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, 1998
[ ] 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 Identification No.)
organization)
3165 MCMULLEN BOOTH ROAD, BLDG. 5, CLEARWATER, FL 33761
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (727) 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: $331,134.
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As of January 29, 1999, the aggregate market value of the voting stock held by
non-affiliates of the Issuer was approximately $15,229,300. 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 2 11/32.
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 29, 1999: 8,105,598.
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 1999 Annual Meeting of Shareholders which is expected
to be filed with Securities and Exchange Commission on or about March 30, 1999.
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 1999 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'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 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.
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. It is anticipated that this shift in focus will limit the
number of new Lifespan(SM) Center implementations in the future.
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.
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
Hematopoeitic 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
found in bone marrow where they continue to generate cells throughout our lives.
Stem cells can be kept in a cryogenic environment and upon thawing 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 1998, over 1,000 cord blood stem cell 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 at least 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
increasing costs of bone marrow matches and transplants, newborn's U-Cord(TM)
cells are stored as a precautionary measure. 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 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 the use of these
units, exposes the remaining stored specimens to ambient temperature whenever
specimens are inserted or retrieved. CRYO-CELL has designed and holds patents on
a system which makes use of the latest in computer, robotics, and bar code laser
scanning identification technology.
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.
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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.
LIFESPAN(SM) CENTERS
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.
With the exception of Women & Infants Hospital, the Company has decided to
limit the processing and storage of specimens to the Company's own state of the
art laboratory in Clearwater, Florida.
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.
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
will also place an ad in "Revista 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.
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
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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.
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. Of
significant note is the increasing level of interest being generated by the
Company's website, CRYO-CELL.com.
REVENUE SHARING 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. The Revenue
Sharing Partnership applies to paid for specimens originating from the birth of
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.
TENET HEALTHCARE CORPORATION. On November 30, 1996, the Company signed
agreements with OrNda HealthCorp. 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 Healthcare Corporation which
agreed to be bound by the terms of the Lifespan(SM) and Single Unit Revenue
Sharing Agreements. Due to the commencement of processing and storage at the
Company's Clearwater facility and the Company's change of Lifespan(SM) strategy,
negotiations are currently underway in which the Company is offering to store
all Tenet originated specimens in Florida while paying Tenet a partnership
entitlement.
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VISCOUNT SECURITIES. 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.
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. 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 $352,743 during fiscal 1998 , compared to
$204,117 during fiscal 1997 on research and development. The research and
development exposure is attributed to the design, development and approval of
its CCEL III technology.
GOVERNMENT REGULATION
Since the inception of the development of the cellular storage 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 not negatively impact the
potential future revenue of the Company.
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EMPLOYEES
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.
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, 1998 CRYO-CELL owned 1,557,711 shares of Net/Tech
International, Inc. common stock (Net/Tech NASD Bulletin Board symbol...NTTI)
which represented 16.7% of the outstanding shares (9,325,341 shares total) of
this company.
INVESTOR RELATIONS
In November 1998, the Company signed an agreement with Saggi Capital Corp.
to handle the investor relations program for CRYO-CELL. Saggi Capital Corp.
represents emerging dynamic companies. The Company's relationship with Saggi
Capital Corp. will increase the visibility of the Company in the financial
community and future exposure to institutional investors.
FINANCIAL ADVISORY
In February 1999, the Company signed an engagement agreement with Dublind
Partners, Inc., a highly respected, Connecticut based financial advisory and
securities firm, to raise up to $7,000,000 in investment capital for the Company
through a private placement of preferred stock and warrants. Dublind's focus is
to raise capital and strategic planning for firms with patented technology in
growing markets.
ITEM 2. DESCRIPTION OF PROPERTY
The Company entered into a long term lease in September 1997 for the
corporate headquarters in Clearwater, Florida containing 7,500 square feet. The
facility contains executive offices, conference and training center, state of
the art laboratory and supporting scientific offices.
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ITEM 3. 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 contemplating suing Horwitz & Beam for malpractice. Horwitz
& Beam deny any wrong doing in this matter.
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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.
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.
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
---- ---
1997
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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
1998
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February 28, 1998 4 1/16 2 5/8
May 31, 1998 4 1/8 2 9/16
August 31, 1998 2 5/8 1 1/8
November 30, 1998 3 9/16
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, 1999, the Registrant had 382 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, 1998,
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 cryogenic storage and the design and development
of cellular storage devices used in its cellular storage programs. During the
period since its inception, the Company's activities have principally involved
the design and development of its cellular storage unit ("CCEL Cellular Storage
Unit") and in securing patents on the same. While the Company's patented
cellular storage unit is capable of multi-faceted storage, the Company has
targeted the cryopreservation of umbilical cord blood stem cells as its initial
entry into the cellular storage market. The Company has been financed primarily
through both the private and public equity markets.
The revenue recognized to date has been primarily from the sale of Revenue
Sharing Agreements. These 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
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quarter to quarter and possibly year to year. The most recent Revenue Sharing
Agreement was recognized during fiscal 1997. During fiscal 1998 the Company's
revenues were the direct result of its sales to customers for its U-Cord(TM)
program.
RESULTS OF OPERATIONS
Fiscal 1998 was a year of contrasts. While on the surface it appears that
revenues decreased and expenses increased, it was a year of positive transition.
Direct sales to customers increased significantly and have continued to do so in
fiscal 1999.
SALES. For the year ended November 30, 1998, the Company had revenues of
$331,134 compared to $417,913 in the prior fiscal year. The majority of revenues
in 1997 was from the sale of a Revenue Sharing Agreement. When adjusted for the
impact of said Revenue Sharing Agreement, the actual processing and storage
revenue from sales to customers increased significantly during fiscal 1998. The
trend has continued upward into fiscal 1999.
COST OF SALES. In the fiscal year ended November 30, 1998, cost of sales were
$218,018 compared to $46,047 in the prior period. In fiscal 1997, $40,143 of the
total of 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. In fiscal 1998, $128,861 of the total cost of sales represents fees to
Reproductive Genetics Institute at the Illinois Masonic Medical Center in
Chicago, Illinois for the processing of the U-Cord(TM) specimens prior to the
commencement of processing and storage in the Company's state of the art
laboratory in Clearwater, Florida. The remaining cost of sales in fiscal 1998
represents the associated expenses resulting from the processing and testing of
the U-Cord(TM) specimens in the Company's own operations.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses during the twelve months ended November 30, 1998, were
$1,866,033 as compared to $1,625,082 in 1997. The increase reflects the expense
of market development, lab operations support and client services associated
with the Company's cellular storage program and Revenue Sharing Agreements, the
expense of voluntary Underwriter Laboratory approval for the Company's cellular
storage unit, continued product development, and the establishment of an
expanded management team to handle the continuing growth.
