cryoport_10k-033110.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
________________________
FORM 10-K
(Mark
One)
x ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For
the fiscal year ended March 31, 2010
OR
o TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For
the transition period from ______ to ______
Commission
file number: 000-51578
CRYOPORT,
INC.
(Exact
name of Registrant as specified in its charter)
|
Nevada
|
88-0313393
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
|
|
20382
Barents Sea Circle, Lake Forest, California
|
92630
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
(949)
470-2300
|
|
(Registrant's
telephone number, including area code)
|
|
|
|
Securities
registered pursuant to Section 12(b) of the Act:
|
|
Title
of Each Class
|
Name
of Each Exchange on Which Registered
|
|
Common
Stock, $.001 par value
|
OTC
Bulletin Board
|
|
Securities
registered pursuant to Section 12(g) of the Act:
|
|
Common
Stock, $0.001
Warrants
to Purchase Common Stock
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
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. Yes x
No
o
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). Yes o
No
x
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405) is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (check
one):
|
Large
accelerated filer o
|
|
Accelerated
filer
o
|
|
Non-accelerated
filer o
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes o No x
The
aggregate market value of Common Stock held by non-affiliates as of September
30, 2009 was $ 22,027,889
(1)
Number of
shares of Common Stock outstanding as of June 15, 2010: 8,150,255
DOCUMENTS INCORPORATED BY
REFERENCE
Part III
of this report incorporates certain information by reference from the
registrant’s proxy statement for the annual meeting of stockholders, which proxy
statement will be filed no later than 120 days after the close of the
registrant’s fiscal year ended March 31, 2010.
_________
|
(1)
|
Excludes
2,630,740 shares of common stock held by directors and officers, and any
stockholder whose ownership exceeds five percent of the shares outstanding
as of September 30, 2009.
|
CRYOPORT,
INC.
Fiscal
Year 2010 10-K Annual Report
Table
of Contents
| PART
I |
|
Item 1
|
Business
|
1
|
|
Item 1A
|
Risk
Factors
|
13
|
|
Item 1B
|
Unresolved
Staff Comments
|
25
|
|
Item 2
|
Properties
|
25
|
|
Item 3
|
Legal
Proceedings
|
25
|
|
Item 4
|
[Removed
and Reserved]
|
25
|
|
|
|
|
| PART
II |
|
Item 5
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
26
|
|
Item 6
|
Selected
Financial Data
|
27
|
|
Item 7
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
28
|
|
Item 7A
|
Quantitative
and Qualitative Disclosures About Market Risk
|
37
|
|
Item 8
|
Financial
Statements and Supplementary Data
|
37
|
|
Item 9
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosures
|
37
|
|
Item
9A(T)
|
Controls
and Procedures
|
37
|
|
Item
9B
|
Other
Information
|
38
|
|
|
|
|
| PART
III |
|
Item
10
|
Directors,
Executive Officers and Corporate Governance
|
40
|
|
Item
11
|
Executive
Compensation
|
40
|
|
Item
12
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
40
|
|
Item
13
|
Certain
Relationships and Related Transactions, and Director
Independence
|
40
|
|
Item
14
|
Principal
Accountant Fees and Services
|
40
|
|
|
|
|
| PART
IV |
|
Item
15
|
Exhibits
and Consolidated Financial Statement
|
41
|
|
|
Schedules
|
|
|
Signatures
|
46
|
NOTE
REGARDING REVERSE STOCK SPLIT
On
February 5, 2010, we filed a Certificate of Amendment to our Articles of
Incorporation with the Secretary of State of the State of Nevada to effect a
reverse split of our common stock at a ratio of ten for one. All
historical share and per share amounts have been adjusted to reflect the reverse
stock split.
PART I
In this Annual Report, the terms “we”,
“us”, “our”, “Company” and “CryoPort” refer to CryoPort, Inc., and our wholly
owned subsidiary, CryoPort Systems, Inc. This Annual Report contains
forward-looking statements that involve risks and uncertainties. The
inclusion of forward-looking statements should not be regarded as a
representation by us or any other person that the objectives or plans will be
achieved because our actual results may differ materially from any
forward-looking statement. The words “may,” “should,” “plans,”
“believe,” “anticipate,” “estimate,” “expect,” their opposites and similar
expressions are intended to identify forward-looking statements, but the absence
of these words does not necessarily mean that a statement is not
forward-looking. We caution readers that such statements are not
guarantees of future performance or events and are subject to a number of
factors that may tend to influence the accuracy of the statements, including but
not limited to, those risk factors outlined in the section titled “Risk Factors”
as well as those discussed elsewhere in this Annual Report. You
should not unduly rely on these forward-looking statements, which speak only as
of the date of this Annual Report. We undertake no obligation to
publicly revise any forward-looking statement to reflect circumstances or events
after the date of this Annual Report or to reflect the occurrence of
unanticipated events. You should, however, review the factors and
risks we describe in the reports that we file from time to time with the
Securities and Exchange Commission (“SEC”) after the date of this Annual
Report.
In addition, we own or have rights to
the registered trademark CryoPort® (both alone and with a design logo) and
CryoPort Express® (both alone and with a design logo). All other
Company names, registered trademarks, trademarks and service marks included in
this Annual Report are trademarks, registered trademarks, service marks or trade
names of their respective owners.
Item
1. BUSINESS
Overview
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 0° Celsius. These dry vapor shippers and shipping
system 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.
Our value
proposition comes from both providing safe transportation with 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 pickup and delivery
locations.
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
recently entered into our first strategic relationship with a global courier on
January 13, 2010 when we signed an agreement with Federal Express
Corporation (“FedEx”) pursuant to which we will lease to FedEx such number of
our cryogenic shippers that FedEx shall, from time to time, order for its
customers. Under this agreement, FedEx has the right to and shall, on a
non-exclusive basis, promote, market and sell transportation of our shippers and
our related value-added goods and services, such as our data logger, web portal
and planned CryoPort Express® Smart
Pak System.
We are a
Nevada corporation originally incorporated under the name G.T.5-Limited (“GT5”)
on May 25, 1990. In connection with a Share Exchange Agreement, on
March 15, 2005 we changed our name to CryoPort, Inc. and acquired all of
the issued and outstanding shares of common stock of CryoPort Systems, Inc., a
California corporation, in exchange for 2,410,811 shares of our common stock
(which represented approximately 81% of the total issued and outstanding shares
of common stock following the close of the transaction). CryoPort Systems,
Inc., which was originally formed in 1999 as a California limited liability
company, and subsequently reorganized into a California corporation on
December 11, 2000, remains the operating company under CryoPort,
Inc. Our principal executive offices are located at 20382 Barents Sea
Circle, Lake Forest, California 92630. The telephone number of our
principal executive offices is (949) 470-2300, and our main corporate
website is www.cryoport.com. The information on, or that can be accessed
through, our website is not part of this Annual Report.
Our
Products and Pipeline
Our product offering and service
offering consists of our CryoPort Express®
Shippers, reusable dry vapor shippers, the web portal allowing ease of entry and
our Smart Pak data logger, a temperature monitoring system (which, together with
our CryoPort Express®
Shippers, comprise our new business model referred to as the CryoPort
Express®
System) and a containment bag which is used in connection with the shipment of
infectious or dangerous goods using the CryoPort Express®
Shipper.
The CryoPort
Express® Shippers
Our
CryoPort Express® Shippers are cryogenic dry vapor shippers capable of
maintaining cryogenic temperatures of minus 150° Celsius or below for a period
of 10 or more days. A dry cryogenic shipper is a device that uses
liquid nitrogen contained inside a vacuum insulated bottle which serves as a
refrigerant to provide storage temperatures below minus 150°
Celsius. Our CryoPort Express® shipper is designed to ensure that
there is no pressure build up as the liquid nitrogen evaporates or spillage of
liquid nitrogen. We have developed a proprietary foam retention
system to ensure that liquid nitrogen stays inside the vacuum container, which
allows the shipper to be designated as a dry shipper meeting International Air
Transport Association (“IATA”) requirements. Biological or
pharmaceutical specimens are stored in a specimen chamber, referred to as a
“well”, inside the container and refrigeration is provided by cold nitrogen gas
evolving from the liquid nitrogen entrapped within the foam retention
system. Specimens that may be transported using our cryogenic shipper
include live cell pharmaceutical products such as cancer vaccines, diagnostic
materials, semen and embryos, infectious substances and other items that require
continuous exposure to frozen or cryogenic temperatures (e.g., temperatures
below minus 150° Celsius).
The technology underlying the CryoPort
Express® Shipper was developed by modifying and advancing technology from our
first generation of reusable cryogenic dry shippers. While our
CryoPort Express® Shippers share many of the characteristics and basic design
details of our earlier shippers, we are manufacturing our CryoPort Express®
Shippers from alternative, lower cost and lower weight materials, which will
reduce overall operating costs. We maintain ongoing development
efforts related to our shippers which are principally focused on material
properties, particularly those properties related to the low temperature
requirement, the vacuum retention characteristics, such as the permeability of
the materials, and lower cost and lower weight materials in an effort to meet
the market needs for achieving a lower cost frozen and cryogenic shipping
solution. Other advances additional to the development work on the
cryogenic container include both an improved liquid nitrogen retention system
and a secondary protective, spill proof packaging system. This
secondary system, outer packaging has a low cost that lends itself to
disposability, and it is made of recyclable materials. Further, it
adds an additional liquid nitrogen retention capability to further assure
compliance with IATA and ICAO regulations that prohibit egress of liquid
nitrogen from the shipping package. IACO stands for the International
Civil Aviation Organization, which is a United Nations organization that
develops regulations for the safe transport of dangerous goods by
air.
Our CryoPort Express® Shippers are
lightweight, low-cost, re-usable dry vapor liquid nitrogen storage containers
that we believe combine the best features of packaging, cryogenics and high
vacuum technology. A CryoPort Express® Shipper is composed of an
aluminum metallic dewar flask, with a well for holding the biological material
in the inner chamber. The dewar flask, or “thermos bottle,” is an
example of a practical device in which the conduction, convection and radiation
of heat are reduced as much as possible. The inner chamber of the
shipper is surrounded by a high surface, low-density open cell plastic foam
material which retains the liquid nitrogen in-situ by absorption, adsorption and
surface tension. Absorption is defined as the taking up of matter in
bulk by other matter, as in the dissolving of a gas by a liquid, whereas
adsorption is the surface retention of solid, liquid or gas molecules, atoms or
ions by a solid or liquid. This material absorbs liquid nitrogen
several times faster than currently used materials, while providing the shipper
with a hold time and capacity to transport biological materials safely and
conveniently. The annular space between the inner and outer dewar
chambers is evacuated to a very high vacuum (10-6 Torr). The
specimen-holding chamber has a primary cap to enclose the specimens, and a
removable and replaceable secondary cap to further enclose the specimen-holding
container and to contain the liquid nitrogen. The entire dewar vessel
is then wrapped in a plurality of insulating and cushioning materials and placed
in a disposable outer packaging made of recyclable material.
We
believe the CryoPort solution is the best and most cost effective solution
available in the market that satisfies customer needs and regulatory
requirements relating to the shipment of temperature-critical, frozen and
refrigerated transport of biological materials, such as the pharmaceutical
clinical trials, gene biotechnology, infectious materials handling, and animal
and human reproduction markets. Due to our proprietary technology and
innovative design, our shippers are less prone to losing functional hold time
when not kept in an upright position than the competing products because such
proprietary technology and innovative design prevent the spilling or leakage of
the liquid nitrogen when the container is tipped or on its side which would
adversely affect the functional hold time of the container.
An
important feature of the CryoPort Express® Shippers is their compliance with the
stringent packaging requirements of IATA Packing Instructions 602 and 650,
respectively. These instructions include the internal pressure
(hydraulic) and drop performance requirements.
The CryoPort
Express®
System
The CryoPort Express® System is
comprised of the CryoPort
Express®
Shipper, the CryoPort Express® Smart Pak data logger, CryoPort Express® Portal, which
programmatically manages order entry and all aspects of shipping operations, and
CryoPort Express® Analytics, which monitors
shipment performance metrics and evaluates temperature-monitoring data collected
by the data logger during shipment. The CryoPort Express® System is
focused on improving the reliability of frozen shipping while reducing the
customers’ overall operating costs. This is accomplished by providing
a complete end-to-end solution for the transport and monitoring of frozen or
cryogenically preserved biological or pharmaceutical materials shipped though
overnight shipping companies.
CryoPort
Express®
Portal
The CryoPort Express® Portal is
used by CryoPort, our customers and our business partners to automate the entry
of orders, prepare customs documentation and to facilitate status and location
monitoring of shipped orders while in transit. As an
example, the CryoPort Express® Portal is fully integrated with IT
systems at FedEx and runs in a browser requiring no software
installation. It is used by CryoPort to manage shipping operations
and to reduce administrative costs typically provisioned through manual labor
relating to order-entry, order processing, preparation of shipping documents and
back-office accounting. It is also used to support the high level of customer
service expected by the industry. Certain features of the CryoPort Express®
Portal reduce operating costs and facilitate the scaling of CryoPort’s
business, but more importantly they offer significant value to the customer in
terms of cost avoidance and risk mitigation. Examples these features
include automation of order entry, development of Key Performance Indicators
(“KPI”) to support our efforts for continuous process improvements in our
business, and programmatic exception monitoring to detect and sometimes
anticipate delays in the shipping process, often before the customer or the
shipping company becomes aware of it. In the future we will add rate
and mode optimization and in-transit monitoring of temperature, location and
state of health (discussed below), via wireless communications.
The CryoPort Express® Portal also
serves as the communications nerve center for the management, collection and
analysis of Smart Pak data harvested from Smart Pak data loggers in the field.
Data is converted into pre-designed reports containing valuable and often
actionable information that becomes the quality control standard or “pedigree”
of the shipment. This high value information can be utilized by
CryoPort to provide consultative services to the customer relating to
cryogenics.
The
CryoPort Express® Smart
Pak
Temperature monitoring is a high value
feature from our customers' perspective as it is an effective and reliable
method to determine that the shipment materials were not damaged or degraded
during shipment due to temperature fluctuations. Phase II of our
Smart Pak System which is a self-contained automated data logger capable of
recording the internal and external temperatures of samples shipped in our
CryoPort Express® Shipper was launched in fiscal year 2010.
Phase III of our Smart Pak System is
anticipated to launch in fiscal year 2011, and consists of adding a smart
chip to each shipper with wireless connectivity to enable our customers to
monitor a shipper’s location, specimen temperature and overall state of health
via our web portal. A key feature of the Phase III product is
automatic downloading of data which requires no customer
intervention.
CryoPort
Express®
Analytics
Our continued development of the
CryoPort Express® Portal is a strategic element of our business strategy and
the CryoPort Express® Portal system has been designed to support
planned future features with this thought in mind. Analytics is a
term used by IT professionals to refer to performance benchmarks or Key
Performance Indicators (KPI’s) that management utilizes to measure performance
against desired standards. Examples include time-based metrics for order
processing time and on-time deliveries by our shipping partners, as well as
profiling shipping lanes to determine average transit times and predicting an exception if a
shipment is taking longer than it should based on historical
metrics. The analytical results will be utilized by CryoPort to
render consultative customer services.
Biological
Material Holders
We
have also developed a patented containment bag which is used in connection with
the shipment of infectious or dangerous goods using the CryoPort Express®
Shipper. Up to five vials, watertight primary receptacles, are placed onto
aluminum holders and up to fifteen holders (75 vials) are placed into an
absorbent pouch which is designed to absorb the entire contents of all the vials
in the event of leakage. This pouch containing up to 75 vials is then
placed in a watertight secondary packaging Tyvek bag capable of withstanding
cryogenic temperatures, and then sealed. This bag is then placed
into the well of the cryogenic shipper.
Other
Product Candidates and Development Activities
We are continuing our research and
development efforts which are expected to lead to the introduction of additional
dry vapor shippers, including larger and smaller size units constructed of lower
cost materials and utilizing high volume manufacturing methods. We
are also exploring the use of alternative phase change materials in place of
liquid nitrogen in order to seek entry into the ambient temperature and chilled
(2° to 8° Celsius) shipping markets.
