U.S. Securities And Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended NOVEMBER 30, 1996.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934.
Commission File Number 000-23386
CRYO-CELL INTERNATIONAL, INC.
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(Name of Small Business Issuer in its charter)
DELAWARE 22-3023093
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(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
604 PACKARD COURT, SAFETY HARBOR, FL 34695
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (813) 938-3114
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Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
NONE -----------------------------------------
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
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(Title of class)
Check whether Issuer: (1) has filed all reports required to be filed by section
13 or 15 (d) of the Securities and Exchange Act of 1934 during the past 12
months and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form or any amendment to this Form
10-KSB [ ]
Issuer's Revenues for its most recent fiscal year: $2,669,616.
As of February 7, 1997, the aggregate market value of the voting stock held by
non-affiliates of the Issuer was approximately $24,960,160. The market value of
Common Stock of the Issuer, par value $0.01 per share, was computed by reference
to the average of the closing bid and asked prices of the Issuer's Common Stock
on such date which was 4 7/8.
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ].
The number of shares outstanding of the Issuer's Common Stock, par value $0.01
per share, as of February 7, 1997: 7,151,984.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g. Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders: (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
The list documents should be clearly described for identification purposes (e.g.
annual report to security holders for fiscal year ended December 24, 1990).
Documents incorporated by reference: The information required by Part
III of Form 10-KSB is incorporated by reference to the Issuer's definitive proxy
statement relating to the 1997 Annual Meeting of Shareholders which is expected
to be filed with Securities and Exchange Commission on or about March 30, 1997.
Transitional Small Business Disclosure Format (check one):
Yes [ ]; No [X]
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FORWARD LOOKING STATEMENTS
In addition to historical information, this report contains
forward-looking statements within the meanings of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The
forward-looking statements contained herein are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in the section
entitled "Management's Discussion and Analysis or Plan of Operation -- Factors
That May Affect Future Results and Market Price of Stock." Readers are cautioned
not to place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. CRYO-CELL International, Inc.
(the "Company") undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the risk factors described in
other documents the Company files from time to time with the Securities and
Exchange Commission, including the Quarterly Reports on Form 10-Q to be filed by
the Company in 1997 and any Current Reports on Form 8-K filed by the Company.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
CRYO-CELL International, Inc., a Delaware Corporation, incorporated on
September 11, 1989, is engaged in cryogenic storage and the design and
development of cryogenic storage devices used in its storage programs. During
the period since its inception, the Company's activities have principally
involved the design and development of its cellular storage unit ("CCEL Cellular
Storage Unit") and related items, in securing patents on the same, in initiating
the development of a cellular banking network which the Company refers to as its
Lifespan/service mark/Program (described below in more detail).
The Company believes that the cellular storage unit will provide the
user with 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 automatically inserts vials in pre-selected storage areas inside the
chamber. Additionally, the stored material can be automatically retrieved by
computer and removed from the cellular storage unit on an individual basis
without room temperature air entering the chamber and affecting the other stored
specimens. The Company is the assignee of all patents on the units.
BACKGROUND
Nearly fifty years ago researchers discovered that cells could be
cryopreserved at a low temperature state in which all cellular activity would
cease until the specimens were thawed i.e. cryopreservation. Historically,
cryopreservation was required for organ transplants, blood banks and medical
research. Today cryopreservation is an integral component of evolving cellular
therapies.
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CELL BANKING
Stem cells are the main ingredient found in bone marrow. Stem cells can
be kept alive in a cryogenic environment and then infused into a patient. They
can be returned to the individual from whom they were taken (autologous) or
donated to someone else (allogeneic). The opportunity to use an individuals own
marrow for a transplant is dependent upon whether the cancer has entered the
marrow system (metastasized). Otherwise, a marrow donor needs to be identified
to provide the needed bone marrow. The availability of a marrow donor or stem
cell specimen allows physicians to administer larger doses of chemotherapy or
radiation in an effort to eradicate the disease.
Stem cells can be found in umbilical cord and placenta blood ("cord
blood stem cells") which can be collected and stored after a baby is born.
Recent advances have provided the techniques to separate the stem cells found in
these two sources. As of the end of 1996, over 300 (compared to approximately
100 at the end of 1995) cord blood transplants have been performed. The Company
believes that parents will want to save and store these cells for potential
future use by their child. These stem cells could also have a 1 in 4 chance of
being compatible for use by a sibling.
