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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 May 31, 2024

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 001-40767

 

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)

 

(813) 749-2100

 

 

(Issuer's phone number, including area code)

(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

 

NYSE American LLC

 

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically 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 ☒ No ☐ Not Applicable ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of July 15, 2024, 8,061,786 shares of $0.01 par value common stock were 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

28

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

37

 

 

Item 4. Controls and Procedures

37

 

 

PART II - OTHER INFORMATION

39

 

 

Item 1. Legal Proceedings

39

 

 

Item 1A. Risk Factors

39

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

52

 

 

Item 3. Defaults Upon Senior Securities

52

 

 

Item 4. Mine Safety Disclosures

52

 

 

Item 5. Other Information

52

 

 

Item 6. Exhibits

53

 

 

SIGNATURES

54

 

 

 

2


 

CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

(Unaudited)

 

 

 

 

 

 

May 31,

 

 

November 30,

 

 

 

2024

 

 

2023

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

469,195

 

 

$

406,067

 

Marketable securities

 

 

1,060,436

 

 

 

574,183

 

Accounts receivable (net of allowance for

 

 

 

 

 

 

doubtful accounts of $4,026,578 and $3,822,300, respectively)

 

 

6,831,447

 

 

 

6,576,240

 

Prepaid expenses

 

 

651,781

 

 

 

615,407

 

Inventory, current portion

 

 

708,193

 

 

 

768,877

 

Swap contract

 

 

 

 

 

122,113

 

Other current assets

 

 

435,475

 

 

 

389,950

 

Total current assets

 

 

10,156,527

 

 

 

9,452,837

 

Property and Equipment-net

 

 

22,161,859

 

 

 

20,996,883

 

Other Assets

 

 

 

 

 

 

Investment - Tianhe stock

 

 

 

 

 

308,000

 

Intangible assets, net

 

 

955,187

 

 

 

989,121

 

Inventory, net of current portion

 

 

5,198,075

 

 

 

5,260,119

 

Goodwill

 

 

1,941,411

 

 

 

1,941,411

 

Deferred tax assets

 

 

20,492,749

 

 

 

20,492,749

 

Operating lease right-of-use asset

 

 

881,744

 

 

 

1,033,157

 

Deposits and other assets, net

 

 

779,044

 

 

 

746,493

 

Total other assets

 

 

30,248,210

 

 

 

30,771,050

 

Total assets

 

$

62,566,596

 

 

$

61,220,770

 

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable

 

$

1,827,717

 

 

$

3,174,584

 

Accrued expenses

 

 

3,217,270

 

 

 

5,170,809

 

Note payable

 

 

171,605

 

 

 

165,641

 

Line of credit

 

 

4,222,728

 

 

 

1,222,728

 

Current portion of operating lease liability

 

 

294,777

 

 

 

225,686

 

Duke license agreement liability

 

 

133,333

 

 

 

1,200,000

 

Deferred revenue

 

 

9,580,635

 

 

 

9,704,553

 

Total current liabilities

 

 

19,448,065

 

 

 

20,864,001

 

Other Liabilities

 

 

 

 

 

 

Deferred revenue, net of current portion

 

 

43,920,645

 

 

 

41,186,800

 

Contingent consideration

 

 

35,353

 

 

 

44,226

 

Note payable, net of current portion and debt issuance costs

 

 

8,356,372

 

 

 

8,430,037

 

Operating lease long-term liability

 

 

672,339

 

 

 

851,938

 

Long-term liability - revenue sharing agreements

 

 

875,000

 

 

 

875,000

 

Total other liabilities

 

 

53,859,709

 

 

 

51,388,001

 

Total liabilities

 

 

73,307,774

 

 

 

72,252,002

 

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; 14,849,246 issued and 8,063,786 outstanding as of May 31, 2024 and 14,849,246 issued and 8,286,785 outstanding as of November 30, 2023)

 

 

148,492

 

 

 

148,492

 

Additional paid-in capital

 

 

43,896,637

 

 

 

43,411,143

 

Treasury stock, at cost

 

 

(24,839,156

)

 

 

(23,431,685

)

Accumulated deficit

 

 

(29,947,151

)

 

 

(31,159,182

)

Total stockholders' deficit

 

 

(10,741,178

)

 

 

(11,031,232

)

Total liabilities and stockholders' deficit

 

$

62,566,596

 

 

$

61,220,770

 

 

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

 

 

For the Six Months Ended

 

 

 

 

May 31,

 

 

May 31,

 

 

May 31,

 

 

May 31,

 

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing and storage fees

 

 

$

7,965,500

 

 

$

7,581,697

 

 

$

15,771,022

 

 

$

15,143,215

 

Public banking revenue

 

 

 

41,477

 

 

 

163,816

 

 

 

85,190

 

 

 

394,513

 

Product revenue

 

