U.S. Securities And Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended NOVEMBER 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
Commission File Number 000-23386
CRYO-CELL INTERNATIONAL, INC.
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(Name of Small Business Issuer in its charter)
DELAWARE 22-3023093
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3165 MCMULLEN BOOTH ROAD, BLDG. 5, CLEARWATER, FL 33761
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (813) 723-0333
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
NONE
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Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
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(Title of class)
Check whether Issuer: (1) has filed all reports required to be filed by section
13 or 15 (d) of the Securities and Exchange Act of 1934 during the past 12
months and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form or any amendment to this Form
10-KSB [ ]
Issuer's Revenues for its most recent fiscal year: $417,913
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As of January 31, 1998, the aggregate market value of the voting stock held by
non-affiliates of the Issuer was approximately $20,778,086. The market value of
Common Stock of the Issuer, par value $0.01 per share, was computed by reference
to the average of the closing bid and asked prices of the Issuer's Common Stock
on such date which was 3 15/16.
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes____No____.
The number of shares outstanding of the Issuer's Common Stock, par value $0.01
per share, as of January 31, 1998: 7,186,501.
DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference: The information required by Part III
of Form 10-KSB is incorporated by reference to the Issuer's definitive proxy
statement relating to the 1998 Annual Meeting of Shareholders which is expected
to be filed with Securities and Exchange Commission on or about March 30, 1998.
Transitional Small Business Disclosure Format (check one): Yes [ ]; No [X]
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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 -- Factors That May Affect Future
Results and Market Price of Stock." 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 Quarterly Reports on Form 10-Q to be filed by the Company in 1998
and any Current Reports on Form 8-K filed by the Company.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
CRYO-CELL International, Inc., is a Delaware Corporation, incorporated on
September 11, 1989. It is engaged in cellular storage and the design and
development of cellular storage devices. 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. The Company has initiated the development of a cellular banking
network which the Company refers to as its Lifespan/SM/ Program (described below
in more detail).
When placed in operation in the field, the Company believes that the
cellular storage unit will provide the user with an improved ability to store
cells or other material in liquid nitrogen, its vapors or other media. The unit
is controlled by a computer system which robotically inserts vials in
pre-selected storage areas inside the chamber. Additionally, the stored material
can be robotically inserted or retrieved by computer on an individual basis
without all of the remaining specimens being exposed to ambient temperature. The
Company is the assignee of all patents on the units.
BACKGROUND
Nearly fifty years ago researchers discovered that cells could be
cryopreserved at an extremely low temperature and all cellular activity would
cease until the specimens were thawed. Historically, cryopreservation was
required for organ transplants, blood banks and medical research. Today
cryopreservation is an integral component of evolving cellular therapies.
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CELL BANKING
Stem cells are the building blocks of our blood and immune systems. They
form the white cells that fight infection, red cells that carry oxygen
throughout the body and platelets that promote healing. Stem cells are the main
ingredient found in bone marrow where they continue to generate cells throughout
our lives. Stem cells can be kept alive in a cryogenic environment and then
infused into a patient. They can be returned to the individual from whom they
were taken (autologous) or donated to someone else (allogeneic). The opportunity
to use an individual's own marrow for a transplant is dependent upon whether the
cancer has entered the marrow system (metastasized). Otherwise, a marrow donor
needs to be identified to provide the needed bone marrow. The availability of a
marrow donor or stem cell specimen allows physicians to administer larger doses
of chemotherapy or radiation in an effort to eradicate the disease.
Stem cells can be found in umbilical cord and placenta blood ("cord blood
stem cells") which can be collected and stored after a baby is born. Recent
advances have provided the techniques to separate the stem cells found in these
two sources. As of the end of 1997, over 400 (compared to approximately 300 at
the end of 1996) cord blood transplants have been performed. The Company
believes that parents will want to save and store these cells for potential
future use by their child. These stem cells could also have a 1 in 4 chance of
being compatible for use by a sibling. Moreover, researchers believe they may be
utilized by parents in the future.
The Company believes that the market for cord blood stem cells is enhanced
by the current focus on reducing prohibitive health care costs. With the costs
of bone marrow matches and transplants, newborn's U-Cord cells could be stored
as a practice of preventative medicine. New medical technology is constantly
evolving which may provide new uses for cryopreserved cord blood stem cells.
Another significant application for cellular storage is the storage of
cancerous tumor tissue taken from a newly diagnosed patient prior to commencing
treatment. This tissue could serve several functions in support of the treatment
process. First, it may provide a vehicle for the doctor to test the effects of a
proposed course of treatment on the diseased tissue prior to administering it to
the patient. Secondly, the effects of a course of treatment could be monitored
by comparing tumor cells gathered after the treatment to those stored from prior
to the commencement of treatment.
Sperm storage is another potential use of the Company's unit. Male cancer
patients of child bearing age can store sperm to protect their ability to have
children in the event they are rendered impotent due to chemotherapy or
radiation treatment.
CCEL CELLULAR STORAGE UNITS
Currently available units from other providers of cryopreservation systems
are manually operated and can expose the laboratory technician to liquid
nitrogen when inserting or retrieving specimens. Moreover, exposes the remaining
stored specimens to ambient temperature. CRYO-CELL has designed and holds
patents on a system which we believe makes use of the latest in computer and
robotics technology.
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
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that are deployed in the future, they must contain the same parts, operating
capabilities and features as in the tested CCEL II model.
To harvest the umbilical cord stem cells, a medical professional removes
the blood from the umbilical cord and the placenta utilizing the Umbilical Cord
Blood Collection Kit ("Kit") developed by CRYO-CELL. The Kit contains everything
needed to collect specimens, including both instructions for the medical
professional and for delivery of the specimens to the processing center. The Kit
is being manufactured by an independent organization and is provided to the
client as part of the Company's $275 initial year fee.
LIFESPAN/SM/ CENTERS
A key factor of the CRYO-CELL business strategy is its Lifespan/SM/
Cellular Storage Program. This program is intended to establish a network of
Lifespan/SM/ Centers through partnerships with hospitals and medical centers.
Under the Lifespan/SM/ program, the Company provides certain technology,
equipment and maintenance to the medical facility without charge. The
Lifespan/SM/ participant provides the space and utilities, liquid nitrogen
supply, technician, etc. CRYO-CELL will be responsible for the billing
activities. Typically, the revenues from a Lifespan/SM/ project will be divided
75% to the Company and 25% to the Lifespan/SM/ participant. This arrangement
enables the Lifespan/SM/ facility to expand their cellular storage capabilities,
offer new services and create a source of ongoing 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 HealthSystem Hospitals, Inc., 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 March, 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.
MARKETING CELLULAR STORAGE SERVICE
Over four million babies are born in the United States annually. The
Company has targeted the stem cell cryopreservation market as its initial focus.
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CRYO-CELL has entered into an agreement with the Lamaze Publishing Company
to sponsor the Lamaze tutorial tape. The agreement calls for Lamaze to
distribute 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.
CRYO-CELL has entered into an agreement with Bio-Stor International, Inc.
which will market processing and cellular storage for CRYO-CELL at no additional
expenditure to the company. CRYO-CELL will receive 19% equity in Bio-Stor. For a
$1,000,000 (one million dollar) payment to CRYO-CELL, Bio-Stor receives the
rights to market the CRYO-CELL technology. Each time Bio-Stor marketing
activities fill 33,000 spaces in a CCEL multi-faceted cellular storage unit at
the headquarters lab, they have the right to market an additional 33,000 spaces
for new specimens. Bio-Stor is required to pay another $1,000,000 (one million
dollars) to CCEL for each active Revenue Sharing Market Agreement. In addition,
CRYO-CELL could receive an additional $3,000,000 to $5,000,000 from a successful
Bio-Stor Initial Public Offering. The success of this agreement is largely
dependent upon the successful completion of the initial public offering by
Bio-Stor which is uncertain.
CRYO-CELL has established a Medical & Scientific Advisory Board comprised
of more than 20 researchers, physicians and scientists from various fields such
as oncology, stem cell research, hematology, genetic research, assisted
reproduction and other specialties. Many of the Company's Advisory Board members
are heads of their departments and are committed to cellular storage as part of
new services to improve patient care and save lives.
The Company markets its cellular banking services by targeting expectant
parents through direct information to obstetricians, pediatricians, Lamaze
instructors, childbirth educators, certified nurse-midwifes and other related
healthcare professionals. In addition, the Company exhibits at conferences,
trade shows and other media which focus on the expectant parent market.
REVENUE SHARING AGREEMENTS
ARIZONA. On February 28, 1995, the Company entered into a Revenue Sharing
Agreement with two private investors. The revenue interest entitles the
investors to a 50% share of the Net Revenues (defined as the revenues after
expenses for running the Lifespan/SM/ Program) from all cellular storage
activities in Arizona. In exchange, the Company received a total of $1,800,000
in negotiable demand notes to be paid in 25% annual installments ($450,000 plus
interest at prime rate) annually, commencing April 30, 1996.
In January, 1996, the notes were restructured to provide for an accelerated
payment of the $450,000, originally due April 30, 1996, to January of 1996. This
was in exchange for the payment of future amounts to be due and payable out of
revenues generated from the Lifespan/SM/ Program. Since the restructuring made
the repayment of the $1,350,000 note based upon future revenue, the Company does
not carry the note as a receivable and has not recorded this portion of the
income.
