Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended September 30, 2011
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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: 001-34632
CryoPort, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Nevada
(State or Other Jurisdiction of
Incorporation or Organization)
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88-0313393
(IRS Employer Identification No.) |
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20382 BARENTS SEA CIRCLE, LAKE FOREST, CA
(Address of Principal Executive Offices)
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92630
(Zip Code) |
Registrant’s Telephone Number, Including Area Code: (949) 470-2300
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
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| Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). o Yes þ No
As
of November 10, 2011 the Company had 28,283,074 shares of its $0.001 par value common stock
issued and outstanding.
PART I — FINANCIAL INFORMATION
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| ITEM 1. |
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FINANCIAL STATEMENTS |
CRYOPORT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30, |
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March 31, |
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2011 |
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2011 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
4,953,454 |
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$ |
9,278,443 |
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Restricted cash |
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— |
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91,169 |
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Accounts receivable, net of allowances of $1,000 at September 30, 2011 and $9,100 at
March 31, 2011, respectively |
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111,387 |
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55,794 |
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Inventories |
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42,679 |
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44,224 |
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Other current assets |
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251,319 |
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528,045 |
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Total current assets |
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5,358,839 |
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9,997,675 |
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Property and equipment, net |
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677,962 |
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669,580 |
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Intangible assets, net |
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386,774 |
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354,854 |
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Deposits and other assets |
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9,358 |
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9,358 |
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Total assets |
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$ |
6,432,933 |
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$ |
11,031,467 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
563,910 |
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$ |
506,887 |
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Accrued compensation and related expenses |
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409,694 |
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402,746 |
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Current portion of convertible debentures payable, net of discount of $78,138 at
September 30, 2011 and $197,226 at March 31, 2011, respectively |
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1,352,430 |
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1,979,402 |
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Line of credit and accrued interest |
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— |
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90,388 |
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Current portion of related party notes payable |
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96,000 |
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102,000 |
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Derivative liabilities |
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107,529 |
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156,497 |
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Total current liabilities |
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2,529,563 |
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3,237,920 |
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Related party notes payable and accrued interest, net of current portion |
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1,400,180 |
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1,423,412 |
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Convertible debentures payable, net of current portion and discount of $0 at September 30,
2011 and $8,842 at March 31, 2011, respectively |
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— |
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421,726 |
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Total liabilities |
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3,929,743 |
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5,083,058 |
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Stockholders’ equity: |
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Preferred stock, $0.001 par value, 2,500,000 shares authorized, none issued and outstanding |
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Common stock, $0.001 par value; 250,000,000 shares authorized; 28,133,074 and 27,504,604
shares issued and outstanding at September 30, 2011 and March 31, 2011, respectively |
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28,133 |
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27,505 |
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Additional paid-in capital |
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58,655,108 |
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58,016,991 |
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Accumulated deficit |
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(56,180,051 |
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(52,096,087 |
) |
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Total stockholders’ equity |
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2,503,190 |
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5,948,409 |
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Total liabilities and stockholders’ equity |
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$ |
6,432,933 |
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$ |
11,031,467 |
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See accompanying notes to unaudited condensed consolidated financial statements
3
CRYOPORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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For The Three Months Ended |
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For The Six Months Ended |
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September 30, |
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September 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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Net revenues |
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$ |
110,713 |
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$ |
124,409 |
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$ |
234,464 |
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$ |
275,869 |
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Cost of revenues |
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363,550 |
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378,217 |
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717,830 |
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772,752 |
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Gross loss |
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(252,837 |
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(253,808 |
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(483,366 |
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(496,883 |
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Operating expenses: |
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Selling, general and administrative |
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1,564,456 |
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1,114,304 |
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3,192,778 |
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2,057,569 |
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Research and development |
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124,705 |
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114,514 |
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225,935 |
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236,635 |
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Total operating expenses |
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1,689,161 |
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1,228,818 |
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3,418,713 |
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2,294,204 |
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Loss from operations |
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(1,941,998 |
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(1,482,626 |
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(3,902,079 |
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(2,791,087 |
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Other income (expense): |
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Interest income |
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4,960 |
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3,912 |
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11,815 |
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7,349 |
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Interest expense |
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(107,757 |
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(157,452 |
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(241,068 |
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(296,160 |
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Change in fair value of derivative liabilities |
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14,685 |
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126,345 |
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48,968 |
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242,873 |
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Total other expense, net |
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(88,112 |
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(27,195 |
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(180,285 |
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(45,938 |
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Loss before income taxes |
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(2,030,110 |
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(1,509,821 |
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(4,082,364 |
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(2,837,025 |
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Income taxes |
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— |
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— |
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1,600 |
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1,600 |
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Net loss |
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$ |
(2,030,110 |
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$ |
(1,509,821 |
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$ |
(4,083,964 |
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$ |
(2,838,625 |
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Net loss per common share, basic and diluted |
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$ |
(0.07 |
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$ |
(0.15 |
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$ |
(0.15 |
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$ |
(0.31 |
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Basic and diluted weighted average common
shares outstanding |
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27,967,380 |
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10,268,637 |
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27,829,661 |
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9,213,355 |
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See accompanying notes to unaudited condensed consolidated financial statements
4
CRYOPORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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For The Six Months Ended |
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September 30, |
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2011 |
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2010 |
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Operating Activities |
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Net loss |
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$ |
(4,083,964 |
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$ |
(2,838,625 |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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162,051 |
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109,696 |
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Amortization of debt discount |
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127,930 |
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250,481 |
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Fair value of stock options and warrants issued to consultants, employees and directors |
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370,540 |
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339,444 |
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Change in fair value of derivative instruments |
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(48,968 |
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(242,873 |
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Loss on disposal of Cryogenic shippers |
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— |
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3,510 |
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Interest accrued on restricted cash |
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(274 |
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(454 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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(55,593 |
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22,096 |
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Inventories |
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1,545 |
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— |
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Other current assets |
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125,341 |
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40,699 |
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Accounts payable and accrued expenses |
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178,750 |
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(84,605 |
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Accrued compensation and related expenses |
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6,948 |
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138,568 |
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Accrued interest |
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24,380 |
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29,585 |
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Net cash used in operating activities |
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(3,191,314 |
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(2,232,478 |
) |
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Investing Activities |
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Purchases of intangible assets |
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(79,547 |
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(73,942 |
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Purchases of property and equipment |
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(122,806 |
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(271,079 |
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Net cash used in investing activities |
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(202,353 |
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(345,021 |
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Financing Activities |
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Repayments of convertible debentures payable |
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(1,176,628 |
) |
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— |
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Payment of deferred financing costs |
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(158,270 |
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(273,802 |
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Proceeds from exercise of warrants |
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456,133 |
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— |
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Repayments of related party notes payable |
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(54,000 |
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(60,000 |
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Proceeds from private placement of common stock, net of cash paid for issuance costs |
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— |
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3,027,160 |
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Restricted cash-investor funds |
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— |
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255,000 |
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Deposits from investors |
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— |
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(255,000 |
) |
Payment on line of credit |
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(90,000 |
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— |
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Proceeds from release of restricted cash |
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91,443 |
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— |
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Net cash (used in) provided by financing activities |
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(931,322 |
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2,693,358 |
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Net change in cash and cash equivalents |
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(4,324,989 |
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115,859 |
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Cash and cash equivalents, beginning of period |
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9,278,443 |
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3,629,886 |
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Cash and cash equivalents, end of period |
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$ |
4,953,454 |
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$ |
3,745,745 |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
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Cash paid during the year for: |
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Interest |
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$ |
88,758 |
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$ |
15,100 |
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Income taxes |
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$ |
1,600 |
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$ |
1,600 |
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See accompanying notes to unaudited condensed consolidated financial statements
5
CRYOPORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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For The Six Months Ended |
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September 30, |
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2011 |
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2010 |
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SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES: |
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Deferred financing costs in connection with equity financings |
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$ |
— |
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$ |
46,456 |
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Cashless exercise of warrants |
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$ |
36 |
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$ |
— |
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Deferred financing costs offset against proceeds in additional paid-in capital |
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$ |
— |
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$ |
25,803 |
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Fair value of options issued to employee in lieu of cash bonus |
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$ |
— |
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$ |
216,000 |
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Reduction of accrued offering costs in connection with February 2010 financing |
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$ |
— |
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$ |
29,067 |
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Estimated fair value of shares issued for services |
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$ |
— |
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$ |
23,999 |
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Reclassification of fixed assets to inventory |
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$ |
— |
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$ |
60,228 |
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|
See accompanying notes to unaudited condensed consolidated financial statements
6
CRYOPORT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Six Months Ended September 30, 2011 and 2010
Note 1. Management’s Representation and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by
CryoPort, Inc. (the “Company” or “we”) in accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”) for interim financial information, and pursuant to
the instructions to Form 10-Q and Article 8 of Regulation S-X promulgated by the Securities and
Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes
required by U.S. GAAP for complete financial statement presentation. However, the Company believes
that the disclosures are adequate to make the information presented not misleading. In the opinion
of management, all adjustments (consisting primarily of normal recurring accruals) considered
necessary for a fair presentation have been included.
Operating results for the six months ended September 30, 2011 are not necessarily indicative
of the results that may be expected for the year ending March 31, 2012. The unaudited condensed
consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K
for the fiscal year ended March 31, 2011.
