10QSB: Optional form for quarterly and transition reports of small business issuers
Published on December 23, 2005
U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-QSB
(Mark
One)
| þ |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
|
For
the quarterly period ended September 30, 2005
| ¨ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934.
|
For
the transition period
from _____________________________ to
__________________________
Commission
File Number: 000-51578
CryoPort,
Inc.
(Exact
name of small business issuer as specified in its charter)
|
Nevada
|
88-0313393
|
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer
Identification
No.)
|
|
451
Atlas Street Brea, California, 92821
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|||
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(Address
of principal executive offices)
|
|||
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(714)
256-6100
|
|||
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(Issuer’s
telephone number)
|
|||
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Not
Applicable
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|||
|
(Former
name, former address and former fiscal year, if changed since last
report)
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|||
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Check
whether the issuer (1) filed all reports required to be filed by
Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 month
(or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the
past 90 days.
|
|||
|
Yes
þ
No
¨
|
|||
|
As
of December 20, 2005 the Company had 29,943,697 shares of its $.001
par
value common stock issued and outstanding.
|
|
TABLE
OF
CONTENTS
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|
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Page
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PART
I FINANCIAL INFORMATION
|
2
|
|
ITEM
1 FINANCIAL STATEMENTS
|
2
|
|
Balance
Sheet at September 30, 2005 (unaudited)
|
2
|
|
Unaudited
Statements of Operations for the three and six months
ended September 30, 2005 and 2004
|
3
|
|
Unaudited
Statements of Cash Flows for the six months ended
September 30, 2005 and 2004
|
4
|
|
Notes
to Consolidated Financial Statements (unaudited)
|
5
|
|
ITEM
2 MANAGEMENT'S DISCUSSION AND ANALYSIS
|
18
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|
ITEM
3: CONTROLS AND PROCEDURES
|
24
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PART
II OTHER INFORMATION
|
26
|
|
ITEM
1 LegalProceedings
|
26
|
|
ITEM
2 Recent Sales of Unregistered Equity Securities
|
26
|
|
ITEM
3 Defaults Upon Senior Securities
|
26
|
|
ITEM
4 Submission of Matters to a Vote of Security Holders
|
26
|
|
ITEM
5 Other Information
|
26
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ITEM
6 Exhibit Index
|
27
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SIGNATURES
|
28
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Page
1
PART
I – FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
CRYOPORT,
INC.
CONSOLIDATED
BALANCE SHEET
|
ASSETS
|
September
30, 2005
|
|||
|
(Unaudited)
|
||||
|
Current
assets:
|
||||
|
Cash
|
$
|
273,017
|
||
|
Accounts
receivable, net
|
54,034
|
|||
|
Inventories
|
200,477
|
|||
|
Prepaid
expenses and other current assets
|
9,000
|
|||
|
Total
current assets
|
536,528
|
|||
|
Fixed
assets, net
|
95,509
|
|||
|
Intangible
assets, net
|
12,322
|
|||
|
$
|
644,359
|
|||
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
||||
|
Current
liabilities:
|
||||
|
Accounts
payable
|
$
|
206,585
|
||
|
Accrued
expenses
|
105,476
|
|||
|
Accrued
warranty costs
|
65,996
|
|||
|
Accrued
salaries
|
345,177
|
|||
|
Current
portion of related party notes payable
|
15,000
|
|||
|
Current
portion of note payable
|
24,000
|
|||
|
Total
current liabilities
|
762,234
|
|||
|
Related
