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CCEL Cryo-Cell International

Filed: 14 Apr 21, 5:21pm

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

 

FORM 10-Q

 

(Mark One)

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended February 28, 2021

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from              to              

Commission File Number 0-23386

 

CRYO-CELL INTERNATIONAL, INC.

(Exact name of Registrant as Specified in its Charter)

 

 

DELAWARE

22-3023093

(State or other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

700 Brooker Creek Blvd.  Oldsmar, FL 34677

 

(Address of Principal Executive Offices)

(Zip Code)

 

Issuer's phone number, including area code: (813) 749-2100

 

(Former name, former address and former fiscal year, if changed since last report).

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value

 

CCEL

 

OTCQB

 

Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes     / X /     No     /   /

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.      Yes  / X  /       No     /   /      Not Applicable  /    /

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 definition of “large accelerated filer,” “accelerated filer,” “small reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  

 

Accelerated filer

 

 

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes     /    /     No     / X /

As of April 10, 2021, there were 7,980,647 shares of Common Stock outstanding.

 

 


 

CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

 

 

PAGE

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION (UNAUDITED)

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets

3

 

 

 

 

Consolidated Statements of Income

4

 

 

 

 

Consolidated Statements of Cash Flows

5

 

 

 

 

Consolidated Statements of Stockholders’ Deficit

6

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

31

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

39

 

 

 

Item 4.

Controls and Procedures

39

 

 

 

 

 

 

PART II - OTHER INFORMATION

40

 

 

 

Item 1.

Legal Proceedings

40

 

 

 

Item 1A.

Risk Factors

40

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

 

 

 

Item 3.

Defaults Upon Senior Securities

40

 

 

 

Item 4.

Mine Safety Disclosures

40

 

 

 

Item 5.

Other Information

40

 

 

 

Item 6.

Exhibits

41

 

 

 

SIGNATURES

42

 

 

 

2


 

 

CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

(Unaudited)

 

 

 

 

February 28,

 

November 30,

 

 

2021

 

2020

ASSETS

 

 

 

 

Current Assets

 

 

 

 

Cash and cash equivalents

 

$11,277,811

 

$10,361,125

Marketable securities

 

85,900

 

88,476

Accounts receivable (net of allowance for doubtful accounts of $2,807,822 and $2,781,668, respectively)

 

5,638,992

 

6,322,960

Prepaid expenses

 

510,652

 

611,627

Inventory, current portion

 

868,258

 

927,318

Other current assets

 

314,724

 

244,696

Total current assets

 

18,696,337

 

18,556,202

Property and Equipment-net

 

1,597,180

 

1,640,774

Other Assets

 

 

 

 

Investment - Tianhe stock

 

308,000

 

308,000

Patent option agreement

 

 

350,000

Duke license agreement

 

58,270,522

 

Intangible assets, net

 

1,554,081

 

1,181,588

Inventory, net of current portion

 

11,013,166

 

11,064,034

Goodwill

 

1,941,411

 

1,941,411

Deferred tax assets

 

10,363,967

 

10,363,967

Operating lease right-of-use asset

 

1,012,539

 

299,089

Deposits and other assets, net

 

507,258

 

495,029

Total other assets

 

84,970,944

 

26,003,118

Total assets

 

$105,264,461

 

$46,200,094

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

Current Liabilities

 

 

 

 

Accounts payable

 

$860,132

 

$957,390

Accrued expenses

 

3,457,298

 

2,898,211

Current portion of note payable

 

3,100,000

 

3,100,000

Current portion of operating lease liability

 

239,330

 

275,570

Current portion of Duke license agreement liability

 

13,307,094

 

Deferred revenue

 

8,880,930

 

9,183,450

Total current liabilities

 

29,844,784

 

16,414,621

Other Liabilities

 

 

 

 

Deferred revenue, net of current portion

 

27,950,810

 

27,200,910

Contingent consideration

 

1,662,246

 

1,509,852

Note payable, net of current portion and debt issuance costs

 

1,085,896

 

2,841,214

Operating lease long-term liability

 

774,438

 

23,632

Duke license agreement liability

 

44,766,392

 

Long-term liability - revenue sharing agreements

 

875,000

 

875,000

Total other liabilities

 

77,114,782

 

32,450,608

Total liabilities

 

106,959,566

 

48,865,229

Commitments and contingencies (Note 9)

 

 

Stockholders' Deficit

 

 

 

 

Preferred stock ($.01 par value, 500,000 authorized and none issued and outstanding)

 

 

Series A Junior participating preferred stock ($.01 par value, 20,000 authorized and none issued and outstanding)

 

 

Common stock ($.01 par value, 20,000,000 authorized; 13,658,938 issued and 7,570,913 outstanding as of February 28, 2021 and 13,633,638 issued and 7,545,613 outstanding as of November 30, 2020)

 

136,589

 

136,336

Additional paid-in capital

 

36,857,787

 

36,581,600

Treasury stock, at cost

 

(20,563,357)

 

(20,563,357)

Accumulated deficit

 

(18,126,124)

 

(18,819,714)

Total stockholders' deficit

 

(1,695,105)

 

(2,665,135)

Total liabilities and stockholders' deficit

 

$105,264,461

 

$46,200,094

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3


 

 

CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

February 28,

 

 

February 29,

 

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

 

Processing and storage fees

 

$

6,738,631

 

 

$

7,406,288

 

Public banking revenue

 

 

83,986

 

 

 

154,079

 

Product revenue

 

 

38,000

 

 

 

60,407

 

Total revenue

 

 

6,860,617

 

 

 

7,620,774

 

Costs and Expenses:

 

 

 

 

 

 

 

 

Cost of sales

 

 

2,012,197

 

 

 

2,503,144

 

Selling, general and administrative expenses

 

 

3,433,312

 

 

 

3,870,029

 

Change in fair value of contingent consideration

 

 

152,394

 

 

 

(51,412

)

Research, development and related engineering

 

 

6,190

 

 

 

5,722

 

Depreciation and amortization

 

 

21,263

 

 

 

44,221

 

Total costs and expenses

 

 

5,625,356

 

 

 

6,371,704

 

Operating Income

 

 

1,235,261

 

 

 

1,249,070

 

Other Expense:

 

 

 

 

 

 

 

 

   (Losses) gains on marketable securities

 

 

(2,576

)

 

 

54,948

 

   Other income

 

 

25

 

 

 

627

 

   Interest expense

 

 

(280,219

)

 

 

(365,299

)

Total other expense

 

 

(282,770

)

 

 

(309,724

)

Income before income tax expense

 

 

952,491

 

 

 

939,346

 

Income tax expense

 

 

(258,901

)

 

 

(252,380

)

Net Income

 

$

693,590

 

 

$

686,966

 

Net income per common share - basic

 

$

0.09

 

 

$

0.09

 

Weighted average common shares outstanding - basic

 

 

7,570,913

 

 

 

7,541,113

 

Net income per common share - diluted

 

$

0.08

 

 

$

0.08

 

Weighted average common shares outstanding - diluted

 

 

8,198,591

 

 

 

8,128,257

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4


 

 

CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

February 28,

 

 

February 29,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

693,590

 

 

$

686,966

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

   Depreciation and amortization expense

 

 

72,489

 

 

 

95,757

 

   Change in fair value of contingent consideration

 

 

152,394

 

 

 

(51,412

)

   Losses (gains) on marketable securities

 

 

2,576

 

 

 

(54,948

)

   Compensatory element of stock options

 

 

84,818

 

 

 

224,258

 

   Provision for doubtful accounts

 

 

90,854

 

 

 

152,991

 

   Amortization of debt issuance costs

 

 

19,682

 

 

 

24,481

 

   Amortization of operating lease right-of-use asset

 

 

66,620

 

 

 

66,491

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

   Accounts receivable

 

 

593,114

 

 

 

177,656

 

   Prepaid expenses

 

 

100,975

 

 

 

48,588

 

   Inventory

 

 

109,928

 

 

 

70,394

 

   Other current assets

 

 

(70,028

)

 

 

61,333

 

   Deposits and other assets, net

 

 

(98,675

)

 

 

(18,210

)

   Accounts payable

 

 

(97,258

)

 

 

12,131

 

   Accrued expenses

 

 

559,087

 

 

 

628,627

 

   Operating lease liability

 

 

(65,504

)

 

 

(66,300

)

   Deferred revenue

 

 

447,380

 

 

 

556,760

 

Net cash provided by operating activities

 

 

2,662,042

 

 

 

2,615,563

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

   Purchases of property and equipment

 

 

(11,978

)

 

 

(6,961

)

   Purchase of patent option agreement

 

 

(150,000

)

 

 

 

Net cash used in investing activities

 

 

(161,978

)

 

 

(6,961

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

   Repayments of note payable

 

 

(1,775,000

)

 

 

(775,000

)

   Proceeds from the exercise of stock options

 

 

191,622

 

 

 

41,000

 

Net cash used in financing activities

 

 

(1,583,378

)

 

 

(734,000

)

Increase in cash and cash equivalents

 

 

916,686

 

 

 

1,874,602

 

Cash and cash equivalents - beginning of period

 

 

10,361,125

 

 

 

6,541,037

 

Cash and cash equivalents - end of period

 

$

11,277,811

 

 

$

8,415,639

 

Supplemental non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Operating lease liability and right-of-use asset due to adoption of ASC 842

 

$

-

 

 

$

562,775

 

Lease liability arising from right-of-use asset

 

$

780,070

 

 

$

-

 

Patent option agreement credit to purchase of patents and licenses

 

$

500,000

 

 

 

 

 

Liabilities incurred for the purchase of patents and licenses

 

$

58,073,486

 

 

$

-

 

 

The accompanying notes are an integral part of these consolidated financial statements.

5


 

CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

 

 

 

For the Three Months Ended February 28, 2021

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Treasury

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Deficit

 

Balance at November 30,

   2020

 

 

13,633,638

 

 

$

136,336

 

 

$

36,581,600

 

 

$

(20,563,357

)

 

$

(18,819,714

)

 

$

(2,665,135

)

Common stock issued

 

 

25,300

 

 

 

253

 

 

 

191,369

 

 

 

 

 

 

 

 

 

 

 

191,622

 

Compensatory element of

   stock options

 

 

 

 

 

 

 

 

 

 

84,818

 

 

 

 

 

 

 

 

 

 

 

84,818

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

693,590

 

 

 

693,590

 

Balance at February 28,

   2021

 

 

13,658,938

 

 

$

136,589

 

 

$

36,857,787

 

 

$

(20,563,357

)

 

$

(18,126,124

)

 

$

(1,695,105

)

 

 

 

For the Three Months Ended February 29, 2020

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Treasury

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Deficit

 

Balance at November 30,

   2019

 

 

13,598,909

 

 

$

135,989

 

 

$

35,918,827

 

 

$

(20,563,357

)

 

$

(22,444,310

)

 

$

(6,952,851

)

Common stock issued

 

 

34,729

 

 

 

347

 

 

 

40,653

 

 

 

 

 

 

 

 

 

 

 

41,000

 

Compensatory element of

   stock options

 

 

 

 

 

 

 

 

 

 

224,258

 

 

 

 

 

 

 

 

 

 

 

224,258

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

686,966

 

 

 

686,966

 

Balance at February 29,

   2020

 

 

13,633,638

 

 

$

136,336

 

 

$

36,183,738

 

 

$

(20,563,357

)

 

$

(21,757,344

)

 

$

(6,000,627

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

6


 

 

CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2021

(Unaudited)

 

Note 1 – Description of Business, Basis of Presentation and Significant Accounting Policies

Cryo-Cell International, Inc. (“the Company” or “Cryo-Cell”) was incorporated in Delaware on September 11, 1989 and is headquartered in Oldsmar, Florida.  The Company is organized in three reportable segments, cellular processing and cryogenic cellular storage, with a current focus on the collection and preservation of umbilical cord blood stem cells for family use, the manufacture of PrepaCyte® CB Processing System (“PrepaCyte CB”) units, the processing technology used to process umbilical cord blood stem cells and cellular processing and cryogenic storage of umbilical cord blood stem cells for public use.  Revenues recognized for the cellular processing and cryogenic cellular storage represent sales of the umbilical cord blood stem cells program to customers and income from licensees selling the umbilical cord blood stem cells program to customers outside the United States.  Revenues recognized for the manufacture of PrepaCyte CB units represent sales of the PrepaCyte CB units to customers.  Revenue recognized for the cryogenic storage of umbilical cord blood stem cells for public use is generated from the sale of the cord blood units to the National Marrow Donor Program (“NMDP”), which distributes the cord blood units to transplant centers located in the United States and around the world.  The Company’s headquarters facility in Oldsmar, Florida handles all aspects of its U.S.-based business operations including the processing and storage of specimens, including specimens obtained from certain of its licensees’ customers.  The specimens are stored in commercially available cryogenic storage equipment.

