<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 August 31, 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
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(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 August 31, 2000,
10,089,189 shares of $0.01 par value common stock were outstanding.
Transitional Small Business Disclosure Format (check one). Yes / / No /X/
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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 Statement 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 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURES 22
</TABLE>
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CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31, November 30,
2000 1999
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<S> <C> <C>
Current Assets
Cash and cash equivalents $ 3,318,689 $ 1,555,190
Accounts receivable and advances (net of allowance for
doubtful accounts of $14,688) 134,497 57,548
Receivable - Litigation 69,178 69,178
Receivable - Revenue Sharing Agreement 400,000 450,000
Receivable - CRYO-CELL Europe 600,000 -
Receivable - Insurance Claim 62,631 -
Marketable securities 288,315 109,407
Refundable income taxes 790 890
Prepaid expenses and other current assets 228,053 200,266
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Total current assets 5,102,153 2,442,479
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Property and Equipment 2,998,930 2,719,804
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Other Assets
Intangible assets (net of amortization of $83,560 and $65,864, respectively) 72,030 66,095
Marketable securities 294,235 219,383
Investment option to purchase 100,000 -
Deposits with vendors and others 29,195 82,681
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Total other assets 495,460 368,159
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$ 8,596,543 $ 5,530,442
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LIABILITIES AND STOCKHOLDERS' EQUITY
August 31, November 30,
2000 1999
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Current Liabilities
Accounts payable $ 73,668 $ 35,689
Accrued expenses and withholdings 144,813 167,189
Unearned revenue - CRYO-CELL Europe 1,000,000 -
Current portion of obligations under capital leases 6,556 7,604
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Total current liabilities 1,225,037 210,482
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Other Liabilities
Unearned revenue 284,296 145,535
Deposits 30,500 124,550
Obligations under capital leases-net of current portion 13,001 17,652
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Total other liabilities 327,797 287,737
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Stockholders' Equity
Preferred stock (500,000 $.01 par value authorized and unissued) - -
Common stock (20,000,000 $.01 par value common shares
authorized; 10,089,189 at August 31, 2000 and 9,193,155
at November 30, 1999 issued and outstanding) 100,892 91,932
Additional paid-in capital 15,041,350 12,351,688
Net realized gain (loss) on marketable securities 180,050 (71,210)
Accumulated deficit (8,278,583) (7,340,187)
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Total stockholders' equity 7,043,709 5,032,223
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$ 8,596,543 $ 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 Nine Months Ended
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August 31, August 31, August 31, August 31,
2000 1999 2000 1999
-------------- ------------- -------------- --------------
Revenue $ 554,628 $ 330,824 $ 1,500,269 $ 862,040
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<S> <C> <C> <C> <C>
Costs and Expenses:
Cost of sales 258,562 133,441 641,890 364,879
Marketing, general & administrative expenses 739,179 951,775 1,969,202 1,981,775
Research, development and related engineering 94,760 20,206 290,485 62,711
Depreciation and amortization 27,289 28,580 81,838 85,741
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Total cost and expenses 1,119,789 1,134,002 2,983,415 2,495,106
-------------- ------------- -------------- -------------
Operating Loss (565,162) (803,178) (1,483,146) (1,633,066)
-------------- ------------- -------------- -------------
Other Income and (Expense):
Interest Income 42,810 1,176 84,142 1,176
Interest Expense (778) (375) (2,023) (2,546)
Other Income 200,000 - 400,000 -
Settlement on Litigation 62,631 459,000 62,631 341,000
Total other income 304,663 459,801 544,750 339,630
-------------- ------------- -------------- -------------
Net Loss $ (260,499) $ (343,377) $ (938,396) $ (1,293,436)
============== ============= ============== =============
Net Loss Per Share ($0.03) ($0.04) ($0.10) ($0.16)
============== ============= ============== =============
Number of Shares Used In Computation 10,072,120 8,728,129 9,757,789 8,207,458
============== ============= ============== =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
4
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CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
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August 31, August 31,
2000 1999
(unaudited) (unaudited)
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<C> <C>
Cash Flows from Operating Activities
Net Loss $ (938,396) $ (834,811)
Adjustments to reconcile net loss
to cash used for operating activities:
Depreciation and amortization 102,011 85,741
Issuance of common stock for interest and services rendered 201,273 451,476
Changes in assets and liabilities:
Accounts receivable (76,949) (12,403)
Receivable - Revenue Sharing Agreement 50,000 -
Receivable - CCEL Europe (600,000) -
Receivable - Insurance Claim (62,631)
Receivable - Litigation - (510,178)
Prepaid expenses and other current assets (27,787) (155,002)
Deposits - -
Accounts payable 37,982 31,313
Accrued expenses (22,376) (154,283)
Refundable income taxes payable 100 8,078
Unearned revenue - CRYO-CELL Europe 1,000,000
