U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended February 28, 1998
[ ] 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 0-23386
CRYO-CELL INTERNATIONAL, INC.
-----------------------------------------------------------------
(Exact name of Small Business Issuer as Specified in its Charter)
DELAWARE 22-3023093
---------------------------- -------------------
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
3165 MCMULLEN BOOTH ROAD, BUILDING 5, CLEARWATER, FLORIDA 33761
---------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's phone number, including area code: (813) 723-0333
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report).
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15 (d) of the Exchange Act during the preceding 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 [X] No [ ]
State the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date. As of February 28, 1998,
7,236,501 shares of $0.01 par value common stock were outstanding.
Transitional Small Business Disclosure Format (check one). Yes [ ] No [X]
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
2
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
FEBRUARY 28, NOVEMBER 30,
1998 1997
(UNAUDITED)
------------ -----------
CURRENT ASSETS
Cash and cash equivalents $ 487,697 $ 814,156
Receivables and advances (net of allowance for
doubtful accounts of $4,338) 87,230 62,637
Marketable securities 200,000 225,000
Inventory 729 --
Refundable income taxes 18,108 21,338
Loan origination fees, net 27,397 44,116
Prepaid expenses and other current assets 25,392 57,676
---------- ----------
Total current assets 846,553 1,224,923
---------- ----------
PROPERTY AND EQUIPMENT
Property and equipment, net 2,510,832 2,466,152
---------- ----------
OTHER ASSETS
Intangible assets (net of amortization of 67,343 68,512
$36,867 and $35,696, respectively)
Deposits with vendors and others 143,790 28,788
Investment in unconsolidated affiliate 138,215 191,698
---------- ----------
Total other assets 349,348 288,998
---------- ----------
TOTAL ASSETS $3,706,733 $3,980,073
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
<PAGE>
<TABLE>
<CAPTION>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
FEBRUARY 28, NOVEMBER 30,
1998 1997
(UNAUDITED)
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 294,362 $ 289,159
Accrued expenses and withholdings 77,731 104,194
Short term borrowings 500,000 500,000
Current portion of obligations under capital leases 1,136 2,350
----------- -----------
Total current liabilities 873,229 895,703
----------- -----------
OTHER LIABILITIES
Unearned revenue and deposits 34,796 8,708
Obligations under capital leases-net of current portion 5,494 4,542
----------- -----------
Total other liabilities 40,290 13,250
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock (500,000 $.01 par value authorized; -- --
0 issued and outstanding)
Common stock (15,000,000 $.01 par value common shares
authorized; 7,236,501 at February 28, 1998 and 7,186,501
at November 30, 1997 issued and outstanding) 72,365 71,865
Additional paid-in capital 7,956,902 7,702,791
Unrealized losses on marketable securities (200,000) (175,000)
Accumulated deficit (5,036,053) (4,528,536)
----------- -----------
Total stockholders' equity 2,793,214 3,071,120
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,706,733 $ 3,980,073
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
REVENUE $ 36,175 $ 404,800
----------- -----------
COSTS AND EXPENSES:
Cost of sales 17,113 --
Marketing, general & administrative expenses 393,639 430,780
Research, development and related engineering 49,054 29,690
Depreciation and amortization 40,000 13,338
----------- -----------
Total Cost and Expenses 499,806 473,808
----------- -----------
OPERATING PROFIT (LOSS) (463,631) (69,008)
----------- -----------
OTHER INCOME AND (EXPENSE):
Interest income 6,699 16,931
Interest (Expense) (11,037) --
Gain on sale of unconsolidated affiliate's stock 68,620 --
----------- -----------
Total Other Income 64,282 16,931
----------- -----------
INCOME (LOSS) BEFORE EQUITY IN NET LOSS OF
UNCONSOLIDATED AFFILIATE AND
PROVISION FOR INCOME TAXES (399,349) (52,077)
Provision for income taxes -- 11,897
Equity in net loss of unconsolidated affiliate 108,094 20,048
----------- -----------
NET INCOME (LOSS) ($ 507,443) ($ 84,022)
