Cryo-Cell International(CCEL) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements For the period ended August 31, 2021, the company's financial statements show increased total assets driven by the Duke license, a revenue decrease, and a rise in net income Consolidated Balance Sheets As of August 31, 2021, total assets increased to $59.4 million driven by the Duke license, total liabilities rose, and stockholders' equity shifted from a deficit to a positive balance | Balance Sheet Items | Aug 31, 2021 (Unaudited) | Nov 30, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $7,700,806 | $10,361,125 | | Duke license agreement | $14,891,995 | $0 | | Total assets | $59,424,030 | $46,200,094 | | Liabilities | | | | Total current liabilities | $19,858,193 | $16,414,621 | | Total liabilities | $54,625,288 | $48,865,229 | | Stockholders' Equity (Deficit) | | | | Total stockholders' equity (deficit) | $4,798,742 | ($2,665,135) | Consolidated Statements of Income For the nine months ended August 31, 2021, total revenue decreased 8.6% to $21.6 million due to lower fees and absent licensee income, while net income increased to $2.7 million | Metric | Q3 2021 (3 Months) | Q3 2020 (3 Months) | YTD 2021 (9 Months) | YTD 2020 (9 Months) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $7,503,652 | $8,114,358 | $21,569,464 | $23,606,976 | | Operating Income | $1,596,338 | $2,480,221 | $4,826,667 | $5,481,477 | | Net Income | $856,494 | $784,467 | $2,720,713 | $2,424,771 | | Net income per common share - basic | $0.10 | $0.10 | $0.34 | $0.32 | | Net income per common share - diluted | $0.10 | $0.10 | $0.33 | $0.30 | Consolidated Statements of Cash Flows For the nine months ended August 31, 2021, net cash from operations was $6.3 million, while investing activities used $6.7 million and financing used $2.3 million, resulting in a $2.7 million net decrease in cash | Cash Flow Activity (Nine Months Ended) | Aug 31, 2021 | Aug 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,258,619 | $5,489,878 | | Net cash (used in) provided by investing activities | ($6,660,228) | $305,691 | | Net cash used in financing activities | ($2,258,710) | ($4,228,998) | | Change in cash and cash equivalents | ($2,660,319) | $1,566,571 | Consolidated Statements of Stockholders' Equity (Deficit) Stockholders' equity significantly improved from a $2.7 million deficit to a positive $4.8 million as of August 31, 2021, driven by net income and common stock issuances - Total stockholders' equity increased from a deficit of ($2,665,135) at November 30, 2020, to a positive balance of $4,798,742 at August 31, 2021[20] - The improvement was primarily due to net income of $2,720,713 and the issuance of common stock which added $4,509,295 to equity during the nine-month period[20] Notes to Consolidated Financial Statements The notes detail the company's business segments, accounting policies, and significant transactions, including the adoption of ASC 606 and the new Duke University license agreement Note 1 - Description of Business, Basis of Presentation and Significant Accounting Policies The company operates in three segments, detailing revenue recognition under ASC 606, and reported $39.7 million in deferred revenue from unsatisfied performance obligations as of August 31, 2021 - The company's business is organized into three reportable segments: cellular processing and cryogenic storage for family use, manufacture of PrepaCyte CB units, and public cord blood banking[22] - As of August 31, 2021, the total aggregate transaction price allocated to unsatisfied performance obligations (deferred revenue) was $39,721,777, which will be recognized ratably over the contractual storage period[37] Note 2 – Segment Reporting For the nine months ended August 31, 2021, the 'Umbilical cord blood and cord tissue stem cell service' segment was the primary revenue and profit driver, generating $21.2 million in revenue and $5.7 million in operating income | Segment Performance (Nine Months Ended Aug 31, 2021) | Net Revenue | Operating Income (Loss) | | :--- | :--- | :--- | | Umbilical cord blood and cord tissue stem cell service | $21,224,033 | $5,743,184 | | PrepaCyte®-CB | $56,200 | ($94,065) | | Public cord blood banking | $289,231 | ($822,452) | | Total | $21,569,464 | $4,826,667 | Note 5 – Notes Payable As of August 31, 2021, the company's net note payable balance decreased to $2.7 million from $5.9 million, with the entire remaining balance classified as current | Note Payable Obligation | Aug 31, 2021 | Nov 30, 2020 | | :--- | :--- | :--- | | Note payable | $2,683,433 | $6,008,433 | | Unamortized debt issuance costs | ($19,757) | ($67,219) | | Net note payable | $2,663,676 | $5,941,214 | Note 13 – Patent Option and Technology License Agreement On February 23, 2021, the company entered into an exclusive Patent and Technology License Agreement with Duke University, involving a $12 million license fee, future royalties, milestone payments, and $15.1 million capitalized in Q1 2021 - The company entered into an exclusive license agreement with Duke