Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
¨
No
x
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
¨
No
x
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the Registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
No
x
The aggregate market value of common stock
held by non-affiliates of the registrant as of June 30, 2018 was $351,453,000 based on the closing sale price of such common equity
on such date (excluding 6,178,603 shares of common stock held by directors and officers, and any stockholders whose ownership exceeds
five percent of the shares outstanding as of June 30, 2018).
As of March 1, 2019, there were 30,436,322
shares of the registrant’s common stock outstanding.
PART I
Item 1.
Business
Overview
Cryoport is a life
sciences services company focused on providing critical solutions, such as temperature controlled logistics, bioservices and end-product
fulfillment to the biopharma, reproductive medicine and animal health markets. Our differentiated products and services enable
our clients to ship, store and deliver biologics and other life sciences commodities in a continual temperature controlled state,
including ultra-low cryogenic and other temperature ranges.
Cryoport’s advanced,
comprehensive and technology-centric systems and solutions were designed to support the global high-volume distribution of commercial
biologic and cell based products regulated by the United States Food and Drug Administration (FDA) and other international regulatory
bodies for distribution in the Americas, EMEA (Europe, the Middle East, and Africa) and APAC (Asia-Pacific) regions. Cryoport’s
solutions are also designed to support pre-clinical, clinical trials, Biologics License Applications (BLA), Investigational
New Drug Applications (IND) and New Drug Applications (NDA) with the FDA as well global clinical trials initiated in other countries,
where strict regulatory compliance and quality assurance is mandated. Our industry standard setting Chain of Compliance
TM
solution, which includes vital analytics, such as ‘chain-of-condition’ and ‘chain-of-custody’ information
in a single data stream, empowers our clients’ continuous vigilance over their commodities. In addition, our Chain of Compliance
TM
standard ensures full traceability of the equipment used and the processes employed, further supporting each client’s goal
to minimize risk and maximize success of their new biologics or other commodities as they are introduced into the global markets.
As part of our services,
our technologies provide the ability for Cryoport personnel and our clients to monitor conditions of the internal shipping environment,
location and other specified critical variables for each shipment in near real time. In accordance with client requirements, information
is recorded and archived for each shipment for scientific, quality assurance and regulatory purposes in a secure cloud-based system
that can be accessed globally. This information provides an audit trail that can verify the in-shipment condition in which the
life sciences commodity, material, product, vaccine or therapy was shipped and/or stored.
One of the most
important features of our Cryoport Express
®
Solutions is the sophisticated, cloud-based, logistics management platform,
which is branded as the Cryoportal
®
Logistics Management Platform. The Cryoportal
®
supports the management
of shipments through a single interface, which includes order entry, document preparation, customs documentation, courier management,
near real-time shipment tracking, issue resolution, and regulatory compliance requirements. In addition, it provides unique and
incisive information dashboards and validation documentation for every shipment through data collected by the SmartPak II™
Condition Monitoring System). The Cryoportal
®
can record and retain a fully documented history of all Cryoport Express
®
Shippers, including ‘chain-of-custody’, ‘chain-of-condition’, ‘chain-of-identity’, and Chain
of Compliance
TM
information for each shipment, which is used to ensure that the stability of shipped biologic commodities
are maintained throughout the shipping cycle. At the client’s option, recorded information is archived, allowing the client
to meet exacting requirements necessary for scientific work and/or for proof of regulatory compliance during the logistics process.
Our Cryoport Express
®
Solutions include a family of Cryoport Express
®
Shippers ranging from liquid nitrogen dry vapor shippers (-150℃)
to our C3
TM
Shippers (2-8℃), which are powered by phase-change materials. Cryoport Express
®
Shippers
are precision engineered assemblies that are reliable, cost-effective and reusable or recyclable. Our liquid nitrogen dry vapor
Cryoport Express
®
Shippers utilize an innovative application of ‘dry vapor’ liquid nitrogen technology
and, most often, include a SmartPak II
TM
Condition Monitoring System. Cryoport Express
®
Shippers meet
International Air Transport Association (“IATA”) requirements for transport, including Class 6.2 infectious substances.
Cryoport Express
®
Shippers are also International Safe Transit Association (“ISTA”) “Transit Tested”
certified.
As part of our services,
we assist and/or provide clients with secondary packaging that is placed inside the main chamber of our Cryoport Express® Shippers.
In addition to vials, canes, straws, goblets, plates, etc., we also offer engineering and consulting services to assist clients
in creating and developing customized secondary packaging that meet their specific requirements.
Our advanced technologies
and dedicated personnel allow us to continue to expand our services footprint with a growing suite of services, products and competencies
serving the life sciences industry, which currently include: information technology, primary and secondary packaging, near real-time
monitoring, analytics, logistics distribution, consulting, laboratory relocation, fleet management, embedded logistics support,
validation services (especially for shipping lanes and packaging). A sample of our client facing, value-added competencies addressing
specific client requirements are as follows:
|
·
|
“
Personalized Medicine and Cell-based Immunotherapy Solutions,”
designed for autologous therapies
in which our Cryoport Express
®
Solutions serve as an enabling technology for the safe and efficient transportation
of leukapheresis or apheresis blood products as well as the manufactured autologous cellular-based immunotherapies by providing
a comprehensive logistics solution for the verified chain of condition and chain of custody, chain of identity, and Chain of Compliance
TM
transport from, (a) the collection of the patient’s blood or cells at a point-of-care setting, to (b) a central processing
facility where they are manufactured into a personalized medicine, to (c) the safe, cryogenically preserved delivery of these often
irreplaceable cells to a point-of-care treatment facility. If required, Cryoport Express
®
Shippers can then serve
as a temporary freezer/repository supporting the efficient distribution of the personalized medicine to the patient when and where
the medical provider needs it, without the expense and inconvenience of on-sight, cryopreservation storage freezers.
|
|
·
|
“Allogeneic Therapy Solutions,”
designed for allogeneic therapies in which our Cryoport Express
®
Solutions serve as an enabling technology for the safe and efficient transportation of health donor blood products as well
as the manufactured allogeneic therapies by providing a comprehensive logistic solutions for the verified chain of condition, chain
of custody, chain of identity, and Chain of Compliance
TM
transport from, (a) the blood collection center, to (b) the
manufacturing facility for the allogeneic therapy, to (c) a storage and fulfillment facility, or (d) to a point-of-care treatment
facility. Again, if required, the Cryoport Express
®
Shipper can then serve as a temporary freezer/repository to
allow the efficient distribution of the personalized medicine to the patient.
|
|
·
|
“Embedded Solutions,”
our most comprehensive solution, which involves our management of the entire
temperature controlled logistics process for our client using Cryoport technology and Cryoport employees working on-sight at the
client’s location to manage all of the client’s temperature controlled logistics needs.
|
|
·
|
“Fleet Management,”
our fleet management support service is designed to reduce our clients upfront
and recurring costs through optimized utilization of resources and minimization of equipment loss. We offer both complete and partial
temperature controlled outsourced fleet management services, including fleet evaluation and disposition (if required), inventory
control, fleet maintenance and ongoing fleet requalification and validation.
|
|
·
|
“Packaging Development,”
using ‘Design-of-Experiment’ and ‘Quality-by-Design’
processes, Cryoport can design, engineer and employ customized packaging and/or accessories to ensure effective distribution of
our client’s critical commodities using our in-house team of packaging engineering competencies in the cryogenic, 2-8℃
and other temperature controlled ranges to meet or exceed our client’s specifications. Packaging development may include
integration of our SmartPak II™ Condition Monitoring System and the accommodation of our Cryoportal
®
Logistics
Management Platform into our clients’ packaging configurations, providing full access to our logistics management support
competencies.
|
|
·
|
“Consulting Services,”
provides our clients an opportunity to leverage our in-house talent to: design
custom logistics plans, perform lane assessment, lane validation, carrier validation; design custom packaging and validation, permitting
clinical trial logistics design; commercial launch planning; systems integration; and end user training.
|
|
·
|
“Laboratory Relocation,”
for large moves of life sciences commodities, we use redundant temperature
controlled shippers and environmentally controlled trucks. Along with our logistics partners, we ensure the integrity of client
materials during all logistics phases, including loading, transport, unloading and placement. Our service includes lane and carrier
permitting and validation. Our large sample capacity Cryoport Express
®
CryoMax™ Shipper has a holding time
of up to 20 days and includes the benefit of our near real time SmartPak II™ Condition Monitoring System, which supplies
monitoring information to our Cryoportal
®
Logistic Management Platform, providing LiveView information on the client’s
transport. By employing our 24/7/365 client support team to actively monitoring shipments and mitigate risks, we ensure safe shipping
and relocation of large scale collections.
|
|
·
|
“powered by cryoport
SM
,”
available to providers of shipping and delivery services who
seek to offer a “branded” cryogenic logistics solution as part of their service offerings. “powered by cryoport
SM
”
appears prominently on the offering software interface and packaging. This option for the client to private label its service is
available upon committing to certain requirements, such as minimum annual shipping volumes.
|
In addition to the
offerings above, Cryoport is continuously evaluating, expanding and improving its range of services and solutions in response to
market needs and client demand.
Competitive Advantages
With our first-to-market
and technology-driven logistics services for the life sciences industry and over a decade of experience, we have established a
unique lead over potential competitors. Furthermore, we are not aware of any company that offers Cryoport’s full suite of
solutions. Working with our tools in information technology, packaging and temperature controlled logistics, we approach our growing
markets with innovation, creative thinking and advanced technologies.
The most common alternatives
to Cryoport’s solutions are “older technologies” and/or systems. In fact, a portion of the biopharma market and
much of the animal health market still uses hazardous liquid nitrogen or dry ice with no ongoing validation processes for their
equipment or procedures. In the case of dry ice, the technology delivers temperatures of approximately -80℃ with standard
deviations up to 14℃. Consequently, it provides an environment that allows cellular activity to continue and cells to degrade,
impacting cell line performance and cell viability. Liquid nitrogen, on the other hand, while effective in holding cryogenic temperatures,
is bulky, heavy, expensive and requires special handling to avoid spillage and accommodate weight. Both dry ice and liquid nitrogen
are classified “hazardous” by IATA (International Air Transportation Association) and, therefore, are also classified
as “dangerous goods,” requiring additional permits and fees. Cryoport solutions on the other hand are classified as
non-hazardous.
Through our experience,
we know that logistics distribution can have a large impact on product/commodity conditions. This is especially important for high
value and at times irreplaceable commodities that we transport, whether in support of a clinical trial or the commercial distribution
of a product. We therefore go beyond traditional ISTA (International Safe Transit Association) packaging validation and have implemented
Quality-by-Design processes that allow us to assess in-field events, the impact of logistics on the commodity being shipped, and
the equipment being used for each individual shipments.
We have been qualified
as a trusted temperature controlled logistics solutions provider for hundreds of life sciences companies and institutions and,
currently, support over 300 clinical trials in the regenerative medicine space. Cryoport has logged over 260,000 shipments to over
100 countries with hundreds of different types of life sciences materials. This experience and reputation, combined with over a
decade of know-how and technology, provides us with significant competitive advantages. In fact, since our inception, we have experienced
minimal client attrition.
In addition, Novartis
and Kite Pharmaceuticals Inc. (a Gilead company) have both entrusted Cryoport to manage the global clinical shipments of its cell
therapies trials and the commercial shipments of its CAR T-cell therapies, Kymriah
®
and Yescarta
®
,
respectively, which were the first two CAR T-cell therapies approved by the FDA.
Our competitive position
is further enhanced by our respective “
powered by cryoport
SM
” partnership agreements with FedEx,
DHL, UPS, who collectively, have more than 87% of the express logistics aircraft in service and who, respectively, have been expanding
other parts of their temperature controlled offerings for the life sciences industry.
We continuously enhance
and broaden our solutions offering in order to maintain and extend what we believe to be a significant lead in the marketplace.
We believe that it would take a serious potential competitor an extended period of time and investment to build out the tools,
solutions, and competencies we possess along with our know-how. In addition to our lead as the first-to-market mover and leader
in market share in the regenerative medicine space, we think our biggest competitive advantage falls into our trade secrets and
our speed to market with new solutions. Our market leading position enables us to be uniquely tuned to the markets we serve, which
enables us to anticipate and quickly react to client needs and market demand. We try to employ the best people in the industry,
and we foster the development and implementation of new technologies to maintain that lead. In every aspect possible, we strive
to be a ‘green,’ environmentally responsible company, which we consider to be a competitive advantage.
Strategic Logistics Alliances and Collaborations
We have been successful
in establishing strategic distribution alliances around the world, under our “
powered by Cryoport
SM
”
strategy, as a long-term method of marketing our solutions 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. The “
powered by Cryoport
SM
”
strategy with our alliance partners reflects our solutions being integrated into our alliance partner’s services.
Cryoport now supports
the three largest integrators in the world, FedEx, DHL and UPS, with its advanced cryogenic logistics solutions for the life sciences
industry and for logistics support. To support each integrator’s marketing efforts, we operate with each independently and
confidentially in support of each company’s respective strategy.
FedEx
.
Since January 2013, we have had a master agreement with Federal Express Corporation (“FedEx”) the FedEx Agreement provides
FedEx with a non-exclusive license and right to use a customized version of our Cryoportal
®
Logistics Management
Platform for the management of shipments made by FedEx customers. The FedEx Agreement was last amended in December 2018 to extend
its term through December 31, 2019, with the intent to develop a new and updated multiyear agreement. 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 our Cryoportal
®
Logistics Management Platform, which is “
powered
by cryoport
SM
” for use by FedEx and its customers, giving them access to the full capabilities of our cloud-based
logistics management software platform.
DHL.
Since June 2014, through a master agreement with LifeConEx, a part of DHL Global Forwarding (“DHL”), which automatically
renews for successive one-year periods, we have provided DHL with cold chain logistics offerings to its life sciences and healthcare
customers with Cryoport’s validated cryogenic solutions. DHL offers Cryoport’s cryogenic solutions through its worldwide
Thermonet network of Certified Life Sciences Stations under the DHL brands as “
powered by cryoport
SM
”.
In addition, DHL’s customers 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 platform, the Cryoportal
®
,
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
.
Since October 2014, United Parcel Services, Inc. (“UPS”) has been a distributor, under our “
powered by cryoport
SM
”
strategy, by entering into an agreement with UPS Oasis Supply Corporation, a part of UPS, whereby UPS offers our validated and
comprehensive cryogenic solutions to its life sciences and healthcare customers on a global basis. Under this agreement, UPS customers
have direct access to our proprietary Cryoportal
®
Logistics Management Platform, which is integrated with UPS’s
tracking and billing systems, to provide UPS life sciences and healthcare customers with a seamless way to enter orders and access
critical information regarding shipments of biological material worldwide.
We also have relationships
using our “
powered by cryoport
SM
” strategy with the following alliance partners:
McKesson Specialty
Health, a division of McKesson Corporation.
In February 2018, we announced a strategic collaboration with McKesson Specialty
Health. Adding Cryoport’s integrated cold-chain capabilities and near real-time monitoring, the McKesson and Cryoport collaboration
provides an end-to-end solution for complex products which require high-touch patient access and adherence support as well as temperature
controlled product transportation. McKesson Specialty Health works together with stakeholders across the healthcare delivery system
to preserve and strengthen specialty care. Cryoport’s solutions coupled with McKesson’s end-to-end patient access and
support services are focused on helping patients avoid delays in treatment through accelerated patient on-boarding, prior authorizations,
end-user training and comprehensive adherence and educational support programs.
World Courier,
a part of AmerisourceBergen.
In July 2018 we announced World Courier’s integration of Cryoport’s full suite
of temperature controlled solutions into its global network. World Courier is a global specialty logistics company that designs
world-class supply chain programs. The integration allows Cryoport’s Chain of Compliance
TM
solutions availability
to World Courier clients. The integrated platform combines the strengths of both the Cryoport and World Courier systems to their
respective biopharmaceutical clients, allowing each client to proactively minimize risks to their cell and gene therapies through
the entire biopharma supply chain in order to maintain the efficacy of their valuable commodities. Our integrated solutions will
be offered through World Courier’s global network of more than 140 company-owned offices operating across 50 countries, as
well as directly through Cryoport’s business development team.
Be The Match
BioTherapies
®
.
I
n October 2018, we announced a strategic partnership with Be The Match BioTherapies to
deliver end-to-end supply chain services to the cell and gene therapy industry. Be The Match BioTherapies is the only cell and
gene therapy solutions provider with customizable services to support the end-to-end cell therapy supply chain. Backed by the industry-leading
experience of the National Marrow Donor Program/Be The Match, and a research partnership with the CIBMTR
®
(Center
for International Blood and Marrow Transplant Research
®
), the organization designs solutions that advance cell and
gene therapies in any stage of development. By pairing Cryoport’s expertise in temperature controlled logistics with Be The
Match BioTherapies’ expertise in apheresis center onboarding and management, case management and logistics, clinical research,
and outcomes data collection and analysis, the two organizations will offer full end-to-end supply chain and outcomes support for
companies developing and delivering autologous and allogeneic cell and gene therapies. An important part of the agreement is to
integrate Be The Match BioTherapies’ MatchSource
®
cell therapy supply chain software and Cryoport’s
Cryoportal
®
Logistics Management Platform. The outcome is a platform that manages more cell therapy products than
any other solution in the marketplace, enabling cell and gene therapy companies to more rapidly discover, develop and deliver next-generation
therapies. Our collaboration will support both organizations’ efforts to standardize critical elements of the cell therapy
supply chain, as well as processes in apheresis and transplant center networks.
Cryoport’s Positioning in the Life Sciences Industry
Life sciences technology
advancements are expected to have a significant impact on global society over the next 25 years. The industry is growing in a way
where research and manufacturing pipelines span across the globe. This also increases the need to mitigate supply chain risks,
especially for cellular-based therapies/products and other life sciences commodities today and tomorrow.
Over the past several
years, Cryoport has assumed the leadership position in supporting the rapidly growing regenerative medicine market with its temperature
controlled logistics solutions. According to the Alliance for Regenerative Medicine’s State of the Industry Briefing in January
of 2019, there were 906 regenerative medicine companies worldwide, conducting a total of 1,028 clinical trials of which 92 were
in Phase III as of the end of 2018. The total targeted enrollment of patients in regenerative medicine clinical trials word-wide
were 59,757 patients. Total global financings in this space were $13.3 billion, up 73% compared to 2017. The FDA stated that by
2025 it predicts that it will be approving 10 to 20 cell and gene therapy products per year. This data further amplifies the significant
position regenerative medicine is taking in the development of new therapies and products in the life sciences industry.
The total cold chain
logistics market for the life sciences industry has historically grown faster per annum than the total life sciences logistics
market. For 2018, global cold chain logistics spending, overall, was forecasted to be $15.0 billion; with approximately $3.4 billion
in spending supporting global clinical trials. By 2022, the global life sciences cold chain logistics market is forecast to grow
to $18.6 billion for a 24% increase. The majority of the growth is a result of the recent advancements in the development of biologics
and cell-based therapies. As a result, scientists, intermediaries, and manufacturers require means for cryogenically transporting
and storing their work and products, such as CAR T-cell therapies, where temperatures must be maintained below the “glass
point” (generally, below minus 136℃). In addition, our Cryoport Express
®
C3™ solution was specifically
developed to address the front-end logistics of some autologous therapies that transport whole blood to the point of manufacturing,
requiring a stable 2-8℃ temperature range. It is more robust than any competing shipper today with its exacting and reliable
design. These solutions incorporate our Cryoportal
®
Logistics Management Platform and the SmartPak II
TM
Condition Monitoring System, giving our clients a seamless logistics record of all vital information for each therapy shipped on
a worldwide basis.
We think Cryoport is
appropriately positioned as a life sciences services company focused on providing solutions such as temperature controlled logistics,
bioservices and end-product fulfillment, to the regenerative medicine, reproductive medicine and animal health markets. Our
differentiated products and services enable our clients to ship, store and deliver biologics and other commodities required to
remain in a continual cryogenic or temperature controlled state, such as CAR-T therapies and other cell therapies, gene therapies,
embryos for reproductive medicine, vaccines, and stem cells. Our standard setting Chain of Compliance
TM
, which includes
vital analytics, including ‘chain-of-condition’ and ‘chain-of-custody’ information, in a single data stream,
allows our clients continuous vigilance over their commodities to minimize risk and maximize success through traceability of the
equipment used and the processes employed in supporting each client’s therapy or other commodity.
Life Sciences Customer Agreements
Our clients include
life sciences companies and institutions that have engaged us to support their clinical studies and trials as well as the global
distribution of their commercial biologics, vaccines and other products with our temperature controlled logistics and bioservices
solutions. Our most significant agreements are as follows:
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 are now managing all cryogenic shipments of Zoetis’ key poultry vaccines. Under this arrangement,
we provide on-site logistics personnel and our Cryoportal
®
Logistics Management Platform to manage shipments from
the Zoetis manufacturing site in the United States to domestic customers as well as various international distribution centers.
The Company manages Zoetis’ total fleet of 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 further expand Cryoport’s role to include the logistics management for a second poultry vaccine. In September
2015 and May 2018, the Agreement was further amended and extended through March 2019, subject to certain termination and extension
provisions. We are currently in discussions with Zoetis to further extend and amend the agreement.
Novartis
. In
May 2017, we signed an agreement with Novartis Inc. to manage the global clinical and commercial shipments of its CAR T-cell therapies,
including the recently commercial launch of CAR T-cell therapy, Kymriah
®
(CTL019), for children and young adults
with B-cell ALL that is refractory or has relapsed at least twice. On August 30, 2017 Novartis received from the FDA the first
ever CAR T-cell approval for the first indication of Kymriah
®
. Subsequently on May 1, 2018 the FDA approved Kymriah
®
for the treatment for adult patients with relapsed/refractory DLBCL. Following U.S. approvals, on August 27, 2018 the EU approved
Kymriah
®
for both ALL and DLBCL. Most recently Kymriah
®
received Canadian approval on September 6,
2018 and Australian approval on December 20, 2018. Novartis has treated patients in 11 countries and has over 500 employees dedicated
to the support of Kymriah
®
. Under our agreement with Novartis, Cryoport provides cryogenic packaging and shipping
using its Cryoport Express
®
Shippers, monitoring using its SmartPak II
TM
Condition Monitoring System
technology and communications and information recording using its Cryoportal
®
Logistics Management Platform to manage
shipments from the Novartis manufacturing sites to their clinical and commercial sites for patient administration globally.
Kite/Gilead
.
In July 2017, we signed an agreement with Kite Pharmaceuticals Inc. (a
Gilead company) to manage the clinical and commercial shipments of its CAR T-cell therapy,
Yescarta
®
(Axicabtagene
Ciloleucel). On October 18, 2017, Yescarta
®
became the first CAR-T therapy approved by the FDA for the treatment
of adult patients with relapsed or refractory large B-cell lymphoma.
Additionally,
Yescarta
®
received EU approval on August 27, 2018
for relapsed/refractory DLBCL and PMBCL. As of January 31, 2019, Kite had 68 cancer centers authorized to treat patients in the
United States and 12 certified in the EU. Through these centers nearly 700 patients have been treated with Yescarta
®
.
Under our agreement with Kite, Cryoport provides cryogenic packaging and shipping using its Cryoport Express
®
Shippers, monitoring using its SmartPak II
TM
Condition Monitoring System technology and communications and information
recording using its Cryoportal
®
Logistics Management Platform to manage shipments from the Kite manufacturing sites
to their clinical and commercial sites of patient administration globally.
Cryoportal
®
Logistics Management Platform
The Cryoportal
®
Logistics Management Platform records and retains a fully traceable and documented history of all serialized equipment and components
as part of our Chain of Compliance
TM
solution, as well as “chain-of-condition” and “chain-of-custody”
for every shipment, helping ensure that quality, safety, efficacy, and stability of shipped commodities are maintained throughout
the process. Additionally, the Cryoportal
®
is used by Cryoport, our clients and business partners to automate the
entry of orders, documentation preparation, to assist in managing logistics operations and to reduce administrative costs typically
provisioned through manual labor relating to order-entry, order processing, preparation of shipping documents and back-office accounting.
It is also used to support the high level of customer service expected by the life sciences industry. Certain features of the Cryoportal
®
are designed to reduce operating costs and facilitate the scaling of Cryoport’s business. Examples of these features include
automation of order entry, development of key performance indicators (“KPI’s”) to support efforts for continuous
process improvements in our business, and programmatic exception monitoring to detect and sometimes anticipate delays in the shipping
process, often before the customer or the shipping company is aware of them. These features offer significant value to our customers
in terms of cost avoidance and risk mitigation.
The Cryoportal
®
Logistics Management Platform also serves as the communications center for the management, collection and analysis of SmartPak
II
TM
Condition Monitoring System data collected in near real time from the field. Collected data is converted into information
reports containing valuable and actionable information that becomes the quality control or “pedigree” of the shipment.
This information can be utilized by Cryoport to provide valuable feedback in near real time to our clients relating to their shipments.
Additionally, our SmartPak II
TM
Condition Monitoring System provides the ability to apply Quality by Design fundamentals
to our logistics solutions enabling intervention and risk mitigation capabilities to be employed.
The Cryoportal
®
Logistics Management Platform has been developed as a “carrier-agnostic” system, allowing clients and the Cryoport
Logistics Management team to work with any combination of integrators, freight forwarders, couriers and/or brokers depending on
the specific requirements and/or client preferences. To increase operational efficiencies, the Cryoportal
®
Logistics
Management Platform is integrated with the tracking systems of FedEx, DHL and UPS and other key logistics providers.
The Cryoportal
®
was developed for time-and temperature-sensitive shipments that are required to be maintained at specific temperatures, beginning
with the most demanding cryogenic temperatures (-150℃) and moving upward to ambient (20-25℃) to ensure that the shipped
samples/commodities/products are not subject to degradation or out of designated “safe” range temperatures. While our
current focus is on cryogenic (-150℃) as well as 2-8℃ logistics within the life sciences industry, the use of the Cryoportal
®
Logistics Management Platform can and may be extended into other temperature controlled ranges for the life sciences. To our knowledge,
the Cryoportal
®
Logistics Management Platform is unique to temperature controlled logistics in the life sciences
industry. It is robust and has considerable capabilities. We frequently receive favorable feedback about the Cryoportal
®
from our clients and partners.
Cryoport Express
®
Shippers
Our Cryoport Express
®
Shippers are a family of shippers engineered specifically to serve the life sciences industry. Engineering of these devices, which
are made up of proprietary packaging, dewar vacuum flasks, near real time electronic monitoring systems and engineered shock absorbing
overpackaging requires multiple and varied engineering disciplines. Each Cryoport Express
®
Shipper is ISTA (International
Safe Transit Association) validated and IATA, UN, International Civil Aviation Organization (“ICAO”) compliant. Cryoport
Express
®
Shippers are the highest level, most comprehensive logistics shippers serving the life sciences industry.