The Company has evaluated subsequent events through the date of this filing, and determined
that no subsequent events have occurred that would require recognition in the unaudited condensed
consolidated financial statements or disclosure in the notes thereto other than as disclosed in the
accompanying notes.
Note 2. Organization and Summary of Significant Accounting Policies
The Company
The Company is a provider of an innovative cold chain frozen shipping system dedicated to
providing superior, affordable cryogenic shipping solutions that ensure the safety, status and
temperature of high value, temperature sensitive materials. The Company has developed
cost-effective reusable cryogenic transport containers (referred to as a “shipper”) capable of
transporting biological, environmental and other temperature sensitive materials at temperatures
below minus 150° Celsius. These dry vapor shippers are one of the first significant alternatives to
using dry ice and achieve 10-plus day holding times compared to one to two day holding times with
dry ice (assuming no re-icing during transit). The Company’s value proposition comes from both
providing safe transportation and an environmentally friendly, long lasting shipper, and through
its value-added services that offer a simple hassle-free solution for its customers. These
value-added services include an internet-based web portal that enables the customer to conveniently
initiate scheduling, shipping and tracking the progress and status of a shipment, and provide
in-transit temperature and custody transfer monitoring of the shipper. The Company’s service also
provides a fully ready charged shipper containing all freight bills, customs documents and
regulatory paperwork for the entire journey of the shipper to its customers at their pick up
location.
The Company’s principal focus has been the further development and commercial launch of the
CryoPort Express® Portal, an innovative IT solution for shipping and tracking high-value specimens
through overnight shipping companies, and its CryoPort Express® Shipper, a dry vapor cryogenic
shipper for the transport of biological and pharmaceutical materials. A dry vapor cryogenic shipper
is a container that uses liquid nitrogen in dry vapor form, which is suspended inside a vacuum
insulated bottle as a refrigerant, to provide storage temperatures below minus 150° Celsius. The
dry vapor shipper is designed using innovative, proprietary, and patented technology which prevents
spillage of liquid nitrogen and pressure build up as the liquid nitrogen evaporates. A proprietary
retention system is employed to ensure that liquid nitrogen stays inside the vacuum container, even
when placed upside-down or on its side as is often the case when in the custody of a shipping
company. Biological specimens are stored in a specimen chamber, referred to as a “well” inside the
containers and refrigeration is provided by non-hazardous cold nitrogen gas evolving from the
liquid nitrogen entrapped within the retention system surrounding the well. Biological specimens
transported using our cryogenic shipper can include clinical samples, diagnostics, live cell
pharmaceutical products (such as cancer vaccines, semen and embryos, and infectious substances) and
other items that require and/or are protected through continuous exposure to frozen or cryogenic
temperatures (less than minus 150° Celsius).
7
The Company entered into its first strategic relationship with a global courier on January 13,
2010 with Federal Express Corporation (“FedEx”) pursuant to which the Company leases to FedEx such
number of its cryogenic shippers that FedEx, from time
to time, orders for FedEx’s customers. Under this agreement, FedEx has the right to and shall,
on a non-exclusive basis, promote market and sell transportation of the Company’s shippers and its
related value-added goods and services, such as its data logger, web portal and planned CryoPort
Express® Smart Pak System. On January 24, 2011, we announced that FedEx had launched its
deep frozen shipping solution using our CryoPort Express® Dry Shipper. On September 2,
2010, the Company entered into an agreement with DHL Express (USA), Inc. (“DHL”) that gives DHL
life science customers direct access to the Company’s web-based order entry and tracking portal to
order the CryoPort Express® Dry Shipper and receive preferred DHL shipping rates. The
agreement covers DHL shipping discounts that may be used to support the Company’s customers using
the CryoPort Express® shipping solution. In connection with the agreement, the Company
has integrated its proprietary web portal to DHL’s tracking and billing systems to provide DHL life
science customers with a seamless way of shipping their critical biological material worldwide. The
IT integration with DHL was completed during the Company’s fourth quarter of fiscal year 2011.
Historically, we have funded our operations and the development and commercial launch of our
CryoPort Express® solution through debt and equity financing arrangements. Future capital
requirements will depend upon many factors, including the success of our commercialization efforts
and the level of customer adoption of our CryoPort Express® System as well as our ability to
establish additional collaborative arrangements.
We continue to assess our needs for additional capital to ensure sufficient financial resources are
available to fund our working capital needs, capital expenditures and other cash requirements. We
believe that our access to additional capital, together with existing cash resources and the
expected increase in sales revenue will be sufficient to meet our operating needs for the next
twelve months. If, however, we are unable to obtain additional capital or financing, our operations
will be significantly affected.
Principles of Consolidation
The unaudited condensed 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 condensed consolidated financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from estimated amounts. The Company’s significant estimates include allowances
for doubtful accounts and sales returns, recoverability of long-lived assets, deferred taxes and
their accompanying valuations, valuation of derivative liabilities and valuation of common stock,
warrants and stock options issued for products or services.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable,
related-party notes payable, convertible notes payable, accounts payable and accrued expenses. The
carrying value for all such instruments approximates fair value at September 30, 2011 and March 31,
2011, respectively. The difference between the fair value and recorded values of the related party
notes payable is not significant.
Cash and Cash Equivalents
The Company considers highly liquid investments with original maturities of 90 days or less to
be cash equivalents.
Concentrations of Credit Risk
Cash and cash equivalent
The Company maintains its cash accounts in financial institutions. Accounts at these
institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) with basic deposit
coverage limits up to $250,000 per owner. In addition to the basic insurance deposit coverage, the
FDIC is providing temporary unlimited coverage for noninterest-bearing transaction accounts from
December 31, 2010 through December 31, 2012. At September 30, 2011 and March 31, 2011, the Company
had approximately $4,523,000 and $8,701,000, respectively, of cash balances which exceeded the FDIC insurance
limits. The Company performs ongoing evaluations of these institutions to limit its concentration
risk exposure.
Restricted cash
The Company had invested cash in a one year restricted certificate of deposit bearing interest
at 1% which served as collateral for borrowings under a line of credit agreement (see Note 3).
During August 2011, the Company paid the line of credit balance in full. The certificate of deposit
account was closed and the proceeds of $91,443 were recorded as cash and cash equivalents in
September 2011. At September 30, 2011 and March 31, 2011, the balance in the certificate of deposit
was $0 and $91,169, respectively.
8
Customers
The Company grants credit to customers within the U.S. and to a limited number of
international customers and do not require collateral. Revenues from international customers are
generally secured by advance payments except for a limited number of established foreign customers.
The Company generally requires advance or credit card payments for initial revenues from new
customers. The Company’s ability to collect receivables is affected by economic fluctuations in the
geographic areas and industries served by the Company. Reserves for uncollectible amounts are
provided based on past experience and a specific analysis of the accounts which management believes
is sufficient. Accounts receivable at September 30, 2011 and March 31, 2011 are net of reserves for
doubtful accounts of approximately $1,000 and $9,100, respectively. Although the Company expects to
collect amounts due, actual collections may differ from the estimated amounts.
The Company has foreign net revenues primarily in Europe, Japan, and India. During the three
month periods ended September 30, 2011 and 2010, the Company had foreign sales of approximately
$61,000 and $39,000, respectively, which constituted approximately 55% and 31%, respectively, of
net revenues. During the six month periods ended September 30, 2011 and 2010, the Company had
foreign sales of approximately $121,000 and $96,000, respectively, which constituted approximately
51% and 35%, respectively, of net revenues.
The majority of the Company’s customers are in the biotechnology, pharmaceutical and life
science industries. Consequently, there is a concentration of receivables within these industries,
which is subject to normal credit risk. At September 30, 2011, net revenues for the three and six
months ended September 30, 2011 from three major customers
accounted for 38% and 37%, respectively, of our total
net revenues. At September 30, 2010, net revenues for the three and six months ended September 30,
2010 from three major customers accounted for 67% and 76%, respectively, of our total net revenues.
The Company maintains reserves for bad debt and such losses, in the aggregate, historically have
not exceeded our estimates.
Inventories
The Company’s inventories consist of accessories that are sold and shipped to customers along
with pay-per-use containers and are not returned to the Company along with the containers at the
culmination of the customer’s shipping cycle. Inventories are stated at the lower of standard cost
or current estimated market value. Cost is determined using the standard cost method which
approximates the first-in, first-to-expire method. At September 30, 2011 and March 31, 2011, the
Company’s inventories consisted of $33,076 and $37,739 in raw materials, respectively, and $9,603
and $6,485 in finished goods, respectively.
Property and Equipment
The Company provides shipping containers to its customers and charges a fee in exchange for
the use of the container. The Company’s arrangements are similar to the accounting standard for
leases since they convey the right to use the containers over a period of time. The Company retains
title to the containers and provides its customers the use of the container for a specified
shipping cycle. At the culmination of the customer’s shipping cycle, the container is returned to
the Company. As a result the Company classifies the containers as property and equipment.
Property and equipment are recorded at cost. Cryogenic shippers, which comprise 84% of the
Company’s net property and equipment balance at September 30, 2011, are depreciated using the
straight-line method over their estimated useful lives of three years. Equipment and furniture are
depreciated using the straight-line method over their estimated useful lives (generally three to
seven years) and leasehold improvements are amortized using the straight-line method over the
estimated useful life of the asset or the lease term, whichever is shorter. Equipment acquired
under capital leases is amortized over the estimated useful life of the assets or term of the
lease, whichever is shorter and included in depreciation and amortization expense.
