10KSB: Optional form for annual and transition reports of small business issuers [Section 13 or 15(d), not S-B Item 405]
Published on July 14, 2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-KSB
(Mark
One)
| þ |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
|
FOR
THE FISCAL YEAR ENDED MARCH 31, 2006
| ¨ |
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
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88-0313393
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(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
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451
Atlas Street, Brea, California
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92821
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(Address
of principal executive offices)
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(ZipCode)
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(714)
256-6100
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||||
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(Issuer’s
telephone number)
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Securities
registered under Section 12(b) of the Exchange Act:
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||||
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Title
of each class
|
Title
of each exchange on which registered
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Common
Stock, $.001 par value
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Pink
Sheets
|
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Securities
registered under Section 12(g) of the Exchange Act:
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||||
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Common
Stock, $.001 par value
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||||
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(Title
of class)
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||||
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Indicate
by check mark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act. Yes ¨
No
þ
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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.
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|
Yes
þ
No
¨
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||||
|
Check
if there is no disclosure of delinquent filers pursuant to Item 405
of
Regulation S-K contained in this form and will not be contained,
to the
best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB
or
any amendment to this Form 10-KSB. þ
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||||
|
Indicate
by check mark whether the Registrant is a shell company (as defined
in
Rule 12b-2 of the Exchange Act.).
|
||||
|
Yes
¨
No
þ
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||||
|
The
issuer’s revenue for the fiscal year ended March 31, 2006 was
$152,298.
|
|
State
the aggregate market value of the voting and non-voting common equity
held
by non-affiliates computed by reference to the price at which the
common
equity was sold, or the average bid and asked price of common equity,
as
of a specified date within the past 60 days. (See definition of affiliate
in Rule 12b-2 of the Exchange Act.)
The
market value of the voting stock held by non-affiliates of the issuer
as
of June 12, 2006 was approximately $75,221,740.
|
|
As
of June 12, 2006 the Company had 30,088,696 shares of its $0.001
par value
common stock issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Inapplicable.
Transitional
Small Business Disclosure Format (check one)
Yes
¨
No
þ
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TABLE
OF CONTENTS
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Page
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PART
I
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4
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ITEM
1.
|
DESCRIPTION
OF BUSINESS.
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5
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||
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ITEM
2.
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DESCRIPTION
OF PROPERTY
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31
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ITEM
3.
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LEGAL
PROCEEDINGS
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31
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ITEM
4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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31
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PART
II
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32
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ITEM
5.
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MARKET
PRICE OF THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
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32
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||
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ITEM
6.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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36
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ITEM
7.
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FINANCIAL
STATEMENTS (F-1 to F-24)
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45
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||
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ITEM
8.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
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69
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||
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ITEM
8A.
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CONTROLS
AND PROCEDURES
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69
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PART
III
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70
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|||
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ITEM
9:
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DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION
16(a) OF THE EXCHANGE
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70
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||
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ITEM
10.
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EXECUTIVE
COMPENSATION
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73
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ITEM
11.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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77
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ITEM
12:
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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78
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ITEM
13.
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EXHIBITS
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79
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||
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ITEM
14.
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
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81
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SIGNATURES
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83
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EXHIBIT
|
INDEX
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84
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Page
3
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 DERIVED 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
4
ITEM
1. DESCRIPTION OF BUSINESS.
We
are a
cryogenic transport container company, involved in the safe transport of
biological specimens at frozen and cryogenic temperatures of minus
160°
centigrade. While over the past years most of our sales have been derived from
the sale of our reusable product line, the Company’s long term potential and
prospects will come from the one-way line of products which have been in
development over the past couple of years.
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. A dry
cryogenic shipper is a device that uses liquid nitrogen which is contained
inside a vacuum insulated bottle as a refrigerant to provide storage
temperatures below minus 160°
centigrade. The dry shipper is designed such that there can be no pressure
build
up as the liquid nitrogen evaporates, or spillage of liquid nitrogen. A foam
retention system is employed to ensure that liquid nitrogen stays inside the
vacuum container. Biological specimens are stored in a “well” inside the
container and refrigeration is provided by cold nitrogen gas evolving from
the
liquid nitrogen entrapped within the foam retention system. Biological specimens
transported using the cryogenic shipper can include live cell pharmaceutical
products; e.g., cancer vaccines, diagnostic materials, semen and embryos,
infectious substances and other items that require continuous exposure to frozen
or 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 frozen or cryogenic temperature environment over an extended
time period by introducing to market a cost effective disposable/one-time use
cryogenic shipper. The conventional concept of cryogenic shipping employs the
use of a high cost shipping container, used multiple times over multiple years.
The Company plans to introduce the disposable/one-time product manufactured
from
alternative, lower cost materials, which eliminates the need to replenish the
refrigerant during the shipping process resulting in lower overall operating
costs. The Company’s intended future product is designed for one-time use with
or without a disposable capability. Both methodologies eliminate the need to
replenish the refrigerant during transport.
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.
Page
5
The
proposed disposable products are planned to share many of the characteristics
and basic design details of the currently available reusable products. The
expected shared characteristics include general geometry and shape, similar
liquid capacities and similar thermal performance characteristics. As a result,
much of the market experience gained from the sale of these products is directly
relevant to the usage characteristics of the proposed disposable products.
There
are two general sizes planned. A larger size of approximately 5 liters capacity,
based on a product that has been produced for 4 years, is planned for shipping
larger quantities of material and / or for use when longer holding times are
required. A smaller size of approximately 1 liter capacity is planned for unit
dose shipments, or small quantity shipments, that are direct to the end user
and
thus require shorter holding times. Because the shipment quantity is fairly
small, a shorter holding time capability does not admit an unacceptable
financial risk of product loss. The basis of the migration from reusable status
to disposable status is primarily one of cost and disposability which requires
a
generally lower cost product. Lower cost is achieved from higher production
quantities, from lower cost materials and from automated manufacturing methods.
The currently ongoing development related to these items is principally focused
on material properties, particularly those properties related to the low
temperature requirement and the vacuum retention characteristics; i.e.,
permeability of the materials. Several different metallic and polymeric
materials have been subjected to testing to this point. One non-traditional
material has been qualified and is available for production subject to the
demand for higher production quantities that will justify the capital
investment. Other materials are currently being evaluated for long term vacuum
retention characteristics by analyzing permeation properties. These are long
term tests that are being conducted by a commercial, well known laboratory.
Further on steps that are required to successfully market the products to a
broad spectrum of potential customers are largely related to a perceived need
to
customize the product characteristics to specific customer’s requirements. This
can only be accomplished once the potential customer is identified and
preliminary discussions are begun relative to the specific needs of that
customer. Items potentially involved at this stage include the required holding
time, the required product capacity, the impacts of the distribution environment
from in plant packing to end use unpacking. We believe that each potential
customer may have a specific set of needs that can be satisfied from a catalog
like listing of the generic characteristics of the planned products. Other
advances additional to the development work on the cryogenic container include
both an improved liquid nitrogen retention system and a secondary protective
packaging system. This secondary system has a low cost that lends itself to
disposal. Further, it adds an additional liquid nitrogen retention capability
to
further assure compliance with IATA and ICAO regulations that prohibit egress
of
liquid nitrogen from the shipping package
The
Company currently occupies approximately 8,000 square feet of manufacturing
and
office space in Brea, California and has five full-time employees and ten
consultants.
Page
6
As
reported in the Report of Independent Registered Public Accounting Firm on
the
Company’s March 31, 2006 and 2005 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. See page 34, “Management’s Discussion and Analysis or Plan of
Operation” for further discussion.
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
represented approximately 81% of its total issued and outstanding shares of
common stock following the close of the transaction). The exchange price was
reached through discussions between CryoPort Systems, Inc.’s board of directors
and stockholders, and GT-5 Limited’s board of directors and major stockholders,
taking into account supply and demand factors as well as the historical share
prices to non-insiders of each company. The acquisition was a transaction
involving the cashless exchange of shares only. 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.
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”.
Page
7
Our
Products
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.
These
products, which are in full production at the Company’s Brea, California
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. The PSX shippers
are also certified to IATA Packing Instruction 602 and 650.
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.
Page
8
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-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, DS650 and the PSX 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.
Page
9
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 mid
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 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.
|
Our
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.
Page
10
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.
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. The Company has no distributors or agents that
account for greater than 10% of overall sales volumes other than our independent
South American sales agent. All agreements are non-exclusive with the exception
of our South American sales agent. The Company’s South American agent is
CryoPort Systems Ltda. in Sao Paulo, Brazil and all South American revenues
reported have been generated by this agent in the Brazilian market. The
Company’s current effective agreement with CryoPort Systems, Ltda. is an
exclusive, ten year agreement, expiring on August 9, 2011, which provides a
17%
commission payable for all sales in the countries of South America (see Exhibit
10.1.8). Subsequent to March 31, 2006, the Company accepted the request for
termination of its contractual arrangement with CryoPort Systems, Ltda as its
independent South American sales agent, as a result of CryoPort Systems, Ltda’s
decision to close its business in Brazil.
The
Company’s geographical sales for the year ended March 31, 2006 were as
follows:
|
USA
|
63.8%
|
|
South
America
|
14.4%
|
|
Europe
|
14.4%
|
|
Other
North America
|
5.5%
|
|
Asia
|
2.0%
|
Customer
Base:
The
Company believes that the primary customers for its dry vapor shippers (both
reusable and the future one-way shippers) are concentrated in the following
markets for the following reasons:
| · |
Pharmaceutical
clinical trials
|
| · |
Gene
biotechnology
|
| · |
Transport
of infectious materials and dangerous
goods
|
Page
11
| · |
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 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
12
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 frozen or cryogenic
temperatures, each such shipment will require a frozen or 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;
|
Page
13
| · |
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, 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. CryoPort intends to become
competitive by reason of improved technological characteristics and by
introducing the concept of disposability and single use products. 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. Other competitive factors include the ability of the shipper to retain
liquid nitrogen when placed in non-upright positions, the overall
“leak-proofness” of the package which determines compliance with shipping
regulations and the overall weight and volume of the package which determines
shipping costs.
Page
14
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.]
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., -160°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 materials, vaccines and certain pharmaceutical products.
In some instances, transport of these products requires temperatures at, or
approaching, -196°C.
Page
15
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 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;
|
Page
16
| · |
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 hold time of the unit in
a
normal, upright position versus the hold time when the unit is placed on its
side or inverted. The liquid nitrogen can leak out of the container when it
is
positioned on its side or inverted. This leaking will compromise the
dependability of these dry shippers, particularly when used in circumstances
requiring lengthy shipping times. The Company’s current reusable shippers have
only a 40% reduction in hold time when placed on their sides or inverted. One
of
the Company’s significant competitors, Chart Industries, Inc., publishes on
their web site, a 60% reduction in hold time when its units are placed on their
side and a 90% reduction when its units are inverted. Since other competitors
use similar absorbent materials to that used by Chart Industries, Inc., the
Company believes the performance characteristics will be similar for their
products of this particular size and volume.
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:
Page
17
| · |
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. Cryoport currently manufactures its reusable
shipper with an approximate liquid nitrogen volume of five liters. The Company’s
future intended products will be a range of shippers with liquid nitrogen
capacities from approximately one to five liters in size.