=========== ===========
NET INCOME (LOSS) PER SHARE ($ 0.07) ($ 0.01)
=========== ===========
Number of Shares Used In Computation 7,199,834 7,151,984
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
<PAGE>
<TABLE>
<CAPTION>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997
(UNAUDITED) (UNAUDITED)
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income(loss) $ (507,443) $ (84,022)
Adjustments to reconcile net income (loss)
to cash provided by (used for) operating activities:
Depreciation and amortization 40,000 13,338
Equity in loss of unconsolidated affiliate 108,094 20,048
Changes in assets and liabilities:
Accounts receivable (24,593) 267,236
Inventory (729) 1,761
Prepaid expenses 32,284 (8,530)
Accounts payable 5,202 11,829
Unearned revenue and deposits 26,088 --
Accrued expenses (26,463) 38,562
Refundable income taxes 3,230 (37,334)
Deposits and other (115,000) 5,971
----------- -----------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES (459,330) 228,859
----------- -----------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of property and equipment-net (66,687) (105,875)
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES $ (66,687) $ (105,875)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of stock options 62,500 --
Purchase of common stock 137,500 --
Principal payments under capital leases (262) (2,098)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES: 199,738 (2,098)
----------- -----------
Increase (decrease) in cash and cash equivalents (326,459) 120,886
Cash and cash equivalents:
Beginning of year 814,156 1,079,531
----------- -----------
End of period $ 487,697 $ 1,200,417
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
6
<PAGE>
<TABLE>
<CAPTION>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997
(UNAUDITED) (UNAUDITED)
----------- ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 11,037 $ --
----------- -----------
Income taxes $ -- $ 49,231
----------- -----------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
7
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENTS
The Consolidated Financial Statements including the Consolidated
Balance Sheet as of February 28, 1998, Consolidated Statements of Operations for
the three months ended February 28, 1998 and Consolidated Statement of Cash
Flows for the three months ended February 28, 1998 have been prepared by the
Company, without audit. 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 at February
28, 1998 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's November 30, 1997 Annual
Report on Form 10-KSB.
NOTE 2 - INVESTMENT EQUITY IN UNCONSOLIDATED AFFILIATE, SALE OF STOCK
In December 1997, the Company received $68,620 from the sale of 18,000
shares of Net/Tech International, Inc. common stock. This sale brought the
Company's remaining holdings of Net/Tech stock to 1,865,711 shares. Under the
equity method of accounting, these shares are valued on CRYO-CELL's balance
sheet at $138,215 as of February 28, 1998. If these same shares were valued at
the closing market price of Net/Tech's stock on February 28, 1998, the market
capitalization of CRYO-CELL's holdings would be $5,713,740.
NOTE 3 LINE OF CREDIT
In August 1997, the Company entered into a one year line of credit
agreement with NationsBank, N.A. ("the Bank") whereby the Bank will lend up to
$1,000,000. As part of the agreement, the Bank received a $10,000 commitment fee
and collateral of 250,000 shares of Net/Tech International, Inc. common stock
owned by the Company and a pledge of 350,000 shares of the Company stock owned
by a group of the Company's shareholders. At February 28, 1998 direct borrowings
under this agreement were $500,000. Terms of the loan require interest to be
paid monthly at the Bank's prime lending rate plus 1%. The agreement expires on
July 31, 1998 at which time the Company will refinance the loan. The agreement
contains several covenants relating to working capital and net worth which the
Company is not in compliance with as of February 28, 1998 thus allowing the Bank
to ask for current repayment. The fair market value of the collateral as of
February 28, 1998, was in excess of $1,500,000. Although it does not believe it
will need to, the Company stands ready to liquidate any collateral or find other
sources of funds to repay the loan should this become necessary.