Betterments, renewals and extraordinary repairs that extend the lives of the assets are
capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related
accumulated depreciation and amortization applicable to assets retired are removed from the
accounts, and the gain or loss on disposition is recognized in current operations.
Depreciation expense for property and equipment was $59,254 and $114,424, and $37,861 and
$70,344 for the three and six months ended September 30, 2011 and 2010, respectively.
9
Intangible Assets
Intangible assets are comprised of patents and trademarks and software development costs. The
Company capitalizes costs of obtaining patents and trademarks which are amortized, using the
straight-line method over their estimated useful life of five years. The
Company capitalizes certain costs related to software developed for internal use. Software
development costs incurred during the preliminary or maintenance project stages are expensed as
incurred, while costs incurred during the application development stage are capitalized and
amortized using the straight-line method over the estimated useful life of the software, which is
five years. Capitalized costs include purchased materials and costs of services including the
valuation of warrants issued to consultants.
Amortization expense for intangible assets for the three and six months ended September 30,
2011 and 2010 was $23,906 and $47,627, and $18,900 and $39,352, respectively. All of the Company’s
intangible assets are subject to amortization.
Long-lived Assets
If indicators of impairment exist, we assess the recoverability of the affected long-lived
assets by determining whether the carrying value of such assets can be recovered through
undiscounted future operating cash flows. If impairment is indicated, we measure the amount of such
impairment by comparing the fair value to the carrying value. We believe the future cash flows to
be received from the long-lived assets will exceed the assets’ carrying value, and accordingly, we
have not recognized any impairment losses at September 30, 2011 or March 31, 2011.
Deferred Financing Costs
Deferred financing costs represent costs incurred in connection with the issuance of the
convertible notes payable and private equity financing. Deferred financing costs related to the
issuance of debt are being amortized over the term of the financing instrument using the effective
interest method, while deferred financing costs from equity financings are netted against the gross
proceeds received from the equity financings.
During the three and six month periods ended September 30, 2011, the Company had no
capitalized deferred financing costs. During the three and six month periods ended September 30,
2010, the Company capitalized deferred financing costs of $80,363 and $90,363, respectively, and
was charged to additional paid-in capital upon the closing of the private placements in August and
October 2010. During the three and six months ended September 30, 2011, the Company incurred and
paid $0 and $36,543, respectively, of offering costs in connection with the private placement that
closed in February 2011 which were charged to additional paid-in capital and netted against the
proceeds received in the private placements. During the three and six months ended September 30,
2011, the Company made payments of $0 and $121,727, respectively, in connection with financing fees
related to the private placement in February 2011, which were included in accounts payable and
accrued expenses in the accompanying condensed consolidated balance sheet at March 31, 2011.
Convertible Debentures
If a conversion feature of conventional convertible debt is not accounted for as a derivative
instrument and provides for a rate of conversion that is below market value, this feature is
characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a
debt discount. The convertible debt is recorded net of the discount related to the BCF. The Company
amortizes the discount to interest expense over the life of the debt using the effective interest
rate method.
Derivative Liabilities
Certain of the Company’s issued and outstanding common stock purchase
warrants and embedded conversion features which have exercise price reset
features are treated as derivatives for accounting purposes. The common
stock purchase warrants were not issued with the intent of effectively hedging any future cash
flow, fair value of any asset, liability or any net investment in a foreign operation. The warrants
do not qualify for hedge accounting, and as such, all future changes in the fair value of these
warrants are recognized currently in earnings until such time as the warrants are exercised, expire
or the related rights have been waived. These common stock purchase warrants do not trade in an
active securities market, and as such, the Company estimates the fair value of these warrants using
the Black-Scholes option pricing model (“Black-Scholes”) (see Note 6).
10
Supply Concentration Risks
The component parts for our products are primarily manufactured at third party manufacturing
facilities. The Company also has a warehouse at our corporate offices in Lake Forest, California,
where the Company is capable of manufacturing certain parts and fully assembles its products. Most
of the components that the Company uses in the manufacture of its products are available from more
than one qualified supplier. For some components, however, there are relatively few alternate
sources of supply and the establishment of additional or replacement suppliers may not be
accomplished immediately; however, the Company has identified alternate qualified suppliers which
the Company believes could replace existing suppliers. Should this occur, the Company believes that
with its current level of shippers and production rate the Company has enough components to cover a
four to six week maximum disruption gap in production.
There are no specific long-term agreements with any manufacturer nor are there any long-term
commitments to any manufacturer. The Company believes that any of the manufacturers currently used
by it could be replaced within a short period of time as none have a proprietary component or a
substantial capital investment specific to its products.
Revenue Recognition
The Company provides shipping containers to their customers and charges a fee in exchange for
the use of the shipper. The Company’s arrangements are similar to the accounting standard for
leases since they convey the right to use the containers over a period of time. The Company retains
title to the containers and provides its customers the use of the container for a specified
shipping cycle. At the culmination of the customer’s shipping cycle, the container is returned to
the Company.
The Company recognizes revenue for the use of the shipper at the time of the delivery of the
shipper to the end user of the enclosed materials, and at the time that collectability is
reasonably certain. Revenue is based on gross sales, net of discounts and allowances.
Accounting for Shipping and Handling Revenue, Fees and Costs
The Company classifies amounts billed for shipping and handling as revenue. Shipping and
handling fees and costs are included in cost of revenues in the accompanying condensed consolidated
statements of operations.
Research and Development Expenses
Expenditures relating to research and development are expensed in the period incurred.
Research and development expenses to date have consisted primarily of costs associated with
continually improving the features of the CryoPort Express® System including the web based customer
service portal and the CryoPort Express® Shippers. Further, these efforts are expected to lead to
the introduction of shippers of varying sizes based on market requirements, constructed of lower
cost materials and utilizing high volume manufacturing methods that will make it practical to
provide the cryogenic packages offered by the CryoPort Express® System. Other research and
development effort has been directed toward improvements to the liquid nitrogen retention system to
render it more reliable in the general shipping environment and to the design of the outer
packaging. Alternative phase change materials in place of liquid nitrogen may be used to increase
the potential markets these shippers can serve such as ambient and 2-8°C markets.
Stock-based Compensation
The Company accounts for share-based payments to employees and directors in accordance with
share-based payment accounting guidance which requires all share-based payments to employees and
directors, including grants of employee stock options and warrants, to be recognized based upon
their fair values. The fair value of stock-based awards is estimated at grant date using
Black-Scholes and the portion that is ultimately expected to vest is recognized as compensation
cost over the requisite service period.
Since stock-based compensation is recognized only for those awards that are ultimately
expected to vest, the Company has applied an estimated forfeiture rate to unvested awards for the
purpose of calculating compensation cost. These estimates will be revised, if necessary, in future
periods if actual forfeitures differ from estimates. Changes in forfeiture estimates impact
compensation cost in the period in which the change in estimate occurs. The estimated forfeiture
rates at September 30, 2011 and March 31, 2011 was zero as the Company has not had a significant
history of forfeitures and does not expect forfeitures in the future.
Cash flows from the tax benefits resulting from tax deductions in excess of the compensation
cost recognized for those options or warrants are classified as financing cash flows. Due to the
Company’s loss position, there were no such tax benefits during the three
and six months ended September 30, 2011 and 2010. (See Note 8. Equity, for the stock plan
descriptions and summary of assumptions and activity).
11
Equity Instruments Issued to Non-Employees for Acquiring Goods or Services
Issuances of the Company’s common stock for acquiring goods or services are measured at the
fair value of the consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable. The measurement date for the fair value of the equity
instruments issued to consultants or vendors is determined at the earlier of (i) the date at which
a commitment for performance to earn the equity instruments is reached (a “performance commitment”
which would include a penalty considered to be of a magnitude that is a sufficiently large
disincentive for nonperformance) or (ii) the date at which performance is complete. When it is
appropriate for the Company to recognize the cost of a transaction during financial reporting
periods prior to the measurement date, for purposes of recognition of costs during those periods,
the equity instrument is measured at the then-current fair values at each of those interim
financial reporting dates.
During the six months ended September 30, 2011, the Company issued a warrant to purchase 2,500
shares of the Company’s common stock at an exercise price of $1.38 per share to a consultant for
services to be rendered over three years. The Company recognized $409 in expense related to these
warrants for the three and six months ended September 30, 2011.
On March 7, 2011 the Company entered into an Advisory Services Agreement with Marc Grossman
M.D. to provide strategic business advice for which he was issued a fully-vested warrant to
purchase 200,000 shares of the Company’s common stock at an exercise price of $0.77 per share, in
addition to a fee of $125,000. The fair value of this warrant was $302,769 as calculated using
Black-Scholes and was recorded as a other current asset. For the three and six months ended
September 30, 2011, the Company recognized $75,693 and $151,385, respectively, in expense related
to these warrants and is included in selling, general and administrative in the accompanying
condensed consolidated statements of operations. As of September 30, 2011 and March 31, 2011 the
remaining amount of $126,153 and $277,538, respectively, is included in other current assets in the
accompanying condensed consolidated balance sheets.
On May 10, 2010, the Company issued warrants to purchase an aggregate of 40,000 shares of the
Company’s common stock at an exercise price of $1.89 to a consultant for services rendered through
June 2011. The warrants vested as to 20,000 shares of common stock upon issuance with a fair value
of $36,090 and as to 20,000 shares of common stock upon attainment of certain deliverables and were
valued accordingly at each interim reporting date until the deliverables were completed on June 8,
2011. Upon completion of the deliverable, the fair value was $12,937 which resulted in the Company
reversing $6,666 in expense previously recorded. The Company recognized an aggregate $40,560 in
expense related to these warrants for the six months ended September 30, 2010.