Cryogenic Cryoport
Express
®
Shippers employ liquid nitrogen v
apor shipper vacuum flask tanks
capable of maintaining cryogenic temperatures of minus 150℃ or below for a dynamic shipping period of 10 days or more.
A dry vapor cryogenic shipper is a device that uses liquid nitrogen contained inside a vacuum insulated vessel (
vacuum
flask tank),
which serves as a refrigerant to provide stable storage temperatures below minus 150℃. Our Cryoport Express
®
Shippers are designed to ensure that there is no pressure build up as the liquid nitrogen evaporates. We have developed a proprietary
retention system to ensure that liquid nitrogen stays inside the vacuum container, which allows the shipper to be designated as
a dry vapor shipper meeting IATA requirements. Biological or pharmaceutical specimens are stored in a specimen chamber, referred
to as a “well” inside the container and refrigeration is provided by gas evolving from the liquid nitrogen entrapped
within the proprietary retention system. Specimens that may be transported using our cryogenic shipper include: live cells, scientific
or pharmaceutical commodities such as cancer therapies, vaccines, diagnostic materials, semen, eggs, embryos, infectious substances,
and other commodities that require continuous exposure to cryogenic temperatures, i.e., temperatures below minus 150℃.
An important feature
of our Cryoport Express
®
Shippers is their compliance with the stringent packaging requirements of IATA Packing
Instructions 602 and 650, respectively. These specifications include meeting internal pressure (hydraulic) and drop performance
requirements. Under IATA guidelines, Cryoport Express® Shippers are classified as “Non-hazardous.” Dry ice and
liquid nitrogen are classified as “Dangerous Goods.” Our shippers are also in compliance with International Civil Aviation
Organization (“ICAO”) regulations that prohibit egress of liquid nitrogen residue from the shipping packages. The ICAO
is a United Nations organization that develops regulations for the safe transport of dangerous goods by air.
We currently offer
dry vapor shippers with varying storage capacities, including our Cryoport Express
®
Standard Shipper, Cryoport Express
®
High Volume Shipper, Cryoport Express
®
Sliderite
®
Shipper, Cryoport Express
®
CXVC1
Shipper and Cryoport Express
®
CryoMax™, which has a capacity of 36,400 2.0 ml vials. Our Cryoport Express
®
Shippers are composed of aluminum (aircraft-grade) material, with an engineered well for holding high value biologics or other
materials in its inner chamber.
Cryoport Express
®
Dry Vapor Shippers
Cryoport Express
®
Dry Vapor Shippers are lighter than liquid nitrogen flasks. They are engineered units that consist of dewar flasks, electronics,
and engineered outer packaging. Cryoport Express™ Shippers include re-usable dry vapor liquid nitrogen storage containers
(vacuum flask tanks) that, we believe, combine the best features of life sciences packaging, cryogenics science and vacuum insulation
technology. Cryoport Express
®
Dry Vapor Shippers are composed of aluminum metallic dewar flasks, with wells for
holding the biological material in the inner chambers. The dewar vessel is a device in which the conduction, convection and radiation
of heat are reduced as much as possible giving it the capability of maintaining its contents at a near-constant temperature over
relatively long periods of time. The inner chamber of the shippers is surrounded by a high surface, low-density material which
retains the liquid nitrogen in-situ by absorption, adsorption, and surface tension. Absorption is defined as the taking up of matter
in bulk by other matter, as in the dissolving of a gas by a liquid, whereas adsorption is the surface retention of solid, liquid
or gas molecules, atoms or ions by a solid or liquid. This material absorbs liquid nitrogen relatively rapidly, while providing
our shippers with hold times and capacities to transport biological materials safely and conveniently. The specimen-holding chamber
has a primary cap to enclose the specimens/commodities, and a removable and replaceable secondary cap to further enclose the specimen/commodity-holding
container and to contain the liquid nitrogen dry vapor. The entire dewar vessel is then wrapped in a plurality of insulating and
cushioning materials and placed in an outer packaging that been engineered specifically for absorbing shock and the challenges
encountered in transportation. This outer packaging also houses the Smart Pak II™ Condition Monitoring System which communicates
with the Cryoportal™ Logistics Management Platform.
Cryoport Express
®
C3™ Shippers
Non-cryogenic, temperature
controlled Cryoport Express™ Shippers employ sourced components that are modified and assembled to meet the requirements
of the task for which they were designed. An example is the Cryoport Express™ C3™ Shipper.
Cryoport Express
®
C3™ Shippers are designed to maintain a controlled temperature range of 2°-8°C for up to 96 hours under dynamic
shipping conditions. These reusable shippers are offered as part of our
Cryoport. Certified. Cool.
or
C3
TM
Solution. It includes our Cryoport’s SmartPak II™ Condition Monitoring System and the Cryoportal
®
Logistics
Management Platform. This solution was introduced to support the growing need in the regenerative therapy market and to enable
our clients to utilize our solutions for both, the transportation of leukapheresis and apheresis blood products as well as the
manufactured autologous cellular-based immunotherapies.
Cryoport Express
®
Shipper
Summary
We believe Cryoport
Express® Shippers used in Cryoport Express® Solutions do the best job in the life sciences industry to mitigate risks.
We believe that our Cryoport Express® Solutions are the most advanced and most cost-effective temperature controlled logistics
solutions available to the life sciences industry. We believe Cryoport Express® Solutions satisfy client needs and scientific
and regulatory requirements relating to each shipment of time- and temperature-critical, frozen and/or refrigerated transport of
biological materials, such as stem cells, cell lines, pharmaceutical clinical trial samples, gene biotechnology, infectious materials
handling, animal and human reproduction markets. We believe that due to our proprietary technology, innovative design and systems,
our Cryoport Express® Shippers are less prone to losing critical functional hold time than competing products.
Cryoport Express
®
SmartPak
II
TM
Condition Monitoring System
For our clients, condition
monitoring is a high-value feature as it is an effective and reliable method to determine that their commodity/product was not
damaged and did not experience degradation during shipment due to temperature fluctuations or other undesirable conditions. Our
SmartPak II™ Condition Monitoring System is designed to track the key aspects of each shipment that could affect the quality
and/or timing of delivery of the commodity/product to its intended destination. This includes near real-time tracking using GPS,
cellular and Wi-Fi technologies, technology monitoring of internal and external temperatures, humidity, barometric pressure, shock,
orientation of the shipper, as well as exposure to light as a measure of security breaches, compromised packaging or shipper openings
during transit. Our exacting temperature sensors are positioned within our Cryoport Express
®
Shippers to record
the most accurate readings. The resultant temperature mapping includes both the temperature inside the chamber (which is closest
to the actual biomaterial) and the external temperature. Our advanced SmartPak II™ Condition Monitoring System is engineered
to work in tandem with our Cryoportal
®
Logistics Management Platform, enabling predictive and proactive monitoring
of materials shipped. The data collected and resulting analytics, combined with the mapping of shipment check-in points, provide
a holistic view of the complete shipping process. At the client’s election, shipments can have a full ‘chain-of-custody’,
chain-of-condition, and chain-of-identity along with other data monitoring analytics. Archival storage is available for every shipment.
Chain-of-Condition, Chain-of-Custody,
and Chain-of-Identity
Chain-of-Condition
information is essential for many life sciences customers. Our monitoring services are provided by our SmartPak II
TM
Condition Monitoring System, which provides data on the condition of our Cryoport Express
®
Shipper and the conditions
in which commodities/products are being shipped, which is critical for temperature-sensitive biologics.
Chain-of-Custody relates
to the traceability of which party has the physical custody of the Cryoport Express
®
Shipper during each segment
of transport. With the assistance of an overlay on carrier check-ins and our algorithms, our SmartPak II
TM
Condition
Monitoring System supplies a data monitor that reports chain-of-custody information, which is another essential information element
required for temperature-sensitive biologics.
Chain-of-Identity refers
to the traceability of the identity of each client’s or patient’s therapy that is inside of the Cryoport Express
®
Shipper, which can be tracked through the Cryoportal
®
Logistics Management Platform
The Cryoportal
®
Logistics Management Platform acts as the data repository for all shipment and condition information. Our customers can access
their information via the cloud-based Cryoportal
®
Logistics Management Platform through an internet connection anywhere
in the world and all data is securely retained for quality assurance and regulatory purposes.
Chain of Compliance™
During 2018 we introduced
Cryoport’s Chain of Compliance™ solution, as a new industry standard. Cryoport’s Chain of Compliance™ goes
beyond Chain of Condition and Chain of Custody by providing traceability of the equipment and processes supporting each client
or patient therapy. The Chain of Compliance
TM
enables Cryoport to recall every transport that an individual Cryoport
Express
®
Shipper has taken, the client it supported, the commodity transported, it’s performance during transit,
and each step that Cryoport performs before the shipper is put back into service. This includes container performance and requalification
history, commodity history, courier handling and performance history, calibration history, and correlation competencies that can
link in field events to equipment performance. A review of these requirements are as follows:
|
1.
|
Container performance history
: All transportation equipment should have a validated hold
time standard that can change over time for multi-use equipment. Data supporting an accurate calculation of the hold time of a
cold chain container should include the nitrogen evaporation rate, liquid nitrogen capacity, vacuum integrity, dynamic hold time,
as well as the actual in field temperature, humidity, shock, and orientation data.
|
|
2.
|
Commodity history:
In addition to the performance of the equipment utilized for a given
shipment, a complete historical record of the contents shipped in any given container should be tracked such that it can be certified
that a given piece of equipment has only been used for the distribution of non-infectious human materials.
|
|
3.
|
Container (re)qualification history:
Additionally, accurate records should be maintained
as to the requalification or testing of the performance of the equipment to be utilized. These records should also include any
repairs or maintenance performed on the equipment, any deviations or damage during use, as well as any contamination or sterility
issues over the entire historical usage of the equipment.
|
|
4.
|
Calibration history:
All calibration data for any electronic components of a given package
should be traceable back to the equipment. This should include thermocouple calibration or validation data, battery performance,
software or firmware updates by date and version, and serialized accessories that are archived by part number.
|
|
5.
|
Correlation:
Lastly, the ability to cross reference in-field handling events including shock,
damage, delays, orientation, and anti-tamper competencies to the impact on the commodity shipped is a key requirement and should
include the ability to cross reference the historical custody of the container. This should include all locations receiving the
container, as well as the courier for freight partners who were responsible for the delivery of the container from origin to destination.
|
The main reason that
the FDA and other regulatory bodies are interested in Cryoport’s Chain of Compliance
TM
is that it provides the
ability to collect, interpret, and leverage comprehensive data enabling a significantly more intelligent supply chain. Rather than
reactively trying to determine what has gone wrong after multiple failures, it becomes possible to take a proactive approach. Moreover,
we believe that effective implementation provides historical traceability of logistics processes, equipment, and third party support
entities, which enables the critical assessment of the complete supply chain to minimize failures and risk.
Cryoport Express
®
Analytics
Cryoport Express
®
Analytics information is captured by the Cryoportal
®
Logistics Management Platform to provide us and our clients
access to important information from the shipments, which and assist in the management of our clients’ logistics needs. We
use anonymized information to support planning for future features of our solutions offering. Analytics is a term used by IT professionals
to refer to performance benchmarks or KPI’s that management utilizes to measure performance against desired standards. Examples
for analytics tracked through the Cryoportal
®
include time-based metrics for order processing time and on-time deliveries
by our shipping partners, as well as profiling shipping lanes to determine average transit times and predicting potential shipping
exceptions based on historical metrics. Our analytics are utilized internally to proactively improve our client services and develop
new offerings. Cryoport Express
®
Analytics information is also used by Cryoport Consulting to support some of its
work.
Logistics Expertise, Consulting and
Support
Cryoport’s client
services professionals provide 24/7/365 live logistics and monitoring services with specialized knowledge in the domestic and global
logistics of life sciences material requiring controlled temperatures. Cryoport logistics professionals have validated shipping
lanes in and out of well over 100 countries to ensure shipments maintain temperatures and arrive securely and on time.
Cryoport Consulting
provides consulting services to assist life sciences companies in developing strategies for global cold chain logistics management
and contingency options to protect their valuable, and often irreplaceable, biological commodities. Cryoport Consulting addresses
the demand created by the worldwide advances in cellular based therapies, including immunotherapies, stem cells and CAR T-cells.
Cell-based immunotherapies are driving broad shifts and challenges for the life sciences industry, including how to obtain, properly
store and carefully transport the growing number of new, individualized, temperature sensitive therapies. Improper temperature
maintenance or temperature excursions during any portion of a logistics cycle can adversely affect the viability of these biologically
based commodities. Consequently, strategic, global logistics planning for cryogenic cold chain solutions has taken on a strategic
importance to the life sciences industry and a rapidly growing demand for consulting expertise.
Other Development Activities
We continue to build
out our ecosystem through partnerships and alliances. We are, also, continuing our research, engineering and development efforts
to continue to advance our technology applications for temperature controlled logistics and bioservices. We are further expanding
the functionality of our Cryoportal
®
Logistics Management Platform and will advance our Smart Pak II™ Condition
Monitoring technology to ensure our continued leadership and the highest level of effectiveness and efficiency in the temperature
controlled logistics for the life sciences industry.
Government Regulation
We are subject to numerous
domestic federal, state and local laws and regulations and the laws and regulations of global jurisdictions relating to matters
regarding shipments, customs, import, safe working conditions, manufacturing practices, environmental protection and disposal of
hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or in
the future.
The shipping of biologic
products, biologic commodities, diagnostic specimens, infectious substances and dangerous goods, whether via air or ground, falls
under the jurisdiction of many state, federal and international agencies. The quality of the packaging that protects a product
or biologic commodity determines whether or not it will arrive at its destination in a satisfactory condition. Currently the most
stringent regulations we are subject to are the dangerous goods regulations. Many of the regulations for transporting dangerous
goods in the United States are determined by international rules formulated under the auspices of the United Nations. Dangerous
goods are usually one-time shipments and are not a part of our regular recyclable Cryoport Express
®
service. When
we ship dangerous goods, we follow strict and stringent guidelines.
The International Civil
Aviation Organization (“ICAO”) is the United Nations organization that develops regulations (Technical Instructions)
for the safe transport of dangerous goods by air. If shipment is by air, compliance with the rules established by the International
Air Transport Association (“IATA”) is required. IATA is a trade association made up of airlines and air cargo couriers
that publishes annual editions of the IATA Dangerous Goods Regulations. These regulations interpret and add to the ICAO Technical
Instructions to reflect industry practices. Additionally, the Centers for Disease Control (“CDC”) has regulations (published
in the Code of Federal Regulations) for interstate shipping of specimens.
Our Cryoport Express
®
Shippers meet Packing Instructions 602 and/or 650 and are certified for the shipment of Class 6.2 Dangerous Goods per the requirements
of the ICAO Technical Instructions for the Safe Transport of Dangerous Goods by Air and IATA. Our present and planned future versions
of the Cryoport SmartPak II™ Condition Monitoring Systems will likely be subject to regulation by the Federal Aviation Administration
(“FAA”), Federal Communications Commission (“FCC”), Food and Drug Administration (“FDA”), IATA
and possibly other agencies which may be difficult to determine on a global basis.
Manufacturing and Raw Materials
Manufacturing
.
We source components for our Cryoport Express
®
Shippers from multiple suppliers that manufacture to our engineering
specifications using in part proprietary technology and know-how to mitigate supply chain risks. We also use “of-the-shelf”
products, which we may modify to meet our requirements. For some components, however, there are relatively few alternate sources
of supply and the establishment of additional or replacement suppliers may or may not be accomplished immediately. Should this
occur, we endeavor to mitigate risk by an increase in our inventory level to cover our total forecasted demand giving us time to
secure additional qualified suppliers. Some of our Cryoport Express
®
Shippers also use components that were formerly
manufactured in-house and that are now outsourced. The central electronic device used in our Smart Pak II
TM
Condition
Monitoring System have been acquired from a single source with calibration and alterations done by an independent third party.
Our vendor/partner
relationships allow us to concentrate on further advancing and expanding our solutions for the life sciences to meet the growing
and varied demands for validated temperature controlled logistics in the life sciences industry. We think our current supply structure
provides us the opportunity to rapidly scale to support our client’s commercialization activities; however, we continue to
work to improve our current sourcing and to continue to mitigate risks therein.
Raw Materials
.
Various common raw materials are used in the manufacture of our shippers and in the development of our technologies. These raw
materials are generally available from several alternate distributors and manufacturers. We have not experienced any significant
difficulty in obtaining these raw materials.
Patents, Copyrights, Trademarks and
Proprietary Rights
In
order to remain competitive, we must develop and maintain protection on the proprietary aspects of our technologies. We rely on
a combination of patents, copyrights, trademarks, trade secret laws and confidentiality agreements to protect our intellectual
property rights.
We
currently own eight registered U.S. trademarks and have twenty-two additional trademark applications pending in the U.S. and foreign
countries. Five of the pending trademarks are filed under the Madrid Protocol and designate Japan, Australia, Singapore, and the
European Union. Our trademarks generally protect the names of our company, products, and key service brands.
Our
success depends in part upon our ability to develop proprietary products and technologies and to obtain patent coverage for these
products and technologies. We intend to file trademark and patent applications covering any newly developed products, methods and
technologies. However, there can be no guarantee that any of our pending or future filed applications will be issued as patents
or register as trademarks. There can be no guarantee that the U.S. Patent and Trademark Office or some third party will not initiate
an interference proceeding involving any of our pending applications or issued patents. Finally, there can be no guarantee that
our issued patents or future issued patents, if any, will provide adequate protection from competition.
Patents
provide some degree of protection for our proprietary technology. However, the pursuit and assertion of patent rights involve complex
legal and factual determinations and, therefore, are characterized by significant uncertainty. In addition, the laws governing
patent issuance and the scope of patent coverage continue to evolve. Moreover, the patent rights we possess or are pursuing generally
cover our technologies to varying degrees. As a result, we cannot ensure that patents will issue from any of our patent applications,
or that any of its issued patents will offer meaningful protection. In addition, our issued patents may be successfully challenged,
invalidated, circumvented or rendered unenforceable so that our patent rights may not create an effective barrier to competition.
We must also pay maintenance fees at set intervals for our patents to not expire prematurely. The laws of some foreign countries
may not protect our proprietary rights to the same extent as the laws of the United States. There can be no assurance that any
patents issued to us will provide a legal basis for establishing an exclusive market for our products or provide us with any competitive
advantages, or that patents of others will not have an adverse effect on our ability to do business or to continue to use our technologies
freely. As with all patents, we may be subject to third parties filing claims that our technologies or products infringe on their
intellectual property. We cannot predict whether third parties will assert such claims against us or whether those claims will
hurt our business. If we are forced to defend against such claims, regardless of their merit, we may face costly litigation and
diversion of management’s attention and resources. As a result of any such disputes, we may have to develop, at a substantial
cost, non-infringing technology or enter into licensing agreements. These agreements may be unavailable on terms acceptable to
such third parties, or at all, which could seriously harm our business or financial condition.
With
respect to our trademarks, we file and pursue trademark registrations on words, symbols, logos, and other source identifiers that
consumers use to associate our products and services with us. Although our registered trademarks carry a presumption of validity,
they can be challenged and invalidated and as such, we cannot guarantee that any trademark registration is infallible.
We
also rely on trade secret protection of our intellectual property. We attempt to protect trade secrets by entering into confidentiality
agreements with employees, consultants and third parties, although, in the past, we have not always obtained such agreements. It
is possible that these agreements may be breached, invalidated or rendered unenforceable, and if so, our trade secrets could be
disclosed to our competitors. Despite the measures we have taken to protect our intellectual property, parties to such agreements
may breach confidentiality provisions in our contracts or infringe or misappropriate our patents, copyrights, trademarks, trade
secrets and other proprietary rights. In addition, third parties may independently discover or invent competitive technologies,
or reverse engineer our trade secrets or other technology. Therefore, the measures we are taking to protect our proprietary technology
may not be adequate.
Customers and Distribution
As a result of growing
globalization, including such areas as biologics, biopharma, biotechnology, clinical trials, distribution of biopharmaceutical
products and reproductive medicine, the requirement for effective and reliable solutions for keeping clinical samples, pharmaceutical
products and other specimen at controlled temperatures takes on added significance due to more complex shipping routes, extended
shipping times, custom delays and general logistics challenges. We believe our Cryoport Express
®
Shippers, our SmartPak
II™ Condition Monitoring Systems, the Cryoportal
®
Logistics Management Platform and our logistics expertise
enable us to be well positioned to take advantage of the growing demand for effective and efficient international transport of
temperature sensitive life sciences commodities/products resulting from the sensitivity of the commodities/products being shipped
and continued globalization, which is a notable trend within the life sciences and biotechnology industries. This is especially
the case for the new therapies being developed in the regenerative medicine market, such as CAR-T cell therapies, that require
cryogenic temperatures to maintain efficacy.
There was one customer
that accounted for 18.2% of revenues during the year ended December 31, 2018. No other single customer generated over 10% of revenues
during the years ended December 31, 2018 and 2017.
Our geographical revenues, by origin, for
the years ended December 31, 2018 and 2017 were as follows:
|
|
2018
|
|
|
2017
|
|
Americas
|
|
|
91.0
|
%
|
|
|
89.0
|
%
|
Europe, the Middle East and Africa (EMEA)
|
|
|
7.0
|
%
|
|
|
8.1
|
%
|
Asia Pacific (APAC)
|
|
|
2.0
|
%
|
|
|
3.0
|
%
|
Pharmaceutical Clinical
Trials
. Every United States based pharmaceutical company developing a new drug must seek drug development protocol approval
by the Food and Drug Administration (“FDA”). These clinical trials are designed to test the safety and efficacy of
the potential new drug/therapy among other things. A significant amount of clinical trial activity is managed by several large
Clinical Research Organizations (“CROs”).
In connection with
the clinical trials, due to globalization, companies can enroll patients from all over the world and may need to regularly submit
a blood or other specimen at the local hospital, doctor’s office or laboratory. These samples are then sent to specified
testing laboratories, which may be local or in another country. The testing laboratories will typically set the requirements for
the storage and shipment of blood specimens. In addition, therapies used by the patients may require frozen shipping to the sites
of the clinical trials. While both domestic and international shipping of these specimens may be accomplished using dry ice today,
international shipments especially present several problems, as dry ice, under the best of circumstances, can only provide freezing
for one to two days in the absence of re-icing (which is quite costly). Because shipments of packages internationally can take
longer than one to two days or be delayed due to flight cancellations, incorrect destinations, labor problems, ground logistics,
customs delays and safety reasons, dry ice is not always a reliable and/or cost-effective option. Clinical trial specimens are
often irreplaceable because each one represents clinical data at a prescribed point in time, in a series of specimens on a given
patient, who may be participating in a trial for years. Sample integrity during the shipping process is vital to retaining the
maximum number of patients in each trial. Our shippers are ideally suited for this market, as our longer hold time ensures that
specimens can be sent over long distances with minimal concern that they will arrive in a condition that will cause their exclusion
from the trial. There are also many instances in domestic shipments where Cryoport Express
®
Shippers will provide
higher reliability and be cost effective.
Furthermore, the IATA
requires that all airborne shipments of laboratory specimens be transmitted in either IATA Instruction 650 or 602 certified packaging.
We have developed and obtained IATA certification of our Cryoport Express
®
System, which is ideally suited for this
market, due to the elimination of the cost to return the reusable shipper.
Biotechnology and
Diagnostic Companies
. The biotechnology market includes basic and applied research and development in diverse areas such as
stem cells, gene therapy, DNA tumor vaccines, tissue engineering, genomics, and blood products. Companies participating in the
foregoing fields rely on the frozen transport of specimens in connection with their research and development efforts, for which
our Cryoport Express
®
Shippers are ideally suited.
Cell Therapy Companies.
Rapid advancements are underway in the research and development of cell based therapies, which involve cellular material being
infused into a patient. In allogeneic cell therapies, the donor is a different person than the recipient of the cells. Autologous
cell therapy is a personalized therapeutic intervention that uses an individual’s cells, which are cultured and expanded
outside the body, and reintroduced into the donor. Once cells are manufactured into a cellular therapy, in either case, they must
be shipped cryogenically for which our Cryoport Express
®
Shippers are ideally suited.
Central Laboratories.
With the increase and globalization of clinical studies and trials, logistics has become more complex and ensuring sample integrity
has become more challenging. International courier costs are now consuming a significant portion of global protocol budgets. We
believe laboratories performing the testing of samples collected during the conduct of these global multi-site studies are looking
for reliable state-of-the-art logistics solutions.
Pharmaceutical Distribution
.
The current focus for the Cryoport Express
®
System also includes the area of pharmaceutical distribution. There
are a significant number of therapeutic therapies currently or anticipated soon to be undergoing clinical trials. After the FDA
approves them for commercial marketing, it will be necessary for the manufacturers to have a reliable and economical method of
distribution to the physician who will administer the product to the patient. It is likely that the most efficient and reliable
method of distribution will be to ship a single dosage to the administering physician. These therapies are typically identified
to individual patients and therefore will require a complete tracking history from the manufacturer to the patient. The most reliable
method of doing this is to ship a unit dosage specifically for each patient. If such therapies require maintenance at frozen or
cryogenic temperatures, each such shipment will require a cryogenic shipping solution. Cryoport can provide the technology to meet
this need.
Distribution of
Vaccines and other Products.
There are a variety of vaccines and other drugs that require distribution at frozen or cryogenic
temperatures that we can serve with our temperature controlled logistics solutions. This includes both the human and animal health
markets.
Fertility Clinics
and In Vitro Fertilization (“IVF”)
. Maintaining cryogenic temperatures during shipping and transfer of in vitro
fertilization specimens like eggs, sperm, or embryos is critical for cell integrity in order to retain viability, stabilize the
cells, and ensure reproducible results and successful IVF treatment. There are approximately 480 fertility clinics in the U.S.
and 3,300 fertility clinics worldwide. Based on third-party market research, the global fertility services market is projected
to experience growth at a CAGR of approximately 8.5% through 2023. Around 1.5 million ART (assisted reproductive technology) cycles
are performed globally each year. We believe that our solutions for this market, branded as CryoStork℠ services, are very
compelling and will allow us to further build out our leadership position.
Sales and Marketing
We currently have a
sales and marketing team led by our Chief Commercial Officer that drives our business development, program management, consulting,
marketing and other related activities. Given the global nature of our business, we plan to continue to broaden our sales and marketing
reach in all corners of the world with emphasis on the Americas, EMEA and the Asia-Pacific regions. We plan to hire additional
sales and marketing personnel globally and implement marketing initiatives intended to increase awareness of Cryoport and its advanced
temperature controlled solutions serving the life sciences industry.
