0001144204-16-080857.txt : 20160211
0001144204-16-080857.hdr.sgml : 20160211
20160211161115
ACCESSION NUMBER: 0001144204-16-080857
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 48
CONFORMED PERIOD OF REPORT: 20151231
FILED AS OF DATE: 20160211
DATE AS OF CHANGE: 20160211
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: Cryoport, Inc.
CENTRAL INDEX KEY: 0001124524
STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS FOAM PRODUCTS [3086]
IRS NUMBER: 880313393
STATE OF INCORPORATION: NV
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-34632
FILM NUMBER: 161411625
BUSINESS ADDRESS:
STREET 1: 20382 BARENTS SEA CIRCLE
CITY: LAKE FOREST
STATE: CA
ZIP: 92630
BUSINESS PHONE: (619) 481-6800
MAIL ADDRESS:
STREET 1: 20382 BARENTS SEA CIRCLE
CITY: LAKE FOREST
STATE: CA
ZIP: 92630
FORMER COMPANY:
FORMER CONFORMED NAME: CRYOPORT SYSTEMS LLC
DATE OF NAME CHANGE: 20010614
FORMER COMPANY:
FORMER CONFORMED NAME: CRYOPORT SYSTEMS INC
DATE OF NAME CHANGE: 20000923
10-Q
1
v430854_10q.htm
FORM 10-Q
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly
period ended December 31, 2015
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-34632
CRYOPORT,
INC.
(Exact Name of Registrant as Specified
in its Charter)
Nevada
88-0313393
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
17305 Daimler Street
Irvine, CA 92614
(Address of principal executive offices)
(949) 470-2300
(Registrant’s telephone number,
including area code)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
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 the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company
x
Indicate by check mark whether the Registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No
x
As of February
5, 2016 there were 12,242,776 shares of the registrant’s common stock outstanding.
Accounts receivable, net of allowance for doubtful accounts of $40,600 and $12,200, respectively
616,785
589,699
Inventories
52,880
69,680
Other current assets
288,965
97,337
Total current assets
6,206,055
2,161,902
Property and equipment, net
875,673
307,926
Intangible assets, net
13,484
136,821
Deposits
363,403
—
Total assets
$
7,458,615
$
2,606,649
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and other accrued expenses
$
1,109,243
$
758,696
Accrued compensation and related expenses
377,113
725,712
Notes payable and accrued interest, net of discount of $221,400 at March 31, 2015
—
535,507
Related-party notes payable and accrued interest, net of discount of $64,000 and $259,600, respectively
981,992
976,581
Total current liabilities
2,468,348
2,996,496
Related-party notes payable, net of current portion
—
26,452
Total liabilities
2,468,348
3,022,948
Commitments and contingencies
Stockholders’ Equity (Deficit):
Preferred stock, $0.001 par value; 2,500,000 shares authorized:
Class A convertible preferred stock — $0.001 par value; 800,000 shares authorized; 454,750 shares issued and outstanding at December 31, 2015 and March 31, 2015 (aggregate liquidation preference of $6,087,400 at December 31, 2015)
455
455
Class B convertible preferred stock — $0.001 par value; 585,000 shares authorized; 534,571 and 161,709 shares issued and outstanding at December 31, 2015 and March 31, 2015, respectively (aggregate liquidation preference of $6,777,047 at December 31, 2015)
535
162
Common stock, $0.001 par value; 50,000,000 shares authorized; 7,247,466 and 5,025,577 shares issued and outstanding at December 31, 2015 and March 31, 2015, respectively
7,247
5,026
Additional paid-in capital
114,334,637
97,346,137
Accumulated deficit
(109,352,607
)
(97,768,079
)
Total stockholders’ equity (deficit)
4,990,267
(416,299
)
Total liabilities and stockholders’ equity (deficit)
$
7,458,615
$
2,606,649
See accompanying notes to condensed consolidated
financial statements.
3
Cryoport, Inc. and Subsidiary
Condensed Consolidated Statements of
Operations
(unaudited)
Three Months Ended December 31,
Nine Months Ended December 31,
2015
2014
2015
2014
Revenues
$
1,458,563
$
975,188
$
4,326,654
$
2,736,776
Cost of revenues
1,074,281
740,651
3,018,147
1,937,926
Gross margin
384,282
234,537
1,308,507
798,850
Operating costs and expenses:
Selling, general and administrative
2,835,372
1,492,732
7,019,500
4,431,290
Research and development
227,765
99,052
405,785
267,575
Total operating costs and expenses
3,063,137
1,591,784
7,425,285
4,698,865
Loss from operations
(2,678,855
)
(1,357,247
)
(6,116,778
)
(3,900,015
)
Other expense:
Interest expense
(79,946
)
(48,605
)
(984,748
)
(1,185,337
)
Other expense, net
(1,347
)
(1,906
)
(5,029
)
(2,829
)
Loss before provision for income taxes
(2,760,148
)
(1,407,758
)
(7,106,555
)
(5,088,181
)
Provision for income taxes
(305
)
—
(3,625
)
(1,600
)
Net loss
(2,760,453
)
(1,407,758
)
(7,110,180
)
(5,089,781
)
Preferred stock beneficial conversion charge
—
(492,910
)
(4,474,348
)
(2,961,723
)
Undeclared cumulative preferred dividends
(239,389
)
(95,304
)
(687,267
)
(194,901
)
Net loss attributable to common stockholders
$
(2,999,842
)
$
(1,995,972
)
$
(12,271,795
)
$
(8,246,405
)
Net loss per share attributable to common stockholders – basic and diluted
$
(0.42
)
$
(0.40
)
$
(1.96
)
$
(1.65
)
Weighted average shares outstanding – basic and diluted
7,225,006
5,004,821
6,259,686
5,002,683
See accompanying notes to condensed consolidated
financial statements.
4
Cryoport, Inc. and Subsidiary
Condensed Consolidated Statements of
Cash Flows
(unaudited)
For the Nine Months Ended December 31,
2015
2014
Cash Flows From Operating Activities:
Net loss
$
(7,110,180
)
$
(5,089,781
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
166,324
155,226
Amortization of debt discounts and deferred financing costs
417,003
1,148,153
Stock-based compensation expense to employees, directors and consultants
2,057,236
565,220
Estimated fair value of the beneficial conversion feature on related party notes payable
521,056
—
Loss on write-off of patents
98,086
—
Loss on disposal of property and equipment
37,247
5,773
Provision for bad debt
36,006
465
Changes in operating assets and liabilities:
Accounts receivable, net
(63,092
)
107,901
Inventories
(15,274
)
(37,255
)
Deposits and other current assets
(479,956
)
(45,022
)
Accounts payable and other accrued expenses
350,547
154,249
Accrued compensation and related expenses
(330,878
)
163,348
Accrued interest
(20,174
)
36,430
Net cash used in operating activities
(4,336,049
)
(2,835,293
)
Cash Flows From Investing Activities:
Purchases of property and equipment
(713,993
)
(67,851
)
Net cash used in investing activities
(713,993
)
(67,851
)
Cash Flows From Financing Activities:
Proceeds from issuance of common stock and warrants in public offering, net of offering costs
5,938,099
—
Proceeds from the issuance of preferred stock, net of offering costs
3,896,678
2,802,854
Proceeds from exercise of stock options and warrants
10,881
11,631
Proceeds from the issuance of notes payable
—
615,000
Repayment of notes payable
(741,377
)
—
Repayment of convertible debentures
—
(50,000
)
Repayment of related party notes payable
(212,000
)
(72,000
)
Net cash provided by financing activities
8,892,281
3,307,485
Net change in cash and cash equivalents
3,842,239
404,341
Cash and cash equivalents — beginning of period
1,405,186
369,581
Cash and cash equivalents — end of period
$
5,247,425
$
773,922
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Offering costs in connection with convertible preferred stock included in accounts payable
$
—
$
9,658
Issuance of common stock for accrued board of director compensation
$
54,813
$
—
Estimated relative fair value of warrants issued in connection with notes payable
$
—
$
312,680
Accretion of convertible preferred stock beneficial conversion feature and relative fair value of warrants issued in connection with the convertible preferred stock units to accumulated deficit
$
4,474,348
$
2,961,723
Reclassification of shipper inventory to fixed assets
$
32,074
$
—
Fair value of common stock issued to consultant for future services included in other current assets
$
75,075
$
—
Conversion of convertible debentures payable and accrued interest into convertible preferred stock units
$
—
$
1,766,997
See accompanying notes to condensed consolidated
financial statements.
5
Cryoport, Inc. and Subsidiary
Notes to Condensed Consolidated Financial
Statements
For the Three and Nine Months
Ended December 31, 2015 and 2014
(Unaudited)
Note 1. Management’s Representation and Basis of Presentation
The accompanying unaudited
condensed consolidated financial statements have been prepared by Cryoport, Inc. (the “Company”, “Cryoport”,
“our” or “we”) in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) for interim financial information, and pursuant to the instructions to Form 10-Q and Article 8 of Regulation
S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information
and footnotes required by U.S. GAAP for complete financial statement presentation. However, the Company believes that the disclosures
are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting primarily
of normal recurring accruals) considered necessary for a fair presentation have been included.
On May 12, 2015, our
board of directors (the “Board of Directors”) approved an amendment to our certificate of incorporation to effect a
reverse stock split by a ratio of 1-for-12. The reverse stock split was effective on May 19, 2015. All share
and per share data in this Form 10-Q have been adjusted to give effect to the 1-for-12 reverse stock split of our common stock.
Operating results
for the nine months ended December 31, 2015 are not necessarily indicative of the results that may be expected for the year ending
March 31, 2016. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended
March 31, 2015.
The Company has evaluated
subsequent events through the date of this filing and determined that no subsequent events have occurred that would require recognition
in the unaudited condensed consolidated financial statements or disclosure in the notes thereto other than as disclosed in the
accompanying notes.
Note 2. Nature of the Business
Cryoport is the premier
provider of cryogenic logistics solutions to the life sciences industry through its purpose-built proprietary packaging, information
technology and specialized cold chain logistics expertise. The Company provides leading edge logistics solutions for biologic materials,
such as immunotherapies, stem cells, CAR-T cells and reproductive cells for clients worldwide. Leading global companies, such as
FedEx, UPS and DHL have each separately selected Cryoport as the preferred cryogenic logistics provider for time- and temperature-sensitive
biological material. Cryoport actively supports points-of-care, contract research organizations, central laboratories,
pharmaceutical companies, contract manufacturers and university researchers.
The Company is a Nevada
corporation and its common stock is traded on the NASDAQ Capital Market exchange under the
ticker symbol “CYRX.”
Going Concern
The unaudited condensed
consolidated financial statements have been prepared using the accrual method of accounting in accordance with U.S. GAAP and have
been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal
course of business. We have sustained operating losses since our inception and have used substantial amounts of working capital
in our operations. At December 31, 2015, we had an accumulated deficit of $109.4 million. During the nine months ended December
31, 2015, we used cash in operations of $4.3 million and had a net loss of $7.1 million.
We
expect to continue to incur substantial additional operating losses from costs related to the commercialization and expansion of
our Cryoport Express® Solutions and do not expect that revenues from operations
will be sufficient to satisfy our funding requirements in the near term. We believe that our cash resources at December 31, 2015,
together with the revenues generated from our services will be sufficient to sustain our planned operations into the second quarter
of fiscal year 2017; however, we must obtain additional capital to fund operations thereafter and for the achievement of sustained
profitable operations. These factors raise substantial doubt about our ability to continue as a going concern. We are currently
working on funding alternatives in order to secure sufficient operating capital to allow us to continue to operate as a going concern.
The
level of future capital requirements will depend upon many factors, including the success of our commercialization efforts and
the level of customer adoption of our Cryoport Express® Solutions as well as
our ability to establish additional collaborative arrangements. We cannot make any assurances that the sales ramp will lead to
achievement of sustained profitable operations or that any additional financing will be completed on a timely basis and on acceptable
terms or at all. Management’s inability to successfully achieve significant revenue increases or to complete any other financing
will adversely impact our ability to continue as a going concern.
6
Note 3. Summary of Significant Accounting
Policies
Principles of Consolidation
The condensed consolidated
financial statements include the accounts of Cryoport, Inc. and its wholly owned subsidiary, Cryoport Systems, Inc. All intercompany
accounts and transactions have been eliminated.
Use of Estimates
The preparation of
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from estimated amounts.
The Company’s significant estimates include the allowance for doubtful accounts, recoverability of long-lived assets, allowance
for inventory obsolescence, deferred taxes and their accompanying valuations, and valuation of equity instruments and conversion
features.
Fair Value of Financial Instruments
The Company’s
financial instruments consist of cash and cash equivalents, accounts receivable, related-party notes payable, notes payable, accounts
payable and accrued expenses. The carrying value for all such instruments approximates fair value at December 31, 2015 and March
31, 2015 due to their short-term nature. The difference between the fair value and recorded values of the related-party notes payable
is not significant.
Cash and Cash Equivalents
The Company considers highly liquid investments
with original maturities of 90 days or less to be cash equivalents.
Customers
The Company grants
commercial trade credit to customers under established terms and conditions within the U.S. and to a limited number of international
customers and does not require collateral. Revenues from international customers are generally secured by advance payments except
for a limited number of established foreign customers. The Company generally requires advance or credit card payments for initial
revenues from new customers, who have not received credit approval. The Company’s ability to collect receivables is affected
by customer circumstances, economic fluctuations in the respective geographic areas and the industries served by the Company. Reserves
for uncollectible amounts are provided based on past experience and a specific analysis of the respective accounts, which management
believes is sufficient. Accounts receivable at December 31, 2015 and March 31, 2015 are net of reserves for doubtful accounts of
$40,600 and $12,200, respectively. Although the Company expects to collect amounts due, actual collections may differ from the
estimated amounts.
The majority of the
Company’s customers are in the biotechnology, pharmaceutical, animal health and life science industries. Consequently, there
is a concentration of accounts receivable within these industries, which is subject to normal credit risk. At December 31, 2015
and March 31, 2015, there was one customer that accounted for 10.4% and 14.6%, respectively, of net accounts receivable. No other
single customer owed us more than 10% of net accounts receivable at December 31, 2015 and March 31, 2015.
The Company has revenue
from foreign customers primarily in the Europe, Japan, Canada, India and Australia regions. During the nine months ended December
31, 2015 and 2014, the Company had revenues from foreign customers of approximately $631,400 and $418,800, respectively, which
constituted approximately 14.6% and 15.3% of total revenues, respectively.
For the nine months
ended December 31, 2015 and 2014, there was one customer that accounted for 14.5% and 25.0% of total revenues, respectively.
7
Inventories
The Company’s
inventories consist of packaging materials and accessories sold to customers. Inventories are stated at the lower of cost or current
estimated market value. Cost is determined using the standard cost method which approximates the first-in, first-to-expire method.
Inventories are reviewed periodically for slow-moving or obsolete status. The Company writes down the carrying value of its inventories
to reflect situations in which the cost of inventories is not expected to be recovered. Once established, write-downs of inventories
are considered permanent adjustments to the cost basis of the obsolete or excess inventories. Raw materials and finished goods
include material costs less reserves for obsolete or excess inventories. The Company evaluates the current level of inventories
considering historical trends and other factors, and based on such evaluation, records adjustments to reflect inventories at its
net realizable value. These adjustments are estimates, which could vary significantly from actual results if future economic conditions,
customer demand, competition or other relevant factors differ from expectations. These estimates require us to make assessments
about future demand for the Company’s products in order to categorize the status of such inventory items as slow-moving,
obsolete or in excess-of-need. These estimates are subject to the ongoing accuracy of the Company’s forecasts of market conditions,
industry trends, competition and other factors.
Property and Equipment
The Company provides
shipping packaging (“shipper”) to its customers and charges a fee in exchange for the use of the shipper. The Company’s
arrangements are similar to the accounting standard for leases since they convey the right to use the container over a period of
time. The Company retains the title to the shippers and provides its customers the use of the shipper for a specific shipping cycle.
At the culmination of the customer’s shipping cycle, the shipper is returned to the Company. As a result, the Company classifies
the shippers as property and equipment for the per-use shipper program.
Property and equipment
are recorded at cost. Cryogenic shippers are depreciated using the straight-line method over their estimated useful lives of three
years. Software, equipment and furniture are depreciated using the straight-line method over their estimated useful lives (generally
three to seven years) and leasehold improvements are amortized using the straight-line method over the estimated useful life of
the asset or the lease term, whichever is shorter. Equipment acquired under capital leases is amortized over the estimated useful
life of the assets or term of the lease, whichever is shorter and included in depreciation and amortization expense.
Betterments, renewals
and extraordinary repairs that extend the lives of the assets are capitalized; other repairs and maintenance charges are expensed
as incurred. The cost and related accumulated depreciation and amortization applicable to assets retired are removed from the accounts,
and the gain or loss on disposition is recognized in current operations.
Intangible Assets
Intangible assets
are comprised of patents and trademarks and software development costs. The Company capitalizes costs of obtaining patents and
trademarks, which are amortized, using the straight-line method over their estimated useful life of five years once the patent
or trademark has been issued. During the nine months ended December 31, 2015, the Company wrote off patents aggregating $98,100
to research and development expense in the accompanying condensed consolidated statement of operations. The Company capitalizes
certain costs related to software developed for internal use. Software development costs incurred during the preliminary or maintenance
project stages are expensed as incurred, while costs incurred during the application development stage are capitalized and amortized
using the straight-line method over the estimated useful life of the software, which is five years. Capitalized costs include purchased
materials and costs of services including the valuation of warrants issued to consultants.
Long-lived Assets
If indicators of impairment
exist, we assess the recoverability of the affected long-lived assets by determining whether the carrying value of such assets
can be recovered through undiscounted future operating cash flows. If impairment is indicated, we measure the amount of such impairment
by comparing the fair value to the carrying value. We believe the future cash flows to be received from the long-lived assets will
exceed the assets’ carrying value, and accordingly, we have not recognized any impairment losses through December 31, 2015.
Deferred Financing Costs
Deferred financing
costs represent costs incurred in connection with the issuance of the convertible notes payable and equity financings. Deferred
financing costs related to the issuance of debt are being amortized over the term of the financing instrument using the effective
interest method while offering costs from equity financings are netted against the gross proceeds received from the equity financings.
8
Conversion Features
If a conversion feature
of convertible debt is not accounted for as a derivative instrument and provides for a rate of conversion that is below market
value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as
a debt discount. The convertible debt is recorded net of the discount related to the BCF. The Company amortizes the discount to
interest expense over the life of the debt using the effective interest rate method.
Preferred stock is
convertible to common stock at a rate of conversion that is below market value and, therefore, this feature is characterized as
a BCF. The Company records this BCF as a discount to the preferred stock and accretes the discount to retained earnings as a deemed
dividend through the earliest conversion date or upon issuance if the preferred stock can be immediately converted.
Income Taxes
The Company accounts
for income taxes under the provision of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 740, Income Taxes, or ASC 740. As of December 31, 2015 and March 31, 2015, there were no unrecognized
tax benefits included in the accompanying condensed consolidated balance sheets that would, if recognized, affect the effective
tax rates.
Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. A valuation allowance is provided for certain deferred
tax assets if it is more likely than not that the Company will not realize tax assets through future operations. Based on the weight
of available evidence, the Company’s management has determined that it is more likely than not that the net deferred tax
assets will not be realized. Therefore, the Company has recorded a full valuation allowance against the net deferred tax assets.
The Company’s income tax provision consists of state minimum taxes.
The Company’s
policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual
for interest or penalties on its condensed consolidated balance sheets at December 31, 2015 and March 31, 2015 and has not recognized
interest and/or penalties in the condensed consolidated statement of operations for the nine months ended December 31, 2015 and
2014. The Company is subject to taxation in the U.S. and various state jurisdictions. As of December 31, 2015, the Company is no
longer subject to U.S. federal examinations for years before 2011 and for California franchise and income tax examinations for
years before 2010. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where
net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carry
forward amount. The Company is not currently under examination by U.S. federal or state jurisdictions.
Revenue Recognition
The Company provides
shipping containers to its customers and charges a fee in exchange for the use of the shipper. The Company’s arrangements
are similar to the accounting standard for leases since they convey the right to use the shippers over a period of time. The Company
retains title to the shipper and provides its customers the use of the shipper for a specified shipping cycle. At the culmination
of the customer’s shipping cycle, the shipper is returned to the Company.
The Company recognizes
revenue for the use of the shipper once the shipper has been delivered to the end user of the enclosed materials, and at the time
that collectability of the related fees is reasonably certain. Revenue is recorded net of discounts and allowances.
The Company also provides
logistics support and management services to some customers, which may include onsite logistics personnel. Revenue is recognized
for these services as services are rendered and at the time that collectability is reasonably certain.
