Cryo-Cell International(CCEL) - 2022 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION (UNAUDITED) This section presents the unaudited consolidated financial statements and management's discussion and analysis for the company Item 1. Financial Statements This section presents the unaudited consolidated financial statements of Cryo-Cell International, Inc. and its subsidiaries, including the Balance Sheets, Statements of Income, Cash Flows, and Stockholders' (Deficit) Equity, along with detailed notes explaining the company's business, accounting policies, segment information, and specific financial items Consolidated Balance Sheets This section presents the company's consolidated balance sheets, highlighting changes in assets, liabilities, and stockholders' equity Consolidated Balance Sheet Highlights | Metric | August 31, 2022 (Unaudited) ($) | November 30, 2021 ($) | |:----------------------------|:----------------------------|:------------------| | Total Assets | $66,765,293 | $60,662,076 | | Total Liabilities | $69,150,839 | $56,477,762 | | Total Stockholders' (Deficit) Equity | $(2,385,546) | $4,184,314 | - Total assets increased by approximately $6.1 million, primarily driven by an increase in Property and Equipment-net from $3.2 million to $15.2 million, likely due to the purchase of a new facility. Total liabilities significantly increased by approximately $12.7 million, leading to a shift from positive stockholders' equity to a deficit[9] Consolidated Statements of Income This section details the company's consolidated statements of income, showing revenue, expenses, and net income for the periods presented Consolidated Statements of Income Highlights (Three Months Ended August 31) | Metric | 2022 ($) | 2021 ($) | Change (%) | |:-------------------------------------|:------------|:------------|:-----------| | Total Revenue | $7,503,652 | $7,503,652 | 0.0% | | Total Costs and Expenses | $5,907,314 | $5,907,314 | 0.0% | | Operating Income | $1,596,338 | $1,596,338 | 0.0% | | Net Income | $856,494 | $856,494 | 0.0% | | Net income per common share - basic | $0.10 | $0.10 | 0.0% | Consolidated Statements of Income Highlights (Nine Months Ended August 31) | Metric | 2022 ($) | 2021 ($) | Change (%) | |:-------------------------------------|:-------------|:-------------|:-----------| | Total Revenue | $22,572,707 | $21,569,464 | 4.65% | | Total Costs and Expenses | $18,953,600 | $16,742,797 | 13.21% | | Operating Income | $3,619,107 | $4,826,667 | -25.02% | | Net Income | $1,933,586 | $2,720,713 | -28.93% | | Net income per common share - basic | $0.23 | $0.34 | -32.35% | - For the nine months ended August 31, 2022, total revenue increased by 4.65% year-over-year, primarily driven by processing and storage fees. However, total costs and expenses rose by 13.21%, leading to a 25.02% decrease in operating income and a 28.93% decrease in net income. Basic EPS also declined by 32.35% to $0.23[11] Consolidated Statements of Cash Flows This section outlines the company's cash flows from operating, investing, and financing activities for the specified periods Consolidated Statements of Cash Flows Highlights (Nine Months Ended August 31) | Metric | 2022 ($) | 2021 ($) | Change (YoY) | |:-------------------------------------|:--------------|:--------------|:-------------| | Net cash from operating activities | $6,142,911 | $6,258,619 | -1.85% | | Net cash from investing activities | $(17,195,210) | $(6,660,228) | 158.18% | | Net cash from financing activities | $5,713,907 | $(2,258,710) | 353.89% | | Decrease in cash and cash equivalents| $(5,338,392) | $(2,660,319) | 100.67% | | Cash and cash equivalents - end of period | $2,924,696 | $7,700,806 | -62.02% | - Net cash from operating activities remained relatively stable. However, investing activities saw a significant increase in cash outflow, primarily due to the purchase of property and equipment and payments for the Duke license agreement. Financing activities shifted from a net outflow to a substantial inflow, driven by proceeds from a new note payable, partially offset by treasury stock purchases and note repayments. Overall, cash and cash equivalents decreased significantly by 62.02% year-over-year[16] Consolidated Statements of Stockholders' (Deficit) Equity This section presents the changes in the company's stockholders' equity, including common shares, capital, and accumulated deficit Stockholders' (Deficit) Equity Highlights (Nine Months Ended August 31, 2022) | Metric | November 30, 2021 ($) | August 31, 2022 ($) | |:-------------------------------------|:------------------|:----------------| | Common Shares Outstanding | 14,665,772 | 14,848,001 | | Common Stock Amount | $146,658 | $148,480 | | Additional Paid-In Capital | $41,586,583 | $42,446,476 | | Treasury Stock, at cost | $(20,812,734) | $(22,505,167) | | Accumulated Deficit | $(16,736,193) | $(22,475,335) | | Total Stockholders' (Deficit) Equity | $4,184,314 | $(2,385,546) | - The company's total stockholders' equity shifted from a positive balance of $4.18 million at November 30, 2021, to a deficit of $(2.39) million at August 31, 2022. This change was primarily driven by a significant increase in accumulated deficit due to dividends declared ($7,672,728) and treasury stock purchases ($1,692,433), partially offset by net income and proceeds from stock option exercises[17] Notes to Consolidated Financial Statements This section provides detailed explanatory notes to the consolidated financial statements, covering accounting policies and specific financial items Note 1 - Description of Business, Basis of Presentation and Significant Accounting Policies This note describes the company's business segments, basis of financial statement presentation, and key accounting policies - Cryo-Cell International, Inc. operates in three reportable segments: cellular processing and cryogenic storage of umbilical cord blood stem cells for family use, manufacture of PrepaCyte CB units, and cryogenic storage of umbilical cord blood stem cells for public use[19] - The company recognizes revenue based on a five-step model, identifying performance obligations such as collection, processing, storage, public banking, license/royalties, and product sales. Deferred revenue from long-term storage contracts amounted to $44,218,171 as of August 31, 2022, with $9,546,386 expected to be recognized within the next twelve months[23][27][35] - The company capitalizes incremental costs of obtaining customer contracts (sales commissions) and amortizes them over the contract life. Contract assets (sales commissions) increased from $535,522 at November 30, 2021, to $594,794 at August 31, 2022[38][46][47] - The company evaluates long-lived assets for impairment and performs an annual qualitative assessment for goodwill impairment. No impairment was noted for long-lived assets for the three and nine months ended August 31, 2022 and 2021[55][56] - Stock-based compensation expense for the nine months ended August 31, 2022, was approximately $311,000, up from $234,000 in the prior year, recognized based on the fair value of awards using Black-Scholes or binomial valuation models[60][62] Fair Value Measurements at August 31, 2022 | Description | August 31, 2022 ($) | Level 1 ($) | Level 2 ($) | Level 3 ($) | |:---------------------------|:----------------|:-----------|:-----------|:-----------| | Assets: | | | | | | Marketable securities | $38,695 | $38,695 | — | — | | Interest rate swap | $62,835 | — | $62,835 | — | | Total Assets | $101,530 | $38,695 | $62,835 | — | | Liabilities: | | | | | | Contingent consideration | $987,140 | — | — | $987,140 | | Total Liabilities | $987,140 | — | — | $987,140 | - The company provides a payment warranty to clients, increasing from $50,000 to $100,000 for new clients choosing the PrepaCyte CB processing method. No claims have been experienced to date, and the warranty is fully constrained under the most likely amount method for revenue recognition[77][78] Note 2 – Segment Reporting This note provides financial information broken down by the company's operating segments, including revenue, profit, and assets Segment Net Revenue (Nine Months Ended August 31) | Segment | 2022 ($) | 2021 ($) | Change (YoY) | |:-------------------------------------------------|:-------------|:-------------|:-------------| | Umbilical cord blood and cord tissue stem cell service | $22,159,702 | $21,224,033 | 4.41% | | PrepaCyte CB | $75,600 | $56,200 | 34.52% | | Public cord blood banking | $337,405 | $289,231 | 16.66% | | Total Net Revenue | $22,572,707 | $21,569,464 | 4.65% | Segment Operating Profit (Nine Months Ended August 31) | Segment | 2022 ($) | 2021 ($) | Change (YoY) | |:-------------------------------------------------|:-------------|:-------------|:-------------| | Umbilical cord blood and cord tissue stem cell service | $4,538,058 | $5,743,184 | -20.98% | | PrepaCyte CB | $(9,168) | $(94,065) | 90.25% | | Public cord blood banking | $(909,783) | $(822,452) | -10.62% | | Total Operating Profit | $3,619,107 | $4,826,667 | -25.02% | - The 'Umbilical cord blood and cord tissue stem cell service' segment remains the largest revenue contributor, showing a 4.41% increase in net revenue but a 20.98% decrease in operating profit for the nine months ended August 31, 2022. The PrepaCyte CB segment significantly reduced its operating loss by 90.25%[84] Segment Assets (As of August 31) | Segment | 2022 ($) | 2021 ($) | |:-------------------------------------------------|:--------------|:--------------| | Umbilical cord blood and cord tissue stem cell service | $56,548,260 | $50,170,887 | | PrepaCyte CB | $238,636 | $250,591 | | Public cord blood banking | $9,978,397 | $10,240,598 | | Total Assets | $66,765,293 | $60,662,076 | Note 3 – Inventory This note details the composition of the company's inventory, including public cord blood banking specimens and collection