NOTE 4 STOCKHOLDERS EQUITY
In February 1998, the Company received $62,500 from the sale of options
(at $1.00 for each optioned share) to purchase 62,500 shares of its common stock
at $5.00 per share. These options are valid for a period of five years. Exercise
of these options can result in a cash infusion to the Company of $312,500. In
February 1998, the Company received $137,500 from the sale of 50,000 shares of
its common stock at $2.75 per share.
Stock issued will be subject to Rule 144 restrictions.
8
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998
(UNAUDITED)
NOTE 5 REVENUE SHARING AGREEMENTS
BIO-STOR
The Company expanded its prior agreement with Bio-Stor International,
Inc. (Bio-Stor). The terms of the prior agreement entered into April 1996 were
for Bio-Stor to pay the Company $5,000,000 in exchange for the rights to the
shared revenue derived from 150,000 storage spaces. (5 passive Revenue Sharing
Partnerships encompassing 30,000 storage spaces per partnership) The agreement
was to be financed with proceeds from an Initial Public Offering (IPO) of
Bio-Stor stock. Bio-Stor paid $900,000 which was recognized as revenue in fiscal
1996, but was unable to fund the balance of the agreement because it did not
file for the planned IPO. This payment entitled Bio-Stor to share storage
revenues on 27,000 spaces with CRYO-CELL.
The expanded agreement reduces the number of passive partnership
revenue sharing agreements from 5 to 3 in consideration for $3,000,000 of which
$900,000 had already been received and recognized. The amended agreement also
creates an active Revenue Sharing Partnership in consideration for an additional
$1,000,000. In the active Revenue Sharing Partnership Bio-Stor plans on filing
the allotted 33,000 storage spaces through its own marketing efforts. The active
Revenue Sharing Partnership entitles Bio-Stor to the same revenue sharing as a
passive partnership plus its pro rata portion of processing and storage fees
generated from their marketing activities. Bio-Stor will also have the right to
first refusal to any further Revenue Sharing Agreements prior to these being
offered to other interested parties once Bio-Stor has paid CRYO-CELL a total of
$4,000,000.
In addition, CRYO-CELL granted Bio-Stor a one year option to (1)
purchase a 20% equity position of CRYO-CELL Europe (a corporation to be formed
to service the European common markets) for $2,000,000 and to (2) purchase an
equity position in CRYO-CELL Latin America (a corporation to be formed to
service Merco-Sur, which encompasses Argentina, Brazil, Paraguay, Uraguay and
Chile) for $1,000,000 per 10% of the equity of the Company up to 20%.
In consideration of the expanded agreement, CRYO-CELL received a 19%
equity position in Bio-Stor. The number of shares shall be determined by the
number of outstanding shares and warrants at the completion of the Bio-Stor
underwriting. CRYO-CELL shall only receive shares for the 19% of outstanding
warrants if and when they are exercised and become common shares in order to
maintain CRYO-CELL's 19% equity position through and including warrant
exercising. CRYO-CELL has granted Bio-Stor a voting trust with respect to these
shares.
NOTE 6 COMMITTMENTS AND CONTINGENCIES
In December 1997, the Company entered into a marketing agreement with
Lamaze Publishing Company to sponsor in conjunction with other well known
companies the Lamaze tutorial tape and a full page advertisement in the Lamaze
Parents Magazine at a cost of $175,000. The tutorial tape sponsorship includes a
2.5 minute segment on the Companies cord blood program. As of February 28, 1998,
the Company paid $115,000 of this agreement and is recognizing this as deposit
on the balance sheet.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
CRYO-CELL International, Inc., is a Delaware Corporation, incorporated
in 1989, is engaged in cryogenic storage and the design and development of
storage devices for use in its cellular storage programs. During the period
since its inception, the Company's activities have principally involved the
design and development of its cellular storage unit ("CCEL Cellular Storage
Unit") and in securing patents on the same. While the Company's patented
cellular storage unit is capable of multi-faceted storage, the company has
targeted the cryopreservation of umbilical cord blood stem cells as its initial
entry into the cellular storage market.