Income Taxes
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. 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.
It is not anticipated that there will be a significant change in the unrecognized tax benefits over
the next twelve months.
In June 2006, the Financial Accounting Standards Board (“FASB”) issued an interpretation which
clarified the accounting for uncertainty in income taxes recognized in the financial statements in
accordance with current guidance. The updated guidance provides that a tax benefit from an
uncertain tax position may be recognized when it is more likely than not that the position will be
sustained upon examination, including resolutions of any related appeals or litigation processes,
based on the technical merits. Income tax positions must meet a more likely than not recognition
threshold. The Company did not record any unrecognized tax benefits upon adoption of the accounting
for uncertainty in income taxes. The Company’s policy is to recognize interest and penalties that
would be assessed in relation to the settlement value of unrecognized tax benefits as a component
of income tax expense.
12
Basic and Diluted Loss Per Share
Basic loss per common share is computed based on the weighted average number of shares
outstanding during the period. Diluted loss per share is computed by dividing net loss by the
weighted average shares outstanding assuming all dilutive potential common
shares were issued. In addition, in computing the dilutive effect of convertible securities,
the numerator is adjusted to add back the after-tax amount of interest, if any, recognized in the
period associated with any convertible debt. For the three and six months ended September 30, 2011
and 2010, the Company was in a loss position and the basic and diluted loss per share are the same
since the effect of stock options, warrants and convertible notes payable on loss per share was
anti-dilutive and thus not included in the diluted loss per share calculation. The impact under the
treasury stock method of dilutive stock options and warrants and the if-converted method of
convertible debt would have resulted in weighted average common shares outstanding of approximately
36,482,000 and 35,521,000 and 11,809,000 and 10,868,000 for the three and six month periods ended
September 30, 2011 and 2010, respectively.
Segment Reporting
We currently operate in only one segment.
Recent Accounting Pronouncements
In June 2011, the FASB updated the accounting guidance on Topic 220, entitled “Comprehensive
Income”, relating to presentation of comprehensive income. This guidance requires companies to
present total comprehensive income, the components of net income and the components of other
comprehensive income (“OCI”) either in a single continuous statement of comprehensive income or in
two but consecutive statements. Additionally companies are required to present on the face of the
financial statements the reclassification adjustments that are reclassified from OCI to net income,
where the components of net income and the components of OCI are presented. This guidance is
effective beginning in our fiscal 2012 year. The adoption of this guidance is not expected to have
a material impact on our financial position or results of operations.
In June 2011, the FASB updated the accounting guidance on alignment of disclosures for GAAP
and the International Financial Reporting Standards, or IFRS, by updating Topic 820 entitled
“Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and
IFRS”, relating to presentation of fair value measurements reported in financial statements. The
updated guidance requires companies to align fair value measurement and disclosure requirements
between GAAP and IFRS. The updated guidance is effective beginning in our fiscal 2012 year and
earlier adoption is not permitted. The adoption of this guidance is not expected to have a material
impact on our financial position or results of operations.
Fair Value Measurements
The Company determines the fair value of its derivative instruments using a three-level
hierarchy for fair value measurements which these assets and liabilities must be grouped, based on
significant levels of observable or unobservable inputs. Observable inputs reflect market data
obtained from independent sources, while unobservable inputs reflect the Company’s market
assumptions. This hierarchy requires the use of observable market data when available. These two
types of inputs have created the following fair-value hierarchy:
Level 1 — Valuations based on unadjusted quoted market prices in active markets for identical
securities. Currently the Company does not have any items classified as Level 1.
Level 2 — Valuations based on observable inputs (other than Level 1 prices), such as quoted prices
for similar assets at the measurement date; quoted prices in markets that are not active; or other
inputs that are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair
value measurement, and involve management judgment. The Company uses Black-Scholes to determine the
fair value of the instruments. If the inputs used to measure fair value fall in different levels of
the fair value hierarchy, a financial security’s hierarchy level is based upon the lowest level of
input that is significant to the fair value measurement.
The following table presents the Company’s warrants measured at fair value on a recurring
basis as of September 30, 2011 and March 31, 2011 classified using the valuation hierarchy:
| |
|
|
|
|
|
|
|
|
| |
|
Level 3 |
|
|
Level 3 |
|
| |
|
Carrying |
|
|
Carrying |
|
| |
|
Value |
|
|
Value |
|
| |
|
September 30, |
|
|
March 31, |
|
| |
|
2011 |
|
|
2011 |
|
| |
|
(unaudited) |
|
|
|
|
Derivative Liabilities |
|
$ |
107,529 |
|
|
$ |
156,497 |
|
|
|
|
|
|
|
|
13
The following table provides a reconciliation of the beginning and ending balances for the
Company’s derivative liabilities measured at fair value using Level 3 inputs for the six months
ended September 30, 2011 and 2010:
| |
|
|
|
|
|
|
|
|
| |
|
Level 3 |
|
|
Level 3 |
|
| |
|
Carrying Value |
|
|
Carrying Value |
|
| |
|
2011 |
|
|
2010 |
|
Balance at April 1 |
|
$ |
156,497 |
|
|
$ |
334,363 |
|
Change in fair value |
|
|
(48,968 |
) |
|
|
(242,873 |
) |
|
|
|
|
|
|
|
Balance at September 30 |
|
$ |
107,529 |
|
|
$ |
91,490 |
|
|
|
|
|
|
|
|
Note 3. Line of Credit
During October 2010, the Company secured a one-year renewal of the line of credit (the “Line”)
for $90,000 which was secured by a $90,000 certificate of deposit with a
financial institution. On August 23, 2011 the Company paid the Line balance in full. The
certificate of deposit was closed and the proceeds of $91,443 were recorded as cash and cash
equivalents in September 2011. All borrowings under the Line bore variable interest based on
either the prime rate plus 1.5% per annum (totaling 4.75% as of September 30, 2011) or 5.0%,
whichever was higher. The Company utilized the funds advanced from the Line for capital equipment
purchases to support the commercialization of the Company’s CryoPort Express® Dry Shipper. As of
September 30, 2011 and March 31, 2011, the outstanding balance of the Line was $0 and $90,388,
respectively, including accrued interest of $0 and $388, respectively. No funds were drawn against
the Line during the six months ended September 30, 2011 and 2010. During the three and six months
ended September 30, 2011 and 2010, the Company recorded interest expense of $587 and $1,725, and
$1,150 and $2,288, respectively, related to the Line.
Note 4. Related Party Transactions
Related Party Notes Payable
As of September 30, 2011 and March 31, 2011, the Company had aggregate principal balances of
$795,500 and $849,500, respectively, in outstanding unsecured indebtedness owed to four related
parties, including former members of the Company’s board of directors, representing working capital
advances made to the Company from February 2001 through March 2005. These notes bear interest at
the rate of 6% per annum and provide for aggregate monthly principal payments which began April 1,
2006 of $2,500, and which increased by an aggregate of $2,500 every nine months to a maximum of
$10,000 per month. As of September 30, 2011, the aggregate principal payments totaled $8,000 per
month. Any remaining unpaid principal and accrued interest is due at maturity on various dates
through March 1, 2015.
Related-party interest expense under these notes was $12,174 and $24,768, and $14,574 and
$29,598 for the three and six months ended September 30, 2011 and 2010, respectively. Accrued
interest, which is included in related party notes payable in the accompanying condensed
consolidated balance sheets, amounted to $700,680 and $675,912 as of September 30, 2011 and March
31, 2011, respectively.
14
Note Payable to Former Officer
In August 2006, Peter Berry, the Company’s former Chief Executive Officer, agreed to convert
his deferred salaries to a long-term note payable. Under the terms of this note, the Company began
to make monthly payments of $3,000 to Mr. Berry in January 2007. Interest of 6% per annum on the
outstanding principal balance of the note began to accrue on January 1, 2008. The note and a
portion of the accrued interest were paid in March 2010. The remaining accrued interest of $11,996
under the note was paid in August 2010. Interest expense related to this note was $11,996 for the
three and six months ended September 30, 2010.
Advisory Services Agreement with Former Officer
On March 7, 2011, the Company entered into a one-year advisory services agreement with Marc
Grossman, M.D. to provide strategic business advisory services including identifying and
introducing customers, advising on sales and marketing plans and providing financial advice. Dr.
Grossman is a former officer of the Company and is one of the four related parties to which
CryoPort has an outstanding unsecured debt obligation. For these services, Dr. Grossman was paid a
fee of $125,000, which is to be amortized over the term of the agreement, and issued a warrant to
purchase 200,000 shares of the Company’s common stock at an exercise price of $0.77 per share which
was fully vested upon issuance (see Note 2 Equity Instruments Issued to Non-Employees for Acquiring
Goods or Services).