Unearned revenue and deposits 98,197 146,639
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Net cash used for operating activities (238,576) (943,430)
---------------------- ---------------------
Cash flows from investing activities:
Investment -option to purchase (100,000) -
Purchases of securities (2,500) -
Purchases of property and equipment (363,447) (84,260)
Payments for intangible assets (23,630) -
---------------------- ---------------------
Net cash provided by (used for) investing activities $ (489,577) $ (84,260)
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Cash flows from financing activities
Proceeds from the sale of securities 21,000 1,215,208
Proceeds (repayment) of short term borrowings - (550,000)
Exercise of stock options 2,476,351 -
Repayment of capital leases (5,699) (3,776)
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Net cash provided by financing activities: 2,491,652 661,432
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Increase (decrease) in cash and
cash equivalents 1,763,499 (366,258)
Beginning of period 1,555,190 499,696
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End of period 3,318,689 133,438
====================== =====================
Supplemental disclosure of cash flow information:
Interest $ 2,023 $ 2,921
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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
AUGUST 31, 2000
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENTS
The Consolidated Financial Statements including the Consolidated
Balance Sheet as of August 31, 2000 and November 30, 1999, Consolidated
Statements of Operations for the three and nine months ended August 31, 2000
and August 31, 1999, and Consolidated Statement of Cash Flows for the nine
months ended August 31, 2000 and August 31, 1999 have been prepared by the
Company, without audit. In the opinion of Management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and changes in cash flows at August
31, 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
RETURN ON INVESTMENT CORPORATION
In August 2000 Return on Investment Corporation (ROI Corporation)
merged into Net/Tech International, Inc. (NTTI) and NTTI's name changed to
ROI Corporation. ROI Corporation now trades as ROIE. ROIE exchanged one share
of common stock for twenty shares of NTTI common stock reducing the Company's
holdings to 77,886 shares of ROIE common stock.
In November 1998 the Company's ownership percentage in 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 ROIE and NTTI stocks are 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 ROIE 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 $389,430 and $295,965 to reflect the fair market value of the
investment as of August 31, 2000 and August 31, 1999, respectively.
6
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CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 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 August 31, 2000 and August 31, 1999 was
$190,620 and $40,620, respectively and the unrealized holding loss on this
security was $209,380 and $359,380 as of August 31, 2000 and August 31, 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, the Company 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 commenced in April 2000. As of August 31,
2000, the Company paid $154,162 and is recognizing this as a prepaid expense
on the balance sheet. The prepaid expense is being prorated over the term of
the contract and expensed accordingly. 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
intact, including the exclusivity provisions as the only cord blood
preservation company on the Lamaze YOU AND YOUR BABY educational videotape
through the year 2003.
On April 6, 2000, the Company signed an agreement to establish
CRYO-CELL Europe. Under the terms of the agreement, the Company has licensed
the marketing rights to Europe for the Company's U-CordTM program. In return
for the marketing rights and technology transfer the Company will receive
$1,400,000. As of August 31, 2000 the Company has received $800,000 per the
contract schedule. The remaining payments ($600,000) are due in full by July
1, 2001 but will likely be paid by November 2000. 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
AUGUST 31, 2000
(UNAUDITED)
NOTE 3- COMMITMENTS AND CONTINGENCIES
On September 19, 2000, the Company purchased an equity position of
approximately six percent (6%) in CRYO-CELL Europe for $1,000,000. A $500,000
payment was made upon signing of the agreement and an additional $500,000
will be paid on November 30, 2000 subject to the receipt of the remaining
$600,000 due under the terms of the original agreement. The equity position
is in addition to the receipt of the entitlements from processing fees and a
minimum of 18% of the annual fees from all expectant parents who preserve
their newborn's U-CordTM blood with CRYO-CELL Europe.
In August 2000, the Company signed a three-year contract with
babygear.com, the leading baby products, eCommerce retailer. Babygear.com
will market the Company's U-CordTM preservation services through its Web
site. An article featuring the potential medical benefits of U-CordTM
preservation will appear on ibaby.com and babygear.com Web sites with a
direct link to the Company's Web site. Under the terms of the agreement, the
Company will distribute babygear.com certificates and offers to clients.
In August 2000, the Company signed a marketing agreement with
iVillage.com, the leading women's network online at a cost of $42,500. Under
the terms of the agreement, iVillage.com will direct millions of women who
access the iVillage Web site to the Company, as well as, develop banners on
both its Parent Place and Parent Soup Web sites. In addition, information
detailing the benefits of preserving cord blood stem cells will appear in
Lamaze.com and allHealth along with newsletters to iVillage members. As of
August 31, 2000, the Company paid $12,500 and is recognizing this as a
prepaid expense on the balance sheet.
