U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
/ X / Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended February 28, 1999
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from ______ to _______
Commission File Number 0-23386
CRYO-CELL INTERNATIONAL, INC.
(Exact name of Small Business Issuer as Specified in its Charter)
DELAWARE 22-3023093
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
3165 MCMULLEN BOOTH ROAD, BUILDING 5, CLEARWATER, FLORIDA 33761
(Address of Principal Executive Offices) (Zip Code)
Issuer's phone number, including area code: (727) 723-0333
(Former name, former address and former fiscal year, if changed since last
report).
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15 (d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes / X / No / /
State the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date. As of February 28, 1999,
8,507,598 shares of $0.01 par value common stock were outstanding.
Transitional Small Business Disclosure Format (check one). Yes / / No /X/
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 20
2
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
February 28, November 30,
1999 1998
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 289,489 $ 499,696
Stock subscription receivable -- 150,000
Accounts receivable and advances (net of allowance
for doubtful accounts of $13,380) 103,475 47,642
Marketable securities 305,316 198,114
Refundable income taxes 8,078 8,078
Prepaid expenses and other current assets 192,466 79,690
---------- ----------
Total current assets 898,824 983,220
---------- ----------
PROPERTY AND EQUIPMENT
Property and equipment, net 2,346,935 2,371,993
---------- ----------
OTHER ASSETS
Intangible assets (net of amortization of 67,819 69,462
$43,913 and $42,269, respectively)
Marketable securities 551,808 521,279
Deposits with vendors and others 109,223 133,175
---------- ----------
Total other assets 728,850 723,916
---------- ----------
TOTAL ASSETS $3,974,609 $4,079,129
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
February 28, November 30,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 357,195 $ 293,159
Accrued expenses and withholdings 109,971 291,788
Short term borrowings 15,000 565,000
Convertible notes payable 10,000 540,000
Current portion of obligations under capital leases 5,494 4,805
------------ ------------
Total current liabilities 497,660 1,694,752
------------ ------------
OTHER LIABILITIES
Unearned revenue 93,573 75,236
Deposits 25,000 25,000
Obligations under capital leases-net of current portion 14,372 15,928
------------ ------------
Total other liabilities 132,945 116,164
------------ ------------
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; 8,507,598 at February 28, 1999 and 7,654,598
at November 30, 1998 issued and outstanding) 85,085 76,546
Additional paid-in capital 10,014,460 8,651,428
Net realized gain (loss) on marketable securities 457,124 319,393
Accumulated deficit (7,212,665) (6,779,154)
------------ ------------
Total stockholders' equity 3,344,004 2,268,213
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,974,609 $ 4,079,129
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
February 28, February 28,
1999 1998
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
REVENUE $ 219,466 $ 36,175
----------- -----------
COSTS AND EXPENSES:
Cost of sales 100,825 17,113
Marketing, general & administrative expenses 498,232 393,639
Research, development and related engineering 23,316 49,054
Depreciation and amortization 28,580 40,000
----------- -----------
Total Cost and Expenses 650,953 499,806
----------- -----------
OPERATING PROFIT (LOSS) (431,487) (463,631)
----------- -----------
OTHER INCOME AND (EXPENSE):
Interest income -- 6,699
Interest (Expense) (2,024) (11,037)
Gain on sale of unconsolidated affiliate's stock -- 68,620
----------- -----------
Total Other Income (2,024) 64,282
----------- -----------
INCOME (LOSS) BEFORE EQUITY IN NET LOSS OF
UNCONSOLIDATED AFFILIATE AND
PROVISION FOR INCOME TAXES (433,511) (399,349)
Provision for income taxes -- --
Equity in net loss of unconsolidated affiliate -- 108,094
----------- -----------
NET INCOME (LOSS) ($ 433,511) ($ 507,443)
=========== ===========
NET INCOME (LOSS) PER SHARE ($ 0.06) ($ 0.07)
=========== ===========
Number of Shares Used In Computation 7,855,687 7,199,834
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
February 28, February 28,
1999 1998
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (433,511) $ (507,443)
Adjustments to reconcile net loss
to cash used for operating activities:
Depreciation and amortization 28,580 40,000
Equity in loss of unconsolidated affiliate -- 108,094