Government
Regulation
The
shipping of diagnostic specimens, infectious substances and dangerous goods,
whether via air or ground, falls under the jurisdiction of many states, federal
and international agencies. The quality of the containers, packaging
materials and insulation that protect a specimen determine whether or not it
will arrive in a usable condition. Many of the regulations for transporting
dangerous goods in the United States are determined by international rules
formulated under the auspices of the United Nations. For example, the ICAO
is the United Nations organization that develops regulations (Technical
Instructions) for the safe transport of dangerous goods by air. If shipment
is by air, compliance with the rules established by IATA is required. IATA
is a trade association made up of airlines and air cargo couriers that publishes
annual editions of the IATA Dangerous Goods Regulations. These regulations
interpret and add to the ICAO Technical Instructions to reflect industry
practices. Additionally, the CDC has regulations (published in the Code of
Federal Regulations) for interstate shipping of specimens, and OSHA also
addresses the safe handling of Class 6.2 Substances. Our CryoPort
Express®
Shipper meets Packing Instructions 602 and 650 and is certified for the shipment
of Class 6.2 Dangerous Goods per the requirements of the ICAO Technical
Instructions for the Safe Transport of Dangerous Goods by Air and IATA. Our
present and planned future versions of the CryoPort Smart Pak data logger will
likely be subject to regulation by FAA, FCC, FDA, IATA and possibly other
agencies which may be difficult to determine on a global basis.
We are
also subject to numerous other federal, state and local laws relating to such
matters as safe working conditions, manufacturing practices, environmental
protection, fire hazard control, and disposal of hazardous or potentially
hazardous substances. We may incur significant costs to comply with such
laws and regulations now or in the future.
Manufacturing
and Raw Materials
Manufacturing. The
component parts for our products are primarily manufactured at third party
manufacturing facilities. We also have a warehouse at our corporate offices
in Lake Forest, California, where we are capable of manufacturing certain parts
and fully assemble our products. Most of the components that we use in the
manufacture of our 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, we have identified alternate
qualified suppliers which we believe could replace existing
suppliers. Should this occur, we believe that with our current level of
dewars and production rate we have enough to cover a four to six week gap
in maximum
disruption of production.
Primary manufacturers used by us
include Spaulding Composites Company, Peterson Spinning and Stamping, Lydall
Industrial Thermal Solutions, and Ludwig, Inc. There are no specific
agreements with any manufacturer nor are there any long term commitments to any
manufacturer. We believe that most of the manufactures currently used by us
could be replaced within a short period of time as none have a proprietary
component or a substantial capital investment specific to our
products.
Our production and manufacturing
process incorporates innovative technologies developed for aerospace and other
industries which are cost effective, easier to use and more functional than the
traditional dry ice devices and other methods currently used for the shipment of
temperature-sensitive materials. Our manufacturing process uses
non-hazardous cleaning solutions which are provided and disposed of by a
supplier approved by the Environmental Protection Agency (the “EPA”). EPA
compliance costs for us are therefore negligible.
Raw
Materials. Various common raw materials are used in the
manufacture of our products and in the development of our
technologies. These raw materials are generally available from
several alternate distributors and manufactures. We have not
experienced any significant difficulty in obtaining these raw materials and we
do not consider raw material availability to be a significant factor in our
business.
Patents
and Proprietary Rights
In order
to remain competitive, we must develop and maintain protection on the
proprietary aspects of its technologies. We rely on a combination of patents,
copyrights, trademarks, trade secret laws and confidentiality agreements to
protect our intellectual property rights. We currently own four registered
United States trademarks and three issued United States patents primarily
covering various aspects of our products. In addition, we have filed a patent
application for various aspects of our shipper and web-portal, which includes,
in part, various aspects of our business model referred to as the CryoPort
Express® System, and we intend to file additional patent applications to
strengthen our intellectual property rights. The technology covered by the above
indicated issued patents relates to matters specific to the use of liquid
nitrogen dewars in connection with the shipment of biological materials. The
concepts include those of disposability, package configuration details, liquid
nitrogen retention systems, systems related to thermal performance, systems
related to packaging integrity, and matters generally relevant to the
containment of liquid nitrogen. Similarly, the trademarks mentioned relate to
the cryogenic temperature shipping activity. Issued patents and trademarks
currently owned by us include:
|
|
Type:
|
|
No.
|
|
Issued
|
|
Expiration
|
|
|
Patent
|
|
6,467,642
|
|
Oct.
22, 2002
|
|
Oct.
21, 2022
|
|
|
Patent
|
|
6,119,465
|
|
Sep.
19, 2000
|
|
Sep.
18, 2020
|
|
|
Patent
|
|
6,539,726
|
|
Apr.
1, 2003
|
|
Mar
31, 2023
|
|
|
Trademark
|
|
7,583,478,7
|
|
Oct.
9, 2002
|
|
Oct.
8, 2012
|
|
|
Trademark
|
|
7,586,797,8
|
|
Apr.
16, 2002
|
|
Apr.
16, 2012
|
|
|
Trademark
|
|
7,748,667,3
|
|
Feb.
3, 2009
|
|
Feb.
3, 2019
|
|
|
Trademark
|
|
7,737,451,1
|
|
Mar.
17, 2009
|
|
Mar.
17, 2019
|
Our
success depends to a significant degree upon our ability to develop proprietary
products and technologies and to obtain patent coverage for these products and
technologies. We intend to file trademark and patent applications covering any
newly developed products, methods and technologies. However, there can be no
guarantee that any of our pending or future filed applications will be issued as
patents. There can be no guarantee that the U.S. Patent and Trademark Office or
some third party will not initiate an interference proceeding involving any of
our pending applications or issued patents. Finally, there can be no guarantee
that our issued patents or future issued patents, if any, will provide adequate
protection from competition.
Patents
provide some degree of protection for our proprietary technology. However, the
pursuit and assertion of patent rights involve complex legal and factual
determinations and, therefore, are characterized by significant uncertainty. In
addition, the laws governing patent issuance and the scope of patent coverage
continue to evolve. Moreover, the patent rights we possess or are pursuing
generally cover our technologies to varying degrees. As a result, we cannot
ensure that patents will issue from any of our patent applications, or that any
of its issued patents will offer meaningful protection. In addition, our issued
patents may be successfully challenged, invalidated, circumvented or rendered
unenforceable so that our patent rights may not create an effective barrier to
competition. Moreover, the laws of some foreign countries may not protect our
proprietary rights to the same extent, as do the laws of the United States.
There can be no assurance that any patents issued to us will provide a legal
basis for establishing an exclusive market for our products or provide us with
any competitive advantages, or that patents of others will not have an adverse
effect on our ability to do business or to continue to use our technologies
freely.
We may be
subject to third parties filing claims that our technologies or products
infringe on their intellectual property. We cannot predict whether third parties
will assert such claims against us or whether those claims will hurt our
business. If we are forced to defend against such claims, regardless of their
merit, we may face costly litigation and diversion of management’s attention and
resources. As a result of any such disputes, we may have to develop, at a
substantial cost, non-infringing technology or enter into licensing agreements.
These agreements may be unavailable on terms acceptable to it, or at all, which
could seriously harm our business or financial condition.
We also
rely on trade secret protection of our intellectual property. We attempt to
protect trade secrets by entering into confidentiality agreements with third
parties, employees and consultants, although, in the past, we have not always
obtained such agreements. It is possible that these agreements may be breached,
invalidated or rendered unenforceable, and if so, our trade secrets could be
disclosed to our competitors. Despite the measures we have taken to protect our
intellectual property, parties to such agreements may breach confidentiality
provisions in our contracts or infringe or misappropriate our patents,
copyrights, trademarks, trade secrets and other proprietary rights. In addition,
third parties may independently discover or invent competitive technologies, or
reverse engineer our trade secrets or other technology. Therefore, the measures
we are taking to protect our proprietary technology may not be
adequate.
Customers
and Distribution
As a result of growing globalization,
including with respect to such areas as life science clinical trials and
distribution of pharmaceutical products, the requirement for effective solutions
for keeping certain clinical samples and pharmaceutical products at frozen
temperatures takes on added significance due to extended shipping times, custom
delays and logistics challenges. Today, such goods are traditionally
shipped in Styrofoam cardboard insulated containers packed with dry ice,
gel/freezer packs or a combination thereof. The current dry ice solutions
have limitations that severely limit their effective and efficient use for both
short and long-distances (e.g., international). Conventional dry ice
shipments often require labor intensive “re-icing” operations resulting in
higher labor and shipping costs.
We believe our patented cryogenic
shippers make us well positioned to take advantage of the growing demand for
effective and efficient international transport of temperature sensitive
materials resulting from continued globalization. Of particular
significance is the trend within the pharmaceutical and biotechnology
industries toward globalization. We believe this presents a new and
unique opportunity for pharmaceutical companies, particularly early or
developmental stage companies, to conduct some of their clinical trials in
foreign countries where the cost may be cheaper and/or because the foreign
countries significantly larger population provides a larger pool of potential
patients suffering from the indication that the drug candidate is being designed
to treat. We also plan to provide domestic shipping solutions in situations
and regions where there is a high priority placed on maintaining the integrity
of materials shipped at cryogenic temperatures and where we can be cost
effective.
To date, most of our customers have
been in the pharmaceutical or medical industries. As we initially focus our
efforts to increase revenues, we believe that the primary target customers for
our CryoPort Express®
System are concentrated in the following markets, for the following
reasons:
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Pharmaceutical
clinical trials / Contract Research Organizations;
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Gene
biotechnology;
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Transport
of infectious materials and dangerous goods;
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Pharmaceutical
distribution; and
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Fertility
clinics/artificial insemination.
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Pharmaceutical Clinical
Trials. Every pharmaceutical company developing a
new drug must be approved by the FDA who conducts clinical trials to, among
other things, test the safety and efficacy of the potential new
drug. Presently, a significant amount of clinical trial activity is managed
by a number of large Clinical Research Organizations (“CROs”). Due to the
growing downsizing trend in the pharmaceutical industry, CROs are going to
obtain an increasing share of the clinical trial market.
In connection with the clinical trials,
due to globalization the companies may enroll patients from all over the world
who regularly submit a blood or other specimen at the local hospital, doctor’s
office or laboratory. These samples are then sent to specified testing
laboratories, which may be local or in another country. The testing
laboratories will typically set the requirements for the storage and shipment of
blood specimens. In addition, several of the drugs used by the patients
require frozen shipping to the sites of the clinical trials. While both
domestic and international shipping of these specimens is accomplished using dry
ice today, international shipments especially present several problems, as dry
ice, under the best of circumstances, can only provide freezing for one to
two days, in the absence of re-icing (which is quite costly). Because
shipments of packages internationally can take longer than one to two
days or be delayed due to flight cancellations, incorrect destinations,
labor problems, ground logistics, customs delays and safety reasons, dry ice is
not always a reliable and cost effective option. Clinical trial specimens
are often irreplaceable because each one represents clinical data at a
prescribed point in time, in a series of specimens on a given patient, who may
be participating in a trial for years. Sample integrity during the shipping
process is vital to retaining the maximum number of patients in each
trial. Our shippers are ideally suited for this market, as our longer hold
time ensures that specimens can be sent over long distances with minimal concern
that they will arrive in a condition that will cause their exclusion from the
trial. There are also many instances in domestic shipments where the
CryoPort Express®
Shipper will provide higher reliability and be cost effective.
Furthermore, the IATA requires that all
airborne shipments of laboratory specimens be transmitted in either IATA
Instruction 650 or 602 certified packaging. We have developed and obtained
IATA certification of the CryoPort Express®
System, which is ideally suited for this market, in particular due to the
elimination of the cost to return the reusable shipper.
Gene
Biotechnology. The gene biotechnology market
includes basic and applied research and development in diverse areas such as
stem cells, cloning, gene therapy, DNA tumor vaccines, tissue engineering,
genomics, and blood products. Company’s participating in the foregoing fields
rely on the frozen transport of specimens in connection with their research and
development efforts, for which our CryoPort Express®
Shippers are ideally suited.
Transport of Infectious Materials
and Dangerous Goods. The transport of infectious
materials must be classified as such and must maintain strict adherence to
regulations that protect public safety while maintaining the viability of the
material being shipped. Some blood products are considered infective and
must be treated as such. Pharmaceutical companies, private research
laboratories and hospitals ship tissue cultures and microbiology specimens,
which are also potentially infectious materials, between a variety of entities,
including private and public health reference laboratories. Almost all
specimens in this infectious materials category require either a refrigerated or
a frozen environment. We believe our CryoPort Express®
Shipper is ideally suited to meet the shipping requirements of this
market.
Partly in response to the attack on the
World Trade Center and the anthrax scare, government officials and health care
professionals are focusing renewed attention on the possibility of attacks
involving biological and chemical weapons such as anthrax, smallpox and sarin
gas. Efforts expended on research and development to counteract biowarfare
agents requires the frozen transport of these agents to and from facilities
conducting the research and development. Vaccine research, including
methods of vaccine delivery, also requires frozen transport. We believe our
CryoPort Express®
Shipper is ideally suited to this type of research and development.
Pharmaceutical
Distribution. The current focus for the CryoPort
Express®
System also includes the area of pharmaceutical distribution. There are a
significant number of therapeutic drugs and vaccines currently or soon to be,
undergoing clinical trials. After the FDA approves them for commercial
marketing, it will be necessary for the manufacturers to have a reliable and
economical method of distribution to the physician who will administer the
product to the patient. Although there are not now a large number of drugs
requiring cryogenic transport, there are a number in the development
pipeline. It is likely that the most efficient and reliable method of
distribution will be to ship a single dosage to the administering
physician. These drugs are typically identified to individual patients and
therefore will require a complete tracking history from the manufacturer to the
patient. The most reliable method of doing this is to ship a unit dosage
specifically for each patient. Because the drugs require maintenance at
frozen or cryogenic temperatures, each such shipment will require a frozen or
cryogenic shipping package. CryoPort anticipates being in a position to
service that need.
Fertility
Clinics. We estimate that artificial insemination
procedures in the United States account for at least 50,000 doses of semen
annually. Since relatively few sperm banks provide donor semen, frozen shipping
is almost always involved. As with animal semen, human semen must be stored
and shipped at cryogenic temperatures to retain viability, stabilize the
cells, and ensure reproducible results. This can only be accomplished
with the use of liquid nitrogen or LN2 dry vapor shippers. CryoPort
anticipates that this market will continue to increase as this practice gains
acceptance in new areas of the world.
In addition to the above markets, our
longer-term plans include expanding into new markets including, the diagnostics,
food, environmental, semiconductor and petroleum industries.
Sales
and Marketing
We currently have one internal
sales person who manages our direct sales. Our current distribution
channels cover the Americas, Europe and Asia. During the fiscal year ended
March 31, 2010, annual net revenues from BD Biosciences and CDx Holdings,
Inc. accounted for 32.1% and 18.7%, respectively, of our net
revenues.
Our
geographical sales for the year ended March 31, 2010 were as
follows:
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USA
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43.6%
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Europe
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52.3%
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Canada
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4.1%
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We
recently entered into an agreement with FedEx and we plan to further expand our
sales and marketing efforts through the establishment of additional strategic
relationships with global couriers and, subject to available financial
resources, the hiring of additional sales and marketing
personnel.
Industry
and Competition
Our
products and services are sold into a rapidly growing niche of the packaging
industry focused on the temperature sensitive packaging and shipping of
biological materials. Expenditures for “value added” packaging for frozen
transport have been increasing for the past several years and, due in part to
continued globalization, are expected to continue to increase even more in the
future as more domestic and international biotechnology firms introduce
pharmaceutical products that require continuous refrigeration at cryogenic
temperatures. We believe this will require a greater dependence on
passively controlled temperature transport systems (i.e., systems having no
external power source).