RESEARCH, DEVELOPMENT AND RELATED ENGINEERING EXPENSES. Research, development
and related expenses during the twelve months ended November 30, 1998, were
$352,743 as compared to $204,117 in 1997. The increase reflects the
implementations of modifications to the Company's second generation cellular
storage unit, as well as, the research and development of the Company's third
generation cellular storage system.
OTHER. During the twelve months ended November 30, 1998, the Company realized a
gain of $515,574 on the sale of common stock of Net/Tech International, Inc.,
compared to $443,152 in 1997. During fiscal 1998, the Company wrote off a
$250,000 deposit on equipment as part of the settlement with Stainless Design
Corp. During fiscal 1997, the Company wrote off $172,843 associated with
discontinued equipment. During fiscal 1998, the Company recognized the equity in
the loss of its unconsolidated affiliate (Net/Tech International, Inc.) of
$455,271 as compared to $402,245 in the 1997.
MATERIAL FOURTH QUARTER ADJUSTMENTS. The results for the fourth quarter ending
November 30, 1998, include the following adjustments: (1) the reversal of the
accrual of the anticipated litigation settlement of $580,800 (net); the
litigation has since been appealed, (2) the write-off of the deposit of $250,000
and correction of the third quarter accounts payable write-off relative to the
SDC settlement, (3) adjustment regarding accounting treatment of the investment
in Net/Tech International, Inc.. Taken together, these fourth quarter items had
a significant adverse effect on fourth quarter earnings.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1998, the Company had cash and cash equivalents of
$499,696 as compared to $814,516 at the end of fiscal 1997. 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, the borrowing on a convertible loan and the sale of
subsidiary stock. The sale of subsidiary shares alone generated $515,574 in
fiscal year 1998.
The Company anticipates that cash reserves, cash flows from operations and
the anticipated sale of its preferred stock will be sufficient to fund 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-Cord(TM) 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.
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.
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 market for cryopreserved
stem cells has gained increasing support from the medical community. While the
market is still relatively new, the Company believes it will gain increasing
popularity due in part to the medical attention. The Company is relying upon
significant market growth to meet future revenue projections.
POSSIBLE NEED FOR ADDITIONAL CAPITAL. The Company has entered into an agreement
with Dublind Partners, Inc. to raise up to $7,000,000 through equity financing.
This financing, when completed, is more than sufficient to fund its operations
as well as to provide capital for expanded marketing programs and
<PAGE>
international expansion. There can be no assurance that such capital will be
available.
COMPETITIVE ENVIRONMENT. In the Company's opinion, the potential medical
benefits 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. The
Company believes it can compete successfully on the basis of volume and its
pricing advantage.
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. Notwithstanding the revenues from
Revenue Sharing Partnership Agreements, the Company's sales from its U-Cord(TM)
program are increasing dramatically and the Company believes it will rely on
these sales from operations to a more significant extent during fiscal year 1999
and beyond. The accrual of the Company's annual storage fees will increasingly
add to its base revenues
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 operations or financial condition.
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.
INTERNATIONAL SALES. Although the Company has not been involved in international
marketing to date, the Company believes this market offers attractive potential.
The Company intends to use a portion of the investment capital and its presence
on the Internet to establish its global presence. 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.
<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 F 1
Consolidated Statements of Profit and Loss F 3
Consolidated Statements of Cash Flows F 4
Consolidated Statements of Shareholders' Equity F 7
Consolidated Notes to Financial Statements F 11
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.
<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, 1998 and 1997, and the
related consolidated statements of operations, 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, 1998 and 1997, 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 16, 1999
<PAGE>
<TABLE>
<CAPTION>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
NOVEMBER 30, NOVEMBER 30,
1998 1997
---------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 499,696 $ 814,156
Stock subscription receivable 150,000 --
Accounts receivable and advances (net of allowance for
doubtful accounts of $13,380 in 1998 and $4,338 in 1997) 47,642 62,637
Marketable securities 198,114 225,000
Refundable income taxes 8,078 21,338
Loan origination fees, net -- 44,116
Prepaid expenses and other current assets 79,690 57,676
---------- ----------
Total current assets 983,220 1,224,923
---------- ----------
PROPERTY AND EQUIPMENT
Property and equipment, net 2,371,993 2,466,152
---------- ----------
OTHER ASSETS
Intangible assets (net of amortization of 69,462 68,512
$42,269 and $35,696, respectively)
Marketable securities 521,279 --
Deposits with vendors and others 133,175 28,788
Investment in unconsolidated affiliate -- 191,698
---------- ----------
Total other assets 723,916 288,998
---------- ----------
TOTAL ASSETS $4,079,129 $3,980,073
========== ==========
</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,
1998 1997
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 293,159 $ 289,159
Accrued expenses and withholdings 291,788 104,194
Short term borrowings 565,000 500,000
Convertible notes payable 540,000 --
Current portion of obligations under capital leases 4,805 2,350
----------- -----------
Total current liabilities 1,694,752 895,703
----------- -----------
OTHER LIABILITIES
Unearned revenue 75,236 8,708
Deposits 25,000 --
Obligations under capital leases-net of current portion 15,928 4,542
----------- -----------
Total other liabilities 116,164 13,250
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock (500,000 $.01 par value authorized; -- --
0 issued and outstanding)
Common stock (15,000,000 $.01 par value common shares
authorized; 7,654,598 at November 30, 1998 and 7,186,501
at November 30, 1997 issued and outstanding) 76,546 71,865
Additional paid-in capital 8,651,428 7,702,791
Net realized gain (loss) on marketable securities 319,393 (175,000)
Accumulated deficit (6,779,154) (4,528,536)
----------- -----------
Total stockholders' equity 2,268,213 3,071,120
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,079,129 $ 3,980,073
=========== ===========
</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,
1998 1997
----------- -----------
<S> <C> <C>
Revenue $ 331,134 $ 417,913
----------- -----------
COSTS AND EXPENSES:
Cost of sales 218,018 46,047
Marketing, general & administrative expenses 1,866,033 1,625,082
Research, development and related engineering 352,743 204,117
Impairment of prototype -- 172,843
Depreciation and amortization 164,015 95,052
----------- -----------
Total cost and expenses 2,600,809 2,143,141
----------- -----------
OPERATING LOSS (2,269,675) (1,725,228)
----------- -----------
OTHER INCOME AND (EXPENSE):
Interest Income/Other Income 10,622 49,986
Interest Expense (51,868) (8,677)
Gain on sale of investment 515,574 443,152
----------- -----------
Total other income 474,328 484,461
----------- -----------
LOSS BEFORE EQUITY IN NET LOSS OF
UNCONSOLIDATED AFFILIATE (1,795,347) (1,240,767)
Equity in net loss of unconsolidated affiliate (455,271) (402,292)
----------- -----------
NET LOSS $(2,250,618) $(1,643,059)
=========== ===========