kits - Inventory includes public cord blood banking specimens, collection kits, finished goods, work-in-process, and raw materials. An impairment charge of $1,164,499 was recognized in fiscal 2021 to reduce inventory to net realizable value due to changes in sales trends and estimated recoverability[87] Inventory Components (As of August 31) | Component | 2022 ($) | 2021 ($) | |:-------------------------------|:--------------|:--------------| | Work-in-process | $278,609 | $357,686 | | Finished goods | $107,100 | $29,821 | | Finished goods – Public Bank | $9,893,465 | $10,193,789 | | Collection kits | $41,958 | $42,998 | | Inventory reserve | $(7,718) | $(7,718) | | Total Inventory | $10,313,414 | $10,616,576 | Note 4 – Intangible Assets This note provides information on the company's intangible assets, including patents, license agreements, and customer relationships Net Intangible Assets (As of August 31) | Intangible Asset | Useful Lives | August 31, 2022 ($) | November 30, 2021 ($) | |:-----------------------------------|:-------------|:----------------|:------------------| | Patents, net | 10-20 years | $587,482 | $617,585 | | License agreement, net | 10 years | $70,705 | $87,291 | | Customer relationships – PrepaCyte®CB, net | 15 years | $6,220 | $6,817 | | Brand, net | 1 year | $0 | $0 | | Customer relationships – Cord:Use, net | 30 years | $824,000 | $848,000 | | Total Net Intangible Assets | | $1,487,407 | $1,559,693 | - Net intangible assets decreased from $1,559,693 at November 30, 2021, to $1,487,407 at August 31, 2022, primarily due to amortization. Amortization expense for intangibles was approximately $72,000 for the nine months ended August 31, 2022, compared to $65,000 in the prior year[91] Note 5 – Notes Payable This note details the company's notes payable, including new credit agreements, term loans, and associated interest expenses - The company fully repaid its term loan with Texas Capital Bank (TCB) as of July 1, 2022. Subsequently, on July 18, 2022, it entered into a new credit agreement with Susser Bank, including a $10 million revolving credit facility and an $8.96 million term loan. The term loan proceeds were used to purchase a commercial office building in Durham, North Carolina[95][96][100] - The Susser Bank loans bear interest at Monthly SOFR plus 3.25% (with a 4.5% floor). The company also entered into an interest rate swap agreement to fix the interest rate on the term loan at 6.09%, resulting in a $62,835 gain on derivative for the nine months ended August 31, 2022[98][99] Net Note Payable (As of August 31) | Metric | 2022 ($) | 2021 ($) | |:---------------------------------------------|:--------------|:--------------| | Note payable - TCB | $0 | $1,908,433 | | Note payable - Susser | $8,960,000 | — | | Unamortized debt issuance costs - TCB | $0 | $(10,368) | | Unamortized debt issuance costs - Susser | $(196,501) | — | | Net note payable | $8,763,499 | $1,898,065 | | Current portion of note payable | $154,252 | $1,898,065 | | Long-term note payable, net of debt issuance costs | $8,609,247 | — | Interest Expense on Notes Payable (Nine Months Ended August 31) | Source | 2022 ($) | 2021 ($) | |:---------------------------------------------|:-------------|:-------------| | Interest expense on notes payable - TCB | $18,485 | $99,294 | | Interest expense on notes payable - Susser | $89,585 | — | | Debt issuance costs - TCB | $10,368 | $47,462 | | Total Interest Expense | $118,438 | $146,756 | Note 6 – Income per Common Share This note presents the calculation of basic and diluted net income per common share for the reporting periods Net Income Per Common Share (Nine Months Ended August 31) | Metric | 2022 ($) | 2021 ($) | |:-------------------------------------|:------------|:------------| | Net income | $1,933,586 | $2,720,713 | | Weighted-average shares outstanding-basic | 8,449,277 | 7,996,278 | | Basic EPS | $0.23 | $0.34 | | Diluted EPS | $0.23 | $0.33 | - Basic and diluted net income per common share for the nine months ended August 31, 2022, decreased to $0.23, down from $0.34 and $0.33 respectively in the prior year. This decline is primarily due to lower net income despite an increase in weighted-average shares outstanding[104] Note 7 – Stockholders' Equity This note details the company's stock-based compensation plans and activity, including options granted, exercised, and outstanding - The company maintains three stock-based compensation plans: the 2006 Plan, 2012 Plan, and the newly adopted 2022 Equity Incentive Plan. The 2022 Plan, approved by stockholders, reserves 1,500,000 shares for various awards, with 1,047,500 shares available for future issuance as of August 31, 2022[106][107][109] Service-Based Stock Option Activity (Nine Months Ended August 31, 2022) | Metric | Options | Weighted Average Exercise Price ($) | |:-------------------------------------|:----------|:--------------------------------| | Outstanding at November 30, 2021 | 537,443 | $5.76 | | Granted | 52,500 | $13.20 | | Exercised | (182,229) | $3.03 | | Expired/forfeited | (87,250) | $6.15 | | Outstanding at August 31, 2022 | 320,464 | $8.42 | | Exercisable at August 31, 2022 | 231,230 | $7.27 | - As of August 31, 2022, there was approximately $279,000 of total unrecognized compensation cost related to non-vested share-based compensation, expected to be recognized over a weighted-average period of 1.97 years[115] - In April 2022, 400,000 market-based vesting condition options were granted to key executives, vesting immediately if the stock price reaches $25.00 per share within a seven-year term. Approximately $156,000 in compensation cost was recognized for these options for the nine months ended August 31, 2022[117][119] Note 8 – License Agreements This note describes the company's various licensing agreements, including technology and marketing arrangements with affiliates - The company earns revenue from two types of licensing agreements: technology agreements (processing and storage royalties from affiliates with their own facilities) and marketing agreements (processing and storage revenues from affiliates using the company's facility)[121] - The License and Royalty Agreement with LifeCell International Private Limited reached its $10,000,000 royalty cap, and all licensee income due has been recognized as of November 30, 2020[123] - The company also has definitive license agreements to market its umbilical cord blood stem cell programs in several Central American countries[124] Note 9 – Commitments and Contingencies This note outlines the company's significant commitments, including property purchases, dividends, and potential legal proceedings - On July 18, 2022, the company completed the purchase of a new 56,000 square foot facility in Durham, North Carolina, for $11.2 million, financed partly by a new term loan. This facility is intended to expand cryopreservation and cold storage services (ExtraVault), establish a cellular therapy laboratory, and consolidate the Cryo-Cell Institute for Cellular Therapies[127] - The company entered into an agreement on June 10, 2022, to sell an 8,800 square foot medical condominium building in Durham for $1.85 million, with closing expected in Q4 fiscal 2022[129] - A one-time special cash dividend of $0.90 per share, totaling $7,672,728, was declared on August 19, 2022, and funded by a revolving line of credit from Susser Bank[130] - The company is not currently a party to any legal proceedings but may be subject to claims in the normal course of business, which could materially impact results if unfavorable[131] Note 10 – Share Repurchase Plan This note details the company's share repurchase program, including authorized amounts and shares repurchased during the period - The Board of Directors has authorized the repurchase of up to 8,000,000 shares of common stock. As of August 31, 2022, the company had repurchased 6,322,746 shares at an average price of $3.56 per share[132][133] - During the nine months ended August 31, 2022, 208,790 shares were repurchased at an average price of $8.11 per share. No shares were repurchased in the comparable 2021 period[133] - Repurchased shares are held as treasury stock, with 6,322,746 shares held as of August 31, 2022[135] Note 11 – Leases This note provides information on the company's operating lease liabilities, right-of-use assets, and related cash outflows Lease Liabilities (As of August 31) | Metric | 2022 ($) | 2021 ($) | |:-----------------------------------------|:------------|:------------| | Operating lease right-of-use asset | $684,668 | $916,493 | | Current portion of operating lease liabilities | $306,404 | $312,067 | | Operating lease long-term liabilities | $383,943 | $610,989 | | Total lease liability | $690,347 | $923,056 | - The present value of lease liabilities at August 31, 2022, was $690,347, with a remaining weighted-average lease term of 2.33 years and a discount rate of 3.5%[136] - Operating cash outflows from operating leases for the nine months ended August 31, 2022, were $255,306, an increase from $229,675 in the prior year[136] Note 12 – Patent Option and Technology License Agreement This note details the exclusive license agreement with Duke University for patent rights and regulatory data related to cord blood and tissue - The company holds an exclusive license agreement with Duke University for patent rights and regulatory data related to cord blood and cord tissue, aiming to develop treatments for conditions like cerebral palsy, autism, and multiple sclerosis[139][140] - The license fee to Duke is $12,000,000, with $10,000,000 paid to date and an additional $2,000,000 due by February 23, 2023. The company is also obligated to pay royalties (7%-12.5% of net sales) and milestone payments, including $2,000,000 upon initiation of certain Phase III clinical trials[144][146][147] - Minimum annual royalties to Duke were amended in February 