UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2013
(cid:1) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the transition period from to
Commission file number: 001-34632
CRYOPORT, INC.
(Exact name of Registrant as specified in its charter)
Nevada
(State or other jurisdiction of
incorporation or organization)
20382 Barents Sea Circle,
Lake Forest, California
(Address of principal executive offices)
88-0313393
(I.R.S. Employer
Identification No.)
92630
(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
Common Stock, $0.001 par value
Name of Each Exchange on Which Registered
OTC Market
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 (cid:1) No
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 (cid:1) No
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 No (cid:1)
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 No (cid:1)
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.
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
Non-accelerated filer
(cid:1)
(cid:1)
Accelerated filer
Smaller reporting company
(cid:1)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:1) No
The aggregate market value of Common Stock held by non-affiliates as of September 30, 2012 was $7,151,190 (1)
Number of shares of Common Stock outstanding as of June 17, 2013: 38,260,628
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, 2013.
(1) Excludes 2,004,677 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, 2012.
CRYOPORT, INC.
Fiscal Year 2013 10-K Annual Report
Table of Contents
PART I
Item 1 Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Mine Safety Disclosures
PART II
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6 Selected Financial Data
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Item 8 Financial Statements and Supplementary Data
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A Controls and Procedures
Item 9B Other Information
Item 10 Directors, Executive Officers and Corporate Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13 Certain Relationships and Related Transactions, and Director Independence
Item 14 Principal Accountant Fees and Services
PART III
Item 15 Exhibits and Consolidated Financial Statement Schedules
Signatures
PART IV
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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 provide leading edge frozen shipping logistics solutions to the biotechnology and life science industries. Since 2011, through the
completion of the combination of purpose-built proprietary hardware, software information technologies and developed logistics knowhow
known as “total turnkey management” we have provided logistics management for frozen shipping to these industries. Our solutions are
disruptive to “old technologies” and provide reliable, economic alternatives to existing products and services utilized for frozen shipping in
biotechnology and life sciences including stem cells, cell lines, vaccines, diagnostic materials, semen and embryos for in-vitro fertilization, cord
blood, bio-pharmaceuticals, infectious substances and other items that require continuous exposure to frozen or cryogenic temperatures. Our
solutions contribute to the reliability, efficiency, and effectiveness of clinical trials.
Cryoport Express ® Solutions include a cloud-based logistics management software branded as the Cryoportal TM . The Cryoportal
supports the management of the entire shipment process through a single interface which includes initial order input, document preparation,
customs clearance, courier management, shipment tracking, issue resolution, and delivery. Cryoport’s total turnkey logistics solutions offer
reliability, cost effectiveness, and convenience, while the use of recyclable and reusable components provides “green”, environmentally friendly
solutions. The Cryoportal provides an array of unique information dashboards and validation documentation for every shipment.
Integral to our logistics solutions are the Cryoport Liquid Nitrogen Dry Vapor Shippers (Cryoport Express ® Shippers), which are cost-
effective and reusable cryogenic transport containers (patented vacuum flasks) utilizing innovative liquid nitrogen (LN2) “dry vapor”
technology. Cryoport Express ® Shippers are non-hazardous, IATA (International Air Transport Association) certified, and validated to maintain
stable temperatures below minus 150° Celsius for a 10-plus day dynamic shipment period. The Company currently features two Cryoport
Express ® Shipper models, the Standard Dry Shipper (holding up to approximately 75-2.0 ml vials) and the High Volume Dry Shipper (holding
up to approximately 500-2.0 ml vials).
The Cryoport Express ® Solutions include recording and retaining a fully documented “chain-of-custody” and, at the client’s option,
“chain-of-condition” for every shipment, helping ensure that quality, safety, efficacy, and stability of shipped commodities are maintained. This
recorded and archived information allows our customers to meet the exacting requirements necessary for scientific work and for regulatory
purposes. Cryoport Express ® Solutions can be used by customers, as a “turnkey” solution, through direct access to the cloud-based Cryoportal,
or by contacting Cryoport Client Care for order entry tasks. Cryoport provides 24/7/365 logistics services through its Client Care team and also
provides complete training and process management services to support each client’s specific requirements.
From 2011 through 2012, the Cryoport Express ® Solution was the Company’s principal focus for development and commercialization.
During the last month’s of 2012, the Company’s approach to the market was enhanced to include a comprehensive solutions orientation and it
expanded its service offering to address the various broader market needs in the biotechnology and life science industries. Today, as a solutions
provider, Cryoport tailors its frozen logistics solutions to client requirements. In addition to custom solutions, the Company’s primary customer
facing solutions offerings are as follows:
1
• Cryoport Express ® Solution
The fully outsourced turnkey logistics solution described above.
• Customer-Staged Solution
Cryoport ships an inventory of Cryoport Express ® Shippers to the customer (uncharged and in bulk) enabling the customer to
charge the shippers at their facility, process their orders through the Cryoportal which permits Cryoport Client Care to oversee
the logistics of each shipment and the return of the shippers to Cryoport for cleaning, testing and refurbishing. Cryoport Client
Care provides the 24/7/365 logistics services utilizing its Cryoportal logistics platform.
• Customer-Managed Solution
Cryoport ships a fully charged Cryoport Express ® Shipper(s) to the customer enabling the customer to utilize its internal
expertise to manage all or a portion of the logistics services. As with the above solutions, the shippers are returned to Cryoport
for cleaning, testing and refurbishing within a pre-determined time period.
• Customer Integrated Logistics
The Cryoport logistics team provides a tailored and full range of logistics support solutions. In addition to tailoring a
management solution, the robust, enterprise grade Cryoportal is used to provide complete logistics services while enabling the
customer to utilize their own packaging solutions or Cryoport Express ® Shippers. Cryoport can provide onsite logistics
personnel allowing the customer to fully outsource their cold chain logistics needs to Cryoport and focus on its core
competencies.
• Distribution Partnerships
“Powered by Cryoport” is an important partnership arrangements with integrators, freight forwarders and other logistics
providers, enabling partners to expand their solutions offering by adding the total Cryoport Express ® Shipper solution to their
customer offering.
One of our distribution partners is Federal Express Corporation (“FedEx”). We have an agreement with FedEx to provide frozen shipping
logistics services through the combination of our purpose-built proprietary technologies and turnkey management processes. FedEx markets and
sells Cryoport’s services for frozen temperature-controlled cold chain transportation as its FedEx ® Deep Frozen Shipping Solution, on a non-
exclusive basis and at its sole expense. During fiscal year 2013, the Company worked closely with FedEx to further align its sales efforts and
accelerate penetration within FedEx’s biotechnology and life sciences customer base through improved processes, sales incentives, joint
customer calls and more frequent communication at the sales and executive level. In addition, the Company has developed a FedEx branded
portal, which is “powered by the Cryoport”, for use by FedEx and its customers giving them access to the full capabilities of our logistics
management platform.
In January 2013, we entered into a master agreement (“FedEx Agreement”) with FedEx renewing these services and providing FedEx with
a non-exclusive license and right to use a customized version of our Cryoportal for the management of shipments made by FedEx customers.
The FedEx Agreement became effective on January 1, 2013 and, unless sooner terminated as provided in the FedEx Agreement, expires on
December 31, 2015.
Pursuant to an agreement with DHL Express (USA), Inc. (“DHL”), DHL biotechnology and life science customers have direct access to
our cloud-based order entry and tracking portal to order Cryoport Express ® Dry Shippers and receive preferred DHL shipping rates. The
agreement covers DHL shipping discounts that may be used to support our customers using the Cryoport Express ® Solutions. In connection with
the agreement, we have integrated our proprietary Cryoportal to DHL’s tracking and billing systems to provide DHL biotechnology and life
science customers with a seamless way (“powered by Cryoport”) of shipping their critical biological material worldwide.
In December 2012, we signed an agreement with Pfizer Inc. relating to Zoetis Inc. (formerly the animal health business unit of Pfizer Inc.)
pursuant to which we were engaged to manage frozen shipments of a key poultry vaccine. Under this arrangement, the Company is providing
on-site logistics personnel and its logistics management platform, the Cryoportal TM , to manage shipments from the Zoetis manufacturing site in
the United States to domestic customers as well as various international distribution centers. As part of its logistics management services, the
Company will analyze shipping data and processes to further streamline Zoetis’ logistics, ensuring products arrive at their destinations in
specified conditions, on-time and with the optimum uses of resources. The Company manages Zoetis’ total fleet of dewar flask shippers used for
this purpose, including liquid nitrogen shippers.
We offer our solutions to companies in the biotechnology and life sciences industries and specific verticals including manufacturers of
stem cells and cell lines, diagnostic laboratories, bio-pharmaceuticals, contract research organizations, in-vitro fertilization, cord blood, vaccines,
tissue, animal husbandry, and other producers of commodities requiring reliable frozen solutions for logistics problems. These companies
operate within heavily regulated environments and as such, changing vendors and distribution practices typically require a number of steps,
which may include the audit of our facilities, review of our procedures, qualifying us as a vendor, and performing test shipments. This process
can take up to nine months or longer to complete prior to a potential customer adopting one or more of the Cryoport Express ® Solutions.
2
Corporate History and Structure
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, CA 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.
The company became public by a reverse merger with a “shell” company in May 2005. Over time the Company has transitioned from
being a development company to a fully operational public company, providing cold chain logistics solutions to the biotechnology and life
sciences industries, globally.
Since fiscal year 2011 the Company has taken significant steps towards commercialization of the Cryoport Express™ logistics solutions in
validating, perfecting and expanding its features. The Company has now managed shipments of its Cryoport Express Shippers through its
Cryoportal into and out of approximately 58 countries, handling a vast array of different biological products and specimens.
During fiscal year 2012, the Company completed the external validation of its Cryoport Express Standard Shipper to ISTA 7E standards
and introduced the Cryoport Express High Volume Shipper in response to customer demand. The Company also set up its European distribution
depot in Holland to better serve its customer base and support sales efforts in Europe.
During fiscal year 2013, the Company elected Jerrell Shelton President and CEO, realigned its sales team and introduced a solutions sales
and operating strategy. In addition, and as part of its global expansion plans, the Company set up its Asian distribution depot in Singapore. The
Company also formed a Commercial Advisory Board (CAB) with Bill Taaffe, a founding member of ICON Clinical Research becoming its first
member.
In April 2013, Richard G. Rathmann was appointed to the Company’s Board of Directors. As a venture fund manager, investor and
advisor to life science companies over the past 20 years, Rathmann brings new experience and insights to the Board.
3
Cryoport Express ® Solutions
Cryoport Express ® Solutions consist of the Cryoportal, a cloud-based logistics management software which programmatically assists in
the management of all aspects of the logistics operations including the Cryoport Express ® Shippers and the Cryoport Express ® Smart Pak data
logger. The Cryoportal is capable of producing Cryoport Express ® Analytics which reports shipment performance metrics and evaluates
temperature-monitoring data collected by the data logger during shipment. Cryoport Express ® Solutions are focused on improving the reliability
of frozen shipping while reducing our clients’ 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 primarily though integrators and
specialty couriers. Certain of the intellectual property underlying our Cryoport Express ® Solutions (other than that related to the Cryoport
Express ® Shippers) has been, and continues to be, developed under a contract with an outside software development company, with the
underlying technology licensed to us for exclusive use in our field of use.
Cryoportal
The Cryoportal 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. It is used by Cryoport to assist in managing
logistics 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 Cryoportal 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 of 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 them.
The Cryoportal also serves as the communications center for the management, collection and analysis of Smart Pak data collected 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 information can be utilized by Cryoport to provide valuable feedback to
the customer relating to their shipments.
The Cryoportal was developed as a carrier-agnostic system, allowing the customer and the Cryoport Client Care team the use of multiple
integrators, freight forwarders or couriers depending on the specific requirements and customer preferences. To increase operational efficiencies
the Cryoportal has already been integrated with the tracking systems of two major integrators and is planning to integrate with other key logistics
providers.
The Cryportal was developed for time- and temperature-sensitive shipments that are required to maintain specific temperatures, such as
ambient (between 20 and 25°C), chilled (between 2 and 8°C) or frozen (minus 10°C or less all the way down to cryogenic temperatures) to
ensure that the shipped specimen is not subject to degradation or out of its designated “safe” range. While our current focus is on frozen
shipments within the biotechnology and life sciences industries using the logistics solutions described herein, the use of the Cryoportal can and
may be extended into other temperature ranges.
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 dynamic shipping 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 stable storage temperatures below minus 150° Celsius. Our Cryoport Express ®
Shippers are 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 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, refrigeration is provided by cold nitrogen gas evolving from the liquid
nitrogen entrapped within the retention system. Specimens that may be transported using our cryogenic shipper include live cell scientific or
pharmaceutical commodities such as cancer vaccines, diagnostic materials, semen, eggs and embryos, infectious substances and other items that
require continuous exposure to frozen or cryogenic temperatures (e.g., temperatures below minus 150° Celsius).
4
We currently offer two sizes of dry vapor shippers, the Cryoport Express ® Standard Shipper with a storage capacity of up to 75 0.2ml
vials and the Cryoport Express ® High Volume Shipper which was introduced in January of 2012 with a capacity of up to 500 0.2ml vials.
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
reduces 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 packaging system, contains a low cost outer
packaging 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.
ICAO 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.
Cryoport Express ® Standard Shippers
The Cryoport Express ® Standard 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 ® Standard 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 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. The Cryoport Express ® Standard Shipper has a storage capacity of up to
75 0.2ml vials.
Cryoport Express ® High Volume Shippers
The Cryoport Express ® High Volume Shipper also uses a dry vapor liquid nitrogen (LN2) technology to maintain below -150° C
temperatures with a dynamic shipping endurance of 10 days. The Cryoport Express ® High Volume Shipper is based on the same dry vapor
technology as Cryoport’s original standard dry shipper and utilizes an absorbent material to hold LN2, thus providing the extended endurance
time and IATA validation as a non-hazardous shipping container. The high volume dry shipper is reusable and recyclable, making it a highly
sustainable and cost effective method of transporting life science materials. The Cryoport Express ® High Volume Shipper has a storage capacity
of up to 500 0.2ml vials.
We believe Cryoport Express ® Solutions are the best and most cost effective solution available in the biotechnology and life sciences
markets and satisfy customer needs and scientific and regulatory requirements relating to the shipment of time- and temperature-critical, frozen
and refrigerated transport of biological materials, such as stem cells, cell lines, pharmaceutical clinical trial samples, gene biotechnology,
infectious materials handling, 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 our proprietary dry vapor
technology and innovative design prevent the spilling or leakage of the liquid nitrogen when the container is tipped or on its side which would
otherwise adversely affect the functional hold time of the shipper.
An important feature of our Cryoport Express ® Shippers is their compliance with the stringent packaging requirements of IATA Packing
Instructions 602 and 650, respectively. These specifications include meeting internal pressure (hydraulic) and drop performance requirements.
5
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 did not experience degradation during shipment due to temperature fluctuations. Our Smart Pak
System is a self-contained automated data logger capable of recording cryogenic temperatures of samples shipped in our Cryoport Express®
Shippers. The data-logging temperature probe is in the vapor plug of the shipper for the most accurate reading. The temperature mapping
includes both the temperature inside the chamber (which is closest to the actual biomaterial) and the external temperature. This reading,
combined with the mapping of every shipment check-in point, provides a holistic view of the complete shipping process. At the client’s election,
shipments can have a full chain-of-custody and chain-of-condition with both data monitoring and analysis available.
Chain-of-Condition
Data monitoring starts with a custom built data logger. The data logger can be set up to report during the shipment and/or after the
shipment. For those shipments involving biologics, clinical trials or any other material that needs to be verified before receiving, the information
recorded by the data logger can be downloaded to the data station onsite. Alternatively, Cryoport can upload the temperature data from the data
logger for analysis to the Cryoportal upon return of the shipper. The Cryoportal also acts as the data repository for all shipment and temperature
information, which the customer can access remotely through the internet. Chain of condition service is available at the client’s election.
Chain-of-Custody
When overlaid with the carrier check-ins, the data monitor and analysis also provides a chain of custody. The report from the data monitor
serves as analysis for temperature monitoring of the entire shipment as well as a tampering warning. If the client has elected to have chain of
condition monitoring, each time the container is opened there is a temperature record. The report will identify outlier temperature excursions
such as opening the shipment in customs or tampering and allow for more conclusive investigations to ensure specimen shipped were not
adversely impacted during shipment.
Cryoport Express ® Analytics
The Cryoportal is an important information technology element of our business strategy and has been designed to support planned future
features to allow for an expansion of our solutions offering. 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 for analytics tracked
through the Cryoportal 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 potential shipping exceptions based on historical metrics. The analytical results
are being utilized by Cryoport to render consultative and proactive customer services.
Biological Material Holders
A patented containment bag is used in connection with the shipment of infectious or dangerous goods using the Cryoport Express®
Shippers. Up to 75 cryovials (polypropylene vials with high-density polyethylene closures), set on aluminum canes 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 is then placed in a watertight Tyvek bag
(secondary packaging) 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 to further refine our current technology as well as explore opportunities with
partners to offer complementary packaging solutions for frozen temperature (- 10° Celsius or less), chilled temperature (2° to 8° Celsius) and
ambient temperature (between 20° and 25° Celsius) shipping markets.
We also continue to further expand the functionality of our Cryoportal, to ensure a high level of effectiveness and efficiency in the cold
chain logistics process and to allow for intelligent and easy data monitoring and analysis.
6
Government Regulation
The shipping of diagnostic specimens, infectious substances and dangerous goods, whether via air or ground, falls under the jurisdiction of
many state, federal and international agencies. The quality of the containers, packaging materials and insulation that protect a specimen
determine whether or not it will arrive in a usable condition. Many of the regulations for transporting dangerous goods in the United States are
determined by international rules formulated under the auspices of the United Nations. For example, the 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 ® Shippers meet Packing Instructions 602 and 650 and are
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 Federal Aviation Administration (“FAA”), Federal Communications Commission (“FCC”), Food and Drug Administration
(“FDA”), International Air Association (“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 . Due to our adequate levels of dewar inventories for the coming year, manufacturing is currently suspended. The
component parts for our shippers are primarily manufactured at third party manufacturing facilities. We also have a warehouse at our facility in
Lake Forest, California, where we are capable of manufacturing certain parts and to fully assemble our shipppers. Most of the components that
we use in the manufacture of our shippers 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. Should this occur, we believe that with our current level of inventory of shippers we
have enough inventory to cover our forecasted demand. There are no specific agreements with any manufacturer nor are there any long term
commitments to any manufacturer. We believe that most of the manufacturers 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 shippers.
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.
Cryoport Express ® High Volume Shippers are purchased from a third party and modified using our proprietary technology and know-
how.
Raw Materials . Various common raw materials are used in the manufacture of our shippers 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 our 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 three 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
shippers 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:
Patent
Patent
Patent
Trademark
Trademark
Trademark
Issued
Expiration
No.
6,467,642 Oct. 22, 2002 Oct. 21, 2022
6,119,465 Sep. 19, 2000 Sep. 18, 2020
6,539,726 Apr. 1, 2003 Mar 31, 2023
N/A
N/A
N/A
7,583,478,7 Oct. 8, 2002
7,748,667,3 Feb. 3, 2009
7,737,454,1 Mar. 17, 2009
7
Our success depends in part 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 such areas as biotechnology and life science, clinical trials, distribution of pharmaceutical
products and reproductive medicine, the requirement for effective and reliable solutions for keeping clinical samples, pharmaceutical products
and other specimen at frozen temperatures takes on added significance due to more complex shipping routes, extended shipping times, custom
delays and logistics challenges. Today, such specimens 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 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.
With proper marketing and sales initiatives, we believe our patented cryogenic shippers and the Cryoportal logistics management platform
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 life sciences and biotechnology industries
toward globalization. We believe that pharmaceutical companies conducting clinical trials in foreign countries represent a growing opportunity
for Cryoport.
We provide domestic shipping solutions in situations where specimen must be kept at cryogenic temperatures and in regions where there is
a high priority placed on maintaining the integrity of materials shipped at cryogenic temperatures.
Pharmaceutical Clinical Trials . Every United States based pharmaceutical company developing a new drug must seek drug development
protocol approval by the FDA. These clinical trials are to, among other things, test the safety and efficacy of the potential new drug. A
significant amount of clinical trial activity is managed by a number of large Clinical Research Organizations (“CROs”).
8
In connection with the clinical trials, due to globalization, the companies can be enrolled from all over the world and may 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, drugs used by the patients may 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/or 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 Cryoport Express ® Shippers 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 our Cryoport Express ® System, which is ideally suited for this
market, in particular due to the elimination of the cost to return the reusable shipper.
Biotechnology and Diagnostic Companies . The 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. Companies 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.
Central Laboratories. With the increase and globalization of clinical studies and trials, logistics has become more complex and ensuring
sample integrity has become more challenging. International courier costs are now consuming a significant portion of global protocol budgets.
We believe laboratories performing the testing of samples collected during the conduct of these global multi-site studies are looking for reliable
state-of-the-art logistics solutions.
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 anticipated 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. 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.
If such drugs require maintenance at frozen or cryogenic temperatures, each such shipment will require a frozen or cryogenic shipping package.
Cryoport can provide the technology to meet this anticipated need.
9
Fertility Clinics and In Vitro Fertilization (“IVF”) . Maintaining cryogenic temperatures during shipping and transfer of in vitro
fertilization specimens like eggs, sperm, or embryos is critical for cell integrity in order to retain viability, stabilize the cells, and ensure
reproducible results and successful IVF treatment. There are approximately 3,000 fertility clinics worldwide. Cryoport anticipates that this
market will continue to grow; in the United States alone, the fertility market has grown to over $4.0 billion with over 1.3 million women seeking
treatment each year. In the worldwide market, it is reported that there are over one billion IVF cycles per year and growing.