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ILLINOIS. In 1996, the Company signed agreements with a group of investors
entitling them to an on-going 50% share in CRYO-CELL's portion of net revenues
generated by the Cellular Storage Unit located in the Illinois Masonic Medical
Center. The revenue generated by this Single Unit Revenue Sharing Agreement was
$1,000,000.
BIO-STOR. On November 11, 1997, the Company and Bio-Stor International, Inc.,
signed a modification to their Agreement of April 12, 1996. The amended
agreement is intended to create an organization to join CRYO-CELL in marketing
its cellular storage service throughout the United States. CRYO-CELL agrees to
share in the net revenue from 33,000 spaces in each of three locations for
$3,000,000. A non-refundable deposit of $1,000,000 was the condition for
obtaining these revenue sharing rights. In the event the total $3,000,000 can
not be raised, all proceeds paid will be applied to individual Revenue Sharing
Agreements for locations designated by CRYO-CELL.
Bio-Stor issued a promissory note dated April 29, 1996, and due on June 1,
1996, in the amount of $900,000 representing 90% of the non-refundable deposit
($1,000,000). The $900,000 has been received by the Company as of the balance
sheet date and the remaining $100,000 will be paid out of the Bio-Stor initial
public offering. The balance of the $2,100,000 will be paid by November 11, 1998
out of the proceeds of the Bio-Stor initial public offering. An additional
extension of up to 180 days will be granted if Bio-Stor files for their IPO with
the SEC within the 12 month time frame.
Under the modified agreement, Bio-Stor purchased an Active Revenue Sharing
Marketing Partnership for cellular storage business that is generated by
Bio-Stor. CRYO-CELL received a non-recourse promissory note in the amount of
$1,000,000 from Bio-Stor payable upon completion of Bio-Stor's initial public
offering. This promissory note is not reflected in CRYO-CELL's financial
statements since payment is contingent upon a successful initial public
offering.
CRYO-CELL also granted Bio-Stor a one year option for an Active Revenue
Sharing Marketing Partnership for "multi-faceted" cellular storage business that
is generated by Bio-Stor for $1,000,000. The purchase option must be exercised
at the time of the Bio-Stor IPO.
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 the
Merco-Sur, which encompasses Argentina, Brazil, Paraguay, Uraguay and Chile) for
$1,000,000 per 10% up to 20%.
In consideration of these modifications, CRYO-CELL will receive 19% equity
position in Bio-Stor after the successful initial public offering. CRYO-CELL has
granted Bio-Stor a voting trust with respect to these shares.
TENET HEALTHSYSTEM HOSPITALS, INC. On November 30, 1996, the Company signed dual
joint venture agreements with OrNda HealthCorp, a Nashville based chain of 50
hospitals. Under the terms of the Lifespan/SM/ segment of the agreement,
CRYO-CELL will provide OrNda, which at the time had $2.7 billion in annual
revenues, the use of two CRYO-CELL patented Cellular Storage Units, each with an
approximate 35,000 storage capacity. In addition to OrNda receiving 25% of the
$50 per specimen annual cellular storage fees, CRYO-CELL will provide "pro-bono"
spaces within units for important research in cryopreservation of stem cells for
the future medical benefit of OrNda's patients. In addition to the Lifespan/SM/
agreement, two "one-third" Revenue Sharing Agreements were purchased in which
OrNda paid CRYO-CELL $666,666. OrNda was acquired by Tenet HealthSystem
Hospitals, Inc. which agreed to be bound by the terms of the Lifespan and Single
Unit Revenue Sharing Agreements.
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GAMIDA-MEDEQUIP. AND VISCOUNT SECURITIES The Company entered into agreements
with Gamida MedEquip. After the signatory deceased the agreement was terminated
and the deposit refunded. In addition, the company signed an agreement with
Sachem (Viscount Securities) which was not brought to fruition and was
terminated. Sachem is entitled to storage revenue based upon their $400,000
non-refundable deposit which was paid in May 1997, in the form of 100,000 shares
of a NASDAQ small cap stock. The Company is free to negotiate replacement
agreements and intends to do so.
PATENTS
The Company has been granted patents with respect to its cellular storage
unit. In addition the Company has filed several additional United States and
foreign patents. There can be no assurances, however, that the pending patent
applications will be issued as patents or, if issued, that the patents will
provide the Company with significant protection against competitors. The Company
has made application for the Lifespan/SM/ service mark.
COMPETITION
The Company is aware of several competitors in the marketplace. Each of
these companies, Viacord, Cord Blood Registry and Corcell, charge a considerably
higher price for their services than CRYO-CELL. Ultimately, the Company believes
it will be able to successfully compete due to its marketing approach and the
fact that it currently has the most affordable program in the United States.
RESEARCH AND DEVELOPMENT
The Company has expended $204,117 during fiscal 1997 , compared to $111,499
during fiscal 1996 on research and development. Additionally, more than $38,000
was spent to date to obtain Underwriters Laboratory's listing.
GOVERNMENT REGULATION
Since the inception of the development of the unit, it has been the opinion
of management and legal counsel that the CCEL Cellular Storage Unit is a class I
device and falls under the Food and Drug Administration's (FDA) regulations at
21 C.F.R. ss. 862.2050 ("general purpose laboratory equipment labeled and
promoted for a specific medical use"). Devices regulated under 21 C.F.R. ss.
862.2050 are specifically exempt from the 510(k) notification requirements.
There is no assurance that in the future the FDA would not classify the unit as
a class II device requiring the Company to file for an equivalency in order to
be able to continue commercial use of the unit.
If the Company is required to file for equivalency to existing equipment,
the notification under section 510(k) of the Federal Drug Act will include
statements that the cellular storage units for cryopreservation are
substantially equivalent to cryopreservation units on the market prior to the
enactment of the Medical Device Amendments of 1976. Total review time, according
to statistics published in MDDI Reports (Medical Devices, Diagnostics &
Instrumentation) by F-D-C- Reports Inc., for all 510(k)s approved by the FDA as
of October 19, 1995, was 135 days, on average, with 1/2 being completed in 91
days or less. If the cryopreservation unit is so accepted as substantially
equivalent by the FDA, marketing can continue. There is no assurance that the
FDA will allow an equivalency.
While management believes FDA approval will not be necessary, in the event
that the cryogenic unit is not accepted as substantially equivalent by the FDA
it would require the Company to develop significant test data proving the
reliability of the unit which would take a significant amount of time. Also,
there can be no assurance that the Company will be granted the right to produce
the unit for distribution in the U.S. or that if it is granted the right, it
will be accomplished in a time frame that will
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not negatively impact the potential future revenue of the Company.
EMPLOYEES
At present there are 11 employees on the staff of the Company. Daniel D.
Richard serves as the Chairman of the Board and Chief Executive Officer. The
Company has negotiated an agreement for the services of an experienced
individual who will serve as President and Chief Operating Officer commencing in
April 1998.
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 the medical technology field.
Additional employees and staff will be hired on an "as needed" basis. The
Company believes its relationship with its employees to be excellent and
therefore does not contemplate any labor disputes.
NET/TECH INTERNATIONAL, INC.
At November 30, 1997 CRYO-CELL owned 1,883,711 shares of Net/Tech
International, Inc. common stock (Net/Tech NASD Bulletin Board symbol...NTTI)
which represented 28% of the outstanding shares (6,689,210 shares total) of this
company. Net/Tech has received a patent for a Hygiene Guard hand washing
monitoring system. This system will monitor whether employees have washed their
hands after using the restroom facilities prior to returning to their workplace.
Net/Tech has obtained the Global Marketing rights to the Food Fresh and is
completing their catalogue of more than 75 products which will enable
restaurants, hotels, hospitals and processing centers to comply with federal and
state health regulations pertaining to food safety.
ITEM 2. DESCRIPTION OF PROPERTY
The Company entered into a long term lease on a new, free-standing
headquarters building containing 7,500 square feet. The facility contains
executive offices, conference and training center, state of the art laboratory
and supporting scientific offices.
ITEM 3. LEGAL PROCEEDINGS
In July of 1996, the Company filed suit in the Superior Court of the State
of California, in San Francisco, naming Cord Blood Registry, Inc., Jesse Kramer,
David T. Harris, The Board of Regents University of Arizona and other
defendants. The multi-count lawsuit, seeking damages. The suits allege among
other things: breach of contract, fraud and deceit, misrepresentation, unfair
competition, and trade libel. In addition, the Company seeks damages, including
punitive damages, resulting from the alleged misappropriation of funds belonging
to CRYO-CELL in connection with cellular storage by its customers. The Company
believes the suit has merit and the allegations can be proven. It has been
established that the defendants have contractually indemnified each other. Their
contract stipulates an insurance program which covers "the defendants' wrongful
use of CRYO-CELL's material, the interference of a legitimate business
arrangement between CRYO-CELL and the University of Arizona" and the
disparagement of CRYO-CELL.
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On March 28, 1997, the company was informed that the University of Arizona
filed a cross claim to the CRYO-CELL lawsuit stating that CRYO-CELL has breached
the contract and 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. Litigation
is proceeding.