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.
The current price of CryoPort’s reusable shippers range from $735 to $1,095. The
price range for the proposed disposable/one way shippers when developed is
initially expected to range from $50 to $175 per use, depending on
size.
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. 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 possible loss of liquid
nitrogen refrigerant that all dry shippers experience when not kept
vertical.
Page
18
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 frozen or 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. Further,
the
maximum guaranteed temperature hold time of our 5 liter shipper is 16 days
which
is quoted under perfect and ideal conditions when in a "static" (i.e.
stationary) condition only. The functional (in shipping use) hold time of this
same 5 liter shipper is 10 days. Functional hold times are intended to be an
indication only of how many days a shipper can be expected
to hold its temperature when subjected to normal shipping
usage.
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 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.
Page
19
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).
Research
and Development:
The
Company’s principal research and development activities for the years 2005 and
2006 continued to center around the investigation of materials of construction
for the products and packages with the view of identifying those materials
that
yield fabrication costs consistent with the concept of disposability. Prototypes
of one version of a unit dose transport system were developed and preliminary
designs of a second concept were completed. Other research and development
effort was directed toward improvements to the liquid nitrogen retention system
to render it more reliable in the general shipping environment. The Company’s
research and development expenditures during the fiscal years ended March 31,
2006 and 2005 were $254,487 and $98,698, respectively.
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 alternate sources of supply and the establishment
of
additional or replacement suppliers may not be accomplished immediately,
however, the Company has identified alternate qualified suppliers which the
Company believes could replace existing suppliers. Should this occur, the
Company believes the maximum disruption of production could be a short period
of
time, on the order of approximately four to six weeks. The Company anticipates
that this will initially be the case with the outer shell the Company is
developing for its disposable shipper.
Page
20
Primary
manufacturers include Spaulding Composites Company, Peterson Spinning and
Stamping, Lydall Industrial Thermal Solutions, Ludwig, Inc., and Porex Porous
Products Group. There are no specific agreements with any manufacturer nor
are
there any long term commitments to any. It is believed that any of the currently
used manufacturers could be replaced within a short period of time as none
have
a proprietary component nor a substantial capital investment specific to the
Company’s products.
The
Company’s manufacturing process uses non-hazardous cleaning solutions which are
provided and disposed of by an EPA approved supplier. EPA compliance costs
for
the company are therefore negligible.
Patents:
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
technology covered by the above indicated patents refer to matters specific
to
the use of liquid nitrogen dewars relative to the shipment of biological
materials. The concepts include those of disposability, package configuration
details, liquid nitrogen retention systems, systems related to thermal
performance, systems related to packaging integrity, and matters generally
relevant to the containment of liquid nitrogen. Similarly, the trademarks
mentioned relate to the cryogenic temperature shipping activity. Patents and
trademarks currently held by the Company include:
|
Type:
|
No.
|
Issued
|
Expiration
|
|||||||
|
Patent
|
6,467,642
|
Oct.
22, 2002
|
Oct.
21, 2022
|
|||||||
|
Patent
|
6,119,465
|
Sep.
19, 2000
|
Sep.
18, 2020
|
|||||||
|
Patent
|
6,539,726
|
Apr.
1, 2003
|
Mar
31, 2023
|
|||||||
|
Trademark
|
7,583,478,7
|
Oct.
29, 1999
|
Oct.
28, 2009
|
|||||||
|
Trademark
|
7,586,797,8
|
Dec.
8, 1999
|
Dec.
7, 2009
|
|||||||
Page
21
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 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 it 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.
Page
22
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 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.
Concern
that the Company will continue as a going concern.
There
is uncertainty that the Company will continue as a going concern. The Company
has a history of operating losses, has substantial outstanding indebtedness
that
the Company may be unable to repay or convert to equity and will need to
carefully manage its liquidity. 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.
The
Company’s consolidated financial statements report recurring losses and an
accumulated deficit. For the years ended March 31, 2006 and 2005, the Company
incurred net losses of $1,522,101 and $1,038,110, respectively, and its
operations have used $1,155,962 and $1,018,116 of cash, respectively. As of
March 31, 2006 and 2005, the Company had accumulated deficit balances of
$7,038,891 and $5,516,790, respectively
Page
23
At
March
31, 2006, the Company had approximately $1,747,686 of outstanding indebtedness
in the form of short-term and long-term promissory notes and accrued interest.
Of such amount, $1,678,686 is long-term debt and an additional $69,000 is
considered short-term debt. Included in this indebtedness are notes representing
an aggregate of $1,259,500 in principal amount of outstanding indebtedness
owed
to four former directors and principal shareholders and $110,000 in principal
amount to R. Takahashi, a CryoPort Inc. shareholder. These notes represent
working capital advances made to the Company, for which the 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. Any funds applied to repay the Company’s 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.
Based
on
presently known commitments and plans the Company expects to fund its operations
through the first quarter of 2007 mainly from cash from the following sources:
short term debt financing, proceeds from issuances of common stock, operating
cash received on accounts receivable, and cash on hand. The Company management
is currently focused on raising cash to fund the sales and marketing and
manufacturing process development activities to launch the one-way product
line
as well as funding continued operations through long term debt or equity
financing, capital raises from the issuance of common stock, and equipment
lease
financing sources.
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. If the Company is unable to generate
a
sufficient amount of sales of its products to fund its operations and repay
its
outstanding indebtedness, the Company will need to seek alternative funding
sources.
The
Company also expects to incur additional costs towards expansion of its
manufacturing processes, sales and marketing, research and development and
administrative functions related to the one-way shipper product line. The
Company may also need additional funding for possible strategic acquisitions
of
synergistic businesses, products and/or technologies. If the Company is unable
to achieve sufficient long term debt or equity financing, and adequate operating
funds are not available, the Company may be required to defer or limit some
or
all of its manufacturing, sales and marketing, and/or research and development
projects, which would cause delay in the launch of the one-way product
line.
The
Company will need to seek alternative funding sources from private or public
placements of debt or equity, institutional or other lending sources, pursue
strategic partners, sell certain assets or change operating plans to accommodate
its liquidity issues. There is no assurance that the Company will be able to
obtain any additional funds on favorable terms. 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. Any sales of additional shares of the Company’s capital stock are
likely to dilute its existing shareholders. 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. The Company may also
be required to seek funding through licensing to others on products or
technologies that the Company otherwise would seek to commercialize
itself.
Page
24
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 generates 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. If adequate funds are not available, the Company
may be required to reduce capital expenditures and 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.
Potential
difficulties or unanticipated cost in establishing product in the
market.
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, 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.
Page
25
Failure
to compete effectively.
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 two significant competitors in the cryogenic shipping container
industry, Harsco Corporation and Chart Industries, Inc. 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 are well
established with greater financial resources. As a result, they may develop
products quicker or at lower costs, that may directly compete with the Company’s
future products.
In addition, these competitors may develop technologies that render the
Company’s 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.
Failure
to attract or retain skilled personnel.
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 expands its activities in product
development, and sales and manufacturing. The Company faces significant
competition for these types of persons from other companies. The ability to
attract personnel to the Company’s vision depends both on the availability of
skills and the ability of the Company to offer compensation and challenge
compatible to career goals of potentially available individuals. The Company
believes that the growth factors in the target markets are sufficient to attract
the interest of well-qualified candidates for all positions as the need arises.
To date, the Company has not experienced difficulties in attracting or retaining
qualified personnel, however, there is no guarantee that there will be
well-qualified candidates in the future to choose from. Consequently, if the
Company is unable to attract and retain skilled personnel, the Company will
not
be able to expand its business.
Page
26
Patents,
trade secrets, and proprietary rights of others.
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 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.
The
Company is not aware of any other company that is infringing any of the
Company’s patents or trademarks nor does the Company believe that it is
infringing on the patents or trademarks of any other person or
organization.
Page
27
Manufacturing
delays or interruptions in production.
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 which may cause delays in producing its products. 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. To date, the Company has not experienced any material delays
to
the point that its ability to adequately service customer needs has been
compromised. As the business develops and quantity of production increases,
it
becomes more likely that such problems could arise.
Limited
number of suppliers.
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. Suppliers that the
Company materially relies upon are Spaulding Composites Company and Lydall
Thermal Acoustical Sales.
Page
28
Potential
dilution of existing stockholders.
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, the Company’s auditors have issued a going concern
opinion.
Liquidity
of Company common stock.
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
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.
Page
29
Sale
of Company shares may depress share price.
The
sale of substantial shares of the Company’s common stock may depress its stock
price.
As
of
June 12, 2006, the Company had 30,088,696 shares of common stock outstanding,
and the last reported sales price of its common stock on the PinkSheets was
$2.50 per share. The Company could also issue up to approximately 3,632,737
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
|
2,488,613
|
$
|
0.45
|
||||
|
Common
shares issuable upon exercise of outstanding warrants
|
1,144,124
|
$
|
0.79
|
||||
|
Total
|
3,632,737
|
$
|
0.56
|
||||
Accounting
for Stock Options.
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. 123(R), 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 records 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. 123(R)
requires the Company to adopt the new accounting method 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.
Page
30
|
ITEM
2.
|
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 per 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
3.
|
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
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
|
During
fiscal year ended March 31, 2006 and through June 12, 2006 no matters arose
which required submission to a vote of the Company’s security holders.
Page
31
PART
II
|
ITEM
5.
|
MARKET
PRICE FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
|
The
Company’s Form 10-SB became effective in February, 2006. Shares in common stock
have never traded on any securities exchange. As of June 12, 2006, the Company
has applied to permit its common stock to trade on the over-the-counter bulletin
board (OTCBB). There can be no assurance that an active public market for the
Company’s common stock will develop or be sustained.
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 Finance.yahoo.com, for the fiscal quarter ended March 31,
2006,
the quoted high and low price of the Company’s common stock were $6.05 and
$4.00, respectively. As of June 12, 2006, the quoted price of the Company’s
stock was $2.50.
Description
of Securities
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 $0.001 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
$0.001 per share. As of June 12, 2006, there were 30,088,696 shares of common
stock issued and outstanding shares held by 449 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 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.
Page
32
Preferred
Stock:
There
is
no preferred stock authorized.
Warrants:
As
of
June 12, 2006 there were outstanding warrants to purchase up to 847,458 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 $0.30 to $1.00 per share, with a weighted
average exercise price of $0.61 per share, and have expiration dates ranging
from June 16, 2006 to December 2010.
Stock
Options:
As
of
June 12, 2006, there were outstanding options to purchase up to a total of
2,488,613 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.
Page
33
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.
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”).
All securities sold by the Company were sold to individuals, trusts or others
as
accredited investors as defined under Regulation D under the Securities Act,
as
amended.
During
fiscal 2006, 142,000 shares of the Company’s common stock were sold to investors
at a price of $3.50 per share resulting in proceeds of $435,540 to the Company,
net of issuance costs of $61,460.
During
fiscal 2006, the Company issued 71,592 shares of common stock resulting from
cashless exercises of 82,134 warrants converted using an average market price
of
approximately $5.80 per share resulting in 10,621 warrants used for the cashless
conversion.