Payment of consulting and professional services with stock 61,250
Changes in assets and liabilities:
Accounts receivable (55,833) (24,593)
Prepaid expenses and other current assets (112,776) 31,555
Accounts payable 64,036 5,202
Unearned revenue and deposits 18,337 26,088
Accrued expenses (181,817) (26,463)
Refundable income taxes -- 3,230
Deposits and other 23,952 (115,000)
----------- -----------
NET CASH USED FOR OPERATING ACTIVITIES (587,782) (459,330)
----------- -----------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of property and equipment-net (1,878) (66,867)
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES $ (1,878) $ (66,867)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of stock options -- 62,500
Repayment of debt 1 (1,080,000)
Issuance of common stock 1 1,460,320 137,500
Principal payments under capital leases (867) (262)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES: 379,453 199,738
----------- -----------
Increase (decrease) in cash and cash equivalents (210,207) (326,459)
Cash and cash equivalents:
Beginning of year 499,696 814,156
----------- -----------
End of period $ 289,489 $ 487,697
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
6
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
-------------------------
February 28, February 28,
1999 1998
(unaudited) (unaudited)
------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,024 $11,037
------- -------
Income taxes $ -- $ --
------- -------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
1 In 1998 the Company received a convertible loan in the amount of $530,000.
The loan was repaid in 1999 with the issuance of 302,857 shares of the
Company's restricted common stock.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
7
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENTS
The Consolidated Financial Statements including the Consolidated Balance
Sheet as of February 28, 1999, Consolidated Statements of Operations for the
three months ended February 28, 1999 and Consolidated Statement of Cash Flows
for the three months ended February 28, 1999 have been prepared by the Company,
without audit. In the opinion of Management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and changes in cash flows at February 28, 1999
and for all periods presented have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's November 30, 1998 Annual
Report on Form 10-KSB.
NOTE 2 - MARKETABLE SECURITIES
NET/TECH INTERNATIONAL
In November 1998 the Company's ownership percentage in Net/Tech
International Inc. (NTTI) decreased to less than 20% of the outstanding shares
of NTTI. The Company had accounted for its investment in NTTI in previous years
using the equity method but as of the date upon which its ownership percentage
fell below 20% the Company used the guidance in SFAS 115 ACCOUNTING FOR CERTAIN
INVESTMENT IN DEBT AND EQUITY SECURITIES, to account for the investment. Under
this guidance all of the Company's marketable securities are classified as
available-for-sale as of the balance sheet date and reported at fair value, with
unrealized gains and losses recorded as a component of stockholders' equity.
Since NTTI stock is thinly traded and subject to considerable price fluctuation,
were the Company to attempt to sell large blocks of shares, it is unlikely that
the Company would be able to obtain the exchange market value as listed. This
security is therefore subject to considerable market risk. Since the stock owned
in Net/Tech International, Inc. is subject to trading restrictions a portion of
this investment has been classified as a non current asset based upon the number
of shares which may not be sold in 1999.
The Company recognized losses under the equity method for the NTTI
investment during 1998 reducing the cost basis of the stock to $0. Therefore the
proceeds from the sale and realized gains on the sale of the stock during fiscal
year 1998 were both $515,574. Additionally, an unrealized gain has been recorded
as a component of stockholders' equity in the amount of $732,124 and $685,393 to
reflect the fair market value of the investment as of February 28, 1999 and
November 30, 1998, respectively.
8
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(UNAUDITED)
NOTE 2 - MARKETABLE SECURITIES (CONT'D)
OTHER SECURITIES
In 1997 the Company acquired 100,000 shares of an equity security in
payment for the sale of a Revenue Sharing Agreement. The original cost as
determined by the trading price on the date of acquisition was $400,000. The
fair value of this security as of February 28, 1999 and 1998 was $125,000 and
$200,000 respectively and the unrealized holding loss on this security was
$175,000 and $200,000 as of February 28, 1999 and 1998 respectively.