University for certain patent rights related to cord blood and tissue treatments[148][149] - Financial commitments include a $12 million license fee, royalties of 7%-12.5% on net sales, minimum annual royalties up to $5 million, and milestone payments including up to 12.5% of the company's fully-diluted equity[151][152] - In Q1 2021, the company capitalized $15,132,189 as a Duke license agreement asset, representing the present value of the license fee, stock transferred to Duke, and acquisition costs[154] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 9% revenue decrease for the first nine months of fiscal 2021, a strategic shift with the new Duke University license, and a $2.7 million decrease in cash position Overview The company's core business is cord blood processing and storage, with a strategic expansion into biopharmaceutical manufacturing and infusion clinics via the February 2021 Duke University license agreement - On February 23, 2021, the company entered into a major Patent and Technology License Agreement with Duke University to gain exclusive commercial rights to intellectual property, FDA data, and protocols for cord blood and tissue stem cell applications[166] - The company intends to expand its business into a triad of units: cord blood banking, biopharmaceutical manufacturing, and infusion clinic services[166] - The COVID-19 pandemic has led to a decline in new client and public banking sales, impacting revenues[172] Results of Operations For the nine months ended August 31, 2021, total revenue fell 9% to $21.6 million due to reduced licensee income and processing fees, while cost of sales and SG&A expenses also decreased | Revenue Breakdown (Nine Months Ended) | Aug 31, 2021 | Aug 31, 2020 | % Change | | :--- | :--- | :--- | :--- | | Processing and storage fees | $21,224,033 | $22,292,220 | -5% | | Public banking revenue | $289,231 | $484,547 | -40% | | Licensee and royalty income | $0 | $629,702 | -100% | | Product revenue | $56,200 | $200,507 | -72% | | Total revenue | $21,569,464 | $23,606,976 | -9% | - The drop in licensee income is because the company has recognized all income due under its License and Royalty Agreement with LifeCell after reaching the $10 million lifetime cap[180] - Depreciation and amortization for the nine-month period increased significantly to $558,167 from $130,034 in the prior year, primarily due to amortization of the new Duke License Agreement[184] Liquidity and Capital Resources As of August 31, 2021, cash and cash equivalents decreased by $2.7 million to $7.7 million, primarily due to $6.7 million in investing activities and $2.3 million in financing activities, partially offset by $6.3 million from operations - Cash and cash equivalents decreased from $10.4 million at Nov 30, 2020 to $7.7 million at Aug 31, 2021[215] - Key uses of cash in the first nine months of 2021 included $5.1 million for the Duke agreement, $1.5 million for real estate purchase, and $3.3 million for note payable repayments[217][219] - The company anticipates making discretionary capital expenditures of approximately $10 million over the next twelve months, primarily for software, equipment, and obligations under the Duke agreement[221] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company has indicated that this item is not applicable - Not applicable[228] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were not fully effective due to a material weakness identified in Q2 2021 related to non-routine transaction interpretation, with remediation steps undertaken - The company's principal executive and financial officers concluded that disclosure controls and procedures were not fully effective as of the end of the reporting period[229] - A material weakness was identified surrounding the company's interpretation of a non-routine transaction, as controls were not sufficient to identify certain items with precision[230] - Management has implemented changes during the quarter ended August 31, 2021, to remediate the weakness, including a more comprehensive review process of non-routine transactions[230][231] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is subject to routine legal proceedings, which management believes will not materially adversely affect its financial position or results of operations - The company states that it is subject to routine legal proceedings but does not expect them to have a material adverse effect on its business or financial condition[238] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any equity securities during the three-month period ended August 31, 2021, with 1,906,465 shares remaining authorized for repurchase - No shares were repurchased by the company during the quarter ended August 31, 2021[240] - The company has authorization to repurchase up to an additional 1,906,465 shares under its existing plan[240] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002 and Inline XBRL data files - Exhibits filed include Sarbanes-Oxley Act Section 302 and 906 certifications from the Co-CEOs and CFO[245][246][247][248]