# Cryo Cell International Inc: Form 10-Q for the period ended Feb 28, 2021 - Company: [Cryo Cell International Inc](/companies/ccel.md) (CIK 862692) - Form: 10-Q - Filed: 2021-04-14 - Accepted by EDGAR: Apr 14, 2021, 21:21 ET - Period: 2021-02-28 - Accession: 0001564590-21-018845 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/862692/000156459021018845/ccel-10q_20210228.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/862692/000156459021018845/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2021-02-28. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2020-12-01 to 2021-02-28 | $6.9m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax | | Cost of revenue | 3 months, 2020-12-01 to 2021-02-28 | $2.0m | us-gaap:CostOfGoodsAndServicesSold | | Research and development | 3 months, 2020-12-01 to 2021-02-28 | $6.2k | us-gaap:ResearchAndDevelopmentExpense | | Selling, general and administrative | 3 months, 2020-12-01 to 2021-02-28 | $3.4m | us-gaap:SellingGeneralAndAdministrativeExpense | | Operating income | 3 months, 2020-12-01 to 2021-02-28 | $1.2m | us-gaap:OperatingIncomeLoss | | Interest expense | 3 months, 2020-12-01 to 2021-02-28 | $280.2k | us-gaap:InterestExpense | | Income tax | 3 months, 2020-12-01 to 2021-02-28 | $258.9k | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2020-12-01 to 2021-02-28 | $693.6k | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2020-12-01 to 2021-02-28 | $0.08 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2020-12-01 to 2021-02-28 | $0.09 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 3 months, 2020-12-01 to 2021-02-28 | 8,198,591 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 3 months, 2020-12-01 to 2021-02-28 | $2.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 3 months, 2020-12-01 to 2021-02-28 | $12.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Cash and equivalents | at 2021-02-28 | $11.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2021-02-28 | $18.7m | us-gaap:AssetsCurrent | | Total assets | at 2021-02-28 | $105.3m | us-gaap:Assets | | Current liabilities | at 2021-02-28 | $29.8m | us-gaap:LiabilitiesCurrent | | Total liabilities | at 2021-02-28 | $107.0m | us-gaap:Liabilities | | Long-term debt | at 2021-02-28 | $4.2m | us-gaap:LongTermDebt | | Shareholders' equity | at 2021-02-28 | −$1.7m | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 27,106 characters. ### Forward Looking Statements This Form 10‑Q, press releases and certain information provided periodically in writing or orally by the Company's officers or its agents may contain statements which constitute "forward‑looking statements". The terms "Cryo-Cell International, Inc.," “Cryo-Cell,” "Company," "we," "our" and "us" refer to Cryo-Cell International, Inc. The words "expect," “anticipate,” "believe," "goal," “strategy,” "plan," "intend," "estimate" and similar expressions and variations thereof, if used, are intended to specifically identify forward‑looking statements. Those statements appear in a number of places in this Form 10‑Q and in other places, and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things: (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. Investors and prospective investors are cautioned that any such forward‑looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward‑looking statements as a result of various factors. The factors that might cause such differences include: (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 U.S.; (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 new services relating to other types of stem cells that have not yet been offered commercially, and there is no assurance that other stem cell services will be launched or will gain market acceptance; (v) 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; (vi) 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; (vii) any technological or medical breakthroughs that would render our business of stem cell preservation obsolete; (viii) any material failure or malfunction in our storage facilities; or any natural disaster or act of terrorism that adversely affects stored specimens; (ix) any adverse results to our prospects, financial condition or reputation arising from any material failure or compromise of our information systems; (x) the costs associated with defending or prosecuting litigation matters, particularly including litigation related to intellectual property, and any material adverse result from such matters; (xi) the success of our licensing agreements and their ability to provide us with royalty fees; (xii) any difficulties and increased expense in enforcing our international licensing agreements; (xiii) any adverse performance by or relations with any of our licensees; (xiv) any inability to enter into new licensing arrangements including arrangements with non-refundable upfront fees; (xv) any inability to realize cost savings as a result of recent acquisitions; (xvi) any inability to realize a return on an investment; (xvii) any increased U.S. income tax expense as a result of inability to utilize or exhaustion of net operating losses; (xviii) 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; (xix) the success of our global expansion initiatives; (xx) our actual future ownership stake in future therapies emerging from our collaborative research partnerships; (xxi) our ability to minimize our future costs related to