NOTE 3 LINE OF CREDIT
In August 1997, the Company entered into a one year line of credit
agreement with NationsBank, N.A. ("the Bank") whereby the Bank will lend the
Company 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. Terms of the loan required
interest to be paid monthly at the Bank's prime lending rate plus 1%. The
agreement expired on August 21, 1998 and in December 1998, the loan was paid in
full.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
In June 1998, the Company entered into an agreement, with World Medical
Match, a non-profit corporation, whose mission includes assisting the poor with
funds to provide them access to medical matching opportunities. The agreement
states that World Medical Match agrees to grant the Company $50,000 for the
purpose of paying for 200 U-Cord/TM/ stem cell collection kits and the first
year of cryogenic storage for the benefit of indigent expectant parents. Upon
execution of the agreement the Company was granted $25,000 which is classified
as a deposit on the balance sheet. The Company is currently working with local
practices and hospitals to implement this project.
As part of the September 1998 agreement between Steve Ferens and the
Company, CRYO-CELL committed to issue 200,000 shares of the Company's restricted
common stock in exchange for marketing services to be provided by Ferens and his
team of sub-contractors. The contract is for a five year period and provides for
the issuance of 10,000 shares of stock upon the signing of the agreement, 40,000
shares upon the implementation of the marketing program and 50,000 shares to be
issued at various times during the contract period. The agreement calls for the
balance of 100,000 shares to be issued upon the achievement of certain
performance goals during the third year of the agreement. The Company issued
60,000 shares as of February 28, 1999. The Company issued 10,000 shares to
Ferens as of November 30, 1998 and an additional 50,000 shares have been issued
as of February 28, 1999. These issuances resulted in compensation expense of
$42,500 during 1998, $34,000 of which is an accrued expense as of November 30,
1998 and compensation expense of $23,750 as of February 28, 1999. The remaining
shares will be issued as outlined above and recorded as an expense in the period
of issuance.
In January 1999, the Company extended its marketing agreement with Lamaze
Publishing Company to sponsor the Lamaze tutorial tape and full page
advertisements in the Lamaze Parent Magazine at a cost of $200,000. As of
February 28, 1999, the Company paid $40,000 of this agreement and is recognizing
this as a prepaid expense on the balance sheet.
9
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(UNAUDITED)
NOTE 5 - LEGAL PROCEEDINGS
On July 20, 1998, the jury found in favor of the Company against the
University of Arizona. The award was $1,050,000 for the breach of contract and
an additional $120,000 was awarded to the Company for the University of
Arizona's misappropriation of trade secrets. Three post-trial motions by the
University of Arizona to reduce the award or set aside the verdict were rejected
by the court. The University is now appealing the judgment. The University has
expressed a willingness to enter settlement talks as to the appeal but no such
talks have commenced. The appellate briefs have yet to be filed.
On February 10, 1999 the Company, the Company's Executive Vice President,
the Company's legal counsel and the Company's CEO and Chairman were named as the
defendants in a lawsuit filed in the Superior Court of Orange County, California
by Horwitz & Beam, the attorneys which had represented CRYO-CELL in its suit
against the University of Arizona et al. The plaintiff alleges breach of
contract and seeks payment of $129,822 in allegedly unpaid fees and costs
associated with the University of Arizona litigation. The plaintiff also asserts
claims of misrepresentation. In reference to these misrepresentation claims,
plaintiff has filed a "Statement of Damages" which asserts $1,000,000 in general
damages and $3,500,000 in punitive damages.
The Company believes there is no merit to the suit. The Company believes
that none of the claimed $129,822 in fees is due and owing under any contract
with the plaintiff. Furthermore, the Company believes that the plaintiff is not
entitled to any punitive damages under Section 3294(a) of the California Civil
Code, which does not authorize punitive damages in an action for breach of an
obligation "arising from contract."