During
fiscal 2006, the Company issued 159,999 shares of common stock resulting from
exercises of warrants at an average exercise price of approximately $0.34 per
share resulting in proceeds of $55,000.
During
fiscal year 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.
During
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.
Page
34
The
following schedules list the sales of shares of common stock (excluding
exercises of warrants) and issuances of warrants and options during the fiscal
years ended 2006 and 2005.
|
Fiscal
2006
|
||||||||||||||||||||||
|
Common
Stock
|
Warrants
|
Options
|
||||||||||||||||||||
|
$
|
Shares
|
Avg
Price
|
Issued
|
Ex.
Price
|
Issued
|
Ex.
Price
|
||||||||||||||||
|
Qtr
1
|
$
|
-
|
-
|
$
|
3.50
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Qtr
2
|
273,000
|
78,000
|
$
|
3.50
|
-
|
-
|
-
|
-
|
||||||||||||||
|
Qtr
3
|
126,000
|
36,000
|
$
|
3.50
|
-
|
-
|
-
|
-
|
||||||||||||||
|
Qtr
4
|
98,000
|
28,000
|
$
|
3.50
|
-
|
-
|
-
|
-
|
||||||||||||||
|
$
|
497,000
|
142,000
|
-
|
-
|
||||||||||||||||||
|
Fiscal
2005
|
||||||||||||||||||||||
|
Common
Stock
|
Warrants
|
Options
|
||||||||||||||||||||
|
$
|
Shares
|
Avg
Price
|
Issued
|
Ex.
Price
|
Issued
|
Ex.
Price
|
||||||||||||||||
|
Qtr
1
|
$
|
141,000
|
235,000
|
$
|
0.60
|
318,333
|
$
|
0.30
|
150,000
|
$
|
0.80
|
|||||||||||
|
Qtr
2
|
174,343
|
4,358,575
|
$
|
0.04
|
-
|
-
|
643,613
|
$
|
0.04
|
|||||||||||||
|
Qtr
3
|
382,866
|
6,046,450
|
$
|
0.06
|
20,375
|
$
|
0.75
|
40,375
|
$
|
0.68
|
||||||||||||
|
Qtr
4
|
991,875
|
1,322,497
|
$
|
0.75
|
82,133
|
$
|
0.75
|
-
|
-
|
|||||||||||||
|
$
|
1,690,084
|
11,962,522
|
420,841
|
833,988
|
||||||||||||||||||
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.
Page
35
Other
Securities Activities:
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
connection with the Share Exchange Agreement with CryoPort Systems, Inc. in
March 2005 (see Note 1), the Company issued 1,000,000 shares to Mr. Dante
Panella, a majority stockholder, in exchange for Mr. Panella’s surrender of
1,354,891 shares of Cryoport Systems’ common stock.
In
August
2004, 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 Company’s consolidated balance
sheets at March 31, 2006 and 2005, to be paid 90 days subsequent to the Company
operating under a positive cash flow basis.
|
ITEM
6.
|
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, anticipated difficulties in penetrating the well established market
for
reusable cryogenic shippers, as well as a need for continuous redevelopment
of
the product line has allowed for 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. Until the beginning of the prior year, 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 of $991,875 was raised through a private placement offering of common
stock under Regulation D. These funds were raised to allow the Company to focus
on accelerating the development and launch of its one-way product line. 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 during the second quarter of fiscal year 2007. While
it
had been the Company’s plan to introduce the one-way shipper product line in
limited quantities to selective customers during the first quarter of calendar
year 2006, lack of adequate funding due to fund raising targets not being met,
has caused the Company to revise the estimates for the one-way shipper product
release and manufacturing as well as sales and marketing ramp-up timetables.
A
broad launch to the general market will follow after feedback from this
introductory distribution is received and customer demand is further understood.
A higher volume demand is expected to develop as pharmaceutical products
requiring cryogenic or frozen protection come to market.
Page
36
The
Company is currently discussing development of a shipper from the one-way
product line under confidentiality agreements for drug delivery with several
vaccine manufacturers. Although the Company has received and fulfilled purchase
orders from these vaccine manufacturers, the Company does not currently have
any
pending purchase orders. 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 sheets as of March 31, 2006 and 2005 and the related
consolidated statements of operations, cash flows and stockholders’ deficit for
the years ended March 31, 2006 and 2005, and the related notes (see Part II,
Item 7 - Financial Statements). This discussion contains forward-looking
statements, 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 Accounting Firm on
the
Company’s March 31, 2006 and 2005 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 possible 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.
Page
37
The
Company has not generated significant revenues from operations and has no
assurance of any future significant revenues. The Company incurred net losses
of
$1,522,101 and $1,038,110 for the years ended December 31, 2006 and 2005
respectively. In addition, at March 31, 2006 the Company’s accumulated deficit
was $7,038,891 and the Company had a negative working capital deficit of
$538,235. 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.
The
company anticipates that unless it is able to raise or generate proceeds of
at
least $3,000,000 within the next 12 months, although operations will continue,
it will be unable to fully execute its business plan, which will result in
it
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)
|
Continuing
to obtain additional capital through a private placement offering,
initiated in April 2006 of common stock under Regulation D. Management
anticipates that the proceeds from this offering will provide 2 to
6
months of operating capital.
|
|
2)
|
Obtain
immediate funds through short-term debt financing. Management anticipates
that the proceeds from this offering will provide 3 to 6 months of
operating capital.
|
| 3) |
Obtain
adequate funding for long term operations through debt or equity
financing. The Company management is currently focusing on raising
cash to
fund the sales and marketing and manufacturing process development
activities to launch the one-way product line as well as funding
continued
operations through long term debt or equity
financing.
|
Page
38
| 4) |
Continuing
to maintain minimal operating expenditures through stringent cost
containment measures. The Company’s largest expenses currently relate to
personnel and meeting the legal and reporting requirements of a public
company.
|
| 5) |
Utilizing
part-time consultants and asking employees to manage multiple roles
and
responsibilities whenever possible to keep operating costs
low.
|
| 6) |
Continuing
to require 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.
|
| 7) |
Cautiously
and gradually adding key sales, marketing, engineering, scientific
and
operating personnel only as available funds permit and as necessary
to
help launch the one-way product line and to expand the Company’s product
offerings in the cryogenic shipping markets, leading to additional
revenues and profits.
|
| 8) |
Adding
other expenses such as customer service, administrative and operations
staff only as available funds permit and commensurate with increased
sales
volumes and revenues.
|
| 9) |
Focusing
current research and development efforts only on the development
of
production processes and distribution methods for the newly developed
one-way shipper product line.
|
Research
and Development
Due
to
the ongoing nature of the research, the Company is unable to ascertain with
certainty the total estimated completion dates and costs associated with all
phases. 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, 2006 and
2005, research and development costs were $254,487 and $98,698, 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.
Liquidity
and Capital Reserves
As
of
March 31, 2006 the Company’s current liabilities of $764,855 exceeded current
assets of $226,620 by $538,235. Approximately 39% 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
39
Total
assets decreased to $293,505 at March 31, 2006 from $1,080,428 at March 31,
2005
as a result of funds used in operating activities partially offset by cash
received from the sale of common stock.
The
Company’s total outstanding indebtedness increased to $2,443,541 at March 31,
2006 from $2,260,463 at March 31, 2005 primarily from the increases in accrued
interest on notes payable, accounts payable and accrued salaries which were
partially offset by a decrease in warranty costs related to the decreased sales.
As of March 31, 2006, the Company owed $59,440 of remaining principal to Falk,
Shaff & Ziebell, LLP based on an unsecured interest bearing note at 5%
compound interest which originated from a March 2002 note payable related to
conversion of outstanding legal bills. The original maturity date of this note
was December 31, 2002, however, the terms of this note were subsequently amended
in May 2004 to lower the monthly payments and eliminate the interest, as a
result of the Company’s financial situation and inability to meet the original
terms of the note.
The
remaining notes payable balance is comprised of unsecured indebtedness owed
to
five related parties including former board of directors members 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
principal payments beginning April 2006 of $2,500 monthly and increasing by
$2,500 every six months to a maximum of $10,000. Any remaining unpaid principal
and accrued interest is due at maturity on various dates from February 2008
through June 2011.
Notes
Payable:
|
Lender
|
Origination
Date
|
Maturity
Date
|
Principal
Bal. Mar. 31, 2006
|
Interest
Rate
|
||||
|
|
|
|
|
|
||||
|
Patrick
Mullens
|
Aug.
2001
|
Jun.
2011
|
$386,500
|
6%
|
||||
|
Marc
Grossman
|
Feb.
2001
|
Sep.
2011
|
$330,000
|
6%
|
||||
|
David
Petreccia
|
Apr.
2001
|
Mar.
2011
|
$287,000
|
6%
|
||||
|
Jeffrey
Dell
|
Aug.
2001
|
Nov.
2009
|
$256,000
|
6%
|
||||
|
Raymond
Takahashi
|
Jun.
2003
|
Feb.
2008
|
$110,000
|
6%
|
||||
|
Falk,
Shaff & Ziebell
|
Mar.
2002
|
Jun.
2008
|
$59,440
|
n/a
|
The
Company has incurred negative cash flows from operations of $1,155,962 for
the
year ended March 31, 2006 due to decreased sales of the Company’s reusable
product group resulting from the Company’s shift in its sales and marketing
focus during the third fiscal quarter to the introduction of the one-way shipper
and to the increased costs of research and development of the one-way shipper.
These negative cash flows from operations plus capital expenditures of $42,050
for the year ended March 31, 2006 have been financed through proceeds from
funds
raised by issuance of common stock. Net proceeds from issuances of common stock
were $435,540 for the year ended March 31, 2006. Proceeds from exercise of
warrants were $55,000 for the year ended March 31, 2006. There was no increase
in notes payable principal balances during the year ended March 31, 2006.
Page
40
The
Company’s cash balance as of March 31, 2006 was $4,723. Based on presently known
commitments and plans the Company expects to fund its operations through the
first quarter of 2007 mainly from cash from the following sources: short term
debt financing, proceeds from issuances of common stock, operating cash received
on accounts receivable, and cash on hand. The Company management is currently
focused on raising cash to fund the sales and marketing and manufacturing
process development activities to launch the one-way product line as well as
funding continued operations through long term debt or equity financing, capital
raises from the issuance of common stock, and equipment lease financing sources.
The
Company does not expect to incur any material capital expenditures until
adequate long term funding is obtained for the launch of the one-way product
or
sales volumes increase substantially. Future capital expenditures for
manufacturing equipment for the launch of the one-way product are expected
to be
funded out of lease financing.
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 its 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, however, in the past the estimates and assumptions have been
materially accurate and have not required any significant changes. Specific
sensitivity of each of the estimates and assumptions to change based on other
outcomes that are reasonably likely to occur and would have a material effect
is
identified individually in each of the discussions of the critical accounting
policies described below. Should the Company experience significant changes
in
the estimates or assumptions which would cause a material change to the amounts
used in the preparation of the Company’s financial statements, material
quantitative information will be made available to investors as soon as it
is
reasonably available.