The Company believes that the market for cord blood stem cells is
enhanced by the current focus on reducing prohibitive health care costs. With
the increasing costs of bone marrow matches and transplants, individuals now can
store their cells as a practice of preventative medicine. The ability to store
these cells not only provides advantages to the people storing their own cells,
but through donations, cellular storage can supplement the current efforts of
the bone marrow registries by increasing the number of donors available and,
accordingly, the chances of a successful match if a transplant is ever
necessary.
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 from prior
to the commencement of treatment.
Sperm storage is another potential use of the Company's unit. Male
cancer patients of child bearing age can store sperm to protect their ability to
have children in the event they are rendered impotent due to chemotherapy or
radiation treatment. The database of stored specimens is designed to improve the
identification process which could provide greater assurance that the correct
sperm cells are retrieved.
New medical technology is constantly evolving which may provide new
uses for cryopreserved cord blood stem cells.
CCEL CELLULAR STORAGE UNITS
Currently available units from other providers of cryopreservation
systems are manually operated and can expose the laboratory technician to liquid
nitrogen when inserting or retrieving specimens and can expose the remaining
stored specimens to ambient temperature. CRYO-CELL has designed and holds
patents on a system which the Company believes makes use of the latest in
computer and robotics technology. This can eliminate some of the major
shortcomings of the current units.
The Company's technology involves patented, multi-faceted cellular
storage units. The Company believes its technology provides an improved method
for storing human cells, such as cord blood and peripheral stem cells, cancer
cells, sperm and other cells in liquid nitrogen and/or liquid nitrogen vapor or
other media conducive to short or long-term cellular storage.
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The unit is currently assembled by an independent manufacturer
utilizing the Company's patented design. A production prototype is currently
awaiting voluntary approval by Underwriters Laboratories ("U/L") and,
accordingly, is not currently operating. The Company's current plans are not to
utilize its cellular storage units in hospitals until it receives U/L approval.
There can be no assurance that the Company's cryopreservation
technology will accomplish its intended goals and function in an operational
setting in the manner as intended.
To harvest the umbilical cord stem cells, the delivering Physician or
one of their staff removes the blood from the umbilical cord and the placenta
utilizing the Umbilical Cord Blood Collection Kit ("Kit") developed by
CRYO-CELL. The Kit contains everything needed to collect specimens, including
both instructions for the medical professional and for delivery of the specimens
to the Lifespan /service mark/ center. The Kit is being manufactured by an
independent organization and provided to the client as part of the collection
fee.
LIFESPAN/service mark/CENTERS
A key factor of the CRYO-CELL business strategy is its Lifespan
/service mark/Cellular Banking Network program. Under the Lifespan/service
mark/program, the Company provides the technology, equipment and maintenance to
the medical facility without charge. The Lifespan/service mark/participant
provides the space and utilities, liquid nitrogen supply, technician, etc.
CRYO-CELL will be responsible for the billing activities. Typically, the
revenues from a Lifespan/service mark/project will be divided 75% to the Company
and 25% to the Lifespan/service mark/participant. This arrangement enables the
Lifespan/service mark/facility to expand their cellular storage capabilities,
offer new services and create a source of ongoing revenue.
CRYO-CELL established a Lifespan/service mark/Center in 1996 at the
Illinois Masonic Medical Center in Chicago which is a World Health Organization
("WHO") Collaborating Center for Prevention of Genetic Disorders. The Company is
storing the Lifespan/service mark/Center's specimens in a standard CryoMed
unit.
In the future, it is the intention of the Company to link the various
CRYO-CELL ("CCEL") units throughout the country through a communications
network. Through the Lifespan/service mark/Network, locating a specimen will be
a simple and efficient procedure, because any computer system on the network
would be the gateway to the entire network. This could reduce costs for the
patient when compared to the average cost of locating a bone marrow donor.
The Company's strategic plan is to develop an international cellular
banking network based on its patented technologies. The Company is focusing on
building alliances through its Lifespan/service mark/Program as well as its
Revenue Sharing Program with university/medical centers and medical
organizations.
There can be no assurances as to the success of the Lifespan/service
mark/program or the Company's ability to develop the communication network.
MARKETING CELLULAR STORAGE SERVICE
Over 4.4 million babies are born in the United States annually. The
Company has targeted the stem cell cryopreservation market as its initial focus.
News media covering stem cell transplants serves to educate expectant
parents about the benefits of storing cord blood stem cells for future medical
benefits. Because the technology is new and evolving, the over 300 transplants
conducted to date have attracted media attention. Furthermore, articles have
appeared in popular newspapers and journals prompting expectant parents to call
the Company, hospital or university and obtain information regarding storing
their child's stem cells. The Company believes
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that future stem cell transplants and medical updates will attract media
attention to this life saving technology. This form of marketing comes at
minimal cost to the Company.