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, 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.
During the third quarter of 1998, an out of court settlement was reached.
Under the terms of this settlement, SDC released the equipment owned by
CRYO-CELL and returned the 25,000 shares of stock it had previously received.
Also under the terms of the settlement amounts previously due to SDC and the
equipment deposit held for CRYO-CELL were canceled.
NOTE 6 CONVERTIBLE NOTES
In November 30, 1998, the Company borrowed $530,000 on eleven convertible
promissory notes. The notes had a term of six months at which time the principal
plus interest, at 8% per year is due. The promissory notes contained a
conversion provision to the Company's restricted common stock at $2.00 per
share. In February 1999, the loan agreements were converted to 302,000 shares of
the Company's common stock at a price of $1.75 per share. The loan holders
agreed to forego any accrued interest and any registration rights. All shares
are subject to Rule 144.
In October 1998, the Company entered into a convertible note agreement
borrowing $10,000 from an investor. The note has a term of one year at which
time the principal plus interest, at 20% per year, will be due. The noteholder
has the option to be paid in full for interest plus principal or to convert to
the Company's common stock at $2.00 per share. All shares are subject to Rule
144.
10
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(UNAUDITED)
NOTE 7 STOCKHOLDERS EQUITY
In December 1998, the Company received $580,320 from the sale of 310,000
shares of its common stock at $1.87 per share. The proceeds from this
transaction were used to eliminate the line of credit (see Note 3). In January
and February 1999, the Company received $200,000 from the exercise of options to
purchase 200,000 shares of its common stock at $1.00 per share.
NOTE 8 AGREEMENTS
ARIZONA
On February 9, 1999, the previous agreements with the Company's Arizona
Revenue Sharing Partners were modified. The investors entered into Revenue
Sharing Partnership Agreements for the state of Florida. The Company will credit
the investors $450,000 (previously paid) toward the purchase of the partnership.
The balance of $550,000 will be paid through their entitlements. Per the revised
agreement the partners were issued 100,000 options of the Company's common stock
at an exercise price of $2.50 per share with a five year term. The Revenue
Sharing Partnership applies to storage originating from clients in the state of
Florida. The Revenue Sharing Partnership covers a total of 33,000 spaces and
cancels the investors previous obligation to provide the Company with $675,000
plus accrued interest.
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 storage revenue
generated by the specimens stored in the Illinois Masonic Medical Center. Since
the company will no longer be storing new specimens in Chicago, the agreements
were modified in 1998 to entitle the investors to a 50% share of the company's
portion of net revenues relating to specimens originating in Illinois and
contiguous states and stored in Clearwater up to 33,000 spaces. The revenue
generated by this Single Unit Revenue Sharing Agreement was $1,000,000.
BIO-STOR
On February 26, 1999, the Company modified all previous agreements with
Bio-Stor International, Inc. The modified agreement enters Bio-Stor into a
Revenue Sharing Partnership Agreement for the state of New York. The Company
will credit Bio-Stor's $900,000 (previously paid) toward the purchase of 90% of
the New York partnership. Bio-Stor will receive 90% of the 50% share in
CRYO-CELL's portion of net storage revenues generated by the specimens
originating from the Company's clients in the state of New York for up to 33,000
shared spaces. This agreement supersedes all other agreements between Bio-Stor
International, Inc and the Company.
11
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(UNAUDITED)
NOTE 8 AGREEMENTS (CONT'D))
DUBLIND PARTNERS, INC.
In February 1999, the Company entered into an exclusive agreement with
Dublind Securities, Inc. (DSI) and Dublind Partners, Inc. (DP) concerning the
placement of securities in a minimum amount of $3,500,000 up to $7,000,000. The
agreement engages DSI until July 1, 1999 however; if a minimum of $3,500,000 is
closed by the end of the engagement period the Company agrees to extend the
agreement for a period of 24 months.