Sales and Marketing
We currently have two senior sales directors and one area sales manager in the United States, one senior sales director in Europe, one
inside sales representative for IVF and a part time senior director of marketing promoting the use of our Cryoport Express ® System on a direct
basis. Given the global nature of our business, our sales and marketing initiatives should more thoroughly cover the Americas, Europe and Asia.
For the fiscal year ended March 31, 2013, no customers account for more than 10% of total revenues.
Our geographical revenues for the fiscal year ended March 31, 2013 were as follows:
USA
Europe
Asia
Rest of World
58.2 %
20.2 %
14.4 %
7.2 %
We renewed our agreement with FedEx and plan to further expand our revenues and marketing efforts through the establishment of
additional strategic partnerships with global integrators and freight forwarders and, subject to available financial resources, the hiring of
additional marketing and sales personnel.
Cryoport Operations Centers
In addition to the services provided through our facility in Lake Forest, California, we have contracted with third parties to run our
European Operations Center (located in Leiden, Holland) and Asian Operations Center (located in Singapore). The operations centers provide
warehousing, shipping, receiving, refurbishing and recycling services for our shipping containers. This approach is a cost-effective way to
initiate operations outside of the US and allows us to scale up as our business grows globally. In March 2013, we shut down a small third-party
operations center in New Delhi, India without impact on our business or customers.
Industry and Competition
Our products and services are sold into a rapidly growing segment of the logistics 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). In addition,
we expect that industry standards and regulations will be introduced globally, requiring more comprehensive tracking and validation of shipping
temperatures.
We believe that growth in the following markets has resulted in the need for increased reliability, efficiencies and greater flexibility in the
temperature sensitive segment of the logistics market:
•
•
•
•
•
•
•
•
•
•
gene and stem cell biotechnology;
cell lines;
vaccine production;
commercial drug product distribution;
clinical trials, including transport of tissue culture samples;
diagnostic specimens;
infectious sample materials;
inter/intra-laboratory diagnostic testing;
temperature-sensitive specimens;
biological samples, in general;
•
environmental sampling;
10
•
•
IVF; and
animal husbandry.
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 stem cells, semen, embryo, tissue, tissue cultures, cultures of viruses and bacteria,
enzymes, DNA materials, vaccines, certain pharmaceutical products, etc.
The following comparisons apply only to the hardware portion of our solutions; our entire solutions integrate hardware, software and cold
chain logistics know-how tailored to client requirements.
Cryoport Express Shippers (Liquid Nitrogen Dry Vapor) compared to Dry Ice Shipments
One problem faced by many companies operating in these specialized markets is the limited number of cryogenic shipping systems
serving their needs. 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 and has been 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. 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. All dry ice shipping is considered dangerous goods shipping, requiring
extra packaging steps and adding costs. It gives off carbon dioxide and sublimates unevenly and in short duration.
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:
•
•
•
•
•
availability of a dry ice source;
handling and storage of the dry ice;
cost of the dry ice;
compliance with local, state and federal regulations relating to the storage and use of dry ice;
dangerous goods shipping regulations;
• weight of containers when packed with dry ice;
•
•
•
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;
securing a shipping container that meets the requirements of IATA, the DOT, the CDC, and other regulatory agencies; and
emission of greenhouse gases (primarily carbon dioxide) into the environment.
Due to the limitations of dry ice, specimens that require frozen shipping are more securely shipped at true cryogenic temperatures using a
service such as liquid nitrogen dry vapor shippers (Cryoport Express Shippers) , or liquid nitrogen shippers where the specimen is kept over
actual liquid nitrogen. However, liquid nitrogen is hazardous and has many pitfalls including safety and expense.
11
Cryoport Express Shippers (Liquid Nitrogen Dry Vapor) compared to Liquid Nitrogen Dewars/Tanks
There are distinct disadvantages when using liquid nitrogen compared to the dry vapor liquid nitrogen used in Cryoport Express ®
Shippers. Liquid nitrogen dewars/tanks are classified as dangerous goods and cannot be shipped as parcel. In addition, the liquid nitrogen has to
be disposed of prior to returning the dewar/tank to its origin. These issues add additional procedural steps and costs to the shipment. In addition,
there is a risk of liquid nitrogen leakage if the dewar/tank tips to the side during transport, which can cause bodily injury and compromise the
specimen being shipped. 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 and being safe for handling.
While both, liquid nitrogen dry vapor and liquid nitrogen shippers provide solutions to the issues encountered when shipping with dry ice,
liquid nitrogen shippers have some draw backs. For example, the cost for a liquid nitrogen shipper typically can range from $650 to $4,000 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 containers can be significant, particularly in international markets, because most applications
require only one-way shipping. In addition, the logistics support of cryogenic shippers requires more sophisticated logistics management and
discipline to ensure shippers are returned and recycled, especially for international shipments, which many companies do not have in place.
Cryoport’s solutions are totally comprehensive and integrated for maximum reliability, economy and total effectiveness. Cryoport’s total
logistics solution enables life sciences companies to utilize the superior liquid nitrogen dry vapor technology without having to make capital
investments or developing in-house logistics expertise and systems by offering a complete solution which includes the cloud-based Cryoportal
logistics management platform, the temperature monitoring system and the 24/7/365 logistics support. Cryoport allows the customer to
outsource logistics and focus on its core competencies while maintaining visibility of all shipping related information.
Within our intended biotechnology and life sciences markets for Cryoport Express ® Shippers, there is limited known direct competition.
We compete with liquid nitrogen and dry ice solutions by reason of the improved and integrated hardware and software technology in our
products including our comprehensive logistics management software and through the use of our service enabled business model. The Cryoport
Express ® Solution provides a simple and cost effective solution for the frozen or cryogenic transport of biotech and life sciences materials. The
Cryoportal assist the management, scheduling and shipping of the Cryoport Express ® Shippers removing the burdens associated with other
methods.
Traditional dry ice shippers and liquid nitrogen tank suppliers, such as MVE/Chart Industries, Taylor Wharton and Air Liquide, offer
various models of dry vapor liquid nitrogen shippers that are not as 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, have a broad manufactured product offering
of other liquid nitrogen products and experience in research and development than we do.
Factors that we believe give us a competitive advantage are attributable to our software and shipping container which allows our shipper to
retain liquid nitrogen when placed in non-upright positions, the overall “leak- proofness” of 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 Cryoportal and Smart Pak datal ogger 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.
12
Research and Development
Our research and development efforts are focused on continually improving the features of our Cryoport Express ® Solutions including the
cloud-based Cryoportal and the Cryoport Express ® Shippers. 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. 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 for the fiscal years ended March 31, 2013 and 2012 were $425,446 and $491,849, respectively with the largest portion being spent
on software maintenance and development.
Employees
As of June 17, 2013, we had seventeen full-time employees, one consultant and two temporary employees.
Insurance
We currently maintain general liability insurance, with coverage in the amount of $1 million per occurrence, subject to a $2 million annual
limitation. Claims may be made against us that exceed these limits. In fiscal year 2013, we did not experience any claims against our
professional liability insurance. 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.
We also maintain product liability insurance with coverage in the amount of $1,000,000 per year. In addition, we currently maintain cargo
insurance for shipments for one customer, with coverage of up to $10,000 per shipment.
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 for
each of our last two fiscal years:
Fiscal Year Ended March 31, 2013
Fiscal Year Ended March 31, 2012
Net Loss
$
$
6,382,433
7,832,928
As of March 31, 2013, we had an accumulated deficit of $66,311,448. 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 ® solution, 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, 2013 consolidated financial statements includes an
explanatory paragraph stating that the recurring losses and negative cash flows from operations since inception and our cash and cash equivalent
balance at March 31, 2013 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 17, 2013, we had cash and cash equivalents of $146,057. We have expended substantial funds developing and commercializing
our Cryoport Express ® Solutions and for general operating expenses. 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 future operations.
13
We are currently funding our operations through short-term bridge financing and plan to raise additional funds through an equity or debt
offering to cover general working capital needs and sales and marketing initiatives to expand our customer base and increase revenues. If we are
not able to raise sufficient funds and our projected revenues and cash-inflows are reduced or delayed, we may not have sufficient capital to
operate through the secondquarter of our fiscal year 2014 or beyond. We are currently exploring various arrangements with respect to securing
additional funding. However, 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 our business operations. Any
additional equity financing will involve substantial dilution to our then existing stockholders. 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 cash flow which could adversely affect our operations.
We believe that establishing strategic relationships with global couriers, such as our agreements with FedEx and DHL can drive growth.
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 DHL or establishing additional relationships with global couriers, our sales and marketing efforts will be significantly impacted and
anticipated revenue growth will be delayed which could adversely impact on our operations.
Our agreements with FedEx and DHL may not result in a significant increase in our revenues or cash flow.
In January 2013, we entered into a master agreement with FedEx , renewing FedEx’s right to on a non-exclusive basis, promote, market
and sell transportation of our shippers and our related value-added goods and services and providing FedEx with a non-exclusive license and
right to use a customized version of our Cryoportal for the management of shipments made by FedEx customers. 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 cash flows as a result of this agreement. On September 2, 2010, we entered into an
agreement with DHL that will give DHL life sciences customers direct access to our web-based order entry and tracking portal to order our
Cryoport Express ® Shippers and preferred DHL shipping rates. Although the agreement provides shipping discounts that may be used to support
our customers using our Cryoport Express ® Solution, DHL will not be promoting, marketing or selling transportation of our shippers or
services, which may not lead to any increase in 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 and we do not achieve positive cash flow from operations. Our ability to access the capital markets may 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 ® Solution 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 June 17, 2013, there were 38,260,628 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.
14
We could also issue up to 44,663,099 shares of our common stock including shares to be issued 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:
Common stock issuable upon exercise of outstanding warrants
Common stock issuable upon exercise of outstanding options or reserved for future incentive
awards under our stock incentive plans
Total
Number of
Shares of
Common Stock
Issuable or
Reserved for
Issuance
37,027,198
7,635,901
44,663,099
Of the total options and warrants outstanding as of March 31, 2013, options and warrants exercisable for an aggregate of 2,626,977 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, 2013.
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 revenues.
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.
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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 ® Solutions and/or Cryoport Express ® Shippers, 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 shippers’ ability to perform and preserve the integrity of the materials shipped;
relative convenience and ease of use of our shipper and/or Cryoportal;
availability of alternative products;
pricing and cost effectiveness;
effectiveness of our or our collaborators’ sales and marketing strategy; and
the adoption cycles of our targeted customers.
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.
The product adoption cycle of our target customers tends to be very lengthy, which continues to adversely affect our ability to increase
revenues.
We offer our solution primarily to companies in the life sciences industry. These companies operate within a heavily regulated
environment and as such, changing vendors and distribution practices typically require a number of steps which may include the audit of our
facilities, review of our procedures, qualifying us as a vendor, and performing test shipments. This process can take several months or longer to
complete prior to a company fully adopting the Cryoport Express ® Solution. In addition, any such adoption may be on a gradual basis such that
the customer progressively ramps up use of our Cryoport Express ® Solution following adoption. The slow adoption process continues to
adversely affect our ability to increase revenues.
We are dependent on an outside party for the continued development of our Cryoportal
Our proprietary Cryoportal is a software system 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. The continued development of this
system is contracted with an outside software development company. If this developer becomes unable or unwilling to continue work on
scheduled projects, and an alternative developer cannot be secured, we may not be able to implement needed enhancements to the system.
Furthermore, if we terminate our agreement with this developer and cannot reach an agreement or fail to fulfill an agreement for the termination,
we could lose our license to use this software. Failure to proceed with enhancements or the loss of our license for the system would adversely
affect our ability to generate new business and serve existing customers, resulting in a reduction in revenue.
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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.
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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.
Our Cryoportal may be subject to intentional disruption that could adversely impact our reputation and future revenues.
We have implemented our Cryoportal 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 cyber attacks specifically designed to impede the performance of the
Cryoportal. Similarly, experienced computer programmers may attempt to penetrate our Cryoportal 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.
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If we cannot compete effectively, we will lose business.
Our products, services and solutions are positioned to be competitive in the cold-chain logistics 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. Our principal competitive considerations in our market include:
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financial resources to allocate to proper marketing and an appropriate sales effort;
acceptance of our solutions business model;
acceptance of our services including per use fee structures;
keeping up technologically with ongoing development of enhanced features and benefits
reductions in the manufacturing cost of competitors’ products;
the ability to develop and maintain and expand distribution channels;
establishing our brand name;
our ability to deliver our products to our customers when requested;
our timing of introductions of new solutions, products and services; and
financial resources to support working capital needs and required capital investments.
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
Certain of our existing stockholders own and have the right to acquire a substantial number of shares of common stock.
As of June 17, 2013, our directors, executive officers and beneficial owners of 5% or more of our outstanding common stock beneficially
owned 9,365,085 shares of common stock (without regard to beneficial ownership limitations contained in certain warrants) assuming their
exercise of all outstanding warrants, options or approximately 20.1% of our outstanding common stock. Of these shares of common stock,
2,857,139 shares, or approximately 7.0% of our common stock, will be beneficially owned by CNH Partners, LLC, and 2,500,428 shares, or
approximately 6.2% of our outstanding common stock, will be beneficially owned by Emergent Financial Group (each calculated without regard
to the shares of common stock that may be acquired by the other upon the exercise of its warrants and conversion of debt). As such, the
concentration of beneficial ownership of our common 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;
sales of our common stock;
our ability to integrate operations, technology, products and services;
our ability to execute our business plan;
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operating results below expectations;
loss of any strategic relationship;
industry developments;
economic and other external factors; and
period-to-period fluctuations in our financial results.
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. 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.
We need additional capital, and the sale of additional shares of common stock or other equity securities could result in additional dilution
to our stockholders.
Our current cash and cash equivalents and anticipated cash flow from operations are insufficient to meet our cash needs. We require
additional cash resources to fund our operations and may require additional funds in the future due to changed business conditions or other future
developments, including any investments or acquisitions we may decide to pursue. 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.
Our Articles of Incorporation allows our Board of Directors to issue up to 2,500,000 shares of “blank check” preferred stock.
Our Articles of Incorporation allows our Board of Directors to issue up to 2,500,000 shares of “blank check” preferred stock, without
action by our stockholders. Such shares of preferred stock may be issued on terms determined by our Board of Directors, and may have rights,
privileges and preferences superior to those of our common stock. Without limiting the foregoing, (i) such shares of preferred stock could have
liquidation rights that are senior to the liquidation preference applicable to our common stock, (ii) such shares of preferred stock could have
voting or conversion rights, which could adversely affect the voting power of the holders of our common stock and (iii) the ownership interest of
holders of our common stock will be diluted following the issuance of any such shares of preferred stock. In addition the issuance of such shares
of blank check preferred stock could have the effect of discouraging, delaying or preventing a change of control of our Company.
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.
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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, to the extent permitted in our Articles of Incorporation, Bylaws and under Nevada law, 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.
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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 OTCQB, operated by the OTC Markets Group, Inc., 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 and disclosure of management’s assessment of our internal controls over financial reporting 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. 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 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 and to remediate any deficiencies in our internal controls. As a result, we may not be able to complete the assessment and
remediation process on a timely basis. In the event that our Chief Executive Officer or Chief Financial Officer determine 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.
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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 OTCQB 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 in Lake Forest, California (“Lake Forest Facility”) and approximately 4,100 square feet of
corporate offices located in San Diego, California (“San Diego Facility”). In June 2010, the Company entered into a third amendment to the
Lake Forest Facility lease and extended the lease for sixty months commencing July 1, 2010 with a right to cancel the lease with a minimum of
120 day written notice at any time after December 31, 2012. On November 28, 2011, the Company entered into a lease agreement for the
corporate offices in San Diego for a thirty six month period ending December 31, 2014.
The Company currently makes base lease payments of approximately $17,000 per month, due at the beginning of each 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, including product liability claims. 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. It is our practice to accrue for open claims based on our historical experience and
available insurance coverage.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
23
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERS’ MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Market Information
(a) Market Information. Presently, our common stock is quoted on the OTCQB, operated by the OTC Markets Group, Inc. under the
symbol CYRX. On June 17, 2013, the last reported sale of our common stock was $0.24. The following table shows the high and low sales price
of our common stock for the two fiscal years ended March 31, 2013 and 2012.
Fiscal Year 2013
Quarter Ended March 31, 2013
Quarter Ended December 31, 2012
Quarter Ended September 30, 2012
Quarter Ended June 30, 2012
Fiscal Year 2012
Quarter Ended March 31, 2012
Quarter Ended December 31, 2011
Quarter Ended September 30, 2011
Quarter Ended June 30, 2011
Common Stock
Sales Price
High
Low
$
$
$
$
$
$
$
$
0.61 $
0.39 $
0.51 $
0.70 $
0.90 $
1.24 $
1.73 $
1.60 $
0.33
0.11
0.19
0.37
0.60
0.65
0.96
0.85
(b) Holders. As of June 17, 2013, the number of stockholders of record of the Company’s common stock was 146.
(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 period covered by this
report 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”) and that have not previously been included in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K. 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.
In the fourth quarter of fiscal 2013, the Company issued to certain accredited investors unsecured convertible promissory notes (the
“Bridge Notes”) in the original principal amount of $1,294,500. The Bridge Notes accrue interest at a rate of 15% per annum from date of
issuance until January 31, 2013 and at a rate of 5% per annum from February 1, 2013 through the date of payment, in each case on a non-
compounding basis. All principal and interest under the Bridge Notes will be due on December 31, 2013. In the event the Company designated
and issued preferred stock while the Bridge Notes were outstanding, the Bridge Notes were convertible into shares of such preferred stock at a
conversion rate equal to the price per share paid to the Company in connection with the issuance of such preferred stock at the option of the
holder of the Bridge Notes.
Effective on April 19, 2013, the Company amended the Bridge Notes whereby in the event that the Company issues one or more types of
equity securities (a “Transaction”) before the maturity of the Bridge Notes, the holder may elect to convert all or a portion of the principal and
accrued interest into shares of such equity securities issued in a Transaction at a conversion rate equal to the price per share paid to the Company
in connection with the issuances. The Company is required to notify the holder of a Transaction within 10 days of each Transaction and the
holder has the option until the later of (a) ten (10) days after such notices or (b) December 15, 2013 to elect in writing to convert.
In April 2012, the Company issued a warrant to purchase 30,000 shares of the Company’s common stock at an exercise price of $0.50 per
share to a consultant for services rendered to the Company.
24
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, 2013. 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, 2013, 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)
2013
2012
2011
2010
2009
$
1,101 $
556 $
476 $
118 $
35
Consolidated Statement of Operations Data:
Revenues
Cost of revenues
Gross loss
Selling, general and administrative
Research and development
Total operating expenses
Loss from operations
Other (expense) income:
Interest income
Interest expense
Loss on sale of fixed assets
Loss on extinguishment of debt
Change in fair value of derivative liabilities
1,588
(487 )
5,412
425
5,837
(6,324 )
-
(72 )
—
—
16
(6,380 )
2
(6,382 ) $
(0.17 ) $
1,392
(836 )
6,106
492
6,598
(7,434 )
12
(528 )
—
—
119
(7,831 )
2
(7,833 ) $
(0.27 ) $
1,303
(827 )
4,321
449
4,770
(5,597 )
16
(619 )
—
—
50
(6,150 )
2
(6,152 ) $
(0.46 ) $
718
(600 )
3,313
284
3,597
(4,197 )
8
(7,029 )
(9 )
—
5,577
(5,650 )
2
(5,652 ) $
(1.13 ) $
546
(511 )
2,387
297
2,684
(3,195 )
32
(2,693 )
—
(10,847 )
—
(16,703 )
2
(16,705 )
(4.05 )
Net loss before income taxes
Income taxes
Net loss
Net loss per common share, basic and diluted
Weighted average shares used in computing net loss per common share,
$
$
basic and diluted
37,761
28,975
13,302
5,011
4,124
Consolidated Balance Sheet Data:
Cash, cash equivalents
Working capital (deficit)
Total assets
Convertible notes and accrued interest, net
Other long-term obligations
Accumulated deficit
Total stockholders’ equity (deficit)
As of March 31,
(in thousands)
2013
2012
2011
2010
2009
$
563 $
(1,539 )
1,756
1,305
1,322
(66,311 )
(2,063 )
4,618 $
4,024
6,214
338
1,375
(59,929 )
3,730
9,278 $
6,760
11,031
2,401
1,423
(52,096 )
5,948
3,630 $
1,995
4,777
2,502
1,478
(45,944 )
(915 )
250
(3,693 )
1,573
3,883
1,601
(30,634 )
(4,776 )
25
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.
General Overview
We provide leading edge frozen shipping logistics solutions to the biotechnology and life science industries. Since 2008, through the
combination of purpose-built proprietary hardware and software technologies and logistics knowhow known as “total turnkey management” we
have provided total logistics management to the biotechnology and life sciences industries. Our solutions are disruptive to “old technologies”
and provide reliable, economic alternatives to currently existing products and services utilized for frozen shipping in biotechnology and life
sciences including stem cells, cell lines, vaccines, diagnostic materials, semen and embryos for in-vitro fertilization, cord blood, bio-
pharmaceuticals, infectious substances and other items that require continuous exposure to frozen or cryogenic temperatures. In addition, our
solutions can contribute to the reliability, efficiency, and effectiveness of clinical trials.
Cryoport Express ® Solutions include a cloud-based logistics management software branded as the Cryoportal TM . The Cryoportal
supports the management of the entire shipment process through a single interface which includes initial order input, document preparation,
customs clearance, courier management, shipment tracking, issue resolution, and delivery. Cryoport’s total turnkey logistics solutions offer
reliability, cost effectiveness, and convenience, while the use of recyclable and reusable components provides “green”, environmentally friendly
solutions. The Cryoportal provides an array of unique information dashboards and validation documentation for each and every shipment.