NET LOSS PER SHARE $ (0.31) $ (0.23)
=========== ===========
Number of Shares Used In Computation 7,275,846 7,164,515
=========== ===========
</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,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(2,250,618) $(1,643,059)
Adjustments to reconcile net loss
to cash used for operating activities:
Depreciation and amortization 164,015 95,051
Marketable securities received in lieu of cash(1) -- (400,000)
Write off of deposit for cellular storage units 250,000 --
Write off of patents and trademarks -- 4,239
Impairment of prototype -- 172,843
Valuation allowance on Revenue Sharing Agreement sold -- 40,143
Allowance for bad debts 9,042 1,838
Gain on sale of unconsolidated affiliate's stock (515,574) (443,152)
Equity in loss of unconsolidated affiliate 455,271 402,292
Payment of consulting and professional services with stock 139,692 34,535
Changes in assets and liabilities:
Accounts receivable 5,953 609,058
Prepaid income taxes -- (21,338)
Loan origination fees -- (10,000)
Prepaid expenses and other current assets (22,014) (21,209)
Deposits (112,091) (22,817)
Accounts payable 4,000 202,723
Accrued expenses 187,594 23,075
Refundable income taxes 13,260 (37,334)
Unearned revenue and deposits 91,528 (21,292)
----------- -----------
NET CASH USED FOR OPERATING ACTIVITIES (1,579,942) (1,034,404)
----------- -----------
</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,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment(2) (263,589) (736,199)
Payments for intangible assets (5,397) (11,714)
Proceeds from sale of investment(3) 471,402 472,738
----------- -----------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES $ 202,416 $ (275,175)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock(4) 257,500 12,500
Loan proceeds 887,264 500,000
Sale of stock options 62,500 540,000
Repayment of debt(3), (4) (158,039) --
Loan advances to affiliated company
Principal payments under capital leases 13,841 (8,296)
----------- -----------
Loan repayments from affiliated company 0 0
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES: 1,063,066 1,044,204
----------- -----------
Decrease (increase) in cash and cash equivalents (314,460) (265,375)
Cash and cash equivalents:
Beginning of year $ 814,156 $ 1,079,531
----------- -----------
End of period $ 499,696 $ 814,156
=========== ===========
</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,
1998 1997
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $51,868 $ 8,676
------- -------
Income taxes $ -- $64,772
------- -------
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, in 1977.
(2) In 1998 the Company purchase laboratory equipment under a capital lease in
the amount of $16,050. In 1997, the Company purchased a security system
under a capital lease in the amount of $6,892.
(3) In 1998 the Company repaid $44,173 to the wife of the Chairman of the
Board with 60,000 shares of the Company's holdings of Net/Tech
International, Inc. common stock.
(4) In 1998 the Company borrowed $80,051 from the wife of the Chairman of the
Board. The note was repaid,with the issuance of 70,000 shares of the
Company's restricted common stock.
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, 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 10 4,607 4,617
</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>
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
========== ======== =========== =========== =========== ===========
Shares issued at $2.75 per share 50,000 500 137,000 137,500
Sale of options at $1.00 per option
with an exercise price of $5.00 per share 62,500 62,500
Shares issued at $2.50 per share 2,000 20 4,980 5,000
Shares issued at $3.14 per share 579 6 1,813 1,819
for services provided
</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 $3.48 per share 1,155 12 4,006 4,018
for services provided
Shares issued at $3.325 per share 2,144 21 7,107 7,129
for services provided
Shares issued at $3.18 per share 412 4 1,307 1,311
for services provided
Shares issued at $3.33 per share 557 6 1,850 1,855
for services provided
Shares issued at $3.57 per share 1,113 11 3,960 3,972
for services provided
Shares issued at $3.76 per share 466 5 1,748 1,752
for services provided
Shares issued at $3.76 per share 473 5 1,774 1,779
for services provided
Shares issued at $3.20 per share 6,509 65 20,762 20,827
for services provided
Shares issued at $3.01 per share 1,500 15 4,494 4,509
for services provided
Shares issued at $2.91 per share 6,189 62 17,959 18,021
for services provided
Shares issued at $2.02 per share 10,000 100 20,100 20,200
for services provided
Shares issued at $1.14 per share 70,000 700 79,352 80,052
Shares issued at $1.38 per share 40,000 400 43,600 44,000
for services provided
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F9
<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 $.85 per share 10,000 100 8,400 -- -- 8,500
for services provided
Shares issued at $1.00 per share 265,000 2,650 262,350 -- -- 265,000
Increase in carrying value accounting -- -- 263,573 -- -- 263,573
for Unconsolidated Affiliate
Net increase in value of marketable -- -- -- -- 319,393 319,393
securities
Net (Loss) -- -- -- (2,250,618) -- (2,250,618)
--------- ------ --------- ---------- ------- ----------
Balance November 30, 1998 7,654,598 76,546 8,651,428 (6,779,154) 319,393 2,268,213
========= ====== ========= ========== ======= ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F10
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
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. Prior to 1998 the revenue
recognized to date was almost exclusively from the sale of Revenue Sharing
Agreements. During 1998 the Company's primary focus has been the further
development of the cellular storage of umbilical cord blood stem cells in the
Clearwater laboratory and the continued development of the CCEL III Cellular
Storage Unit.
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, 1998, 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, 1998, 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.
The Company also acquired during 1998 Medical Marketing Network, Inc.,
(MMN) a New York corporation, as part of a marketing agreement. This corporation
has not had any financial activity since its inception and none of the
consideration paid in conjunction with the agreement was assigned to the
purchase of MMN.
The Company has an accumulated deficit and expects to incur a net loss
during the next year. During 1998 the Company's primary sources of cash were
derived from sales of its investments, convertible loan borrowings and share
issuances of its restricted common stock. The Company's cash balance at November
30, 1998 was $499,696. In December an additional $150,000 was received in
satisfaction of the stock subscription receivable and $280,319 was received from
the sale of additional shares of the Company's restricted stock. The Company, in
December 1998, used $550,000 to repay borrowings under a line of credit. The
convertible notes in the amount of $530,000 due in June of 1999 (see Note 9)
have been converted to restricted common stock.
Although the revenue from cellular storage has increased substantially
during the latter part of 1998 and has continued to grow subsequent to November
30, 1998, given the Company's proposed operational expenditures for 1999, it is
doubtful that the Company will be able to generate sufficient capital from its
revenue to satisfy its ongoing capital needs and to continue its operations
through the next fiscal year without obtaining additional funding arrangements,
unless revenue increases significantly. The Company is confident that it can
raise sufficient capital through the issuance of preferred securities and other
capital raising measures (see Note 16) but no assurance can be given that such
capital can be raised. In the event that the Company is unable to obtain
sufficient capital to sustain operations, the Company's Chairman and his wife
have committed to provide the necessary funding that will insure the Company's
continuing operations for the upcoming year.