The Company's technology involves patented, multi-faceted cellular
storage units. The Company believes its technology provides an improved method
for storing human cells, such as cord blood, tumor tissue, sperm and other cells
in liquid nitrogen and/or liquid nitrogen vapor.
The unit is currently assembled by an independent manufacturer
utilizing the Company's patented design. The Company has been advised by
Underwriters Laboratories ("U/L") that we have passed all required inspections
and the unit is now U/L listed. In order to affix the U/L label to all units
that are deployed in the future, they must contain the same parts, operating
capabilities and features as in the tested CCEL II model.
A key factor of the Company's business strategy is its Lifespan/SM/
Cellular Storage Program. This program establishes a network of Lifespan/SM/
Centers through partnerships with hospitals and medical centers. Recently, the
Company has succeeded in combining the Lifespan/SM/ Cellular Storage Program
with its Revenue Sharing Program. The combined programs entitle the partnering
hospital or medical center to receive an additional portion of their
Lifespan/SM/ center's annual storage revenue.
The Company has initiated its Lifespan/SM/ Cellular Storage Program. In
September, 1997 the Company signed an agreement with Washington Hospital Center
in Washington, D.C., serving the greater metropolitan Washington area, including
suburban Virginia and Maryland. The number of births in this area exceeds 60,000
annually.
Tenet Healthcare Corp., the second largest proprietary hospital system
in the U.S. which operates over 120 hospitals, has agreed to participate as a
Lifespan/SM/ Center and Single-Unit Revenue Sharing Partner. Tenet is expanding
its lab facilities to implement the CRYO-CELL Lifespan/SM/ Program. The first
facility is expected to be opened for processing in the second quarter of
fiscal, 1998 at Tenet's St. Vincent Hospital in Worcester, Massachusetts.
In March 1997, the Company signed an agreement with St. Peter's Medical
Center in New Brunswick, New Jersey to be the exclusive CRYO-CELL Storage Center
in the State of New Jersey. The state of New Jersey has approximately 120,000
births annually. The facility is expected to open in the spring of 1998.
CRYO-CELL established a Lifespan/SM/ Center in 1996 at Reproductive
Genetics Laboratory at the Illinois Masonic Medical Center in Chicago. This is a
World Health Organization ("WHO") Collaborating Center for Prevention of Genetic
Disorders. The Company is storing this Lifespan/SM/ Center's specimens in a
standard CryoMed unit on an interim basis until our proprietary equipment is
installed.
The Company's strategic plan is to develop an international cellular
banking network based on its patented technologies. The Company is focusing on
building alliances through its Lifespan/SM/ Program as well as its Revenue
Sharing Program with university/medical centers and other organizations in the
United States and overseas.
The Company gains significant marketing support from each partnered
hospital or medical center
10
<PAGE>
as they educate their patients on the potential life-saving benefits of
umbilical cord blood stem cell storage. Since the hospital or medical center,
under the Revenue Sharing Program, has now invested its own funds in the
program, the Company believes this combined effort has the potential to
accelerate the storage of cellular specimens.
The following is a discussion and analysis of the financial condition
and results of operations of the Company for the quarter February 28, 1998 as
compared to the same period of the prior year.