Consulting Agreement with Officers
On July 29, 2009, the Board of Directors of the Company appointed Ms. Catherine M. Doll, a
consultant, to the offices of Chief Financial Officer, Treasurer and Assistant Corporate Secretary,
which became effective on August 20, 2009. Ms. Doll resigned the offices of Chief Financial
Officer, Treasurer and Assistant Corporate Secretary on June 27, 2011, effective immediately
following the Company’s filing of its Form 10-K for the fiscal year ended March 31, 2011. Ms. Doll
is the owner and chief executive officer of The Gilson Group, LLC. The Gilson Group, LLC provides
financial and accounting consulting services, including SEC and financial reporting, budgeting and
forecasting to the Company. Related-party consulting fees for all services provided by The Gilson
Group, LLC, were approximately $0 and $106,000 and $84,000 and $229,000 for the three and six
months ended September 30, 2011 and 2010, respectively.
Note 5. Convertible Notes Payable
The Company’s convertible debenture balances are shown below:
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
March 31, |
|
| |
|
2011 |
|
|
2011 |
|
| |
|
(unaudited) |
|
|
|
|
October 2007 Debentures |
|
$ |
1,430,568 |
|
|
$ |
2,607,196 |
|
Debt discount |
|
|
(78,138 |
) |
|
|
(206,068 |
) |
|
|
|
|
|
|
|
Total convertible debentures, net |
|
$ |
1,352,430 |
|
|
$ |
2,401,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term: |
|
|
|
|
|
|
|
|
Current portion of convertible
debentures payable, net of discount
of $78,138 at September 30, 2011 and
$197,226 at March 31, 2011,
respectively |
|
$ |
1,352,430 |
|
|
$ |
1,979,402 |
|
Long-term: |
|
|
|
|
|
|
|
|
Convertible debentures payable, net
of current portion and discount of
$0 at September 30, 2011 and $8,842
at March 31, 2011, respectively |
|
|
— |
|
|
|
421,726 |
|
|
|
|
|
|
|
|
Total convertible debentures, net |
|
$ |
1,352,430 |
|
|
$ |
2,401,128 |
|
|
|
|
|
|
|
|
The October 2007 Debentures is convertible into shares of the Company’s common stock at a
price of $3.00 per share. The debentures bear interest at 8% per annum. The Company has been
obligated to make principal or additional interest payments since March 1, 2011 with respect to the
outstanding balances of the debentures. The Company is making monthly principal and interest
payments of $200,000 and the debentures will be paid by June 2012.
During the three and six months ended September 30, 2011 and 2010, the Company recognized an
aggregate of $57,558 and $127,930, and $128,916 and $250,481 in interest expense, respectively, due
to amortization of debt discount related to the warrants and beneficial conversion features
associated with the Company’s outstanding convertible notes payable. During the three and six
months ended September 30, 2011, the Company recorded interest expense of $36,956 and $85,434,
respectively, related to the stated interest associated with the convertible notes payable.
15
Note 6. Derivative Liabilities
In accordance with current accounting guidance, certain of the Company’s outstanding warrants
to purchase shares of common stock and embedded conversion features
in convertible notes payable are treated as derivatives because these instruments have
reset or ratchet provisions in the event the Company raises additional capital at a lower price,
among other adjustments. As such, the fair value of these common stock purchase warrants and
embedded conversion features were treated as derivative liabilities since their date of issuance or
modification. Changes in fair value are recorded as non-operating, non-cash income or expense at
each reporting date. If the fair value of the derivatives is higher at the subsequent balance sheet
date, the Company will record a non-operating, non-cash charge. If the fair value of the
derivatives is lower at the subsequent balance sheet date, the Company will record non-operating,
non-cash income. As of September 30, 2011 and March 31, 2011 the Company had derivative warrant
liabilities of $107,529 and $156,497, respectively.
During the three and six months ended September 30, 2011 and 2010, the Company recognized
aggregate gains of $14,685 and $48,968 and $126,345 and $242,873, respectively, due to the change
in fair value of its derivative instruments. (See Note 2 — Organization and Summary of Significant
Accounting Policies — Fair Value Measurements, for the components of changes in derivative
liabilities).
The Company’s common stock purchase warrants do not trade in an active securities market, and
as such, the Company estimated the fair value of these warrants using Black-Scholes using the
following assumptions:
| |
|
|
|
|
|
|
|
|
| |
|
For the Six Months |
|
|
For the Year |
|
| |
|
Ended |
|
|
Ended |
|
| |
|
September 30, 2011 |
|
|
March 31, 2011 |
|
Expected dividends |
|
|
— |
|
|
|
— |
|
Expected term (in years) |
|
|
2.51 – 2.81 |
|
|
|
3.01 – 4.22 |
|
Risk-free interest rate |
|
|
0.42% – 0.81 |
% |
|
|
0.64% – 1.79 |
% |
Expected volatility |
|
|
128% – 132 |
% |
|
|
128% – 189 |
% |
Historical volatility was computed using daily pricing observations for recent periods that
correspond to the remaining term of the warrants, which had an original term of five years from the
date of issuance. The expected life is based on the remaining term of the warrants. The risk-free
interest rate is based on U.S. Treasury securities with a maturity corresponding to the remaining
term of the warrants.
Note 7. Commitments and Contingencies
Lease Commitments
We currently lease two facilities, with approximately 12,000 square feet of corporate,
research and development, and warehouse facilities, located in Lake Forest, California (“Lake
Forest Facility”) and six executive offices located in San Diego, California (“San Diego
Facility”). In June 2010, the Company entered into a third amendment to the Lake Forest Facility
lease and extended the lease for sixty months commencing July 1, 2010 with a right to cancel the
lease with a minimum of 120 day written notice at any time after December 31, 2012 and adjusted the
base lease payments to a range over the life of the agreement of $7,010 per month to $8,911 per
month, plus operating expenses. On April 11, 2011, the Company entered into an office service
agreement for the San Diego Facility for a six-month period ending October 31, 2011. Subsequent to
quarter-end, we extended the agreement through December 31, 2011. The office service agreement
requires aggregate base lease payments of approximately $9,250 per month.
Total rental expense was approximately $73,000 and $150,000 and $32,000 and $78,000 for the
three and six months ended September 30, 2011 and 2010, respectively.
16
Consulting and Engineering Services
Effective November 1, 2010, the Company entered into a Second Amendment to Master Consulting
and Engineering Services Agreement (the “Second Amendment”) with KLATU Networks, LLC (“KLATU”),
which amended the Master Consulting and Engineering Services Agreement between the parties dated as
of October 9, 2007 (the “Agreement”), as amended by the First
Amendment to Master Consulting and Engineering Services Agreement between the parties dated as
of April 23, 2009. The parties entered into the Second Amendment to clarify their mutual intent and
understanding that all license rights granted to the Company under the Agreement, as amended, shall
survive any termination or expiration of the Agreement. In addition, in recognition that the
Company has paid KLATU less than the market rate for comparable services, the Second Amendment
provides that if the Company terminates the Agreement without cause, which the Company has no
intention of doing, or liquidates, KLATU shall be entitled to receive additional consideration for
its services provided from the commencement of the Agreement through such date of termination,
which additional compensation shall not be less than $2 million plus two times the “cost of work”
(as defined in the Agreement). Any such additional compensation would be payable in three equal
installments within 12 months following the date the amount of such additional compensation is
determined.
The Master Consulting and Engineering Services Agreement dated October 9, 2007, as amended on
April 23, 2009 and November 1, 2010, between CryoPort, Inc. and KLATU Networks, LLC provides a
framework for KLATU to provide services to CryoPort. The agreement provides for one year terms
ending on December 31 of each year, but it automatically renews for one year periods unless
otherwise terminated. CryoPort can terminate the agreement upon 30 days notice. If CryoPort
terminates the agreement, it has to pay KLATU a termination fee that will be no less than
$2,000,000 plus two times the cost of work (as defined in the agreement) performed by KLATU under
the agreement. Consulting fees for services provided by KLATU were $166,537 and $233,878, and
$145,982 and $240,136 for the three and six months ended September 30, 2011 and 2010, respectively.
Litigation
The Company may become a party to product litigation in the normal course of business. The
Company accrues for open claims based on its historical experience and available insurance
coverage. In the opinion of management, there are no legal matters involving the Company that would
have a material adverse effect upon the Company’s financial condition or results of operations.
Indemnities and Guarantees
The Company has made certain indemnities and guarantees, under which it may be required to
make payments to a guaranteed or indemnified party, in relation to certain actions or transactions.
The 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 unaudited condensed consolidated balance
sheets.
The Company indemnifies its directors, officers, employees and agents, as permitted under the
laws of the States of California and Nevada. In connection with its facility lease, the Company has
indemnified its lessor for certain claims arising from the use of the facility. The duration of the
guarantees and indemnities varies, and is generally tied to the life of the agreement.
In connection with the Company’s agreement with FedEx pursuant to which the Company leases to
FedEx its cryogenic shippers, the Company has agreed to indemnify and hold harmless FedEx, its
directors, officers, employees and agents from and against any and all claims, demands, causes of
action, losses, damages, judgments, injuries and liabilities, including payment of attorney’s fees.
In addition, the Company has agreed to indemnify, defend and hold harmless FedEx, its Affiliates
(including the corporate parent company), directors, officers, employees and agents from and
against any and all claims by third parties based on an allegation that the use of the Company’s
shippers infringes on any United States or foreign intellectual property right of such third
parties, including any potential royalty payments and other costs and damages, reasonable
attorneys’ fees and out-of-pocket expenses reasonably incurred by FedEx. The duration of these
indemnities survive the termination or expiration of the agreement.
