<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
/ X / Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended February 29, 2000
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from ____________to____________
Commission File Number 0-23386
CRYO-CELL INTERNATIONAL, INC.
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(Exact name of Small Business Issuer as Specified in its Charter)
DELAWARE 22-3023093
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
3165 MCMULLEN BOOTH ROAD, BUILDING B, CLEARWATER, FLORIDA 33761
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(Address of Principal Executive Offices) (Zip Code)
Issuer's phone number, including area code: (727) 723-0333
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(Former name, former address and former fiscal year, if changed since
last report).
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15 (d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes / X / No / /
State the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date. As of February 29, 2000,
9,362,594 shares of $0.01 par value common stock were outstanding.
Transitional Small Business Disclosure Format (check one). Yes / / No / X /
<PAGE>
CRYO-CELL INTERNATIONAL, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURES 21
</TABLE>
2
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CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
February 29, November 30,
2000 1999
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CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,530,177 $ 1,555,190
Accounts receivable and advances (net of allowance for
doubtful accounts of $14,688) 85,469 57,548
Receivable - litigation 69,178 69,178
Receivable - Revenue Sharing Agreement 450,000 450,000
Marketable securities 301,909 109,407
Refundable income taxes 1,596 890
Prepaid expenses and other current assets 231,973 200,266
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Total current assets 2,670,302 2,442,479
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PROPERTY AND EQUIPMENT 2,887,203 2,719,804
- ---------------------- -------------- -----------------
OTHER ASSETS
Intangible assets (net of amortization of $71,763 and $65,864, respectively) 75,404 66,095
Marketable securities 546,941 219,383
Deposits with vendors and others 87,543 82,681
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Total other assets
709,888 368,159
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$ 6,267,393 $ 5,530,442
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LIABILITIES AND STOCKHOLDERS' EQUITY
February 29, November 30,
2000 1999
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CURRENT LIABILITIES
Accounts payable $ 48,222 $ 35,689
Accrued expenses and withholdings 188,564 167,189
Current portion of obligations under capital leases
7,265 7,604
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Total current
liabilities 244,051 210,482
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OTHER LIABILITIES
Unearned revenue 194,364 145,535
Deposits 124,050 124,550
Obligations under capital leases-net of current portion 16,290 17,652
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Total other liabilities
334,704 287,737
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STOCKHOLDERS' EQUITY
Preferred stock (500,000 $.01 par value authorized and unissued) - -
Common stock (15,000,000 $.01 par value common shares
authorized; 9,363,594 at February 29, 2000 and 9,193,155
at November 30, 1999 issued and outstanding) 93,636 91,932
Additional paid-in capital 12,838,696 12,351,688
Stock subscription receivable - -
Net realized gain (loss) on marketable securities 448,849 (71,210)
Accumulated deficit
(7,692,543) (7,340,187)
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Total stockholders' equity 5,688,638 5,032,223
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$ 6,267,393 $ 5,530,442
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</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
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CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
February 29, February 28,
2000 1999
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<S> <C> <C>
REVENUE $ 425,903 $ 219,466
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COSTS AND EXPENSES:
Cost of sales 163,607 100,825
Marketing, general & administrative expenses 576,636 498,232
Research, development and related engineering 21,191 23,316
Depreciation and amortization 31,309 28,580
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Total cost and expenses 792,743 650,953
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OPERATING LOSS (366,840) (431,487)
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OTHER INCOME AND (EXPENSE):
Interest Income/Other Income 15,358 -
Interest Expense (874) (2,024)
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Total other income 14,484 (2,024)
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NET LOSS $ (352,356) $ (433,511)
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NET LOSS PER SHARE ($0.04) ($0.06)
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Number of Shares Used In Computation 9,294,435 7,855,687
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</TABLE>
4
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CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
February 29, February 28,
2000 1999
(unaudited) (unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Loss $ (352,356) $ (433,511)
Adjustments to reconcile net loss
to cash used for operating activities:
Depreciation and amortization 31,309 28,580
Issuance of common stock for interest and services rendered 34,132 61,250
Changes in assets and liabilities:
Accounts receivable (27,921) (55,833)
Prepaid expenses and other current assets (31,707) (112,776)
Deposits (4,862) 23,952
Accounts payable 12,533 64,036
Accrued expenses 21,375 (181,817)
Refundable income taxes payable (706) -
Unearned revenue and deposits 48,329 18,337
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NET CASH USED FOR OPERATING ACTIVITIES (269,874) (587,782)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (192,809) (1,878)
Payments for intangible assets (15,208) -
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NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES $ (208,017) $ (1,878)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of securities 21,000 930,320
Proceeds (repayment) of short term borrowings - (550,000)
Exercise of stock options 433,580 -
Repayment of capital leases (1,702) (867)
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NET CASH PROVIDED BY FINANCING ACTIVITIES: 452,878 379,453
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Decrease in cash and cash equivalents (25,013) (210,207)
Beginning of period 1,555,190 499,696
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End of period $ 1,530,177 $ 289,489
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest $ 874 $ 2,024
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Income taxes $ - $ -
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Debt converted into common stock $ - $ 530,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
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CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENTS
- -----------------------------------
The Consolidated Financial Statements including the Consolidated
Balance Sheet as of February 29, 2000, Consolidated Statements of Operations for
the three months ended February 29, 2000 and Consolidated Statement of Cash
Flows for the three months ended February 29 2000 have been prepared by the
Company, without audit. In the opinion of Management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and changes in cash flows at February
29, 2000 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's November 30, 1999 Annual
Report on Form 10-KSB.