We
believe that growth in the following markets has resulted in the need for
increased efficiencies and greater flexibility in the temperature sensitive
packaging market:
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Pharmaceutical
clinical trials, including transport of tissue culture
samples;
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Pharmaceutical
commercial product distribution;
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Transportation
of diagnostic specimens;
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Transportation
of infectious materials;
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Intra
laboratory diagnostic testing;
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Transport
of temperature-sensitive specimens by courier;
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Analysis
of biological samples;
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Environmental
sampling;
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Gene
and stem cell biotechnology and vaccine production; and
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Food
engineering.
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Many of
the biological products in these above markets require transport in a frozen
state as well as the need for shipping containers which have the ability to
maintain a frozen, cryogenic environment (e.g., minus 150° Celsius) for a period
ranging from two to ten days (depending on the distance and mode of
shipment). These products include semen, embryo, tissue, tissue cultures,
cultures of viruses and bacteria, enzymes, DNA materials, vaccines and certain
pharmaceutical products. In some instances, transport of these products
requires temperatures at, or approaching, minus 196° Celsius.
One
problem faced by many companies operating in these specialized markets is the
limited number of cryogenic shipping systems serving their needs, particularly
in the areas of pharmaceutical companies conducting clinical trials. The
currently adopted protocol and the most common method for packaging frozen
transport in these industries is the use of solid state carbon dioxide (dry
ice). Dry ice is used extensively in shipping to maintain a frozen state
for a period of one to four days. Dry ice is used in the transport of many
biological products, such as pharmaceuticals, laboratory specimens and certain
infectious materials that do not require true cryogenic temperatures. The
common approach to shipping these items via ground freight is to pack the
product in a container, such as an expanded polystyrene (Styrofoam) box or a
molded polyurethane box, with a variable quantity of dry ice. The box is
taped or strapped shut and shipped to its destination with freight charges based
on its initial shipping weight.
With
respect to shipments via specialized courier services, there is no standardized
method or device currently in use for the purpose of transporting
temperature-sensitive frozen biological specimens. One common method for
courier transport of biological materials is to place frozen specimens,
refrigerated specimens, and ambient specimens into a compartmentalized
container, similar in size to a 55 quart Coleman or Igloo cooler. The
freezer compartment in the container is loaded with a quantity of dry ice at
minus 78° Celsius, while the refrigerated compartment at 8° Celsius utilizes ice
substitutes.
Two
manufacturers of the polystyrene and polyurethane containers frequently used in
the shipping and courier transport of dry ice frozen specimens are Insulated
Shipping Containers, Inc. and Tegrant (formerly SCA Thermosafe). When these
containers are used with dry ice, the average sublimation rate (e.g., the rate
at which dry ice turns from a solid to a gaseous state) in a container with a
1 1/2
inch wall thickness is slightly less than three pounds per 24 hours. Other
existing refrigerant systems employ the use of gel packs and ice substitutes for
temperature maintenance. Gels and eutectic solutions (phase changing
materials) with a wide range of phasing temperatures have been developed in
recent years to meet the needs of products with varying specific temperature
control requirements.
The use
of dry ice and ice substitutes, however, regardless of external packaging used,
are frequently inadequate because they do not provide low enough storage
temperatures and, in the case of dry ice, last for only a few days without
re-icing. As a result, companies run the risk of increased costs due to
lost specimens and additional shipping charges due to the need to
re-ice.
Some of
the other disadvantages to using dry ice for shipping or transporting
temperature sensitive products are as follows:
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Availability
of a dry ice source;
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Handling
and storage of the dry ice;
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Cost
of the dry ice;
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Compliance
with local, state and federal regulations relating to the storage and use
of dry ice;
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Weight
of containers when packed with dry ice;
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Securing
a shipping container with a high enough R-value (which is a measure of
thermal resistance) to hold the dry ice and product for the required time
period;
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Securing
a shipping container that meets the requirements of IATA, the DOT,
the CDC, and other regulatory agencies; and
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The
emission of green house gases into the
environment.
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Due to
the limitations of dry ice, shipment of specimens at true cryogenic temperatures
can only be accomplished using liquid nitrogen dry vapor shippers, or by
shipping over actual liquid nitrogen. While such shippers provide solutions
to the issues encountered when shipping with dry ice, they too are experiencing
some criticisms by users or potential users. For example, the cost for
these products typically can range from $650 to $3,000 per unit, which can
substantially limit their use for the transport of many common biologics,
particularly with respect to small quantities such as is the case with direct to
the physician drug delivery. Because of the initial cost and limited
production of these containers, they are designed to be reusable. However,
the cost of returning these heavy containers can be significant, particularly in
international markets, because most applications require only one-way
shipping. We expect to provide a cost effective solution compared to dry
ice. We believe we will provide an overall cost savings of 10% to 20% for
international and specialty shipments compared to dry ice, while at the same
time providing a higher level of support and related services.
Another
problem with these existing systems relates to the hold time of the unit in a
normal, upright position versus the hold time when the unit is placed on its
side or inverted. If a container is laying on its side or is inverted the
liquid nitrogen is prone to leaking out of the container due to a combination of
factors, including a shift in the equilibrium height of the liquid nitrogen
in the absorbent material and the relocation of the point of
gravity, which affects the hold time and compromises the dependability of
the dry shipper, particularly when used in circumstances requiring lengthy
shipping times. Due to the use of our proprietary technology, our CryoPort
Express®
Shippers are not prone to leakage when on their side or inverted, thereby
protecting the integrity of our shipper’s hold time.
Within
our intended markets for our CryoPort Express® Shippers, there is limited known
competition. We intend to become competitive by reason of our
improved technology in our products and through the use of our service enabled
business model. The CryoPort Express® System provides a simple and
cost effective solution for the frozen or cryogenic transport of biological or
pharmaceutical materials. This solution if comprised of our
innovative dewar and is supported by the CryoPort Express® Portal, our web-based
order-entry system, which manages the scheduling and shipping of the CryoPort
Express® Shippers. In addition to the traditional dry ice shipping,
suppliers, such as MVE/Chart Industries, Taylor Wharton and Air Liquide, offer
various models of dry vapor liquid nitrogen shippers that are not cost
efficient for multi-use and multi-shipment purposes due to their
significantly greater unit costs and unit weight (which may substantially
increase the shipping cost). On the other hand, they are more
established and have larger organizations and have greater financial,
operational, sales and marketing resources and experience in research and
development than we do. Factors that we believe give us a competitive
advantage are attributable to our shipping container which allows our shipper to
retain liquid nitrogen when placed in non-upright positions, the overall
“leak-proofness” of the our package which determines compliance with shipping
regulations and the overall weight and volume of the package which determines
shipping costs, and our business model represented by the merged integration of
our shipper with CryoPort Express Portal and Smart Pak datalogger into a
seamless shipping, tracking and monitoring solution. Other companies
that offer potentially competitive products include Industrial Insulation
Systems, which offers cryogenic transport units and has partnered with Marathon
Products Inc., a manufacturer and global supplier of wireless temperature data
collecting devices used for documenting environmentally sensitive products
through the cold chain and Kodiak Thermal Technologies, Inc. which offers, among
other containers, a repeat use active-cool container that uses free piston
stirling cycle technology. While not having their own shipping
devices, BioStorage Technologies is potentially a competitive company through
their management services offered for cold-chain logistics and long term
biomaterial storage. Cryogena offers a single use disposable LN2 shipper
with better performance than dry-ice, but it does not perform as well and is not
as cost-effective as the CryoPort solution when all costs are considered. In
addition, BioMatrica, Inc. is developing and offering technology that stabilizes
biological samples and research materials at room temperature. They
presently offer these technologies primarily to research and academic
institutions, however, their technology may eventually enter the broader
cold-chain market.
Research
and Development
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. 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. Our research and
development expenditures during for the fiscal years ended March 31, 2010 and
2009 were $284,847 and $297,378, respectively.
Corporate
Governance
Our Board is committed to legal and
ethical conduct in fulfilling its responsibilities. The Board expects
all directors, as well as officers and employees, to act ethically at all times
and to adhere to the policies comprising the Company's Code of Business Conduct
and Ethics. The Board of Directors (the "Board") of the Company
adopted the corporate governance policies and charters. Copies of the
following corporate governance documents are posted on our website, and are
available free of charge, at www.cryoport.com:
(1) Code
of Business Conduct and Ethics (2) Charter of the Nominating and Governance
Committee of the Board of Directors, (3) Charter of the Audit Committee of the
Board of Directors, and (4) Charter of the Compensation Committee
of the Board of Directors. If you would like a printed copy of any of
these corporate governance documents, please send your request to CryoPort,
Inc., Attention: Corporate Secretary, 20382
Barents Sea Circle, Lake Forest CA 92630.
Human
Resources
As of
March 31, 2010, we had seven full-time employees and six consultants. Three of
the consultants work for us on a full-time basis. Each of our
employees has signed a confidentiality agreement and none are covered by a
collective bargaining agreement. We have never experienced
employment-related work stoppages and consider our employee relations to be
good.
ITEM
1A. RISK FACTORS
This Annual Report on Form 10-K
contains forward-looking information based on our current
expectations. Because our actual results may differ materially from
any forward-looking statements made by or on behalf of CryoPort, this section
includes a discussion of important factors that could affect our actual future
results, including, but not limited to, our potential product and service
revenues, acceptance of our products and services, expenses, net income(loss)
and earnings(loss) per common share.
Risks Related to Our Business
We
have incurred significant losses to date and may continue to incur
losses.
We have incurred net losses in each
fiscal year since we commenced operations. The following table represents
net losses incurred in each of our last two fiscal years:
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Net
Loss
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Fiscal
Year Ended March 31, 2010
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$ |
5,651,561 |
|
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Fiscal
Year Ended March 31, 2009
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$ |
16,705,151 |
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As of
March 31, 2010, we had an accumulated deficit of
$45,943,809. While we expect to continue to derive revenues from our
current products and services, in order to achieve and sustain profitable
operations, we must successfully commercialize and launch our CryoPort
Express®
System, significantly expand our market presence and increase revenues. We
may continue to incur losses in the future and may never generate revenues
sufficient to become profitable or to sustain profitability. Continuing
losses may impair our ability to raise the additional capital required to
continue and expand our operations.
Our
auditors have expressed doubt about our ability to continue as a going
concern.
The
Report of Independent Registered Public Accounting Firm to our March 31,
2010 consolidated financial statements includes an explanatory paragraph stating
that the recurring losses and negative cash flows from operations since
inception and our limited working capital and cash and cash equivalent
balance at March 31, 2010 raise substantial doubt about our ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
If
we are unable to obtain additional funding, we may have to reduce or discontinue
our business operations.
As of
June 15, 2010, we had cash and cash equivalents of $2,197,878. We have expended
substantial funds on the research and development of our products and IT
systems. As a result, we have historically experienced negative cash flows
from operations and we expect to continue to experience negative cash flows from
operations in the future. Therefore, our ability to continue and expand
our operations is highly dependent on the amount of cash and cash equivalents on
hand combined with our ability to raise additional capital to fund our future
operations.
We
anticipate, based on currently proposed plans and assumptions relating to our
ability to market and sell our products (but not including any additional
strategic relationships with global couriers), that our cash on hand, together
with projected cash flows, will satisfy our operational and capital requirements
through September 2010. There are a number of uncertainties associated
with our financial projections that could reduce or delay our future projected
revenues and cash-inflows, including, but not limited to, our ability to
complete the commercialization and launch of our CryoPort Express®
System, launch our relationship with FedEx, increase our customer base and
revenues and enter into strategic relationships with additional global couriers.
If our projected revenues and cash-inflows are reduced or delayed, we may
not have sufficient capital to operate through September 2010 unless we raise
more capital. Additionally, if we are unable to realize satisfactory
revenue in the near future, we will be required to seek additional financing to
continue our operations beyond that period. We will also require
additional financing to expand into other markets and further develop and market
our products. We have no current arrangements with respect to any
additional financing. Consequently, there can be no assurance that any
additional financing on commercially reasonable terms, or at all, will be
available when needed. The inability to obtain additional capital may
reduce our ability to continue to conduct business operations. Any
additional equity financing may involve substantial dilution to our then
existing stockholders. In addition, raising additional funding may be
complicated by certain provisions in the securities purchase agreements and
related transaction documents, as amended, entered into in connection with our
prior convertible debenture financings. The uncertainties surrounding our
future cash inflows have raised substantial doubt regarding our ability to
continue as a going concern.
If
we are not successful in establishing strategic relationships with global
couriers, we may not be able to successfully increase revenues and cashflow
which could adversely affect our operations.
We
believe that our near term success is best achieved by establishing strategic
relationships with global couriers, such as our recent agreement with FedEx.
Such relationships will enable us to provide a seamless, end-to-end
shipping solution to customers and allow us to leverage the couriers’
established express, ground and freight infrastructures and penetrate new
markets with minimal investment. Further, we expect that the global
couriers will utilize their sales forces to promote and sell our frozen shipping
services. If we are not successful in launching our relationship with
FedEx or establishing additional relationships with global couriers, our sales
and marketing efforts will be significantly impacted and anticipated revenue
growth will be substantially delayed which could have an adverse affect on our
operations.
Our
agreement with FedEx may not result in a significant increase in our revenues or
cashflow.
On
January 13, 2010, we entered into an agreement with FedEx pursuant to which
we will lease to FedEx such number of our cryogenic shippers that FedEx shall,
from time to time, order for its customers. FedEx has the right to
and shall, on a non-exclusive basis, promote, market and sell transportation of
our shippers and our related value-added goods and services, such as our data
logger, web portal and planned CryoPort Express Smart Pak System. Because
our agreement with FedEx does not contain any requirement that FedEx lease a
minimum number of shippers from us during the term of the agreement, we may not
experience a significant increase in our revenues or cashflows as a result of
this agreement. Further, while we are working with FedEx to implement
and launch our relationship, we may experience delays in such implementation
which could adversely affect our revenues.
Current
economic conditions and capital markets are in a period of disruption and
instability which could adversely affect our ability to access the capital
markets, and thus adversely affect our business and liquidity.
The
current economic conditions and financial crisis have had, and will continue to
have, a negative impact on our ability to access the capital markets, and thus
have a negative impact on our business and liquidity. The shortage of
liquidity and credit combined with substantial losses in worldwide equity
markets could lead to an extended worldwide recession. We may face
significant challenges if conditions in the capital markets do not improve.
Our ability to access the capital markets has been and continues to be
severely restricted at a time when we need to access such markets, which could
have a negative impact on our business plans, including the commercialization
and launch of our CryoPort Express®
System and other research and development activities. Even if we are able
to raise capital, it may not be at a price or on terms that are favorable to
us. We cannot predict the occurrence of future financial disruptions or
how long the current market conditions may continue.
The
sale of substantial shares of our common stock may depress our stock
price.
As of
March 31, 2010, there were 8,136,619 shares of our common stock
outstanding. Substantially all of these shares of common stock are
eligible for trading in the public market. The market price of our common
stock may decline if our stockholders sell a large number of shares of our
common stock in the public market, or the market perceives that such sales may
occur.
We could
also issue up to 8,276,519 additional shares of our common stock including
shares to be issued upon conversion of the outstanding balance of our
convertible debentures and upon the exercise of outstanding warrants and options
or reserved for future issuance under our stock incentive plans, as further
described in the following table:
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Number of Shares of Common Stock
Issuable or Reserved For Issuance
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Common
stock issuable upon conversion of the outstanding balance of our
convertible debentures
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1,076,856
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Common
stock issuable upon exercise of outstanding warrants
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5,540,532
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Common
stock issuable upon exercise of outstanding options
or reserved for future incentive awards under our stock incentive
plans
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1,659,131
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Total
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8,276,519
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Of the
total options and warrants outstanding as of March 31, 2010, options and
warrants exercisable for an aggregate of 38,782 shares of common
stock would be considered dilutive to the value of our stockholders’
interest in CryoPort because we would receive upon exercise of such options and
warrants an amount per share that is less than the market price of our common
stock on March 31, 2010.
We
will have difficulty increasing our revenues if we experience delays,
difficulties or unanticipated costs in establishing the sales, distribution and
marketing capabilities necessary to successfully commercialize our
products.