F11
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue from cellular storage ratably over the
contractual storage period and processing fees upon the completion of
processing.
Revenue is recognized when the Company enters into a Revenue Sharing
Agreement and the payment pursuant to the agreement has been satisfactorily
assured.
In fiscal 1997, the majority of revenues were generated from the sale
of a Revenue Sharing Agreement. In fiscal 1998, all of the revenue was generated
from the processing and storage of the U-CordTM specimens.
CONCENTRATION OF CREDIT RISKS
In fiscal 1998, all of the Company's revenues were derived from the
processing and storage of the U-CordTM blood. In fiscal 1997, substantially all
of the Company's revenues were derived from the sale of one Revenue Sharing
Agreement.
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 CCEL II
cellular storage unit and several companies are manufacturing the CCEL III
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 1998 presentation.
CASH AND CASH EQUIVALENTS
Cash and equivalents consist of highly liquid investments with a
maturity date at acquisition of three months or less.
F12
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 (See Note 3). 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.
STOCK SUBSCRIPTION RECEIVABLE
Stock subscription receivable consists of amounts due from the sales of
the Company's restricted common stock. Since the proceeds of the sales were
received in December 1998 these amounts are carried as a current asset.
RECEIVABLES
In fiscal 1998, receivables consist of amounts due from clients that
have enrolled in the U-CordTM processing and storage program. These receivables
are presented net of an estimated allowance for doubtful accounts for processing
and storage fees based on historical experience of amounts that are
uncollectible. In fiscal 1997, receivables and advances consisted primarily of
amounts advanced to the Company's LifespanSM affiliates. These advances were
subsequently applied to lab costs in the Chicago storage facility (see Cost of
Sales).
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 trademark
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.
F13
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
ACCOUNTS PAYABLE
Accounts payable consists of trade accounts payable and as of November
30, 1998, $129,818 of the balance consists of professional legal fees which are
being disputed, see note 15.
RESEARCH AND DEVELOPMENT COSTS
Research, development and related engineering costs are expensed as
incurred.
COSTS OF SALES
Costs of sales represents the associated expenses resulting from the
processing, testing and storage of the U-CordTM specimens. In fiscal 1998,
approximately $125,000 of the cost of sales represents non-recurring expenses
that were incurred due to the arrangement with Reproductive Genetics Institute
in Chicago, Illinois to process specimens prior to the opening of the Company's
laboratory in Clearwater, Florida. Equipment costs related to Revenue Sharing
Agreements are expensed in the period in which the sale is recorded.
LOSS PER COMMON SHARE
In 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") which requires
the disclosure of basic and diluted earnings per common share for all periods
presented. Basic and diluted earnings per share is calculated based on the
weighted average number of common shares outstanding during the period. Diluted
earnings per share also give effect to the dilutive effect of stock options and
warrants (calculated based on the treasury stock method). The Company does not
present diluted earnings per share as the effect of potentially dilutive shares
from stock is antidilutive. As a result, adoption of SFAS 128 has not affected
the basic and diluted losses per common share reported in any period.
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.
F14
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCKHOLDERS EQUITY
The Company made payments for consulting and professional legal
services through the issuance of the Company's common stock as shown
below:
Number of common shares
Consulting $52,500 50,000 (restricted stock)
Professional Legal Services $87,192 31,097
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.
In February 1998, the Financial Accounting Standards Board issued SFAS
No. 132 EMPLOYERS DISCLOSURES ABOUT PENSIONS AND OTHER POST RETIREMENT BENEFITS,
which revises employers' disclosures about pension and other post retirement
benefit plans, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer deemed useful.
The statement is effective for fiscal years beginning after December 15, 1997.
The Company believes that the adoptions of this standard will not have a
material effect on the financial results of the Company.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES. This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. The statement requires companies to recognize all
derivatives as either assets or liabilities, with the instruments measured at
fair value. The accounting for changes in fair value, gains or losses, depends
on the intended use of the derivative and its resulting designation. The
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Adoption of this standard will not impact the financial results
of the Company.
F15
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 2 - PROPERTY AND EQUIPMENT
The major classes of property and equipment are as follows:
NOVEMBER 30 NOVEMBER 30
CLASSIFICATION 1998 1997
- -------------- ---------- -----------
Furniture and Equipment $ 503,744 $ 463,882
Cellular Storage Units 325,000 325,000
Leasehold Improvements 147,009 147,009
Prototype -- --
Equipment not placed in service - net 1,539,645 1,579,917
---------- ---------
Total 2,515,398 2,515,808
Less
Accumulated depreciation and amortization 143,405 49,656
---------- ----------
Property and equipment, net $2,371,993 $2,466,152
========== ==========
Certain components of the above equipment have not been depreciated
since they have not yet been placed in service at November 30, 1998. 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.
NOTE 3 - MARKETABLE SECURITIES
NET/TECH INTERNATIONAL
As of November 30, 1997, the Company owned approximately 28% of the
outstanding shares of Net/Tech International, Inc. 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 1997 and 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, as described above, to account for the investment. 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. As discussed in Note
1, this investment is subject to certain trading restrictions that limit the
number of shares which can be sold during a 90 day period.
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 the
year were both $515,574. Additionally, an unrealized gain has been recorded as a
component of stockholders' equity in the amount of $685,393 to reflect the fair
market value of the investment as of November 30, 1998.
F16
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 3 - MARKETABLE SECURITIES (CONTINUED
The following is a summary of Net/Tech assets, liabilities and results of
operations as of November 30, 1998 and 1997:
NOVEMBER 30 NOVEMBER 30
1998 1997
----------- -----------
Cash $ 160,334 $ 832,502
Inventory -- 41,479
Net Fixed Assets 46,574 98,670
Total Assets 292,247 1,036,637
Total Current Liabilities 148,642 228,902
Total Other Liabilities . 1,600 126,759
Total Stockholders Equity 142,004 805,976
Net Loss for the Period . $2,071,877 $1,226,144
OTHER SECURITIES
In 1997 the Company acquired 100,000 shares of an equity security in
payment for the sale of a Revenue Sharing Partnership. 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 November 30, 1998 and 1997 was $34,000 and
$225,000 respectively and the unrealized holding loss on this security was
$366,000 and $175,000 as of November 30, 1998 and 1997 respectively.
NOTE 4 - ACCRUED EXPENSES
NOVEMBER 30 NOVEMBER 30
1998 1997
----------- -----------
Accrued interest $ 1,337 $ 1,319
Consultants and patent costs 25,000 5,000
Legal and accounting 4,111 4,803
Payroll and payroll taxes 2,357 19,720
Cellular storage unit 166,945 --
General expenses 92,038 73,352
-------- --------
$291,788 $104,194
======== ========
NOTE 5 - 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.