2022, starting at $500,000 in Year 3 and increasing to $5,000,000 in Year 6 and thereafter[145][147] - The company capitalized $15,372,382 for the Duke Agreement, amortizing these costs over 16 years. Amortization expense for the nine months ended August 31, 2022, was $720,580[148] - The company plans to open the Cryo-Cell Institute for Cellular Therapies in the first half of fiscal 2023 to begin infusing patients with autologous cord blood units and conduct clinical trials[149] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, operational highlights, and future outlook. It covers revenue and expense trends for both three and nine-month periods, details on business segments, strategic initiatives like the Duke Agreement and ExtraVault, and an assessment of liquidity and capital resources Forward Looking Statements This section highlights the inherent risks and uncertainties associated with the company's forward-looking statements - The company's forward-looking statements involve risks and uncertainties, including those related to government regulation, increased competition, market acceptance of services, technological changes, and the success of new initiatives like biopharmaceutical manufacturing and clinics[152][153] Overview This section provides a general overview of Cryo-Cell International, its history, and strategic expansion plans - Cryo-Cell International, founded in 1989, is the world's first private cord blood bank, storing nearly 225,000 cord blood and cord tissue specimens. The company has expanded its R&D into stem cells beyond umbilical cord blood, introducing cord tissue service in 2011[154][155] - Through the Duke Agreement, the company plans to expand into three core business units: cord blood bank and storage, cord blood and cord tissue infusion clinic services, and biopharmaceutical manufacturing. The Cryo-Cell Institute for Cellular Therapies is projected to open in the first half of fiscal 2023[156][158] Cord Blood Stem Cell Processing and Storage Business This section describes the company's core business of processing and storing umbilical cord blood stem cells, including facilities and competitive advantages - The company's mission is to educate expectant parents and healthcare providers on the benefits of preserving non-controversial umbilical cord blood stem cells, which are used in over 78 known treatments and are being explored for future therapies[161][162] - Cryo-Cell operates a cGMP/cGTP-compliant facility in Oldsmar, Florida, and recently acquired a 56,000 sq ft facility in Durham, North Carolina, to expand storage capacity, offer third-party cold storage (ExtraVault), and establish a cellular therapy laboratory[167][168][180][182] - Key competitive advantages include being the world's first private cord blood bank, AABB and FACT accreditation, superior processing technology (PrepaCyte CB), a five-compartment freezer bag, 100% specimen viability rate upon thaw, and a payment warranty up to $100,000[169] - The company acquired Cord:Use Cord Blood Bank assets in 2018, including its public cord blood inventory, which is stored at Duke and distributed through the National Marrow Donor Program (NMDP). Cryo-Cell is obligated to pay Cord:Use an earnout based on gross revenues from public cord blood inventory sales exceeding $500,000[171][173][174] - The company also holds 665,287 shares of Tianhe Stem Cell Biotechnologies, Inc., representing approximately 5% ownership, with potential earnout payments to Cord:Use based on future Tianhe stock sales or valuation[176][177][178][179] Marketing This section details the company's marketing strategies for its stem cell services, targeting both parents and healthcare professionals - The company markets its services directly to expectant parents and through healthcare professionals, leveraging high customer satisfaction for referrals. Marketing activities include a national team of field educators, internet advertisements, telemarketing, and conference exhibitions[184][185][186][187] - Public cord blood units are listed on the NMDP registry for global distribution to transplant centers. The company also has license agreements for marketing in Central American countries[189][190] Results of Operations – Nine-Month Period Ended August 31, 2022 Compared to the Nine-Month Period Ended August 31, 2021 This section analyzes the company's financial performance for the nine-month period, comparing key revenue and expense trends year-over-year Revenue Performance (Nine Months Ended August 31) | Revenue Category | 2022 ($) | 2021 ($) | Change (YoY) | |:-----------------------------|:-------------|:-------------|:-------------| | Processing and storage fees | $22,159,702 | $21,224,033 | 4% increase | | Product revenue | $75,600 | $56,200 | 34.5% increase | | Public banking revenue | $337,405 | $289,231 | 16.7% increase | | Total Revenue | $22,572,707 | $21,569,464 | 4.65% increase | - Processing and storage fee revenue