CRYO-CELL INTERNATIONAL, INC. Forward Looking Statements
This Form 10Q, press releases and certain information provided periodically in
writing or orally by the Company's officers or its agents may contain statements
which constitute "forwardlooking statements". The terms "
(i)
our future performance and operating results;
(ii)
our future operating plans;
(iii)
our liquidity and capital resources; and
(iv)
our financial condition, accounting policies and management judgments.
We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. These forward-looking statements involve risks and uncertainties and reflect only our current views, expectations and assumptions with respect to future events and our future performance. If risks or uncertainties materialize or assumptions prove incorrect, actual results or events could differ materially from those expressed or implied by such forward-looking statements. The factors that might cause such differences include, among others:
(i)
any adverse effect or limitations caused by recent increases in government regulation of stem cell storage facilities;
(ii)
any increased competition in our business including increasing competition from
public cord blood banks particularly in overseas markets but also in the
(iii)
any decrease or slowdown in the number of people seeking to store umbilical cord blood stem cells or decrease in the number of people paying annual storage fees;
(iv)
any adverse impacts on revenue or operating margins due to the costs associated with increased growth in our business, including the possibility of unanticipated costs relating to the operation of our facility and costs relating to the commercial launch of new types of stem cells;
(v)
any unique risks posed by our international activities, including but not limited to local business laws or practices that diminish our affiliates' ability to effectively compete in their local markets;
(vi)
any technological or medical breakthroughs that would render our business of stem cell preservation obsolete;
(vii)
any material failure or malfunction in our storage facilities; or any natural disaster or act of terrorism that adversely affects stored specimens;
(viii)
any adverse results to our prospects, financial condition or reputation arising from any material failure or compromise of our information systems;
(ix)
the costs associated with defending or prosecuting litigation matters, particularly including litigation related to intellectual property, and any material adverse result from such matters;
(x)
the success of our licensing agreements and their ability to provide us with royalty fees;
(xi)
any difficulties and increased expense in enforcing our international licensing agreements;
(xii)
any adverse performance by or relations with any of our licensees;
(xiii)
any inability to enter into new licensing arrangements including arrangements with non-refundable upfront fees;
(xiv)
any inability to realize cost savings as a result of recent acquisitions;
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(xv)
any inability to realize a return on an investment;
(xvi)
any adverse impact on our revenues and operating margins as a result of discounting of our services in order to generate new business in tough economic times where consumers are selective with discretionary spending;
(xvii)
the success of our global expansion initiatives and product diversification;
(xviii)
our actual future ownership stake in future therapies emerging from our collaborative research partnerships;
(xix)
our ability to minimize our future costs related to R&D initiatives and collaborations and the success of such initiatives and collaborations;
(xx)
any inability to successfully identify and consummate strategic acquisitions;
(xxi)
any inability to realize benefits from any strategic acquisitions;
(xxii)
the Company's ability to realize a profit on the acquisition of PrepaCyte-CB;
(xxiii)
the Company's ability to realize a profit on the acquisition of Cord:Use;
(xxiv)
the impact of the COVID-19 pandemic on our sales, operations and supply chain;
(xxv)
the Company's actual future competitive position in stem cell innovation;
(xxvi)
future success of its core business and the competitive impact of public cord blood banking on the Company's business;
(xxvii)
the success of the Company's initiative to expand its core business units to include biopharmaceutical manufacturing and operating clinics, the uncertainty of profitability from its biopharmaceutical manufacturing and operating clinics, the Company's ability to minimize future costs to the Company related to R&D initiatives and collaborations and the success of such initiatives and collaborations,
(xxviii)
the success of the Company's initiative to purchase a new facility and expand the Company's cryopreservation and cold storage business by introducing a new service, Extravault and
(xxix)
the other risk factors set forth in this Report under the heading "Risk Factors."
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the date hereof.
Overview
The Company currently stores nearly 225,000 cord blood and cord tissue specimens
for the exclusive benefit of newborn babies and possibly other members of their
families. Founded in 1989, the Company was the world's first private cord blood
bank to separate and store stem cells in 1992. The Company's
Utilizing its infrastructure, experience and resources derived from its umbilical cord blood stem cell business, the Company has expanded its research and development activities to develop technologies related to stem cells harvested from sources beyond umbilical cord blood stem cells. In 2011, the Company introduced its new cord tissue service, which stores a section of the umbilical cord tissue. The Company offers the cord tissue service in combination with the umbilical cord blood service.
