Registration Number 333- 152329

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 1

to
REGISTRATION STATEMENT

ON

FORM S-1

UNDER

THE SECURITIES ACT OF 1933

 

CRYOPORT, INC.

(Name of Small Business Issuer in its Charter)

 

Nevada	3086	88-0313393
(State or other jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
incorporation or organization)	Classification Code Number)	Identification No.)

 

20382 Barents Sea Circle

Lake Forest, California 92630

(Address and telephone number of principal executive offices)

Peter Berry

Chief Executive Officer

20382 Barents Sea Circle

Lake Forest, California 92630

(949) 470-2300

(Name, address and telephone number of agent for service)

Copies to:

Marc J. Ross, Esq.

Louis A. Brilleman, Esq.

Sichenzia Ross Friedman Ference LLP

61 Broadway

New York, New York 10006

Tel: (212) 930-9700

Fax: (212) 930-9725

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement.

 

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “accelerated filer”, “large accelerated filer”, “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨	Accelerated filer  ¨	Non-accelerated filer  ¨	Smaller reporting company x

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. o

 

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o   

 

 

 

 

 

 

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The information in this prospectus is not complete and may be changed. The securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PROSPECTUS

 

Subject to Completion, Dated August 15, 2008

 

 

 

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We are dependent on new products.

Our future revenue stream depends to a large degree on our ability to bring new products 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, enhance existing products and achieve market acceptance of such products. We may incur problems in the future in innovating and introducing new products. Our development stage products may not be successfully completed or, if developed, may not achieve significant customer acceptance. If we were unable to successfully define, develop and introduce competitive new products, and enhance existing products, our future results of operations would be adversely affected. Development and manufacturing schedules for technology products are difficult to predict, and we might not achieve timely initial customer shipments of new products. The timely availability of these products in volume and their acceptance by customers are important to our future success. A delay in new product introductions could have a significant impact on our results of operations.

Our success depends, in part, on our ability to obtain patent protection for our products, 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 U.S. and foreign patent applications related to our technology, inventions and improvements that are important to the development of our business. We have three U.S. patents relating to various aspects of our products. Our patents or patent applications 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. We typically require our employees, consultants, advisors and suppliers to execute confidentiality agreements in connection with their employment, consulting, or advisory relationships with us. If any of these agreements are breached, we may not have adequate remedies available thereunder to protect our intellectual property or we may incur substantial expenses enforcing our rights. Furthermore, 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 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 U.S. or internationally. In the event we were to require licenses to patents issued to third parties, such licenses may not be available or, if available, may not be available on terms acceptable to us. In addition, we cannot assure 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, which would harm our business.

We are not aware of any other company that is infringing any of our patents or trademarks nor do we believe that it is infringing on the patents or trademarks of any other person or organization.

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 products at our own manufacturing facility or at a third-party manufacturing facility, we may be unable to deliver products 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 products from a number of independent manufacturers in the United States. We would likely experience significant delays or cessation in producing our products if a labor strike, natural disaster, local or regional conflict 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 products. 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 delays to the point that our ability to adequately service customer needs has been compromised. As the business develops and quantity of production increases, it becomes more likely that such problems could arise.  

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.    

 

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Consequently, in the event that our suppliers delay or interrupt the supply of components for any reason, we could potentially experience higher product costs and longer lead times in order fulfillment. Suppliers that we materially rely upon are Spaulding Composites Company and Lydall Thermal Acoustical Sales.  

Our Products May Contain Errors or Defects, which Could Result in Damage to Our Reputation, Lost Revenues, Diverted Development Resources and Increased Service Costs, Warranty Claims and Litigation.

 

Our products must meet stringent requirements. We warrant to our customers that our products will be free of defect for various periods of time, depending on the product. In addition, certain of our contracts include epidemic failure clauses. If invoked, these clauses may entitle the customer to return or obtain credits for products and inventory, or to cancel outstanding purchase orders even if the products themselves are not defective.  

We must develop our products quickly to keep pace with the rapidly changing market, and we have a history of frequently introducing new products. 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 warranty claims and litigation which could harm our business, results of operations and financial condition.  

Our management has limited experience in managing and operating a public company. Any failure to comply or adequately comply with federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results of operations and financial condition.

Our current management has limited experience managing and operating a public company and relies in many instances on the professional experience and advice of third parties including our consultants and attorneys. Failure to comply or adequately comply with any laws, rules, or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results of operations, or financial condition.

If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.

 

Our internal control over financial reporting may have weaknesses and conditions that need to be addressed, the disclosure of which may have an adverse impact on the price of our common stock.  We are required to establish and maintain appropriate internal controls over financial reporting.  Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations.  In addition, management's assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors.  Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting, disclosure of management's assessment of our internal controls over financial reporting or disclosure of our public accounting firm's attestation to or report on 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 annual assessment of our internal controls over financial reporting, and attestation of our assessment by our independent registered public accounting firm.  Currently, we believe these two requirements will apply to our annual reports for fiscal 2010.  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 incur significant expenses and to devote resources to Section 404 compliance during the remainder of fiscal 2009 and on an ongoing basis.  It is difficult for us to predict how long it will take to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis.  In addition, the attestation process by our independent registered public accounting firm is new and we may encounter problems or delays in completing the implementation of any requested improvements and receiving an attestation of our assessment by our independent registered public accounting firm.  In the event that our Chief Executive Officer, Chief Financial Officer or independent registered public accounting firm determine that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our shares 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 cannot compete effectively, we will lose business.

The market for our products, services and solutions is positioned to become competitive. There are technological and marketing barriers to entry, but we cannot guarantee that the barriers we are capable of producing will be sufficient to defend the market share we wish to gain against future competitors. The principal competitive factors in this market include:

 

	●	Ongoing development of enhanced technical features and benefits;
	●	Reductions in the manufacturing cost of competitors’ products;
	●	The ability to maintain and expand distribution channels;
	●	Brand name;
	●	The ability to deliver our products to our customers when requested;
	●	The timing of introductions of new products and services; and
	●	Financial resources.

 

These and other 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.

Risks Relating to Our Current Financing Arrangements:

 

The variable price feature of our convertible debentures could require us to issue a substantially greater number of shares, which will cause dilution to our existing stockholders.

On October 1, 2007, we issued to four accredited investors our Original Issue Discount 8% Senior Secured Convertible Debentures (the "Debentures") having a principal face amount of $4,707,705. The entire principal amount under the Debentures is due and payable 30 months after the closing date.  Interest payments will be payable in cash quarterly commencing on January 1, 2008.  In addition, we are required to make 24 equal monthly principal redemption payments commencing March 31, 2008. We may elect to make such interest or principal payments in shares of common stock provided, generally, that we are not in default under the Debentures and there is then in effect a registration statement with respect to the shares issuable upon conversion of the Debentures or in payment of interest due thereunder.  If we elect to make interest payments in common stock, the conversion rate will be the lesser of (a) $0.84 or (b) 85% of the lesser of (i) the average of the volume weighted average price for the ten consecutive trading days ending immediately prior to the applicable date an interest payment is due or (ii) the average of such price for the ten consecutive trading days ending immediately prior to the date the applicable shares are issued and delivered if such delivery is after the interest payment date.

 

On June 9, 2008, we completed the transactions contemplated under a certain Securities Purchase Agreement with an accredited investor providing for the issuance of our Original Issue Discount 8%  Secured Convertible Debentures (the “May Debentures”) having a principal face amount of $1,250,000 and generating gross proceeds to us of $1,062,500 after giving effect to a 15% discount.  After accounting for commissions and legal and other fees, the net proceeds to us totaled $870,625.

The principal amount under the May Debentures is payable in 23 monthly payments of $54,348 beginning January 31, 2009.  We may elect to make principal and interest payments in shares of common stock provided, generally, that we are not in default under the May Debentures and there is then in effect a registration statement with respect to the shares issuable upon conversion of the May Debentures. If we elect to make principal or interest payments in common stock, the conversion rate will be the lesser of (a) the conversion price, or (b) 85% of the lesser of (i) the average of the volume weighted average price for the ten consecutive trading days ending immediately prior to the applicable date an interest payment is due or (ii) the average of such price for the ten consecutive trading days ending immediately prior to the date the applicable shares are issued and delivered if such delivery is after the interest payment date.

At any time, holder may convert the May Debentures into shares of common stock at a fixed conversion price of $0.84, subject to adjustment in the event the Company issues common stock (or securities convertible into or exercisable for common stock) at a price below the conversion price as such price may be in effect at various times.  Based on the market price of our common stock of $0.71 on the date of the issuance of the May Debentures, the total value of the shares underlying the May Debentures and registered herewith is $1,056,547.

 

If we are unable to make payments in cash, we must make those payments in shares of our common stock at a discount to the market price of our common stock. The number of shares we will be required to issue upon conversion of the notes will increase if the market price of our stock decreases.

The lower the stock price, the greater the number of shares issuable under the convertible debentures.

 

If we elect to make periodic principal and interest payments in stock in lieu of cash (or are unable to make cash payments), the number of shares issuable upon conversion of the convertible debentures is determined by the market price of our common stock prevailing at the time of each conversion. The lower the market price, the greater the number of shares issuable under the debentures. Upon issuance of the shares, to the extent that holders of those shares will attempt to sell the shares into the market, these sales may further reduce the market price of our common stock. This in turn will increase the number of shares issuable under the agreement. This may lead to an escalation of lower market prices and ever greater numbers of shares to be issued. A larger number of shares issuable at a discount to a continuously declining stock price will expose our stockholders to greater dilution and a reduction of the value of their investment.

 

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The issuance of our stock upon conversion of the convertible debentures could encourage short sales by third parties, which could contribute to the future decline of our stock price and materially dilute existing stockholders' equity and voting rights.

 

The convertible debentures have the potential to cause significant downward pressure on the price of our common stock. This is particularly the case if the shares issued upon conversion and placed into the market exceed the market's ability to absorb the increased number of shares of stock. Such an event could place further downward pressure on the price of our common stock. The opportunity exists for short sellers and others to contribute to the future decline of our stock price. If there are significant short sales of our stock, the price decline that would result from this activity will cause the share price to decline more so, which, in turn, may cause long holders of the stock to sell their shares thereby contributing to sales of stock in the market. If there is an imbalance on the sell side of the market for the stock, our stock price will decline. If this occurs, the number of shares of our common stock that is issuable upon conversion of the debentures will increase, which will materially dilute existing stockholders' equity and voting rights. 

 

Risks relating principally to our common stock and its market value:

Our stock price may be volatile.

The market price of our common stock 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:

	●	technological innovations or new products and services by us or our competitors;
	●	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;
	●	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. Our stock price 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.

 

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 earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.  

 

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Our stock is deemed to be penny stock.

Our stock is currently traded on the OTC Bulletin Board and is subject to the "penny stock rules" adopted pursuant to Section 15 (g) of the Securities Exchange Act of 1934, as amended, or Exchange Act. The penny stock rules apply to non-NASDAQ companies 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.

FORWARD-LOOKING STATEMENTS

Our representatives and we may from time to time make written or oral statements that are "forward-looking," including statements contained in this prospectus and other filings with the Securities and Exchange Commission, reports to our stockholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements within the meaning of the Act. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," "may," "should," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors on which such statements are based are assumptions concerning uncertainties, including but not limited to uncertainties associated with the following:

(a) volatility or decline of our stock price;

(b) potential fluctuation in quarterly results;

(c) our failure to earn revenues or profits;

(d) inadequate capital and barriers to raising the additional capital or to obtaining the financing needed to implement its business plans;

(e) inadequate capital to continue business;

(f) changes in demand for our products and services;

(g) rapid and significant changes in markets;

(h) litigation with or legal claims and allegations by outside parties;

(i) insufficient revenues to cover operating costs.

USE OF PROCEEDS

We will receive no proceeds from the sale of shares of common stock offered by the selling security holders herewith. However, we will generate proceeds from the cash exercise of the warrants, if any. We intend to use those proceeds for general corporate purposes.

 

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The Company has not generated significant revenues from operations and has no assurance of any future significant revenues.  The Company incurred net losses of $8,222,481, including a $6,902,941 loss on debt extinguishment, during the three months ended June 30, 2008 and net losses of $745,508 during the three month period ended June 30, 2007.  In addition, the Company used cash of $694,914 in its operating activities during the three months ended June 30, 2008.  Further, the Company has a working capital deficit of $220,563 as of June 30, 2008.  These factors, raise substantial doubt about the Company's ability to continue as a going concern.

 

The Company's management has recognized that the Company must obtain additional capital for the further development and launch of the one-way product and the eventual achievement of sustained profitable operations.  In response to this need for capital, on October 1, 2007, the Company issued to four accredited investors Original Issue Discount 8% Senior Secured Convertible Debentures (the “Debentures”) having a combined principal face amount of $4,707,705 and generating gross proceeds of $4,001,551.   After accounting for commissions, legal and other fees, the net proceeds to the Company totaled $3,436,551 (see Note 8 to the accompanying consolidated financial statements).  On May 30, 2008, the Company received additional net proceeds of $870,625 from an additional convertible debenture (see Note 8 to the accompanying consolidated financial statements).  As a result of the recent financing, the Company had an aggregate cash and cash equivalents and restricted cash balance of approximately $2,002,000 as of August 10, 2008.  Management projects that these proceeds will allow the launch of the Company's new CryoPort Express® One-Way Shipper and provide the Company with the ability to continue as a going concern, which the Company expects to be reflected in subsequent quarterly reports.

 

Management is committed to utilizing the proceeds of these recent financings to fully execute its business plan and grow at the desired rate to achieve sustainable profitable operations.  To further facilitate the ability of the Company to continue as a going concern the Company’s management has begun taking the following steps:

 

1)	Focusing all efforts on the successful launch of the CryoPort Express® One-Way Shipper. Now that funds have been made available management efforts will be focused on utilizing all resources towards the acquisition of raw materials to provide adequate inventory levels and towards the expansion of manufacturing and processing capabilities to support the launch of the CryoPort Express® One-Way Shipper.
2)	Continuing to minimize operating and financing expenditures as necessary to ensure the availability of funds until revenues generated and cash collections adequately support the continued business operations.  The Company’s largest expenses for the three month period ended June 30, 2008, relate  to non-cash expenses including (i) $6,902,941 non-cash loss on extinguishment of debt related to the April 30, 2008 Amendment to the October 2007 Debenture (see Note 8), ii) $435,437 non-cash expense included in interest expense relating to the amortization of discounts and deferred financing fees on convertible debentures, and (iii) non-cash expense recorded in selling, general and administrative costs of $82,387 related to the issuance of common stock shares in lieu of cash for consulting services and the valuation of warrants issued to various consultants, directors, and employees.  For the three months ended June 30, 2008, the Company also incurred cash expenses of (i) approximately $41,724 for the audit fees and consulting services related to the filing of the Company’s annual and quarterly reports, compliance with Sarbanes-Oxley requirements, and for the filing of the Company’s annual tax returns and (ii) approximately $82,500 included in research and development costs related to the software development for the web based system to be used with the  CryoPort Express® One-Way Shipper.  The remaining operating expenses for the three months ended June 30, 2008 related primarily to minimal personnel costs, rent and utilities and meeting the legal and reporting requirements of a public company.
3)	Utilizing part-time consultants and temporary employee and requiring employees to manage multiple roles and responsibilities whenever possible as the Company has historically utilized in its efforts to keep operating costs low.
4)	Continuing to require that key employees and the Company’s Board of Directors receive Company stock in lieu of cash as a portion of their compensation in an effort to minimize monthly cash flow. With this strategy, the Company has established a critical mass of experienced business professionals capable of taking the Company forward.
5)	Maintaining current levels for sales, marketing, engineering, scientific and operating personnel and cautiously and gradually adding critical and key personnel only as necessary to support the successful launch and expected revenue growth of the CryoPort Express® One-Way Shipper and any further expansion of the Company’s product offerings in the reusable and one-way cryogenic shipping markets, leading it to additional revenues and profits.
6)	Adding other expenses such as customer service, administrative and operations staff only commensurate with producing increased revenues.
7)	Focusing current research and development efforts only on final and future development, production and distribution of the CryoPort Express® One-Way Shipper System.
8)	Increasing sales and marketing resource efforts to focus on marketing and sales research into the bio-pharmaceutical, clinical trials and cold-chain distribution industries in order to ensure a successful full  launch of the CryoPort Express® One-Way Shipper System.