NOTE 2 - MARKETABLE SECURITIES
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NET/TECH INTERNATIONAL
In November 1998 the Company's ownership percentage in Net/Tech
International Inc. (NTTI) decreased to less than 20% of the outstanding shares
of NTTI. The Company had accounted for its investment in NTTI in previous years
using the equity method but as of the date upon which its ownership percentage
fell below 20% the Company used the guidance in SFAS 115 ACCOUNTING FOR CERTAIN
INVESTMENT IN DEBT AND EQUITY SECURITIES, to account for the investment. Under
this guidance all of the Company's marketable securities are classified as
available-for-sale as of the balance sheet date and reported at fair value, with
unrealized gains and losses recorded as a component of stockholder's equity.
Since NTTI stock is thinly traded and subject to considerable price fluctuation,
were the Company to attempt to sell large blocks of shares, it is unlikely that
the Company would be able to obtain the exchange market value as listed. This
security is therefore subject to considerable market risk. Since the stock owned
in Net/Tech International, Inc. is subject to trading restrictions a portion of
this investment has been classified as a non-current asset based upon the number
of shares, which may not be sold in 2000.
The Company recognized losses under the equity method for the NTTI
investment during 1998 reducing the cost basis of the stock to $0. An unrealized
gain has been recorded as a component of stockholders equity in the amount of
$730,099 and $732,124 to reflect the fair market value of the investment as of
February 29, 2000 and February 28, 1999, respectively.
6
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CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000
(UNAUDITED)
NOTE 2 - MARKETABLE SECURITIES (CONT'D)
- -----------------------------------
OTHER SECURITIES
In 1997 the Company acquired 100,000 shares of an equity security in
payment for the sale of a Revenue Sharing Agreement. The original cost as
determined by the trading price on the date of acquisition was $400,000. The
fair value of this security as of February 29, 2000 and February 28, 1999 was
$118,750 and $125,000, respectively and the unrealized holding loss on this
security was $281,250 and $275,000 as of February 29, 2000 and February 28,
1999, respectively.
NOTE 3- COMMITMENTS AND CONTINGENCIES
- -----------------------------------
In June 1998, the Company entered into an agreement, with World Medical
Match, a non-profit corporation, whose mission includes assisting the poor with
funds to provide them access to medical matching opportunities. The agreement
states that World Medical Match agrees to grant the Company $50,000 for the
purpose of paying for 200 U-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
medical practices, hospitals, and other medical industry organizations to
implement this project.
As part of the September 1998 agreement between a consultant 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 the consultant
and his team of sub-contractors. The original contract was 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. In
November 1999 the agreement was renegotiated with the 60,000 common shares
previously issued representing payment in full.
In January 2000, the Company extended its marketing agreement with
Lamaze Publishing Company to sponsor the Lamaze YOU AND YOUR BABY tutorial tape
and full page advertisements in the Lamaze Parent Magazine at a cost of
$213,362. The extended agreement commences in April 2000. As of February 29,
2000, the Company paid $80,162 and is recognizing this as a prepaid expense on
the balance sheet. In July 1999, the Company was informed that Lamaze Publishing
Company was acquired by iVillage, Inc., a leading on line women's network. The
Company's agreements with Lamaze will remain in tact, including the exclusivity
provisions as the only cord blood preservation company on the Lamaze YOU AND
YOUR BABY educational videotape through the year 2003.
In November 1999, the Company signed a Letter of Intent to expand its
U-Cord program into the European marketplace. The Company received a
non-refundable payment of $100,000 in November 1999 which is recorded as a
deposit. On April 6, 2000, the formal agreement was signed. The Company will
receive $1,400,000 initially as a combination of cash and notes payable for
the marketing rights and technology transfer; payments are due in full by
July 1, 2001. The Company will also receive an on-going percentage of the
revenues generated from the European operations.
7
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CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000
(UNAUDITED)
NOTE 4 - LEGAL PROCEEDINGS
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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. (CBR). The suit claimed breach of contract and other
related business torts. After settlement discussions were unproductive, the
University of Arizona counter-sued CRYO-CELL for breach of contract and
negligent misrepresentation on March 27, 1997.
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 court rejected three
post-trial motions by the University of Arizona including a request to reduce
the award or set aside the verdict.
On or about September 27, 1999 the Company accepted the University's
offer of $800,000 and settled the matter. On September 30, 1999, the Company
received $441,000 from the University of Arizona. The remaining balance of
$359,000 is being held in escrow, to satisfy a legal lien filed November 4, 1998
by the Company's previous attorneys, Horwitz and Beam. The Company disputes
their position and has countersued Horwitz and Beam for malpractice and is
seeking $1,000,000 in compensatory damages and an unspecified amount of punitive
damages deemed appropriate by the court. 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 and certain aspects of its
case against the University of Arizona. There is a dispute concerning the amount
of fees owed by the Company to Horwitz & Beam.
On March 8, 1999, the Company, the Company's CEO and Chairman, the
Company's Executive Vice President, and the Company's legal counsel 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 and that none of the
claimed $129,822 in fees is due and owing under the contract. The Company
believes that Horwitz & Beam brought this action and improperly sought punitive
damages for the purpose of interfering with the Company's efforts to raise and
maintain additional capital.
