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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 February 28, 2023

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)

 

 

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

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

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, $0.01 par value

 

CCEL

 

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 April 21, 2023, 8,303,604 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) Equity

6

 

 

Notes to Consolidated Financial Statements

7

 

 

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

26

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

33

 

 

Item 4. Controls and Procedures

33

 

 

PART II - OTHER INFORMATION

35

 

 

Item 1. Legal Proceedings

35

 

 

Item 1A. Risk Factors

35

 

 

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

47

 

 

Item 3. Defaults Upon Senior Securities

47

 

 

Item 4. Mine Safety Disclosures

48

 

 

Item 5. Other Information

48

 

 

Item 6. Exhibits

49

 

 

SIGNATURES

50

 

 

 

2


 

CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

(Unaudited)

 

 

 

 

 

 

February 28,

 

 

November 30,

 

 

 

2023

 

 

2022

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,373,099

 

 

$

1,703,958

 

Marketable securities

 

 

840,277

 

 

 

17,620

 

Accounts receivable (net of allowance for

 

 

 

 

 

 

doubtful accounts of $3,580,233 and $3,528,119, respectively)

 

 

6,522,456

 

 

 

6,043,941

 

Prepaid expenses

 

 

580,144

 

 

 

566,557

 

Inventory, current portion

 

 

900,052

 

 

 

851,230

 

Other current assets

 

 

421,083

 

 

 

426,879

 

Total current assets

 

 

10,637,111

 

 

 

9,610,185

 

Property and Equipment-net

 

 

14,426,725

 

 

 

13,603,115

 

Other Assets

 

 

 

 

 

 

Investment - Tianhe stock

 

 

308,000

 

 

 

308,000

 

Duke license agreement

 

 

13,450,834

 

 

 

13,691,028

 

Intangible assets, net

 

 

1,439,217

 

 

 

1,463,312

 

Inventory, net of current portion

 

 

8,996,063

 

 

 

9,275,344

 

Goodwill

 

 

1,941,411

 

 

 

1,941,411

 

Deferred tax assets

 

 

13,742,399

 

 

 

13,742,399

 

Operating lease right-of-use asset

 

 

526,710

 

 

 

606,034

 

Deposits and other assets, net

 

 

665,565

 

 

 

647,226

 

Total other assets

 

 

41,070,199

 

 

 

41,674,754

 

Total assets

 

$

66,134,035

 

 

$

64,888,054

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable

 

$

2,363,757

 

 

$

1,605,301

 

Accrued expenses

 

 

3,074,903

 

 

 

3,585,810

 

Note payable

 

 

158,456

 

 

 

150,527

 

Line of credit

 

 

1,772,728

 

 

 

2,272,728

 

Current portion of operating lease liability

 

 

288,902

 

 

 

297,691

 

Current portion of Duke license agreement liability

 

 

2,000,000

 

 

 

1,983,036

 

Deferred revenue

 

 

9,253,131

 

 

 

9,586,327

 

Total current liabilities

 

 

18,911,877

 

 

 

19,481,420

 

Other Liabilities

 

 

 

 

 

 

Deferred revenue, net of current portion

 

 

37,246,889

 

 

 

36,000,059

 

Contingent consideration

 

 

998,003

 

 

 

1,162,704

 

Note payable, net of current portion and debt issuance costs

 

 

8,547,744

 

 

 

8,579,875

 

Operating lease long-term liability

 

 

242,039

 

 

 

313,298

 

Long-term liability - revenue sharing agreements

 

 

875,000

 

 

 

875,000

 

Total other liabilities

 

 

47,909,675

 

 

 

46,930,936

 

Total liabilities

 

 

66,821,552

 

 

 

66,412,356

 

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; 14,848,001 issued and 8,443,230 outstanding as of February 28, 2023 and 14,848,001 issued and 8,500,511 outstanding as of November 30, 2022)

 

 

148,480

 

 

 

148,480

 

Additional paid-in capital

 

 

42,910,554

 

 

 

42,597,380

 

Treasury stock, at cost

 

 

(22,875,850

)

 

 

(22,632,649

)

Accumulated deficit

 

 

(20,870,701

)

 

 

(21,637,513

)

Total stockholders' deficit

 

 

(687,517

)

 

 