 

 

35,834

 

 

 

27,177

 

 

 

38,834

 

 

 

59,377

 

Total revenue

 

 

 

8,042,811

 

 

 

7,772,690

 

 

 

15,895,046

 

 

 

15,597,105

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

2,024,750

 

 

 

2,143,186

 

 

 

4,185,218

 

 

 

4,210,550

 

Selling, general and administrative expenses

 

 

 

4,021,357

 

 

 

4,038,968

 

 

 

8,361,002

 

 

 

7,917,871

 

Impairment of investment - Tianhe stock

 

 

 

308,000

 

 

 

 

 

 

308,000

 

 

 

 

Change in fair value of contingent consideration

 

 

 

(3,697

)

 

 

(23,124

)

 

 

(8,873

)

 

 

(187,825

)

Research, development and related engineering

 

 

 

241,085

 

 

 

304,682

 

 

 

743,974

 

 

 

383,516

 

Depreciation and amortization

 

 

 

59,798

 

 

 

281,080

 

 

 

92,984

 

 

 

561,924

 

Total costs and expenses

 

 

 

6,651,293

 

 

 

6,744,792

 

 

 

13,682,305

 

 

 

12,886,036

 

Operating Income

 

 

 

1,391,518

 

 

 

1,027,898

 

 

 

2,212,741

 

 

 

2,711,069

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains on marketable securities

 

 

 

258,623

 

 

 

10,377

 

 

 

533,594

 

 

 

6,696

 

Gain (loss) on interest rate swap

 

 

 

151,175

 

 

 

(223,974

)

 

 

105,887

 

 

 

(223,974

)

Other income

 

 

 

137

 

 

 

2,066

 

 

 

200

 

 

 

3,334

 

Interest expense

 

 

 

(329,273

)

 

 

(469,952

)

 

 

(585,732

)

 

 

(936,183

)

Total other income (expense)

 

 

 

80,662

 

 

 

(681,483

)

 

 

53,949

 

 

 

(1,150,127

)

Income before income tax expense

 

 

 

1,472,180

 

 

 

346,415

 

 

 

2,266,690

 

 

 

1,560,942

 

Income tax expense

 

 

 

(816,390

)

 

 

(125,439

)

 

 

(1,054,659

)

 

 

(573,154

)

Net income

 

 

$

655,790

 

 

$

220,976

 

 

$

1,212,031

 

 

$

987,788

 

Net income per common share - basic

 

 

$

0.08

 

 

$

0.03

 

 

$

0.15

 

 

$

0.12

 

Weighted average common shares outstanding - basic

 

 

 

8,117,479

 

 

 

8,325,101

 

 

 

8,197,223

 

 

 

8,395,307

 

Net income per common share - diluted

 

 

$

0.08

 

 

$

0.03

 

 

$

0.15

 

 

$

0.12

 

Weighted average common shares outstanding - diluted

 

 

 

8,232,327

 

 

 

8,331,911

 

 

 

8,275,414

 

 

 

8,402,538

 

 

 

 

 

 

 

 

 

 

 

 

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 Six Months Ended

 

 

 

May 31,

 

 

May 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

1,212,031

 

 

$

987,788

 

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

 

 

 

 

 

 

Depreciation and amortization expense

 

 

198,264

 

 

 

724,890

 

Impairment of investment - Tianhe stock

 

 

308,000

 

 

 

 

Change in fair value of contingent consideration

 

 

(8,873

)

 

 

(187,825

)

Unrealized gains on marketable securities

 

 

(533,594

)

 

 

(6,696

)

Unrealized (gain) loss on interest rate swap contract

 

 

(105,887

)

 

 

223,974

 

Compensatory element of stock options

 

 

485,494

 

 

 

469,591

 

Provision for doubtful accounts

 

 

560,200

 

 

 

403,040

 

Amortization of debt issuance costs

 

 

10,669

 

 

 

10,862

 

Amortization of operating lease right-of-use asset

 

 

151,413

 

 

 

155,617

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(815,407

)

 

 

(1,041,578

)

Prepaid expenses

 

 

(36,374

)

 

 

(83,909

)

Inventory

 

 

122,728

 

 

 

410,993

 

Other current assets

 

 

(45,525

)

 

 

17,820

 

Deposits and other assets, net

 

 

(32,551

)

 

 

(56,798

)

Accounts payable

 

 

(599,852

)

 

 

609,687

 

Accrued expenses

 

 

(1,953,539

)

 

 

(1,369,083

)

Operating lease liability

 

 

(110,508

)

 

 

(157,011

)

Deferred revenue

 

 

2,609,927

 

 

 

2,521,664

 

Net cash (used in) from operating activities

 

 

1,416,616

 

 

 

3,633,026

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,209,654

)

 

 

(1,833,043

)

Payment of Duke license agreement

 

