<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 May 31, 2000
/ / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from to
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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 May 31, 2000, 10,033,889
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
PAGE
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
2
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CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
May 31, November 30,
2000 1999
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<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,119,917 $ 1,555,190
Accounts receivable and advances (net of allowance for
doubtful accounts of $14,688) 192,741 57,548
Receivable - litigation 69,178 69,178
Receivable - Revenue Sharing Agreement 400,000 450,000
Marketable securities 329,745 109,407
Refundable income taxes 1,596 890
Prepaid expenses and other current assets 323,197 200,266
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Total current assets 4,436,374 2,442,479
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PROPERTY AND EQUIPMENT 2,934,873 2,719,804
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OTHER ASSETS
Intangible assets (net of amortization of $77,641 and $65,864, respectively) 73,485 66,095
Marketable securities 399,257 219,383
Investment option to purchase 75,000 -
Deposits with vendors and others 31,843 82,681
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Total other assets 579,585 368,159
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$ 7,950,832 $ 5,530,442
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</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
May 31, November 30,
2000 1999
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<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 157,938 $ 35,689
Accrued expenses and withholdings 165,545 167,189
Current portion of obligations under capital leases 7,265 7,604
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Total current liabilities 330,748 210,482
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OTHER LIABILITIES
Unearned revenue 239,154 145,535
Deposits 30,375 124,550
Obligations under capital leases-net of current portion 14,568 17,652
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Total other liabilities 284,097 287,737
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STOCKHOLDERS' EQUITY
Preferred stock (500,000 $.01 par value authorized and unissued) - -
Common stock (20,000,000 $.01 par value common shares
authorized; 10,033,889 at May 31, 2000 and 9,193,155
at November 30, 1999 issued and outstanding) 100,339 91,932
Additional paid-in capital 14,843,512 12,351,688
Net realized gain (loss) on marketable securities 326,502 (71,210)
Accumulated deficit (7,934,366) (7,340,187)
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Total stockholders' equity 7,335,987 5,032,223
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$ 7,950,832 $ 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 SIX MONTHS ENDED
-------------------------------- ------------------------------
May 31, May 31, May 31, May 31,
2000 1999 2000 1999
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUE $ 603,532 $ 311,749 $ 1,029,435 $ 531,216
--------------- ---------------- --------------- ---------------
COSTS AND EXPENSES:
Cost of sales 219,796 130,613 383,403 231,438
Marketing, general & administrative expenses 653,388 531,768 1,230,024 1,030,000
Research, development and related engineering 174,534 19,190 195,725 42,505
Depreciation and amortization 23,240 28,580 54,549 57,161
--------------- ---------------- --------------- ---------------
Total cost and expenses 1,070,958 710,151 1,863,701 1,361,104
--------------- ---------------- --------------- ---------------
OPERATING LOSS (467,426) (398,402) (834,266) (829,888)
--------------- ---------------- --------------- ---------------
OTHER INCOME AND (EXPENSE):
Interest Income 25,974 - 41,332 -
Interest Expense (371) (521) (1,245) (2,546)
Other Income 200,000 - 200,000 -
Settlement on Litigation - 341,000 - 341,000
--------------- ---------------- --------------- ---------------
Total other income 225,603 340,479 240,087 338,454
--------------- ---------------- --------------- ---------------
NET LOSS $ (241,823) $ (57,923) $ (594,179) $ (491,434)
=============== ================ =============== ===============
NET LOSS PER SHARE ($0.02) ($0.01) ($0.06) ($0.06)
=============== ================ =============== ===============
Number of Shares Used In Computation 9,895,148 8,549,460 9,599,764 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>
SIX MONTHS ENDED
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May 31, May 31,
2000 1999
(unaudited) (unaudited)
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (594,179) $ (491,434)
Adjustments to reconcile net loss
to cash used for operating activities:
Depreciation and amortization 62,618 57,161
Issuance of common stock for interest and services rendered 64,632 117,334
Changes in assets and liabilities:
Accounts receivable (135,193) (24,013)
Receivable - Revenue Sharing Agreement 50,000 -
Receivable - Litigation - (341,000)
Prepaid expenses and other current assets (122,931) (141,467)
Deposits 50,838 -
Accounts payable 122,248 82,037
Accrued expenses (1,644) (155,733)
Refundable income taxes payable (706) -
Unearned revenue and deposits (556) 66,009
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NET CASH USED FOR OPERATING ACTIVITIES (504,798) (831,106)
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CASH FLOWS FROM INVESTING ACTIVITIES
Investment -option to purchase (75,000) -
Purchases of securities (2,500) -
Purchases of property and equipment (265,890) (8,390)
Payments for intangible assets (19,187) -
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NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES $ (362,577) $ (8,390)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of securities 21,000 1,015,208
Proceeds (repayment) of short term borrowings - (550,000)
Exercise of stock options 2,414,600 -
Repayment of capital leases (3,423) (2,336)
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NET CASH PROVIDED BY FINANCING ACTIVITIES: 2,432,177 462,872
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Decrease in cash and cash equivalents 1,564,802 (376,624)
Beginning of period 1,555,190 499,696
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End of period 3,119,917 123,072
================ ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest $ 1,245 $ 521
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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
MAY 31, 2000
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENTS
The Consolidated Financial Statements including the Consolidated
Balance Sheet as of May 31, 2000 and November 30, 1999, Consolidated
Statements of Operations for the three and six months ended May 31, 2000 and
May 31, 1999, and Consolidated Statement of Cash Flows for the six months
ended May 31, 2000 and May 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 May 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
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 $529,621 and $685,933 to reflect the fair market value of the
investment as of May 31, 2000 and May 31, 1999, respectively.