Integral to our logistics solutions are the Cryoport Liquid Nitrogen Dry Vapor Shippers (Cryoport Express ® Shippers) which are cost-
effective and reusable cryogenic transport containers (patented vacuum flasks) utilizing innovative liquid nitrogen (LN2) “dry vapor”
technology. Cryoport Express ® Shippers are non-hazardous, IATA (International Air Transport Association) certified, and validated to maintain
stable temperatures below minus 150° Celsius for a 10-plus day dynamic shipment period. The Company currently features two Cryoport
Express ® Shipper models, the Standard Dry Shipper (holding up to approximately 75-2.0 ml vials) and the High Volume Dry Shipper (holding
up to approximately 500-2.0 ml vials).
Cryoport Express ® Solutions include recording and retaining a fully documented “chain-of-custody” and, at the client’s option, “chain-of-
condition” for every shipment, helping ensure that quality, safety, efficacy, and stability of shipped commodities are maintained. This recorded
and archived information allows our customers to meet the exacting requirements necessary for scientific work and for regulatory purposes.
Cryoport Express ® Solutions can be used by customers, as a “turnkey” solution, through direct access to the cloud-based Cryoportal, or by
contacting Cryoport client Care for order entry tasks. Cryoport provides 24/7/365 logistics services through its Client Care team and also
provides complete training and process management services to support each client’s specific requirements.
Since 2010, Cryoport Express ® Solutions have been the Company’s principal focus for development and commercialization. During fiscal
year 2013, the Company approach to the market was adjusted to a solutions orientation and it expanded its service offering to address specific
market needs in the biotechnology and life science industries. As a solutions provider, Cryoport tailors frozen logistics solutions to client
requirements. In addition to custom solutions, the Company’s primary customer facing solutions offerings are as follows:
• Cryoport Express ® Solution
The fully outsourced turnkey logistics solution described herein.
• Customer-Staged Solution
Cryoport ships an inventory of Cryoport Express ® Shippers to the customer (uncharged and in bulk) enabling the customer to
charge the shippers at their facility, process their orders through the Cryoportal which permits Cryoport Client Care to oversee
the each shipment and the return the shippers to Cryoport for cleaning, testing and refurbishing. Cryoport Client Care provides
the 24/7/365 logistics services utilizing its Cryoportal logistics platform.
26
• Customer-Managed Solution
Cryoport ships a fully charged Cryoport Express ® Shipper(s) to the customer enabling the customer to utilize its internal
expertise to manage all or a portion of the logistics services. As with the above solutions, the shippers are returned to Cryoport
for cleaning, testing and refurbishing within a pre-determined time period.
• Customer Integrated Logistics
The Cryoport logistics team provides a tailored and full range of logistics support solutions. In addition to tailoring a
management solution, the robust, enterprise grade Cryoportal is used to provide complete logistics services while enabling the
customer to utilize their own packaging solutions or Cryoport Express ® Shippers. Cryoport can provide onsite logistics
personnel allowing the customer to fully outsource their cold chain logistics needs to Cryoport and focus on its core
competencies.
• Distribution Partnerships
“Powered by Cryoport” is an important partnership arrangements with integrators, freight forwarders and other logistics
providers, enabling partners to expand their solutions offering by adding the total Cryoport Express ® Shipper solution to their
customer offering.
We offer our solutions to companies in the biotechnology and life sciences industries and specific verticals including manufacturers of
stem cells and cell lines, diagnostic laboratories, bio-pharmaceuticals, in-vitro fertilization, cord blood, vaccines, tissue, animal husbandry, and
other producers of commodities requiring reliable frozen solutions for logistics problems.
27
These companies operate within heavily regulated environments and as such, changing vendors and distribution practices typically
require a number of steps, which may include the audit of our facilities, review of our procedures, qualifying us as a vendor, and performing test
shipments. This process can take up to nine to eighteen months or longer to complete prior to a potential customer adopting Cryoport Express ®
Solutions.
Going Concern
As reported in the Report of Independent Registered Public Accounting Firm to our March 31, 2013 and 2012 consolidated financial
statements, we have incurred recurring losses and negative cash flows from operations since inception. These factors, among others, raise
substantial doubt about our ability to continue as a going concern.
There are significant uncertainties, which may negatively affect our operations. These are principally related to (i) the expected ramp up of
revenues of Cryoport Express ® Solutions, (ii) the lack of firm purchasing commitments from our customers due to the on-demand nature of our
business, (iii) the success in bringing additional products to market in response to customer demands, and (iv) risks associated with scaling
company operations to meet demand. Moreover, there is no assurance as to when, if ever, we will be able to conduct our operations on a
profitable basis. Our limited historical revenues for our reusable product, limited revenues to date of our Cryoport Express ® Solutions and the
lack of any purchase requirements in our existing distribution agreements, make it difficult to identify any trends in our business prospects.
While we increased revenue year-over-year by 98% to $1.1 million for the fiscal year ended March 31, 2013, our revenue is still
significantly lower than our operating expenses during the year and we have no assurance of the level of future revenues. We incurred a net loss
of $6.4 million and used cash of $4.8 million in our operating activities during the year ended March 31, 2013. We had negative working capital
of $1.5 million, and had cash and cash equivalents of $0.6 million at March 31, 2013.
We currently fund our operations through short-term bridge financing (see Note 8 of the notes to the consolidated financial statements) and
plan to raise additional funds through an equity offering to cover general working capital needs and sales and marketing initiatives to expand our
customer base and increase sales. There is no assurance that funds can be secured or if these funds would allow us to continue our operations
until more significant revenues can be generated or more funding can be secured. These matters raise substantial doubt about our ability to
continue as a going concern.
Results of Operations
The following table sets forth, for the periods indicated, certain information derived from our consolidated statements of operations.
Revenues
Cost of revenues
Gross loss
Operating expenses:
Selling, general and administrative
Research and development
Total operating expenses
Loss from operations
Other income (expense):
Interest income
Interest expense
Change in fair value of derivative liabilities
Total other expense, net
Loss before income taxes
Income taxes
Net loss
Net loss available to common stockholders per common share:
Basic and diluted loss per common share
28
2013
(‘000)
2012
(‘000)
1,101 $
1,588
(487 )
5,412
425
5,837
(6,324 )
-
(72 )
16
(56 )
(6,380 )
2
(6,382 ) $
556
1,392
(836 )
6,106
492
6,598
(7,434 )
12
(528 )
119
(397 )
(7,831 )
2
(7,833 )
(0.17 ) $
(0.27 )
$
$
$
Weighted average common shares outstanding:
Basic and diluted
Years ended March 31, 2013 and 2012:
2013
(‘000)
2012
(‘000)
37,761
28,975
Revenues . Revenues were $1,100,539 for the year ended March 31, 2013, as compared to $555,637 for the year ended March 31, 2012.
The $544,902 or 98.1% increase is primarily driven by an increase in the number of customers utilizing our services as well as an increase in
volume of certain customers compared to the prior year. We generated revenues from customers in all of our target life sciences markets, such as
biotech and diagnostic companies, pharmaceutical companies, central laboratories, contract research organizations, the reproductive medicine
market/in vitro fertilization market, and research institutions. Five customers generated in excess of $50,000 in revenues during fiscal 2013
compared to only two customers in the prior year. The number of customers that shipped multiple times during the year more than doubled,
compared the prior year. The increase in revenues is partially the result of positive responses to targeted telemarketing activities and email
marketing campaigns to the in-vitro-fertilization/reproductive medicine market to broaden the awareness of our solution in this space. In
addition, the increase in revenues was also due, in part, to the commencement of the implementation of our first customer integrated solution in
February of 2013, whereby we were engaged to manage shipments of a specific vaccine from the manufacturing site in the United States to both,
domestic customers and international distribution centers.
Gross loss and cost of revenues . Gross loss for the year ended March 31, 2013 was 44% of revenues, or $487,284, as compared to 151%
of revenues, or $836,823, for the prior year. Cost of revenues for the year ended March 31, 2013 was 144% of revenues, or $1,587,823 as
compared to 251% of revenues, or $1,392,460, for the prior year. Our cost of revenues are primarily comprised of freight charges, payroll and
related expenses related to our operations center in California, third-party charges for our European and Asian operations centers in Holland and
Singapore, depreciation expenses of our Cryoport Express® Shippers and supplies and consumables used for our solutions. The increase in cost
of revenues is primarily due to freight charges from the growth in shipments. The cost of revenues exceeded revenues due to fixed costs and
plant underutilization.
Selling, general and administrative expenses . Selling, general and administrative expenses were $5,411,728 for the year ended March 31,
2013, as compared to $6,106,006 for the prior year. The $694,278 decrease reflects the decrease in consulting expenses, headcount, in particular
a temporary decrease in the sales and marketing department due to the replacement of certain sales representatives, and the resignation of our
Chief Executive Officer in April 2012, who was not replaced until November 2012, partly offset by stock-based compensation expenses for
stock option grants issued to three members of the Company’s board of directors as compensation for their services as members of the Office of
the Chief Executive Officer during that interim period.
Research and development expenses . Research and development expenses were $425,446 for the year ended March 31, 2013, as
compared to $491,849 for the prior year. Our research and development efforts are focused on continually improving the features of the Cryoport
Express ® Solution, with the primary focus on further expanding the capabilities of our cloud-based logistics management platform, the
Cryoportal TM . We use an outside software development company to provide these services.
Interest expense . Interest expense was $72,861 for the year ended March 31, 2013, as compared to $527,753 for the prior year. Interest
expense for the year ended March 31, 2013 included, stated interest expense on the convertible debt of $13,018, amortization of the debt
discount and deferred financing costs of $17,514, and accrued interest on our related party notes payable of $42,216. Interest expense for the
prior 2012 included the value on warrants issued to convertible debt holders of $156,999, stated interest expense on the convertible debt of
$122,824, amortization of the debt discount of $197,225, and accrued interest on our related party notes payable of $48,036.
Interest income . Interest income was zero for the year ended March 31, 2013 as compared to $11,940 for the prior year.
Change in fair value of derivative liabilities . The gain on the change in fair value of derivative liabilities was $16,486 for the year ended
March 31, 2013, compared to a gain of $119,163 for the prior year. The gain for the year ended March 31, 2013 was the result of a decrease in
the value of our warrant derivatives, due primarily to a decrease in our stock price.
Net loss . As a result of the factors described above, net loss for the year ended March 31, 2013 decreased by $1,450,495 to $6,382,433 or
($0.17) per share compared to a net loss of $7,832,928 or ($0.27) per share for the prior year. The decrease of net loss per share compared to the
prior year is a result of the decrease in the net loss as described above and the increase in the weighted average common shares outstanding from
29.0 million to 37.8 million. This increase is primarily due to common stock issued in connection with the Company’s private placements late in
fiscal 2012.
Liquidity and Capital Resources
As of March 31, 2013, the Company had cash and cash equivalents of $563,104 and negative working capital of $1,539,103. As of
March 31, 2012, the Company had cash and cash equivalents of $4,617,535 and working capital of $4,024,120. Historically, we have financed
our operations primarily through sales of our debt and equity securities. From March 2005 through March 2013, we have received net proceeds
of approximately $34.1 million from sales of our common stock and the issuance of promissory notes, warrants and debt.
29
For the year ended March 31, 2013, we used $4,785,144 of cash for operations primarily as a result of the net loss of $6,382,433 including
non-cash expenses of $693,180 for the fair value of stock options and warrants. Net operating losses decreased as a result of a decrease in
headcount. Offsetting the cash impact of our net operating loss (excluding non-cash items) was an increase in accounts payable and accrued
expenses of $443,562. Net cash used in operating activities also was offset by $2,525 for other working capital uses.
Net cash used in investing activities totaled $178,682 during the year ended March 31, 2013, and was attributable to the purchase of
property and equipment of $156,200 and the purchase of intangible assets of $22,482.
Net cash provided by financing activities totaled $909,395 during the year ended March 31, 2013, and resulted primarily from net
proceeds received from issuance of convertible debt during the fourth quarter of fiscal 2013 in the amount of $1,294,500. This was partially
offset by the payment of financing costs of $206,305, repayment of related party notes of $96,000 and repayment of convertible debt of $82,800.
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. As discussed above, the Company completed a private placement in March of 2012 and received proceeds
from issuance of convertible debt as bridge financing in the fourth quarter of fiscal 2013. The funds raised are being used for working capital
purposes and to continue our sales efforts to advance the Company’s commercialization of the Cryoport Express ® Solutions. As discussed in
Note 16 of the accompanying audited consolidated financial statements, the Company issued additional unsecured convertible promissory notes
in principal amount of $608,751 in the first quarter of fiscal 2014. However, the Company’s management recognizes that the Company will need
to obtain additional capital to fund its operations and until sustained profitable operations are achieved. Management is currently working on
such funding alternatives in order to secure sufficient operating capital through the end of fiscal year 2014. In addition, management will
continue to review its operations for further cost reductions to extend the time that the Company can operate with its current cash on hand and
additional bridge financing and to utilize third parties for services such as its international recycling and refurbishment centers to provide for
greater flexibility in aligning operational expenses with the changes in sales volumes.
Additional funding plans may include obtaining additional capital through equity and/or 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.
Contractual Obligations
The following table summarizes our contractual obligations as of March 31, 2013, and the effects such obligations are expected to have on
liquidity and cash flow in future periods (in thousands):
Operating Lease Obligations
Bridge Notes
Other Long-term Debt Obligations
Total
Payments Due by Period
Total
Less than 1
Year
1-3 Years
3-5 Years
More than
5 Years
$
$
433 $
1,305
1,418
3,156 $
213 $
1,305
96
1,614 $
220 $
—
1,322
1,542 $
— $
—
—
— $
—
—
—
—
Impact of Inflation . From time to time, Cryoport experiences price increases from third party manufacturers and these increases cannot
always be passed on to Cryoport’s customers. While these price increases have not had a material impact on CryoPort’s historical operations or
profitability in the past, they could affect revenues in the future.
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, 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. 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.
30
We believe that the critical accounting policies that most impact the consolidated financial statements are as described below.
Revenue Recognition
Per Use Revenues
We provide shipping containers to our customers and charge a fee in exchange for the use of the container. Our arrangements are similar to
the accounting standard for leases since we convey the right to use the containers over a period of time. We retain title to the containers and
provide our 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 us.
We recognize revenue for the use of the shipper at the time of the delivery of the shipper to the end user of the enclosed materials, and at
the time that collectability is reasonably certain. Revenue is based on gross net of discounts and allowances.
We also provide logistics support and management to some customers, which may include onsite logistics personnel. Revenue is
recognized for these services as services are rendered and at the time that collectability is reasonably certain.
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.
Our 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. We provide shipping containers to our customers and charge a fee in exchange for the use of the
container. Our arrangements are similar to the accounting standard for leases since we convey the right to use the containers over a period of
time. We retain title to the containers and provide our 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 us. The Company’s current inventory consists of accessories that are sold and shipped to
customers along with loaned containers and not returned to the Company with the containers at the culmination of the customer’s shipping cycle.
Property and Equipment
Property and equipment 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:
Cryoport Express ® Shippers
Furniture and fixtures
Machinery and equipment
Leasehold improvements
3 years
7 years
5-7 years
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 comprise patents and trademarks and software development costs. The Company capitalizes costs of obtaining patents
and trademarks which are amortized, using the straight-line method over their estimated useful life of five years. The Company capitalizes
certain costs related to software developed for internal use. Software development costs incurred during the preliminary or maintenance project
stages are expensed as incurred, while costs incurred during the application development stage are capitalized and amortized using the straight-
line method over the estimated useful life of the software, which is five years. Capitalized costs include purchased materials and costs of services
including the valuation of warrants issued to consultants.
31
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.
Derivative Liabilities
Our issued and outstanding common stock purchase warrants 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, some of which have exercise price reset
features and some that were issued with convertible debt, was reclassified 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 and private equity
financing. Deferred financing costs are being amortized over the term of the financing instrument on a straight-line basis, which approximates
the effective interest method or netted against the gross proceeds received from equity financing.
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, 2013 and 2012, there were no unrecognized tax benefits included in the
accompanying balance sheets that would, if recognized, affect the effective tax rates. Based on the weight of available evidence, the Company’s
management has determined that it is more likely than not that the net deferred tax assets will not 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, 2013 and 2012, respectively and have not recognized interest and/or penalties in the
consolidated statement of operations for the year ended March 31, 2013. We are subject to taxation in the United States and various state
jurisdictions. As of March 31, 2013, the Company is no longer subject to U.S. federal examinations for years before 2009 and for California
franchise and income tax examinations before 2008. 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.
32
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, 2013, 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.
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-3 through F-31.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
ITEM 9A. 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, 2013. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of March 31, 2013 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, 2013 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;
33
•
•
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, 2013.
By:
By:
/s/ JERRELL W. SHELTON
Jerrell W. Shelton,
Chief Executive Officer and Director
/s/ ROBERT STEFANOVICH
Robert Stefanovich,
Chief Financial Officer
June 25, 2013
34
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
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
2013 Definitive Proxy Statement to be filed within 120 days after the end of our fiscal year ended March 31, 2013 (the “2013 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 2013 Definitive 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 2013 Definitive Proxy Statement to be filed within 120 days after the end of our fiscal year ended March 31, 2013.
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 2013 Definitive Proxy Statement to be filed within 120 days after the
end of our fiscal year ended March 31, 2013.
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 2013 Definitive Proxy Statement to be
filed within 120 days after the end of our fiscal year ended March 31, 2013.
ITEM 14. PRINCIPAL ACCOUNTANT 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 2013 Definitive Proxy Statement to be filed within 120 days after the end of our fiscal year ended
March 31, 2013.
35
ITEM 15: Exhibits and Financial Statement Schedules.
(a) Financial Statements
(1) Index to Consolidated Financial Statements
PART IV
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
Consolidated Balance Sheets at March 31, 2013 and 2012
Consolidated Statements of Operations the years ended March 31, 2013 and 2012
Consolidated Statements of Stockholders’ (Deficit) Equity for the years ended March 31, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended March 31, 2013 and 2012
Notes to Consolidated Financial Statements
2.
Financial Statement Schedules
F-2
F-3
F-4
F-5
F-6
F-7
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
36
CRYOPORT, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of March 31, 2013 and 2012
Consolidated Statements of Operations for the years ended March 31, 2013 and 2012
Consolidated Statements of Stockholders’ (Deficit) Equity for the years ended March 31, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended March 31, 2013 and 2012
Notes to Consolidated Financial Statements
37
Page
F-2
F-3
F-4
F-5
F-6
F-7
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, 2013 and 2012, and the
related consolidated statements of operations, stockholders’ (deficit) equity 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 consolidated 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 consolidated financial position
of CryoPort, Inc. at March 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As described
in Note 1 to the consolidated financial statements, the Company has incurred recurring operating losses and has had negative cash flows from
operations since inception. Although the Company has cash and cash equivalents of $563,104 at March 31, 2013, management has estimated that
cash on hand, which include proceeds from convertible bridge notes received in the fourth quarter of fiscal 2013, will only be sufficient to allow
the Company to continue its operations into the second quarter of fiscal 2014. 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 to reflect possible future effects on the recoverability and classification of assets or the amount and
classification of liabilities that may result from the outcome of this uncertainty.
/s/ KMJ Corbin & Company LLP
Costa Mesa, California
June 25, 2013
F- 2
CRYOPORT, INC.
CONSOLIDATED BALANCE SHEETS
Current assets:
ASSETS
Cash and cash equivalents
Restricted cash
Accounts receivable, net of allowances of $8,700 in 2013 and $5,500 in 2012
Inventories
Other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Deposits and other assets
Total assets
Current liabilities:
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Accounts payable and accrued expenses
Accrued compensation and related expenses
Convertible debentures payable and accrued interest, net of discount of $8,843 in 2012
Current portion of related party notes payable
Derivative liabilities
Total current liabilities
Related party notes payable and accrued interest, net of current portion
Total liabilities
Commitments and contingencies
Stockholders’ (deficit) equity:
Preferred stock, $0.001 par value, 2,500,000 shares authorized, none issued and
outstanding
Common stock, $0.001 par value; 250,000,000 shares authorized; 37,760,628 shares issued and
outstanding at March 31, 2013 and 2012
Additional paid-in capital
Accumulated deficit
Total stockholders’ (deficit) equity
Total liabilities and stockholders’ (deficit) equity
See accompanying notes to consolidated financial statements.
F- 3
$
$
$
March 31,
2013
2012
563,104 $
-
217,097
39,212
138,892
958,305
505,485
272,263
19,744
1,755,797 $
858,709 $
217,432
1,304,419
96,000
20,848
2,497,408
1,321,664
4,617,535
251,368
146,124
51,754
65,970
5,132,751
682,021
379,083
19,744
6,213,599
401,399
235,996
337,902
96,000
37,334
1,108,631
1,375,448
3,819,072
2,484,079
—
—
37,761
64,210,412
(66,311,448 )
(2,063,275 )
1,755,797 $
37,761
63,620,774
(59,929,015 )
3,729,520
6,213,599
$
CRYOPORT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenues
Cost of revenues
Gross loss
Operating expenses:
Selling, general and administrative
Research and development
Total operating expenses
Loss from operations
Other (expense) income:
Interest income
Interest expense
Change in fair value of derivative liabilities
Total other expense, net
Loss before provision for income taxes
Provision for income taxes
Net loss
Net loss per common share, basic and diluted
Basic and diluted weighted average common shares outstanding
$
Years Ended March 31,
2013
2012
1,100,539 $
1,587,823
(487,284 )
555,637
1,392,460
(836,823 )
5,411,728
425,446
5,837,174
6,106,006
491,849
6,597,855
(6,324,458 )
(7,434,678 )
-
(72,861 )
16,486
(56,375 )
(6,380,833 )
1,600
(6,382,433 ) $
(0.17 ) $
37,760,628
11,940
(527,753 )
119,163
(396,650 )
(7,831,328 )
1,600
(7,832,928 )
(0.27 )
28,974,843
$
$
See accompanying notes to consolidated financial statements.