On
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(2) cord blood and cord tissue infusion clinic services initially under the
Cord Blood Stem Cell Processing and Storage Business
Background of Business
Nearly fifty years ago researchers discovered that cells could be cryopreserved at extremely low temperatures and all cellular activity would cease until the specimens were thawed. Historically, cryopreservation was required for organ transplants, blood banking and medical research. Today, cryopreservation of umbilical cord blood stem cells gives individuals the opportunity to potentially take advantage of evolving cellular therapies and other medical technologies.
Hematopoietic stem cells are the building blocks of our blood and immune systems. They form the white blood cells that fight infection, red blood cells that carry oxygen throughout the body and platelets that promote healing. These cells are found in bone marrow where they continue to generate cells throughout our lives. Stem cells can be stored in a cryogenic environment, and upon thawing, infused into a patient. They can be returned to the individual from whom they were taken (autologous) or donated to someone else (allogeneic). An individual's own bone marrow may be used for a transplant if the cancer has not entered the marrow system (metastasized). Otherwise, a marrow donor needs to be identified to provide the needed bone marrow. The availability of a marrow donor or matched stem cell specimen allows physicians to administer larger doses of chemotherapy or radiation in an effort to eradicate the disease. Stem cell therapies and transplants are used for both cancerous and non-cancerous diseases.
Stem cells are found in umbilical cord blood ("cord blood stem cells") and can be collected and stored after a baby is born. Over 40,000 cord blood stem cell transplants have been performed to date. The Company believes that many parents will want to save and store these cells for potential future use by their family, either for the donor or for another family member. Today, stem cell transplants are known and accepted treatments for at least 78 diseases, we believe, a number of them life-threatening. With continued research in this area of medical technology, other therapeutic uses for cord blood stem cells are being explored. Moreover, researchers believe they may be utilized in the future for treating diseases that currently have no cure.
It is the Company's mission to inform expectant parents and their prenatal care providers of the potential medical benefits from preserving stem cells and to provide them the means and processes for collection and storage of these cells. A vast majority of expectant parents are simply unaware that umbilical cord blood contains a rich supply of non-controversial stem cells and that they can be collected, processed and stored for the potential future use of the newborn and possibly related family members. A baby's stem cells are a perfect match for the baby throughout its life and have a 1-in-4 chance of being a perfect match and a 3-in-4 chance of being an acceptable match for a sibling. There is no assurance, however, that a perfect match means the cells could be used to treat certain diseases of the newborn or a relative. Today, it is still common for the cord blood (the blood remaining in the umbilical cord and placenta) to be discarded at the time of birth as medical waste.
Despite the potential benefits of umbilical cord blood stem cell preservation,
the number of parents of newborns participating in stem cell preservation is
still relatively small compared to the number of births (four million per annum)
in
The Company believes that the market for cord blood stem cell preservation is enhanced by global discussion on stem cell research developments and the current focus on reducing prohibitive health care costs. With the increasing costs of bone marrow matches and transplants, a newborn's umbilical cord blood cells can be stored as a precautionary measure. Medical technology is constantly evolving which may provide new uses for cryopreserved cord blood stem cells.
Our Cord Blood Stem Cell Storage Services
The Company enters into storage agreements with its clients under which the Company charges a fee for the processing and testing and first year of storage of the umbilical cord blood. Thereafter, the client is charged an annual fee to store the specimen, unless the client entered into an 18-year pre-paid storage plan or a lifetime pre-paid storage plan.
The Company's corporate headquarters are located in a nearly 18,000 square-foot state-of-the-art current Good Manufacturing
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Practice and Good Tissue Practice (cGMP/cGTP)-compliant facility.
Due to the limited storage capacity of its existing facility in
Competitive Advantages
The Company believes that it provides several key advantages over its competitors, including:
• The world's first private cord blood bank, that in combination with its
global affiliates, currently stores nearly 225,000 cord blood and cord
tissue specimens,
• Our facility's status as a cGMP- and cGTP-compliant private cord blood
bank with AABB accreditation and FACT (the Foundation for the
Accreditation for Cellular Therapy ) accreditation,
• a state-of-the-art laboratory processing facility,
• utilization of a processing method using superior technology that yields
the maximum recovery of healthy stem cells and provides superior red
blood depletion over all other methods,
• a five-compartment cord blood freezer bag that allows for multiple uses
of the baby's cord blood stem cells,
• a safe, secure and monitored storage environment,
• since inception, 100% viability rate of the Company's specimens upon
thaw for therapeutic use,
• a state-of the-art, insulated collection kits,
• 7-day per week processing capability, and
• a payment warranty under which the Company agrees to pay $50,000
(effective February 1, 2012 this payment was increased to $75,000 for
new clients, effective June 1, 2017 this payment was increased to
$100,000 for new clients that choose our premium cord blood processing
method, PrepaCyte® CB Processing System ("PrepaCyte CB")) 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.