On October 31, 1997, CRYO-CELL filed a multi-count lawsuit in United States
District Court, Northern District of New York, Albany, New York, claiming that
Stainless Design Corporation of Saugerties, New York, and one of its officers
breached its contract among other things, with the Company in relation to the
manufacture of cellular storage systems. Stainless Design Corporation filed a
counterclaim on December 15, 1997 which among other things alleges that SDC was
given a design they could not build. CRYO-CELL feels these allegations have no
merit since the Company was assured by SDC that the unit would function as
intended. Moreover, the unit has been subsequently listed by Underwriters
Laboratory.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
In January of 1997, the Company's stock began trading on the NASDAQ Small
Cap market. The Company's common stock traded on the Over-The-Counter market
since January 10, 1991, the date of the Company's initial public offering. The
following table shows, for the calendar periods indicated, the high and low
closing bid quotations for the Company's common stock as reported by the Dow
Jones Retrieval Service. The quotations represent inter-dealer prices without
retail mark-up, mark-down or commission and may not represent actual
transactions.
HIGH LOW
1996
- ----
February 29, 1996 3 1/2 3 1/8
May 31, 1996 5 1/2 4 3/8
August 31, 1996 6 1/4 5 3/4
November 30, 1996 4 1/8 3 15/16
1997
- ----
February 28, 1997 6 1/4 6
May 31, 1997 4 1/2 4 3/8
August 31, 1997 3 23/32 3 1/4
November 30, 1997 3 1/8 3 1/8
The Company has not declared any cash dividends on its common stock and
does not expect to do so in the near future.
As of January 31, 1998, the Registrant had 368 shareholders of record, and
management believes there are approximately 975 additional beneficial holders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of the financial condition and
results of operations of the Company for the two years ended November 30, 1997,
should be read in conjunction with the financial statements and related notes as
well as other information contained in this Annual Report on Form 10-KSB.
GENERAL
The Company is engaged in cellular storage and the design and development
of cellular storage devices used in its storage programs. The Company has been
financed primarily through both the private and public equity markets.
The revenue recognized to date has been almost exclusively from the sale of
Revenue Sharing Agreements. Revenue Sharing Agreements can take considerable
time to negotiate and come to fruition. Moreover, since such agreements can
involve millions of dollars, there can be wide swings in revenue and earnings
from quarter to quarter and possibly year to year.
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RESULTS OF OPERATIONS
SALES. For the year ended November 30, 1997, the Company had revenues of
$417,913 compared to $2,669,616 in the prior fiscal year. The majority of
revenues in 1996 was from the sale of Revenue Sharing Agreements. The decrease
reflects a lower level of Revenue Sharing Agreements that were brought to
fruition during the fiscal year.
COST OF SALES. In the fiscal year ended November 30, 1997, cost of sales were
$46,047 compared to $292,708 in the prior period. Cost of sales represents the
assignment of a proportionate share of the cost of equipment associated with the
Revenue Sharing Agreements to cost of sales. The cost of sales as a percentage
of revenue remained fairly constant between the two years at 11%.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses during the twelve months ended November 30, 1997, were
$1,625,082 as compared to $1,398,630 in 1996. The increase reflects the expense
of market development, lab operations support and client services associated
with the Lifespan/SM/ Centers and Revenue Sharing Agreements, the expense of
voluntary regulatory approval for the Company's cellular storage unit, continued
product development, and the establishment of an expanded management team to
handle the anticipated growth.
LOAN SETTLEMENT EXPENSE. Loan settlement expense during the twelve months ended
November 30, 1997, was $0 as compared to $95,251 in 1996. The 1996 figure
represents final adjustments associated with the conversion of a loan to
Net/Tech International, Inc., into Net/Tech common stock.
RESEARCH, DEVELOPMENT AND RELATED ENGINEERING EXPENSES. Research, Development
and Related expenses during the twelve months ended November 30, 1997, were
$204,117 as compared to $111,499 in 1996. 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.
OTHER. During the twelve months ended November 30, 1997, the Company realized a
gain of $443,153 on the sale of common stock of Net/Tech International, Inc.,
compared to $150,000 in 1996. During fiscal 1997, the Company wrote off $4,239
compared to $146,506 in 1996 for patents no longer considered necessary by the
Company. During fiscal 1997, the Company wrote off $172,843 associated with
discontinued equipment. During fiscal 1997, the Company recognized the equity in
the loss of its unconsolidated affiliate (Net/Tech International, Inc.) of
$402,245 as compared to $79,629 in the 1996.
MATERIAL FOURTH QUARTER ADJUSTMENTS. The results for the fourth quarter ending
November 30, 1997, include the following adjustments: (1) the loss recorded in
the equity of Net/Tech of $402,245, (2) the prototype no longer considered
useful (added $172,843 to Expenses), (3) Research and Development charges of
$114,622, and (4) the assignment of a proportionate share of cellular storage
unit cost to the related Revenue Sharing Agreement revenue (cost of sales
expense of $40,143). Taken together, these fourth quarter items had a
significant adverse effect on fourth quarter earnings.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1997, the Company had cash and cash equivalents of $814,516
as compared to $1,079,531 at the end of fiscal 1996. The decrease in cash and
cash equivalents was a result of the funding of operations.
To date, the Company's sources of cash have been from the issuance of its
own equities, the sale of Revenue Sharing Agreements, the borrowing on a
revolving line of credit, and the sale of subsidiary
12
<PAGE>
stock. The sale of subsidiary shares alone generated $472,738 in fiscal year
1997.
The Company's cash flows used for investing activities was $747,913 for the
year ended November 30, 1997 compared to $123,663 for the preceding year. This
$624,250 increase was a result of increased spending for the Company's new state
of the art laboratory and expenditures related to its cellular storage units.
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.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
The Company operates in a rapidly changing environment that involves numerous
risks, some of which are beyond the Company's control. The following discussion
highlights some of the risks the Company faces.
MARKET ACCEPTANCE FOR CRYOPRESERVED STEM CELLS. The cryopreserved stem cell
market is a relatively new market and while the Company believes it will gain
increasing popularity, there can be no assurance that the growth of this market
will meet the Company's expectations.
ACCEPTANCE OF THE COMPANY'S CELLULAR STORAGE TECHNOLOGY. Although the Company
believes that its patented cellular storage technology will be accepted, there
can be no assurance that the Company's cryopreservation technology will function
in an operational setting in the manner as intended or develop a profit center
for the Company.
POSSIBLE NEED FOR ADDITIONAL CAPITAL. The Company believes it will generate
sufficient revenues to fund its operations. However, should the Company's
sources of revenue, primarily the Revenue Sharing Agreements, not materialize as
management anticipates, the Company may seek additional capital from public or
private sources. There can be no assurance that such capital will be available
or, if available, that the terms of its availability will not be adverse to the
existing shareholders of the business.
COMPETITIVE ENVIRONMENT. In the Company's opinion, the potential life saving
need for cryopreserved stem cells is likely to attract additional competitors in
the market. The Company believes its storage and marketing edge will enable it
to offer a more affordable service than its competitors. However, there can be
no assurance that competitors with more financial and technical resources will
not adversely affect the Company's business.
UNEVEN PATTERN OF QUARTERLY OPERATING RESULTS. The Company's revenue in general,
and in particular its Revenue Sharing Agreement revenues, are difficult to
forecast and can vary from quarter to quarter due to various factors, including
(1) the relatively long sales cycles for these Agreements, and (2) the size and
timing of individual Agreement transactions. Accordingly, the Company's
quarterly results are difficult to predict and delays can cause quarterly
revenues and net income to fall significantly short of anticipated levels.
MANAGEMENT OF GROWTH. The Company anticipates rapid growth in capitalizing on
the opportunity in cryopreserved stem cells. The Company's future operating
results will depend on management's ability to manage growth, continuously hire
and retain qualified employees, forecast revenues and control expenses. An
unexpected decline in the growth rate of revenues without a corresponding and
timely slowdown in expense growth could have a material adverse effect on the
Company's business, results of
13
<PAGE>
operations or financial condition.
HIRING AND RETENTION OF EMPLOYEES. The Company's continued growth and success
depends to a significant extent on the continued service of senior management
and other key employees and the hiring of new qualified employees. There can be
no assurances that the Company will be successful in continuously recruiting new
personnel and in retaining existing personnel. The loss of one or more key
employees or the Company's inability to attract additional qualified employees
or retain other employees could have a material adverse effect on the Company's
business, results of operations or financial condition. In addition, the Company
may experience increased compensation costs in order to compete for skilled
employees.
ENFORCEMENT OF THE COMPANY'S INTELLECTUAL PROPERTY RIGHTS. The Company relies on
a combination of the protections provided under applicable patent, copyright,
trademark and trade secret laws. It also relies on confidentiality procedures
and licensing arrangements to establish and protect its rights in its products
and services. Despite the Company's efforts to protect these rights, it may be
possible for unauthorized third parties to copy certain portions of the
Company's products or to reverse engineer or obtain and use technology or other
information that the Company regards as proprietary. In addition, the laws of
certain countries do not protect the Company's proprietary rights to the same
extent as do the laws of the United States. Accordingly there can be no
assurance that the Company will be able to protect its proprietary technology
against unauthorized third party copying or use, which could adversely affect
the Company's competitive position.
INTERNATIONAL SALES. Although international sales have not been a factor to
date, the Company believes this market to offer attractive potential. Such
growth in international business will be subject to the risks attendant thereto,
including the general economic conditions in each country, the overlap of
different tax structures, the difficulty in managing an organization spread over
various countries, changes in regulatory requirements, compliance with a variety
of foreign laws and regulations and longer payment cycles in certain countries.