increased by 4% due to a 6% rise in recurring annual storage fees, partially offset by an 11% decrease in new domestic cord blood specimens processed[192][206] - Cost of sales decreased by 1% to $6,653,497, primarily due to a decrease in new domestic cord blood specimens processed. Selling, general and administrative expenses increased by 8% to $10,891,951[195][196] - Research, development and related engineering expenses significantly increased to $308,388 from $19,431, driven by the development of a manufacturing laboratory related to the Duke License Agreement[197] - The change in fair value of contingent consideration resulted in an increase of $259,769, compared to a decrease of $604,109 in the prior year, reflecting the re-measurement of the Cord:Use earnout liability[199] - Interest expense remained relatively stable at $947,968, including amounts related to credit agreements and revenue sharing agreements, as well as accretion of the Duke Agreement liability[200] - Income tax expense decreased to $762,854 from $1,134,198[202] Results of Operations – Three-Month Period Ended August 31, 2022 Compared to the Three-Month Period Ended August 31, 2021 This section analyzes the company's financial performance for the three-month period, comparing key revenue and expense trends year-over-year Revenue Performance (Three Months Ended August 31) | Revenue Category | 2022 ($) | 2021 ($) | Change (YoY) | |:-----------------------------|:------------|:------------|:-------------| | Processing and storage fees | $7,522,134 | $7,326,516 | 2.67% increase | | Product revenue | $21,000 | $18,200 | 15.38% increase | | Public banking revenue | $137,825 | $158,936 | -13.28% decrease | | Total Revenue | $7,680,959 | $7,503,652 | 2.36% increase | - Total revenue increased by 2% to $7,680,959, driven by a 3% increase in processing and storage fees, despite an 11% decrease in new domestic cord blood specimens processed[205][206] - Cost of sales decreased by 4% to $2,348,755, primarily due to fewer new domestic cord blood specimens processed. Selling, general and administrative expenses increased by 3% to $3,603,411[208][209] - Research, development and related engineering expenses significantly increased to $80,272 from $10,004, due to expenses for the Duke License Agreement manufacturing laboratory[210] - The change in fair value of contingent consideration was an increase of $412,307, compared to a decrease of $324,904 in the prior year[212] - Interest expense increased to $365,349 from $335,870, reflecting higher interest on credit agreements and revenue sharing agreements[213] - Income tax expense decreased to $174,146 from $404,735[216] Liquidity and Capital Resources This section assesses the company's cash position, funding sources, and anticipated capital expenditures for future growth initiatives - Cash and cash equivalents decreased from $8,263,088 at November 30, 2021, to $2,924,696 at August 31, 2022. This was primarily due to $17.2 million in investing activities (new facility, Duke Agreement payments) partially offset by $5.7 million from financing activities (new Susser Bank loan)[225][227] - The company anticipates making approximately $10 million in discretionary capital expenditures over the next twelve months for property build-out, equipment, Duke Agreement obligations, and software enhancements. These will be funded by cash-on-hand, future operations, the revolving line of credit, and potential additional debt financing[228] - Future cash use will include substantial funding for clinical trials related to the Duke Agreement and developing biopharmaceutical manufacturing capabilities[229] Critical Accounting Policies This section identifies the company's key accounting policies and estimates that require significant management judgment - The company's critical accounting policies and estimates include revenue recognition and the related allowance for doubtful accounts, stock-based compensation, income taxes, and license and revenue sharing agreements. These require significant management judgment and assumptions[230] Recently Issued Accounting Pronouncements This section discusses recently issued accounting standards and their potential impact on the company's financial statements - The company has not yet adopted ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), which introduces an expected loss approach for credit losses. Adoption for smaller reporting companies is deferred until periods beginning after December 15, 2022[79] Off-Balance Sheet Arrangements This section confirms the absence of material off-balance sheet arrangements that could impact the company's financial position - The company has no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on its financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources[233] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that the company has no material quantitative or qualitative disclosures regarding market