 

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Research and Development

 

The Company has completed the research and development efforts associated with  phase one of its new product line, the CryoPort Express® One-Way Shipper System, a line of use-and-return dry cryogenic shippers, for the transport of biological materials.  The Company continues to provide ongoing research associated with the CryoPort Express® One-Way Shipper System, as it develops improvements in both the manufacturing processes and product materials for the purpose of achieving additional cost efficiencies. As with any research effort, there is uncertainty and risk associated with whether these efforts will produce results in a timely manner so as to enhance the Company’s market position.  For the three months ended June 30 , 2008 and 2007, research and development costs were $110,791 and $28,587, respectively.  Company sponsored research and development costs related to future products and redesign of present products are expensed as incurred and include such costs as salaries, employee benefits, costs determined utilizing the Black-Scholes option-pricing model for options issued to the Scientific Advisory Board and prototype design and materials costs.

Results of Operations--Year Ended March 31, 2008 Compared to Year Ended March 31, 2007

Net Sales. During the year ended March 31, 2008 the Company generated $83,564 from reusable shipper sales compared to revenues of $67,103 during the year ended March 31, 2007, an increase of $16,461 (24.5%).  These low revenues in both years is primarily due to the Company’s shift initiated in mid-2006 in its sales and marketing focus from the reusable shipper product line to the further development and planned product launch of the CryoPort Express® One-Way Shipper System for its introduction into the biopharmaceutical industry sector and to the delays in the Company’s securing adequate funding for the manufacturing and marketing launch of the new product line.  Additionally, continued product manufacturing upgrades slowed production activities of the reusable shippers.

Cost of Sales.  Cost of sales for the year ended March 31, 2008 increased $209,432 (118.4%) to $386,371 from $176,939 for the year ended March 31, 2007 as the result of increased fixed overhead manufacturing costs as the result of the Company’s shift in focus and preparation for the launch of the new CryoPort Express® One-Way Shipper System and the additional costs related to the relocation of the Company’s operations to Lake Forest, CA in September 2007.  During both periods, cost of sales exceeded sales due to fixed manufacturing costs and plant underutilization.

Gross Loss . Gross loss for the year ended March 31, 2008 increased by $192,971 (175.7%) to $302,807 compared to $109,836 for the year ended March 31, 2007.  The increase in the gross loss is due to increased fixed overhead manufacturing costs as the result of the company’s shift in focus and preparation for the launch of the new CryoPort Express® One-Way Shipper System and the additional costs related to the relocation of the Company’s operations to Lake Forest, CA in September 2007.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses increased by $651,550 (34.3%) to $2,550,778 for the year ended March 31, 2008  compared to $1,899,228 for the year ended March 31, 2007 due mainly to increases in  general and administrative costs of $489,849 and selling expenses of $161,701.  The increase in general and administrative expenses was primarily due to $1,283,265 of option and warrant related charges as the result of: issuances of warrants to employees and directors in accordance with the provisions of SFAS 123(R) and issuances of common stock and warrants for services, lease agreement and fixed asset purchases.  Additional general and administrative expense increases were the result of increased legal fees, insurance premiums, salaries and travel expenses.  The increase in selling expenses was primarily related to increased salaries expenses, travel costs  and trade show and advertising expenses which were the result of market research, product development and the launch preparation for the CryoPort Express® One-Way Shipper System.

Research and Development Expenses.  Research and development expenses increased by $78,370 (89.2%) to $166,227 for the year ended March 31, 2008 as compared to $87,857 for the year ended March 31, 2007 in relation to the progression of the research and development activity, related to the product development and launch preparation for the CryoPort Express® One-Way Shipper System.  These research and development expense increases included additional project costs for development of the web based customer service portal, as well as increases in consulting fees travel expenses and third party certification testing.

Interest Expense.  Interest expense increased by $1,364,980 (599.4%) to $1,592,718 for the year ended March 31, 2008 as compared to $227,738 for the year ended March 31, 2007 primarily as the result of $1,214,986 of amortized convertible debt discount, $284,618 accrued interest expense and 87,706 amortized deferred financing expenses accrued interest expense related to the convertible debentures which were offset by decreased interest expense from related party notes and other notes payable as the result of decreased principal balances.

Interest Income.  Interest income increased $50,076 (100.0%) for the year ended March 31, 2008 as compared to $0 for the year ended March 31, 2007 primarily as the result of interest earned on cash deposit balances in the Company’s money market account.

Net Loss.   As a result of the factors described above, the net loss for the year ended March 31, 2008 increased by $2,237,795 (96.2%) to $4,564,054 or ($0.12) per share compared to $2,326,259 or ($0.08) per share for the year ended March 31, 2007.

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Three months ended June 30, 2008 compared to three months ended June 30, 2007:

Net Sales. During the three months ended June 30, 2008, the Company generated $13,424 from reusable shipper sales compared to revenues of $5,541 in the same period of the prior year, an increase of $7,883 (142%). This revenue increase is primarily as a result of the additional sales of the Company’s reusable products in addition to new revenues from introductory sales from the pre- launch of the CryoPort Express® One-Way Shipper System.  The overall low revenues are the result of the Company’s shift in its sales and marketing focus initiated during fiscal year 2006 to allow for the planning of the introduction of the one-way shipper into the bio-pharmaceutical and bio-tech industry sectors. This shift allowed the marketing and sales efforts to focus on research into the bio-pharmaceutical, clinical trials and cold-chain distribution industries in order to better position the Company for a timely and successful launch of the CryoPort Express® One-Way Shipper System.

Gross Profit/Loss. Gross loss for the three month period ended June 30, 2008 increased by $42,188 (67%) to $104,954 compared to $62,766 for the three month period ended June 30, 2007. The increase in the gross loss is mainly attributable to increased manufacturing overhead costs incurred as the Company added personnel and incurred additional equipment maintenance and repair and depreciation costs related to the planning and preparation for production of the CryoPort Express® One-Way Shipper and to the production shut-down as a result of the relocation and restructuring of the Company’s production operations in Lake Forest, CA initiated in mid-September 2007, resulting in lower manufacturing overhead costs in 2007. During both periods cost of sales exceeded sales due to plant under utilization.

 

Cost of sales for the three month period ended June 30, 2008 increased $50,071 (73%) to $118,378 from $68,307 for the three month period ended June 30, 2007 primarily as the result of increased manufacturing overhead costs incurred as the Company added personnel and incurred additional equipment maintenance and repair costs related to the planning and preparation for production of the CryoPort Express® One-Way Shipper and to the production shut-down for the relocation and restructuring of the Company’s production operations in Lake Forest, CA initiated in mid-September 2007, resulting in lower manufacturing overhead costs in 2007.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $34,515 (6%) to $560,040 for the three month period ended June 30, 2008 as compared to $594,555 for the three month period ended June 30, 2007 due primarily to a $106,145 (20%) decrease in general and administrative expenses from $543,349 for the three month period ended June 30, 2007 to $437,204 for the three month period ended June 30, 2008 which was partially offset by a $71,630 (140%) increase in sales and marketing expenses from $51,206 for the three month period ended June 30, 2007 to $122,836 for the three month period ended June 30, 2008. The decrease in the general and administrative expenses is due to decreased consulting fees relating to the issuance of 375,000 shares issued in lieu of cash for 2007 consulting services, which was partially offset by increased accounting fees related to consulting costs related to compliance with Sarbanes-Oxley requirements and travel and related meeting costs associated with the planning for the launch of the CryoPort Express® One-Way Shipper.  The increase in sales and marketing expenses is related to increased travel, advertising and trade show costs associated with the initial launch efforts of the CryoPort Express® One-Way Shipper.

Research and Development Expenses. Research and development expenses increased by $82,204 (288%) to $110,791 for the three month period ended June 30, 2008 as compared to $28,587 for the three month period ended June 30, 2007 primarily due to the consulting costs associated with the software development for the web based system to be used with the  CryoPort Express® One-Way Shipper and to other research and development activity related to the CryoPort Express® One-Way Shipper System, as the Company strives to develop improvements in both the manufacturing processes and product materials for the purpose of achieving additional product cost efficiencies.

Interest Expense. Interest expense increased $497,769 to $555,769 for the three month period ended June 30, 2008 as compared to $58,000 for the three month period ended June 30, 2007. This increase is primarily due to $418,275 of amortized debt discount, $17,162 of amortized financing fees, and $96,721 of accrued interest, all related to the convertible debentures issued in October 2007 and May 2008. These increases were offset by a reduction in interest expense for related party notes payable and note payable to officer as the result of the payments made against the principal note balances.

Interest Income. The Company recorded interest income of $12,814 for the three month period ended June 30, 2008 as compared to zero for the three month period ended June 30, 2007 as the result of increased cash balances related to the funds received in connection with the convertible debentures issued in October 2007 and May 2008.

Loss on Extinguishment of Debt. The Company incurred a loss on extinguishment of debt of $6,902,941 during the three months ended June 30, 2008 as the result of the April 30, 2008 Amendment of the October Debentures which provided for a three month deferral of principal payments.  The loss consists of a combination of the $5,858,344 increase in the fair market value of warrants issued in connection with the October Debentures as a result of the increase in the number of shares to be purchased under each of the October Warrants and to the decrease in the exercise price of  October Warrants from $0.90, $0.92 and $1.60 to $0.60 each, the elimination of the April 30, 2008 unamortized balance of deferred financing costs of $312,197 and the $732,400 reduction in the unamortized discount balance related to the October Debentures to reflect the present value of the debentures as of April 30, 2008 (see Note 8 of the accompanying consolidated financial statements).  There was no loss on extinguishment of debt in the three months ended June 30, 2007.

 

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Net Loss. As a result of the factors described above, the net loss for the three months ended June 30, 2008 increased by $7,476,973  to $8,222,481 or ($0.20) per share compared to $745,508 or ($0.02) per share for the three months ended June 30, 2007.  Loss from operations for the three months ended June 30, 2008 increased $89,877 to $775,785 compared to $685,908 for the three months ended June 30, 2007.

Assets and Liabilities

At June 30, 2008, the Company had total assets of $3,240,343 compared to total assets of $3,460,889 at March 31, 2008, an increase of $220,546. The Company’s combined cash balance as of June 30, 2008 was $2,395,618 including restricted cash, a decrease of $39,083 compared to $2,434,701 as of March 31, 2008.  During the three month period ended June 30, 2008, cash provided by financing activities of $683,713 was offset by cash used in operations of $694,914 and cash used in investing activities of $30,132.  As of August 10, 2008, the Company’s cash on hand was approximately $2,002,000. The decrease in current cash on hand is due to cash used in operations and cash paid for principal  and interest payments.

Net accounts receivable at June 30, 2008 was $2,051, a decrease of $19,360 (90%) from $21,411 at March 31, 2008. This decrease is due to the revenue decrease during the three months ended June 30, 2008 compared to the three months ended March 31, 2008, primarily as a result of decreased sales of reusable shippers.

Net inventories increased $73,084 (60%), to $195,036 as of June 30, 2008, from $121,952 as of March 31, 2008. The increase in inventories is due to the purchases of raw materials during the three months ended June 30, 2008 for the build-up of dewars in  finished goods inventory in anticipation of the full launch of the CryoPort Express® One-Way Shipper System. This increase from purchases was partially offset by usages of inventory during the three months ended June 30, 2008 in order to fulfill sales of reusable shippers.

Net fixed assets increased $14,868 to $208,720 at June 30, 2008 from $193,852 at March 31, 2008 as a result of increases of $29,499 for purchases of additional production equipment during June 30, 2008 to support the anticipated increased manufacturing operations for the launch of the CryoPort Express® One-Way Shipper System, which was partially offset by $14,631 of depreciation for the three months ended June 30, 2008.

Net intangible assets increased to $1,107 at June 30, 2008 from $474 at March 31, 2008 as a result of fees paid for new trademark applications.

The Company has recorded the combined value of $349,834 of the valuation of shares and warrants as calculated using the Black Scholes option pricing model issued to Carpe DM under a 36-month consulting agreement to as prepaid expense which is being amortized over the life of the services agreement. As of June 30, 2008, the unamortized balance of the value of the shares and warrants issued to Carpe DM, Inc. was $262,381 of which $116,604 is included in prepaid expenses and other current assets and $145,777 is included as a non-current asset.

Net deferred financing fees decreased $221,685 to $104,084 at June 30, 2008 compared to $325,769 at March 31, 2008 due to reductions for the elimination of  the unamortized balance of $312,197 related to the October Debentures due to the extinguishment of debt as of April 30, 2008 and the amortization of $17,162 of deferred financing fees during the three months ended June 30, 2008, which were offset by the addition of $107,673 in deferred financing fees related to the May 2008 Debenture.

Total liabilities at June 30, 2008 were $4,652,944, an increase of $1,191,874 (34%) from $3,461,070 as of March 31, 2008. Accounts payable was $235,859 at June 30, 2008, an increase of $1,561 from $234,298 at March 31, 2008. This increase was mainly due to the amortization of debt discounts and the recording of the amended October 2007 debentures at fair value and to additional payables related to manufacturing equipment purchases during the three months ended June 30, 2008. Accrued expenses increased $9,398 (10%) to $104,446 at June 30, 2008 from $95,048 at March 31, 2008. Accrued warranty costs decreased $5,625 (19%) to $24,368 at June 30, 2008 from $29,993 as of March 31, 2008 relating to the usage of the accrual for warranty replacements during the three months ended June 30, 2008. Accrued salaries were $133,749 at June 30, 2008, a decrease of $4,354 (3%) from $138,103 at March 31, 2008. This decrease is due to accrued bonus payments which were paid in April 2008.

