|
|
|
10.1.3
|
Commercial
Promissory Notes between CryoPort,
Inc. and J. Dell
|
Filed
Herewith
|
|
|
10.1.4
|
Commercial
Promissory Notes between CryoPort,
Inc. and M. Grossman
|
Filed
Herewith
|
|
|
10.1.5
|
Commercial
Promissory Notes between CryoPort,
Inc. and P. Mullens
|
Filed
Herewith
|
|
|
10.1.6
|
Commercial
Promissory Notes between CryoPort,
Inc. and R. Takahashi
|
Filed
Herewith
|
|
|
10.1.7
|
Lease
Agreement between CryoPort Systems,
Inc. and Brea Hospital Properties, LLC.
|
Filed
Herewith
|
Page
86
ITEM
2. DESCRIPTION
OF EXHBITS
|
3.1
|
Corporate
Charter for G.T.5-Limited issued by the State of Nevada on
March 15,
2005.
|
|
3.2
|
Articles
of Incorporation for G.T.5-Limited filed with the State of
Nevada in May
25, 1990.
|
|
3.3.
|
Amendment
to Articles of Incorporation of G.T.5-Limited increasing the
authorized
shares from 5,000,000 to 100,000,000 shares filed with the
State of Nevada
on October 12, 2004.
|
|
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.
|
|
3.5
|
Amended
and Restated By-Laws of CryoPort, Inc. adopted by the Board
of Directors
on June 22, 2005.
|
|
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.
|
|
3.7
|
By-Laws
of CryoPort Systems, Inc. adopted by the Board of Directors
on December
11, 2000.
|
|
3.8
|
CryoPort
Systems, Inc. Stock Certificate Specimen.
|
|
3.9
|
Code
of Conduct for CryoPort, Inc. pending adoption by Board of
Directors.
|
|
3.10
|
Code
of Ethics for Senior Officers of CryoPort, Inc. and subsidiaries
pending
adoption by Board of Directors.
|
|
3.11
|
Statement
of Policy on Insider Trading pending adoption by Board of
Directors.
|
|
3.12.
|
CryoPort,
Inc. Audit Committee Charter, under which the Audit Committee
will
operate, adopted by the Board of Directors on August 19,
2005.
|
|
3.13
|
CryoPort
Systems, Inc. 2002 Stock incentive Plan adopted by the Board
of Directors
on October 1, 2002.
|
|
3.14
|
Stock
Option Agreement ISO - Specimen adopted by the Board of Directors
on
October 1, 2002.
|
|
3.15
|
Stock
Option Agreement NSO - Specimen adopted by Board of Directors
on October
1, 2002.
|
Page
87
|
3.16
|
Warrant
Agreement - Specimen adopted by the Board of Directors on October
1,
2002.
|
|
3.17
|
Patents
and Trademarks
|
|
3.17.1
|
CryoPort
Systems, Inc. Patent #6,467,642 information sheet and Assignment
to
CryoPort Systems, Inc. document.
|
|
3.17.2
|
CryoPort
Systems, Inc. Patent #6,119,465 information sheet and Assignment
to
CryoPort Systems, Inc. document.
|
|
3.17.3
|
CryoPort
Systems, Inc. Patent #6,539,726 information sheet and Assignment
to
CryoPort Systems, Inc. document.
|
|
3.17.4
|
CryoPort
Systems, Inc. Trademark #7,583,478,7 information sheet and
Assignment to
CryoPort Systems, Inc.document.
|
|
3.17.5
|
CryoPort
Systems, Inc. Trademark #7,586,797,8 information sheet and
Assignment to
CryoPort Systems, Inc. document.
|
|
10.1
|
Contracts
|
|
10.1.1
|
Stock
Exchange Agreement associated with the merger of G.T.5-Limited
and
CryoPort Systems, Inc. signed on March 15, 2005.
|
|
10.1.2
|
Commercial
Promissory Note between CryoPort, Inc. and D. Petreccia executed
on August
26, 2005.
|
|
10.1.3
|
Commercial
Promissory Note between CryoPort, Inc. and J. Dell executed
on September
1, 2005.
|
|
10.1.4
|
Commercial
Promissory Note between CryoPort, Inc. and M. Grossman executed
on August
25, 2005.
|
|
10.1.5
|
Commercial
Promissory Note between CryoPort, Inc. and P. Mullens executed
on
September 2, 2005.
|
|
10.1.6
|
Commercial
Promissory Note between CryoPort, Inc. and R. Takahashi executed
on August
25, 2005.
|
|
10.1.7
|
Lease
Agreement between CryoPort Systems, Inc. and Brea Hospital
Properties,
LLC, executed on March 11,
2005.
|
Page
88