Accordingly, on June 14, 1999, the Company filed: (1) an answer denying all
liability; (2) a counterclaim for breach of contract and malpractice, seeking in
excess of $1 million in compensatory damages arising from the malpractice; (3) a
motion to dismiss the individual defendants for lack of jurisdiction; and (4) a
motion to dismiss all punitive damages allegations against the Company.
On December 17, 1999, Judge Alicemarie H. Stotler of the United States
District Court in the Central District of California, issued an Order in which
she: (1) granted CRYO-CELL International, Inc.'s ("CRYO-CELL") Motion to Strike
Punitive Damages and Dismiss Part of the Complaint; (2) granted Daniel
Richard's, Mark Richard's and Gerald F. Maass' (the "Individual Defendants")
Motion to Dismiss Complaint for Lack of Personal Jurisdiction; and (3) granted
in part and denied in part Horwitz & Beam, Inc.'s ("H&B") Motion for Order
Dismissing Counterclaim and/or Strike Portions Thereof. As discussed
8
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CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000
(UNAUDITED)
NOTE 4 - LEGAL PROCEEDINGS
- -----------------------------------
in more detail below, the net effect of this order was to reframe the Complaint
as a fee dispute, as opposed to a multi-million dollar claim for fraud against
CRYO-CELL and its corporate officers. By its order, the Court has barred
recovery in this action against the Individual Defendants, and has reduced
CRYO-CELL's exposure from over $3.5 million dollars to $129,822, plus a possible
award of attorneys' fees.
By granting CRYO-CELL's Motion to Strike Punitive Damages and
Dismiss Part of the Complaint, the Court dismissed H&B's Fourth Claim for Relief
for intentional misrepresentation, i.e., fraud, against CRYO-CELL and the
Individual Defendants. The Court held that the promises purportedly made to H&B
concerning the opening of an "escrow," even if not ultimately fulfilled, were
not fraudulent. In fact, the Court said that "although the Individual Defendants
clearly made representations that an 'escrow' would be established, their not
having done so, in light of uncertainties of the future course of litigation and
their misgivings of plaintiff's performance, suggests nothing more than a
negotiation of payment terms."
The Court granted CRYO-CELL's Motion to Strike Punitive
Damages Claims with respect to H&B's Fifth Claim for Relief because such damages
are not available in connection with negligence claims. Having dismissed the
Fourth Claim for Relief for Fraud, H&B's motion to strike the punitive damages
claimed in connection therewith was rendered moot.
NOTE 5 CONVERTIBLE NOTES
- -----------------------------------
In November 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 was due. The promissory notes contained a
conversion provision to the Company's restricted common stock at $2.00 per
share. In February 1999, the loan agreements were converted to 302,000 shares of
the Company's common stock at a price of $1.75 per share. The loan holders
agreed to forego any accrued interest and any registration rights. All shares
are subject to Rule 144.
In October 1998, the Company entered into a convertible note agreement
borrowing $10,000 from an investor. The note has a term of one year at which
time the principal plus interest, at 20% per year, will be due. The noteholder
has the option to be paid in full for interest plus principal or to convert to
the Company's common stock at $2.00 per share. In October 1999, the noteholder
converted the promissory to 6,000 shares of the Company's restricted common
stock. All shares are subject to Rule 144.
NOTE 6 STOCKHOLDERS' EQUITY
- -----------------------------------
During the first quarter of fiscal 2000, the Company received $433,580
from the exercise of options to purchase 160,410 shares of common stock. In
February 2000, the Company received $21,000 from the sale of 5,000 shares of its
common stock. All shares are subject to Rule 144.
The Company made payments for consulting services through the issuance
of common stock. Consulting fees of $34,132 were paid by the issuance of 5,029
common shares during the first quarter of fiscal 2000.
During March 2000, subsequent to the balance sheet date, the Company
received $1,739,750 from the exercise of 589,500 options to purchase shares of
its common stock. All shares are subject to Rule 144.
9
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CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000
(UNAUDITED)
NOTE 7 AGREEMENTS
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ARIZONA
On February 9, 1999, the previous agreements with the Company's Arizona
Revenue Sharing investors were modified and replaced by a Revenue Sharing
Agreement for the state of Florida for a price of $1,000,000. Under the terms of
this agreement the Company credited the investors' previously paid $450,000
toward the purchase of the Revenue Sharing Agreement. The balance of $550,000
will be paid through their Revenue Sharing entitlements to their share of net
storage revenues. The Revenue Sharing Agreement applies to net storage revenues
originating from specimens from within the state of Florida. The Revenue Sharing
Agreement entitles the investors to net revenues from a maximum of 33,000
storage spaces and cancels the investor's obligation to provide the Company with
$675,000 plus accrued interest under the prior Arizona agreement.
ILLINOIS
In 1996, the Company signed agreements with a group of investors
entitling them to an on-going 50% share in the Company's portion of net storage
revenues generated by 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 its contiguous states and stored in Clearwater, Florida for a maximum of 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 Agreement for the state of New York. The Company will credit
Bio-Stor's $900,000 (previously paid) toward the purchase of 90% of New York.
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 HEALTHSYSTEM HOSPITALS, INC.
On November 30, 1996, the Company signed agreements with OrNda
HealthCorp. Two "one-third" Revenue Sharing Agreements were purchased in which
OrNda paid the Company $666,666. OrNda was acquired by Tenet Healthcare
Corporation, which agreed to be bound by the terms of the OrNda agreements. The
agreements were renegotiated and the Company will store all Tenet originated
specimens at its headquarter's lab in Clearwater, Florida while paying Tenet a
revenue sharing entitlement.