 

(933,334

)

 

 

(400,000

)

Proceeds from liquidation of marketable securities

 

 

 

 

 

179,306

 

Purchases of marketable securities

 

 

(854,869

)

 

 

(1,082,923

)

Sale of marketable securities

 

 

902,210

 

 

 

359,752

 

Net cash used in investing activities

 

 

(3,095,647

)

 

 

(2,776,908

)

Cash flows from financing activities:

 

 

 

 

 

 

Treasury stock purchases

 

 

(1,407,471

)

 

 

(791,452

)

Repayments of note payable

 

 

(78,370

)

 

 

(77,126

)

Repayment of line of credit

 

 

(200,000

)

 

 

(500,000

)

Proceeds from line of credit

 

 

3,200,000

 

 

 

 

Proceeds from Swap termination

 

 

228,000

 

 

 

 

Payment of Cord:Use earnout

 

 

 

 

 

(67,500

)

Net cash provided by (used in) financing activities

 

 

1,742,159

 

 

 

(1,436,078

)

Increase (decrease) in cash and cash equivalents

 

 

63,128

 

 

 

(579,960

)

Cash and cash equivalents - beginning of period

 

 

406,067

 

 

 

1,703,958

 

Cash and cash equivalents - end of period

 

$

469,195

 

 

$

1,123,998

 

 

 

 

 

 

 

 

Supplemental non-cash operating activities:

 

 

 

 

 

 

Lease liability arising from right-of-use asset

 

$

 

 

$

737,867

 

Supplemental investing activities:

 

 

 

 

 

 

Construction costs payable

 

$

(880,348

)

 

$

1,841,254

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

Interest

 

$

940,697

 

 

$

869,076

 

Income taxes

 

$

1,952,502

 

 

$

983,647

 

 

 

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 May 31, 2024

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Treasury

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at February 29, 2024

 

 

14,849,246

 

 

$

148,492

 

 

$

43,718,498

 

 

$

(23,602,061

)

 

$

(30,602,941

)

 

$

(10,338,012

)

Compensatory element of stock options

 

 

 

 

 

 

 

 

178,139

 

 

 

 

 

 

 

 

 

178,139

 

Treasury stock

 

 

 

 

 

 

 

 

 

 

 

(1,237,095

)

 

 

 

 

 

(1,237,095

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

655,790

 

 

 

655,790

 

Balance at May 31, 2024

 

 

14,849,246

 

 

$

148,492

 

 

$

43,896,637

 

 

$

(24,839,156

)

 

$

(29,947,151

)

 

$

(10,741,178

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended May 31, 2024

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Treasury

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Deficit

 

Balance at November 30, 2023

 

 

14,849,246

 

 

$

148,492

 

 

$

43,411,143

 

 

$

(23,431,685

)

 

$

(31,159,182

)

 

$

(11,031,232

)

Compensatory element of stock options

 

 

 

 

 

 

 

 

485,494

 

 

 

 

 

 

 

 

 

485,494

 

Treasury stock

 

 

 

 

 

 

 

 

 

 

 

(1,407,471

)

 

 

 

 

 

(1,407,471

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,212,031

 

 

 

1,212,031

 

Balance at May 31, 2024

 

 

14,849,246

 

 

$

148,492

 

 

$

43,896,637

 

 

$

(24,839,156

)

 

$

(29,947,151

)

 

$

(10,741,178

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended May 31, 2023

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Treasury

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Deficit

 

Balance at February 28, 2023

 

 

14,848,001

 

 

$

148,480

 

 

$

42,910,554

 

 

$

(22,875,850

)

 

$

(20,870,701

)

 

$

(687,517

)

Compensatory element of stock options

 

 

 

 

 

 

 

 

156,417

 

 

 

 

 

 

 

 

 

156,417

 

Treasury stock

 

 

 

 

 

 

 

 

 

 

 

(548,251

)

 

 

 

 

 

(548,251

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

220,976

 

 

 

220,976

 

Balance at May 31, 2023

 

 

14,848,001

 

 

$

148,480

 

 

$

43,066,971

 

 

$

(23,424,101

)

 

$

(20,649,725

)

 

$

(858,375

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended May 31, 2023

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Treasury

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Deficit

 

Balance at November 30, 2022

 

 

14,848,001

 

 

$

148,480

 

 

$

42,597,380

 

 

$

(22,632,649

)

 

$

(21,637,513

)

 

$

(1,524,302

)

Compensatory element of stock options

 

 

 

 

 

 

 

 

469,591

 

 

 

 

 

 

 

 

 

469,591

 

Treasury stock

 

 

 

 

 

 

 

 

 

 

 

(791,452

)

 

 

 

 

 

(791,452

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

987,788

 

 

 

987,788

 

Balance at May 31, 2023

 

 

14,848,001

 

 