F17
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 6 - RELATED PARTY TRANSACTIONS
In October 1998, the wife of the Chairman of the Board loaned the
Company $44,173. The note was repaid, 20% in cash and the remainder was
converted and repaid with 60,000 shares of the Company's holdings of Net/Tech
International, Inc. common stock.
In August and September 1998, the Company borrowed $100,000 from the
wife of the Chairman of the Board. The note was repaid in November, 1998.
In August 1998, the wife of the Chairman of the Board loaned the
Company $80,051. The note was converted and repaid with the issuance of 70,000
shares of the Company's restricted common stock.
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 was amortized over the life
of the loan period August 1, 1997 to July 31, 1998.
During 1998 and 1997 the Company sold 326,000 and 154,218 shares of
Net/Tech common stock recognizing a gain of $515,574 and $443,153 respectively.
NOTE 7 - LEASES
The Company leases a building for its headquarters. The lease term is
for seven years, expires September 30, 2004 and includes provisions for
escalating annual rentals and common area fees. Rent charged to operations was
$120,316 in 1998.
The Company leases an apartment under an annual renewable operating
lease for $700 per month which expires October 31, 1999.
In 1997 the Company leased a liquid nitrogen storage tank which expires
on November 30, 2002. The lease payments are $695 per month.
Minimum required future rental payment under these operating leases as
of November 30, 1998, are:
1999 $142,760
2000 139,684
2001 145,471
2002 151,515
2003 149,534
-------
$728,964
The Company is obligated under capital leases, that expire at various
dates during the next four years.
F18
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 7 - LEASES (CONTINUED)
The following is a summary of assets under capital leases as of
November 30, 1998 and 1997:
1998 1997
Leasehold improvements $12,909 $12,909
Laboratory equipment 19,176 -0-
------- -------
Total 32,085 12,909
Less :Accumulated depreciation 2,803 461
------- -------
Assets under capital leases (net) $29,282 $12,448
======= =======
Assets under capital leases are depreciated over a seven to ten year
life. Depreciation expense totaled $2,803 and $461 for the years ended November
30, 1998 and 1997.
The future minimum lease payments under capital leases are computed as
follows:
1999 $5,186
2000 5,358
2001 5,960
2002 4,229
NOTE 8 - COMMITMENTS AND CONTINGENCIES
In February 1997, the Company signed an agreement with Sachem (Viscount
Securities) for revenue sharing in two units (See Note 12). Per the agreement,
Sachem is entitled to 13,200 half-spaces on an on-going basis of storage revenue
based upon their $400,000 non-refundable deposit.
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-CordTM 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
10,000 shares to Ferens as of November 30, 1998 and 40,000 shares have been
issued thereafter. These issuances resulted in compensation expense of $42,500
during 1998, $34,000 of which is an accrued expense as of November 30, 1998. The
remaining shares will be issued as outlined above and recorded as an expense in
the period of issuance.
In January 1999, subsequent to the balance sheet date, the Company
extended its 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 $200,000.
F19
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Additional contingencies are explained in Note 12, Agreements and Note
15, Legal Proceedings.
NOTE 9 - 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, subsequent to the balance sheet date, 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.
NOTE 10-INCOME TAXES
The Company has no provisions for current or deferred taxes for the
years ended November 30, 1998 and 1997.
Under the asset and liability method of SFAS No. 109 Accounting for
Income Taxes, 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.
As of November 1998 and 1997 the tax effects of temporary differences
that give rise to the deferred tax assets are as follows:
<TABLE>
<CAPTION>
Deferred tax assets: NOVEMBER 30, 1998 NOVEMBER 30, 1997
- -------------------- ----------------- -----------------
<S> <C> <C>
Net operating loss carryforwards $1,524,652 $ 851,830
Tax over book basis in unconsolidated affiliate 502,384 301,890
Valuation reserves 187,468 196,856
Depreciation and other 11,761 5,444
---------- ----------
Total deferred assets $2,226,265 $1,356,020
Less: Valuation allowance 2,226,265 1,356,020
---------- ----------
Deferred taxes, net of valuation allowance $ 0 $ 0
========== ==========
</TABLE>
The Company has unused net operating losses available for carryforward
to offset future federal taxable income of $85,643 which expires by the year
2006, $294,557 which expires by the year 2008, $536,253 which expires by the
year 2009, $295,551 which expires by the year 2010, $1,008,833 which expires by
the year ended 2011, and $1,791,406 which expires by the year 2012. The total of
the foregoing net operating loss carryforwards is $4,012,243. 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.
F20
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 10-INCOME TAXES (CONTINUED)
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 1998 1997
- ----------------------- ---------- ----------
Tax expense at statutory rate $(767,241) $(549,627)
State taxes (90,264) (64,662)
Increase in valuation allowance 870,245 642,666
Miscellaneous timing differences (12,740) (28,377)
Total Income Taxes $ 0 $ 0
========= =========
NOTE 11 - 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 2,000,000 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.
Stock option activity was as follows for the two years ended November
30, 1998:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding and Exercisable at November 30, 1996 505,000 $ 5.41
Granted 698,500 5.49
Exercised (5,000) 2.50
Terminated (165,500) 9.49
--------
Outstanding and Exercisable at November 30, 1997 1,033,000 4.76
Granted 577,000 2.58
Exercised (2,000) 2.50
Terminated (79,000) 3.77
---------
Outstanding and Exercisable at November 30, 1998 1,529,000 $ 4.04
=========
</TABLE>
F21
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 11 - OPTIONS (CONTINUED)
Significant option groups outstanding at November 30, 1998 and related
price and life information follows:
WEIGHTED AVERAGE
RANGE OF EXERCISE WEIGHTED AVERAGE REMAINING
Price OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE
- ------------------------- ----------- ---------------- ----------------
$1.00 to $2.00 248,000 $1.14 .8
$2.01 to $3.00 460,000 $2.94 1.7
$3.01 or $5.99 246,000 4.41 .7
$6.00 575,000 6.00 2.4
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 loss and net loss per share would have been
$2,443,108 and $.34 for the year ended November 30, 1998, 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, 1998 and 1997
was $.33 and $2.00 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 1998 and 1997 were as follows: a) weighted average risk-free interest
rate of 5.0% and 6.3% respectively, b) weighted average expected life of 2.2 and
3.5 years respectively, c) weighted average expected volatility of 79% and 87%
respectively, and d) no dividend yield for either year.
Weighted average grant date fair values are shown below for options
granted in 1998 and 1997.