We are
continuing to develop sales, distribution and marketing capabilities in the
Americas, Europe and Asia. It will be expensive and time-consuming for us
to develop a global marketing and sales network. Moreover, we may choose,
or find it necessary, to enter into additional strategic collaborations to sell,
market and distribute our products. We may not be able to provide adequate
incentive to our sales force or to establish and maintain favorable distribution
and marketing collaborations with other companies to promote our products.
In addition, any third party with whom we have established a marketing and
distribution relationship may not devote sufficient time to the marketing and
sales of our products thereby exposing us to potential expenses in exiting such
distribution agreements. We, and any of our third party collaborators,
must also market our products in compliance with federal, state, local and
international laws relating to the provision of incentives and
inducements. Violation of these laws can result in substantial
penalties. Therefore, if we are unable to successfully motivate and expand
our marketing and sales force and further develop our sales and marketing
capabilities, or if our distributors fail to promote our products, we will have
difficulty increasing our sales.
Our
ability to grow and compete in our industry will be hampered if we are unable to
retain the continued service of our key professionals or to identify, hire and
retain additional qualified professionals.
A
critical factor to our business is our ability to attract and retain qualified
professionals including key employees and consultants. We are continually
at risk of losing current professionals or being unable to hire additional
professionals as needed. If we are unable to attract new qualified
employees, our ability to grow will be adversely affected. If we are
unable to retain current employees or strategic consultants, our financial
condition and ability to maintain operations may be adversely
affected.
We
are dependent on new products and services, the lack of which would harm our
competitive position.
Our
future revenue stream depends to a large degree on our ability to bring new
products and services to market on a timely basis. We must continue to
make significant investments in research and development in order to continue to
develop new products and services, enhance existing products and services, and
achieve market acceptance of such products and services. We may incur
problems in the future in innovating and introducing new products and
services. Our development stage products and services may not be
successfully completed or, if developed, may not achieve significant customer
acceptance. If we are unable to successfully define, develop and introduce
new, competitive products and services and enhance existing products and
services, our future results of operations would be adversely affected.
Development and manufacturing schedules for technology products and services are
difficult to predict, and we might not achieve timely initial customer shipments
of new products or launch of services. The timely availability
of these products and services and their acceptance by customers are important
to our future success. A delay in new or enhanced product or service
introductions could have a significant impact on our results of
operations.
Because
of these risks, our research and development efforts may not result in any
commercially viable products or services. If significant portions of these
development efforts are not successfully completed, or any new or enhanced
products or services are not commercially successful, our business, financial
condition and results of operations may be materially harmed.
If
we successfully develop products and/or services, but those products and/or
services do not achieve and maintain market acceptance, our business will not be
profitable.
The
degree of acceptance of our CryoPort Express®
Shipper and/or CryoPort Express® System, or any future product or services, by
our current target markets, and any other markets to which we attempt to sell
our products and services, and our profitability and growth will depend on a
number of factors including, among others:
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our
shipper’s ability to perform and preserve the integrity of the materials
shipped;
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relative
convenience and ease of use of our shipper and/or web
portal;
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availability
of alternative products;
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pricing
and cost effectiveness; and
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effectiveness
of our or our collaborators’ sales and marketing
strategy.
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If any
products or services we may develop do not achieve market acceptance, then we
may not generate sufficient revenue to achieve or maintain
profitability.
In
addition, even if our products and services achieve market acceptance, we may
not be able to maintain that market acceptance over time if new products or
services are introduced that are more favorably received than our products and
services, are more cost effective, or render our products obsolete.
Our
success depends, in part, on our ability to obtain patent protection for our
products and business model, preserve our trade secrets, and operate without
infringing the proprietary rights of others.
Our
policy is to seek to protect our proprietary position by, among other methods,
filing United States patent applications related to our technology, inventions
and improvements that are important to the development of our business. We
have three issued U.S. patents and one recently filed provisional patent
application, all relating to various aspects of our products and services.
Our patents or provisional patent application may be challenged, invalidated or
circumvented in the future or the rights granted may not provide a competitive
advantage. We intend to vigorously protect and defend our intellectual
property. Costly and time-consuming litigation brought by us may be
necessary to enforce our patents and to protect our trade secrets and know-how,
or to determine the enforceability, scope and validity of the proprietary rights
of others.
We also
rely upon trade secrets, technical know-how and continuing technological
innovation to develop and maintain our competitive position. In the past
our employees, consultants, advisors and suppliers have not always executed
confidentiality agreements and invention assignment and work for hire agreements
in connection with their employment, consulting, or advisory
relationships. Consequently, we may not have adequate remedies available
to us to protect our intellectual property should one of these parties attempt
to use our trade secrets or refuse to assign any rights he or she may have in
any intellectual property he or she developed for us. Additionally, our
competitors may independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our proprietary
technology, or we may not be able to meaningfully protect our rights in
unpatented proprietary technology.
We cannot
assure you that our current and potential competitors and other third parties
have not filed (or in the future will not file) patent applications for (or have
not received or in the future will not receive) patents or obtain additional
proprietary rights that will prevent, limit or interfere with our ability to
make, use or sell our products either in the United States or
internationally. In the event we are required to license patents issued to
third parties, such licenses may not be available or, if available, may not be
available on terms acceptable to us. In addition, we cannot assure you
that we would be successful in any attempt to redesign our products or processes
to avoid infringement or that any such redesign could be accomplished in a
cost-effective manner. Accordingly, an adverse determination in a judicial
or administrative proceeding or failure to obtain necessary licenses could
prevent us from manufacturing and selling our products or offering our services,
which would harm our business.
We are
not aware of any third party that is infringing any of our patents or trademarks
nor do we believe that we are infringing on the patents or trademarks of any
other person or organization.
Our
products may contain errors or defects, which could result in damage to our
reputation, lost revenues, diverted development resources and increased service
costs and litigation.
Our
products must meet stringent requirements and we must develop our products
quickly to keep pace with the rapidly changing market. Products and
services as sophisticated as ours could contain undetected errors or defects,
especially when first introduced or when new models or versions are
released. In general, our products may not be free from errors or
defects after commercial shipments have begun, which could result in damage to
our reputation, lost revenues, diverted development resources, increased
customer service and support costs, and litigation. The costs incurred in
correcting any product errors or defects may be substantial and could adversely
affect our business, results of operations and financial condition.
If
we experience manufacturing delays or interruptions in production, then we may
experience customer dissatisfaction and our reputation could
suffer.
If we
fail to produce enough shippers at our own manufacturing facility or at a third
party manufacturing facility, or if we fail to complete our shipper recycling
processes as planned, we may be unable to deliver shippers to our customers on a
timely basis, which could lead to customer dissatisfaction and could harm our
reputation and ability to compete. We currently acquire various component
parts for our shippers from various independent manufacturers in the United
States. We would likely experience significant delays or cessation in
producing our shippers if a labor strike, natural disaster or other supply
disruption were to occur at any of our main suppliers. If we are unable to
procure a component from one of our manufacturers, we may be required to enter
into arrangements with one or more alternative manufacturing companies which may
cause delays in producing our shippers. In addition, because we depend on
third party manufacturers, our profit margins may be lower, which will make it
more difficult for us to achieve profitability. To date, we have not
experienced any material delay that has adversely impacted our operations.
As our business develops and the quantity of production increases, it becomes
more likely that such problems could arise.
Because
we rely on a limited number of suppliers, we may experience difficulty in
meeting our customers’ demands for our products in a timely manner or within
budget.
We
currently purchase key components of our products from a variety of outside
sources. Some of these components may only be available to us through a
few sources, however, management has identified alternative materials and
suppliers should the need arise. We generally do not have long-term
agreements with any of our suppliers.
Consequently,
in the event that our suppliers delay or interrupt the supply of components for
any reason, we could potentially experience higher product costs and longer lead
times in order fulfillment. Suppliers that we materially rely upon include
Spaulding Composites Company and Lydall Thermal Acoustical Sales.
Our
CryoPort Express®
Portal may be subject to intentional disruption that could adversely impact our
reputation and future sales.
We have
implemented our CryoPort Express®
Portal which is used by our customers and business partners to automate the
entry of orders, prepare customs documentation and facilitate status and
location monitoring of shipped orders while in transit. Although we
believe we have sufficient controls in place to prevent intentional disruptions,
we could be a target of attacks specifically designed to impede the performance
of the CryoPort Express®
Portal. Similarly, experienced computer programmers may attempt to
penetrate our CryoPort Express®
Portal in an effort to search for and misappropriate proprietary or confidential
information or cause interruptions of our services. Because the techniques
used by such computer programmers to access or sabotage networks change
frequently and may not be recognized until launched against a target, we may be
unable to anticipate these techniques. Our activities could be adversely
affected and our reputation, brand and future sales harmed if these
intentionally disruptive efforts are successful.
Our
products and services may expose us to liability in excess of our current
insurance coverage.
Our
products and services involve significant risks of liability, which may
substantially exceed the revenues we derive from them. We cannot predict
the magnitude of these potential liabilities.
We
currently maintain general liability insurance, with coverage in the amount of
$1 million per occurrence, subject to a $2 million annual limitation, and
product liability insurance with a $1 million annual coverage limitation.
Claims may be made against us that exceed these limits.
Our
liability policy is an “occurrence” based policy. Thus, our policy is
complete when we purchased it and following cancellation of the policy it
continues to provide coverage for future claims based on conduct that took place
during the policy term. However, our insurance may not protect us against
liability because our policies typically have various exceptions to the claims
covered and also require us to assume some costs of the claim even though a
portion of the claim may be covered. In addition, if we expand into new
markets, we may not be aware of the need for, or be able to obtain insurance
coverage for such activities or, if insurance is obtained, the dollar amount of
any liabilities incurred could exceed our insurance coverage. A partially
or completely uninsured claim, if successful and of significant magnitude, could
have a material adverse effect on our business, financial condition and results
of operations.
Complying
with certain regulations that apply to shipments using our products can limit
our activities and increase our cost of operations.
Shipments
using our products and services are subject to various regulations in the
countries in which we operate. For example, shipments using our products
may be required to comply with the shipping requirements promulgated by the
Centers for Disease Control (“CDC”), the Occupational Safety and Health
Organization (“OSHA”), the Department of Transportation (“DOT”) as well as rules
established by the International Air Transportation Association (“IATA”) and the
International Civil Aviation Organization (“ICAO”). Additionally, our data
logger may be subject to regulation and certification by the Food and Drug
Administration (“FDA”), Federal Communications Commission (“FCC”), and Federal
Aviation Administration (“FAA”). We will need to ensure that our products
and services comply with relevant rules and regulations to make our
products and services marketable, and in some cases compliance is difficult
to determine. Significant changes in such regulations could require costly
changes to our products and services or prevent use of our shippers for an
extended period of time while we seek to comply with changed regulations.
If we are unable to comply with any of these rule or regulations or fail to
obtain any required approvals, our ability to market our products and services
may be adversely affected. In addition, even if we are able to comply with
these rules and regulations, compliance can result in increased costs. In
either event, our financial results and condition may be adversely
affected. We depend on our business partners and unrelated and frequently
unknown third party agents in foreign countries to act on our behalf to complete
the importation process and to make delivery of our shippers to the final
user. The failure of these third parties to perform their duties could
result in damage to the contents of the shipper resulting in customer
dissatisfaction or liability to us, even if we are not at fault.
If
we cannot compete effectively, we will lose business.
Our
products, services and solutions are positioned to be competitive in the
cold-chain shipping market. While there are technological and marketing
barriers to entry, we cannot guarantee that the barriers we are capable of
producing will be sufficient to defend the market share we wish to gain against
current and future competitors. The principal competitive factors in this
market include:
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acceptance
of our business model and a per use consolidated
fee structure;
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ongoing
development of enhanced technical features and
benefits;
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reductions
in the manufacturing cost of competitors’ products;
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the
ability to maintain and expand distribution channels;
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brand
name;
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the
ability to deliver our products to our customers when
requested;
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the
timing of introductions of new products and services;
and
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financial
resources.
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Current
and prospective competitors have substantially greater resources, more
customers, longer operating histories, greater name recognition and more
established relationships in the industry. As a result, these competitors
may be able to develop and expand their networks and product offerings more
quickly, devote greater resources to the marketing and sale of their products
and adopt more aggressive pricing policies. In addition, these competitors
have entered and will likely continue to enter into business relationships to
provide additional products competitive to those we provide or plan to
provide.
We
may not be able to compete with our competitors in the industry because many of
them have greater resources than we do.
We expect
to continue to experience significant and increasing levels of competition in
the future. In addition, there may be other companies which are currently
developing competitive products and services or which may in the future develop
technologies and products that are comparable, superior or less costly than our
own. For example, some cryogenic equipment manufacturers with greater
resources currently have solutions for storing and transporting cryogenic liquid
and gasses and may develop storage solutions that compete with our
products. Additionally, some specialty couriers with greater resources
currently provide dry ice transportation and may develop other products in the
future, both of which compete with our products. A competitor that has
greater resources than us may be able to bring its product to market faster than
we can and offer its product at a lower price than us to establish market
share. We may not be able to successfully compete with a competitor that
has greater resources and such competition may adversely affect our
business.
Risks
Relating to Our Current Financing Arrangements
Our
outstanding convertible debentures impose certain restrictions on how we conduct
our business. In addition, all of our assets, including our intellectual
property, are pledged to secure this indebtedness. If we fail to meet our
obligations to the debenture holders, our payment obligations may be accelerated
and the collateral securing the indebtedness may be sold to satisfy these
obligations.
We 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
$3,230,568 as of March 31, 2010. In addition, in October 2007 and May
2008, we issued to these institutional investors warrants to purchase, as of
March 31, 2010, an aggregate of 3,055,097 shares of our common stock (without
regard to beneficial ownership limitations contained in the transaction
documents and certain anti-dilution provisions). 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.
The
Debentures, warrant agreements and related transactional documents (including
subsequent amendments) contain various covenants that presently restrict our
operating flexibility. Pursuant to the foregoing documents, we may not,
among other things:
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Other
than the reverse stock split we effected on February 5, 2010, which the
holder of our Debentures consented to, effect future reverse stock splits
of our outstanding common stock;
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incur
additional indebtedness, except for certain permitted
indebtedness. Permitted indebtedness is defined to include lease
obligations and purchase money indebtedness of up to an aggregate of
$200,000 and indebtedness that is expressly subordinated to the Debentures
and matures following the maturity date of the
Debentures;
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incur
additional liens on any of our assets except for certain permitted liens
including but not limited liens for taxes, assessments and government
charges not yet due and liens incurred in connection with permitted
indebtedness;
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pay
cash dividends;
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redeem
any outstanding shares of our common stock or any outstanding options or
warrants to purchase shares of our common stock except in connection with
a the repurchase of stock from former directors and officers provided such
repurchases do not exceed $100,000 during the term of the
Debentures;
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enter
into transactions with affiliates other than on arms-length terms;
and
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make
any revisions to the terms of existing contractual agreements for the
Related Party Notes Payable and the Line of Credit (as each is referred to
in our Form 10-Q for the period ended June 30,
2009).
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These
provisions could have important consequences for us, including, but not limited
to, (i) making it more difficult for us to obtain additional debt financing, or
obtain new debt financing on terms favorable to us, because a new lender will
have to be willing to be subordinate to the debenture holders, (ii) causing
us to use a portion of our available cash for debt repayment and service rather
than other perceived needs, and/or (iii) impacting our ability to take
advantage of significant, perceived business opportunities. Our failure to
timely repay our obligations under the Debentures, which require monthly
principal payments of $200,000 commencing March 1, 2011 and which mature on
August 1, 2012, or meet the covenants set forth in the Debentures and related
transaction documents could give rise to a default under the Debentures or such
transaction documents. In the event of an uncured default, all amounts
owed to the holders may be declared immediately due and payable and the
debenture holders will have the right to enforce their security interest in the
assets securing the Debentures. In such event, the Debenture holders could
take possession of any or all of our assets in which they hold a security
interest, and dispose of those assets to the extent necessary to pay off our
debts, which would materially harm our business.