Accounting for Shipping and Handling
Revenue, Fees and Costs
The Company classifies
amounts billed for shipping and handling as revenue. Shipping and handling fees and costs are included in cost of revenues in the
accompanying condensed consolidated statements of operations.
Research and Development Expenses
Expenditures relating to research and development
are expensed in the period incurred.
9
Stock-Based Compensation
The Company accounts
for stock-based payments to employees and directors in accordance with stock-based payment accounting guidance which requires all
stock-based payments to employees and directors, including grants of employee stock options and warrants, to be recognized based
upon their fair values. The fair value of stock-based awards is estimated at the grant date using the Black-Scholes Option Pricing
Model (“Black-Scholes”) and the portion that is ultimately expected to vest is recognized as compensation cost over
the requisite service period. The determination of fair value using Black-Scholes is affected by the Company’s stock price
as well as assumptions regarding a number of complex and subjective variables, including expected stock price volatility, risk-free
interest rate, expected dividends and projected employee stock option exercise behaviors.
Since stock-based
compensation is recognized only for those awards that are ultimately expected to vest, the Company has applied an estimated forfeiture
rate to unvested awards for the purpose of calculating compensation cost. These estimates will be revised, if necessary, in future
periods if actual forfeitures differ from estimates. Changes in forfeiture estimates impact compensation cost in the period in
which the change in estimate occurs. The estimated forfeiture rates at December 31, 2015 and March 31, 2015 were zero as the Company
has not had a significant history of forfeitures and does not expect significant forfeitures in the future.
Cash flows from the
tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options or warrants are classified
as financing cash flows. Due to the Company’s loss position, there were no such tax benefits during the nine months ended
December 31, 2015 and 2014.
The Company’s
stock-based compensation plans are discussed further in Note 8.
Equity Instruments Issued to Non-Employees for Acquiring
Goods or Services
Issuances of the Company’s
common stock for acquiring goods or services are measured at the fair value of the consideration received or the fair value of
the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments
issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment for performance to earn
the equity instruments is reached (a “performance commitment” which would include a penalty considered to be of a magnitude
that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is complete. When it is
appropriate for the Company to recognize the cost of a transaction during financial reporting periods prior to the measurement
date, for purposes of recognition of costs during those periods, the equity instrument is measured at the then-current fair values
at each of those interim financial reporting dates.
Basic and Diluted Net Income (Loss) Per Share
We calculate basic
and diluted net income (loss) per share attributable to common stockholders using the weighted average number of common shares
outstanding during the periods presented, and adjust the amount of net income (loss) used in this calculation for deemed preferred
stock dividends and cumulative preferred stock dividends, whether they are earned or not during the period. In periods of a net
loss position, basic and diluted weighted average shares are the same. For the diluted earnings per share calculation, we adjust
the weighted average number of common shares outstanding to include dilutive stock options, warrants and shares associated with
the conversion of convertible debt and convertible preferred stock outstanding during the periods. As of December 31, 2015 and
March 31, 2015, the Company had cumulative, undeclared, dividends that have not been accrued related to its preferred stock of
$992,600 and $305,300, respectively. During the three and nine months ended December 31, 2015 and 2014, undeclared dividends totaling
$239,400 and $687,300 and $95,300 and $194,900, respectively, were added to the net loss on the condensed consolidated statements
of operations in order to calculate net loss per share attributable to common stockholders.
The following shows the amounts used in computing net loss per
share for the three and nine months ended December 31, 2015 and 2014:
Nine Months Ended December 31,
2015
2014
Net loss
$
(7,110,180
)
$
(5,089,781
)
Add:
Preferred stock beneficial conversion charge
(4,474,348
)
(2,961,723
)
Undeclared cumulative preferred dividends
(687,267
)
(194,901
)
Net loss attributable to common stockholders
$
(12,271,795
)
$
(8,246,405
)
Weighted average shares issued and outstanding-basic and diluted
6,259,686
5,002,683
Basic and diluted net loss per share attributable to common stockholders
$
(1.96
)
$
(1.65
)
10
Three Months Ended December 31,
2015
2014
Net loss
$
(2,760,453
)
$
(1,407,758
)
Add:
Preferred stock beneficial conversion charge
—
(492,910
)
Undeclared cumulative preferred dividends
(239,389
)
(95,304
)
Net loss attributable to common stockholders
$
(2,999,842
)
$
(1,995,972
)
Weighted average shares issued and outstanding-basic and diluted
7,225,006
5,004,821
Basic and diluted net loss per share attributable to common stockholders
$
(0.42
)
$
(0.40
)
The following table
sets forth the number of shares excluded from the computation of diluted loss per share, as their inclusion would have been anti-dilutive:
Nine Months Ended December 31,
2015
2014
Class A convertible preferred stock
1,136,875
1,107,220
Class B convertible preferred stock
1,336,428
—
Stock options
847,015
390,011
Warrants
615,790
395,857
3,936,108
1,893,088
Segment Reporting
We currently operate in one reportable
segment.
Fair Value Measurements
We measure fair value
based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used
to measure fair value. These tiers include the following:
Level 1: Quoted
prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date. The fair
value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable
prices that are based on inputs not quoted on active markets, but corroborated by market data. These inputs include quoted prices
for similar assets or liabilities; quoted market prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable
inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3
inputs.
In determining
fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs
to the extent possible, as well as consider counterparty credit risk in the assessment of fair value.
We have no assets
or liabilities that are required to be measured at fair value on a recurring basis as of December 31, 2015 and March 31, 2015.
Foreign Currency Translation
We record foreign
currency transactions at the exchange rate prevailing at the date of the transaction with resultant gains and losses being included
in results of operations. Foreign currency transaction gains and losses have not been significant for any of the periods presented.
11
Recent Accounting Pronouncements
In May 2014, the FASB
issued Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”. ASU 2014-09
supersedes the revenue recognition requirements in FASB Topic 605, “Revenue Recognition”. The ASU implements a five-step
process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards.
The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows
from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring
the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized
before contingencies are resolved in certain circumstances. In August 2015, the FASB issued ASU No. 2015-14 which deferred the
effective date by one year for public entities and others. The amendments in this ASU are effective for interim and annual periods
beginning after December 15, 2017 for public business entities, certain not-for-profit entities, and certain employee benefit plans.
Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting
periods within that reporting period. Management has not selected a transition method and is currently assessing the impact the
adoption of ASU 2014-09 will have on our condensed consolidated financial statements.
In July 2015, the FASB
issued ASU No. 2015-11, “Simplifying the Measurement of Inventory”. The amendments in this update apply to inventory
that is measured using first-in, first-out (FIFO) or average cost. They do not apply to inventory that is measured using last-in,
first-out (LIFO) or the retail inventory method. Other than the change in the subsequent measurement guidance from the lower of
cost or market to the lower of cost and net realizable value for inventory within the scope of this update, there are no other
substantive changes to the guidance on measurement of inventory. The amendments in this update more closely align the measurement
of inventory in International Financial Reporting Standards (IFRS) and are effective for fiscal years beginning after December
15, 2016, including interim periods within those fiscal years. Management is currently assessing the impact the adoption of ASU
2015-11 will have on our condensed consolidated financial statements.
In August 2014,
the FASB issued ASU 2014-15, “Presentation of Financial Statements-Going Concern”. Currently, there is no
guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an
entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments require
management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain
principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term
substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for
considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is
alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures
when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the
financial statements are issued (or available to be issued). The amendments in this ASU are effective for the reporting
periods beginning after December 15, 2016 and early application is permitted. Management is currently assessing the impact
the adoption of ASU 2014-15 will have on our condensed consolidated financial statements.
In November 2015, the
FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes”. Current GAAP requires an entity to separate
deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position.
To simplify the presentation of deferred income taxes, the amendments in this update require that deferred tax liabilities and
assets be classified as noncurrent in a classified statement of financial position. The amendments in this update apply to all
entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets
of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this update.
The amendments in this update will align the presentation of deferred income tax assets and liabilities with IFRS and are effective
for fiscal years after December 15, 2016, including interim periods within those annual periods. Management is currently assessing
the impact the adoption of ASU 2015-17 will have on our condensed consolidated financial statements.
Note 4. Related Party Transactions
As of December 31,
2015 and March 31, 2015, the Company had aggregate principal balances of $1.0 million and $1.3 million, respectively, in outstanding
unsecured indebtedness owed to five related parties, including four former members of the Board of Directors, representing working
capital advances made to the Company from February 2001 through March 2005.
Related-Party Notes Payable
In March 2015, we
entered into definitive agreements relating to the exchange or amendment of the notes evidencing such working capital advances.
Three of the notes issued to Patrick Mullins, M.D., Maryl Petreccia and Jeffrey Dell, M.D., which as of December 31, 2015 had outstanding
principal balances of $448,200, $266,700 and $208,900, respectively, were amended and restated, and the holders received warrants
to purchase 37,347, 22,224, and 17,412 shares, respectively, of our common stock at an exercise price of $6.00 per share, exercisable
on March 2, 2015 and expiring on March 1, 2020, and warrants to purchase 834, 417, and 417 shares, respectively, of our common
stock at an exercise price of $6.00 per share, exercisable on March 2, 2015 and expiring on March 1, 2020, to reimburse the three
note holders for any fees or other expenses incurred in connection with this transaction. The notes, as amended and restated, require
interest payments on a calendar quarterly basis and payment of all outstanding principal and accrued interest on the maturity date,
which is the earlier to occur of (i) March 1, 2016, (ii) the sale of all or substantially all of our assets, or (iii) the merger,
consolidation or other similar reorganization of the Company or an affiliate of our Company with another entity. Under the terms
of such notes, upon the closing of the public offering in July 2015 (see Note 7), the holder had the option to convert into the
securities issued in such offering at a twenty percent (20%) discount to the price per unit issued by the Company in such offering.
The holders elected not to convert into such securities issued by the Company.
12
One note issued to
Raymond Takahashi, M.D., was exchanged for (i) a new promissory note with an original principal amount equal to the outstanding
principal and interest of the original note, and (ii) a warrant to purchase 1,490 shares of the Company’s common stock at
an exercise price of $6.00 per share, exercisable on February 20, 2015 and expiring on February 19, 2018. The new note, which as
of December 31, 2015 had an outstanding principal balance of $35,800, requires interest payments on a calendar quarterly basis
and payment of all outstanding principal and accrued interest on the maturity date, which is March 1, 2016. Under the terms of
such note, upon the closing of the public offering in July 2015 (see Note 7) the holder had the option to convert into the securities
issued in such offering at a twenty percent (20%) discount to the price per unit issued by the Company in such offering. The holder
elected not to convert into such securities issued by the Company.
The conversion feature
of the related-party notes payable at a 20% discount resulted in a BCF. The fair value of the BCF of $521,100 was recorded as a
debt discount upon the resolution of the contingency and it was amortized to interest expense over the conversion term which ended
on September 29, 2015.
The relative fair value
of the related-party warrants of $280,400 was recorded as a debt discount and is being amortized to interest expense using the
straight-line method which approximated the effective interest method over the term of the convertible notes. During the nine months
ended December 31, 2015 and 2014, the Company amortized $195,600 and $0, respectively, of the debt discount to interest expense
for these convertible notes.
Related-party
interest expense under these notes was $43,400 and $23,600 for the nine months ended December 31, 2015 and 2014, respectively.
Accrued interest, which is included in related-party notes payable in the accompanying condensed consolidated balance sheets, amounted
to $0 and $4,600 as of December 31, 2015 and March 31, 2015, respectively.
One note issued to
Marc Grossman, M.D., which as of December 31, 2015 had an outstanding principal balance of $86,500, as amended, now provides for
interest at a rate of 6% per annum commencing on March 13, 2015; however, no interest payments will be due if no event of default
occurs and if the Company (i) complies with its regular payment obligations, (ii) reimburses the payee for attorneys’ fees
in connection with the negotiation of the note amendment, up to a maximum amount of $1,000, on the later of (A) March 13, 2015,
or (B) three (3) days after receiving written notice from the payee of the amount of attorneys’ fees incurred by payee, and
(iii) the Company immediately pays all unpaid amounts due and payable in full before the earlier of May 1, 2016 or at the same
time that payee(s) of any other promissory note(s) with the Company that were issued in 2005 are paid in full before May 1, 2016,
other than (Y) notes that are satisfied upon conversion into common stock, warrants or any other equity of the Company, or (Z)
notes that have been paid in full before March 2, 2015. All principal and interest under the original note, as amended by the note
amendment, will be due and shall be paid on May 1, 2016. The note requires monthly payments of $20,000, except for the month of
June 2015, where the monthly payment was $72,000.
Class B Convertible Preferred Stock
In May 2015, the spouse
of the board member Mr. Richard Berman, participated in the Class B convertible preferred stock offering and the Company issued
1,667 shares of Class B convertible preferred stock for total proceeds of $20,000.
Note 5. Notes Payable
From December 2014
through February 2015, the Company issued to certain accredited investors 2014 Series Secured Promissory Notes (the “7% Bridge
Notes”) in the aggregate original principal amount of $915,000. The 7% Bridge Notes accrued interest at a rate of 7% per
annum. All principal and interest under the 7% Bridge Notes were due on July 1, 2015. In January and March 2015, the Company repaid
an aggregate of $173,600 of the original principal balance outstanding, representing 25% of the net proceeds received from the
Class A and Class B convertible preferred stock offering through February 28, 2015. All remaining principal and accrued interest
was repaid in April 2015.
In connection with
the issuance of the 7% Bridge Notes, the Company issued the note holders warrants to purchase 190,625 shares of common stock at
an exercise price of $6.00 per share. The warrants were exercisable on May 31, 2015 and expire on November 30, 2021. The relative
fair value of the warrants of $458,900 was recorded as a debt discount and was amortized to interest expense using the straight-line
method which approximates the effective interest method over the term of the notes. During the nine months ended December
31, 2015, the Company amortized $221,400 of the debt discount to interest expense for these notes.
13
The Company did not
pay any discounts or commissions with respect to the issuance of the 7% Bridge Notes or the warrants.
Note 6. Commitments and Contingencies
Facility and Equipment Leases
On October 21, 2015,
we entered into a new operating lease for 27,600 square foot corporate, research and development, and warehouse facility in Irvine,
California under an operating lease which commences on the substantial completion of the improvements thereon which we expect to
be completed in February 2016 and expires seven years after such date, subject to our option to extend the lease for two additional
five-year periods. The initial base rent will be approximately $24,700 per month. This lease agreement contains certain scheduled
annual rent increases which will be accounted for on a straight-line basis. We also lease certain office equipment which expires
in March 2018.
Employment Agreements
We have entered into
employment agreements with certain of our officers under which payment and benefits would become payable in the event of termination
by us for any reason other than cause, or upon a change in control of our Company, or by the employee for good reason.
Consulting and Engineering Services
On September 16, 2015,
the Company entered into the Purchase and Sale Agreement (the “Purchase and Sale Agreement”), by and between KLATU
Networks, LLC (“KLATU”) and the Company. Pursuant to the Purchase and Sale Agreement, the Company purchased from KLATU
certain intellectual property and intellectual property rights related to the Company’s CryoportalTM logistics
management platform (the “Developed Technology”), which KLATU previously developed for and licensed to the Company
pursuant to the Master Consulting and Engineering Services Agreement, by and between KLATU and the Company, dated October 9, 2007
(as amended, the “Master Consulting and Engineering Services Agreement”). As full compensation for the sale and assignment
of the Developed Technology from KLATU to the Company, the Company paid KLATU an aggregate amount of $400,000 in two equal installments
of $200,000.
Concurrently with entering
into the Purchase and Sale Agreement, on September 16, 2015, the Company and KLATU entered into the Amended and Restated Master
Consulting and Engineering Services Agreement (the “Amended and Restated Master Consulting and Engineering Services Agreement”)
to amend and restate the Master Consulting and Engineering Services Agreement. The Amended and Restated Master Consulting and Engineering
Services Agreement provides a framework for KLATU to perform certain consulting, software and hardware engineering development
services as mutually agreed upon and further set forth in one or more Statements of Work (as defined in the Amended and Restated
Master Consulting and Engineering Services Agreement). To ensure the availability of KLATU personnel to perform services pursuant
to the Amended and Restated Master Consulting and Engineering Services Agreement, the Company agreed to pay KLATU a minimum of
$25,000 per month for services fees, which may be carried forward as advance payment for future services under certain conditions.
The initial term of the agreement is until December 31, 2017 and will thereafter automatically renew for subsequent one year terms,
unless notice of termination is given.
Consulting fees for services provided by
KLATU were $75,000 and $95,600 for the three months ended December 31, 2015 and 2014, respectively, and $215,500 and $257,500 for
the nine months ended December 31, 2015 and 2014, respectively.
Litigation
The Company may become
a party to product litigation in the normal course of business. The Company accrues for open claims based on its historical experience
and available insurance coverage. In the opinion of management, there are no legal matters involving the Company that would have
a material adverse effect upon the Company’s consolidated financial condition or results of operations.
Indemnities and Guarantees
The Company has made
certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified party, in relation
to certain actions or transactions. Certain of these guarantees and indemnities do not provide for any limitation of the maximum
potential future payments the Company could be obligated to make. The duration of the guarantees and indemnities varies, and is
generally tied to the life of the agreement. Historically, the Company has not been obligated nor incurred any payments for these
obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying condensed
consolidated balance sheets.
14
In addition, the Company
indemnifies its directors, officers, employees and agents, as permitted under the laws of the States of California and Nevada.
Note 7. Stockholders’ Equity
Authorized Stock
The Company has 50,000,000
authorized shares of common stock with a par value of $0.001 per share which were increased in November 2015 upon approval from
our stockholders from 20,833,333 authorized shares. In September 2011, our stockholders approved an amendment to the Amended and
Restated Articles of Incorporation to authorize a class of undesignated or “blank check” preferred stock, consisting
of 2,500,000 shares at $0.001 par value per share. Shares of preferred stock may be issued in one or more series, with such rights,
preferences, privileges and restrictions to be fixed by the Board of Directors. In May 2014, the Company filed with the Secretary
of State of the State of Nevada a Certificate of Designation which designated 800,000 shares of the Company’s previously authorized
preferred stock, par value $0.001, as Class A Convertible Preferred Stock. In February 2015, the Company filed with the Secretary
of State of the State of Nevada a Certificate of Designation which designated 400,000 shares of the Company’s previously
authorized preferred stock, par value $0.001, as Class B Convertible Preferred Stock. In April 2015, the Company filed with the
Secretary of State of the State of Nevada an Amendment to the Certificate of Designation to increase the number shares of Class
B Convertible Preferred Stock from 400,000 shares to 585,000 shares.
On October 1, 2015,
the Company issued 55,000 shares of common stock with a fair value of $150,200 to a consultant for investor relation services under
a consulting agreement that expires on April 1, 2016. At December 31, 2015, $75,100 is included in other current assets in the
accompanying condensed consolidated balance sheet.
Class A Convertible Preferred Stock
In May 2014, the Company
entered into definitive agreements for a private placement of its securities to certain institutional and accredited investors
(the “Class A Investors”) pursuant to certain subscription agreements and elections to convert between the Company
and the Class A Investors. As of December 31, 2015 and March 31, 2015, 454,750 shares of Class A Convertible Preferred Stock
and 303,167 of the related warrants were outstanding for Class A Investors and 106,432 warrants were outstanding for Emergent Financial,
Inc. (“Emergent”) in connection with the Class A Convertible Preferred Stock offering and the 5% Bridge Note conversions.
No dividends have
been declared as of December 31, 2015; however, a cumulative preferred stock dividend of $630,400 and $301,500 is included in the
liquidation preference at December 31, 2015 and March 31, 2015, respectively.
Class B Convertible Preferred Stock
In February 2015,
the Company entered into definitive agreements for a private placement of its securities to certain institutional and accredited
investors (the “Class B Investors”) pursuant to certain subscription agreements and elections to convert between the
Company and the Class B Investors. During the nine months ended December 31, 2015, aggregate gross cash proceeds of $4.5 million
(approximately $3.9 million after offering costs) were collected in exchange for the issuance of 372,862 shares of our Class
B Convertible Preferred Stock, and warrants, which were immediately exercisable and may be exercised at any time on or before
May 31, 2020, to purchase up to a total of 248,575 shares of our common stock at an exercise price of $6.00 per share. The
shares and warrants were issued as a unit consisting of (i) one share of Class B Convertible Preferred Stock and (ii) one
warrant to purchase 0.67 shares of the Company’s common stock.
The fair value of
the beneficial conversion feature of the convertible preferred stock issuance and the relative fair value of the warrants issued,
aggregated $4.5 million during the nine months ended December 31, 2015. The amount of $4.5 million was accreted to accumulated
deficit and additional paid-in capital during the nine months ended December 31, 2015.