Page
41
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. Such costs of
allowance for doubtful accounts is subject to estimates based on the historical
actual costs of bad debt experienced, total accounts receivable amounts, age
of
accounts receivable and any knowledge of the customers’ ability or inability to
pay outstanding balances. 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. Inventory reserve costs are subject to estimates
made by the company based on historical experience, inventory quantities, age
of
inventory and any known expectations for product changes. If actual future
demands, future pricing or market conditions are less favorable than those
projected by management, additional inventory write-downs may be required and
the differences could be material. Such differences might significantly impact
cash flows from operating activities. Once established, write-downs are
considered permanent adjustments to the cost basis of the obsolete or
unmarketable inventories.
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. If the Company’s patents and trademarks are challenged, current values
could become impaired. Currently the Company is not aware of any existing
infringements or other such challenges to its patents or trademarks that would
cause possible impairment to their values.
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.
Page
42
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. Manufacturing fixed assets are subject to
obsolescence potential as result of changes in customer demands, manufacturing
process changes and changes in materials used. The Company is not currently
aware of any such changes that would cause impairment to the value of its
manufacturing fixed assets.
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. These estimated costs are subject to estimates made by the Company
based on the historical actual warranty costs, number of products returned
for
warranty repair and length of warranty coverage.
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. Products are
generally sold with right of warranty repair for a one year period but with
no
right of return. Estimated costs of warranty repairs are recorded as accrued
warranty costs as described above. Products shipped to customers for speculation
purposes are not considered sold and no revenue is recorded by the Company
until
sales acceptance is acknowledged by the customer.
Results
of Operations - Year Ended March 31, 2006
Net
Sales. During
the year ended March 31, 2006 the Company generated $152,298 from reusable
shipper sales compared to revenues of $271,429 during the year ended March
31,
2005, a decrease of $119,131 (43.9%). This revenue decrease is primarily due
to
the Company’s shift in its sales and marketing focus during the last two
quarters to the introduction of the one-way shipper into the biotech industry
sector and the delays experienced in the planned final development and launch
of
the one-way shipper as a result of the funding targets not being met as.
Additionally, product manufacturing upgrades slowed production activities of
the
reusable shippers.
Cost
of Sales. Cost
of
sales for the year ended March 31, 2006 decreased $184,000 (36.8%) to $315,650
from $499,650 for the year ended March 31, 2005 as the result of increased
production overhead efficiencies as a result of the Company’s cost containment
efforts. During both periods, cost of sales exceeded sales due to fixed
manufacturing costs and plant underutilization.
Page
43
Gross
Loss. Gross
loss for the year ended March 31, 2006 decreased by $64,869 (28.4%) to $163,352
compared to $228,221 for the year ended March 31, 2005. The decrease in the
gross loss is due to increased production overhead efficiencies as a result
of
the Company’s cost containment efforts.
Selling,
General and Administrative Expenses. Selling,
general and administrative expenses increased by $400,291 (64.3%) to $1,023,088
for the year ended March 31, 2006 as compared to $622,797 for the year ended
March 31, 2005 due mainly to: (i) increased sales and marketing costs by
$185,499 related to increased trade shows, travel and consultant expenses
related to market research of the one-way product line, and; (ii) increased
general and administrative costs by $214,792 related to increased regulatory
compliance costs including additional legal and accounting fees related to
the
share exchange agreement and public filings.
Research
and Development Expenses. Research
and development expenses increased by $155,789 (158%) to $254,487 for the year
ended March 31, 2006 as compared to $98,698 for the year ended March 31, 2005
related to the significant increase in the development activity including the
prototype development of the one-way product line.
Interest
Expense. Interest
expense decreased by $5,391 (6.0%) to $80,377 for the year ended March 31,
2006
as compared to $85,768 for the year ended March 31, 2005 as the result of the
payback of a portion of the related party notes payable in March
2005.
Net
Loss. As
a
result of the factors described above, the net loss for the year ended March
31,
2006 increased by $483,991 (46.6%) to $1,522,101 or ($0.05) per share compared
to $1,038,110 or ($0.06) per share for the year ended March 31,
2005.
Forward
Looking Statements
This
Report on Form 10-KSB contains forward-looking statements.
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.
44
ITEM
7. FINANCIAL STATEMENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors of
CryoPort,
Inc.
We
have
audited the accompanying consolidated balance sheets of CryoPort, Inc.
(the
“Company”) as of March 31, 2006 and 2005, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the
years
then ended. These consolidated financial statements are the responsibility
of
the Company's management. Our responsibility is to express an opinion on
these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An
audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of
internal
control over financial reporting as a basis for designing audit procedures
that
are appropriate in the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
assessing the accounting principles used and significant estimates made
by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of CryoPort, Inc. at March
31,
2006 and 2005, and the results of its operations and its cash flows for
the
years then ended in conformity with accounting principles generally accepted
in
the United States of America.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has incurred recurring
losses, and has a stockholders' deficit of $2,150,036 and negative working
capital of $538,235 at March 31, 2006. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described
in Note 1. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset
carrying
amounts or the amount and classification of liabilities that might result
should
the Company be unable to continue as a going concern.
Corbin
& Company, LLP
Irvine,
California
June
17,
2006
Page
F-1
CRYOPORT,
INC.
CONSOLIDATED
BALANCE SHEETS
|
March
31,
|
|||||||
|
2006
|
|
2005
|
|||||
|
ASSETS
|
|||||||
|
Current
assets:
|
|||||||
|
Cash
|
$
|
4,723
|
$
|
720,195
|
|||
|
Accounts
receivable, net
|
22,306
|
44,547
|
|||||
|
Inventories
|
190,321
|
150,980
|
|||||
|
Prepaid
expenses and other current assets
|
9,270
|
51,118
|
|||||
|
Total
current assets
|
226,620
|
966,840
|
|||||
|
Fixed
assets, net
|
57,520
|
96,940
|
|||||
|
Intangible
assets, net
|
9,365
|
16,648
|
|||||
|
$
|
293,505
|
$
|
1,080,428
|
||||
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable
|
$
|
223,070
|
$
|
162,985
|
|||
|
Accrued
expenses
|
112,061
|
104,040
|
|||||
|
Accrued
warranty costs
|
59,532
|
70,500
|
|||||
|
Accrued
salaries
|
301,192
|
246,431
|
|||||
|
Current
portion of related party notes payable
|
45,000
|
-
|
|||||
|
Current
portion of note payable
|
24,000
|
24,000
|
|||||
|
Total
current liabilities
|
764,855
|
607,956
|
|||||
|
Related
party notes and accrued interest payable,
|
|||||||
|
net
of current portion
|
1,643,246
|
1,609,067
|
|||||
|
Note
payable, net of current portion
|
35,440
|
43,440
|
|||||
|
Total
liabilities
|
2,443,541
|
2,260,463
|
|||||
|
Commitments
and contingencies
|
|||||||
|
Stockholders’
deficit:
|
|||||||
|
Common
stock, $0.001 par value; 100,000,000 shares
|
|||||||
|
authorized;
30,081,696 (2006) and 29,708,105 (2005)
|
|||||||
|
shares
issued and outstanding
|
30,082
|
29,708
|
|||||
|
Additional
paid-in capital
|
4,858,773
|
4,307,047
|
|||||
|
Accumulated
deficit
|
(7,038,891
|
)
|
(5,516,790
|
)
|
|||
|
Total
stockholders’ deficit
|
(2,150,036
|
)
|
(1,180,035
|
)
|
|||
|
|
$
|
293,505
|
$
|
1,080,428
|
|||
See
Report of Independent Registered Public Accounting Firm and Accompanying
Notes
to Consolidated Financial Statements.
Page
F-2
CRYOPORT,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
For
The Years Ended March 31,
|
|||||||
|
2006
|
|
2005
|
|||||
|
Net
sales
|
$
|
152,298
|
$
|
271,429
|
|||
|
Cost
of sales
|
315,650
|
499,650
|
|||||
|
Gross
loss
|
(163,352
|
)
|
(228,221
|
)
|
|||
|
Operating
expenses:
|
|||||||
|
Selling,
general and administrative expenses
|
1,023,088
|
622,797
|
|||||
|
Research
and development expenses
|
254,487
|
98,698
|
|||||
|
Total
operating expenses
|
1,277,572
|
721,495
|
|||||
|
|
|||||||
|
Loss
from operations
|
(1,440,924
|
)
|
(949,716
|
)
|
|||
|
Other
expense:
|
|||||||
|
Interest
expense
|
(80,377
|
)
|
(85,768
|
)
|
|||
|
Loss
on disposal of assets
|
-
|
(1,826
|
)
|
||||
|
Total
other expense
|
(80,377
|
)
|
(87,594
|
)
|
|||
|
Loss
before income taxes
|
(1,521,301
|
)
|
(1,037,310
|
)
|
|||
|
Income
taxes
|
800
|
800
|
|||||
|
Net
loss
|
$
|
(1,522,101
|
)
|
$
|
(1,038,110
|
)
|
|
|
Net
loss available to common stockholders per common share:
|
|||||||
|
Basic
and diluted loss per common share
|
$
|
(0.05
|
)
|
$
|
(0.06
|
)
|
|
|
Basic
and diluted weighted average common shares outstanding
|
29,888,702
|
17,907,557
|
|||||
See
Report of Independent Registered Public Accounting Firm and Accompanying
Notes
to Consolidated Financial Statements.
Page
F-3
CRYOPORT,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
|
Common
Stock
|
|
Additional
Paid-in
|
|
Accumulated
|
|
Total
Stockholders’
|
|
|||||||||
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Deficit
|
||||||
|
Balance,
April 1, 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
|
)
|
-
|
-
|
||||||||||
|
Fair
value of 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
|
)
|
|||||||||
|
Issuance
of common stock for cash, net of issuance costs of $61,460
|
142,000
|
142
|
435,398
|
-
|
435,540
|
|||||||||||
|
Exercise
of warrants for cash
|
159,999
|
160
|
54,840
|
-
|
55,000
|
|||||||||||
|
Exercise
of cashless warrants
|
71,592
|
72
|
(72
|
)
|
-
|
-
|
||||||||||
|
Fair
value of stock options issued to consultants
|
-
|
-
|
61,560
|
-
|
61,560
|
|||||||||||
|
Net
loss
|
-
|
-
|
-
|
(1,522,101
|
)
|
(1,522,101
|
)
|
|||||||||
|
Balance,
March 31, 2006
|
30,081,696
|
$
|
30,082
|
$
|
4,858,773
|
$
|
(7,038,891
|
)
|
$
|
(2,150,036
|
)
|
|||||
See
Report of Independent Registered Public Accounting Firm and Accompanying
Notes
to Consolidated Financial Statements.