(1,524,302

)

Total liabilities and stockholders' deficit

 

$

66,134,035

 

 

$

64,888,054

 

 

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

3


 

CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

February 28,

 

 

February 28,

 

 

 

2023

 

 

2022

 

Revenue:

 

 

 

 

 

 

Processing and storage fees

 

$

7,561,518

 

 

$

7,157,486

 

Public banking revenue

 

 

230,697

 

 

 

82,845

 

Product revenue

 

 

32,200

 

 

 

18,200

 

Total revenue

 

 

7,824,415

 

 

 

7,258,531

 

Costs and Expenses:

 

 

 

 

 

 

Cost of sales

 

 

2,067,364

 

 

 

2,103,202

 

Selling, general and administrative expenses

 

 

3,878,903

 

 

 

3,375,954

 

Change in fair value of contingent consideration

 

 

(164,701

)

 

 

(116,433

)

Research, development and related engineering

 

 

78,834

 

 

 

147,220

 

Depreciation and amortization

 

 

280,844

 

 

 

278,166

 

Total costs and expenses

 

 

6,141,244

 

 

 

5,788,109

 

Operating Income

 

 

1,683,171

 

 

 

1,470,422

 

Other Income (Expense):

 

 

 

 

 

 

Losses on marketable securities

 

 

(3,681

)

 

 

(8,642

)

Other income

 

 

1,268

 

 

 

9

 

Interest expense

 

 

(466,231

)

 

 

(306,095

)

Total other income (expense)

 

 

(468,644

)

 

 

(314,728

)

Income before income tax expense

 

 

1,214,527

 

 

 

1,155,694

 

Income tax expense

 

 

(447,715

)

 

 

(323,647

)

Net Income

 

$

766,812

 

 

$

832,047

 

Net income per common share - basic

 

$

0.09

 

 

$

0.10

 

Weighted average common shares outstanding - basic

 

 

8,467,074

 

 

 

8,527,031

 

Net income per common share - diluted

 

$

0.09

 

 

$

0.10

 

Weighted average common shares outstanding - diluted

 

 

8,474,737

 

 

 

8,748,183

 

 

 

 

 

 

 

 

 

 

 

 

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

4


 

CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

February 28,

 

 

February 28,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

766,812

 

 

$

832,047

 

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

 

 

 

 

 

 

Depreciation and amortization expense

 

 

369,950

 

 

 

396,112

 

Change in fair value of contingent consideration

 

 

(164,701

)

 

 

(116,433

)

Losses on marketable securities

 

 

3,681

 

 

 

8,642

 

Compensatory element of stock options

 

 

313,174

 

 

 

31,896

 

Provision for doubtful accounts

 

 

186,904

 

 

 

164,388

 

Amortization of debt issuance costs

 

 

5,444

 

 

 

6,389

 

Amortization of operating lease right-of-use asset

 

 

79,324

 

 

 

76,604

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(665,419

)

 

 

(62,780

)

Prepaid expenses

 

 

(13,587

)

 

 

20,687

 

Inventory

 

 

230,459

 

 

 

33,636

 

Other current assets

 

 

5,796

 

 

 

227,666

 

Deposits and other assets, net

 

 

(18,339

)

 

 

(17,594

)

Accounts payable

 

 

221,749

 

 

 

357,959

 

Accrued expenses

 

 

(510,907

)

 

 

(953,433

)

Operating lease liability

 

 

(80,048

)

 

 

(76,255

)

Deferred revenue

 

 

913,634

 

 

 

577,228

 

Net cash from operating activities

 

 

1,643,926

 

 

 

1,506,759

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(375,600

)

 

 

(647,637

)

Payment of Duke license agreement

 

 

 

 

 

(5,000,000

)

Purchases of marketable securities

 

 

(1,017,738

)

 

 

(405,599

)

Sale of marketable securities

 

 

191,400

 

 

 

 

Net cash used in investing activities

 

 

(1,201,938

)

 

 

(6,053,236

)

Cash flows from financing activities:

 

 

 

 

 

 

Treasury stock purchases

 

 

(243,201

)

 

 

(828,980

)

Repayments of note payable

 

 

(29,646

)

 

 

(775,000

)

Repayment of line of credit

 

 

(500,000

)

 