risk - The company has no material quantitative and qualitative disclosures about market risk[234] Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures, confirming their effectiveness, and notes no material changes in internal control over financial reporting during the period. It also acknowledges inherent limitations in control systems Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of the reporting date - As of August 31, 2022, the company's principal executive officers and principal financial officer concluded that disclosure controls and procedures were fully effective, ensuring timely and accurate reporting of information[235] Changes in Internal Control Over Financial Reporting This section reports that no material changes occurred in the company's internal controls over financial reporting - There were no material changes in the company's internal controls over financial reporting during the nine months ended August 31, 2022[236] Limitations on the Effectiveness of Controls This section acknowledges that control systems inherently provide only reasonable assurance against errors and fraud - Management acknowledges that control systems provide only reasonable, not absolute, assurance against error and fraud due to inherent limitations such as faulty judgments, simple errors, circumvention by individuals or collusion, and management override[237][238] CEO and CFO Certifications This section confirms the inclusion of CEO and CFO certifications as required by the Sarbanes-Oxley Act - Certifications from the Co-CEOs and CFO, required by Section 302 of the Sarbanes-Oxley Act of 2002, are included as exhibits to the report[239] PART II - OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings The company is not currently involved in any legal proceedings, but acknowledges the possibility of future claims in the normal course of business, which could have a material adverse effect - The company is not currently a party to any legal proceedings but may face lawsuits or disputes in the normal course of business, with potential for material adverse outcomes[242] Item 1A. Risk Factors This section outlines significant risks that could adversely affect the company's business, financial condition, and results of operations. These risks span business operations, government regulation, international activities, information technology, intellectual property, and public company obligations Risk Related to our Business This section details business-specific risks, including market acceptance, capital needs, competition, and operational failures - The company faces risks including potential delisting from NYSE if listing standards are not met, the need to raise additional capital for growth initiatives (e.g., new facility build-out, clinical trials), and challenges in successfully growing or operating its business, which depends on market acceptance of stem cell cryopreservation[245][247][248][252] - Adverse macroeconomic conditions (inflation, recession, higher interest rates) could negatively impact demand for services and increase credit risk. The company may also fail to successfully manufacture mesenchymal stromal cells (MSCs) or experience delays/failures in clinical development[251][253][254] - Other risks include intense competition, potential failures in cryopreservation storage facilities, rapid technological changes rendering current services obsolete, and the ability to attract and retain key personnel[265][267][269][272] Risk Related to Government Regulation This section outlines regulatory compliance risks, including FDA requirements, state licensing, and patient privacy laws - The company is subject to extensive domestic regulatory requirements, including FDA registration and inspection under the Public Health Service Act for HCT/Ps and the Federal Food, Drug, and Cosmetic Act for medical devices (PrepaCyte CB)[273][274][278] - Compliance with state-specific licensing requirements (e.g., California, Illinois, Maryland, New Jersey, New York) is necessary, and evolving legislation or regulations could impact international licensees[279][282] - The company must comply with laws related to patient privacy (HIPAA, HITECH Act) and hazardous materials, with potential for significant costs, penalties, or litigation if non-compliance occurs[284][285] Risks Related to International Operations This section addresses risks associated with international activities, such as intellectual property protection, political instability, and currency fluctuations - International operations are subject to risks such as inadequate intellectual property protection, local laws favoring competitors, difficulties in enforcing licensing agreements, political/economic instability, currency fluctuations, and compliance with complex foreign and U.S. anti-corruption laws (FCPA)[286][287][290] - Global events like the Ukrainian-Russian conflict, natural disasters, or public health issues could