Page
F-4
CRYOPORT,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
For
The Years Ended March 31,
|
|||||||
|
2006
|
2005
|
||||||
|
Cash
flows from operating activities:
|
|||||||
|
Net
loss
|
$
|
(1,522,101
|
)
|
$
|
(1,038,110
|
)
|
|
|
Adjustments
to reconcile net loss to net cash used
in operating activities:
|
|||||||
|
Depreciation
and amortization
|
88,753
|
92,596
|
|||||
|
Loss
on disposal of assets
|
-
|
1,826
|
|||||
|
Provision
for doubtful accounts
|
48,610
|
-
|
|||||
|
Fair
value of stock options issued to consultants
|
61,560
|
62,577
|
|||||
|
Fair
value of common stock issued in connection with a legal
settlement
|
-
|
10,617
|
|||||
|
Changes
in operating assets and liabilities:
|
|||||||
|
Accounts
receivable, net
|
(26,369
|
)
|
(32,163
|
)
|
|||
|
Inventories
|
(39,341
|
)
|
(97,863
|
)
|
|||
|
Prepaid
expenses and other current assets
|
41,848
|
(43,942
|
)
|
||||
|
Accounts
payable
|
60,085
|
(131,429
|
)
|
||||
|
Accrued
expenses
|
8,021
|
12,258
|
|||||
|
Accrued
warranty costs
|
(10,968
|
)
|
38,625
|
||||
|
Accrued
salaries
|
54,761
|
24,428
|
|||||
|
Accrued
interest
|
79,179
|
82,464
|
|||||
|
Net
cash used in operating activities
|
(1,155,962
|
)
|
(1,018,116
|
)
|
|||
|
Cash
flows used in investing activities:
|
|||||||
|
Purchases
of fixed assets
|
(42,050
|
)
|
(14,879
|
)
|
|||
|
Cash
flows from financing activities:
|
|||||||
|
Proceeds
from borrowings under notes payable
|
-
|
190,000
|
|||||
|
Repayments
of notes payable
|
(8,000
|
)
|
(52,864
|
)
|
|||
|
Proceeds
from issuance of common stock, net
|
435,540
|
1,609,971
|
|||||
|
Proceeds
from exercise of warrants
|
55,000
|
-
|
|||||
|
Net
cash provided by financing activities
|
482,540
|
1,747,107
|
|||||
|
Net
change in cash
|
(715,472
|
)
|
714,112
|
||||
|
Cash,
beginning of year
|
720,195
|
6,083
|
|||||
|
Cash,
end of year
|
$
|
4,723
|
$
|
720,195
|
|||
|
Supplemental
disclosure of cash flow information:
|
|||||||
|
Cash
paid during the year for:
|
|||||||
|
Interest
|
$
|
1,198
|
$
|
3,304
|
|||
|
Income
taxes
|
$
|
800
|
$
|
800
|
|||
See
Report of Independent Registered Public Accounting Firm and Accompanying
Notes
to Consolidated Financial Statements.
Page
F-5
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
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 represented 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. 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 net losses of $1,522,101 and
$1,038,110 during the years ended March 31, 2006 and 2005, respectively.
The
Company has a cash balance of $4,723 at March 31, 2006. In addition, at
March
31, 2006, the Company’s stockholders’ deficit was $2,150,036 and its negative
working capital of $538,235. 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
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.
Page
F-6
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
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.
Page
F-7
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
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, 2006 and 2005, the Company had cash balances
of $0
and $582,538, respectively, 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, 2006
and
2005 are net of reserves for doubtful accounts and sales returns of
approximately $54,000 and $5,000 respectively. 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 2006 and 2005, the Company had foreign sales of
approximately $55,206 and $53,500, respectively, which constituted approximately
36% and 20% of net sales, respectively.
The
majority of the Company’s customers are in the bio-pharmaceutical 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, 2006
and
2005. The fair value of the related party notes payable is not determinable
as
the transactions were with related parties.
Page
F-8
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
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.
Page
F-9
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
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, 2006 and 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 during the years
ended
March 31:
|
2006
|
2005
|
||||||
|
Beginning
warranty accrual
|
$
|
70,500
|
$
|
31,875
|
|||
|
Increase
in accrual (charged to cost of sales)
|
13,484
|
65,625
|
|||||
|
Charges
to accrual (product replacements)
|
(24,452
|
)
|
(27,000
|
)
|
|||
|
Ending
warranty accrual
|
$
|
59,532
|
$
|
70,500
|
|||
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.
Page
F-10
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
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. During 2006
and 2005,
the Company expensed $71,525 and $13,227, 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 loss
and loss per share, as if the fair value method of accounting defined in
SFAS
No. 123 had been applied.
Page
F-11
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
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 during the years ended March 31, 2006 and 2005 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,
|
|||||||
|
2006
|
2005
|
||||||
|
Net
loss as reported
|
$
|
(1,522,101
|
)
|
$
|
(1,038,110
|
)
|
|
|
Deduct:
|
|||||||
|
Total
stock-based employee compensation under fair value based method
for all
awards, net of related tax effects
|
(86,106
|
)
|
(123,327
|
)
|
|||
|
Pro
forma net loss
|
$
|
(1,608,207
|
)
|
$
|
(1,161,437
|
)
|
|
|
Basic
and diluted loss per share –
as
reported
|
$
|
(0.05
|
)
|
$
|
(0.06
|
)
|
|
|
Basic
and diluted loss per share –
pro
forma
|
$
|
(0.05
|
)
|
$
|
(0.07
|
)
|
|
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.
Page
F-12
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
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 during 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 stock options and warrants
would have resulted in an increase of 2,915,972 and 1,288,173 incremental
shares
for the years ended March 31, 2006 and 2005.
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:
|
2006
|
|
2005
|
|||||
|
Numerator
for basic and diluted loss per share:
|
|||||||
|
Net
loss available to common stockholders
|
$
|
(1,522,101
|
)
|
$
|
(1,038,110
|
)
|
|
|
Denominator
for basic and diluted loss per common share:
|
|||||||
|
Weighted
average common shares outstanding
|
29,888,702
|
17,907,557
|
|||||
|
Net
loss per common share available to common stockholders
|
$
|
(0.05
|
)
|
$
|
(0.06
|
)
|
|
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
F-13
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
In
December 2004, the FASB issued SFAS No. 123 (revised 2004),
Share-Based
Payment (“SFAS
123(R)”), which is a revision of SFAS No. 123. SFAS 123(R) supersedes APB 25,
and amends SFAS No. 95, Statement
of Cash Flows.
Generally, the approach in SFAS 123(R) is similar to the approach described
in SFAS No. 123. However, SFAS 123(R) requires all share-based payments
to
employees, including grants of employee stock options, to be recognized
in the
income statement based on their fair values. Pro forma disclosure is no
longer
an alternative. The provisions of this statement are effective for the
Company
as of April 1, 2006. The Company expects to adopt SFAS 123(R) in the first
fiscal quarter of fiscal year 2007.
SFAS
123(R) requires companies to recognize in the income statement the grant-date
fair value of stock options and other equity-based compensation issued
to
employees. SFAS 123(R) also establishes accounting requirements for measuring,
recognizing and reporting share-based compensation, including income tax
considerations. Upon adoption of SFAS 123(R), the Company will be required
to
determine the transition method to be used at the date of adoption. The
allowed
transition methods are the modified prospective application and the modified
retrospective application. Under the modified prospective application,
the cost
of new awards and awards modified, repurchased or cancelled after the required
effective date and the portion of awards for which the requisite service
has not
been rendered (unvested awards) that are outstanding as of the required
effective date will be recognized as the requisite service is rendered
on or
after the required effective date. The compensation cost for that portion
of
awards shall be based on the grant-date fair value of those awards as calculated
for either recognition or pro forma disclosures under SFAS 123. The modified
retrospective application requires companies to record compensation expense
for
all unvested stock options and restricted stock beginning with the first
disclosed period restated. The Company plans to adopt SFAS 123(R) using
the
modified prospective application.
As
permitted by SFAS No. 123, the Company currently accounts for share-based
payments to employees using APB 25’s intrinsic value method and, as such,
recognizes no compensation cost for employee stock options. Accordingly,
the
adoption of SFAS 123(R)’s fair value method will have a negative impact on the
Company’s results of operations, although it will have no impact on its overall
financial position. The impact of adopting SFAS 123(R) cannot be predicted
at
this time because it will depend on levels of share-based payments granted
in
the future. However, had the Company adopted SFAS 123(R) in prior periods,
the
impact of that standard would have approximated the impact of SFAS No.
123 as
described in the disclosure of pro forma net loss and loss per share in
Note 1
to the Company’s financial statements. SFAS 123(R) also requires the benefits of
tax deductions in excess of recognized compensation cost to be reported
as a
financing cash flow, rather than as an operating cash flow as required
under
current accounting literature. The requirement will reduce net operating
cash
flows and increase net financing cash flows in periods of adoption.
Page
F-14
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
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.
In
June 2005, the FASB issued SFAS No. 154, Accounting
Changes and Error Corrections,
a
replacement of APB Opinion No. 20, Accounting
Changes,
and
Statement No. 3, Reporting
Accounting Changes in Interim Financial Statements.
SFAS
No. 154 changes the requirements for the accounting for and reporting of
a
change in accounting principle. Previously, most voluntary changes in accounting
principles were required recognition via a cumulative effect adjustment
within
net income of the period of the change. SFAS No. 154 requires retrospective
application to prior periods’ financial statements, unless it is impracticable
to determine either the period-specific effects or the cumulative effect
of the
change. SFAS No. 154 is effective for accounting changes made in fiscal
years beginning after December 15th, 2005; however, SFAS No. 154 does
not change the transition provisions of any existing accounting pronouncements.
The adoption of SFAS No. 154 is not expected have a material effect on the
Company’s financial position, results of operations or cash flows.
NOTE
3 – INVENTORIES
Inventories
at March 31, 2006 and 2005 consists of the following:
|
2006
|
2005
|
||||||
|
Raw
materials
|
$
|
106,950
|
$
|
111,538
|
|||
|
Work
in process
|
57,790
|
21,582
|
|||||
|
Finished
goods
|
25,581
|
17,860
|
|||||
|
$
|
190,321
|
$
|
150,980
|
||||
Page
F-15
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
NOTE
4 – FIXED ASSETS
Fixed
assets consist of the following at March 31:
|
2006
|
|
2005
|
|||||
|
Furniture
and fixtures
|
$
|
22,982
|
$
|
18,768
|
|||
|
Machinery
and equipment
|
437,501
|
407,376
|
|||||
|
Leasehold
improvements
|
15,611
|
7,900
|
|||||
|
476,094
|
434,044
|
||||||
|
Less
accumulated depreciation and amortization
|
(418,574
|
)
|
(337,104
|
)
|
|||
|
$
|
57,520
|
$
|
96,940
|
||||
Depreciation
and amortization expense for fixed assets for the years ended March 31,
2006 and
2005 was $81,470 and $83,344, respectively.