F- 4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
CRYOPORT, INC.
Preferred Stock
Common Stock
Shares
Amount
Balance at April 1, 2011
Exercise of warrants for cash
Cashless exercise of warrants
Offering costs in connection with the February 2011 private
placement offering
Estimated fair value of common stock warrants issued to
convertible debenture holders
Issuance of units in private placement offering, net of offering
costs of $572,255
Stock-based compensation related to stock options and
warrants issued to consultants, employees and
directors
Net loss
Balance at March 31, 2012
Offering costs in connection with the February 2012 private
placement offering
Stock-based compensation related to stock options and
warrants issued to consultants, employees and
directors
Net loss
Balance at March 31, 2013
— $
—
—
—
—
—
—
—
—
—
—
—
— $
Shares
27,504,604 $
742,380
36,090
Amount
27,505 $
742
36
Total
Additional
Paid-in
Capital
58,016,991 $
570,888
(36 )
Accumulated Stockholders’
(Defict) Equity
5,948,409
571,630
—
Deficit
(52,096,087 ) $
—
—
—
—
—
(36,543 )
—
(36,543 )
—
156,999
—
156,999
—
—
—
—
—
—
9,477,554
9,478
4,630,922
—
4,640,400
—
—
—
—
—
—
37,760,628
—
—
37,761
281,553
—
63,620,774
—
(7,832,928 )
(59,929,015 )
281,553
(7,832,928 )
3,729,520
—
—
(103,542 )
—
(103,542 )
—
—
—
—
—
37,760,628 $
—
—
37,761 $
693,180
—
64,210,412 $
—
(6,382,433 )
(66,311,448 ) $
693,180
(6,382,433 )
(2,063,275 )
See accompanying notes to consolidated financial statements.
F- 5
CRYOPORT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31,
2013
2012
$
(6,382,433 ) $
(7,832,928 )
OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Amortization of debt discount and deferred financing costs
Fair value of warrants issued to convertible debenture holders
Fair value of stock options and warrants issued to consultants, employees
and directors
Change in fair value of derivative instruments
Loss on write-off of intangible assets
Loss on disposal of cryogenic shippers
Interest accrued on restricted cash
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Other assets
Accounts payable and accrued expenses
Accrued compensation and related expenses
Accrued interest
Net cash used in operating activities
INVESTING ACTIVITIES
Purchases of intangible assets
Purchases of property and equipment
Net cash used in investing activities
FINANCING ACTIVITIES
Proceeds from issuance of common stock, net of cash paid for issuance costs
Proceeds from issuance of convertible debt
Repayment of convertible debt
Repayment of offering and deferred financing costs
Repayment of related party notes payable
Restricted cash – convertible debenture holder escrow account funds
Proceeds from release of restricted cash
Payment on line of credit
Proceeds from exercise of options and warrants
Net cash provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest
Income taxes
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Offering costs in connection with equity financing included in accounts payable
Deferred financing costs in connection with convertible debt payable included in accounts
payable
Release of restricted cash for repayment of convertible debentures payable
Cashless exercise of warrants and stock options
$
$
$
$
$
See accompanying notes to consolidated financial statements.
393,959
17,514
-
693,180
(16,486 )
17,046
51,033
-
(70,973 )
12,542
34,912
443,568
(18,564 )
39,558
(4,785,144 )
(22,482 )
(156,200 )
(178,682 )
-
1,294,500
(82,800 )
(206,305 )
(96,000 )
-
-
-
-
909,395
(4,054,431 )
4,617,535
563,104 $
343,029
197,225
156,999
559,091
(119,163 )
-
8,362
(274 )
(90,330 )
(7,530 )
174,151
(62,241 )
(166,750 )
60,225
(6,780,134 )
(125,420 )
(262,641 )
(388,061 )
4,718,880
-
(2,273,028 )
(158,270 )
(102,000 )
(251,368 )
91,443
(90,000 )
571,630
2,507,287
(4,660,908 )
9,278,443
4,617,535
15,676
1,600
113,305
1,600
53,747 $
78,480
38,475 $
251,368 $
— $
—
—
36
F- 6
CRYOPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Summary of Significant Accounting Policies
The Company
Cryoport, Inc. (the “Company”, “Cryoport” or “we”) serves the biotech industries providing comprehensive solutions for frozen cold chain
logistics, primarily in the life science industries. Its solutions are novel, new and reliable alternatives to currently existing products and services
utilized for frozen shipping of bio-pharmaceuticals and biologics, including stem cells, cell lines, vaccines, diagnostic materials, semen and
embryos for in-vitro fertilization, cord blood, bio-pharmaceuticals, infectious substances and other items that require continuous exposure to
frozen or cryogenic temperatures. Cryoport’s solutions can contribute to both the efficiency and effectiveness of clinical trials.
The Cryoport Express ® Solution includes a web-based logistics platform branded as the Cryoportal TM (formerly referred to as the
Cryoport Express ® Portal). The Cryoportal manages customer ordering, tracking, customs documentation, and communication through a single
interface as well as enabling the monitoring of a shipment’s location and integrity throughout the entire shipping process. In addition, the
Cryoportal provides an array of information dashboards and validation documentation for every shipment.
Integral to this solution are also, in part, the Cryoport Liquid Nitrogen Dry Vapor Shippers (Cryoport Express ® Shippers) which are cost-
effective and reusable cryogenic transport containers (patented vacuum flasks) utilizing innovative liquid nitrogen (LN2) based technology.
Cryoport Express ® Shippers are non-hazardous, IATA (International Air Transport Association) certified, and are validated to maintain stable
temperatures below minus 150° Celsius for a 10-plus day dynamic shipment period. The Company currently features two Cryoport Express
Shipper models, the Standard Dry Shipper (holding up to approximately 75-2.0 ml vials) and the High Volume Dry Shipper (holding up to
approximately 500-2.0 ml vials).
The Cryoport Express ® Solutions provide a fully documented “chain-of-custody” and at customer request “chain-of-condition” for every
shipment, helping ensure that quality, safety, efficacy, and stability of shipped commodities are maintained. Cryoport Express ® Solutions can be
used by customers, as a “turnkey” solution, through direct access to the cloud-based Cryoportal, or by contacting Cryoport client Care for order
entry tasks. Cryoport provides 24/7/365 logistics services through its Client Care team and also provides complete training and process
management services to support each customer’s requirements.
Cryoport Express ® Solutions have been the Company’s principal focus for development and commercialization. In addition, during the
first half of fiscal year 2013, the Company expanded its solutions to address specific market needs in the biotechnology and life science
industries. The primary Cryoport solutions offerings are as follows:
• Cryoport Express ® Solution
The fully outsourced turn-key logistics solution described above.
• Customer-Staged Solution
Cryoport ships an inventory of Cryoport Express ® Shippers to the customer (uncharged and in bulk) enabling the customer to
charge the shippers at their facility, process their orders through the Cryoportal which Cryoport Client Care to oversee each
shipment and return the shippers to Cryoport for cleaning, testing and refurbishing. Cryoport provides the 24/7/365 logistics
services utilizing its Cryoportal logistics platform.
• Customer-Managed Solution
Cryoport ships a fully charged Cryoport Express ® Shipper(s) to the customer enabling the customer to utilize their internal
expertise to manage all or a portion of the logistics services. As with the above solutions, the shippers are returned to Cryoport
for cleaning, testing and refurbishing within a pre-determined time period.
• Customer Integrated Logistics
The Cryoport logistics team provides a tailored and full range of logistics support solutions. In addition to tailoring a
management solution, the robust, enterprise-grade Cryoportal is used to provide complete logistics services while enabling the
customer to utilize their own packaging solutions or Cryoport Express ® Shippers. Cryoport can provide onsite logistics
personnel, allowing the customer to fully outsource their cold chain logistics needs component to Cryoport to focus on its core
competencies.
• Distribution Partnerships
“Powered by Cryoport” are important partnership arrangements with integrators, freight forwarders and other logistics
providers, enabling partners to expand their solutions offering by adding the total Cryoport Express® Solution to their
customer offering.
F- 7
One of our distribution partnership solutions engagements involves an agreement with Federal Express Corporation (“FedEx”) to provide
frozen shipping logistics services through the combination of our purpose built proprietary technologies and turnkey management processes.
FedEx markets and sells Cryoport’s services for frozen temperature-controlled cold chain transportation as its FedEx ® Deep Frozen Shipping
Solution, on a non-exclusive basis and at its sole expense. During fiscal year 2013, the Company worked closely with FedEx to further align its
sales efforts and accelerate penetration within FedEx’s life sciences customer base through improved processes, sales incentives, joint customer
calls and more frequent communication at the sales and executive level. In addition, the Company has developed a FedEx branded portal, which
is “powered by the Cryoport”, for use by FedEx and its customers giving them access to the full capabilities of our logistics management
platform.
During the fourth quarter of fiscal 2013, the Company entered into a master agreement (“FedEx Agreement”) with FedEx renewing these
services and providing FedEx with a non-exclusive license and right to use a customized version of our Cryoportal for the management of
shipments made by FedEx customers. The Agreement was effective on January 1, 2013 and, unless sooner terminated as provided in the FedEx
Agreement, expires on December 31, 2015.
The Company continues its agreement with another global courier, DHL Express (USA), Inc. (“DHL”) that gives DHL life science
customers direct access to the Company’s web-based order entry and tracking portal to order CryoPort Express ® Dry Shippers and receive
preferred DHL shipping rates. The agreement covers DHL shipping discounts that may be used to support the Company’s customers using
Cryoport Express ® Solutions. In connection with the agreement, the Company has integrated its proprietary web portal to DHL’s tracking and
billing systems to provide DHL life science customers with a seamless way of shipping their critical biological material worldwide.
In December 2012, we signed an agreement with Pfizer Inc. relating to Zoetis Inc. (formerly the animal health business unit of Pfizer Inc.,
“Zoetis”) pursuant to which we were engaged to manage frozen shipments of a key poultry vaccine. Under this arrangement, the Company will
provide on-site logistics personnel and its logistics management platform, the Cryoportal TM , to manage shipments from the Zoetis
manufacturing site in the United States to domestic customers as well as various international distribution centers. As part of its logistics
management services, the Company will analyze shipping data and processes to further streamline Zoetis’ logistics, ensuring products arrive to
their destinations in specified conditions, on-time and with the optimum uses of resources. Initially, the Company will manage Zoetis’ total fleet
of dewar flask shippers used for this purpose, including liquid nitrogen shippers.
We offer our solutions to companies in the biotechnology and life science industries and are targeting specific verticals including biotech
and diagnostic companies, pharmaceutical companies, central laboratories, contract research organizations, the reproductive medicine market/in
vitro fertilization market, and research institutions. These companies operate within a heavily regulated environment and as such, changing
vendors and distribution practices typically require a number of steps, which may include the audit of our facilities, review of our procedures,
qualifying us as a vendor, and performing test shipments. This process can take six to eighteen months or longer to complete prior to a potential
customer adopting the Cryoport Express ® Solution.
Going Concern
The consolidated financial statements have been prepared using the accrual method of accounting in accordance with accounting principles
generally accepted in the United States of America (“U.S.”) (“GAAP”) and have been prepared on a going concern basis, which contemplates
the realization of assets and the settlement of liabilities in the normal course of business. We have sustained operating losses since our inception
and have used substantial amounts of working capital in our operations. Further, at March 31, 2013, we had an accumulated deficit of
$66,311,448 and we had a net loss of $6,382,433 and we used cash in operations of $4,785,144 during the year ended March 31, 2013. These
factors raise substantial doubt about our ability to continue as a going concern.
We expect to continue to incur substantial additional operating losses from costs related to the commercialization of our Cryoport Express
® Solutions and do not expect that revenues from operations will be sufficient to satisfy our funding requirements in the near term. We believe
that our cash resources at March 31, 2013, together with the revenues generated from our services, the continued focus on cost reductions of
non-sales generating costs will be sufficient to sustain our planned operations into the second quarter of fiscal year 2014; however, we must
obtain additional capital to fund operations thereafter and for the achievement of sustained profitable operations. We are currently working on
funding alternatives in order to secure sufficient operating capital to allow us to continue to operate as a going concern.
Future capital requirements will depend upon many factors, including the success of our commercialization efforts and the level of
customer adoption of our Cryoport Express ® Solutions as well as our ability to establish additional collaborative arrangements. We cannot make
any assurances that the sales ramp together with cost reduction measures will lead to achievement of sustained profitable operations or that any
additional financing will be completed on a timely basis, on acceptable terms or at all. Management’s inability to successfully achieve significant
revenue increases or its cost reduction strategies, or to complete any other financing will adversely impact our ability to continue as a going
concern. To address this issue, the Company has instituted cost containment measures and is seeking additional capitalization to properly fund its
efforts to become a self-sustaining financially viable entity.
F- 8
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with GAAP.
Principles of Consolidation
The consolidated financial statements include the accounts of CryoPort, Inc. and its wholly owned subsidiary, CryoPort Systems, Inc. All
intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from estimated amounts. The
Company’s significant estimates include allowances for doubtful accounts, recoverability of long-lived assets, allowance for inventory
obsolescence, deferred taxes and their accompanying valuations, valuation of derivative liabilities and valuation of common stock, warrants and
stock options issued for products or services.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, related-party notes
payable, convertible notes payable, accounts payable and accrued expenses. The carrying value for all such instruments approximates fair value
at March 31, 2013 and 2012. The difference between the fair value and recorded values of the related party notes payable is not significant. The
Company’s restricted cash is carried at amortized cost which approximates fair value at March 31, 2013 and 2012.
Cash and Cash Equivalents
The Company considers highly liquid investments with original maturities of 90 days or less to be cash equivalents.
Concentrations of Credit Risk
The Company maintains its cash accounts in financial institutions. Accounts at these institutions are insured by the Federal Deposit
Insurance Corporation (“FDIC”) with basic deposit insurance coverage limits up to $250,000 per owner. At March 31, 2013 and 2012, the
Company had approximately $214,000 and $0, respectively, which exceeded the FDIC insurance limit, of cash balances, including restricted
cash. The Company performs ongoing evaluations of these institutions to limit its concentration risk exposure.
Restricted Cash
In conjunction with the private placement in February 2012, the Company was required to deposit $444,168 into an escrow account
representing the total future principal payments due to one the convertible debenture holders (see Note 8). At March 31, 2012, $251,368
remained in escrow and was disbursed to the note holder during the first quarter of fiscal year 2013. Previously, the Company also invested cash
in a one year restricted certificate of deposit bearing interest at 1% which served as collateral for borrowings under a line of credit agreement
(see Note 6). During 2012 the Company repaid the line of credit and the previously restricted cash balances were released to the Company.
Customers
The Company grants credit to customers within the U.S. and to a limited number of international customers and does not require collateral.
Revenues from international customers are generally secured by advance payments except for a limited number of established foreign customers.
The Company generally requires advance or credit card payments for initial revenues from new customers. The Company’s ability to collect
receivables is affected by economic fluctuations in the geographic areas and industries served by the Company. Reserves for uncollectible
amounts are provided based on past experience and a specific analysis of the accounts, which management believes is sufficient. Accounts
receivable at March 31, 2013 and 2012 are net of reserves for doubtful accounts of $8,700 and $5,500, respectively. Although the Company
expects to collect amounts due, actual collections may differ from the estimated amounts.
The Company has foreign revenues primarily in Europe, Japan, Canada, India and Australia. During fiscal years 2013 and 2012, the
Company had foreign revenues of approximately $460,000 and $301,000, respectively, which constituted approximately 42% and 54% of total
revenues, respectively.
F- 9
The majority of the Company’s customers are in the biotechnology, pharmaceutical and life science industries. Consequently, there is a
concentration of receivables within these industries, which is subject to normal credit risk. At March 31, 2013, no customers accounted for more
than 10% of revenues. At March 31, 2012, annual revenues from two major customers accounted for 26% of our total revenues. The Company
maintains reserves for bad debt and such losses, in the aggregate, historically have not exceeded our estimates.
Inventories
The Company’s inventories consist of accessories that are sold and shipped to customers along with pay-per-use containers that are not
returned to the Company along with the containers at the culmination of the customer’s shipping cycle . Inventories are stated at the lower of
cost or current estimated market value. Cost is determined using the standard cost method which approximates the first-in, first-to-expire
method. Inventories are reviewed periodically for slow-moving or obsolete status. The Company writes down the carrying value of its
inventories to reflect situations in which the cost of inventories is not expected to be recovered. Once established, write-downs of inventories are
considered permanent adjustments to the cost basis of the obsolete or excess inventories. Raw materials and finished goods include material
costs less reserves for obsolete or excess inventories. The Company evaluates the current level of inventories considering historical trends and
other factors, and based on the evaluation, records adjustments to reflect inventories at its net realizable value. These adjustments are estimates,
which could vary significantly from actual results if future economic conditions, customer demand, competition or other relevant factors differ
from expectations. These estimates require us to make assessments about future demand for the Company’s products in order to categorize the
status of such inventories items as slow-moving, obsolete or in excess-of-need. These estimates are subject to the ongoing accuracy of the
Company’s forecasts of market conditions, industry trends, competition and other factors.
Property and Equipment
The Company provides shipping containers to its customers and charges a fee in exchange for the use of the container. The Company’s
arrangements are similar to the accounting standard for leases since they convey the right to use the container over a period of time. The
Company retains the title to the containers and provides its customers the use of the container for a specific shipping cycle. At the culmination of
the customer’s shipping cycle, the container is returned to the Company. As a result, the Company classifies the containers as fixed assets for the
per-use container program.
Property and equipment are recorded at cost. Cryogenic shippers, which comprise of 87% and 84% of the Company’s net property and
equipment balance at March 31, 2013 and 2012, respectively, are depreciated using the straight-line method over their estimated useful lives of
three years. Equipment and furniture are depreciated using the straight-line method over their estimated useful lives (generally three to seven
years) and leasehold improvements are amortized using the straight-line method over the estimated useful life of the asset or the lease term,
whichever is shorter. Equipment acquired under capital leases is amortized over the estimated useful life of the assets or term of the lease,
whichever is shorter and included in depreciation expense.
Betterments, renewals and extraordinary repairs that extend the lives of the assets are capitalized; other repairs and maintenance charges
are expensed as incurred. The cost and related accumulated depreciation and amortization applicable to assets retired are removed from the
accounts, and the gain or loss on disposition is recognized in current operations.
Intangible Assets
Intangible assets are comprised of patents and trademarks and software development costs. The Company capitalizes costs of obtaining
patents and trademarks, which are amortized, using the straight-line method over their estimated useful life of five years. The Company
capitalizes certain costs related to software developed for internal use. Software development costs incurred during the preliminary or
maintenance project stages are expensed as incurred, while costs incurred during the application development stage are capitalized and amortized
using the straight-line method over the estimated useful life of the software, which is five years. Capitalized costs include purchased materials
and costs of services including the valuation of warrants issued to consultants.
Long-lived Assets
If indicators of impairment exist, we assess the recoverability of the affected long-lived assets by determining whether the carrying value
of such assets can be recovered through undiscounted future operating cash flows. If impairment is indicated, we measure the amount of such
impairment by comparing the fair value to the carrying value. We believe the future cash flows to be received from the long-lived assets will
exceed the assets’ carrying value, and accordingly, we have not recognized any impairment losses through March 31, 2013.
F- 10
Deferred Financing Costs
Deferred financing costs represent costs incurred in connection with the issuance of the convertible notes payable and private equity
financing. Deferred financing costs related to the issuance of debt are being amortized over the term of the financing instrument using the
effective interest method while deferred financing costs from equity financings are netted against the gross proceeds received from the equity
financings.
During the year ended March 31, 2013 and 2012, the Company incurred $103,542 and $572,255, respectively of offering costs in
connection with the private placement that closed in February and March 2012, which were charged to additional paid-in capital and netted
against the proceeds received in the private placements. As of March 31, 2013 and 2012, offering costs of $53,747 and$78,480, respectively,
related to the private placement were included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.
In connection with the convertible debt financing in the fourth quarter of 2013, the Company incurred financing costs which were
capitalized and are being amortized over the term of the convertible notes payable using the straight-line method which approximates the
effective interest method (see Note 8).
During the year ended March 31, 2011, the Company incurred $465,023 of offering costs in connection with the private placement that
closed in August and October 2010 and $1,311,582 of offering costs from the private placement that closed in February 2011; both of which
were charged to additional paid-in capital and netted against the proceeds received in the private placements. During the year ended March 31,
2012, the Company made payments of $158,270 for offering costs and financing fees related to the February 2011 private placement of which
$121,727 was included in accounts payable and accrued expenses as of March 31, 2011.
Convertible Debentures
If a conversion feature of conventional convertible debt is not accounted for as a derivative instrument and provides for a rate of
conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the
Company as a debt discount. The convertible debt is recorded net of the discount related to the BCF. The Company amortizes the discount to
interest expense over the life of the debt using the effective interest rate method.
Derivative Liabilities
Certain of the Company’s issued and outstanding common stock purchase warrants which have exercise price reset features are treated as
derivatives for accounting purposes. The common stock purchase warrants were not issued with the intent of effectively hedging any future cash
flow, fair value of any asset, liability or any net investment in a foreign operation. The warrants do not qualify for hedge accounting, and as such,
all future changes in the fair value of these warrants are recognized currently in earnings until such time as the warrants are exercised, expire or
the related rights have been waived. These common stock purchase warrants do not trade in an active securities market, and as such, the
Company estimates the fair value of these warrants using the Black-Scholes option pricing model (“Black-Scholes”) (see Note 9).
Commitments and Contingencies
The Company is subject to routine claims and litigation incidental to our business. In the opinion of management, the resolution of such
claims is not expected to have a material adverse effect on our operating results or financial position.