The unaudited consolidated financial statements including the Consolidated Balance Sheet as of February 28, 2021, the related Consolidated Statements of Income, Cash Flows and Stockholders’ Deficit for the three months ended February 28, 2021 and February 29, 2020 have been prepared by Cryo-Cell International, Inc. and its subsidiaries pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial reporting.  Certain financial information and note disclosures, which are normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to those rules and regulations.  It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's November 30, 2020 Annual Report on Form 10-K.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and changes in cash flows for all periods presented have been made.  The results of operations for the three months ended February 28, 2021 are not necessarily indicative of the results expected for any interim period in the future or the entire year ending November 30, 2021.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. ASC 606 also impacts certain other areas, such as the accounting for costs to obtain or fulfill a contract. ASC 606 also requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

7


 

Under ASC 606, revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised services are transferred to the customers. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring services to a customer ("transaction price").

At contract inception, if the contract is determined to be within the scope of ASC 606, the Company evaluates its contracts with customers using the five-step model: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to separate performance obligations; and (5) recognize revenue when (or as) each performance obligation is satisfied. The Company evaluates its contracts for legal enforceability at contract inception and subsequently throughout the Company’s relationship with its customers. If legal enforceability with regards to the rights and obligations exist for both the Company and the customer, then the Company has an enforceable contract and revenue recognition is permitted subject to the satisfaction of the other criteria. If, at the outset of an arrangement, the Company determines that a contract with enforceable rights and obligations does not exist, revenues are deferred until all criteria for an enforceable contract are met.  The Company only applies the five-step model to contracts when it is probable that collection of the consideration that the Company is entitled to in exchange for the goods or services being transferred to the customer, will occur.  

Contract modifications exist when the modification either creates new or changes in the existing enforceable rights and obligations. The Company’s contracts are occasionally modified to account for changes in contract terms and conditions, which the Company refers to as an upgrade or downgrade. An upgrade occurs when a customer wants to pay for additional years of storage. A downgrade occurs when a customer originally entered into a long-term contract (such as twenty-one year or lifetime plan) but would like to change the term to a one-year contract.  Upgrade modifications qualify for treatment as a separate contract as the additional services are distinct and the increase in contract price reflects the Company’s stand-alone selling price for the additional services and will be accounted for on a prospective basis.  Downgrade modifications do not qualify for treatment as a separate contract as there is no increase in price over the original contract, thus failing the separate contract criteria. As such, the Company separately considers downgrade modifications to determine if these should be accounted for as a termination of the existing contract and creation of a new contract (prospective method) or as part of the existing contract (cumulative catch-up adjustment). ASC 606 requires that an entity account for the contract modification as if it were a termination of the existing contract, and the creation of a new contract, if the remaining goods or services are distinct from the goods or services transferred on or before the date of the contract modification.  As the services after the modification were previously determined to be distinct, the Company concluded that downgrade modifications qualify under this method and will be accounted for on a prospective basis.  Although contract modifications do occur, they are infrequent.

Performance Obligations

At contract inception, the Company assesses the goods and services promised in the contracts with customers and identifies a performance obligation for each promise to transfer to the customer a good or service (or bundle of goods or services) that is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. 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. The Company determined that the following distinct goods and services represent separate performance obligations involving the sale of its umbilical cord blood product:

 

Collection and processing services

 

Storage services

8


 

 

 

Public cord blood banking

 

License and royalties

 

Sale of PrepaCyte CB product

a)

Collection, Processing and Storage Services

Processing and storage fees include the Company providing umbilical cord blood and tissue cellular processing and cryogenic cellular storage for private use. Revenues recognized for the cellular processing and cryogenic cellular storage represent sales of the umbilical cord blood stem cells program to customers and income from licensees who are selling the umbilical cord blood stem cells program to customers outside the United States.

The Company recognizes revenue from processing fees at the point in time of the successful completion of processing and recognizes storage fees over time, which is ratably over the contractual storage period as well as other income from royalties paid by licensees related to long-term storage contracts which the Company has under license agreements.  Contracted storage periods are annual, twenty-one years and lifetime. The life-time storage plan is based on a life expectancy of 81 years, which is the current estimate by the Center for Disease Control for United States women’s life expectancy and concluded that additional data analysis would result in an immaterial difference in revenue. Deferred revenue on the accompanying consolidated balance sheets includes the portion of the annual, the twenty-one-year and the life-time storage fees that are being recognized over the contractual storage period as well as royalties received from foreign licensees relating to long-term storage contracts for which the Company has future obligations under the license agreement. The Company classifies deferred revenue as current if the Company expects to recognize the related revenue over the next 12 months from the balance sheet date.

Significant financing

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. For all plans being annual, twenty-one years and lifetime, the storage fee is paid at the beginning of the storage period (prepaid plans). Alternatively, the Company offers payment plans (including a stated service fee) for customers to pay over time for a period of one to twenty-four plus months.  The one-time plan includes the collection kit, processing and testing, return medical courier service and twenty-one years of pre-paid storage fees.  The life-time plan includes the collection kit, processing and testing, return medical courier service and pre-paid storage fees for the life of the customer. The Company concluded that a significant financing component is not present within either the prepaid or overtime payment plans. The Company has determined that the twenty-one year and life-time prepayment options do not include a significant financing component as the payment terms were structured primarily for reasons other than the provision of financing and to maximize profitability.  

The Company has determined that the majority of plans that are paid over time are paid in less than a year.  When considered over a twenty-four-month payment plan, the difference between the cash selling price and the consideration paid is nominal. As such, the Company believes that its payment plans do not include significant financing components as they are not significant in the aggregate when considered in the context of all contracts entered into nor significant at the individual contract level.

The Company elected to apply the practical expedient where the Company does not need to assess whether a significant financing component exists if the period between when it performs its obligations under the contract and when the customer pays is one year or less.

9


 

As of February 28, 2021, the total aggregate transaction price allocated to the unsatisfied performance obligations was recorded as deferred revenue amounting to $36,831,740, which will be recognized ratably on a straight-line basis over the contractual period of which $8,880,930 will be recognized over the next twelve months.

Variable consideration

In December 2005, the Company began providing its customers that enrolled after December 2005 a payment warranty under which the Company agrees to pay $50,000 to its client if the umbilical cord blood product retrieved is used for a stem cell transplant for the donor or an immediate family member and fails to engraft, subject to various restrictions.  Effective February 1, 2012, the Company increased the $50,000 payment warranty to a $75,000 payment warranty to all of its new clients.  Effective June 1, 2017, the Company increased the payment warranty to $100,000 to all new clients who choose the premium processing method, PrepaCyte CB.  The product warranty is available to clients who enroll under this structure for as long as the specimen is stored with the Company.   In the processing and storage agreements, the Company provides limited rights which are offered to customers automatically upon contract execution. The Company has determined that the payment warranty represents variable consideration payable to the customer.

Based on the Company’s historical experience to date, the Company has determined the payment warranty to be fully constrained under the most likely amount method. Consequently, the transaction price does not currently reflect any expectation of service level credits.   At the end of each reporting period, the Company will update the estimated transaction price related to the payment warranty including updating its assessment of whether an estimate of variable consideration is constrained to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period.

Allocation of transaction price

As the Company’s processing and storage agreements contain multiple performance obligations, ASC 606 requires an allocation of the transaction price based on the estimated relative standalone selling prices of the promised services underlying each performance obligation. The Company has selected an adjusted market assessment approach to estimate the stand-alone selling prices of the processing services and storage services and concluded that the published list price is the price that a customer in that market would be willing to pay for those goods or services. The Company also considered the fact that all customers are charged the list prices current at the time of their enrollment where the Company has separately stated list prices for processing and storage.

Costs to Obtain a Contract

The Company capitalizes commissions that are incremental in obtaining customer contracts and the costs incurred to fulfill a customer contract if those costs are not within the scope of another topic within the accounting literature and meet the specified criteria. These costs are deferred in other current or long-term assets and are expensed to selling, general and administrative expenses as the Company satisfies the performance obligations by transferring the service to the customer. These assets will be periodically assessed for impairment.  As a practical expedient, the Company elected to recognize the incremental costs of obtaining its annual contracts as an expense when incurred, as the amortization period of the asset recognized would have been one year.

The Company has determined that payments under the Company’s refer-a-friend program (“RAF program”) are incremental costs of obtaining a contract as they provide an incentive for existing customers to refer new customers to the Company and is referred to as commission.  The amount paid under the RAF

10


 

program (either through issuance of credits to customers or check payments) which exceeds the typical commission payment to a sales representative is recorded as a reduction to revenue under ASC 606.  During the three months ended February 28, 2021 and February 29, 2020, the Company has recorded $13,507 and $11,535, respectively, commission payments to customers under the RAF program as a reduction to revenue. For the three months ended February 28, 2021 and February 29, 2020, the Company capitalized additional contract acquisition costs of $18,262 and $23,320, respectively, net of amortization expense.

b)

Public Banking Revenue

The Company sells and provides units not likely to be of therapeutic use for research to qualified organizations and companies operating under Institutional Review Board approval.   Control is transferred at the point in time when the shipment has occurred, at which time, the Company records revenue.

c)

Licensee and Royalty Income

Licensee and royalty income consist of royalty income earned on the processing and storage of cord blood stem cell specimens by an affiliate where the Company has a License and Royalty Agreement.  The Company records revenue from processing and storage of specimens and pursuant to agreements with licensees.  The Company records the royalty revenue in same period that the related processing and storage is being completed by the affiliate.

d)

Product Revenue

The Company records revenue from the sale of the PrepaCyte CB product line upon shipment of the product to the Company’s customers.

e)

Shipping and Handling

The Company elected to apply the practical expedient to account for shipping and handling activities performed after the control of a good has been transferred to the customer as a fulfillment cost. Shipping and handling costs that the Company incurs are therefore expensed and included in cost of sales.

Disaggregation of Revenue

The revenue as reflected in the statements of income is disaggregated by products and services.

The following table provides information about assets and liabilities from contracts with customers:

 

 

 

February 28, 2021

 

 

November 30, 2020

 

Contract assets (sales commissions)

 

$

478,370

 

 

$

466,141

 

Accounts receivables

 

$

5,638,992

 

 

$

6,322,960

 

Short-term contract liabilities (deferred revenue)

 

$

8,880,930

 

 

$

9,183,450

 

Long-term contract liabilities (deferred revenue)

 

$

27,950,810

 

 

$

27,200,910

 

 

The Company, in general, requires the customer to pay for processing and storage services at the time of processing.  Contract assets include deferred contract acquisition costs, which will be amortized along with the associated revenue. Contract liabilities include payments received in advance of performance under the contract and are realized with the associated revenue recognized under the contract. Accounts receivable consists of amounts due from clients that have enrolled and processed in the umbilical cord blood stem cell processing and storage programs related to renewals of annual plans and amounts due from license affiliates, and sublicensee territories. The Company did not have asset impairment charges related to contract assets in the three months ended February 28, 2021 and February 29, 2020.