$

148,480

 

 

$

43,066,971

 

 

$

(23,424,101

)

 

$

(20,649,725

)

 

$

(858,375

)

 

 

 

 

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

6


 

CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2024

(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: (1) cellular processing and cryogenic cellular storage, with a current focus on the collection and preservation of umbilical cord blood stem cells for family use (2) the manufacture of PrepaCyte CB units, the processing technology used to process umbilical cord blood stem cells and (3) cryogenic storage of umbilical cord blood stem cells for public use. Revenues 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 for the manufacture of PrepaCyte CB units represent sales of the PrepaCyte CB units to customers. Revenue for the cryogenic storage of umbilical cord blood stem cells for public use, stored at Duke University (see below), 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 Sheets as of May 31, 2024 and November 30, 2023, the related Consolidated Statements of Income for the three and six months ended May 31, 2024 and 2023, Cash Flows for the three and six months ended May 31, 2024 and 2023 and Stockholders’ Deficit for the three and six months ended May 31, 2024 and 2023 have been prepared by Cryo-Cell International, Inc. 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, 2023 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 and six months ended May 31, 2024 are not necessarily indicative of the results expected for any interim period in the future or the entire year ending November 30, 2024.

On February 22, 2024, the Company formed its wholly owned Delaware subsidiary, Celle Corp. As of May 31, 2024, no shares had been issued to the subsidiary. Celle Corp. was created to hold certain assets of Cryo-Cell not directly associated with the recurring revenue stream from privately banked, umbilical cord blood specimens. The Patent and Technology License Agreement with Duke University and Amendments have been transferred to Celle Corp. and other assets and liabilities are expected to be transferred in the near future.

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.

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

7


 

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
Public cord blood banking
License and royalties
Sale of PrepaCyte CB product
a)
Collection, Processing and Storage Fees

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 life-time. 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 component

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,

8


 

twenty-one years and lifetime, the storage fee is billed at the beginning of the storage period (prepaid plans). The Company also 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.

As of May 31, 2024, the total aggregate transaction price allocated to the unsatisfied performance obligations was recorded as deferred revenue amounting to $53,501,280, which will be recognized ratably on a straight-line basis over the contractual period of which $9,580,635, 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 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

9


 

and six months ended May 31, 2024, the Company recorded $14,441 and $25,493, respectively, in commission payments to customers under the RAF program as a reduction to revenue. During the three and six months ended May 31, 2023, the Company recorded $10,958 and $21,390, respectively, in commission payments to customers under the RAF program as a reduction to revenue. For the three and six months ended May 31, 2024 the Company capitalized additional contract acquisition costs of $31,490 and $61,669, respectively, net of amortization. For the three and six months ended May 31, 2023, the Company capitalized additional contract acquisition costs of $28,512 and $54,948, 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:

 

 

 

May 31, 2024

 

 

November 30, 2023

 

Contract assets (sales commissions)

 

$

738,555

 

 

$

695,695

 

Accounts receivable

 

$

6,831,447

 

 

$

6,576,240

 

Short-term contract liabilities (deferred revenue)

 

$

9,580,635

 

 

$

9,704,553

 

Long-term contract liabilities (deferred revenue)

 

$

43,920,645

 

 

$

41,186,800

 

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 and six months ended May 31, 2024.

The following table presents changes in the Company’s contract assets and liabilities during the six months ended May 31, 2024:

 

 

 

Balance at
December 1,
2023

 

 

Additions

 

 

Deductions

 

 

Balance at
May 31,
2024

 

Contract assets (sales commissions)

 

$

695,695

 

 

$

61,669

 

 

$

(18,809

)

 

$

738,555

 

Accounts receivable

 

$

6,576,240

 

 

$

21,115,429

 

 

$

(20,860,222

)

 

$

6,831,447

 

Contract liabilities (deferred revenue)

 

$

50,891,353

 

 

$

10,803,662

 

 

$

(8,193,735

)

 

$

53,501,280

 

 

10


 

 

The following table presents changes in the Company’s contract assets and liabilities during the six months ended May 31, 2023:

 

 

 

Balance at
December 1,
2022

 

 

Additions

 

 

Deductions

 

 

Balance at
May 31,
2023

 

Contract assets (sales commissions)

 

$

615,628

 

 

$

54,948

 

 

$

(16,460

)

 

$

654,116

 

Accounts receivable

 

$

6,043,941

 

 

$

21,299,426

 

 

$

(20,660,888

)

 

$

6,682,479

 

Contract liabilities (deferred revenue)

 

$

45,586,386

 

 

$

13,557,161

 

 

$

(11,035,497

)

 

$

48,108,050

 

 

 

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

 

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 May 31, 2024, 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 36 blood units per year. 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 36 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).

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.

11


 

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. For the six months ended May 31, 2024 and May 31, 2023, 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