Certain
of our existing stockholders own and have the right to acquire a substantial
number of shares of common stock.
As of
March 31, 2010, our directors, executive officers and debenture holders
beneficially owned 4,266,712 shares (without regard to beneficial ownership
limitations contained in certain warrants) of common stock assuming their
exercise of all outstanding warrants, options and conversion of all convertible
debt; or approximately 34.4% of our outstanding common stock. Of these
shares of common stock, 2,059,680, or approximately 19.1% of our outstanding
common stock, will be beneficially owned by Enable Growth Partners LP (and
affiliated funds), and 2,072,273 shares, or approximately 19.4% of our
outstanding common stock, will be owned by BridgePointe Master Fund, Ltd. (each
calculated without regard to the shares of common stock that may be acquired by
the other upon the exercise of its warrants); provided, however, there are
provisions in their warrant agreements that prohibit exercise of warrants to the
extent that their respective beneficial ownership would exceed 4.99% as a result
of such conversion or exercise (which limitation may be waived and increased to
9.99% upon not less than 61 days prior notice). As such, the
concentration of beneficial ownership of our stock may have the effect of
delaying or preventing a change in control of CryoPort and may adversely affect
the voting or other rights of other holders of our common stock.
Our
stock and warrant price is and will continue to be volatile.
The
market price of our common stock has been and, along with the warrants is likely
to be, highly volatile and could fluctuate widely in price in response to
various factors, many of which are beyond our control, including, but not
limited to:
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technological
innovations or new products and services by us or our
competitors;
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additions
or departures of key personnel;
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sales
of our common stock;
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our
ability to integrate operations, technology, products and
services;
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our
ability to execute our business plan;
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operating
results below expectations;
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loss
of any strategic relationship;
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industry
developments;
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economic
and other external factors; and
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period-to-period
fluctuations in our financial
results.
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You may
consider any one of these factors to be material. The price of our common
stock and warrants may fluctuate widely as a result of any of the above listed
factors. In addition, the securities markets have from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These market fluctuations
may also materially and adversely affect the market price of our common stock
and warrants.
If
equity research analysts do not publish research or reports about our business
or if they issue unfavorable commentary or downgrade our common stock and
warrants, the price of our common stock and warrants could decline.
The
trading market for our common stock and warrants relies in part on the research
and reports that equity research analysts publish about us and our
business. We do not control these analysts. The price of our common
stock and warrants could decline if one or more equity analyst downgrades our
stock or if analysts issue other unfavorable commentary or cease publishing
reports about us or our business.
We
have not paid dividends on our common stock in the past and do not expect to pay
dividends in the foreseeable future. Any return on investment may be
limited to the value of our common stock.
We have
never paid cash dividends on our common stock and do not anticipate paying cash
dividends in the foreseeable future. The payment of dividends on our
common stock will depend on our earnings, financial condition and other business
and economic factors affecting us at such time as the Board of Directors may
consider the payment of any such dividends. In addition, we may not pay
any dividends without obtaining the prior consent of the holders of
our Debentures. If we do not pay dividends, our common stock may be
less valuable because a return on your investment will only occur if the price
of our common stock appreciates.
As
a result of our recent 10-to-1 reverse stock split, the liquidity of our common
stock and market capitalization could be adversely affected.
On
February 5, 2010, we effected a 10-to-1 reverse stock split. A
reverse stock split is often viewed negatively by the market and, consequently,
can lead to a decrease in our overall market capitalization. In addition,
because the reverse split will significantly reduce the number of shares of our
common stock that are outstanding, the liquidity of our common stock could be
adversely affected and you may find it more difficult to purchase or sell shares
of our common stock.
We
may need additional capital, and the sale of additional shares of common stock
or other equity securities could result in additional dilution to our
stockholders.
We
believe that our current cash and cash equivalents and anticipated cash flow
from operations will be sufficient to meet our anticipated cash needs for a
period of 6 months. We may, however, require additional cash resources due
to changed business conditions or other future developments, including any
investments or acquisitions we may decide to pursue. If our resources are
insufficient to satisfy our cash requirements, we may seek to sell additional
equity or debt securities or obtain a credit facility. The sale of
additional equity securities, or debt securities convertible into equity
securities, could result in additional dilution to our stockholders. The
incurrence of indebtedness would result in increased debt service obligations
and could result in operating and financing covenants that would restrict our
operations.
Provisions
in our bylaws and Nevada law might discourage, delay or prevent a change of
control of our company or changes in our management and, as a result, may
depress the trading price of our common stock.
Provisions
of our bylaws and Nevada law may discourage, delay or prevent a merger,
acquisition or other change in control that stockholders may consider favorable,
including transactions in which you might otherwise receive a premium for your
shares of our common stock. The relevant bylaw provisions may also prevent
or frustrate attempts by our stockholders to replace or remove our
management. These provisions include advance notice requirements for
stockholder proposals and nominations, and the ability of our Board of Directors
to make, alter or repeal our bylaws.
Absent
approval of our Board of Directors, our bylaws may only be amended or repealed
by the affirmative vote of the holders of at least a majority of our outstanding
shares of capital stock entitled to vote.
In
addition, Section 78.438 of the Nevada Revised Statutes prohibits a
publicly-held Nevada corporation from engaging in a business combination with an
interested stockholder (generally defined as a person which together with its
affiliates owns, or within the last three years has owned, 10% of our voting
stock, for a period of three years after the date of the transaction in which
the person became an interested stockholder) unless the business combination is
approved in a prescribed manner.
The
existence of the foregoing provisions and other potential anti-takeover measures
could limit the price that investors might be willing to pay in the future for
shares of our common stock. They could also deter potential acquirers of
our company, thereby reducing the likelihood that you could receive a premium
for your common stock in an acquisition.
Even
though we are not incorporated in California, we may become subject to a number
of provisions of the California General Corporation Law.
Section
2115(b) of the California Corporations Code imposes certain requirements of
California corporate law on corporations organized outside California that, in
general, are doing more than 50% of their business in California and have more
than 50% of their outstanding voting securities held of record by persons
residing in California. While we are not currently subject to Section
2115(b), we may become subject to it in the future.
The
following summarizes some of the principal differences which would apply if we
become subject to Section 2115(b).
Under
both Nevada and California law, cumulative voting for the election of directors
is permitted. However, under Nevada law cumulative voting must be expressly
authorized in the Articles of Incorporation and our Amended and Restated
Articles of Incorporation do not authorize cumulative voting. If we become
subject to Section 2115(b), we may be required to permit cumulative voting if
any stockholder properly requests to cumulate his or her votes.
Under
Nevada law, directors may be removed by the stockholders only by the vote of
two-thirds of the voting power of the issued and outstanding stock entitled to
vote. However, California law permits the removal of directors by the
vote of only a majority of the outstanding shares entitled to
vote. If we become subject to Section 2115(b), the removal of a
director may be accomplished by a majority vote, rather than a vote of
two-thirds, of the stockholders entitled to vote.
Under
California law, the corporation must take certain steps to be allowed to provide
for greater indemnification of its officers and directors than is provided in
the California Corporation Code. If we become subject to Section
2115(b), our ability to indemnify our officers and directors may be limited by
California law.
Nevada
law permits distributions to stockholders as long as, after the distribution,
(i) the corporation would be able to pay its debts as they become due and (ii)
the corporation’s total assets are at least equal to its liabilities and
preferential dissolution obligations. Under California law, distributions may be
made to stockholders as long as the corporation would be able to pay its debts
as they mature and either (i) the corporation’s retained earnings equals or
exceeds the amount of the proposed distributions, or (ii) after the
distributions, the corporation’s tangible assets are at least 125% of its
liabilities and the corporation’s current assets are at least equal to its
current liabilities (or, 125% of its current liabilities if the corporation’s
average operating income for the two most recently completed fiscal years was
less than the average of the interest expense of the corporation for those
fiscal years). If we become subject to Section 2115(b), we will have
to satisfy more stringent financial requirements to be able to pay dividends to
our stockholders. Additionally, stockholders may be liable to the
corporation if we pay dividends in violation of California law.
California
law permits a corporation to provide “supermajority vote” provisions in its
Articles of Incorporation, which would require specific actions to obtain
greater than a majority of the votes, but not more than 66 2/3
percent. Nevada law does not permit supermajority vote
provisions. If we become subject to Section 2115(b), it is possible
that our stockholders would vote to amend our Articles of Incorporation and
require a supermajority vote for us to take specific actions.
Under
California law, in a disposition of substantially of all the corporation’s
assets, if the acquiring party is in control of or under common control with the
disposing corporation, the principal terms of the sale must be approved by 90
percent of the stockholders. Although Nevada law does contain certain
rules governing interested stockholder business combinations, it does not
require similar stockholder approval. If we become subject to Section
2115(b), we may have to obtain the vote of a greater percentage of the
stockholders to approve a sale of our assets to a party that is in control of,
or under common control with, us.
California
law places certain additional approval rights in connection with a merger if all
of the shares of each class or series of a corporation are not treated equally
or if the surviving or parent party to a merger represents more than 50 percent
of the voting power of the other corporation prior to the
merger. Nevada law does not require such approval. If we
become subject to Section 2115(b), we may have to obtain a the vote of a greater
percentage of the stockholders to approve a merger that treats shares of a class
or series differently or where a surviving or parent party to the merger
represents more than 50% of the voting power of the other corporation prior to
the merger.
California
law requires the vote of each class to approve a reorganization or a conversion
of a corporation into another entity. Nevada law does not require a
separate vote for each class. If we become subject to Section 2115(b), we may
have to obtain the approval of each class if we desire to reorganize or convert
into another type of entity.
California
law provides greater dissenters’ rights to stockholders than Nevada
law. If we become subject to Section 2115(b), more stockholders may
be entitled to dissenters’ rights, which may limit our ability to merge with
another entity or reorganize.
Our
stock is deemed to be penny stock.
Our stock
is currently traded on the OTC Bulletin Board and is subject to the “penny stock
rules” adopted pursuant to Section 15(g) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”). The penny stock rules apply to
companies not listed on a national exchange whose common stock trades at less
than $5.00 per share or which have tangible net worth of less than $5,000,000
($2,000,000 if the company has been operating for three or more years).
Such rules require, among other things, that brokers who trade “penny stock” to
persons other than “established customers” complete certain documentation, make
suitability inquiries of investors and provide investors with certain
information concerning trading in the security, including a risk disclosure
document and quote information under certain circumstances. Penny stocks
sold in violation of the applicable rules may entitle the buyer of the stock to
rescind the sale and receive a full refund from the broker.
Many
brokers have decided not to trade “penny stock” because of the requirements of
the penny stock rules and, as a result, the number of broker-dealers willing to
act as market makers in such securities is limited. In the event that we
remain subject to the “penny stock rules” for any significant period, there may
develop an adverse impact on the market, if any, for our securities.
Because our securities are subject to the “penny stock rules,” investors
will find it more difficult to dispose of our securities. Further, for
companies whose securities are traded in the OTC Bulletin Board, it is more
difficult: (i) to obtain accurate quotations, (ii) to obtain coverage
for significant news events because major wire services, such as the Dow Jones
News Service, generally do not publish press releases about such companies, and
(iii) to obtain needed capital.
If
we fail to maintain effective internal controls over financial reporting, the
price of our common stock may be adversely affected.
Our
internal controls over financial reporting may have weaknesses and conditions
that could require correction or remediation, the disclosure of which may have
an adverse impact on the price of our common stock. We are required to
establish and maintain appropriate internal controls over financial
reporting. Failure to establish those controls (or any failure of those
controls once established) could adversely impact our public disclosures
regarding our business, financial condition or results of operations. In
addition, management’s assessment of internal controls over financial reporting
may identify weaknesses and conditions that need to be addressed in our internal
controls over financial reporting or other matters that may raise concerns for
investors. Any actual or perceived weaknesses and conditions that need to
be addressed in our internal control over financial reporting, disclosure of
management’s assessment of our internal controls over financial reporting, or
disclosure of our independent registered public accounting firm’s attestation to
the effectiveness of our internal controls over financial reporting, when
required, may have an adverse impact on the price of our common
stock.
Standards for
compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are
uncertain, and if we fail to comply in a timely manner, our business could be
harmed and our stock price could decline.
Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of
2002 require an annual assessment of our internal controls over financial
reporting, and attestation of our assessment by our independent registered
public accounting firm. The standards that must be met for management to
assess the internal controls over financial reporting as effective are evolving
and complex, and require significant documentation, testing, and possible
remediation to meet the detailed standards. We expect to continue to incur
significant expenses and to devote resources to continued Section 404
compliance during the remainder of fiscal 2011 and on an ongoing basis. It
is difficult for us to predict how long it will take or how costly it will be to
complete the assessment of the effectiveness of our internal controls over
financial reporting to the satisfaction of our independent registered public
accounting firm for each year, and to remediate any deficiencies in our internal
controls over financial reporting. As a result, we may not be able to
complete the assessment and remediation process on a timely basis. In
addition, the attestation process by our independent registered public
accounting firm will be new for fiscal 2011 and we may encounter problems or
delays in completing the implementation of any requested improvements and
receiving an attestation of our assessment by our independent registered public
accounting firm. In the event that our Chief Executive Officer, Chief
Financial Officer or independent registered public accounting firm determines
that our internal controls over financial reporting are not effective as defined
under Section 404, we cannot predict how regulators will react or how the
market price of our common stock will be affected; however, we believe that
there is a risk that investor confidence and share value may be negatively
impacted.
If
we fail to remain current in our reporting requirements, our securities could be
removed from the OTC Bulletin Board, which would limit the ability of
broker-dealers to sell our securities and the ability of stockholders to sell
their securities in the secondary market.
Companies
trading on the OTC Bulletin Board must be reporting issuers under
Section 12 of the Exchange Act, and must be current in their reports under
Section 13, in order to maintain price quotation privileges on the OTC
Bulletin Board. If we fail to remain current on our reporting
requirements, we could be removed from the OTC Bulletin Board. As a
result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary
market.
ITEM
1B. UNRESOLVED STAFF
COMMENTS
Not applicable.
ITEM
2. PROPERTIES
We do not own real property. We
currently lease two facilities, with approximately 12,000 square feet of corporate, research and
development, and warehouse facilities, located at 20382 Barents Sea Circle, Lake Forest, CA
92630 and five (5) executive offices located
at 402 West Broadway, San Diego, CA 92101. The
Company currently makes base lease payments of approximately $10,000 per month, due at the beginning of
each month. On August 24, 2009, the Company entered
into the second amendment to the lease for its manufacturing and office space.
The amendment extended the lease for twelve months from the end of the existing
lease term with a right to cancel the lease with a minimum of 120 day written
notice at anytime as of November 30, 2009.In June 2010, Company entered into the
third amendment to the lease for its manufacturing and office space. The
amendment 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 anytime as
of December 31, 2012. On April 15, 2010, the Company entered into office service
agreements with Regus Management Group, LLC (Lessor) for five (5) executive offices located at 402
West Broadway, San Diego, CA 92101. The office service agreements are for
periods ranging from 3 to 7 months ending October 31, 2010. The office service
agreements require base lease payments of approximately $5,100 per month.
We believe that these
facilities are adequate, suitable and of sufficient capacity to support our
immediate needs. Additional space may be required, however, as we expand our research and
development, manufacturing and selling and marketing
activities.
ITEM
3. LEGAL
PROCEEDINGS
In the
ordinary course of business, we are at times subject to various legal
proceedings and disputes. We currently are not aware of any such
legal proceedings or claim that we believe will have, individually or in the
aggregate, a material adverse effect on our business, operating results or cash
flows.
ITEM
4. [REMOVED AND
RESERVED]
Not
applicable.