Emergent served as
the Company’s placement agent in this transaction and received, with respect to the gross proceeds received from Class B
Investors, a commission of 10% and a non-accountable finance fee of 3% of the aggregate gross proceeds received from such Class
B Investors, plus reimbursement of legal expenses of up to $5,000. Emergent was issued a warrant to purchase 0.25 shares of common
stock at an exercise price of $6.00 per share for each Unit issued in this transaction. The offering of units to new Class B Investors
concluded on June 9, 2015.
In May 2015, the spouse
of the board member Mr. Richard Berman, participated in the Class B Convertible Preferred Stock offering and the Company issued
1,667 shares of Class B Convertible Preferred Stock for proceeds of $20,000.
15
As of December 31,
2015 and March 31, 2015, 534,571 and 161,709 shares, respectively, of Class B Convertible Preferred Stock, and 356,381 and
107,806, respectively, of the related warrants were outstanding for Class B Investors and 130,914 and 38,115 warrants, respectively,
were outstanding for Emergent in connection with the Class B Convertible Preferred Stock offering.
No dividends have
been declared as of December 31, 2015; however, a cumulative preferred stock dividend of $362,200 and $3,800 is included in the
liquidation preference at December 31, 2015 and March 31, 2015, respectively.
Emergent received total
cash consideration of $1.3 million and was issued warrants to purchase 237,345 shares of common stock with respect to the gross
proceeds the Company received from the Class A and Class B offerings.
All shares of
Class A and Class B Convertible Preferred Stock were converted to units of common stock in January 2016 (See Note 9).
Public Equity Offering
On July 29, 2015, the
Company completed the sale of common stock and warrants (the “Units”) under a registered public offering. The gross
proceeds to Cryoport from the offering, including the partial exercise of the over-allotment option, were approximately $6.8 million,
before underwriting discounts and commissions and other offering expenses (approximately $6.2 million after underwriting discounts,
commissions and other expenses).
The public offering
price per Unit was $3.25. Each Unit consists of one share of common stock and a warrant to purchase one share of common stock.
Under the terms of the offering, Cryoport issued 2,090,750 shares of common stock and warrants to purchase up to an aggregate of
2,090,750 shares of common stock, inclusive of the partial exercise of the over-allotment option. The warrants have a per share
exercise price of $3.57, are exercisable immediately and will expire five years from the date of issuance.
In connection with this
offering, the Company issued to Aegis Capital Corp. (“Aegis”), the underwriters’ representative in the offering, a
warrant to purchase up to 80,000 shares of the Company’s common stock and Aegis received a total cash consideration, including
the reimbursement of public offering-related expenses, of $0.6 million. If such warrant is exercised, each share of common stock
may be purchased at $4.47 per share (137.5% of the price of the units sold in the offering), commencing on July 23, 2016 and expiring
July 23, 2020.
In connection with this
offering, the Company incurred $266,100 in offering costs that have been offset against the proceeds from this offering.
Common Stock Reserved for Future
Issuance
As of December 31,
2015, approximately 13.9 million shares of common stock were issuable upon conversion or exercise of rights granted under
prior financing arrangements, stock options and warrants, as follows:
Class A and B convertible preferred stock converted to common stock
2,473,303
Exercise of stock options
4,002,899
Exercise of warrants
7,444,736
Total shares of common stock reserved for future issuances
13,920,938
Note 8. Stock-Based Compensation
Warrant Activity
We typically issue warrants
to purchase shares of our common stock to investors as part of a financing transaction or in connection with services rendered
by placement agents and consultants. Our outstanding warrants expire on varying dates through November 2021. A summary of warrant
activity is as follows:
16
Number of Shares
Weighted- Average Exercise Price/Share
Weighted- Average Remaining Contractual Term (Years)
Aggregate Intrinsic Value (1)
Outstanding — March 31, 2015
5,475,806
7.20
Issued
2,512,179
3.93
Exercised
(49,339
)
2.40
Forfeited
—
—
Expired
(493,910
)
9.33
Outstanding — December 31, 2015
7,444,736
$
5.96
2.9
$
-
Vested (exercisable) — December 31, 2015
7,444,736
$
5.96
2.9
$
-
(1)
Aggregate intrinsic value represents the difference between the exercise price of the warrant and
the closing market price of our common stock on December 31, 2015, which was $2.02 per share.
The fair value of
each warrant issued was estimated on the date of issuance using Black-Scholes with the following assumptions:
Expected
life (years)
5.0 – 5.2
Risk-free interest rate
1.33% – 1.73%
Volatility
98.6% – 121.3%
Dividend yield
0%
Stock Options
We have four stock incentive plans: the 2002 Stock Incentive Plan (the “2002 Plan”), the 2009
Stock Incentive Plan (the “2009 Plan”), the 2011 Stock Incentive Plan (the “2011 Plan”) and the 2015 Omnibus
Equity Incentive Plan (the “2015 Plan” and, collectively, the “Plans”). The 2002 Plan, the 2009 Plan, and
the 2011 Plan (the “Prior Plans”) have been superseded by the 2015 Plan. In October 2015, the stockholders approved
the 2015 Plan for 5,000,000 shares. The Prior Plans will remain in effect until all awards granted under such Prior Plans have
been exercised, forfeited, cancelled, or have otherwise expired or terminated in accordance with the terms of such awards, but
no awards will be made pursuant to the Prior Plans after the effectiveness of the 2015 Plan. As of December 31, 2015, the Company
had 3,091,600 shares available for future awards under the 2015 Plan.
In May 2015, the Company
granted employees and members of the board of directors options to purchase 465,633 and 20,835 shares of common stock, respectively,
with an exercise price of $7.80 per share, of which 355,001 shares were issued outside of a plan. The exercise price for the shares
of common stock pursuant to the option is equal to the fair market value of the Company’s common stock on the date of grant.
We granted stock options
at exercise prices equal to or greater than the quoted market price of our common stock on the grant date. The fair value of each
option grant was estimated on the date of grant using Black-Scholes with the following assumptions:
Expected life (years)
5.2 to 6.4
Risk-free interest rate
1.7% to 1.9%
Volatility
115.9% to 122.3%
Dividend yield
0%
The expected option
life assumption is estimated based on the simplified method. Accordingly, the Company has utilized the average of the contractual
term of the options and the weighted average vesting period for all options to calculate the expected option term. The risk-free
interest rate assumption is based upon observed interest rates appropriate for the expected term of our employee stock options.
The expected volatility is based on the historical volatility of our stock commensurate with the expected life of the stock-based
award. We do not anticipate paying dividends on the common stock in the foreseeable future.
We recognize stock-based
compensation cost over the vesting period using the straight-line single option method. Stock-based compensation expense is recognized
only for those awards that are ultimately expected to vest. An estimated forfeiture rate has been applied to unvested awards for
the purpose of calculating compensation cost. The estimated forfeiture rate of 0% per year is based on the historical forfeiture
activity of unvested stock options. These estimates are revised, if necessary, in future periods if actual forfeitures differ from
the estimates. Changes in forfeiture estimates impact compensation cost in the period in which the change in estimate occurs.
17
A summary of stock
option activity is as follows:
Number of Shares
Weighted- Average Exercise Price/Share
Weighted- Average Remaining Contractual Term (Years)
Aggregate Intrinsic Value (1)
Outstanding — March 31, 2015
1,793,745
$
4.56
Granted (weighted-average fair value of $2.94 per share)
2,394,868
4.02
Exercised
(4,601
)
2.47
Forfeited
(181,113
)
4.33
Outstanding — December 31, 2015
4,002,899
$
4.23
8.7
$
—
Vested (exercisable) — December 31, 2015
1,144,928
$
4.57
7.3
$
—
Unvested (unexercisable) — December 31, 2015
2,857,971
$
4.10
3.2
$
—
(1)
Aggregate intrinsic value represents the difference between the exercise price of the option and
the closing market price of our common stock on December 31, 2015, which was $2.02 per share.
As of December 31, 2015, there was unrecognized compensation
expense of $8.8 million related to unvested stock options, which we expect to recognize over a weighted average period of
3.2 years.
Note 9. Subsequent Events
Preferred Stock Conversion
On January 30, 2016
(the “Mandatory Exchange Time”), the Company caused the mandatory exchange (the “Mandatory Exchange”) of
all its outstanding Class A Convertible Preferred Stock and Class B Convertible Preferred Stock (together, the “Preferred
Stock”), consisting of 454,750 shares of Class A Convertible Preferred Stock and 534,571 shares of Class B Convertible Preferred
Stock, into (i) an aggregate of 4,977,038 shares (the “Shares”) of common stock, $0.001 par value per share (the “Common
Stock”), of the Company and (ii) an aggregate of 4,977,038 warrants, each warrant representing the right to purchase
one share of Common Stock (the “Warrants” and together with the Shares, the “Securities”).
The Mandatory Exchange
was effected in accordance with the terms and conditions of the Company’s Amended and Restated Certificate of Designation
of Class A Convertible Preferred Stock and the Company’s Amended and Restated Certificate of Designation of Class B Convertible
Preferred Stock (together, as amended to date, the “Certificates of Designation”). In accordance with each of
the Certificates of Designation, a mandatory exchange of the Preferred Stock is triggered upon a Qualified Offering (as defined
in the Certificates of Designation). The Mandatory Exchange occurs on the day that is six months and one day after the closing
of such Qualified Offering. On July 29, 2015, the Company completed its public offering of 2,090,750 units (consisting of
one share of Common Stock and one Warrant) at the public offering price of $3.25 per unit, which constituted a Qualified Offering
(see Note 7). As a result, all outstanding shares of Preferred Stock were automatically exchanged at the Mandatory Exchange
Time for such units sold in the Qualified Offering (consisting of one share of Common Stock and one Warrant) at an exchange rate
determined by:
1) multiplying
the number of shares of Preferred Stock to be exchanged by the Class A Original Issue Price or Class B Original Issue Price (as
defined in the Certificates of Designation), or $12.00 per share;
2) adding
to the result all dividends then accrued but unpaid on such shares of Preferred Stock to be exchanged of $1,068,100; then
3) dividing
the result by $2.60 (which is eighty percent (80%) of the price per unit issued in the Qualified Offering).
The issuance of the
Securities in connection with the Mandatory Exchange was exempt from registration pursuant to Section 3(a)(9) of the Securities
Act of 1933, as amended.
18
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this Form 10-Q,
the terms “Cryoport”, “Company” and similar terms refer to Cryoport, Inc. and its wholly owned subsidiary,
Cryoport Systems, Inc.
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS:
This Quarterly
Report on Form 10-Q contains forward-looking statements that have been made pursuant to the provisions of the Private Securities
Litigation Reform Act of 1995 and concern matters that involve risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. In some cases, you can identify these statements by terminology
such as “may,” “will,” “should,” “could,” “expect,” “plan,”
“anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue”
or similar words which are intended to identify forward-looking statements, although not all forward-looking statements contain
these words. Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable
as of the date of this Quarterly Report, we cannot guarantee future results, levels of activity, performance or achievements, and
our actual results may differ substantially from the views and expectations set forth in this Quarterly Report. You should be aware
that these statements are projections or estimates as to future events and are subject to a number of factors that may tend to
influence the accuracy of the statements. These forward-looking statements should not be regarded as a representation by the
Company or any other person that the events or plans of the Company will be achieved. You should not unduly rely on these
forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to publicly
revise any forward-looking statement to reflect circumstances or events after the date of this Quarterly Report or to reflect the
occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports we file from time
to time with the Securities and Exchange Commission (“SEC”), including those contained in our Annual Report on Form
10-K for the fiscal year ended March 31, 2015, as filed with the SEC on May 19, 2015 and those reports filed after the date of
this Quarterly Report. Actual results may differ materially from any forward looking statement.
The following management’s
discussion and analysis of the Company’s financial condition and results of operations (“MD&A”) should be
read in conjunction with the condensed consolidated balance sheet as of December 31, 2015 (unaudited) and the consolidated balance
sheet as of March 31, 2015 (audited) and the related unaudited condensed consolidated statements of operations for the three and
nine months ended December 31, 2015 and 2014, and cash flows for the nine months ended December 31, 2015 and 2014 and the
related notes thereto (see Part 1, Item 1. Financial Statements), as well as the audited consolidated financial statements
of the Company as of March 31, 2015 and 2014 and for the years then ended included in the Company’s Annual Report on Form
10-K for the fiscal year ended March 31, 2015.
General Overview
We provide cryogenic
logistics solutions to the life sciences industry through a combination of purpose-built proprietary packaging, information technology
and specialized cold chain logistics knowhow. We view our solutions as disruptive to the “older technologies” of dry
ice and liquid nitrogen, in that our solutions are comprehensive and combine our competencies in configurations that are customized
to our client’s requirements. We provide comprehensive, reliable, economic alternatives to all existing logistics solutions
and services utilized for frozen shipping in the life sciences industry (e.g., personalized medicine, cell therapies, stem cells,
cell lines, vaccines, diagnostic materials, semen, eggs, embryos, cord blood, bio-pharmaceuticals, infectious substances, and other
commodities that require continuous exposure to cryogenic or frozen temperatures). As part of our services, we provide the ability
to monitor, record and archive crucial information for each shipment that can be used for scientific and regulatory purposes.
Our Cryoport Express®
Solutions include a sophisticated cloud-based logistics operating platform, which is branded as the Cryoportal™. The Cryoportal™
supports the management of the entire shipment and logistics process through a single interface, including initial order input,
document preparation, customs clearance, courier management, shipment tracking, issue resolution, and delivery. In addition, it
provides unique and incisive information dashboards and validation documentation for every shipment. The Cryoportal™ records
and retains a fully documented “chain-of-custody” and, at the client’s option, “chain-of-condition”
for every shipment, helping ensure that quality, safety, efficacy, and stability of shipped commodities are maintained throughout
the process. This recorded and archived information allows our clients to meet exacting requirements necessary for scientific work
and for proof of regulatory compliance during the logistics phase.
The branded packaging
for our Cryoport Express® Solutions includes our liquid nitrogen dry vapor shippers, the Cryoport Express®
Shippers. The Cryoport Express® Shippersare cost-effective and reusable cryogenic transport shippers
(our standard shipper is a patented vacuum flask) utilizing an innovative application of “dry vapor” liquid nitrogen
technology. Cryoport Express® Shippers are International Air Transport Association certified and validated to maintain
stable temperatures of minus 150° Celsius and below for a 10-day dynamic shipment period. The Company currently features three
Cryoport Express® Shippers: the Standard Dry Shipper (holding up to 75 2.0 ml vials), the High Volume Dry Shipper
(holding up to 500 2.0 ml vials) and the Cryoport Express® CXVC1 Shipper (holding up to 1,500 2.0 ml vials). In
addition, we assist clients with internal secondary packaging as well (e.g., vials, canes, straws, plates, etc.).
19
Our most used solution
is the “turnkey” solution, which can be accessed directly through our cloud-based Cryoportal™ or by contacting
Cryoport Client Care for order entry. Once an order is placed and cleared, we ship a fully charged Cryoport Express®
Shipper to the client who conveniently loads its frozen commodity into the inner chamber of the Cryoport
Express® Shipper. The customer then closes the shipper package and reseals the
shipping box displaying the next recipient’s address (“Flap A”) for pre-arranged carrier pick up. Cryoport
arranges for the pick-up of the parcel by a shipping service provider, which is designated by the client or chosen by Cryoport,
for delivery to the client’s intended recipient. The recipient simply opens the shipper package and removes the frozen
commodity that has been shipped. The recipient then reseals the package, displaying the nearest Cryoport Operations Center
address (“Flap B”), making it ready for pre-arranged carrier pick-up. When the Cryoport Operations Center receives
the Cryoport Express® Shipper, it is cleaned, put through quality assurance testing, and returned to inventory for
reuse.
In late 2012, we shifted
our focus to become a comprehensive cryogenic logistics solutions provider. Recognizing that clients in the life sciences industry
have varying requirements, we unbundled our technologies, establishing customer facing solutions and taking a consultative approach
to the market. Today, in addition to our standard turnkey solution, described above, we also provide the following customer facing,
value-added solutions to address our various clients’ needs:
·
“Customer Staged Solution,” designed for clients making 50 or more shipments per month. Under this solution, we supply an inventory of our Cryoport Express® Shippers to our customer, in an uncharged state, enabling our customer (after training/certification) to charge them with liquid nitrogen and use our Cryoportal™ to enter orders with shipping and delivery service providers for the transportation of the package. Once the order is released, our customer service professionals monitor the shipment and the return of the shipper to us for cleaning, quality assurance testing and reuse.
·
“Customer Managed Solution,” a limited customer implemented solution whereby we supply our Cryoport Express® Shippers to clients in a fully charged state, but leaving it to the client to manage the shipping, including the selection of the shipping and delivery service provider and the return of the shipper to us.
·
“powered by CryoportSM,” available to providers of shipping and delivery services who seek to offer a “branded” cryogenic logistics solution as part of their service offerings, with “powered by CryoportSM” appearing prominently on the offering software interface and packaging. This solution can also be private labeled upon meeting certain requirements, such as minimum required shipping volumes.
·
“Integrated Solution,”which is our outsource solution. It is our most comprehensive solution and involves our management of the entire cryogenic logistics process for our client, including Cryoport employees at the client’s site to manage the client’s cryogenic logistics function in total.
·
“Regenerative Medicine Point-of-Care Repository Solution,” designed for allogeneic therapies. Under this solution we supply our Cryoport Express® Shipper to ship and store cryogenically preserved life science products for up to 6 days (or longer periods with supplementary shippers) at a point-of-care site, with the Cryoport Express® Shipper serving as a temporary freezer/repository enabling the efficient and effective distribution of temperature sensitive allogeneic cell-based therapies without the expense, inconvenience, and potential costly failure of an on-site, cryopreservation device. Our customer service professionals monitor each shipment throughout the predetermined process including the return of the shipper to us. When the Cryoport Operations Center receives the Cryoport Express® Shipper package it is cleaned, put through quality assurance testing, and returned to inventory for reuse.
·
“Personalized Medicine and Cell-based Immunotherapy Solution,” designed for autologous therapies. Under this solution our Cryoport Express® Shipper serves as an enabling technology for the safe transportation of manufactured autologous cellular-based immunotherapies by providing a comprehensive logistics solution for the verified chain of custody and condition transport from, (a) the collection of the patient’s cells in a hospital setting, to (b) a central processing facility where they are manufactured into a personalized medicine, to (c) the safe, cryogenically preserved return of these irreplaceable cells to a point-of-care treatment facility. If required, the Cryoport Express® Shipper can then serve as a temporary freezer/repository to allow the efficient distribution of this personalized medicine to the patient when and where the medical provider needs it most without the expense, inconvenience, and potential costly failure of an on-site, cryopreservation device. Our customer service professionals monitor each shipment throughout the predetermined process, including the return of the shipper to us. When the Cryoport Operations Center receives the Cryoport Express® Shipper package it is cleaned, put through quality assurance testing, and returned to inventory for reuse.
20
Strategic Logistics Alliances
We have sought to
establish strategic alliances as a long-term method of marketing our solutions providing minus 150° Celsius shipping conditions
to the life sciences industry. We have focused our efforts on leading companies in the logistics services industry as well as participants
in the life sciences industry. In connection with our alliances with providers of shipping services, we refer to their respective
offerings as “powered by CryoportSM” to reflect our solutions being integrated into our alliance
partner’s services.
Cryoport now serves
and supports the three largest integrators in the world, responsible for over 85% of worldwide airfreight, with its advanced cryogenic
logistics solutions for life sciences. We operate with each independently and confidentially in support of their respective market
and sales strategies. These agreements with the three largest integrators in the world represent a significant validation of our
solutions and the way we conduct our business.
FedEx. In January
2013, we entered into a master agreement with Federal Express Corporation (“FedEx”) (the “FedEx Agreement”)
renewing these services and providing FedEx with a non-exclusive license and right to use a customized version of our CryoportalTM
for the management of shipments made by FedEx customers. The FedEx Agreement became effective on January 1, 2013 and was amended
in December 2015 to extend the initial term for an additional three years, expiring on December 31, 2018. FedEx has the right to
terminate this agreement at any time for convenience upon 180 days’ notice.
Under our FedEx Agreement,
we provide frozen shipping logistics services through the combination of our purpose-built proprietary technologies and turnkey
management processes. FedEx markets and sells Cryoport’s services for frozen temperature-controlled cold chain transportation
as its FedEx® Deep Frozen Shipping Solution on a non-exclusive basis and at its sole expense. As part of the solution,
Cryoport has developed a FedEx-branded version of the CryoportalTM software platform, which is “powered by
CryoportSM” for use by FedEx and its customers giving them access to the full capabilities of our cloud-based
logistics management software platform.