11


 

The following table presents changes in the Company’s contract assets and liabilities during the three months ended February 28, 2021:

 

 

 

Balance at

December 1,

2020

 

 

Additions

 

 

Deductions

 

 

Balance at

February 28,

2021

 

Contract assets (sales commissions)

 

$

466,141

 

 

$

18,262

 

 

$

(6,033

)

 

$

478,370

 

Accounts receivables

 

$

6,322,960

 

 

$

8,402,508

 

 

$

(9,086,476

)

 

$

5,638,992

 

Contract liabilities (deferred revenue)

 

$

36,384,360

 

 

$

3,711,251

 

 

$

(3,263,871

)

 

$

36,831,740

 

 

Accounts Receivable

Accounts receivable consist of uncollateralized amounts due from clients that have enrolled and processed in the umbilical cord blood stem cell processing and storage programs and amounts due from license affiliates, and sublicensee territories.  Accounts receivable are due within 30 days and are stated at amounts net of an allowance for doubtful accounts.  Accounts outstanding longer than the contractual payment terms are considered past due.  The Company determines its allowance by considering the length of time accounts receivable are past due, the Company’s previous loss history, and the client’s current ability to pay its obligations.  Therefore, if the financial condition of the Company’s clients were to deteriorate beyond the estimates, the Company may have to increase the allowance for doubtful accounts which could have a negative impact on earnings.  The Company writes-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.  

Inventories

On June 11, 2018, Cryo-Cell completed its acquisition of substantially all of the assets of Cord:Use Cord Blood Bank, Inc. a Florida corporation (“Cord:Use”), in accordance with the definitive Asset Purchase Agreement between Cryo-Cell and Cord:Use (the “Purchase Agreement”). As part of the Cord:Use Purchase Agreement, the Company has an agreement with Duke University (“Duke”) expiring on January 31, 2025 for Duke to receive, process, and store cord blood units for the Public Cord Blood Bank (“Duke Services”). As of February 28, 2021, the Company had approximately 6,000 cord blood units in inventory. These units are valued at the lower of cost or net realizable value. Costs include the cost of collecting, transporting, processing and storing the unit. Costs charged by Duke for their Duke Services are based on a monthly fixed fee for processing and storing 12 blood units per month. The Company computes the cost per unit for these Duke Services and capitalizes the unit cost on all blood units shipped and stored in a year at Duke. If the Company ships and stores less than 144 blood units with Duke in a one-year period, a portion of these fixed costs are expensed and included in facility operating costs. Certain costs of collection incurred, such as the cost of collection staff and transportation costs incurred to ship Public Bank units from hospitals to the stem cell laboratory are allocated to banked units based on an average cost method. The change in the number of expected units to be sold could have a significant impact on the estimated net realizable value of banked units which could have a material effect on the value of the inventory.  Costs incurred related to cord blood units that cannot be sold are expensed in the period incurred and are included in facility operating costs in the accompanying statements of operations. The Company records a reserve against inventory for units which have been processed and frozen but may not ultimately become distributable (see Note 3).  Due to changes in sales trends and estimated recoverability of cost capitalized into inventory, an impairment charge of $1,284,238 was recognized during the fourth quarter of fiscal 2020 to reduce inventory from cost to net realizable value.

12


 

Income Taxes

Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred income tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled.  The Company records a valuation allowance when it is “more likely than not” that all of the future income tax benefits will not be realized.  When the Company changes its determination as to the amount of deferred income tax assets that can be realized, the valuation allowance is adjusted with a corresponding impact to income tax expense in the period in which such determination is made.  The ultimate realization of the Company’s deferred income tax assets depends upon generating sufficient taxable income prior to the expiration of the tax attributes.  In assessing the need for a valuation allowance, the Company projects future levels of taxable income.  This assessment requires significant judgment.  The Company examines the evidence related to the recent history of losses, the economic conditions in which the Company operates and forecasts and projections to make that determination.  

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.  For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.  Increases or decreases to the unrecognized tax benefits could result from management’s belief that a position can or cannot be sustained upon examination based on subsequent information or potential lapse of the applicable statute of limitation for certain tax positions.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. For the three months ended February 28, 2021 and February 29, 2020, the Company had no provisions for interest or penalties related to uncertain tax positions.

Long-Lived Assets

The Company evaluates the realizability of its long-lived assets, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment, such as reductions in demand or when significant economic slowdowns are present.  Reviews are performed to determine whether the carrying value of an asset is impaired, based on comparisons to undiscounted expected future cash flows.  If this comparison indicates that there is impairment and carrying value is in excess of fair value, the impaired asset is written down to fair value, which is typically calculated using: (i) quoted market prices or (ii) discounted expected future cash flows utilizing a discount rate.   The Company did not note any impairment for the three months ended February 28, 2021 and February 29, 2020.

Goodwill

Goodwill represents the excess of the purchase price of the assets acquired from Cord:Use over the estimated fair value of the net tangible, intangible and identifiable assets acquired.  The annual assessment of the reporting unit is performed as of September 1st, and an assessment is performed at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below its carrying value.  The Company first performs a qualitative assessment to test goodwill for impairment and concludes if it is more likely than not that the fair value of the reporting unit is less than its carrying value.  If the qualitative assessment concludes that it is not more likely than not that the fair value is less than the carrying value, the two-step goodwill impairment test is not required.  If the qualitative assessment concludes that it is more likely than not that the fair value of the reporting unit is less than the carrying value, then the two-step goodwill impairment test is required.  Step one of the impairment assessment compares the fair value of the reporting unit to its carrying value and if the fair

13


 

value exceeds its carrying value, goodwill is not impaired. If the carrying value exceeds the fair value, the implied fair value of goodwill is compared to the carrying value of goodwill. If the implied fair value exceeds the carrying value then goodwill is not impaired; otherwise, an impairment loss would be recorded by the amount the carrying value exceeds the implied fair value.  

Leases

Effective December 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), using the modified retrospective approach and utilizing the effective date as its date of initial application.  As a result, prior periods are presented in accordance with the previous guidance in ASC 840, Leases (“ASC 840”).  The Company has elected to apply the ‘package of practical expedients’ which allows the Company to not reassess i) whether existing or expired arrangements contain a lease, ii) the lease classification of existing or expired leases, or iii) whether previous initial direct costs would qualify for capitalization under the new lease standard.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement.  Leases with a term greater than one year are recognized on the balance sheet as a right-of-use (ROU) assets and as short-term and long-term lease liabilities, as applicable.  The Company does not have any financing leases.

Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term.  The interest rate implicit in lease contracts is typically not readily determinable.  As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company believes it could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.

The Company has elected not to recognize leases with an original term of one year or less on the balance sheet.  The Company typically only includes an initial lease term in its assessment of a lease arrangement.  Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew.

Stock Compensation

As of February 28, 2021, the Company has two stock-based compensation plans, which are described in Note 7 to the consolidated financial statements. The Company’s stock-based employee compensation plan that became effective December 1, 2011 was approved by the Board of Directors and approved by the stockholders at the 2012 Annual Meeting. The Company recognized approximately $85,000 and $224,000 for the three months ended February 28, 2021 and February 29, 2020, respectively, of stock-based compensation expense.

The Company recognizes stock-based compensation based on the fair value of the related awards. Under the fair value recognition guidance of stock-based compensation accounting rules, stock-based compensation expense is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award.  The fair value of service-based vesting condition and performance-based vesting condition stock option awards is determined using the Black-Scholes valuation model.  For stock option awards with only service-based vesting conditions and graded vesting features, the Company recognizes stock compensation expense based on the graded-vesting method.  To value awards with market-based vesting conditions the Company uses a binomial valuation model. The Company recognizes compensation cost for awards with market-based vesting conditions on a graded-vesting basis over the derived service period calculated by the binomial valuation model.  The use of these valuation models involves assumptions that are judgmental and highly sensitive in the determination of

14


 

compensation expense and include the expected life of the option, stock price volatility, risk-free interest rate, dividend yield, exercise price, and forfeiture rate. Forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period.

The estimation of stock awards that will ultimately vest requires judgment and to the extent that actual results or updated estimates differ from current estimates, such amounts will be recorded as a cumulative adjustment in the period they become known.  The Company considered many factors when estimating forfeitures, including the recipient groups and historical experience.  Actual results and future changes in estimates may differ substantially from current estimates.

The Company issues performance-based equity awards which vest upon the achievement of certain financial performance goals, including revenue and income targets.  Determining the appropriate amount to expense based on the anticipated achievement of the stated goals requires judgment, including forecasting future financial results.  The estimate of the timing of the expense recognition is revised periodically based on the probability of achieving the required performance targets and adjustments are made as appropriate.  The cumulative impact of any revision is reflected in the period of the change.  If the financial performance goals are not met, the award does not vest, so no compensation cost is recognized and any previously stock-recognized stock-based compensation expense is reversed.

The Company issues equity awards with market-based vesting conditions which vest upon the achievement of certain stock price targets.  If the awards are forfeited prior to the completion of the derived service period, any recognized compensation is reversed.  If the awards are forfeited after the completion of the derived service period, the compensation cost is not reversed, even if the awards never vest.

Fair Value of Financial Instruments

Management uses a fair value hierarchy, which gives the highest priority to quoted prices in active markets.  The fair value of financial instruments is estimated based on market trading information, where available.  Absent published market values for an instrument or other assets, management uses observable market data to arrive at its estimates of fair value.  Management believes that the carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of these instruments.  The Company believes that the fair value of its Revenue Sharing Agreements (”RSA”) liability recorded on the balance sheet is between the recorded book value and up to the Company’s previous settlement experience, due to the various terms and conditions associated with each RSA.

The Company uses an accounting standard that defines fair value as an exit price, representing the amount 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.  As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.  As a basis for considering such assumptions, the standard establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value.  The three levels of inputs used to measure fair value are as follows:

 

Level 1

Quoted prices in active markets for identical assets or liabilities.

 

Level 2

Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

15


 

 

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of February 28, 2021 and November 30, 2020, respectively, segregated among the appropriate levels within the fair value hierarchy:

 

 

 

Fair Value at

 

 

Fair Value Measurements

 

 

 

February 28,

 

 

at February 28, 2021 Using

 

Description

 

2021

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable Securities

 

$

85,900

 

 

$

85,900

 

 

 

 

 

 

 

 

 

$

85,900

 

 

$

85,900

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

1,662,246

 

 

$

 

 

 

 

 

$

1,662,246

 

Total

 

$

1,662,246

 

 

$

 

 

 

 

 

$

1,662,246

 

Contingent Consideration:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance as of November 30, 2020

 

$

1,509,852

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions – Cord:Use earnout

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value adjustment as of February 28, 2021

 

 

152,394

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance as of February 28, 2021

 

$

1,662,246

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value at

 

 

Fair Value Measurements

 

 

 

November 30,

 

 

at November 30, 2020 Using

 

Description

 

2020

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities

 

$

88,476

 

 

$

88,476

 

 

 

 

 

 

 

 

 

$

88,476

 

 

$

88,476

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

1,509,852

 

 

$

 

 

 

 

 

$

1,509,852

 

Total

 

$

1,509,852

 

 

$

 

 

 

 

 

$

1,509,852

 

 

The following is a description of the valuation techniques used for these items, as well as the general classification of such items pursuant to the fair value hierarchy:

Marketable securities - Equity securities with readily determinable fair values are measured at fair value with the changes in fair value recognized through net income. There was approximately ($3,000) and $55,000 in unrealized holding (losses) gains recorded in other income and expense on the accompanying consolidated statements of income for the three months ended February 28, 2021 and February 29, 2020, respectively.