party notes payable and accrued interest, net of current
portion
|
1,635,633
|
|||
|
Note
payable, net of current portion
|
37,440
|
|||
|
Total
liabilities
|
2,435,307
|
|||
|
Commitments
and contingencies
|
||||
|
Stockholders’
deficit:
|
||||
|
Common
stock, $0.001 par value; 100,000,000 shares
|
||||
|
authorized;
29,907,697 shares issued and outstanding
|
29,908
|
|||
|
Additional
paid-in capital
|
4,579,785
|
|||
|
Accumulated
deficit
|
(6,400,641
|
)
|
||
|
Total
stockholders’ deficit
|
(1,790,948
|
)
|
||
|
$
|
644,359
|
|||
See
accompanying notes to unaudited consolidated financial
statements
Page
2
CRYOPORT,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
Three
Months
Ended
September
30,
|
Six
Months
Ended
September
30,
|
||||||||||||
|
2005
|
2004
|
2005
|
2004
|
||||||||||
|
Net
sales
|
$
|
23,723
|
$
|
56,182
|
$
|
146,216
|
$
|
122,409
|
|||||
|
Cost
of sales
|
110,636
|
127,417
|
254,592
|
335,821
|
|||||||||
|
Gross
loss
|
(86,913
|
)
|
(71,235
|
)
|
(108,376
|
)
|
(213,412
|
)
|
|||||
|
Operating
expenses:
|
|||||||||||||
|
Selling,
general and administrative
|
319,610
|
134,803
|
588,374
|
276,962
|
|||||||||
|
Research
and development
|
65,198
|
9,726
|
144,552
|
21,791
|
|||||||||
|
Total
operating expenses
|
384,808
|
144,529
|
732,926
|
298,753
|
|||||||||
|
Loss
from operations
|
(471,721
|
)
|
(215,764
|
)
|
(841,302
|
)
|
(512,165
|
)
|
|||||
|
Other
expense:
|
|||||||||||||
|
Interest
expense
|
(21,196
|
)
|
(21,203
|
)
|
(42,549
|
)
|
(42,013
|
)
|
|||||
|
Loss
on disposition of assets
|
—
|
—
|
—
|
(1,826
|
)
|
||||||||
|
Total
other expense
|
(21,196
|
)
|
(21,203
|
)
|
(42,549
|
)
|
(43,839
|
)
|
|||||
|
Loss
before income taxes
|
(492,917
|
)
|
(236,967
|
)
|
(883,851
|
)
|
(556,004
|
)
|
|||||
|
Income
taxes
|
—
|
—
|
—
|
—
|
|||||||||
|
Net
loss
|
$
|
(492,917
|
)
|
$
|
(236,967
|
)
|
$
|
(883,851
|
)
|
$
|
(556,004
|
)
|
|
|
Net
loss available to common stockholders per common share:
|
|||||||||||||
|
Basic
and diluted
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
$
|
(0.03
|
)
|
$
|
(0.04
|
)
|
|
|
Basic
and diluted weighted common average shares outstanding
|
29,855,017
|
16,171,374
|
29,793,906
|
14,880,665
|
|||||||||
See
accompanying notes to unaudited consolidated
financial statements
Page
3
CRYOPORT,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
Six
Months Ended
September
30,
|
|||||||
|
2005
|
2004
|
||||||
|
Cash
flows from operating activities:
|
|||||||
|
Net
loss
|
$
|
(883,851
|
)
|
$
|
(556,004
|
)
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|||||||
|
Depreciation
and amortization
|
45,454
|
46,328
|
|||||
|
Bad
debt expense
|
25,000
|
—
|
|||||
|
Loss
on disposal of assets
|
—
|
1,826
|
|||||
|
Estimated
fair value of stock options issued to consultants
|
|||||||
|
Changes
in operating assets and liabilities:
|
17,280
|
31,288
|
|||||
|
Accounts
receivable
|
(34,487
|
)
|
(27,171
|
)
|
|||
|
Inventories
|
(49,497
|
)
|
15,939
|
||||
|
Prepaid
expenses and other current assets
|
42,118
|
(3,736
|
)
|
||||
|
Accounts
payable
|
43,601
|
(19,556
|
)
|
||||
|
Accrued
expenses
|
1,436
|
1,055
|
|||||
|
Accrued
warranty costs
|
(4,504
|
)
|
19,314
|
||||
|
Accrued
salaries
|
98,746
|
10,454
|
|||||
|
Accrued
interest
|
41,566
|
41,232
|
|||||
|
Net
cash used in operating activities
|
(657,138
|
)
|
(439,031
|
)
|
|||
|
Cash
flows used in investing activities:
|
|||||||
|
Purchases
of fixed assets
|
(39,700
|
)
|
(10,505
|
)
|
|||
|
Cash
flows from financing activities:
|
|||||||
|
Proceeds
from borrowings under notes payable
|
—
|
145,000
|
|||||
|
Repayment
of notes payable
|
(6,000
|
)
|
(3,864
|
)
|
|||
|
Proceeds
from issuance of common stock, net of issuance costs of
$32,340
|
255,660
|
315,342
|
|||||
|
Net
cash provided by financing activities
|
249,660
|
456,478
|
|||||
|
Net
change in cash
|