GENERAL
In addition to initiating its Lifespan/SM/ Cellular Storage Program,
the Company has entered into an agreement with the Lamaze Publishing Company to
sponsor the Lamaze tutorial tape, "You and Your Baby". The agreement calls for
Lamaze to show the videotape to nearly two million women in their third
trimester of pregnancy. Over 90% of first time mothers and 45% of the pre-natal
market avail themselves of the Lamaze Institute for Family Education proven
instruction program. The tutorial tape, which will be distributed by over 10,000
instructors, will discuss the importance of cord blood storage and refer viewers
to the full page ad the company has placed in the Lamaze Parents Magazine, which
will be distributed to 2.4 million expectant mothers. The Company has also
committed to a second Lamaze program which will now bring the total coverage to
3.6 million expectant mothers for the tutorial tape and 4.8 million expectant
mothers for the Lamaze Parents Magazine over a two year period. In addition, the
Company has signed a two year commitment with Revista Lamaze para Padres Special
Delivery Magazine Onsert Program to reach nearly one million Hispanic
mothers-to-be with a hand delivered Spanish translation of the CRYO-CELL
brochure. The Company feels this is an extremely important marketing campaign
because it is known that ethnic minorities are generally underrepresented in the
National Marrow Donor Registry. The Company has exclusivity in the cord blood
storage field and first right of refusal for renewal of the agreement.
During the quarter, the Company continued its program of marketing its
Revenue Sharing Agreements.
INVESTMENT IN UNCONSOLIDATED AFFILIATE
CRYO-CELL owned 27% of Net/Tech International, Inc., at quarter end
(See Note 2 of the Notes to Consolidated Financial Statements for CRYO-CELL
holdings). Net/Tech International, Inc.'s premier product is the patented
Hygiene GuardTM Hand Washing Monitoring System. The Hygiene GuardTM is an
innovative, potentially life saving technology used to monitor employee hand
washing at any hand washing station. The system can be utilized in the food
service, food processing, health care and child care industries as well as any
environment where hygiene and control of the spread of infectious disease is a
priority.
Net/Tech is currently testing the Hygiene GuardTM system at the
Tropicana Hotel and Casino, Arby's and KFC's fast food chains, William Beaumont
Army Medical Center, and is scheduled to begin a field test at a Nestle food
manufacturing plant in April 1998. The field tests on the Series 4000 Hygiene
Guard are scheduled to be completed in May 1998 with simultaneous availability
of production units. The Company is also engineering additional series of the
Hygiene GuardTM systems in order to be able to meet customer needs for different
applications and price points.
As a result of Net/Tech's purchase in November 1997, of Hospitality
Marketing & Purchasing Corporation (HMP) and the appointment of Ronald J. Heagle
as President and Chief Operating Officer, the Company has expanded its plans and
vision to become a complete health and food safety solutions company. The
Company now plans to offer a variety of health and food safety products and
services in addition to the proprietary Hygiene GuardTM technology.
In January 1998,Net/Tech was chosen by Pilgrim Products, Inc. as master
distributor for the Food Fresh(TM) line of products. Pilgrim Products, based in
Meriden, Connecticut, manufactures food safety
11
<PAGE>
products. Under the terms of the agreement, all Food Fresh, or similar products,
manufactured by Pilgrim, will be distributed through Net/Tech. As the sole
distributor for this food safety product, Net/Tech's new target market will
encompass 800,000 walk-in coolers and over 1.5 million reach-in coolers in the
U.S. food service industry alone.
In March 1998, Net/Tech was appointed as exclusive master distributor
of the HyGenius(TM) Hand Washing Verification System manufactured by Compliance
Control, Inc. As part of the exclusive arrangement, Net/Tech will take over
marketing to all existing national accounts. The HyGenius(TM) System works with
any existing hand sink in nursing homes, daycare and restaurants where hand
washing is critical in preventing the spread of illness and infection. The
system guides users through a controlled hand washing process including soaping,
lathering and rinsing for a designated amount of time as required under FDA
retail Food Code. Additionally, the HyGenius(TM) verifies proper and frequent
washing and provides feedback on individual compliance with automatic
"management-ready" reporting. Among those currently using the HyGenius(TM)
system are some of the largest names in the quick service restaurant industry as
well as Marriott Hotels, Senior Living and food service operations.