Contingent consideration - The contingent consideration is the earnout that Cord:Use is entitled to from the Company’s  sale of the public cord blood inventory from and after closing.  The estimated fair value of the contingent earnout was determined using a Monte Carlo analysis examining the frequency

16


 

and mean value of the resulting earnout payments.  The analysis includes estimated annual sales of 18 units declining 3% annually and utilizes a risk adjusted discount rate of 5.50%, which are unobservable inputs. The resulting value captures the risk associated with the form of the payout structure.  The risk-neutral method is applied, resulting in a value that captures the risk associated with the form of the payout structure and the projection risk.  The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the estimated value of the liability.

Product Warranty and Cryo-Cell CaresTM Program

In December 2005, the Company began providing its customers that enrolled after December 2005 a payment warranty under which the Company agrees to pay $50,000 to its client if the umbilical cord blood product retrieved is used for a stem cell transplant for the donor or an immediate family member and fails to engraft, subject to various restrictions.  Effective February 1, 2012, the Company increased the $50,000 payment warranty to a $75,000 payment warranty to all of its new clients.  Effective June 1, 2017, the Company increased the payment warranty to $100,000 to all new clients who choose the premium processing method, PrepaCyte CB.  The product warranty is available to clients who enroll under this structure for as long as the specimen is stored with the Company.  The Company has not experienced any claims under the warranty program nor has it incurred costs related to these warranties.  

As discussed above, the Company has determined that the payment warranty represents variable consideration payable to the customer. The Company has concluded the payment warranty be fully constrained under the most likely amount method, therefore, the transaction price does not reflect any expectation of service level credits. At the end of each reporting period, the Company shall update the estimated transaction price related to the payment guarantee including updating its assessment of whether an estimate of variable consideration is constrained to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides guidance for estimating credit losses on certain types of financial instruments, including trade receivables, by introducing an approach based on expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016-13 also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The guidance requires a modified retrospective transition method and early adoption is permitted. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses, Derivatives and Hedging, and Leases (“ASU 2019-10”), which defers the adoption of ASU 2016-13 for smaller reporting companies until periods beginning after December 15, 2022.  The Company will continue to evaluate the impact of ASU 2016-13 on its consolidated financial statements.

Note 2 Segment Reporting

The Company is organized in three reportable segments:

 

1.

The cellular processing and cryogenic storage of umbilical cord blood and cord tissue stem cells for family use.   Revenue is generated from the initial processing and testing fees and the annual storage fees charged each year for storage (the “Umbilical cord blood and cord tissue stem cell service”).

17


 

 

2.

The manufacture of PrepaCyte® CB units, the processing technology used to process umbilical cord blood stem cells.  Revenue is generated from the sales of the PrepaCyte® CB units (the “PrepaCyte®-CB”).

 

3.

The cellular processing and cryogenic storage of umbilical cord blood stem cells for public use.  Revenue is generated from the sale of the cord blood units to the National Marrow Donor Program (“NMDP”), which distributes the cord blood units to transplant centers located in the United States, and around the world.

The following table shows, by segment: net revenue, cost of sales, depreciation and amortization, operating profit, interest expense, and income tax expense for the three months ended February 28, 2021 and February 29, 2020:

 

 

 

For the three

months ended

February 28,

2021

 

 

For the three

months ended

February 29,

2020

 

Net revenue

 

 

 

 

 

 

 

 

Umbilical cord blood and cord tissue stem cell service

 

$

6,738,631

 

 

$

7,406,288

 

PrepaCyte®-CB

 

 

38,000

 

 

 

60,407

 

Public cord blood banking

 

 

83,986

 

 

 

154,079

 

Total net revenue

 

$

6,860,617

 

 

$

7,620,774

 

Cost of sales

 

 

 

 

 

 

 

 

Umbilical cord blood and cord tissue stem cell service

 

$

1,640,015

 

 

$

2,055,075

 

PrepaCyte®-CB

 

 

34,880

 

 

 

41,117

 

Public cord blood banking

 

 

337,302

 

 

 

406,952

 

Total cost of sales

 

$

2,012,197

 

 

$

2,503,144

 

Depreciation and amortization

 

 

 

 

 

 

 

 

Umbilical cord blood and cord tissue stem cell service

 

$

14,368

 

 

$

37,327

 

PrepaCyte®-CB

 

 

6,895

 

 

 

6,894

 

Public cord blood banking

 

 

 

 

 

 

Total depreciation and amortization

 

$

21,263

 

 

$

44,221

 

Operating income

 

 

 

 

 

 

 

 

Umbilical cord blood and cord tissue stem cell service

 

$

1,492,353

 

 

$

1,489,548

 

PrepaCyte®-CB

 

 

(3,777

)

 

 

12,396

 

Public cord blood banking

 

 

(253,315

)

 

 

(252,874

)

Total operating income

 

$

1,235,261

 

 

$

1,249,070

 

Interest expense

 

 

 

 

 

 

 

 

Umbilical cord blood and cord tissue stem cell service

 

$

280,219

 

 

$

365,299

 

PrepaCyte®-CB

 

 

 

 

 

 

Public cord blood banking

 

 

 

 

 

 

Total interest expense

 

$

280,219

 

 

$

365,299

 

 

18


 

 

The following table shows the assets by segment as of February 28, 2021 and November 30, 2020:

 

 

 

As of

February 28,

2021

 

 

As of

November 30,

2020

 

Assets

 

 

 

 

 

 

 

 

Umbilical cord blood and cord tissue stem cell service

 

$

93,405,068

 

 

$

34,215,780

 

PrepaCyte®-CB

 

 

235,248

 

 

 

302,683

 

Public cord blood banking

 

 

11,624,145

 

 

 

11,681,631

 

Total assets

 

$

105,264,461

 

 

$

46,200,094

 

 

Note 3 – Inventory

Inventory is comprised of public cord blood banking specimens, collection kits, finished goods, work-in-process and raw materials.  Collection kits are used in the collection and processing of umbilical cord blood and cord tissue stem cells, finished goods include products purchased or assumed for resale and for the use in the Company’s processing and storage service.  Inventory in the Public Cord Blood Bank includes finished goods that are specimens that are available for resale.  The Company considers inventory in the Public Cord Blood Bank that has not completed all testing to determine viability to be work in process.  Due to changes in sales trends and estimated recoverability of cost capitalized into inventory, an impairment charge of $1,284,238 was recognized during the fourth quarter of fiscal 2020 to reduce inventory from cost to net realizable value.  The components of inventory at February 28, 2021 and November 30, 2020 are as follows:

 

 

 

February 28,

2021

 

 

November 30,

2020

 

Raw materials

 

$

 

 

$

 

Work-in-process

 

 

238,616

 

 

 

273,430

 

Work-in-process – Public Bank

 

 

 

 

 

 

Finished goods

 

 

33,067

 

 

 

63,327

 

Finished goods – Public Bank

 

 

11,578,525

 

 

 

11,629,307

 

Collection kits

 

 

38,934

 

 

 

33,006

 

Inventory reserve

 

 

(7,718

)

 

 

(7,718

)

Total inventory

 

$

11,881,424

 

 

$

11,991,352

 

 

Note 4 – Intangible Assets

The Company incurs certain legal and related costs in connection with patent and trademark applications. If a future economic benefit is anticipated from the resulting patent or trademark or an alternate future use is available to the Company, such costs are capitalized and amortized over the expected life of the patent or trademark.  The Company’s assessment of future economic benefit involves considerable management judgment. A different conclusion could result in the reduction of the carrying value of these assets.  

19


 

Intangible assets were as follows as of February 28, 2021 and November 30, 2020:

 

 

 

Useful

lives

 

February 28,

2021

 

 

November 30,

2020

 

Patents and Domain Names

 

10-20 years

 

$

623,980

 

 

$

234,570

 

Less: Accumulated amortization

 

 

 

 

(50,055

)

 

 

(47,150

)

License agreement

 

10 years

 

 

470,000

 

 

 

470,000

 

Less:  Intangible asset impairment

 

 

 

 

(185,000

)

 

 

(185,000

)

Less: Accumulated amortization

 

 

 

 

(184,255

)

 

 

(178,443

)

Customer relationships-PrepaCyte®CB

 

15 years

 

 

41,000

 

 

 

41,000

 

Less:  Intangible asset impairment

 

 

 

 

(26,267

)

 

 

(26,267

)

Less: Accumulated amortization

 

 

 

 

(7,322

)

 

 

(7,122

)

Brand

 

1 year

 

 

31,000

 

 

 

31,000

 

Less:  Accumulated amortization

 

 

 

 

(31,000

)

 

 

(31,000

)

Customer relationships – Cord:Use

 

30 years

 

 

960,000

 

 

 

960,000

 

Less:  Accumulated amortization

 

 

 

 

(88,000

)

 

 

(80,000

)

Net Intangible Assets

 

 

 

$

1,554,081

 

 

$

1,181,588

 

 

Amortization expense of intangibles was approximately $17,000 and $17,000 for the three months ended February 28, 2021 and February 29, 2020, respectively.  

 

Note 5 – Note Payable

On May 20, 2016, the Company entered into a Credit Agreement (“Agreement”) with Texas Capital Bank, National Association (“TCB”) for a term loan of $8.0 million in senior credit facilities.  The proceeds of the term loan were used by the Company to fund repurchases of the Company’s common stock.  Subject to the terms of the Agreement, on May 20, 2016, TCB advanced the Company $100.  On July 1, 2016, TCB advanced the remaining principal amount of $7,999,900 per a promissory note dated May 20, 2016 between the Company and TCB, at a rate of 3.35% per annum plus LIBOR, payable monthly with a maturity date of July 2021 extended to June 2023 with Second Amendment.  On August 26, 2016, the Company entered into a First Amendment to Credit Agreement with TCB.  Pursuant to terms of the First Amendment to Credit Agreement, on August 26, 2016, TCB made an additional advance to the Company in principal amount of $2,133,433 per an Amended and Restated Promissory Note dated August 26, 2016 between the Company and TCB.  The additional proceeds of the term loan were used by the Company to fund the extinguishment of revenue sharing agreements.  On June 11, 2018, the Company entered into a Second Amendment to Credit Agreement with TCB.  Pursuant to the terms of the Second Amendment to Credit Agreement, TCB increased the current outstanding principal amount of the loan from TCB by $9,000,000 to finance a portion of the purchase price of the Cord:Use Purchase.  In connection therewith, Cryo-Cell executed and delivered to TCB a Second Amended and Restated Promissory Note, in the principal amount of $15,500,000.  As of the three months ended February 28, 2021 and February 29, 2020, the Company paid interest of $40,538 and $109,780, respectively, which is reflected in interest expense on the accompanying consolidated statements of income.

Collateral of the term and subordinated loans includes all money, securities and property of the Company.

The Company incurred debt issuance costs related to the term and subordinated loans in the amount of $548,085 which is recorded as a direct reduction of the carrying amount of the note payable and amortized over the life of the loan. As of the three months ended February 28, 2021 and February 29, 2020,

20


 

$19,682 and $24,481, respectively, of the debt issuance costs were amortized and are reflected in interest expense on the accompanying consolidated statements of income.  

