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 May 31, 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.
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(Exact name of Small Business Issuer as Specified in its Charter)
DELAWARE 22-3023093
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(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
3165 MCMULLEN BOOTH ROAD, BUILDING 5, CLEARWATER, FLORIDA 33761
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(Address of Principal Executive Offices) (Zip Code)
Issuer's phone number, including area code: (813) 723-0333
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(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 May 31, 1998, 7,244,927
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 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
MAY 31, NOVEMBER 30,
1998 1997
(UNAUDITED)
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 133,133 $ 814,156
Receivables and advances (net of allowance for
doubtful accounts of $4,338) 109,043 62,637
Marketable securities 200,000 225,000
Inventory 651 --
Refundable income taxes 18,108 21,338
Loan origination fees, net 10,678 44,116
Prepaid expenses and other current assets 27,651 57,676
---------- ----------
Total current assets 499,264 1,224,923
---------- ----------
PROPERTY AND EQUIPMENT
Property and equipment, net 2,554,177 2,466,152
---------- ----------
OTHER ASSETS
Intangible assets (net of amortization of 68,299 68,512
$38,037 and $35,696, respectively)
Deposits with vendors and others 176,072 28,788
Investment in unconsolidated affiliate 130,541 191,698
---------- ----------
Total other assets 374,912 288,998
---------- ----------
Total Assets $3,428,353 $3,980,073
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
MAY 31, NOVEMBER 30,
1998 1997
(UNAUDITED)
----------- -----------
CURRENT LIABILITIES
Accounts payable $ 276,808 $ 289,159
Accrued expenses and withholdings 136,395 104,194
Short term borrowings 550,000 500,000
Current portion of obligations under
capital leases 1,173 2,350
---------- ----------
Total current liabilities 964,376 895,703
---------- ----------
OTHER LIABILITIES
Unearned revenue and deposits 52,373 8,708
Obligations under capital leases-net
of current portion 5,187 4,542
---------- ----------
Total other liabilities 57,560 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; 7,244,927
at May 31, 1998 and 7,186,501 at
November 30, 1997 issued and outstanding) 72,449 71,865
Additional paid-in capital 8,088,299 7,702,791
Unrealized losses on marketable securities (200,000) (175,000)
Accumulated deficit (5,554,331) (4,528,536)
---------- ----------
Total stockholders' equity 2,406,417 3,071,120
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,428,353 $3,980,073
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MAY 31, MAY 31, MAY 31, MAY 31,
1998 1997 1998 1997
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue $ 52,300 $ 5,350 88,475 410,150
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 14,454 -- 24,483 --
Marketing, general & administrative
expenses 519,237 409,360 919,959 852,037
Research, development and related
engineering 60,762 20,464 109,816 50,154
Depreciation and amortization 40,000 13,338 80,000 26,676
----------- ----------- ----------- -----------
Total Cost and Expenses 634,453 443,162 1,134,258 928,867
----------- ----------- ----------- -----------
OPERATING PROFIT (LOSS) (582,152) (437,812) (1,045,783) (518,717)
----------- ----------- ----------- -----------
OTHER INCOME AND (EXPENSE):
Interest income 3,409 13,803 10,108 30,734
Interest (Expense) (13,716) -- (24,754) --
Gain on sale of unconsolidated
affiliate's stock 186,479 162,250 255,098 162,250
----------- ----------- ----------- -----------
Total Other Income 176,172 176,053 240,453 192,984
----------- ----------- ----------- -----------
Income (Loss) before equity in net
loss of unconsolidated affiliate
and provision for income taxes (405,981) (261,759) (805,330) (325,733)
Provision for income taxes -- 0 -- --
Equity in net loss of unconsolidated
affi1iate 112,298 56,284 220,392 76,332
----------- ----------- ----------- -----------
NET INCOME (LOSS) ($ 518,279) ($ 318,043) ($1,025,722) ($ 402,065)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE ($ 0.07) ($ 0.04) ($ 0.14) ($ 0.06)
=========== =========== =========== ===========
Number of Shares Used In Computation 7,242,086 7,156,866 7,221,192 7,154,452
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED
----------------------------
MAY 31, MAY 31,
1998 1997
(UNAUDITED) (UNAUDITED)
------------ ------------
NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES $ (822,901) $ 249,058
NET CASH USED FOR INVESTING ACTIVITIES (112,589) (587,746)
NET CASH PROVIDED BY FINANCING ACTIVITIES: 254,467 570,696
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (681,023) 232,008
CASH AND CASH EQUIVALENTS:
Beginning of year 814,156 1,079,531
----------- -----------
End of period $ 133,133 $ 1,311,539
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest $ 24,754 $ --
----------- -----------
Income taxes $ -- $ --
----------- -----------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
6
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENTS
The Consolidated Financial Statements including the Consolidated Balance
Sheet as of May 31, 1998, Consolidated Statements of Operations for the six
months ended May 31, 1998 and Consolidated Statement of Cash Flows for the six
months ended May 31, 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 May 31, 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 April 1998, the Company received $186,607 from the sale of 68,000
shares of Net/Tech International, Inc. common stock. This sale brought the
Company's remaining holdings of Net/Tech stock to 1,797,711 shares. Under the
equity method of accounting, these shares are valued on CRYO-CELL's balance
sheet at $130,541 as of May 31, 1998. If these same shares were valued at the
closing market price of Net/Tech's stock on May 31, 1998, the market
capitalization of CRYO-CELL's holdings would be $5,056,062.