WEIGHTED AVERAGE WEIGHTED AVERAGE
FAIR VALUE/SHARE EXERCISE PRICE/SHARE
---------------- --------------------
1998
- ----
Stock Price = Exercise Price $0 $0
Stock Price /more than/ Exercise Price $1.47 $2.25
Stock Price /less than/ Exercise Price $0.36 $2.90
1997
- ----
Stock Price = Exercise Price $3.22 $4.88
Stock Price /more than/ Exercise Price $1.98 $2.00
Stock Price /less than/ Exercise Price $1.60 $4.20
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.
F22
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 12 - 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.
TENET HEALTHCARE CORPORATION
On November 30, 1996, the Company signed agreements with OrNda
HealthCorp. In addition to the LifespanSM agreement, two "one-third" Revenue
Sharing Agreements were purchased in which OrNda paid CRYO-CELL $666,666. OrNda
was acquired by Tenet Healthcare Corporation which agreed to be bound by the
terms of the LifespanSM and Single Unit Revenue Sharing Agreements. Due to the
commencement of processing and storage at the Company's Clearwater facility and
the Company's change of LifespanSM strategy, negotiations are currently underway
in which the Company is offering to store all Tenet originated specimens in
Florida while paying Tenet a partnership entitlement.
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.
F23
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 12 - AGREEMENTS (CONTINUED)
SAGGI CAPITAL
In November 1998, the Company entered into an investor relations
agreement with Saggi Capital Corporation. Saggi Capital has agreed to provide
various business consulting and investor relations services for the Company. Per
the agreement the Company registered 200,000 options to purchase the Company's
common stock at an exercise price of $1.00 per share. These options have been
exercised and common stock has been issued to Saggi subsequent to the balance
sheet date. The Company did not recognize an expense on the issuance of these
options since the Company's common stock was trading below the exercise price on
the date of grant.
WOMEN & INFANTS HOSPITAL OF RHODE ISLAND
In June 1998, the Company signed an agreement with Women & Infants
Hospital of Rhode Island ("hospital") for the establishment of a commercial
placental/umbilical cord blood bank at their Providence, Rhode Island medical
facility. The hospital will be offering its stem cell banking services to
parents of approximately 9,000 babies who are born each year at this facility.
Under the terms of the agreement the hospital will provide the space and
utilities, liquid nitrogen supply, technician, etc. CRYO-CELL will be
responsible for the billing activities. The storage revenues will be divided 75%
to the Company and 25% to the hospital, while the hospital is entitled to 100%
of the processing revenue. Additionally, if processing revenue is insufficient
to cover the fixed costs of the cord blood bank, CRYO-CELL will be responsible
to pay the shortfall. In order to cover the possible shortfall the hospital
required $50,000 to be placed in escrow. The $50,000 is recognized as a deposit
on the balance sheet.
OTHER AGREEMENTS
On November 5, 1998 an agreement previously entered into by the Company
with a private investor was revised. Per the terms of the original agreement,
the investor had purchased 10% of a Revenue Sharing Partnership in the state of
New Jersey. The new agreement has transferred the $100,000 investment into the
state of New York. Under the revised agreement the investor will receive 10% 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 spaces.
NOTE 13 - 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.
F24
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 14 - 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. At
November 30, 1998 direct borrowings under this agreement were $550,000. Terms of
the loan require interest to be paid monthly at the Bank's prime lending rate
plus 1%. The agreement contains several covenants relating to working capital
and net worth with which the Company is not in compliance as of November 30,
1998 thus allowing the Bank to ask for current repayment. The agreement expired
on August 21, 1998and in December 1998, the loan the was paid in full.
NOTE 15 - 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.
F25
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 16 - SUBSEQUENT EVENTS
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:
/bullet/ 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.
/bullet/ 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.
/bullet/ 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.
/bullet/ 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.
/bullet/ 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:
/bullet/ The Company will pay six percent (6%) of the gross amount
received for the purchase of equity securities.
/bullet/ If at least $3,500,000 is raised, the Company has agreed
to issue Dublind Investments LLC additional warrants with
an expiration date of five (5) years from the date of the
closing of the financing. to purchase up to 6.5% of the
common stock of the Company
/bullet/ Dublind will be entitled to a seat on the Company's Board
of Directors.
F26
<PAGE>
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 17 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
1998 QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Net Income (Loss) ($ 507,443) ($ 518,279) $ 196,991 ($1,421,887)
========== =========== ============ ===========
Income (Loss) per share $ (0.07) $ (0.07) $ 0.03 $ (0.19)
========== =========== ============ ===========
Shares used in
computation 7,199,834 7,242,086 7,272,590 7,388,444
========== =========== ============ ===========
1ST 2ND 3RD 4TH
1997 QUARTER QUARTER QUARTER QUARTER
Net (Loss) ($ 84,022) ($ 318,043) ($ 365,611) ($ 875,383)
========== =========== ============ ===========
(Loss) per share $ (0.01) $ (0.04) $ (0.05) $ (0.12)
========== =========== ============= ==========
Shares used in
computation 7,151,984 7,156,866 7,164,511 7,184,603
========== =========== ============= ==========
</TABLE>
F27
<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 1999 Annual Meeting of Shareholders which is expected
to be filed with Securities and Exchange Commission on or about March 30, 1999.
<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 (5)
10.19 Agreement with Dublind Partners, Inc.
10.20 Agreement with Medical Marketing Network, Inc.
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.
(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.
<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 16, 1999
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/ GERALD F. MAASS Vice President and General
- --------------------------- Manager, Director
Gerald F. Maass
/s/ JILL M. TAYMANS Chief Financial Officer
- --------------------------
Jill M. Taymans
/s/ED MODZELEWSKI Director
- --------------------------
Ed Modzelewski
/s/FREDERICK C.S. WILHELM Director
- --------------------------
Frederick C.S. Wilhelm
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.19 Amendment Agreement with Dublind Partners, Inc.
10.20 Agreement with Medical Marketing Network, Inc.
27 Financial Data Schedule
EXHIBIT 10.19
AGREEMENT WITH DUBLIND PARTNERS, INC.
<PAGE>
February 12, 1999
Mr. Dan Richard
Cryo-Cell International, Inc.
3165 McMullen Booth Road, Building 5
Clearwater, FL 33761
Dear Dan:
This will confirm the understanding and agreement among Dublind Securities
Inc. ("DSI"), Dublind Partners Inc. ("DP") and Cryo-Cell International, Inc.
(Cryo-Cell) as follows:
1. Cryo-Cell hereby engages DSI on an exclusive basis to render
financial advisory services concerning the placement of securities
in an amount up to $7,000,000 (the Financing").The minimum dollar
amount in a placement will be $3,500,000.
2. Subject to the provisions of paragraphs 3 through 8, which shall
survive any termination of this Agreement, the terms of DSI's
engagement hereunder shall extend from the date hereof until July 1,
1999. However, if a minimum of $3,500,000 in financing is closed by
DSI, then Cryo-Cell agrees to extend DSI's exclusive financing agent
engagement period for a period of 24 months from the date of the
transaction close.