R&D initiatives and collaborations and the success of such initiatives and collaborations; (xxii) any inability to successfully identify and consummate strategic acquisitions; (xxiii) any inability to realize benefits from any strategic acquisitions; (xxiv) the Company’s ability to realize a profit on the acquisition of PrepaCyte-CB; (xxv) the Company’s ability to realize a profit on the acquisition of Cord:Use, (xxvi) the Company’s ability to expand its core business units to include biopharmaceutical manufacturing and operating clinics, (xxvii) any uncertainties of profitability from its biopharmaceutical manufacturing and operating clinics, (xxviii) the costs associated with proxy contests and its impact on our business, (xxix) the impact of the COVID-19 pandemic on our sales, operations and supply chain and (xxx) other factors many of which are beyond our control. We undertake no obligation to publicly update or revise the forward-looking statements made in this Form 10‑Q to reflect events or circumstances after the date of this Form 10‑Q or to reflect the occurrence of unanticipated events. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. Cryo-Cell International, Inc. undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission, including the Annual Report on Form 10-K filed by the Company and any Current Reports on Form 8-K filed by the Company. ### Overview The Company is engaged in cellular processing and cryogenic storage, with a current focus on the collection and preservation of umbilical cord blood stem cells for family use. The Company’s principal sources of revenues are service fees for cord blood processing and preservation for new customers and recurring annual storage fees. Effective April 2016, the Company offers two pricing models, a standard plan and premium plan. The Company charges fees of $1,675 for the standard plan and $2,025 for the premium plan to new clients for the collection kit, processing, testing and return medical courier service, with discounts in the case of multiple children from the same family and in other circumstances. The Company charges an annual storage fee of $175 for new clients that enroll in the standard and premium plans; storage fees for existing customers depend on the contracts with such customers. The Company continues to offer a one-time payment plan for 18 years of storage and a lifetime payment plan, pursuant to which the client is charged $4,650 for the standard plan and $5,000 for the premium plan and approximately $5,800 for the standard plan and approximately $6,100 for the premium plan, respectively, less discounts in the case of multiple children from the same family and in other circumstances. The one-time plan includes the collection kit, processing and testing, return medical courier service and 18 years of prepaid storage fees. The lifetime plan includes the collection kit, processing and testing, return medical courier service and prepaid storage fees for the life of the client. The Company also receives other income from licensing fees and royalties from global affiliates. On June 11, 2018, Cryo-Cell completed its acquisition of substantially all of the assets (the “Cord Purchase”) of Cord:Use Cord Blood Bank, Inc., a Florida corporation (“Cord:Use”), in accordance with the definitive Asset Purchase Agreement between Cryo-Cell and Cord:Use (the “Purchase Agreement”), including without limitation Cord:Use’s inventory of public cord blood units existing as of the closing date (the “Public Cord Blood Inventory”) and Cord:Use’s shares of common stock of Tianhe Stem Cell Biotechnologies, Inc., an Illinois corporation (the “Tianhe Capital Stock”). Cord:Use was in the business of public and private cord blood and tissue, collection, processing, storage and banking. The aggregate consideration payable at closing under the Purchase Agreement was $14,000,000, with $10,500,000 paid in cash and the balance paid through the delivery to Seller of 465,426 shares of Cryo-Cell’s common stock, par value $0.01 per share (“Common Stock”), at $7.52 per share. In addition, Cryo-Cell assumed certain limited liabilities incurred by Cord:Use in connection with its business that were unpaid as of the closing date and that directly relate to the services to be provided after closing by Cryo-Cell. Cryo-Cell also assumed certain of Cord:Use’s contracts and the obligations arising therefrom after the closing. Additionally, Cord:Use is entitled to an earnout from Cryo-Cell’s sale of the Public Cord Blood Inventory from and after closing. Each calendar year after the closing, Cryo-Cell 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 $500,000. Such payments are to be made quarterly, within 30 days of the end of the last month of each calendar quarter, until the public cord blood inventory is exhausted. In addition, each calendar year after closing, until the public cord blood inventory is exhausted, for every $500,000 of retained gross revenues, net of any returns, received and retained by Cryo-Cell in excess of the initial $500,000 retained by Cryo-Cell during such year, Cryo-Cell is to deliver $200,000 worth of Cryo-Cell Common stock to Cord:Use, up to an aggregate value of $5,000,000. Cord:Use is also entitled to a portion of the gross profits generated, or deemed to have been generated, by Cryo-Cell from its ownership of the Tianhe Capital Stock. As disclosed in Note 