DHL. In June
2014, we entered into a master agreement with LifeConEx, a part of DHL Global Forwarding (“DHL”). This relationship
with DHL is a further implementation of the Company’s expansion of distribution partnerships under the “powered
by CryoportSM” model described above, allowing us to expand our sales and marketing reach through our partners
and build awareness of the benefits of our validated cryogenic solution offerings. DHL enhanced its cold chain logistics offerings
to its life sciences and healthcare customers with Cryoport’s validated cryogenic solutions. DHL’s network offers Cryoport’s
cryogenic solutions under the DHL brands as “powered by CryoportSM”. In addition, DHL’s customers
will be able to have direct access to our cloud-based order entry and tracking portal to order Cryoport Express®
Solutions and receive preferred DHL shipping rates and discounts. Our proprietary logistics management operating platform, the
CryoportalTM, is integrated with DHL’s tracking and billing systems to provide DHL life sciences and healthcare
customers with a seamless way of accessing critical information regarding shipments of biological material worldwide.
UPS. In October
2014, we added United Parcel Services, Inc. (“UPS”) as our third major distributor by entering into an agreement with
UPS Oasis Supply Corporation, a part of UPS, whereby UPS will offer our validated and comprehensive cryogenic solutions to its
life sciences and healthcare customers on a global basis. This relationship with UPS is a further implementation of the Company’s
expansion of distributors under the “powered by CryoportSM” model described above, allowing us to
further expand our sales and marketing reach through our partners and build awareness of the benefits of our validated cryogenic
solution offerings through UPS.
As a result of our
new relationship with UPS, UPS customers will have direct access to our cloud-based order entry and tracking portal to order Cryoport
Express® Solutions and gain access to UPS’s broad array of domestic and international shipping and logistics
solutions at competitive prices. Our proprietary logistics management operating platform, the CryoportalTM, is integrated
with UPS’s tracking and billing systems to provide UPS life sciences and healthcare customers with a seamless way of accessing
critical information regarding shipments of biological material worldwide.
Life Sciences Agreements
Zoetis. In
December 2012, we signed an agreement with Pfizer Inc. relating to Zoetis Inc. (formerly the animal health business unit of
Pfizer Inc.) pursuant to which we were engaged to manage frozen shipments of a key poultry vaccine. Under this arrangement, Cryoport
provides on-site logistics personnel and its logistics management operating platform, the CryoportalTM to manage shipments
from the Zoetis manufacturing site in the United States to domestic customers as well as various international distribution centers.
As part of our logistics management services, Cryoport is constantly analyzing logistics data and processes to further introduce
economies and reliability throughout the network, ensuring products arrive at their destinations in specified conditions, on-time
and with the optimum utilization of resources. The Company manages Zoetis’ total fleet of dewar flask shippers used for this
purpose, including liquid nitrogen shippers. In July 2013 the agreement was amended to expand Cryoport’s scope to manage
all logistics of Zoetis’ key frozen poultry vaccine to all Zoetis’ international distribution centers as well as all
domestic shipments. In October 2013, the agreement was further amended to expand Cryoport’s role to include the logistics
management for a second poultry vaccine. In September 2015, the agreement was further amended and extended through September 2018,
subject to certain termination and extension provisions.
21
In summary, we serve
the life sciences industry with cryogenic logistics solutions that are advanced, comprehensive, reliable, validated, and efficient.
Our clients include those companies and institutions that have logistics requirements for personalized medicine, immunotherapies,
stem cells, cell lines, tissue, vaccines, in-vitro fertilization, cord blood, and other temperature sensitive commodities of life
sciences.
Recent Developments
The Board of Directors
authorized the 1-for-12 reverse stock split that became effective on May 19, 2015. All prior periods presented in this Report have
been adjusted to reflect the twelve to one reverse stock split. Financial information updated by this capital change includes earnings
per common share, dividends per common share, stock price per common share, weighted average common shares, outstanding common
shares, treasury shares, common stock, and additional paid-in capital.
On July 29, 2015, the
Company completed the sale of common stock and warrants (the “Units”) under a registered public offering. The gross
proceeds to Cryoport from the offering, including the partial exercise of the over-allotment option, were approximately $6.8 million,
before underwriting discounts and commissions and other offering expenses (approximately $5.9 after underwriting discounts, commissions
and other expenses).
The public offering
price per Unit was $3.25. Each Unit consists of one share of common stock and a warrant to purchase one share of common stock.
Under the terms of the offering, Cryoport issued 2,090,750 shares of common stock and warrants to purchase up to an aggregate of
2,090,750 shares of common stock, inclusive of the partial exercise of the over-allotment option. The common stock and the warrants
are immediately separable and trade on the Nasdaq Capital Market under the symbols CYRX, and CYRXW, respectively. The warrants
have a per share exercise price of $3.57, are exercisable immediately and will expire five years from the date of issuance.
On September 16, 2015,
the Company entered into the Purchase and Sale Agreement by and between KLATU Networks, LLC (“KLATU”) and the Company.
Pursuant to the Purchase and Sale Agreement, the Company purchased from KLATU certain intellectual property and intellectual property
rights related to the Company’s CryoportalTM logistics management platform, which KLATU previously developed for
and licensed to the Company pursuant to the Master Consulting and Engineering Services Agreement, by and between KLATU and the
Company, dated October 9, 2007. As full compensation for the sale and assignment of the Developed Technology from KLATU to the
Company, the Company paid KLATU an aggregate amount of $400,000.
In November 2015, the
shareholders approved an increase in the authorized number of shares from 20,833,333 shares to 50,000,000 shares.
On January 30, 2016,
the Company caused the mandatory exchange of all its outstanding Class A Convertible Preferred Stock and Class B Convertible Preferred
Stock consisting of 454,750 shares of Class A Convertible Preferred Stock and 534,571 shares of Class B Convertible Preferred Stock,
into (i) an aggregate of 4,977,038 shares of common stock, $0.001 par value per share, of the Company and (ii) an aggregate of
4,977,038 warrants, each warrant representing the right to purchase one share of Common Stock.
22
Results of Operations
Three months ended December 31, 2015 compared to three
months ended December 31, 2014:
The following table summarizes certain
information derived from our condensed consolidated statements of operations:
Three Months Ended
December 31,
2015
2014
$ Change
% Change
($ in 000’s)
Revenues
$
1,458
$
975
$
483
49.6
%
Cost of revenues
(1,074
)
(740
)
(334
)
45.0
%
Gross margin
384
235
149
63.8
%
Selling, general and administrative
(2,835
)
(1,493
)
(1,342
)
89.9
%
Research and development
(228
)
(99
)
(129
)
129.9
%
Interest expense
(80
)
(49
)
(31
)
64.5
%
Other expense, net
(1
)
(2
)
1
(29.3
)%
Net loss
$
(2,760
)
$
(1,408
)
$
(1,352
)
96.1
%
Revenues.
We generated revenues from customers in all of our target life sciences markets, such as biopharma, reproductive medicine and animal
health. Revenues increased $483,400 or 49.6% to $1.5 million for the three months ended December 31, 2015, as compared to $975,200
for the three months ended December 31, 2014. This increase is primarily driven by an overall increase in the number of customers
utilizing our services compared to the prior year. Revenues in the biopharma market, which includes biotech and diagnostic companies,
pharmaceutical companies, central laboratories, contract research organizations and research institutions grew by 80.0% compared
to the prior year quarter. During the quarter we started supporting
8 additional new clinical trials and are now supporting 59 clinical trials in aggregate. Revenues in the reproductive medicine
market increased by 35.9% over the prior year to $306,300 for the three months ended December 31, 2015, led by a 53.3% increase
in the U.S. market, which was partially offset by a slower revenue ramp of 20.3% internationally. While revenue in the reproductive
medicine market continues to be driven by our targeted sales and marketing campaigns and an increased awareness of our cryogenic
logistics solutions in this market, our international revenue was impacted by the closure of reproductive tourism in three countries
during the quarter. Our revenues from the animal health market were $176,500 for the three months ended December 31, 2015, representing
a 15.1% decrease over the same period in the prior year as a result of a temporary reduction in production volume from one of our
clients.
Gross
margin and cost of revenues. Gross margin for the three months ended December 31,
2015 was 26.3% of revenues, as compared to 24.1% of revenues for the three months ended December 31, 2014. The increase in gross
margin is primarily due to the increase in revenues combined with a reduction in freight charges as a percentage of revenues and
a decrease of fixed manufacturing costs. Cost of revenues for the three months ended December
31, 2015 was 73.7% of revenues, as compared to 75.9% of revenues for the three months ended December 31, 2014. Our cost of revenues
are primarily comprised of freight charges, payroll and related expenses for our operations center in California, third-party charges
for our European and Asian operations centers in the Netherlands and Singapore, depreciation expenses of our Cryoport Express®
Shippers and supplies and consumables used for our solutions. The increase in cost of revenues is primarily due to freight
charges from the growth in shipments and inventory transfers between operations centers, freight pricing increases and the expansion
of the shipping team in anticipation of increased shipping volume.
Selling, general
and administrative expenses. Selling, general and administrative expenses increased $1.3 million for the three months ended
December 31, 2015 or 89.9% as compared to the three months ended December 31, 2014. This increase is primarily due to equity-based
compensation charges, salaries and associated employee costs, including recruiting fees, incurred to expand our sales force, the
engagement of a marketing firm, increased attendance at trade shows and public company related expenses, including legal fees and
costs to trade on the NASDAQ Capital Markets exchange.
Research
and development expenses. Research and development expenses increased $128,700 or 129.9% for the three months ended December
31, 2015, as compared to the three months ended December 31, 2014. The increase is primarily due to a write off of previously capitalized
costs in the amount of $98,100 resulting from the abandonment of a method of shipment patent application and the salary and associated
employee costs related to the addition of a research and development engineer. Our research and development efforts are focused
on continually improving the features of the Cryoport Express® Solutions including
the Company’s cloud-based logistics management platform, the CryoportalTM, the Cryoport Express® Shippers
and development of additional accessories to facilitate the efficient shipment of life science commodities using our solution.
We use an outside software development company and other third parties to provide some of these services. These efforts are expected
to lead to the introduction of additional shipper designs to meet market requirements, constructed of lower cost materials and
utilizing high volume manufacturing methods. In addition, research and development effort has been directed towards developing
an advanced condition monitoring system, Smart Pak II, which is currently in beta testing and is scheduled to be launched during
the first quarter of fiscal year 2017.
23
Interest expense.
Interest expense increased $31,300 for the three months ended December 31, 2015, as compared to the three months ended December
31, 2014. Interest expense for the three months ended December 31, 2015 included amortization of the debt discount on the related-party
notes payable of $65,400 and the related interest expense of $14,500. Interest expense for the three months ended December 31,
2014 included accrued interest on our related-party notes payable of $7,500, amortization of the debt discount on the 7% Bridge
Notes of $38,100 and related interest expense of $3,000.
Other expense,
net. The other expense, net for the three months ended December 31, 2015 is primarily due to administrative charges and
foreign exchange losses on accounts receivable and payable invoices.
Nine months ended December 31, 2015 compared to nine months
ended December 31, 2014:
The following table summarizes certain
information derived from our condensed consolidated statements of operations:
Nine months Ended
December 31,
2015
2014
$ Change
% Change
($ in 000’s)
Revenues
$
4,327
$
2,737
$
1,590
58.1
%
Cost of revenues
(3,018
)
(1,938
)
(1,080
)
55.7
%
Gross margin
1,309
799
510
63.8
%
Selling, general and administrative
(7,020
)
(4,431
)
(2,589
)
58.4
%
Research and development
(406
)
(268
)
(138
)
51.7
%
Interest expense
(984
)
(1,185
)
201
(16.9
)%
Other income (expense), net
(5
)
(3
)
(2
)
77.8
%
Provision for income taxes
(4
)
(2
)
(2
)
126.6
%
Net loss
$
(7,110
)
$
(5,090
)
$
(2,020
)
39.7
%
Revenues.
We generated revenues from customers in all of our target life sciences markets, such as biopharma, reproductive medicine and animal
health. Revenues increased $1.6 million or 58.1% to $4.3 million for the nine months ended December 31, 2015, as compared to $2.7
million for the nine months ended December 31, 2014. This increase is primarily driven by an overall increase in the number of
customers utilizing our services compared to the prior year. Revenues in the biopharma market, which includes biotech and diagnostic
companies, pharmaceutical companies, central laboratories, contract research organizations and research institutions grew by 91.3%
compared to the prior year period and we are now supporting 59 clinical trials, of which ten are in phase III of their respective
clinical trials. Revenues in the reproductive medicine market increased by 58.4% over the prior year to $997,800 for the nine months
ended December 31, 2015. While revenue in the reproductive medicine market continues to be driven by our targeted sales and marketing
campaigns and an increased awareness of our cryogenic logistics solutions in this market, our international revenue was impacted
by the closure of reproductive tourism in three countries during our third fiscal quarter. driven by continued success of our targeted
sales and marketing campaigns and an increased awareness of our cryogenic logistics solutions in this market. Our revenues from
the animal health market were $656,400 for the nine months ended December 31, 2015, representing a 7.6% decrease over the same
period in the prior year as a result of a temporary reduction in production volume from one of our clients.
Gross
margin and cost of revenues. Gross margin for the nine months ended December 31, 2015
was 30.2% of revenues, as compared to 29.2% of revenues for the nine months ended December 31, 2014. Cost of revenues for the nine
months ended December 31, 2015 was 69.8% of revenues, as compared to 70.8% of revenues for the nine months ended December 31, 2014.
Our cost of revenues are primarily comprised of freight charges, payroll and related expenses for our operations center in California,
third-party charges for our European and Asian operations centers in the Netherlands and Singapore, depreciation expenses of our
Cryoport Express® Shippers and supplies and consumables used for our solutions. The increase in cost of revenues
is primarily due to freight charges from the growth in shipments and inventory transfers between operations centers, freight pricing
increases and the expansion of the shipping team in anticipation of increased shipping volume.
24
Selling, general
and administrative expenses. Selling, general and administrative expenses increased $2.6 million for the nine months ended
December 31, 2015 or 58.4% as compared to the nine months ended December 31, 2014. This increase is primarily due to equity-based
compensation charges, salaries and associated employee costs incurred to expand our sales force, the engagement of a marketing
firm, increased attendance at trade shows, public company related expenses, including legal fees and costs to trade on the NASDAQ
Capital Market exchange and travel expenses associated with the public equity offering completed in July 2015.
Research
and development expenses. Research and development expenses increased $138,200 or 51.7% for the nine months ended December
31, 2015, as compared to the nine months ended December 31, 2014. The increase is primarily due to a write off of previously capitalized
costs in the amount of $98,100 resulting from the abandonment of method of shipment patent application and the salary and associated
employee costs related to the addition of a research and development engineer. Our research and development efforts are focused
on continually improving the features of the Cryoport Express® Solutions including
the Company’s cloud-based logistics management platform, the CryoportalTM, the Cryoport Express® Shippers
and development of additional accessories to facilitate the efficient shipment of life science commodities using our solution.
We use an outside software development company and other third parties to provide some of these services. These efforts are expected
to lead to the introduction of additional shipper designs to meet market requirements, constructed of lower cost materials and
utilizing high volume manufacturing methods. In addition, research and development effort has been directed towards developing
an advanced condition monitoring system, Smart Pak II, which is currently in beta testing and is scheduled to be launched during
the first quarter of fiscal year 2017.
Interest expense.
Interest expense decreased $200,600 for the nine months ended December 31, 2015, as compared to the nine months ended December
31, 2014. Interest expense for the nine months ended December 31, 2015 included amortization of the debt discount on the related-party
notes payable of $195,600, the related interest expense of $43,400, the amortization of the debt discount on the notes payable
of $221,400, related interest expense of $3,300 as well as the fair value of the beneficial conversion feature of the related-party
notes payable of $521,100. Interest expense for the nine months ended December 31, 2014 included amortization of the debt discount
and deferred financing fees of approximately $1.1 million, of which $826,900 related to the fair value of the beneficial conversion
feature of the 5% Bridge Notes that was triggered by the convertible preferred stock offering, interest expense on our 5% Bridge
Notes of approximately $10,600 and accrued interest on our related party notes payable of approximately $23,600, amortization of
the debt discount on the 7% Bridge Notes of $38,100 and related interest expense of $3,000.
Other expense,
net. The other expense, net for the nine months ended December 31, 2015 is primarily due to administrative charges and
foreign exchange losses on accounts receivable and payable invoices.
Liquidity and Capital Resources
As of December 31,
2015, the Company had cash and cash equivalents of $5.2 million and working capital of $3.7 million. Historically, we have financed
our operations primarily through sales of our debt and equity securities.
For the nine months
ended December 31, 2015, we used $4.3 million of cash for operations primarily as a result of the net loss of $7.1 million offset
by non-cash expenses of $3.3 million primarily comprised of amortization of debt discounts, stock-based compensation expense, depreciation
and amortization and loss on the write-off of patents. Also contributing to the cash impact of our net operating loss (excluding
non-cash items) was an increase in accounts receivable of $63,100 due to increased revenues, increase in other current assets for
prepaid amounts of $116,600 and an increase in deposits and other assets of $363,400 related to security deposits for the new facility
lease in Irvine.
Net cash used in investing
activities of $714,000 during the nine months ended December 31, 2015 was primarily due to the purchase from KLATU of certain intellectual
property and intellectual property rights related to the Company’s CryoportalTM logistics management platform,
which KLATU previously developed for and licensed to the Company. In addition, we purchased additional liquid nitrogen dry vapor
shippers and data loggers for our condition monitoring system aggregating $310,000.
Net cash provided
by financing activities totaled $8.9 million during the nine months ended December 31, 2015, and resulted from net proceeds from
the public equity offering of $5.9 million, issuance of convertible preferred stock of $3.9 million and proceeds from the exercise
of stock options and warrants of $10,900, partially offset by the repayment of notes payable of $741,400 and the repayment of related-party
notes payable of $212,000.
The
Company received gross proceeds of $4.5 million (approximately $3.9 million after offering costs) in exchange for the issuance
of 372,862 shares of convertible preferred stock in the first quarter of fiscal 2016 which is further described in Note 7 in the
accompanying condensed consolidated financial statements. The funds raised are being used for working capital purposes and to continue
our sales efforts to advance the Company’s commercialization of the Cryoport Express® Solutions.
25
In July 2015, the Company
completed a public offering of its common stock and warrants under a registered public offering to provide working capital, support
the Company’s anticipated operations and development plans and meet the eligibility requirement to list its common stock
on the NASDAQ Capital Market. The gross proceeds to Cryoport from this offering, including the partial exercise of the over-allotment
option, were approximately $6.8 million.
As discussed in Note
2 of the accompanying condensed financial statements, there exists substantial doubt regarding the Company’s ability to continue
as a going concern. The Company’s management recognizes that the Company will need to obtain additional capital to fund its
operations until sustained profitable operations are achieved. Management is currently working on such funding alternatives in
order to secure sufficient operating capital through the end of fiscal year 2017. In addition, management will continue to review
its operations for efficiencies to extend the time the Company can operate with its current cash on hand and to utilize third parties
for services such as its international recycling and refurbishment centers to provide for greater flexibility in aligning operational
expenses with the changes in sales volumes. Additional funding plans may include obtaining additional capital through equity and/or
debt funding sources; however, no assurance can be given that additional capital, if needed, will be available when required or
upon terms acceptable to the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and
Procedures.
We maintain disclosure
controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the timelines specified in the Securities and Exchange Commission’s rules and forms,
and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls
and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide
reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily
was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Securities
and Exchange Commission Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management,
including our Principal Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Principal Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2015
at the reasonable assurance level.
Changes in internal control over financial
reporting.
There were no changes
in our internal controls over financial reporting during the fiscal quarter ended December 31, 2015 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 1A.
RISK FACTORS
The risks described
in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended March 31,
2015, could materially and adversely affect our business, financial condition and results of operations. These risk factors do
not identify all of the risks that we face. Our business, financial condition and results of operations could also be affected
by factors that are not presently known to us or that we currently consider to be immaterial. There have been no material changes
to the “Risk Factors” section included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
None
26
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
ITEM 5. OTHER INFORMATION
None
27
ITEM 6. EXHIBITS
Exhibit
Index
3.1
Amended and Restated Articles of Incorporation of the Company, as amended. Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2012.
3.2
Amended and Restated Certificate of Designation of Class A Preferred Stock. Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated March 26, 2015.
3.3
Certificate of Designation of Class B Preferred Stock. Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated February 20, 2015.
3.4
Amendment to Certificate of Designation of Class B Preferred Stock. Incorporated by reference to Cryoport’s Amendment No. 1 to Registration Statement on Form S-1 dated April 17, 2015 and referred to as Exhibit 3.6.
3.5
Certificate of Change filed with the Nevada Secretary of State on May 12, 2015. Incorporated by reference to Exhibit 3.7 of the Company’s Annual Report on Form 10-K filed with the SEC on May 19, 2015.