14
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The financial statements and supplementary data listed in the accompanying
Index to Financial Statements are attached as part of this report.
CRYO-CELL INTERNATIONAL, INC.
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of CRYO-CELL International, Inc.
are included in Item 7:
Report of Independent Public Accountants 16
Consolidated Balance Sheets F1
Consolidated Statements of Profit and Loss F3
Consolidated Statements of Cash Flows F4
Consolidated Statements of Shareholders' Equity F7
Consolidated Notes to Financial Statements F10
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
CRYO-CELL International, Inc.
We have audited the accompanying consolidated balance sheets of CRYO-CELL
International, Inc. and subsidiaries as of November 30, 1997 and 1996, and the
related consolidated statements of income (loss), shareholder's equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CRYO-CELL
International, Inc. and subsidiaries as of November 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
MIRSKY, FURST & ASSOCIATES, P.A.
Fort Lee, New Jersey
March 11, 1998
16
<PAGE>
<TABLE>
<CAPTION>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
NOVEMBER 30, NOVEMBER 30,
1997 1996
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 814,156 $1,079,531
Receivables and advances (net of allowance for
doubtful accounts of $4,338 in 1997 and $2,500 in 1996) 62,637 673,533
Marketable securities 225,000 --
Refundable income taxes 21,338 --
Loan origination fees, net 44,116 --
Prepaid expenses and other current assets 57,676 36,467
---------- ----------
Total current assets 1,224,923 1,789,531
---------- ----------
PROPERTY AND EQUIPMENT
Property and equipment, net 2,466,152 2,001,746
---------- ----------
Other Assets
Intangible assets (net of amortization of 68,512 67,630
$35,696 and $30,531, respectively)
Deposits with vendors and others 28,788 5,971
Investment in unconsolidated affiliate 191,698 50,138
---------- ----------
Total other assets 288,998 123,739
---------- ----------
TOTAL ASSETS $3,980,073 $3,915,016
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F1
<PAGE>
<TABLE>
<CAPTION>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
NOVEMBER 30, NOVEMBER 30,
1997 1996
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 289,159 $ 86,435
Accrued expenses and withholdings 104,194 93,823
Income tax payable -- 37,334
Short term borrowings 500,000 --
Current portion of obligations under capital leases 2,350 8,296
----------- -----------
Total current liabilities 895,703 225,888
----------- -----------
OTHER LIABILITIES
Unearned revenue and deposits 8,708 30,000
Obligations under capital leases-net of current portion 4,542 --
----------- -----------
Total other liabilities 13,250 30,000
----------- -----------
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; 7,186,501 at November 30, 1997 and 7,151,984
at November 30, 1996 issued and outstanding) 71,865 71,520
Additional paid-in capital 7,702,791 6,473,085
Unrealized losses on marketable securities (175,000) --
Accumulated deficit (4,528,536) (2,885,477)
----------- -----------
Total stockholders' equity 3,071,120 3,659,128
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,980,073 $ 3,915,016
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F2
<PAGE>
<TABLE>
<CAPTION>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
NOVEMBER 30, NOVEMBER 30,
1997 1996
------------ -----------
<S> <C> <C>
Revenue $ 417,913 $ 2,669,616
----------- -----------
COSTS AND EXPENSES:
Cost of sales 46,047 292,708
Marketing, general & administrative expenses 1,625,082 1,398,630
Loan settlement expense -- 95,251
Research, development and relating engineering 204,117 111,499
Non-recurring charges -- 146,506
Impairment of prototype 172,843 --
Depreciation and amortization 95,052 53,357
----------- -----------
Total cost and expenses 2,143,141 2,097,951
----------- -----------
OPERATING PROFIT (LOSS) (1,725,228) 571,665
----------- -----------
OTHER INCOME AND (EXPENSE):
Interest Income/Other Income 49,986 27,668
Interest Expense (8,677) (14,135)
Gain on sale of unconsolidated affiliate's stock 443,152 150,000
----------- -----------
Total other income 484,461 163,533
----------- -----------
INCOME (LOSS) BEFORE EQUITY IN NET LOSS OF
UNCONSOLIDATED AFFILIATE (1,240,767) 735,198
Provision for income taxes (44,829)
Equity in net loss of unconsolidated affiliate (402,292) (79,629)
----------- -----------
NET INCOME (LOSS) $(1,643,059) $ 610,740
=========== ===========
NET INCOME (LOSS) PER SHARE ($ 0.23) $ 0.09
=========== ===========
Number of Shares Used In Computation 7,164,515 7,176,428
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F3
<PAGE>
<TABLE>
<CAPTION>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED
NOVEMBER 30, NOVEMBER 30,
1997 1996
------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income(loss) $(1,643,059) $ 610,740
Adjustments to reconcile net income (loss)
to cash provided by (used for) operating activities:
Depreciation and amortization 95,051 53,357
Interest income credited to affiliate loan -- 6,857
Marketable securities received in lieu of cash (1) (400,000) --
Write off of patents and trademarks 4,239 146,506
Impairment of prototype 172,843 --
Valuation allowance on Revenue Sharing Agreement sold 40,143 --
Loan settlement expense -- 95,251
Allowance for bad debts 1,838 2,500
Gain on sale of unconsolidated affiliate's stock (443,152) (150,000)
Equity in loss of unconsolidated affiliate 402,292 79,629
Payment of consulting and professional services with stock (2) 34,535 208,053
Changes in assets and liabilities:
Accounts receivable 609,058 (694,333)
Notes receivable -- 455,000
Refundable income taxes (21,338) --
Loan origination fees (10,000) --
Prepaid expenses and other current assets (21,209) (36,467)
Deposits (22,817) --
Accounts payable 202,723 12,402
Accrued expenses (3) 23,075 335,680
Other securities investments -- --
Income taxes payable (37,334) 37,334
Unearned revenue and deposits (21,292) 12,575
----------- -----------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES (1,034,404) 1,175,084
----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F4
<PAGE>
<TABLE>
<CAPTION>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED
NOVEMBER 30, NOVEMBER 30,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4) (568,515) (105,113)
Payments for intangible assets (11,714) (18,550)
Manufacturing of cellular storage unit (167,684) --
Proceeds from sale of investee stock 472,738 150,000
----------- -----------
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES $ (275,175) $ 26,337
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 12,500 170,417
Loan proceeds -- 88,662
Loan advances to affiliated company -- 169,357
Sale of stock options 540,000 --
Borrowing on line of credit 500,000 --
Loan repayments from affiliated company -- (169,357)
Repayment of debt -- (376,662)
Principal payments under capital leases (8,296) (15,843)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES: 1,044,204 (133,426)
----------- -----------
Increase (decrease) in cash and cash equivalents (265,375) 1,067,995
Cash and cash equivalents:
Beginning of year $ 1,079,531 $ 11,536
----------- -----------
End of period $ 814,156 $ 1,079,531
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F5
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED
NOVEMBER 30, NOVEMBER 30,
1997 1996
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 8,676 $45,436
------- -------
Income taxes $64,772 $ 7,496
------- -------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
1 The company received common stock with a fair market value of $400,000 in
exchange for a Revenue Sharing Agreement.
2 Professional fees and consulting expenses of $34,535 and $208,053 were paid
with the issuance of common stock in 1997 and 1996 respectively.
3 Professional fees of $12,750 were accrued in a prior period and paid with
with the issuance of common stock in 1997.
4 The Company purchased a security system under a capital lease in the amount
of $6,892.
Deposits for equipment in the amount of $600,000 were converted into
equipment in 1996.