PART II
|
ITEM
5.
|
MARKET FOR
REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDERS’ MATTERS AND ISSUER
PURCHASES OF EQUITY
SECURITIES
|
(a) Market
Information. The Company’s common stock is quoted on the OTC
Bulletin Board under the symbol “CYRX.OB.” The following table shows
the high and low sales price of the Company’s common stock for each quarter in
the two years ended March 31, 2010:
|
|
|
Common
Stock
Sales
Price
|
|
|
|
High
|
|
Low
|
|
Fiscal
Year 2010
|
|
|
|
|
|
Quarter
Ended March 31, 2010
|
|
$10.50
|
|
$1.65
|
|
Quarter
Ended December 31, 2009
|
|
$5.40
|
|
$3.80
|
|
Quarter
Ended September 30, 2009
|
|
$7.00
|
|
$3.70
|
|
Quarter
Ended June 30, 2009
|
|
$9.00
|
|
$4.10
|
|
Fiscal
Year 2009
|
|
|
|
|
|
Quarter
Ended March 31, 2009
|
|
$6.50
|
|
$3.00
|
|
Quarter
Ended December 31, 2008
|
|
$7.90
|
|
$4.20
|
|
Quarter
Ended September 30, 2008
|
|
$10.10
|
|
$5.00
|
|
Quarter
Ended June 30, 2008
|
|
$12.00
|
|
$6.10
|
(b) Holders. As of
June 15, 2010, the number of stockholders of record of the Company's common
stock was 162.
(c) Dividends. No
dividends on common stock have been declared or paid by the
Company. The Company intends to employ all available funds for the
development of its business and, accordingly, does not intend to pay any cash
dividends in the foreseeable future.
(d) Securities Authorized for Issuance
Under Equity Compensation. The information included under Item
12 of Part III of this Annual Report is hereby incorporated by reference into
this Item 5 of Part II of this Annual Report.
(e) Recent Sale of
Unregistered Securities. The following is a
summary of transactions by the Company during the past quarter involving the
issuance and sale of the Company’s securities that were not registered under the
Securities Act of 1933, as amended (the “Securities Act”). All securities sold
by the Company were sold to individuals, trusts or others who were accredited
investors as defined under Regulation D under the Securities Act, as
amended.
On
February 25, 2010, as a result of the Company’s public offering of units, the
exercise price of certain outstanding warrants held by a former investment
banker was reduced to $3.30 per share which resulted in a proportionate increase
the number of shares of common stock that may be purchased upon the exercise of
such warrants of 55,644 shares of common stock. In addition, the
Company issued fully vested warrants to purchase 17,500 shares of common stock
representing 7% of the warrants issued to Enable and Bridgepointe in the public
offering.
During
the three months ended March 31, 2010, the Company issued fully vested warrants
to purchase 15,000 shares of common stock to Emergent Financial for continued
shareholder support services. The exercise price of the warrants was $1.91
per share.
ITEM
6. SELECTED FINANCIAL
DATA
The
following selected financial data has been derived from audited consolidated
financial statements of the Company for each of the five years in the period
ended March 31, 2010. These selected financial summaries should be
read in conjunction with the financial information contained for each of the two
years in the period ended March 31, 2010, included in the consolidated financial
statements and notes thereto, Management's Discussion and Analysis of Results of
Operations and Financial Condition, and other information provided elsewhere
herein.
|
Years
Ended March 31,
(in
thousands, except per share data)
|
| |
|
2010
|
|
|
2009
|
|
|
2008 |
|
|
2007
|
|
|
2006
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
118
|
|
|
$
|
35
|
|
|
$
|
84
|
|
|
$
|
67
|
|
|
$
|
152
|
|
|
Cost
of revenues
|
|
|
718
|
|
|
|
546
|
|
|
|
386
|
|
|
|
177
|
|
|
|
316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
loss
|
|
|
(600
|
)
|
|
|
(511
|
)
|
|
|
(302
|
)
|
|
|
(110
|
) |
|
|
(164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
3,313
|
|
|
|
2,387
|
|
|
|
2,551
|
|
|
|
1,899
|
|
|
|
1,023
|
|
|
Research
and development
|
|
|
284
|
|
|
|
297
|
|
|
|
166
|
|
|
|
88
|
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
3,597
|
|
|
|
2,684
|
|
|
|
2,717
|
|
|
|
1,987
|
|
|
|
1,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(4,197
|
) |
|
|
(3,195
|
) |
|
|
(3.019
|
) |
|
|
(2,097
|
) |
|
|
(1,441
|
) |
|
Other
(expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
8
|
|
|
|
32
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(7,029
|
) |
|
|
(2,693
|
) |
|
|
(1,593
|
) |
|
|
(228
|
) |
|
|
(80
|
) |
|
Loss
on sale of fixed assets
|
|
|
(9
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on extinguishment of debt
|
|
|
—
|
|
|
|
(10,847
|
) |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Change
in fair value of derivative liabilities
|
|
|
5,577
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before income taxes
|
|
|
(5,650
|
) |
|
|
(16,703
|
) |
|
|
(4,562
|
) |
|
|
(2,325
|
) |
|
|
(1,521
|
) |
|
Income
taxes
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,652
|
) |
|
$
|
(16,705
|
) |
|
$
|
(4,564
|
) |
|
$
|
(2,327
|
)
|
|
$ |
(1,522
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share, basic and diluted
|
|
$
|
(1.13
|
) |
|
$
|
(4.05
|
) |
|
$
|
(1.16
|
) |
|
$
|
(0.75
|
) |
|
$
|
(0.51
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used in computing net loss per common share, basic and
diluted
|
|
|
5,011
|
|
|
|
4,124
|
|
|
|
3,943
|
|
|
|
3,094
|
|
|
|
2,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of March 31,
(in
thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2010
|
|
|
2009
|
|
|
2008 |
|
|
2007
|
|
|
2006
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents
|
|
$
|
3,630
|
|
|
$
|
250
|
|
|
$
|
2,231
|
|
|
$
|
264
|
|
|
$
|
5
|
|
|
Working
capital (deficit)
|
|
|
1,995
|
|
|
|
(3,693
|
)
|
|
|
981
|
|
|
|
(478
|
)
|
|
|
(538
|
)
|
|
Total
assets
|
|
|
4,777
|
|
|
|
1,573
|
|
|
|
3,461
|
|
|
|
484
|
|
|
|
294
|
|
|
Convertible
notes, net
|
|
|
2,502
|
|
|
|
3,883
|
|
|
|
902
|
|
|
|
96
|
|
|
|
—
|
|
|
Other
long-term obligations
|
|
|
1,478
|
|
|
|
1,601
|
|
|
|
1,711
|
|
|
|
1,857
|
|
|
|
1,679
|
|
|
Accumulated
deficit
|
|
|
(45,944
|
) |
|
|
(30,634
|
) |
|
|
(13,929
|
) |
|
|
(9,365
|
) |
|
|
(7,039
|
) |
|
Total
stockholders’ deficit
|
|
|
(915
|
) |
|
|
(4,776
|
) |
|
|
—
|
|
|
|
(2,288
|
)
|
|
|
(2,150
|
)
|
|
ITEM
7.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
|
This
Annual Report on Form 10-K contains forward-looking statements that have been
made pursuant to the provisions of the Private Securities Litigation Reform Act
of 1995 and concern matters that involve risks and uncertainties that could
cause actual results to differ materially from those projected in the
forward-looking statements. Discussions containing forward-looking statements
may be found in the material set forth under “Business,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and in
other sections of this Form 10-K. Words such as “may,” “will,” “should,”
“could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,”
“potential,” “continue” or similar words are intended to identify
forward-looking statements, although not all forward-looking statements contain
these words. Although we believe that our opinions and expectations reflected in
the forward-looking statements are reasonable as of the date of this Annual
Report on Form 10-K, we cannot guarantee future results, levels of activity,
performance or achievements, and our actual results may differ substantially
from the views and expectations set forth in this Annual Report on Form 10-K. We
expressly disclaim any intent or obligation to update any forward-looking
statements after the date hereof to conform such statements to actual results or
to changes in our opinions or expectations. Readers are urged to carefully
review and consider the various disclosures made by us, which attempt to advise
interested parties of the risks, uncertainties, and other factors that affect
our business, set forth in detail in Item 1A of Part I, under the heading
“Risk Factors.”
The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes to those statements
contained elsewhere in this Annual Report on Form 10-K.
Overview
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 0° 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.
Our value
proposition comes from both providing 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 (below minus 150° Celsius).
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
$45,943,809 through March 31, 2010.
Results
of Operations
Years
Ended March 31, 2010 and 2009
Revenues. Net revenues were
$117,956 in fiscal 2010, as compared to $35,124 in fiscal 2009. The low revenues
in these years were primarily due to the Company’s shift initiated in mid-2006
in its sales and marketing focus from the reusable shipper product
line. The Company discontinued sales of the reusable shippers to
allow resources to focus on further development and launch of the CryoPort
Express® System and its introduction into the biopharmaceutical industry sector
during fiscal 2009, which resulted in the increase in sales period over
period. The slow increase in shipper revenues during the two fiscal
years was also the result of delays in the Company securing adequate funding for
the manufacturing and full commercialization of the CryoPort Express®
System.
Gross loss and cost of
revenues. Gross loss for 2010 was 508%, or $599,754 as compared to
1,455%, or $511,028, for fiscal 2009. The decrease in gross loss in fiscal 2010
as compared to fiscal 2009 was primarily the result of the increase in revenues
from per-use leasing of the shipping containers. During both periods,
cost of sales exceeded sales due to fixed manufacturing costs and plant
underutilization.
Cost of
revenues was $717,710 in fiscal 2010, as compared to $546,152 in fiscal 2009.
The increase in costs of revenues sold during each of the two years is primarily
the result of the write off due to the discontinuation of the reusable shippers
and increased focus on the CryoPort Express® System. During both
periods, cost of sales exceeded sales due to fixed manufacturing costs and plant
underutilization.
Research and development
expenses. Research and development expenses were $284,847 in fiscal 2010,
$297,378 in fiscal 2009. and Current period expenses included
consulting costs associated with software development for the web based system
to be used with the CryoPort Express® Shipper, and other research and
development activity related to the CryoPort Express® System, as the Company
strove to develop improvements in both the manufacturing processes and product
materials for the purpose of achieving additional product cost
efficiencies.
Selling, general and administrative
expenses. Selling, general and administrative expenses were $3,312,635 in
fiscal 2010, $2,387,287 in fiscal 2009. The $925,348 increase in fiscal 2010 as
compared to fiscal 2009 was primarily attributable to higher general and
administrative expenses associated with an increase in salaries and wages of
$485,000 and consulting fees of $435,000 associated with the Company’s strategic
partnering activities and debt restructuring.
Stock-based compensation
costs. Total stock-based compensation costs for the years ended
March 31, 2010 and 2009 were $559,561 and $289,497, respectively. During
the year ended March 31, 2010, we granted options to employees and
directors to purchase 190,553 shares of common stock and warrants to
purchase 21,000 shares of common stock at a weighted average exercise price of
$3.53 per share. The exercise prices of options and warrants were
equal to the fair market value of our common stock at the time of
grant.
Interest income. Interest
income was $8,164 in fiscal 2010 and $32,098 in fiscal 2009. The decrease in
interest income in fiscal 2010 was primarily attributable to the overall
reduction in interest rates and lower cash balances.
Interest expense. Interest
expense was $7,028,684 in fiscal 2010, $2,693,383 in fiscal 2009. Interest
expense in fiscal 2010 included amortization of debt discount of $6,417,346 and
amortized financing fees of $159,516, primarily due to the convertible
debentures issued in October 2007, May 2008 and the Private Placement
Debentures. Included in fiscal 2010 and fiscal 2009 is the impact of the change
in accounting principle as required by the Debt with Conversion and Other
Options Topic of the FASB Accounting Standards Codification, which required
retrospective application.
Loss on extinguishment of
debt. The loss on extinguishment of debt of $10,846,573 in fiscal 2009 is
due to the resulting change in valuation of the debt and related
warrants associated with amendments to the October 2007 Debentures entered into
in April 2008, August 2008 and January 2009 and the change in valuation of the
debt and related warrants associated with the January 2009 amendment to the May
2008 Debentures The loss consists of a combined total loss on
extinguishment of debt on the October 2007 Debentures of $9,449,498 and
$1,397,075 on the May 2008 Debenture. There was no loss on extinguishment of
debt during the year ended March 31, 2010.
Gain (loss) on derivative
valuation. Derivative valuation was a gain of $5,576,979 in fiscal 2010.
In fiscal 2010, the gain was due to an adoption of a new accounting
principle, which resulted in a reclassification of the fair value of warrants
and embedded conversion features from equity to derivative liabilities that are
marked to fair value at each reporting period. The impact of the change in
accounting principle and change in market value of the derivative liabilities
during the current period resulted in the recognition of a gain
Income taxes. We incurred net
operating losses for the years ended March 31, 2010 and2009 and consequently did
not pay any federal, state or foreign income taxes. At March 31, 2010, we had
federal and state net operating loss carryforwards of approximately
$27,463,000 and $27,621,000, respectively, which we have fully reserved due
to the uncertainty of realization. Our federal tax loss carryforwards will begin
to expire in fiscal 2019, unless utilized. Our California tax loss carryforwards
will begin to expire in fiscal 2013, unless utilized. We also have federal and
California research tax credit carryforwards of approximately $14,000 and
$13,000, respectively. Our federal research tax credits will begin to expire in
fiscal 2026, unless utilized. Our California research tax credit carryforwards
do not expire and will carryforward indefinitely until utilized.
Liquidity
and Capital Resources
As of
March 31, 2010, the Company had cash and cash equivalents of $3,629,886 and
working capital of $1,994,934. The Company’s working capital at March
31, 2010 included $334,363 of derivative liabilities, the balance of which
represented the fair value of warrants related to the Company’s convertible
debentures and also issued to consultants which were reclassified from equity
during the year ended March 31, 2010. As of March 31, 2009, the
Company had cash and cash equivalents of $249,758 and negative working capital
of $3,693,015. Historically, we have financed our operations
primarily through sales of our debt and equity securities. Since March 2005, we
have received net proceeds of approximately $15.7 million from sales of our
common stock and the issuance of promissory notes, warrants and
debt.
During
fiscal 2010, we used $2,853,359 of cash for operations primarily as a result of
the net loss of 5,651,561 including a non-cash gain of $5,576,979 due to the
change in valuation of our derivative liabilities and non cash expenses of
$6,417,346 due primarily to discount amortization related to our convertible
debt instruments. Offsetting the cash impact of our net operating loss
(excluding non-cash items) was an increase in accrued interest payable of
$335,830 primarily due to our Private Placement Debentures and an increase
in accounts payable of $300,454 due primarily to increased general and
administrative expenses.
During
fiscal 2009, we used $2,586,470 of cash from operations primarily as a result of
the net loss of $16,705,151 offset by loss on extinguishment of debt of
$10,846,573, amortization of debt discount on convertible notes of $2,223,116,
amortization of deferred financing costs related to the convertible notes of
$42,284 non-cash stock-based compensation costs of $948,569, depreciation and
amortization expense of $81,984 and a change in operating assets and liabilities
of $17,618.
Net cash
used in investing activities totaled $138,874 during fiscal 2010, primarily
attributable to the decrease in restricted cash of $10,000, offset by the
purchase of equipment $31,926 and the purchase of intangible
assets of $116,948. Net cash provided by investing
activities totaled $485 during fiscal 2009, primarily attributable to the
decrease in restricted cash of $108,844, offset by the purchase of equipment of
$58,578 and the purchase of intangible assets of $49,781.
Net cash
provided by financing activities totaled $6,372,361 in fiscal 2010, primarily
resulting from the receipt of the proceeds net of cash paid for offering costs
from our public offering of common stock of $4,046,863, the proceeds from the
issuance of our Private Placement Debentures of $1,321,500 and gross
proceeds from exercise of options and warrants of $1,437,100, which were
partially offset by payment of deferred financing costs of $92,520 and payments
on our related party notes payable and notes payable to officer
of $120,000 and $143,950, respectively. Net cash provided
by financing activities totaled $604,712 in fiscal 2009, primarily related to
receipt of the proceeds from our May 2008 Debentures of $1,122,500 and proceeds
from exercise of options and warrants of $3,307, which were partially offset by
payment on the October 2007 Convertible Debentures of $117,720, payment of
deferred financing costs of $191,875, payments on our notes payable of $186,000
and payments on the line of credit of $25,500.