As of February 28, 2021, and November 30, 2020, the note payable obligation was as follows:

 

 

 

February 28, 2021

 

 

November 30, 2020

 

Note payable

 

$

4,233,433

 

 

$

6,008,433

 

Unamortized debt issuance costs

 

 

(47,537

)

 

 

(67,219

)

Net note payable

 

$

4,185,896

 

 

$

5,941,214

 

Current portion of note payable

 

$

3,100,000

 

 

$

3,100,000

 

Long-term note payable, net of debt issuance costs

 

1,085,896

 

 

2,841,214

 

Total

 

$

4,185,896

 

 

$

5,941,214

 

 

Interest expense on the note payable for the three months ended February 28, 2021 and February 29, 2020 was as follows:

 

 

 

February 28, 2021

 

 

February 29, 2020

 

Interest expense on notes payable

 

$

40,538

 

 

$

109,780

 

Debt issuance costs

 

 

19,682

 

 

 

24,481

 

Total interest expense

 

$

60,220

 

 

$

134,261

 

 

 

Note 6 – Income per Common Share

The following table sets forth the calculation of basic and diluted earnings per share:

 

 

 

For the three

months ended

February 28, 2021

 

 

For the three

months ended

February 29, 2020

 

Numerator:

 

 

 

 

 

 

 

 

Net Income

 

$

693,590

 

 

$

686,966

 

Denominator:

 

 

 

 

 

 

 

 

Weighted-average shares outstanding-basic

 

 

7,570,913

 

 

 

7,541,113

 

Dilutive common shares issuable upon exercise of stock options

 

 

627,678

 

 

 

587,144

 

Weighted-average shares-diluted

 

 

8,198,591

 

 

 

8,128,257

 

Earnings (Loss) per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.09

 

 

$

0.09

 

Diluted

 

$

0.08

 

 

$

0.08

 

 

For the three months ended February 28, 2021, the Company excluded the effect of 39,000 outstanding stock options from the computation of diluted earnings per share, as the effect of potentially dilutive shares from the outstanding stock options would be anti-dilutive.  For the three months ended February 29, 2020, the Company excluded the effect of 232,737 outstanding stock options from the computation of diluted earnings per share, as the effect of potentially dilutive shares from the outstanding stock options would be anti-dilutive.  

 

21


 

 

Note 7 – Stockholders’ Equity

The Company maintains the 2006 Stock Incentive Plan (the “2006 Plan”) under which it has reserved 1,000,000 shares of the Company’s common stock for issuance pursuant to stock options, restricted stock, stock-appreciation rights (commonly referred to as “SARs”) and stock awards (i.e. performance options to purchase shares and performance units).  As of February 28, 2021, and November 30, 2020, there were 305,000 and 305,000 options issued, but not yet exercised, under the 2006 Plan, respectively.  As of February 28, 2021, there were 0 shares available for future issuance under the 2006 Plan.

The Company maintains the 2012 Equity Incentive Plan (the “2012 Plan”) which became effective December 1, 2011 as approved by the Board of Directors and approved by the stockholders at the 2012 Annual Meeting on July 10, 2012.  The 2012 Plan originally reserved 1,500,000 shares of the Company’s common stock for issuance pursuant to stock options, restricted stock, SARs, and other stock awards (i.e. performance shares and performance units).  In May 2012, the Board of Directors approved an amendment to the 2012 Plan to increase the number of shares of the Company’s common stock reserved for issuance to 2,500,000 shares.  In October 2019, the Board of Directors approved amendments to the plan, subject to ratification by the stockholders, which occurred at the Company’s 2019 Annual Meeting of Stockholders on November 21, 2019. As of February 28, 2021, there were 843,143 service-based options issued, 129,729 service-based restricted common shares granted, 530,851 performance-based and 116,218 market-based restricted common shares granted under the 2012 Plan.  As of November 30, 2020, there were 868,443 service-based options issued, 129,729 service-based restricted common shares granted, 530,851 performance-based and 116,218 market-based restricted common shares granted under the 2012 Plan.  As of February 28, 2021, there were 562,310 shares available for future issuance under the 2012 Plan.  

Service-based vesting condition options

The fair value of each option award is estimated on the date of the grant using the Black-Scholes valuation model that uses the assumptions noted in the following table.  Expected volatility is based on the historical volatility of the Company’s stock over the most recent period commensurate with the expected life of the Company’s stock options.  The Company uses historical data to estimate option exercise and employee termination within the valuation model.  The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.  The expected term of options granted to employees is based upon historical exercise data.  Expected dividends are based on the historical trend of the Company not issuing dividends.

There were 0 and 44,969 options granted during the three months ended February 28, 2021 and February 29, 2020, respectively.

Variables used to determine the fair value of the options granted for the three months ended February 29, 2020 are as follows:

 

 

 

Three months ended February 29, 2020

 

Weighted average values:

 

 

 

 

Expected dividends

 

0%

 

Expected volatility

 

64.25%

 

Risk free interest rate

 

1.90%

 

Expected life

 

9.0 years

 

 

22


 

 

Stock option activity for the three months ended February 28, 2021, was as follows:

 

 

 

 

 

 

 

Weighted

 

 

Weighted

Average

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Options

 

 

Exercise

Price

 

 

Contractual

Life (Years)

 

 

Intrinsic

Value

 

Outstanding at November 30, 2020

 

 

1,174,943

 

 

$

3.72

 

 

 

3.42

 

 

$

4,502,324

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(25,300

)

 

 

7.57

 

 

 

 

 

 

 

 

Expired/forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at February 28, 2021

 

 

1,149,643

 

 

$

3.64

 

 

 

3.08

 

 

$

7,315,667

 

Exercisable at February 28, 2021

 

 

1,079,983

 

 

$

3.36

 

 

 

2.78

 

 

$

7,167,172

 

 

The aggregate intrinsic value represents the total value of the difference between the Company’s closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options that would have been received by the option holders had all option holders exercised their options on either February 28, 2021 or November 30, 2020, as applicable.  The intrinsic value of the Company’s stock options changes based on the closing price of the Company’s stock.  

For the three months ended February 28, 2021, the Company issued 25,300 common shares to an option holder who exercised options for $191,622.

For the three months ended February 29, 2020, the Company issued 20,000 common shares to an option holder who exercised options for $41,000.

Significant option groups exercisable at February 28, 2021 and related price and contractual life information are as follows:

 

 

 

Outstanding

 

 

Exercisable

 

 

 

 

 

 

 

Weighted

Average

 

 

Weighted

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Remaining

 

 

Average

 

 

 

 

 

 

Average

 

Range of Exercise Prices

 

Outstanding

 

 

Contractual

Life (Years)

 

 

Exercise

Price

 

 

Outstanding

 

 

Exercise

Price

 

$1.01 to $2.00

 

 

422,500

 

 

 

.85

 

 

$

1.73

 

 

 

422,500

 

 

$

1.73

 

$2.01 to $3.00

 

 

245,000

 

 

 

.86

 

 

$

2.78

 

 

 

245,000

 

 

$

2.78

 

$3.01 to $4.00

 

 

204,729

 

 

 

4.99

 

 

$

3.14

 

 

 

204,729

 

 

$

3.14

 

$6.01 to $7.00

 

 

3,833

 

 

 

5.35

 

 

$

6.52

 

 

 

3,388

 

 

$

6.51

 

$7.01 to $8.00

 

 

266,581

 

 

 

7.06

 

 

$

7.64

 

 

 

203,666

 

 

$

7.61

 

$9.01 to $10.00

 

 

7,000

 

 

 

6.45

 

 

$

9.10

 

 

 

700

 

 

$

9.10

 

 

 

 

1,149,643

 

 

 

3.08

 

 

$

3.64

 

 

 

1,079,983

 

 

$

3.36

 

 

23


 

 

A summary of the status of the Company’s non-vested options as of February 28, 2021, and changes during the three months ended February 28, 2021, is presented below:

 

 

 

 

 

 

 

Weighted

Average

 

 

 

 

 

 

 

Grant-Date

 

 

 

Options

 

 

Fair Value

 

Non-vested at November 30, 2020

 

 

93,380

 

 

$

4.65

 

Granted

 

 

 

 

 

 

Vested

 

 

(23,720

)

 

 

4.99

 

Forfeited

 

 

 

 

 

 

Non-vested at February 28, 2021

 

 

69,660

 

 

$

4.53

 

 

As of February 28, 2021, there was approximately $269,000 of total unrecognized compensation cost related to non-vested service-related share-based compensation arrangements granted under the 2006 Plan and the 2012 Plan.  The cost is expected to be recognized over a weighted-average period of 2.16 years as of February 28, 2021.  The total fair value of shares vested during the three months ended February 28, 2021 was approximately $118,000.

During the second fiscal quarter of 2018, the Company entered into Amended and Restated Employment Agreements (“2018 Employment Agreements”) with each of the Company’s Co-CEOs.  Per the Employment Agreements, each of the Co-CEOs is to receive base grant equity awards in the form of qualified stock options of the Company’s common stock.  As of December 20, 2019, David Portnoy and Mark Portnoy were granted 23,636 and 20,000 stock options of the Company’s common stock, respectively.  The options were issued under the Company’s 2012 Stock Plan and will vest 1/3 upon grant, 1/3 on December 1, 2020 and the remaining 1/3 on November 30, 2021.  The fair value of the options vested for the three months ended February 28, 2021 was approximately $40,000 and is reflected as selling, general and administrative expenses in the accompanying statement of income.  As of February 28, 2021, there was approximately $73,000 of total unrecognized compensation cost related to the non-vested options of common stock.

Performance and market-based vesting condition options

Per the 2018 Employment Agreements, based upon certain performance criteria, the Company shall grant David Portnoy and Mark Portnoy a percentage of up to 47,273 and 40,000, respectively, of qualified stock options of the Company’s common stock.  For market-based vesting condition options, accounting principles do not require that the market condition be met in order for the compensation cost to be recognized.  Fair value of these options is determined using a Monte Carlo valuation approach.  There were no market-based vesting condition options for the three months ended February 28, 2021 or February 29, 2020.  For performance-based vesting condition options, the Company estimates the fair value of the qualified stock options that met certain performance targets by the end of the fiscal 2018 requisite service period using a Black-Scholes valuation model.  As of August 30, 2019, the Company granted David Portnoy and Mark Portnoy 26,243 and 22,222 of non-qualified stock options of the Company’s common stock based upon certain performance criteria met by the end of the fiscal 2018 service period.  These options were issued under the Company’s 2012 Stock Plan and vested 1/3 upon date of grant, 1/3 on December 1, 2019 and 1/3 on November 30, 2020.  The fair value of the options that vested through the three months ended February 28, 2021 and February 29, 2020 was approximately $0 and $86,000, respectively, and is reflected as selling, general and administrative expenses in the accompanying consolidated statements of income.  As of February 28, 2021, there was $0 of total unrecognized compensation cost as the options were fully vested.

24


 

Per the Amendment Agreement, based upon certain performance criteria, the Company shall grant Oleg Mikulinsky a percentage of up to 8,000 of qualified stock options of the Company’s common stock. For market-based vesting condition options, accounting principles do not require that the market condition be met in order for the compensation cost to be recognized.  Fair value of these options is determined using a Monte Carlo valuation approach.  There were no market-based vesting condition options for the three months ended February 28, 2021 or February 29, 2020.  For performance-based vesting condition options, the Company estimates the fair value of the qualified stock options that met certain performance targets by the end of the requisite service period using a Black-Scholes valuation model.  As of September 4, 2019, the Company granted Oleg Mikulinsky 4,444 of qualified stock options of the Company’s common stock based upon certain performance criteria met by the end of the fiscal 2018 service period and per the Amendment Agreement.  These options were issued under the Company’s 2012 Stock Plan and vested 1/3 upon date of grant, 1/3 on December 1, 2019 and 1/3 on November 30, 2020.  The fair value of the options that vested through the three months ended February 28, 2021 and February 29, 2020 was approximately $200 and $7,600, respectively and is reflected as selling, general and administrative expenses in the accompanying consolidated statements of income.  As of February 28, 2021, there was $0 of total unrecognized compensation cost as the options were fully vested.  As of February 27, 2020, the Company granted Oleg Mikulinsky 1,333 of qualified stock options of the Company’s common stock based upon certain performance criteria met by the end of the fiscal 2019 service period and per the Amendment Agreement.  These options were issued under the Company’s 2012 Stock Plan and will vest 1/3 upon date of grant, 1/3 on December 1, 2020 and 1/3 on November 30, 2021.  The fair value of the options that vested through the three months ended February 28, 2021 and February 29, 2020 was approximately $1,000 and $2,000, respectively, and is reflected as selling, general and administrative expenses in the accompanying consolidated statements of income.  As of February 28, 2021, there was approximately $2,000 of total unrecognized compensation cost related to the non-vested options of common stock.