The Company received 517,211 shares of Net/Tech common stock as payment for
advances and $6,857 interest income in 1996.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F6
<PAGE>
<TABLE>
<CAPTION>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
UNREALIZED TOTAL
ADDITIONAL LOSSES ON SHARE-
COMMON STOCK PAID-IN ACCUMULATED MARKETABLE HOLDERS'
SHARES AMOUNT CAPITAL DEFICIT SECURITIES EQUITY
-------------- ----------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE NOVEMBER 30, 1994 6,607,560 $66,076 $4,099,684 ($2,891,515) $ -- $1,274,245
============== =========== ============== ============== ============= ==============
December 1, 1994 to
November 30, 1995
Shares issued at $2.99 per share 67,000 670 199,330 200,000
Shares issued at $4.00 per share 50,000 500 199,500 200,000
Shares issued at $5.00 per share
For blood separation equipment 200,000 2,000 998,000 1,000,000
Shares issued at $3.50 per share 30,000 300 104,700 105,000
Shares issued at $3.95 per share 60,000 600 236,557 237,157
Shares issued at $4.04 per share
For services provided 25,000 250 100,750 101,000
Shares issued at $2.50 per share
For services provided 3,230 32 8,043 8,075
Shares issued at $2.50 per share 2,500 25 6,225 6,250
Shares issued at $2.00 per share 10,000 100 19,883 19,983
Net (Loss) (604,702) (604,702)
--------- ------- ---------- ----------- ------- -----------
BALANCE NOVEMBER 30, 1995 7,055,290 $70,553 $5,972,672 $(3,496,217) $ -- $ 2,547,008
========= ======= ========== =========== ======= ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F7
<PAGE>
<TABLE>
<CAPTION>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
UNREALIZED TOTAL
ADDITIONAL LOSSES ON SHARE-
COMMON STOCK PAID-IN ACCUMULATED MARKETABLE HOLDERS'
SHARES AMOUNT CAPITAL DEFICIT SECURITIES EQUITY
--------- ------- ---------- ----------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE NOVEMBER 30, 1995 7,055,290 $70,553 $5,972,672 $(3,496,217) $ -- $2,547,008
========= ======= ========== =========== ===== ==========
Shares issued upon
exercise of options at $4.00 per share 5,000 50 19,950 20,000
Shares issued upon
exercise of options at $3.00 per share 50,000 500 149,500 150,000
Shares issued
for consulting services 41,694 417 208,053 208,470
Increase in carrying value accounting
for Unconsolidated Affiliate 122,910 122,910
Net income 610,740 610,740
--------- ------- ---------- ----------- ----- ----------
BALANCE NOVEMBER 30, 1996 7,151,984 71,520 6,473,085 (2,885,477) -- 3,659,128
========= ======= ========== =========== ===== ==========
Shares issued upon
exercise of options at $2.50 per share 5,000 50 12,450 12,500
Shares issued for professional services 4,732 47 12,703 12,750
Sale of options at $1.00 per option 540,000 540,000
with an exercise price of $6.00 per share
Shares issued at $6.32 per share
for services provided 731 7 4,611 4,619
Shares issued at $5.65 per share
for services provided 926 9 5,225 5,234
Shares issued at $4.73 per share
for services provided 976 9.76 4606.77 4,617
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F8
<PAGE>
<TABLE>
<CAPTION>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
UNREALIZED TOTAL
ADDITIONAL LOSSES ON SHARE-
COMMON STOCK PAID-IN ACCUMULATED MARKETABLE HOLDERS'
SHARES AMOUNT CAPITAL DEFICIT SECURITIES EQUITY
------ ------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares issued at $5.13 per share
for services provided 889 9 4,554 -- -- 4,562
Shares issued at $3.25 per share 17,500 175 56,700 -- -- 56,875
Shares issued at $4.68 per share
for services provided 1,127 11 5,264 -- -- 5,276
Shares issued at $4.13 per share
for services provided 1,142 11 4,716 -- -- 4,727
Shares issued at $3.83 per share
for services provided 789 8 3,020 -- -- 3,028
Shares issued at $3.51 per share
for services provided 705 7 2,466 -- -- 2,473
Increase in carrying value accounting
for Unconsolidated Affiliate -- -- 573,391 -- -- 573,391
Decrease in value of marketable -- -- -- -- (175,000) (175,000)
securities
Net (Loss) -- -- -- (1,643,059) -- (1,643,059)
--------- ------- ---------- ----------- --------- -----------
Balance November 30, 1997 7,186,501 $71,865 $7,702,791 $(4,528,536) $(175,000) $ 3,071,120
========= ======= ========== =========== ========= ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F9
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company was incorporated in Delaware on September 11, 1989. The Company
is engaged in cellular storage and the design and development of cellular
storage devices used in its storage programs. The revenue recognized to date has
been almost exclusively from the sale of Revenue Sharing Agreements.
The Company formed Safti-Cell, Incorporated, CCEL Immune System
Technologies, Inc. , CCEL Expansion Technologies, Inc. and CCEL Bio-Therapies,
Inc. in Delaware in calendar year 1993. As of November 30, 1997, no shares have
been issued for any of these subsidiaries. CCEL Immune System Technologies, Inc.
has opened a bank account but has had no activity in it for the year ended
November 30, 1997, and none of the other subsidiaries has any financial activity
but are all consolidated with the Company. The Company has retained these
corporations for possible future use.
REVENUE RECOGNITION
Revenue is recognized when the Company enters into a Revenue Sharing
Agreement and the payment pursuant to the agreement has been satisfactorily
assured.
Equipment costs related to the agreement are expensed in the period in
which the sale is recorded.
Cellular storage fees are recognized ratably over the storage period.
CONCENTRATION OF CREDIT RISKS
In fiscal 1997, substantially all of the Company's revenues were derived
from the sale of one Revenue Sharing Agreement. In fiscal 1996, all of the
Company's revenues were derived from four Revenue Sharing Agreements.
Financial instruments that potentially subject the Company to concentration
of credit risk are principally cash and cash equivalent accounts in financial
institutions, which often exceed the Federal Depository Insurance limit. The
Company places its cash with high quality financial institutions and believes it
is not exposed to any significant credit risk.
CRYO-CELL depends on one company for the manufacture of its cellular
storage unit. However, the Company believes that alternative manufacturing
sources are available.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Reclassifications have been made to the prior year's Consolidated Financial
Statements to conform to the fiscal 1997 presentation.
F10
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTS POLICIES - continued
CASH AND CASH EQUIVALENTS
Cash and equivalents consist of highly liquid investments with a maturity
date at acquisition of three months or less.
MARKETABLE SECURITIES
The Company accounts for marketable securities in accordance with Statement
of Financial Accounting standards No. 115, "Accounting for Certain Investments
in debt and equity Securities." All of the Company's marketable securities are
classified as available-for-sale as of the balance sheet date and are reported
at fair value, with unrealized gains and losses recorded as a component of
stockholders' equity, The marketable securities are subject to concentration of
credit risk in that one equity acquired in the sale of the Revenue Sharing
Partnership comprises the entire category. This security is subject to the Rule
144 holding period.
RECEIVABLES AND ADVANCES
In fiscal 1997, receivables and advances consist primarily of amounts
advanced to the Company's Lifespan affiliates. In fiscal 1996, receivables
consisted of amounts related to the sale of Revenue Sharing Agreements.
INVESTMENT
As if November 30, 1997, the Company's owned approximately 28 percent of
the outstanding common stock of Net/Tech International, Inc., ("Net/Tech") and
accounts for this investment using the equity method.
The following is a summary of Net/Tech assets, liabilities and results of
operations as of November 30, 1997:
NOVEMBER 30 NOVEMBER 30
1997 1996
------------ -----------
Cash $ 832,502 $ 77,560
Inventory 41,479 --
Net Fixed Assets 98,670 13,539
Total Assets 1,036,637 177,485
Total Current Liabilities 103,902 28,851
Total Stockholders Equity (Deficit) 805,976 145,370
Net Loss for the Period $1,226,144 $198,241
F11
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTS POLICIES - continued
PROPERTY AND EQUIPMENT :
Property and Equipment are stated at cost. Depreciation is computed using a
straight-line method over estimated useful lives. Leasehold Improvements are
amortized over the shorter of the respective life of the lease or the useful
life of the improvements.
Upon the sale or retirement of depreciable assets, the cost and related
accumulated depreciation will be removed from the accounts and resulting profit
or loss will be reflected in income. Expenditures for maintenance and repairs
are charged to income as incurred.
Estimated useful lives are as follows:
Machinery and Equipment 5 - 10 years
Furniture and Fixtures 5 - 7 years
INTANGIBLE ASSETS
Costs incurred in connection with filing patent and trademarks applications
are capitalized. Patents and trademarks granted are amortized on a straight line
basis over a lifetime of 10 and 3 years, respectively. Abandoned patents are
expensed in the year of abandonment.
LONG-LIVED ASSETS
In fiscal 1997, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of " ("SFAS 121"). Long lived assets and
identifiable intangibles to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Impairment is measured by comparing the carrying value
of the long-lived asset to the estimated undiscounted future cash flows expected
to result from uses of the assets and their eventual disposition. The adoption
of SFAS No. 121 did not have a material impact on the results of operations or
financial position of the Company.
RESEARCH AND DEVELOPMENT COSTS
Research, development and related engineering costs are expensed as
incurred.
EARNINGS AND NET LOSS PER SHARE
Net income per common and common-equivalent share is computed using the
weighted average number of common and dilutive common-equivalent shares
outstanding. Dilutive common-equivalent shares consist of the incremental shares
issuable upon the exercise of stock options (using the treasury stock method).
Since the common stock equivalents were anti-dilutive in 1997 they were omitted
in calculating the weighted average shares outstanding. Fully diluted earnings
per share have not been presented because the additional dilution effect is
immaterial.
In February, 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which replaces current Earnings Per Share (EPS)
reporting for interim and annual periods ending after December 15, 1997 and
requires a dual presentation of basic and diluted EPS. Adoption of SFA No. 128
is not expected to have a material impact in the Company's per share data.
F12
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTS POLICIES - continued
EMPLOYEES STOCK PLANS
The Company accounts for its stock options in accordance with the
provisions of the Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees." In accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company continues to apply the provisions of APB
No. 25 for purposes of determining net income and has adopted the pro forma
disclosure requirement of SFAS No. 123 effective December 1, 1996.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June, 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income," which establishes standards for reporting
and display of comprehensive income and its components in a complete set of
general purpose financial statements; and SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information," which establishes annual and
interim reporting standards for a Company's business segments and related
disclosures about it's products, services, geographic areas and major customers.
Both SFAS No. 130 and SFAS No. 131 are effective for fiscal years beginning
after December 31, 1997. The Company believes that the adoption of the new
standard will not have a material effect on the financial statements.