DSI is currently circulating an offering memorandum to qualified
institutional investors, the terms and conditions of the offering are as
follows:
o The Company will issue up to 500,000 shares of callable preferred stock to
raise up to $7,000,000. Preferred stock matures on April 1, 2006 and has
detachable warrants.
o Quarterly dividends will be paid in arrears in cash or kind, at the option
of the Company, until April 1, 2001 and thereafter in cash only, at the
rate of 7.5% per year.
o Preferred shares will be callable at any time at the issue price plus
accrued dividends on thirty (30) days notice at the option of the Company.
o The Preferred shares will have detachable warrants for the purchase of
$7,000,000 of the Company's common stock at the rate of common shares to
warrants based upon the twenty day (20) average closing price of the
Company's common shares prior to the close of this transaction.
o The warrants will be callable at any time at the option of the Company,
should the closing price of the Company's common stock be higher than
$7.50 per share for twenty (20) consecutive trading days. The price of the
warrants will be set at the date of closing.
In addition to reimbursing DSI for its related expenses, the Company has
agreed to pay DSI as follows in return for DSI's financial advisory services:
o The Company will pay six percent (6%) of the gross amount received for the
purchase of equity securities.
o If at least $3,500,000 is raised, the Company has agreed to issue Dublind
Investments LLC additional warrants with an expiration date of five (5)
years from the date of the closing of the financing. to purchase up to
6.5% of the common stock of the Company
o Dublind will be entitled to a seat on the Company's Board of Directors.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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's primary focus is to utilize its cellular storage
experience and technology for the cryopreservation of umbilical cord blood
(U-Cord/TM/) stem cells in its own processing and cryopreservation facility at
its Clearwater, Florida headquarters. During 1998 the Company consolidated its
new specimen processing and storage activities to its own state of the art
facility in its Clearwater, Florida headquarters.
12
<PAGE>
In June 1998, the Company signed an agreement with Women & Infants'
Hospital of Rhode Island for the establishment of a commercial
placental/umbilical cord blood bank at their Providence, Rhode Island medical
facility. Women & Infants' Hospital currently has annual births in excess of
9,000 babies and will be offering its stem cell banking services to these
parents. The laboratory is expected to open at Women & Infants' in the second
quarter of 1999.
During 1999, all U-cord/TM/ blood processing and preservation will be done
at the Company's facility with the exception of those specimens processed at
Women & Infants' Hospital in Providence, Rhode Island. It is anticipated that
this shift in focus will limit the number of new Lifespan/SM/ Center
implementations in the future.
The Company's technology involves patented, multi-faceted cellular storage
units and the technology for processing stem cells from umbilical cord blood.
The Company believes that its long term cellular storage unit will provide 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 efficient use of storage space and dual identification system
for inventory control is a competitive advantage for the Company. The Company is
the assignee of all patents on the units.
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 it has passed all required inspections and the unit is
now U/L listed. In order to affix the U/L label to all units that are deployed
in the future, they must contain the same parts, operating capabilities and
features as in the tested CCEL II model.
In February 1999, the Company was informed that the patent on the CCEL III
computer controlled robotically operated cellular storage system has been
granted. The CCEL III is designed to be multi-functional and to meet
International manufacturing requirements. When completely developed the unit
will be able to store more than 35,000 specimens stored in 5ml vials. Moreover,
as many as 8 million 1 inch vials could be preserved in approximately 2,500
square feet. The prototype is expected to be completed in the third quarter of
1999.
The following is a discussion and analysis of the financial condition and
results of operations of the Company for the quarter August 31, 1998 as compared
to the same period of the prior year.
GENERAL
CRYO-CELL has renewed its agreement with the Lamaze Publishing Company to
sponsor the Lamaze YOU AND YOUR BABY tutorial tape. The agreement calls for
Lamaze to distribute the videotape to 1.8 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 12,000
instructors, discusses the importance of cord blood storage and refers 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. In addition, the Company
has also placed an ad in "Lamaze para Padres", Lamaze Publishing's magazine for
Hispanic mothers-to-be. The Company has exclusivity on the tutorial tape in the
cord blood storage category and first right of refusal for renewal of the
agreement beyond 1999.