Industry and Competition
Our products and services
are sold into a rapidly growing segment of the temperature controlled logistics industry focused on the temperature sensitive packaging
and shipping of biologics and other life sciences commodities. This growth is fueled in part by the advancements in biology and
continued globalization, and is expected to continue to increase even more in the future as more domestic and international biotechnology
firms expand clinical trials and introduce pharmaceutical products into the market that require continuous transportation and storage
at cryogenic temperatures. This principle also applies to the animal health and reproductive medicine markets. We believe these
advances will require a greater dependence on passively controlled temperature transport systems (i.e., systems having no external
power source). In addition, we expect that industry standards and regulations will be introduced globally, requiring more comprehensive
tracking and validation of shipping temperatures.
We believe that advancements
and growth in the following markets have resulted in the need for increased reliability, efficiencies and greater flexibility in
the temperature sensitive segment of the life sciences logistics and supply chain market:
|
·
|
biopharmaceutical product distribution
|
|
·
|
clinical trials, including transport of tissue culture
samples
|
|
·
|
infectious sample materials
|
|
·
|
inter/intra-laboratory diagnostic testing
|
|
·
|
temperature-sensitive specimens
|
|
·
|
biological samples, in general
|
|
·
|
reproductive material for IVF
|
Cryoport’s solutions
are comprehensive and integrated for maximum reliability, economy and total effectiveness. Cryoport’s total logistics solution
enables life sciences companies to utilize the superior liquid nitrogen dry vapor technology without having to make capital investments
or developing in-house logistics expertise and systems by offering a complete solution, which includes the cloud-based Cryoportal
®
logistics management platform, the SmartPak II™ Condition Monitoring systems and our 24/7/365 logistics support. Cryoport
allows the clients to outsource logistics and focus on its core competencies while maintaining visibility of all logistics related
information.
Within our targeted
biotechnology and life sciences markets there is limited known direct competition to our Cryoport Express
®
Solutions.
We compete with liquid nitrogen and dry ice solutions effectively by use of the improved and integrated hardware and software technology
in our products including our comprehensive logistics management software platform, the Cryoportal
®
and through
the use of our service-enabled business model. Our Cryoport Express
®
Solutions provide simple and cost-effective
solutions for temperature controlled transport of biologics and other life sciences materials. The Cryoportal
®
assists
with the management, scheduling and shipping of the Cryoport Express
®
Shippers, removing the burdens associated
with other methods.
Factors that we believe
give us a competitive advantage is our comprehensive and tested business model that fully integrates our Cryoport Express
®
shippers with our Cryoportal
®
Logistics Management Platform and SmartPak II™ Condition Monitoring System into
a seamless shipping, tracking and monitoring solution. In addition, we have a first-mover advantage, supporting over 300 clinical
trials in the regenerative medicine space. Our reputation, combined with over a decade of know-how and technology, provides us
with significant competitive advantages. Since our inception, we have experienced minimal client attrition.
Companies that offer
services that could be considered competitive to certain components of our Cryoport Express
®
solutions include Thermo
Fisher Scientific Inc., specialty couriers, such as World Courier Group, Inc., Quick Life Science Group and Marken Limited and
SAVSU Technologies, Inc. In addition, life science companies can develop their own inhouse temperature controlled logistics solutions
by sourcing containers and data loggers and developing software, systems and procedures to cover their logistics needs. However,
we have not identified competition that offers a solution that is as comprehensive as our solutions are and has been proven in
the global market to the same extent as our solutions have.
Engineering and Development
Our research, development
and engineering efforts are focused on continually investigating new technologies that can improve our services and improving the
features of our Cryoport Express
®
Solutions, which includes our cloud-based Cryoportal
®
Logistics
Management Platform, Cryoport Express
®
Shippers, secondary packaging solutions, our SmartPak II™ and other
condition monitoring systems. These efforts are expected to lead to the introduction of additional features, including shippers
of varying sizes and for various temperature ranges, based on market requirements, further advanced informatics and improved monitoring
systems. We are continuously researching alternative and new technologies, lower cost materials, utilization of higher volume assembly
methods, enabling technologies, etc. that will make it practical to provide a wider range of Cryoport Express
®
Solutions.
Alternative technologies to liquid nitrogen
in dry vapor form, alternative materials and/or new information and communication technologies may be used in the future to expand
our potential market for our Cryoport Express
®
Solutions.
Cryoport’s Quality Assurance Program
Cryoport’s Quality
System uses ISO 9001:2008 (Quality management systems – Requirements) as a foundation, along with a structure of procedures
and instructions based upon strong operational practices of checks and balances. This system ensures proper controls from the initial
contract, through processing, shipping and storage, to proper monitoring and data collection, to successful completion of each
transaction or shipment.
The overall Quality
Management System is transitioning to ISO 9001:2015, which is expected to be completed in 2019. In addition, the Quality Management
System is being enhanced and integrated with GxP elements (i.e. Good Distribution Practices) that are applicable to temperature
controlled logistics and bioservices for the life sciences industry. It is Cryoport’s mandate provide the highest level of
quality and to meet and/or exceed customer requirements.
This system will further
integrate additional elements of Cryoport’s business processes, risk management, design controls, and leadership commitment
to the Quality Management System.
Employees
The efforts of our
employees are critical to our success. We believe that we have assembled a strong management team with the experience and expertise
needed to execute our business strategy. We anticipate hiring additional personnel as needs dictate to implement our growth strategy.
As of December 31, 2018, we had ninety-two employees and consultants: seventy-three full-time, one part-time, fifteen temporary
and three consultants.
Corporate History and Structure
We are a Nevada corporation
originally incorporated under the name G.T.5-Limited (“GT5”) on May 25, 1990. In connection with a Share Exchange Agreement,
on March 15, 2005 we changed our name to Cryoport, Inc. and acquired all of the issued and outstanding shares of common stock of
Cryoport Systems, Inc., a California corporation, in exchange for 200,901 shares of our common stock (which represented approximately
81% of the total issued and outstanding shares of common stock following the close of the transaction). Cryoport Systems, Inc.,
which was originally formed in 1999 as a California limited liability company, and subsequently reorganized into a California corporation
on December 11, 2000, remains the operating company under Cryoport, Inc. Our principal executive offices are located at 17305 Daimler
Street, Irvine, CA 92614. The telephone number of our principal executive offices is (949) 470-2300, and our main corporate website
is www.cryoport.com. The information on or that can be accessed through our website is not part of this Form 10-K.
The Company became
public by a reverse merger with a shell company in May 2005. Over time the Company has transitioned from being a development company
to a fully operational public company, providing temperature controlled logistics solutions to the life sciences industry globally.
Available Information
Our main corporate
website address is
www.cryoport.com
. The information on or that can be accessed through our website is not part of this
Form 10-K. We electronically file with the Securities and Exchange Commission (SEC) our Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and amendments to the reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act. We make available free of charge on or through our website copies of these reports as soon as reasonably practicable
after we electronically file these reports with, or furnish them to, the SEC. Further, copies of these reports are available at
the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference
Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy
and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.
Risks Related to Our Financial Condition
We have incurred significant losses to date
and may continue to incur losses.
We have incurred net losses in each fiscal
year since we commenced operations. The following table represents net losses incurred for each of our last two reporting periods:
|
|
Net Loss
|
|
Year Ended December 31, 2018
|
|
$
|
9,556,000
|
|
Year Ended December 31, 2017
|
|
$
|
7,899,000
|
|
As of December 31, 2018,
we had an accumulated deficit of $141.0 million. In order to achieve and sustain revenue growth in the future, we must significantly
expand our market presence and revenues from existing and new customers. We may continue to incur losses in the future and may
never generate revenues sufficient to become profitable or to sustain profitability. Continuing losses may impair our ability to
raise the additional capital required to continue and expand our operations.
We could need to raise additional
capital in the future, and if we are unable to secure adequate funds on terms acceptable to us, we could be unable to execute our
business plan.
To remain competitive,
we must continue to make significant investments in the development and broadening of our solutions, the expansion of our sales
and marketing activities, and the expansion of our global logistics operations infrastructure as we increase sales domestically
and internationally. If cash on hand, short-term investment and cash generated from our operations is insufficient to fund such
growth, we could be required to raise additional funds through the issuance of equity or debt securities in the public or private
markets, or through a collaborative arrangement. Additional financing opportunities may not be available to us, or if available,
may not be on favorable terms. The availability of financing opportunities will depend, in part, on market conditions, and the
outlook for our business. Any future issuance of equity securities or securities convertible into equity securities could result
in substantial dilution to our stockholders, and the securities issued in such a financing could have rights, preferences or privileges
senior to those of our common stock. In addition, if we raise additional funds through debt financing, we could be subject to debt
covenants that place limitations on our operations. We could not be able to raise additional capital on reasonable terms, or at
all, or we could use capital more rapidly than anticipated. If we cannot raise the required capital when needed, we may not be
able to satisfy the demands of existing and prospective customers, we could lose revenue and market share and we may have to curtail
our capital expenditures. The following factors, among others, could affect our ability to obtain additional financing on favorable
terms, or at all:
|
•
|
our results of operations;
|
|
•
|
general economic conditions and conditions in the markets
we serve;
|
|
•
|
the perception of our business in the capital markets;
|
|
•
|
our financial condition; and
|
|
•
|
our business prospects.
|
If we are unable to obtain sufficient capital
in the future, we could have to curtail our capital expenditures. Any curtailment of our capital expenditures could result in a
reduction in net revenue, reduced quality of our products, increased manufacturing costs for our products, harm to our reputation,
or reduced manufacturing efficiencies and could have a material adverse effect on our business, financial condition, and results
of operations.
Risks Related to Our Business
We will have
difficulty increasing our revenues if we experience delays, difficulties or unanticipated costs in establishing the sales, marketing
and distribution capabilities necessary to successfully commercialize our solutions.
We plan to
further enhance our sales, marketing and distribution capabilities in the Americas, EMEA, and APAC. It will be expensive and time-consuming
for us to develop our global marketing and sales network and thus we intend to further broaden our strategic alliances with domestic
and international providers of shipping services and other solutions providers to the life sciences industry to incorporate use
of our solutions in their service offerings. We may not be able to provide adequate incentive to our sales force or to establish
and maintain favorable distribution and marketing collaborations with others to promote our solutions. In addition, any third party
with whom we have established a marketing and distribution relationship may not devote sufficient time to the marketing and sales
of our solutions, thereby exposing us to potential expenses in exiting such distribution agreements. We, and any of our alliance
partners, must also market our services in compliance with federal, state, local and international laws relating to the provision
of incentives and inducements. Violation of these laws can result in substantial penalties. Therefore, if we are unable to successfully
motivate and expand our marketing and sales force and further develop our sales and marketing capabilities, or if our alliance
partners fail to promote our solutions, we will have difficulty increasing our revenues and the revenue may not off-set the additional
expense of expansion.
Our agreements
with global providers of shipping services may not result in a significant increase in our revenues or cash flow, soon or in the
future.
We believe
that establishing strategic alliances with global providers (integrators) of logistics and of shipping services, such as our agreements
with FedEx, DHL, and UPS have the potential to drive growth in our revenues, but there is no certainty to this view. See “—Strategic
Logistics Alliances” in Part I, Item 1 of this Form 10-K for additional information about our agreements with FedEx,
DHL, and UPS. We are seeking to establish similar arrangements with other providers of international shipping services. We anticipate
all such alliances will enable us to provide seamless, end-to-end shipping solutions to customers of our respective alliance partners
and allow us to leverage the established relationships with those customers, but there is no guarantee this will happen.
Because our
agreements with FedEx, DHL, and UPS do not contain any requirement that they use a minimum level of our services, there can be
no assurance of any significant increase in our revenues or cash flows as a result of these strategic alliances.
Our agreements
with providers of vaccines may not result in a significant increase in our revenues or cash flow.
In December
2012, we entered an agreement with what became Zoetis, Inc. (in January 2013, Pfizer spun off its animal health business into Zoetis,
Inc., a public company) pursuant to which we were engaged to manage frozen shipments of a key poultry vaccine from Zoetis’
production site in the United States. Over time, Zoetis has further expanded our role in providing them assistance in managing
their cryogenic distribution of their vaccines and has become one of our larger customers. We believe that establishing strategic
relationships with manufacturers and distributors of treatments for animals and humans, such as our agreements with Zoetis, Inc.
can drive growth in our revenues.
While we anticipate
growth in shipments by Zoetis under our management, there can be no assurance of any significant increase in our revenues or cash
flows as a result of these important alliances.
Our ability to
grow and compete in our industry will be hampered if we are unable to retain the continued service of our key professionals or
to identify, hire and retain additional qualified professionals.
Our success in implementing
our business strategy depends largely on the skills, experience and performance of key members of our executive management team
and others in key management positions. The collective efforts of each of these persons working as a team will be critical to us
as we continue to develop our technologies, tests and engineering and development and sales programs. As a result of the difficulty
in locating qualified new management, the loss or incapacity of existing members of our executive management team could adversely
affect our operations. If we were to lose one or more of these key employees, we could experience difficulties in finding qualified
successors, competing effectively, developing our technologies and implementing our business strategy. We do not maintain “key
person” insurance on any of our employees.
In addition, a critical
factor to our business is our ability to attract and retain qualified professionals including key employees and consultants. We
are continually at risk of losing current professionals or being unable to hire additional professionals as needed. If we are unable
to attract new qualified employees, our ability to grow will be adversely affected. If we are unable to retain current employees
or strategic consultants, our financial condition and ability to maintain operations may be adversely affected.
Sustainable future
revenue growth is dependent on new solutions and services.
Our future revenue stream
depends to a large degree on our ability to bring new solutions and services to market on a timely basis. We must continue to make
significant investments in engineering and development in order to continue to develop new solutions and services, enhance existing
solutions and services, and achieve market acceptance of such solutions and services. We may incur problems in introducing new
solutions and services.
The adoption cycle
of our target customers tends to be very lengthy, which may adversely affect our ability to increase revenues quickly.
We offer our solutions
to companies in the life sciences industry. These companies operate within a heavily regulated environment and as such, changing
vendors and distribution practices typically require a number of steps, which may include the audit of our facilities, review of
our procedures, qualifying us as a vendor, and performing test shipments. This process can take several months or longer to complete,
involving multiple levels of approval, prior to a company fully adopting our Cryoport Express
®
Solutions. The logistics
management of many companies is decentralized adding to the time need to effect adaptation of our solutions. In addition, any such
adoption may be on a gradual basis such that the customer progressively ramps up use of our Cryoport Express
®
Solutions
following adoption. The slow adoption process continues to adversely affect our ability to increase revenues.
Our customers
are solutions and services may contain errors or defects, which could result in damage to our reputation, lost revenues, diverted
development resources and increased service costs and litigation.
Our solutions and services
must meet stringent requirements and we must develop our services and solutions quickly to keep pace with the rapidly changing
market. Solutions as sophisticated as ours could contain undetected errors or defects, especially when first introduced or when
new equipment or versions of our software are released. If our solutions are not free from errors or defects, we may incur an injury
to our reputation, lost revenues, diverted development resources, increased customer service and support costs, and litigation.
The costs incurred in correcting any product errors or defects may be substantial and could adversely affect our business, results
of operations and financial condition.
Our solutions
and services may contain errors or defects, which could result in damage to our reputation, lost revenues, diverted development
resources and increased service costs and litigation.
Our solutions and services
must meet stringent requirements and we must develop our services and solutions quickly to keep pace with the rapidly changing
market. Solutions as sophisticated as ours could contain undetected errors or defects, especially when first introduced or when
new equipment or versions of our software are released. If our solutions are not free from errors or defects, we may incur an injury
to our reputation, lost revenues, diverted development resources, increased customer service and support costs, and litigation.
The costs incurred in correcting any product errors or defects may be substantial and could adversely affect our business, results
of operations and financial condition.
If we were sued
for product liability, we could face substantial liabilities that exceed our resources.
The marketing, sale
and use of our products could lead to the filing of product liability claims were someone to allege that our products failed to
perform as designed. A product liability claim could result in substantial damages and be costly and time-consuming for us to defend.
Although we believe
that our existing insurance is adequate, our insurers may fail to defend us or our insurance may not fully protect us from the
financial impact of defending against product liability claims. Any product liability claim brought against us, with or without
merit, could increase our insurance rates or prevent us from securing insurance coverage in the future. Additionally, any product
liability lawsuit could damage our reputation, or cause current clinical partners and collaborators to terminate existing agreements
and potential clinical partners to seek other partners, cause customers to terminate their relationship with us and potential customers
to seek alternative solutions, any of which could impact our results of operations.
If we experience
delays in procurement of components used in our Cryoport Express
®
Solutions manufactured by third parties, then
we may experience customer dissatisfaction and our reputation could suffer.
If we fail to procure
sufficient components used in our Cryoport Express
®
Solutions from our third party manufacturers, we may be unable
to deliver our solutions to our customers on a timely basis, which could lead to customer dissatisfaction and could harm our reputation
and ability to compete. We currently acquire various component parts for our solutions from various independent manufacturers,
some of which are sole sourced. We would likely experience significant delays or cessation in producing some of these components
if a labor strike, natural disaster or other supply disruption were to occur at any of our main suppliers. If we are unable to
procure a component from one of our manufacturers, we may be required to enter into arrangements with one or more alternative manufacturing
companies, which may cause delays in producing components. To date, we have not experienced any material delay that has adversely
impacted our operations. As our business develops it becomes more likely that such problems could arise.
We expect to base
our equipment and inventory purchasing decisions on our forecasts of customers’ demand, and if our forecasts are inaccurate,
our operating results could be materially harmed.
As our customer base
increases, we expect the need to purchase additional equipment and inventory. Our forecasts will be based on multiple assumptions,
each of which may cause our estimates to be inaccurate, affecting our ability to provide products to our customers. When demand
for our products increases significantly, we may not be able to meet demand on a timely basis, and we may need to expend a significant
amount of time working with our customers to allocate limited supply and maintain positive customer relations, or we may incur
additional costs in order to rush the manufacture and delivery of additional products. If we underestimate customers’ demand,
we may forego revenue opportunities, lose market share and damage our customer relationships. Conversely, if we overestimate customer
demand, we may purchase more equipment and inventory than we are able to use or sell at any given time or at all. As a result of
our failure properly to estimate demand for our products, we could have excess or obsolete equipment and/or inventory, resulting
in a decline in the value of our equipment and/or inventory, which would increase our costs of revenues and reduce our liquidity.
Our failure to accurately manage our equipment purchases and inventory relative to demand would adversely affect our operating
results.
If we experience
delays or interruption in shipping due to factors outside of our control, such disruption could lead to customer dissatisfaction
and harm our reputation.
We rely on third party shipment and carrier
services to transport our shippers containing biological material. These third party operations could be subject to natural disasters,
adverse weather conditions, other business disruptions, and carrier error, which could cause delays in the delivery of our shippers,
which in turn could cause serious harm to the biological material being shipped. As a result, any prolonged delay in shipment,
whether due to technical difficulties, power failures, break-ins, destruction or damage to carrier facilities as a result of a
natural disaster, fire, or any other reason, could result in damage to the contents of the shipper. If we are unable to deliver
our shippers in a timely matter and without damage, this could also harm our operating results and our reputation, even if we are
not at fault.
Our solutions and services may expose
us to liability in excess of our current insurance coverage.
Our solutions and services
involve significant risks of liability, which may substantially exceed the revenues we derive from them. We cannot predict the
magnitude of these potential liabilities. We currently maintain general liability insurance, with coverage in the amount of $1
million per occurrence, subject to a $2 million annual limitation, and product liability insurance with a $1 million annual coverage
limitation. Claims may be made against us that exceed these limits.
Our liability policy
is an “occurrence” based policy. Thus, our policy is complete when we purchased it and following cancellation of the
policy it continues to provide coverage for future claims based on conduct that took place during the policy term. Our insurance
coverage, however, may not protect us against all liability because our policies typically have various exceptions to the claims
covered and also require us to assume some costs of the claim even though a portion of the claim may be covered. In addition, if
we expand into new markets, we may not be aware of the need for, or be able to obtain insurance coverage for such activities or,
if insurance is obtained, the dollar amount of any liabilities incurred could exceed our insurance coverage. A partially or completely
uninsured claim, if successful and of significant magnitude, could have a material adverse effect on our business, financial condition
and results of operations.
If we use biological
and hazardous materials in a manner that causes injury, we could be liable for damages.
Our customers may ship
potentially harmful biological materials in our dewars. We cannot eliminate the risk of accidental contamination or injury to employees
or third parties from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could
be held liable for any resulting damages, and any liability could exceed our resources or any applicable insurance coverage we
may have. Additionally, we are subject to, on an ongoing basis, federal, state and local laws and regulations governing the use,
storage, handling and disposal of these materials and specified waste products. In the event of an accident, we could be held liable
for damages.
If we cannot compete
effectively, we will lose business.
Our services and solutions
are positioned to be competitive in the life sciences cold-chain logistics market. While there are technological and marketing
barriers to entry, we cannot guarantee that the barriers we are capable of producing will be sufficient to defend the market share
we wish to gain against current and future competitors. Our principal competitive considerations in our market include:
·
financial
resources to allocate to proper marketing and an appropriate sales effort
·
acceptance
of our solutions model
·
acceptance
of our solutions including per use fee structures and other charges for services
·
keeping
up technologically with ongoing development of enhanced features and benefits
·
reductions
in the delivery costs of competitors’ solutions
·
the
ability to develop and maintain and expand strategic alliances
·
establishing
our brand name
·
our
ability to deliver our solutions to our customers when requested
·
our
timing of introductions of new solutions, and services
·
financial
resources to support working capital needs and required capital investments in infrastructure
Current
and prospective competitors may have substantially greater resources, more customers, longer operating histories, greater name
recognition and more established relationships in the industry. As a result, these competitors may be able to develop and expand
their networks and product offerings more quickly, devote greater resources to the marketing and sale of their solutions and adopt
more aggressive pricing policies. In addition, these competitors have entered and will likely continue to enter into business relationships
to provide additional solutions competitive to those we provide or plan to provide
.
We may acquire
other businesses, products or technologies in order to remain competitive in our market and our business could be adversely affected
as a result of any of these future acquisitions.
We may make acquisitions
of complementary businesses, products or technologies. If we identify any appropriate acquisition candidates, we may not be successful
in negotiating acceptable terms of the acquisition, financing the acquisition, or integrating the acquired business, products or
technologies into our existing business and operations. Further, completing an acquisition and integrating an acquired business
will significantly divert management time and resources. The diversion of management attention and any difficulties encountered
in the transition and integration process could harm our business. If we consummate any significant acquisitions using stock or
other securities as consideration, our shareholders' equity could be significantly diluted. If we make any significant acquisitions
using cash consideration, we may be required to use a substantial portion of our available cash. Acquisition financing may not
be available on favorable terms, if at all. In addition, we may be required to amortize significant amounts of other intangible
assets in connection with future acquisitions, which would harm our operating results and financial condition.
If we successfully
develop products and/or services, but those products and/or services do not achieve and maintain market acceptance, our business
will not be profitable.
The degree of acceptance
of our Cryoport Express
®
Solutions or any future products or services by our current target markets, and any other
markets to which we attempt to sell our products and services, and our profitability and growth will depend on a number of factors
including, among others:
|
·
|
our shippers’ ability
to perform and preserve the integrity of the materials shipped
|
|
·
|
relative convenience and
ease of use of our shipper and/or Cryoportal
TM
|
|
·
|
availability of alternative
products or new technologies that make our solutions offering less desirable or competitive
|
|
·
|
pricing and cost effectiveness
|
|
·
|
effectiveness of our or
our collaborators’ sales and marketing strategy
|
|
·
|
the adoption cycles of
our targeted customers
|
If any products
or services we may develop do not achieve market acceptance, then we may not generate sufficient revenue to achieve or maintain
profitability.
In addition, even if
our products and services achieve market acceptance, we may not be able to maintain that market acceptance over time if new products
or services are introduced that are more favorably received than our products and services, are more cost effective, or render
our products obsolete. Although we are not aware of any other treatments or methods currently being developed that would directly
compete with the methods we employ, there can be no assurance that future developments in technology will not make our technology
non-competitive or obsolete, or significantly reduce our operating margins or the demand for our offerings, or otherwise negatively
impact our ability to be profitable.
We may not be able to compete with
our competitors in the industry because many of them have greater resources than we do.
We expect to continue
to experience significant and increasing levels of competition in the future. In addition, there may be other companies which are
currently developing competitive products and services or which may in the future develop technologies and products that are comparable,
superior or less costly than our own. For example, some cryogenic equipment manufacturers with greater resources currently have
solutions for storing and transporting cryogenic liquid and gasses and may develop storage solutions that compete with our products.
Additionally, some specialty couriers with greater resources currently provide dry ice transportation and may develop other products
in the future, both of which compete with our products. A competitor that has greater resources than us may be able to bring its
product to market faster than we can and offer its product at a lower price than us to establish market share. We may not be able
to successfully compete with a competitor that has greater resources and such competition may adversely affect our business.
Intellectual Property Risks Associated
with Our Business
Our success depends,
in part, on our ability to obtain patent protection for our solutions, preserve our trade secrets, and operate without infringing
the proprietary rights of others.
Our policy is to seek
to protect our proprietary position by, among other methods, filing United States patent applications related to our technology,
inventions and improvements that are important to the development of our business. Our patents or patent applications may be challenged,
invalidated or circumvented in the future or the rights granted may not provide a competitive advantage. We intend to vigorously
protect and defend our intellectual property. Costly and time-consuming litigation brought by us may be necessary to enforce our
patents and to protect our trade secrets and know-how, or to determine the enforceability, scope and validity of the proprietary
rights of others.
We also rely upon trade
secrets, technical know-how and continuing technological innovation to develop and maintain our competitive position. In the past
our employees, consultants, advisors and suppliers have not always executed confidentiality agreements and inventions assignment
and work for hire agreements in connection with their employment, consulting, or advisory relationships. Consequently, we may not
have adequate remedies available to us to protect our intellectual property should one of these parties attempt to use our trade
secrets or refuse to assign any rights he or she may have in any intellectual property he or she developed for us. Additionally,
our competitors may independently develop substantially equivalent proprietary information and techniques or otherwise gain access
to our proprietary technology, or we may not be able to meaningfully protect our rights in unpatented proprietary technology.