NOTE 2 - PROPERTY AND EQUIPMENT
The major classes of property and equipment are as follows:
NOVEMBER 30 NOVEMBER 30
CLASSIFICATION 1997 1996
---- ----
Furniture and equipment $ 463,882 $ 111,413
Cellular Storage Units 325,000 300,000
Leasehold Improvements 147,009 --
Prototype -- 246,919
Equipment not placed in service - net 1,579,917 1,416,376
--------- ---------
Total 2,515,808 2,074,708
Less
Accumulated depreciation and
amortization 49,656 72,962
--------- ---------
Property and equipment, net $2,466,152 $2,001,746
========== ==========
Certain components of the above equipment have not been depreciated since
they have not yet been placed in service at November 30, 1997. However, the
Company has accrued the costs of equipment allocable to Revenue Sharing
Agreements. The equipment not placed in service includes the cellular storage
devices and related processing equipment and construction in progress relating
to construction and development of the third generation cellular storage unit.
F13
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997
NOTE 3 - ACCRUED EXPENSES
NOVEMBER 30 NOVEMBER 30
1997 1996
----------- -----------
Accrued interest $ 1,319 $ 0
Consultants and patent costs 5,000 40,100
Legal and accounting 4,803 1,756
Payroll and payroll taxes 19,720 14,523
General expenses 73,352 37,444
------- ------
$104,194 $93,823
======= ======
NOTE 4 - PATENTS
The Company has patented technology on automatic cryogenic preservation and
has received patents for: additional functions of the cryogenic unit, an
additional unit which incorporates a multi-chambered design and for a process
for controlled freezing/thawing. The Company has been granted patents in several
countries including Australia and Israel.
NOTE 5 - RELATED PARTY TRANSACTIONS
On November 7 , 1997, the Company issued 17,500 shares of restricted stock
to existing shareholders in consideration for the assistance with the pledging
of collateral for the Company's line of credit. This award represented a grant
of 5% of the shares that were pledged. The value of the shares issued of $56,875
was capitalized as a loan acquisition cost and is being amortized over the life
of the loan period August 1, 1997 to July 31, 1998.
To the extent that Net/Tech could not raise sufficient capital through the
sales of stock or through loans or other sources, the Company had committed to
loan to, or guarantee a loan for, or purchase a sufficient number of shares to
guarantee that Net/Tech would be able to continue in business through November
30, 1996. The Company has not needed to extend this commitment.
On April 2, 1996, the Company issued 41,694 shares of restricted stock
valued at $208,470 to two former employees in consideration for consulting
services rendered.
The Company borrowed from the wife of the Chairman of the Board during 1996
and 1995, $88,662 and $38,000, respectively. These loans were repaid with
interest during 1996.
In the period from April 1994 through April 1996, the Company loaned a
total of $517,211 to Net/Tech International, Inc., an affiliate, on demand
Convertible Notes with an interest rate of 10%. These loans provided the
operating capital necessary for Net/Tech to continue operations. The loan was
converted into 517,211 shares of restricted Net/Tech common stock. This stock
was issued in 1996 and represents full payment of the loan balances. In
settlement of the loan transaction with Net/Tech, the Company recognized an
expense of $95,271 in fiscal, 1996. The Company made short term loans of
$169,857 to Net/Tech during 1996 and these loans were repaid on October 10,
1996.
During 1997 and 1996 the Company sold 154,218 and 500,000 shares of
Net/Tech common stock recognizing a gain of $443,153 and $150,000 respectively.
F14
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997
NOTE 6 - LEASES
The Company leased office space for $1,070 a month before entering into a
seven year lease in September, 1997 for its headquarters. The following schedule
summarizes future minimum lease payments required under non-cancelable operating
leases as of November 30, 1997:
1998 $ 127,892
1999 130,423
2000 135,047
2001 140,833
2002 146,698
-------
$ 680,893
=======
Rent expense for the periods ended November 30, 1997, and November 30,
1996, was $44,027 and $16,332, respectively.
NOTE 7 - COMMITMENTS and CONTINGENCIES
In December 1997, subsequent to the balance sheet date, the Company entered
into a marketing agreement with Lamaze Publishing Company to sponsor the Lamaze
tutorial tape and a full page advertisement in the Lamaze Parent Magazine at a
cost of $175,000.
NOTE 8 - CONVERTIBLE LOAN
The Company borrowed on two convertible loan agreements totaling $250,000
during July and August of 1994. The notes had a term of one year at which time
the principal plus interest, at 10% per year, was due. These loans were extended
by the lenders and were fully paid by the Company on February 1, 1996, including
accrued interest.
NOTE 9 -INCOME TAXES
The components of the income tax provision were as follows:
NOVEMBER 30 NOVEMBER 30,
1997 1996
----------- ------------
Current: $ 0 $44,829
State 0 0
Deferred: 0 0
--- -------
Total $ 0 $44,829
=== =======
The Company adopted Statement of Financial Accounting Standards No. 109
(SFAS No. 109), Accounting for Income Taxes. Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to be recovered or settled.
F15
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997
NOTE 9 -INCOME TAXES (continued)
At of November 1997 and 1996 the tax effects of temporary differences that
give rise to the deferred tax assets are as follows:
Deferred tax assets: NOVEMBER 30, 1997 NOVEMBER 30, 1996
----------------- -----------------
Net operating loss carryforwards $ 851,830 $ 407,997
Tax over book basis in
unconsolidated affiliate 301,890 183,074
Valuation reserves 196,856 111,112
Depreciation and other 5,444 11,171
--------- -------
Total deferred assets $1,356,020 $ 713,354
Less: Valuation allowance 1,356,020 713,354
--------- -------
Deferred taxes, net of valuation allowance $ 0 $ 0
========= =======
The Company has unused net operating losses available for carryforward to
offset future federal taxable income of $80,053 which expires by the year 2006,
$294,557 which expires by the year 2008, $536,253 which expires by the year
2009, $295,557 which expires by the year 2010 and $1,034,968 which expires by
the year ended 2012. The total of the foregoing net operating loss carryforwards
is $2,241,922. The Tax Reform Act of 1986 contains provisions that limit the
utilization of net operating losses if there has been an "ownership change".
Such an "ownership change" as described in Section 382 of the Internal Revenue
code may limit the Company's utilization of its net operating loss
carryforwards.
A reconciliation of income tax benefits with the amount of tax computed by
applying the federal statutory rate (34%) to pretax income follows:
YEARS ENDED NOVEMBER 30 1997 1996
-------- -------
Tax expense at statutory rate $(549,627) $220,593
State taxes (64,662) 44,829
Realization of operating loss carryforward -- (216,873)
Increase in valuation allowance 642,666 --
Miscellaneous timing differences (28,377)
Benefits of capital loss carryforward 0 (3,720)
-------- -------
Total Income Taxes $ 0 $ 44,829
======== =======
NOTE 10 - OPTIONS
In 1991 the Company adopted an Employee Incentive Stock Option Plan, and
has reserved 500,000 shares of the Company's common stock for issuance under the
Plan. Employee options under the Plan have a term of five years from the date of
grant. The options immediately terminate on the employee's termination or in the
case of permanent and total disability the options are exercisable for a period
of 30 days after termination. In addition the Company has set aside a reserve of
1,140,000 shares for the purpose of Non-Employee Stock Options. These options
generally have a term of three to five years from the date of the grant.
F16
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997
NOTE 10 - OPTIONS (continued)
Stock option activity was as follows for the two years ended November 30,
1997:
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
--------- ----------------
Outstanding at November 30, 1995 549,000 $7.44
Granted 436,000 3.49
Exercised (55,000) 3.09
Terminated (425,000) 6.28
---------
Outstanding at November 30, 1996 505,000 5.41
Granted 698,500 5.49
Exercised (5,000) 2.50
Terminated (165,500) 9.49
---------
Outstanding at November 30, 1997 1,033,000 $4.76
=========
Significant option groups outstanding at November 30, 1997 and related
price and life information follows:
WEIGHTED AVERAGE
RANGE OF EXERCISE WEIGHTED AVERAGE REMAINING
PRICE OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE
- ----------------- ----------- ---------------- ----------------
$2.00 to $4.00 392,000 $3.07 1.9
$4.01 or more 641,000 $5.90 4.1
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations in
accounting for its stock options. Accordingly, compensation expense is
recognized for the amount of the excess of the market price over the exercise
price on the date of the grant. Had the compensation expense been determined
based upon the fair value at the grant date consistent with the alternative fair
value accounting provided for under FASB No.123, "Accounting for Stock-Based
Compensation," the Company's net income and net income per share would have been
$11,615 and $0 for the year ended November 30, 1996, and the net loss and net
loss per share for the year ended November 30, 1997 would have been $1,854,868
and $.26 respectively. The weighted average fair value at the date of grant for
options granted during the years ended November 30, 1997 and 1996 was $2.00 and
$1.58 per option, respectively. The Black-Scholes option pricing model was
developed for use in estimating the fair value of traded options that are fully
transferable. The Company's options have the characteristics significantly
different from those of traded options. In additions, option valuation models
require the input of highly subjective assumptions, including the expected stock
price volatility. Since the Company's stock issued upon exercise of the options
is restricted stock, a reduction of 30% of the trading price of the stock at the
date of grant has been applied to account for this restriction. Other variables
used to determine the fair value of the options for fiscal 1997 and 1996 were as
follows: a) risk-free interest rate of 6.3% and 6.0% respectively, b) expected
life of 3.5 and 1.8 years respectively, c) expected volatility of 87% and 89%
respectively, and d) no dividend yield for either year.
F17
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997
NOTE 10 - OPTIONS (continued)
Weighted average grant date fair values are shown below for groups where
the adjusted stock price equals, exceeds and is less than the exercise price.