As
discussed in Note 1 of the accompanying consolidated financial statements, there
exists substantial doubt regarding the Company’s ability to continue as a going
concern. The Company will need to raise additional capital through
one or more methods, including but not limited to, issuing additional equity, in
order to fund our working capital needs and complete the commercial launch of
our CryoPort Express® System. On February 25, 2010 we completed a
public offering of units consisting of 1,666,667 shares of common stock and
warrants to purchase 1,666,667 shares of common stock at an exercise price of
$3.30, for gross proceeds of $5,000,001 and net proceeds of approximately
$3,742,097. As a result of these recent financings and the public
offering, the Company had an aggregate cash and cash equivalents balance of
$3,629,886 as of March 31, 2010 which will be used to fund the working capital
required for minimal operations including limited inventory build up as well as
limited sales efforts to advance the Company’s commercialization of the CryoPort
Express® Shippers until additional capital is obtained. Management has estimated that cash on
hand as of March 31, 2010, will be sufficient to allow the Company to continue
its operations only into the second quarter of fiscal
2011. Company’s management recognizes that the Company must
obtain additional capital for the achievement of sustained profitable
operations. Management’s plans include obtaining additional capital
through equity and debt funding sources; however, no assurance can be given that
additional capital, if needed, will be available when required or upon terms
acceptable to the Company.
We have
never been profitable, and we might never become profitable. As of
March 31, 2010, our accumulated deficit was $45,943,809 (including a
non-cash valuation adjustment of $9,657,893, including a net loss of $5,651,561
for the year ended March 31, 2010) and our stockholders’ deficit was
$914,575.
Contractual
Obligations
The
following table summarizes our contractual obligations as of June 15, 2010 (in
thousands):
|
|
|
Payments
due by period
|
|
|
|
|
Total
|
|
|
Less than
1
year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
More than
5
years
|
|
|
Operating
Lease Obligations
|
|
$ |
495 |
|
|
$ |
90 |
|
|
$ |
177 |
|
|
$ |
201 |
|
|
$ |
27 |
|
|
Convertible
Debentures (1)
|
|
|
3,231 |
|
|
|
200 |
|
|
|
3,031 |
|
|
|
— |
|
|
|
— |
|
|
Other
Long-term Debt Obligations (2)
|
|
|
1,010 |
|
|
|
150 |
|
|
|
206 |
|
|
|
192 |
|
|
|
462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$ |
4,736 |
|
|
$ |
440 |
|
|
$ |
3,414 |
|
|
$ |
393 |
|
|
$ |
489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $3,230,568 as of March 31, 2010. 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 five related parties, including four 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 March 31, 2010, the aggregate principal payments
totaled $10,000 per month. Any remaining unpaid principal and
accrued interest is due at maturity on various dates through March 1,
2015.
|
Critical Accounting Policies and
Estimates
Management’s
discussion and analysis of financial condition and results of operations, as
well as disclosures included elsewhere in this Annual Report on Form 10-K, are
based upon our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. Our significant
accounting policies are described in the notes to the audited consolidated
financial statements contained elsewhere in this Annual Report on Form 10-K.
Included within these policies are our “critical accounting policies.” Critical
accounting policies are those policies that are most important to the
preparation of our consolidated financial statements and require management’s
most subjective and complex judgment due to the need to make estimates about
matters that are inherently uncertain. Although we believe that our estimates
and assumptions are reasonable, actual results may differ significantly from
these estimates. Changes in estimates and assumptions based upon actual results
may have a material impact on our results of operations and/or financial
condition.
We
believe that the critical accounting policies that most impact the consolidated
financial statements are as described below.
Revenue
Recognition
Per
Use Revenues
We
recognize revenues from product sales when there is persuasive evidence that an
arrangement exists, when title has passed, the price is fixed or determinable,
and we are reasonably assured of collecting the resulting receivable. The
Company records a provision for claims based upon historical experience.
Actual claims in any future period may differ from the Company’s
estimates. During its early years, the Company's limited revenue was
derived from the sale of our reusable product line. The Company's current
business plan focuses on per-use leasing of the shipping container and
value-added services that will be used by us to provide an end-to-end and
cost-optimized shipping solution.
The
Company provides shipping containers to their customers and charges a fee in
exchange for the use of the container. The Company’ 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 of our new business plan,
during the quarter ended September 30, 2009, the Company reclassified the
containers from inventory to fixed assets upon commencement of the
loaned-container program.
Inventory
The
Company writes down its inventories for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand, future
pricing and market conditions. Inventory reserve costs are subject to
estimates made by the Company based on historical experience, inventory
quantities, age of inventory and any known expectations for product
changes. If actual future demands, future pricing or market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required and the differences could be
material. Such differences might significantly impact cash flows from
operating activities. Once established, write-downs are considered
permanent adjustments to the cost basis of the obsolete or unmarketable
inventories.
During
its early years, the Company's limited revenue was derived from the sale of our
reusable product line. The Company's current business plan focuses on per-use
leasing of the shipping container and value-added services that will be used by
us to provide an end-to-end and cost-optimized shipping solution.
The
Company provides shipping containers to its customers and charges a fee in
exchange for the use of the container. The Company’ 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 of our current business
plan, during the quarter ended September 30, 2009, the Company reclassified the
containers from inventory to fixed assets upon commencement of the
loaned-container program.
Fixed
Assets
Fixed
assets are stated at cost, net of accumulated depreciation and amortization.
Depreciation and amortization of fixed assets are provided using the
straight-line method over the following useful lives:
|
|
Furniture
and fixtures
|
7
years
|
|
|
|
Machinery
and equipment
|
5-7
years
|
|
|
|
Leasehold
improvements
|
Lesser
of lease term or estimated useful life
|
|
Betterments,
renewals and extraordinary repairs that extend the lives of the assets are
capitalized; other repairs and maintenance charges are expensed as
incurred. The cost and related accumulated depreciation and
amortization applicable to assets retired are removed from the accounts, and the
gain or loss on disposition is recognized in current operations.
Intangible
Assets
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
Impairment
of Long-Lived Assets
The
Company assesses the recoverability of its long-lived assets by determining
whether the depreciation and amortization of long-lived assets over their
remaining lives can be recovered through projected undiscounted cash
flows. The amount of long-lived asset impairment is measured based on
fair value and is charged to operations in the period in which long-lived asset
impairment is determined by management. Manufacturing fixed assets
are subject to obsolescence potential as result of changes in customer demands,
manufacturing process changes and changes in materials used. The
Company is not currently aware of any such changes that would cause impairment
to the value of its manufacturing fixed assets.
Stock-based
Compensation
We
recognize compensation costs for all stock-based awards made to employees and
directors. The fair value of stock-based awards is estimated at grant date using
an option pricing model and the portion that is ultimately expected to vest is
recognized as compensation cost over the requisite service period.
We use
the Black-Scholes option-pricing model to estimate the fair value of stock-based
awards. The determination of fair value using the Black-Scholes option-pricing
model is affected by our stock price as well as assumptions regarding a number
of complex and subjective variables, including expected stock price volatility,
risk-free interest rate, expected dividends and projected employee stock option
exercise behaviors. We estimate the expected term based on the contractual term
of the awards and employees’ exercise and expected post-vesting termination
behavior.
At
March 31, 2010, there was $471,401 of total unrecognized compensation cost
related to non-vested stock options, which is expected to be recognized over a
remaining weighted average vesting period of approximately 1.69
years.
All
transactions in which goods or services are the consideration received by
non-employees for the issuance of equity instruments are accounted for based on
the fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable. The measurement date
used to determine the fair value of the equity instrument issued is the earlier
of the date on which the third-party performance is complete or the date on
which it is probable that performance will occur.
Derivative
Liabilities
Our
issued and outstanding common stock purchase warrants and embedded conversion
features previously treated as equity pursuant to the derivative treatment
exemption were no longer afforded equity treatment, and the fair value of these
common stock purchase warrants and embedded conversion features, some of which
have exercise price reset features and some that were issued with convertible
debt, from equity to liability status as if these warrants were treated as a
derivative liability since their date of issue. 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 will be recognized
currently in earnings until such time as the warrants are exercised or expire.
These common stock purchase warrants do not trade in an active securities
market, and as such, we estimate the fair value of these warrants using the
Black-Scholes option pricing model.
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. In those circumstances, the convertible debt will be
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 method.
Deferred
Financing Costs
Deferred
financing costs represent costs incurred in connection with the issuance of the
convertible notes payable. Deferred financing costs are being
amortized over the term of the financing instrument on a straight-line basis,
which approximates the effective interest method.
Income
Taxes
We
account for income taxes under the provision of the Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income
Taxes, or ASC 740. As of March 31, 2010 and 2009, there were no
unrecognized tax benefits included in the balance sheet that would, if
recognized, affect the effective tax rate. Based on the weight of available
evidence, the Company's Management has determined that it is not more likely
than not that the net deferred tax assets assets will be realized. Therefore,
the Company has recorded a full valuation allowance against the net deferred tax
assets. The Company's income tax provision consists of state minimum
taxes.
Our
practice is to recognize interest and/or penalties related to income tax matters
in income tax expense. We had no accrual for interest or penalties on our
consolidated balance sheets at March 31, 2010 and 2009, respectively and
have not recognized interest and/or penalties in the consolidated statement of
operations for the year ended March 31, 2010. We are subject to taxation in
the United States and various state jurisdictions. As of March 31,
2010, the Company is no longer subject to U.S. federal examinations for year
before 2006; and for California franchise and income tax examinations before
2005. However, to the extent allowed by law, the taxing authorities
may have the right to examine prior periods where net operating losses were
generated and carried forward, and make adjustments up to the amount of the net
operating loss carry forward amount. The Company is not currently
under examination by U.S. federal or state jurisdictions.
Adoption
of Accounting Principle
Equity-linked
instruments (or embedded features) that otherwise meet the definition of a
derivative are not accounted for as derivatives if certain criteria are met, one
of which is that the instrument (or embedded feature) must be indexed to the
entity’s own stock. Our warrant and convertible debt agreements contain
adjustment (or ratchet) provisions and accordingly, we determined that
these instruments are not indexed to our common stock. As a result,
we are required to account for these instruments as derivative liabilities. We
applied these provisions to outstanding instruments as of April 1, 2009. The
cumulative effect at April 1, 2009 to record, at fair value, a liability
for the warrants and embedded conversion features, including the effects on the
discounts on the convertible notes of $2,595,095, resulted in
an aggregate reduction to equity of $13,875,623 consisting
of a reduction to additional paid-in capital of $4,217,730 and an increase
in the accumulated deficit of $9,657,893 to reflect the change in the
accounting. The warrants and embedded conversion features are carried
at fair value and adjusted quarterly through earnings.
The
following table summarizes the effect of the adoption of accounting principle on
the consolidated balance sheet as of April 1, 2009:
|
|
|
As
Previously
Reported
|
|
|
As
Adjusted
|
|
|
Cumulative
Adjustment
|
|
Liabilities
and Stockholders’ Deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
New
Accounting Pronouncements
In August
2010, the FASB issued Accounting Standards Update No. 2010-05, Measuring
Liabilities at Fair Value, or ASU 2010-05, which amends ASC 820 to provide
clarification of a circumstance in which a quoted price in an active market for
an identical liability is not available. A reporting entity is required to
measure fair value using one or more of the following methods: 1) a valuation
technique that uses a) the quoted price of the identical liability when traded
as an asset or b) quoted prices for similar liabilities (or similar liabilities
when traded as assets) and/or 2) a valuation technique that is consistent with
the principles of ASC 820. ASU 2010-05 also clarifies that when estimating the
fair value of a liability, a reporting entity is not required to adjust to
include inputs relating to the existence of transfer restrictions on that
liability. The adoption did not have a material impact on our consolidated
financial statements.
|
ITEM
7A.
|
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.
Based on our overall cash and cash
equivalents interest rate
exposure at March 31,
2010, 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.
All outstanding amounts under our
Revolving Credit Facility bear interest at a variable rate equal to the lender’s
prime rate plus a margin of 1.50% or 5.0%, whichever is
higher. Interest is payable on a monthly basis and may expose us to
market risk due to changes in interest rates. As of March 31, 2010, we had
$90,388 outstanding
under our Revolving Credit Facility. The interest rate at March 31, 2010
was 5.00%. A 10% change in interest rates on our Revolving Credit
Facility would not have had a material effect on our net loss for the year ended
March 31, 2010.
We have operated primarily in the
United States. Accordingly, we have not had any significant exposure to foreign
currency rate fluctuations.
|
ITEM
8.
|
FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
|
Reference
is made to the consolidated financial statements included in this Report at
pages F-1 through F-31.
|
ITEM
9.
|
CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
|
None.
|
ITEM
9A(T).
|
CONTROLS AND
PROCEDURES
|
(a) Evaluation of Disclosure
Controls and Procedures. The term “disclosure controls and
procedures” (defined in Rule 13a-15(e) under the Securities and Exchange
Act of 1934 (the “Exchange Act”) refers to the controls and other procedures of
a company that are designed to ensure that information required to be disclosed
by a company in the reports that it files under the Exchange Act is recorded,
processed, summarized and reported within the required time periods. Under the
supervision and with the participation of our management, including our chief
executive officer and chief financial officer, we have conducted an evaluation
of the effectiveness of the design and operation of our disclosure controls and
procedures, as of March 31, 2010. Based on this evaluation, our
president and chief executive officer and our chief financial officer concluded
that our disclosure controls and procedures were effective as of March 31, 2010
to ensure the timely disclosure of required information in our Securities and
Exchange Commission filings.
Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. In addition, the design of any
system of control is based 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 future events, no matter how
remote. Accordingly, even effective internal control over financial
reporting can only provide reasonable assurance of achieving their control
objectives.
(b) Management’s Report
on Internal Control Over Financial Reporting. Management’s
Report on Internal Control Over Financial Reporting which appears on the
following page, is incorporated herein by this reference.
(c) Changes in Internal Control over
Financial Reporting. There have been no changes in our
internal control over financial reporting during the fourth quarter of the
fiscal year ended March 31, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
|
ITEM
9B.
|
OTHER
INFORMATION
|
None.
CRYOPORT,
INC.
MANAGEMENT’S REPORT
ON
INTERNAL
CONTROL OVER FINANCIAL REPORTING
The
management of the Company is responsible for establishing and maintaining
effective internal control over financial reporting and for the assessment of
the effectiveness of internal control over financial reporting. The
Company’s internal control over financial reporting is a process designed, as
defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of consolidated financial statements for external purposes
in accordance with generally accepted accounting principles.
The
Company’s internal control over financial reporting is supported by written
policies and procedures that:
|
|
·
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the Company’s
assets;
|
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of consolidated financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of the Company’s management and directors;
and
|
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the consolidated financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
connection with the preparation of the Company’s annual consolidated financial
statements, management of the Company has undertaken an assessment of the
effectiveness of the Company’s internal control over financial reporting based
on criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“the COSO
Framework”). Management’s assessment included an evaluation of the
design of the Company’s internal control over financial reporting and testing of
the operational effectiveness of the Company’s internal control over financial
reporting.
Based on
this assessment, management has concluded that the Company’s internal control
over financial reporting was effective as of March 31, 2010.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation b the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report
in this Annual Report.
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/Larry G.
Stambaugh
|
|
By:
|
|
/s/
Catherine
M. Doll
|
|
|
|
|
|
Larry
G. Stambaugh,
|
|
|
|
Catherine M.
Doll
|
|
|
|
|
|
President
& Chief Executive Officer, and Director
|
|
|
|
Chief
Financial Officer
|
|
|
June 21,
2010
PART
III
|
ITEM
10.
|
DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE
GOVERNANCE
|
The information required by this Item
regarding our directors, executive officers and committees of our board of
directors is incorporated by reference to the information set forth under the
captions “Election of Directors” and “Executive Compensation and Related
Matters” in our 2010 Definitive Proxy Statement to be filed within 120 days
after the end of our fiscal year ended March 31, 2010 (the “2010 Definitive
Proxy Statement”).
