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Published on December 20, 2005
GARY
CURTIS CANNON
ATTORNEY
AT LAW
12341
Briardale Way
San
Diego, CA 92128-5212
____________________
Telephone
(858) 391-9083 Facsimile (858) 391-9084
email:
garycurtiscannon@lawyer.com
By
Fax and Mail
December
15, 2005
Jeffrey
Riedler
Assistant
Director
Division
of Corporate Finance
United
States Securities and Exchange Commission
Washington,
D.C. 20549
| Re: |
CryoPort,
Inc.
|
Form
10-SB
Filed
October
20, 2005
File
No.
0-51578
Dear
Mr.
Riedler,
The
Company management has had internal discussions and a review by our auditors
of
my December 9, 2005 letter addressed to you responding to the SEC comments
regarding the CryoPort 10-SB filed October 20, 2005. Based on the review by
CryoPort’s auditors and further internal discussion of management, CryoPort is
providing further information by adding additional clarifying language to the
Company’s responses to the SEC comments numbers 38, 39 and 41 as set forth
below. In addition, CryPort has filed its Form 10-SB/A as initially requested
by
Greg Belliston in my conversation with him on December 13, 2005.
Note
2
- Summary of Significant Accounting Policies, page F-7
| 38. |
Based
on your web site, it appears that your common stock currently trades
on
the pink sheets. As such, please tell us how you considered those
quoted
market prices and the value implied by any sales of your stock to
unrelated third parties in:
|
| · |
concluding
that employee options granted were issued at or above the estimated
fair
value of your stock on the grant date, as disclosed on Pages F-12
and
F-33;
|
All
options granted were issued at a per share price consistent with the selling
prices of the Company’s common stock in its most recent private placement
offerings to third parties at around the date of the option grants. The selling
prices
Jeffrey
Riedler, Assistant Director
United
States Securities and Exchange Commission
December
15, 2005
Page
2
of
the
Company’s common stock ranged from $0.50 to $0.70 per share in fiscal 2004, as
disclosed in Note 9 of the consolidated financial statements. As the Company
was
not publicly traded during this period, the Company utilized its most recent
sales of its common stock to value options in that period. In fiscal 2005,
the
selling prices of the Company’s common stock ranged from $0.04 to $0.75, as also
disclosed in Note 9 of the consolidated financial statements. As the Company
was
not publicly traded from April 1, 2004 through March 15, 2005, the Company
again
utilized its most recent sales of its common stock to value options granted
during that period. No options have been issued subsequent to March 15, 2005
so
consideration of the publicly traded prices on the Pink Sheets was not necessary
for option valuations. The last option issued was in August 2004 which was
several months before the Company considered the “reverse merger” transaction.
In consideration of all facts that existed at the dates of grant, we believe
that all options were issued at or above the fair value of our common stock
on
the grant dates.
| · |
determining
the stock-based employee compensation under the fair value method
reported
on Pages F-12 and F-33;
|
As
noted
in the previous response, all options were issued at or above the fair value
of
our common stock on the grant dates. In consideration of the facts noted above,
all option fair values were calculated 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.
| · |
calculating
the impact under the treasury method of dilutive convertible debt,
stock
options, and warrants that is disclosed on Pages F-13 and
F-34.
|
As
noted
above, the Company was not “publicly traded” until March 15, 2005. Prior and
subsequent to that date through March 31, 2005, the Company conducted
fundraising activities to raise capital through private sales at $0.75 per
share, a value at which the Company believed to be the fair market value of
its
common stock. The capital raise resulted in an additional 1,322,497 shares
issued at that price. The Company did note, however, that there were “public
transactions” on the Pink Sheets from the period March 15, 2005 through March
31, 2005. Those trades were at prices ranging from $1.00 to $5.50 per share
per
the Pinksheets.com website. However, the stock was so thinly traded when
compared to the overall common stock shares outstanding of nearly 30 million,
that it appeared inappropriate for the Company to use those trades to determine
the fair value of the Company’s common stock as those trades amounted to pure
speculation on
Jeffrey
Riedler, Assistant Director
United
States Securities and Exchange Commission
December
15, 2005
Page
3
the
Company’s common stock. Additionally, the Company was not yet a reporting entity
so there was no publicly available information for which those traders to make
investment decisions. Of further note, of the 30 million shares outstanding,
only 2.5 million shares are in the public float. In that light, the Company
did
not factor in the quoted Pink Sheet prices in calculating the impact under
the
treasury method but opted instead to use the Company’s private funding common
stock values to produce a more accurate and conservative impact.