Note 8. Equity
Preferred Stock
On September 22, 2011, the Company’s stockholders approved an amendment to the Company’s
Amended and Restated Articles of Incorporation to authorize a class of undesignated or “blank
check” preferred stock, which had previously been approved by the Company’s Board of Directors on
July 19, 2011, consisting of 2,500,000 shares at $0.001 par value per share. Shares of preferred
stock may be issued in one or more series, with such rights, preferences, privileges and
restrictions as shall be fixed by the Company’s Board of Directors.
17
Common Stock
During April 2011, the Company issued 36,090 shares of common stock upon the cashless exercise
of warrants at an average exercise price of $0.77 per share.
During six months ended September 30, 2011 the Company issued 592,380 shares of common stock
upon the cash exercise of warrants at an exercise price of $0.77 per share.
During the six months ended September 30, 2010, the Company issued 13,636 shares of
unrestricted common stock in lieu of fees paid to a consultant for services incurred in fiscal year
2010 pursuant to the Company’s Form S-8 filed on April 27, 2010.
Warrants and Options
During April 2011, the Company issued a warrant to purchase 2,500 shares of the Company’s
common stock at an exercise price of $1.38 and a five year life to a consultant for services to be
rendered over three years (see Note 2). The Company recognized $409 in expense related to these
warrants for the three and six months ended September 30, 2011.
During July 2011, the Company issued a warrant to purchase 10,000 shares of the Company’s
common stock at an exercise price of $1.20 and a five year life to a consultant for services to be
rendered within one year. The Company recognized $8,297 in expense related to these warrants for
the three and six months ended September 30, 2011.
Stock-based Compensation Plan Descriptions
The Company maintains three stock incentive plans, the 2002 Stock Incentive Plan (the “2002
Plan”), the 2009 Stock Incentive Plan (the “2009 Plan”) and the 2011 Stock Incentive Plan (the
“2011 Plan”). The 2002 Plan provides for grants of incentive stock options and nonqualified options
to employees, directors and consultants of the Company to purchase the Company’s shares at the fair
value, as determined by management and the board of directors, of such shares on the grant date.
The options are subject to various vesting conditions and generally vest over a three-year period
beginning on the grant date and have seven to ten-year term. The 2002 Plan also provides for the
granting of restricted shares of common stock subject to vesting requirements. The Company is
authorized to issue up to 500,000 shares under this plan and has 8,527 shares available for future
issuances as of September 30, 2011.
On October 9, 2009, the Company’s stockholders approved and adopted the 2009 Plan, which had
previously been approved by the Company’s Board of Directors on August 31, 2009. The 2009 Plan
provides for the grant of incentive stock options, nonqualified stock options, restricted stock
rights, restricted stock, performance share units, performance shares, performance cash awards,
stock appreciation rights, and stock grant awards (collectively, “Awards”) to employees, officers,
non-employee directors, consultants and independent contractors of the Company. The 2009 Plan also
permits the grant of awards that qualify for the “performance-based compensation” exception to the
$1,000,000 limitation on the deduction of compensation imposed by Section 162(m) of the Internal
Revenue Code. A total of 1,200,000 shares of the Company’s common stock are authorized for the
granting of Awards under the 2009 Plan. The number of shares available for future Awards, as well
as the terms of outstanding Awards, is subject to adjustment as provided in the 2009 Plan for stock
splits, stock dividends, recapitalizations and other similar events. Awards may be granted under
the 2009 Plan until the sooner of October 9, 2019 or until all shares available for Awards under
the 2009 Plan have been purchased or acquired. The Company is authorized to issue up to 1,200,000
shares under this plan and as of September 30, 2011, the Company has no shares available for future
Awards under the 2009 Plan.
On September 22, 2011, the Company’s stockholders approved and adopted the 2011 Plan, which
had previously been approved by the Company’s Board of Directors on July 19, 2011. The 2011 Plan
provides for the grant of Awards to employees, officers, non-employee directors and consultants of
the Company. The Company’s Compensation Committee has the authority to determine the type of Award
as well as the amount, terms and conditions of each Award under the 2011 Plan, subject to the
limitations and other provisions of the 2011 Plan. A total of 2,300,000 shares of the Company’s
common stock are authorized for the granting of Awards under the 2011 Plan. The number of shares
available for Awards, as well as the terms of outstanding Awards, is subject to adjustment as
provided in the 2011 Plan for stock splits, stock dividends, recapitalizations and other similar
events. Awards may be granted under the 2011 Plan until September 21, 2021 or until all shares
available for Awards under the 2011 Plan have been purchased or acquired unless the stockholders of
the Company vote to approve an extension of the 2011 Plan prior to such expiration date. As of
September 30, 2011, the Company has 2,300,000 shares available for future Awards under the 2011
Plan.
18
In addition to the stock options issued pursuant to the Company’s three stock incentive plans,
the Company has granted warrants to employees, officers, non-employee directors, consultants and
independent contractors. The warrants are generally not subject to vesting requirements and have
ten-year terms.
Summary of Assumptions and Activity
The Company uses Black-Scholes to recognize the value of stock-based compensation expense for
all share-based payment awards. Determining the appropriate fair-value model and calculating the
fair value of stock-based awards at the grant date requires considerable judgment, including
estimating stock price volatility, expected option life and forfeiture rates. The Company develops
estimates based on historical data and market information, which can change significantly over
time. The Company used the following assumptions for stock options granted during the six months
ended September 30, 2011 and 2010:
| |
|
|
|
|
| |
|
September 30, |
|
September 30, |
| |
|
2011 |
|
2010 |
Stock options and warrants: |
|
|
|
|
Expected term (in years) |
|
5.91 – 7.44 |
|
3.50 – 6.48 |
Expected volatility |
|
164% – 173% |
|
142% – 179% |
Risk-free interest rate |
|
1.15% – 2.87% |
|
0.77% – 3.32% |
Expected dividends |
|
N/A |
|
N/A |
A summary of employee and director options and warrant activity for the six month period ended
September 30, 2011 is presented below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
| |
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
| |
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
| |
|
Shares |
|
|
Price |
|
|
Term (Yrs.) |
|
|
Value |
|
Outstanding at April 1, 2011 |
|
|
1,525,896 |
|
|
$ |
2.65 |
|
|
|
— |
|
|
|
|
|
Granted |
|
|
435,000 |
|
|
$ |
1.28 |
|
|
|
— |
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Forfeited |
|
|
(15,667 |
) |
|
$ |
2.11 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and expected to vest at September 30, 2011 |
|
|
1,945,229 |
|
|
$ |
2.35 |
|
|
|
7.90 |
|
|
$ |
521,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2011 |
|
|
1,190,396 |
|
|
$ |
3.08 |
|
|
|
7.04 |
|
|
$ |
369,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended September 30, 2011 and 2010, the following represents the Company’s
weighted average fair value of options and warrants granted:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
| |
|
|
|
|
|
Average |
|
| |
|
|
|
|
|
Fair Value |
|
| |
|
|
|
|
|
of |
|
| |
|
|
|
|
|
Options and |
|
| Period Ended: |
|
Granted |
|
|
Warrants |
|
September 30, 2011 |
|
|
435,000 |
|
|
$ |
1.25 |
|
September 30, 2010 |
|
|
1,296,832 |
|
|
$ |
0.69 |
|
There were options to purchase 35,000 and 435,000 shares of common stock granted to employees
and no warrants issued during the three and six months ended September 30, 2011. There were no
warrants and stock options to purchase an aggregate of 1,260,032 shares of common stock granted to
employees and directors during the three months ended September 30, 2010 and no warrants and stock
options to purchase an aggregate of 1,296,832 shares of common stock granted to employees and
directors during the six months ended September 30, 2010. In connection with the options granted
and the vesting of prior options and warrants issued, during the three and six months ended
September 30, 2011 and 2010, the Company recorded total charges of $114,787 and $217,115 and
$185,440 and $296,947, respectively, which have been included in selling, general and
administrative expenses in the accompanying unaudited condensed consolidated statements of
operations. The Company issues new shares from its authorized shares upon exercise of warrants or
options.
As of September 30, 2011, there was $710,438 of total unrecognized compensation cost related
to non-vested stock options and warrants which is expected to be recognized over a remaining
weighted average vesting period of 3.03 years.
19
There were no exercises of options during the three and six months ended September 30, 2011
and 2010.
Note 9. Subsequent Events
From October 1, 2011, through the date of this filing the Company issued 150,000 shares of common stock upon the exercise of
warrants at an average exercise price of $0.77 per share for total gross proceeds of $115,500.
20
|
|
|
| ITEM 2. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
In this Form 10-Q 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 FORM 10-Q, INCLUDING SOME UNDER “MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 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 FORM 10-Q, 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 FORM 10-Q. 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.
General Overview
The following management discussion and analysis of the Company’s financial condition and
results of operations (“MD&A”) should be read in conjunction with the condensed consolidated
balance sheet as of September 30, 2011 (unaudited) and the consolidated balance sheet as of March
31, 2011 (audited) and the related unaudited condensed consolidated statements of operations for
the three and six months ended September 30, 2011 and 2010, the unaudited condensed consolidated
statements of cash flows for the six months ended September 30, 2011 and 2010 and the related notes
thereto (see Item 1. Financial Statements) as well as the audited consolidated financial statements
of the Company as of March 31, 2011 and 2010 and for the years then ended included in the Company’s
Annual Report on Form 10-K for the year ended March 31, 2011. The Company cautions readers that
important facts and factors described in this MD&A and elsewhere in this document sometimes have
affected, and in the future could affect, the Company’s actual results, and could cause the
Company’s actual results during fiscal year 2012 and beyond to differ materially from those
expressed in any forward-looking statements made by, or on behalf of the Company.