While we are not aware
of any third party that is infringing any of our patents or trademarks nor do we believe that we are infringing on the patents
or trademarks of any other person or organization, we cannot guarantee that our current and potential competitors and other third
parties have not filed (or in the future will not file) patent applications for (or have not received or in the future will not
receive) patents or obtain additional proprietary rights that will prevent, limit or interfere with our ability to make, use or
sell our solutions either in the United States or internationally. Additionally, we may face assertions of claims by holders of
patents alleging that we are infringing upon their patent rights, which claims may be without merit, but may nonetheless result
in our incurring substantial costs of defense.
We are dependent
on third parties for the continued development and maintenance of our Cryoportal™ software.
Our proprietary Cryoportal™
is a logistics platform software used by our customers, business partners and client care team to automate the entry of orders,
prepare customs documentation and facilitate status and location monitoring of shipped orders while in transit. The continued development
of the Cryoportal™ platform is in part contracted to outside software development companies. If these companies become unable
or unwilling to continue work on scheduled projects, and an alternative software development company cannot be secured, we may
not be able to implement needed enhancements to the system. Failure to proceed with enhancements to the system would adversely
affect our ability to generate new business and serve existing customers, resulting in a reduction in revenue.
Our customers
could also become the target of litigation relating to the patent and other intellectual property rights of others.
Any litigation relating
to the intellectual property rights of others could trigger technical support and indemnification obligations in licenses or customer
agreements that we may enter into. These obligations could result in substantial expenses, including the payment by us of costs
and damages relating to claims of intellectual property infringement. In addition to the time and expense required for us to provide
support or indemnification to our customers, any such litigation could disrupt the businesses of our customers, which in turn could
hurt our relationships with such customers and cause the sale of our products to decrease. No assurance can be given that claims
for indemnification will not be made, or that if made, such claims would not have a material adverse effect on our business, operating
results or financial conditions.
We rely upon certain
critical information systems, including our Cryoportal™ software platform, for the operation of our business and the failure
of any critical information system could adversely impact our reputation and future revenues and we may be required to increase
our spending on data and system security.
We rely upon certain
critical information systems, including our Cryoportal™ software platform which is used by our customers and business partners
to automate the entry of orders, prepare customs documentation and facilitate status and location monitoring of shipped orders
while in transit. In addition, the provision of service to our customers and the operation of our networks and systems involve
the storage and transmission of significant amounts of proprietary information and sensitive or confidential data, including personal
information of customers, employees and others. Our technology infrastructure and critical information systems are subject to damage
or interruption from a number of potential sources, including unauthorized intrusions, cyber-attacks, software viruses or other
malware, natural disasters, power failures, employee error or malfeasances and other events. Despite our best efforts, no cybersecurity
or emergency recovery process is failsafe, and if our safeguards fail or our technology infrastructure or critical information
systems are compromised, the safety and efficiency of our operations could be materially harmed, our reputation could suffer, and
we could face additional costs, liabilities, costly legal challenges. Additionally, an actual or alleged failure to comply with
applicable United States or foreign data protection regulations or other data protection standards may expose us to litigation,
fines, sanctions or other penalties. We do not have cyber security insurance and we may incur significant costs in the event of
a successful cyber-attack against us. The cost and operational consequences of implementing, maintaining and enhancing further
data or system protection measures could increase significantly to overcome increasingly intense, complex and sophisticated global
cyber threats.
Regulatory Risks
Relating to Our Business
Complying with
certain regulations that apply to shipments using our solutions can limit our activities and increase our cost of operations.
Shipments using our
solutions and services are subject to various regulations in the various countries in which we operate. For example, shipments
using our solutions may be required to comply with the shipping requirements promulgated by the Centers for Disease Control (“CDC”),
the Occupational Safety and Health Organization (“OSHA”), the DOT as well as rules established by the IATA and the
ICAO. Additionally, our data logger may be subject to regulation and certification by the FDA, the FCC, and the FAA. Department
of Transportation (“DOT”) as well as rules established by the IATA and the ICAO. Additionally, our data logger may
be subject to regulation and certification by the Food and Drug Administration (“FDA”), Federal Communications Commission
(“FCC”), and the Federal Aviation Administration (“FAA”). We will need to ensure that our solutions and
services comply with relevant rules and regulations to make our solutions and services marketable, and in some cases compliance
is difficult to determine. Significant changes in such regulations could require costly changes to our solutions and services or
prevent use of our shippers for an extended period of time while we seek to comply with changed regulations. If we are unable to
comply with any of these rules or regulations or fail to obtain any required approvals, our ability to market our solutions and
services may be adversely affected. In addition, even if we are able to comply with these rules and regulations, compliance can
result in increased costs. In either event, our financial results and condition may be adversely affected. We depend on our business
partners and unrelated and frequently unknown third party agents in foreign countries to act on our behalf to complete the importation
process and to make delivery of our shippers to the final user. The failure of these third parties to perform their duties could
result in damage to the contents of the shipper resulting in customer dissatisfaction or liability to us, even if we are not at
fault.
If we become subject
to additional regulatory requirements, our solutions may become subject to increased expenses.
Our solutions are currently
not subject to FDA or other regulatory approvals. However, there can be no assurance that our solutions will not be regulated by
the FDA, or foreign regulatory authorities, as applicable, in the future. Any such requirements may subject us to additional expenses.
Risks Relating to Ownership of Our Common
Stock and Other Securities
Certain of our existing stockholders
own and have the right to acquire a substantial number of shares of common stock.
As of March 1, 2019,
our directors, executive officers and beneficial owners of 5% or more of our outstanding common stock beneficially owned 8,794,918
shares of common stock (without regard to beneficial ownership limitations contained in certain warrants) assuming their exercise
of all outstanding warrants and options that are exercisable within 60 days of March 1, 2019 or approximately 28.9% of our outstanding
common stock. As such, the concentration of beneficial ownership of our common stock may have the effect of delaying or preventing
a change in control of Cryoport and may adversely affect the voting or other rights of other holders of our common stock.
The sale of substantial shares of our
common stock may depress our stock price.
As of March 1, 2019,
there were 30,436,322 shares of our common stock outstanding. Substantially all of these shares of common stock are eligible for
trading in the public market. The market price of our common stock may decline if our stockholders sell a large number of shares
of our common stock in the public market, or the market perceives that such sales may occur. We could also issue up to an additional
13,180,207 shares of our common stock including 1,966,414 shares to be issued upon the exercise of outstanding warrants, 9,840,795
shares upon exercise of outstanding options or reserved for future issuance under our stock incentive plans and 1,372,998 shares
to be issued upon conversion of the outstanding convertible note, assuming no outstanding accrued interest as of the date of conversion.
Our stock price
has been and will likely continue to be volatile.
The market price of
our common stock has been highly volatile and could fluctuate widely in price in response to various factors, many of which are
beyond our control, including, but not limited to:
|
·
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technological innovations or new solutions and services
by us or our competitors
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·
|
additions or departures of key personnel
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·
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sales of our common stock
|
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·
|
our ability to execute our business plan
|
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·
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our operating results being below expectations
|
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·
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loss of any strategic relationship
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·
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economic and other external factors
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·
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period-to-period fluctuations in our financial results
|
In addition, the securities
markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance
of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock
and warrants.
We are at risk
of securities class action litigation.
In the past, securities
class action litigation has often been brought against a company following a decline in the market price of its securities. This
risk is especially relevant for us because our stock price and those of other biotechnology and life sciences companies have experienced
significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion
of management’s attention and resources, which could harm our business. We do maintain insurance, but the coverage may not
be sufficient and may not be available in all instances.
If equity research
analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our common
stock and warrants, the price of our common stock and warrants could decline.
The trading market for
our common stock and warrants relies in part on the research and reports that equity research analysts publish about us and our
business. We do not control these analysts. The price of our common stock and warrants could decline if one or more equity analyst
downgrades our stock or if analysts downgrade our stock or issue other unfavorable commentary or cease publishing reports about
us or our business.
We have not paid
dividends on our common stock in the past and do not expect to pay dividends in the foreseeable future. Any return on investment
may be limited to the value of our common stock.
We have never paid cash
dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on
our common stock will depend on our earnings, financial condition and other business and economic factors affecting us at such
time as the Board of Directors may consider the payment of any such dividends. If we do not pay dividends, our common stock may
be less valuable because a return on your investment will only occur if the price of our common stock appreciates.
We may need additional
capital, and the sale of additional shares of common stock or other equity securities could result in additional dilution to our
stockholders.
Our current cash and
cash equivalents and anticipated cash flow from operations may be insufficient to meet our cash needs in the long term. We may
require additional cash resources to fund our operations and may require additional funds in the future due to changed business
conditions or other future developments, including any investments or acquisitions we may decide to pursue. The sale of additional
equity securities, or debt securities convertible into equity securities, could result in additional dilution to our stockholders.
The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants
that would restrict our operations.
We have outstanding
convertible debt as a result of prior financings, which is scheduled to mature in December 2023. Our indebtedness could adversely
affect our business, financial condition and results of operations.
Our outstanding convertible
debt, which includes a convertible note with an original principal amount of $15,000,000, could have significant consequences for
our future operations, including, among others:
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·
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making it more difficult for us to meet our other obligations
or raise additional capital;
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·
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resulting in an event of default, if we fail to comply
with our payment obligations;
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·
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reducing the availability of any financing proceeds to
fund operating expenses, other debt repayment, and working capital requirements; and
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·
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limiting our financial flexibility and hindering our
ability to obtain additional financing.
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Any of the above-listed
factors could have a material adverse effect on our business, financial condition, results of operations, and ability to continue
as a going concern.
Our ability to make
interest and principal payments on our outstanding convertible note will depend entirely on our ability to raise sufficient funds
to satisfy our debt service obligations and our note holders’ willingness to convert their notes to common shares, which
will likely depend on our stock price from time to time. If note holders do not elect to convert, it is likely that we will need
to borrow or raise additional funds to make required principal and interest payments, as such payments become due and payable,
or undertake alternative financing plans, such as refinancing or restructuring our debt, selling additional shares of capital stock,
selling assets or reducing or delaying investments in our business. Any inability to obtain additional funds or alternative financing
on acceptable terms would likely cause us to be unable to meet our payment obligations, which could have a material adverse effect
on our business, financial condition and results of operations and our ability to continue to operate.
While warrants
to purchase our common stock are outstanding, it may be more difficult to raise additional equity capital.
As of March 1,
2019, we have outstanding options and warrants for the purchase of up to 13,180,207 shares of our common stock,
including 1,966,414 shares to be issued upon the exercise of outstanding warrants and 9,840,795 shares upon exercise of
outstanding options or reserved for future issuance under our stock incentive plans, and 1,372,998 shares to be issued upon
conversion of the outstanding convertible note, assuming no outstanding accrued interest as of the date of conversion. We may
find it more difficult to raise additional equity capital while some or all of these warrants are outstanding. At any time
during which these warrants are likely to be exercised, we may not be able to obtain financing on favorable terms, or at all.
If we are unable to obtain financing, our business, results of operations, or financial condition could be materially and
adversely affected, and we could be forced to curtail or cease operations.
Our Articles of Incorporation allows
our Board of Directors to issue up to 2,500,000 shares of “blank check” preferred stock.
Our Articles of Incorporation
allows our board of directors to issue up to 2,500,000 shares of “blank check” preferred stock, without action by our
stockholders. We have designated 800,000 shares as Class A Preferred Stock and 585,000 shares as Class B Preferred Stock, none
of which are currently issued and outstanding. Accordingly, our board of directors will have discretion to issue up to 1,115,000
shares on terms determined by them. Without limiting the foregoing, (i) such shares of preferred stock could have liquidation rights
that are senior to the liquidation preference applicable to our common stock and Preferred Stock, (ii) such shares of preferred
stock could have voting or conversion rights, which could adversely affect the voting power of the holders of our common stock
and Preferred Stock and (iii) the ownership interest of holders of our common stock will be diluted following the issuance of any
such shares of preferred stock. In addition, the issuance of such shares of blank check preferred stock could have the effect of
discouraging, delaying or preventing a change of control of our Company.
Provisions in
our bylaws and Nevada law might discourage, delay or prevent a change of control of our Company or changes in our management and,
as a result, may depress the trading price of our common stock.
Provisions of our bylaws
and Nevada law may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider
favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock. The relevant
bylaw provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions
include advance notice requirements for stockholder proposals and nominations, and the ability of our Board of Directors to make,
alter or repeal our bylaws.
Absent approval
of our Board of Directors, our bylaws may only be amended or repealed by the affirmative vote of the holders of at least a majority
of our outstanding shares of capital stock entitled to vote.
In addition, Section 78.438
of the Nevada Revised Statutes prohibits a publicly-held Nevada corporation from engaging in a business combination with an interested
stockholder (generally defined as a person which together with its affiliates owns, or within the last three years has owned, 10%
of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder)
unless the business combination is approved in a prescribed manner.
The existence of the
foregoing provisions and other potential anti-takeover measures could limit the price that investors might be willing to pay in
the future for shares of our common stock. They could also deter potential acquirers of our Company, thereby reducing the likelihood
that you could receive a premium for your common stock in an acquisition.
Even though we
are not incorporated in California, we may become subject to a number of provisions of the California General Corporation Law.
Section 2115(b)
of the California Corporations Code imposes certain requirements of California corporate law on corporations organized outside
California that, in general, are doing more than 50% of their business in California and have more than 50% of their outstanding
voting securities held of record by persons residing in California. While we are not currently subject to Section 2115(b),
we may become subject to it in the future.
The following summarizes
some of the principal differences which would apply if we become subject to Section 2115(b).
Under both Nevada and
California law, cumulative voting for the election of directors is permitted. However, under Nevada law cumulative voting must
be expressly authorized in the Articles of Incorporation and our Amended and Restated Articles of Incorporation do not authorize
cumulative voting. If we become subject to Section 2115(b), we may be required to permit cumulative voting if any stockholder
properly requests to cumulate his or her votes.
Under Nevada law, directors
may be removed by the stockholders only by the vote of two-thirds of the voting power of the issued and outstanding stock entitled
to vote. However, California law permits the removal of directors by the vote of only a majority of the outstanding shares entitled
to vote. If we become subject to Section 2115(b), the removal of a director may be accomplished by a majority vote, rather
than a vote of two-thirds, of the stockholders entitled to vote.
Under California law,
the corporation must take certain steps to be allowed to provide for greater indemnification of its officers and directors than
is provided in the California Corporation Code. If we become subject to Section 2115(b), our ability to indemnify our officers
and directors, to the extent permitted in our Articles of Incorporation, Bylaws and under Nevada law, may be limited by California
law.
Nevada law permits distributions
to stockholders as long as, after the distribution, (i) the corporation would be able to pay its debts as they become due
and (ii) the corporation’s total assets are at least equal to its liabilities and preferential dissolution obligations.
Under California law, distributions may be made to stockholders as long as the corporation would be able to pay its debts as they
mature and either (i) the corporation’s retained earnings equal or exceed the amount of the proposed distributions,
or (ii) after the distributions, the corporation’s tangible assets are at least 125% of its liabilities and the corporation’s
current assets are at least equal to its current liabilities (or, 125% of its current liabilities if the corporation’s average
operating income for the two most recently completed fiscal years was less than the average of the interest expense of the corporation
for those fiscal years). If we become subject to Section 2115(b), we will have to satisfy more stringent financial requirements
to be able to pay dividends to our stockholders. Additionally, stockholders may be liable to the corporation if we pay dividends
in violation of California law.
California law permits
a corporation to provide “supermajority vote” provisions in its Articles of Incorporation, which would require specific
actions to obtain greater than a majority of the votes, but not more than 66
2
/
3
percent. Nevada law does
not permit supermajority vote provisions. If we become subject to Section 2115(b), it is possible that our stockholders would
vote to amend our Articles of Incorporation and require a supermajority vote for us to take specific actions.
Under California law,
in a disposition of substantially of all the corporation’s assets, if the acquiring party is in control of or under common
control with the disposing corporation, the principal terms of the sale must be approved by 90 percent of the stockholders. Although
Nevada law does contain certain rules governing interested stockholder business combinations, it does not require similar stockholder
approval. If we become subject to Section 2115(b), we may have to obtain the vote of a greater percentage of the stockholders
to approve a sale of our assets to a party that is in control of, or under common control with, us.
California law places
certain additional approval rights in connection with a merger if all of the shares of each class or series of a corporation are
not treated equally or if the surviving or parent party to a merger represents more than 50 percent of the voting power of the
other corporation prior to the merger. Nevada law does not require such approval. If we become subject to Section 2115(b),
we may have to obtain the vote of a greater percentage of the stockholders to approve a merger that treats shares of a class or
series differently or where a surviving or parent party to the merger represents more than 50% of the voting power of the other
corporation prior to the merger.
California law requires
the vote of each class to approve a reorganization or a conversion of a corporation into another entity. Nevada law does not require
a separate vote for each class. If we become subject to Section 2115(b), we may have to obtain the approval of each class
if we desire to reorganize or convert into another type of entity.
California law provides
greater dissenters’ rights to stockholders than Nevada law. If we become subject to Section 2115(b), more stockholders
may be entitled to dissenters’ rights, which may limit our ability to merge with another entity or reorganize.
If we
fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our
financial results, and current and potential stockholders may lose confidence in our financial reporting.
We are required by the
SEC to establish and maintain adequate internal control over financial reporting that provides reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial statements in accordance with generally accepted accounting
principles. We are likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose
any changes and material weaknesses in those internal controls. In addition, our independent registered public accounting firm
is required to report on whether it believes we maintained, in all material respects, effective internal control over financial
reporting as of the end of the year. In future years, if we fail to timely complete this assessment, or if our independent registered
public accounting firm cannot timely attest, there may be a loss of public confidence in our internal controls, the market price
of our stock could decline, and we could be subject to regulatory sanctions or investigations by the Nasdaq Global Select Market,
the SEC or other regulatory authorities, which would require additional financial and management resources. In addition, any failure
to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results
or cause us to fail to timely meet our regulatory reporting obligations.
As described in Item 9A
of this Form 10-K, no material weaknesses were identified and we determined that our internal control over financial reporting
was effective as of December 31, 2018.
However, any failure
to maintain such internal controls, to timely complete our evaluation of our internal controls, assessment, or to obtain our independent
registered public accounting firm’s timely attestation on the effectiveness of our internal controls in the future could
adversely impact our ability to report our financial results on a timely and accurate basis. If our financial statements are not
accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filed
on a timely basis as required by the SEC and NASDAQ, we could face severe consequences from those authorities. In either case,
there could result a material adverse effect on our business. Inferior internal controls could also cause investors to lose confidence
in our reported financial information, which could have a negative effect on the trading price of our stock.
Our publicly-filed
SEC reports are reviewed by the SEC from time to time and any significant changes required as a result of any such review may result
in material liability to us and have a material adverse impact on the trading price of our common stock.
The reports of publicly-traded
companies are subject to review by the SEC from time to time for the purpose of assisting companies in complying with applicable
disclosure requirements and to enhance the overall effectiveness of companies’ public filings, and reviews of such reports
are now required at least every three years under the Sarbanes-Oxley Act of 2002. SEC reviews may be initiated at any time, and
we could be required to modify or reformulate information contained in prior filings as a result of an SEC review. Any modification
or reformulation of information contained in such reports could be significant and could result in material liability to us and
have a material adverse impact on the trading price of our common stock.
The requirements of being a U.S. public
company may strain our resources and divert management’s attention.
As a U.S. public company,
we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and
Consumer Protection Act, certain listing requirements, and other applicable securities rules and regulations. Compliance with these
rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming,
or costly, and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual
and current reports with respect to our business and operating results. As a result of disclosure of information in this prospectus
and in filings required of a public company, our business and financial condition is more visible, which we believe may result
in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business
and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims,
and the time and resources necessary to resolve them, could divert resources of our management and harm our business and operating
results.
ITEM 1B.
Unresolved
Staff Comments
Not applicable.
ITEM 2.
Properties
We do not own real
property. We currently lease 27,600 square feet of corporate, research and development, and logistics facilities in Irvine, California
under an operating lease expiring February 2023, subject to our option to extend the lease for two additional five-year periods.
The initial base rent is approximately $24,700 per month. We also lease 8,100 square feet of logistics facilities in Livingston,
New Jersey under an operating lease expiring December 2024, subject to our option to extend the lease for an additional five-year
period. The initial base rent is approximately $7,600 per month. In addition, we lease 7,600 square feet of logistics facilities
in Hoofddorp, The Netherlands under an operating lease expiring March 2023, subject to our option to extend the lease for two additional
five-year periods. The initial base rent is approximately $5,400 per month. The lease agreements contain certain scheduled rent
increases, which are accounted for on a straight-line basis.
In addition to the
services provided through our Global Logistics Centers in Irvine, California, Livingston, New Jersey and Hoofddorp, The Netherlands
we have contracted with a third party to run our Logistics Center covering APAC, located in Singapore. The Global Logistics Centers
provide warehousing, shipping, receiving, refurbishing and recycling services for our shipping containers as well as other services
offered as part of our Cryoport Express
®
Logistics Solutions and enable us to provide our services on a global basis.
We believe that these facilities
are adequate, suitable and of sufficient capacity to support our immediate needs.
ITEM 3.
Legal Proceedings
In the ordinary course of business, we
are at times subject to various legal proceedings and disputes, including product liability claims. We currently are not aware
of any such legal proceedings or claim that we believe will have, individually or in the aggregate, a material adverse effect on
our business, operating results or cash flows. It is our practice to accrue for open claims based on our historical experience
and available insurance coverage.
ITEM 4.
Mine Safety
Disclosures
Not applicable
PART III
Item 10.
Directors,
Executive Officers and Corporate Governance
The following table
sets for the name and age of each director and executive officer, the year first elected as a director and/or executive officer
and the position(s) held with the Company.
Name
|
|
Age
|
|
Position
|
|
Date Elected
|
Jerrell W. Shelton
|
|
73
|
|
Chairman, President and Chief Executive Officer
|
|
2012
|
Richard J. Berman
|
|
76
|
|
Director
|
|
2015
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Daniel M. Hancock
|
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68
|
|
Director
|
|
2019
|
Robert Hariri, M.D., Ph.D.
|
|
60
|
|
Director
|
|
2015
|
Ramkumar Mandalam, Ph.D.
|
|
54
|
|
Director
|
|
2014
|
Edward J. Zecchini
|
|
59
|
|
Director
|
|
2013
|
Robert S. Stefanovich
|
|
54
|
|
Chief Financial Officer, Treasurer and
Corporate Secretary
|
|
2011
|
Jerrell W. Shelton.
Mr. Shelton became a member of our board of directors in October 2012 and was appointed President and Chief Executive Officer of
the Company in November 2012. He was appointed Chairman of the Board in October 2015. He served on the Board of
Directors and standing committees of Solera Holdings, Inc. from April 2007 through November 2011. From June 2004 to
May 2006, Mr. Shelton was the Chairman and CEO of Wellness, Inc., a provider of advanced, integrated hospital and clinical environments. Prior
to that, he served as Visiting Executive to IBM Research and Head of IBM’s WebFountain. From October 1998 to October
1999, Mr. Shelton was Chairman, President and CEO of NDC Holdings II, Inc. Between October 1996 and July 1998, he was
President and CEO of Continental Graphics Holdings, Inc. And from October 1991 to July 1996, Mr. Shelton served as President
and CEO of Thomson Business Information Group. Mr. Shelton has a B.S. in Business Administration from the University
of Tennessee and an M.B.A. from Harvard University. Mr. Shelton’s extensive leadership, management, strategic
planning and financial expertise through his various leadership and directorship roles in public, private and global companies,
makes him well-qualified to serve as a member of the board of directors.
Richard J. Berman
.
Mr. Berman became a member of our board of directors in January 2015 and serves as Chairman of the Audit Committee and member of
the Compensation Committee and Nomination and Governance Committee of our board of directors. Mr. Berman’s business
career spans over 35 years of venture capital, senior management and merger & acquisitions experience. Mr. Berman
has served as a director and/or officer of over a dozen public and private companies. From 2006 to 2011, he was Chairman
of National Investment Managers, a company with $12 billion in pension administration assets. Mr. Berman is a director
of four publicly traded healthcare companies: Advaxis, Inc., Catasys, Inc., Cryoport Inc. and Immuron Limited. From
2002 to 2010, he was a director of Nexmed Inc. where he also served as Chairman/CEO in 2008 and 2009 (formerly Apricus Biosciences,
Inc.); From 1998 to 2000, he was employed by Internet Commerce Corporation (now Easylink Services) as Chairman and CEO, and was
a director from 1998 to 2012. Previously, Mr. Berman worked at Goldman Sachs; was Senior Vice President of Bankers Trust
Company, where he started the M&A and Leveraged Buyout Departments; created the largest battery company in the world in the
1980’s by merging Prestolite, General Battery and Exide to form Exide Technologies (XIDE); helped to create what is now Soho
(NYC) by developing five buildings; and advised on over $4 billion of M&A transactions. He is a past Director of
the Stern School of Business of NYU where he obtained his BS and MBA. He also has U.S. and foreign law degrees from
Boston College and The Hague Academy of International Law, respectively. Mr. Berman’s financial and business expertise, including
his background in biotechnology, international management and banking, and his extensive experience as a director in the public
company context makes him well-qualified to serve as a member of the board of directors.
Daniel M. Hancock.
Mr. Hancock was appointed to Cryoport’s board of directors in January 2019 and serves as member of the Audit Committee and
Scientific and Technology Committee. Mr. Hancock is currently President of DMH Strategic Consulting LLC. He retired from General
Motors ("GM") in 2011, after 43 years of service in GM's powertrain engineering and general management functions. His
last position with GM was Vice President, Global Strategic Product Alliances. During this period, he served as Chairman of GM's
DMAX and VM Motori diesel engine joint ventures with Isuzu and Fiat, respectively. Mr. Hancock's previous appointments at GM included:
Vice President, Global Powertrain Engineering; CEO, Fiat-GM Powertrain; and President, Allison Transmission Division. Mr. Hancock
is a director of Westport Fuel Systems (NASDAQ WPRT), a Vancouver, B.C. based global supplier of clean gaseous fuel parts, and
systems for the transportation industry. He is also serving as chairman of the board of SuperTurbo Technologies, Inc., a Loveland,
CO based privately-held developer of advanced turbo compounding systems for engines and director of Achates Power, Inc., a San
Diego, CA headquartered privately-held developer of innovative opposed-piston, two-stroke diesel engines. In addition, Mr. Hancock
serves in an advisory capacity to several global suppliers to the automotive and commercial vehicle industries. He was President
of SAE International in 2014 and is a member of the National Academy of Engineering. He received a master's degree in mechanical
engineering from Massachusetts Institute of Technology (MIT) and a bachelor's degree also in mechanical engineering from General
Motors Institute (now Kettering University), Michigan. We believe Mr. Hancock’s global business experience, strong business
acumen, and extensive technical expertise qualifies him well to serve as a member of the board of directors.