3.6
Amendment to Certificate of Designation of Class A Preferred Stock. Incorporated by reference to Cryoport’s Amendment No. 4 to Registration Statement on Form S-1 dated June 22, 2015 and referred to as Exhibit 3.8.
3.7
Amendment to Certificate of Designation of Class B Preferred Stock. Incorporated by reference to Cryoport’s Amendment No. 4 to Registration Statement on Form S-1 dated June 22, 2015 and referred to as Exhibit 3.9.
3.8
Amendment to Certificate of Designation of Class A Preferred Stock. Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated September 1, 2015.
3.9
Amendment to Certificate of Designation of Class B Preferred Stock. Incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K dated September 1, 2015.
3.10
Amendment to Amended and Restated Articles of Incorporation of the Company, as amended. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated November 23, 2015.
3.11
Amended and Restated Bylaws of the Company. Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated February 8, 2016.
3.12
2015 Omnibus Equity Incentive Plan. Incorporated by reference to Registrant’s Definitive Proxy Statement with respect to the 2015 Annual Meeting of Stockholders held on October 28, 2015, as filed with the Commission on October 1 2015, as amended.
10.1
Standard Industrial/Commercial Multi-Tenant Lease – Net dated for reference purposes only October 2, 2015 between the Cryoport Systems, Inc. and Daimler Opportunity, LLC. Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated October 21, 2015.
10.2
Guaranty between the Company and Daimler Opportunity, LLC dated as of October 2, 2015. Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated October 21, 2015.
31.1+
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2+
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Cryoport, Inc.
Dated: February 11, 2016
By:
/s/ Jerrell W. Shelton
Jerrell W. Shelton
Chief Executive Officer
Dated: February 11, 2016
By:
/s/ Robert S. Stefanovich
Robert S. Stefanovich
Chief Financial Officer
29
EX-31.1
2
v430854_ex31-1.htm
EXHIBIT 31.1
EXHIBIT 31.1
CERTIFICATION
CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I, Jerrell W. Shelton, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Cryoport, Inc.
2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Date: February 11, 2016
/s/ Jerrell W. Shelton
JERRELL W. SHELTON
Chief Executive Officer
(Principal Executive Officer)
EX-31.2
3
v430854_ex31-2.htm
EXHIBIT 31.2
EXHIBIT 31.2
CERTIFICATION
CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I, Robert S. Stefanovich, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Cryoport, Inc.
2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Date: February 11, 2016
/s/ Robert S. Stefanovich
ROBERT S. STEFANOVICH
Chief Financial Officer
(Principal Financial Officer)
EX-32.1
4
v430854_ex32-1.htm
EXHIBIT 32.1
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with the Quarterly Report of Cryoport, Inc. (the
“Company”) on Form 10-Q for the period ended December 31, 2015 as filed with the Securities and Exchange Commission
on the date hereof (the “Report”), I, Jerrell W. Shelton, President and Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my
knowledge that:
(1)
The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Jerrell W. Shelton
JERRELL W. SHELTON
President and Chief Executive Officer
February 11, 2016
In connection with the Quarterly Report of Cryoport, Inc. (the
“Company”) on Form 10-Q for the period ended December 31, 2015 as filed with the Securities and Exchange Commission
on the date hereof (the “Report”), I, Robert S. Stefanovich, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge
that:
(1)
The Quarterly Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
(2)
The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Robert S. Stefanovich
ROBERT S. STEFANOVICH
Chief Financial Officer
February 11, 2016
A signed original of this written statement required by Section 906
has been provided to Cryoport, Inc. and will be retained by Cryoport, Inc. and furnished to the Securities and Exchange Commission
or its staff upon request.
This Certification is being furnished
pursuant to Rule 15(d) and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C.
78r), or otherwise subject to the liability of that section. This Certification shall not be deemed incorporated by reference into
any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by
reference.
This is focus fiscal period of the document report. For a first quarter 2006 quarterly report, which may also provide financial information from prior periods, the first fiscal quarter should be given as the fiscal period focus. Values: FY, Q1, Q2, Q3, Q4, H1, H2, M9, T1, T2, T3, M8, CY.
This is focus fiscal year of the document report in CCYY format. For a 2006 annual report, which may also provide financial information from prior periods, fiscal 2006 should be given as the fiscal year focus. Example: 2006.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
The end date of the period reflected on the cover page if a periodic report. For all other reports and registration statements containing historical data, it is the date up through which that historical data is presented. If there is no historical data in the report, use the filing date. The format of the date is CCYY-MM-DD.
The type of document being provided (such as 10-K, 10-Q, 485BPOS, etc). The document type is limited to the same value as the supporting SEC submission type, or the word "Other".
Indicate number of shares or other units outstanding of each of registrant's classes of capital or common stock or other ownership interests, if and as stated on cover of related periodic report. Where multiple classes or units exist define each class/interest by adding class of stock items such as Common Class A [Member], Common Class B [Member] or Partnership Interest [Member] onto the Instrument [Domain] of the Entity Listings, Instrument.
Indicate whether the registrant is one of the following: (1) Large Accelerated Filer, (2) Accelerated Filer, (3) Non-accelerated Filer, (4) Smaller Reporting Company (Non-accelerated) or (5) Smaller Reporting Accelerated Filer. Definitions of these categories are stated in Rule 12b-2 of the Exchange Act. This information should be based on the registrant's current or most recent filing containing the related disclosure.
Sum of the carrying values as of the balance sheet date of obligations incurred through that date and due within one year (or the operating cycle, if longer), including liabilities incurred (and for which invoices have typically been received) and payable to vendors for goods and services received, taxes, interest, rent and utilities, accrued salaries and bonuses, payroll taxes and fringe benefits.
Amount due from customers or clients, within one year of the balance sheet date (or the normal operating cycle, whichever is longer), for goods or services (including trade receivables) that have been delivered or sold in the normal course of business, reduced to the estimated net realizable fair value by an allowance established by the entity of the amount it deems uncertain of collection.
Value received from shareholders in common stock-related transactions that are in excess of par value or stated value and amounts received from other stock-related transactions. Includes only common stock transactions (excludes preferred stock transactions). May be called contributed capital, capital in excess of par, capital surplus, or paid-in capital.
Sum of the carrying amounts as of the balance sheet date of all assets that are recognized. Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.
Sum of the carrying amounts as of the balance sheet date of all assets that are expected to be realized in cash, sold, or consumed within one year (or the normal operating cycle, if longer). Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.
Amount of currency on hand as well as demand deposits with banks or financial institutions. Includes other kinds of accounts that have the general characteristics of demand deposits. Also includes short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Excludes cash and cash equivalents within disposal group and discontinued operation.
Represents the caption on the face of the balance sheet to indicate that the entity has entered into (1) purchase or supply arrangements that will require expending a portion of its resources to meet the terms thereof, and (2) is exposed to potential losses or, less frequently, gains, arising from (a) possible claims against a company's resources due to future performance under contract terms, and (b) possible losses or likely gains from uncertainties that will ultimately be resolved when one or more future events that are deemed likely to occur do occur or fail to occur.
Aggregate par or stated value of issued nonredeemable common stock (or common stock redeemable solely at the option of the issuer). This item includes treasury stock repurchased by the entity. Note: elements for number of nonredeemable common shares, par value and other disclosure concepts are in another section within stockholders' equity.
Carrying value of amounts transferred to third parties for security purposes that are expected to be returned or applied towards payment in the future.
Total of the carrying values as of the balance sheet date of obligations incurred through that date and payable for obligations related to services received from employees, such as accrued salaries and bonuses, payroll taxes and fringe benefits. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
Sum of the carrying amounts as of the balance sheet date of all liabilities that are recognized. Liabilities are probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or provide services to other entities in the future.
Total obligations incurred as part of normal operations that are expected to be paid during the following twelve months or within one business cycle, if longer.
Sum of the carrying values as of the balance sheet date of the portions of long-term notes payable due within one year or the operating cycle if longer.
The amount for notes payable (written promise to pay), due to related parties. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
Aggregate carrying amount, as of the balance sheet date, of current assets not separately disclosed in the balance sheet. Current assets are expected to be realized or consumed within one year (or the normal operating cycle, if longer).
Aggregate par or stated value of issued nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer). This item includes treasury stock repurchased by the entity. Note: elements for number of nonredeemable preferred shares, par value and other disclosure concepts are in another section within stockholders' equity.
Amount after accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business to produce goods and services and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures.
Total of all stockholders' equity (deficit) items, net of receivables from officers, directors, owners, and affiliates of the entity which are attributable to the parent. The amount of the economic entity's stockholders' equity attributable to the parent excludes the amount of stockholders' equity which is allocable to that ownership interest in subsidiary equity which is not attributable to the parent (noncontrolling interest, minority interest). This excludes temporary equity and is sometimes called permanent equity.
Total number of common shares of an entity that have been sold or granted to shareholders (includes common shares that were issued, repurchased and remain in the treasury). These shares represent capital invested by the firm's shareholders and owners, and may be all or only a portion of the number of shares authorized. Shares issued include shares outstanding and shares held in the treasury.
The maximum number of nonredeemable preferred shares (or preferred stock redeemable solely at the option of the issuer) permitted to be issued by an entity's charter and bylaws.
Total number of nonredeemable preferred shares (or preferred stock redeemable solely at the option of the issuer) issued to shareholders (includes related preferred shares that were issued, repurchased, and remain in the treasury). May be all or portion of the number of preferred shares authorized. Excludes preferred shares that are classified as debt.
Aggregate share number for all nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer) held by stockholders. Does not include preferred shares that have been repurchased.
The amount of net income or loss for the period per each share in instances when basic and diluted earnings per share are the same amount and reported as a single line item on the face of the financial statements. Basic earnings per share is the amount of net income or loss for the period per each share of common stock or unit outstanding during the reporting period. Diluted earnings per share includes the amount of net income or loss for the period available to each share of common stock or common unit outstanding during the reporting period and to each share or unit that would have been outstanding assuming the issuance of common shares or units for all dilutive potential common shares or units outstanding during the reporting period.
Sum of operating profit and nonoperating income or expense before Income or Loss from equity method investments, income taxes, extraordinary items, and noncontrolling interest.
Generally recurring costs associated with normal operations except for the portion of these expenses which can be clearly related to production and included in cost of sales or services. Includes selling, general and administrative expense.
The net amount of other income and expense amounts, the components of which are not separately disclosed on the income statement, resulting from ancillary business-related activities (that is, excluding major activities considered part of the normal operations of the business) also known as other nonoperating income (expense) recognized for the period. Such amounts may include: (a) dividends, (b) interest on securities, (c) net gains or losses on securities, (d) unusual costs, (e) gains or losses on foreign exchange transactions, and (f) miscellaneous other income and expense items.
Other preferred stock dividends and adjustments, not otherwise defined in the taxonomy, that are necessary to adjust net income to obtain net income applicable to common stockholders.
The aggregate costs incurred (1) in a planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service, a new process or technique, or in bringing about a significant improvement to an existing product or process; or (2) to translate research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or the entity's use, during the reporting period charged to research and development projects, including the costs of developing computer software up to the point in time of achieving technological feasibility, and costs allocated in accounting for a business combination to in-process projects deemed to have no alternative future use.
Total revenue from sale of goods and services rendered during the reporting period, in the normal course of business, reduced by sales returns and allowances, and sales discounts.
The aggregate total costs related to selling a firm's product and services, as well as all other general and administrative expenses. Direct selling expenses (for example, credit, warranty, and advertising) are expenses that can be directly linked to the sale of specific products. Indirect selling expenses are expenses that cannot be directly linked to the sale of specific products, for example telephone expenses, Internet, and postal charges. General and administrative expenses include salaries of non-sales personnel, rent, utilities, communication, etc.
Amount of noncash expense included in interest expense to allocate debt discount and premium, and the costs to issue debt and obtain financing over the related debt instruments. Alternate captions include noncash interest expense.
Amount of currency on hand as well as demand deposits with banks or financial institutions. Includes other kinds of accounts that have the general characteristics of demand deposits. Also includes short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Excludes cash and cash equivalents within disposal group and discontinued operation.
The amount of the original debt being converted in a noncash (or part noncash) transaction. "Part noncash" refers to that portion of the transaction not resulting in cash receipts or cash payments in the period.
The aggregate expense recognized in the current period that allocates the cost of tangible assets, intangible assets, or depleting assets to periods that benefit from use of the assets.
The increase (decrease) during the reporting period in the amounts payable to vendors for goods and services received and the amount of obligations and expenses incurred but not paid.
The increase (decrease) during the reporting period in the aggregate amount of obligations related to services received from employees, such as accrued salaries and bonuses, payroll taxes and fringe benefits.
The increase (decrease) during the reporting period in interest payable, which represents the amount owed to note holders, bond holders, and other parties for interest earned on loans or credit extended to the reporting entity.
The increase (decrease) during the reporting period in the aggregate value of all inventory held by the reporting entity, associated with underlying transactions that are classified as operating activities.
The increase (decrease) during the reporting period in the amount due within one year (or one business cycle) of receivables that were originally due beyond one year (or one business cycle).
The increase (decrease) in cash associated with the entity's continuing operating, investing, and financing activities. While for technical reasons this element has no balance attribute, the default assumption is a debit balance consistent with its label.
Amount of cash inflow (outflow) of financing activities, excluding discontinued operations. Financing activity cash flows include obtaining resources from owners and providing them with a return on, and a return of, their investment; borrowing money and repaying amounts borrowed, or settling the obligation; and obtaining and paying for other resources obtained from creditors on long-term credit.
Amount of cash inflow (outflow) of investing activities, excluding discontinued operations. Investing activity cash flows include making and collecting loans and acquiring and disposing of debt or equity instruments and property, plant, and equipment and other productive assets.
Amount of cash inflow (outflow) from operating activities, excluding discontinued operations. Operating activity cash flows include transactions, adjustments, and changes in value not defined as investing or financing activities.
The cash outflow associated with the acquisition of long-lived, physical assets that are used in the normal conduct of business to produce goods and services and not intended for resale; includes cash outflows to pay for construction of self-constructed assets.
Proceeds from issuance of capital stock which provides for a specific dividend that is paid to the shareholders before any dividends to common stockholders and which takes precedence over common stockholders in the event of liquidation.
Amount of expense related to write-down of receivables to the amount expected to be collected. Includes, but is not limited to, accounts receivable and notes receivable.
The cash outflow from the repayment of a long-term debt instrument which can be exchanged for a specified amount of another security, typically the entity's common stock, at the option of the issuer or the holder.
The cash outflow for the payment of a long-term borrowing made from a related party where one party can exercise control or significant influence over another party; including affiliates, owners or officers and their immediate families, pension trusts, and so forth. Alternate caption: Payments for Advances from Affiliates.
The aggregate amount of noncash, equity-based employee remuneration. This may include the value of stock or unit options, amortization of restricted stock or units, and adjustment for officers' compensation. As noncash, this element is an add back when calculating net cash generated by operating activities using the indirect method.
Note 1. Management’s Representation and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by Cryoport, Inc. (the “Company”, “Cryoport”, “our” or “we”) in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statement presentation. However, the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation have been included.
On May 12, 2015, our board of directors (the “Board of Directors”) approved an amendment to our certificate of incorporation to effect a reverse stock split by a ratio of 1-for-12. The reverse stock split was effective on May 19, 2015. All share and per share data in this Form 10-Q have been adjusted to give effect to the 1-for-12 reverse stock split of our common stock.
Operating results for the nine months ended December 31, 2015 are not necessarily indicative of the results that may be expected for the year ending March 31, 2016. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2015.
The Company has evaluated subsequent events through the date of this filing and determined that no subsequent events have occurred that would require recognition in the unaudited condensed consolidated financial statements or disclosure in the notes thereto other than as disclosed in the accompanying notes.
Cryoport is the premier provider of cryogenic logistics solutions to the life sciences industry through its purpose-built proprietary packaging, information technology and specialized cold chain logistics expertise. The Company provides leading edge logistics solutions for biologic materials, such as immunotherapies, stem cells, CAR-T cells and reproductive cells for clients worldwide. Leading global companies, such as FedEx, UPS and DHL have each separately selected Cryoport as the preferred cryogenic logistics provider for time- and temperature-sensitive biological material. Cryoport actively supports points-of-care, contract research organizations, central laboratories, pharmaceutical companies, contract manufacturers and university researchers.
The Company is a Nevada corporation and its common stock is traded on the NASDAQ Capital Market exchange under the ticker symbol “CYRX.”
Going Concern
The unaudited condensed consolidated financial statements have been prepared using the accrual method of accounting in accordance with U.S. GAAP and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. We have sustained operating losses since our inception and have used substantial amounts of working capital in our operations. At December 31, 2015, we had an accumulated deficit of $109.4 million. During the nine months ended December 31, 2015, we used cash in operations of $4.3 million and had a net loss of $7.1 million.
We expect to continue to incur substantial additional operating losses from costs related to the commercialization and expansion of our Cryoport Express® Solutions and do not expect that revenues from operations will be sufficient to satisfy our funding requirements in the near term. We believe that our cash resources at December 31, 2015, together with the revenues generated from our services will be sufficient to sustain our planned operations into the second quarter of fiscal year 2017; however, we must obtain additional capital to fund operations thereafter and for the achievement of sustained profitable operations. These factors raise substantial doubt about our ability to continue as a going concern. We are currently working on funding alternatives in order to secure sufficient operating capital to allow us to continue to operate as a going concern.
The level of future capital requirements will depend upon many factors, including the success of our commercialization efforts and the level of customer adoption of our Cryoport Express® Solutions as well as our ability to establish additional collaborative arrangements. We cannot make any assurances that the sales ramp will lead to achievement of sustained profitable operations or that any additional financing will be completed on a timely basis and on acceptable terms or at all. Management’s inability to successfully achieve significant revenue increases or to complete any other financing will adversely impact our ability to continue as a going concern.
The entire disclosure for the nature of an entity's business, major products or services, principal markets including location, and the relative importance of its operations in each business and the basis for the determination, including but not limited to, assets, revenues, or earnings. For an entity that has not commenced principal operations, disclosures about the risks and uncertainties related to the activities in which the entity is currently engaged and an understanding of what those activities are being directed toward.
Note 3. Summary of Significant Accounting Policies
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Cryoport, Inc. and its wholly owned subsidiary, Cryoport Systems, Inc. All intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from estimated amounts. The Company’s significant estimates include the allowance for doubtful accounts, recoverability of long-lived assets, allowance for inventory obsolescence, deferred taxes and their accompanying valuations, and valuation of equity instruments and conversion features.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, related-party notes payable, notes payable, accounts payable and accrued expenses. The carrying value for all such instruments approximates fair value at December 31, 2015 and March 31, 2015 due to their short-term nature. The difference between the fair value and recorded values of the related-party notes payable is not significant.
Cash and Cash Equivalents
The Company considers highly liquid investments with original maturities of 90 days or less to be cash equivalents.
Customers
The Company grants commercial trade credit to customers under established terms and conditions within the U.S. and to a limited number of international customers and does not require collateral. Revenues from international customers are generally secured by advance payments except for a limited number of established foreign customers. The Company generally requires advance or credit card payments for initial revenues from new customers, who have not received credit approval. The Company’s ability to collect receivables is affected by customer circumstances, economic fluctuations in the respective geographic areas and the industries served by the Company. Reserves for uncollectible amounts are provided based on past experience and a specific analysis of the respective accounts, which management believes is sufficient. Accounts receivable at December 31, 2015 and March 31, 2015 are net of reserves for doubtful accounts of $40,600 and $12,200, respectively. Although the Company expects to collect amounts due, actual collections may differ from the estimated amounts.
The majority of the Company’s customers are in the biotechnology, pharmaceutical, animal health and life science industries. Consequently, there is a concentration of accounts receivable within these industries, which is subject to normal credit risk. At December 31, 2015 and March 31, 2015, there was one customer that accounted for 10.4% and 14.6%, respectively, of net accounts receivable. No other single customer owed us more than 10% of net accounts receivable at December 31, 2015 and March 31, 2015.
The Company has revenue from foreign customers primarily in the Europe, Japan, Canada, India and Australia regions. During the nine months ended December 31, 2015 and 2014, the Company had revenues from foreign customers of approximately $631,400 and $418,800, respectively, which constituted approximately 14.6% and 15.3% of total revenues, respectively.
For the nine months ended December 31, 2015 and 2014, there was one customer that accounted for 14.5% and 25.0% of total revenues, respectively.