We are a provider of an innovative cold chain frozen shipping system dedicated to providing
superior, affordable cryogenic shipping solutions that ensure the safety, status and temperature,
of high value, temperature sensitive materials. We have developed cost effective reusable cryogenic
transport containers (referred to as “shippers”) capable of transporting biological, environmental
and other temperature sensitive materials at temperatures below minus 150° Celsius. These dry vapor
shippers are one of the first
significant alternatives to dry ice shipping and achieve 10-plus day holding times compared to
one to two day holding times with dry ice.
21
Our value proposition comes from providing both safe transportation and an environmentally
friendly, long lasting shipper, and through our value added services that offer a simple,
hassle-free solution for our customers. These value-added services include an internet-based web
portal that enables the customer to initiate scheduling, shipping and tracking of the progress and
status of a shipment, and provides in-transit temperature and custody transfer monitoring services
of the shipper. The CryoPort service also provides a fully ready charged shipper containing all
freight bills, customs documents and regulatory paperwork for the entire journey of the shipper to
our customers at their pick up location.
Our principal focus has been the further development and commercial launch of CryoPort
Express® Portal, an innovative IT solution for shipping and tracking high-value specimens through
overnight shipping companies, and our CryoPort Express® Shipper, a dry vapor cryogenic shipper for
the transport of biological and pharmaceutical materials. A dry vapor cryogenic shipper is a
container that uses liquid nitrogen in dry vapor form, which is suspended inside a vacuum insulated
bottle as a refrigerant, to provide storage temperatures below minus 150° Celsius. The dry vapor
shipper is designed using innovative, proprietary, and patented technology which prevents spillage
of liquid nitrogen and pressure build up as the liquid nitrogen evaporates. A proprietary foam
retention system is employed to ensure that liquid nitrogen stays inside the vacuum container, even
when placed upside-down or on its side, as is often the case when in the custody of a shipping
company. Biological specimens are stored in a specimen chamber, referred to as a “well,” inside the
container and refrigeration is provided by harmless cold nitrogen gas evolving from the liquid
nitrogen entrapped within the foam retention system surrounding the well. Biological specimens
transported using our cryogenic shipper can include clinical samples, diagnostics, live cell
pharmaceutical products (such as cancer vaccines, semen and embryos, infectious substances) and
other items that require and/or are protected through continuous exposure to frozen or cryogenic
temperatures.
During our early years, our limited revenue was derived from the sale of our reusable product
line. Our current business plan focuses on per-use leasing of the shipping container and
added-value services that will be used by us to provide an end-to-end and cost-optimized shipping
solution to life science companies moving pharmaceutical and biological samples in clinical trials
and pharmaceutical distribution.
We have incurred losses since inception and had an accumulated deficit of $56,180,051 through
September 30, 2011.
Results of Operations
Three months ended September 30, 2011 compared to three months ended September 30, 2010:
Net Revenues. Net revenues were $110,713 for the three months ended September 30, 2011, as compared
to $124,409 for the three months ended September 30, 2010. While the number of active customers has
continued to increase compared to the same period in the prior year and compared to the previous
quarter, net revenues have decreased primarily due to a decrease in net revenues derived from one
customer (3% in the current period as compared to 42% in the same period in the prior year), as one
of this customer’s products no longer required the cryogenic shipping method during the current
period.
Gross loss and cost of revenues. Gross loss for the three months ended September 30, 2011 was
228% of net revenues, or $252,837, as compared to 204% of net revenues, or $253,808, for the three
months ended September 30, 2010. The decrease in gross loss in absolute dollars is primarily due to
decreased net revenues. Cost of revenues for the three months ended September 30, 2011 was 328% of
net revenues, or $363,550, as compared to 304% of net revenues, or $378,217, for the three months
ended September 30, 2010. The cost of revenues exceeded net revenues due to fixed manufacturing
costs and plant underutilization.
Selling, general and administrative expenses. Selling, general and administrative expenses
were $1,564,456 for the three months ended September 30, 2011, as compared to $1,114,304 for the
three months ended September 30, 2010. The $450,152 increase reflects the addition of eleven new
employees (ten in the sales and marketing department), recruiting fees for these new hires, and
consulting costs for promotional activities. The increase in headcount, in particular in the sales
in marketing department, reflects the Company’s focus on promoting the use of its CryoPort
Express® System and expanding its customer base through a direct inside and
field sales team.
Research and development expenses. Research and development expenses were $124,705 for the
three months ended September 30, 2011, as compared to $114,514 for the three months ended September
30, 2010. Our research and development efforts are focused
on continually improving the features of the CryoPort Express® System
including the web-based customer service portal and the CryoPort Express®
Shippers.
22
Interest expense. Interest expense was $107,757 for the three months ended September 30, 2011,
as compared to $157,452 for the three months ended September 30, 2010. Interest expense for the
three months ended September 30, 2011 included accrued interest on our related party notes payable
of $12,174, amortization of the debt discount of $57,558, and interest expense on our convertible
debentures of $36,956. Interest expense for the three months ended September 30, 2010 included
accrued interest on our related party notes payable of $14,574 and amortization of the debt
discount of $128,916.
Interest income. Interest income was $4,960 for the three month period ended September 30,
2011 as compared to $3,912 for the three month period ended September 30, 2010. Current interest
income included the impact of increased cash balances related to the funds received in connection
with the February 2011 private placement offering.
Change in fair value of derivative liabilities. The gain on the change in fair value of
derivative liabilities was $14,685 for the three months ended September 30, 2011, compared to a
gain of $126,345 for the three months ended September 30, 2010. The gain of $14,685 for the three
months ended September 30, 2011 was the result of a decrease in the value of our warrant
derivatives, due primarily to a decrease in our stock price.
Net loss. As a result of the factors described above, net loss for the three months ended
September 30, 2011 increased by $520,289 to $2,030,110 or ($0.07) per share compared to a net loss
of $1,509,821 or ($0.15) per share for the three months ended September 30, 2010.
Six months ended September 30, 2011 compared to six months ended September 30, 2010:
Net Revenues. Net revenues were $234,464 for the six months ended September 30, 2011, as
compared to $275,869 for the six months ended September 30, 2010. While the number of active
customers has continued to increase compared to the same period in the prior year, net revenues
have decreased primarily due to a decrease in net revenues derived from one customer (3% in the
current period as compared to 53% in the same period in the prior year), as one of this customer’s
products no longer required the cryogenic shipping method during the current period.
Gross loss and cost of revenues. Gross loss for the six months ended September 30, 2011 was
206% of net revenues, or $483,366, as compared to 180% of net revenues, or $496,883, for the six
months ended September 30, 2010. The decrease in gross loss in absolute dollars is primarily due to
decreased net revenues. Cost of revenues for the six months ended September 30, 2011 was 306% of
net revenues, or $717,830 as compared to 280% of net revenues, or $772,752, for the six months
ended September 30, 2010. The cost of revenues exceeded net revenues due to fixed manufacturing
costs and plant underutilization.
Selling, general and administrative expenses. Selling, general and administrative expenses
were $3,192,778 for the six months ended September 30, 2011, as compared to $2,057,569 for the six
months ended September 30, 2010. The $1,135,209 increase reflects the addition of eleven new
employees (ten in the sales and marketing department), recruiting fees for these new hires, and
consulting costs for promotional activities. The increase in headcount, in particular in the sales,
marketing and client services department, reflects the Company’s focus on promoting the use of its
CryoPort Express® System and expanding its customer base through a direct
inside and field sales team.
Research and development expenses. Research and development expenses were $225,935 for the six
months ended September 30, 2011, as compared to $236,635 for the six months ended September 30,
2010. The decrease in research and development expenses of $10,700 is due primarily to reduced
expenses from warrants issued for payment of consulting services. Our research and development
efforts are focused on continually improving the features of the CryoPort
Express® System including the web based customer service portal and the
CryoPort Express® Shippers.
Interest expense. Interest expense was $241,068 for the six months ended September 30, 2011,
as compared to $296,160 for the six months ended September 30, 2010. Interest expense for the six
months ended September 30, 2011 included accrued interest on our related party notes payable of
$24,768, amortization of the debt discount of $127,930, and interest expense on our convertible
debentures of $85,434. Interest expense for the six months ended September 30, 2010 included
accrued interest on our related party notes payable of $29,598 and amortization of the debt
discount of $250,481.
23
Interest income. Interest income was $11,815 for the six month period ended September 30, 2011
as compared to $7,349 for the six month period ended September 30, 2010. Current interest income
included the impact of increased cash balances related to the funds received in connection with the
February 2011 private placement offering.
Change in fair value of derivative liabilities. The gain on the change in fair value of
derivative liabilities was $48,968 for the six months ended September 30, 2011, compared to a gain
of $242,873 for the six months ended September 30, 2010. The gain of $48,968 for the six months
ended September 30, 2011 was the result of a decrease in the value of our warrant derivatives, due
primarily to a decrease in our stock price.
Net loss. As a result of the factors described above, net loss for the six months ended
September 30, 2011 increased by $1,245,339 to $4,083,964 or ($0.15) per share compared to a net
loss of $2,838,625 or ($0.31) per share for the six months ended September 30, 2010.