On October 1, 2007, the Company issued to four accredited investors Original Issue Discount 8% Senior Secured Convertible Debentures (the “October Debentures”) having a principal face amount of $4,707,705 and generating gross proceeds of $4,001,551.  After accounting for commissions, legal and other fees, the net proceeds to the Company totaled $3,436,551.

In connection with the financing transaction, the Company issued to the investors five-year warrants to purchase 5,604,411 shares of common stock at $0.92 per share and two-year warrants to purchase 1,401,103 shares of common stock at $0.90 per share and 1,401,103 shares of common stock at $1.60 per share (collectively, the “October Warrants”). Valuation of these warrants as calculated using the Black Scholes option pricing model equaled $7,838,791 on the date of grant.

 

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Under EITF Issue No. 00-27, the value of the October Warrants issued to the investors is calculated relative to the total amount of the debt offering. The relative fair value of the October Warrants issued to the investors was determined to be $2,941,267, or 62.5% of the total offering. The relative fair value of the October Warrants, along with the effective beneficial conversion feature of the debt ($3,557,761) and the face value discount given to the investors ($706,154), totaled in excess of the face amount of the October Debentures. As such, the Company recorded a debt discount equal to the face value of the October Debentures of $4,707,705. The debt discount is being amortized by the Company through the maturity dates of the October Debentures. On April 30, 2008, in connection with the deferral of three months of principal payments, the unamortized balance of the debt discount was decreased from $3,375,592 to $ 2,643,192 to reflect the fair value of the convertible debt as of the date of the debt extinguishment, and $732,400 is included in the loss on extinguishment of debt.  As of June 30, 2008 and March 31, 2008, the unamortized balance of the debt discount was $2,413,349 and 3,522,357, respectively. During the three months ended June 30, 2008, the Company recorded additional interest expense of $376,608 related to the amortization of the debt discount.

On May 30, 2008, the Company issued to an accredited investor an Original Issue Discount 8% Senior Secured Convertible Debenture (the “May 2008 Debenture”) having a principal face amount of $1,250,000 and generating gross proceeds of $1,062,500.  After accounting for commissions, legal and other fees, the net proceeds to the Company totaled $870,625.

In connection with the financing transaction, the Company issued to the investor five-year warrants to purchase 1,488,095 shares of the Company’s common stock at $0.92 per share and five-year warrants to purchase 1,488,095 shares of common stock at $1.35 per share (collectively, the “May Warrants”).

Under EITF Issue No. 00-27, the value of the May Warrants issued to the investors is calculated relative to the total amount of the debt offering. The relative fair value of the May Warrants issued to the investors was determined to be $815,471, or 65.2% of the total offering. The relative fair value of the May Warrants, along with the effective beneficial conversion feature of the debt ($434,529) and the face value discount given to the investors ($187,500), totaled in excess of the face amount of the May Debenture. As such, the Company recorded a debt discount equal to the face value of the May Debenture of $1,250,000. The debt discount is being amortized by the Company through the maturity date of the May Debenture. As of June 30, 2008, the unamortized balance of the debt discount was $1,208,333. During the three months ended June 30, 2008, the Company recorded additional interest expense of $41,667 related to the amortization of the debt discount.

Current portion of related party notes payable was $150,000 at June 30, 2008 and March 31, 2008 to $150,000 in accordance with the terms of the promissory notes. On July 31, 2008, the Company paid the April 1, 2008 note payments, due on these related party notes. Management expects to continue to pay all payments due prior to the expiration of the 120-day grace periods.

The March 31, 2008 balance of $12,000 on the note payable to Falk Shaff and Ziebell, was paid in full during the three months ended June 30, 2008.

Current portion of notes payable to officer remained the same balance of $72,000 at June 30, 2008 and March 31, 2008,  reflecting the maximum monthly payment due of $6,000 per month.

Long-term related party notes payable decreased $11,406 to $1,570,678 at June 30, 2008 from $1,582,084 at March 31, 2008 due to aggregate payments made of $30,000 against the principal note balances which were offset by additional interest accrued of $18,594 for the three month period ended June 30, 2008.

 

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History:

Cryoport, Inc. (the “Company”) was originally incorporated under the name G.T.5-Limited (“GT5”) on May 25, 1990 as a Nevada Corporation.  Upon completion of a Share Exchange Agreement, on March 15, 2005 the Company changed its name to Cryoport, Inc. and acquired all of the issued and outstanding shares of Cryoport Systems, Inc. in exchange for 24,108,105 shares of its common stock (which represented approximately 81% of the total issued and outstanding shares of common stock following the close of the transaction).  Cryoport Systems, Inc, originally formed in 1999 as a California limited liability company and reorganized into a California corporation on December 11, 2000, remains the operating company under Cryoport, Inc.

 

Our Products

 

The Company’s Current Product Line:

Reusable Cryogenic Dry Vapor Shippers.   The Company has developed three lines of reusable cryogenic dry vapor shippers which the Company believes solve the specific problems in, and are responsive to the evolving needs of the market place of temperature-critical, frozen and refrigerated transport of biologicals.  This line of shippers is capable of maintaining cryogenic temperatures of minus 150 centigrade or less, for up to 10 days.

These products, which are in full production at the Company’s Lake Forest, California facility, consist of the AR1000, the DG1000 and the DS650.  The DG1000 is designed for shipping biological material classified as dangerous goods by IATA standards.  This shipper is IATA certified for the shipment of Class 6.2 Dangerous Goods.  The AR1000 is utilized primarily in the veterinary and human assisted reproduction markets.  This shipper may be used where packaging of the biological material need not comply with IATA Packing Instructions 602 or 650.  The DS650 is utilized for the shipment of specimens for diagnosis, treatment or evaluation of disease that must conform to the IATA 650 packaging standards.  In 2005, the Company introduced a new soft case for the same cryogenic Dewar; identified as the PSX1000 and the PS1000.  These units are smaller, lighter in weight, and more easily handled than the units described above.  The PSX1000 shippers are also certified to IATA Packing Instruction 602 and 650.

These shippers are lightweight, low-cost, re-usable vapor phase liquid nitrogen storage containers that combine the best features of packaging, cryogenics and high vacuum technology.  Each of these three shippers is composed of an aluminum metallic Dewar flask, with a well for holding the biological material in the inner chamber.  A Dewar flask, or “thermos bottle,” is an example of a practical device in which the conduction, convection and radiation of heat are reduced as much as possible.  A high surface, low density open cell plastic foam material surrounds the inner chamber for retaining the liquid nitrogen in-situ by absorption, adsorption and surface tension.  Absorption is defined as the taking up of matter in bulk by other matter, as in dissolving of a gas by a liquid, whereas adsorption is the surface retention of solid, liquid or gas molecules, atoms or ions by a solid or liquid.  This material absorbs LN2 up to six times faster than currently used materials, while providing the shipper with a hold time and capacity to transport biological materials safely and conveniently.  The annular space between the inner and outer Dewar chambers is evacuated to a very high vacuum (10-6 Torr).  The specimen-holding chamber has a primary cap to enclose the specimens, and a removable and replaceable secondary cap to further enclose the specimen holding container and to contain the LN2.  The entire Dewar vessel is then wrapped in a plurality of insulating and cushioning materials and placed either in a hard plastic shipper shell, or in a ballistic nylon soft shell outer case with a hinged lid, as with the Company’s PSX1000.

 

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The Company believes the above product configuration satisfies the needs of the markets that require the temperature-critical, frozen and refrigerated transport of biological materials, such as pharmaceutical clinical trials, gene biotechnology, infectious materials handling, and animal and human reproduction.  Due to the Company’s unique proprietary technology and innovative design, its shippers are less prone to losing functional hold time when not kept in an upright position than the competing products.  The Company’s continuing R&D efforts are have lead to the introduction of smaller size units constructed of lower cost materials and utilizing high volume manufacturing methods that is making it practical to offer the CryoPort Express® One-Way Shipper System consisting of limited use cryogenic packages. It is the Company’s intent to phase out the AR1000, DS650 and the DG1000 over the next 6 to 12 months, allowing the Company to concentrate on its cutting-edge technology in the CryoPort Express® One-Way Shipper System.

An important feature of the Company’s shippers, including the CryoPort Express® One-Way Shipper is their compliance with the stringent packaging requirements of IATA Packing Instructions 602 and 650, respectively.  These instructions include the internal pressure (hydraulic) and drop performance requirements.  The Company believes its shippers were the first cost-effective cryogenic shippers to comply with these regulations, which it hopes will substantially enhance product acceptance, and facilitate its marketing efforts for both its reusable shippers and its planned CryoPort Express® One-Way Shipper System.

Biological Material Holders for Infectious and Dangerous Goods.   The Company has also developed a patented containment bag which is used in connection with the shipment of infectious or dangerous goods.  The CryoPort Express® One-Way Shipper and the DG1000 shipper include watertight primary receptacles (one and one-half millimeter vials.)  Up to five vials are then placed onto aluminum holders and up to fifteen holders (75 vials) are placed into an absorbent pouch, designed to absorb the entire contents of all the vials in the event of leakage.  This pouch containing up to 75 vials is then placed in a watertight secondary packaging plastic bag capable of withstanding cryogenic temperatures, and then sealed.  This entire package is then placed in a unique, patented, secondary containment bag, which is a plastic film based material, critical to the function of the overall cryogenic package.  These bags use a pressure-sensitive adhesive closure much like a common overnight courier envelope.  As a result, these bags are inherently disposable, one-use-only.  This bag is then placed into the well of the cryogenic shipper.

The Company’s Future Products:

The Company’s continuing R&D efforts are expected to lead to the introduction of smaller size units constructed of lower cost materials and utilizing high volume manufacturing methods that will make it practical to provide the one-time use cryogenic packages offered by the CryoPort Express® One-Way Shipper System.

 

The Company is currently in transition from the hard case reusable shippers to the CryoPort Express® One-Way Shipper System. The phase-out of these reusable shippers is planned over the next 6 to 12 months. The Company plans to continue research and development efforts to continually improve the features of the CryoPort Express® One-Way Shipper and to further enable both higher mass manufacturing and additional cost reduction opportunities.

The Company’s driving logic in developing the CryoPort Express® One-Way Shipper System continues to be:

·	To make the cost of the cryogenic package less than, or equal to, the total cost of ownership (on a one time use basis including return shipping and handling) of a reusable unit depending on the ultimate capacity and hold time of the shipper.
·	To create the opportunity to ultimately offer a seamless “bio-express” courier service to the Company’s target markets via its strategic partners.
·	To provide a cost effective shipper that can compete with the economics of using dry ice and dry ice shippers.

 

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Our Strategy:

 

The Company’s present objective is to leverage its proprietary technology and developmental expertise to design, develop, manufacture and sell cryogenic shipping devices.  The key elements of its strategy include:

Expand the Company’s product offerings to address growing markets.   Given the need for a temperature-sensitive shipping device that can cost effectively be used, the Company is continuing the development of the CryoPort Express® One-Way Shipper System, which utilizes a one-time use shipping device that performs as well as its reusable shippers to eliminate the customer’s need for return or disposal of the shipper, and the costs associated therewith plus the costs associated with maintaining and managing an inventory of shippers, as well as significantly minimizes loss of specimen viability during the shipping process.

 

Expand the Company’s marketing and distribution channels.   The Company’s products serve the shipping needs of companies across a broad spectrum of industries on a growing international level.  It is the Company’s goal to establish those contacts necessary to achieve a broader distribution of its products.

Establish strategic partnerships.   In order to expedite the Company’s time to market and increase its market presence, the Company is currently negotiating to establish strategic alliances to facilitate the manufacture, promotion and distribution of its products, including establishing alliances with shipping container manufacturers (both cryogenic and dry ice), integrated express companies, and freight forwarding companies.

Sales and Marketing:

 

The Company currently has an internal sales and marketing group which manages both its direct sales efforts and its third party resellers, which include Air Liquide and Tegrant (formerly SCA Thermosafe). The Company also has relationships with several other distributors and agents.  The Company’s current distribution channels cover the Americas, Europe and Asia.  During the year ended March 31, 2008 the Company had one distributor, Tegrant, which accounted for ­­­62% of the Company’s overall sales volumes.  These sales were in the Company’s reusable shippers that will be phased-out over the next 6 to 12 months.

 

The Company’s geographical sales for the year ended March 31, 2008 were as follows:

USA	87.3%
Europe	10.0%
Asia	2.4%

Customer Base:

The Company believes that the primary customers for its dry vapor shippers (both the reusable and the CryoPort Express® One-Way Shipper System) are concentrated in the following markets for the following reasons:

 

·	Pharmaceutical clinical trials
·	Gene biotechnology
·	Transport of infectious materials and dangerous goods
·	Pharmaceutical distribution
·	Human assisted reproduction artificial insemination

Pharmaceutical Clinical Trials. Every pharmaceutical company developing a new drug that must be approved by the Food and Drug Administration conducts clinical trials to, among other things, test the safety and efficacy of the potential new drug.  In connection with the clinical trials, the companies may enroll patients from all over the world who regularly submit a blood specimen at the local hospital, doctor’s office or laboratory.  These samples are then sent to the specified testing laboratory, which may be local or in another country.  The testing laboratories will typically set the requirements for the storage and shipment of blood specimens.  While domestic shipping of these specimens is sometimes accomplished adequately using dry ice, international shipments present several problems, as dry ice, under the best of circumstances, can only provide freezing for up to 36 hours, in the absence of re-icing (which is quite costly).  Because shipments of packages internationally can be delayed for more than 36 hours due to flight cancellations, incorrect destinations, labor problems, ground logistics and safety reasons, dry ice is not always a reliable and cost effective option.  Clinical trial specimens are often irreplaceable because each one represents data at a prescribed point in time, in a series of specimens on a given patient, who may be participating in a trial for years.  Sample integrity during the shipping process is vital to retaining the maximum number of patients in each trial.  The Company’s shippers are ideally suited for this market, as the hold time provided by its shipper ensures that specimens can be sent over long distances with minimal concern that they will arrive in a condition that will cause their exclusion from the trial.

 

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Furthermore, the IATA requires that all airborne shipments of laboratory specimens be transmitted in either IATA 650 or 602 certified packaging.  The Company has developed and obtained IATA certification of the CryoPort Express® One-Way Shipper System, it is ideally suited for this market, in particular due to the elimination of the cost to return the reusable shipper.

Gene Biotechnology.   According to a recent edition of the Corporate Technology Directory, there are approximately 3600 pharmaceutical and biotechnology companies in the United States.  Of these companies, approximately 2600 are biotechnology companies and approximately 1000 are pharmaceutical companies. The gene biotechnology market includes basic and applied research and development in diverse areas such as stem cells, cloning, gene therapy, DNA tumor vaccines, tissue engineering, genomics, and blood products.  Company’s participating in the foregoing fields rely on the frozen transport of specimens in connection with their research and development efforts.

