Cryoport Inc. and Subsidiaries Unaudited Pro Forma Condensed Combined Financial Information
EXHIBIT 99.2
Cryoport Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Financial Information
On May 14, 2019, Cryogene, Inc., a Texas corporation and a wholly owned subsidiary of Cryoport, Inc., a Nevada corporation (the “Company”), and CryoGene Partners, a Texas general partnership doing business as Cryogene Labs (“CryoGene”), entered into an Asset Purchase Agreement. The closing of the transaction contemplated in the Asset Purchase Agreement occurred simultaneously with the execution of the Asset Purchase Agreement on May 14, 2019. The Company paid consideration of $20.5 million in cash at closing. This amount is subject to a post-closing adjustment related to prepaid expenses and deferred revenue, as defined in the Asset Purchase Agreement.
The following unaudited pro forma condensed combined financial statements are based on the Company’s historical consolidated financial statements and CryoGene’s historical financial statements, as adjusted to give effect to the Company’s acquisition of CryoGene. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2018 gives effect to the transaction as if it had occurred on January 1, 2018. The unaudited pro forma condensed combined balance sheet as of December 31, 2018 gives effect to the transaction as if it had occurred on December 31, 2018.
The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial statements are described in the accompanying notes, which should be read together with the pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements should be read together with the Company’s historical consolidated financial statements which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, and the historical financial statements of CryoGene for the year ended December 31, 2018 which are included herein.
Cryoport Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Balance Sheet
As of December 31, 2018
| Historical | Pro Forma | Pro Forma | ||||||||||||||||
| Cryoport | CryoGene | Adjustments | Notes | Combined | ||||||||||||||
| ASSETS | ||||||||||||||||||
| Current Assets: | ||||||||||||||||||
| Cash and cash equivalents | $ | 37,327,125 | $ | 523,355 | $ | (20,479,285 | ) | (a) | $ | 16,847,840 | ||||||||
| (523,355 | ) | (b) | ||||||||||||||||
| Short-term investments | 9,930,968 | — | — | 9,930,968 | ||||||||||||||
| Accounts receivable, net of allowances | 3,543,666 | 614,752 | (614,752 | ) | (b) | 3,543,666 | ||||||||||||
| Inventories | 220,514 | — | — | 220,514 | ||||||||||||||
| Other current assets | 752,269 | 19,656 | — | 771,925 | ||||||||||||||
| Total current assets | 51,774,542 | 1,157,763 | (21,617,392 | ) | 31,314,913 | |||||||||||||
| Property and equipment, net | 4,357,498 | 2,679,915 | 1,577,425 | (c) | 8,614,838 | |||||||||||||
| Intangible assets, net | 137,220 | — | 5,280,000 | (d) | 5,417,220 | |||||||||||||
| Goodwill | — | — | 10,962,660 | (e) | 10,962,660 | |||||||||||||
| Deposits | 350,837 | — | — | 350,837 | ||||||||||||||
| Total assets | $ | 56,620,097 | $ | 3,837,678 | $ | (3,797,307 | ) | $ | 56,660,468 | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||
| Current liabilities: | ||||||||||||||||||
| Accounts payable and accrued expenses | $ | 1,709,397 | $ | 473,495 | $ | (473,495 | ) | (b) | $ | 1,709,397 | ||||||||
| Accrued compensation and related expenses | 1,262,478 | 111,003 | (111,003 | ) | (b) | 1,262,478 | ||||||||||||
| Revolving line of credit | — | 181,799 | (181,799 | ) | (b) | — | ||||||||||||
| Note payable | — | 107,261 | (107,261 | ) | (b) | — | ||||||||||||
| Deferred revenue | 66,315 | 290,371 | — | 356,686 | ||||||||||||||
| Capital lease obligations | 23,191 | 618,078 | (618,078 | ) | (b) | 23,191 | ||||||||||||
| Total current liabilities | 3,061,381 | 1,782,007 | (1,491,636 | ) | 3,351,752 | |||||||||||||
| Convertible notes, net | 14,711,580 | — | — | 14,711,580 | ||||||||||||||
| Deferred rent liability, net | 267,415 | 179,571 | (179,571 | ) | (b) | 267,415 | ||||||||||||
| Capital lease obligations, net | 33,156 | 720,708 | (720,708 | ) | (b) | 33,156 | ||||||||||||
| Total liabilities | 18,073,532 | 2,682,286 | (2,391,915 | ) | 18,363,903 | |||||||||||||
| Stockholders’ equity: | ||||||||||||||||||
| Common stock, $0.001 par value; 100,000,000 shares authorized | 30,319 | — | — | 30,319 | ||||||||||||||
| Additional paid-in capital | 179,501,577 | — | — | 179,501,577 | ||||||||||||||