NEW JERSEY
On November 30, 1999, the Company entered into agreements with two
investors entitling them to on-going shares in a portion of CRYO-CELL's net
storage revenue generated by specimens originating from within the state of New
Jersey. Deposits totaling $50,000 were received upon signing of the agreements
and the remaining $450,000, due in May 2000, is recorded as a receivable. When
the $450,000 is received by the Company the investors will be entitled to a
portion of net storage revenues generated to a maximum of 33,000 storage spaces.
10
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CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000
(UNAUDITED)
NOTE 7 AGREEMENTS (CONT'D)
- -----------------------------------
SAGGI CAPITAL
In January 2000, the Company renewed its contract with Saggi Capital.
Per the new agreement Saggi is to provide business consulting and investor
relations services for the Company through January 2001.
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.
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 Agreement in the state of
New Jersey. The new agreement has transferred the $100,000 investment to 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.
UNIVERSITY OF SOUTH FLORIDA AT TAMPA
In February 2000, the Company, through its wholly owned subsidiary
CCEL BIO-THERAPIES, Inc. entered into a research agreement with the
University of South Florida at Tampa to collaborate on a technology for the
potential treatment of a number of debilitating degenerative diseases. The
research project is to be conducted at the University's laboratory facilities.
In March 2000, the Company transferred $200,000 to CCEL BIO-THERAPIES, Inc.
to meet its funding commitment. CCEL BIO-THERAPIES, Inc. and the University
are co-assignees of a filed patent application covering the technology. An
application has been made for federal grants (SBIR and STTR research grants)
on behalf of the Company and CCEL BIO-THERAPIES, Inc. In addition, an
application is being filed for the State of Florida I-4 matching grant. The
Company has been granted worldwide marketing rights for any product developed
as a result of this research program. Under the terms of the agreement, the
University will receive standard royalty payments on product sales.
11
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CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000
(UNAUDITED)
NOTE 8 RECEIVABLE LITIGATION
- -----------------------------------
On or about September 27, 1999 the Company accepted the University of
Arizona's offer of $800,000 to settle its litigation. In September 1999, the
Company received $441,000 from the University of Arizona leaving a balance of
$359,000 that is being held in escrow to satisfy a legal lien filed November 4,
1998 by the Company's previous attorneys, Horwitz and Beam. The Company reduced
the award to $510,178 and recognized this as gain on litigation. This reduction
includes a 20% contingency fee ($160,000) to the Company's previous attorneys
and $129,822 in contested legal fees that the Company feels are not due and
owing under the contract (See Note 4). When the $289,822 is netted against the
$359,000 held in escrow the result is a receivable balance of $69,178. The
Company has requested the release of the $69,178 from escrow, which is the
excess of 20% of the $800,000 actual settlement amount. The overage is a result
of the Company's settlement of the $1,170,000 original jury award.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
CRYO-CELL International, Inc. is a Delaware Corporation, incorporated
on September 11, 1989. It is engaged in cryogenic cellular storage and the
design and development of cellular storage devices. The Company's current focus
is on the processing and preservation of umbilical cord (U-Cord-TM-) blood stem
cells for autologous/sibling use. Having recently celebrated its 10-year
anniversary, the Company believes that it is the oldest of all of the commercial
companies currently specializing in separated umbilical cord blood stem cell
storage. CRYO-CELL has pioneered several technologies that allow for the
processing and storage of specimens in a cryogenic environment and presently,
the Company's mission of affordability for U-Cord blood preservation remains in
effect. These technologies include a process for the storage of fractionated
(separated) U-Cord stem cells and the development and patenting of the first
computer controlled, robotically operated cryogenic storage system. Its
headquarters facility in Clearwater, FL handles all aspects of its business
operations including the processing and storage of specimens in one site.
Several other companies involved in commercial cell banking rely on shipping
their specimens elsewhere for processing and storage.
It is the Company's mission to make expectant parents aware of the
potential medical benefits from preserving stem cells, and to provide them the
means and processes for collection and storage of these cells. Today, stem cell
transplants are known and accepted treatments for a number of life-threatening
diseases. With continued research in this area of medical technology, other
avenues for their potential use and expansion are being explored. A vast
majority of expectant parents are simply unaware that umbilical cord blood
contains a rich supply of stem cells, and that it can be collected, processed
and stored for the potential future use of the newborn and possibly related
family members. A baby's stem cells will remain a perfect match for the baby
throughout its life and have a 1-in-4 chance (or better) of being a perfect
match for a sibling. There is no assurance, however, that a perfect match could
treat certain diseases. Today, it is still common for the cord blood (the blood
remaining in the umbilical cord and placenta) to be discarded at the time of
birth as medical waste. Obviously, the Company believes that no U-Cord specimen
should be discarded when it could possibly save a life.
Given the potential benefits of U-Cord stem cell preservation, the
number of stored specimens is still very small relative to the population and
the approximately four million births per annum in the United States alone.
Outside of lack of awareness, a critical reason for this low level of market
penetration is the misperception of the high cost of the procedure and storage
versus the relatively low incidence of use. However, evolving medical technology
could significantly increase the utilization of the U-Cord blood for
transplantation. A number of competitors in this market have been charging
upwards of $1000 - $1500 for this procedure plus a fee for storage. The cost is
usually not covered by insurance. The Company's strategy is to make this
procedure affordable and within financial reach of most families. The growth and
profitability of the Company will come from increases in specimen volume driven
by its
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marketing approaches, resulting in an increasing base of annual renewal fees.