Information
required by this Item regarding Section 16(a) reporting compliance is
incorporated by reference to the information set forth under the caption
“Section 16(a) Beneficial Ownership Reporting Compliance” in our 2009 Proxy
Statement.
Information
required by this Item regarding our code of ethics is incorporated by reference
to the information set forth under the caption “Corporate Governance” in Part I
of this Annual Report on Form 10-K.
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
The information required by this Item
is incorporated by reference to the information set forth under the caption
“Executive Compensation and Related Matters” in our 2010 Definitive Proxy
Statement to be filed within 120 days after the end of our fiscal year
ended March 31, 2010.
|
ITEM
12.
|
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
|
The
information required by this Item is incorporated by reference to the
information set forth under the caption “Security Ownership of Directors and
Executive Officers and Certain Beneficial Owners” in our 2010 Definitive Proxy
Statement to be filed within 120 days after the end of our fiscal year
ended March 31, 2010.
|
ITEM
13.
|
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The
information required by this Item is incorporated by reference to the
information set forth under the captions “Certain Relationships and Related
Transactions” and “Compensation Committee Interlocks and Insider Participation”
in our 2010 Definitive Proxy Statement to be filed within 120 days after
the end of our fiscal year ended March 31, 2010.
|
ITEM
14.
|
PRINCIPAL ACCOUNTING
FEES AND SERVICES
|
The
information required by this Item is incorporated by reference to the
information set forth under the caption “Independent Registered Public
Accounting Firm Fees” in our 2010 Definitive Proxy Statement to be filed within
120 days after the end of our fiscal year ended March 31,
2010.
PART IV
ITEM 15: Exhibits and Financial Statement
Schedules.
| |
(1)
|
Index to Consolidated Financial Statements
The financial statements required by this item are submitted
in a separate section beginning on page F-1 of this
report.
|
|
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets at March 31, 2010 and 2009
|
F-3
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations the years ended March 31, 2010 and
2009
|
F-4
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Stockholders’ Deficit for each years ended March 31,
2010 and 2009
|
F-5
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended March 31, 2010 and
2009
|
F-6
|
|
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
F-8
|
|
|
|
|
|
|
|
2.
|
Financial
Statement Schedules
|
|
|
|
|
All
financial statement schedules are omitted because they were not required
or the required information is included in the Consolidated Financial
Statements and the related Notes thereto.
|
|
|
|
|
|
|
|
3.
|
Exhibit
Index
|
|
|
|
|
See
Exhibit Index
|
|
CRYOPORT,
INC.
INDEX
TO CONSO
LIDATED FINANCIAL
STATEMENTS
|
|
|
|
|
Page
|
|
Report of Independent Registered Public Accounting
Firm
|
F-2
|
|
Consolidated Balance Sheets as of March 31,
2010 and 2009
|
F-3
|
|
Consolidated Statements of Operations for the
years ended March 31, 2010 and 2009
|
F-4
|
|
Consolidated Statements of
Stockholders’ Deficit for the years ended March 31, 2010 and
2009
|
F-5
|
|
Consolidated Statements of Cash Flows for the
years ended March 31, 2010 and 2009
|
F-6
|
|
Notes to Consolidated Financial
Statements
|
F-8
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the
Board of Directors of
CryoPort,
Inc.
We have
audited the accompanying consolidated balance sheets of CryoPort, Inc. (the
“Company”) as of March 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of CryoPort, Inc. at March 31,
2010 and 2009, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
As
discussed in Note 1 to the consolidated financial statements, management adopted
a new accounting policy for derivative instruments in fiscal 2010.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has incurred recurring losses
and negative cash flows from operations since inception. Although the
Company has working capital of $1,994,934 and cash and cash equivalents balance
of $3,629,886 at March 31, 2010, management has estimated that cash on hand,
which include proceeds from the offering received in the fourth quarter of
fiscal 2010, will only be sufficient to allow the Company to continue its
operations only into the second quarter of fiscal 2011. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
/s/ KMJ
Corbin & Company LLP
Costa
Mesa, California
June 21,
2010
CRYOPORT,
INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
March 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
3,629,886 |
|
|
$ |
249,758 |
|
|
Restricted
cash
|
|
|
90,404 |
|
|
|
101,053 |
|
|
Accounts
receivable, net of allowances of $1,500 in 2010 and $600 in
2009
|
|
|
81,036 |
|
|
|
2,546 |
|
|
Inventory
|
|
|
— |
|
|
|
530,241 |
|
|
Other
current assets
|
|
|
104,014 |
|
|
|
170,399 |
|
|
Total
current assets
|
|
|
3,905,340 |
|
|
|
1,053,997 |
|
|
Property
and equipment, net
|
|
|
559,241 |
|
|
|
189,301 |
|
|
Intangible
assets, net
|
|
|
311,965 |
|
|
|
264,364 |
|
|
Deferred
financing costs
|
|
|
— |
|
|
|
3,600 |
|
|
Deposits
and other assets
|
|
|
— |
|
|
|
61,294 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
4,776,546 |
|
|
$ |
1,572,556 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
823,653 |
|
|
$ |
218,433 |
|
|
Accrued
compensation and related expenses
|
|
|
312,002 |
|
|
|
206,180 |
|
|
Accrued
warranty costs
|
|
|
— |
|
|
|
18,743 |
|
|
Convertible
notes payable, net of discount of $13,586 in
2009
|
|
|
— |
|
|
|
46,414 |
|
|
Current
portion of convertible debentures payable and accrued interest,
net of discount of
$0
in 2010 and $662,583 in 2009
|
|
|
200,000 |
|
|
|
3,836,385 |
|
|
Line
of credit and accrued interest
|
|
|
90,388 |
|
|
|
90,310 |
|
|
Current
portion of related party notes payable
|
|
|
150,000 |
|
|
|
150,000 |
|
|
Current
portion of note payable to former officer
|
|
|
— |
|
|
|
90,000 |
|
|
Derivative
liabilities
|
|
|
334
,363 |
|
|
|
— |
|
|
Other
accrued expenses
|
|
|
— |
|
|
|
90,547 |
|
|
Total
current liabilities
|
|
|
1,910,406 |
|
|
|
4,747,012 |
|
|
Related
party notes payable and accrued interest, net of current
portion
|
|
|
1,478,256 |
|
|
|
1,533,760 |
|
|
Note
payable to former officer and accrued interest, net of current
portion
|
|
|
— |
|
|
|
67,688 |
|
|
Convertible
debentures payable, net of current portion and discount
of $728,109 in 2010 and $2,227,205 in 2009,
respectively
|
|
|
2,302,459 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
6 |
|
|
Total
liabilities
|
|
|
5,691,121 |
|
|
|
6,348,460 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders’
deficit:
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value; 250,000,000 shares authorized; 8,136,619 and
4,186,194 shares issued and outstanding at March 31, 2010 and 2009,
respectively.
|
|
|
8,137 |
|
|
|
4,186 |
|
|
Additional
paid-in capital
|
|
|
45,021,097 |
|
|
|
25,854,265 |
|
|
Accumulated
deficit
|
|
|
(45,943,809
|
) |
|
|
(30,634,355
|
) |
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ deficit
|
|
|
(914,575
|
) |
|
|
(4,775,904
|
) |
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit
|
|
$ |
4,776,546 |
|
|
$ |
1,572,556 |
|
See
accompanying notes.
CRYOPORT,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
| |
|
Years
Ended March 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Revenues
|
|
$
|
117,956
|
|
|
$
|
35,124
|
|
|
Cost
of revenues
|
|
|
717,710
|
|
|
|
546,152
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
loss
|
|
|
(599,754)
|
|
|
|
(511,028)
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
3,312,635
|
|
|
|
2,387,287
|
|
|
Research
and development
|
|
|
284,847
|
|
|
|
297,378
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses
|
|
|
3,597,482
|
|
|
|
2,684,665
|
|
|
Loss
from operations
|
|
|
(4,197,
236)
|
|
|
|
(3,195,693)
|
|
|
Other
(expense) income:
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
8,164
|
|
|
|
32,098
|
|
|
Interest
expense
|
|
|
(7,028,684)
|
|
|
|
(2,693,383)
|
|
|
Loss
on sale of property and equipment
|
|
|
(9,184)
|
|
|
|
—
|
|
|
Loss
on extinguishment of debt
|
|
|
—
|
|
|
|
(10,846,573)
|
|
|
Change
in fair value of derivative liabilities
|
|
|
5,576,979
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other expense, net
|
|
|
(1,452,725)
|
|
|
|
(13,507,858)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(5,649,
961)
|
|
|
|
(16,703,551)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
1,600
|
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,651,561)
|
|
|
$
|
(16,705,151)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share, basic and diluted
|
|
$
|
(1.13)
|
|
|
$
|
(4.05)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average common shares outstanding
|
|
|
5,011,057
|
|
|
|
4,123,819
|
|
See
accompanying notes.
CRYOPORT,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2008
|
|
|
40,928,225 |
|
|
|
40,929 |
|
|
|
13,888,094 |
|
|
|
(13,929,204
|
) |
|
|
(181 |
) |
|
Adjust
beginning balance for reverse stock split effected in February
2010
|
|
|
(36,835,402 |
) |
|
|
(36,836 |
) |
|
|
36,836 |
|
|
|
— |
|
|
|
— |
|
|
Issuance
of common stock for conversion of convertible debentures including accrued
interest
|
|
|
3,890 |
|
|
|
4 |
|
|
|
5,442 |
|
|
|
— |
|
|
|
5,446 |
|
|
Cancellation
of common stock issued for debt principal reduction
|
|
|
(14,014 |
) |
|
|
(14 |
) |
|
|
(117,
706 |
) |
|
|
— |
|
|
|
(117,720 |
) |
|
Issuance
of common stock for extinguishment of debt
|
|
|
40,000 |
|
|
|
40 |
|
|
|
163,960 |
|
|
|
— |
|
|
|
164,000 |
|
|
Change
in fair value of warrants issued in connection with debt
modifications
|
|
|
— |
|
|
|
— |
|
|
|
9,824,686 |
|
|
|
— |
|
|
|
9,824,686 |
|
|
Issuance
of common stock to consultants
|
|
|
40,224 |
|
|
|
40 |
|
|
|
249,062 |
|
|
|
— |
|
|
|
249,102 |
|
|
Exercise
of stock options and warrants for cash
|
|
|
8,269 |
|
|
|
8 |
|
|
|
3,299 |
|
|
|
— |
|
|
|
3,307 |
|
|
Cashless
exercise of warrants
|
|
|
15,002 |
|
|
|
15 |
|
|
|
(15 |
) |
|
|
— |
|
|
|
— |
|
|
Debt
discount related to convertible debentures
|
|
|
— |
|
|
|
— |
|
|
|
991,884 |
|
|
|
— |
|
|
|
991,884 |
|
|
Share-based
compensation related to stock options and warrants issued to consultants,
employees and directors
|
|
|
— |
|
|
|
— |
|
|
|
808,723 |
|
|
|
— |
|
|
|
808,723 |
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16,705,151 |
) |
|
|
(16,705,151 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2009
|
|
|
4,186,194 |
|
|
|
4,186 |
|
|
|
25,854,265 |
|
|
|
(30,634,355 |
) |
|
|
(4,775,904 |
) |
|
Cumulative
effect related to adoption of new accounting principle
|
|
|
— |
|
|
|
— |
|
|
|
(4,217,730 |
) |
|
|
(9,657,893 |
) |
|
|
(13,875,623 |
) |
|
Issuance
of common stock for conversion of convertible notes payable including
accrued interest
|
|
|
519,186 |
|
|
|
519 |
|
|
|
1,459,682 |
|
|
|
— |
|
|
|
1,460,201 |
|
|
Issuance
of common stock for conversion of convertible debentures and accrued
interest
|
|
|
1,236,316 |
|
|
|
1,237 |
|
|
|
4,267,446 |
|
|
|
— |
|
|
|
4,268,683 |
|
|
Reclassification
of derivative liability to additional paid-in capital upon conversion of
convertible notes and debentures
|
|
|
— |
|
|
|
— |
|
|
|
2,728,459 |
|
|
|
— |
|
|
|
2,728,459 |
|
|
Reclassification
of derivative liability to additional paid-in capital upon effectively
fixing conversion feature and warrant price
|
|
|
— |
|
|
|
— |
|
|
|
9,009,329 |
|
|
|
— |
|
|
|
9,009,329 |
|
|
Estimated
fair value of warrants issued as commission for debt
financing
|
|
|
— |
|
|
|
— |
|
|
|
63,396 |
|
|
|
— |
|
|
|
63,396 |
|
|
Issuance
of common stock for services
|
|
|
33,490 |
|
|
|
33 |
|
|
|
166,061 |
|
|
|
— |
|
|
|
166,094 |
|
|
Exercise
of warrants for cash, net
|
|
|
479,033 |
|
|
|
479 |
|
|
|
1,359,989 |
|
|
|
— |
|
|
|
1,360,468 |
|
|
Cashless
exercise of warrants and stock options
|
|
|
15,753 |
|
|
|
16 |
|
|
|
(16 |
) |
|
|
— |
|
|
|
— |
|
|
Issuance
of units in public offering, net of offering costs of
$1,257,904
|
|
|
1,666,667 |
|
|
|
1,667 |
|
|
|
3,740,430 |
|
|
|
— |
|
|
|
3,742,097 |
|
|
Share-based
compensation related to stock options and warrants issued to consultants,
employees and directors
|
|
|
— |
|
|
|
— |
|
|
|
589,786 |
|
|
|
— |
|
|
|
589,786 |
|
|
Fractional
share adjustment for stock split
|
|
|
(20 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,651,561 |
) |
|
|
(5,651,561 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2010
|
|
|
8,136,619 |
|
|
$ |
8,137 |
|
|
$ |
45,021,097 |
|
|
$ |
(45,943,809 |
) |
|
$ |
(914,575 |
) |
See
accompanying notes.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
| |
|
Years
Ended March 31, 2010
|
|
|
|
|
2010
|
|
|
2009
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(5,651,561 |
) |
|
$ |
(16,705,151 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
150,093 |
|
|
|
81,984
|
|
|
Amortization
of deferred financing costs
|
|
|
159,516 |
|
|
|
42,284 |
|
|
Amortization
of debt discount
|
|
|
6,417,346 |
|
|
|
2,223,116 |
|
|
Stock
issued to consultants
|
|
|
166,094 |
|
|
|
249,102 |
|
|
Fair
value of stock options and warrants issued to consultants, employees and
directors
|
|
|
865,895 |
|
|
|
699,467 |
|
|
Change
in fair value of derivative instruments
|
|
|
(5,576,979 |
) |
|
|
— |
|
|
Loss
on extinguishment of debt
|
|
|
— |
|
|
|
10,846,573 |
|
|
Loss
on sale of assets
|
|
|
9,184 |
|
|
—
|
|
|
Loss
on disposal of Cryogenic shippers
|
|
|
21,285 |
|
|
—
|
|
|
Interest
accrued on restricted cash
|
|
|
649 |
|
|
|
(6,227 |
) |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(78,490 |
) |
|
|
18,865 |
|
|
Inventory
|
|
|
81,012 |
|
|
|
(408,289 |
) |
|
Prepaid
expenses and other assets
|
|
|
(50,219 |
) |
|
|
7,329 |
|
|
Accounts
payable
|
|
|
300,454 |
|
|
|
(15,865 |
) |
|
Accrued
expenses
|
|
|
(90,547 |
) |
|
|
(8,101 |
) |
|
Accrued
warranty costs
|
|
|
(18,743 |
) |
|
|
(11,250 |
) |
|
Accrued compensation
and related expense
|
|
|
105,822 |
|
|
|
68,077 |
|
|
Accrued
interest
|
|
|
335,830 |
|
|
|
331,616 |
|
|
Net
cash used in operating activities
|
|
|