13, on February 23, 2021, the Company entered into a Patent and Technology License Agreement (the “Agreement”) with Duke University (“Duke”). The Agreement grants the Company the rights to proprietary processes and regulatory data related to cord blood and cord tissue developed at Duke. The Company plans to explore, test, and administer these treatments to patients with conditions for which there are limited FDA approved therapies, including cerebral palsy, autism, multiple sclerosis and COVID-19. These treatments utilize the unique immunomodulatory and potential regenerative properties derived from cord blood and cord tissue. Per the Agreement, the Company has been granted exclusive commercial rights to Duke’s intellectual property assets, FDA regulatory data, clinical expertise and manufacturing protocols associated with various applications of cord blood and cord tissue stem cells. Through this Agreement, the Company intends to expand to a triad of core business units to include its cord blood bank, biopharmaceutical manufacturing (once BLA(s) or Emergency Use Authorization(s) are approved by the FDA), and infusion clinic(s) services, initially under the rights granted to Duke through the FDAs Expanded Access Program. During the three months ended February 28, 2021, the Company’s revenues decreased 10% as compared to the same period in 2020. The Company reported net income of approximately $694,000 or $0.09 per basic common share for the three months ended February 28, 2021 compared to net income of approximately $687,000, or $0.09 per basic common share for the three months ended February 29, 2020. Net income for the three months ended February 28, 2021 principally resulted from a 20% decrease in cost of sales, an 11% decrease in selling, general and administrative expenses, and by a 10% decrease in revenue. At February 28, 2021, the Company had cash and cash equivalents of 11,277,811. The Company’s cash increased by approximately $917,000 during the first three months of fiscal 2021. Cash provided by operations was approximately $2,662,000 which was offset by approximately $1,775,000 used to repay the note payable. In March 2020, the World Health Organization declared a pandemic related to the rapidly spreading coronavirus (“COVID-19”) outbreak. The Company faces various risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of COVID-19. The Company believes it has taken appropriate steps to minimize the risk to our employees and to maintain normal business operations and continues to actively monitor the global outbreak and spread of COVID-19 and continues to take steps to mitigate the potential risks to us posed by its spread and related circumstances and impacts. Due to the change in consumer buying patterns as a result of COVID-19, the Company has experienced a decline in new client sales resulting in a decrease in revenues for the three months ended February 28, 2021 compared to the three months ended February 29, 2020. While the ultimate health and economic impact of COVID-19 remains highly uncertain, we expect that our business operations and results of operations, including our net sales, earnings and cash flows, may continue to be impacted by decreases in new client sales. We cannot predict the timing and speed of the recovery, and any delay in the recovery could significantly impact our future results. Consistent with its fiduciary duties, the board of directors and management has reviewed and will continue to review strategic options and opportunities for the Company, in order to maximize shareholder value. These options may include, but are not limited to, strategic mergers or acquisitions, investments in other public and/or private companies, repurchases of revenue sharing agreements (“RSA”) interests, a deregistration of the Company's common stock under the Securities Exchange Act of 1934 or a going-private transaction. These options may or may not be related to the Company’s current business. In order to undertake any of the aforementioned activities, the Company may take on substantial debt or equity capital which could increase the risk of investment in the Company. ### Results of Operations ***Revenues.*** Revenues for the three months ended February 28, 2021 were $6,860,617 compared to $7,620,774 for the same period in 2020, a 10% decrease. The decrease in revenue was primarily attributable to a 9% decrease in processing and storage fees. *Processing and Storage Fees.* The decrease in processing and storage fee revenue is attributable to a decrease in the number of new domestic cord blood specimens offset by a 9% increase in recurring annual storage fee revenue. *Public Banking Revenue.* For the three months ended February 28, 2021, revenue from public banking was $83,986 compared to $154,079 for the three months ended February 29, 2020. *Product Revenue.* For the three months ended February 28, 2021, revenue from the PrepaCyte CB product sales was $38,000 compared to $60,407 for the three months ended February 29, 2020. ***Cost of Sales.