Robert Hariri,
M.D., Ph.D
. Dr. Hariri, M.D., Ph.D. became a member of our board of directors in September 2015 and serves as Chairman
of the Scientific and Technology Committee and member of the Audit Committee and Nomination and Governance Committee of our board
of directors. Dr. Hariri is a visionary surgeon, scientist, aviator and entrepreneur and serves the Founder, Chairman and CEO of
Celularity, one of the world’s largest human cellular therapeutics companies. Previously, he served as the CEO of the Cellular
Therapeutics Division of Celgene Corporation. Prior to joining Celgene Cellular Therapeutics as president in 2002, Dr. Hariri was
founder, chairman and chief scientific officer at Anthrogenesis Corporation/LIFEBANK, Inc., a privately held biomedical technology
and service corporation involved in the area of human stem cell therapeutics, which was acquired by Celgene in 2002. Dr. Hariri
is also co-founder and president of Human Longevity, Inc., a genomics and cell-therapy company. He serves on numerous Boards of
Directors including Bionik Laboratories Corp (OTCQX: BNKL), Myos Corporation (Nasdaq: MYOS), Provista Diagnostics and is a member
of the Board of Visitors of the Columbia University School of Engineering &Applied Sciences and the Science &Technology
Council of the College of Physicians and Surgeons; as well as a member of the Scientific Advisory Board for the Archon X PRIZE
for Genomics, which is awarded by the X Prize Foundation. Dr. Hariri is also a Trustee of the Liberty Science Center and has been
appointed Commissioner of Cancer Research by New Jersey Governor, Chris Christie. Dr. Hariri was recipient of the Thomas Alva Edison
Award in 2007 and 2011, and has received numerous other honors for his many contributions to biomedicine and aviation. He has pioneered
the use of stem cells to treat a range of life threatening diseases and has over 140 issued and pending patents, has authored over
100 published chapters, articles and abstracts and is most recognized for his discovery of pluripotent stem cells from the placenta
as a member of the team which discovered TNF (tumor necrosis factor). A jet-rated commercial pilot with thousands of hours of flight
time in over 60 different military and civilian aircraft, Dr. Hariri is a founder of the Rocket Racing League, an extreme aerospace
corporation and Jet-A Aviation, a heavy-jet charter airline. Dr. Hariri received his undergraduate training at Columbia College
and Columbia University School of Engineering and Applied Sciences and was awarded his M.D. and Ph.D. degrees from Cornell University
Medical College. Dr. Hariri received his surgical training at The New York Hospital-Cornell Medical Center where he also directed
the Aitken Neurosurgery Laboratory and the Center for Trauma Research. Dr. Hariri’s training as a scientist, his knowledge
and experience with respect to the biomedical and pharmaceutical industries and his extensive research and experience makes him
well-qualified to serve as a member of the board of directors.
Ramkumar Mandalam,
Ph.D
. Dr. Mandalam became a member of our board of directors in June 2014 and serves as Chairman of the Governance and
Nomination Committee and member of the Compensation Committee our board of directors. Dr. Mandalam is the President
and CEO of Cellerant Therapeutics, Inc., a clinical stage biotechnology company developing novel cell-based and antibody therapies
for cancer treatment and blood-related disorders. Under his leadership, Cellerant has developed a pipeline of
candidates for treatment of heamatological malignancies and has rapidly expanded from an early-stage to an advanced clinical-stage
company. Prior to joining Cellerant in 2005, he was the Executive Director of Product Development at Geron Corporation, a biopharmaceutical
company where he managed the development and manufacturing of cell based therapies for treatment of degenerative diseases and cancer. From
1994 to 2000, he held various positions in research and development at Aastrom Biosciences, where he was responsible for programs
involving ex vivo expansion of human bone marrow stem cells and dendritic cells. Dr. Mandalam received his Ph.D. in
Chemical Engineering from the University of Michigan, Ann Arbor, Michigan. Dr. Mandalam is the author or co-author of
several publications, patent applications, and abstracts. Dr. Mandalam’s training as a scientist, extensive background in
biotechnology and management expertise and makes him well-qualified to serve as a member of the board of directors.
Edward J. Zecchini
.
Mr. Zecchini became a member of our board of directors in September 2013 and serves as Chairman of the Compensation Committee and
member of the Audit Committee and Scientific and Technology Committee our board of directors. Mr. Zecchini currently serves
as Chief Information Officer at Remedy Partners, Inc. Mr. Zecchini is a director of the publicly traded healthcare company Catasys,
Inc. Prior to that, Mr. Zecchini served as Executive Vice President and Chief Technology Officer at Sandata Technologies,
LLC, from May 2010 to March 2014, President and Chief Executive Officer of IT Analytics LLC from March 2008 to April 2010, Executive
Vice President of Operations and Chief Information Officer of Touchstone Healthcare Partnership from May 2007 to February 2008
and Senior Vice President and Chief Information Officer of HealthMarkets, Inc. from October 2004 to April 2007. Earlier in his
career he held senior level positions at Thomson Healthcare and SportsTicker, Inc. Mr. Zecchini has over thirty years of experience
in the healthcare and information technology industries. Mr. Zecchini holds a Bachelor of Arts degree from the State University
of New York at Oswego. Mr. Zecchini’s business expertise, including his background and extensive experience information technology
and management makes him well-qualified to serve as a member of the board of directors.
Robert S. Stefanovich
.
Mr. Stefanovich became Chief Financial Officer, Treasurer and Corporate Secretary for the Company in June 2011. From June 15, 2012
to November 4, 2012, Mr. Stefanovich served as the Principal Executive Officer of the Company. From November 2007 through March
2011, Mr. Stefanovich served as Chief Financial Officer of Novalar Pharmaceuticals, Inc., a venture-backed specialty pharmaceutical
company. Prior to that, he held several senior positions, including interim Chief Financial Officer of Xcorporeal, Inc., a publicly
traded medical device company, Executive Vice President and Chief Financial Officer of Artemis International Solutions Corporation,
a publicly traded software company, Chief Financial Officer and Secretary of Aethlon Medical Inc., a publicly traded medical device
company and Vice President of Administration at SAIC, a Fortune 500 company. Mr. Stefanovich also served as a member of the Software
Advisory Group and an Audit Manager with Price Waterhouse LLP’s (now PricewaterhouseCoopers) hi-tech practice in San Jose,
CA and Frankfurt, Germany. He currently also serves as a board member of Project InVision International, a provider of business
performance improvement solutions. He received his Masters of Business Administration and Engineering from University of Darmstadt,
Germany.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the
Exchange Act requires the Company’s directors and executive officers, and persons who own more than 10% of a registered class
of the Company’s equity securities, to file with the SEC reports of beneficial ownership and reports of changes in beneficial
ownership in the Company’s securities. Such directors, executive officers and 10% stockholders are also required to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on a review
of the copies of such forms received by it, the Company believes that during the year ended December 31, 2018, all Section 16(a)
filings applicable to its directors, officers, and 10% stockholders were filed on a timely basis.
Director Independence
Our board of directors
is responsible for determining the independence of our directors. For purposes of determining director independence, our board
of directors has applied the definitions set forth in NASDAQ Rule 5605(a)(2) and the related rules of the SEC. Based upon its evaluation,
our board of directors has affirmatively determined that the following directors meet the standards of independence: Mr. Berman,
Dr. Hariri, Dr. Mandalam and Mr. Zecchini.
Committees of the
Board of Directors
Our board of directors
has established an Audit Committee, a Compensation Committee, Nomination and Governance Committee and a Science and Technology
Committee. Charters for each of these committees is available on the Company’s website at www.cryoport.com on the “Investor
Relations: Corporate Governance” page under the heading “About Us.” Information on the website does not constitute
a part of this registration statement.
Audit Committee
The functions of the
Audit Committee are to (i) review the qualifications of the independent auditors, our annual and interim financial statements,
the independent auditor’s report, significant reporting or operating issues and corporate policies and procedures as they
relate to accounting and financial controls; and (ii) to consider and review other matters relating to our financial and accounting
affairs.
The current members
of the Audit Committee are Mr. Berman, who is the Audit Committee Chairman, Mr. Hancock, Dr. Hariri and Mr. Zecchini. The Company
has determined that (i) Mr. Berman qualifies as an “audit committee financial expert” as defined under the rules of
the SEC and is “independent” within the meaning of NASDAQ Rule 5605(a)(2) and the applicable laws and regulations of
the SEC, and (ii) Dr. Hariri and Mr. Zecchini meet NASDAQ’s financial literacy and financial sophistication requirements
and are “independent” within the meaning of NASDAQ Rule 5605(a)(2) and the applicable laws and regulations of the SEC.
Compensation
Committee
The purpose of the
Compensation Committee is to discharge our board of directors’ responsibilities relating to compensation of the Company’s
directors and executive officers, to produce an annual report on executive compensation for inclusion in the Company’s annual
proxy statement, as necessary, and to oversee and advise our board of directors on the adoption of policies that govern the Company’s
compensation programs, including stock incentive and benefit plans.
The current members
of the Compensation Committee are Mr. Zecchini, who is the Compensation Committee Chairman, Dr. Mandalam and Mr. Berman, each of
whom is independent under applicable independence requirements. Each of the current members of the Compensation Committee is a
“non-employee director” under Section 16 of the Exchange Act and an “outside director” for purposes of
Section 162(m) of the Code.
Nomination and
Governance Committee
The functions of the
Nomination and Governance Committee are to (i) make recommendations to our board of directors regarding the size of our board of
directors, (ii) make recommendations to our board of directors regarding criteria for the selection of director nominees, (iii)
identify and recommend to our board of directors for selection as director nominees individuals qualified to become members of
the Board, (iv) recommend committee assignments to our board of directors, (v) recommend to our board of directors corporate governance
principles and practices appropriate to the Company, and (vi) lead our board of directors in an annual review of its performance.
The current members
of the Nomination and Governance Committee are Dr. Mandalam, who is the Nomination and Governance Committee Chairman, Mr. Berman
and Dr. Hariri.
Science and Technology
Committee
The purpose
of the Science and Technology Committee is to oversee matters pertaining to the Company’s strategic direction as related
to product and services serving the cellular therapy business and investments in research, development, and technology relating
thereto. The committee may include director and persons who are not directors. The current members of the Science
and Technology Committee are Dr. Robert Hariri, M.D., Ph.D., who is the Science and Technology Committee Chairman, Mr Hancock
and Mr. Zecchini.
Corporate
Code of Conduct
The
Company has adopted
a corporate code of conduct that applies to its directors and all employees, including the Company’s
Chief Executive Officer and Chief Financial Officer. The Company has posted the text of its corporate code of conduct on the Company’s
website at www.cryoport.com on the “Investor Relations: Corporate Governance” page under the heading “Governance
Documents”.
Item 11.
Executive Compensation
SUMMARY COMPENSATION TABLE
The following table
contains information with respect to the compensation of our Chief Executive Officer and Chief Financial Officer for the years
ended December 31, 2018 and 2017. We refer to our Chief Executive Officer and Chief Financial Officer as our “Named Executive
Officers.”
Name and Principal Position
|
|
Year
|
|
Salary (1)
($)
|
|
|
Bonus
($)
|
|
|
Option
Awards (2)
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
Compensation
($)
|
|
Jerrell W. Shelton
|
|
2018
|
|
|
581,250
|
|
|
|
—
|
|
|
|
2,091,151
|
(3)
|
|
|
—
|
|
|
|
2,672,401
|
|
President and Chief Executive Officer
|
|
2017
|
|
|
435,417
|
|
|
|
100,000
|
(5)
|
|
|
986,471
|
(3)
|
|
|
—
|
|
|
|
1,521,888
|
|
Robert S. Stefanovich
|
|
2018
|
|
|
293,625
|
|
|
|
—
|
|
|
|
478,698
|
(4)
|
|
|
—
|
|
|
|
772,323
|
|
Chief Financial Officer
|
|
2017
|
|
|
277,187
|
|
|
|
60,000
|
(5)
|
|
|
218,435
|
(4)
|
|
|
—
|
|
|
|
555,622
|
|
|
(1)
|
This column represents the dollar value of base salary earned during each fiscal year indicated.
|
|
(2)
|
This amount represents the total grant date fair value of all stock option awards at the date of grant. Pursuant to SEC rules, the amount shown excludes the impact of estimated forfeitures related to service-based vesting conditions. For information on the valuation assumptions with respect to the grants made during the years ended December 31, 2018 and 2017, see Note 2 “Summary of Significant Accounting Policies” in the accompanying consolidated financial statements.
|
|
(3)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors, on March 28, 2018 and May 23, 2017, Mr. Shelton was granted an option to purchase 290,000 and 340,000 shares, respectively, of common stock in connection with his service as Chief Executive Officer of the Company. The exercise prices of the options are equal to or greater than the fair value of the Company’s stock as of the respective grant dates.
|
|
(4)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors, on March 28, 2018 and May 18, 2017, Mr. Stefanovich was granted an option to purchase 66,300 and 81,000 shares of common stock, respectively, of common stock in connection with his service as Chief Financial Officer of the Company. The exercise prices of the options are equal to or greater than the fair value of the Company’s stock as of the respective grant dates.
|
|
(5)
|
This amount represents the bonus earned for the year ended December 31, 2017 as approved by the Compensation Committee of our board of directors.
|
Narrative Disclosure to Summary Compensation Table
Employment Contracts
Jerrell W. Shelton
On June 28, 2013, the Company entered into
an employment agreement (the “Prior Agreement”) with Mr. Shelton with respect to his employment as President and Chief
Executive Officer. The Prior Agreement was effective through May 14, 2017 (the “Term”).
The Prior Agreement provided an initial
annual base salary of $300,000 during the Term. In addition, on the date of the Prior Agreement, Mr. Shelton was awarded options
giving him the right to acquire an aggregate of 325,209 shares of the Company’s common stock at an exercise price equal to
the closing price of the Company’s common stock on the date of the Prior Agreement, or $3.24 per share, and such options
were granted outside of the Company’s incentive plans. The option vested immediately with respect to 13,551 shares and the
remaining right to purchase the remaining shares vested in equal monthly installments on the fifth day of each month for forty-six
months beginning on July 5, 2013 and ending on May 5, 2017; provided that such vesting will be accelerated on the date that the
Company files a Form 10-Q or Form 10-K indicating an income from operations for the Company in two consecutive fiscal quarters
and immediately in the event of a change of control of the Company.
Mr. Shelton had agreed during the Term and
for a period of one year following the termination of the Prior Agreement, not to solicit, induce, entice or attempt to solicit,
induce, or entice any employee of the Company to leave employment with the Company. Payments due to Mr. Shelton upon a termination
of the Prior Agreement are described below.
On May 26, 2017, the Company entered into
a new employment agreement effective June 1, 2017 (the “New Agreement”) with Mr. Shelton with respect to his employment
as President and Chief Executive Officer of the Company.
The New Agreement provides
for an annual base salary in an amount determined by the Company’s Compensation Committee of the Board of Directors of the
Company and Mr. Shelton’s annual base salary was increased to $550,000 effective on June 1, 2017 and increased to $600,000
in May 2018. Mr. Shelton is eligible to participate in the equity incentive plans and cash bonus plans adopted by the Company from
time-to-time. Mr. Shelton has agreed not to solicit or encourage or attempt to solicit or encourage any employee of the Company
to leave employment with the Company during the term of the Agreement and for a period of eighteen months following the termination
of the Agreement. The Agreement expires on June 1, 2021. Payments due to Mr. Shelton upon a termination of the New Agreement are
described below.
Robert S. Stefanovich
Although the Company
does not have a written employment agreement with Mr. Stefanovich, pursuant to the terms of his offer letter, the Company
agreed to pay Mr. Stefanovich an annual base salary and he is eligible for an incentive bonus targeted at 25% of his annual
base salary which was increased to 40% in May 2018. His annual base salary was increased to $283,000 in May 2017 and $300,000 in
May 2018. Mr. Stefanovich is eligible to participate in all employee benefits plans or arrangements which may be offered by
the Company during the term of employment. The Company shall pay the cost of Mr. Stefanovich’s health insurance coverage
in accordance with the Company’s plans and policies while he is an employee of the Company. Mr. Stefanovich is also
eligible for twenty (20) paid time off days a year, and is entitled to receive fringe benefits ordinarily and customarily provided
by the Company to its senior officers. Payments due to Mr. Stefanovich upon a termination of his employment with the Company
are described below.
The Company has no
other employment agreements with executive officers of the Company as of December 31, 2018.
OUTSTANDING EQUITY AWARDS AT DECEMBER
31, 2018
The following table
shows information regarding unexercised stock options held by our Named Executive Officers as of December 31, 2018:
Name
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
|
Equity
Incentive
Plan Awards
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
|
|
Option
Exercise
Price ($)
|
|
|
Option
Expiration
Date
|
Jerrell W. Shelton
|
|
|
8,334
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
2.28
|
|
|
10/22/22
|
|
|
|
83,334
|
(2)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
2.40
|
|
|
11/5/22
|
|
|
|
325,209
|
(3)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
3.24
|
|
|
6/28/23
|
|
|
|
369,700
|
(4)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
4.80
|
|
|
12/18/24
|
|
|
|
196,987
|
(5)
|
|
|
22,905
|
|
|
|
—
|
|
|
$
|
7.80
|
|
|
5/07/25
|
|
|
|
669,167
|
(6)
|
|
|
137,833
|
|
|
|
—
|
|
|
$
|
5.00
|
|
|
8/20/25
|
|
|
|
156,358
|
(7)
|
|
|
99,166
|
|
|
|
—
|
|
|
$
|
1.87
|
|
|
5/06/26
|
|
|
|
134,583
|
(8)
|
|
|
205,417
|
|
|
|
—
|
|
|
$
|
3.44
|
|
|
5/23/27
|
|
|
|
235,625
|
(9)
|
|
|
54,375
|
|
|
|
—
|
|
|
$
|
8.65
|
|
|
3/28/2028
|
Robert Stefanovich
|
|
|
10,417
|
(10)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
10.32
|
|
|
6/20/21
|
|
|
|
5,000
|
(11)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
5.16
|
|
|
8/3/22
|
|
|
|
69,918
|
(12)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
3.24
|
|
|
6/28/23
|
|
|
|
73,334
|
(13)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
4.80
|
|
|
12/18/24
|
|
|
|
51,499
|
(14)
|
|
|
5,985
|
|
|
|
—
|
|
|
$
|
7.80
|
|
|
5/07/25
|
|
|
|
147,667
|
(15)
|
|
|
29,533
|
|
|
|
—
|
|
|
$
|
3.07
|
|
|
8/20/25
|
|
|
|
47,812
|
(16)
|
|
|
87,188
|
|
|
|
—
|
|
|
$
|
1.87
|
|
|
5/06/26
|
|
|
|
32,062
|
(17)
|
|
|
48,938
|
|
|
|
|
|
|
$
|
3.21
|
|
|
5/18/27
|
|
|
|
12,431
|
(18)
|
|
|
53,869
|
|
|
|
|
|
|
$
|
8.65
|
|
|
3/28/28
|
(1)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors, Mr. Shelton was granted an option to purchase 8,334 shares of common stock exercisable at $2.28 per share on October 22, 2012 upon joining the board of directors. Options vests in twelve equal monthly installments. The exercise price for shares of common stock pursuant to the options is equal to the fair value of the Company’s stock as of the grant date.
|
(2)
|
Based on the recommendation of the Compensation Committee and approval our board of directors, Mr. Shelton was granted an option to purchase 137,500 shares of common stock exercisable at $2.40 per share on November 5, 2012, which vests in six equal monthly installments. 54,166 of these options were issued under the 2011 stock option plan and exercised in May and November 2013 and 83,884 were issued outside of a plan. The exercise price for shares of common stock pursuant to the option is equal to the fair value of the Company’s stock as of the grant date.
|
(3)
|
Based on the recommendation of the Compensation Committee and approval our board of directors, Mr. Shelton was granted an option to purchase 325,209 shares of common stock exercisable at $3.24 per share on June 28, 2013. The option vests 2/48
th
immediately with the remainder vesting 1/48
th
per month for 46 months. The exercise price for the shares of common stock pursuant to the option is equal to the fair value of the Company’s stock on the date of grant.
|
(4)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors, Mr. Shelton was granted an option to purchase 387,501 shares of common stock exercisable at $4.80 per share on December 18, 2014. The option vests in monthly installments over a four year period, 262,500 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 value of the Company’s stock on the date of grant.
|
(5)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors, Mr. Shelton was granted an option to purchase 219,892 shares of common stock exercisable at $7.80 per share on May 7, 2015. The option vests in monthly installments over a four year period, 219,892 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 value of the Company’s stock on the date of grant.
|
(6)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors, Mr. Shelton was granted an option to purchase 827,000 shares of common stock exercisable at $3.07 per share on August 20, 2015, subject to stockholder approval of the 2015 Omnibus Equity Incentive Plan which occurred on November 20, 2015. The award was amended on February 3, 2016 to increase the exercise price of the option from $3.07 to $5.00. The option vests in monthly installments over a four year period. The exercise price for the shares of common stock pursuant to the option is equal to or more than the fair value of the Company’s stock on the date of grant.
|
(7)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors, Mr. Shelton was granted an option to purchase 280,000 shares of common stock exercisable at $1.87 per share on May 6, 2016. The option vests in monthly installments over a four year period. The exercise price for the shares of common stock pursuant to the option is equal to the fair value of the Company’s stock on the date of grant.
|
(8)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors, Mr. Shelton was granted an option to purchase 340,000 shares of common stock exercisable at $3.44 per share on May 23, 2017. The option vests in monthly installments over a four year period. The exercise price for the shares of common stock pursuant to the option is equal to the fair value of the Company’s stock on the date of grant.
|
(9)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors, Mr. Shelton was granted an option to purchase to purchase 290,000 shares of common stock exercisable at $8.65 per share on March 28, 2018. The option vests in monthly installments over a four year period. The exercise price for the shares of common stock pursuant to the option is equal to the fair value of the Company’s stock on the date of grant.
|
(10)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors, Mr. Stefanovich was granted an option to purchase 10,417 shares of common stock exercisable at $10.32 per share on June 20, 2011. The option vests in six month installments over a four year period. The exercise price for the shares of common stock pursuant to the option is equal to the fair value of the Company’s stock on the date of grant.
|
(11)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors, Mr. Stefanovich was granted an option to purchase 5,000 shares of common stock exercisable at $5.16 per share on August 3, 2012. The option vests in six month installments over a four year period. The exercise price for the shares of common stock pursuant to the option is equal to the fair value of the Company’s stock on the date of grant.
|
(12)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors, Mr. Stefanovich was granted an option to purchase 69,918 shares of common stock exercisable at $3.24 per share on June 28, 2013. The options vest in equal monthly installments over four years. The exercise price for the shares of common stock pursuant to the option is equal to the fair value of the Company’s stock on the date of grant.
|
(13)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors, Mr. Stefanovich was granted an option to purchase 73,334 shares of common stock exercisable at $4.80 per share on December 18, 2014. The options vest in equal monthly installments over four years. The exercise price for the shares of common stock pursuant to the option is equal to the fair value of the Company’s stock on the date of grant.
|
(14)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors, Mr. Stefanovich was granted an option to purchase 57,484 shares of common stock exercisable at $7.80 per share on May 7, 2015. The options vest in equal monthly installments over a four year period, 57,484 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 value of the Company’s stock on the date of grant.
|
(15)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors , Mr. Stefanovich was granted an option to purchase 177,200 shares of common stock exercisable at $3.07 per share on August 20, 2015, subject to stockholder approval of the 2015 Omnibus Equity Incentive Plan which occurred on November 20, 2015. The option vests in monthly installments over a four year period. The exercise price for the shares of common stock pursuant to the option is equal to or more than the fair value of the Company’s stock on the date of grant.
|
(16)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors, Mr. Stefanovich was granted an option to purchase 135,000 shares of common stock exercisable at $1.87 per share on May 6, 2016. The option vests in monthly installments over a four year period. The exercise price for the shares of common stock pursuant to the option is equal to the fair value of the Company’s stock on the date of grant.
|
(17)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors, Mr. Stefanovich was granted an option to purchase 81,000 shares of common stock exercisable at $3.21 per share on May 18, 2017. The option vests in monthly installments over a four year period. The exercise price for the shares of common stock pursuant to the option is equal to the fair value of the Company’s stock on the date of grant.
|
(18)
|
Based on the recommendation of the Compensation Committee and approval by our board of directors, Mr. Stefanovich was granted an option to purchase 66,300 shares of common stock exercisable at $8.65 per share on March 28, 2018. The option vests in monthly installments over a four year period. The exercise price for the shares of common stock pursuant to the option is equal to the fair value of the Company’s stock on the date of grant.
|
Potential Payments On Termination
Or Change In Control
Pursuant to Mr. Shelton’s Prior
Agreement, if Mr. Shelton would have terminated the Prior Agreement, died, or had been terminated for “Cause”
(as defined in the Prior Agreement), he would have been entitled to all compensation and benefits that he earned through the date
of termination. If he had been terminated for Cause, the Company could have, to the extent allowed by law, set off losses, fines
or damages that he had caused as a result of his misconduct. If he had been terminated “without cause” (as defined
in the Prior Agreement), he would have been entitled to a continuation of his base salary for three months following termination
and one half (½) of unvested options as of date of termination would have become fully vested. In the event the Company
had terminated his employment, except if for “Cause” (as defined in the Prior Agreement), within twelve months after
a Change in Control (as defined in the Cryoport, Inc. 2011 Stock Incentive Plan), then, Mr. Shelton would have been entitled
to: (i) the continuation of his base salary for twelve months following the date of termination, which would have been paid
in accordance with the Company’s ordinary payroll practices in effect from time to time, and would have begun on the first
payroll period immediately following the date on which the general release and waiver became irrevocable; and (ii) all options
previously granted to Mr. Shelton would have become fully vested and exercisable as of the date of termination of employment.
If Mr. Shelton terminates the New Agreement,
he dies, or he is terminated for cause, he will be entitled to all compensation and benefits that he earned through the date of
termination. If he is terminated without cause or he terminates for good reason, he will be entitled to continuation of base salary
for eighteen months following termination and one half of unvested options as of date of termination shall become fully vested;
provided that if the termination date is within twelve months after a change in control of the Company, then all of the unvested
options as of such date will become fully vested.