In June 1998, the Company entered into an agreement with International
Broadcast Corporation (IBC). IBC is responsible for the production of a one-half
hour infomercial relating to CRYO-CELL's U-Cord/TM/ stem cell processing and
storage activities. The Company has been advised by the producer that the
infomercial is expected to be completed and shown on television to approximately
50 million people in the spring of 1999.
13
<PAGE>
In June 1998, the Company was granted a license to operate in the state of
New York. The New York Department of Health has approved the Company's
application to operate as a comprehensive tissue procurement service, processing
and storage facility. This license allows the Company to offer its cord blood
stem cell banking services to the residents of New York, which represents a new
market in excess of 270,000 annual births.
In September 1998, the Company acquired Medical Marketing Network, Inc.
and the services of Steven Ferens for shares of the Company's common stock.
Medical Marketing Network, Inc. has approximately 70 independent sales
contractors that call on and sell products to more than 6,000 obstetricians and
gynecologists (OB/GYNs) across the country. The contract is primarily
performance based, with a goal of 45,000 stored specimens by the third year. The
Company's marketing program will now have extensive representation with the
medical community. The Company's current affiliation with Lamaze and other
programs are designed to reach expectant parents. This acquisition will allow
physicians to make their OB patients more aware of this medical technology.
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. Of
significant note is the increasing level of interest being generated by the
Company's website, CRYO-CELL.com.
During the quarter, the Company continued its program of marketing its
Revenue Sharing Agreements. Under this arrangement the Company shares its
storage revenues with investors who receive entitlements on storage spaces.
YEAR 2000
The Company has analyzed the Year 2000 (Y2K) impact on its business and has
determined that this will not have a material impact to the Company's business,
products, operations or financial condition. The Company does not use any
internally developed application platforms. All business support systems and
applications are created on commercially available packages that are either
already confirmed to be Y2K compliant, or will be compliant with an upgrade to
the latest release. All software upgrades are scheduled to be completed during
the second quarter of 1999. An Integrated Systems Test will be scheduled once
all of the software applications have been upgraded.
The outside independent contractor responsible for manufacturing the CCEL
II Cellular Storage System has certified that, once the operating system and
database applications have been upgraded to the most current release, it will be
Y2K compliant. The upgrades are scheduled to be implemented during the second
quarter of 1999.
The Company has required commitment from its vendors that they will
provide the Company uninterrupted service before, during, and after January 1,
2000. All of the mission critical vendors the Company uses are either already
Y2K compliant, or will be compliant by the end of the third quarter of 1999.
14
<PAGE>
MANAGEMENT
At present there are 14 employees on the staff of the Company.
Daniel D. Richard serves as the Chairman of the Board and Chief Executive
Officer.
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. In September
1998, Mr. Maass was appointed a member of the Company's Board of Directors.
In February 1999, Steven E. Ferens joined the Company serving a dual role
as Assistant to the President and as Vice President of Sales. Mr. Ferens will
also remain in his role as President of Medical Marketing Network, Inc., a
wholly owned CRYO-CELL subsidiary. Prior to joining the Company, Mr. Ferens
served as Vice President of Sales for Atrion Corp./Quest Medical in Texas, where
he built a national sales and marketing division to commercialize the medical
technology developed by that company. In 1991, Mr. Ferens founded Progressive
Development, Inc. in Oceanside, NY, where he has served as President since
inception. The Company develops Internet based on-line product/pricing
information systems for hospital purchasing departments.
RESULTS OF OPERATIONS
REVENUES. Revenues for the three months ended February 28, 1999 were $219,459 as
compared to $36,175 in 1998. The increase reflects the significant growth in the
processing and storage revenue associated with the Company's U-CordTM stem cell
program. The Company believes that the growth is a result of its investments in
its various marketing programs, including its activities with Lamaze Publishing,
the launch of the Medical Marketing Network and the increased traffic on its
updated website www.CRYO-CELL.com.