(447,178
|
)
|
6,942
|
||||
|
Cash,
beginning of period
|
720,195
|
6,083
|
|||||
|
Cash,
end of period
|
$
|
273,017
|
$
|
13,025
|
|||
|
Supplemental
disclosure of cash flow information:
|
|||||||
|
Cash
paid during the period for:
|
|||||||
|
Interest
|
$
|
—
|
$
|
—
|
|||
|
Income
taxes
|
$
|
800
|
$
|
800
|
|||
See accompanying notes to unaudited consolidated financial statements
Page
4
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Three and Six Months Ended September 30, 2005 and
2004
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 six months ended September 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.
Page
5
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Three and Six Months Ended September 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 incurred significant continuing losses from operations through September
30,
2005. As of September 30, 2005, the Company’s accumulated deficit was $6,400,641
and the Company had a working capital deficit of $225,706. 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.
Page
6
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Three and Six Months Ended September 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, valuation of
deferred tax assets 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 September 30, 2005, the Company had approximately $153,000
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. Accounts receivable at September 30, 2005,
is net of reserves for doubtful accounts and sales returns of $29,996. 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 non-exclusive distribution agreements with
international distributors. During the six month periods ended September 30,
2005 and 2004, the Company had foreign sales of approximately $51,000 and
$29,000, respectively, which constituted approximately 35% and 24%,
respectively, of net sales.
Page
7
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Three and Six Months Ended September 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 September 30, 2005
based on their related short-term maturities. 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.
Fixed
Assets
Depreciation
and amortization of fixed assets are provided using the straight-line method
over the following useful lives:
| Furniture and fixtures7 years |
7
years
|
|
Machinery
and equipment5-7
years
|
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 applicable to assets retired are removed from the accounts, and the gain or loss on disposition is recognized in current operations.
Page
8
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Three and Six Months Ended September 30, 2005 and
2004
NOTE
2 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
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 September 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 Company’s standard warranty, included with products at no
additional cost to the customer for a period up to one year, are recorded as
accrued warranty costs at the time of product sale. Costs related to servicing
the standard warranty are charged to the accrual as incurred.
The
following represents the activity in the warranty accrual account during the
six
month period ended September 30:
|
2005
|
2004
|
||||||
| Beginning warranty accrual | $ | 70,500 | $ | 31,875 | |||
| Increase in accrual (charged to cost of sales) | 12,750 | 31,064 | |||||
| Charges to accrual (product replacements) | (17,254 | ) | (11,750 | ) | |||
| Ending warranty accrual | $ | 65,996 | $ | 51,189 | |||
Page
9
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Three and Six Months Ended September 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 six month periods
ended
September 30, 2005 and 2004, the Company expensed approximately $26,000 and
$5,000 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.