Transport of Infectious Materials and Dangerous Goods.   The transport of potentially infectious materials demands strict adherence to regulations that protect public safety while maintaining the viability of the material being shipped.  All blood products are considered to be potentially infective and must be treated as such.  Pharmaceutical companies, private research laboratories and hospitals ship tissue cultures and microbiology specimens, which are also potentially infectious materials, between a variety of entities, including private and public health reference laboratories.   Almost all specimens in this infectious materials category require either a refrigerated or frozen environment.   According to a doctor at the National Institute of Health (NIH), over 2 million vials of potentially infective material are shipped domestically or internationally each year, within the NIH alone.  The Company has developed the CryoPort Express® One-Way Shipper to meet the shipping requirements of this market.

 

Partly in response to the attack on the World Trade Center and the anthrax scare, government officials and health care professionals are focusing renewed attention on the possibility of attacks involving biological and chemical weapons such as anthrax, smallpox and sarin gas.  Efforts expended on research and development to counteract biowarfare agents requires the frozen transport of these agents to and from facilities conducting the research and development.  Vaccine research, including methods of vaccine delivery, also requires frozen transport.  The Company’s CryoPort Express® One-Way Shipper is suited to this type of research and development.

Pharmaceutical Distribution. The current focus for the CryoPort Express® One-Way Shipper System is in the area of pharmaceutical distribution.  There are a significant number of therapeutic drugs and vaccines currently or soon to be, undergoing clinical trials.  After the FDA approves them for commercial distribution, it will be necessary for the manufacturers to have a reliable and economical method of distribution to the physician who will administer the product to the patient.  Although there are not now a large number of drugs, there are a substantial number in the development pipeline.  It is likely that the most efficient and reliable method of distribution will be to ship a single dosage to the administering physician.  These drugs are typically identified to individual patients and therefore will require a complete tracking history from the manufacturer to the patient.  The most reliable method of doing this is to ship a unit dosage specifically for each patient.  Because the drugs require maintenance at frozen or cryogenic temperatures, each such shipment will require a frozen or cryogenic shipping package.  The Company anticipates being in a position to service that need.

 

Assisted Human Reproduction. According to The Wall Street Journal, January 6, 2000 issue, 30,000 infants are born annually in the United States through artificial insemination and according to Department of Health statistics, 10 million Americans annually are affected by infertility problems.  It is estimated that this represents at least 50,000 doses of semen.  Since relatively few sperm banks provide donor semen, frozen   shipping is almost always involved.  As with animal semen, human semen must be stored and shipped at cryogenic temperatures to retain viability, to stabilize the cells and to ensure reproducible results.  This can only be accomplished with the use of liquid nitrogen or LN 2 dry vapor shippers.  The Company anticipates that this market will continue to increase as this practice gains acceptance in new areas of the world.

Competition:

Within the Company’s intended markets for the CryoPort Express® One-Way Shipper System, there is no currently known competition. The Company intends to become competitive by reason of improved technological characteristics and by introducing the concept of disposability and single use products.  None of the traditional suppliers of cryogenic shippers is known to have competitive equipment nor are they expected to have anything available within a short period of time.  The traditional suppliers, Chart Industries, Harsco, and Air Liquide have various models of dry shippers available that sell at prices that preclude any concept of disposability.  On the other hand, they are more established and have larger organizations and have greater financial, operational, sales and marketing resources and experience in research and development than the Company does.  Other competitive factors include the ability of the shipper to retain liquid nitrogen when placed in non-upright positions, the overall “leak-proofness” of the package which determines compliance with shipping regulations and the overall weight and volume of the package which determines shipping costs.

 

 

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Industry Overview:

The Company’s products are sold into a rapidly growing niche of the packaging industry focused on the temperature sensitive packaging and shipping of biological materials.  Expenditures for “value added” packaging for frozen transport have been increasing for the past several years and are expected to continue to increase even more in the future as more domestic and international biotechnology firms introduce pharmaceutical products that require continuous refrigeration at cryogenic temperatures. This will require a greater dependence on passively controlled temperature transport systems (i.e., systems having no external power source). [References: Cryopak Industries – Investment Package/Annual Report and   US Department of Commerce - US Industrial Outlook. ]

The Company believes that growth in the following markets has resulted in the need for increased efficiencies and greater flexibility in the temperature sensitive packaging market:

·	Pharmaceutical clinical trials, including transport of tissue culture samples;
·	Pharmaceutical commercial product distribution
·	Transportation of diagnostic specimens;
·	Transportation of infectious materials;
·	Intra laboratory diagnostic testing;
·	Transport of temperature-sensitive specimens by courier;
·	Analysis of biological samples;
·	Gene biotechnology and vaccine production;
·	Food engineering; and

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., -150°C) for a period ranging from two to ten days (depending on the distance and mode of shipment).  These products include semen, embryo, tissue, tissue cultures, cultures of viruses and bacteria, enzymes, DNA materials, vaccines and certain pharmaceutical products.  In some instances, transport of these products requires temperatures at, or approaching, -196°C.

One problem faced by many companies operating in these specialized markets is the limited number of cryogenic shipping systems serving their needs, particularly in the areas of pharmaceutical companies conducting clinical trials.  The currently adopted protocol, and the most common method for packaging frozen transport in these industries is the use of solid carbon dioxide (dry ice).  Dry ice is used in shipping extensively to maintain a frozen state for a period of one to four days.  Dry ice is used in the transport of many biological products, such as pharmaceuticals, laboratory specimens and certain infectious materials that do not require true cryogenic temperatures.  The common approach to shipping these items via ground freight is to pack the product in a container, such as an expanded polystyrene (Styrofoam) box or a molded polyurethane box, with a variable quantity of dry ice.  The box is taped or strapped shut and shipped to its destination with freight charges based on its initial shipping weight.

With respect to shipments via specialized courier services, there is no standardized method or device currently in use for the purpose of transporting temperature-sensitive frozen biological specimens.  One common method for courier transport of biologicals is to place frozen specimens, refrigerated specimens, and ambient specimens into a compartmentalized container, similar in size to a 55 quart Coleman or Igloo cooler.  The freezer compartment in the container is loaded with a quantity of dry ice at minus 78°C, while the refrigerated compartment at 8°C utilizes ice substitutes.

Two manufacturers of the polystyrene and polyurethane containers frequently used in the shipping and courier transport of dry ice frozen specimens are Insulated Shipping Containers, Inc. and SCA Thermosafe (formerly Polyfoam Packers Corporation).  When these containers are used with dry ice, the average sublimation rate (e.g., the rate at which dry ice turns from a solid to a gaseous state) in a container with a one and one-half inch wall thickness is slightly less than three pounds per 24 hours.  Other existing refrigerant systems employ the use of gel packs and ice substitutes for temperature maintenance.  Gels and eutectic solutions (phase changing materials) with a wide range of phasing temperatures have been developed in recent years to meet the needs of products with varying specific temperature control requirements.

The use of dry ice and ice substitutes, however, regardless of external packaging used, are frequently inadequate because they do not provide low enough storage temperatures and, in the case of dry ice, last for only a few days without re-icing.  As a result, companies run the risk of increased costs due to lost specimens and additional shipping charges due to the need to re-ice.

 

 

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Some of the other disadvantages to using dry ice for shipping or transporting temperature sensitive products are as follows:

·	Availability of a dry ice source;
·	Handling and storage of the dry ice;
·	Cost of the dry ice;
·	Weight of containers when packed with dry ice;
·	Securing a shipping container with a high enough R-value to hold the dry ice and product for the required time period; and
·	Securing a shipping container that meets the requirements for International Air Transportation Association (“IATA”), the Department of Transportation (“DOT”), the Center for Disease Control (“CDC”), and other regulatory agencies.

 

Due to the limitations of dry ice, shipment of specimens at true cryogenic temperatures can only be accomplished using liquid nitrogen (LN 2 ) dry vapor shippers, or by shipping over actual liquid nitrogen.  While such shippers provide solutions to the issues encountered when shipping with dry ice, they too are experiencing some criticisms by users or potential users.  For example, the cost for these products typically can range from $650 to $3,000 per unit, which can substantially limit their use for the transport of many common biologicals, particularly with respect to small quantities such as is the case with direct to the physician drug delivery.   Because of the initial cost and limited production of these containers, they are designed to be reusable.  However, the cost of returning these heavy containers can be significant, particularly in international markets, because most applications require only one-way shipping.

Another problem with these existing systems relates to the hold time of the unit in a normal, upright position versus the hold time when the unit is placed on its side or inverted.  The liquid nitrogen can leak out of the container when it is positioned on its side or inverted.  This leaking will compromise the dependability of these dry shippers, particularly when used in circumstances requiring lengthy shipping times.  The Company’s current reusable shippers have only a 40% reduction in hold time when placed on their sides or inverted.  One of the Company’s significant competitors, Chart Industries, Inc., publishes on their web site, a 60% reduction in hold time when its units are placed on their side and a 90% reduction when its units are inverted.   Since other competitors use similar absorbent materials to that used by Chart Industries, Inc., the Company believes the performance characteristics will be similar for their products of this particular size and volume.

Finally, these containers are often promoted as being durable due to their metal construction.  However, rough handling can result in the puncturing of the outer shell or cracking at the neck area, resulting in the loss of the high vacuum insulation.  This renders the shippers useless.  A hard-shell shipping enclosure is available as an optional accessory to provide additional protection for these units at an additional cost to the user.  The metal construction also adds to the weight of the container, thereby adding substantially to shipping costs.

The CryoPort Solution:

During the past several years, a number of trends have emerged in the temperature-sensitive packaging industry as a result of economic and technological changes.  The Company has focused its product development efforts to respond to what it perceives to be the more significant of these trends, specifically the following:

·	Smaller, more efficient packaging (increasing thermal density);
·	Emphasis on decreasing costs and system simplification;
·	Need for turnkey services;
·	Development of international programs and markets;
·	Centralization of commercial products and services; and
·	Development of regulatory standards.

 

Smaller, More Efficient Packaging.   Advances in both materials and manufacturing technology have made it possible to reduce the size, weight, complexity and cost of packaging, while increasing the capabilities of high performance packaging.  These advances are the result of developments in the aerospace industry in the areas of high strength, low weight materials and thermal technology.  The Company is applying this technology in its product development efforts, and believes that it is at the forefront of applying this technology in the public sector.  The Company’s development efforts are focused on the application of polymers and high volume metal casting and forming methods that have traditionally been excluded from the cryogenic industry because product quantities have been too low to efficiently utilize these materials and methods.  Cryoport currently manufactures its reusable shipper with an approximate liquid nitrogen volume of five liters.  The Company’s future intended products will be a range of shippers with liquid nitrogen capacities from approximately one to five liters in size.

 

 

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Emphasis on Decreasing Costs and System Simplification.   Because current dry vapor LN 2 shipping containers are expensive, many users do not keep an ample supply on hand.  Consequently, some users require that these be returned promptly.  This often results in very expensive express return shipping which will significantly magnify as shipping volumes increase.  This has created a demand for smaller, lower cost dry vapor LN 2 shipping containers.   In addition, many users have expressed a strong interest in the production of a dry vapor LN 2 shipper that is inexpensive enough to be used in a disposable or limited usage manner.  The current sales price of CryoPort’s reusable shippers range from $735 to $1,095.  The price range for the new CryoPort Express® One-Way Shipper System ranges from $75 to $100 per use plus transportation costs, depending on size and contractual commitments.

As previously noted, dry vapor LN 2 shipping containers are made of medium gauge metal that makes them vulnerable to denting and breaking and increases shipping costs due to the added weight.  Additionally, their design requires that they be kept in an upright position to achieve advertised hold times.  If they are placed in a horizontal position, LN 2 can leak out or boil off, substantially reducing their hold times.  The Company anticipates manufacturing its shippers in smaller sizes from lighter weight materials that significantly reduce their weight (thereby reducing shipping costs) and manufacturing cost, which will allow them to be used one time for outbound shipments.  Additionally, the patented absorbent used to hold the LN 2 much more efficiently retains liquid when its shippers are positioned on their sides or inverted. The Company has significantly reduced the possible loss of liquid nitrogen refrigerant that all dry shippers experience when not kept vertical.

Turnkey Services.   The pharmaceutical industry depends on clinical trials for Food and Drug Administration approval of new drugs.  A significant number of these trials require frozen transport of specimens obtained from patients in the study.  A number of pharmaceutical companies now specify temperature-sensitive frozen packaging and services as part of “turnkey” contracts with contract research organizations.  To meet the demands of their customers, freight forwarding companies, such as World Courier, Federal Express and DHL, take responsibility for procuring appropriate packaging, shipping by airline, and delivering the specimens to the point of analytical testing.  This comprehensive service addresses the stringent requirements imposed by pharmaceutical companies to ensure appropriate quality control for their clinical studies.  The Company believes its dry shippers offered by the CryoPort Express® One-Way Shipper System greatly enhance the reliability of the quality control required.

 

Development of International Programs and Markets.   The biotechnology and pharmaceutical industries are now transnational industries with locations in various parts of the industrially developed and developing world.  Since many products produced by these industries must be shipped in temperature-sensitive packaging, the logistical problems presented by longer distances, and sometimes unreliable forwarding entities, are becoming of greater concern.  Weekends, holidays, lost containers, hot weather and indirect courier routes all place a strain on the ability of current shipping devices to provide appropriate temperatures when extraordinary delays are encountered.  Because the Company’s shippers are able to maintain frozen or cryogenic temperatures of minus 150°C, or below, for up to 10 days, its shippers are better able to insure the integrity of specimens affected by unexpected shipping delays.  Further, the maximum guaranteed temperature hold time of the Company’s 5 liter shipper is 16 days which is quoted under perfect and ideal conditions when in a "static" (i.e. stationary) condition only. The functional (in shipping use) hold time of this same 5 liter shipper is 10 days. Functional hold times are intended to be an indication only of how many days a shipper can be expected to hold its temperature when subjected to normal shipping usage .

 

Centralization of Commercial Products and Services.   In recent years, the competitive environment in health care has intensified rapidly, while increased managed care participation, coupled with Medicare and Medicaid reimbursement issues, have placed significant pressure to increase efficiency on market segments that service the health care industry.  These include the diagnostic clinical laboratory industry and pharmaceutical industry.  In response to these, and other pressures, the clinical laboratory industry experienced a consolidation, through both acquisition and attrition, which resulted in fewer, more centralized testing locations, processing a larger volume of specimens.  With fewer testing sites processing increased volumes, a tremendous strain has been placed on the traditional modes for transporting these goods.

 

With respect to the pharmaceutical industry, the emergence of international pharmaceutical conglomerates through mergers and acquisitions, such as Smith Kline Beecham, and the dramatic growth of relatively new companies such as Amgen, coupled with the emergence of contract research organizations, such as Quintiles (with testing laboratories in Atlanta, Georgia, Buenos Aires, Edinburgh, Pretoria, Singapore and Melbourne), which contract with pharmaceutical companies to handle, among other things, clinical trials and testing, means that distribution networks for the transport of temperature-sensitive products have become much more complex.