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 May 31, 1998 direct borrowings
under this agreement were $550,000. 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 May 31, 1998 thus allowing the Bank to
ask for current repayment. The fair market value of the collateral as of May 31,
1998, was in excess of $1,500,000. As the value of the collateral decreased
because of the stock prices, it has been insufficient to meet the margin call.
The Company has agreed, if necessary, to increase collateral or we stand ready
to liquidate some of our equity in our affiliate companies to repay the loan.
Should this occur and the Company's holdings in Net/Tech fall below 20%, it will
be able to substantially increase the value of its equity holdings on its
balance sheet.
7
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998
(UNAUDITED)
NOTE 4 - COMMITMENTS 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 Company's cord blood program. As of May 31, 1998, the
Company paid $155,000 of this agreement and is recognizing this as a deposit on
the balance sheet. In April 1998, the distribution of the Lamaze tutorial tape
and the Lamaze Parents Magazine commenced. The deposit is being prorated over
the term of the contract and expensed accordingly.
In March 1998, the Company entered into a marketing agreement with Lamaze
Publishing Company to sponsor the Revista Lamaze Onsert Program at a cost of
$36,800. Pursuant to the agreement, the Company's Spanish brochures will be hand
delivered to approximately 925,000 Hispanic "mothers-to-be" over the next two
years. As of May 31, 1998, the Company paid $5,000 of this agreement and is
recognizing this as a deposit on the balance sheet.
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 LifespanSM Cellular
Storage Program. This program establishes a network of LifespanSM Centers
through partnerships with hospitals and medical centers. Recently, the Company
has succeeded in combining the LifespanSM 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 LifespanSM center's
annual storage revenue.
Tenet HealthSystem Hospitals, Inc., the second largest proprietary
hospital system in the U.S. which operates over 120 hospitals, has contracted to
participate as a LifespanSM Center and Single-Unit Revenue Sharing Partner.
Tenet is expanding its lab facilities to implement the CRYO-CELL LifespanSM
Program. The first facility is expected to be opened for processing in the third
quarter of fiscal, 1998 at Tenet's St. Vincent Hospital in Worcester,
Massachusetts.
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In June 1998, the Company signed an agreement with Women & Infants
Hospital of Rhode Island for the establishment of a commercial
placental/umbilical cord blood bank at their Providence, Rhode Island medical
facility. Women & Infants Hospital will be offering its stem cell banking
services to parents of approximately 9,000 babies who are born each year at this
facility.
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 LifespanSM 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 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 May 31, 1998 as compared to
the same period of the prior year.
GENERAL
In addition to initiating its LifespanSM 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.
In May 1998, the Company entered into two agreements with third parties
whereby CRYO-CELL is contracted to process and cryogenically store cord blood
and other specimens. The terms of both agreements are confidential. However, the
Company believes that both the agreements have the potential to provide
increased volume without compromising the Company's pricing structure.
In June 1998, the Company entered into an agreement with International
Broadcast Corporation (IBC). IBC is responsible for the production of a one-half
hour infomercial relating to CRYO-CELL's U-Cord(TM) stem cell processing and
storage activities. The infomercial is expected to be completed within sixty
days and to be shown on television to approximately 50 million people.