| Accumulated other comprehensive income | 3,153 | — | — | 3,153 | ||||||||||||||
| Retained earnings (accumulated deficit) | (140,988,484 | ) | 1,155,392 | (1,405,392 | ) | (f) | (141,238,484 | ) | ||||||||||
| Total stockholders’ equity | 38,546,565 | 1,155,392 | (1,405,392 | ) | 38,296,565 | |||||||||||||
| Total liabilities and stockholders’ equity | $ | 56,620,097 | $ | 3,837,678 | $ | (3,797,307 | ) | $ | 56,660,468 | |||||||||
See accompanying notes to the unaudited pro forma condensed combined financial information
| 2 |
Cryoport Inc. and Subsidiaries
Unaudited Pro Forma Combined Statement of Operations
Year Ended December 31, 2018
| Historical | Pro Forma | Pro Forma | ||||||||||||||||
| Cryoport | CryoGene | Adjustments | Notes | Combined | ||||||||||||||
| Revenue | $ | 19,626,453 | $ | 3,885,923 | $ | — | $ | 23,512,376 | ||||||||||
| Cost of product sales | 9,386,188 | 1,912,309 | 23,000 | (g) | 11,321,497 | |||||||||||||
| Gross margin | 10,240,265 | 1,973,614 | (23,000 | ) | 12,190,879 | |||||||||||||
| Operating expenses: | ||||||||||||||||||
| General and administrative | 9,798,793 | 959,031 | (55,081 | ) | (h) | 11,239,743 | ||||||||||||
| 537,000 | (i) | |||||||||||||||||
| Sales and marketing | 7,245,644 | 76,051 | — | 7,321,695 | ||||||||||||||
| Engineering and development | 1,840,443 | — | — | 1,840,443 | ||||||||||||||
| Total operating expenses | 18,884,880 | 1,035,082 | 481,919 | 20,401,881 | ||||||||||||||
| Income (loss) from operations | (8,644,615 | ) | 938,532 | (504,919 | ) | (8,211,002 | ) | |||||||||||
| Interest expense | (69,253 | ) | (119,144 | ) | 119,144 | (j) | (69,253 | ) | ||||||||||
| Warrant repricing expense | (899,410 | ) | — | — | (899,410 | ) | ||||||||||||
| Other income | 77,631 | — | — | 77,631 | ||||||||||||||
| Total other income (expense), net | (891,032 | ) | (119,144 | ) | 119,144 | (891,032 | ) | |||||||||||
| Income (loss) before provision for income taxes | (9,535,647 | ) | 819,388 | (385,775 | ) | (9,102,034 | ) | |||||||||||
| Provision for income taxes | (19,954 | ) | — | (23,063 | ) | (k) | (43,017 | ) | ||||||||||
| Net income (loss) | $ | (9,555,601 | ) | $ | 819,388 | $ | (408,838 | ) | $ | (9,145,051 | ) | |||||||
| Net loss per share – basic and diluted | $ | (0.34 | ) | $ | (0.32 | ) | ||||||||||||
| Weighted average common shares outstanding – basic and diluted | 28,210,648 | 28,210,648 | ||||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial information
| 3 |
Cryoport Inc. and Subsidiaries
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
| 1. | Basis of Presentation |
The historical consolidated financial statements have been adjusted in the pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable and (3) with respect to the pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results following the business combination.
The business combination was accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification (ASC) 805, “Business Combinations”. As the acquirer for accounting purposes, the Company has estimated the fair value of CryoGene’s assets acquired and liabilities assumed and conformed the accounting policies of CryoGene to its own accounting policies.
The pro forma combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
| 2. | Preliminary Purchase Price Allocation |
The Company has performed a preliminary valuation analysis of the fair value of CryoGene’s assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date:
| Total purchase consideration paid | $ | 20,229,285 | ||
| Purchase price allocation: | ||||
| Other current assets | 19,656 | |||
| Property and equipment, net | 4,257,340 | |||
| Intangible assets | 5,280,000 | |||
| Deferred revenue | (290,371 | ) | ||
| Total identifiable net assets | 9,266,625 | |||
| Goodwill | 10,962,660 | |||
| Net assets acquired | $ | 20,229,285 |
The preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet and statement of operations. Due to the recent completion of the acquisition, the determination of the purchase price and the allocation of the purchase price used in the pro forma condensed combined financial information are based upon preliminary estimates, which are subject to change during the measurement period (up to one year from the acquisition date) as we finalize the valuations of assets acquired and liabilities assumed, including but not limited to, other current assets, intangible assets, deferred revenue and the residual amount allocated to goodwill. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments.