Liquidity and Capital Resources
As of September 30, 2011, the Company had cash and cash equivalents of $4,953,454 and working
capital of $2,829,276. As of March 31, 2011, the Company had cash and cash equivalents of
$9,278,443 and working capital of $6,759,755. Historically, we have financed our operations
primarily through sales of our debt and equity securities. Since March 2005 through September 2011,
we have received net proceeds of approximately $27.9 million from sales of our common stock and the
issuance of promissory notes, warrants and debt.
For the six months ended September 30, 2011, we used $3,191,314 of cash for operations
primarily as a result of the net loss of $4,083,964 including non-cash expenses of $370,540 for the
fair value of stock options and warrants. Net operating losses increased as a result of an increase
in headcount and overall commercial activity. Offsetting the cash impact of our net operating loss
(excluding non-cash items) was a decrease in other current assets of $125,341 and an increase in
accounts payable and accrued expenses of $178,750 due primarily to increased selling, general and
administrative expenses.
Net cash used in investing activities totaled $202,353 during the six months ended September
30, 2011, and was attributable to the purchase of property and equipment of $122,806 and the
purchase of intangible assets of $79,547.
Net cash used in financing activities totaled $931,322 during the six months ended September
30, 2011, and resulted primarily from payment of deferred financing costs of $158,270 and repayment
of convertible debt of $1,176,628. This was partially offset by the gross proceeds from exercises
of warrants of $456,133.
Historically, we have funded our operations and the development and commercial launch of our
CryoPort Express® solution through debt and equity financing arrangements. Future capital
requirements will depend upon many factors, including the success of our commercialization efforts
and the level of customer adoption of our CryoPort Express® System as well as our ability to
establish additional collaborative arrangements.
We continue to assess our needs for additional capital to ensure sufficient financial resources are
available to fund our working capital needs, capital expenditures and other cash requirements. We
believe that our access to additional capital, together with existing cash resources and the
expected increase in sales revenue will be sufficient to meet our operating needs for the next
twelve months. If, however, we are unable to obtain additional capital or financing, our operations
will be significantly affected.
24
Contractual Obligations
The following table summarizes our contractual obligations as of September 30, 2011:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments due by period |
|
| |
|
|
|
|
|
Less than |
|
|
1-3 |
|
|
3-5 |
|
|
More than |
|
| |
|
Total |
|
|
1 year |
|
|
years |
|
|
Years |
|
|
5 years |
|
Operating Lease Obligations |
|
$ |
400,983 |
|
|
$ |
121,761 |
|
|
$ |
199,023 |
|
|
$ |
80,199 |
|
|
$ |
— |
|
| |
|
Convertible Debentures (1) |
|
|
1,430,568 |
|
|
|
1,430,568 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
Other Long-term Debt
Obligations (2) |
|
|
1,496,180 |
|
|
|
96,000 |
|
|
|
192,000 |
|
|
|
1,208,180 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
$ |
3,327,731 |
|
|
$ |
1,648,329 |
|
|
$ |
391,023 |
|
|
$ |
1,288,379 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
The Company issued convertible debentures in October 2007 (the
“October 2007 Debentures”) and in May 2008 (the “May 2008 Debentures,”
and together with the October 2007 Debentures, the “Debentures”). The
Debentures were issued to four institutional investors and have an
outstanding principal balance of $1,430,568 as of September 30, 2011.
As collateral to secure our repayment obligations to the holders of
the Debentures we have granted such holders a first priority security
interest in generally all of our assets, including our intellectual
property. |
| |
| (2) |
|
Represents unsecured indebtedness owed to four related parties,
including former members of the board of directors, for capital
advances made to the Company from February 2001 through March 2005.
These notes bear interest at the rate of 6% per annum and provide for
aggregate monthly principal payments which began April 1, 2006 of
$2,500, and which increased by an aggregate of $2,500 every nine
months to a maximum of $10,000 per month. As of September 30, 2011,
the aggregate principal payments totaled $8,000 per month. Any
remaining unpaid principal and accrued interest is due at maturity
March 1, 2015. |
Recent Accounting Pronouncements
In June 2011, the FASB updated the accounting guidance on Topic 220, entitled “Comprehensive
Income”, relating to presentation of comprehensive income. This guidance requires companies to
present total comprehensive income, the components of net income and the components of other
comprehensive income, or OCI, either in a single continuous statement of comprehensive income or in
two but consecutive statements. Additionally, companies are required to present on the face of the
financial statements the reclassification adjustments that are reclassified from OCI to net income,
where the components of net income and the components of OCI are presented. This guidance is
effective beginning in our fiscal 2012 year. The adoption of this guidance is not expected to have
a material impact on our financial position or results of operations.
In June 2011, the FASB updated the accounting guidance on alignment of disclosures for GAAP
and the International Financial Reporting Standards, or IFRS, by updating Topic 820 entitled
“Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and
IFRS”, relating to presentation of fair value measurements reported in financial statements. The
updated guidance requires companies to align fair value measurement and disclosure requirements
between GAAP and IFRS. The updated guidance is effective beginning in our fiscal 2012 year and
earlier adoption is not permitted. The adoption of this guidance is not expected to have a material
impact on our financial position or results of operations.
|
|
|
| Item 3. |
|
Quantitative and Qualitative Disclosures About Market Risk |
Changes in United States interest rates would affect the interest earned on our cash and cash
equivalents and interest expense on our revolving credit facility.
A primary objective of our investment activities is to preserve principal while at the same
time maximizing the income we receive from our investments without significantly increasing risk.
Based on our overall cash and cash equivalents interest rate exposure at as of September 30, 2011,
a near-term change in interest rates, based on historical movements, would not have a material
adverse effect on our financial position or results of operations.
The above only incorporates those exposures that existed as of September 30, 2011, and does
not consider those exposures or positions which could arise after that date. If we diversify our
investment portfolio into securities and other investment alternatives, we may face increased risk
and exposures as a result of interest risk and the securities markets in general.
25
|
|
|
| Item 4T. |
|
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures.
The Company carried out an evaluation under the supervision and with the participation of the
Company’s management, including the Company’s Chief Executive Officer (“CEO”) and our Chief
Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(“the Exchange Act”)). Based upon that evaluation, the CEO and CFO concluded that as of September
30, 2011, our disclosure controls and procedures were effective in timely alerting them to the
material information relating to the Company (or the Company’s consolidated subsidiaries) required
to be included in the Company’s periodic filings with the SEC, subject to the various limitation on
effectiveness set forth below under the heading “LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL
CONTROLS,” such that the information relating to the Company, required to be disclosed in SEC
reports (i) is recorded, processed, summarized and reported within the time periods specified in
SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management,
including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting.
Our principal executive officer and principal financial officer also evaluated whether any
change in our internal control over financial reporting, as such term is defined under Rules
13a-15(f) and 15d-15(f) promulgated under the Exchange Act, occurred during our most recent fiscal
quarter covered by this report that has materially affected, or is likely to materially affect, our
internal control over financial reporting.
LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROLS
The Company’s management, including the CEO and CFO, does not expect that our disclosure
controls and procedures on our internal control over financial reporting will necessarily prevent
all fraud and material error. An internal control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of the control system must reflect the fact that there are
resource constraints, and the benefits of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people, or by management
override of the internal control. The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions. Over time,
control may become inadequate because of changes in conditions, and/or the degree of compliance
with the policies or procedures may deteriorate.
26
PART II — OTHER INFORMATION
|
|
|
| Item 1. |
|
Legal Proceedings |
None
|
|
|
| Item 2. |
|
Unregistered Sales of Equity Securities |
During the quarter ended September 30, 2011, the Company issued 420,952 shares of common stock
to five accredited investors upon their cash exercise of warrants issued in conjunction with a
private placement financing completed during the previous fiscal year. We received an aggregate of
$324,133 from the exercise of such warrants.
On July 1, 2011, the Company issued a warrant to purchase 10,000 shares of the Company’s
common stock at an exercise price of $1.20 to a consultant for services to be rendered over three
years. The Company recognized $8,297 in expense related to these
warrants for the three and six months ended
September 30, 2011.
The issuance of the securities of the Company in the above transactions were deemed to be
exempt from registration under the Securities Act of 1933 by virtue of Section 4(2) thereof or Rule
506 of Regulation D promulgated there under, as transactions by an issuer not involving a public
offering. With respect to the 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 contain an appropriate legend stating
that such securities have not been registered under the Securities Act of 1933 and may not be
offered or sold absent registration or pursuant to an exemption there from.
|
|
|
| Item 3. |
|
Defaults Upon Senior Securities |
None
|
|
|
| Item 4. |
|
[Removed and Reserved] |
None
|
|
|
| Item 5. |
|
Other Information |
None
27
Exhibit Index
| |
|
|
|
|
|
| |
31.1 |
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
|
|
|
|
| |
31.2 |
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
|
|
|
|
| |
32.1 |
|
|
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002. |
28
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
| |
|
|
|
|
| |
CryoPort, Inc.
|
|
| Dated: November 14, 2011 |
By: |
/s/ Larry G. Stambaugh
|
|
| |
|
Larry G. Stambaugh, Chairman, |
|
| |
|
Chief Executive Officer |
|
| |
|
|
| Dated: November 14, 2011 |
By: |
/s/ Robert S. Stefanovich
|
|
| |
|
Robert S. Stefanovich, Chief Financial Officer |
|
| |
|
(signed as both an officer duly authorized to sign on behalf of
the Registrant and Principal Financial Officer and
Chief Accounting Officer) |
|
29