In
In
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in inventory. Costs charged by Duke for their Duke Services are based on a
monthly fixed fee for processing and storing 12 blood units per month. The
public units are listed on the
Pursuant to the Purchase Agreement, Cord:Use is entitled to an earn out from the
Company's sale of the Public Cord Blood Inventory from and after closing. Each
calendar year after the closing, the Company is required to pay to Cord:Use 75%
of all gross revenues, net of any returns, received from the sale of public cord
blood inventory in excess of
The Public Cord Blood Inventory creates a large, ethnically diverse,
high-quality inventory of available cord blood stem cell units for those in need
of life saving therapy. The Company collects cord blood units at hospitals in
In connection with its acquisition of Cord:Use, the Company acquired 665,287
shares of
If the Company generates more than
In the event a Tianhe Sale Event has not occurred on or before the five year
anniversary of the Closing Date of the Cord:Use Asset Purchase Agreement, then
the Company and Cord:Use will select an independent valuator to determine the
fair market value of the Tianhe Stock owned by the Company and the Company will
pay Cord:Use the Tianhe Valuation Earnout, which is 7% of the gross profits that
would have been derived from a hypothetical sale of Tainhe capital stock,
provided, that, notwithstanding the foregoing, in the Company's sole discretion,
the Company may, instead of issuing shares of its common stock, transfer 7% of
its
Additionally, if the Company, at any time after the Closing Date of the Cord:Use
Asset Purchase Agreement, purchases additional shares of
ExtraVault
Due to the limited storage capacity of its existing facility in
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third party pharmaceutical companies and medical institutions cold storage
services ("ExtraVault" - see www.extravault.com), to set up a cellular therapy
laboratory to manufacture mesenchymal stromal cells from cord tissue ("MSCs")
and possibly the space to consolidate the
The Company anticipates this New Facility will expand the Company's
cryopreservation and cold storage business by introducing a new service,
ExtraVault (www.extravault.com). With over 30 years of experience in handling
biological specimens for both research and clinical use,
Marketing
The Company markets its cord blood stem cell preservation services directly to expectant parents and by distributing information through obstetricians, pediatricians, childbirth educators, certified nurse-midwives and other related healthcare professionals. The Company believes that its revenues have been facilitated by a variety of referral sources, resulting from high levels of customer satisfaction. New expectant parent referrals during fiscal 2022 are provided by physicians, midwives and childbirth educators, and by client-to-client referrals and repeat clients storing the stem cells of their additional children.
The Company has a national team of field cord blood educators who increase awareness of the benefits of storing cord blood and cord tissue to the Company's clinical referral sources, including physicians, midwives and hospitals and to expectant parents. Other promotional activities include internet advertisements and telemarketing activities. In addition, the Company exhibits at conferences, trade shows and other meetings attended by pregnant women and/or medical professionals. Significant portions of client referrals to the Company are from medical caregiver professionals.
The Company's client support team advisors are available by telephone to enroll clients and educate both expectant parents and the medical community on the life-saving potential of cord blood stem cell preservation.
The Company continues to use its website, www.cryo-cell.com, to market its services and to provide resource information to expectant parents. The site, which is frequently updated and improved, is divided into areas of interest, including sections for expectant parents, medical caregivers and investors. Expectant parents may request and receive information about the umbilical cord blood and cord tissue service and enroll online.
The Company intends to continue offering cord blood and cord tissue banking services to expectant parents and relying on both online advertising and its national team of field cord blood educators to enroll new clients. A significant portion of its new enrollments are generated from returning customers and referrals. Many of the Company's clients choose to enter into either multiyear storage contracts, which results in deferred revenues that are recognized over the life the storage contracts.