Inventories
The Company’s inventories consist of packaging materials and accessories sold to customers. Inventories are stated at the lower of cost or current estimated market value. Cost is determined using the standard cost method which approximates the first-in, first-to-expire method. Inventories are reviewed periodically for slow-moving or obsolete status. The Company writes down the carrying value of its inventories to reflect situations in which the cost of inventories is not expected to be recovered. Once established, write-downs of inventories are considered permanent adjustments to the cost basis of the obsolete or excess inventories. Raw materials and finished goods include material costs less reserves for obsolete or excess inventories. The Company evaluates the current level of inventories considering historical trends and other factors, and based on such evaluation, records adjustments to reflect inventories at its net realizable value. These adjustments are estimates, which could vary significantly from actual results if future economic conditions, customer demand, competition or other relevant factors differ from expectations. These estimates require us to make assessments about future demand for the Company’s products in order to categorize the status of such inventory items as slow-moving, obsolete or in excess-of-need. These estimates are subject to the ongoing accuracy of the Company’s forecasts of market conditions, industry trends, competition and other factors.
Property and Equipment
The Company provides shipping packaging (“shipper”) to its customers and charges a fee in exchange for the use of the shipper. The Company’s arrangements are similar to the accounting standard for leases since they convey the right to use the container over a period of time. The Company retains the title to the shippers and provides its customers the use of the shipper for a specific shipping cycle. At the culmination of the customer’s shipping cycle, the shipper is returned to the Company. As a result, the Company classifies the shippers as property and equipment for the per-use shipper program.
Property and equipment are recorded at cost. Cryogenic shippers are depreciated using the straight-line method over their estimated useful lives of three years. Software, equipment and furniture are depreciated using the straight-line method over their estimated useful lives (generally three to seven years) and leasehold improvements are amortized using the straight-line method over the estimated useful life of the asset or the lease term, whichever is shorter. Equipment acquired under capital leases is amortized over the estimated useful life of the assets or term of the lease, whichever is shorter and included in depreciation and amortization expense.
Betterments, renewals and extraordinary repairs that extend the lives of the assets are capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related accumulated depreciation and amortization applicable to assets retired are removed from the accounts, and the gain or loss on disposition is recognized in current operations.
Intangible Assets
Intangible assets are comprised of patents and trademarks and software development costs. The Company capitalizes costs of obtaining patents and trademarks, which are amortized, using the straight-line method over their estimated useful life of five years once the patent or trademark has been issued. During the nine months ended December 31, 2015, the Company wrote off patents aggregating $98,100 to research and development expense in the accompanying condensed consolidated statement of operations. The Company capitalizes certain costs related to software developed for internal use. Software development costs incurred during the preliminary or maintenance project stages are expensed as incurred, while costs incurred during the application development stage are capitalized and amortized using the straight-line method over the estimated useful life of the software, which is five years. Capitalized costs include purchased materials and costs of services including the valuation of warrants issued to consultants.
Long-lived Assets
If indicators of impairment exist, we assess the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through undiscounted future operating cash flows. If impairment is indicated, we measure the amount of such impairment by comparing the fair value to the carrying value. We believe the future cash flows to be received from the long-lived assets will exceed the assets’ carrying value, and accordingly, we have not recognized any impairment losses through December 31, 2015.
Deferred Financing Costs
Deferred financing costs represent costs incurred in connection with the issuance of the convertible notes payable and equity financings. Deferred financing costs related to the issuance of debt are being amortized over the term of the financing instrument using the effective interest method while offering costs from equity financings are netted against the gross proceeds received from the equity financings.
Conversion Features
If a conversion feature of convertible debt is not accounted for as a derivative instrument and provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount. The convertible debt is recorded net of the discount related to the BCF. The Company amortizes the discount to interest expense over the life of the debt using the effective interest rate method.
Preferred stock is convertible to common stock at a rate of conversion that is below market value and, therefore, this feature is characterized as a BCF. The Company records this BCF as a discount to the preferred stock and accretes the discount to retained earnings as a deemed dividend through the earliest conversion date or upon issuance if the preferred stock can be immediately converted.
Income Taxes
The Company accounts for income taxes under the provision of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes, or ASC 740. As of December 31, 2015 and March 31, 2015, there were no unrecognized tax benefits included in the accompanying condensed consolidated balance sheets that would, if recognized, affect the effective tax rates.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. Based on the weight of available evidence, the Company’s management has determined that it is more likely than not that the net deferred tax assets will not be realized. Therefore, the Company has recorded a full valuation allowance against the net deferred tax assets. The Company’s income tax provision consists of state minimum taxes.
The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on its condensed consolidated balance sheets at December 31, 2015 and March 31, 2015 and has not recognized interest and/or penalties in the condensed consolidated statement of operations for the nine months ended December 31, 2015 and 2014. The Company is subject to taxation in the U.S. and various state jurisdictions. As of December 31, 2015, the Company is no longer subject to U.S. federal examinations for years before 2011 and for California franchise and income tax examinations for years before 2010. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carry forward amount. The Company is not currently under examination by U.S. federal or state jurisdictions.
Revenue Recognition
The Company provides shipping containers to its customers and charges a fee in exchange for the use of the shipper. The Company’s arrangements are similar to the accounting standard for leases since they convey the right to use the shippers over a period of time. The Company retains title to the shipper and provides its customers the use of the shipper for a specified shipping cycle. At the culmination of the customer’s shipping cycle, the shipper is returned to the Company.
The Company recognizes revenue for the use of the shipper once the shipper has been delivered to the end user of the enclosed materials, and at the time that collectability of the related fees is reasonably certain. Revenue is recorded net of discounts and allowances.
The Company also provides logistics support and management services to some customers, which may include onsite logistics personnel. Revenue is recognized for these services as services are rendered and at the time that collectability is reasonably certain.
Accounting for Shipping and Handling Revenue, Fees and Costs
The Company classifies amounts billed for shipping and handling as revenue. Shipping and handling fees and costs are included in cost of revenues in the accompanying condensed consolidated statements of operations.
Research and Development Expenses
Expenditures relating to research and development are expensed in the period incurred.
Stock-Based Compensation
The Company accounts for stock-based payments to employees and directors in accordance with stock-based payment accounting guidance which requires all stock-based payments to employees and directors, including grants of employee stock options and warrants, to be recognized based upon their fair values. The fair value of stock-based awards is estimated at the grant date using the Black-Scholes Option Pricing Model (“Black-Scholes”) and the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service period. The determination of fair value using Black-Scholes is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables, including expected stock price volatility, risk-free interest rate, expected dividends and projected employee stock option exercise behaviors.
Since stock-based compensation is recognized only for those awards that are ultimately expected to vest, the Company has applied an estimated forfeiture rate to unvested awards for the purpose of calculating compensation cost. These estimates will be revised, if necessary, in future periods if actual forfeitures differ from estimates. Changes in forfeiture estimates impact compensation cost in the period in which the change in estimate occurs. The estimated forfeiture rates at December 31, 2015 and March 31, 2015 were zero as the Company has not had a significant history of forfeitures and does not expect significant forfeitures in the future.
Cash flows from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options or warrants are classified as financing cash flows. Due to the Company’s loss position, there were no such tax benefits during the nine months ended December 31, 2015 and 2014.
The Company’s stock-based compensation plans are discussed further in Note 8.
Equity Instruments Issued to Non-Employees for Acquiring Goods or Services
Issuances of the Company’s common stock for acquiring goods or services are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment for performance to earn the equity instruments is reached (a “performance commitment” which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is complete. When it is appropriate for the Company to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured at the then-current fair values at each of those interim financial reporting dates.
Basic and Diluted Net Income (Loss) Per Share
We calculate basic and diluted net income (loss) per share attributable to common stockholders using the weighted average number of common shares outstanding during the periods presented, and adjust the amount of net income (loss) used in this calculation for deemed preferred stock dividends and cumulative preferred stock dividends, whether they are earned or not during the period. In periods of a net loss position, basic and diluted weighted average shares are the same. For the diluted earnings per share calculation, we adjust the weighted average number of common shares outstanding to include dilutive stock options, warrants and shares associated with the conversion of convertible debt and convertible preferred stock outstanding during the periods. As of December 31, 2015 and March 31, 2015, the Company had cumulative, undeclared, dividends that have not been accrued related to its preferred stock of $992,600 and $305,300, respectively. During the three and nine months ended December 31, 2015 and 2014, undeclared dividends totaling $239,400 and $687,300 and $95,300 and $194,900, respectively, were added to the net loss on the condensed consolidated statements of operations in order to calculate net loss per share attributable to common stockholders.
The following shows the amounts used in computing net loss per share for the three and nine months ended December 31, 2015 and 2014:
Nine Months Ended December 31,
2015
2014
Net loss
$
(7,110,180)
$
(5,089,781)
Add:
Preferred stock beneficial conversion charge
(4,474,348)
(2,961,723)
Undeclared cumulative preferred dividends
(687,267)
(194,901)
Net loss attributable to common stockholders
$
(12,271,795)
$
(8,246,405)
Weighted average shares issued and outstanding-basic and diluted
6,259,686
5,002,683
Basic and diluted net loss per share attributable to common stockholders
$
(1.96)
$
(1.65)
Three Months Ended December 31,
2015
2014
Net loss
$
(2,760,453)
$
(1,407,758)
Add:
Preferred stock beneficial conversion charge
(492,910)
Undeclared cumulative preferred dividends
(239,389)
(95,304)
Net loss attributable to common stockholders
$
(2,999,842)
$
(1,995,972)
Weighted average shares issued and outstanding-basic and diluted
7,225,006
5,004,821
Basic and diluted net loss per share attributable to common stockholders
$
(0.42)
$
(0.40)
The following table sets forth the number of shares excluded from the computation of diluted loss per share, as their inclusion would have been anti-dilutive:
Nine Months Ended December 31,
2015
2014
Class A convertible preferred stock
1,136,875
1,107,220
Class B convertible preferred stock
1,336,428
Stock options
847,015
390,011
Warrants
615,790
395,857
3,936,108
1,893,088
Segment Reporting
We currently operate in one reportable segment.
Fair Value Measurements
We measure fair value based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include the following:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. These inputs include quoted prices for similar assets or liabilities; quoted market prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in the assessment of fair value.
We have no assets or liabilities that are required to be measured at fair value on a recurring basis as of December 31, 2015 and March 31, 2015.
Foreign Currency Translation
We record foreign currency transactions at the exchange rate prevailing at the date of the transaction with resultant gains and losses being included in results of operations. Foreign currency transaction gains and losses have not been significant for any of the periods presented.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”. ASU 2014-09 supersedes the revenue recognition requirements in FASB Topic 605, “Revenue Recognition”. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. In August 2015, the FASB issued ASU No. 2015-14 which deferred the effective date by one year for public entities and others. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2017 for public business entities, certain not-for-profit entities, and certain employee benefit plans. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Management has not selected a transition method and is currently assessing the impact the adoption of ASU 2014-09 will have on our condensed consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory”. The amendments in this update apply to inventory that is measured using first-in, first-out (FIFO) or average cost. They do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. Other than the change in the subsequent measurement guidance from the lower of cost or market to the lower of cost and net realizable value for inventory within the scope of this update, there are no other substantive changes to the guidance on measurement of inventory. The amendments in this update more closely align the measurement of inventory in International Financial Reporting Standards (IFRS) and are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Management is currently assessing the impact the adoption of ASU 2015-11 will have on our condensed consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements-Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for the reporting periods beginning after December 15, 2016 and early application is permitted. Management is currently assessing the impact the adoption of ASU 2014-15 will have on our condensed consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes”. Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, the amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this update apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this update. The amendments in this update will align the presentation of deferred income tax assets and liabilities with IFRS and are effective for fiscal years after December 15, 2016, including interim periods within those annual periods. Management is currently assessing the impact the adoption of ASU 2015-17 will have on our condensed consolidated financial statements.
As of December 31, 2015 and March 31, 2015, the Company had aggregate principal balances of $1.0 million and $1.3 million, respectively, in outstanding unsecured indebtedness owed to five related parties, including four former members of the Board of Directors, representing working capital advances made to the Company from February 2001 through March 2005.
Related-Party Notes Payable
In March 2015, we entered into definitive agreements relating to the exchange or amendment of the notes evidencing such working capital advances. Three of the notes issued to Patrick Mullins, M.D., Maryl Petreccia and Jeffrey Dell, M.D., which as of December 31, 2015 had outstanding principal balances of $448,200, $266,700 and $208,900, respectively, were amended and restated, and the holders received warrants to purchase 37,347, 22,224, and 17,412 shares, respectively, of our common stock at an exercise price of $6.00 per share, exercisable on March 2, 2015 and expiring on March 1, 2020, and warrants to purchase 834, 417, and 417 shares, respectively, of our common stock at an exercise price of $6.00 per share, exercisable on March 2, 2015 and expiring on March 1, 2020, to reimburse the three note holders for any fees or other expenses incurred in connection with this transaction. The notes, as amended and restated, require interest payments on a calendar quarterly basis and payment of all outstanding principal and accrued interest on the maturity date, which is the earlier to occur of (i) March 1, 2016, (ii) the sale of all or substantially all of our assets, or (iii) the merger, consolidation or other similar reorganization of the Company or an affiliate of our Company with another entity. Under the terms of such notes, upon the closing of the public offering in July 2015 (see Note 7), the holder had the option to convert into the securities issued in such offering at a twenty percent (20%) discount to the price per unit issued by the Company in such offering. The holders elected not to convert into such securities issued by the Company.
One note issued to Raymond Takahashi, M.D., was exchanged for (i) a new promissory note with an original principal amount equal to the outstanding principal and interest of the original note, and (ii) a warrant to purchase 1,490 shares of the Company’s common stock at an exercise price of $6.00 per share, exercisable on February 20, 2015 and expiring on February 19, 2018. The new note, which as of December 31, 2015 had an outstanding principal balance of $35,800, requires interest payments on a calendar quarterly basis and payment of all outstanding principal and accrued interest on the maturity date, which is March 1, 2016. Under the terms of such note, upon the closing of the public offering in July 2015 (see Note 7) the holder had the option to convert into the securities issued in such offering at a twenty percent (20%) discount to the price per unit issued by the Company in such offering. The holder elected not to convert into such securities issued by the Company.
The conversion feature of the related-party notes payable at a 20% discount resulted in a BCF. The fair value of the BCF of $521,100 was recorded as a debt discount upon the resolution of the contingency and it was amortized to interest expense over the conversion term which ended on September 29, 2015.
The relative fair value of the related-party warrants of $280,400 was recorded as a debt discount and is being amortized to interest expense using the straight-line method which approximated the effective interest method over the term of the convertible notes. During the nine months ended December 31, 2015 and 2014, the Company amortized $195,600 and $0, respectively, of the debt discount to interest expense for these convertible notes.
Related-party interest expense under these notes was $43,400 and $23,600 for the nine months ended December 31, 2015 and 2014, respectively. Accrued interest, which is included in related-party notes payable in the accompanying condensed consolidated balance sheets, amounted to $0 and $4,600 as of December 31, 2015 and March 31, 2015, respectively.
One note issued to Marc Grossman, M.D., which as of December 31, 2015 had an outstanding principal balance of $86,500, as amended, now provides for interest at a rate of 6% per annum commencing on March 13, 2015; however, no interest payments will be due if no event of default occurs and if the Company (i) complies with its regular payment obligations, (ii) reimburses the payee for attorneys’ fees in connection with the negotiation of the note amendment, up to a maximum amount of $1,000, on the later of (A) March 13, 2015, or (B) three (3) days after receiving written notice from the payee of the amount of attorneys’ fees incurred by payee, and (iii) the Company immediately pays all unpaid amounts due and payable in full before the earlier of May 1, 2016 or at the same time that payee(s) of any other promissory note(s) with the Company that were issued in 2005 are paid in full before May 1, 2016, other than (Y) notes that are satisfied upon conversion into common stock, warrants or any other equity of the Company, or (Z) notes that have been paid in full before March 2, 2015. All principal and interest under the original note, as amended by the note amendment, will be due and shall be paid on May 1, 2016. The note requires monthly payments of $20,000, except for the month of June 2015, where the monthly payment was $72,000.
Class B Convertible Preferred Stock
In May 2015, the spouse of the board member Mr. Richard Berman, participated in the Class B convertible preferred stock offering and the Company issued 1,667 shares of Class B convertible preferred stock for total proceeds of $20,000.
The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.
From December 2014 through February 2015, the Company issued to certain accredited investors 2014 Series Secured Promissory Notes (the “7% Bridge Notes”) in the aggregate original principal amount of $915,000. The 7% Bridge Notes accrued interest at a rate of 7% per annum. All principal and interest under the 7% Bridge Notes were due on July 1, 2015. In January and March 2015, the Company repaid an aggregate of $173,600 of the original principal balance outstanding, representing 25% of the net proceeds received from the Class A and Class B convertible preferred stock offering through February 28, 2015. All remaining principal and accrued interest was repaid in April 2015.
In connection with the issuance of the 7% Bridge Notes, the Company issued the note holders warrants to purchase 190,625 shares of common stock at an exercise price of $6.00 per share. The warrants were exercisable on May 31, 2015 and expire on November 30, 2021. The relative fair value of the warrants of $458,900 was recorded as a debt discount and was amortized to interest expense using the straight-line method which approximates the effective interest method over the term of the notes. During the nine months ended December 31, 2015, the Company amortized $221,400 of the debt discount to interest expense for these notes.
The Company did not pay any discounts or commissions with respect to the issuance of the 7% Bridge Notes or the warrants.
On October 21, 2015, we entered into a new operating lease for 27,600 square foot corporate, research and development, and warehouse facility in Irvine, California under an operating lease which commences on the substantial completion of the improvements thereon which we expect to be completed in February 2016 and expires seven years after such date, subject to our option to extend the lease for two additional five-year periods. The initial base rent will be approximately $24,700 per month. This lease agreement contains certain scheduled annual rent increases which will be accounted for on a straight-line basis. We also lease certain office equipment which expires in March 2018.
Employment Agreements
We have entered into employment agreements with certain of our officers under which payment and benefits would become payable in the event of termination by us for any reason other than cause, or upon a change in control of our Company, or by the employee for good reason.
Consulting and Engineering Services
On September 16, 2015, the Company entered into the Purchase and Sale Agreement (the “Purchase and Sale Agreement”), by and between KLATU Networks, LLC (“KLATU”) and the Company. Pursuant to the Purchase and Sale Agreement, the Company purchased from KLATU certain intellectual property and intellectual property rights related to the Company’s CryoportalTM logistics management platform (the “Developed Technology”), which KLATU previously developed for and licensed to the Company pursuant to the Master Consulting and Engineering Services Agreement, by and between KLATU and the Company, dated October 9, 2007 (as amended, the “Master Consulting and Engineering Services Agreement”). As full compensation for the sale and assignment of the Developed Technology from KLATU to the Company, the Company paid KLATU an aggregate amount of $400,000 in two equal installments of $200,000.
Concurrently with entering into the Purchase and Sale Agreement, on September 16, 2015, the Company and KLATU entered into the Amended and Restated Master Consulting and Engineering Services Agreement (the “Amended and Restated Master Consulting and Engineering Services Agreement”) to amend and restate the Master Consulting and Engineering Services Agreement. The Amended and Restated Master Consulting and Engineering Services Agreement provides a framework for KLATU to perform certain consulting, software and hardware engineering development services as mutually agreed upon and further set forth in one or more Statements of Work (as defined in the Amended and Restated Master Consulting and Engineering Services Agreement). To ensure the availability of KLATU personnel to perform services pursuant to the Amended and Restated Master Consulting and Engineering Services Agreement, the Company agreed to pay KLATU a minimum of $25,000 per month for services fees, which may be carried forward as advance payment for future services under certain conditions. The initial term of the agreement is until December 31, 2017 and will thereafter automatically renew for subsequent one year terms, unless notice of termination is given.
Consulting fees for services provided by KLATU were $75,000 and $95,600 for the three months ended December 31, 2015 and 2014, respectively, and $215,500 and $257,500 for the nine months ended December 31, 2015 and 2014, respectively.
Litigation
The Company may become a party to product litigation in the normal course of business. The Company accrues for open claims based on its historical experience and available insurance coverage. In the opinion of management, there are no legal matters involving the Company that would have a material adverse effect upon the Company’s consolidated financial condition or results of operations.
Indemnities and Guarantees
The Company has made certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain actions or transactions. Certain of these guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. The duration of the guarantees and indemnities varies, and is generally tied to the life of the agreement. Historically, the Company has not been obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying condensed consolidated balance sheets.
In addition, the Company indemnifies its directors, officers, employees and agents, as permitted under the laws of the States of California and Nevada.