When
contemplating the impact using the treasury method of dilutive convertible
debt,
stock options, and warrants which is disclosed on Page F-34, the Company did
not
conduct any capital raises, other than warrant exercises, until August 2005.
At
June 30, 2005, given the progress of the Company’s business model and related
events, it was our firm belief that the $0.75 was a better representation of
the
fair market value of the Company’s common stock. The Company noted that its
stock continued to trade on the Pink Sheets in the $5.00 to $6.00 range.
However, again, the trading was so thin versus the Company’s total outstanding
shares that we felt it would be inaccurate to utilize those trading prices.
For
example, at the lower trading price during the period of $5.00, the Company’s
value would be approximately $150 million. Using $0.75, the Company’s value is
approximately $22,500,000. Given the Company’s market position and results, the
latter value appears more realistic and a better, more conservative, indicator
of the value of the Company as of June 30, 2005.
| · |
estimating
the fair value of the shares provided to the former employee as disclosed
on page F-20;
|
The
value
of the Company’s common stock at the time these shares were issued to the former
employee was based on the private sales of the Company’s common stock ($0.04) at
the time this settlement was completed. In August 2004, the Company was
experiencing a severe operating cash flow shortage and was in danger of having
to cease operations. In that light, the Company notified its existing
shareholders of the need of immediate funding. To facilitate the funding, the
Company, beginning in August 2004, offered the Company’s common stock at $0.04
per share. The low price of the shares offered was in consideration of the
risk
premium the shareholders were undertaking. In the fundraising activities from
August 2004 through November 2004, the Company sold approximately 10 million
shares to meet its funding needs. Consistent with this funding offering and
the
price being consistent with the Company’s situation, the $0.04 price was used in
valuing this option as it was representative of the fair market value of the
common stock at the date of issuance. Further, the settlement transaction
occurred before the Company entered into a public transaction, and therefore
the
Pink Sheets prices in effect for the predecessor Company were not considered
relevant at that time.
Jeffrey
Riedler, Assistant Director
United
States Securities and Exchange Commission
December
15, 2005
Page
4
| · |
calculating
the weighted average fair value of the options granted, as disclosed
on
page F-20; and,
|
The
weighted average fair value of the options granted during fiscal 2004 and 2005
was determined based on the historical grant prices ranging from $0.04 to $0.75
per share, and was determined based on the facts discussed above.
| · |
determining
the value of unexercised in-the-money options disclosed on Page
38.
|
We
considered the quoted prices on the Pink Sheets in our valuation, but believe
they were not a true indicator, at that time, of the value of the Company’s
common stock. As noted in our responses above, several factors were considered
when using the $0.75 price in the computation. The first factor was the limited
trading history of the Company on the Pink Sheets. The Company, in its current
form, had only been trading since March 15, 2005. The second factor was the
public float. The public float of the Company’s shares was only 2.5 million
shares when there was a total of 30 million shares outstanding, an amount
representing less than 10% of the Company’s outstanding common stock. The third
factor is the lack of information available to the public markets as the Company
had not become a reporting entity yet, therefore, informed investment decisions
could not be made. The fourth factor is that the stock was so thinly traded
that
it would be difficult to justify that these transactions were reflective of
the
fair value of the common stock of the Company. To illustrate, as noted above,
the trading prices on the Pink Sheets would result in a Company valuation in
excess of $150 million. Given the Company’s operating history, assets and
status, this value is unsustainable and highly unlikely. When considering the
most recent private capital raises of over 1.3 million common shares at $0.75,
the volume of these raises and the efforts to raise funds at this price, this
indicates to us that this is more reflective of the fair market value of the
Company’s common stock, and thus that was the value utilized in the computation.