CRYO-CELL has established a Medical & Scientific Advisory Board
composed of 25 researchers, physicians and scientists from various fields such
as oncology, stem cell research, hematology, genetic research, assisted
reproduction and other specialties. Many of the Company's Advisory Board members
are heads of their departments and are committed to cellular storage as part of
new services to improve patient care and save lives. As various Lifespan/service
mark/sites are implemented, the Board members have expressed interest in
conducting educational seminars for their peers at the Lifespan/service
mark/facility and other facilities to promote public awareness.
CRYO-CELL has developed a series of videos demonstrating the CCEL
Cellular Storage Unit and showing the Medical & Scientific Advisory Board having
their first annual meeting. As the CCEL units are delivered and prior to
commencing the cellular storage program, the Company intends to develop a series
of specialized videos along with an information kit which will be sent to
physicians and care givers in the local area. This will serve to educate
individuals as to the services available.
The Company's marketing plan includes a video library which will
contain news segments that have specifically revolved around the CCEL unit as
well as a more general library of news segments discussing the benefits of
storing cord blood. Additionally, CRYO-CELL maintains a database of newspaper
articles relating to cellular storage.
The Company markets its cellular banking services by targeting
expectant parents through direct information to obstetricians, pediatricians,
Lamaze instructors, childbirth educators, certified nurse-midwifes and other
related healthcare professionals. In addition, the Company exhibits at
conferences, trade shows and other media which focus on the expectant parent
market.
REVENUE SHARING AGREEMENTS
ARIZONA. As of February 28, 1995, the Company entered into a Revenue Sharing
Agreement with two private investors. The revenue interest entitles the
investors to a 50% share of the Net Revenues (defined as the revenues after
expenses for running the Lifespan/service mark/Program) from all cellular
storage activities in Arizona. In exchange, the Company received a total of
$1,800,000 in negotiable demand notes to be paid in 25% annual installments
($450,000 plus interest at prime rate) annually, commencing April 30, 1996.
In January, 1996, the notes were restructured to provide for an
accelerated payment of the $450,000, originally due April 30, 1996, to January
of 1996. This was in exchange for the payment of future amounts to be due and
payable out of revenues generated from the Lifespan/service mark/Program. Since
the restructuring made the repayment of the $1,350,000 note based upon future
revenue, the Company does not carry the note as a receivable and has not
recorded this portion of the income.
ILLINOIS. In 1996, the Company signed a series of agreements with a group of
investors entitling them to a 50% share in CRYO-CELL's portion of net revenues
generated by the Cellular Storage Unit located in the Illinois Masonic Medical
Center.
Bio-Stor. On April 12, 1996, the Company signed a Revenue Sharing Agreement with
Bio-Stor International, Inc. ("Bio-Stor"), of Red Bank, New Jersey. Under the
terms of the agreement, Bio-Stor is to pay CRYO-CELL $1,000,000 for revenue
sharing on 30,000 cellular storage half-spaces on an ongoing basis "To date"
$900,000 has been received. The agreement also provides Bio-Stor an option to
increase their permanent agreement to cover 150,000 cellular storage half-spaces
for an additional $4,000,000. Bio-Stor was formed for the purpose of being
involved in multi-faceted cellular storage. The agreement has been extended
until October 12, 1997, to permit Bio-Stor to seek an underwriting for an
initial public offering in order to exercise their option. The extended
agreement now covers 33,000 half-spaces per unit
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or 165,000 half-spaces in total.
ORNDA HEALTHCARE CORPORATION. On November 30, 1996, the Company signed
dual joint venture agreements with OrNda HealthCorp, a Nashville based chain of
50 hospitals. Under the terms of the Lifespan/service mark/segment of the
agreement, CRYO-CELL will provide OrNda, the use of two CRYO-CELL patented
Cellular Storage Units, each with an approximate 35,000 storage capacity. In
addition to OrNda receiving 25% of the $50 per specimen annual cellular storage
fees, CRYO-CELL will provide "pro-bono" spaces within units for important
research in cryopreservation of stem cells for the future medical benefit of
OrNda's patients. In addition to the Lifespan/service mark/agreement, two
"one-third" Revenue Sharing Agreements were purchased in which OrNda agreed to
pay CRYO-CELL $666,666.
Subsequent to the Company's fiscal year end at November 30, 1996, OrNda
completed its payment of $666,666 to the Company.