| 3. | Pro Forma Adjustments |
The pro forma adjustments included in the pro forma condensed combined information are as follows:
| (a) | Represents the purchase consideration funded by existing cash, the purchase price adjustment based on the purchase price allocation as of the acquisition date as shown in Note 2, and the payment of estimated transaction costs. The following table summarizes the adjustments to this account: |
| Purchase consideration | $ | (20,500,000 | ) | |
| Purchase price adjustment (1) | 270,715 | |||
| Purchase consideration paid | (20,229,285 | ) | ||
| Estimated transaction costs | (250,000 | ) | ||
| Pro forma adjustment to cash | $ | (20,479,285 | ) |
| 4 |
(1) The purchase price adjustment represents the excess of deferred revenue over other current assets which include prepaid expenses.
| (b) | To record the exclusion of assets not acquired or liabilities not assumed in the acquisition. |
| (c) | Represents the adjustment in carrying value of CryoGene’s property and equipment from its recorded net book value to its preliminary estimated fair value. The estimated fair value is expected to be depreciated or amortized based on management’s estimates of the period over which the assets will be utilized to benefit the operations of the Company. The preliminary amounts assigned to property and equipment are as follows: |
| Estimated Useful Life (1) | CryoGene Historical Carrying Amount | Fair Value Adjustment | Estimated Fair Value | |||||||||||
| (in years) | ||||||||||||||
| Automobiles | 7 | $ | 3,500 | $ | 33,500 | $ | 37,000 | |||||||
| Furniture and fixtures | 5 | 43,673 | (36,873 | ) | 6,800 | |||||||||
| Machinery and equipment | 8 - 15 | 6,157,901 | (2,834,911 | ) | 3,322,990 | |||||||||
| Leasehold improvements | 5 | 1,722,938 | (838,048 | ) | 884,890 | |||||||||
| Computers and software | 3 | 257,836 | (252,176 | )(2) | 5,660 | |||||||||
| 8,185,848 | (3,928,508 | ) | 4,257,340 | |||||||||||
| (5,505,933 | ) | 5,505,933 | — | |||||||||||
| $ | 2,679,915 | $ | 1,577,425 | $ | 4,257,340 | |||||||||
| (1) | Represents the preliminary estimated useful life of assets acquired. |
| (2) | Excludes amounts related to software which were reflected as an acquired intangible asset. |
The final determination of the fair value of the property and equipment, as well as estimated useful lives, remains subject to change. The finalization may have a material impact on the valuation of property and equipment and the purchase price allocation, which is expected to be finalized subsequent to the closing of the transaction but within the measurement period.
To estimate the fair value of CryoGene’s property and equipment, the Company hired a third-party appraiser.
| (d) | Represents the preliminary estimated fair value of the intangible assets recognized upon the acquisition of CryoGene. |
As part of the preliminary valuation analysis, the Company identified intangible assets, including customer relationships, trade name/trademark, non-complete agreements and technology.
The following table summarizes the preliminary fair value of intangible assets acquired at the date of acquisition and their estimated useful lives and amortization expense based on their respective useful lives:
| Estimated Fair Value | Estimated Useful Life | Amortization Method | Amortization Expense | |||||||||
| (in years) | ||||||||||||
| Non-competition agreement | $ | 390,000 | 5 | Straight-line | $ | 78,000 | ||||||
| Technology | 510,000 | 5 | Straight-line | 102,000 | ||||||||
| Customer relationships | 3,900,000 | 12 | Straight-line | 325,000 | ||||||||
| Trade name/trademark | 480,000 | 15 | Straight-line | 32,000 | ||||||||
| Total | $ | 5,280,000 | $ | 537,000 | ||||||||
| (e) | Represents goodwill recorded with the acquisition of $11.0 million as shown in Note 2. |
| (f) | Represents the elimination of CryoGene’s historical partners’ capital and the estimated transaction costs. Details are listed below: |
| Elimination of CryoGene’s historical partners’ capital as of December 31, 2018 | $ | (1,155,392 | ) | |
| Transaction costs paid in connection with the acquisition | (250,000 | ) | ||
| Pro forma adjustment to accumulated deficit | $ | (1,405,392 | ) |
| (g) | In conjunction with the acquisition accounting, the Company engaged a third party to appraise the fair value of the property and equipment. Pro forma depreciation has been estimated on a preliminary basis as follows: |
| Estimated depreciation expense for acquired property and equipment | $ | 756,100 | ||
| Less: historical CryoGene depreciation expense | (733,100 | ) | ||
| Total pro forma adjustment to depreciation expense | $ | 23,000 |
| 5 |
| (h) | Represents the elimination of $55,081 of acquisition related transaction costs that were incurred by the Company during the year ended December 31, 2018. |
| (i) | Represents the amortization of intangible assets acquired upon acquisition of CryoGene. Please refer to adjustment (d) for details. |
| (j) | Represents the elimination of interest expense related to CryoGene’s revolving line of credit, note payable, and capital lease obligations, which were not assumed in the acquisition. |
| (k) | Represents the income tax effect for unaudited pro forma combined statement of operations adjustments related to the transaction using statutory rates, less any applicable valuation allowances for the year ended December 31, 2018. |
| 6 |