 

Note 8 – License Agreements

The Company enters into two types of licensing agreements and in both types, the Company earns revenue on the initial license fees.  Under the technology agreements, the Company earns processing and storage royalties from the affiliates that process in their own facility.  Under the marketing agreements, the Company earns processing and storage revenues from affiliates that store specimens in the Company's facility in Oldsmar, Florida.

Technology Agreements

The Company has entered into a definitive License and Royalty Agreement with LifeCell International Private Limited, formerly Asia Cryo-Cell Private Limited, (“LifeCell”) to establish and market its umbilical cord blood and menstrual stem cell programs in India.

Per the License and Royalty Agreement with LifeCell, there is a $1,000,000 cap on the amount of royalties due to the Company per year and a $10,000,000 cap on the amount of royalties due to the Company for the term of the License and Royalty Agreement.   The cap(s) are calculated based on LifeCell’s fiscal year end, March 31st.  As of November 30, 2020, the Company had reached the $10,000,000 cap and recorded all royalties that were due.  Since inception of the License and Royalty Agreement, the Company has recorded $10,000,000 in royalty income due under the terms of the License and Royalty Agreement, of which, LifeCell has paid the Company $9,200,000 as of February 28, 2021.  The balance of $800,000 is reflected as Accounts Receivable on the accompanying consolidated balance sheets.

25


 

Marketing Agreements

The Company has definitive license agreements to market the Company's umbilical cord blood stem cell programs in Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama and Pakistan.  

For the three months ended February 28, 2021 and February 29, 2020, the Company recognized $0 and $0, respectively, for initial license fees and processing and storage royalties.

Note 9 – Legal Proceedings

From time to time the Company is subject to proceedings, lawsuits, contract disputes and other claims in the normal course of its business.  The Company believes that the ultimate resolution of current matters should not have a material adverse effect on the Company’s business, consolidated financial position or results of operations.  It is possible, however, that there could be an unfavorable ultimate outcome for or resolution which could be material to the Company’s results of operations for a particular quarterly reporting period.  Litigation is inherently uncertain and there can be no assurance that the Company will prevail.  The Company does not include an estimate of legal fees and other related defense costs in its estimate of loss contingencies.

Note 10 – Share Repurchase Plan

In December 2011, the Company’s Board of Directors authorized management at its discretion to repurchase up to 1,000,000 shares of the Company's outstanding common stock.  On June 6, 2012, the Board of Directors of the Company increased the number of shares of the Company’s outstanding common stock that management is authorized to repurchase to up to 3,000,000.  On April 8, 2015, the Board of Directors of the Company increased the number of shares of the Company’s outstanding common stock that management is authorized to repurchase to up to 6,000,000 shares.  On October 6, 2016, the Board of Directors of the Company increased the number of shares of the Company’s outstanding common stock that management is authorized to repurchase to up to 8,000,000 shares.  The repurchases must be effectuated through open market purchases, privately negotiated block trades, unsolicited negotiated transactions, and/or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission or in such other manner as will comply with the provisions of the Securities Exchange Act of 1934.

As of February 28, 2021, the Company had repurchased an aggregate of 6,093,535 shares of the Company’s common stock at an average price of $3.37 per share through open market and privately negotiated transactions.  The Company did not repurchase any of the Company’s common stock during the first quarter of fiscal 2021 and fiscal 2020.

The repurchased shares will be held as treasury stock at cost and have been removed from common shares outstanding as of February 28, 2021 and November 30, 2020.  As of February 28, 2021, and November 30, 2020, 6,093,535 and 6,093,535 shares, respectively, were held as treasury stock.

Subsequent to the balance sheet date, the Company has not repurchased any additional shares of the Company’s common stock.

 

Note 11 – Leases

Effective December 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), using the modified retrospective approach and utilizing the effective date as its date of initial application.  As a result, prior periods are presented in accordance with the previous guidance in ASC 840, Leases (“ASC 840”).  The Company has elected to apply the ‘package of practical expedients’ which allows the Company to not reassess i) whether existing or expired arrangements contain a lease, ii) the lease classification of existing

26


 

or expired leases, or iii) whether previous initial direct costs would qualify for capitalization under the new lease standard.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement.  Leases with a term greater than one year are recognized on the balance sheet as a right-of-use (ROU) assets and as short-term and long-term lease liabilities, as applicable.  The Company does not have any financing leases.

Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term.  The interest rate implicit in lease contracts is typically not readily determinable.  As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company believes it could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.

The Company has elected not to recognize leases with an original term of one year or less on the balance sheet.  The Company typically only includes an initial lease term in its assessment of a lease arrangement.  Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew.

In January 2021, the Company exercised its right to extend a lease for 36 months that resulted in an increase of $780,070 to operating lease right-of-use asset and of $780,070 to operating lease liabilities.

The following table presents the right-of-use asset and short-term and long-term lease liabilities amounts recorded on the consolidated balance sheets as of February 28, 2021 and November 30, 2020:

 

 

 

February 28,

2021

 

 

November 30,

2020

 

Assets

 

 

 

 

 

 

 

 

Operating lease right-of-use asset

 

$

1,012,539

 

 

$

299,089

 

Liabilities

 

 

 

 

 

 

 

 

Current portion of operating lease liabilities

 

$

239,330

 

 

$

275,570

 

Operating lease long term liabilities

 

 

774,438

 

 

 

23,632

 

Total lease liability

 

$

1,013,768

 

 

$

299,202

 

 

The maturity of the Company’s lease liabilities at February 28, 2021 were as follows:

 

 

 

Future Operating

 

Fiscal Year Ending November 30,

 

Lease Payments

 

2021 (remaining 9 months)

 

$

214,567

 

2022

 

 

294,336

 

2023

 

 

295,086

 

2024

 

 

295,086

 

2025

 

 

24,590

 

Less: Imputed interest

 

 

(109,897

)

Present value of lease liabilities

 

$

1,013,768

 

 

27


 

 

The remaining lease term and discount rates are as follows:

 

 

 

February 28, 2021

 

Lease Term and Discount Rate

 

 

 

 

Remaining lease term (years)

 

 

 

 

Operating lease

 

 

3.8

 

Discount rate (percentage)

 

 

 

 

Operating lease

 

 

5.3

%

 

Supplemental cash flow information related to leases is as follows:

 

 

 

Three Months

Ended

 

 

Three Months

Ended

 

 

 

February 28, 2021

 

 

February 29, 2020

 

Operating cash outflows from operating leases

 

$

71,566

 

 

$

66,300

 

 

Note 12 – COVID-19

In March 2020, the World Health Organization declared a pandemic related to the rapidly spreading coronavirus (“COVID-19”) outbreak.  The Company faces various risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of COVID-19.  The Company believes it has taken appropriate steps to minimize the risk to our employees and to maintain normal business operations and continues to actively monitor the global outbreak and spread of COVID-19 and continues to take steps to mitigate the potential risks to us posed by its spread and related circumstances and impacts.  Due to the change in consumer buying patterns as a result of COVID-19, the Company has experienced a decline in new client sales resulting in a decrease in revenues for the three months ended February 28, 2021 compared to the three months ended February 29, 2020.  While the ultimate health and economic impact of COVID-19 remains highly uncertain, we expect that our business operations and results of operations, including our net sales, earnings and cash flows, may continue to be impacted by decreases in new client sales.  We cannot predict the timing and speed of the recovery, and any delay in the recovery could significantly impact our future results.  

Note 13 – Patent Option and Technology License Agreement

Effective June 9, 2020, the Company entered into a Patent Option Agreement (the “Option”) with Duke University (“Duke”). The Option grants Cryo-Cell the exclusive option to obtain an exclusive license to certain of Duke’s patent rights to make, have made, use, import, offer for sale, sell and otherwise commercially exploit (with the right to sublicense) certain licensed products and to practice certain licensed processes, and the exclusive right to use certain regulatory data and technical information in connection with such licensed patent rights, in the treatment, prevention, cure, reduction, mitigation or other management of diseases in humans, except, with regard to certain patent rights, in certain excluded fields of use and in certain territories, as well as a limited license to make, have made or use certain products, processes, data and information for the purpose of evaluating the market potential for such products and processes in the designated field of use, subject to Duke’s reserved rights to practice the licensed rights for all research, public service, internal (including clinical) and/or educational purposes. This exclusive Option is for a period of six months from the effective date of the Option. As consideration for the Option, the Company paid Duke a non-refundable, option fee of $350,000 during June 2020. The Option was subject to extension by the Company for an additional six months by payment of $150,000 on or before the expiration

28


 

of the initial six-month option period. On December 1, 2020, the Company made the extension payment of $150,000.  Such option fee, plus the extension fee, was fully credited against the license fee under the future license agreement. In connection with the option, Cryo-Cell anticipates opening a clinic to help patients have greater access to cord blood treatments established by Duke University under the FDA granted Expanded Access Program.

On February 23, 2021, the Company entered into a Patent and Technology License Agreement (the “Agreement”) with Duke, pursuant to which Duke has granted to the Company an exclusive license to make, have made, use, import, offer for sale, sell and otherwise commercially exploit (with the right to sublicense) certain licensed products and to practice certain licensed processes, and the exclusive right to use certain regulatory data and technical information in connection with such licensed patent rights, in the treatment, prevention, cure, reduction, mitigation or other management of certain diseases in humans, except, with regard to certain patent rights, in certain excluded fields of use and in certain territories, subject to Duke’s reserved rights to practice the licensed rights for all research, public service, internal (including clinical) and/or educational purposes.  

The Agreement extends until expiration of the last Royalty Term, unless sooner terminated as provided in the Agreement. Royalty Term generally means the period beginning on the first commercial sale of each licensed product or licensed process and ending 15 years thereafter. Upon expiration of the applicable Royalty Term with respect to a particular licensed product or licensed processes, the licenses and rights granted by Duke to the Company under the Agreement with respect to such product or process become fully paid-up, royalty-free, perpetual and irrevocable.

The Company is required to pay Duke a license fee equal to $12,000,000, of which $5,000,000 was due within 14 days of February 23, 2021 (of which $500,000 has previously been paid through the crediting of the previously paid $350,000 option fee plus $150,000, extension fee, as described above), $5,000,000 must be paid on the first anniversary of February 23, 2021, and $2,000,000 must be paid on the second anniversary of February 23, 2021.  In addition, during the Royalty Term, subject to certain minimum royalties, the Company is required to pay Duke royalties based on a portion of net sales varying from 7% - 12.5% based on volume.  On March 8, 2021, the Company transferred $4,889,410 to Duke which included the first payment due of $5,000,000, less $500,000 previously paid and $389,410 in costs related to the patents.

The Company is also required to pay Duke minimum annual royalties beginning on the second anniversary of the effective date.  The minimum annual royalties are as follows:

 

Year 2:  $500,000

 

Year 3:  $1,000,000

 

Year 4: $2,500,000

 

Year 5 and each year thereafter during the term of this Agreement:  $5,000,000

In addition, the Company is required to pay Duke certain milestone payments, as follows:

 

$2,000,000 upon initiation of the first Phase III clinical trial for an indication other than Autism Spectrum Disorder, for a licensed product comprising cord tissue; and

 

A number of shares of the Company’s common stock equal to the corresponding percentage of the Company’s fully-diluted equity ownership outstanding as of February 23, 2021 as follows:  

 

(1)

5.0% upon execution of the Agreement;

29


 

 

 

(2)

2.5% upon cumulative net sales of licensed product and licensed process of $10,000,000;

 

(3)

2.5% upon cumulative net sales of licensed product and licensed process of $75,000,000

 

(4)

2.5% at each of the following market cap of the Company (based on a rolling 30-day average closing market cap) triggers:

 

o

Equal to or greater than $300,000,000, provided such trigger occurs within 18 months of February 23, 2021; and

 

o

Equal to or greater than $500,000,000, provided such trigger occurs within 24 months of February 23, 2021.