Net/Tech intends to offer the hospitality and health care industries
the most innovative and affordable hand wash monitoring and hand washing systems
in the marketplace. The Company is also developing a food and health safety
reference guide and catalog, which will offer approximately 50 to 75 health and
food safety products and services. The Company is currently negotiating with
manufacturers to distribute these products in the Net/Tech catalog. Net/Tech's
strategy is to become the leading provider for health and food safety solutions
The Company carries its investment in Net/Tech under the Equity Method
in accordance with generally accepted accounting principles. Under the equity
method of accounting, these shares are valued on CRYO-CELL's balance sheet at
$138,215 as of February 28, 1998. The Company's holdings of Net/Tech stock as of
February 28, 1998 is 1,865,711. If these same shares were valued at the closing
market price of Net/Tech's stock on February 28, 1998, the market capitalization
of CRYO-CELL's holdings would be $5,713,740. Since the end of fiscal 1995, the
Company has systematically reduced its holdings in Net/Tech from 42% to the
current level of 27% by selling shares under Rule 144. When the Company's
holdings of Net/Tech are less than 20%, they would be valued at fair market
value in accordance with generally accepted accounting principles.
In April 1998, subsequent to the balance sheet date, the Company
received $186,607 from the sale of 68,000 shares of Net/Tech common stock. This
sale brought the Company's remaining holdings of Net/Tech stock to 1,797,711.
MANAGEMENT
In February 1998, Gerald F. Maass joined the Company as Executive Vice
President and General Manager. Mr. Maass resigned from a 10 year tenure with
Johnson & Johnson (Critikon) where he served as International Director of
Marketing. Mr. Maass' international contacts will be invaluable in the
development of strategic alliances for the Company's proprietary technology in
foreign markets. Along with extensive marketing experience, Mr. Maass also
brings to CRYO-CELL experience in general management and the medical technology
field.
RESULTS OF OPERATIONS
REVENUES. Revenues for the quarter ended February 28, 1998 were $36,175 as
compared to $404,800 in quarter ended February 28, 1998. The 1997 quarterly
results included a $400,000 deposit toward a Revenue Sharing Partnership. The
Company has since begun to process and store specimens in its own state of the
art laboratory in Clearwater, Florida. To facilitate this strategy the Company
has entered into a marketing campaign with Lamaze Publishing Company which will
reach 2.8M expectant mothers in their third trimester. A return of at least 3/4
of 1% would produce approximately 20,000 specimens. Bio-Stor will be given first
right of refusal for future Revenue Sharing Partnerships under the terms of the
expanded agreement (See Notes to Consolidated Financial Statements, Note 5).
<PAGE>
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses during the quarter ended February 28, 1998 were $393,639
as compared to $430,780 for the quarter ended February 28, 1997. These
expenditures reflect the expense of market development, lab operations support
and client services associated with the Lifespan/SM/ Centers and Revenue Sharing
Agreements, continued product development, and the establishment of an expanded
management team to handle the anticipated growth. In addition, the Company
incurred costs for printing promotional brochures associated with the marketing
campaign with Lamaze Publishing Company.
RESEARCH, DEVELOPMENT AND RELATED ENGINEERING EXPENSES. Research, development
and related engineering expenses for the three months ended February 28, 1998,
were $49,054 as compared to $29,690 in 1997. The increase reflects the continued
development of the Company's second generation cellular storage unit, as well
as, the research and development of the Company's additional cellular storage
systems. The Company has been advised by Underwriter's Laboratories ("U/L") that
the second generation cellular storage unit has passed all required inspections
and the unit is now U/L approved. In order to affix the U/L label to all units
that are deployed in the future, they must contain the same parts, operating
capabilities and features as in the tested CCEL II model.
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1998, the Company had cash and cash equivalents of
$487,697 as compared to $1,200,415 at February 28, 1997. The decrease in cash
and cash equivalents was a result of the funding of operations as well as the
increased spending for the Company's new state of the art laboratory,
expenditures related to its cellular storage unit and expenses related to the
marketing campaign with Lamaze Publishing Company.