The Company believes that it has developed, and is developing, products that are ideally suited to address the issues presented by these trends.

Development of Regulatory Standards.   The shipping of diagnostic specimens, infectious substances and dangerous goods, whether via air or ground, falls under the jurisdiction of many state, federal and international agencies.  The quality of the containers, packaging materials and insulation that protect a specimen determine whether or not it will arrive in a usable condition.  Many of the regulations for transporting dangerous goods in the United States are determined by international rules formulated under the auspices of the United Nations.  For example, the International Civil Aviation Organization (“ICAO”) is the United Nations organization that develops regulations (Technical Instructions) for the safe transport of dangerous goods by air.  If shipment is by air, compliance with the rules established by IATA is required. IATA is a trade association made up of airlines and air cargo carriers that publishes annual editions of the IATA Dangerous Goods Regulations.  These regulations interpret and add to the ICAO Technical Instructions to reflect industry practices.   Additionally, the CDC has regulations (published in the Code of Federal Regulations) for interstate shipping of specimens, and the Occupational Safety and Health Organization (“OSHA”) also addresses the safe handling of Class 6.2 Substances.   The Company’s DG1000 meets packing instruction 602 and 650 and is certified for the shipment of Class 6.2 Dangerous Goods per the requirements of the International Civil Aviation Organization (ICAO) Technical Instructions for the Safe Transport of Dangerous Goods by Air and the International Air Transport Association (IATA).

 

 

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Research and Development:

The Company’s principal research and development activities for the years 2007 and 2008 continued to center around the investigation of higher volume manufacturing capabilities and materials of construction for the products and packages with the view of identifying those materials that yield fabrication costs consistent with the concept of disposability.  A unit dose shipper was developed for the CryoPort Express® One-Way Shipper System and designs of a second concept were completed.  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 for all sizes of shippers to be offered by the CryoPort Express® One-Way Shipper System.  The Company’s research and development expenditures for the three months ended June 30, 2008 and 2007 were $110,791 and $28,587, respectively.

Manufacturing:

The component parts for the Company’s products are primarily manufactured at third party manufacturing facilities. The Company also has a warehouse at the corporate offices in Lake Forest, California, where the Company is capable of manufacturing certain parts and full assembly of its products.  Most of the components that the Company uses in the manufacture of its products are available from more than one qualified supplier.  For some components, however, there are relatively few alternate sources of supply and the establishment of additional or replacement suppliers may not be accomplished immediately, however, the Company has identified alternate qualified suppliers which the Company believes could replace existing suppliers.  Should this occur, the Company believes the maximum disruption of production could be a short period of time, on the order of approximately four to six weeks.

 

Primary manufacturers include Spaulding Composites Company, Peterson Spinning and Stamping, Lydall Industrial Thermal Solutions, Ludwig, Inc., and Porex Porous Products Group.  There are no specific agreements with any manufacturer nor are there any long term commitments to any.  It is believed that any of the currently used manufacturers could be replaced within a short period of time as none have a proprietary component nor a substantial capital investment specific to the Company’s products.

The Company’s manufacturing process uses non-hazardous cleaning solutions which are provided and disposed of by an EPA approved supplier.  EPA compliance costs for the Company are therefore negligible.

Patents:

In order to remain competitive, the Company must develop and maintain protection on the proprietary aspects of its technologies.  The Company relies on a combination of patents, copyrights, trademarks, trade secret laws and confidentiality agreements to protect its intellectual property rights.  The Company currently holds two issued U.S. trademarks and three issued U.S. patents primarily covering various aspects of its products.  In addition, the Company intends to file for additional patents to strengthen its intellectual property rights.  The technology covered by the above indicated patents refer to matters specific to the use of liquid nitrogen dewars relative to the shipment of biological materials.  The concepts include those of disposability, package configuration details, liquid nitrogen retention systems, systems related to thermal performance, systems related to packaging integrity, and matters generally relevant to the containment of liquid nitrogen.  Similarly, the trademarks mentioned relate to the cryogenic temperature shipping activity.   Patents and trademarks currently held by the Company include:

	Type:		No.		Issued		Expiration
	Patent		6,467,642		Oct. 22, 2002		Oct. 21, 2022
	Patent		6,119,465		Sep. 19, 2000		Sep. 18, 2020
	Patent		6,539,726		Apr. 1, 2003		Mar 31, 2023
	Trademark		7,583,478,7		Oct. 9, 2002		Oct. 8, 2012
	Trademark		7,586,797,8		Apr. 16, 2002		Apr. 16, 2012

The Company’s success depends to a significant degree upon its ability to develop proprietary products and technologies and to obtain patent coverage for these products and technologies.  The Company continues to file trademark and patent applications covering any newly developed products, methods and technologies.  However, there can be no guarantee that any of its pending or future filed applications will be issued as patents.  There can be no guarantee that the U.S. Patent and Trademark Office or some third party will not initiate an interference proceeding involving any of its pending applications or issued patents.  Finally, there can be no guarantee that its issued patents or future issued patents, if any, will provide adequate protection from competition, as discussed below.

 

 

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Patents provide some degree of protection for the Company’s proprietary technology.  However, the pursuit and assertion of patent rights involve complex legal and factual determinations and, therefore, are characterized by significant uncertainty.  In addition, the laws governing patent issuance and the scope of patent coverage continue to evolve.  Moreover, the patent rights the Company possesses or are pursuing generally cover its technologies to varying degrees.  As a result, the Company cannot ensure that patents will issue from any of its patent applications, or that any of its issued patents will offer meaningful protection.  In addition, the Company’s issued patents may be successfully challenged, invalidated, circumvented or rendered unenforceable so that its patent rights may not create an effective barrier to competition.  Moreover, the laws of some foreign countries may not protect its proprietary rights to the same extent, as do the laws of the United States.  There can be no assurance that any patents issued to the Company will provide a legal basis for establishing an exclusive market for its products or provide it with any competitive advantages, or that patents of others will not have an adverse effect on its ability to do business or to continue to use its technologies freely.

The Company may be subject to third parties filing claims that its technologies or products infringe on their intellectual property.  The Company cannot predict whether third parties will assert such claims against it or whether those claims will hurt its business.  If the Company is forced to defend itself against such claims, regardless of their merit, the Company may face costly litigation and diversion of management’s attention and resources.  As a result of any such disputes, the Company may have to develop, at a substantial cost, non-infringing technology or enter into licensing agreements.  These agreements may be unavailable on terms acceptable to it, or at all, which could seriously harm the Company’s business or financial condition.

The Company also relies on trade secret protection of its intellectual property.  The Company attempts to protect trade secrets by entering into confidentiality agreements with third parties, employees and consultants.  It is possible that these agreements may be breached, invalidated or rendered unenforceable, and if so, the Company’s trade secrets could be disclosed to its competitors.  Despite the measures the Company has taken to protect its intellectual property, parties to its agreements may breach confidentiality provisions in its contracts or infringe or misappropriate its patents, copyrights, trademarks, trade secrets and other proprietary rights.  In addition, third parties may independently discover or invent competitive technologies, or reverse engineer its trade secrets or other technology.  Therefore, the measures the Company is taking to protect its proprietary technology may not be adequate.

Government Regulation:

The Company is subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances. The Company may incur significant costs to comply with such laws and regulations now or in the future.

Users of the Company’s shippers are subject to state, federal and international government and/or agency regulation with respect to the shipment of diagnostic specimens, infectious substances and dangerous goods.  The quality of the containers, packaging materials and insulation that protect a specimen determine whether or not it will arrive in a usable condition.  Many of the regulations for transporting dangerous goods in the United States are determined by international rules formulated under the auspices of the United Nations.  Companies shipping certain items must comply with any applicable Department of Transportation and ICAO regulations, as well as  rules established by IATA, the CDC, OSHA and any other relevant regulatory agency.

 

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Directors and Executive Officers

The following table sets for the name and age of each director and executive officer, the year first elected as a director and/or executive officer and the position(s) held with the Company:

Name	Age	Position	Date Elected
Peter Berry	60	Director and Chief Executive Officer, President	2003
Dee S. Kelly, CPA	46	Vice President of Finance	2003
Kenneth G. Carlson	54	Vice President of Sales and Marketing	2005
Bret Bollinger	41	Vice President of Operations	2008
Thomas Fischer, PhD	61	Director, Vice Chairman of the Board	2005
Gary C. Cannon	57	Director, Secretary of the Board	2005
Adam M. Michelin	64	Director	2005
Stephen L. Scott	56	Director	2005

 

Background of Directors and Officers:

Peter Berry, became the Company’s President, Chief Executive Officer and a member of the Company’s Board of Directors in connection with the Share Exchange Agreement.  Mr. Berry joined CryoPort Systems, Inc. as a consultant in 2002 and became its President, Chief Executive Officer, Chief Operating Officer and a member of its Board of Directors in 2003.  Prior to joining the Company, Mr. Berry was Vice President Sales & Marketing for BOC Cryostar, AG in Switzerland from 1996 to 2000 and principal of a private consulting practice from 2001 to 2003.  Mr. Berry has over 30 years executive experience in cryogenic equipment with Union Carbide, BOC Group and MVE International. He also has business start up, turnaround, sales/marketing and operations background experience, both domestic and international, in manufacturing and service based industries.

Dee S. Kelly , CPA, became Vice President of Finance for the Company in August 2003.  Ms. Kelly was formerly with Ernst & Young, LLP and has 24 years experience in public and private accounting.  She has held executive financial positions with international bio-tech and medical device manufacturers.  Ms. Kelly recently served as Vice President, Controller for Equifax Financial Services, Inc. from 1995 to 2000.  Ms. Kelly joined the Company in 2003.  Prior to joining the Company, Ms. Kelly was Corporate Controller for MacGillivray Freeman Films from 2000 to 2001, Corporate Controller for Masimo Corporation, a manufacturer of patient monitoring devices from 2001 to 2002 and principal of a private consulting practice since 2002.

Kenneth Carlson, MBA, became Vice President of Sales for the Company in August, 2005. Prior to joining the Company, Mr. Carlson was Vice President, General Manager of Phoenix Life Solutions, LLC, a marketer of defibrillators and emergency response systems.  From 2000 to 2003, Mr. Carlson was Vice President, Sales for Falcon Waterfree Technologies, LLC, and from 1999 to 2000 he served as Vice President, Sales for Titan Scan Corporation, a manufacturer of electron-beam sterilization systems for medical products.  Mr. Carlson has over 20 years of experience in sales, marketing and senior management roles for medical device and healthcare technology companies such as Johnson & Johnson and Zimmer, Inc.  His background has involved strategic planning for start-up and early stage companies, including product introduction and distribution planning. Mr. Carlson received his Bachelor of Science degree from the University of Southern California and his Masters of Business degree from Arizona State University.

Bret Bollinger, became Vice president of Operations for CryoPort in February 2008.  Prior to joining the Company, Mr. Bollinger was Director of Operations and Engineering for Triangle Brass Manufacturing from July 2003 to January 2008.  Mr. Bollinger served as a Business Process Consultant for Vistant Corporation, a division of Cardinal Health from July of 2001 through July 2003 and as Operations and Order Fulfillment Manager for Ingersoll-Rand’s Safety and Security Sector, Falcon Lock Company from July of 1999 to July of 2001.  Mr. Bollinger has extensive background in manufacturing environments, including experience with opening both manufacturing and assembly plants domestically as well as in Mexico.  In addition, he has experience in new product design and implementation.  Mr. Bollinger holds a Bachelor of Science in Mechanical Engineering from Sacramento State University.

 

 

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Gary C. Cannon, became the Company’s Secretary and a member of the Company’s Board of Directors in June 2005.  Prior to joining the Company, Mr. Cannon was securities counsel and compliance officer for The Affordable Energy Group, Inc. from November 2004 to May 2005, and general and securities counsel for World Transport Authority, Inc. from July 2003 to November 2004.  Mr. Cannon was in private practice from August 2000 to July 2003, and has practiced law for the past 21 years, representing all sizes of businesses in such areas as, formation, mergers and acquisitions, financing transactions, tax planning, and employee relations.  Mr. Cannon has done extensive securities work and has served as a compliance officer for companies with respect to the Sarbanes-Oxley Act, and other compliance matters.  Mr. Cannon obtained his Juris Doctorate from National University School of Law, his Masters of Business degree from National University and his Bachelor of Arts from United States International University.

Adam M.  Michelin, became a member of the Company’s Board of Directors in June 2005.  Mr. Michelin is currently the Chief Executive Officer, of Naturade, Inc.a position he has held since November, 2007.  Mr. Michelin has held several leadership positions including CEO for Enterprise Group from March 2005, Principle of Kibel Green, Inc., a position he held for 11 years prior to joining Enterprise Group, and Partner of KPMG for 10 years.  Mr. Michelin has over 30 years of practice in the areas of executive leadership, operations and is very experienced in evaluating, structuring and implementing solutions for companies in operational and/or financial crisis.  Mr. Michelin received his Juris Doctorate from the University of West Los Angeles and his Bachelor of Science from Tri State University.

Thomas S. Fischer, PhD, has over 20-years experience as a healthcare executive with a special emphasis on using information, analytic tools and technology to solve problems and improve operations. Currently retired, he consults in the healthcare sector. Dr. Fischer previously served as Senior Vice President and Chief Administrative Officer at Blue Shield of California from 1997 to 1999, and as Senior Vice President, Chief Information Officer from 1994 to 1997. Prior to Blue Shield, he held senior management positions with Kaiser Foundation Health Plan, Inc. for 12 years. Dr. Fischer obtained his Doctor of Philosophy in Mathematics from the University of Nebraska and his Bachelor of Science and Master of Science degrees from Portland State University.

Stephen L. Scott is a management and organizational consultant with over 20-years experience with diverse manufacturing businesses, including a specific background with developmental stage companies. Since 1996, Mr. Scott has been President of Technology Acquisition Group, providing expertise in corporate growth planning, strategic partner development, finance, operations, team building, product opportunity identification, corporate re-engineering and mergers and acquisitions. In addition to early stage and small companies, he has performed projects with Fortune 1000 firms such as IBM, GE, AT&T, Bristol-Myers Squibb, Warner-Lambert, Johnson & Johnson and Ayerst-Wyeth. Mr. Scott received his Juris Doctorate and Masters of Business Administration degrees from National University and his Bachelor of Science degree from the University of Akron.

The officers of the Company hold office until their successors are elected and qualified, or until their death, resignation or removal.

None of the directors or officers hold a directorship in any other reporting company except:  Adam Michelin is Director, CEO/President and Treasurer of Redux Holdings, Inc. (RDXH); CEO/Chairman Naturade Inc.(NRDCQ) and Gary Cannon is Secretary and General Counsel of Redux Holdings, Inc. (RDXH) and General Counsel for the Affordable Energy Group, Inc. and for Global Development and Environmental Resources, Inc., both publicly traded companies.