As of February 23, 2021, the Company capitalized $58,073,486 as a Duke license agreement which represents the costs to obtain the Agreement.  These costs include the present value of the $12,000,000 license fee, $3,585,170 of the Company’s common stock transferred to Duke, the present value of the future minimum royalty payments and certain acquisition costs.  The Company anticipates amortizing these costs over 15 years.

 

 

30


 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statements

This Form 10‑Q, press releases and certain information provided periodically in writing or orally by the Company's officers or its agents may contain statements which constitute "forward‑looking statements". The terms "Cryo-Cell International, Inc.," “Cryo-Cell,” "Company," "we," "our" and "us" refer to Cryo-Cell International, Inc.  The words "expect," “anticipate,” "believe," "goal," “strategy,” "plan," "intend," "estimate" and similar expressions and variations thereof, if used, are intended to specifically identify forward‑looking statements.  Those statements appear in a number of places in this Form 10‑Q and in other places, and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things:

 

(i)

our future performance and operating results;

 

(ii)

our future operating plans;

 

(iii)

our liquidity and capital resources; and

 

(iv)

our financial condition, accounting policies and management judgments.

Investors and prospective investors are cautioned that any such forward‑looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward‑looking statements as a result of various factors.  The factors that might cause such differences include:

 

(i)

any adverse effect or limitations caused by recent increases in government regulation of stem cell storage facilities;

 

(ii)

any increased competition in our business including increasing competition from public cord blood banks particularly in overseas markets but also in the U.S.;

 

(iii)

any decrease or slowdown in the number of people seeking to store umbilical cord blood stem cells or decrease in the number of people paying annual storage fees;

 

(iv)

any new services relating to other types of stem cells that have not yet been offered commercially, and there is no assurance that other stem cell services will be launched or will gain market acceptance;

 

(v)

any adverse impacts on revenue or operating margins due to the costs associated with increased growth in our business, including the possibility of unanticipated costs relating to the operation of our facility and costs relating to the commercial launch of new types of stem cells;

 

(vi)

any unique risks posed by our international activities, including but not limited to local business laws or practices that diminish our affiliates’ ability to effectively compete in their local markets;

 

(vii)

any technological or medical breakthroughs that would render our business of stem cell preservation obsolete;

 

(viii)

any material failure or malfunction in our storage facilities; or any natural disaster or act of terrorism that adversely affects stored specimens;

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(ix)

any adverse results to our prospects, financial condition or reputation arising from any material failure or compromise of our information systems;

 

(x)

the costs associated with defending or prosecuting litigation matters, particularly including litigation related to intellectual property, and any material adverse result from such matters;

 

(xi)

the success of our licensing agreements and their ability to provide us with royalty fees;

 

(xii)

any difficulties and increased expense in enforcing our international licensing agreements;

 

(xiii)

any adverse performance by or relations with any of our licensees;

 

(xiv)

any inability to enter into new licensing arrangements including arrangements with non-refundable upfront fees;

 

(xv)

any inability to realize cost savings as a result of recent acquisitions;

 

(xvi)

any inability to realize a return on an investment;

 

(xvii)

any increased U.S. income tax expense as a result of inability to utilize or exhaustion of net operating losses;

 

(xviii)

any adverse impact on our revenues and operating margins as a result of discounting of our services in order to generate new business in tough economic times where consumers are selective with discretionary spending;

 

(xix)

the success of our global expansion initiatives;

 

(xx)

our actual future ownership stake in future therapies emerging from our collaborative research partnerships;

 

(xxi)

our ability to minimize our future costs related to R&D initiatives and collaborations and the success of such initiatives and collaborations;

 

(xxii)

any inability to successfully identify and consummate strategic acquisitions;

 

(xxiii)

any inability to realize benefits from any strategic acquisitions;

 

(xxiv)

the Company’s ability to realize a profit on the acquisition of PrepaCyte-CB;

 

(xxv)

the Company’s ability to realize a profit on the acquisition of Cord:Use,

 

(xxvi)

the Company’s ability to expand its core business units to include biopharmaceutical manufacturing and operating clinics,

 

(xxvii)

any uncertainties of profitability from its biopharmaceutical manufacturing and operating clinics,

 

(xxviii)

the costs associated with proxy contests and its impact on our business,

 

(xxix)

the impact of the COVID-19 pandemic on our sales, operations and supply chain and

 

(xxx)

other factors many of which are beyond our control.

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We undertake no obligation to publicly update or revise the forward-looking statements made in this Form 10‑Q to reflect events or circumstances after the date of this Form 10‑Q or to reflect the occurrence of unanticipated events.

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof.  Cryo-Cell International, Inc. undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.  Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission, including the Annual Report on Form 10-K filed by the Company and any Current Reports on Form 8-K filed by the Company.

Overview

The Company is engaged in cellular processing and cryogenic storage, with a current focus on the collection and preservation of umbilical cord blood stem cells for family use.  The Company’s principal sources of revenues are service fees for cord blood processing and preservation for new customers and recurring annual storage fees.  Effective April 2016, the Company offers two pricing models, a standard plan and premium plan.  The Company charges fees of $1,675 for the standard plan and $2,025 for the premium plan to new clients for the collection kit, processing, testing and return medical courier service, with discounts in the case of multiple children from the same family and in other circumstances.  The Company charges an annual storage fee of $175 for new clients that enroll in the standard and premium plans; storage fees for existing customers depend on the contracts with such customers.  The Company continues to offer a one-time payment plan for 18 years of storage and a lifetime payment plan, pursuant to which the client is charged $4,650 for the standard plan and $5,000 for the premium plan and approximately $5,800 for the standard plan and approximately $6,100 for the premium plan, respectively, less discounts in the case of multiple children from the same family and in other circumstances.  The one-time plan includes the collection kit, processing and testing, return medical courier service and 18 years of prepaid storage fees.  The lifetime plan includes the collection kit, processing and testing, return medical courier service and prepaid storage fees for the life of the client.  The Company also receives other income from licensing fees and royalties from global affiliates.

On June 11, 2018, Cryo-Cell completed its acquisition of substantially all of the assets (the “Cord Purchase”) of Cord:Use Cord Blood Bank, Inc., a Florida corporation (“Cord:Use”), in accordance with  the definitive Asset Purchase Agreement between Cryo-Cell and Cord:Use (the “Purchase Agreement”),  including without limitation Cord:Use’s inventory of public cord blood units existing as of the closing date (the “Public Cord Blood Inventory”) and Cord:Use’s shares of common stock of Tianhe Stem Cell Biotechnologies, Inc., an Illinois corporation (the “Tianhe Capital Stock”). Cord:Use was in the business of public and private cord blood and tissue, collection, processing, storage and banking.  The aggregate consideration payable at closing under the Purchase Agreement was $14,000,000, with $10,500,000 paid in cash and the balance paid through the delivery to Seller of 465,426 shares of Cryo-Cell’s common stock, par value $0.01 per share (“Common Stock”), at $7.52 per share. In addition, Cryo-Cell assumed certain limited liabilities incurred by Cord:Use in connection with its business that were unpaid as of the closing date and that directly relate to the services to be provided after closing by Cryo-Cell. Cryo-Cell also assumed certain of Cord:Use’s contracts and the obligations arising therefrom after the closing.   Additionally, Cord:Use is entitled to an earnout from Cryo-Cell’s sale of the Public Cord Blood Inventory from and after closing.  Each calendar year after the closing, Cryo-Cell is required to pay to Cord:Use 75% of all gross revenues, net of any returns, received from the sale of public cord blood inventory in excess of $500,000.  Such payments are to be made quarterly, within 30 days of the end of the last month of each calendar quarter, until the public cord blood inventory is exhausted.  In addition, each calendar year after closing, until the public cord blood inventory is exhausted, for every $500,000 of retained gross revenues, net of any returns, received and retained by Cryo-Cell in excess of the initial $500,000 retained by Cryo-Cell during such year,

33


 

Cryo-Cell is to deliver $200,000 worth of Cryo-Cell Common stock to Cord:Use, up to an aggregate value of $5,000,000.  Cord:Use is also entitled to a portion of the gross profits generated, or deemed to have been generated, by Cryo-Cell from its ownership of the Tianhe Capital Stock.

As disclosed in Note 13, on February 23, 2021, the Company entered into a Patent and Technology License Agreement (the “Agreement”) with Duke University (“Duke”).  The Agreement grants the Company the rights to proprietary processes and regulatory data related to cord blood and cord tissue developed at Duke.  The Company plans to explore, test, and administer these treatments to patients with conditions for which there are limited FDA approved therapies, including cerebral palsy, autism, multiple sclerosis and COVID-19. These treatments utilize the unique immunomodulatory and potential regenerative properties derived from cord blood and cord tissue.  Per the Agreement, the Company has been granted exclusive commercial rights to Duke’s intellectual property assets, FDA regulatory data, clinical expertise and manufacturing protocols associated with various applications of cord blood and cord tissue stem cells.  Through this Agreement, the Company intends to expand to a triad of core business units to include its cord blood bank, biopharmaceutical manufacturing (once BLA(s) or Emergency Use Authorization(s) are approved by the FDA), and infusion clinic(s) services, initially under the rights granted to Duke through the FDAs Expanded Access Program. 

During the three months ended February 28, 2021, the Company’s revenues decreased 10% as compared to the same period in 2020.  The Company reported net income of approximately $694,000 or $0.09 per basic common share for the three months ended February 28, 2021 compared to net income of approximately $687,000, or $0.09 per basic common share for the three months ended February 29, 2020.  Net income for the three months ended February 28, 2021 principally resulted from a 20% decrease in cost of sales, an 11% decrease in selling, general and administrative expenses, and by a 10% decrease in revenue.  

At February 28, 2021, the Company had cash and cash equivalents of 11,277,811.  The Company’s cash increased by approximately $917,000 during the first three months of fiscal 2021.  Cash provided by operations was approximately $2,662,000 which was offset by approximately $1,775,000 used to repay the note payable.

In March 2020, the World Health Organization declared a pandemic related to the rapidly spreading coronavirus (“COVID-19”) outbreak.  The Company faces various risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of COVID-19.  The Company believes it has taken appropriate steps to minimize the risk to our employees and to maintain normal business operations and continues to actively monitor the global outbreak and spread of COVID-19 and continues to take steps to mitigate the potential risks to us posed by its spread and related circumstances and impacts.  Due to the change in consumer buying patterns as a result of COVID-19, the Company has experienced a decline in new client sales resulting in a decrease in revenues for the three months ended February 28, 2021 compared to the three months ended February 29, 2020.  While the ultimate health and economic impact of COVID-19 remains highly uncertain, we expect that our business operations and results of operations, including our net sales, earnings and cash flows, may continue to be impacted by decreases in new client sales.  We cannot predict the timing and speed of the recovery, and any delay in the recovery could significantly impact our future results.  

Consistent with its fiduciary duties, the board of directors and management has reviewed and will continue to review strategic options and opportunities for the Company, in order to maximize shareholder value.  These options may include, but are not limited to, strategic mergers or acquisitions, investments in other public and/or private companies, repurchases of revenue sharing agreements (“RSA”) interests, a deregistration of the Company's common stock under the Securities Exchange Act of 1934 or a going-private transaction.   These options may or may not be related to the Company’s current business.  In order to undertake any of the aforementioned activities, the Company may take on substantial debt or equity capital which could increase the risk of investment in the Company.

34


 

Results of Operations

Revenues.  Revenues for the three months ended February 28, 2021 were $6,860,617 compared to $7,620,774 for the same period in 2020, a 10% decrease.  The decrease in revenue was primarily attributable to a 9% decrease in processing and storage fees.