Future capital expenditures are dependent on the rate at which the
Company opens additional storage centers. The Company anticipates that cash
reserves, cash flows from operations and the sale of subsidiary stock in fiscal,
1998 will be sufficient to fund its growth. Cash flows from operations will
depend primarily on the sale of additional Revenue Sharing Agreements and the
results of an extensive umbilical cord blood cellular storage marketing campaign
with Lamaze publications.
FORWARD LOOKING STATEMENTS
In addition to historical information, this report contains
forward-looking statements within the meanings of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The
forward-looking statements contained herein are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in the section
entitled "Management's Discussion and Analysis or Plan of Operation." 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. (the "Company") 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 most recent Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q to be filed by the Company in 1997 and
any Current Reports on Form 8-K filed by the Company.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In July, 1996, CRYO-CELL filed a lawsuit in the Superior Court of
California claiming that the University of Arizona and other defendants had
breached CRYO-CELL's contract, misappropriated trade secrets and other
allegations. The University filed a motion attempting to get the Lawsuit
dismissed in California which the Court disallowed. CRYO-CELL believes its suit
has merit and the allegations can be proven.
On March 28, 1997, the Company was informed that the University of
Arizona has filed a cross claim to the CRYO-CELL lawsuit stating that CRYO-CELL
had breached the contract and had intentionally misled the University. CRYO-CELL
believes there is no merit to these allegations and that the belated cross claim
is part of the strategy by the University to motivate CRYO-CELL to settle the
case.
On October 31, 1997, the Company filed a complaint in the United States
District Court for the Northern District of New York against Stainless Design
Corporation (SDC) seeking to recover two cellular storage units that have been
completed by SDC currently located at SDC's manufacturing facility, additional
equipment stored by SDC and a $250,000 deposit remaining from $900,000 the
Company paid in 1993 for the production of six cellular storage machines. The
Company alleges that SDC breached their contract based on their failure to
complete their contractual obligation to produce the six machines in the
specified time frame. In response, SDC denied these allegations claiming in part
that numerous design changes by CRYO-CELL's engineers resulted in the per unit
construction costs to exceed initial estimates and further claims that they had
acquired the parts necessary to construct the additional two units. SDC claims
that CRYO-CELL has failed to pay an additional $150,000 owed resulting from
SDC's costs incurred to date. The Company believes that this counterclaim is
without merit and is pursuing it's action to obtain possession of the equipment,
it's $250,000 security deposit and compensatory damages. In the opinion of the
Company management the ultimate resolution of these claims will not have a
material adverse effect on the Company's financial position.
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation(1)
3.11 Amendment to Certificate of Incorporation
3.2 By-Laws(1)
3.21 Board Minutes to Amendment of By-Laws(2) 27 Financial
Data Schedule (EDGAR version only)
-------------------
(1) Incorporated by reference to the Company's Registration Statement
on Form S-1 (No. 33-34360).
(2) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended November 30, 1994.
(b) Reports on Form 8-K
No reports on Form 8-K were filed since the last report.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRYO-CELL INTERNATIONAL, INC.
/s/ DANIEL D. RICHARD
---------------------
Daniel D. Richard
Chief Executive Officer
Date: April 20, 1998
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 487,697
<SECURITIES> 200,000
<RECEIVABLES> 87,230
<ALLOWANCES> 4,338
<INVENTORY> 729
<CURRENT-ASSETS> 846,553
<PP&E> 2,631,599
<DEPRECIATION> 120,768
<TOTAL-ASSETS> 3,706,733
<CURRENT-LIABILITIES> 873,228
<BONDS> 0
0
0
<COMMON> 72,365
<OTHER-SE> 2,720,849
<TOTAL-LIABILITY-AND-EQUITY> 3,706,733
<SALES> 36,175
<TOTAL-REVENUES> 36,175
<CGS> 17,113
<TOTAL-COSTS> 499,806
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,037
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (507,443)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> 0
</TABLE>