WEIGHTED AVG FAIR WTD AVG EXERCISE
VALUE/SH PRICE/SH
1997
Stock Price = Exercise $3.22 $4.88
Price
Stock Price /GREATER THAN/ Exercise $1.98 $2.00
Price
Stock Price /LESS THAN/ Exercise $1.60 $4.20
Price
1996
Stock Price = Exercise $0 $0
Price
Stock Price /GREATER THAN/ Exercise $1.97 $3.81
Price
Stock Price /LESS THAN/ Exercise $1.20 $3.18
Price
The pro forma effect on net income is not representative of the pro forma
effect on net income in future periods because it does not take into
consideration pro forma compensation expense related to grants made in prior
periods.
NOTE 11 - PURCHASE, MARKETING AND STOCK AGREEMENT WITH
INSTACOOL OF NORTH AMERICA, INC.
The Company signed an agreement on April 7, 1992, in which they purchased
all rights, title and interest from InstaCool to their Controlled Rate Freezer
(CRF). The purchase price was 20,000 shares of the Company's legended common
stock and a 5% royalty on all sales of the CRF units. In addition, the Company
was granted exclusive world marketing rights to InstaCool's coolant when used in
computer and/or robotic controlled cellular storage units.
There has been no activity relative to this agreement during 1997 and 1996.
NOTE 12 - REVENUE SHARING AGREEMENTS
ARIZONA
As of February 28, 1995, the Company sold a Revenue Sharing Agreement with
two private investors. The agreement interest entitles the investors to a 50%
share of the Net Revenues (defined as the revenues after expenses for running
the Lifespan/SM/ Program) from all cellular storage activities in Arizona. In
exchange, the Company received a total of $1,800,000 in negotiable demand notes
to be paid in 25% annual installments ($450,000 plus interest at prime rate)
annually, commencing April 30, 1996.
In January 1996, the notes were restructured to provide for an accelerated
payment of the $450,000, originally due April 30, 1996, to January of 1996. This
was in exchange for the payment of future amounts to be due and payable out of
revenues generated from the Lifespan/SM/ Program. Since the restructuring made
the repayment of the $1,350,000 note based upon future revenue, the Company does
not carry the note as a receivable and has not recorded this portion of the
income.
F18
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997
NOTE 12 - REVENUE SHARING AGREEMENTS (continued)
ILLINOIS
In 1996, the Company signed a series of agreements with a group of
investors entitling them to a 50% share in CRYO-CELL's portion of future net
revenues generated by the Cellular Storage Unit located in the Illinois Masonic
Medical Center. The Company is currently storing specimens in a standard CryoMed
unit.
BIO-STOR
The Company modified 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 modified 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 filling
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 kit fees
generated. Bio-Stor will also have the right to any further RSAT agreements
prior to these being offered to other interested parties.
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 these modifications, CRYO-CELL will receive a 19%
equity position in Bio-Stor after the successful initial public offering.
CRYO-CELL has granted Bio-Stor a voting trust with respect to these shares.
TENET HEALTHSYSTEM HOSPITALS, INC.
On November 30, 1996, the Company signed dual joint venture agreements with
OrNda HealthCorp, a Nashville based chain of 50 hospitals. Under the terms of
the Lifespan/SM/ segment of the agreement, CRYO-CELL will provide OrNda the use
of two CRYO-CELL patented Cellular Storage Units, each with an approximate
35,000 storage capacity. In addition to OrNda receiving 25% of the $50 per
specimen annual cellular storage fees, CRYO-CELL will provide "pro-bono" spaces
within units for important research in cryopreservation of stem cells for the
future medical benefit of OrNda's patients.
F19
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997
NOTE 12 - REVENUE SHARING AGREEMENTS (continued)
A second agreement was also signed on November 30, 1996, in which OrNda was to
pay CRYO-CELL $666,666 for additional joint venture revenue sharing
entitlements. In December 1996, OrNda completed its payment of $666,666 to the
Company. OrNda was acquired by Tenet HealthSystem Hospitals, Inc. which agreed
to be bound by the terms of the Lifespan and Single Unit Revenue Sharing
Agreements.
VISCOUNT SECURITIES
On February 17, 1997, the Company signed an agreement with Sachem (Viscount
Securities) for revenue sharing in two units. Since Sachem did not meet the
required payments in the contract, the Company terminated the agreement. Sachem
is entitled to a share of storage revenue based upon their $400,000
non-refundable deposit which was paid in May 1997, in the form of 100,000 shares
of a NASDAQ small cap stock.
NOTE 14 - 401 (K) PLAN
In January, 1997, the Company adopted a 401 (K) retirement plan which
allows eligible employees to allocate up to 15% of their salary to such plan.
The company does not make any matching contributions to this plan.
NOTE 15 - 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 November 30, 1997 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 November 30, 1997 thus allowing the Bank
to ask for current repayment. The fair market value of the collateral as of
November 30, 1997, was in excess of $1,500,000. The Company stands ready to
liquidate any collateral or find other sources of funds to repay the loan should
this become necessary.
F20
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997
NOTE 16 - LEGAL PROCEEDINGS
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.
On March 28, 1997, the company was informed that the University of Arizona
filed a cross claim to the CRYO-CELL lawsuit stating that CRYO-CELL has breached
the contract and 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. Litigation
is proceeding.
NOTE 17 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1ST 2ND 3RD 4TH
1997 QUARTER QUARTER QUARTER QUARTER
Net Income (Loss) $ (84,875) $(318,043) $ (365,611) $ (893,387)
========= ========= ========== ===========
Income (Loss) per share $ (0.01) $ (0.04) $ (0.05) $ (0.12)
========= ========= ========== ===========
Shares used in
computation 7,279,836 7,156,866 7,164,866 7,184,603
========= ========= ========== ===========
1ST 2ND 3RD 4TH
1996 QUARTER QUARTER QUARTER QUARTER
Net (Loss) $ 274,605 $ 912,820 $ (213,192) $ (363,493)
========= ========= ========== ===========
(Loss) per share $ 0.04 $ 0.13 $ (0.03) $ (0.05)
========= ========= ========== ===========
Shares used in
computation 7,639,576 7,097,603 7,098,750 7,150,000
========= ========= ========== ===========
F21
<PAGE>
PART III
Documents incorporated by reference: The information required by Part III
of Form 10-KSB is incorporated by reference to the Issuer's definitive proxy
statement relating to the 1998 Annual Meeting of Shareholders which is expected
to be filed with Securities and Exchange Commission on or about March 30, 1998.
17
<PAGE>
PART IV
ITEM 13. 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
10.11 Agreement with InstaCool of North America, Inc. (2)
10.12 Agreement with the University of Arizona (2)
10.13 Agreement with Illinois Masonic Medical Center (4)
10.14 Agreement with Bio-Stor (4)
10.15 Agreement with Gamida-MedEquip (4)
10.16 Agreement with ORNDA HealthCorp (Tenet HealthSystem
Hospitals, Inc.) (4)
10.17 Convertible Note from Net/Tech International, Inc.
Dated November 30, 1995 (3)
10.18 Amended Agreement with Bio-Stor
21 List of Subsidiaries (3)
27 Financial Data Schedule
-------------------
(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.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended November 30, 1995.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended November 30, 1996.
(b) Reports on Form 8-K.
(1) Form 8-K filed September 12, 1997 - Resignation of William C. Hardy as
President, Chief Operating Officer and member of the Board. Resignation
of Leonard Green from the Board of Directors.
(2) Form 8-K filed November 18, 1997 - Company filed a multi-count lawsuit
in the United States District Court, Northern District of New York
claiming that Stainless Design Corporation of Saugerties, New York
breached its contract.
Supplemental Information to be furnished with reports filed pursuant to
Section 15(d).
(c) No annual reports or proxy material have been sent to security holders
for the current fiscal year. Copies of any such report or proxy
material so furnished to security holders subsequent to the filing of
the annual report on this form will be furnished to the Commission when
sent to security holders.
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) 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.
By: /s/ DANIEL D. RICHARD
----------------------
Daniel D. Richard, Chief Executive Officer
Dated: March 13, 1998
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons in the capacities indicated.
NAME TITLE
/s/ DANIEL D. RICHARD Chief Executive Officer and
- --------------------- Chairman of the Board
Daniel D. Richard (Principal Executive Officer)
/s/ FRANK W. HENDRICKS Director
- ---------------------
Frank W. Hendricks
/s/ ED MODZELEWSKI Director
- ---------------------
Ed Modzelewski
/s/ FREDERICK C.S. WILHELM Director
- -------------------------
Frederick C.S. Wilhelm
19
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
10.18 Amended Agreement with Bio-Stor
27 Financial Data Schedule
20
EXHIBIT 10.18
AMENDED AGREEMENT WITH BIO-STOR
<PAGE>
ADDENDUM AND MODIFICATION
TO
CRYO-CELL/BIO-STOR AGREEMENT
The purpose of this agreement is to modify the existing Cryo Cell Bio-Stor
contract in order to accomplish the following:
1. Create a marketing arm or company to join Cryo-Cell in marketing its
cellular storage service throughout the United States.
2. Reduce the number of Bio-Stor passive single unit Revenue Sharing
Partnership (RSP) from 5 to 3 and determine their locations.
3. Create an on going Active Revenue Sharing Marketing Partnership (ARSMP)
for cellular storage business that is generated by Bio-Stor.