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 and will be offering its stem cell banking services to the parents of
these newborns. Women & Infants laboratory personnel have completed their
training at the Company's state of the art facility in Clearwater, Florida;
commencement of processing and storage at Women & Infants laboratory is expected
to commence in May 2000.
During 2000, all U-cordTM blood processing and preservation will be
done at the Company's facility with the exception of those specimens processed
at Women & Infants Hospital in Providence, Rhode Island. It is anticipated that
this shift in focus will limit the number of new LifespanSM Center
implementations in the future.
During the period since its inception, the Company's research and
development activities have principally involved the design and development of
its cellular storage systems ("CCEL Cellular Storage System") and in securing
patents on the same.
The Company's technology involves patented, multi-faceted cellular
storage units and the technology for processing stem cells from umbilical cord
blood. The Company believes that its long-term cellular storage unit will
provide an improved ability to store cells or other material in liquid nitrogen,
its vapors or other media. The unit are 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.
An independent manufacturer utilizing the Company's patented design
currently assembles the unit. The Company has been advised by Underwriters
Laboratories ("U/L") that it has passed all required inspections and the unit is
now U/L listed. In order to affix the U/L label to all units that are deployed
in the future, they must contain the same parts, operating capabilities and
features as in the tested CCEL II model.
In July 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 in 5ml vials. Moreover, as many
as 8 million one inch vials could be preserved in approximately 250 square feet.
The Company's attorneys are filing for patents in 17 European countries,
including the United Kingdom, Germany, France, Italy, Ireland, the Benelux
countries, plus Canada, Japan and others. The prototype is expected to be
complete in the second quarter of 2000.
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 cellular
storage systems. 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. Women could also store gametes
(eggs) for future use.
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The following is a discussion and analysis of the financial condition
and results of operations of the Company for the quarter ended February 29, 2000
as compared to the same period of the prior year.
GENERAL
To increase awareness of its services, the Company has invested in a
variety of marketing programs designed to educate expectant parents and those
medical caregivers to whom they turn to for advice.
The Company markets its preservation services by targeting expectant
parents directly and by distributing information to obstetricians,
pediatricians, Lamaze instructors, childbirth educators, certified
nurse-midwives and other related healthcare professionals. In addition, the
Company exhibits at conferences, trade shows and other media focusing on the
expectant parent market. Of significant note is the increasing level of interest
being generated by the Company's Web site, www.CRYO-CELL.com.
CRYO-CELL has renewed its agreement with the Lamaze Publishing Company
to sponsor the Lamaze YOU AND YOUR BABY tutorial tape. The agreement has been
extended for three (3) years and 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 is
distributed by over 10,000 instructors, discusses the importance of cord blood
storage and refers viewers to the full page ad that the Company has placed in
the Lamaze PARENTS Magazine, which is distributed to 2.4 million expectant
mothers. In addition, the Company also places an ad in LAMAZE PARA PADRES,
Lamaze Publishing's magazine for Hispanic mothers-to-be. The Company has
exclusivity on the tutorial tape in the cord blood storage category and first
right of refusal for renewal of the agreement beyond 2003.
In June 1998, the Company entered into an agreement with International
Broadcast Corporation (IBC). IBC was to produce a one-half hour infomercial
relating to CRYO-CELL's U-Cord stem cell processing and storage activities. IBC
has since been acquired by 5th Avenue Channel Corp. In May 1999, the Company
signed an agreement With 5th Avenue Channel Corp. Under the terms of the new
agreement, the Company and 5th Avenue Channel Corp. will have an equal 50-50
partnership in a new corporation, the Newbirth Network, Inc. This new entity
will offer important health information and products to expectant parents
through 5th Avenue's television, Internet and mass marketing distributions. Upon
calling 5th Avenue Channel's toll-free number, expectant parents can receive a
videotape explaining the option they have for storing their newborn's cord blood
stem cells. 5th Avenue Channel has committed to producing and distributing a
minimum of one million tapes for a small shipping and handling charge.
In July 1999, the Company entered into a 20-year exclusive agreement
with the Cancer Group Institute, LLC, the nation's premier cancer information
service. The Cancer Group's Web site, www.cancergroup.com, is accessed by
approximately 25,000 oncologists, radiologists and cancer patients daily. The
multi-faceted agreement will initially focus on bringing expectant mothers who
have a family history of cancer vital information about preserving their
newborn's umbilical cord blood stem cells. Oncologists working with patients who
are pregnant will be linked to the CRYO-CELL Web site to become more aware of
the affordable alternative to having cord blood "thrown away" as waste material
at birth. The Company will also be working with the Cancer Group to heighten the
awareness of insurance companies, oncologists and cancer patients nationwide as
to the importance of cord blood preservation for the family.
In September 1999, the Company was granted a Blood Bank license to
operate in the state of New Jersey. The Company is now authorized to operate in
all 50 states.
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In January 2000, the Company entered into a strategic marketing
alliance with DNA Dynamics, Inc. DNA Dynamics, a genetic resources company,
offers comprehensive DNA identification services for families, especially those
with newborns. The alliance will allow the two companies to combine marketing
efforts in areas such as Web site linkages, shared advertising, joint displays
at trade shows as well as offering both DNA identification and cryogenic
cellular storage services to their respective sales channels. Significant
marketing synergies exist in reaching both expectant parents and medical
professionals, especially OB/GYNs.