None of the directors or officers listed above has:

 

·	had a bankruptcy petition filed by or against any business of which that person was a general partner of executive officer either at the time of the bankruptcy or within two years prior to that time;
·	had any conviction in a criminal proceeding, or been subject to a pending criminal proceeding;
·	been subject to any order, judgment, or decree by any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting such person’s involvement in any type of business, securities or banking activities;
·	been found by a court of competent jurisdiction, the Commission, or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law.

Board of Directors Meetings and Committees:

During the fiscal year ended March 31, 2008, there were nine meetings of the board of directors as well as several actions taken with the unanimous written consent of the directors.  The Board has established an Audit Committee and a Compensation and Governance Committee.  The Board is currently reviewing the requirements for and the need to set up an executive committee and other committees to help its board of directors oversee the operations of the Company.

 

 

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Audit Committee

The Company’s board of directors has a formally established audit committee and an adopted  Audit Committee Charter.  During the year ended March 31, 2008, the Company’s Audit Committee held two meetings.  The Company has determined that Adam Michelin, Audit Committee Chairman, qualifies as an “audit committee financial expert” as defined in Item 401(h) of Regulation S-K. of the Securities and Exchange Commission rules and is “independent” within the meaning of Rule 4200(a) (15) of the National Association of Securities Dealers.  Mr. Fischer and Mr. Scott comprise the remaining audit committee members.  The audit committee reviews the qualifications of the independent auditors, our annual and interim financial statements, the independent auditor’s report, significant reporting or operating issues and corporate policies and procedures as they relate to accounting and financial controls.

Compensation and Governance Committee

The Company’s board of directors has a formally established compensation and goverance committee and an adopted  Compensation and Governance Committee Charter. The current members of the Compensation and Governance Committee as appointed by the Board are Thomas Fischer, Chairman, Gary Cannon, and Steven Puente. Mr. Puente is an outside expert consultant serving on the Compensation and Governance Committee.

Nominating Procedures and Criteria

The Company does not have a nominating committee.  The function of the nominating committee is handled by the Company’s Compensation and Governance Committee.

 

Compensation Committee Interlocks and Insider Participation

Gary Cannon is Secretary of the Company, none of the other members of the Compensation Committee is or has been an officer or employee of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance.

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers and directors and those persons who beneficially own more than 10% of the Company’s outstanding shares of common stock to file reports of securities ownership and changes in such ownership with the Securities and Exchange Commission.  Officers, directors, and greater than 10% beneficial owners are also required by rules promulgated by the SEC to furnish us with copies of all Section 16(a) forms they file.

Based solely upon a review of the copies of such forms furnished to the Company, we believe that during the year ended March 31, 2008, all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners were complied with.

Code of Ethics for Principal Executive Officers and Senior Financial Officers.

The Board of Directors has adopted a Code of Ethics applicable to the Chief Executive Officer, the Vice President of Finance, all senior financial officers and all other employees. The Code of Ethics of the Company is available, free of charge, on request by writing to the Secretary of the Company at 20382 Barents Sea Circle, Lake Forest, CA, 92630.

 

 

33

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40

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41

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Fiscal 2008		High				Low
1st Quarter		$	3.30			$	0.77
2nd Quarter			1.70				0.61
3rd Quarter			1.47				0.70
4th Quarter			1.37				0.85

 

Fiscal 2007		High				Low
1st Quarter		$	4.20			$	2.00
2nd Quarter			2.50				0.50
3rd Quarter			0.53				0.20
4th Quarter			2.00				0.28

Number of Stockholders

As of July 8, 2008, there were approximately 186 holders of record of our common stock.

 

42

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Selling Stockholder		Shares Beneficially Owned Prior to Offering*			Shares to be Sold in Offering		Shares Beneficially Owned After Offering			Percentage Beneficial Ownership After Offering*
BridgePointe Master Fund Ltd. (1)			11,771,704		4,464,285			7,307,419		17.8 %
Philip Benanti (2)			136,691		31,622			105,069		0.1%
Edward Fine (2)			136,690		31.622			105,068		0.1%
Stuart Fine (2)			525,190		31,622			493,568		0.7%
National Securities Corporation (3)			22,322		22,322			-0-		n/a
Anthony St. Clair (2)			136,690		31,622			105,068		0.1%
Total			12,729,287		4,613,095			8,116,192

_____________ 

*	The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the selling stockholder has sole or shared voting power or investment power and also any shares, which the selling stockholder has the right to acquire within 60 days. Nevertheless, for purposes of this table only (other than the column entitled “Percentage Beneficial Ownership after Offering”), for each selling stockholder does not give effect to the 4.9% limitation on the number of shares that may be held by each stockholder as agreed to in the warrant held by each selling stockholder which limitation is subject to waiver by the holder upon 61 days prior written notice to us (subject to a further non-waivable limitation of 9.99%).
(1)	The total number owned by this entity consists of 3,385,855 shares issuable upon conversion of convertible debentures and 8,385,851 shares issuable upon exercise of warrants.  The number of shares to be sold herewith consists of 1,488,095 shares issuable upon conversion of convertible debentures and 2,976,190 shares issuable upon exercise of warrants. Eric S. Swartz holds voting and dispositive power over the shares held by BridgePointe Master Fund Ltd.
(2)	For each person, the shares included herein are issuable upon the exercise of an aggregate of 148,810 warrants at $0.84 per share. These warrants were granted to National Securities Corporation, a registered broker-dealer (“National”), as part of its commission in connection with the private placement of the convertible notes and the warrants. Each of these persons is an affiliate of National.  Pursuant to our agreement with National, the parties agreed that the securities were to be issued to National or its designees. National’s transferees received their shares as compensation in the ordinary course of business and none of them has any agreement or understanding, direct or indirect, with any person to distribute the securities offered herewith.  Accordingly, the securities were transferred directly from us to the entities and individuals. Each of such entities and individuals is an accredited investor who made the representation that it acquired such securities for investment purposes and not with a view to distribution or resale. Therefore, the transfer of securities was made pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933.
(3)	National Securities Corporation is a wholly owned subsidiary of National Holdings Corporation, a publicly traded company.

 

43

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RECENT FINANCING

On June 9, 2008, the Company completed the transactions contemplated under a certain Securities Purchase Agreement with an accredited investor providing for the issuance of the Company’s Original Issue Discount 8% Secured Convertible Debentures (the “May Debentures”) having a principal face amount of $1,250,000 and generating gross proceeds to us of $1,062,500 after giving effect to a 15% discount.  After accounting for commissions and legal and other fees, the net proceeds to us totaled $870,625.

The principal amount under the May Debentures is payable in 23 monthly payments of $54,348 beginning January 31, 2009.  The Company may elect to make principal and interest payments in shares of common stock provided, generally, that it is not in default under the May Debentures and there is then in effect a registration statement with respect to the shares issuable upon conversion of the May Debentures. If the Company elects to make principal or interest payments in common stock, the conversion rate will be the lesser of (a) the Conversion Price (as defined below), or (b) 85% of the lesser of (i) the average of the volume weighted average price for the ten consecutive trading days ending immediately prior to the applicable date an interest payment is due or (ii) the average of such price for the ten consecutive trading days ending immediately prior to the date the applicable shares are issued and delivered if such delivery is after the interest payment date.

At any time, holder may convert the May Debentures into shares of common stock at a fixed conversion price of $0.84, subject to adjustment in the event the Company issues common stock (or securities convertible into or exercisable for common stock) at a price below the conversion price as such price may be in effect at various times (the “Conversion Price”).  Based on the market price of our common stock of $0.71 on the date of the issuance of the May Debentures, the total value of the shares underlying the May Debentures and registered herewith is $1,056,547.

In connection with the financing transaction, the Company issued to the investor five-year warrants to purchase 1,488,095 shares of common stock at $0.92 per share and five-year warrants to purchase 1,488,095 shares of common stock at $1.35 per share (collectively, the “May Warrants”).

The Company also entered into a registration rights agreement with the investors that requires it to register the shares issuable upon conversion of the May Debentures and exercise of the May Warrants within 45 days after the closing date of the transaction. If the registration statement of which this prospectus forms a part is not filed within that time period or is not declared effective within 90 days after the closing date (120 days in the event of a full review by the Securities and Exchange Commission), the Company will be required to pay liquidated damages in cash in an amount equal to 2% of the total subscription amount for every month that it fails to attain a timely filing or effectiveness, as the case may be, subject to exception as set forth in the registration rights agreement.

 

The Company has been advised by the selling stockholders that they have no existing short position in the Company’s common stock. In the ordinary course of our business in trading securities positions, they may from time to time effect short sales. However, no such short sales are effected while in possession of material, nonpublic information.

National Securities Corporation acted as sole placement agent in connection with the transaction. The Company paid to the placement agent cash in the amount of $116,875 and issued warrants to purchase 148,810 shares of the Company’s common stock at $0.84 per share.

 

44

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The following table sets forth for each Investor, the amount of interest payable with respect to the May Debentures on each interest payment date.

 

Investor	Payment Reference	Date		Amount*
BridgePointe Master Fund Ltd.
	Interest Payment	January 1, 2009		$	58,333
	Interest Payment	April 1, 2009		$	23,913
	Interest Payment	July 1, 2009		$	20,652
	Interest Payment	October 1, 2009		$	17,391
	Interest Payment	January 1, 2010		$	14,130
	Interest Payment	April 1, 2010		$	10,870
	Interest Payment	July 1, 2010		$	7,609
	Interest Payment	September 1, 2010		$	4,348
	Interest Payment	December 1, 2010		$	1,087
Total payments that have been or may be required to be   made in connection with the transaction, excluding principal repayments				$	158,333

______________

 

*

The Company may pay the interest payments in cash, or at the Company’s option, in duly authorized, fully paid and non-assessable shares of Common Stock at the Interest Conversion Rate or a combination thereof. The Interest Conversion Rate is the lesser of (a) the Conversion Price or (b) 85% of the lesser of (i) the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Interest Payment Date or (ii) the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the date the applicable Interest Conversion Shares are issued and delivered if such delivery is after the Interest Payment Date.

 

45

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The following table sets forth certain information concerning the market discount per share that may be realized by each of the Investors. Although the fixed conversion price of the May Debentures of $0.84 represents a premium over the market of our common stock of $0.80 on the date the transaction was completed, the May Debentures themselves are original issue discount instruments. We issued the May Debentures having a principal face amount of $1,250,000, generating gross proceeds to the Company of $1,062,500. This discount is reflected in the far right column of this table.

Selling Shareholder		Market price per share of securities on the date of sale of the convertible note (May 30, 2008)				Fixed conversion price per share of underlying securities on the date of sale of the convertible note				Total possible shares underlying the convertible note				Combined market price (market price per share * total possible shares)				Total possible shares the selling shareholders may receive and combined conversion price of the total number of shares underlying the convertible note				Total possible discount to market price as of the date of sale of the convertible note (1)
BridgePointe Master Fund Ltd.		$	0.80			$	0.84				1,488,095			$	1,190,476				1,488,095			$	127,976

 

(1)	Discount is based on gross proceeds of $1,062,500 divided by the total possible shares as compared to the market price on the date of the sale of the convertible note.

 

 

The following table set forth information with respect to the warrants issued in the financing transaction.

Selling Shareholder		Transaction			Type			Date			Market  Price			Exercise   Price			Total To Be   Received			Combined Market   Price			Combined Exercise   Price			Premium to Market
BridgePointe Master   Fund Ltd.			Convertible Notes			Warrants			5/30/08		$	0.80		$	0.92			1,488,095		$	1,190,476		$	1,369,047		$	178,571
BridgePointe Master   Fund Ltd.			Convertible Notes			Warrants			5/30/08		$	0.80		$	1.35			1,488,095		$	1,190,476		$	2,008,928		$	818,452
National Securities Corporation			Convertible Notes (1)			Warrants			5/30/08		$	0.80		$	0.84			148,810		$	119,048		$	125,000		$	5,952
																		3,125,000		$	2,500,000		$	3,502,975		$	1,002,975

 

(1) Represents warrants issued as a commission for the sale of the convertible notes.

 

46

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The following table sets forth:

The gross proceeds paid or payable to the Company in the debenture transaction;

All interest payments that have been made or that may be required to be made;

The resulting net proceeds to the Company;

The combined total possible profit to be realized as a result of any conversion discounts regarding the shares underlying the debentures and any warrants that are held by the selling shareholders.

Disclosure - as a percentage - of the total amount of all possible interest payments and the total possible discount to the market price of the shares underlying the debentures divided by the net proceeds to the Company from the sale of the debentures, as well as the amount of that resulting percentage averaged over the term of the debentures.

Gross proceeds paid to the issuer in the convertible note transaction		$	1,062,500
All payments made or required to be made by the Company to the selling shareholders		$	158,333
Fees and expenses (1)			191,875
		$	350,208
Net proceeds to issuer, as gross proceeds are reduced by the total of all possible payments (excluding principal)		$	712,292
Combined total possible profit to be realized as a result of any conversion discounts (2)		$	127,976
Total amount of all possible payments plus the conversion discount as a percentage of the net proceeds to the issuer from the sale of the notes			45.0%
Annual percentage above averaged over the term of the convertible note			42.8%

_____________

 

(1)	Fees and expenses include commissions and legal and other fees, resulting in net proceeds of $870,625 excluding deductions for interest payments required to be made by the Company.

 

(2)	Discount is based on gross proceeds of $1,062,500 divided by the total possible shares as compared to the market price on the date of the sale of the convertible notes.

 

 

47

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The following table sets forth additional information about prior transactions involving the named selling shareholders with respect to our securities. None of the other selling shareholders had previously entered into transactions with us. Other than the financing transactions that were completed on October 1, 2007 and May 30, 2008 these entities were not involved in any other financing transactions with us.

 

Selling Shareholders		Shares held by persons other than the Investors, affiliates of the company, and affiliates of the Investors prior to the current transaction			Shares registered for resale by the Investors or affiliates of the Investors in prior registration statements		Shares registered for resale by the Investors or affiliates of the Investors that continue to be held by same (1)			Shares registered for resale on behalf of the Investors or affiliates of the Investors in the current transaction
Others			32,439,202		-			-		-
BridgePointe Master Fund Ltd.			-		5,252,098			5,049,018		4,464,285
Totals			32,439,202		5,252,098			5,049,018		4,464,285

______________

 

(1)	All shares registered on behalf of the Investors are issuable upon conversion of the Debentures.

 

48

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49

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50

---

 

 

51

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We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholders without registration and without regard to any volume limitations by reason of Rule 144(k) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

 

52

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53

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INDEX TO FINANCIAL STATEMENTS

CRYOPORT, INC.

 

CryoPort, Inc.