NOTE
5 – INTANGIBLE ASSETS
Intangible
assets consist of the following at March 31:
|
2006
|
|
2005
|
|||||
|
Assets
subject to amortization:
|
|||||||
|
Patents
and trademarks
|
$
|
46,268
|
$
|
46,268
|
|||
|
Less
accumulated amortization
|
(36,903
|
)
|
(29,620
|
)
|
|||
|
$
|
9,365
|
$
|
16,648
|
||||
Amortization
expense for intangible assets for the years ended March 31, 2006 and 2005
was
$7,283 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,
|
||||
|
2007
|
$
|
4,683
|
||
|
2008
|
$
|
4,682
|
||
Page
F-16
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
NOTE
6 – INCOME TAXES
The
tax
effects of temporary differences that give rise to deferred taxes at
March 31, 2006 and 2005 are as follows:
|
2006
|
|
2005
|
|||||
|
Deferred
tax asset:
|
|||||||
|
Net
operating loss carryforward
|
$
|
2,593,000
|
$
|
2,150,000
|
|||
|
Accrued
expenses and reserves
|
85,000
|
235,000
|
|||||
|
Expenses
recognized for granting of options and warrants
|
81,000
|
56,000
|
|||||
|
Total
gross deferred tax asset
|
2,759,000
|
2,441,000
|
|||||
|
Less
valuation allowance
|
(2,759,000
|
)
|
(2,441,000
|
)
|
|||
| $ |
-
|
$
|
-
|
||||
The
valuation allowance increased during the years ended March 31, 2006 and
2005 by
approximately $318,000 and $441,000, respectively. No current provision
for
income taxes for the years ended March 31, 2006 and 2005 is required,
except for minimum state taxes, since the Company incurred taxable losses
during
such years.
The
provision for income taxes for both fiscal 2006 and 2005 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:
|
2006
|
|
2005
|
|||||
|
Computed
tax benefit at federal statutory rate
|
$
|
(518,000
|
)
|
$
|
(355,000
|
)
|
|
|
State
income tax benefit, net of federal effect
|
(90,000
|
)
|
(62,000
|
)
|
|||
|
Increase
in valuation allowance
|
318,000
|
441,000
|
|||||
|
Other
|
290,800
|
(23,200
|
)
|
||||
|
$
|
800
|
$
|
800
|
||||
As
of
March 31, 2006, the Company had net operating loss carry forwards of
approximately $6,500,000 and $6,500,000 for federal and state income tax
reporting purposes, respectively, which expire at various dates through
2026 and
2016, respectively.
Page
F-17
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
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 valuation
allowances equal to the net deferred tax asset amounts as of March 31,
2006 and
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. On April 1, 2005, the Company entered into
a
noncancelable operating lease requiring ten monthly payments of $7,500
and
expiring on April 1, 2007.
As
of
March 31, 2006, future minimum rental payments required under the existing
noncancelable operating lease are as follows:
|
Years
Ending
March
31,
|
Operating
Lease |
|||
|
2007
|
$
|
75,000
|
||
Total
rental expense was approximately $75,000
and $20,000
for the
years ended March 31, 2006 and 2005, 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.
Page
F-18
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
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 2004, 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 consolidated
balance sheets at March 31, 2006 and 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 statement 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 consolidated balance sheets.
NOTE
8 – NOTES PAYABLE
The
Company has an unsecured, non-interest bearing note payable to a third
party.
The Company is currently required to make monthly payments of $2,000 as
agreed
upon with the third party. As of March 31, 2006 and 2005, the remaining
unpaid
balance was $59,440 and $67,440, respectively.
As
of
March 31, 2006 and 2005, the Company had principal balances of $1,369,500
in
outstanding unsecured indebtedness owed to five related parties, including
four
former members of the board of directors representing working capital advances
made to the Company from February 2001 through March 2005. These notes
bear
interest at the rate of 6% per annum and provide for aggregate monthly
principal
payments beginning April 1, 2006 of $2,500, which increase by $2,500 every
six
months to a maximum of $10,000 per month. Any remaining unpaid principal
and
accrued interest is due at maturity on various dates through March 1, 2015.
Page
F-19
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
NOTE
8 – NOTES PAYABLE, continued
Related
party interest expense under these notes was $79,179 and $82,464 for the
years
ended March 31, 2006 and 2005, respectively. Accrued interest, which is
included
in notes payable in the accompanying balance sheet, related to these notes
amounted to $318,746 and $239,567 as of March 31, 2006 and 2005, respectively.
Subsequent to year end the Company failed to make the required payments
under
the notes. However, pursuant to the note agreements, the Company has a
120 day
grace period to pay missed payments before the notes are in default. Management
expects to pay all payments due prior to the expiration of the 120 day
grace
period.
Future
maturities of notes payable at March 31, 2006 are as follows:
|
Years
Ending
March
31,
|
Related
Party
|
Third
Party
|
Total
|
|||||||
|
2007
|
$
|
45,000
|
$
|
24,000
|
$
|
69,000.00
|
||||
|
2008
|
105,000
|
24,000
|
129,000.00
|
|||||||
|
2009
|
120,000
|
11,440
|
131,440.00
|
|||||||
|
2010
|
120,000
|
-
|
120,000.00
|
|||||||
|
2011
|
120,000
|
-
|
120,000.00
|
|||||||
|
Thereafter
|
859,500
|
-
|
859,500.00
|
|||||||
|
$
|
1,369,500
|
$
|
59,440
|
$
|
1,428,940.00
|
|||||
NOTE
9 – COMMON STOCK
During
fiscal 2006, the Company sold 142,000 shares of common stock at a price
of $3.50
per share resulting in gross proceeds of $497,000 net of offering costs
of
$61,460.
During
fiscal 2006, the Company issued 71,592 shares of common stock resulting
from
cashless exercises of 82,134 warrants converted using an average market
price of
approximately $5.80 per share resulting in 10,621 warrants used for the
cashless
conversion.
During
fiscal 2006, the Company issued 159,999 shares of common stock resulting
from
exercises of warrants at an average exercise price of $0.34 per share resulting
in proceeds of $55,000.
During
fiscal 2005, the Company sold 11,962,522 shares of common stock at prices
ranging from $0.04 to $0.75 resulting in gross proceeds of $1,609,971,
net of
offering costs of $80,113.
In
connection with the Share Exchange Agreement with CryoPort Systems, Inc.
in
March 2005 (see Note 1), the Company issued 1,000,000 shares to Mr. Dante
Panella, a majority stockholder, in exchange for Mr. Panella’s surrender of
1,354,891 shares of CryoPort Systems, Inc. common stock.
Page
F-20
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
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.
Under
the
terms of the 2002 Plan, the Company granted options to purchase 367,970
shares
of the Company’s common stock under incentive stock option agreements in 2005,
and granted options to purchase 466,018 shares of the Company’s common stock
under non-qualified stock option agreements in 2005. No incentive stock
options
or non-qualified stock options were granted during the year ended March
31,
2006. All options granted have an exercise price equal to the fair market
value
at the date of grant, vest upon grant or agreed upon vesting schedules
and
expire five years from the date of grant. Therefore, there was no compensation
expense recognized for options issued to employees during 2005. Pursuant
to SFAS
No. 123, total compensation expense recognized for options issued to consultants
in prior years was $61,560 and $62,577 during 2006 and 2005, respectively.
As of
March 31, 2006 and 2005, there were 2,488,613 and 2,508,988 options
outstanding respectively, at an average exercise price of $0.45 per share
under
the 2002 Plan. There were no stock options granted subsequent to March 31,
2006. The Company had 2,511,387 options available for grant under the 2002
Plan
at March 31, 2006.
The
following summarizes stock option activity for the years ended March 31,
2006 and 2005:
|
2006
|
2005
|
||||||||||||
|
|
Options
|
Weighted
Average Exercise Price
|
Options
|
Weighted
Average Exercise Price
|
|||||||||
|
Outstanding,
beginning of year
|
2,508,988
|
$
|
0.45
|
1,675,000
|
$
|
0.59
|
|||||||
|
Granted
|
-
|
-
|
833,988
|
0.17
|
|||||||||
|
Exercised
|
-
|
-
|
-
|
-
|
|||||||||
|
Expired/forfeited
|
(20,375
|
)
|
0.45
|
-
|
-
|
||||||||
|
Outstanding,
end of year
|
2,488,613
|
$
|
0.45
|
2,508,988
|
$
|
0.45
|
|||||||
|
Exercisable,
end of year
|
2,311,261
|
$
|
0.45
|
2,050,644
|
$
|
0.44
|
|||||||
|
Weighted
average fair value of options granted
|
|
$
|
-
|
$ |
0.08
|
||||||||
Page
F-21
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
NOTE
10 – STOCK OPTIONS, continued
The
following table summarizes information about stock options outstanding
and
exercisable at March 31, 2006:
|
Outstanding
|
Exercisable
|
|||||||||
|
Exercise
Price
|
Number
of Shares
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life (Years)
|
Number
of Shares
|
Weighted
Average Exercise Price
|
|||||
|
$1.00
|
225,000
|
$1.00
|
1.7
|
225,000
|
$1.00
|
|||||
|
$0.50-$0.60
|
1,620,000
|
$0.55
|
2.2
|
1,442,648
|
$0.55
|
|||||
|
$0.04
|
643,613
|
$0.04
|
3.3
|
643,613
|
$0.04
|
|||||
|
2,488,613
|
2,311,261
|
|||||||||
The
fair
value of each option granted during 2005 to employees and directors was
estimated using the Black-Scholes option-pricing model on the date of grant
using the following assumptions: (i) no dividend yield, (ii) average
volatility of 60%, (iii) weighted-average risk-free interest rate of
approximately 3.21%, 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
318,334
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
102,509 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. In June 2005, 82,133
warrants were exercised pursuant to a cashless exercise provision resulting
in
71,592 shares issued net of 10,621 warrants used at a market price of $5.80
per
share for the conversion.
Page
F-22
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
NOTE
11 – STOCK WARRANTS, continued
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 to consultants and other service
providers was estimated using the Black-Scholes option-pricing model on
the date
of grant using the following assumptions: (i) no dividend yield,
(ii) average volatility of 60%, (iii) weighted-average risk-free
interest rate of approximately 1.7% to 4.0%, and (iv) expected life of two
to three years, respectively.
The
following represents a summary of the warrant activity for the years ended
March 31, 2006 and 2005:
|
2006
|
2005
|
||||||||||||
|
Warrants
|
Weighted
Average Exercise Price
|
Warrants
|
Weighted
Average Exercise Price
|
||||||||||
|
Outstanding,
beginning of year
|
1,832,257
|
$
|
0.74
|
1,411,416
|
$
|
0.83
|
|||||||
|
Issued
|
-
|
-
|
420,841
|
0.41
|
|||||||||
|
Exercised
|
(242,133
|
)
|
0.10
|
-
|
-
|
||||||||
|
Expired/forfeited
|
|
(446,000
|
)
|
0.06
|
-
|
-
|
|||||||
|
Outstanding
and exercisable, end of year
|
1,144,124
|
$
|
0.79
|
1,832,257
|
$
|
0.74
|
|||||||
|
Weighted
average fair value of warrants granted
|
$
|
-
|
$
|
0.34
|
|||||||||
Page
F-23
CRYOPORT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
The Years Ended March 31, 2006 and 2005
NOTE
11 – STOCK WARRANTS, continued
The
following table summarizes information about warrants outstanding and
exercisable at March 31, 2006:
|
Exercise
Price
|
Number
of Warrants Outstanding and Exercisable
|
Weighted
Average Remaining Contractual Life (Years)
|
Weighted
Average Exercise Price
|
|||||||
|
$2.50
|
100,000
|
0.2
|
$
|
2.50
|
||||||
|
$0.80
- $1.00
|
143,750
|
1.3
|
$
|
0.87
|
||||||
|
$0.50
- $0.75
|
707,041
|
3.8
|
$
|
0.57
|
||||||
|
$0.30
|
193,334
|
0.1
|
$
|
0.30
|
||||||
|
1,144,125
|
||||||||||
NOTE
12 – RELATED PARTY TRANSACTIONS
In
June
2005, the Company retained the legal services of Gary C. Cannon, Attorney
at Law
for a monthly retainer fee of $6,500. At that same time, Mr. Cannon also
became
the Company’s Secretary and a member of the Company’s Board of Directors. The
total amount paid to Mr. Cannon for retainer fees and out-of-pocket expenses
for
the year ended March 31, 2006 was $64,624.