COST OF SALES. Cost of sales for the three months ended February 28, 1999 were
$100,825 as compared to $17,113 in 1998. For the period ended February 28, 1999,
$10,328 of the total cost of sales represented the assignment of a proportionate
share of the cost of equipment associated with the Revenue Sharing Agreements to
cost of sales. The remaining cost of sales for the three months ended February
28, 1999 represents the associated expenses resulting from the processing and
testing of the U-Cord/TM/ specimens in the Company's own state of the art
laboratory in Clearwater, Florida.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses during the three months ended February 28, 1999 were
$498,232 as compared to $393,639 in 1998. The increase reflects the expense of
market development, client services associated with the Company's cellular
storage program, continued product development, and the establishment of an
expanded management team to handle the continuing growth. In addition, the
Company incurred printing and promotional expenses associated with the marketing
campaign with Lamaze Publishing Company and the Medical Marketing Network
program.
RESEARCH, DEVELOPMENT AND RELATED ENGINEERING EXPENSES. Research, development
and related engineering expenses for the three months ended February 28, 1999,
were $23,316 as compared to $49,054 in 1998. The expenses incurred reflect the
continued development of the Company's second generation cellular storage unit,
as well as, the research and development of the Company's third generation
cellular storage systems.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1999, the Company had cash and cash equivalents of
$289,489 as compared to $487,697 at February 28, 1998. 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 line of
credit, the borrowing on a convertible loan and the sale of subsidiary stock.
The Company anticipates that cash reserves, cash flows from operations and
the anticipated sale of its preferred stock will be sufficient to funds its
growth. Cash flows from operations will depend primarily on increasing revenues
resulting from an extensive umbilical cord blood cellular storage marketing
campaign. The Company's direct sales of its U-CordTM cellular storage program
have begun to increase significantly due to the awareness being created through
its activities with Lamaze Publishing, Medical Marketing Network, the Company's
website and other forms of marketing exposure.
FORWARD LOOKING STATEMENTS
In addition to historical information, this report contains
forward-looking statements within the meanings of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The
forward-looking statements contained herein are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in the section
entitled "Management's Discussion and Analysis or Plan of Operation." Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management's analysis only as of the date hereof. CRYO-CELL
International, Inc. (the "Company") undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date hereof. Readers should carefully review the risk factors
described in other documents the Company files from time to time with the
Securities and Exchange Commission, including the most recent Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q to be filed by the Company in 1997 and
any Current Reports on Form 8-K filed by the Company.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
I. In December, 1992, CRYO-CELL entered into an exclusive agreement with the
University of Arizona to develop and enhance a commercial (paid for)
autologous cord blood stem cell bank. CRYO-CELL provided the means for the
University to obtain approximately 1400 paying clients. Prior to the
termination of the exclusive agreement, which CRYO-CELL alleges was
unwarranted, the University breached its contract with CRYO-CELL and
entered into an Agreement with Cord Blood Registry, Inc. (CBR).
On or about July 11, 1996, CRYO-CELL filed suit in San Francisco Superior
Court against the University of Arizona, Dr. David Harris and Cord Blood
Registry, Inc. The suit claimed breach of contract and other related
business torts. Months later, after settlement discussions were
unproductive, the University of Arizona counter-sued CRYO-CELL for breach
of contract and negligent misrepresentation.
Evidence surfaced at trial corroborating that in a subsequent contract
between the University of Arizona and CBR, the parties had indemnified
each other against:
a. the interference in a legitimate business arrangement between
CRYO-CELL and the University of Arizona
b. disparagement of CRYO-CELL
c. wrongful use of CRYO-CELL's material
On July 20, 1998, as a result of the evidence, the jury awarded $1,050,000
against defendant University of Arizona. In addition, an award of $120,000
was granted against the University of Arizona and David Harris,
individually, for misappropriation of trade secrets. The jury voted
unanimously against the University and in favor of CRYO-CELL as to the
counter claims.