Pursuant to Mr. Stefanovich’s
employment offer, in the event that Mr. Stefanovich’s employment with the Company is terminated as a result of a “change
of control,” as is defined in the Company’s 2009 Stock Incentive Plan, he will be entitled to receive a severance payment
equal to twelve months of his base salary, continuation of health benefits for a period of twelve months, and the unvested portion
of his stock option grants immediately shall vest in full. Separately, in the event his employment is terminated by the Company
for reasons other than cause, Mr. Stefanovich will be entitled to receive a severance payment equal to six months of his base
salary plus continuation of health benefits for a period of six months following his termination of employment.
The Cryoport, Inc. 2018 Omnibus Equity Incentive
Plan, 2015 Omnibus Equity Incentive Plan, the Cryoport, Inc. 2011 Stock Incentive Plan and the Cryoport, Inc. 2009 Stock Incentive
Plan each provide that if a “change in control” occurs, the Compensation Committee has the discretion to provide in
the applicable option agreement that any outstanding awards shall become fully vested and exercisable.
The Company does not provide any additional
payments to the named executive officers upon their resignation, termination, retirement, or upon a change of control.
Change in Control Agreements
There are no understandings,
arrangements or agreements known by management at this time which would result in a change in control of the Company or any subsidiary.
DIRECTOR COMPENSATION
Compensation for our
board of directors is governed by the Company’s Compensation Committee.
Director Fees
Effective October
1, 2015 through June 23, 2017, the compensation plan for non-employee directors was as follows
:
Director fees were
paid in cash, restricted shares of the Company’s common stock or a combination thereof, at the option of the director.
Option 1: Annual cash
compensation of $40,000, paid quarterly,
Option 2: Annual cash
compensation of $13,333, paid quarterly and $26,667 converted into common stock using the volume weighted average price (“VWAP”)
of the stock for the last five days of the trading month ending each quarter; or
Option 3: No annual
cash compensation but $40,000 converted into common stock using the VWAP of the stock for the last five days of the trading month
ending each quarter and paid quarterly. This option carries a 15% premium, as there is no cash outlay to the Company. The calculation
would be $40,000 X 1.15 = $46,000/VWAP.
In addition to the
compensation options above the following compensation apply to non-employee directors chairing a committee of our board of directors.
This compensation was paid on the same basis as the director chose from the options described above:
Chairman/Lead Director
|
|
$
|
25,000
|
|
Audit Committee
|
|
$
|
20,000
|
|
Compensation Committee
|
|
$
|
15,000
|
|
Nominating and Corporate Governance Committee
|
|
$
|
10,000
|
|
Science and Technology Committee
|
|
$
|
24,000
|
|
Newly appointed directors
received an initial grant of options to purchase 50,000 shares of the Company’s common stock, vesting monthly over four years.
Effective June 23, 2017, the compensation plan for non-employee
directors was as follows:
Director fees are paid
in cash, restricted shares of the Company’s common stock or a combination thereof, at the option of the director.
Option 1: Annual cash
compensation of $40,000, paid quarterly,
Option 2: Annual cash
compensation of $13,333, paid quarterly and $26,667 converted into common stock using the VWAP of the stock for the last five days
of the trading month ending each quarter; or
Option 3: No annual
cash compensation but $40,000 converted into common stock using the VWAP of the stock for the last five days of the trading month
ending each quarter and paid quarterly. This option carries a 15% premium, as there is no cash outlay to the Company. The calculation
would be $40,000 X 1.15 = $46,000/VWAP.
In addition to the
compensation options above the following compensation apply to non-employee directors chairing a committee of the Board. This compensation
will be paid on the same basis as the director chose from the options described above:
Chairman/Lead Director
|
|
$
|
25,000
|
|
Audit Committee
|
|
$
|
20,000
|
|
Compensation Committee
|
|
$
|
15,000
|
|
Nominating and Corporate Governance Committee
|
|
$
|
10,000
|
|
Science and Technology Committee
|
|
$
|
24,000
|
|
Stock option grants
Newly appointed/elected
directors receive an inducement (‘sign-on’) option grant to purchase 50,000 shares of the Company’s common stock,
vesting ratably on a monthly basis over three years, effective as of, with an exercise price equal to the closing price of the
Company’s common stock on the date the directorship commences.
Annual Option Grants
Each director shall
receive annual option grants to purchase 35,000 shares of the Company’s common stock, vesting ratably on a monthly basis
over twelve months, effective as of, and with an exercise price equal to the closing price of the Company’s common stock
on the date of the Annual Meeting of Stockholders.
Upon joining the Board,
new directors shall be granted a pro-rated annual award (i.e., for portion of year served prior to next shareholder meeting), which
shall vest in monthly increments until the next annual meeting.
All options shall include
a provision that provides that if such director ceases to be a director, vested options shall lapse (to the extent not exercised)
on the earlier of: (i) ten years; or (ii) three years after the date the director ceases to be a director of the Company.
The following table
sets forth the director compensation of the non-employee directors of the Company during the year ended December 31, 2018.
Name
|
|
Fees Earned
Or Paid in
Cash
($)(1)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)(2)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Richard Berman
|
|
|
85,000
|
|
|
|
—
|
|
|
|
246,463
|
|
|
|
—
|
|
|
|
331,463
|
|
Robert Hariri, M.D., Ph.D
|
|
|
64,000
|
|
|
|
—
|
|
|
|
246,463
|
|
|
|
—
|
|
|
|
310,463
|
|
Ramkumar Mandalam, Ph.D.
|
|
|
16,667
|
|
|
|
33,333
|
|
|
|
246,463
|
|
|
|
—
|
|
|
|
296,463
|
|
Edward Zecchini
|
|
|
18,333
|
|
|
|
36,667
|
|
|
|
246,463
|
|
|
|
—
|
|
|
|
301,463
|
|
|
(1)
|
Fees earned or paid in cash as shown in this schedule
represent payments and accruals for directors’ services earned during the year ended December 31, 2018.
|
|
(2)
|
This column represents the total grant date fair value
of all stock options granted during the year ended December 31, 2018. Pursuant to SEC rules, the amounts shown exclude the impact
of estimated forfeitures related to service-based vesting conditions. For information on the valuation assumptions with respect
to the grants made, refer to Note 2 “
Summary of Significant Accounting Policies”
in the accompanying consolidated
financial statements.
|
Item 12.
Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table
sets forth information with respect to the beneficial ownership of the Company’s common stock as of March 1, 2018, by each
person or group of affiliated persons known to the Company to beneficially own 5% or more of its common stock, each director, each
named executive officer, and all of its directors and executive officers as a group. As of March 1, 2019, there were 30,436,322
shares of common stock outstanding. Unless otherwise indicated, the address of each beneficial owner listed below is c/o Cryoport,
Inc., 17305 Daimler St, Irvine, CA 92614.
The following table
gives effect to the shares of common stock issuable within 60 days of March 1, 2019, upon the exercise of all options and other
rights beneficially owned by the indicated stockholders on that date. Unless otherwise indicated, the persons named in the table
have sole voting and sole investment control with respect to all shares beneficially owned.
Beneficial Owner
|
|
Number of Shares
of Common Stock
Beneficially Owned(2)
|
|
|
Percentage of Shares
of Common Stock
Beneficially Owned
|
|
Named Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
|
|
Jerrell W. Shelton
|
|
|
2,464,709
|
|
|
(1)
|
|
|
7.6
|
%
|
Richard Berman
|
|
|
149,077
|
|
|
(1)(3)
|
|
|
*
|
|
Robert Hariri, M.D. Ph.D.
|
|
|
147,683
|
|
|
(1)
|
|
|
*
|
|
Ramkumar Mandalam Ph.D.
|
|
|
198,350
|
|
|
(1)
|
|
|
*
|
|
Edward Zecchini
|
|
|
214,160
|
|
|
(1)
|
|
|
*
|
|
Daniel Hancock
|
|
|
7,380
|
|
|
(1)
|
|
|
*
|
|
Robert S. Stefanovich
|
|
|
533,595
|
|
|
(1)
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (7 persons)
|
|
|
3,714,954
|
|
|
(1)
|
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Other Stockholders:
|
|
|
|
|
|
|
|
|
|
|
Alger Associates, Inc.
|
|
|
3,323,798
|
|
|
(4)
|
|
|
10.9
|
%
|
Black Rock, Inc.
|
|
|
1,756,166
|
|
|
(5)
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total for all Directors, Executive Officers and Other Stockholders
|
|
|
8,794,918
|
|
|
|
|
|
28.9
|
%
|
*
|
Represents less than 1%
|
|
|
(1)
|
Includes shares which individuals shown above have the right to acquire as of March 1, 2018, or within 60 days thereafter, pursuant to outstanding stock options and/or warrants as follows: Mr. Shelton — 2,161,121 shares; Mr. Berman — 140,939 shares; Dr. Hariri — 132,383 shares; Dr. Mandalam—167,832 shares; Mr. Zecchini—177,502, Mr. Hancock—7,380 and Mr. Stefanovich — 532,595 shares.
|
|
|
(2)
|
The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Exchange Act, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the holder has sole or shared voting power or investment power and also any shares which the holder has the right to acquire within 60 days.
|
|
|
(3)
|
Includes 9,250 warrants and 8,138 shares owned by Mrs. Richard Berman, spouse of Mr. Berman
|
(4)
|
According to the Schedule 13G filed by Alger Associates, Inc. on February 14, 2019, the shares reported by Alger Associates, Inc. are beneficially owned by Alger Associates, Inc., Fred Alger & Company Incorporated and Fred Alger Management, Inc., which each hold sole power to vote, or to direct the vote of, and sole power to dispose, or to direct the disposition of, these shares. The shares are owned, directly or indirectly, by Alger Associates, Inc., its wholly owned subsidiary Fred Alger & Company Incorporated, or its wholly owned subsidiary Fred Alger Management, Inc. The address for these entities is 360 Park Avenue South, New York, NY 10010.
|
|
|
(5)
|
According to the Schedule 13G filed by Black Rock, Inc. on February 8, 2019, the shares reported by Black Rock, Inc. are beneficially owned by Black Rock, Inc., which holds the sole power to vote or to direct the vote of, and sole power to dispose, or to direct the disposition of, these shares. The shares are owned, directly or indirectly, by Black Rock, Inc., or its wholly owned subsidiaries BlackRock Advisors, LLC, BlackRock Asset Management Canada Limited, BlackRock Fund Advisors, BlackRock Institutional Trust Company, National Association, BlackRock Financial Management, Inc., BlackRock Investment Management, LLC. The address for these entities is 55 East 52nd Street, New York, NY 10055.
|
Securities Authorized for Issuance
Under Equity Compensation Plans
The following table
sets forth certain information as of December 31, 2018 concerning the Company’s common stock that may be issued upon the
exercise of options or warrants or pursuant to purchases of stock under the Company’s equity compensation plans.
Plan Category
|
|
(a)
Number of Securities
to be Issued Upon the
Exercise of
Outstanding Options
and Warrants
|
|
|
(b)
Weighted-Average
Exercise Price of
Outstanding
Options and
Warrants
|
|
|
(c)
Available for Future
Issuance Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column (a))
|
|
Equity compensation plans approved by stockholders
|
|
|
4,661,343
|
|
|
$
|
5.19
|
|
|
|
4,114,654
|
|
Equity compensation plans not approved by stockholders(1)
|
|
|
3,145,496
|
|
|
$
|
4.38
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,806,839
|
|
|
$
|
4.86
|
|
|
|
4,114,654
|
|
(1)
|
From November 5, 2012 through May 7, 2015, a total of 1,095,962 options outstanding were granted to employees outside of an option plan of which 890,935 shares were issued to Mr. Shelton and 127,402 shares were issued to Mr. Stefanovich.
|
Item 13.
Certain Relationships and Related
Transactions, and Director Independence.
None
Item 14.
Principal Accountant Fees and Services
Independent Registered Public Accounting Firms
Fees
The following table
shows the fees that were billed to us for the audit and other services provided by KMJ Corbin & Company LLP (“KMJ”)
for the Company’s years ended December 31, 2018 and 2017.
|
|
Year Ended
December 31,
2018
|
|
|
Year Ended
December 31,
2017
|
|
Audit Fees
|
|
$
|
113,625
|
|
|
$
|
85,500
|
|
Audit-Related Fees
|
|
|
96,953
|
|
|
|
46,935
|
|
Tax Fees
|
|
|
16,457
|
|
|
|
15,050
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
227,035
|
|
|
$
|
147,485
|
|
The fees billed to
us by KMJ during or related to the years ended December 31, 2018 and 2017 consist of audit fees, audit-related fees and tax fees,
as follows:
Audit Fees
.
Represents the aggregate fees billed to us for professional services rendered for the audit of our annual consolidated financial
statements and for the reviews of our consolidated financial statements included in our Form 10-Q filings for each fiscal
quarter.
Audit-Related
Fees.
Represents the aggregate fees billed to us for assurance and related services that are reasonably related to the
performance of the audit and review of our consolidated financial statements that are not already reported in Audit Fees. These
services include accounting consultations and attestation services that are not required by statute such as comfort letters, S-1
and S-8 filings.
Tax Fees.
Represents the aggregate fees billed to us for professional services rendered for tax returns, compliance and tax advice.
All Other Fees.
We did not incur any other fees to KMJ during the years ended December 31, 2018 and 2017.
Policy on Audit Committee Pre-Approval of Fees
The Audit Committee must pre-approve all services to be performed
for us by our independent auditors. Pre-approval is granted usually at regularly scheduled meetings of the Audit Committee. If
unanticipated items arise between regularly scheduled meetings of the Audit Committee, the Audit Committee has delegated authority
to the chairman of the Audit Committee to pre-approve services, in which case the chairman communicates such pre-approval to the
full Audit Committee at its next meeting. The Audit Committee also may approve the additional unanticipated services by either
convening a special meeting or acting by unanimous written consent. During the years ended December 31, 2018 and 2017, all services
billed by KMJ were pre-approved by the Audit Committee in accordance with this policy.
See accompanying notes to consolidated financial
statements.
Notes to Consolidated Financial Statements
Note 1. Nature of the Business
Cryoport, Inc. (“Cryoport”)
is the premier provider of temperature controlled 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
to the biopharma, reproductive medicine and animal health markets to ship, store and deliver biologic materials, such as immunotherapies,
stem cells, CAR-T cell therapies, vaccines and reproductive cells for clients worldwide Cryoport actively supports pharmaceutical
and biotechnology companies, points-of-care, contract research organizations, central laboratories, contract manufacturers, university
researchers and other entities service the life sciences industry.
The Company is a Nevada
corporation and its
common stock is traded on the NASDAQ Capital Market exchange under the
ticker symbol “CYRX.”
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”).
Principles of Consolidation
The accompanying consolidated
financial statements include the accounts of Cryoport, Inc. and its wholly owned subsidiaries, Cryoport Systems, Inc., Cryoport
Netherlands B.V. and Cryoport UK Limited (collectively, the “Company”). All intercompany accounts and transactions
have been eliminated.
Cash and Cash Equivalents
Our cash and cash equivalents
represent demand deposits, and money market funds which are readily convertible into cash, have maturities of 90 days or less when
purchased and are considered highly liquid and easily tradeable.
Short-Term Investments
Our investments in equity
securities consist of mutual funds with readily determinable fair values which are carried at fair value with changes in fair value
recognized in earnings.
Investments in debt
securities are classified as available-for-sale and are carried at fair value, with unrealized gains and losses, net of tax, reported
as accumulated other comprehensive income (loss) and included as a separate component of stockholders’ equity.
Gains and losses are
recognized when realized. When we have determined that an other than temporary decline in fair value has occurred, the amount related
to a credit loss is recognized in earnings. Gains and losses are determined using the specific identification method.
Short-term investments
are classified as current assets even though maturities may extend beyond one year because they represent investments of cash available
for operations.
Use of Estimates
The preparation of
the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
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, fair value of short-term
investments, recoverability of long-lived assets, allowance for inventory obsolescence, deferred taxes and their accompanying valuations,
and valuation of equity instruments.
Fair Value of Financial Instruments
The Company’s
financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued
expenses, capital lease obligations and the convertible note. The carrying value for all such instruments, except capital lease
obligations and the convertible note, approximates fair value at December 31, 2018 and 2017 due to their short-term nature. The
carrying value of capital lease obligations approximates fair value because the interest rate approximates market rates available
to us for similar obligations with the same maturities. The convertible note bears an interest rate that fluctuates with the changes
in LIBOR and, because the variable interest rates approximate market borrowing rates available to us, we believe the $14.7 million
carrying value of the convertible note approximates its fair value at December 31, 2018.
Concentrations of Credit Risk
Financial instruments
that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments.
From time to time, we maintain cash, cash equivalent and short-term investment balances in excess of amounts insured by the Federal
Deposit Insurance Corporation (“FDIC”) and the Securities Investor Protection Corporation (“SIPC”). Primarily
all of our cash, cash equivalents and short-term investments at December 31, 2018 were in excess of amounts insured by the FDIC
and SIPC. The Company performs ongoing evaluations of these institutions to limit its concentration risk exposure. We manage such
risks in our portfolio by investing in highly liquid, highly-rated instruments, and limit investing in long-term maturity instruments.
Our investment policy
requires that purchased instruments in marketable securities may only be in highly-rated instruments, which are primarily U.S.
Treasury bills or treasury-backed securities, and also limits our investment in securities of any single issuer.
Customers
The Company grants
credit to customers within the U.S. and to a limited number of international customers and does not require collateral. Revenues
from international customers are generally secured by advance payments except for a limited number of established foreign customers.
The Company generally requires advance or credit card payments for initial revenues from new customers. The Company’s ability
to collect receivables is affected by economic fluctuations in the geographic areas and industries served by the Company. Reserves
for uncollectible amounts are provided based on past experience and a specific analysis of the accounts, which management believes
is sufficient. Accounts receivable at December 31, 2018, and 2017 are net of reserves for doubtful accounts of $100,000 and $70,000,
respectively. Although the Company expects to collect amounts due, actual collections may differ from the estimated amounts. The
Company maintains reserves for bad debt and such losses, in the aggregate, historically have not exceeded its estimates.
The Company’s
customers are in the biotechnology, pharmaceutical, animal health, reproductive medicine and other life science industries. Consequently,
there is a concentration of accounts receivable within these industries, which is subject to normal credit risk. As of December
31, 2018, there were two customers that accounted for 29.0% and 23.4%, respectively, of net accounts receivable. There was no other
single customer that owed us more than 10% of net accounts receivable at December 31, 2018 and 2017.
The Company has revenue
from foreign customers primarily in Europe, Japan, Canada, India and Australia. During the years ended December 31, 2018 and 2017,
the Company had revenues from foreign customers of approximately $1.7 million and $1.3 million, respectively, which constituted
approximately 9.0% and 11.1%, respectively, of total revenues. There was one customer that accounted for 18.2% of revenues during
the year ended December 31, 2018. No other single customer generated over 10% of revenues during the years ended December 31, 2018
and 2017.
Inventories
The Company’s
inventories consist of packaging materials and accessories that are sold to customers. Inventories are stated at the lower of cost
and net realizable 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, such as selling prices and costs of completion, disposal and transportation, and
based on the evaluation, records adjustments to reflect inventories at net realizable value. These adjustments are estimates, which
could vary significantly from actual results if future economic conditions, customer demand, competition or other relevant factors
differ from expectations. These estimates require us to make assessments about future demand for the Company’s products in
order to categorize the status of such inventories items as slow-moving, obsolete or in excess-of-need. These estimates are subject
to the ongoing accuracy of the Company’s forecasts of market conditions, industry trends, competition and other factors.
Property and Equipment
The Company provides
shipping containers (“Shippers”) 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 Shipper 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. Shippers and data loggers, which comprise 34% and 47% of the Company’s net property and equipment balance
at December 31, 2018 and 2017, respectively, are depreciated using the straight-line method over their estimated useful lives of
three years. Equipment and furniture are depreciated using the straight-line method over their estimated useful lives (generally
three to seven years) and leasehold improvements are amortized using the straight-line method over the estimated useful life of
the asset or the lease term, whichever is shorter.
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 the consolidated statements of operations.
Capitalized Software
Capitalized software,
which is included in property and equipment, net, consists of costs to develop internal use software, which the Company uses to
provide various services to customers. The costs are capitalized from the time that the preliminary project stage is completed
and considered probable that the software will be used to perform the function intended, until the time the software is placed
in service for its intended use. Once this software is ready for use, these costs are amortized on a straight-line basis over the
estimated useful life of the software, which is generally 7 years. Capitalized software is reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be recoverable. If an impairment indicator is present, a
recoverability analysis is performed based on estimated undiscounted cash flows to be generated form the software in the future.
If the analysis indicates that the carrying value is not recoverable from future cash flows, the software cost is written down
to the estimated fair value and an impairment is recognized. These estimates are subject to revision as market conditions and the
Company’s assessments change.
Intangible Assets
Intangible assets
are comprised of patents and trademarks. 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.
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, 2018.
Deferred Financing Costs
Deferred financing
costs represent costs incurred in connection with the issuance of debt instruments and equity financings. Deferred financing costs
related to the issuance of debt are amortized over the term of the financing instrument using the effective interest method, and
are presented in the consolidated balance sheets as an offset against the related debt. Offering costs from equity financings are
netted against the gross proceeds received from the equity financings.
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, 2018 and 2017, there were no unrecognized
tax benefits included in the accompanying consolidated balance sheets that would, if recognized, affect the effective tax rate.
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 provision for income taxes 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 consolidated balance sheets at December 31, 2018 and 2017, and
has not recognized interest and/or penalties in the consolidated statements of operations for the years ended December 31,
2018 and 2017. The Company is subject to taxation in the U.S., various state jurisdictions, and in the Netherlands. As of December 31,
2018, the Company is no longer subject to U.S. federal examinations for years before 2015 and for California franchise and
income tax examinations for years before 2014. 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
See Note 13.
Engineering and Development Expenses
Expenditures relating to engineering 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. The Company accounts for forfeitures
of unvested awards as they occur.
The Company’s stock-based compensation
plans are discussed further in Note 12.
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 estimated fair value of the consideration received or the estimated
fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the estimated 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
estimated 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 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 dividends and cumulative
preferred stock dividends (if any), whether they are earned or not during the period. In periods of a net loss position, basic
and diluted weighted average common 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.
The following shows
the amounts used in computing net loss per share for the years ended December 31, 2018 and 2017:
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(9,555,601
|
)
|
|
$
|
(7,899,001
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – basic and diluted
|
|
|
28,210,648
|
|
|
|
22,963,382
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per
share
|
|
$
|
(0.34
|
)
|
|
$
|
(0.34
|
)
|
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:
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Stock Options
|
|
|
3,130,635
|
|
|
|
4,582,383
|
|
Warrants
|
|
|
1,329,594
|
|
|
|
4,579,699
|
|
Convertible Note
|
|
|
1,372,998
|
|
|
|
—
|
|
|
|
|
5,833,227
|
|
|
|
9,162,082
|
|
Segment Reporting
We currently operate in one reportable
segment and the chief operating decision maker is our Chief Executive Officer.
Foreign Currency Transactions
Management has determined
that the functional currency of its subsidiaries is the local currency. Assets and liabilities of the Netherlands and UK subsidiaries
are translated into U.S. dollars at the period-end exchange rates. Income and expenses are translated at an average exchange rate
for the period and the resulting translation gain (loss) adjustments are accumulated as a separate component of stockholders’
equity. The translation gain (loss) adjustment totaled $(20,400) for the year ended December 31, 2018.
Comprehensive Income (Loss)
Comprehensive
income includes all changes in equity (net assets) during a period from non-owner sources. For the year ended December 31,
2018, the components of comprehensive income (loss) consist of unrealized gains on available-for-sale debt securities and
foreign currency translation losses. For the year ended December 31, 2017, net loss equaled comprehensive loss as there were
no items of comprehensive loss.
Off Balance Sheet Arrangements
We do not currently have any off
balance sheet arrangements.
Reclassifications
Certain prior year amounts have been reclassified
in the consolidated balance sheets to conform to the current year presentation.
Recent Accounting Pronouncements
In June 2018, the FASB
issued ASU 2018-07, “Compensation – Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting”
which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the
scope of Topic 718, “Compensation-Stock Compensation
”
, to include share-based payment transactions for acquiring
goods and services from nonemployees. Some of the areas for simplification apply only to nonpublic entities. The amendments specify
that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed
in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not
apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with
selling goods or services to customers as part of a contract accounted for under Topic 606, “Revenue from Contracts with
Customers”. which simplifies the accounting for share-based payments granted to nonemployees for goods and services. The
new standard is effective for fiscal years beginning after December 15, 2018, including interim periods therein with a modified
retrospective transition. Management is currently evaluating the impact this standard will have on its consolidated financial statements.
In July 2017, the FASB
issued a two-part ASU 2017-11, “(Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II)
Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Non-controlling Interests with a Scope Exception.” The ASU will (1) “change the classification
analysis of certain equity-linked financial instruments (or embedded features) with down round features” and (2) improve
the readability of ASC 480-10 by replacing the indefinite deferral of certain pending content with scope exceptions. The amendments
in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features)
with down round features. When determining whether certain financial instruments should be classified as liabilities or equity
instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to
an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As
a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as
a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial
instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to
recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of
income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round
features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20 “Debt-Debt
with Conversion and Other Options”), including related EPS guidance (in Topic 260). The amendments in Part II of this Update
recharacterize the indefinite deferral of certain provisions of Topic 480 that are now pending content in this Codification to
a scope exception. Those amendments do not have an accounting effect. This new accounting guidance is effective for public companies
for fiscal years beginning after December 15, 2018; however, early adoption is permitted. The Company early adopted the guidance
in ASU 2017-11 effective October 1, 2018.
In February 2016, the
FASB issued ASU 2016-02, “Leases”, which provides for a comprehensive change to lease accounting. The new standard
requires that a lessee recognize a lease obligation liability and a right-to-use asset for virtually all leases of property, plant
and equipment, subsequently amortized over the lease term. The new standard is effective for fiscal years beginning after December
15, 2018, with a modified retrospective transition. Management is currently evaluating the impact this standard will have on its
consolidated financial statements.
In January 2016, the
FASB issued ASU No. 2016-01, “Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities”. ASU 2016-01 provides guidance related to accounting for equity investments,
financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. Marketable
equity securities previously classified as available-for-sale equity investments are now measured and recorded at fair value with
changes in fair value recorded within other expense, net in the Consolidated Statements of Operations rather than as a component
of other comprehensive income as in prior years. In addition, the FASB clarified guidance related to the valuation allowance assessment
when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The Company adopted
this standard effective January 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated
financial statements.