Consolidated Financial Statements

March 31, 2008 and 2007

 

Contents		Page
Report of Independent Registered Public Accounting Firm			F- 1
Consolidated Balance Sheets			F- 2
Consolidated Statements of Operations			F- 3
Consolidated Statements of Stockholders’ Deficit			F- 4
Consolidated Statements of Cash Flows			F- 5
Notes to Consolidated Financial Statements			F- 7

 

 

Consolidated Financial Statements

June 30, 2008 and 2007

(Unaudited)

 

Contents			Page
Consolidated Balance Sheets at June 30, 2008 (Unaudited) and March 31, 2008			F-38
Unaudited Consolidated Statements of Operations for the three months ended June 30, 2008 and 2007			F-39
Unaudited Consolidated Statements of Cash Flows for the three months ended June 30, 2008 and 2007			F-40
Notes to Consolidated Financial Statements (Unaudited)			F-42

 

 

 

 

54

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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, 2008 and 2007, and the related consolidated statements of operations, stockholders' deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CryoPort, Inc. at March 31, 2008 and 2007, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.  

 

As described in Note 2 to the consolidated financial statements, effective April 1, 2006, the Company changed its method of accounting for share-based compensation to adopt Statement of Financial Standards No. 123(R), Share-Based Payment ..

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring losses and negative cash flows from operations since inception.  These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1.  The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

 

/s/ KMJ Corbin & Company LLP
KMJ Corbin & Company LLP
Irvine, California
June 30, 2008

 

F-1

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CRYOPORT, INC.

 

CONSOLIDATED BALANCE SHEETS

---

 

		March 31,
ASSETS		2008				2007
Current assets:
Cash and cash equivalents		$	2,231,031			$	264,392
Restricted cash			203,670				-
Accounts receivable, net			21,411				10,172
Inventories			121,952				146,008
Prepaid expenses and other current assets			153,016				15,320
Total current assets			2,731,080				435,892
Fixed assets, net			193,852				38,400
Intangible assets, net			474				4,696
Deferred financing costs, net			325,769				4,699
Other assets			209,714				-
		$	3,460,889			$	483,687
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable		$	234,298			$	306,682
Accrued expenses			95,048				97,227
Accrued warranty costs			29,993				55,407
Accrued salaries and related			138,103				169,537
Convertible notes payable and accrued interest, net of discount of $0 (2008) and $29,638 (2007)			-				96,435
Current portion of convertible notes payable and accrued interest, net of discount of $1,039,844 (2008) and $0 (2007)			902,486				-
Line of credit and accrued interest			115,943				-
Current portion of related party notes payable			150,000				120,000
Current portion of note payable to officer			72,000				45,000
Current portion of note payable			12,000				24,000
Total current liabilities			1,749,871				914,288
Related party notes and accrued interest payable, net of current portion			1,582,084				1,623,841
Convertible notes payable, net of current portion of $1,936,884 (2008) and $0 (2007) and discount of $2,418,513 (2008) and $0 (2007)			-				-
Note payable to officer, net of current portion			129,115				197,950
Note payable, net of current portion			-				35,440
Total liabilities			3,461,070				2,771,519
Commitments and contingencies
Stockholders’ deficit:
Common stock, $0.001 par value; 125,000,000 shares authorized; 40,928,225 (2008) and 34,782,029 (2007) shares issued and outstanding			40,929				34,782
Additional paid-in capital			13,888,094				7,042,536
Accumulated deficit			(13,929,204	)			(9,365,150	)
Total stockholders’ deficit			(181	)			(2,287,832	)
		$	3,460,889			$	483,687

 

See Accompanying Notes to Consolidated Financial Statements. 

 

F-2

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CRYOPORT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

---

 

		For The Years Ended March 31,
		2008				2007
Net sales		$	83,564			$	67,103
Cost of sales			386,371				176,939
Gross loss			(302,807	)			(109,836	)
Operating expenses:
Selling, general and administrative expenses			2,550,778				1,899,228
Research and development expenses			166,227				87,857
Total operating expenses			2,717,005				1,987,085
Loss from operations			(3,019,812	)			(2,096,921	)
Interest income			50,076				-
Interest expense			(1,592,718	)			(227,738	)
Loss before income taxes			(4,562,454	)			(2,324,659	)
Income taxes			1,600				1,600
Net loss		$	(4,564,054	)		$	(2,326,259	)
Net loss available to common stockholders per common share:
Basic and diluted loss per common share		$	(0.12	)		$	(0.08	)
Basic and diluted weighted average common shares outstanding			39,425,118				30,943,154

 

See Accompanying Notes to Consolidated Financial Statements.

 

 

F-3

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CRYOPORT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

---

 

		Common Stock								Additional Paid-in				Accumulated				Total Stockholders'
		Shares				Amount				Capital				Deficit				Deficit
Balance, April 1, 2006			30,081,696			$	30,082			$	4,858,773			$	(7,038,891	)		$	(2,150,036	)
Issuance of common stock for cash, net of issuance costs of $112,372			4,692,000				4,692				897,336				-				902,028
Exercise of warrants for cash			8,333				8				2,492				-				2,500
Fair value of stock options and warrants issued to consultants, employees and directors			-				-				1,177,768				-				1,177,768
Beneficial conversion feature related to issuance of convertible debentures			-				-				106,167				-				106,167
Net loss			-				-				-				(2,326,259	)			(2,326,259	)
Balance, March 31, 2007			34,782,029				34,782				7,042,536				(9,365,150	)			(2,287,832	)
Issuance of common stock for cash, net of  issuance costs of $89,635			3,652,710				3,653				696,213				-				699,866
Issuance of common stock for conversion of convertible debentures including accrued interest			1,425,510				1,426				602,714				-				604,140
Issuance of common stock to consultants			525,000				525				501,975				-				502,500
Exercise of stock options and warrants for cash			156,250				156				107,344				-				107,500
Cashless exercise of warrants			386,726				387				(387	)			-				-
Debt discount related to convertible debentures			-				-				3,845,328				-				3,845,328
Fair value of stock options and warrants issued to consultants, employees and directors			-				-				1,066,885				-				1,066,885
Fair value of warrants issued to lessor			-				-				15,486				-				15,486
Purchase of fixed assets with warrants			-				-				10,000				-				10,000
Net loss			-				-				-				(4,564,054	)			(4,564,054	)
Balance, March 31, 2008			40,928,225			$	40,929			$	13,888,094			$	(13,929,204	)		$	(181	)

 

See Accompanying Notes to Consolidated Financial Statements.

 

 

F-4

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CRYOPORT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Years Ended March 31, 2008 and 2007

---

 

		For The Years Ended March 31,
		2008				2007
Cash flows from operating activities:
Net loss		$	(4,564,054	)		$	(2,326,259	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			41,298				23,789
Amortization of deferred financing costs			87,706				10,901
Amortization of debt discount			1,214,986				76,529
Stock issued to consultants			402,500				-
Fair value of stock options and warrants issued to consultants, employees and directors			880,765				1,177,768
Changes in operating assets and liabilities:
Accounts receivable			(11,239	)			12,134
Inventories			24,056				44,313
Prepaid expenses and other assets			(49,473	)			(6,050	)
Accounts payable			(72,384	)			83,612
Accrued expenses			(2,179	)			(14,834	)
Accrued warranty costs			(25,414	)			(4,125	)
Accrued salaries and related			(31,434	)			120,295
Accrued interest			284,616				91,668
Net cash used in operating activities			(1,820,250	)			(710,259	)
Cash flows used in investing activities:
Investment in certificate of deposit			(200,000	)			-
Payment of trademark costs			(474	)			-
Purchases of fixed assets			(182,054	)			-
Net cash used in investing activities			(382,528	)			-
Cash flows from financing activities:
Proceeds from borrowings under notes payable			-				92,700
Net proceeds from borrowings under line of credit			115,500				-
Net proceeds from borrowings under convertible notes			3,436,551				120,000
Payment of deferred financing costs			-				(15,600	)
Repayment of note payable			(55,000	)			-
Repayments of related party notes payable			(90,000	)			(122,700	)
Repayments of note payable to officer			(45,000	)			(9,000	)
Proceeds from issuance of common stock, net			699,866				902,028
Proceeds from exercise of options and warrants			107,500				2,500
Net cash provided by financing activities			4,169,417				969,928
Net change in cash and cash equivalents			1,966,639				259,669
Cash and cash equivalents, beginning of year			264,392				4,723
Cash and cash equivalents, end of year		$	2,231,031			$	264,392

 

See Accompanying Notes to Consolidated Financial Statements.

 

 

F-5

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CRYOPORT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(continued)

For The Years Ended March 31, 2008 and 2007

---

 

Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest		$	5,620			$	47,729
Income taxes		$	1,600			$	1,600
Supplemental disclosure of non-cash activities:
Estimated fair value of common stock issued and warrants granted in connection with consulting agreement		$	349,834			$	-
Deferred financing costs in connection with convertible debt financing		$	408,776			$	-
Debt discount in connection with convertible debt financing		$	3,845,328			$	-
Conversion of debt and accrued interest to common stock		$	604,140			$	-
Value of warrants issued to lessor		$	15,486			$	-
Purchase of fixed assets with warrants		$	10,000			$	-
Cashless exercise of warrants		$	387			$	-
Conversion of accrued salaries to note payable		$	-			$	251,950
Beneficial conversion feature for convertible notes		$	-			$	106,167

See Accompanying Notes to Consolidated Financial Statements.

 

 

F-6

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CRYOPORT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For The Years Ended March 31, 2008 and 2007

---

 

NOTE 1 – ORGANIZATION AND BUSINESS

Organization

Cryoport, Inc. (the “Company”) was originally incorporated under the name G.T.5-Limited (“GT5”) on May 25, 1990 as a Nevada Corporation.  Upon completion of a Share Exchange Agreement, on March 15, 2005 the Company changed its name to Cryoport, Inc. and acquired all of the issued and outstanding shares of Cryoport Systems, Inc. in exchange for 24,108,105 shares of its common stock (which represented approximately 81% of the total issued and outstanding shares of common stock following the close of the transaction).  Cryoport Systems, Inc, originally formed in 1999 as a California limited liability company and reorganized into a California corporation on December 11, 2000, remains the operating company under Cryoport, Inc.

The principal focus of the Company is to capitalize on servicing the transportation needs of the growing global “biotechnology revolution and provide a newly developed line of one time use dry cryogenic shippers for the transport of biological materials. These materials include live cell pharmaceutical products; e.g., cancer vaccines, diagnostic materials, reproductive tissues, infectious substances and other items that require continuous exposure to cryogenic temperature (less than -150 ° C).  The Company has historically manufactured and sold a line of reusable cryogenic dry shippers.  These reusable cryogenic dry shippers primarily serve as the vehicles for the development of the cryogenic technology that support the development of the one time use dry cryogenic shippers, the CryoPort Express® One-Way Shipper, but also are essential components of the infrastructure that supports testing and research activities of the pharmaceutical and biotechnology industries.  The Company’s mission is to provide cost effective packaging systems for biological materials requiring, or benefiting from, a cryogenic temperature environment over an extended period of time.

Going Concern

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern.  The Company has not generated significant revenues from operations and has no assurance of any future revenues.  The Company generated revenues from operations of only $83,564, incurred a net loss of $4,564,054, and used cash of $1,820,250 in its operating activities during the year ended March 31, 2008.    These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

 

 

F-7

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CRYOPORT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For The Years Ended March 31, 2008 and 2007

---

 

NOTE 1 – ORGANIZATION AND BUSINESS, continued

On October 1, 2007, the Company received net proceeds of $3,436,551 from the issuance of convertible debentures (see Note 10).  On May 30, 2008 the Company received additional net proceeds of $870,625 from an additional convertible debenture financing (see Note 14).  As a result of the recent financings, the Company had an aggregate cash and cash equivalents and restricted cash balance of $2,483,127 as of June 26, 2008 which will be used to fund the sales and marketing efforts as well as provide the working capital required for the Company’s launch of the CryoPort Express® One-Way Shipper and is expected to provide the Company with the means for eventual achievement of sustained profitable operations and the ability to continue as a going concern.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Principles of Consolidation

The consolidated financial statements include the accounts of Cryoport, Inc. and its wholly owned subsidiary, Cryoport Systems, Inc.  All intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from estimated amounts.  The Company’s significant estimates include allowances for doubtful accounts and sales returns, recoverability of long-lived assets, allowances for inventory obsolescence, accrued warranty costs, valuation of deferred tax assets, the value of stock options and warrants, and product liability reserves.

 

 

F-8

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CRYOPORT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For The Years Ended March 31, 2008 and 2007

---

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Concentrations of Credit Risk and Customers

 

Cash

 

The Company maintains its cash accounts in financial institutions.  Accounts at these institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $100,000.  At March 31, 2008 and 2007, the Company had cash balances of $2,392,350 and $214,469, respectively, which were in excess of the FDIC insurance limit.  The Company performs ongoing evaluations of these institutions to limit its concentration risk exposure.

Restricted cash

The Company has invested cash in a one year restricted certificate of deposit bearing interest at 4.38% which serves as collateral for borrowings under a line of credit agreement (see Note 8).  At March 31, 2008, the balance in the certificate of deposit was $203,670.

Customers

 

The Company grants credit to customers within the United States of America and to a limited number of international customers, and does not require collateral.  Sales to international customers are generally secured by advance payments except for a limited number of established foreign 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 and estimated sales returns are provided based on past experience and a specific analysis of the accounts which management believes are sufficient.  Accounts receivable at March 31, 2008 and 2007 are net of reserves for doubtful accounts and sales returns of approximately $4,700 and $7,000, respectively. Although the Company expects to collect amounts due, actual collections may differ from the estimated amounts.

The Company has foreign sales primarily in Europe and Canada.  Foreign sales are primarily under exclusive distribution agreements with international distributors.  During 2008 and 2007, the Company had foreign sales of approximately $10,500 and $32,000, respectively, which constituted approximately 13% and 47% of net sales, respectively.

 

 

F-9

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CRYOPORT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For The Years Ended March 31, 2008 and 2007

---

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The majority of the Company’s customers are in the bio-tech, bio-pharmaceutical and life science industries.  Consequently, there is a concentration of receivables within these industries, which is subject to normal credit risk.

 

Cash and Cash Equivalents

The Company considers highly-liquid investments with original maturities of 90 days or less to be cash equivalents.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, related party notes payable, note payable to officer, line of credit, convertible notes payable, accounts payable, accrued expenses and a note payable to a third party.  The carrying value for all such instruments, except the related party notes payable, approximates fair value at March 31, 2008 and 2007.  The difference between the fair value and recorded values of the related party notes payable is not significant.

Inventories

Inventories are stated at the lower of standard cost or current estimated market value.  Cost is determined using the first-in, first-out method.  The Company periodically reviews its inventories and records a provision for excess and obsolete inventories based primarily on the Company’s estimated forecast of product demand and production requirements.  Once established, write-downs of inventories are considered permanent adjustments to the cost basis of the obsolete or excess inventories.  Raw Materials, work in process and finished goods include material costs less reserves for obsolete or excess inventories.