The Company has 50,000,000 authorized shares of common stock with a par value of $0.001 per share which were increased in November 2015 upon approval from our stockholders from 20,833,333 authorized shares. In September 2011, our stockholders approved an amendment to the Amended and Restated Articles of Incorporation to authorize a class of undesignated or “blank check” preferred stock, consisting of 2,500,000 shares at $0.001 par value per share. Shares of preferred stock may be issued in one or more series, with such rights, preferences, privileges and restrictions to be fixed by the Board of Directors. In May 2014, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation which designated 800,000 shares of the Company’s previously authorized preferred stock, par value $0.001, as Class A Convertible Preferred Stock. In February 2015, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation which designated 400,000 shares of the Company’s previously authorized preferred stock, par value $0.001, as Class B Convertible Preferred Stock. In April 2015, the Company filed with the Secretary of State of the State of Nevada an Amendment to the Certificate of Designation to increase the number shares of Class B Convertible Preferred Stock from 400,000 shares to 585,000 shares.
On October 1, 2015, the Company issued 55,000 shares of common stock with a fair value of $150,200 to a consultant for investor relation services under a consulting agreement that expires on April 1, 2016. At December 31, 2015, $75,100 is included in other current assets in the accompanying condensed consolidated balance sheet.
Class A Convertible Preferred Stock
In May 2014, the Company entered into definitive agreements for a private placement of its securities to certain institutional and accredited investors (the “Class A Investors”) pursuant to certain subscription agreements and elections to convert between the Company and the Class A Investors. As of December 31, 2015 and March 31, 2015, 454,750 shares of Class A Convertible Preferred Stock and 303,167 of the related warrants were outstanding for Class A Investors and 106,432 warrants were outstanding for Emergent Financial, Inc. (“Emergent”) in connection with the Class A Convertible Preferred Stock offering and the 5% Bridge Note conversions.
No dividends have been declared as of December 31, 2015; however, a cumulative preferred stock dividend of $630,400 and $301,500 is included in the liquidation preference at December 31, 2015 and March 31, 2015, respectively.
Class B Convertible Preferred Stock
In February 2015, the Company entered into definitive agreements for a private placement of its securities to certain institutional and accredited investors (the “Class B Investors”) pursuant to certain subscription agreements and elections to convert between the Company and the Class B Investors. During the nine months ended December 31, 2015, aggregate gross cash proceeds of $4.5 million (approximately $3.9 million after offering costs) were collected in exchange for the issuance of 372,862 shares of our Class B Convertible Preferred Stock, and warrants, which were immediately exercisable and may be exercised at any time on or before May 31, 2020, to purchase up to a total of 248,575 shares of our common stock at an exercise price of $6.00 per share. The shares and warrants were issued as a unit consisting of (i) one share of Class B Convertible Preferred Stock and (ii) one warrant to purchase 0.67 shares of the Company’s common stock.
The fair value of the beneficial conversion feature of the convertible preferred stock issuance and the relative fair value of the warrants issued, aggregated $4.5 million during the nine months ended December 31, 2015. The amount of $4.5 million was accreted to accumulated deficit and additional paid-in capital during the nine months ended December 31, 2015.
Emergent served as the Company’s placement agent in this transaction and received, with respect to the gross proceeds received from Class B Investors, a commission of 10% and a non-accountable finance fee of 3% of the aggregate gross proceeds received from such Class B Investors, plus reimbursement of legal expenses of up to $5,000. Emergent was issued a warrant to purchase 0.25 shares of common stock at an exercise price of $6.00 per share for each Unit issued in this transaction. The offering of units to new Class B Investors concluded on June 9, 2015.
In May 2015, the spouse of the board member Mr. Richard Berman, participated in the Class B Convertible Preferred Stock offering and the Company issued 1,667 shares of Class B Convertible Preferred Stock for proceeds of $20,000.
As of December 31, 2015 and March 31, 2015, 534,571 and 161,709 shares, respectively, of Class B Convertible Preferred Stock, and 356,381 and 107,806, respectively, of the related warrants were outstanding for Class B Investors and 130,914 and 38,115 warrants, respectively, were outstanding for Emergent in connection with the Class B Convertible Preferred Stock offering.
No dividends have been declared as of December 31, 2015; however, a cumulative preferred stock dividend of $362,200 and $3,800 is included in the liquidation preference at December 31, 2015 and March 31, 2015, respectively.
Emergent received total cash consideration of $1.3 million and was issued warrants to purchase 237,345 shares of common stock with respect to the gross proceeds the Company received from the Class A and Class B offerings.
All shares of Class A and Class B Convertible Preferred Stock were converted to units of common stock in January 2016 (See Note 9).
Public Equity Offering
On July 29, 2015, the Company completed the sale of common stock and warrants (the “Units”) under a registered public offering. The gross proceeds to Cryoport from the offering, including the partial exercise of the over-allotment option, were approximately $6.8 million, before underwriting discounts and commissions and other offering expenses (approximately $6.2 million after underwriting discounts, commissions and other expenses).
The public offering price per Unit was $3.25. Each Unit consists of one share of common stock and a warrant to purchase one share of common stock. Under the terms of the offering, Cryoport issued 2,090,750 shares of common stock and warrants to purchase up to an aggregate of 2,090,750 shares of common stock, inclusive of the partial exercise of the over-allotment option. The warrants have a per share exercise price of $3.57, are exercisable immediately and will expire five years from the date of issuance.
In connection with this offering, the Company issued to Aegis Capital Corp. (“Aegis”), the underwriters’ representative in the offering, a warrant to purchase up to 80,000 shares of the Company’s common stock and Aegis received a total cash consideration, including the reimbursement of public offering-related expenses, of $0.6 million. If such warrant is exercised, each share of common stock may be purchased at $4.47 per share (137.5% of the price of the units sold in the offering), commencing on July 23, 2016 and expiring July 23, 2020.
In connection with this offering, the Company incurred $266,100 in offering costs that have been offset against the proceeds from this offering.
Common Stock Reserved for Future Issuance
As of December 31, 2015, approximately 13.9 million shares of common stock were issuable upon conversion or exercise of rights granted under prior financing arrangements, stock options and warrants, as follows:
Class A and B convertible preferred stock converted to common stock
2,473,303
Exercise of stock options
4,002,899
Exercise of warrants
7,444,736
Total shares of common stock reserved for future issuances
The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.
We typically issue warrants to purchase shares of our common stock to investors as part of a financing transaction or in connection with services rendered by placement agents and consultants. Our outstanding warrants expire on varying dates through November 2021. A summary of warrant activity is as follows:
Number of Shares
Weighted- Average Exercise Price/Share
Weighted- Average Remaining Contractual Term (Years)
Aggregate Intrinsic Value (1)
Outstanding March 31, 2015
5,475,806
7.20
Issued
2,512,179
3.93
Exercised
(49,339)
2.40
Forfeited
Expired
(493,910)
9.33
Outstanding December 31, 2015
7,444,736
$
5.96
2.9
$
-
Vested (exercisable) December 31, 2015
7,444,736
$
5.96
2.9
$
-
(1)
Aggregate intrinsic value represents the difference between the exercise price of the warrant and the closing market price of our common stock on December 31, 2015, which was $2.02 per share.
The fair value of each warrant issued was estimated on the date of issuance using Black-Scholes with the following assumptions:
Expected life (years)
5.0 5.2
Risk-free interest rate
1.33% 1.73%
Volatility
98.6% 121.3%
Dividend yield
0%
Stock Options
We have four stock incentive plans: the 2002 Stock Incentive Plan (the “2002 Plan”), the 2009 Stock Incentive Plan (the “2009 Plan”), the 2011 Stock Incentive Plan (the “2011 Plan”) and the 2015 Omnibus Equity Incentive Plan (the “2015 Plan” and, collectively, the “Plans”). The 2002 Plan, the 2009 Plan, and the 2011 Plan (the “Prior Plans”) have been superseded by the 2015 Plan. In October 2015, the stockholders approved the 2015 Plan for 5,000,000 shares. The Prior Plans will remain in effect until all awards granted under such Prior Plans have been exercised, forfeited, cancelled, or have otherwise expired or terminated in accordance with the terms of such awards, but no awards will be made pursuant to the Prior Plans after the effectiveness of the 2015 Plan. As of December 31, 2015, the Company had 3,091,600 shares available for future awards under the 2015 Plan.
In May 2015, the Company granted employees and members of the board of directors options to purchase 465,633 and 20,835 shares of common stock, respectively, with an exercise price of $7.80 per share, of which 355,001 shares were issued outside of a plan. The exercise price for the shares of common stock pursuant to the option is equal to the fair market value of the Company’s common stock on the date of grant.
We granted stock options at exercise prices equal to or greater than the quoted market price of our common stock on the grant date. The fair value of each option grant was estimated on the date of grant using Black-Scholes with the following assumptions:
Expected life (years)
5.2 to 6.4
Risk-free interest rate
1.7% to 1.9%
Volatility
115.9% to 122.3%
Dividend yield
0%
The expected option life assumption is estimated based on the simplified method. Accordingly, the Company has utilized the average of the contractual term of the options and the weighted average vesting period for all options to calculate the expected option term. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of our employee stock options. The expected volatility is based on the historical volatility of our stock commensurate with the expected life of the stock-based award. We do not anticipate paying dividends on the common stock in the foreseeable future.
We recognize stock-based compensation cost over the vesting period using the straight-line single option method. Stock-based compensation expense is recognized only for those awards that are ultimately expected to vest. An estimated forfeiture rate has been applied to unvested awards for the purpose of calculating compensation cost. The estimated forfeiture rate of 0% per year is based on the historical forfeiture activity of unvested stock options. These estimates are revised, if necessary, in future periods if actual forfeitures differ from the estimates. Changes in forfeiture estimates impact compensation cost in the period in which the change in estimate occurs.
A summary of stock option activity is as follows:
Number of Shares
Weighted- Average Exercise Price/Share
Weighted- Average Remaining Contractual Term (Years)
Aggregate Intrinsic Value (1)
Outstanding March 31, 2015
1,793,745
$
4.56
Granted (weighted-average fair value of $2.94 per share)
2,394,868
4.02
Exercised
(4,601)
2.47
Forfeited
(181,113)
4.33
Outstanding December 31, 2015
4,002,899
$
4.23
8.7
$
Vested (exercisable) December 31, 2015
1,144,928
$
4.57
7.3
$
Unvested (unexercisable) December 31, 2015
2,857,971
$
4.10
3.2
$
(1)
Aggregate intrinsic value represents the difference between the exercise price of the option and the closing market price of our common stock on December 31, 2015, which was $2.02 per share.
As of December 31, 2015, there was unrecognized compensation expense of $8.8 million related to unvested stock options, which we expect to recognize over a weighted average period of 3.2 years.
The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.
On January 30, 2016 (the “Mandatory Exchange Time”), the Company caused the mandatory exchange (the “Mandatory Exchange”) of all its outstanding Class A Convertible Preferred Stock and Class B Convertible Preferred Stock (together, the “Preferred Stock”), consisting of 454,750 shares of Class A Convertible Preferred Stock and 534,571 shares of Class B Convertible Preferred Stock, into (i) an aggregate of 4,977,038 shares (the “Shares”) of common stock, $0.001 par value per share (the “Common Stock”), of the Company and (ii) an aggregate of 4,977,038 warrants, each warrant representing the right to purchase one share of Common Stock (the “Warrants” and together with the Shares, the “Securities”).
The Mandatory Exchange was effected in accordance with the terms and conditions of the Company’s Amended and Restated Certificate of Designation of Class A Convertible Preferred Stock and the Company’s Amended and Restated Certificate of Designation of Class B Convertible Preferred Stock (together, as amended to date, the “Certificates of Designation”). In accordance with each of the Certificates of Designation, a mandatory exchange of the Preferred Stock is triggered upon a Qualified Offering (as defined in the Certificates of Designation). The Mandatory Exchange occurs on the day that is six months and one day after the closing of such Qualified Offering. On July 29, 2015, the Company completed its public offering of 2,090,750 units (consisting of one share of Common Stock and one Warrant) at the public offering price of $3.25 per unit, which constituted a Qualified Offering (see Note 7). As a result, all outstanding shares of Preferred Stock were automatically exchanged at the Mandatory Exchange Time for such units sold in the Qualified Offering (consisting of one share of Common Stock and one Warrant) at an exchange rate determined by:
1) multiplying the number of shares of Preferred Stock to be exchanged by the Class A Original Issue Price or Class B Original Issue Price (as defined in the Certificates of Designation), or $12.00 per share;
2) adding to the result all dividends then accrued but unpaid on such shares of Preferred Stock to be exchanged of $1,068,100; then
3) dividing the result by $2.60 (which is eighty percent (80%) of the price per unit issued in the Qualified Offering).
The issuance of the Securities in connection with the Mandatory Exchange was exempt from registration pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.
The entire disclosure for significant events or transactions that occurred after the balance sheet date through the date the financial statements were issued or the date the financial statements were available to be issued. Examples include: the sale of a capital stock issue, purchase of a business, settlement of litigation, catastrophic loss, significant foreign exchange rate changes, loans to insiders or affiliates, and transactions not in the ordinary course of business.
The condensed consolidated financial statements include the accounts of Cryoport, Inc. and its wholly owned subsidiary, Cryoport Systems, Inc. All intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from estimated amounts. The Company’s significant estimates include the allowance for doubtful accounts, recoverability of long-lived assets, allowance for inventory obsolescence, deferred taxes and their accompanying valuations, and valuation of equity instruments and conversion features.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, related-party notes payable, notes payable, accounts payable and accrued expenses. The carrying value for all such instruments approximates fair value at December 31, 2015 and March 31, 2015 due to their short-term nature. The difference between the fair value and recorded values of the related-party notes payable is not significant.
The Company grants commercial trade credit to customers under established terms and conditions within the U.S. and to a limited number of international customers and does not require collateral. Revenues from international customers are generally secured by advance payments except for a limited number of established foreign customers. The Company generally requires advance or credit card payments for initial revenues from new customers, who have not received credit approval. The Company’s ability to collect receivables is affected by customer circumstances, economic fluctuations in the respective geographic areas and the industries served by the Company. Reserves for uncollectible amounts are provided based on past experience and a specific analysis of the respective accounts, which management believes is sufficient. Accounts receivable at December 31, 2015 and March 31, 2015 are net of reserves for doubtful accounts of $40,600 and $12,200, respectively. Although the Company expects to collect amounts due, actual collections may differ from the estimated amounts.
The majority of the Company’s customers are in the biotechnology, pharmaceutical, animal health and life science industries. Consequently, there is a concentration of accounts receivable within these industries, which is subject to normal credit risk. At December 31, 2015 and March 31, 2015, there was one customer that accounted for 10.4% and 14.6%, respectively, of net accounts receivable. No other single customer owed us more than 10% of net accounts receivable at December 31, 2015 and March 31, 2015.
The Company has revenue from foreign customers primarily in the Europe, Japan, Canada, India and Australia regions. During the nine months ended December 31, 2015 and 2014, the Company had revenues from foreign customers of approximately $631,400 and $418,800, respectively, which constituted approximately 14.6% and 15.3% of total revenues, respectively.
For the nine months ended December 31, 2015 and 2014, there was one customer that accounted for 14.5% and 25.0% of total revenues, respectively.
The Company’s inventories consist of packaging materials and accessories sold to customers. Inventories are stated at the lower of cost or current estimated market value. Cost is determined using the standard cost method which approximates the first-in, first-to-expire method. Inventories are reviewed periodically for slow-moving or obsolete status. The Company writes down the carrying value of its inventories to reflect situations in which the cost of inventories is not expected to be recovered. Once established, write-downs of inventories are considered permanent adjustments to the cost basis of the obsolete or excess inventories. Raw materials and finished goods include material costs less reserves for obsolete or excess inventories. The Company evaluates the current level of inventories considering historical trends and other factors, and based on such evaluation, records adjustments to reflect inventories at its net realizable value. These adjustments are estimates, which could vary significantly from actual results if future economic conditions, customer demand, competition or other relevant factors differ from expectations. These estimates require us to make assessments about future demand for the Company’s products in order to categorize the status of such inventory items as slow-moving, obsolete or in excess-of-need. These estimates are subject to the ongoing accuracy of the Company’s forecasts of market conditions, industry trends, competition and other factors.
The Company provides shipping packaging (“shipper”) to its customers and charges a fee in exchange for the use of the shipper. The Company’s arrangements are similar to the accounting standard for leases since they convey the right to use the container over a period of time. The Company retains the title to the shippers and provides its customers the use of the shipper for a specific shipping cycle. At the culmination of the customer’s shipping cycle, the shipper is returned to the Company. As a result, the Company classifies the shippers as property and equipment for the per-use shipper program.
Property and equipment are recorded at cost. Cryogenic shippers are depreciated using the straight-line method over their estimated useful lives of three years. Software, equipment and furniture are depreciated using the straight-line method over their estimated useful lives (generally three to seven years) and leasehold improvements are amortized using the straight-line method over the estimated useful life of the asset or the lease term, whichever is shorter. Equipment acquired under capital leases is amortized over the estimated useful life of the assets or term of the lease, whichever is shorter and included in depreciation and amortization expense.
Betterments, renewals and extraordinary repairs that extend the lives of the assets are capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related accumulated depreciation and amortization applicable to assets retired are removed from the accounts, and the gain or loss on disposition is recognized in current operations.
Intangible assets are comprised of patents and trademarks and software development costs. The Company capitalizes costs of obtaining patents and trademarks, which are amortized, using the straight-line method over their estimated useful life of five years once the patent or trademark has been issued. During the nine months ended December 31, 2015, the Company wrote off patents aggregating $98,100 to research and development expense in the accompanying condensed consolidated statement of operations. The Company capitalizes certain costs related to software developed for internal use. Software development costs incurred during the preliminary or maintenance project stages are expensed as incurred, while costs incurred during the application development stage are capitalized and amortized using the straight-line method over the estimated useful life of the software, which is five years. Capitalized costs include purchased materials and costs of services including the valuation of warrants issued to consultants.
If indicators of impairment exist, we assess the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through undiscounted future operating cash flows. If impairment is indicated, we measure the amount of such impairment by comparing the fair value to the carrying value. We believe the future cash flows to be received from the long-lived assets will exceed the assets’ carrying value, and accordingly, we have not recognized any impairment losses through December 31, 2015.
Deferred financing costs represent costs incurred in connection with the issuance of the convertible notes payable and equity financings. Deferred financing costs related to the issuance of debt are being amortized over the term of the financing instrument using the effective interest method while offering costs from equity financings are netted against the gross proceeds received from the equity financings.
If a conversion feature of convertible debt is not accounted for as a derivative instrument and provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount. The convertible debt is recorded net of the discount related to the BCF. The Company amortizes the discount to interest expense over the life of the debt using the effective interest rate method.
Preferred stock is convertible to common stock at a rate of conversion that is below market value and, therefore, this feature is characterized as a BCF. The Company records this BCF as a discount to the preferred stock and accretes the discount to retained earnings as a deemed dividend through the earliest conversion date or upon issuance if the preferred stock can be immediately converted.
The Company accounts for income taxes under the provision of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes, or ASC 740. As of December 31, 2015 and March 31, 2015, there were no unrecognized tax benefits included in the accompanying condensed consolidated balance sheets that would, if recognized, affect the effective tax rates.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. Based on the weight of available evidence, the Company’s management has determined that it is more likely than not that the net deferred tax assets will not be realized. Therefore, the Company has recorded a full valuation allowance against the net deferred tax assets. The Company’s income tax provision consists of state minimum taxes.
The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on its condensed consolidated balance sheets at December 31, 2015 and March 31, 2015 and has not recognized interest and/or penalties in the condensed consolidated statement of operations for the nine months ended December 31, 2015 and 2014. The Company is subject to taxation in the U.S. and various state jurisdictions. As of December 31, 2015, the Company is no longer subject to U.S. federal examinations for years before 2011 and for California franchise and income tax examinations for years before 2010. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carry forward amount. The Company is not currently under examination by U.S. federal or state jurisdictions.
The Company provides shipping containers to its customers and charges a fee in exchange for the use of the shipper. The Company’s arrangements are similar to the accounting standard for leases since they convey the right to use the shippers over a period of time. The Company retains title to the shipper and provides its customers the use of the shipper for a specified shipping cycle. At the culmination of the customer’s shipping cycle, the shipper is returned to the Company.
The Company recognizes revenue for the use of the shipper once the shipper has been delivered to the end user of the enclosed materials, and at the time that collectability of the related fees is reasonably certain. Revenue is recorded net of discounts and allowances.
The Company also provides logistics support and management services to some customers, which may include onsite logistics personnel. Revenue is recognized for these services as services are rendered and at the time that collectability is reasonably certain.
Accounting for Shipping and Handling Revenue, Fees and Costs
The Company classifies amounts billed for shipping and handling as revenue. Shipping and handling fees and costs are included in cost of revenues in the accompanying condensed consolidated statements of operations.