Page
10
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Three and Six Months Ended September 30, 2005 and
2004
NOTE
2 – ORGANIZATION 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 and
six
month periods ended September 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
September
30,
|
For
The Six Months Ended
September
30,
|
||||||||||||
|
2005
|
2004
|
2005
|
2004
|
||||||||||
|
Net
loss as reported
|
$
|
(492,917
|
)
|
$
|
(236,967
|
)
|
$
|
(883,851
|
)
|
$
|
(556,004
|
)
|
|
|
Deduct:
|
|||||||||||||
|
Total
stock-based employee
compensation
under fair value
based
method for all awards,
net
of related tax effects
|
(12,237
|
)
|
(30,832
|
)
|
(24,674
|
)
|
(61,664
|
)
|
|||||
|
Pro
forma net loss
|
$
|
(505,154
|
)
|
$
|
(267,799
|
)
|
$
|
(908,525
|
)
|
$
|
(617,668
|
)
|
|
|
Basic
and diluted loss per share
|
|||||||||||||
|
-
as reported
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
$
|
(0.03
|
)
|
$
|
(0.04
|
)
|
|
|
Basic
and diluted loss per share
|
|||||||||||||
|
-
pro forma
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
$
|
(0.03
|
)
|
$
|
(0.04
|
)
|
|
Page
11
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Three and Six Months Ended September 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.
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 by dividing the net loss available to common
stockholders by 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 for stock options and warrants would have resulted in an increase of
3,255,211 shares for the six month periods ended September 30, 2005 and no
change for the six month period ended September 30, 2004.
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.
Page
12
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Three and Six Months Ended September 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 – INVENTORIES
Work
in
process and finished goods include material, labor and applied overhead.
Inventories at September 30, 2005 consist of the following:
|
Raw
materials
|
$
|
128,447
|
||
|
Work
in
process
|
48,122
|
|||
|
Finished
goods
|
23,908
|
|||
|
$
|
200,477
|
Page
13
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Three and Six Months Ended September 30, 2005 and
2004
NOTE
4 – FIXED ASSETS
Fixed
assets consist of the following at September 30, 2005:
|
Furniture
and fixtures
|
$
|
22,982
|
||
|
Machinery
and equipment
|
435,152
|
|||
|
Leasehold
improvements
|
15,611
|
|||
|
473,745
|
||||
|
Less
accumulated depreciation and
amortization
|
(378,236
|
)
|
||
|
$
|
95,509
|
Depreciation
and amortization expense for fixed assets for the six month periods ended
September 30, 2005 and 2004 was $41,131 and $41,702, respectively.
NOTE
5 – INTANGIBLE ASSETS
Intangible
assets consist of the following at September 30, 2005:
|
Assets
subject to amortization:
|
|||
|
Patents
and
trademarks
|
46,268
|
||
|
Less
accumulated amortization
|
(33,946
|
)
|
|
|
$
|
12,322
|
Amortization expense for intangible assets for the six month periods ended September 30, 2005 and 2004 was $4,323 and $4,626, respectively. All of the Company’s intangible assets are subject to amortization. Estimated future amortization is approximately $8,700 annually.
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 consolidated financial condition or results of
operations.
Page
14
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Three and Six Months Ended September 30, 2005 and 2004
NOTE
6 – COMMITMENTS AND CONTINGENCIES, continued
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
7 – NOTES PAYABLE
The
Company has a non-interest bearing note payable to a third party lender for
$77,304, which was due in April 2003. The Company is currently making monthly
payments of $2,000 as agreed with the third party lender. As of September
30,
2005, the remaining unpaid balance was $61,440.
As
of
September 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 $42,549 and $42,013 for the six
months ended September 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 $281,133 as of September 30,
2005.
Page
15
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Three and Six Months Ended September 30, 2005 and
2004
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.
As
of
September 30, 2005, the Company had 1,700,123 warrants outstanding and
exercisable at a weighted average exercise price of $0.75 per
warrant.
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 these agreements, during the six months ended September 30,
2005
the Company issued 78,000 shares of the Company’s common stock 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.
During
the six months ended September 30, 2005 and 2004, compensation expense from
the
vesting of options issued to non-employees totaled $17,280 and $31,288,
respectively, and has been included in selling, general and administrative
expenses in the accompanying consolidated statements of operations.