Income Taxes
The Company accounts for income taxes under the provision of the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 740, Income Taxes , or ASC 740. The Company is a subchapter “C” corporation and files a federal income tax
return. The Company files state income tax returns in California.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. A valuation allowance is provided for certain deferred tax assets if it is more
likely than not that the Company will not realize tax assets through future operations. Based on the weight of available evidence, the Company’s
management has determined that it is more likely than not that the net deferred tax assets will not 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.
ASC 740, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements, provides that a tax benefit
from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including
resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more likely than not
recognition threshold. As of March 31, 2013 and 2012, there were no unrecognized tax benefits included in the accompanying consolidated
balance sheets that would, if recognized, affect the effective tax rates. It is not anticipated that there will be a significant change in the
unrecognized tax benefits over the next twelve months.
F- 11
The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no
accrual for interest or penalties on its consolidated balance sheets at March 31, 2013 and 2012, respectively and has not recognized interest
and/or penalties in the consolidated statement of operations for the years ended March 31, 2013 and 2012. The Company is subject to taxation in
the U.S. and various state jurisdictions. As of March 31, 2013, the Company is no longer subject to U.S. federal examinations for years before
2009 and for California franchise and income tax examinations for years before 2008. 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.
Supply Concentration Risks
The component parts for our products are primarily manufactured at third party manufacturing facilities. The Company also has a
warehouse at our corporate offices in Lake Forest, California, where the Company is capable of manufacturing certain parts and fully assembles
its products. Most of the components that the Company uses in the manufacture of its products are available from more than one qualified
supplier. For some components, however, there are relatively few alternate sources of supply and the establishment of additional or replacement
suppliers may not be accomplished immediately, however, the Company has identified alternate qualified suppliers which the Company believes
could replace existing suppliers. Should this occur, the Company believes that with its current level of shippers and production rate the Company
has enough to cover a four to six week gap in maximum disruption of production.
There are no specific agreements with any manufacturer nor are there any long term commitments to any manufacturer. The Company
believes that any of the manufactures currently used by it could be replaced within a short period of time as none have a proprietary component
or a substantial capital investment specific to its products.
Revenue Recognition
The Company provides shipping containers to their customers and charges a fee in exchange for the use of the container. The Company’s
arrangements are similar to the accounting standard for leases since they convey the right to use the containers over a period of time. The
Company retains title to the containers and provides its customers the use of the container for a specified shipping cycle. At the culmination of
the customer’s shipping cycle, the container is returned to the Company.
The Company recognizes revenue for the use of the shipper at the time of the delivery of the shipper to the end user of the enclosed
materials, and at the time that collectability is reasonably certain. Revenue is based on gross net of discounts and allowances.
The Company also provides logistics support and management to some customers, which may include onsite logistics personnel. Revenue
is recognized for these services as services are rendered and at the time that collectability is reasonably certain.
Accounting for Shipping and Handling Revenue, Fees and Costs
The Company classifies amounts billed for shipping and handling as revenue. Shipping and handling fees and costs are included in cost of
sales in the accompanying consolidated statements of operations.
Research and Development Expenses
Expenditures relating to research and development are expensed in the period incurred. Research and development expenses to date have
consisted primarily of costs associated with the continually improving the features of the CryoPort Express ® Solution 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 ® Solution. 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.
F- 12
Stock-based Compensation
The Company accounts for stock-based payments to employees and directors in accordance with stock-based payment accounting
guidance which requires all stock-based payments to employees and directors, including grants of employee stock options and warrants, to be
recognized based upon their fair values. The fair value of stock-based awards is estimated at grant date using Black-Scholes and the portion that
is ultimately expected to vest is recognized as compensation cost over the requisite service period.
Since stock-based compensation is recognized only for those awards that are ultimately expected to vest, the Company has applied an
estimated forfeiture rate to unvested awards for the purpose of calculating compensation cost. These estimates will be revised, if necessary, in
future periods if actual forfeitures differ from estimates. Changes in forfeiture estimates impact compensation cost in the period in which the
change in estimate occurs. The estimated forfeiture rates at March 31, 2013 and 2012 was zero as the Company has not had a significant history
of forfeitures and does not expect significant forfeitures in the future.
Cash flows from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options or warrants
are classified as financing cash flows. Due to the Company’s loss position, there were no such tax benefits during years ended March 31, 2013
and 2012.
The Company uses Black-Scholes to estimate the fair value of stock-based awards. The determination of fair value using Black-Scholes is
affected by its 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.
The Company’s stock-based compensation plans are discussed further in Note 11.
Equity Instruments Issued to Non-Employees for Acquiring Goods or Services
Issuances of the Company’s common stock for acquiring goods or services are measured at the fair value of the consideration received or
the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity
instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment for performance to earn the equity
instruments is reached (a “performance commitment” which would include a penalty considered to be of a magnitude that is a sufficiently large
disincentive for nonperformance) or (ii) the date at which performance is complete. When it is appropriate for the Company to recognize the cost
of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the
equity instrument is measured at the then-current fair values at each of those interim financial reporting dates (see Note 12).
Basic and Diluted Loss Per Share
Basic loss per common share is computed based on the weighted average number of shares outstanding during the period. Diluted loss per
share is computed by dividing net loss by the weighted average shares outstanding assuming all dilutive potential common shares were issued. In
addition, in computing the dilutive effect of convertible securities, the numerator is adjusted to add back the after-tax amount of interest, if any,
recognized in the period with any convertible debt. For the years ended March 31, 2013 and 2012, the Company was in a loss position and the
basic and diluted loss per share are the same since the effect of stock options, warrants and convertible notes payable on loss per share was anti-
dilutive and thus not included in the diluted loss per share calculation. The impact under the treasury stock method of dilutive stock options and
warrants and the if-converted method of convertible debt would have resulted in weighted average common shares outstanding of approximately
38,172,000 and 34,128,000 for the years ended March 31, 2013 and 2012, respectively.
Segment Reporting
We currently operate in only one segment.
Note 2. Inventories
Inventories consist of the following:
Raw materials
Finished goods
March 31,
2013
March 31,
2012
$
$
28,533 $
10,679
39,212 $
32,559
19,195
51,754
F- 13
The Company’s inventories consists of accessories that are sold and shipped to customers along with pay-per-use containers and are not
returned to the Company along with the containers at the culmination of the customer’s shipping cycle. Inventories are stated at the lower of
standard cost or current estimated market value. Cost is determined using the standard cost method which approximates the first-in, first-to-
expire method.
Note 3. Property and Equipment
Equipment and leasehold improvements and related accumulated depreciation and amortization are as follows:
Cryogenic shippers
Furniture and fixtures
Machinery and equipment
Leasehold improvements
Less accumulated depreciation and amortization
March 31,
2013
2012
962,565 $
30,746
380,526
30,913
1,404,750
(899,265 )
505,485 $
882,471
30,746
377,919
30,913
1,322,049
(640,028 )
682,021
$
$
The Company’s current business plan focuses on per-use leasing of shipping containers and added-value services that will be used by us to
provide an end-to-end and cost-optimized shipping solutions.
Total depreciation and amortization expense related to property and equipment amounted to $281,703 and $241,838 for the years ended
March 31, 2013 and 2012, respectively.
Note 4. Intangible Assets
Intangible assets are comprised of patents and trademarks and software developed for internal uses. The gross book values and
accumulated amortization as of March 31, 2013 and 2012 were as follows:
Patents and trademarks
Software development costs
Less accumulated amortization
March 31,
2013
2012
154,214 $
547,127
701,341
(429,078 )
272,263 $
131,856
564,049
695,905
(316,822 )
379,083
$
$
Amortization expense for intangible assets for the years ended March 31, 2013 and 2012 was $112,256 and $101,191, respectively. All of
the Company’s intangible assets are subject to amortization.
Years Ending March 31,
2014
2015
2016
2017
2018
Note 5. Fair Value Measurements
Patents and
Trademarks
Software
Total
Intangibles
$
$
21,078 $
20,034
19,617
19,617
19,617
99,963 $
90,715 $
42,851
30,153
8,581
-
172,300 $
111,793
62,885
49,770
28,198
19,167
272,263
The Company determines the fair value of its derivative instruments using a three-level hierarchy for fair value measurements which these
assets and liabilities must be grouped, based on significant levels of observable or unobservable inputs. Observable inputs reflect market data
obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of
observable market data when available. These two types of inputs have created the following fair-value hierarchy:
Level 1 — Valuations based on unadjusted quoted market prices in active markets for identical securities. Currently the Company does not
have any items classified as Level 1.
F- 14
Level 2 — Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement
date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement, and involve
management judgment. The Company uses the Black-Scholes option pricing model to determine the fair value of the instruments. If the inputs
used to measure fair value fall in different levels of the fair value hierarchy, a financial security’s hierarchy level is based upon the lowest level
of input that is significant to the fair value measurement.
The following table presents the Company’s warrants measured at fair value on a recurring basis as of March 31, 2013 and 2012 classified
using the valuation hierarchy:
Derivative Liabilities
Level 3
Carrying Value
March 31, 2013
$
20,848 $
Level 3
Carrying Value
March 31, 2012
37,334
The following table provides a reconciliation of the beginning and ending balances for the Company’s derivative liabilities measured at
fair value using Level 3 inputs:
Balance at April 1,
Change in fair value
Balance at March 31,
Note 6. Line of Credit
2013
2012
37,334 $
(16,486 )
20,848 $
156,497
(119,163 )
37,334
$
$
During October 2010, the Company secured a one-year renewal of the line of credit (the “Line”) for $90,000 which was secured by a
$90,000 certificate of deposit with a financial institution. On August 23, 2011 the Company paid the entire balance in full and the line has been
terminated. All borrowings under the Line bore variable interest based on either the prime rate plus 1.5% per annum or 5.0%, whichever was
higher. The Company utilized the funds advanced from the Line for capital equipment purchases to support the commercialization of the
Company’s CryoPort Express ® Dry Shipper. No funds were drawn against the Line during the years ended March 31, 2013 and 2012. The
Company recorded interest expense of $0 and $1,725 for the years ended March 31, 2013 and 2012, respectively, related to the Line.
Note 7. Related Party Transactions
Related Party Notes Payable
As of March 31, 2013 and 2012, the Company had aggregate principal balances of $651,500 and $747,500, respectively, in outstanding
unsecured indebtedness owed to four related parties, including former members of the Company’s board of directors, representing working
capital advances made to the Company from February 2001 through March 2005. These notes bear interest at the rate of 6% per annum and
provide for aggregate monthly principal payments which began April 1, 2006 of $2,500, and which increased by an aggregate of $2,500 every
nine months to a maximum of $10,000 per month. As of March 31, 2013, the aggregate principal payments totaled $8,000 per month. Any
remaining unpaid principal and accrued interest is due at maturity on various dates through March 1, 2015.
Related-party interest expense under these notes was $42,216 and $48,036 for the years ended March 31, 2013 and 2012, respectively.
Accrued interest related to these notes, which is included in related party notes payable in the accompanying consolidated balance sheets,
amounted to $766,164 and $723,948 as of March 31, 2013 and 2012, respectively.
Scheduled maturities of related party notes payable, including accrued interest, as of March 31, 2013 are as follows:
Years Ending March 31:
2014
2015
$
$
96,000
1,321,664
1,417,664
F- 15
Advisory Services Agreement with Former Officer
On March 7, 2011 the Company entered into a one-year Advisory Services Agreement with Marc Grossman M.D. to provide strategic
business advisory services including identifying and introducing customers, advising on sales and marketing plans and providing financial
advice. Dr. Grossman is a former officer of the Company and is one of the four related parties to which CryoPort has an outstanding unsecured
debt obligation. For these services, Dr. Grossman was paid a fee of $125,000, which was amortized over the term of the agreement, and issued a
warrant to purchase 200,000 shares of the Company’s common stock at an exercise price of $0.77 per share, a five year life and vested upon
issuance (see Note 12).
Consulting Agreement with Officer
On July 29, 2009, the Board of Directors of the Company appointed Ms. Catherine M. Doll, a consultant, to the offices of Chief Financial
Officer, Treasurer and Assistant Corporate Secretary, which became effective on August 20, 2009. Ms. Doll resigned the offices of Chief
Financial Officer, Treasurer and Assistant Corporate Secretary on June 27, 2011, effective immediately following the Company’s filing of its
Form 10-K for the fiscal year ended March 31, 2011. Ms. Doll is the owner and chief executive officer of The Gilson Group, LLC. The Gilson
Group, LLC provided financial and accounting consulting services, including SEC and financial reporting, budgeting and forecasting to the
Company. Related-party consulting fees for all services provided by The Gilson Group, LLC, were approximately $0 and $76,000 for the years
ended March 31, 2013 and 2012, respectively.
Note 8. Convertible Debentures Payable
The Company’s convertible debenture principal balances are shown below:
Convertible Debt
Debt discount
Total convertible debentures, net
Convertible debentures payable and accrued interest, net of discount of $0 in 2013 and $8,843 in 2012
March 31,
2013
1,294,500 $
-
1,294,500 $
1,304,419 $
$
$
$
March 31,
2012
334,168
(8,843 )
325,325
337,902
F- 16
During the years ended March 31, 2013 and 2012, the Company recognized an aggregate of $8,843 and $197,225 in interest expense,
respectively, due to amortization of debt discount related to the warrants and beneficial conversion features associated with the Company’s
outstanding convertible debentures. During the year ended March 31, 2013 and 2012, the Company recorded interest expense of $13,018 and
$122,825, respectively, related to the stated interest associated with the Debentures, of which $9,919 and $12,577 is included in convertible
debentures payable and accrued interest in the accompanying consolidated balance sheets as of March 31, 2013 and 2012, respectively.
October 2007 and May 2008 Debentures
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
had an outstanding principal balance of $0 and $334,168 as of March 31, 2013 and 2012, respectively. In addition, in October 2007 and May
2008, the Company issued to these institutional investors warrants to purchase, as of March 31, 2013, an aggregate of 3,055,097 shares of the
Company’s common stock (the “Debenture Warrants”). As collateral to secure our repayment obligations to the holders of the Debentures we
had granted such holders a first priority security interest in generally all of our assets, including our intellectual property.
The October 2007 Debentures were convertible into shares of the Company’s common stock at a price of $3.00 per share and bore interest
at 8% per annum. The Company had been obligated to make principal or additional interest payments since March 1, 2011 with respect to the
outstanding balances of the October 2007 Debentures. The Company made monthly principal payments of $200,000 and quarterly interest
payments. The October 2007 Debentures were fully repaid in June 2012.
As of March 31, 2011, the May 2008 Debentures were paid in full.
Because the consummation of the private placement in February 2012 would have triggered defaults under the Company’s October 2007
Debentures, prior to the initial close of the private placement, the Company obtained a waiver from the holders of the October 2007 Debentures
with respect to such defaults and their consent to the private placement. In consideration for such waiver and consent, the Company, at the initial
close, issued to the holders of the October 2007 Debentures warrants to purchase an aggregate of 280,000 shares of the Company’s common
stock at an exercise price of $0.69 per share. The warrants have terms identical to the warrants issued to the investors in the private placement
(see Note 10).
2013 Bridge Notes
In the fourth quarter of fiscal 2013, the Company issued to certain accredited investors unsecured convertible promissory notes (the
“Bridge Notes”) in the original principal amount of $1,294,500, pursuant to the terms of subscription agreements and letters of investment intent.
The Bridge Notes accrue interest at a rate of 15% per annum from date of issuance until January 31, 2013 and at a rate of 5% per annum
from February 1, 2013 through the date of payment, in each case on a non-compounding basis. All principal and interest under the Bridge Notes
will be due on December 31, 2013. Debt financing costs of $116,505 comprised of agent commissions were recorded in other current assets and
are being amortized to interest expense under the straight-line method which approximates the effective interest method over the term of the
notes. During the year ended March 31, 2013, the Company amortized $8,671 to interest expense.
In the event the Company designated and issued preferred stock while the Bridge Notes were outstanding, the Bridge Notes were
convertible into shares of such preferred stock at a conversion rate equal to the price per share paid to the Company in connection with the
issuance of such preferred stock at the option of the holder of the Bridge Notes. The Company was unable to value the conversion feature of
these Bridge Notes given the absence of a conversion rate the convertability of the Bridge Notes being contingent on the completion of a
preferred stock transaction.
Effective on April 19, 2013, the Company amended the Bridge Notes whereby in the event that the Company issues one or more types of
equity securities (a “Transaction”) before the maturity of the Bridge Notes, the holder may elect to convert all or a portion of the principal and
accrued interest into shares of such equity securities issued in a Transaction at a conversion rate equal to the price per share paid to the Company
in connection with the issuances. The Company is required to notify the Bridge Notes holder of a Transaction within 10 days of each Transaction
and the Bridge Notes holder has the option until the later of (a) ten (10) days after such notices or (b) December 15, 2013 to elect in writing to
convert the Bridge Notes.
Note 9. Derivative Liabilities
In accordance with current accounting guidance, certain of the Company’s outstanding warrants to purchase shares of common stock are
treated as derivatives because these instruments have reset or ratchet provisions in the event the Company raises additional capital at a lower
price, among other adjustments. As such, the fair value of these common stock purchase warrants were treated as derivative liabilities since their
date of issuance or modification. Changes in fair value are recorded as non-operating, non-cash income or expense at each reporting date. If the
fair value of the derivatives is higher at the subsequent balance sheet date, the Company will record a non-operating, non-cash charge. If the fair
value of the derivatives is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income. As of March 31,
2013 and 2012 the Company had derivative warrant liabilities of $20,848 and $37,334, respectively.
F- 17
During the years ended March 31, 2013 and 2012, the Company issued an aggregate of 0 and 10,289 warrants to purchase shares of the
Company’s common stock, respectively, pursuant to the anti-dilution provisions contained in the warrant agreements which were previously
issued to various placement agents in lieu of cash fees. On August 20, 2010, in connection with the August 2010 private placement closing, the
exercise price of the warrants was reduced from $3.30 per share to $3.20 per share and the Company issued an additional 4,073 warrants. On
February 4, 2011, in connection with the February 2011 private placement, the exercise price of the warrants was reduced from $3.20 per share
to $2.81 per share and the Company issued an additional 18,657 warrants. On February 14, 2011, in connection with the February 2011 private
placement, the exercise price of the warrants was reduced from $2.81 per share to $2.58 per share and the Company issued an additional 13,641
warrants. On February 22, February 28, and March 7, 2012, in connection with the February 2012 private placement, the Company issued an
additional 6,721, 2,843 and 725 warrants, respectively, and the exercise price of the warrants was reduced from $2.58 per share to $2.48 per
share, $2.48 per share to $2.44 per share and $2.44 per share to $2.43 per share, respectively. Since the exercise price of the warrants is subject
to additional adjustment in the event the Company issues dilutive equity securities, as described in the original warrant agreements, the warrants
are accounted for as derivative liabilities. During the years ended March 31, 2013 and 2012, the Company recognized aggregate gains of $16,486
and $119,163, respectively, due to the change in fair value of its derivative instruments. See Note 5 for the components of changes in derivative
liabilities. The Company’s common stock purchase warrants do not trade in an active securities market, and as such, the Company estimated the
fair value of these warrants using Black-Scholes using the following assumptions:
Expected dividends
Expected term (in years)
Risk-free interest rate
Expected volatility
March 31,
2013
—
1.01 – 1.81
March 31,
2012
—
2.01 – 2.81
0.14% – 0.33%
129% – 158%
0.33% – 0.81%
124% – 132%
Historical volatility was computed using daily pricing observations for recent periods that correspond to the remaining term of the
warrants, which had an original term of five years from the date of issuance. The expected life is based on the remaining term of the warrants.
The risk-free interest rate is based on U.S. Treasury securities with a maturity corresponding to the remaining term of the warrants.
Note 10. Stockholders’ Equity
Preferred Stock
On September 22, 2011, the Company’s stockholders approved an amendment to the Company’s Amended and Restated Articles of
Incorporation to authorize a class of undesignated or “blank check” preferred stock, which had previously been approved by the Company’s
Board of Directors on July 19, 2011, consisting of 2,500,000 shares at $0.001 par value per share. Shares of preferred stock may be issued in one
or more series, with such rights, preferences, privileges and restrictions as shall be fixed by the Company’s Board of Directors.
Common Stock
The Company’s authorized capital consists of 250,000,000 shares of common stock, $0.001 par value per share. As of March 31, 2013 and
2012, 37,760,628 shares of common stock were issued and outstanding.
Fiscal Year 2012 Activity
In February and March 2012, the Company conducted a private placement of units totaling 9,477,554 at a purchase price of $0.55 per unit
(the “February 2012 Private Placement”) for total proceeds of $4,640,400, net of offering costs of $572,255. Each unit consisted of one share of
common stock and one warrant to purchase one share of common stock at an exercise price of $0.69 per share. Each warrant is fully exercisable
six months from the date of issuance for a period of five years from the date of issuance. All units were purchased by accredited or institutional
investors under three closings; first closing of 6,795,572 units on February 22, 2012, second closing of 2,032,937 units on February 28, 2012 and
a third closing of 649,045 units on March 7, 2012.
F- 18
Craig-Hallum Capital Group LLC acted as the lead placement agent, and Emergent Financial Group, Inc. and Maxim Group LLC served
as co-placement agents in this transaction and received, in the aggregate, commissions of $450,245, plus reimbursement of out-of-pocket
expenses of $43,530, and 248,375 warrants to purchase shares of the Company’s common stock at an exercise price of $0.69 per share. The
warrants have terms identical to the warrants issued to the investors in the February 2012 Private Placement. The fair value of the warrants
issued to the placement agents of $152,579 was based on Black-Scholes and was recorded to additional paid-in capital and offset against the
proceeds of the financing with no net effect on equity. The Company also incurred $103,542 and $78,480 of issuance costs including legal,
accounting and printer fees related to this transaction during the years ended March 31, 2013 and 2012, respectively. The placement agent
expenses and issuance costs have been offset against the proceeds of the financing in additional paid-in capital.