UNIVERSITY OF SOUTH FLORIDA AT TAMPA
In February 2000, the Company, through its wholly owned subsidiary
CCEL BIO-THERAPIES, Inc., entered into a research agreement with the
University of South Florida at Tampa to collaborate on a technology for the
potential treatment of a number of debilitating degenerative diseases. The
research project is to be conducted at the University's laboratory
facilities. In March 2000, the Company transferred $200,000 to CCEL
BIO-THERAPIES, Inc. to meet its funding commitment. CCEL BIO-THERAPIES, Inc.
and the University are co-assignees of a filed patent application covering
the technology. An application has been made for federal grants (SBIR and
STTR research grants) on behalf of the Company and CCEL BIO-THERAPIES, Inc.
In addition, an application is being filed for a State of Florida I-4
matching grant. The Company has been granted worldwide marketing rights for
any product developed as a result of this research program. Under the terms of
the agreement, the University will receive standard royalty payments on any
product sales.
In November 1999, the Company signed a Letter of Intent to expand
its U-Cord program into the European marketplace. The Company received a
non-refundable payment of $100,000 in November 1999 which is recorded as a
deposit. On April 6, 2000, the formal agreement was signed. The Company will
receive $1,400,000 initially as a combination of cash and notes payable for
the marketing rights and technology transfer; payments are due in full by
July 1, 2001. The Company will also receive an on-going percentage of a
revenues generated from the European operations.
In March 2000, the Company launched its Mother to MotherTM Network
program to offer the Company's umbilical cord blood preservation program to
expectant parents. The network is comprised of mothers who have stored their
newborn's U-Cord blood stem cells with the Company. The mothers will be
contacting expectant parents, OB/GYN's and medical caregivers advising them
of the potentially life-saving service.
The Company has established a Medical & Scientific Advisory Board
comprised of the more than 10 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 departments and are committed to cellular
storage as part of new services to improve patient care and saves lives.
During the quarter, the Company continued its program of marketing its
Revenue Sharing Agreements. Under this arrangement the Company shares its
storage revenues with investors who receive entitlements on storage spaces.
MANAGEMENT
At present there are 17 employees on the staff of the Company. Daniel
D. Richard serves as the Chairman of the Board and Chief Executive Officer.
Daniel D. Richard, Chairman of the Board, President and Chief Executive Officer.
Mr. Richard is the founder of the Company and co-inventor of the Company's
technologies. He has served as Chairman of the Board since the Company's
inception. In 1986, he was a co-founder and served as an initial officer and
director of Marrow-Tech, Inc., a publicly traded company engaged in the field of
cellular replication. Prior to that Mr. Richard was President of Daniel Richard
Consultants, Inc. During that time frame his
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organization was responsible for setting up restaurant marketing programs in
over forty cities.
Gerald F. Maass, Executive Vice President and General Manager. Mr. Maass joined
the Company in March 1998. Mr. Maass joined the Company from Critikon, a
subsidiary of Johnson & Johnson, where his most recent position was
International Director of Marketing for the Patient Monitoring business. Mr.
Maass' ten-year tenure with Johnson and Johnson included several marketing and
business development roles; he also served on the Critikon management committee.
Prior to Johnson & Johnson, Mr. Maass was with Baxter Healthcare and Control
Data Corporation in marketing, sales management, business development and
business management roles. Mr. Maass began his career with Mayo Clinic in
Rochester, MN and holds a degree in Medical Technology. In September 1998, Mr.
Maass was appointed a member of the Company's Board of Directors.
Geoffrey J. O'Neill, Ph.D., Laboratory Director. Dr. O'Neill joined the company
in April 1999 and has oversight of the Company's processing laboratory and
storage facility. He has over 25 years experience in human hematopoetic
progenitor cell therapy, including expertise in the processing, cryopreservation
and storage of stem cells, flow cytometry analysis, HLA typing and CD34+ cell
purification. Dr. O'Neill also has expertise in immunohematology and blood
banking. A co-author of many publications, he has an undergraduate degree in
microbiology and a Ph.D. in Immunology.
Robert E. Vago, C.Eng. P.Eng., M.I.Mech.E., Vice President, Product Development.
Mr. Vago joined the Company in January 1997 and has technical oversight for the
CCEL II, the Company's computer controlled and robotically served cryogenic
cellular storage device. He is also responsible for the development of
CRYO-CELL's next generation mass storage technology, the CCEL III. Mr. Vago is
the sole inventor for 15 major U.S. Patent awards, including the recently
awarded U.S. Patent for the CCEL III device (which patent has been assigned to
the Company). Prior to joining CRYO-CELL, Mr. Vago was Corporate Vice President
of R&D for the Arjo Group of North America, a medical device manufacturer.
Jill Taymans, Chief Financial Officer. Ms. Taymans joined the Company in April
1997 serving initially as Controller and was appointed CFO in May 1998. Ms.
Taymans graduated from the University of Maryland in 1991 with a BS in
Accounting. She has worked in the accounting industry for over eight years in
both the public and private sectors. Prior to joining the company she served for
three years as Controller for a telecommunications company in Baltimore,
Maryland.