The Company accounts for stock-based payments to employees and directors in accordance with stock-based payment accounting guidance which requires all stock-based payments to employees and directors, including grants of employee stock options and warrants, to be recognized based upon their fair values. The fair value of stock-based awards is estimated at the grant date using the Black-Scholes Option Pricing Model (“Black-Scholes”) and the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service period. The determination of fair value using Black-Scholes is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables, including expected stock price volatility, risk-free interest rate, expected dividends and projected employee stock option exercise behaviors.
Since stock-based compensation is recognized only for those awards that are ultimately expected to vest, the Company has applied an estimated forfeiture rate to unvested awards for the purpose of calculating compensation cost. These estimates will be revised, if necessary, in future periods if actual forfeitures differ from estimates. Changes in forfeiture estimates impact compensation cost in the period in which the change in estimate occurs. The estimated forfeiture rates at December 31, 2015 and March 31, 2015 were zero as the Company has not had a significant history of forfeitures and does not expect significant forfeitures in the future.
Cash flows from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options or warrants are classified as financing cash flows. Due to the Company’s loss position, there were no such tax benefits during the nine months ended December 31, 2015 and 2014.
The Company’s stock-based compensation plans are discussed further in Note 8.
Equity Instruments Issued to Non-Employees for Acquiring Goods or Services
Issuances of the Company’s common stock for acquiring goods or services are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment for performance to earn the equity instruments is reached (a “performance commitment” which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is complete. When it is appropriate for the Company to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured at the then-current fair values at each of those interim financial reporting dates.
We calculate basic and diluted net income (loss) per share attributable to common stockholders using the weighted average number of common shares outstanding during the periods presented, and adjust the amount of net income (loss) used in this calculation for deemed preferred stock dividends and cumulative preferred stock dividends, whether they are earned or not during the period. In periods of a net loss position, basic and diluted weighted average shares are the same. For the diluted earnings per share calculation, we adjust the weighted average number of common shares outstanding to include dilutive stock options, warrants and shares associated with the conversion of convertible debt and convertible preferred stock outstanding during the periods. As of December 31, 2015 and March 31, 2015, the Company had cumulative, undeclared, dividends that have not been accrued related to its preferred stock of $992,600 and $305,300, respectively. During the three and nine months ended December 31, 2015 and 2014, undeclared dividends totaling $239,400 and $687,300 and $95,300 and $194,900, respectively, were added to the net loss on the condensed consolidated statements of operations in order to calculate net loss per share attributable to common stockholders.
The following shows the amounts used in computing net loss per share for the three and nine months ended December 31, 2015 and 2014:
Nine Months Ended December 31,
2015
2014
Net loss
$
(7,110,180)
$
(5,089,781)
Add:
Preferred stock beneficial conversion charge
(4,474,348)
(2,961,723)
Undeclared cumulative preferred dividends
(687,267)
(194,901)
Net loss attributable to common stockholders
$
(12,271,795)
$
(8,246,405)
Weighted average shares issued and outstanding-basic and diluted
6,259,686
5,002,683
Basic and diluted net loss per share attributable to common stockholders
$
(1.96)
$
(1.65)
Three Months Ended December 31,
2015
2014
Net loss
$
(2,760,453)
$
(1,407,758)
Add:
Preferred stock beneficial conversion charge
(492,910)
Undeclared cumulative preferred dividends
(239,389)
(95,304)
Net loss attributable to common stockholders
$
(2,999,842)
$
(1,995,972)
Weighted average shares issued and outstanding-basic and diluted
7,225,006
5,004,821
Basic and diluted net loss per share attributable to common stockholders
$
(0.42)
$
(0.40)
The following table sets forth the number of shares excluded from the computation of diluted loss per share, as their inclusion would have been anti-dilutive:
We measure fair value based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include the following:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. These inputs include quoted prices for similar assets or liabilities; quoted market prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in the assessment of fair value.
We have no assets or liabilities that are required to be measured at fair value on a recurring basis as of December 31, 2015 and March 31, 2015.
We record foreign currency transactions at the exchange rate prevailing at the date of the transaction with resultant gains and losses being included in results of operations. Foreign currency transaction gains and losses have not been significant for any of the periods presented.
In May 2014, the FASB issued Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”. ASU 2014-09 supersedes the revenue recognition requirements in FASB Topic 605, “Revenue Recognition”. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. In August 2015, the FASB issued ASU No. 2015-14 which deferred the effective date by one year for public entities and others. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2017 for public business entities, certain not-for-profit entities, and certain employee benefit plans. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Management has not selected a transition method and is currently assessing the impact the adoption of ASU 2014-09 will have on our condensed consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory”. The amendments in this update apply to inventory that is measured using first-in, first-out (FIFO) or average cost. They do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. Other than the change in the subsequent measurement guidance from the lower of cost or market to the lower of cost and net realizable value for inventory within the scope of this update, there are no other substantive changes to the guidance on measurement of inventory. The amendments in this update more closely align the measurement of inventory in International Financial Reporting Standards (IFRS) and are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Management is currently assessing the impact the adoption of ASU 2015-11 will have on our condensed consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements-Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for the reporting periods beginning after December 15, 2016 and early application is permitted. Management is currently assessing the impact the adoption of ASU 2014-15 will have on our condensed consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes”. Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, the amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this update apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this update. The amendments in this update will align the presentation of deferred income tax assets and liabilities with IFRS and are effective for fiscal years after December 15, 2016, including interim periods within those annual periods. Management is currently assessing the impact the adoption of ASU 2015-17 will have on our condensed consolidated financial statements.
Disclosure of accounting policy for cash and cash equivalents, including the policy for determining which items are treated as cash equivalents. Other information that may be disclosed includes (1) the nature of any restrictions on the entity's use of its cash and cash equivalents, (2) whether the entity's cash and cash equivalents are insured or expose the entity to credit risk, (3) the classification of any negative balance accounts (overdrafts), and (4) the carrying basis of cash equivalents (for example, at cost) and whether the carrying amount of cash equivalents approximates fair value.
Disclosure of accounting policy regarding (1) the principles it follows in consolidating or combining the separate financial statements, including the principles followed in determining the inclusion or exclusion of subsidiaries or other entities in the consolidated or combined financial statements and (2) its treatment of interests (for example, common stock, a partnership interest or other means of exerting influence) in other entities, for example consolidation or use of the equity or cost methods of accounting. The accounting policy may also address the accounting treatment for intercompany accounts and transactions, noncontrolling interest, and the income statement treatment in consolidation for issuances of stock by a subsidiary.
Disclosure of accounting policy for costs incurred to obtain or issue debt, the effects of refinancings, method of amortizing deferred financing costs and original issue discount, and classifications of debt on the balance sheet.
Disclosure of accounting policy for computing basic and diluted earnings or loss per share for each class of common stock and participating security. Addresses all significant policy factors, including any antidilutive items that have been excluded from the computation and takes into account stock dividends, splits and reverse splits that occur after the balance sheet date of the latest reporting period but before the issuance of the financial statements.
Disclosure of accounting policy for fair value measurements of financial and non-financial assets, liabilities and instruments classified in shareholders' equity. Disclosures include, but are not limited to, how an entity that manages a group of financial assets and liabilities on the basis of its net exposure measures the fair value of those assets and liabilities.
Disclosure of accounting policy for (1) transactions denominated in a currency other than the reporting enterprise's functional currency, (2) translating foreign currency financial statements that are incorporated into the financial statements of the reporting enterprise by consolidation, combination, or the equity method of accounting, and (3) remeasurement of the financial statements of a foreign reporting enterprise in a hyperinflationary economy.
Disclosure of accounting policy for recognizing and measuring the impairment of long-lived assets. An entity also may disclose its accounting policy for long-lived assets to be sold. This policy excludes goodwill and intangible assets.
Disclosure of accounting policy for income taxes, which may include its accounting policies for recognizing and measuring deferred tax assets and liabilities and related valuation allowances, recognizing investment tax credits, operating loss carryforwards, tax credit carryforwards, and other carryforwards, methodologies for determining its effective income tax rate and the characterization of interest and penalties in the financial statements.
Disclosure of accounting policy for finite-lived intangible assets. This accounting policy also might address: (1) the amortization method used; (2) the useful lives of such assets; and (3) how the entity assesses and measures impairment of such assets.
Disclosure of accounting policy for major classes of inventories, bases of stating inventories (for example, lower of cost or market), methods by which amounts are added and removed from inventory classes (for example, FIFO, LIFO, or average cost), loss recognition on impairment of inventories, and situations in which inventories are stated above cost. If inventory is carried at cost, this disclosure includes the nature of the cost elements included in inventory.
Disclosure of accounting policy for major customers. Major customers are those that the loss of such customers would have a material adverse effect on the entity.
Disclosure of accounting policy pertaining to new accounting pronouncements that may impact the entity's financial reporting. Includes, but is not limited to, quantification of the expected or actual impact.
Disclosure of accounting policy for long-lived, physical assets used in the normal conduct of business and not intended for resale. Includes, but is not limited to, basis of assets, depreciation and depletion methods used, including composite deprecation, estimated useful lives, capitalization policy, accounting treatment for costs incurred for repairs and maintenance, capitalized interest and the method it is calculated, disposals and impairments.
Disclosure of accounting policy for costs it has incurred (1) in a planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service, a new process or technique, or in bringing about a significant improvement to an existing product or process; or (2) to translate research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process.
Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Glossary Research and Development -URI http://asc.fasb.org/extlink&oid=6523717
Disclosure of accounting policy for revenue recognition. If the entity has different policies for different types of revenue transactions, the policy for each material type of transaction is generally disclosed. If a sales transaction has multiple element arrangements (for example, delivery of multiple products, services or the rights to use assets) the disclosure may indicate the accounting policy for each unit of accounting as well as how units of accounting are determined and valued. The disclosure may encompass important judgment as to appropriateness of principles related to recognition of revenue. The disclosure also may indicate the entity's treatment of any unearned or deferred revenue that arises from the transaction.
Disclosure of accounting policy for stock option and stock incentive plans. This disclosure may include (1) the types of stock option or incentive plans sponsored by the entity (2) the groups that participate in (or are covered by) each plan (3) significant plan provisions and (4) how stock compensation is measured, and the methodologies and significant assumptions used to determine that measurement.
Disclosure of accounting policy for the classification of shipping and handling costs, including whether the costs are included in cost of sales or included in other income statement accounts. If shipping and handling fees are significant and are not included in cost of sales, disclosure includes both the amounts of such costs and the line item on the income statement which includes such costs.
Disclosure of accounting policy for the use of estimates in the preparation of financial statements in conformity with generally accepted accounting principles.
The following table sets forth the number of shares excluded from the computation of diluted loss per share, as their inclusion would have been anti-dilutive:
Tabular disclosure of securities (including those issuable pursuant to contingent stock agreements) that could potentially dilute basic earnings per share (EPS) in the future that were not included in the computation of diluted EPS because to do so would increase EPS amounts or decrease loss per share amounts for the period presented, by antidilutive securities.
Tabular disclosure of an entity's basic and diluted earnings per share calculations, including a reconciliation of numerators and denominators of the basic and diluted per-share computations for income from continuing operations.
As of December 31, 2015, approximately 13.9 million shares of common stock were issuable upon conversion or exercise of rights granted under prior financing arrangements, stock options and warrants, as follows:
Class A and B convertible preferred stock converted to common stock
2,473,303
Exercise of stock options
4,002,899
Exercise of warrants
7,444,736
Total shares of common stock reserved for future issuances
We typically issue warrants to purchase shares of our common stock to investors as part of a financing transaction or in connection with services rendered by placement agents and consultants. Our outstanding warrants expire on varying dates through November 2021. A summary of warrant activity is as follows:
Number of Shares
Weighted- Average Exercise Price/Share
Weighted- Average Remaining Contractual Term (Years)
Aggregate Intrinsic Value (1)
Outstanding March 31, 2015
5,475,806
7.20
Issued
2,512,179
3.93
Exercised
(49,339)
2.40
Forfeited
Expired
(493,910)
9.33
Outstanding December 31, 2015
7,444,736
$
5.96
2.9
$
-
Vested (exercisable) December 31, 2015
7,444,736
$
5.96
2.9
$
-
(1)
Aggregate intrinsic value represents the difference between the exercise price of the warrant and the closing market price of our common stock on December 31, 2015, which was $2.02 per share.
We granted stock options at exercise prices equal to or greater than the quoted market price of our common stock on the grant date. The fair value of each option grant was estimated on the date of grant using Black-Scholes with the following assumptions:
Weighted- Average Remaining Contractual Term (Years)
Aggregate Intrinsic Value (1)
Outstanding March 31, 2015
1,793,745
$
4.56
Granted (weighted-average fair value of $2.94 per share)
2,394,868
4.02
Exercised
(4,601)
2.47
Forfeited
(181,113)
4.33
Outstanding December 31, 2015
4,002,899
$
4.23
8.7
$
Vested (exercisable) December 31, 2015
1,144,928
$
4.57
7.3
$
Unvested (unexercisable) December 31, 2015
2,857,971
$
4.10
3.2
$
(1)
Aggregate intrinsic value represents the difference between the exercise price of the option and the closing market price of our common stock on December 31, 2015, which was $2.02 per share.
Tabular disclosure of the number and weighted-average exercise prices (or conversion ratios) for share options (or share units) that were outstanding at the beginning and end of the year, vested and expected to vest, exercisable or convertible at the end of the year, and the number of share options or share units that were granted, exercised or converted, forfeited, and expired during the year.
Tabular disclosure of the significant assumptions used during the year to estimate the fair value of stock options, including, but not limited to: (a) expected term of share options and similar instruments, (b) expected volatility of the entity's shares, (c) expected dividends, (d) risk-free rate(s), and (e) discount for post-vesting restrictions.
Tabular disclosure of warrants or rights issued. Warrants and rights outstanding are derivative securities that give the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue to entice investors by a higher return potential. The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months. Disclose the title of issue of securities called for by warrants and rights outstanding, the aggregate amount of securities called for by warrants and rights outstanding, the date from which the warrants or rights are exercisable, and the price at which the warrant or right is exercisable.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Amount of cash inflow (outflow) from operating activities, excluding discontinued operations. Operating activity cash flows include transactions, adjustments, and changes in value not defined as investing or financing activities.
The amount of net income or loss for the period per each share in instances when basic and diluted earnings per share are the same amount and reported as a single line item on the face of the financial statements. Basic earnings per share is the amount of net income or loss for the period per each share of common stock or unit outstanding during the reporting period. Diluted earnings per share includes the amount of net income or loss for the period available to each share of common stock or common unit outstanding during the reporting period and to each share or unit that would have been outstanding assuming the issuance of common shares or units for all dilutive potential common shares or units outstanding during the reporting period.
Other preferred stock dividends and adjustments, not otherwise defined in the taxonomy, that are necessary to adjust net income to obtain net income applicable to common stockholders.
Securities (including those issuable pursuant to contingent stock agreements) that could potentially dilute basic earnings per share (EPS) or earnings per unit (EPU) in the future that were not included in the computation of diluted EPS or EPU because to do so would increase EPS or EPU amounts or decrease loss per share or unit amounts for the period presented.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
For an entity that discloses a concentration risk in relation to quantitative amount, which serves as the "benchmark" (or denominator) in the equation, this concept represents the concentration percentage derived from the division.
Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss).
Amount of noncash expense included in interest expense to amortize debt discount and premium associated with the related debt instruments. Excludes amortization of financing costs. Alternate captions include noncash interest expense.
Number of securities into which the class of warrant or right may be converted. For example, but not limited to, 500,000 warrants may be converted into 1,000,000 shares.
Amount of a favorable spread to a debt holder between the amount of debt being converted and the value of the securities received upon conversion. This is an embedded conversion feature of convertible debt issued that is in-the-money at the commitment date.
Number of securities into which the class of warrant or right may be converted. For example, but not limited to, 500,000 warrants may be converted into 1,000,000 shares.
commences on the substantial completion of the improvements thereon which we expect to be completed in February 2016 and expires seven years after such date, subject to our option to extend the lease for two additional five-year periods.
Rental expense for the reporting period incurred under operating leases, including minimum and any contingent rent expense, net of related sublease income.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Number of securities into which the class of warrant or right may be converted. For example, but not limited to, 500,000 warrants may be converted into 1,000,000 shares.
For an unclassified balance sheet, the carrying amount (net of accumulated amortization) as of the balance sheet date of capitalized costs associated with the issuance of debt instruments (for example, legal, accounting, underwriting, printing, and registration costs) that will be charged against earnings over the life of the debt instruments to which such costs pertain.
The amount of expense provided in the period for legal costs incurred on or before the balance sheet date pertaining to resolved, pending or threatened litigation, including arbitration and mediation proceedings.
The maximum number of nonredeemable preferred shares (or preferred stock redeemable solely at the option of the issuer) permitted to be issued by an entity's charter and bylaws.
Aggregate share number for all nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer) held by stockholders. Does not include preferred shares that have been repurchased.
Proceeds from issuance of capital stock which provides for a specific dividend that is paid to the shareholders before any dividends to common stockholder, which takes precedence over common stockholders in the event of liquidation and from issuance of rights to purchase common shares at a predetermined price.
Number of shares issued in lieu of cash for services contributed to the entity. Number of shares includes, but is not limited to, shares issued for services contributed by vendors and founders.
Value of stock issued in lieu of cash for services contributed to the entity. Value of the stock issued includes, but is not limited to, services contributed by vendors and founders.
Aggregate intrinsic value represents the difference between the exercise price of the warrant and the closing market price of our common stock on December 31, 2015, which was $2.02 per share.
The number of shares under options that were cancelled during the reporting period as a result of occurrence of a terminating event specified in contractual agreements pertaining to the stock option plan.
Amount of difference between fair value of the underlying shares reserved for issuance and exercise price of fully vested and expected to vest options that are exercisable.
As of the balance sheet date, the weighted-average exercise price (at which grantees can acquire the shares reserved for issuance) for exercisable stock options that are fully vested or expected to vest.
Weighted average remaining contractual term for option awards outstanding, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
Weighted average remaining contractual term for fully vested and expected to vest options that are exercisable or convertible, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
The estimated dividend rate (a percentage of the share price) to be paid (expected dividends) to holders of the underlying shares over the option's term.
The estimated measure of the maximum percentage by which a share price is expected to fluctuate during a period. Volatility also may be defined as a probability-weighted measure of the dispersion of returns about the mean. The volatility of a share price is the standard deviation of the continuously compounded rates of return on the share over a specified period. That is the same as the standard deviation of the differences in the natural logarithms of the stock prices plus dividends, if any, over the period.
The estimated measure of the minimum percentage by which a share price is expected to fluctuate during a period. Volatility also may be defined as a probability-weighted measure of the dispersion of returns about the mean. The volatility of a share price is the standard deviation of the continuously compounded rates of return on the share over a specified period. That is the same as the standard deviation of the differences in the natural logarithms of the stock prices plus dividends, if any, over the period.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Expected term of share-based compensation awards, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
Aggregate intrinsic value represents the difference between the exercise price of the option and the closing market price of our common stock on December 31, 2015, which was $2.02 per share.
The number of shares under options that were cancelled during the reporting period as a result of occurrence of a terminating event specified in contractual agreements pertaining to the stock option plan.
Amount of difference between fair value of the underlying shares reserved for issuance and exercise price of fully vested and expected to vest options that are exercisable.
As of the balance sheet date, the weighted-average exercise price (at which grantees can acquire the shares reserved for issuance) for exercisable stock options that are fully vested or expected to vest.
Weighted average remaining contractual term for option awards outstanding, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
Weighted average remaining contractual term for fully vested and expected to vest options that are exercisable or convertible, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
Weighted average period over which unrecognized compensation is expected to be recognized for equity-based compensation plans, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
The difference between the maximum number of shares (or other type of equity) authorized for issuance under the plan (including the effects of amendments and adjustments), and the sum of: 1) the number of shares (or other type of equity) already issued upon exercise of options or other equity-based awards under the plan; and 2) shares (or other type of equity) reserved for issuance on granting of outstanding awards, net of cancellations and forfeitures, if applicable.
1) multiplying the number of shares of Preferred Stock to be exchanged by the Class A Original Issue Price or Class B Original Issue Price (as defined in the Certificates of Designation), or $12.00 per share; 2) adding to the result all dividends then accrued but unpaid on such shares of Preferred Stock to be exchanged of $1,068,100; then 3) dividing the result by $2.60 (which is eighty percent (80%) of the price per unit issued in the Qualified Offering).
The number of new shares issued in the conversion of stock in a noncash (or part noncash) transaction. Noncash is defined as transactions during a period that do not result in cash receipts or cash payments in the period. "Part noncash" refers to that portion of the transaction not resulting in cash receipts or cash payments in the period.
Detail information of subsequent event by type. User is expected to use existing line items from elsewhere in the taxonomy as the primary line items for this disclosure, which is further associated with dimension and member elements pertaining to a subsequent event.