In May 2014, the FASB
issued Accounting Standards Update ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes
nearly all existing revenue recognition guidance, including industry-specific guidance. Subsequent to the issuance of ASU No. 2014-09,
the FASB clarified the guidance through several Accounting Standards Updates; hereinafter the collection of revenue guidance is
referred to as “Topic 606.” Topic 606 is based on the principle that an entity should recognize revenue to depict the
transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. Topic 606 also requires additional disclosures about the nature, amount, timing and uncertainty
of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets
recognized from costs incurred to fulfill a contract. The Company adopted Topic 606 on January 1, 2018 using the modified retrospective
transition method; accordingly, Topic 606 has been applied to the fiscal 2018 financial statements and disclosures going forward,
but the comparative information has not been restated and continues to be reported under the accounting standards in effect for
those periods. Management expects the impact of the adoption of Topic 606 to be immaterial to the Company’s operating results
on an ongoing basis. See Note 13, “Revenue Recognition,” for additional details on this implementation and the required
disclosures.
Note 3. Cash, Cash Equivalents and Short-Term Investments
Cash, cash equivalents and short-term investments
consisted of the following as of December 31, 2018:
|
|
Carrying
Value
|
|
Cash
|
|
$
|
37,223,698
|
|
Cash equivalents:
|
|
|
|
|
Money market mutual fund
|
|
|
103,427
|
|
Total cash and cash equivalents
|
|
|
37,327,125
|
|
Short-term investments:
|
|
|
|
|
U.S. Treasury notes and bills
|
|
|
7,925,975
|
|
Mutual funds
|
|
|
2,004,993
|
|
Total short-term investments
|
|
|
9,930,968
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
47,258,093
|
|
Available-for-sale investments
The amortized cost, gross unrealized gains,
gross unrealized losses and fair value of available-for-sale investments by type of security at December 31, 2018 were as follows:
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
U.S. Treasury bills
|
|
$
|
2,948,777
|
|
|
$
|
19,523
|
|
|
$
|
—
|
|
|
$
|
2,968,300
|
|
U.S. Treasury notes
|
|
|
4,953,616
|
|
|
|
4,059
|
|
|
|
—
|
|
|
|
4,957,675
|
|
Total available-for-sale investments
|
|
$
|
7,902,393
|
|
|
$
|
23,582
|
|
|
$
|
—
|
|
|
$
|
7,925,975
|
|
The following table summarizes the fair
value of available-for-sale investments based on stated contractual maturities as of December 31, 2018:
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Due within one year
|
|
$
|
5,913,327
|
|
|
$
|
5,936,515
|
|
Due between one and two years
|
|
|
1,989,066
|
|
|
|
1,989,460
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,902,393
|
|
|
$
|
7,925,975
|
|
As of December 31, 2018,
there were no available-for-sale investments in an unrealized loss position.
The primary objective
of our investment portfolio is to enhance overall returns in an efficient manner while maintaining safety of principal, prudent
levels of liquidity and acceptable levels of risk. Our investment policy limits interest-bearing security investments to certain
types of debt and money market instruments issued by institutions with primarily investment-grade credit ratings, and it places
restrictions on maturities and concentration by asset class and issuer.
We review our available-for-sale
investments for other-than-temporary declines in fair value below our cost basis each quarter and whenever events or changes in
circumstances indicate that the cost basis of an asset may not be recoverable. The evaluation is based on a number of factors,
including the length of time and the extent to which the fair value has been below our cost basis, as well as adverse conditions
related specifically to the security such as any changes to the credit rating of the security and the intent to sell or whether
we will more likely than not be required to sell the security before recovery of its amortized cost basis. Our assessment of whether
a security is other-than-temporarily impaired could change in the future based on new developments or changes in assumptions related
to that particular security.
During the year ended
December 31, 2018, we had no realized gains or losses on available-for-sale investments.
Equity Investments
We held investments
in equity securities with readily determinable fair values of $2.0 million at December 31, 2018. These investments consist of mutual
funds that invest primarily in tax free municipal bonds and treasury inflation protected securities.
Unrealized gains (losses)
during 2018 related to equity securities held at December 31, 2018 are as follows:
Net gains (losses) recognized during the year on equity securities
|
|
$
|
(16,233
|
)
|
Less: net gains (losses) recognized during the year on equity securities sold during the year
|
|
|
—
|
|
Unrealized gains (losses) recognized during the year on equity securities still held at December 31, 2018
|
|
$
|
(16,233
|
)
|
Note 4. 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 did not elect the
fair value option, as allowed, to account for financial assets and liabilities that were not previously carried at fair value.
Therefore, material financial assets and liabilities that are not carried at fair value, such as trade accounts receivable and
payable, are reported at their historical carrying values.
The carrying values
of our assets that are required to be measured at fair value on a recurring basis as of December 31, 2018 approximate fair value
because of our ability to immediately convert these instruments into cash with minimal expected change in value which are classified
in the table below in one of the three categories of the fair value hierarchy described above:
|
|
Fair Value Measurements
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual fund
|
|
$
|
103,427
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
103,427
|
|
Marketable equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
2,004,993
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,004,993
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury notes
|
|
|
4,957,675
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,957,675
|
|
U.S. Treasury bills
|
|
|
2,968,300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,968,300
|
|
|
|
$
|
10,034,395
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,034,395
|
|
Our equity securities
and available-for-sale debt securities, including U.S. treasury notes and U.S. treasury bills, are valued using inputs observable
in active markets for identical securities and are therefore classified as Level I within the fair value hierarchy.
We did not have any
financial liabilities measured at fair value on a recurring basis as of December 31, 2018.
Note 5. Inventories
Inventories consist
of the following:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
123,528
|
|
|
$
|
104,745
|
|
Finished goods
|
|
|
96,986
|
|
|
|
10,051
|
|
|
|
$
|
220,514
|
|
|
$
|
114,796
|
|
Note 6. Property and Equipment
Property and equipment consist
of the following:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Cryogenic shippers and data loggers
|
|
$
|
2,719,973
|
|
|
$
|
2,107,642
|
|
Furniture and fixtures
|
|
|
148,002
|
|
|
|
63,411
|
|
Capitalized software
|
|
|
545,445
|
|
|
|
545,445
|
|
Computers and software
|
|
|
573,843
|
|
|
|
519,198
|
|
Machinery and equipment
|
|
|
567,506
|
|
|
|
362,476
|
|
Leasehold improvements
|
|
|
1,051,712
|
|
|
|
436,620
|
|
Fixed assets in process
|
|
|
1,374,906
|
|
|
|
568,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,981,387
|
|
|
|
4,603,480
|
|
Less accumulated depreciation and amortization
|
|
|
(2,623,889
|
)
|
|
|
(2,092,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,357,498
|
|
|
$
|
2,511,174
|
|
Total depreciation and amortization expense
related to property and equipment amounted to $857,900 and $664,800 for the years ended December 31, 2018 and 2017, respectively.
The Company leases equipment under capitalized
lease obligations with a total cost of $71,000 and accumulated amortization of $6,800 as of December 31, 2018.
Note 7. Intangible Assets
Intangible assets consist of the following:
|
|
December 31, 2018
|
|
|
|
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
|
Weighted
Average
Amortization
Period (years)
|
|
Patents and trademarks
|
|
$
|
184,595
|
|
|
$
|
(47,375
|
)
|
|
$
|
137,220
|
|
|
|
—
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
|
Weighted
Average
Amortization
Period (years)
|
|
Patents and trademarks
|
|
$
|
138,021
|
|
|
$
|
(47,375
|
)
|
|
$
|
90,646
|
|
|
|
—
|
|
Amortization expense for intangible assets
for the years ended December 31, 2018 and 2017 was $0. Estimated amortization expense in calendar year 2019 is expected to be $0.
Note 8. Accrued Compensation and
Related Expenses
Accrued compensation
and related expenses consist of the following:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Accrued salaries and wages
|
|
$
|
900,797
|
|
|
$
|
617,984
|
|
Accrued paid time off
|
|
|
361,681
|
|
|
|
307,530
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,262,478
|
|
|
$
|
925,514
|
|
Note 9. Convertible Note
On December 14, 2018,
we entered into a Securities Purchase and Registration Rights Agreement (the “SPA”) with Petrichor Opportunities Fund
I LP (the “Investor”) in connection with (i) the issuance and sale of 1,000,000 shares of the Company’s common
stock, par value $0.001 per share (the “Investment Shares”), at a price equal to $10.00 per share (See Note 11) and
(ii) the issuance of a $15,000,000 floating rate convertible note (the “Note”) of the Company, with such Note convertible
on the terms stated therein into shares of Common Stock (the “Note Shares”) (together, the “Transaction”).
In connection with the Transaction, the Company paid Petrichor Opportunities Fund I LP a commitment fee of $250,000 on the aggregate
total purchase price for the Transaction.
The Note is the senior
unsecured obligation of the Company. Unless earlier converted or redeemed, the Note will mature on December 14, 2023. The Note
accrues interest at a rate equal to the greater of (a) three-month London Interbank Offered Rate (LIBOR) or (b) two percent, plus
the applicable margin of six percent on the outstanding balance of the Notes, payable quarterly on the first business day of each
calendar quarter.
Prior to the maturity,
a holder of the Note will have the right to convert all or any portion of the Note, including any accrued but unpaid interest,
into shares of Common Stock at a conversion price of $13.11 per share (the “Conversion Price”), subject to certain
adjustments as set forth in the Note. The Company determined that the Note’s conversion option includes a down round price
protection feature which triggers upon the occurrence of a future event. As a result, the Company will account for the conversion
option in accordance with ASU 2017-11 and related accounting guidance, which requires the Company to recognize a contingent beneficial
conversion feature in earnings at such time the conversion price is adjusted. If, at any time on or prior to December 14, 2021,
the volume-weighted average price of the Common Stock exceeds $17.48 for 15 consecutive trading days and certain additional conditions
are satisfied, the Note will automatically convert into shares of Common Stock at the Conversion Price, subject to certain conditions.
At any time after
June 14, 2019, the Company has the right to redeem all, but not less than all, of the outstanding Note for cash prior to the Maturity
Date, at a redemption premium on such amount as follows: (a) prior to December 14, 2019, 112%; (b) after December 14, 2019 but
on or prior to December 14, 2020, 109%; and (c) after December 14, 2020, 106% (the “Redemption Premium”).
Upon the occurrence
of certain events of default as set forth in the Note (other than events of default relating to bankruptcy, insolvency, reorganization
or liquidation proceedings) or a change of control, a holder of the Note may require the Company to redeem all or any portion of
its Note at the applicable Redemption Premium. If certain events of default relating to bankruptcy, insolvency, reorganization
or liquidation proceedings occur, all outstanding principal and accrued and unpaid interest (plus any accrued and unpaid late charges)
will automatically become due and payable at the applicable Redemption Premium.
The Note contains
certain covenants and restrictions, including, among others, that, for so long as the Note is outstanding, the Company will not
incur any indebtedness (other than permitted indebtedness under the Note), permit liens on its properties (other that permitted
liens under the Note), make payments on junior securities, make dividends or transfer certain assets or permit its unrestricted
cash to be less than a minimum amount.
Pursuant to the SPA, the Company agreed to register the Investment
Shares and the Note Shares by filing a registration statement with the SEC by the 45th calendar day after the closing date of the
Transaction. The registration statement was filed on January 28, 2019 and was declared effective by the SEC on February 14, 2019.
The issuance costs
for this Transaction, including the commitment fee paid to the Investor totaled approximately $480,000. As these costs were incurred
to raise both debt and equity, the total costs have been allocated on a pro rata basis to the debt and equity financings based
on their relative fair values. The pro-rata portion of these fees related to the Note will be amortized over the five-year stated
life of the Note.
The interest expense
was $66,000 for the year ended December 31, 2018, all of which is included in accounts payable and other accrued expenses in the
accompanying consolidated balance sheet as of December 31, 2018.
Note 10. Commitments and
Contingencies
Facility and Equipment Leases
We lease 27,600 square
feet of corporate, research and development, and logistics facilities in Irvine, California under an operating lease expiring February
2023, subject to our option to extend the lease for two additional five-year periods. The initial base rent is approximately $24,700
per month. We also lease 8,100 square feet of logistics facilities in Livingston, New Jersey under an operating lease expiring
December 2024, subject to our option to extend the lease for an additional five-year period. The initial base rent is approximately
$7,600 per month. In addition, we lease 7,600 square feet of logistics facilities in Hoofddorp, The Netherlands under an operating
lease expiring May 2023, subject to our option to extend the lease for two additional five-year periods. The initial base rent
is approximately $5,400 per month. These lease agreements contain certain scheduled annual rent increases which are accounted for
on a straight-line basis. In addition, we lease certain equipment which expires through January 2024.
At December 31, 2018,
future minimum lease payments are as follows:
Years Ending December 31,
|
|
Operating
Leases
|
|
|
Capital
Leases
|
|
2019
|
|
$
|
525,592
|
|
|
$
|
25,940
|
|
2020
|
|
|
537,742
|
|
|
|
25,940
|
|
2021
|
|
|
538,893
|
|
|
|
8,647
|
|
2022
|
|
|
542,790
|
|
|
|
—
|
|
2023
|
|
|
198,219
|
|
|
|
—
|
|
Thereafter
|
|
|
109,773
|
|
|
|
—
|
|
Total minimum lease payments
|
|
$
|
2,453,009
|
|
|
|
60,527
|
|
Amount representing interest at 6%
|
|
|
|
|
|
|
(4,180
|
)
|
Present value of future minimum capital lease obligations
|
|
|
|
|
|
|
56,347
|
|
Current portion
|
|
|
|
|
|
|
(23,191
|
)
|
|
|
|
|
|
|
$
|
33,156
|
|
Rent expense for the
years ended December 31, 2018 and 2017 was approximately $422,600 and $298,500, respectively.
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.
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 on 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. The guarantees and indemnities do not provide for any limitation of the maximum potential future
payments the Company could be obligated to make. Historically, the Company has not been obligated nor incurred any payments for
these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying consolidated
balance sheets.
The Company indemnifies
its directors, officers, employees and agents, as permitted under the laws of the States of California and Nevada. In connection
with its facility and equipment leases, the Company has indemnified its lessors for certain claims arising from the use of the
facilities and equipment. The duration of the guarantees and indemnities varies, and is generally tied to the life of the agreements.
Note 11. Stockholders’ Equity
Authorized Stock
The Company has 100,000,000
authorized shares of common stock with a par value of $0.001 per share, and 2,500,000 undesignated or "blank check" preferred
stock, with a par value of $0.001, of which, 800,000 shares have been designated as Class A Convertible Preferred Stock and 585,000
shares have been designated as Class B Convertible Preferred Stock.
Common Stock Issuances For Services
During the year ended
December 31, 2018, 6,228 shares of common stock with a fair value of $70,000 were issued to two members of the board of directors
as compensation for services.
During the year ended
December 31, 2017, 15,872 shares of common stock with a fair value of $70,000 were issued to two members of the board of directors
as compensation for services.
Petrichor Shares Issued
On December 14, 2018,
we sold and issued 1,000,000 shares of the Company’s common stock, par value $0.001 per share, at a price equal to $10.00
per share for net proceeds of $9.8 million, and incurred offering costs of $192,000 that were offset against the proceeds. See
Note 9 above.
August 2018 “At the Market” Equity Offering
Program
On August 24, 2018, we entered into a sales
agreement (the “Sales Agreement”) with Jefferies LLC (“Jefferies”) under which we can sell up to an aggregate
offering price of up to $35 million of the Company’s common stock (the “Shares”), from time to time through an
“at the market” equity offering program (“ATM Prospectus”).
Under the Sales Agreement,
the Company will set the parameters for the sale of the Shares, including the number of Shares to be issued, the time period during
which sales are requested to be made, the limitation on the number of Shares that may be sold in any one trading day and any minimum
price below which sales may not be made. Subject to the terms and conditions of the Sales Agreement, Jefferies, who will act as
sales agent, may sell the Shares by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated
under the Securities Act of 1933, as amended, including sales made directly on the Nasdaq Capital Market, or on any other existing
trading market for the Shares, in negotiated transactions at market prices prevailing at the time of sale or at prices related
to such prevailing market prices and/or any other method permitted by law. Jefferies will use its commercially reasonable efforts
in conducting such sales activities consistent with its normal trading and sales practices, applicable state and federal laws,
rules and regulations and the rules of The Nasdaq Stock Market LLC. The Sales Agreement may be terminated by the Company upon ten
days’ written notice to Jefferies for any reason. Jefferies may terminate the Sales Agreement upon ten days’ written
notice to the Company for any reason or at any time under certain circumstances, including but not limited to the occurrence of
a material adverse change in the Company.
The Sales Agreement
provides that Jefferies will be entitled to compensation for its services of 3.0% of the gross sales price of all Shares sold under
the Sales Agreement. The Company has no obligation to sell any Shares under the Sales Agreement and may at any time suspend solicitation
and offers under the Sales Agreement. The Sales Agreement contains customary representations, warranties and agreements by the
Company, indemnification obligations of the Company and Jefferies, other obligations of the parties and termination provisions.
The representations, warranties and covenants contained in the Sales Agreement were made only for purposes of such agreement and,
as of specific dates, were solely for the benefit of the parties to such agreement, and may be subject to limitations agreed upon
by the contracting parties.
The Shares will be
issued pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-215776) (the “Registration
Statement”), declared effective by the U.S. Securities and Exchange Commission on February 9, 2017. The Company filed a prospectus
supplement with the SEC on August 24, 2018 relating to the offer and sale of the Shares pursuant to the Sales Agreement. During
the year ended December 31, 2018, the Company received net proceeds of $3.4 million through the sale of 248,839 shares of its common
stock, after deducting sales commissions and other offering expenses of $44,200, that were offset against the proceeds from this
offering.
February 2018 Tender Offer
On February 8, 2018,
we completed an exchange offer with respect to the Company’s outstanding warrants to purchase one share of common stock at
an exercise price of $3.57 per share (the “Original Warrants”). Through February 2, 2018, we offered holders of the
Original Warrants the opportunity to exchange such Original Warrants for an equal number of warrants to purchase one share of common
stock at an exercise price of $3.00 per share (the “New Warrants”), conditioned upon the immediate exercise of such
New Warrants.
Pursuant to the February
2018 Tender Offer, warrants to purchase 1,580,388 shares of the Company’s common stock were tendered by holders of warrants
and were amended and exercised in connection therewith, resulting in the issuance by the Company of an aggregate of 1,580,388 shares
of its common stock for aggregate gross proceeds of $4.7 million.
The Original Warrants
were issued (i) in July 2015 in connection with the Company’s registered public offering of 2,090,750 units (each unit consisting
of one share of the Company’s common stock and one Original Warrant), and (ii) in January 2016 in connection with the mandatory
exchange of all of the Company’s outstanding Class A Convertible Preferred Stock and Class B Convertible Preferred Stock
into 4,977,038 units (each unit consisting of one share of the Company’s common stock and one Original Warrant).
The terms of the New
Warrants included (i) an exercise price of $3.00 per share and (ii) an exercise period that expired concurrently with the expiration
of the Offer at 5:00 p.m. (Eastern Time) on February 2, 2018 (the “Expiration Date”). In addition, the shares issuable
upon exercise of the New Warrants (the “New Warrant Shares”) were subject to a 60-day lock-up period.
The purpose of the
Offer was to raise funds to support the Company’s growth plans by providing the holders of the Original Warrants an incentive
to exchange their Original Warrants for New Warrants and exercise the New Warrants to purchase shares of the Company’s common
stock at a reduced exercise price as compared to the Original Warrants. The Company received all of the proceeds from the immediate
exercise of the New Warrants, which will be used by the Company for business growth, including as working capital and for other
general corporate purposes.
As a result of reducing
the exercise price of certain warrants in connection with the February 2018 Tender Offer, a warrant repricing expense of $899,400
was incurred which was determined using the Black-Scholes option pricing model and was calculated as the difference between the
fair value of the warrants prior to, and immediately after, the reduction in the exercise price on the date of repricing. Such
amount is included in warrant inducement and repricing expense in the consolidated statement of operations for the year ended December
31, 2018. In connection with this offering, the Company incurred $99,400 in offering costs that were offset against the proceeds
from this offering.
Common Stock Offering
On March 31, 2017,
we completed an underwritten public offering (the “Offering”) for gross proceeds of $12.7 million for 6,325,000
shares of our common stock (the “Shares”) pursuant to a registration statement on Form S-3 that was previously filed
and declared effective by the SEC. The Shares were issued and sold pursuant to an underwriting agreement (the “Underwriting
Agreement”), dated March 28, 2017, by and among the Company and Cowen and Company, LLC and Needham & Company, LLC, as
Representatives of the underwriters, at a public offering price per share of $2.00. The Shares include 825,000 shares issued and
sold pursuant to the Underwriters’ exercise in full of their option to purchase additional shares of common stock pursuant
to the Underwriting Agreement. The Company received net proceeds of approximately $11.4 million from the Offering after deducting
underwriting discounts and commissions and estimated offering expenses payable by the Company. In connection with this offering,
the Company incurred $170,300 in offering costs which were offset against the proceeds from this offering.
Supplemental Warrant Exercises
In July 2017, the Company
received proceeds of $1.8 million from the exercise of 605,114 supplemental warrants which were issued in connection with the October
2016 tender offer. The warrants were exercisable upon issuance and expired on the earlier of (i) October 28, 2019 and (ii) the
thirtieth (30th) day after the date that the closing price of the Company’s common stock equals or exceeded $4.50 for ten
consecutive trading days.
As of June 27, 2017,
the closing price of the Company’s common stock was equal to or exceeded $4.50 for ten consecutive trading days. As a result,
the supplemental warrants expiration date was accelerated to July 27, 2017 unless exercised prior to that date.
Common Stock Reserved for Future
Issuance
As of December 31,
2018, approximately 7.8 million shares of common stock were issuable upon exercise of stock options and warrants, as follows:
Exercise of stock options
|
|
|
5,757,305
|
|
Exercise of warrants
|
|
|
2,049,534
|
|
Total shares of common stock reserved for future issuances
|
|
|
7,806,839
|
|
In addition, we reserved
1,372,998 shares of common stock issuable upon conversion of our Note, which reflects 120% of the maximum number of Note Shares
issuable upon conversion of the Note (See Note 9).
Note 12. Stock-Based Compensation
Warrants
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 various 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 — December 31, 2016
|
|
|
7,447,478
|
|
|
$
|
4.29
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,664,232
|
)
|
|
|
3.25
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(642,134
|
)
|
|
|
8.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding — December 31, 2017
|
|
|
5,141,112
|
|
|
$
|
4.09
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(3,062,739
|
)
|
|
|
3.58
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(28,839
|
)
|
|
|
31.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding — December 31, 2018
|
|
|
2,049,534
|
|
|
$
|
4.03
|
|
|
|
1.5
|
|
|
$
|
14,563,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested (exercisable) — December 31, 2018
|
|
|
2,049,534
|
|
|
$
|
4.03
|
|
|
|
1.5
|
|
|
$
|
14,563,400
|
|
|
(1)
|
Aggregate intrinsic value represents the difference between the exercise price of the warrant and
the closing market price of the Company’s common stock on December 31, 2018, which was $11.03 per share.
|
The following table
summarizes information with respect to warrants outstanding and exercisable at December 31, 2018:
Exercise Price
|
|
Number
Outstanding
|
|
|
Weighted-
Average
Remaining
Contractual
Life (Years)
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted-
Average
Exercise Price
|
|
$ 2.04
|
|
|
70,000
|
|
|
|
2.3
|
|
|
$
|
2.04
|
|
|
|
70,000
|
|
|
$
|
2.04
|
|
$ 3.57
|
|
|
1,645,512
|
|
|
|
1.6
|
|
|
$
|
3.57
|
|
|
|
1,645,512
|
|
|
$
|
3.57
|
|
$ 6.00
|
|
|
329,734
|
|
|
|
1.1
|
|
|
$
|
6.00
|
|
|
|
329,734
|
|
|
$
|
6.00
|
|
$61.20 – $129.60
|
|
|
4,288
|
|
|
|
0.3
|
|
|
$
|
63.58
|
|
|
|
4,288
|
|
|
$
|
63.58
|
|
|
|
|
2,049,534
|
|
|
|
|
|
|
|
|
|
|
|
2,049,534
|
|
|
|
|
|
During the year ended
December 31, 2018, the Company issued 1,179,784 shares of common stock in connection with the exercise of warrants for proceeds
of $4.5 million. In addition, during the year ended December 31, 2018, the Company issued 155,886 shares of common stock in connection
with the cashless exercise of warrants to purchase 302,567 shares of common stock.
During the year ended
December 31, 2017, the Company issued 1,403,149 shares of common stock in connection with the exercise of warrants for proceeds
of $4.5 million. In addition, during the year ended December 31, 2017, the Company issued 144,164 shares of common stock in connection
with the cashless exercise of warrants to purchase 261,083 shares of common stock.
The total intrinsic
value of warrants exercised during the years ended December 31, 2018 and 2017 was $21.5 million and $7.1 million, respectively.
Stock Options
We have five 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”), the 2015 Omnibus Equity Incentive Plan (the “2015 Plan”),
and the 2018 Omnibus Equity Incentive Plan (the “2018 Plan”), (collectively, the “Plans”). The 2002 Plan,
the 2009 Plan, the 2011 Plan and the 2015 Plan (the “Prior Plans”) have been superseded by the 2018 Plan. In May 2018,
the stockholders approved the 2018 Plan for issuance up to 3,730,179 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 2018 Plan.
As of December 31, 2018, the Company had 4,114,654 shares available for future awards under the 2018 Plan.
During the years ended
December 31, 2018 and 2017, 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:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Expected life (years)
|
|
|
5.3 – 7.0
|
|
|
|
5.3 – 6.6
|
|
Risk-free interest rate
|
|
|
2.59% - 3.07
|
%
|
|
|
1.79% - 2.23
|
%
|
Volatility
|
|
|
97.7% - 110
|
%
|
|
|
111% - 115
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
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 ultimately vest.