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 six month periods ended
September 30:
|
2005
|
2004
|
||||||
|
Numerator
for basic and diluted earnings per share:
|
|||||||
|
Net
loss available to common stockholders
|
$
|
(883,851
|
)
|
$
|
(556,004
|
)
|
|
|
Denominator
for basic and diluted loss per common share:
|
|||||||
|
Weighted
average common shares outstanding
|
29,793,906
|
14,880,665
|
|||||
|
Net
loss per common share available to common
stockholder
|
$
|
(0.03
|
)
|
$
|
(0.04
|
)
|
|
Page
16
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For
The Three and Six Months Ended September 30, 2005 and
2004
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 these agreements, subsequent to September 30, 2005, 36,000
additional shares of the Company’s common stock were sold to investors at a
price of $3.50 per share for gross proceeds of $126,000 to the Company, net
of
issuance costs of $16,380.
Page
17
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Forward
Looking Statements
This
Form
10-QSB contains forward-looking statements within the definition of the Private
Securities Litigation Reform Act of. Such forward-looking statements made
by the
Company 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.
General
Overview
The
following discussion and analysis of the Company’s financial condition and
results of operations should be read in conjunction with the unaudited
consolidated balance sheet as of September 30, 2005 and the related consolidated
statements of operations, cash flows and stockholders’ deficit for each of the
three and six months ended September 30, 2005 and 2004, and the related notes
thereto (see Item 1 Financial Statements) as well as the audited financial
statements of the Company as of March 31, 2005 and for the years ended March
31,
2005 and 2004. This discussion 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, based upon current expectations
that involve risks and uncertainties, such as the Company’s plans, objectives,
expectations and intentions.
The
Company cautions readers that important facts and factors described in this
Management’s Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere in this document sometimes have affected, and in
the
future could affect, the Company’s actual results, and could cause the Company’s
actual results during fiscal year 2006 and beyond to differ materially from
those expressed in any forward-looking statements made by, or on behalf of
the
Company.
Page
18
Going
Concern
As
reported in the Report of Independent Registered Public Accounting Firm 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, (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 reusable 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
$883,851 and $556,004 for the six month periods ended September 30, 2005
and
2004 respectively. In addition, at September 30, 2005 the Company’s accumulated
deficit was $6,400,641 and the Company had a negative working capital deficit
of
$225,706. 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.
We
anticipate that unless we are able to raise or generate proceeds of at least
$3,000,000 within the next 12 months, although operations will continue,
we will
be unable to fully execute our business plan, which will result in us not
growing at the desired rate. Should this situation occur, management is
committed to operating on a smaller scale until generated revenues or future
funding can support expansion.
In
order
to continue as a going concern, management has begun taking the following
steps:
|
1)
|
Obtaining
additional capital through a private placement offering initiated
in
August 2005, of common stock under Regulation D. Management anticipates
that the proceeds from this offering will provide over 24 months
of
operating capital.
|
|
2)
|
Negotiating
with a manufacturing and distribution partner for the one-way
product to
generate additional revenues through licensing fees.
|
|
3)
|
Maintaining
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.
|
Page
19
|
4)
|
Utilizing
part-time consultants, and asking employees to manage multiple
roles and
responsibilities whenever possible to keep operating costs
low.
|
|
5)
|
Requiring
that 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.
|
|
6)
|
Cautiously
and gradually adding key sales, marketing, engineering, scientific
and
operating personnel only as necessary to help expand the Company’s product
offerings in the reusable and one-way cryogenic shipping markets,
leading
it to additional revenues and profits.
|
|
7)
|
Adding
other expenses such as customer service, administrative and operations
staff only commensurate with increased revenues.
|
|
8)
|
Focusing
current research and development efforts only on development,
production
and distribution 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 six months ended
September 30, 2005 and 2004, research and development costs were $144,552
and
$21,791, respectively. Company sponsored research and development costs related
to future products and redesign of present products are 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.
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.