NOTE
13 – SUBSEQUENT EVENTS
In
April
2006, 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, in May 2006, 7,000 shares of the Company’s
common stock were sold to investors at a price of $1.50 per share for gross
proceeds of $9,135 to the Company, net of issuance costs of $1,365.
On
May
12, 2006, the Company arranged for short term financing of $175,000, pursuant
to
a Loan Agreement and related Secured Promissory Note with Ventana Group,
LLC.
Disbursements to the Company under the Note are based on achievement of
milestones reached towards finalizing a long term equity financing agreement.
As
of June 12, 2006, the Company has received $60,000 of funds under this
Note. The
Note is secured by machinery and equipment owned by the Company. Per the
terms
of the Note, interest on the unpaid principal balance of the Note are accrued
at
a monthly rate of 2% and is payable along with all outstanding principal
on
August 10, 2006.
Page
F-24
| ITEM 8. |
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
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.
ITEM
8A. CONTROLS
AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures.
The
Company’s Chief Executive Officer and Vice President of Finance carried out an
evaluation of the effectiveness and operation of the Company’s disclosure
controls and procedures. They have concluded after evaluating the effectiveness
of the Company’s disclosure controls and procedures as of March 31, 2006, that
as of that date, the Company’s disclosure controls and procedures were effective
and designed to ensure that material information relating to the Company would
be made known to them by others.
Changes
in Internal Controls.
There
have been no significant changes in the Company’s internal controls or in other
factors that could significantly affect those controls subsequent to the
evaluation date.
Page
69
PART
III
|
ITEM
9:
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION
16(a) OF THE EXCHANGE.
|
Directors
and Executive Officers
of the Registrant:
The
following table sets for the name and age of each director and executive
officer, the year first elected as a director and/or executive officer and
the
position(s) held with the Company:
|
Name
|
Age
|
Position
|
Date
Elected
|
|||
|
Peter
Berry
|
58
|
Chief
Executive Officer, President and Director
|
2003
|
|||
|
Dee
S. Kelly, CPA
|
44
|
Vice
President of Finance
|
2003
|
|||
|
Kenneth
G. Carlson
|
52
|
Vice
President of Sales and Marketing
|
2005
|
|||
|
Gary
C. Cannon
|
55
|
Secretary
and Director
|
2005
|
|||
|
Adam
M. Michelin
|
62
|
Director
|
2005
|
|||
|
Stephen
L. Scott
|
54
|
Director
|
2005
|
|||
|
Thomas
Fischer, PhD
|
59
|
Director
|
2005
|
Background
of Directors and Officers:
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 from 1996 to 2000 and
principal of a private consulting practice from 2001 to 2003. 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 for the Company in August 2003. Ms. Kelly was formerly
with Ernst & Young, LLP and has 22 years experience in public and private
accounting. She has held executive financial positions with international
bio-tech and medical device manufacturers. Ms. Kelly recently served as Vice
President, Controller for Equifax Financial Services, Inc. from 1995 to 2000.
Ms. Kelly joined the Company in 2003. Prior to joining the Company, Ms. Kelly
was Corporate Controller for MacGillivray Freeman Films from 2000 to 2001,
Corporate Controller for Masimo Corporation, a manufacturer of patient
monitoring devices from 2001 to 2002 and principal of a private consulting
practice since 2002.
Page
70
Kenneth
Carlson, MBA,
became
Vice President of Sales for the Company in August, 2005. Prior to joining the
Company, Mr. Carlson was Vice President, General Manager of Phoenix Life
Solutions, LLC, a marketer of defibrillators and emergency response
systems. From 2000 to 2003, Mr. Carlson was Vice President, Sales for
Falcon Waterfree Technologies, LLC, and from 1999 to 2000 he served as Vice
President, Sales for Titan Scan Corporation, a manufacturer of electron-beam
sterilization systems for medical products. Mr. Carlson has over 20 years
of experience in sales, marketing and senior management roles for medical device
and healthcare technology companies such as Johnson & Johnson and Zimmer,
Inc. His background has involved strategic planning for start-up and early
stage companies, including product introduction and distribution planning.
Mr.
Carlson received his Bachelor of Science degree from the University of Southern
California and his Masters of Business degree from Arizona State
University.
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 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.
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.
Page
71
Thomas
S. Fischer, PhD,
has
over 20-years experience as a healthcare executive with a special emphasis
on
using information, analytic tools and technology to solve problems and improve
operations. Currently retired, he consults in the healthcare sector. Dr. Fischer
previously served as Senior Vice President and Chief Administrative Officer
at
Blue Shield of California from 1997 to 1999, and as Senior Vice President,
Chief
Information Officer from 1994 to 1997. Prior to Blue Shield, he held senior
management positions with Kaiser Foundation Health Plan, Inc. for 12 years.
Dr.
Fischer obtained his Doctor of Philosophy in Mathematics from the University
of
Nebraska and his Bachelor of Science and Master of Science degrees from Portland
State University.
Stephen
L. Scott
is a
management and organizational consultant with over 20-years experience with
diverse manufacturing businesses, including a specific background with
developmental stage companies. Since 1996, Mr. Scott has been President of
Technology Acquisition Group, providing expertise in corporate growth planning,
strategic partner development, finance, operations, team building, product
opportunity identification, corporate re-engineering and mergers and
acquisitions. In addition to early stage and small companies, he has performed
projects with Fortune 1000 firms such as IBM, GE, AT&T, Bristol-Myers
Squibb, Warner-Lambert, Johnson & Johnson and Ayerst-Wyeth. Mr. Scott
received his Juris Doctorate and Masters of Business Administration degrees
from
National University and his Bachelor of Science degree from the University
of
Akron.
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;
|
| · |
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.
|
Page
72
Board
of Directors Meetings and Committees:
During
the fiscal year ended March 31, 2006, there were five meetings of the board
of
directors as well as several actions taken with the unanimous written consent
of
the directors. 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. Mr. Thomas, Mr. Scott and
Ms.
Kelly comprise the remaining audit committee members. The audit committee
reviews the qualifications of the independent auditors, our annual and interim
financial statements, the independent auditor’s report, significant reporting or
operating issues and corporate policies and procedures as they relate to
accounting and financial controls. The Board 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.
Section
16(a) Beneficial Ownership Reporting Compliance.
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our officers
and directors and those persons who beneficially own more than 10% of the
Company’s outstanding shares of common stock to file reports of securities
ownership and changes in such ownership with the Securities and Exchange
Commission. Officers, directors, and greater than 10% beneficial owners are
also
required by rules promulgated by the SEC to furnish us with copies of all
Section 16(a) forms they file.
Based
solely upon a review of the copies of such forms furnished to the Company,
we
believe that during the year ended March 31, 2006, all Section 16(a) filing
requirements applicable to our officers, directors and greater than 10%
beneficial owners were complied with.
Code
of Ethics for Principal Executive Officers and Senior Financial
Officers.
The
Company has adopted a Code of Ethics for Principal Executive Officers and Senior
Financial Officers.
ITEM
10. 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,
2006, 2005 and 2004, respectively by the Company’s Chief Executive, Vice
President of Finance and Vice President of Sales and Marketing.
Page
73
Summary
Compensation Table
|
|
Long-Term
Compensation
|
||||||||||||
|
Annual
Compensation(1)
|
Number
of
Shares
|
||||||||||||
|
Name
and Position
|
Fiscal
Year
|
Salary
|
Bonus
|
Underlying
Options
|
|||||||||
| Peter Berry |
2006
|
$
|
94,250
|
–
|
–
|
||||||||
|
CEO
and President
|
2005
|
$
|
90,915
|
$ | 100,000 | (2) |
367,970
|
||||||
|
2004
|
$
|
89,250
|
–
|
500,000 | |||||||||
|
Dee
S. Kelly
|
2006
|
$
|
81,000
|
n/a
|
–
|
||||||||
|
Vice
President, Finance
|
2005
|
$
|
60,000
|
n/a
|
36,752
|
||||||||
|
2004
|
$
|
28,300
|
n/a
|
75,000
|
|||||||||
|
Kenneth
G. Carlson
|
2006
|
$
|
49,000
|
n/a
|
–
|
||||||||
|
Vice
President, Sales
|
|||||||||||||
|
&
Marketing
|
|||||||||||||
| (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) |
Mr.
Berry’s bonus earned for fiscal year 2005 was approved for a total of
$100,000 to be paid in installments over the following periods; $65,000
during fiscal year 2007 and $35,000 during fiscal year 2008.
|
Option
Grants in Last Fiscal Year:
The
Company made no grants of options during the last fiscal year. The Company
has
never granted any restricted shares.
Aggregated
Option Exercises in last Fiscal Year and Fiscal Year-End Option
Values:
|
Shares
Acquired on Exercise
|
Value
Realized
|
Number
of Shares Underlying Unexercised Options at
March
31, 2006
|
Value
of Unexercised
In-the-Money
Options at
March
31, 2006
(1)
|
|||||||||||||||||||
|
Name
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
||||||||||||||||||
|
Peter
Berry
|
0
|
0
|
1,284,618
|
83,352
|
$
|
3,998,120
|
$
|
250,056
|
||||||||||||||
|
Dee
S. Kelly
|
0
|
0
|
97,752
|
14,000
|
$
|
304,062
|
$
|
40,600
|
||||||||||||||
(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, 2006, of $3.50 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.
Page
74
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 grants of stock
option or warrants.
Employment
Agreement:
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. Pursuant to the terms of the Agreement the
Company extended Mr. Berry’s employment agreement for a period of one year
through November 1, 2007, at a base salary of $96,000. On November 1, 2002,
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 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. Mr. Berry’s bonus earned for the third
year of the Agreement was approved for a total of $100,000 to be paid in
installments over the following periods; $65,000 during fiscal year 2007 and
$35,000 during fiscal year 2008.
Page
75
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.
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 does 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 June
12,
2006.