Fair
Value of Financial Instruments, page F-8
| 39. |
Please
elaborate, for us, on why the fair value of the related party notes
payable is not determinable. In so doing, please tell us whether
you could
reasonably estimate what the fair value would have been for notes
payable
to unrelated third parties for similar amounts and with similar
maturities. If so, please tell us why this did not make the fair
value of
the related party notes payable determinable. If not, please tell
us: (a)
whether you used the incremental borrowing rate, as defined in
paragraph
5(1) of SFAS 13, in presumably determining, in accordance with
paragraph
7, that the April 1, 2005 lease, disclosed on page F-17 was an
operating,
not a capital, lease and (b) why this rate did not make the fair
value of
the related party notes
determinable.
|
Jeffrey
Riedler, Assistant Director
United
States Securities and Exchange Commission
December
15, 2005
Page
5
The
Company has revised its statement in the section, “Fair Value of Financial
Instruments” on page F-8 of the March 31, 2005 Financial Statements to include
the following sentence: “The difference between the fair value and recorded
values of the related party notes payable is not significant.” The Company has
prepared a detailed analysis discounting the future payment streams of the
notes
payable to the present values as of March 31, 2005. This analysis compared
the
present value of the notes at the 6% interest stated rate of the notes with
the
present values at the published prime rate as of March 31, 2005, prime plus
1
and prime minus 1 rates. Based on these comparisons, it was determined that
the
differences in the present value of the notes using the above discount rates
were not significant. (See Form 10-SB/A).
Operating
Leases, page F-17
| 40. |
Please
explain to us why your future minimum rental payments, as of March
31,
2005, for fiscal years 2006 and 2007 appear to significantly exceed
the
rent expense for fiscal years 2004 and 2005. In doing so, please
clarify
whether the rental payments in the tabular disclosure are the same
as the
ones disclosed in the first paragraph. If they are the same please
resolve
the discrepancy between the obligations existing as of March 31,
2005 and
the fact that the lease was entered into subsequent to that date,
on April
1, 2005.
|
In
addition, please clarify whether the lease entered into on April 1, 2005 is
for
the same Brea, California facility that you had previously leased on a month
to
month basis with varying monthly payments. If so, please tell us why the monthly
payments appeared to have significantly
increased. If not, please tell us the extent of the costs incurred to exit
the
previous facility and, if those costs were material, how you accounted for
them.
Prior
to
the Company moving into its current facility in Brea, CA, the Brea landlord
had
been experiencing difficulty identifying a tenant. The building had remained
empty for approximately 3 years based on the poor condition of the building
caused by the previous tenant. Due to the poor condition of the building, the
Company and owner of the building did not immediately enter into a formal
long-term lease arrangement, rather, it was verbally agreed upon that on a
month
to month basis, from September 2003 through October 2004, the Company would
not
pay any base rent. For this arrangement, the Company agreed to and did incur
expenditures including capitalized leasehold improvements of $7,900 plus other
miscellaneous costs which fell below the capitalization policy threshold. In
November of 2004, the Company verbally agreed to start paying rent of $4,000
per
month on a month to month basis, representing the Company’s usage of slightly
over half the available floor space. Subsequently, a written, two year lease
was
entered into, effective on April 1, 2005, at a monthly lease payment amount
of
$7,500, representing the Company’s now total occupancy of the building space.
(See Form 10-SB/A).
In
connection with responding to your comments, CryoPort acknowledges the
following:
| • |
the
Company is responsible for the adequacy and accuracy of the disclosure
in
the filing;
|
Jeffrey
Riedler, Assistant Director
United
States Securities and Exchange Commission
December
15, 2005
Page
6
|
•
|
SEC
staff comments or changes to disclosure in response to staff comments
do
not foreclose the Commission from taking any action with respect
to the
filing; and
|
| • |
the
Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United
States.
|
Should
you have any questions, please let me know.
Sincerely,
/s/
Gary
Curtis Cannon December
15, 2005
Gary
Curtis Cannon
Attorney
at Law
GCC/dc
Cc:
/CryoPort, Inc.
CORBIN
& COMPANY, LLP
file