Fixed Assets

Fixed assets are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization of fixed assets are provided using the straight-line method over the following useful lives:

 

	Furniture and fixtures	7 years
	Machinery and equipment	5-7 years
	Leasehold improvements	Lesser of lease term or estimated useful life

Betterments, renewals and extraordinary repairs that extend the lives of the assets are capitalized; other repairs and maintenance charges are expensed as incurred.  The cost and related accumulated depreciation and amortization applicable to assets retired are removed from the accounts, and the gain or loss on disposition is recognized in current operations.

 

 

F-10

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CRYOPORT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For The Years Ended March 31, 2008 and 2007

---

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Intangible Assets

Patents and Trademarks

Patents and trademarks are amortized using the straight-line method over their estimated useful life of five years.

Long-Lived Assets

The Company’s management assesses the recoverability of its long-lived assets upon the occurrence of a triggering event by determining whether the depreciation and amortization of long-lived assets over their remaining lives can be recovered through projected undiscounted future cash flows.  The amount of long-lived asset impairment, if any, is measured based on fair value and is charged to operations in the period in which long-lived asset impairment is determined by management.  At March 31, 2008 and 2007, the Company’s management believes there is no impairment of its long-lived assets.  There can be no assurance however, that market conditions will not change or demand for the Company’s products will continue, which could result in impairment of its long-lived assets in the future.

Deferred Financing Costs

Deferred financing costs represent costs incurred in connection with the issuance of the convertible notes payable.  Deferred financing costs are being amortized over the term of the financing instrument on a straight-line basis, which approximates the effective interest method.  During the years ended March 31, 2008 and 2007, the Company capitalized deferred financing costs of $408,776 and $15,600, respectively, and amortized deferred financing costs of $87,706 and $10,901 respectively, to interest expense.

Accrued Warranty Costs

Estimated costs of the Company’s standard warranty, included with products at no additional cost to the customer for a period up to one year, are recorded as accrued warranty costs at the time of product sale.  Costs related to servicing the standard warranty are charged to the accrual as incurred.

 

 

F-11

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CRYOPORT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For The Years Ended March 31, 2008 and 2007

---

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

The following represents the activity in the warranty accrual during the years ended March 31:

		2008				2007
Beginning warranty accrual		$	55,407			$	59,532
Increase  in accrual (charged to cost of sales)			5,625				4,875
Charges to accrual (product replacements and warranty expirations)			(31,039	)			(9,000	)
Ending warranty accrual		$	29,993			$	55,407

 

Revenue Recognition

Revenue is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements , as revised by SAB 104.  The Company recognizes revenue when products are shipped to a customer and the risks and rewards of ownership and title have passed based on the terms of the sale.  The Company records a provision for sales returns and claims based upon historical experience.  Actual returns and claims in any future period may differ from the Company’s estimates.

Accounting for Shipping and Handling Revenue, Fees and Costs

The Company classifies amounts billed for shipping and handling as revenue in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs . Shipping and handling fees and costs are included in cost of sales.

Advertising Costs

The Company expenses the cost of advertising when incurred as a component of consolidated selling, general and administrative expenses.  During 2008 and 2007, the Company expensed approximately $33,000 and $21,000, respectively, in advertising costs.

Research and Development Expenses

The Company expenses internal research and development costs as incurred.  Third party research and development costs are expensed when the contracted work has been performed.

 

 

F-12

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CRYOPORT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For The Years Ended March 31, 2008 and 2007

---

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Stock-Based Compensation

 

Adoption of SFAS 123(R)

On April 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment , (“SFAS 123(R)”) which establishes standards for the accounting of transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on accounting for transactions where an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period. SFAS 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

The Company adopted SFAS 123(R) using the modified prospective transition method, which required the application of the accounting standard as of April 1, 2006, the first day of the Company’s fiscal year 2007. The Company’s consolidated financial statements as of and for the years ended March 31, 2008 and 2007 reflect the impact of SFAS 123(R).

 

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statement of operations. Prior to the adoption of SFAS 123(R), the Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). Under the intrinsic value method, no stock-based compensation expense had been recognized in the Company’s consolidated statements of operations, other than as related to option grants to employees and consultants below the fair market value of the underlying stock at the date of grant.

 

Stock-based compensation expense recognized in the Company’s consolidated statements of operations for the years ended March 31, 2008 and 2007 included compensation expense for share-based payment awards granted prior to, but not yet vested as of March 31, 2006  based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123 and compensation expense for the share-based payment awards granted subsequent to March 31, 2006 based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R).

 

 

F-13

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CRYOPORT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For The Years Ended March 31, 2008 and 2007

---

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

As stock-based compensation expense recognized in the consolidated statements of operations for the years ended March 31, 2008 and 2007 are based on awards ultimately expected to vest, it has been reduced for estimated forfeitures, if any.  SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated average forfeiture rate for the years ended March 31, 2008 and 2007 was zero as the Company has not had a significant history of forfeitures and does not expect forfeitures in the future.

SFAS 123(R) requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options or warrants to be classified as financing cash flows. Due to the Company’s loss position, there were no such tax benefits during the years ended March 31, 2008 and 2007. Prior to the adoption of SFAS 123(R) those benefits would have been reported as operating cash flows had the Company received any tax benefits related to stock option or warrant exercises.

Plan Description

The Company’s stock option 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 generally vest over a five-year period beginning on the grant date and have a ten-year term. As of March 31, 2008, the Company is authorized to issue up to 5,000,000 shares under this plan and has 2,511,387 shares available for future issuances.

Summary of Assumptions and Activity

The fair value of stock-based awards to employees and directors is calculated using the Black-Scholes option pricing model, even though this model was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which differ significantly from the Company’s stock options. The Black-Scholes model also requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate selected to value any particular grant is based on the U.S Treasury rate that corresponds to the pricing term of the grant effective as of the date of the grant. The expected volatility is based on the historical volatility of the Company’s stock price. These factors could change in the future, affecting the determination of stock-based compensation expense in future periods.

 

 

F-14

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CRYOPORT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For The Years Ended March 31, 2008 and 2007

---

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

			March 31,		March 31,
			2008		2007
Stock options and warrants:
	Expected term		5 years		5 years
	Expected volatility		228% - 293%		233%-282%
	Risk-free interest rate		3.74% - 4.75%		4.75%-4.82%
	Expected dividends		N/A		N/A

 

A summary of employee and director option and warrant activity for the years ended March 31, 2008 and 2007, is presented below:

 

		Shares			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (Yrs.)			Aggregate Intrinsic Value
Outstanding at April 1, 2006			2,488,613		$	0.45			6.45
Granted			1,258,950		$	0.76			9.47
Exercised			–		$	–
Forfeited			–		$	–
Outstanding at March 31, 2007			3,747,563		$	0.59			7.46		$	1,503,862
Granted			887,800		$	0.97			9.77
Exercised			(79,200	)	$	0.74
Forfeited			–		$	–
Outstanding, vested and expected to vest at  March 31, 2008			4,556,163		$	0.64			7.10		$	2,505,375
Exercisable at March 31, 2008			4,456,163		$	0.63			7.05		$	2,493,375

There were 887,800 warrants and no stock options granted to employees and directors during the year ended March 31, 2008 and 1,258,950 warrants and no stock options granted to employees and directors during the year ended March 31, 2007.  In connection with the warrants granted, the modification of previous options granted, and the vesting of prior options issued, during the years ended March 31, 2008 and 2007, the Company recorded total charges of $742,140 and $1,177,768, respectively, in accordance with the provisions of SFAS 123(R), which have been included in selling, general and administrative expenses for the years ended March 31, 2008 and 2007 in the accompanying consolidated statements of operations.  No employee or director warrants or stock options expired during the years ended March 31, 2007 and 2008.  The Company issues new shares from its authorized shares upon exercise of warrants or options.

 

 

F-15

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CRYOPORT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For The Years Ended March 31, 2008 and 2007

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Securities and Exchange Commission Registration Fee		$	1,528
Accounting Fees and Expenses		$	7,000		*
Legal Fees and Expenses		$	35,000		*
Total		$	43,528

 

* Estimated

ITEM 26.   RECENT SALES OF UNREGISTERED SECURITIES

The following is a summary of transactions by the Company during the past three years involving the issuance and sale of the Company’s securities that were not registered under the Securities Act of 1933, as amended (the “Securities Act”). All securities sold by the Company were sold to individuals, trusts or others as accredited investors as defined under Regulation D under the Securities Act, as amended.

During fiscal 2007, 4,692,000 shares of the Company’s common stock were sold to investors at an average price of $0.22 per share resulting in proceeds of $902,028 to the Company, net of issuance costs of $112,372.

During fiscal 2007, the Company issued 8,333 shares of common stock resulting from exercises of warrants at an average exercise price of $0.30 per share resulting in proceeds of $2,500.

 

During fiscal 2006, 142,000 shares of the Company’s common stock were sold to investors at a price of $3.50 per share resulting in proceeds of $435,540 to the Company, net of issuance costs of $61,460.

 

During fiscal 2006, the Company issued 71,592 shares of common stock resulting from cashless exercises of 82,134 warrants converted using an average market price of approximately $5.80 per share resulting in 10,621 warrants used for the cashless conversion.

 

During fiscal 2006, the Company issued 159,999 shares of common stock resulting from exercises of warrants at an average exercise price of approximately $0.34 per share resulting in proceeds of $55,000. 

 

II-1

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The following schedules list the sales of shares of common stock net of offering costs (excluding exercises of options and warrants) and issuances of options and warrants during the fiscal years ended 2007 and 2006.

			Fiscal 2007
			Common Stock						Warrants				Options
			$		Shares		Avg Price		Issued		Ex. Price		Issued		Ex. Price
Qtr 1		$	22,185		17,000		$  1.50		-		-		-		-
Qtr 2			166,605		188,000		$  1.02		846,750		$  1.00		-		-
Qtr 3			-		-		-		-		-		-		-
Qtr 4			713,238		4,487,000		$  0.18		412,200		$  0.28		-		-
		$	902,028		4,692,000				1,258,950				-

 

			Fiscal 2006
			Common Stock						Warrants				Options
			$		Shares		Avg Price		Issued		Ex. Price		Issued		Ex. Price
Qtr 1		$	-		-		-		-		-		-		-
Qtr 2			240,660		78,000		$  3.50		-		-		-		-
Qtr 3			109,620		36,000		$  3.50		-		-		-		-
Qtr 4			85,260		28,000		$  3.50		-		-		-		-
		$	473,040		142,000				-				-

 

On October 1, 2007, the Company issued to a number of accredited investors Original Issue Discount 8% Senior Secured Convertible Debentures (the “Debentures”) having a principal face amount of $4,707,705 and generating gross proceeds to us of $4,001,551.  After accounting for commissions and legal and other fees, the net proceeds to us totaled $3,436,551.25. In connection with the financing transaction, the Company also issued to the investors five-year warrants to purchase 5,604,411 shares of our common stock at $0.92 per share, two-year warrants to purchase 1,401,103 shares of common stock at $0.90 per share and 1,401,103 shares of common stock at $1.60 per share. In connection with the offering, t he Company paid to a placement agent cash in the amount of $440,000 and issued warrants to purchase 560,364 shares of the Company’s common stock at $0.84 per share.

During fiscal 2008, 3,652,710 shares of the Company’s common stock were sold to investors at an average price of $0.22 per share resulting in gross proceeds of $789,501 to the Company, and incurred offering costs of $89,635.

During fiscal 2008, the Company issued 156,250 shares of common stock resulting from exercises of warrants at an average exercise price of $0.69 per share resulting in proceeds of $107,500.

During fiscal 2008, the Company issued 386,726 shares of common stock resulting from cashless exercises of 465,469 warrants converted using an average market price of approximately $1.19 per share resulting in 78,743 warrants used for the cashless conversion.

 

During fiscal 2008, the Company issued 375,000 shares of common stock in lieu of fees paid to a consultant.  These shares were issued at a value of $1.02 per share (based on the stock price on the agreement dates after a fifteen percent deduction as the shares are restricted) for a total cost of $382,500 which has been included in selling general and administrative expenses for the year ended March 31, 2008.

 

On June 9, 2008, the Company we issued to an accredited investor Original Issue Discount 8% Senior Secured Convertible Debentures  having a principal face amount of $1,250,000 and generating gross proceeds to us of $1,062,500 after giving effect to a 15% discount.  After accounting for commissions and legal and other fees, the net proceeds to us totaled $870,625.  In connection with the financing transaction, the Company issued to the investor five-year warrants to purchase 1,488,095 shares of common stock at $0.92 per share and five-year warrants to purchase 1,488,095 shares of common stock at $1.35 per share.  The Company paid to the placement agent cash in the amount of $116,875 and issued warrants to purchase 148,810 shares of the Company’s common stock at $0.84 per share.

The issuances of the securities of the Company in the above transactions were deemed to be exempt from registration under the Securities Act by virtue of Section 4(2) thereof or Regulation D promulgated thereunder, as a transaction by an issuer not involving a public offering. With respect to each transaction listed above, no general solicitation was made by either the Company or any person acting on the Company’s behalf; the securities sold are subject to transfer restrictions; and the certificates for the shares contained an appropriate legend stating such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom. 

 

 

II-2

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Exhibit No.		Description
3.1		State of Nevada Corporate Charter for G.T. 5- Limited , Incorporated by reference to the Company’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
3.2		Articles of Incorporation Of G.T 5-Limited , Incorporated by reference to the Company’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
3.3		Amendment to Articles of Incorporation of G T. 5-Limited issue 100M shares Incorporated by reference to the Company’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
3.4		Amendment of Articles of Incorporationof G.T.5-Limited name change to CryoPort, Inc , Incorporated by reference to the Company’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
3.4.1		Amended and Restated Articles of Incorporation . Incorporated by reference to the Company’s Current Report on Form 8-K filed October 19, 2007
3.5		Amended and Restated By-Laws Of CryoPort, Inc . Incorporated by reference to the Company’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
3.6		Articles of Incorporation CryoPort Systems, Inc . Incorporated by reference to the Company’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
3.7		By-Laws of CryoPort Systems, Inc . Incorporated by reference to the Company’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
3.8		CryoPort, Inc. Stock Certificate Specimen Incorporated by reference to the Company’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
3.9		Code of Conduct for CryoPort, Inc . Incorporated by reference to the Company’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
3.10		Code of Ethics for Senior Officers Incorporated by reference to the Company’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
3.11		Statement of Policy on Insider Trading Incorporated by reference to the Company’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
3.12		CryoPort, Inc. Audit Committee Charter Incorporated by reference to the Company’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
3.13		CryoPort Systems, Inc. 2002 Stock Incentive Plan Incorporated by reference to the Company’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.

3.14		Stock Option Agreement ISO - Specimen Incorporated by reference to the Company’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
3.15		Stock Option Agreement NSO -Specimen Incorporated by reference to the Company’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
3.16		Warrant Agreement - Specimen Incorporated by reference to the Company’s Registration Statement on Form 10-SB/A4 dated February 23, 2006.
3.17		Patents and Trademarks
3.17.1		CryoPort Systems, Inc. Patent #6,467,642 On File with Company

 

(2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.

(3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.

 

II-5

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