Page
20
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-downs are considered permanent adjustments
to the cost basis of the obsolete or unmarketable inventories.
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
Three
months ended September 30, 2005 compared to three months ended September
30,
2005:
Net
Sales. During
the three months ended September 30, 2005, the Company generated $23,723
from
reusable shipper sales compared to revenues of $56,182 in the same period
of the
prior year, a decrease of $32,459 (57.8%). This revenue decrease is primarily
due to the Company’s shift in its sales and marketing focus during the recent
quarter to the introduction of the one-way shipper, anticipated for release
in
early calendar year 2006, into the biotech industry sector. Additionally,
product manufacturing upgrades slowed production activities and average sales
unit prices during the three month period ended September 30, 2005 were lower
than that of the same period of the prior year due to the change in the industry
sales mix.
Page
21
Gross
Profit/Loss. Gross
loss for the three month period ended September 30, 2005 increased by $15,678
(22.0%) to $86,913 compared to $71,235 for the six month period ended September
30, 2004. The increase in the gross loss is mainly attributable to the decreased
revenues as a result of lower sales volumes.
Cost
of
sales for the three month period ended September 30, 2005 decreased to $110,636
from $127,417 for the three month period ended September 30, 2004 primarily
as
the result of lower unit sales volumes and material costs. During both periods
cost of sales exceeded sales due to plant under utilization.
Selling,
General and Administrative Expenses. Selling,
general and administrative expenses increased by $184,807 (137%) to $319,610
for
the three month period ended September 30, 2005 as compared to $134,803 for
the
three month period ended September 30, 2004 due mainly to: (i) increased
sales
and marketing costs of $93,419 related to increased trade shows, travel and
consultant expenses, (ii) increased general and administrative costs of $91,388
related to increased regulatory costs including 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 $55,472 (570%) to $65,198 for the three
month period ended September 30, 2005 as compared to $9,726 for the three
month
period ended September 30, 2004 related to the significant increase in the
development activity on the one-way product expected for release in early
calendar year 2006.
Net
Loss. As
a
result of the factors described above, the net loss for the three months
ended
September 30, 2005 increased by $255,950 (108%) to $492,917 or ($0.02) per
share
compared to $236,967 or ($0.02) per share for the three months ended September
30, 2004.
Six
months ended September 30, 2005 compared to six months ended September 30,
2004:
Net
Sales. During
the six months ended September 30, 2005 the Company generated $146,216 from
reusable shipper sales compared to revenues of $122,409 in the same period
of
the prior year, an increase of $23,807 (19.4%). 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 six month period ended September 30, 2005 decreased by $105,036
(49.2%) to $108,376 compared to $213,412 for the six month period ended
September 30, 2004. The decrease in the gross loss is due to the increased
sales
combined with increased production overhead efficiencies and plant
utilization.
Cost
of
sales for the six month period ended September 30, 2005 decreased to $254,592
from $335,821 for the six month period ended September 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.
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22
Selling,
General and Administrative Expenses. Selling,
general and administrative expenses increased by $311,412 (112%) to $588,374
for
the six month period ended September 30, 2005 as compared to $276,962 for
the
six month period ended September 30, 2004 due mainly to: (i) increased sales
and
marketing costs of $133,306 related to increased trade shows, travel and
consultant expenses, (ii) increased general and administrative costs of $178,106
related to increased regulatory costs including 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 $122,761 (563%) to $144,552 for the
six
month period ended September 30, 2005 as compared to $21,791 for the six
month
period ended September 30, 2004 related to the significant increase in the
development activity on the one-way product expected for release in early
calendar year 2006.
Net
Loss. As
a
result of the factors described above, the net loss for the six months ended
September 30, 2005 increased by $327,847 (59.0%) to $883,851 or ($0.03) per
share compared to $556,004 or ($0.04) per share for the six months ended
September 30, 2004.