Processing and Storage Fees.  The decrease in processing and storage fee revenue is attributable to a decrease in the number of new domestic cord blood specimens offset by a 9% increase in recurring annual storage fee revenue.

Public Banking Revenue.  For the three months ended February 28, 2021, revenue from public banking was $83,986 compared to $154,079 for the three months ended February 29, 2020.

Product Revenue.  For the three months ended February 28, 2021, revenue from the PrepaCyte CB product sales was $38,000 compared to $60,407 for the three months ended February 29, 2020.  

Cost of Sales.  Cost of sales for the three months ended February 28, 2021 was $2,012,197 as compared to $2,503,144 for the same period in 2020, representing a 20% decrease.  Cost of sales includes wages and supplies associated with process enhancements to the existing production procedures and quality systems in the processing of cord blood specimens at the Company’s facility in Oldsmar, Florida and depreciation expense of approximately $51,000 and $52,000 for the three months ended February 28, 2021 and February 29, 2020, respectively. Also included in Cost of Sales is $34,880 and $41,117 related to the costs associated with production of the PrepaCyte®-CB processing and storage system for the three months ended February 28, 2021 and February 29, 2020, respectively.  Also included in Cost of Sales is $337,301 and $406,953 for the three months ended February 28, 2021 and February 29, 2020, respectively, related to the public banking due to the Purchase Agreement with Cord:Use.  The decrease in cost of sales for the three months ended February 28, 2021 versus February 29, 2020 is due to the decrease in the number of new domestic cord blood specimens processed during the three months ended February 28, 2021 versus the three months ended February 29, 2020.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses for the three months ended February 28, 2021 were $3,433,312 as compared to $3,870,029 for the 2020 period, representing an 11% decrease.  These expenses are primarily comprised of expenses for consumer advertising, salaries and wages for personnel and professional fees. The decrease in selling, general and administrative expenses is primarily attributable to an 11% decrease in selling expenses.

Research, Development and Related Engineering Expenses.  Research, development and related engineering expenses for the three months ended February 28, 2021 were $6,190 as compared to $5,722 for the three months ended February 29, 2020.  

Depreciation and Amortization.  Depreciation and Amortization (not included in Cost of Sales) for the three months ended February 28, 2021 was $21,263 compared to $44,221 for the 2020 period.  

Change in the Fair Value of Contingent Consideration.  Change in the fair value of the contingent consideration for the three months ended February 28, 2021 was an increase of $152,394 compared to a decrease of $51,412 for the 2020 period.  The contingent consideration is the earnout that Cord:Use is entitled to from the Company’s  sale of the public cord blood inventory from and after closing, described above.  The contingent consideration was remeasured to fair value as of February 28, 2021.  The estimated fair value of the contingent earnout was determined using a Monte Carlo analysis examining the frequency and mean value of the resulting earnout payments.  The resulting value captures the risk associated with the form of the payout structure.  The risk-neutral method is applied, resulting in a value that captures the risk associated with the form of the payout structure and the projection risk.  The carrying amount of the

35


 

liability may fluctuate significantly and actual amounts paid may be materially different from the estimated value of the liability.

Interest Expense.  Interest expense for the three months ended February 28, 2021 was $280,219 compared to $365,299 for the three months ended February 29, 2020, of which, $60,220 and $134,261, respectively, related to the credit and subordination agreements with Texas Capital Bank, National Association as described in Note 5.  The remaining interest expense is mainly comprised of amounts due to the parties to the Company’s RSA based on the Company’s storage revenue collected.

Income Taxes. Income tax expense for the three months ended February 28, 2021 was $258,901 compared to $252,380 for the three months ended February 29, 2020.

Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled.  The ultimate realization of our deferred tax assets depends upon generating sufficient future taxable income prior to the expiration of the tax attributes.  In assessing the need for a valuation allowance, we must project future levels of taxable income.  This assessment requires significant judgment.  We examine the evidence related to the recent history of tax losses, the economic conditions in which we operate and our forecasts and projections to make that determination.

Liquidity and Capital Resources

On May 20, 2016, the Company entered into a Credit Agreement (“Agreement”) with Texas Capital Bank, National Association (“TCB”) for a term loan of $8.0 million in senior credit facilities.  The proceeds of the term loan were used by the Company to fund repurchases of the Company’s common stock.  Subject to the terms of the Agreement, on May 20, 2016, TCB advanced the Company $100.  On July 1, 2016, TCB advanced the remaining principal amount of $7,999,900 per a promissory note dated May 20, 2016 between the Company and TCB.

On August 26, 2016, the Company entered into a First Amendment to Credit Agreement with TCB. Pursuant to terms of the First Amendment to Credit Agreement, on August 26, 2016, TCB made an additional advance to the Company in principal amount of $2,133,433 per an Amended and Restated Promissory Note dated August 26, 2016 between the Company and TCB.  The additional proceeds of the term loan were used by the Company to fund the extinguishment of revenue sharing agreements.

On June 11, 2018, the Company entered into a Second Amendment to Credit Agreement with TCB.  Pursuant to the terms of the Second Amendment to Credit Agreement, TCB made an additional advance to the Company in principal amount of $9,000,000 per an Amended and Restated Promissory Note dated June 11, 2018 between the Company and TCB in the principal amount of $15,500,000.  The proceeds were used to finance a portion of the purchase price of the Cord:Use Purchase.  

Prior to the loans, the Company’s principal source of cash has been from sales of its umbilical cord blood program to customers and royalties from licensees.

At February 28, 2021, the Company had cash and cash equivalents of $11,277,811 as compared to $10,361,125 at November 30, 2020.  The increase in cash and cash equivalents during the three months ended February 28, 2021 was primarily attributable to the following:

Net cash provided by operating activities for the three months ended February 28, 2021 was $2,662,042 which was primarily attributable to the Company’s operating results and a portion of the Company’s new clients choosing the prepaid storage plans versus the annual storage fee plan.

36


 

Net cash provided by operating activities for the three months ended February 29, 2020 was $2,615,563 which was primarily attributable to the Company’s operating results and an increase in the Company’s new clients choosing the prepaid storage plans versus the annual storage fee plan.

Net cash used in investing activities for the three months ended February 28, 2021 was $161,978, which was primarily attributable $11,978 used to the purchase property, equipment and software and $150,000 used as part of the Patent Option and Technology License Agreement with Duke (See Note 13).

Net cash used in investing activities for the three months ended February 29, 2020 was $6,961, which was primarily attributable to the purchases of property and equipment.

Net cash used by financing activities for the three months ended February 28, 2021 was $1,583,378 which was primarily attributable to the payments of $1,775,000 to repay the note payable described above offset by the receipt of $191,622 from the exercise of stock options.

Net cash used by financing activities for the three months ended February 29, 2020 was $734,000 which was primarily attributable to the payments of $775,000 to repay the note payable described above offset by the receipt of $41,000 from the exercise of stock options.

The Company does not have a line of credit.

The Company will closely monitor its liquidity and capital resources due to any potential impact that the COVID-19 pandemic may have on operations.

As disclosed in Note 13, a payment of $5,000,000 is due on February 23, 2022 per the Agreement with Duke.

The Company anticipates making discretionary capital expenditures of approximately $1,000,000 over the next twelve months for software enhancements and purchases of property and equipment. The Company anticipates funding future property and equipment purchases with cash-on-hand and cash flows from future operations.

The Company anticipates that its cash and cash equivalents, marketable securities and cash flows from future operations will be sufficient to fund its known cash needs for at least the next 12 months. Cash flows from operations will depend primarily upon increasing revenues from sales of its umbilical cord blood and cord tissue cellular storage services and managing discretionary expenses.  If expected increases in revenues are not realized, or if expenses are higher than anticipated, the Company may be required to reduce or defer cash expenditures or otherwise manage its cash resources during the next 12 months so that they are sufficient to meet the Company’s cash needs for that period.  In addition, the Company may consider seeking equity or debt financing if deemed appropriate for its plan of operations, and if such financing can be obtained on acceptable terms.  There is no assurance that any reductions in expenditures, if necessary, will not have an adverse effect on the Company’s business operations, including sales activities and the development of new services and technology.

Critical Accounting Policies

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.  The preparation of these financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosures of contingent assets and liabilities.  For a full discussion of our accounting policies please refer to Note 1 to the Consolidated Financial Statements included in our 2020 Annual Report on Form 10-K filed with the SEC on March 1, 2021.  Our most critical accounting policies and estimates include:  recognition of revenue and the related allowance for doubtful accounts, stock-based compensation, income taxes and

37


 

license and revenue sharing agreements.  We continually evaluate our judgments, estimates and assumptions.  We base our estimates on the terms of underlying agreements, historical experience and other factors that we believe are reasonable based on the circumstances, the results of which form our management’s basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates.  There have been changes to our critical accounting policies and estimates from the information provided in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2020 Annual Report on Form 10-K.  Please refer to Note 1 to the Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

See Note 1 to the Consolidated Financial Statements.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have or are reasonable likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on their most recent review, as of the end of the period covered by this report, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective, and that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to ensure that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting during the three months ended February 28, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on the Effectiveness of Controls

Our management, including our Co-CEOs and CFO, does not expect that our disclosure controls and internal controls will prevent all error and all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

CEO and CFO Certifications

Appearing as exhibits 31.1, 31.2 and 31.3 to this report there are Certifications of the Co-CEOs and the CFO.  The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications).  This Item of this report is the information concerning the evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

39


 

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time the Company is subject to proceedings, lawsuits, contract disputes and other claims in the normal course of its business.  The Company believes that the ultimate resolution of current matters should not have a material adverse effect on the Company’s business, consolidated financial position or results of operations.  It is possible, however, that there could be an unfavorable ultimate outcome for or resolution which could be material to the Company’s results of operations for a particular quarterly reporting period.  Litigation is inherently uncertain and there can be no assurance that the Company will prevail.  The Company does not include an estimate of legal fees and other related defense costs in its estimate of loss contingencies.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASE OF EQUITY SECURITIES

 

Period

 

Total Number of

Shares

Purchased

 

 

Average Price

Paid per Share

 

 

Total Number of

Shares

Purchased

as Part of

Publicly

Announced

Plans

or Programs

 

 

Maximum

Number

(or Approximate

Dollar Value) of

Shares that May

Yet Be

Purchased

Under the Plans

or Programs

 

December 1 – 31, 2020

 

 

 

 

$

 

 

 

 

 

 

1,906,465

 

January 1 – 31, 2021

 

 

 

 

$

 

 

 

 

 

 

1,906,465

 

February 1 – 28, 2021

 

 

 

 

$

 

 

 

 

 

 

1,906,465

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5.  OTHER INFORMATION

None.

40


 

ITEM 6.  EXHIBITS

 

 

(a)

Exhibits

 

10.2

 

Patent and License Technology Agreement

 

31.1

 

Certification of Co-CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

 

 

31.2

 

Certification of Co-CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

 

 

31.3

 

Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

 

 

32

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS  XBRL Instance Document

 

101.SCH  XBRL Taxonomy Extension Schema Document

 

101.CAL  XBRL Taxonomy Extension Calculation Linkbase Document

 

101.DEF  XBRL Taxonomy Extension Definition Linkbase Document

 

101.LAB  XBRL Taxonomy Extension Label Linkbase Document

 

101.PRE  XBRL Taxonomy Extension Presentation Linkbase Document

 

41


 

 

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Cryo-Cell International, Inc.

 

  /s/ DAVID PORTNOY

David Portnoy

Co-Chief Executive Officer

 

 

Cryo-Cell International, Inc.

 

  /s/ MARK PORTNOY

Mark Portnoy

Co-Chief Executive Officer

 

 

Cryo-Cell International, Inc.

 

  /s/ JILL M. TAYMANS

Jill M. Taymans

Vice President, Finance, Chief Financial Officer

 

Date:  April 14, 2021

 

42