Because the consummation of the February 2012 Private Placement would have triggered defaults under the Company’s October 2007
Debentures, prior to the initial close of the February 2012 Private Placement, the Company obtained a waiver from the holders of the October
2007 Debentures with respect to such defaults and their consent to the February 2012 Private Placement. In consideration for such waiver and
consent, the Company, at the initial close, issued to the holders of the October 2007 Debentures warrants to purchase an aggregate of 280,000
shares of the Company’s common stock at an exercise price of $0.69 per share. The warrants have terms identical to the warrants issued to the
investors in the February 2012 Private Placement. The fair value of the warrants issued to the convertible debenture holders of $156,999 was
based on Black-Scholes and was recorded to additional paid-in capital and interest expense in the accompanying consolidated statement of
operations.
During the year ended March 31, 2012, the Company received cash proceeds of $571,630 from the exercise of warrants to purchase
742,380 shares of the Company’s common stock at an average exercise price of $0.77 per share.
During the year ended March 31, 2012, the Company issued 36,090 shares of common stock upon the cashless exercise of a total of
85,714 warrants at an exercise price of $0.77 per share.
Warrants
A summary of the Company’s warrant activity (other than those warrants issued to the Company’s employees, officers, directors and
related consultants presented in Note 11 below) and related information during the 2013 fiscal year follows:
Outstanding at April 1, 2012
Granted
Exercised
Forfeited
Expired
Outstanding at March 31, 2013
Exercisable
Number of Shares
36,831,648 $
30,000 $
— $
(123,376 ) $
(23,929 ) $
36,714,343 $
36,711,843 $
Weighted-
Average
Exercise Price
1.12
0.50
—
0.77
8.89
1.12
1.12
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic Value
2.92 $
2.92 $
600
600
The following summary information reflects outstanding warrants to purchase shares of the Company’s common stock as of March 31,
2013 and other related details:
Year of Grant
(as of March 31)
2008
2009
2010
2011
2012
2013
Warrants Outstanding
Exercise Price
$
$
$
$
$
$
3.30
2.81 – $ 8.50
1.91 – $ 5.10
0.77 – $ 2.43
0.69 – $ 1.38
0.50
Number
Outstanding
Remaining
Contractual
Life (Years)
1,728,326
659,883
2,769,219
21,465,729
10,061,186
30,000
36,714,343
1.75
1.60
1.80
2.73
3.90
1.07
F- 19
Note 11. Stock Compensation Plan
Plan Descriptions
The Company maintains three stock incentive plans, the 2002 Stock Incentive Plan (the “2002 Plan”), the 2009 Stock Incentive Plan (the
“2009 Plan”) and the 2011 Stock Incentive Plan (the “2011 Plan”). The 2002 Plan provides for grants of incentive stock options and
nonqualified options to employees, directors and consultants of the Company to purchase the Company’s shares at the fair value, as determined
by management and the board of directors, of such shares on the grant date. The options are subject to various vesting conditions and generally
vest over a three-year period beginning on the grant date and have seven to ten-year term. The 2002 Plan also provides for the granting of
restricted shares of common stock subject to vesting requirements. The Company is authorized to issue up to 500,000 shares under this plan and
has no shares available for future issuances as the 2002 Plan has expired.
On October 9, 2009, the Company’s stockholders approved and adopted the 2009 Plan, which had previously been approved by the
Company’s Board of Directors on August 31, 2009. The 2009 Plan provides for the grant of incentive stock options, nonqualified stock options,
restricted stock rights, restricted stock, performance share units, performance shares, performance cash awards, stock appreciation rights, and
stock grant awards (collectively, “Awards”) to employees, officers, non-employee directors, consultants and independent contractors of the
Company. The 2009 Plan also permits the grant of awards that qualify for the “performance-based compensation” exception to the $1,000,000
limitation on the deduction of compensation imposed by Section 162(m) of the Internal Revenue Code. A total of 1,200,000 shares of the
Company’s common stock are authorized for the granting of Awards under the 2009 Plan. The number of shares available for future Awards, as
well as the terms of outstanding Awards, is subject to adjustment as provided in the 2009 Plan for stock splits, stock dividends, recapitalizations
and other similar events. Awards may be granted under the 2009 Plan until the sooner of October 9, 2019 or until all shares available for Awards
under the 2009 Plan have been purchased or acquired. The Company is authorized to issue up to 1,200,000 shares under this plan and as of
March 31, 2013, the Company has 299,741 shares available for future Awards under the 2009 Plan.
On September 22, 2011, the Company’s stockholders approved and adopted the 2011 Plan, which had previously been approved by the
Company’s Board of Directors on July 19, 2011. The 2011 Plan provides for the grant of Awards to employees, officers, non-employee directors
and consultants of the Company. The Company’s Compensation Committee has the authority to determine the type of Award as well as the
amount, terms and conditions of each Award under the 2011 Plan, subject to the limitations and other provisions of the 2011 Plan. A total of
2,300,000 shares of the Company’s common stock are authorized for the granting of Awards under the 2011 Plan. The number of shares
available for Awards, as well as the terms of outstanding Awards, is subject to adjustment as provided in the 2011 Plan for stock splits, stock
dividends, recapitalizations and other similar events. Awards may be granted under the 2011 Plan until September 21, 2021 or until all shares
available for Awards under the 2011 Plan have been purchased or acquired unless the stockholders of the Company vote to approve an extension
of the 2011 Plan prior to such expiration date. As of March 31, 2013, the Company has 2,240,418 shares available for future Awards under the
2011 Plan.
In addition to the stock options issued pursuant to the Company’s three stock incentive plans, the Company has granted warrants to
employees, officers, non-employee directors, consultants and independent contractors. The warrants are generally not subject to vesting
requirements and have ten-year terms.
On November 5, 2012, the Company’s board of directors appointed Jerrell W. Shelton to serve as our President and Chief Executive
Officer, effective as of November 5, 2012. In connection with Mr. Shelton’s appointment as our President and Chief Executive Officer, the
Company entered into an employment agreement with Mr. Shelton, which the parties executed on November 5, 2012. Included in the agreement
was a stock option grant of 1,650,000 options to purchase common stock of which 650,000 were issued under the 2011 stock option plan and
1,000,000 were issued outside of a plan. The fair value of the options granted under the plan was $109,980 and the fair value of options granted
outside of a plan was $169,200. The options vest monthly over six months in equal six month installments.
As of March 31, 2013, a total of 149,537, 886,623 and 3,059,582 shares of common stock were reserved for issuance upon exercise of
outstanding stock options under the 2002, 2009 and 2011 Plans, respectively, 1,000,000 were issued outside of a Plan and a total of 312,855
shares of common stock were reserved for issuance upon exercise of outstanding warrants. A summary of the Company’s employee and director
stock option and warrant activity and related information during the 2013 fiscal year follows:
Outstanding at April 1, 2012
Granted
Exercised
Canceled
Outstanding and expected to vest at March 31, 2013
Exercisable at March 31, 2013
F- 20
Number of
Shares
Weighted-
Average
Exercise Price
2.48
0.29
—
0.98
0.93
1.14
1,667,988 $
4,063,109 $
— $
(322,500 ) $
5,408,597 $
3,857,129 $
Remaining
Contractual Life
Aggregate
Intrinsic Value
8.48 $
8.12 $
955,778
688,397
The following summary information reflects stock options and warrants outstanding, vesting and related details as of March 31, 2013:
Year of Grant
(as of March 31)
2004
2005
2007
2008
2009
2010
2011
2012
2013
Exercise Price
$ 6.00
$ 0.40 –
$6.00
$ 2.80 –
$10.00
$ 7.50 –
$10.80
$ 5.10 –
$10.50
$ 4.30 –
$8.30
$ 0.66 –
$1.89
$ 0.86 –
$1.45
$ 0.17 –
$0.62
Stock Options and Warrants Outstanding
Remaining
Contractual
Life (Years)
0.50
Number
Outstanding
20,000
Vested and
Exercisable
20,000
22,200
1.34
22,200
111,335
3.44
111,335
88,780
4.76
88,780
91,740
2.87
91,105
101,601
4.06
101,601
754,832
6.30
754,832
165,000
8.30
60,000
4,053,109
5,408,597
9.43
2,607,276
3,857,129
The Company uses Black-Scholes to recognize the value of stock-based compensation expense for all stock-based payment awards.
Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the grant date requires considerable
judgment, including estimating stock price volatility, expected option life and forfeiture rates. The Company develops estimates based on
historical data and market information, which can change significantly over time. Black-Scholes requires the Company to make several key
judgments including:
•
•
•
•
•
the expected option term reflects the application of the simplified method set out in Staff Accounting Bulletin No. 107 Share-Based
Payment (SAB 107), which was issued in March 2005. In December 2007, the SEC released SAB 110, which extends the use of the
“simplified” method, under certain circumstances, in developing an estimate of expected term of “plain vanilla” share options.
Accordingly, the Company has utilized the average of the contractual term of the options and the weighted average vesting period
for all options and warrants to calculate the expected option term.
estimated volatility also reflects the historical volatility pattern of the Company’s share price.
the dividend yield is based on the Company’s historical pattern of dividends as well as expected dividend patterns.
the risk-free rate is based on the implied yield of U.S. Treasury notes as of the grant date with a remaining term approximately equal
to the expected term.
estimated forfeiture rate of 0% per year is based on the Company’s historical forfeiture activity of unvested stock options. The
Company used the following assumptions for stock options and warrants granted during the years ended March 31, 2013 and 2012:
Risk-free interest rate
Expected volatility
Expected life (in years)
Expected dividend yield
Years Ended March 31,
2013
0.63% – 2.22%
124% – 166%
2.57 – 10.00
N/A
2012
1.15% – 2.87%
164% – 173%
5.91 – 7.44
N/A
For the years ended March 31, 2013 and 2012, the weighted-average fair value of the Company’s stock option and warrant grants are as
follows:
Grant Year
March 31, 2013
March 31, 2012
Weighted
Average
Fair Value of
Options
0.26
1.24
Granted
4,063,109 $
450,000 $
F- 21
There were 4,063,109 stock options granted to employees and directors during the year ended March 31, 2013, and 450,000 stock options
granted to employees and directors during the year ended March 31, 2012. In connection with the options granted and the vesting of prior
options and warrants issued to employees and directors, during the years ended March 31, 2013 and 2012, the Company recorded total charges
of $675,439 and $262,844, respectively, which have been included in selling, general and administrative expenses in the accompanying
consolidated statements of operations. The Company issues new shares from its authorized shares upon exercise of warrants or options.
As of March 31, 2013, there was $425,086 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 1.94 years.
There were no employee or director stock options and warrants exercised during the years ended March 31, 2013 and 2012.
Note 12. Equity Instruments Issued to Non-Employees for Acquiring Goods or Services
During April 2012, the Company issued a warrant to purchase 30,000 shares of the Company’s common stock at an exercise price of $0.50
per share and a two year life to a consultant for services rendered. The Company recognized $8,546 in expense related to this warrant for the
year ended March 31, 2013.
During December 2011, the Company issued a warrant to purchase 155,844 shares of the Company’s common stock at an exercise price of
$0.77 per share and a five year life to a consultant for services to be rendered over two years. The consultant terminated his services in May
2012. The Company recognized $8,084 and $16,112 in expense related to this warrant for the years ended March 31, 2013 and 2012,
respectively.
During July 2011, the Company issued a warrant to purchase 10,000 shares of the Company’s common stock at an exercise price of $1.20
per share and a five year life to a consultant for services to be rendered within one year. The Company recognized $8,297 in expense related to
this warrant for the year ended March 31, 2012.
During April 2011, the Company issued a warrant to purchase 2,500 shares of the Company’s common stock at an exercise price of $1.38
per share and a five year life to a consultant for services to be rendered over three years. The Company recognized $1,111 and $966 in expense
related to this warrant for the years ended March 31, 2013 and 2012, respectively.
On March 7, 2011, the Company entered into an Advisory Services Agreement with Marc Grossman M.D. to provide strategic business
advice for which he was issued a fully-vested warrant to purchase 200,000 shares of the Company’s common stock at an exercise price of $0.77
per share and five year life, in addition to a fee of $125,000. The fair value of this warrant was $302,769 as calculated using Black-Scholes and
was recorded as an other current asset. For the years ended March 31, 2013 and 2012, the Company recognized $0 and $277,538, respectively, in
expense related to this warrant and is included in selling, general and administrative in the accompanying consolidated statements of operations.
Note 13. Commitments and Contingencies
Lease Commitments
We currently lease two facilities, with approximately 11,900 square feet of corporate, research and development, and warehouse facilities,
located in Lake Forest, California (“Lake Forest Facility”) and approximately 4,100 square feet of corporate facilities located in San Diego,
California (“San Diego Facility”). In June 2010, the Company entered into a third amendment to the Lake Forest Facility lease and extended the
lease for sixty months commencing July 1, 2010 with a right to cancel the lease with a minimum of 120 day written notice at any time after
December 31, 2012 and adjusted the base lease payments to a range over the life of the agreement of $7,010 per month to $8,911 per month, plus
operating expenses. On April 11, 2011, the Company entered into an office service agreement with Regis Management Group, LLC (Lessor) for
six (6) executive offices in San Diego which the Company terminated effective December 31, 2011. Aggregate base lease payments for these
offices were approximately $9,250 per month. On November 28, 2011, the Company entered into a lease agreement for the San Diego Facility
for a thirty six month period ending December 31, 2014. Base lease payments range over the life of the agreement of $8,621 per month to $9,442
per month, plus operating expenses.
Total rental expense was approximately $204,000 and $235,000 for the years ended March 31, 2013 and 2012, respectively.
Future annual minimum payments under operating leases are as follows:
Years Ending March 31:
2014
2015
2016
2017
2018
$
$
212,949
192,966
26,733
—
—
432,648
F- 22
Consulting and Engineering Services
Effective November 1, 2010, the Company entered into a Second Amendment to Master Consulting and Engineering Services Agreement
(the “Second Amendment”) with KLATU Networks, LLC (“KLATU”), which amended the Master Consulting and Engineering Services
Agreement between the parties dated as of October 9, 2007 (the “Agreement”), as amended by the First Amendment to Master Consulting and
Engineering Services Agreement between the parties dated as of April 23, 2009. The parties entered into the Second Amendment to clarify their
mutual intent and understanding that all license rights granted to the Company under the Agreement, as amended, shall survive any termination
or expiration of the Agreement. In addition, in recognition that the Company has paid KLATU less than the market rate for comparable services,
the Second Amendment provides that if the Company terminates the Agreement without cause, which the Company has no intention of doing, or
liquidates, KLATU shall be entitled to receive additional consideration for its services provided from the commencement of the Agreement
through such date of termination, which additional compensation shall not be less than $2 million plus two times the “cost of work” (as defined
in the Agreement). Any such additional compensation would be payable in three equal installments within 12 months following the date the
amount of such additional compensation is determined. If KLATU terminates that agreement, no such payments are payable.
The agreement provides for one year terms ending on December 31 of each year, but it automatically renews for one year periods unless
otherwise terminated. Consulting fees for services provided by KLATU were $401,142 and $494,408 for the years ended March 31, 2013 and
2012, respectively.
Litigation
The Company may become a party to product litigation in the normal course of business. The Company accrues for open claims based on
its historical experience and available insurance coverage. In the opinion of management, there are no legal matters involving the Company that
would have a material adverse effect upon the Company’s financial condition or results of operations.
Indemnities and Guarantees
The Company has made certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or
indemnified party, in relation to certain actions or transactions. The guarantees and indemnities do not provide for any limitation of the
maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated nor incurred
any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying
consolidated balance sheets.
The Company indemnifies its directors, officers, employees and agents, as permitted under the laws of the States of California and
Nevada. In connection with its facility leases, the Company has indemnified its lessors for certain claims arising from the use of the facilities.
The duration of the guarantees and indemnities varies, and is generally tied to the life of the agreement.
Note 14. Income Taxes
Significant components of the Company’s deferred tax assets as of March 31, 2013 and 2012 are shown below:
Deferred tax asset:
Net operating loss carryforward
Research credits
Expenses recognized for granting of options and warrants
Accrued expenses and reserves
Valuation allowance
F- 23
2013
2012
51,000
1,319,000
32,000
$ 13,505,000 $ 11,536,000
32,000
1,046,000
(25,000 )
(14,907,000 ) (12,589,000 )
—
— $
$
Based on the weight of available evidence, the Company’s management has determined that it is more likely than not that the net deferred
tax assets will not 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.
The income tax provision differs from that computed using the federal statutory rate applied to income before taxes as follows:
Computed tax benefit at federal statutory rate
State tax, net of federal benefit
Warrant MTM Adjustment
Interest Expense
Permanent items and other
Valuation allowance
2013
(2,169,000 ) $
(359,000 )
(6,000 )
1,000
215,600
2,319,000
1,600 $
2012
(2,662,000 )
(426,000 )
(41,000 )
163,000
35,600
2,932,000
1,600
$
$
At March 31, 2013, the Company has federal and state net operating loss carryforwards of approximately $34,244,000 and $31,907,000
which will begin to expire in 2020, unless previously utilized, and as of 2012 have already begun to for state carryforwards. At March 31, 2013,
the Company has federal and California research and development tax credits of approximately $18,000 and $51,000, respectively. The federal
research tax credit begins to expire in 2026 unless previously utilized and the California research tax credit has no expiration date.
Utilization of the net operating loss and research and development carryforwards might be subject to a substantial annual limitation due to
ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code
of 1986, as amended (the “Code”), as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and
R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change”
as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership
change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Since the Company’s
formation, the Company has raised capital through the issuance of capital stock on several occasions which, combined with the purchasing
stockholders’ subsequent disposition of those shares, may have resulted in such an ownership change, or could result in an ownership change in
the future upon subsequent disposition.
The Company has not completed a study to assess whether an ownership change has occurred. If the Company has experienced an
ownership change, utilization of the NOL or R&D credit carryforwards would be subject to an annual limitation under Section 382 of the Code,
which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-
exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the NOL or
R&D credit carryforwards before utilization. Further, until a study is completed and any limitation is known, no amounts are being considered as
an uncertain tax position or disclosed as an unrecognized tax benefit. Due to the existence of the valuation allowance, future changes in the
Company’s unrecognized tax benefits will not impact its effective tax rate. Any carryforwards that will expire prior to utilization as a result of
such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance.
F- 24
Note 15. Quarterly Results of Operations (unaudited)
The following table sets forth a summary of our unaudited quarterly operating results for each of the last eight quarters in the period ended
March 31, 2013. This data has been derived from our unaudited consolidated interim financial statements which, in our opinion, have been
prepared on substantially the same basis as the audited consolidated financial statements contained elsewhere in this report and include all
normal recurring adjustments necessary for a fair presentation of the financial information for the periods presented. These unaudited quarterly
results should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this report. The
operating results in any quarter are not necessarily indicative of the results that may be expected for any future period (in thousands except
earnings per share).
Mar. 31,
2013
Dec. 31,
2012
Sept. 30,
2012
June 30,
2012
Mar. 31,
2012
Dec. 31,
2011
Sept. 30,
2011
June 30,
2011
Quarter Ended
$
Revenues:
Cost of revenues
Gross loss
Research and development
Selling, general and
administrative
Total operating expenses
Loss from operations
Other (expense) income, net
Loss before income taxes
Income taxes
Net loss
$
Net loss per common share:
Basic and diluted
Weighted average common
shares outstanding:
Basic
Diluted
Note 16. Subsequent Events
368 $
521
(153 )
120
1,408
1,528
(1,681 )
(36 )
(1,717 )
—
(1,717 ) $
307 $
369
(62 )
94
1,393
1,487
(1,549 )
(18 )
(1,567 )
—
(1,567 ) $
234 $
345
(111 )
102
1,341
1,443
(1,554 )
3
(1,551 )
2
(1,553 ) $
unaudited
191 $
354
(163 )
109
1,269
1,378
(1,541 )
(5 )
(1,546 )
—
(1,546 ) $
177 $
330
(153 )
145
1,173
1,318
(1,471 )
(198 )
(1,669 )
—
(1,669 ) $
144 $
345
(201 )
121
1,740
1,861
(2,062 )
(18 )
(2,080 )
—
(2,080 ) $
111 $
364
(253 )
125
1,564
1,689
(1,942 )
(88 )
(2,030 )
—
(2,030 ) $
124
355
(231 )
101
1,628
1,729
(1,960 )
(92 )
(2,052 )
2
(2,054 )
(0.05 )
(0.04 )
(0.04 )
(0.04 )
(0.06 )
(0.07 )
(0.07 )
(0.07 )
37,761
37,761
37,761
37,761
37,761
37,761
37,761
37,761
32,014
32,014
28,247
28,247
27,967
27,967
27,690
27,690
In the first quarter of fiscal year 2014, the Company issued to certain accredited investors an additional $608,751 in Bridge Notes with the
same terms as described under Note 8. These additional Bridge Notes include $100,000 from one of our Board Members, Richard Rathmann. As
of June 17, 2013 the total principal amount of the Bridge Notes was $1,903,251.
In May 2013, the Company issued 500,000 shares of common stock upon the exercise of options at an exercise price of $0.20 per share for
total gross proceeds of $100,000.
F- 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: June 25, 2013
CRYOPORT, INC.
By:
/S/ JERRELL W. SHELTON
Jerrell W. Shelton
Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/s/ JERRELL W. SHELTON
Chief Executive Officer and Director (Principal Executive
June 25, 2013
Jerrell W. Shelton
Officer)
/s/ ROBERT S. STEFANOVICH
Chief Financial Officer (Principal Financial and Accounting
June 25, 2013
Robert S. Stefanovich
/s/ ADAM M. MICHELIN
Adam M. Michelin
/s/ KAREN M. MULLER
Karen M. Muller
/s/ RICHARD G. RATHMANN
Richard G. Rathmann
/s/ STEPHEN E. WASSERMAN
Stephen E. Wasserman
Officer)
Director
Director
Director
Director
38
June 25, 2013
June 25, 2013
June 25, 2013
June 25, 2013
Exhibit No.