NOTE 4 - LEGAL PROCEEDINGS
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. 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
alleged 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 asserted claims of misrepresentation.
8
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CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000
(UNAUDITED)
NOTE 4 - LEGAL PROCEEDINGS (CONT'D)
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.
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
the Company's exposure from over $3.5 million dollars to $129,822, plus a
possible award of attorneys' fees.
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
note holder 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 note holder 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
As of August 31, 2000, the Company has received $2,476,351 from the
exercise of options to purchase 857,000 shares of common stock. In February
2000, the Company received $21,000 from the sale of 5,000 shares of its
common stock.
The Company made payments for consulting services through the
issuance of common stock. Consulting fees of $201,273 were paid by the
issuance of 34,034 common shares as of August 31, 2000.
9
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CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000
(UNAUDITED)
NOTE 7 AGREEMENTS
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 $100,000 have been received and the remaining
$400,000 due in November 2000, is recorded as a receivable. When the Company
receives the $400,000 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
AUGUST 31, 2000
(UNAUDITED)
NOTE 7 AGREEMENTS (CONT'D)
SAGGI CAPITAL
In January 2000, the Company renewed its contract with Saggi
Capital. The new agreement provides 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 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, the
Company 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. As of
August 31, 2000, CCEL-BIO-THERAPIES has funded $150,000 toward this research,
with $50,000 remaining in reserve. CCEL BIO-THERAPIES, Inc. and the
University are co-assignees of a filed patent application covering this
technology. The Company has been granted worldwide marketing rights for any
product developed as a result of this research program and the University
will receive standard royalty payments on any product sales.
11
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CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 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.
NOTE 9 INVESTMENT - OPTION TO PURCHASE
On September 23, 1999, the Company entered into a 20-year exclusive
agreement with the Cancer Group Institute, LLC, the nation's premier cancer
information service. Per the agreement The Cancer Group Institute, LLC
received options to purchase 10,000 shares of the Company's common stock in
return the Company has an option to purchase 100% of The Cancer Group
Institute's common stock. The purchase price of The Cancer Group Institute,
LLC will be between $1,500,000 and $2,000,000, depending on the date the
Company acquires ownership. As of August 31, 2000, $100,000 has been paid to
The Cancer Group Institute, LLC.
NOTE 10 RECEIVABLE - INSURANCE CLAIM
As a result of the dismissal of the claim for fraud against the
Company and its corporate officers (See Note 4), the Company was able to
recover a portion of its legal fees. Under the terms of the Company's
directors and officers insurance policy, the Company is to receive $62,631.38
as reimbursement of legal fees. In October 2000, the Company received
$62,631.38.
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
celebrated its 10-year anniversary in November 1999, 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
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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 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 approximately 9,000 annual
births 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.
During 2000, all U-CordTM blood processing and preservation will be
done at the Company's facility with the possible 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 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.
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 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 following is a discussion and analysis of the financial
condition and results of operations of the Company for the quarter ended
August 31, 2000 as compared to the same period of the prior year.
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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. During 2000, 600,000 YOU AND YOUR BABY CD's
will be distributed through WAL-MART stores for the first time. 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 March 2000, the Company became a sponsor of the 2000 ACOG Meeting
CD-ROM. The CD will include a segment on the Company's U-CordTM program and
will be distributed to approximately 40,000 ACOG (American College of
Obstetricians and Gynecologists) members. The distribution is scheduled for
October/November 2000. The Company believes it is the only cord blood
preservation firm featured on the CD-ROM.
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 the Company'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. Approximately 25,000 oncologists, radiologists and cancer patients
daily access the Cancer Group's Web site, www.cancergroup.com. 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 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
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channels. Significant marketing synergies exist in reaching both expectant
parents and medical professionals, especially OB/GYNs.
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.
If the grants are approved an additional $100,000 per grant will be received,
which would further research. In addition, the application for a State of
Florida I-4 matching grant has been approved for $100,000, which will be used
for research. 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.
On April 6, 2000, the Company signed an agreement to establish
CRYO-CELL Europe. Under the terms of the agreement, the Company has licensed
the marketing rights to Europe for the Company's U-CordTM program. In return
for the marketing rights and technology transfer the Company will receive
$1,400,000. As of August 31, 2000 the Company received $800,000 per the
contract schedule. The remaining payments ($600,000) are due in full by July
1, 2001 but will likely be paid by November 2000. The Company will also
receive an on-going percentage of the revenues generated from the European
operations.
On September 19, 2000, the Company purchased an equity position of
approximately six percent (6%) in CRYO-CELL Europe for $1,000,000. A $500,000
payment was made upon signing of the agreement and an additional $500,000
will be paid on November 30, 2000 subject to the receipt of the $600,000 due.