disrupt international commerce and adversely affect the company's business, customers, and suppliers[292][293] Risks Related to Information Technology This section covers risks related to information systems, including cyber-attacks, data breaches, and the use of open-source software - The company's business is highly dependent on information systems, and failures, security breaches, or cyber-attacks could lead to data loss, litigation, reputational damage, and operational disruptions. While insurance is maintained, coverage may not be adequate[294][296][297][298] - Increasing use of social media by the company and its employees could lead to liability, data security breaches, or reputational harm. The use of open-source software in products also poses risks related to licensing terms, potential claims, and security vulnerabilities[299][301][302][303] Risks Related to Intellectual Property This section addresses challenges in protecting intellectual property rights, potential infringement claims, and data security breaches - The company may struggle to protect its intellectual property rights globally, especially in jurisdictions with weaker enforcement. This could lead to competitors using its technologies or exporting infringing products[304] - The company faces risks of patent infringement claims from third parties, which could result in costly litigation, diversion of management attention, and the need for expensive royalty or license agreements. Failure to protect IP could harm its ability to compete and generate revenue[305][306][308] - Breaches of security measures in storage systems or network infrastructure could lead to loss of healthcare data and proprietary information, resulting in legal and financial exposure, reputational damage, and loss of customer confidence[309][310] Risks Related to being a Public Company This section covers risks associated with public company status, including compliance costs, internal controls, and corporate governance - Operating as a public company incurs significant legal, accounting, and compliance costs, including Sarbanes-Oxley Act requirements. Management must dedicate substantial time to these initiatives, potentially impacting investor confidence[311][312] - Failure to maintain effective internal controls over financial reporting could lead to inaccurate financial reporting. Disclosure controls, despite being well-conceived, have inherent limitations and may not prevent all errors or fraud[312][314][316] - Increasing scrutiny on Environmental, Social, and Governance (ESG) policies may lead to additional costs or reputational damage if the company's practices do not meet stakeholder expectations[317][318] - Principal stockholders and management own approximately 39% of voting stock, allowing them to exert significant control over matters subject to stockholder approval, potentially delaying or preventing acquisitions[319][320] - The company may face securities class action litigation, which is expensive and can divert management attention. As a 'smaller reporting company,' reduced disclosure requirements may make its stock less attractive to some investors[321][322][323][324] - Certain provisions in the company's charter, bylaws, and Delaware law (Section 203 of the DGCL) could delay, defer, or prevent tender offers or takeover attempts, potentially inhibiting changes in management or a premium for stockholders[326][328][329][330] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activities during the quarter ended August 31, 2022 Issuer Purchase of Equity Securities (Quarter Ended August 31, 2022) | Period | Total Number of Shares Purchased | Average Price per Share ($) | |:-------------------|:---------------------------------|:------------------------| | June 1 - 30, 2022 | 18,700 | $6.10 | | July 1 - 31, 2022 | - | - | | August 1 - 31, 2022| 27,764 | $5.51 | - As of August 31, 2022, 1,677,254 shares remained available for purchase under publicly announced plans or programs[332] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - There were no defaults upon senior securities[333] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[334] Item 5. Other Information No other information was reported under this item - No other information was reported under this item[335] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, credit agreements, incentive plans, and certifications - Exhibits include Amended and Restated Certificate of Incorporation, By-Laws, Purchase Agreement for new property, 2022 Equity Incentive Plan, Credit Agreement with Susser Bank, and CEO/CFO Certifications[339] SIGNATURES The report is duly signed on behalf of Cryo-Cell International, Inc. by its Co-Chief Executive Officers, David Portnoy and Mark Portnoy, and Vice President, Finance, Chief Financial Officer, Jill M. Taymans - The report is signed by David Portnoy (Co-CEO), Mark Portnoy (Co-CEO), and Jill M. Taymans (VP, Finance, CFO) on October 17, 2022[343]