The
following table sets forth certain information as of March 31, 2006 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:
|
(a)
|
(b)
|
(c)
|
||||||||
|
Plan
Category
|
Number of Securities
to be Issued Upon the Exercise of Outstanding
Options
|
Weighted-Average
Exercise Price of Outstanding Options
|
Available
for Future Issuance Under Equity Compensation Plans (Excluding Securities
Reflected in Column (a))
|
|||||||
|
Equity
compensation plans approved by stockholders
|
2,488,613
|
$
|
0.45
|
2,511,387
|
||||||
|
Equity
compensation plans not approved by stockholders
|
N/A
|
N/A
|
N/A
|
|||||||
|
2,488,613
|
$
|
0.45
|
2,511,387
|
|||||||
Page
76
|
ITEM
11.
|
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 June 12, 2006, 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 June 12, 2006, there
were 30,088,696
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 March 31, 2006, 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
|
1,305,450
|
(1)
|
3.8
|
%
|
|||
|
Dee
S. Kelly
|
101,752
|
(1)
|
0.3
|
%
|
|||
|
Kenneth
G. Carlson
|
0
|
0.0
|
%
|
||||
|
Adam
M. Michelin
|
0
|
0.0
|
%
|
||||
| Gary C. Cannon |
0
|
0.0 |
%
|
||||
| Stephen L. Scott |
0
|
0.0 |
%
|
||||
|
Thomas
S. Fischer, PhD
|
0
|
0.0 |
%
|
||||
|
All
directors and named executive officers as a group (6
persons)
|
1,407,202
|
4.1
|
%
|
||||
|
Beneficial
Owner
|
Number
of Shares
Beneficially Owned |
Percentage
of Shares Beneficially Owned
|
|||||
|
Other
5% Stockholders:
|
|||||||
|
Patrick
Mullens, M.D.
|
2,592,153
|
7.6
|
%
|
||||
|
Raymond
Takahashi, M.D.
|
2,518,012
|
(1)
|
7.4
|
%
|
|||
|
David
Petreccia, M.D.
|
2,081,751
|
(1)
|
6.1
|
%
|
|||
|
Dante
Panella
|
1,950,000
|
5.7
|
%
|
||||
| (1) |
Includes
shares which individuals shown above have the right to acquire as
of March
31, 2006, or within 60 days thereafter, pursuant to outstanding stock
options and/or warrants as follows: Mr. Berry - 1,305,450 shares;
Dr.
Takahashi - 583,333 shares; Dr. Petreccia - 83,333 shares; and Ms.
Kelly
101,752 shares.
|
Page
77
ITEM
12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.
In
connection with the Share Exchange Agreement with CryoPort Systems, Inc. in
March 2005 (see Note 1), the Company issued 1,000,000 shares to Mr. Dante
Panella, a majority stockholder in exchange for Mr. Panella’s surrender of
1,354,891 shares of Cryoport Systems’ common stock. At the time of the Share
Exchange agreement, Mr. Panella held the position of President, CEO of GT-5
Limited. Pursuant to the Share Exchange Agreement the Company’s then directors
and officers resigned, and the directors and officers of CryoPort Systems,
Inc.
were elected to fill the vacancies created by such resignations. The company’s
name was then changed to Cryoport, Inc. Since the time of the Share Exchange
Agreement, Mr. Panella has not been involved in the management of Cryoport,
Inc.
During
2004, in connection with a private placement offering, Mr. Panella purchased
a
total of 1,217,225 shares of CryoPort Systems, Inc. common stock for $0.04
per
share with total proceeds of $48,689 received by the Company as follows: 250,000
shares purchased on July 23, 2005, 342,225 shares purchased on October 20,
2005,
and 625,000 shares purchased on November 15, 2005.
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
March 31, 2006 the Company had aggregate principal balances of $1,369,500 in
outstanding unsecured indebtedness owed to five related parties including four
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 beginning
April 1, 2006 of $2,500, which increase by $2,500 every six months to a maximum
of $10,000. 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 $79,179 and $82,464 for the years ended March 31, 2006
and
2005, respectively. Accrued interest, which is included in notes payable in
the
accompanying balance sheet, related to these notes amounted to $318,746 and
$239,567 as of March 31, 2006 and 2005, respectively. Subsequent to year end
the
Company failed to make the required payments under the notes. However, pursuant
to the note agreements, the Company has a 120 grace period to pay missed
payments before the notes enter default. Management expects to pay all payments
due prior to the expiration of the 120 day grace period. No new borrowings
have
been made by the Company from these related parties as of June 12,
2006.
Page
78
ITEM
13. DESCRIPTION
OF EXHIBITS
|
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.
|
Page
79
|
3.15
|
Stock
Option Agreement NSO - Specimen adopted by Board of Directors on
October
1, 2002.
|
|
|
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
80
|
10.1.8
|
Exclusive
and Representation Agreement between Cryoport Systems, Inc. and CryoPort
Systems, Ltda. executed on August 9, 2001.
|
|
|
*10.1.9
|
Secured
Promissory Note and Loan Agreement between Ventana Group, LLC and
CryoPort, Inc. dated May 12, 2006
|
|
|
*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 U.S.C. §1350 of Chief Executive Officer
|
|
|
*32.2
|
Certification
Pursuant to U.S.C. §1350 of Chief Financial
Officer
|
| * |
filed
herewith
|
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
The
Audit
Committee which is composed of three independent directors and the Company’s
Vice President of Finance, has selected Corbin & Company, LLP as independent
accountants to audit the Company’s books, records, accounts and financial
statements for the fiscal year ended March 31, 2006. Corbin & Company, LLP
previously audited the Company’s financial statements during the fiscal year
ended March 31, 2005.
Audit
and Non-Audit Fees:
Aggregate
fees for professional services rendered to the Company by Corbin & Company,
LLP for the years ended March 31, 2006 and 2005 were as follows:
|
Services
Provided
|
2006
|
2005
|
|||||
|
Audit
Fees
|
$
|
60,180
|
$
|
69,100
|
|||
|
Audit
Related Fees
|
–
|
–
|
|||||
|
Tax
Fees
|
7,240
|
–
|
|||||
|
All
Other Fees
|
11,025
|
–
|
|||||
|
Total
|
$
|
78,445
|
$
|
69,100
|
|||
Audit
Fees. The aggregate fees billed for the years ended March 31, 2006 and 2005
were
for the audits of the Company’s financial statements and reviews of the interim
financial statements included in the annual and quarterly reports.
Page
81
Audit
Related Fees. There were no fees billed for the years ended March 31, 2006
and
2005 for the audit or review of the Company’s financial statements that are not
reported under Audit Fees.
Tax
Fees.
The aggregate fees billed for the years ended March 31, 2006 and 2005 for
professional services related to tax compliance, tax advice and tax
planning.
All
Other
Fees. The aggregate other fees billed for the year ended March 31, 2006 were
for
services related to the Company’s Registration Form 10-SB and other filings.
There were no other fees billed for the year ended March 31, 2005 other than
the
services described above.
Audit
Committee Pre-Approval Policies and Procedures:
The
Audit
Committee has implemented pre-approval policies and procedures related to the
provision of audit and non-audit services. Under these procedures, the Audit
Committee pre-approves both the type of services to be provided by Corbin &
Compnay, LLP and the estimated fees related to these services.
Page
82
SIGNATURES
In
accordance with Section 13(a) or 15(d) of the Exchange Act, the registrant
has
caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.
| CryoPort, Inc. | ||
| |
|
|
| Dated: June 24, 2006 | By: | |
|
Peter
Berry
President
and Chief Executive Officer
|
||
| Dated: June 24, 2006 | By: | |
|
Dee
S. Kelly
Vice
President of Finance
|
||
In
accordance with the Exchange Act, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
|
Signatures
|
Title
|
Date
|
||
|
President,
Chief Executive
|
June
24, 2006
|
|||
|
Peter
Berry
|
Officer
and Director
|
|||
|
Secretary
and Director
|
June
24, 2006
|
|||
|
Gary
C. Cannon
|
||||
|
Director
|
June
24, 2006
|
|||
|
Adam
M. Michelin
|
||||
|
Director
|
June
24, 2006
|
|||
|
Stephen
L. Scott
|
||||
|
Director
|
June
24, 2006
|
|||
|
Thomas
Fischer, PhD
|
Page
83
EXHIBIT
INDEX
|
Exhibit
No.
|
Description
|
Page
or Method of Filing
|
||
|
3.1
|
State
of Nevada Corporate Charter for
G.T. 5- Limited
|
(1)
|
||
|
3.2
|
Articles
of Incorporation Of
G.T 5-Limited
|
(1)
|
||
|
3.3
|
Amendment
to Articles of Incorporation of
G T. 5-Limited issue 100M shares
|
(1)
|
||
|
3.4
|
Amendment
of Articles of Incorporation of
G.T.5-Limited name change to CryoPort,
Inc
|
(1)
|
||
|
3.5
|
Amended
and Restated By-Laws Of
CryoPort, Inc.
|
(1)
|
||
|
3.6
|
Articles
of Incorporation CryoPort
Systems, Inc.
|
(1)
|
||
|
3.7
|
By-Laws
of CryoPort Systems, Inc.
|
(1)
|
||
|
3.8
|
CryoPort,
Inc. Stock Certificate Specimen
|
(1)
|
||
|
3.9
|
Code
of Conduct for CryoPort, Inc.
|
(1)
|
||
|
3.10
|
Code
of Ethics for Senior Officers
|
(1)
|
||
|
3.11
|
Statement
of Policy on Insider Trading
|
(1)
|
||
|
3.12
|
CryoPort,
Inc. Audit Committee Charter
|
(1)
|
||
|
3.13
|
CryoPort
Systems, Inc. 2002 Stock Incentive
Plan
|
(1)
|
||
|
3.14
|
Stock
Option Agreement ISO - Specimen
|
(1)
|
||
|
3.15
|
Stock
Option Agreement NSO -Specimen
|
(1)
|
||
|
3.16
|
Warrant
Agreement - Specimen
|
(1)
|
||
|
3.17
|
Patents
and Trademarks
|
|||
|
3.17.1
|
CryoPort
Systems, Inc. Patent #6,467,642
|
On
File with Company
|
||
|
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
|
Page
84
|
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.
|
(1)
|
||
|
10.1.2
|
Commercial
Promissory Notes between CryoPort,
Inc. and D. Petreccia
|
(1)
|
||
|
10.1.3
|
Commercial
Promissory Notes between CryoPort,
Inc. and J. Dell
|
(1)
|
||
|
10.1.4
|
Commercial
Promissory Notes between CryoPort,
Inc. and M. Grossman
|
(1)
|
||
|
10.1.5
|
Commercial
Promissory Notes between CryoPort,
Inc. and P. Mullens
|
(1)
|
||
|
10.1.6
|
Commercial
Promissory Notes between CryoPort,
Inc. and R. Takahashi
|
(1)
|
||
|
10.1.7
|
Lease
Agreement between CryoPort Systems,
Inc. and Brea Hospital Properties, LLC.
|
(1)
|
||
|
10.1.8
|
Exclusive
and Representation Agreement Between
CryoPort Systems, Inc. and CryoPort
Systems Ltda.
|
(1)
|
||
|
10.1.9
|
Secured
Promissory Note and Loan Agreement between Ventana Group, LLC and
CryoPort, Inc. dated May 12, 2006
|
Filed
Herewith
|
||
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer
|
Filed
Herewith
|
||
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Chief/Financial
Officer
|
Filed
Herewith
|
||
|
32.1
|
Certification
Pursuant to U.S.C. §1350 of Chief Executive Officer
|
Filed
Herewith
|
||
|
32.2
|
Certification
Pursuant to U.S.C. §1350 of Chief Financial Officer
|
Filed
Herewith
|
| (1) |
Incorporated
by reference to the Company’s Registration Statement on Form 10-SB/A4
dated February 23, 2006.
|
Page
85