In June 1998, the Company was granted a license to operate in the State of
New York. The New York Department of Health has approved the Company's
application to operate as a comprehensive tissue procurement service, processing
and storage facility. This license allows the Company to offer its cord blood
stem cell banking services to the residents of New York, which represents a new
market in excess of 270,000 annual births.
9
<PAGE>
During the quarter, the Company continued its program of marketing its
Revenue Sharing Agreements.
INVESTMENT IN UNCONSOLIDATED AFFILIATE
CRYO-CELL owned 26% 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 has received positive feed back from both the Tropicana and KFC
beta test sites, which have resulted in Tropicana and KFC agreements to purchase
the Hygiene GuardTM System in its field locations. Tropicana has agreed to
purchase an expanded Hygiene GuardTM System, which would monitor an additional
18 sinks, 4 restrooms and approximately 60 employees. JRN Chicken one of KFC's
largest franchise owners has agreed to expand the Hygiene GuardTM "Clean Hands
Program" into 4 stores one in each one of JRN Chicken's regional locations.
The Tutor Time Child Care Center beta test location was sold prior to
completion of the beta test. While results were positive, new ownership did not
continue the Hygiene GuardTM testing or purchase the system. Beta test sites are
still ongoing at William Beaumont Army Medical Center and a Nestle Food
Manufacturing Plant
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 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.
In May 1998, Net/Tech announced test results which confirmed that the
hands of the employees using the Hygiene GuardTM "Clean Hands Program" were 8.21
times cleaner than those who were not using the system. Cleanliness was measured
by the aerobic bacteria count on the hands of food service workers as was
confirmed by independent laboratories. The test conducted by Prepchek Food
Safety Consultants included hand samples from 350 workers at 55 locations.
10
<PAGE>
In June 1998, Net/Tech began production manufacturing of two series of its
Hygiene GuardTM product line.
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
$130,541 as of May 31, 1998. If these same shares were valued at the closing
market price of Net/Tech's stock on May 31, 1998, the market capitalization of
CRYO-CELL's holdings would be $5,056,062. Since the end of fiscal 1995, the
Company has systematically reduced its holdings in Net/Tech from 42% to the
current level of 26%. 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.
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 six months ended May 31, 1998 were $88,475 as
compared to $410,150 in 1997. The decrease reflects a lower level of Revenue
Sharing Agreements which were brought to fruition during the quarter.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses during the six months ended May 31, 1998 were $919,959
as compared to $409,360 in 1997. These expenditures reflect the expense of
market development, lab operations support and client services associated with
the LifespanSM 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 six months ended May 31, 1998, were
$109,816 as compared to $50,154 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. In July 1998, the
Company began storing cord blood specimens in the CCEL II model located at the
state of the art laboratory in Clearwater, Florida.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1998, the Company had cash and cash equivalents of $133,133 as
compared to $1,311,358 at May 31, 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.
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. The trial commenced July 6, 1998.
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
12
<PAGE>
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.
In June 1998, a verbal agreement was reached for an out of court
settlement which is expected to be finalized during the month of July. Under the
terms of this agreement, SDC will release equipment owned by CRYO-CELL and
return the 25,000 shares of stock it had previously received.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation(1)
3.11 Amendment to Certificate of Incorporation(2)
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 filed since the Company's last report are as
follows:
Date of Report Items Reported
14
<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: July 15, 1998
15
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 133,133
<SECURITIES> 200,000
<RECEIVABLES> 109,043
<ALLOWANCES> 4,338
<INVENTORY> 651
<CURRENT-ASSETS> 499,264
<PP&E> 2,554,177
<DEPRECIATION> 142,878
<TOTAL-ASSETS> 3,428,353
<CURRENT-LIABILITIES> 964,376
<BONDS> 0
0
0
<COMMON> 72,449
<OTHER-SE> 7,888,299
<TOTAL-LIABILITY-AND-EQUITY> 3,428,353
<SALES> 88,475
<TOTAL-REVENUES> 88,475
<CGS> 24,482
<TOTAL-COSTS> 1,134,258
<OTHER-EXPENSES> 240,433
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,754
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,025,722)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> 0
</TABLE>