6
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CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 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 May 31, 2000 and May 31, 1999 was $196,880
and $68,000, respectively and the unrealized holding loss on this security
was $203,120 and $332,000 as of May 31, 2000 and May 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 May 31, 2000,
the Company paid $109,762 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 May 31, 2000 the Company received $200,000. The scheduled
payments of the remaining $1,200,000 commenced July 1, 2000 with the receipt
of an additional $200,0000 payment. The remaining payments ($1,000,000) 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
MAY 31, 2000
(UNAUDITED)
NOTE 4 - LEGAL PROCEEDINGS (CONT'D)
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
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.
8
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CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000
(UNAUDITED)
NOTE 4 - LEGAL PROCEEDINGS (CONT'D)
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.
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
During the first and second quarters of fiscal 2000, the Company
received $2,414,600 from the exercise of options to purchase 827,250 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 $64,632 were paid by the
issuance of 8,484 common shares as of May 31, 2000.
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
9
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CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000
(UNAUDITED)
NOTE 7 AGREEMENTS (CONT'D)
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.
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 (nhospitali) 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.
10
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CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000
(UNAUDITED)
NOTE 7 AGREEMENTS (CONT'D)
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
May 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.
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 May 31, 2000, $75,000 has been paid to The
Cancer Group Institute, LLC.
11
<PAGE>
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 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;
commencement of processing and storage at Women & Infants laboratory is
expected to commence Summer 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.
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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 CCEL III is designed to be multi-functional and to meet
international manufacturing requirements. When completely developed the unit
will be able to store approximately 30,000 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 third 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 childbearing 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.
The following is a discussion and analysis of the financial
condition and results of operations of the Company for the quarter ended May
31, 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.
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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 agreed to be 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 late July 2000.
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 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.
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.
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
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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. If the grants are approved an additional $100,000 per grant will be
received, which would further 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 May 31, 2000 the Company received $200,000. The scheduled
payments of $1,200,000 commenced July 1, 2000 with the receipt of an
additional $200,000 payment. The remaining payments ($1,000,000) 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.
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 19 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 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.
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
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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.
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 six months ended May 31, 2000 were $1,029,435 as
compared to $531,216 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 third quarter of fiscal 2000.
COST OF SALES. Cost of sales for the six months ended May 31, 2000 were
$383,403 as compared to $231,438 in 1999. For the period ended May 31, 2000,
$24,741 of the total cost of sales represents the entitlements associated
with the Revenue Sharing Agreements as compared to $20,660 in 1999. The
remaining cost of sales for the six months ended May 31, 2000 and 1999
represents the associated expenses resulting from 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 six months ended May 31, 2000 were
$1,230,024 as compared to $1,030,000 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.
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RESEARCH, DEVELOPMENT AND RELATED ENGINEERING EXPENSES. Research, development
and related engineering expenses for the six months ended May 31, 2000, were
$195,725 as compared to $42,505 in 1999. For the period ended May 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 $45,725 represents the investment toward the conclusion of the
Company's third generation cellular storage system.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 2000, the Company had cash and cash equivalents of
$3,119,917 as compared to $123,072 at May 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 the first and second quarters of fiscal 2000, the
Company received an additional $2,414,600 from the exercise of options to
purchase 827,250 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 May 31, 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
(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.
20
<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: July 14, 2000
21