3. As compensation for DSI's services hereunder, Cryo-Cell will pay DSI
the following:
With respect to arranging the Financing, six percent (6%) of the
Gross amount actually paid on the purchase of equity securities upon
payment of such amount (including any amount committed by DSI or any
of its affiliates), such fee to be paid upon the initial funding
thereof.
Additionally, if at least $3.5 million is raised, Cryo-Cell agrees
to issue Dublind Investments LLC additional warrants to purchase up
to 6.5% of the common stock of Cryo-Cell, on a fully diluted basis,
at a price equal to the valuation of the company done in conjunction
with the financing with an expiration date of five years from the
date of the closing of this financing..
4. Cryo-Cell agrees to reimburse DP for its expenses related to the
closing of any financing, including all fees and expenses of any
counsel, accountants, appraisers or other experts retained from time
to time by DP. Expenses related to the closing will be billed
separately and paid at the time of the closing of a financing. DP
will not incur expenses of more than $10,000.00 in closing expenses
without the written approval of Cryo-Cell.
<PAGE>
5. Subject to Paragraph 6, Cryo-Cell shall:
(a) Indemnify DSI and hold it harmless against any losses, claims,
damages or liabilities to which DSI may become subject (A)
arising in any manner out of or in connection with (i) actions
taken or omitted to be taken (including any information
furnished or any untrue statements made or statements omitted
to be made) by Cryo-Cell or (ii) actions taken or omitted to be
taken by DSI in conformity with either (x) instructions of
Cryo-Cell or (y) actions taken or omitted to be taken by
Cryo-Cell or (B) otherwise arising in any manner out of or in
connection with DSI's rendering of services hereunder unless
(in the case of indemnification pursuant to this clause (B)) it
is finally judicially determined that such losses, claims,
damages or liabilities arose out of the gross negligence or bad
faith of DSI; and,
(b) Reimburse DSI for any legal or other expenses incurred by it in
connection with investigating, preparing to defend or defending
any lawsuits, claims or other proceedings arising in any manner
out of or in connection with DSI's rendering of services
hereunder.
Cryo-Cell agrees that the indemnification and reimbursement
commitments set forth in this paragraph shall apply whether or not
DSI is a formal party to any such lawsuits, claims or other
proceedings, that DSI is entitled to retain separate counsel of its
choice in connection with any of the matters to which such
commitments relate and that such commitments shall extend upon the
terms set forth in this paragraph to any controlling person,
director, officer, employee or agent of DSI.
6. Subject to Paragraph 5, Cryo-Cell and DSI agree that if any
indemnification or reimbursement sought pursuant to the preceding
paragraph 5 is finally judicially determined to be unavailable
(except with respect to indemnification pursuant to subparagraph 5
(a) above for the reasons specified in subparagraph 5 (a) above)
then (whether or not DSI is the person entitled to indemnification
or reimbursement), Cryo-Cell and DSI shall contribute to the losses,
claims, liabilities, damages and expenses for which such
indemnification or reimbursement is held unavailable in such
proportion as is appropriate to reflect the relative benefits to
Cryo-Cell, on the one hand, and DSI, on the other, in connection
with the transactions contemplated herein, subject to the limitation
that in any event DSI's aggregate contribution to any such losses,
claims, liabilities, damages and expenses shall not exceed the
amount of fees actually received by DSI hereunder. It is hereby
agreed that the relative benefits to Cryo-Cell, on the one hand, and
DSI, on the other hand, with respect to any transaction or proposed
transaction contemplated herein shall be deemed to be in the same
proportion as (i) the total value paid or received or contemplated
to be paid or received by Cryo-Cell or its security holders in the
transactions or from the services contemplated herein bears to (ii)
the fee actually paid to DSI with respect to such transaction.
<PAGE>
7. Any advice to be provided by DSI under this Agreement shall not be
disclosed to third parties without DSI's prior approval.
8. Cryo-Cell agrees that upon completion of the financing DSI has the
right to place advertisements in financial and other newspapers and
journals at its own expense describing its services to Cryo-Cell
subject to Cryo-Cell's review and approval which shall not be
unreasonably withheld
9. We understand, and you agree, that there are no brokers,
representatives or other persons who have an interest in
compensation due to DSI from the services and transactions
contemplated herein.
10. Cryo-Cell agrees to provide DSI all financial and other information
requested by DSI, and provide reasonable access to appropriate
Cryo-Cell personnel for the purposes of DSI's assignment hereunder.
DSI shall be entitled to rely upon and assume, without independent
verification, the accuracy and completeness of all information that
is available from public sources and of all information that has
been furnished to it by Cryo-Cell, and shall have no obligation to
verify the accuracy or completeness of any such information.
11. This Agreement may not be amended or modified except in writing.
12. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
13. Cryo-Cell agrees not to enter into a similar agency agreement during
the term of this agreement. 14. If the foregoing correctly sets
forth the understanding and agreement among DSI, DP and Cryo-Cell,
please so indicate in the space provided for that purpose below and
please return, together with a check for $5,000.00 for the first
phase of the engagement covering the preparation of a business plan
and offering memo, an executed counterpart of this letter to DSI,
whereupon this letter shall constitute a binding agreement. By
signing this agreement Cryo-Cell hereby acknowledges that this
agreement has been duly authorized by its Board and does not
conflict with any other agreement that it is now party or subject
to.
Sincerely, Agreed & Accepted:
/s/ CHARLES J. LINDSEY /s/ DAN RICHARD
- ---------------------- -------------------------------------
Charles J. Lindsay Dan Richard - Chief Executive Officer
President Dated: FEBRUARY 19, 1999
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
TERM SHEET
SUMMARY OF PRINCIPAL TERMS
Issuer: CRYO-CELL International, Inc.
Security: $7,000,000 of preferred stock with
warrants
Maturity: The preferred shares will mature on
April 1, 2006
Dividend: Quarterly, 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 annum,
payable in arrears.
Callability: The preferred shares will be
callable at issue price plus accrued
dividends, if any, on 30 days notice
at the option of the Company, at any
time.
Ranking: The preferred shares will rank
senior to all obligations of the
Company with a carve-out for a
mutually agreeable working capital
facility when and if needed.
Covenants: The preferred shares will have
financial covenants that are
standard and typical for this type
of financing, including but not
limited, to restrictions on the
issuance of additional indebtedness,
minimum net capital requirements,
and a negative pledge on any asset
sales unless approved.
Warrants: 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 20
day average closing price of the
Company's common shares prior to the
close of this transaction. Dublind
will agree to market the warrants at
a 10% conversion premium to the
common share price, but the Company
acknowledges and agrees to accept a
transaction based upon a 0% premium
to the common shares price if
dictated by the marketplace.