4. To grant Bio-Stor a one year option:
A. Purchase a 20% equity position of Cryo-Cell Europe (a corporation to
be formed to service the European common markets with Cryo-Cell
technology) for $2,000,000 (two million dollars).
B. Purchase an equity position in Cryo-Cell Latin America (a corporation
to be formed to service the Merco-Sur (Argentina, Brazil, Paraguay,
Euraguay and Chile) with Cryo-Cell technology). Purchase price shall
be $1,000,000 (one million dollars) per 10% (up to 20% equity
ownership).
5. To grant Bio-Stor the opportunity for a right of first refusal on
additional RSP to be sold by Cryo-Cell.
6. To transfer 19% ownership of Bio-Stor to Cryo-Cell.
It is agreed as follows:
PAYMENT TERMS
1. Payment for Active Revenue Sharing Marketing Partnership (ARSMP) is
$1,000,000 (one million dollars) as evidenced by note.
2. $3,000,000 (three million dollars) payment for passive RSP defined below
(900,000 deposit previously paid).
3. Aforesaid $3,000,000 (three million dollars) will entitle Bio-Stor to
three single unit passive RSP in the following locations: A) Women's
Infant Hospital (when agreement finalized by Cryo-Cell), B)
<PAGE>
Washington Hospital Center C) Tenant Hospital Massachusetts. If for any
reason any of these hospitals do not become operating participants then
Cryo-Cell must replace them in geographic areas as per the original
agreement. These passive RSPs will be operated on the same terms and
conditions as intended in the original Bio-Stor/Cryo-Cell agreement. The
only criteria for each one million payment to Cryo-Cell is that each
revenue sharing location must be in position to commence cellular storage
unless otherwise mutually agreed. Cryo-Cell intends to deploy its patented
robotic cellular storage technology at each location as soon as
practically possible.
4. The aforesaid $1,000,000 (one million dollars) payment (note) (evidenced
by a corporate promissory which will be paid exclusively out of the
proceeds of Bio-Stor underwriting) will pay for Bio-Stors ARSMP for the
initial 33,000 spaces. These spaces are to be filled exclusively by
specimens for which Bio-Stor creates the business as part of it right to
market the Cryo-Cell services throughout the United States (excluding
areas named below).
Every time Cryo-Cell stores 33,000 specimens which were the direct result of
marketing efforts of Bio-Stor, for the payment of additional $1,000,000 (one
million dollars) Bio-Stor shall have the right to an additional ARSMP covering
33,000 new cellular storage specimens. Each ARSMP shall entitle Bio-Stor to 50%
Cryo-Cells cellular storage revenue entitlement (less 1/2 collection/warranty
fees) as outlined in original agreement. For example under Cryo-Cell existing
plan the hospital receives 25% of cellular storage revenue, Bio-Stor and
Cryo-Cell would share equally in 75% of on going cellular storage revenue (37
1/2 % each) less 1/2 collection and warranty fees.
The term of this agreement shall be for ten years and be automatically renewed
each ten years thereafter upon the payment of $1,000,000 (one million dollars)
to Cryo-Cell which will be credited toward next 33,000 ARSMP cellular storage
spaces.
Upon the completion of the provisions of this Agreement, Cryo-Cell agrees not to
sell an active Revenue Sharing Marketing Partnership to any other firm or
individual. This provision does not prevent Cryo-Cell from selling individual
Revenue Sharing Partnerships (subject to the right of first refusal provision
detailed above). Further, Cryo-Cell retains the right to expand its sales staff
and engage in direct marketing of its services.
MARKETING
Umbilical Cord Blood
Bio-Stor will actively market the Cryo-Cell cellular storage services throughout
the United States. Bio-Stor will arrange enrollment of customers and specimens
to be sent to the Cryo-Cell Clearwater, Florida lab facility (or other facility
to be decided by Cryo-Cell) where they will be processed and/or stored.
It is agreed that Cryo-Cell and Bio-Stor shall market to customers at identical
processing and annual cellular storage fees.
Bio-Stor must enroll, define and document customers who come from their
marketing activities. Bio-Stor is responsible for paying all compensation,
travel and marketing expenses for their staff.
All hospitals signed by Bio-Stor will be responsible for all contact with their
patient/clients and will arrange for the shipment of collected U-Cord blood and
other specimens to a Cryo-Cell facility.
The Cryo-Cell marketing plan provides that all participating hospitals now
receive 25% of ongoing paid for cellular storage revenue. Bio-Stor has the right
to alter this agreement for hospitals, etc that Bio-Stor
<PAGE>
enrolls through its marketing activity. If Bio-Stor reduces the hospitals 25%
entitlement it can retain the difference to support hospital programs.
For any specimens where processing is required (i.e. cord blood) which is
generated by Bio-Stor marketing efforts Bio-Stor shall be paid marketing fees as
follows:
A. First 5,000 specimens, Bio-Stor receives $50 per specimen.
B. All additional specimens, Bio-Stor receives $75 per specimen.
Aforesaid marketing fees shall be paid to Bio-Stor from Cryo-Cell in proportion
to monies received from the customer (i.e. enrollment fee, balance etc.). These
payments will be paid on the 10th day of each month for activity completed
during the previous month..
MULTI-FACETED CELLULAR STORAGE
Bio-Stor shall also provide marketing efforts to create multi-faceted cellular
storage business for Cryo-Cell (such storage shall include cancer tissue, sperm,
gametes, non-human and any other materials suitable for storage). For all such
business that is a direct result of Bio-Stor marketing efforts, Bio-Stor will
receive 25% of Cryo-Cells processing and on going cellular storage entitlement.
In addition Cryo-Cell hereby grants Bio-Stor the option to create a ARSMP for
Multi-faceted cellular storage for $1,000,000 (one million dollars). Purchase
option must be exercised at the time of Bio-Stor underwriting. If exercised
Bio-Stor will have a ARSMP for Multi-faceted Cellular Storage under same terms
and conditions as above (50% of Cryo-Cell entitlement)..
EXISTING LIFE SPAN CENTERS (LSC)
Bio-Stor will not market in an area which is in conflict with existing Cryo-Cell
Life Span (participating) agreements without Cryo-Cell's consent.
RIGHT OF FIRST REFUSAL
Cryo-Cell agrees to grant Bio-Stor a right of first refusal on additional RSPs
sold by Cryo-Cell in the United States. This right of first refusal shall become
effective only after Bio-Stor completes the total $4,000,000 (four million
dollars) payment to Cryo-Cell. Once given notice by Cryo-Cell Bio-Stor has ten
(10) days to pay Cryo-Cell one million to complete the purchase.
CRYO-CELLS 19% EQUITY POSITION IN BIO-STOR
In consideration for the modifications to Cryo-Cell/Bio-Stor Agreement outline
herein, Cryo-Cell shall receive 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 19% of outstanding warrants if and when they are exercised and become common
shares in order to maintain Cryo-Cells 19% equity position through and including
warrant exercise.
Cryo-Cell hereby grants Bio-Stor a right of first refusal to purchase any
Bio-Stor shares that Cryo-Cell intends to sell. Bio-Stor shall have ten (10)
days upon written notice from Cryo-Cell to match any market price or third party
offer.
<PAGE>
VOTING TRUST
Upon receipt of it's equity position Cryo-Cell hereby grants Bio-Stor a voting
trust (the right to vote the Cryo-Cell equity interest) for all shares owned by
Cryo-Cell for as long as those shares remain owned by Cryo-Cell.
In addition the 300,000 Bio-Stor shares Cryo-Cell has agreed to purchase from
Bio-Stor in original agreement shall become a one year option which is
non-transferable.
The Voting Trust on all shares sold by Cryo-Cell to any third party shall
immediately become void only on those shares sold.
Notwithstanding the Voting Trust, Cryo-Cell will be entitled to receive any
dividends in the event they are declared by Bio-Stor.
EUROPEAN AND MERCO-SUR (ARGENTINA, BRAZIL, PARAGUAY, EURAQUAY AND CHILE OPTION
Cryo-Cell hereby grants Bio-Stor a one year option to:
A. Purchase a 20% equity position of Cryo-Cell Europe (a corporation to
be formed to service the European common markets with Cryo-Cell
technology) for $2,000,000 (two million dollars).
B. Purchase an equity position in Cryo-Cell Latin America (a corporation
to be formed to service the Merco-Sur (Argentina, Brazil, Paraguay,
Euraquay and Chile) with Cryo-Cell technology). Purchase price shall
be $1,000,000 (one million dollars) per 10% (up to 20% equity
ownership).
EXTENSION OF TIME
While Bio-Stor agrees to use its "best efforts" to complete the underwriting
within six (6) months this agreement hereby extends the time frame Bio-Stor has
to complete payment of initial $4,000,000 (four million dollars) to Cryo-Cell to
one year from the date of this agreement. If Bio-Stor has filed a registration
statement with the SEC within one year Bio-Stor will automatically get a six
month extension.
This agreement is an addendum and modification of the Bio-Stor and Cryo-Cell
agreement dated April 12, 1996 and modified again on February 7, 1997 and shall
be binding upon the parties.
Read and agreed to this 11th day of November, 1997.
Bio-Stor International, Inc. Cryo-Cell International, Inc.
/s/ GLENN E. COHEN /s/ DANIEL D.RICHARD
- ------------------ --------------------
Glenn E. Cohen Daniel D. Richard
Chairman, Chief Executive Officer Chairman, Chief Executive
Officer
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