*** Cost of sales for the three months ended February 28, 2021 was $2,012,197 as compared to $2,503,144 for the same period in 2020, representing a 20% decrease. Cost of sales includes wages and supplies associated with process enhancements to the existing production procedures and quality systems in the processing of cord blood specimens at the Company’s facility in Oldsmar, Florida and depreciation expense of approximately $51,000 and $52,000 for the three months ended February 28, 2021 and February 29, 2020, respectively. Also included in Cost of Sales is $34,880 and $41,117 related to the costs associated with production of the PrepaCyte®-CB processing and storage system for the three months ended February 28, 2021 and February 29, 2020, respectively. Also included in Cost of Sales is $337,301 and $406,953 for the three months ended February 28, 2021 and February 29, 2020, respectively, related to the public banking due to the Purchase Agreement with Cord:Use. The decrease in cost of sales for the three months ended February 28, 2021 versus February 29, 2020 is due to the decrease in the number of new domestic cord blood specimens processed during the three months ended February 28, 2021 versus the three months ended February 29, 2020. ***Selling, General and Administrative Expenses.*** Selling, general and administrative expenses for the three months ended February 28, 2021 were $3,433,312 as compared to $3,870,029 for the 2020 period, representing an 11% decrease. These expenses are primarily comprised of expenses for consumer advertising, salaries and wages for personnel and professional fees. The decrease in selling, general and administrative expenses is primarily attributable to an 11% decrease in selling expenses. ***Research, Development and Related Engineering Expenses.*** Research, development and related engineering expenses for the three months ended February 28, 2021 were $6,190 as compared to $5,722 for the three months ended February 29, 2020. ***Depreciation and Amortization.*** Depreciation and Amortization (not included in Cost of Sales) for the three months ended February 28, 2021 was $21,263 compared to $44,221 for the 2020 period. ***Change in the Fair Value of Contingent Consideration.*** Change in the fair value of the contingent consideration for the three months ended February 28, 2021 was an increase of $152,394 compared to a decrease of $51,412 for the 2020 period. The contingent consideration is the earnout that Cord:Use is entitled to from the Company’s sale of the public cord blood inventory from and after closing, described above. The contingent consideration was remeasured to fair value as of February 28, 2021. The estimated fair value of the contingent earnout was determined using a Monte Carlo analysis examining the frequency and mean value of the resulting earnout payments. The resulting value captures the risk associated with the form of the payout structure. The risk-neutral method is applied, resulting in a value that captures the risk associated with the form of the payout structure and the projection risk. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the estimated value of the liability. ***Interest Expense.*** Interest expense for the three months ended February 28, 2021 was $280,219 compared to $365,299 for the three months ended February 29, 2020, of which, $60,220 and $134,261, respectively, related to the credit and subordination agreements with Texas Capital Bank, National Association as described in Note 5. The remaining interest expense is mainly comprised of amounts due to the parties to the Company’s RSA based on the Company’s storage revenue collected. ***Income Taxes.*** Income tax expense for the three months ended February 28, 2021 was $258,901 compared to $252,380 for the three months ended February 29, 2020. 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 May 20, 2016, the Company entered into a Credit Agreement (“Agreement”) with Texas Capital Bank, National Association (“TCB”) for a term loan of $8.0 million in senior credit facilities. The proceeds of the term loan were used by the Company to fund repurchases of the Company’s common stock. Subject to the terms of the Agreement, on May 20, 2016, TCB advanced the Company $100. On July 1, 2016, TCB advanced the remaining principal amount of $7,999,900 per a promissory note dated May 20, 2016 between the Company and TCB. On August 26, 2016, the Company entered into a First Amendment to Credit Agreement with TCB. Pursuant to terms of the First Amendment to Credit Agreement, on August 26, 2016, TCB made an additional advance to the Company in principal amount of $2,133,433 per an Amended and Restated Promissory Note dated August 26, 2016 between the Company and TCB. The additional proceeds of the term loan were used by the Company to fund the extinguishment of revenue sharing agreements. On June 11, 2018, the Company entered into a Second Amendment to Credit Agreement with TCB. Pursuant to the terms of the Second Amendment to Credit Agreement, TCB made an additional advance to the Company in principal amount of $9,000,000 per an Amended and Restated Promissory Note dated June 11, 2018 between the Company and TCB in the principal amount of $15,500,000. The proceeds were used to finance a portion of the purchase price of the Cord:Use Purchase. Prior to the 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 February 28, 2021, the Company had cash and cash equivalents of $11,277,811 as compared to $10,361,125 at November 30, 2020. The increase in cash and cash equivalents during the three months ended February 28, 2021 was primarily attributable to the following: Net cash provided by operating activities for the three months ended February 28, 2021 was $2,662,042 