Additionally, Dublind agrees not to
bind CRYO-CELL to any transaction
that would require the Company to
accept a conversion rate below $2.00
should the common share price trade
down below that level.
<PAGE>
Warrant Conversion: The warrants will be
convertible into $7,000,000 of the
Company's common stock at the
conversion price at any time at the
option of the holder. The warrants
will be callable at any time at the
option of the Company, should the
closing price of the Company's
common shares be higher than $7.50
per share for 20 consecutive trading
days.
Other Rights: Quarterly financial reports
One representative to the Company's
Board of Directors
Legal and Due Diligence: Costs to be paid by the Company
The above mentioned terms and conditions constitute CRYO-CELL International,
Inc.'s marketing instructions to Dublind Securities and CRYO-CELL's commitment
to issue the described securities upon the submission by Dublind Securities of
such an acceptable term sheet from an investor(s). By your signature below you
acknowledge that CRYO-CELL's Board of Directors has authorized this transaction
and that this marketing mandate does not conflict with any other capital raising
activities.
/s/ DANIEL D. RICHARD
- ---------------------
Daniel D. Richard - CEO
Dated: 2/22/99
EXHIBIT 10.20
AGREEMENT WITH MEDICAL MARKETING NETWORK, INC.
<PAGE>
AGREEMENT
This Agreement is made and entered into this 14th day of September,
1998, by and between CRYO-CELL International, Inc., (hereafter CCEL) with its
principal business address at 3165 McMullen Booth Road, Bldg. 5, Clearwater,
Florida 33761 and Steve Ferens, individually, and Medical Marketing Network,
Inc., (hereafter MMN) with its principal business address at 2830 Stevens St.,
Oceanside, NY 11572.
The parties desire to enter into this Agreement for mutual
consideration, the receipt of which is hereby acknowledged, and agree to the
following:
STEVE FERENS AGREES TO:
/bullet/ Use MMN, a New York corporation wholly owned by Steve Ferens, to
promote CRYO-CELL's cord blood storage program to OB/GYNs. MMN will
enter into distribution contracts with Steve's existing and
potential new independent contractors who call on these physicians.
The majority of said distribution contracts will be in place within
60 days after CRYO-CELL's acquisition of MMN. Contracts will be 2-3
years and include non-compete provisions.
/bullet/ Optimize the distribution network to penetrate the approved target
markets o Serve as the liaison between CCEL and the independent
contractors and motivate them.
/bullet/ Design and implement a quota system that meet the objectives set.
Give direction on sales strategies consistent with CRYO-CELL's
objectives.
/bullet/ Monitor the results. A tracking system will be designed and
implemented to ensure that the proper credit is given to the
contractors commensurate with their selling results. This system
will be developed jointly by CRYO-CELL and Steve Ferens.
/bullet/ Sign the five year contract with CCEL as outlined below.
CCEL AGREES TO:
/bullet/ Purchase 100 % of the shares of MMN for 200,000 shares of CCEL
common stock (adjusted for stock splits) subject to the provisions
set below. The transaction will be a stock for stock purchase. The
assets of the company are Steve's sales management abilities and the
contracts with the distribution network. At the time of purchase,
MMN shall be unencumbered with any liabilities or potential
liabilities. The payment schedule for the acquisition is as follows:
1. 10,000 shares CCEL will be delivered after execution of this
Agreement as a down payment;
2. 40,000 shares CCEL will be held in escrow for approximately
60 days until the majority of the distribution contracts are
signed and the program begins to be implemented.
3. 50,000 shares CCEL (adjusted for stock splits) will be
delivered, as follows:
Year 1 anniversary of this agreement: 10,000 shares
Year 2 anniversary of this agreement: 15,000 shares
Year 3 anniversary of this agreement: 25,000 shares
<PAGE>
4. Based on the performance of the independent contractor
network, 100,000 shares CCEL (adjusted for stock splits)
could be earned at the end of the initial three year period
following the execution of this agreement. The paid customer
enrollment goal for the independent contractor network is to
enroll 45,000 clients in year 3 (25-36 months after the
execution of this agreement). The remaining 100,000 shares
will be prorated above or below based on the actual
enrollment vs. the 45,000 enrollment goal (ex., if actual
enrollment is 30,000 cords in year 3--67,000 shares would be
earned).
/bullet/ Provide Steve Ferens with a five year contract (subject to
performance) to manage this independent contractor network. Steve's
contract will include a non-compete provision that will be in effect
for two years after any contract termination. Steve will not be paid
a salary or other benefits for serving as President of MMN or Vice
President, National Sales for CCEL.
/bullet/ Designate the markets that Steve can market in. Initially, the
following are excluded: Rhode Island; Massachusetts; New Jersey;
Florida; Washington DC area; Illinois; Birmingham, AL; and all East
Region Tenet Hospitals.
/bullet/ Provide an independent contractor entitlement of $25 for each client
enrolled and paid as a result of their efforts. Independent
contractors will be required to sign appropriate documentation
providing for this status. This entitlement will be tracked by
CRYO-CELL and distributed monthly.
/bullet/ Provide sales and educational materials to be distributed to OB/GYN
offices. Continue to implement marketing programs to complement the
contractors' efforts.
/bullet/ Provide a pool of 150,000 options to purchase CCEL common stock.
These options can be used as incentives, at Steve's discretion (and
at the approval of CRYO-CELL management), for the distribution
network. The option exercise price will be the market price of the
stock at the time of issuance of the option.
/bullet/ Reimburse Steve Ferens for travel/lodging to CRYO-CELL headquarters.
All other expenses incurred by Steve Ferens to manage/supervise
network are not reimbursable unless mutually agreed upon in advance.
IN WITNESS WHEREOF, the parties by their respective duly authorized
representatives have executed this Agreement. This Agreement cannot be changed
without mutual written consent.
CRYO-CELL International, Inc. Medical Marketing Network, Inc.
By: /s/ DANIEL D. RICHARD /s/ STEVE FERENS
--------------------- ----------------
Daniel D. Richard, C.E.O. Steve Ferens, President
/s/ STEVE FERENS
----------------
Steve Ferens, individually
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<CASH> 499,696
<SECURITIES> 719,393
<RECEIVABLES> 47,642
<ALLOWANCES> 13,380
<INVENTORY> 0
<CURRENT-ASSETS> 983,220
<PP&E> 2,515,399
<DEPRECIATION> 143,405
<TOTAL-ASSETS> 4,079,129
<CURRENT-LIABILITIES> 1,694,752
<BONDS> 0
0
0
<COMMON> 76,546
<OTHER-SE> 2,191,667
<TOTAL-LIABILITY-AND-EQUITY> 4,079,129
<SALES> 331,134
<TOTAL-REVENUES> 331,134
<CGS> 218,018
<TOTAL-COSTS> 2,269,675
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,868
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,250,618)
<EPS-PRIMARY> (0.31)
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