Assets
and Liabilities
At
September 30, 2005, the Company had total assets of $644,359 compared to
total
assets of $1,080,428 at March 31, 2005, a decrease of $436,069 (40.4%). Cash
was
$273,017 as of September 30, 2005, a decrease of $447,178 (62.1%) from $720,195
in cash on hand as of March 31, 2005. During the six month period cash used
in
operations of $657,139, and cash used to purchase equipment of $39,700, were
offset by cash provided by financing activities of $249,660. As of November
10,
2005, the Company’s cash on hand was approximately $158,339.
Net
accounts receivable at September 30, 2005 was $54,034, an increase of $9,487
(21.3%) from $44,547 at March 31, 2005. This increase is due to the increase
in
customer balances over 90 days which have been partially offset by an increase
to the bad debt reserve. Inventories increased $49,497 (32.8%), to $200,477
as
of September 30, 2005, from $150,980 as of March 31, 2005. The increase in
inventories is due to the lower than anticipated sales of the reusable product
during the second quarter.
Net
fixed
assets totaled $95,509 at September 30, 2005 compared to $96,940 at March
31,
2005, a decrease of $1,430 (1.0%). The increase is attributable to purchases
during the six months ended September 30, 2005, including $27,777 of
manufacturing equipment to increase automation of the reusable product line
and
to increase capacity in anticipation of production of the one-way product
currently in development, $7,711 of leasehold improvement for electrical
upgrades required for capacity and safety purposes and $4,214 of office
furniture and computers. These purchases were offset by depreciation and
amortization in the amount of $41,132. Intangible assets decreased to $12,322
at
September 30, 2005 from $16,648 at March 30, 2005 as a result of amortization
in
the amount of $4,322 for the six months ended September 30, 2005.
Total
liabilities at September 30, 2005 were $2,435,307, an increase of $174,844
(7.7%) from $2,260,463 as of March 31, 2005. Accounts payable was $206,585
at
September 30, 2005, an increase of $43,600 (26.8%) from $162,985 at March
31,
2005. The increase is primarily due to the payment cycle of trade payables
relating to the increase in inventory. Accrued expenses increased $1,436
(1.4%)
to $105,476 at September 30, 2005 from $104,040 at March 31, due to an increase
in accrued legal fees.
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23
Accrued warranty costs decreased $4,504
(6.4%)
to $65,996 at September 30, 2005 from $70,500 due to $17,257 of product
replacement costs charged to the accrual offset by $12,750 increased to the
accrual for product sales during the six month period ended September 30,
2005.
Accrued salaries were $345,177 at September 30, 2005, an increase of $98,746
(40.1%) from $246,431 at March 31, 2005. This increase is due to the increases
in accrued management bonus and accrued vacation during the six months ended
September 30, 2005.
Current
portion of related party notes payable increased $15,000 to $15,000 at September
30, 2005 due to the payments scheduled on these notes beginning April 1,
2006.
Current portion of notes payable of $24,000 at September 30, 2005 had no
change
from March 31, 2005. Long term related party notes payable increased $26,566
(1.7%) to $1,635,633 at September 30, 2005 from $1,609,067 at March 31, 2005
due
to $41,566 in interest for the six month period ended September 30, 2005
offset
by $15,000 allocated to the current portion of related party notes payable.
Long
term notes payable decreased $6,000 to $37,440 at September 30, 2005 from
$43,440 at March 31, 2005 as a result of payments made against the
note.
Liquidity
and Capital Reserves
As
of
September 30, 2005 the Company’s current assets of $536,528 exceeded its current
liabilities of $762,234 by $225,706. Approximately 45% 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 decreased to $644,359 at September 30, 2005 from $1,080,428 at March
31,
2005 as a result of funds used in operating activities and capital acquisitions,
partially offset by cash received from the sale of common stock funds used
in
operating activities.
The
Company’s total outstanding indebtedness increased to $2,435,307 at September
30, 2005 from $2,260,463 at March 31, 2005 primarily from the increases in
accrued interest for notes payable which was partially offset by a decrease
in
current liabilities from the reduction in operating payables.