3.1
3.2
3.3
EXHIBIT INDEX
Description
Amended and Restated Articles of Incorporation of the Company, as amended. Incorporated by reference to Exhibit 3.1 to
the Company’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2012.
Amended and Restated Bylaws of the Company. Incorporated by reference to Exhibit 3.2 of the Company’s Current Report
on Form 8-K dated October 23, 2012.
Cryoport Systems, Inc. 2002 Stock Incentive Plan adopted by the Board of Directors on October 1, 2002. Incorporated by
reference to Exhibit 3.13 to the Company’s Registration Statement on Form 10-SB/A2 dated January 26, 2006.
4.1.1
Form of Debenture—Original Issue Discount 8% Secured Convertible Debenture dated September 28, 2007. Incorporated
by reference to Cryoport’s Registration Statement on Form SB-2 dated November 9, 2007.
4.1.2
Amendment to Convertible Debenture dated February 19, 2008. Incorporated by reference to Cryoport’s Current Report on
Form 8-K dated March 7, 2008 and referred to as Exhibit 10.1.10.
4.1.3
Amendment to Convertible Debenture dated April 30, 2008. Incorporated by reference to Cryoport’s Current Report on
Form 8-K dated April 30, 2008 and referred to as Exhibit 10.1.11.
4.1.4
Annex to Amendment to Convertible Debenture dated April 30, 2008. Incorporated by reference to Cryoport’s Current
Report on Form 8-K dated April 30, 2008 and referred to as Exhibit 10.1.11.1.
4.1.5
Amendment to Convertible Debenture dated August 29, 2008. Incorporated by reference to Cryoport’s Current Report on
Form 8-K dated August 29, 2008.
4.1.6
Amendment to Convertible Debenture effective January 27, 2009 and dated February 20, 2009. Incorporated by reference to
Cryoport’s Current Report on Form 8-K dated February 19, 2009.
4.1.7
Amendment to Debentures and Warrants with Enable Growth Partners LP, Enable Opportunity Partners LP, Pierce
Diversified Strategy Master Fund LLC, Ena, BridgePointe Master Fund Ltd. and Cryoport Inc. dated September 1, 2009.
Incorporated by reference to Cryoport’s Current Report on Form 8-K dated September 17, 2009.
4.1.8
Amendment to Debentures and Warrants, Agreement and Waiver with Enable Growth Partners LP, Enable Opportunity
Partners LP, Pierce Diversified Strategy Master Fund LLC, Ena, BridgePointe Master Fund Ltd. and Cryoport Inc. dated
January 12, 2010. Incorporated by reference to Cryoport’s Current Report on Form 8-K dated January 15, 2010.
4.1.9
Amendment Agreement with Enable Growth Partners LP, Enable Opportunity Partners LP, Pierce Diversified Strategy
Master Fund LLC, Ena, BridgePointe Master Fund Ltd. and Cryoport Inc. dated February 1, 2010. Incorporated by reference
to Cryoport’s Current Report on Form 8-K dated February 3, 2010.
4.1.10
Amended and Restated Amendment Agreements with Enable Growth Partners LP, Enable Opportunity Partners LP, Pierce
Diversified Strategy Master Fund LLC, Ena, BridgePointe Master Fund Ltd. and Cryoport Inc. dated
February 19, 2010. Incorporated by reference to Cryoport’s Current Report on Form 8-K dated February 26, 2010.
4.1.11
First Amendment to Amended and Restated Amendment Agreements with Enable Growth Partners LP, Enable Opportunity
Partners LP, Pierce Diversified Strategy Master Fund LLC, Ena, BridgePointe Master Fund Ltd. and Cryoport Inc. dated
February 23, 2010. Incorporated by reference to Cryoport’s Current Report on Form 8-K dated February 26, 2010.
4.2
Form of Common Stock Purchase Warrant dated September 28, 2007. Incorporated by reference to Cryoport’s Registration
Statement on Form SB-2 dated November 9, 2007.
39
Exhibit No.
Description
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
Original Issue Discount 8% Secured Convertible Debenture dated May 30, 2008. Incorporated by reference to Cryoport’s
Current Report on Form 8-K dated June 9, 2008.
Common Stock Purchase Warrant dated May 30, 2008. Incorporated by reference to Cryoport’s Current Report on Form 8-
K dated June 9, 2008
Common Stock Purchase Warrant dated May 30, 2008. Incorporated by reference to Cryoport’s Current Report on Form 8-
K dated June 9, 2008
Form of Warrant and Warrant Certificate in connection with the February 25, 2010 public offering. Incorporated by
reference to Cryoport’s Amendment No. 5 to Form S-1/A Registration Statement dated February 9, 2010.
Form of Securities Purchase Agreement in connection with the August to October 2010 private placement. Incorporated by
reference to Cryoport’s Registration Statement on Form S-1 dated October 19, 2010.
Form of First Amendment to Security Purchase Agreement in connection with the August to October 2010 private
placement. Incorporated by reference to Cryoport’s Registration Statement on Form S-1 dated October 19, 2010.
Form of Securities Purchase Agreement (Continuation of the Placement) in connection with the August to October 2010
private placement. Incorporated by reference to Cryoport’s Registration Statement on Form S-1 dated
October 19, 2010.
Registration Rights Agreement in connection with the August to October 2010 private placement. Incorporated by reference
to Cryoport’s Registration Statement on Form S-1 dated October 19, 2010.
Form of Joinder to Registration Rights Agreement in connection with the August to October 2010 private placement.
Incorporated by reference to Cryoport’s Registration Statement on Form S-1 dated October 19, 2010.
Form of Securities Purchase Agreement in connection with the February 2011 private placement. Incorporated by reference
to Cryoport’s Registration Statement on Form S-1 dated April 1, 2011.
Form of Registration Rights Agreement in connection with the February 2011 private placement. Incorporated by reference
to Cryoport’s Registration Statement on Form S-1 dated April 1, 2011.
Form of Warrant in connection with the August to October 2010 private placement. Incorporated by reference to Cryoport’s
Registration Statement on Form S-1/A dated April 22, 2011.
Form of Warrant in connection with the February 2011 private placement. Incorporated by reference to Cryoport’s
Registration Statement on Form S-1/A dated April 22, 2011.
Form of Securities Purchase Agreement. Incorporated by reference to Cryoport’s Current Report of Form 8-K filed with the
SEC on February 24, 2012.
Form of Registration Rights Agreement. Incorporated by reference to Cryoport’s Current Report of Form 8-K filed with the
SEC on February 24, 2012.
Form of Warrant. Incorporated by reference to Cryoport’s Current Report of Form 8-K filed with the SEC on February 24,
2012.
Warrant issued to Rodman & Renshaw, LLC in connection with the February 25, 2010 public offering. Incorporated by
reference to CryoPort’s Registration Statement on Form S-1 dated October 19, 2010.
10.1.1
Commercial Promissory Note between Cryoport, Inc. and D. Petreccia executed on August 26, 2005. Incorporated by
reference to Cryoport’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
10.1.2
Commercial Promissory Note between Cryoport, Inc. and J. Dell executed on September 1, 2005. Incorporated by reference
to Cryoport’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
10.1.3
Commercial Promissory Note between Cryoport, Inc. and P. Mullens executed on September 2, 2005. Incorporated by
reference to Cryoport’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
10.1.4
Commercial Promissory Note between Cryoport, Inc. and R. Takahashi executed on August 25, 2005. Incorporated by
reference to Cryoport’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
40
Exhibit No.
10.5.1
10.5.2
10.5.3
10.6
10.7
10.9
Description
Lease Agreement dated June 26, 2007 between CryoPort, Inc. and Viking Investors—Barents Sea LLC. Incorporated by
reference to Cryoport’s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2007 and referred to as Exhibit
10.5.
Second Amendment To Lease: Renewal dated August 24, 2009, between CryoPort, Inc. and Viking Inventors-Barents Sea
LLC. Incorporated by reference to Cryoport’s Amendment No. 1 to Form S-1/A Registration Statement dated January 12,
2010.
Third Amendment to Lease: Renewal dated June 8, 2010 between Viking Investors Barents Sea, LLC.*
Securities Purchase Agreement dated September 27, 2007. Incorporated by reference to Cryoport’s Registration Statement
on Form SB-2 dated November 9, 2007 and referred to as Exhibit 10.6.
Registration Rights Agreement dated September 27, 2007. Incorporated by reference to Cryoport’s Registration Statement
on Form SB-2 dated November 9, 2007 and referred to as Exhibit 10.7.
Security Agreement dated September 27, 2007. Incorporated by reference to Cryoport’s Registration Statement on Form SB-
2 dated November 9, 2007 and referred to as Exhibit 10.8.
10.10
Securities Purchase Agreement dated May 30, 2008. Incorporated by reference to Cryoport’s Current Report on Form 8-K
dated June 9, 2008 and referred to as Exhibit 10.10.
10.11
Registration Rights Agreement dated May 30, 2008. Incorporated by reference to Cryoport’s Current Report on Form 8-K
dated June 9, 2008 and referred to as Exhibit 10.11.
10.12
Waiver dated May 30, 2008. Incorporated by reference to Cryoport’s Current Report on Form 8-K dated June 9, 2008 and
referred to as Exhibit 10.12.
10.13
Security Agreement dated May 30, 2008. Incorporated by reference to Cryoport’s Current Report on Form 8-K dated June 9,
2008 and referred to as Exhibit 10.13.
41
Exhibit No.
Description
10.14
Consent, Waiver and Agreement with Enable Growth Partners LP, Enable Opportunity Partners LP, Pierce Diversified
Strategy Master Fund LLC, Ena, BridgePointe Master Fund Ltd. and Cryoport Inc. and its subsidiary dated July 30, 2009.
Incorporated by reference to Cryoport’s Current Report on Form 8-K dated July 29, 2009 and referred to as Exhibit 10.15.
10.15.1
10.15.2
Master Consulting and Engineering Services Agreement dated October 9, 2007 with KLATU Networks, LLC and CryoPort,
Inc. Incorporated by reference to Cryoport, Inc.’s Registration Statement on Form S-8 dated March 25, 2009 and referred to
as Exhibit 10.2.
First Amendment to Master Consulting and Engineering Services Agreement dated as of April 23, 2009, between CryoPort,
Inc. and KLATU Networks, LLC. Incorporated by reference to Cryoport’s Registration Statement on Form S-1/A dated
December 17, 2010 and referred to as Exhibit 10.32.
10.15.3
Second Amendment to Master Consulting and Engineering Services Agreement dated as of November 1, 2010, between
CryoPort, Inc. and KLATU Networks, LLC. Incorporated by reference to Cryoport’s Registration Statement on Form S-1/A
dated December 17, 2010 and referred to as Exhibit 10.33.
10.16
Stock Option Agreement ISO under the 2002 Stock Incentive Plan of Cryoport Systems, Inc. Incorporated by reference to
Exhibit 3.14 to the Company’s Registration Statement on Form 10-SB/A2 dated January 26, 2006.
10.17
Stock Option Agreement NSO under the 2002 Stock Incentive Plan of Cryoport Systems, Inc. Incorporated by reference to
Exhibit 3.15 to the Company’s Registration Statement on Form 10-SB/A2 dated January 26, 2006.
10.18
2009 Stock Incentive Plan of the Company. Incorporated by reference to Exhibit 10.21 of the Company’s Current Report on
Form 8-K dated October 9, 2009 and referred to as Exhibit 10.21.
10.19
Form Incentive Stock Option Award Agreement under the 2009 Stock Incentive Plan of the Company. Incorporated by
reference to Exhibit 10.22 of the Company’s Current Report on Form 8-K dated October 9, 2009.
10.20
Form of Non-Qualified Stock Option Award Agreement under the 2009 Stock Incentive Plan of the Company. Incorporated
by reference to Exhibit 10.25 of the Company’s Registration Statement on Form S-8 dated April 27, 2010.
10.21
2011 Stock Incentive Plan (as amended and restated). Incorporated by reference to Exhibit B of the Company’s Definitive
Proxy Statement on Schedule 14A filed with the SEC on July 30, 2012.
10.22
Form of Stock Option Award Agreement. Incorporated by reference to Exhibit 10.37 to Registrant’s Current Report on
Form 8-K filed with the SEC on September 27, 2011.
10.23
Form of Non-Qualified Stock Option Award Agreement. Incorporated by reference to Exhibit 10.38 to Registrant’s Current
Report on Form 8-K filed with the SEC on September 27, 2011.
10.24
10.25
10.26
Form of Convertible Promissory Note.*
Form of Amendment to Convertible Promissory Note.*
Form of Convertible Promissory Note.*
42
Exhibit No.
Description
10.27
10.28
10.29
21
23.1
31.1
31.2
32.1
32.2
Employment Agreement between the Company and Jerrell Shelton. Incorporated by reference to the Company’s Current
Report on Form 8-K filed on November 6, 2012 and referred to as Exhibit 10.45.
Stock Option Agreement dated November 5, 2012 between the Company and Jerrell Shelton.*
Master Agreement between the Company and Federal Express Corporation dated January 1, 2013.** Incorporated by
reference to the Company’s Current Report on Form 8-K filed on January 8, 2013 and referred to as Exhibit 10.1.
Subsidiaries of Registrant*
Consent of Independent Registered Public Accounting Firm—KMJ Corbin & Company LLP.*
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.*
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.*
Certification Pursuant to U.S.C. §1350 of Chief Executive Officer.*
Certification Pursuant to U.S.C. §1350 of Chief Financial Officer.*
101.INS***
XBRL Instance Document.*
101.SCH***
XBRL Taxonomy Extension Schema Document.*
101.CAL***
XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF***
XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB***
XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE***
XBRL Taxonomy Extension Presentation Linkbase Document.*
Filed herewith
Portions omitted pursuant to a request for confidential treatment filed separately with the Commission.
*
**
*** Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the
submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities
laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data
files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised
that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.
43
I
PARTIES
THIRD AMENDMENT TO LEASE: RENEWAL
This amendment is executed in Lake Forest, California, on June 8th, 2010, by and between VIKING INVESTROS BARENTS SEA,
LLC, ("Lessor"}, and CRYOPORT SYSTEMS, INC. ("Lessee''). for the property known as 20382 Barents Sea Circle, Lake Forest,
California.
II
RECITALS
Lessor and Lessee being parties to that certain lease dated June 26, 2007. attached hereto as Exhibit "A". hereby express their mutual
desire to extend the lease per the terms and conditions of this Third Amendment To Lease: Renewal.
Exhibit 10.5.3
III
AMENDMENTS
·'LEASE TERM": The lease term shall be extended for an additional sixty (60) months.
commencing July 1, 2010 and shall expire June 30, 2015.
"RENT" shall hereinafter be paid as follows:
July 1, 2010 - June 30, 201 1: Base rent shall be $7,010 NNN per month.
July 1. 2011 -June 30. 2012; Base rent shall be $7,247 NNN per month.
July 1. 2012- June 30, 2013; Base rent shall be $7,604 NNN per month.
July 1, 2013 - June 30, 2014; Base rent shall be $8,198 NNN per month.
July 1. 2014 - June 30, 2015; Base rent shall be $8,911 NNN per month.
In addition to the Base Rent Lessee shall be responsible for additional NNN charges according to the provisions of the original lease.
The NNN charges shall not increase by more than 2% compounded annually. Furthermore, Lessee shall not be liable to pay an increase
in property taxes triggered by a possible sale of the property.
"CANCELLATION CLAUSE": Lessee shall have the right to cancel the lease with a minimum of 120 day written notice at anytime as
of December 31, 2012. In the event Lessee does exercise its option to cancel the lease. Lessee shall reimburse Lessor of the unearned
leasing commissions paid to Cresa Partners.
·'LANDLORD'S OBLIGATION"; Lessor shall be responsible, during the initial term and any extensions thereto, for all capital repairs
or replacements (as defined by generally accepted accounting principles) related to the these systems. Any ongoing maintenance
charges shall be part of the NNN charges payable by Lessee.
"TENANT IMPROVEMENTS": Lessor shall as soon as reasonably possible steam clean the existing carpet, apply touch-up paint
where necessary in the office area and Lessor shall repair the moisture seepage problem in the downstairs office area.
''OPTION TO EXTEND"; Lessee shall have one (1) three (3) year Option to Extend. The extension rental rate and terms shall be at the
then prevailing market terms and conditions for comparable space in comparable buildings in the vicinity. Lessee shall give Lessor a
minimum of one hundred eighty (180) days prior written notice.
"ASSIGNMENT AND SUBLETTING"; Lessee shall have the right to sublease or assign any portion of the entire space to any
related entity, parent company, subsidiary or affiliate without Lessor's consent. Lessee shall have the right to sublease or assign any
portion of the space to any other subtenant with Lessor's written consent, which shall not be unreasonably withheld or delayed. Lessor
shall have no right to recapture said space and all proceeds attributable to any assignment or sublease shall inure to the benefit of
Lessee.
IV
INCORPORATION
Except as modified herein, all other terms and conditions of the lease between the parties above described, as attached hereto, shall
continue in full force and effect.
In Witness Whereof, Lessor and Lessee have executed this amendment as of the day and year first above written.
LESSOR: VIKING INVESTORS BARENTS SEA LLC
/S/ Jan-Erik Palm
Jan-Erik Palm, Managing Member
LESSEE: CRYOPORT SYSTEMS, INC.
By:
/s/ Bret Bollinger
Bret Bollinger, VP of Operations
THE ISSUANCE OF THIS PROMISSORY NOTE, AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE (COLLECTIVELY, THE
“ SECURITIES ”), HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO CLAIMED
EXEMPTIONS FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “ ACT” ). THE SECURITIES ARE “ RESTRICTED SECURITIES ” AND MAY NOT BE OFFERED OR RESOLD
UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, OR ELIGIBLE TO BE OFFERED OR SOLD PURSUANT TO AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. THE COMPANY MAY REQUIRE THAT IT BE
PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT
BE MADE EXCEPT IN COMPLIANCE WITH THE ACT.
Exhibit 10.24
CRYOPORT, INC.
US $[________]
This Promissory Note (the “ Note ”) is issued as of __________, 201_ by CRYOPORT, INC ., a Nevada corporation (the “ Company ”),
to _____________________________________ (together with its permitted successors and assigns, the “ Holder ”) with an address
of_______________________________ pursuant to exemptions from registration under the Securities Act of 1933, as amended.
ARTICLE I.
Section 1.01 Principal and Interest . The Company hereby promises to pay the principal sum of US $[________] pursuant to the terms
hereof and to pay interest to the Holder on such principal balance from the date hereof. From the date hereof until January 31, 2013, interest shall
accrue at the rate of fifteen percent (15%) per annum and from February 1, 2013 through the date of payment, interest shall accrue at the rate of
five percent (5%) per annum.
Section 1.02 Maturity Date . All unpaid principal and accrued interest hereunder shall be paid on December 31, 2013.
Section 1.03 Optional Conversion to Preferred Stock . The Company is currently in negotiations with prospective investors for the
issuance by the Company of preferred shares which are contemplated to be convertible into common stock of the Company. The terms of such
preferred shares have yet to be established and there can be no assurance that such preferred shares will be issued. In the event, however, that the
Company shall authorize and offer preferred shares while the Note is outstanding, the Company will provide written notice to the Holder of the
offer of such shares and the Holder shall have the option during the ten days following such notice to elect to convert all or a portion of the
principal and accrued interest under this Note into the offered shares. The Company shall not issue fractional shares upon a conversion. If the
application of the Conversion price shall contemplate issuance of less than a half share, such fractional share shall not be issued and no payment
shall be made to the converting Holder and should such application result in the issuance of a half or greater fractional share, such fractional
share shall be rounded up to the next full share.
Section 2.01 No Prepayment . This Note may not be prepaid by the Company without the express written consent of the Holder.
ARTICLE II.
Section 2.02 Pari Passu With Other Notes . The payment of this Note and other similar notes issued for up to an aggregate principal
sum of $3,000,000 shall be made in full by the Company and if the Company is unable to fully repay all such notes, then payment shall be on a
pari passu basis.
ARTICLE III.
Section 3.01 Re-issuance of Note . Should the Holder elect to convert a part, but not all, of the unpaid principal amount then owing to
the Holder under this Note, then the Company shall reissue a new Note in the same form as this Note to reflect the new principal amount and the
accrued unpaid interest which was not converted.
Section 3.02 Notices . Notices regarding this Note shall be sent to the parties at the following addresses, unless a party notifies the other
parties, in writing, of a change of address:
If to the Holder, to:
If to the Company:
Cryoport, Inc.
20382 Barents Sea Circle
Lake Forest, CA 92101
Section 3.03 Governing Law . This Note shall be deemed to be made under and shall be construed in accordance with the laws of the
state of Nevada without giving effect to the principals of conflict of laws thereof.
Section 3.04 Severability . The invalidity of any of the provisions of this Note shall not invalidate or otherwise affect any of the other
provisions of this Note, which shall remain in full force and effect.
Section 3.05 Entire Agreement and Amendments . This Note represents the entire agreement between the parties hereto with respect
to the subject matter hereof and there are no representations, warranties or commitments, except as set forth herein. This Note may be amended
only by an instrument in writing executed by the parties hereto.
Section 3.06. No Waiver, Cumulative Remedies . No failure to exercise and no delay in exercising, on the part any party, any right,
remedy, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by
law.
Section 3.07 Waiver of Trial by Jury . To the extent permitted by applicable Law, each of the parties irrevocably waives all right of
trial by jury in any action, proceeding or counterclaim arising out of or in connection with this Note or any matter arising hereunder.
Section .3.08 Legal Holidays . In any case where the date on which any payment is due to any Holder shall not be a business day, then
any such payment need not be made on such date, but may be made on the next succeeding business day with the same force and effect as if
made on the date on which nominally due, and no interest shall accrue for the period from and after any such nominal date.