Our public units are listed on the NMDP registry, which is connected to all
other major international registries. NMDP has a contract with the
Additionally, the Company has definitive license agreements to market the
Company's umbilical cord blood stem cell programs in
Corporate Information
We are a
Results of Operations - Six-Month Period Ended
Revenue. Revenue for the six months ended
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Processing and Storage Fees. Processing and storage fee revenue is attributable to a 6% increase in recurring annual storage fee revenue offset by a slight decrease in the number of new domestic cord blood specimens processed in the first six months of fiscal 2022 versus the same period in 2021.
Product Revenue. For the six months ended
Public Cord Blood Banking Revenue. For the six months ended
Cost of Sales. Cost of sales for the six months ended
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended
Research, Development and Related Engineering Expenses. Research, development
and related engineering expenses for the six months ended
Depreciation and Amortization. Depreciation and amortization (not included in
Cost of Sales) for the six months ended
Change in the Fair Value of Contingent Consideration. Change in the fair value
of the contingent consideration for the six months ended
Interest Expense. Interest expense during the six months ended
Income Taxes.
Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. The ultimate realization of our deferred tax assets depends upon generating sufficient future taxable income prior to the expiration of the tax attributes. In assessing the need for a valuation allowance, we must project future levels of taxable income. This assessment requires significant judgment. We examine the evidence related to the recent history of tax losses, the economic conditions in which we operate and our forecasts and projections to make that determination.
Results of Operations - Three-Month Period Ended
Revenue. Revenue for the three months ended
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Processing and Storage Fees. Processing and storage fee revenue is attributable
to a 6% increase in recurring annual storage fee revenue offset by a 9% decrease
in the number of new domestic cord blood specimens processed for three months
ended
Product Revenue. For the three months ended
Public Cord Blood Banking Revenue. For the three months ended
Cost of Sales. Cost of sales for the three months ended
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended
Research, Development and Related Engineering Expenses. Research, development
and related engineering expenses for the three months ended
Depreciation and Amortization. Depreciation and amortization (not included in
Cost of Sales) for the three months ended
Change in the Fair Value of Contingent Consideration. Change in the fair value
of the contingent consideration for the three months ended
Interest Expense. Interest expense during the three months ended
Income Taxes.
Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. The ultimate realization of our deferred tax assets depends upon generating sufficient future taxable income prior to the expiration of the tax attributes. In assessing the need for a valuation allowance, we must project future levels of taxable income. This assessment requires significant judgment. We examine the evidence related to the recent history of tax losses, the economic conditions in which we operate and our forecasts and projections to make that determination.
Liquidity and Capital Resources
On
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Association ("TCB") for a term loan of
On
On
The TCB loan bears interest at a rate of 3.75% per annum plus LIBOR, payable
monthly, and matures on
As of
Other than the foregoing loans, the Company's principal source of cash has been from sales of its umbilical cord blood program to customers and royalties from licensees.
At
•
Net cash provided by operating activities for the six months ended
•
Net cash provided by operating activities for the six months ended
•
Net cash used in investing activities for the six months ended
•
Net cash used in investing activities for the six months ended
•
Net cash used in financing activities for the six months ended
•
Net cash used in financing activities for the six months ended
The Company does not have a line of credit.
The Company anticipates making discretionary capital expenditures of
approximately
The Company anticipates that its cash and cash equivalents, marketable
securities and cash flows from future operations, together with external sources
of capital, which the Company currently is exploring, will be sufficient to fund
its known cash needs for at least the next 12 months. Cash flows from operations
will depend primarily upon increasing revenues from sales of its umbilical cord
blood and cord tissue cellular storage services, developing its infusion
services at the
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Company is unable to obtain additional financing, the Company will be required
to reduce or defer cash expenditures or otherwise manage its cash resources
during the next 12 months so that they are sufficient to meet the Company's cash
needs for that period. The Company is considering the possibility of seeking
additional equity or debt financing. However, there can be no assurances the
Company will be able to obtain additional financing on favorable terms or at
all. Any reductions in expenditures, if necessary, may have an adverse effect on
the Company's business operations, including sales activities and the
development of new services and technology. In the future, the Company
anticipates using a substantial amount of cash to fund clinical trials related
to the Patent and Technology License Agreement with
Critical Accounting Policies
This discussion and analysis of our financial condition and results of
operations is based on our consolidated financial statements, which have been
prepared in accordance with
Recently Issued Accounting Pronouncements
See Note 1 to the Consolidated Financial Statements.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonable likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
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