E. Thomas Deutsch, III, Chief Information Officer. Mr. Deutsch joined the
Company in May 1996 and is a software and process engineer, specializing in
healthcare information systems. He graduated from the University of North
Carolina in Chapel Hill in 1986 with a bachelor of science degree in
Mathematics. Prior to joining the Company in 1996, Mr. Deutsch worked for Shared
Medical Systems in Malvern, PA, IBM in Atlanta, GA, and HBO and Company in
Atlanta, GA. His responsibilities include developing, implementing and
supporting the Company's communications and information systems, developing,
implementing and supporting the Company's Internet plan and systems engineering
for the patented CCEL II Cellular Storage System.
RESULTS OF OPERATIONS
REVENUES. Revenues for the three months ended February 29, 2000 were $425,903 as
compared to $219,466 for the same period in 1999 representing a 94% increase.
The increase in revenues reflects the significant growth in the processing and
storage revenue associated with the Company's U-CordTM stem cell program. The
Company believes that the growth is a result of its investments in its various
marketing programs, including its activities with Lamaze Publishing, and the
increased traffic on its updated Web site www.CRYO-CELL.com. The upward sales
trend has continued into the second quarter of fiscal 2000.
COST OF SALES. Cost of sales for the three months ended February 29, 2000 were
$163,607 as compared to $100,825 in 1999. For the period ended February 29,
2000, $16,128 of the total cost of sales represents the entitlements associated
with the Revenue Sharing Agreements as compared to $10,328 in 1999. The
remaining cost of sales for the three months ended February 29, 2000 and 1999
represents the associated expenses resulting from the processing and testing of
the U-CordTM specimens in the Company's own
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state of the art laboratory in Clearwater, Florida.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses during the three months ended February 29, 2000 were
$576,636 as compared to $498,232 in 1999. The increase reflects the expense of
market development, client services associated with the Company's cellular
storage program, continued product development, and the establishment of an
expanded management team to handle the continuing growth.
RESEARCH, DEVELOPMENT AND RELATED ENGINEERING EXPENSES. Research, development
and related engineering expenses for the three months ended February 29, 2000,
were $21,191 as compared to $23,316 in 1999. The reduction reflects the impact
of previous investments and pre-payments toward the conclusion of the Company's
third generation cellular storage system.
LIQUIDITY AND CAPITAL RESOURCES
At February 29, 2000, the Company had cash and cash equivalents of
$1,530,177 as compared to $289,489 at February 28, 1999. The increase in cash
and cash equivalents was due primarily to the conclusion of a private placement
equity financing during November 1999. The gross proceeds from this offering was
$1,100,000 through the sale of 250,000 shares of the Company's restricted common
stock. In March 2000, subsequent to the balance sheet date, the Company received
an additional $1,700,000 from the exercise of options to purchase shares of its
common stock.
To date, the Company's sources of cash have been from the sales of its
U-Cord program to customers, the issuance of its own equities, the sale of
Revenue Sharing Agreements, and the sale of subsidiary stock (prior to 1998). At
February 29, 2000, the Company is virtually debt-free.
The Company anticipates that cash reserves, cash flows from operations
and receivables from its agreements 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-CordTM cellular storage program have increased
significantly due to the awareness being created through its activities with
Lamaze Publishing, the Company's Web site and other forms of marketing exposure.
FORWARD LOOKING STATEMENTS
In addition to historical information, this report contains
forward-looking statements within the meanings of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The
forward-looking statements contained herein are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. Factors that might cause such
differences include, but are not limited to, those discussed in the section
entitled "Management's Discussion and Analysis or Plan of Operation." Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management's analysis only as of the date hereof. CRYO-CELL
International, Inc. (the "Company") undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date hereof. Readers should carefully review the risk factors
described in other documents the Company files from time to time with the
Securities and Exchange Commission, including the most recent Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q to be filed by the Company in 1999 and
any Current Reports on Form 8-K filed by the Company.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- -----------------------------------
I. In December, 1992, CRYO-CELL entered into an exclusive agreement with
the University of Arizona to develop and enhance a commercial (paid
for) cord blood stem cell bank. Prior to this agreement the University
of Arizona had not commenced storing any cord blood specimens.
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.
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. The court rejected three post-trial motions
by the University of Arizona including a request to reduce the award or
set aside the verdict.
On or about September 27, 1999 the Company accepted the University's
offer of $800,000 and settled the matter. On September 30, 1999, the
Company received $441,000 from the University of Arizona. The remaining
balance of $359,000 is being held in escrow, to satisfy a legal lien
filed November 4, 1998 by the Company's previous attorneys, Horwitz and
Beam. The Company disputes their position and has countersued Horwitz
and Beam for malpractice and is seeking $1,000,000 in compensatory
damages and an unspecified amount of punitive damages deemed
appropriate by the court.
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 and
certain aspects of its case against the University of Arizona. There is
a dispute as to whether Horwitz and Beam is entitled to the fees of
$129,822 they claim is owed by the Company.
On March 8, 1999, the Company, the Company's CEO and Chairman, the
Company's Executive Vice President, and the Company's legal counsel
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.
Accordingly, on June 14, 1999, the Company filed: (1) an answer denying
all liability; (2) a counterclaim for breach of contract and
malpractice, seeking in excess of $1 million in compensatory damages
arising from the malpractice; (3) a motion to dismiss the individual
defendants for lack of jurisdiction; and (4) a motion to dismiss all
punitive damages allegations against the Company.