Total stock-based compensation expense
related to all of our share-based payment awards is comprised of the following:
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Cost of revenues
|
|
$
|
244,239
|
|
|
$
|
43,349
|
|
General and administrative
|
|
|
3,756,820
|
|
|
|
2,689,496
|
|
Sales and marketing
|
|
|
1,178,115
|
|
|
|
723,648
|
|
Engineering and development
|
|
|
299,451
|
|
|
|
91,288
|
|
|
|
$
|
5,478,625
|
|
|
$
|
3,547,781
|
|
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 — December 31, 2016
|
|
|
4,512,550
|
|
|
$
|
4.01
|
|
|
|
|
|
|
|
|
|
Granted (weighted-average fair value of $3.85 per share)
|
|
|
1,176,300
|
|
|
|
4.59
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(209,456
|
)
|
|
|
3.09
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(101,199
|
)
|
|
|
3.04
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(55,337
|
)
|
|
|
7.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding — December 31, 2017
|
|
|
5,322,858
|
|
|
$
|
4.16
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Price/Share
|
|
|
Weighted-
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value (1)
|
|
Granted (weighted-average fair value of $7.78 per share)
|
|
|
1,123,100
|
|
|
|
9.48
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(445,989
|
)
|
|
|
3.38
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(213,142
|
)
|
|
|
6.79
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(29,522
|
)
|
|
|
5.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding — December 31, 2018
|
|
|
5,757,305
|
|
|
$
|
5.16
|
|
|
|
7.2
|
|
|
$
|
34,176,300
|
|
Vested (exercisable) — December 31, 2018
|
|
|
3,802,043
|
|
|
$
|
4.54
|
|
|
|
6.6
|
|
|
$
|
24,688,300
|
|
Expected to vest after December 31, 2018 (unexercisable)
|
|
|
1,955,262
|
|
|
$
|
6.35
|
|
|
|
8.4
|
|
|
$
|
9,487,900
|
|
|
(1)
|
Aggregate intrinsic value represents the difference between the exercise price of the option and
the closing market price of the common stock on December 31, 2017, which was $11.03 per share.
|
The following table
summarizes information with respect to stock options outstanding and exercisable at December 31, 2018:
Exercise Price
|
|
Number
Outstanding
|
|
|
Weighted-
Average
Remaining
Contractual
Life (Years)
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Weighted-
Average
Exercise
Price
|
|
$1.08 – 2.66
|
|
|
805,858
|
|
|
|
6.9
|
|
|
$
|
1.90
|
|
|
|
543,558
|
|
|
$
|
1.96
|
|
$3.00 – 3.44
|
|
|
1,698,159
|
|
|
|
6.8
|
|
|
$
|
3.22
|
|
|
|
1,146,046
|
|
|
$
|
3.19
|
|
$4.56 – 4.92
|
|
|
770,891
|
|
|
|
6.4
|
|
|
$
|
4.77
|
|
|
|
760,392
|
|
|
$
|
4.77
|
|
$5.00 – 6.65
|
|
|
856,070
|
|
|
|
6.6
|
|
|
$
|
5.04
|
|
|
|
710,887
|
|
|
$
|
5.03
|
|
$7.67– 7.89
|
|
|
436,123
|
|
|
|
6.4
|
|
|
$
|
7.80
|
|
|
|
381,030
|
|
|
$
|
7.80
|
|
$8.17 – 8.65
|
|
|
737,878
|
|
|
|
9.2
|
|
|
$
|
8.62
|
|
|
|
142,786
|
|
|
$
|
8.62
|
|
$9.14 – 22.68
|
|
|
452,326
|
|
|
|
9.3
|
|
|
$
|
10.95
|
|
|
|
117,344
|
|
|
$
|
9.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,757,305
|
|
|
|
|
|
|
|
|
|
|
|
3,802,043
|
|
|
|
|
|
As of December 31,
2018, there was unrecognized compensation expense of $9.5 million related to unvested stock options, which we expect to recognize
over a weighted average period of 2.8 years.
The total intrinsic
value of options exercised during the years ended December 31, 2018 and 2017 was $3.7 million and $797,600, respectively.
Note 13. Revenue Recognition
In May 2014, the FASB
issued Accounting Standards Update ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which modifies
how all entities recognize revenue. Topic 606 outlines a comprehensive five-step revenue recognition model based on the principle
that an entity should recognize revenue to depict the transfer of promised goods or services to customers at an amount that reflects
the consideration the entity expects to be entitled to in exchange for those goods or services. We adopted Topic 606 on January
1, 2018 using the modified retrospective transition method. The adoption of Topic 606 did not have a material effect on our financial
statements or results of operations, and no cumulative catch-up adjustment to the opening balance of retained earnings was required.
We used the related practical expedients that allow us to not disclose the transaction price allocated to remaining unsatisfied
obligations and an explanation of when we expect to recognize the related revenue.
Revenues are recognized
when control is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in
exchange for those goods and services. Revenue recognition is evaluated through the following five steps: (i) identification of
the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination
of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition
of revenue when or as a performance obligation is satisfied.
Nature of Goods and Services
The Company provides
Shippers to its customers and charges a fee in exchange for the use of the Shipper under long-term agreements with customers. The
Company’s arrangements convey to the customers the right to use the Shippers over a period of time. The Company retains title
to the Shippers 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 vast majority of
our revenues are covered under long-term agreements. We have determined that individual Statements of Work (“SOW”),
whose terms and conditions taken with a Master Services Agreement (“MSA”), create the Topic 606 contracts which are
generally short-term in nature (e.g., 15-day shipping cycle). Our agreements (including SOWs) generally do not have multiple
performance obligations and, therefore, do not require an allocation of a single price amongst multiple goods or services. Prices
under these agreements are generally fixed. The Company recognizes revenue for the use of the shipper at the time of the delivery
of the shipper to the end user of the enclosed materials, and at the time that collectability is probable.
The Company also provides
logistics support and management to some customers, which may include onsite logistics personnel. Revenue is recognized for these
services as services are rendered over time and at the time that collectability is probable.
The Company also provides
short-term logistics and engineering consulting services to some customers, with fees tied to the completion of contractually
defined services. We recognize revenue from these services when we satisfy the performance obligation.
Revenue Disaggregation
The Company operates
in one reportable segment and evaluates financial performance on a Company-wide basis. We consider sales disaggregated by end-market
to depict how the nature, amount, timing and uncertainty of revenues and cash flows are impacted by changes in economic factors.
The following table disaggregates our revenues by major source for the years ended December 31, 2018 and 2017:
|
|
Years ended
December 31,
|
|
(amounts in thousands)
|
|
2018
|
|
|
2017
|
|
Biopharmaceutical
|
|
$
|
16,477
|
|
|
$
|
9,113
|
|
Reproductive medicine
|
|
|
2,173
|
|
|
|
1,706
|
|
Animal health
|
|
|
976
|
|
|
|
1,135
|
|
Total revenues
|
|
$
|
19,626
|
|
|
|
11,954
|
|
Our geographical revenues, by origin, for
the years ended December 31, 2018 and 2017, were as follows:
|
|
Years Ended
December 31,
|
|
(amounts in thousands)
|
|
2018
|
|
|
2017
|
|
Americas
|
|
$
|
17,877
|
|
|
$
|
10,638
|
|
Europe, the Middle East and Africa (EMEA)
|
|
|
1,365
|
|
|
|
963
|
|
Asia Pacific (APAC)
|
|
|
384
|
|
|
|
353
|
|
|
|
$
|
19,626
|
|
|
$
|
11,954
|
|
Performance Obligations
At contract inception,
an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified
for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance
obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly
stated or are implied by customary business practices. Revenue is recognized when our performance obligation has been met. The
Company considers control to have transferred upon delivery because the Company has a present right to payment at that time, the
Company has transferred use of the asset, and the customer is able to direct the use of, and obtain substantially all of the remaining
benefits from, the asset.
For arrangements under
which the Company provides logistics support and management to the customer, the Company satisfies its performance obligations
as those services are performed whereby the customer simultaneously receives and consumes the benefits of such services under the
agreement.
Revenue generated from
short-term logistics and engineering consulting services provided to customers is recognized or when the Company satisfies the
contractually defined performance obligations.
Shipping and handling
activities related to contracts with customers are accounted for as costs to fulfill our promise to transfer the associated products
pursuant to the accounting policy election allowed under Topic 606. Accordingly, the Company records amounts billed for shipping
and handling as a component of revenue. Shipping and handling fees and costs are included in cost of revenues in the accompanying
consolidated statements of operations.
Revenues are
recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.
Significant Payment Terms
Pursuant to the Company’s
contracts with its customers, amounts billed for services or products delivered by the Company are generally due and payable in
full within 15 days from the date of the invoice (except for any amounts disputed by the customer in good faith). Accordingly,
the Company determined that its contracts with customers do not include extended payment terms or a significant financing component.
Variable Consideration
In some cases, the
nature of the Company’s contracts may give rise to variable consideration, including discounts and allowances or other similar
items that generally decrease the transaction price.
Variable consideration
is estimated at the most likely amount that is expected to be earned. Estimated amounts are included in the transaction price to
the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated
with the variable consideration is resolved. Estimates of variable consideration and determination of whether to include estimated
amounts in the transaction price are based largely on an assessment of the anticipated performance and all information (historical,
current and forecasted) that is reasonably available.
Revenues are recorded
net of variable consideration, such as discounts and allowances.
Warranties
The Company’s
products and services are provided on an “as is” basis and no warranties are included in the contracts with customers.
Also, the Company does not offer separately priced extended warranty or product maintenance contracts.
Contract Assets
Typically, we invoice
the customer and recognize revenue once we have satisfied our performance obligation. Accordingly, our contract assets comprise
accounts receivable. Generally, we do not have material amounts of other contract assets since revenue is recognized as control
of goods is transferred or as services are performed.
Contract Liabilities (Deferred Revenue)
Contract
liabilities are recorded when cash payments are received in advance of the Company’s performance. Deferred revenue was
$66,300 and $73,400 at December 31, 2018 and 2017, respectively. During the year ended December 31, 2018, the Company
recognized revenues of $73,400 related to contract liabilities outstanding at the beginning of the year.
Practical Expedients and Exemptions
We have elected the following practical
expedients allowed under Topic 606:
|
·
|
Payment terms with our customers, which are one year or less, are not considered a significant
financing component.
|
|
·
|
Shipping and handling fees and costs incurred in connection with products sold are recorded in
cost of sales and are not considered a performance obligation to our customers.
|
|
·
|
Our performance obligations on our orders are generally satisfied within one year from a given
reporting date and, therefore, we omit disclosure of the transaction price allocated to remaining performance obligations on open
orders.
|
|
·
|
The Company expenses incremental direct costs of obtaining a contract (sales commissions) when
incurred because the amortization period is generally 12 months or less. The Company does not incur costs to fulfill a customer
contract that meet the requirements for capitalization.
|
Note 14. Income Taxes
Loss
before provision for income taxes was attributed to the following jurisdictions for the years ended December 31, 2018 and
2017:
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
(000’s)
|
|
United States
|
|
$
|
(9,233
|
)
|
|
$
|
(7,894
|
)
|
Foreign
|
|
|
(303
|
)
|
|
|
—
|
|
|
|
$
|
(9,536
|
)
|
|
$
|
(7,894
|
)
|
The provision for
income taxes consists of the following for the years ended December 31, 2018 and 2017:
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(000’s)
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
20
|
|
|
|
5
|
|
Foreign
|
|
|
—
|
|
|
|
—
|
|
Total current expense
|
|
|
20
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,167
|
|
|
|
5,941
|
|
State
|
|
|
399
|
|
|
|
(320
|
)
|
Foreign
|
|
|
60
|
|
|
|
—
|
|
Change in valuation allowance
|
|
|
(1,626
|
)
|
|
|
(5,621
|
)
|
Total deferred expense
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
20
|
|
|
$
|
5
|
|
Significant components
of the Company’s deferred tax assets as of December 31, 2018 and 2017 are shown below:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(000’s)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
16,272
|
|
|
$
|
15,307
|
|
Research credits
|
|
|
167
|
|
|
|
100
|
|
Expenses recognized for granting of options and warrants
|
|
|
2,566
|
|
|
|
2,014
|
|
Accrued expenses and reserves
|
|
|
83
|
|
|
|
41
|
|
Valuation allowance
|
|
|
(19,088
|
)
|
|
|
(17,462
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
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 provision for
income taxes differs from that computed using the federal statutory rate applied to loss before provision for income taxes
as follows:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(000’s)
|
|
Computed tax benefit at federal statutory rate
|
|
$
|
(2,002
|
)
|
|
$
|
(2,684
|
)
|
State tax, net of federal benefit
|
|
|
(348
|
)
|
|
|
(277
|
)
|
Stock compensation
|
|
|
472
|
|
|
|
503
|
|
Warrant inducement and repricing costs
|
|
|
189
|
|
|
|
—
|
|
Permanent items and other
|
|
|
82
|
|
|
|
56
|
|
Tax Cuts and Jobs Act
|
|
|
-
|
|
|
|
8,032
|
|
Valuation allowance
|
|
|
1,627
|
|
|
|
(5,625
|
)
|
|
|
$
|
20
|
|
|
$
|
5
|
|
At December 31,
2018, the Company has federal and state net operating loss carryforwards of approximately $58,172,000 and $47,329,000 which
will begin to expire in 2019, unless previously utilized, and as of 2012 have already begun to expire for state
carryforwards. In addition, the Company has federal net operating losses of approximately $3,889,000 generated in 2018 that
can be carried over indefinitely and may be used to offset up to 80% of federal taxable income. At December 31, 2018, the
Company has foreign net operating loss carryforwards of approximately $303,000, which begin to expire in 2027. At December
31, 2018, the Company has federal and California research and development tax credits of approximately $107,000 and
$91,000, respectively. The Company also has approximately $42,000 of California New Jobs Credits. The federal research tax
credit begins to expire in 2026 unless previously utilized and the California research tax credit has no expiration date.
The California New Jobs Credit began to expire in 2018.
Utilization
of the net operating loss and research and development carryforwards might be subject to a substantial annual limitation due
to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of
the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state and foreign provisions.
These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset
future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of
the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of
more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Since the
Company’s formation, the Company has raised capital through the issuance of capital stock on several occasions which,
combined with the purchasing stockholders’ subsequent disposition of those shares, may have resulted in such an
ownership change, or could result in an ownership change in the future upon subsequent disposition.
The Company has not
completed a study to assess whether an ownership change has occurred. If the Company has experienced an ownership change, utilization
of the NOL or R&D credit carryforwards would be subject to an annual limitation under Section 382 of the Code, which is
determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term,
tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a
portion of the NOL or R&D credit carryforwards before utilization. Further, until a study is completed and any limitation is
known, no amounts are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit. Due to the existence
of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact its effective tax rate.
Any carryforwards that will expire prior to utilization as a result of such limitations will be removed from deferred tax assets
with a corresponding reduction of the valuation allowance.
A reconciliation
of the beginning and ending amounts of unrecognized tax positions are as follows (in thousands):
|
|
Federal
|
|
|
State
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Unrecognized tax positions, beginning of period
|
|
$
|
13
|
|
|
$
|
-
|
|
|
$
|
11
|
|
|
$
|
-
|
|
Gross increase – current period tax positions
|
|
|
15
|
|
|
|
7
|
|
|
|
12
|
|
|
|
7
|
|
Gross decrease – prior period tax positions
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gross increase – prior period tax positions
|
|
|
-
|
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
4
|
|
Expiration of statute of limitations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unrecognized tax positions, end of period
|
|
$
|
26
|
|
|
$
|
13
|
|
|
$
|
22
|
|
|
$
|
11
|
|
If recognized, none
of the unrecognized tax positions would impact the Company's income tax benefit or effective tax rate as long as the Company's
deferred tax assets remain subject to a full valuation allowance. The Company does not expect any significant increases or decreases
to the Company's unrecognized tax positions within the next 12 months.
On December 22, 2017,
the President of the United States signed into law the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act amends the
Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses,
the Tax Act reduces the corporate tax rate from a maximum of 35% to a flat 21% rate. The rate reduction is effective on January
1, 2018. As a result of the rate reduction, the Company has reduced the deferred tax asset balance as of December 31, 2017 by $8.0
million. Due to the Company's full valuation allowance position, there was no net impact on the Company's income tax provision
at December 31, 2017 as the reduction in the deferred tax asset balance was fully offset by a corresponding decrease in the valuation
allowance.
In conjunction with the Tax Act, the SEC
staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations when
a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail
to complete the accounting for certain income tax effects of the Tax Act, providing one year to gather information for such analyses.
As of December 31, 2018, we have completed our assessment of the impact of the Tax Cuts and Jobs Act, and as a result, there were
no changes to the provisional amounts recorded as of December 31, 2017.
Note 15. Subsequent Events
The Company has evaluated subsequent events through the filing
date of this Annual Report on Form 10-K and determined that no subsequent events have occurred that would require recognition in
the consolidated financial statements or disclosures in the notes thereto other than discussed in the accompanying notes.
Note 16. Quarterly Financial Data (Unaudited)
A summary of quarterly financial data is as follows ($ in ‘000’s):
|
|
Quarter Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
4,023
|
|
|
$
|
4,627
|
|
|
$
|
5,285
|
|
|
$
|
5,691
|
|
Gross margin
|
|
$
|
2,184
|
|
|
$
|
2,504
|
|
|
$
|
2,736
|
|
|
$
|
2,816
|
|
Loss from operations
|
|
$
|
(1,798
|
)
|
|
$
|
(2,465
|
)
|
|
$
|
(2,161
|
)
|
|
$
|
(2,220
|
)
|
Net loss
|
|
$
|
(2,683
|
)
|
|
$
|
(2,471
|
)
|
|
$
|
(2,144
|
)
|
|
$
|
(2,258
|
)
|
Net loss per share - basic and diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
2,712
|
|
|
$
|
2,917
|
|
|
$
|
3,003
|
|
|
$
|
3,322
|
|
Gross margin
|
|
$
|
1,253
|
|
|
$
|
1,393
|
|
|
$
|
1,606
|
|
|
$
|
1,713
|
|
Loss from operations
|
|
$
|
(1,769
|
)
|
|
$
|
(1,864
|
)
|
|
$
|
(1,988
|
)
|
|
$
|
(2,271
|
)
|
Net loss
|
|
$
|
(1,789
|
)
|
|
$
|
(1,860
|
)
|
|
$
|
(1,980
|
)
|
|
$
|
(2,270
|
)
|
Net loss per share - basic and diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.09
|
)
|
Earnings per basic and diluted shares are computed independently
for each of the quarters presented based on basic and diluted shares outstanding per quarter and, therefore, may not sum to the
totals for the periods shown.
Index to Exhibits,
Exhibit
No.
|
|
Description
|
|
|
|
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 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.
|
|
|
|
3.3
|
|
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 30, 2015.
|
|
|
|
3.4
|
|
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.
|
|
|
|
3.5
|
|
Amendment to Certificate of Designation of Class B Preferred Stock. Incorporated by reference to the Company’s Amendment No. 1 to Registration Statement on Form S-1 dated April 17, 2015 and referred to as Exhibit 3.6.
|
|
|
|
3.6
|
|
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.
|
|
|
|
3.7
|
|
Amendment to Certificate of Designation of Class A Preferred Stock. Incorporated by reference to the Company’s Amendment No. 4 to Registration Statement on Form S-1 dated June 22, 2015 and referred to as Exhibit 3.8.
|
|
|
|
3.8
|
|
Amendment to Certificate of Designation of Class B Preferred Stock. Incorporated by reference to the Company’s Amendment No. 4 to Registration Statement on Form S-1 dated June 22, 2015 and referred to as Exhibit 3.9.
|
|
|
|
3.9
|
|
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.
|
|
|
|
3.10
|
|
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.
|
|
|
|
3.11
|
|
Certificate of Amendment filed with the Nevada Secretary of State on November 23, 2015. Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated November 23, 2015.
|
|
|
|
3.12+
|
|
Certificate of Amendment filed with the Nevada Secretary of State on May 30, 2018.
|
|
|
|
4.1
|
|
Form of Warrant issued with Convertible Promissory Notes. Incorporated by reference to Exhibit 4.20 of the Company’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2013.
|
|
|
|
4.2
|
|
Form of Warrant issued upon Conversion of Convertible Promissory Notes. Incorporated by reference to Exhibit 4.21 of the Company’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2013.
|
|
|
|
4.3
|
|
Form of Warrant Issued to Placement Agents. Incorporated by reference to Exhibit 4.22 of the Company’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2013.
|
|
|
|
4.4
|
|
Form of Warrant issued with Convertible Promissory Notes (5% Bridge Notes). Incorporated by reference to Exhibit 4.23 of the Company’s Quarterly Report on Form 10-Q for the Quarter Ended December 31, 2013.
|
|
|
|
4.5
|
|
Form of Warrant issued in connection with the May 2014 private placement. Incorporated by reference to Exhibit 4.24 of the Company’s Annual Report on Form 10-K filed with the SEC on June 25, 2014.
|
|
|
|
4.6
|
|
Warrant to Purchase Common Stock. Incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K dated December 9, 2014.
|
Exhibit
No.
|
|
Description
|
4.7
|
|
Warrant to Purchase Common Stock. Incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K dated February 20, 2015.
|
|
|
|
4.8
|
|
Form of Warrant issued in connection with the Exchange and Investment Agreement. Incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K dated March 9, 2015.
|
|
|
|
4.9
|
|
Form of March Warrant issued in connection with the Investment Agreement. Incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K dated March 9, 2015.
|
|
|
|
4.10
|
|
Form of March Fee Warrant issued in connection with the Investment Agreement. Incorporated by reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K dated March 9, 2015.
|
|
|
|
4.11
|
|
Form of Warrant and Warrant Certificate issued in connection with public offering of Units. Incorporated by reference to the Company’s Amendment No. 4 to Registration Statement on Form S-1 dated June 22, 2015 and referred to as Exhibit 4.28.
|
|
|
|
4.12
|
|
Form of Warrant issued to Aegis Capital Corp. in connection with public offering of Units. Incorporated by reference to the Company’s Amendment No. 3 to Registration Statement on Form S-1 dated June 12, 2015 and referred to as Exhibit 4.29.
|
|
|
|
4.13
|
|
Form of Warrant issued with Second Amended and Restated Note. Incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K dated March 1, 2016.
|
|
|
|
4.14
|
|
Form of Subscription Rights Certificate. Incorporated by reference to Exhibit 4.17 to the Company’s Registration Statement on Form S-1 dated April 28, 2016.
|
|
|
|
4.15
|
|
Form of New Warrants issued in connection with the Company’s registered warrant repricing. Incorporated by reference to Annex A to the Company’s Amendment No. 3 to Registration Statement on Form S-4 dated October 14, 2016.
|
|
|
|
4.16
|
|
Form of Warrant Agreement relating to the Supplemental Warrants (including the Form of Supplemental Warrant certificate), by and between the Company and Continental Stock Transfer & Trust Company issued in connection with the Company’s registered warrant repricing. Incorporated by reference to Exhibit 4.19 to the Company’s Registration Statement on Form S-4 dated August 11, 2016.
|
|
|
|
4.17
|
|
Form of Convertible Note. Incorporated by reference
to Exhibit 4.1 of the Company’s Current Report on Form 8-K dated December 14, 2018.
|
|
|
|
10.1
|
|
Amended and Restated Master Consulting and Engineering Services Agreement, by and between KLATU Networks, LLC and Cryoport Systems, Inc., dated September 16, 2015. Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated September 16, 2015.
|
|
|
|
10.2
|
|
2009 Stock Incentive Plan of the Company. Incorporated by reference to Exhibit 10.21 of the Company’s Current Report on Form 8-K dated October 15, 2009 and referred to as Exhibit 10.21.
|
|
|
|
10.3
|
|
Form Incentive Stock Option Award Agreement under the 2009 Stock Incentive Plan of the Company. Incorporated by reference to Exhibit 10.22 of the Company’s Current Report on Form 8-K dated October 9, 2009.
|
|
|
|
10.4
|
|
Form of Non-Qualified Stock Option Award Agreement under the 2009 Stock Incentive Plan of the Company. Incorporated by reference to Exhibit 10.25 of the Company’s Registration Statement on Form S-8 dated April 27, 2010.
|
|
|
|
10.5
|
|
2011 Stock Incentive Plan (as amended and restated). Incorporated by reference to Exhibit B of the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on July 30, 2012.
|
|
|
|
10.6
|
|
Form of Stock Option Award Agreement. Incorporated by reference to Exhibit 10.37 to the Company’s Current Report on Form 8-K filed with the SEC on September 27, 2011.
|
Exhibit
No.
|
|
Description
|
10.7
|
|
Form of Non-Qualified Stock Option Award Agreement. Incorporated by reference to Exhibit 10.38 to the Company’s Current Report on Form 8-K filed with the SEC on September 27, 2011.
|
|
|
|
10.8*
|
|
Stock Option Agreement dated November 5, 2012 between the Company and Jerrell Shelton. Incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K filed with the SEC on June 25, 2013.
|
|
|
|
10.9*
|
|
Form of Non-Qualified Stock Option Award Agreement. Incorporated by reference to Exhibit 10.38 to the Company’s Current Report on Form 8-K filed with the SEC on September 27, 2011.
|
|
|
.
|
10.10
|
|
Form of Subscription Agreement in connection with the May 2014 private placement. Incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K filed with the SEC on June 25, 2014.
|
|
|
|
10.11
|
|
Form of Election to Convert in connection with the May 2014 private placement. Incorporated by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K filed with the SEC on June 25, 2014.
|
|
|
|
10.12
|
|
Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 16, 2014.
|
|
|
|
10.13
|
|
Subscription Agreement and Letter of Investment Intent. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 9, 2014.
|
|
|
|
10.14
|
|
Form of Note Exchange Agreement and Letter of Investment Intent, dated February 19, 2015. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 9, 2015.
|
|
|
|
10.15
|
|
Form of Exchange Note issued in connection with the Exchange and Investment Agreement. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 9, 2015.
|
|
|
|
10.16*
|
|
Stock Option Agreement dated December 18, 2014 between the Company and Jerrell Shelton. Incorporated by reference to Exhibit 10.42 of the Company’s Annual Report on Form 10-K filed with the SEC on May 19, 2015.
|
|
|
|
10.17
|
|
Purchase and Sale Agreement, by and between KLATU Networks, LLC and Cryoport Systems, Inc., dated September 16, 2015. Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated September 16, 2015.
|
|
|
|
10.18
|
|
2015 Omnibus Equity Incentive Plan. Incorporated by reference to Appendix A of the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on October 1, 2015.
|
|
|
|
10.19
|
|
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.
|
|
|
|
10.20
|
|
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.
|
|
|
|
10.21*
|
|
Cryoport, Inc. 2018 Omnibus Equity Incentive Plan.
Incorporated by reference to Appendix A of the Company’s Definitive Proxy Statement with respect to the 2018 Annual Meeting
of Stockholders held on May 17, 2018, as filed with the Commission on April 9, 2018.
|
|
|
|
10.22*
|
|
Annual Management Incentive Plan. Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated March 28, 2018.
|
|
|
|
21+
|
|
Subsidiaries of Registrant.
|
|
|
|
23.1+
|
|
Consent of KMJ Corbin & Company LLP, Independent Registered Public Accounting Firm.
|
|
|
|
31.1+
|
|
Certification of Principal Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
|
|
*
|
Indicates a management contract or compensatory plan
or arrangement.
|