 

 

Proceeds from the exercise of stock options

 

 

 

 

 

32,000

 

Net cash used in financing activities

 

 

(772,847

)

 

 

(1,571,980

)

Decrease in cash and cash equivalents

 

 

(330,859

)

 

 

(6,118,457

)

Cash and cash equivalents - beginning of period

 

 

1,703,958

 

 

 

8,263,088

 

Cash and cash equivalents - end of period

 

$

1,373,099

 

 

$

2,144,631

 

 

 

 

 

 

 

 

Supplemental investing activities:

 

 

 

 

 

 

Construction costs payable

 

$

536,707

 

 

$

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

Interest

 

$

441,336

 

 

$

247,081

 

Income taxes

 

$

33,072

 

 

$

644

 

 

 

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

5


 

CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY

(Unaudited)

 

 

 

 

For the Three Months Ended February 28, 2023

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Treasury

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

(Deficit) Equity

 

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

 

 

 

 

 

 

 

 

313,174

 

 

 

 

 

 

 

 

 

313,174

 

Treasury stock

 

 

 

 

 

 

 

 

 

 

 

(243,201

)

 

 

 

 

 

(243,201

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

766,812

 

 

 

766,812

 

Balance at February 28, 2023

 

 

14,848,001

 

 

$

148,480

 

 

$

42,910,554

 

 

$

(22,875,850

)

 

$

(20,870,701

)

 

$

(687,517

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended February 28, 2022

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Treasury

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

(Deficit) Equity

 

Balance at November 30, 2021

 

 

14,665,772

 

 

$

146,658

 

 

$

41,586,583

 

 

$

(20,812,734

)

 

$

(16,736,193

)

 

$

4,184,314

 

Exercise of stock options

 

 

10,000

 

 

 

100

 

 

 

31,900

 

 

 

 

 

 

 

 

 

32,000

 

Compensatory element of stock options

 

 

 

 

 

 

 

 

31,896

 

 

 

 

 

 

 

 

 

31,896

 

Treasury stock

 

 

 

 

 

 

 

 

 

 

 

(828,980

)

 

 

 

 

 

(828,980

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

832,047

 

 

 

832,047

 

Balance at February 28, 2022

 

 

14,675,772

 

 

$

146,758

 

 

$

41,650,379

 

 

$

(21,641,714

)

 

$

(15,904,146

)

 

$

4,251,277

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

6


 

CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2023

(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 February 28, 2023 and November 30, 2022, the related Consolidated Statements of Income for the three months ended February 28, 2023 and 2022, Cash Flows for the three months ended February 28, 2023 and 2022 and Stockholders’ (Deficit) Equity for the three months ended February 28, 2023 and 2022 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, 2022 Annual Report on Form 10-K. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and changes in cash flows for all periods presented have been made. The results of operations for the three months ended February 28, 2023 are not necessarily indicative of the results expected for any interim period in the future or the entire year ending November 30, 2023.

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 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

7


 

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, 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

8


 

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 February 28, 2023, the total aggregate transaction price allocated to the unsatisfied performance obligations was recorded as deferred revenue amounting to $46,500,020, which will be recognized ratably on a straight-line basis over the contractual period of which $9,253,131, 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. Additionally, under the Cryo-Cell CaresTM program, the Company will pay $10,000 to the client to offset personal expenses if the umbilical cord blood product is used for bone marrow reconstitution in a myeloablative transplant procedure. The product warranty and the Cryo-Cell Cares program are 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 months ended February 28, 2023, the Company recorded $10,432 in commission payments to customers under the RAF program as a reduction to revenue. During the three months ended February 28, 2022, the Company recorded $15,152 in commission payments to customers under the RAF program as a reduction to revenue. For the three months ended February 28, 2023, the Company capitalized

9


 

additional contract acquisition costs of $26,436, net of amortization. For the three months ended February 28, 2022, the Company capitalized additional contract acquisition costs of $24,589, net of amortization expense.

b)
Public banking revenue

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

c)
Licensee and royalty income

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

d)
Product Revenue

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

e)
Shipping and handling

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

Disaggregation of Revenue

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

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

 

 

 

February 28, 2023

 

 

November 30, 2022

 

Contract assets (sales commissions)

 

$

633,966