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.
Item
3. Controls and Procedures
As
of
September 30, 2005, an evaluation was carried out under the supervision and
with
the participation of the Company’s management, including our Chief Executive
Officer and our Chief Financial Officer, of the effectiveness of the design
and
operation of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934). Based upon that
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that the design and operation of these disclosure controls and
procedures were effective. No significant changes were made in our internal
controls or in other factors that could significantly affect these controls
subsequent to September 30, 2005.
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24
(a)
Evaluation of Disclosure Controls and Procedures. The Company carried out
an
evaluation under the supervision and with the participation of the Company’s
management, including the Company’s Chief Executive Officer (“CEO”) and our
Chief Financial Officer (“CFO”), of the effectiveness of the Company’s
disclosure controls and procedures. Based upon that evaluation, the CEO and
CFO
concluded that as of September 30, 2005, our disclosure controls and procedures
were effective in timely alerting them to the material information relating
to
the Company (or the Company’s consolidated subsidiaries) required to be included
in the Company’s periodic filings with the SEC, subject to the various
limitation on effectiveness set forth below under the heading , “LIMITATIONS ON
THE EFFECTIVENESS OF INTERNAL CONTROLS,” such that the information relating to
the Company, required to be disclosed in SEC reports (i) is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms, and (ii) is accumulated and communicated to the Company’s management,
including our CEO and CFO, as appropriate to allow timely decisions regarding
required disclosure.
(b)
Changes in internal control over financial reporting. There has been no change
in the Company’s internal control over financial reporting that occurred during
the fiscal quarter ended September 30, 2005 that has materially affected,
or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
LIMITATIONS
ON THE EFFECTIVENESS OF INTERNAL CONTROLS
The
Company’s management, including the CEO and CFO, does not expect that our
disclosure controls and procedures on our internal control over financial
reporting will necessarily prevent all fraud and material error. An internal
control system, no matter now well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of the control system must reflect the fact
that
there are resource constraints, and the benefits of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected. These inherent limitations include
the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can
be
circumvented by the individual acts of some persons, by collusion of two
or more
people, or by management override of the internal control. The design of
any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design
will
succeed in achieving its stated goals under all potential future conditions.
Over time, control may become inadequate because of changes in conditions,
and/or the degree of compliance with the policies or procedures may
deteriorate.
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25
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
Inapplicable.
Item
2. Unregistered Sales of Equity Securities
In
June
2005, 50,000 warrants were exercised at a price of $0.30 per share. Also
in June
2005, 71,592 shares were issued at a price of $0.75 per share pursuant to
a
cashless warrant exercise of 82,134 warrants.
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 these agreements, during the six months ended September 30,
2005
the Company issued 78,000 shares of the Company’s common stock 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. Subsequent to September 30, 2005, 36,000 additional
shares of the Company’s common stock were sold to investors at a price of $3.50
per share for gross proceeds of $126,000 to the Company, net of issuance
costs
of $16,380.
Item
3. Defaults Upon Senior Securities
None
Item
4. Submission of Matters to a Vote of Security Holders
None
Item
5. Other Information
None
Page
26
Item
6. Exhibits
Exhibit
Index
| 31.1 |
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer
|
| 31.2 |
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer
|
| 32.1 |
Certification
Pursuant to 18 U.S.C. §1350 of Chief Executive
Officer
|
| 32.2 |
Certification
Pursuant to 18 U.S.C. §1350 of Chief Financial
Officer
|
Page
27
SIGNATURES
In
accordance with the requirements of the Exchange Act, the Registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
| CryoPort, Inc. | ||
| |
|
|
| Date: December 21, 2005 | By: | /s/ Peter Berry |
|
PETER BERRY, CEO, President |
||
| |
|
|
| Date: December 21, 2005 | By: | /s/ Dee S. Kelly |
|
DEE S. KELLY, Vice President, Finance |
||
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28