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the Company as executed this Note as of the date first written
above.
CRYOPORT, INC.
By:
a duly authorized officer
AMENDMENT TO PROMISSORY NOTE
Exhibit 10.25
This Amendment to Promissory Note (the “ Amendment ”) amends that certain Promissory Note issued by CRYOPORT, INC., a
Nevada corporation (the “ Company ”), dated as of the date, to the holder, and in the original principal amount as set forth on the signature page
hereto (the “ Note ”).
For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1.
Section 1.03 of the Note is hereby deleted and replaced with the following:
Section 1.03 Conversion to Equity Options . The Company is currently in negotiations with prospective investors for the
issuance by the Company of equity securities. These securities may be common stock or preferred stock and may or may not involve
the issuance of warrants to purchase equity in the Company. The terms of such equity securities have yet to be established and there can
be no assurance that such equity securities will be issued. In the event, however, that the Company shall issue one or more types of
equity securities (a “ Transaction ”) before the maturity of this Note, the Company shall in each event notify the Holder in writing
within ten (10) days of such issuance of the terms of the Transaction and the Holder shall have the option until the later of (a) ten (10)
days after such notice or (b) December 15, 2013 to elect in writing to convert all or a portion of the principal and accrued interest under
this Note into the equity securities that were issued by the Company on the same terms that the Company issued said securities in such
Transaction. The Company shall not issue fractional shares upon a conversion. If the application of the Conversion price shall
contemplate issuance of less than a half share, such fractional share shall not be issued and no payment shall be made to the converting
Holder and should such application result in the issuance of a half or greater fractional share, such fractional share shall be rounded up
to the next full share.
2. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall
constitute one instrument. Facsimile and/or other electronically transmitted signatures shall be effective for all purposes.
3. Other than as set forth in this Amendment, all of the terms and conditions of the Note shall continue in full force and effect.
[The remainder of this page has been intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Promissory Note as of the date set first set forth above.
Dated:
, 2013
CRYOPORT, INC.
By:
a duly authorized officer
Agreed and acknowledged:
Signature
Date of Promissory Note :
, 2013
Holder :
Original Principal Amount :
THE ISSUANCE OF THIS PROMISSORY NOTE, AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE (COLLECTIVELY, THE
“ SECURITIES ”), HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO CLAIMED
EXEMPTIONS FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “ ACT” ). THE SECURITIES ARE “ RESTRICTED SECURITIES ” AND MAY NOT BE OFFERED OR RESOLD
UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, OR ELIGIBLE TO BE OFFERED OR SOLD PURSUANT TO AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. THE COMPANY MAY REQUIRE THAT IT BE
PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT
BE MADE EXCEPT IN COMPLIANCE WITH THE ACT.
Exhibit 10.26
CRYOPORT, INC.
US $[________]
This Promissory Note (the “ Note ”) is issued as of __________ __, 2013 by CRYOPORT, INC ., a Nevada corporation (the “ Company
”), to _____________________________________ (together with its permitted successors and assigns, the “ Holder ”) with an address
of_______________________________ pursuant to exemptions from registration under the Securities Act of 1933, as amended.
ARTICLE I.
Section 1.01 Principal and Interest . The Company hereby promises to pay the principal sum of US $[________] pursuant to the terms
hereof and to pay interest to the Holder on such principal balance from the date hereof. From the date hereof through the date of payment,
interest shall accrue at the rate of five percent (5%) per annum.
Section 1.02 Maturity Date . All unpaid principal and accrued interest hereunder shall be paid on December 31, 2013.
Section 1.03 Conversion to Equity Options . The Company is currently in negotiations with prospective investors for the issuance by
the Company of equity securities. These securities may be common stock or preferred stock and may or may not involve the issuance of warrants
to purchase equity in the Company. The terms of such equity securities have yet to be established and there can be no assurance that such equity
securities will be issued. In the event, however, that the Company shall issue one or more types of equity securities (a “ Transaction ”) before the
maturity of this Note, the Company shall in each event notify the Holder in writing within ten (10) days of such issuance of the terms of the
Transaction and the Holder shall have the option until the later of (a) ten (10) days after such notice or (b) December 15, 2013 to elect in writing
to convert all or a portion of the principal and accrued interest under this Note into the equity securities that were issued by the Company on the
same terms that the Company issued said securities in such Transaction. The Company shall not issue fractional shares upon a conversion. If the
application of the Conversion price shall contemplate issuance of less than a half share, such fractional share shall not be issued and no payment
shall be made to the converting Holder and should such application result in the issuance of a half or greater fractional share, such fractional
share shall be rounded up to the next full share.
ARTICLE II.
Section 2.01 No Prepayment . This Note may not be prepaid by the Company without the express written consent of the Holder.
Section 2.02 Pari Passu With Other Notes . The payment of this Note and other similar notes issued for up to an aggregate principal
sum of $3,000,000 shall be made in full by the Company and if the Company is unable to fully repay all such notes, then payment shall be on a
pari passu basis.
ARTICLE III.
Section 3.01 Re-issuance of Note . Should the Holder elect to convert a part, but not all, of the unpaid principal amount then owing to
the Holder under this Note, then the Company shall reissue a new Note in the same form as this Note to reflect the new principal amount and the
accrued unpaid interest which was not converted.
Section 3.02 Notices . Notices regarding this Note shall be sent to the parties at the following addresses, unless a party notifies the other
parties, in writing, of a change of address:
If to the Holder, to:
If to the Company:
Cryoport, Inc.
20382 Barents Sea Circle
Lake Forest, CA 92101
Section 3.03 Governing Law . This Note shall be deemed to be made under and shall be construed in accordance with the laws of the
state of Nevada without giving effect to the principals of conflict of laws thereof.
Section 3.04 Severability . The invalidity of any of the provisions of this Note shall not invalidate or otherwise affect any of the other
provisions of this Note, which shall remain in full force and effect.
Section 3.05 Entire Agreement and Amendments . This Note represents the entire agreement between the parties hereto with respect
to the subject matter hereof and there are no representations, warranties or commitments, except as set forth herein. This Note may be amended
only by an instrument in writing executed by the parties hereto.
Section 3.06. No Waiver, Cumulative Remedies . No failure to exercise and no delay in exercising, on the part any party, any right,
remedy, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by
law.
Section 3.07 Waiver of Trial by Jury . To the extent permitted by applicable Law, each of the parties irrevocably waives all right of
trial by jury in any action, proceeding or counterclaim arising out of or in connection with this Note or any matter arising hereunder.
Section .3.08 Legal Holidays . In any case where the date on which any payment is due to any Holder shall not be a business day, then
any such payment need not be made on such date, but may be made on the next succeeding business day with the same force and effect as if
made on the date on which nominally due, and no interest shall accrue for the period from and after any such nominal date.
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the Company as executed this Note as of the date first written
above.
CRYOPORT, INC.
By:
a duly authorized officer
STOCK OPTION AGREEMENT
Exhibit 10.28
This Stock Option Agreement (“Agreement”) is between CryoPort, Inc. (“Company”) and Jerrell Shelton (the “Optionee”), and is
effective as of the 5th day of November , 2012 (“Grant Date”).
RECITALS
A. The Company is granting the option to purchase shares of the Company’s Common Stock contained in this Agreement pursuant
to the terms of that certain Employment Agreement between Optionee and the Company dated November 5, 2012 (the “Employment
Agreement”).
B. The Employment Agreement and the grant of the option to purchase shares of the Company’s Common Stock contained in this
Agreement has been approved by the Board of Directors of the Company (the “Board”) and by the Compensation Committee of the Board of
Directors of the Company (the “Committee”) pursuant to the Unanimous Written Consent of the Board and Committee dated November 5, 2012.
AGREEMENT
In consideration of the mutual covenants and conditions hereinafter set forth and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company and the Optionee agree as follows:
2. Grant of Option . Subject to the terms of this Agreement, the Company grants to the Optionee the right and option to purchase
from the Company all or any part of an aggregate of 1,000,000 shares of the Common Stock of the Company (“Option”). The Option granted
under this Agreement is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended
(the “Code”).
3. Purchase Price . The purchase price under this Agreement is $0.20 per share of Common Stock of the Company (“Stock”),
which is equal to the fair market value of a share of Stock on the Grant Date.
4. Vesting of Option . The Option shall vest and be exercisable according to the following schedule:
1/6 of the option vests on the 5 th of each month for six months beginning on 12/5/2012 and ending on 5/5/2013;
provided, that, pursuant to Section 12 below, such vesting will be accelerated in the event of a Change of Control (as defined in Section 12).
5. Exercise of Option . This Option may be exercised, to the extent vested (under Section 4 above), in whole or in part at any time
before the Option expires by delivery of a written notice of exercise (under Section 7 below) and payment of the purchase price in cash or such
other method permitted by the Committee under Section 6 and communicated to the Optionee before the date the Optionee exercises the Option.
6. Payment . The Committee may determine methods other than cash by which the exercise price of the Option may be paid, the
form of payment, including, without limitation, cash, promissory note, shares of Stock held for longer than six months (through actual tender or
by attestation), any net-issuance arrangement or other property acceptable to the Committee (including broker-assisted “cashless exercise”
arrangements), and the methods by which shares of Stock shall be delivered or deemed to be delivered to the Optionee.
7. Method of Exercising Option . Subject to the terms of this Agreement, the Option may be exercised by timely delivery to the
Company of written notice, which notice shall be effective on the date received by the Company. The notice shall state the Optionee’s election to
exercise the Option and the number of underlying shares in respect of which an election to exercise has been made. Such notice shall be signed
by the Optionee, or if the Option is exercised by a person or persons other than the Optionee because of the Optionee’s death, such notice must
be signed by such other person or persons and shall be accompanied by proof acceptable to the Company of the legal right of such person or
persons to exercise the Option.
8. Term of Option . The Option granted under this Agreement expires at the earlier of (a) ten (10) years from the Grant Date,
through and including the normal close of business of the Company on the tenth (10 th ) anniversary of the Grant Date, and (b) five (5) years after
the resignation and/or removal of the Optionee as Chief Executive Officer of the Company, through and including the normal close of business
of the Company on the fifth (5 th ) anniversary of such anniversary or removal.
8. Tax Withholding . Unless otherwise provided by the Committee prior to the vesting of Option, the Optionee shall satisfy any
federal, state, local or foreign employment or income taxes due upon the vesting of Option (or otherwise) by having the Company withhold from
those shares of Stock that the Optionee would otherwise be entitled to receive, a number of shares having a fair market value equal to the
minimum statutory amount necessary to satisfy the Company’s applicable federal, state, local and foreign income and employment tax
withholding obligations. Any such withholding shall be subject to the provisions of applicable law and to any conditions the Committee may
determine to be necessary to comply with Rule 16b-3 or its successors under the Exchange Act. In lieu of, and subject to, the above, the
Committee may also permit the Optionee to satisfy any federal, state, local, or foreign employment or income taxes due upon the vesting of
Option (or otherwise) by (i) personal check or other cash equivalent acceptable to the Company, (ii) permitting the Optionee to execute a same
day sale of Stock pursuant to procedures approved by the Company, or (iii) such other method as approved by the Committee, all in accordance
with applicable Company policies and procedures and applicable law.
9. Nontransferability . The Option granted by this Agreement shall not be transferable by the Optionee or any other person
claiming through the Optionee, either voluntarily or involuntarily, except by will or the laws of descent and distribution.
10. Nonstatutory Stock Option . The Option granted hereunder is a nonstatutory (non-qualified) stock option, and is not an
“incentive stock option” pursuant to the Code.
11. Stock Certificates . Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any
certificates evidencing shares of Stock pursuant to the exercise of the Option, unless and until the Committee has determined, with advice of
counsel, that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and,
if applicable, the requirements of any exchange or quotation system on which the shares of Stock are listed, quoted or traded. All Stock
certificates delivered pursuant to this Agreement are subject to any stop-transfer orders and other restrictions as the Committee deems necessary
or advisable to comply with Federal, state, or foreign jurisdiction, securities or other laws, rules and regulations and the rules of any national
securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Committee may place legends on any
Stock certificate to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Board may require
that the Optionee make such reasonable covenants, agreements, and representations as the Board, in its discretion, deems advisable in order to
comply with any such laws, regulations, or requirements.
12. Change in Control . Notwithstanding any other provision herein to the contrary, upon a Change in Control, the entire Option
shall automatically become immediately vested and/or exercisable and that all restrictions relating to the Option shall lapse.
a. “Change in Control” means any one or more of the following events:
(i) The date that any one person, or more than one person acting as a group (as determined in accordance with
Treasury Regulation Section 1.409A-3(i)(5)), acquires ownership of stock of the Company that, together with stock held by such person or
group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company. If any one person or more
than one person acting as a group is considered to own more than 50% of the total fair market value or total voting power of the stock of the
Company, the acquisition of additional stock by the same person or persons will not be considered to be a “Change of Control.” This paragraph
(i) only applies when there is a transfer of stock of the Company (or issuance of stock of the Company) and stock in the Company remains
outstanding after the transaction;
(ii) The date that any one person, or more than one person acting as a group (as determined in accordance with
Treasury Regulation Section 1.409A-3(i)(5)), acquires (or has acquired during the 12-month period ending on the date of the most recent
acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 40% of the total
gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions. For this purpose, “gross fair
market value” means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any
liabilities associated with such assets; or
(iii) The date that any person, or more than one person acting as a group (as determined in accordance with
Treasury Regulation 1.409A-3(i)(5)), acquires (or has acquired during the 12-month period ending on the most recent acquisition by such person
or persons) ownership of stock of Company possessing 30% or more of the total voting power of the stock of Company.
The transfer of stock or assets of the Company in connection with a bankruptcy filing by or against the Company under Title 11 of the United
States Code will not be considered to be a Change of Control for purposes of this Agreement. Additionally, a transaction shall not constitute a
Change in Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in
substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
13. Waiver and Modification . The provisions of this Agreement may not be waived or modified unless such waiver or
modification is in writing and signed by a representative of the Committee.
14. Adjustments . In the event of any change in the outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, merger, consolidation, combination, exchange of shares, or other similar corporate change, the aggregate number of shares of
Stock subject to the Option and its stated exercise price shall be adjusted appropriately by the Committee, whose determination shall be
conclusive; provided, however, that fractional shares shall be rounded to the nearest whole share. Moreover, in the event of such transaction or
event, the Committee, in its discretion, may provide in substitution for the Option such alternative consideration (including cash) as it, in good
faith, may determine to be equitable under the circumstances and may require in connection therewith the surrender of the Option so replaced.
Further, with respect to any Option that otherwise satisfies the requirements of the stock rights exception to Section 409A of the Code, any
adjustment pursuant to this Section 14 shall be made consistent with the requirements of the final regulations promulgated pursuant to
Section 409A of the Code.
15. Requirements of Law
a. Securities Act . The Company shall not be required to deliver any shares of Stock pursuant to the vesting of the Option
if, in the opinion of counsel for the Company, such issuance would violate the Securities Act of 1933 or any other applicable federal or state
securities laws or regulations. The granting of the Option and the issuance of shares and/or cash under this Agreement shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
The Company shall be under no obligation to register pursuant to the Securities Act of 1933, as amended, any of the shares of Stock paid
pursuant to the Agreement. If the shares of Stock paid pursuant to the Agreement may in certain circumstances be exempt from registration
pursuant to the Securities Act of 1933, as amended, the Company may restrict the transfer of such shares in such manner as it deems advisable to
ensure the availability of any such exemption.
b. Securities Law Compliance . If Optionee is obligated to file reports pursuant to Section 16 of the Exchange Act,
transactions pursuant to this Agreement are intended to comply with all applicable conditions of Rule 16b-3 or its successors pursuant to the
Securities Exchange Act of 1934. Notwithstanding any other provision herein, the Committee may impose such conditions on the exercise of the
Option as may be required to satisfy the requirements of Rule 16b-3 or its successors pursuant to the Securities Exchange Act of 1934. To the
extent any provision herein or action by the Committee fails to so comply, it shall be void to the extent permitted by law and voidable as deemed
advisable by the Committee.
c. Restrictions . The Committee shall impose such restrictions on the Option as it may deem advisable, including without
limitation, restrictions under applicable federal securities law, under the requirements of any Stock exchange upon which the Stock is then listed
and under any blue sky or state securities laws applicable to such Option.
16. Section 409A of the Code .
a. General Compliance . If this Agreement is subject to Section 409A of the Code, the Company intends (but cannot and
does not guarantee) that this Agreement complies fully with and meets all of the requirements of Section 409A of the Code or an exception
thereto. To the extent necessary to comply with Section 409A of the Code, this Agreement may be modified, replaced or terminated in the
discretion of the Committee. Notwithstanding any provision of this Agreement to the contrary, in the event that the Committee determines that
this Agreement is or may become subject to Section 409A of the Code, the Company may adopt such amendments to this Agreement, without
the consent of Optionee, or adopt other policies and procedures (including amendments, policies and procedures with retroactive effective dates),
or take any other action that the Committee determines to be necessary or appropriate to either comply with Section 409A of the Code or to
exclude or exempt this Agreement from the requirements of Section 409A of the Code.
b. Delay for Specified Employees . If, at the time of Optionee’s “separation of service” the Company has any Stock
which is publicly traded on an established securities market or otherwise, and if the Optionee is considered to be a “specified employee” to the
extent any payment or consideration under this Agreement is subject to the requirements of Section 409A of the Code and is payable upon the
Optionee’s “separation from service,” such payment shall not commence prior to the first business day following the date which is six
(6) months after the Optionee’s “separation from service” (or if earlier than the end of the six (6) month period, the date of the Optionee’s death).
Any amounts that would have been distributed during such six (6) month period will be distributed on the day following the expiration of the six
(6) month period.
c. Prohibition on Acceleration or Deferral . Under no circumstances may the time or schedule of any payment for any
amount under this Agreement that is subject to the requirements of Section 409A of the Code be accelerated or subject to further deferral except
as otherwise permitted or required pursuant to regulations and other guidance issued pursuant to Section 409A of the Code. If the Company fails
to make any payment pursuant to the payment provisions applicable to this Agreement that is subject to Section 409A of the Code, either
intentionally or unintentionally, within the time period specified in such provisions, but the payment is made within the same calendar year, such
payment will be treated as made within the time period specified in the provisions. In addition, in the event of a dispute with respect to any
payment, such payment may be delayed in accordance with the regulations and other guidance issued pursuant to Section 409A of the Code.
17. Voting and Other Shareholder Related Rights . The Optionee will have no voting rights or any other rights as a shareholder
of the Company with respect to any Option until exercised by the Optionee.
18. Governing Law . This Agreement shall be interpreted and administered under the laws of the State of Nevada.
19. Amendments . This Agreement may be amended only by a written agreement executed by the Company and the Optionee.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized representative and Optionee
has signed this Agreement, and this Agreement shall be effective as of the day and year first written above.
November 5, 2012
Date
CryoPort, Inc.
By:
Name:
Title:
/s/ Robert Stefanovich
Robert Stefanovich
Chief Financial Officer
/s/ Jerrell W. Shelton
Optionee
Cryoport Systems, Inc.
CRYOPORT, INC.
Subsidiaries of Registrant
EXHIBIT 21
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement No. 333-166327 on Form S-8 of our report dated June 25, 2013
(which includes an explanatory paragraph regarding Cryoport, Inc.’s ability to continue as a going concern), with respect to the consolidated
financial statements of Cryoport, Inc. included in this Annual Report on Form 10-K of Cryoport, Inc. for the years ended March 31, 2013 and
2012.
Exhibit 23.1
/s/ KMJ Corbin & Company LLP
Costa Mesa, California
June 25, 2013
EXHIBIT 31.1
I, Jerrell Shelton, certify that:
1. I have reviewed this annual report on Form 10-K of Cryoport, Inc.;
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Dated: June 25, 2013
Signed: /s/ JERRELL SHELTON
Jerrell Shelton
Chief Executive Officer and Director
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EXHIBIT 31.2
I, Robert Stefanovich, certify that:
1. I have reviewed this annual report on Form 10-K of Cryoport, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Dated: June 25, 2013
Signed: /s/ ROBERT STEFANOVICH
Robert Stefanovich
Chief Financial Officer
Certification Pursuant to U.S.C. §1350 Chief Executive Officer
I, Jerrell Shelton, Chief Executive Officer of Cryoport, Inc. (the “Company”), certify, pursuant to Rule 13(a)-14(b) or Rule 15(d)-14(b) of
the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, that:
(1) the Annual Report on Form 10-K of the Company for the fiscal year ended March 31, 2013 (the “Report”) fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 780(d)); and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
EXHIBIT 32.1
Dated: June 25, 2013
/s/ Jerrell Shelton
Jerrell Shelton, Chief Executive Officer and Director
A signed original of this written statement required by Section 906 has been provided to Cryoport, Inc. and will be retained by Cryoport,
Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
This Certification is being furnished pursuant to Rule 15(d) and shall not be deemed “filed” for purposes of Section 18 of the Exchange
Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. This Certification shall not be deemed incorporated by reference into any
filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Certification Pursuant to U.S.C. §1350 of Chief Financial Officer
I, Robert Stefanovich, Chief Financial Officer of Cryoport, Inc. (the “Company”), certify, pursuant to Rule 13(a)-14(b) or Rule 15(d)-14
(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, that:
(1) the Annual Report on Form 10-K of the Company for the fiscal year ended March 31, 2013 (the “Report”) fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 780(d)); and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
EXHIBIT 32.2
Dated: June 25, 2013
/s/ Robert Stefanovich
Robert Stefanovich, Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Cryoport, Inc. and will be retained by Cryoport,
Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
This Certification is being furnished pursuant to Rule 15(d) and shall not be deemed “filed” for purposes of Section 18 of the Exchange
Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. This Certification shall not be deemed incorporated by reference into any
filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.