Three post-trial motions by the University of Arizona including a request
to reduce the award or set aside the verdict were rejected by the court.
The University is now appealing the judgment. The University has expressed
a willingness to enter into settlement talks as to the appeal but no such
talks have commenced. The appellate briefs have yet to be filed.
II. CRYO-CELL retained the services of Horwitz & Beam, a California law firm,
to handle the above described lawsuit including its allegations against
CBR for interference in a legitimate contract between two parties and
unfair business practices, among other claims. The court granted a summary
judgment dismissal in favor of CBR. CRYO-CELL believes that Horwitz & Beam
mishandled the CBR aspect of the case. The Company is planning on suing
Horwitz & Beam for malpractice. Horwitz & Beam deny any wrong doing in
this matter.
III. There is a dispute concerning the amount of fees owed by the Company to
Horwitz & Beam. The Company has requested arbitration of the dispute. A
panel of the Orange County Bar Association is scheduled to hear arguments
on April 26, 1999. Despite the scheduled arbitration date, on March 8,
1999, the Company was served with a law suit filed in Orange County
Superior Court by its former attorneys, alleging contractual breach and
related claims because CRYO-CELL did not transfer stock to pay advance
payments requested prior to trial. This transaction relates to the fee
dispute which is covered by the California Statute requiring mandatory
arbitration rights for clients.
The Company believes that the naming of certain officers and the Company
attorney individually, (although they were operating in their corporate
capacities) is an abuse of the civil process and, moreover, is an attempt
to interfere with the Company's ability to raise additional capital.
17
<PAGE>
The plaintiff alleges breach of contract and seeks payment of $129,822 in
allegedly unpaid fees and costs associated with the University of Arizona
litigation. The plaintiff also asserts claims of misrepresentation. In
reference to these misrepresentation claims, the plaintiff has filed a
"Statement of Damages" which asserts $1,000,000 in "general damages" and
$3,500,000 in "punitive damages".
The Company believes there is no merit to the suit. The Company believes
that none of the claimed $129,822 in fees is due and owing under and
contract with the plaintiff. Furthermore, the Company believes that the
plaintiff is not entitled to any punitive damages under Section 3294(a) of
the California Civil Code, which does not authorize punitive damages in an
action for breach of an obligation "arising from contract."
IV. In 1998, CRYO-CELL settled its suit filed against defendant Stainless
Design Corporation. The suit was against the manufacturer of the CCEL II
multi-faceted storage unit claiming breach of contract and other causes of
action. The case was settled wherein Stainless Design Corp. delivered all
parts, materials and equipment to the company's designee as well as 25,000
shares of CRYO-CELL stock. Mutual releases were exchanged and the suit
dismissed. The CCEL II units are now being assembled by Advance Digital
Motion.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation (1)
3.11 Amendment to Certificate of Incorporation
3.2 By-Laws (1)
3.21 Board Minutes to Amendment of By-Laws
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 (5)
10.19 Agreement with Dublind Partners, Inc. (6)
10.20 Agreement with Medical Marketing Network, Inc. (6)
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.
(5) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended November 30, 1997.
(6) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended November 30, 1998.
(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.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CRYO-CELL INTERNATIONAL, INC.
/S/DANIEL D. RICHARD
---------------------------
Daniel D. Richard
Chief Executive Officer
Date: April 14, 1999
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-01-1994
<CASH> 289,489
<SECURITIES> 116,855
<RECEIVABLES> 13,380
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 898,824
<PP&E> 2,580,277
<DEPRECIATION> 233,347
<TOTAL-ASSETS> 3,974,609
<CURRENT-LIABILITIES> 497,660
<BONDS> 0
0
0
<COMMON> 85,085
<OTHER-SE> 3,258,919
<TOTAL-LIABILITY-AND-EQUITY> 3,974,609
<SALES> 219,466
<TOTAL-REVENUES> 0
<CGS> 100,825
<TOTAL-COSTS> 650,953
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,024
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (433,511)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