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Recent Event - Judge's Ruling
On December 17, 1999, Judge Alicemarie H. Stotler of the United States
District Court in the Central District of California, issued an Order
in which she: (1) granted CRYO-CELL International, Inc.'s ("CRYO-CELL")
Motion to Strike Punitive Damages and Dismiss Part of the Complaint;
(2) granted Daniel Richard's, Mark Richard's and Gerald F. Maass' (the
"Individual Defendants") Motion to Dismiss Complaint for Lack of
Personal Jurisdiction; and (3) granted in part and denied in part
Horwitz & Beam, Inc.'s ("H&B") Motion for Order Dismissing Counterclaim
and/or Strike Portions Thereof. As discussed in more detail below, the
net effect of this order was to reframe the Complaint as a fee dispute,
as opposed to a multi-million dollar claim for fraud against CRYO-CELL
and its corporate officers. By its order, the Court has barred recovery
in this action against the Individual Defendants, and has reduced
CRYO-CELL's exposure from over $3.5 million dollars to $129,822, plus a
possible award of attorneys' fees.
By granting CRYO-CELL's Motion to Strike Punitive Damages and Dismiss
Part of the Complaint, the Court dismissed H&B's Fourth Claim for
Relief for intentional misrepresentation, i.e., fraud, against
CRYO-CELL and the Individual Defendants. The Court held that the
promises purportedly made to H&B concerning the opening of an "escrow,"
even if not ultimately fulfilled, were not fraudulent. In fact, the
Court said that "although the Individual Defendants clearly made
representations that an 'escrow' would be established, their not having
done so, in light of uncertainties of the future course of litigation
and their misgivings of plaintiff's performance, suggests nothing more
than a negotiation of payment terms."
The Court granted CRYO-CELL's Motion to Strike Punitive Damages Claims
with respect to H&B's Fifth Claim for Relief because such damages are
not available in connection with negligence claims. Having dismissed
the Fourth Claim for Relief for Fraud, H&B's motion to strike the
punitive damages claimed in connection therewith was rendered moot.
The Court granted the Individual Defendants' Motion to Dismiss for Lack
of Personal Jurisdiction, holding that the fiduciary shield doctrine
insulates them from the Court's exercise of personal jurisdiction. The
fraud-based exception to this doctrine does not apply in that H&B's
fraud claim was dismissed.
In granting H&B's Motion for Order to Strike Portions of CRYO-CELL's
Counterclaim, the Court held that the facts pleaded with respect to
H&B's concealment of the loss of its claims against Cord Blood Registry
could not support a claim for punitive damages. Accordingly, the
punitive damages claim was dismissed. If, through discovery, we
identify additional facts concerning the concealment and the threats
such that we are able to plead with more particularity to satisfy the
judge, we can consider seeking leave of court to amend the Counterclaim
to reinstate our claim for punitive damages. In addition, the Court
held that because the Retainer Agreement between the parties did not
contemplate an award of attorneys' fees in the event that CRYO-CELL
sues for legal malpractice, CRYO-CELL cannot seek attorneys' fees.
Finally, the Court denied H&B's motion to strike the purportedly
disparaging comments in the Counterclaim concerning H&B's conduct of
the underlying litigation because H&B failed to make a showing
sufficient to establish that the remarks were scandalous, impertinent
or immaterial.
CRYO-CELL has established an escrow in the amount of $359,000 to cover
the disputed legal fees ($129,822) and the 20% recovery of the
Judgement against the University of Arizona and David Harris. The
Company has requested the release of $69,178 from escrow, which is the
excess of 20% of the $800,000 actual settlement amount. The overage is
a result of CRYO-CELL's settlement of the $1,170,000 original jury
award.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
3.1 Certificate of Incorporation (1)
3.11 Amendment to Certificate of Incorporation (1)
3.2 By-Laws (1)
3.21 Board Minutes to Amendment of By-Laws (1)
10.11 Agreement with InstaCool of North America, Inc. (2)
10.12 Agreement with the University of Arizona (2)
10.13 Agreement with Illinois Masonic Medical Center (4)
10.14 Agreement with Bio-Stor (4)
10.15 Agreement with Gamida-MedEquip (4)
10.16 Agreement with ORNDA HealthCorp (Tenet HealthSystem Hospitals, Inc.) (4)
10.17 Convertible Note from Net/Tech International, Inc.
Dated November 30, 1995 (3)
10.18 Amended Agreement with Bio-Stor (5)
10.19 Agreement with Dublind Partners, Inc. (6)
10.20 Agreement with Medical Marketing Network, Inc. (6)
21 List of Subsidiaries (3)
27 Financial Data Schedule
</TABLE>
------------------
(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 Companyis Annual Report on
Form 10-K for the year ended November 30, 1996.
(5) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended November 30, 1997.
(6) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended November 30, 1998.
(7) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended November 30, 1999.
(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.
(3) Form 8-K filed February 16, 2000 - The judge issued an order
in which she (1) granted the Company's motion to strike
punitive damages and dismiss part of the complaint, (2)
granted Daniel Richard's, Mark Richard's and Gerald Maass'
motion to dismiss complaint for lack of personal
jrisdiction, and (3) granted in part and denied in part
Horwitz & Beam, Inc.'s motionto for order dismissing
counterclain and/or strike portions thereof.
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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRYO-CELL INTERNATIONAL, INC.
/s/DANIEL D. RICHARD
------------------------------
Daniel D. Richard
Chief Executive Officer
Date: April 14, 2000
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<NAME> CRYO-CELL INTERNATIONAL, INC.
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