which was primarily attributable to the Company’s operating results and a portion of the Company’s new clients choosing the prepaid storage plans versus the annual storage fee plan. Net cash provided by operating activities for the three months ended February 29, 2020 was $2,615,563 which was primarily attributable to the Company’s operating results and an increase in the Company’s new clients choosing the prepaid storage plans versus the annual storage fee plan. Net cash used in investing activities for the three months ended February 28, 2021 was $161,978, which was primarily attributable $11,978 used to the purchase property, equipment and software and $150,000 used as part of the Patent Option and Technology License Agreement with Duke (See Note 13). Net cash used in investing activities for the three months ended February 29, 2020 was $6,961, which was primarily attributable to the purchases of property and equipment. Net cash used by financing activities for the three months ended February 28, 2021 was $1,583,378 which was primarily attributable to the payments of $1,775,000 to repay the note payable described above offset by the receipt of $191,622 from the exercise of stock options. Net cash used by financing activities for the three months ended February 29, 2020 was $734,000 which was primarily attributable to the payments of $775,000 to repay the note payable described above offset by the receipt of $41,000 from the exercise of stock options. The Company does not have a line of credit. The Company will closely monitor its liquidity and capital resources due to any potential impact that the COVID-19 pandemic may have on operations. As disclosed in Note 13, a payment of $5,000,000 is due on February 23, 2022 per the Agreement with Duke. The Company anticipates making discretionary capital expenditures of approximately $1,000,000 over the next twelve months for software enhancements and purchases of property and equipment. The Company anticipates funding future property and equipment purchases with cash-on-hand and cash flows from future operations. The Company anticipates that its cash and cash equivalents, marketable securities and cash flows from future operations 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 and managing discretionary expenses. If expected increases in revenues are not realized, or if expenses are higher than anticipated, the Company may 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. In addition, the Company may consider seeking equity or debt financing if deemed appropriate for its plan of operations, and if such financing can be obtained on acceptable terms. There is no assurance that any reductions in expenditures, if necessary, will not have an adverse effect on the Company’s business operations, including sales activities and the development of new services and technology. ### 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 U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosures of contingent assets and liabilities. For a full discussion of our accounting policies please refer to Note 1 to the Consolidated Financial Statements included in our 2020 Annual Report on Form 10-K filed with the SEC on March 1, 2021. Our most critical accounting policies and estimates include: recognition of revenue and the related allowance for doubtful accounts, stock-based compensation, income taxes and license and revenue sharing agreements. We continually evaluate our judgments, estimates and assumptions. We base our estimates on the terms of underlying agreements, historical experience and other factors that we believe are reasonable based on the circumstances, the results of which form our management’s basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. There have been changes to our critical accounting policies and estimates from the information provided in Item 7, *Management’s Discussion and Analysis of Financial Condition and Results of Operations* included in our 2020 Annual Report on Form 10-K. Please refer to Note 1 to the Consolidated Financial Statements. ### 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. ## Controls and procedures As filed, 3,304 characters. ### Evaluation of Disclosure Controls and Procedures Based on their most recent review, as of the end of the period covered by this report, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective, and that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to ensure that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. ### Changes in Internal Control Over Financial Reporting There were no changes in the Company’s internal controls over financial reporting during the three months ended February 28, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ### Limitations on the Effectiveness of Controls Our management, including our Co-CEOs and CFO, does not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. ### CEO and CFO Certifications Appearing as exhibits 31.1, 31.2 and 31.3 to this report there are Certifications of the Co-CEOs and the CFO. The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This Item of this report is the information concerning the evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented. Filed Apr 14, 2021. Source: SEC EDGAR, the filing index for accession 0001564590-21-018845. Last ingested by Listed: Oct 24, 2026, 14:58 ET. No prices; not investment advice.