The equity position is in addition to the receipt of the entitlements from
processing fees and a minimum of 18% of the annual fees from all expectant
parents who preserve their newborn's U-CordTM blood with CRYO-CELL Europe.
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.
In August 2000, the Company signed a three-year contract with
babygear.com, the leading baby products, eCommerce retailer. Babygear.com
will market the Company's U-CordTM preservation services through its Web
site. An article featuring the potential medical benefits of U-CordTM
preservation will appear on ibaby.com and babygear.com Web sites with a
direct link to the Company's Web site. Under the terms of the agreement, the
Company will distribute babygear.com certificates and offers to clients.
In August 2000, the Company signed a marketing agreement with
iVillage.com, the leading women's network online at a cost of $42,500. Under
the terms of the agreement, iVillage.com will expose millions of women who
access the iVillage Web site to the Company, as well as, develop banners on
both its Parent Place and Parent Soup Web sites. In addition, information
detailing the benefits of preserving cord blood stem cells will appear in
Lamaze.com and allHealth along with newsletters to iVillage members. As of
August 31, 2000, the Company paid $12,500 and is recognizing this as a
prepaid expense on the balance sheet.
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.
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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 25 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, 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 organization was
responsible for setting up restaurant marketing programs in over forty cities.
Wanda D. Dearth, President and Chief Operating Officer. Ms Dearth joined the
Company in June of 2000. Ms. Dearth joined the Company from kforce.com
(formerly Romac International, Inc.) where she was Business Unit Vice
President for the Nursing Division. Ms. Dearth has a history of over 15 years
placing physicians and nurses throughout the U.S. She has over 20 years of
marketing and operational experience with the majority of her career
specializing in start-up operations. Ms. Dearth graduated from Miami
University of Ohio with a B. S. in Business Administration. In October 2000,
Ms. Dearth was appointed a member of the Company's Board of Directors.
Gerald F. Maass, Executive Vice President. 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 nine 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.
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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 nine months ended August 31, 2000 were $1,500,269
as compared to $862,040 for the same period in 1999 representing a 73%
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 fourth
quarter of fiscal 2000.
COST OF SALES. Cost of sales for the nine months ended August 31, 2000 were
$641,890 as compared to $364,879 in 1999. The cost of sales for the nine
months ended August 31, 2000 and 1999 represents the associated expenses
resulting from increased volume of the processing and testing of the U-CordTM
specimens in the Company's own state of the art laboratory in Clearwater,
Florida.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses during the nine months ended August 31, 2000 were
$1,970,163 as compared to $1,981,775 in 1999. These expenses represent the
continuing market development and clinical 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.
Along with an expanded management team the Company has increased its
marketing staff with the placement of representatives in different regions of
the United States. The Company has also developed a clinical support team of
specially trained Registered Nurses available 24 hours a day, 7 days a week
to answer questions regarding cord blood preservation.
RESEARCH, DEVELOPMENT AND RELATED ENGINEERING EXPENSES. Research, development
and related engineering expenses for the nine months ended August 31, 2000,
were $290,485 as compared to $62,711 in 1999. For the period ended August 31,
2000, $150,000 of the total research, development and related engineering
expenses represents a payment from CCEL BIO-THERAPIES, Inc. to the University
of South Florida at Tampa for the research project regarding the technology
for the potential treatment of a number of debilitating degenerative
diseases. The remaining $140,485 represents the investment toward the
conclusion of the Company's third generation cellular storage system.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 2000, the Company had cash and cash equivalents of
$3,318,123 as compared to $133,738 at August 31, 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. During fiscal 2000, the Company received an
additional $2,476,351 from the exercise of options to purchase 857,000 shares
of 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 August 31, 2000, the Company is virtually debt-free.
The Company anticipates that cash reserves, cash flows from
operations and receivables from its
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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 alleged 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 asserted claims of
misrepresentation.
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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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. 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.
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
(a) Exhibits
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
(1) Incorporated by reference to the Company's Registration
Statement on Form S-1 (No. 33-34360).
(2) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended November 30, 1994.
(3) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended November 30, 1995.
(4) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended November 30, 1996.
(5) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended November 30, 1997.
(6) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended November 30, 1998.
(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
jurisdiction, and (3) granted In part and denied In part
Horwitz & Beam, Inc.'s motion to for order dismissing
counterclaim and/or strike portions therof.
(4) Form 8-K filed June 6, 2000 - Appointment of Wanda D. Dearth
as President and Chief Operating Officer.
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.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CRYO-CELL INTERNATIONAL, INC.
/s/ DANIEL D. RICHARD
-----------------------------------
Daniel D. Richard
Chief Executive Officer
Date: October 13, 2000
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