GAMIDA-MEDEQUIP. On November 27, 1996, the Company announced that an
agreement had been signed with Gamida-MedEquip, Ltd. for exclusive rights to
operate a Lifespan/service mark/cellular storage facility in Israel. The terms
of the agreement provide for Gamida to retain the first 10% of all gross
revenues to be applied toward the cost of operations. Thereafter, CRYO-CELL will
receive:
50% on the first US $1,000,000 gross revenues
45% on $1,000,001 to $1,500,000 gross revenues
40% on $1,500,001 to $2,000,000 gross revenues
35% on $2,000,001 to $2,500,000 gross revenues
30% on all revenues over $2,500,000 gross revenues
These percentages are on annual gross revenues and will be recomputed according
to the above revenue figures annually.
In addition, according to the terms of the agreement, CRYO-CELL will
receive 50% of all licensing or Revenue Sharing Agreement fees generated by
Gamida-MedEquip in Israel. CRYO-CELL will also receive a total of US $500,000
for the Lifespan/service mark/agreement and unit lease.
Gamida will be responsible, at their expense, for all Lifespan/service
mark/ Center operations, marketing activities in Israel as well as training
their technicians in the United States. CRYO-CELL will also receive a portion of
the revenues from the allogeneic cell bank which will be initiated by
Gamida-MedEquip in Israel.
Gamida is currently involved in the distribution of products and/or services in
Israel for such leading companies as Baxter Healthcare, Pacesetters (St. Jude),
Polystan, Gish Biomedical, Sequus USA, JMS Japan and Elekta Germany.
SACHEM CORPORATE FINANCE, LTD. On February 18, 1997, subsequent to the end of
the Company's most recent fiscal year end, the Company announced that it had
sold two Single Unit Revenue Sharing Agreements for $2,000,000 to an associate
firm of Sachem Corporate Finance, Ltd.
The agreement covers revenue sharing in two units to be located in
CRYO-CELL Lifespan/service mark/sites in the United States. A $400,000
non-refundable deposit was paid to CRYO-CELL in the form of 100,000 shares of a
NASDAQ small cap stock at a market value slightly in excess of $400,000 at the
time of the transaction. The $1.6 million cash balance is due in full by May 31,
1997. Upon receipt of the entire
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$2,000,000 on a timely basis, CRYO-CELL has granted Sachem the right to purchase
an additional three Single Unit Partnerships for $3,000,000. These must be
outside the U.S. and could include Australia, where CRYO-CELL has recently
received a patent for its cellular storage technology.
After the full $2,000,000 payment has been made, Sachem, which is
headquartered in London, England, will be granted a 10% management equity
position in CRYO-CELL's planned European operation. While Sachem will be active
in European expansion, William C. Hardy, President and Chief Operating Officer
of CRYO-CELL, will assist in the development of the overseas management team.
Mr. Hardy has extensive contacts overseas, having served as Chief Executive
Officer of the North American division of Arjo, Inc., a Scandinavian company.
The Company can give no assurances as to the time it will take to
develop an international cell banking network or if such a network will prove
profitable.
PATENTS
The Company has been granted patents with respect to its cellular
storage unit. In addition the Company has filed several additional United States
and foreign patents. There can be no assurances, however, that the pending
patent applications will be issued as patents or, if issued, that the patents
will provide the Company with significant protection against competitors. The
Company has made application for the Lifespan/service mark/service mark.
COMPETITION
The Company is aware of several competitors in the marketplace. Each of
these companies charges a considerably higher price for its service than
CRYO-CELL. The Company believes it will be able to successfully compete due to
its patented computer controlled cellular storage unit which will provide a much
greater secure storage capacity than is available with existing equipment. There
can be no assurance, however, that any patented technology will afford the
Company commercially significant advantage over existing or potential
competitors. Moreover, there can be no assurance that alternative methods for
cryopreservation will not be developed by someone with far greater resources
that would compete with the Company's cryogenic unit.
RESEARCH AND DEVELOPMENT
The Company has expended $111,499 during 1996 and $129,939 during 1995,
on research and development which was spent on the development and refinement of
the production version of the cellular storage unit. The Company does not
anticipate that any of these costs will be borne by customers.
GOVERNMENT REGULATION
Since inception of the development of the unit, it has been the opinion
of management and legal counsel that the CCEL Cellular Storage Unit is a class I
device and falls under the Food and Drug Administration's (FDA) regulations at
21 C.F.R. ss. 862.2050 ("general purpose laboratory equipment labeled and
promoted for a specific medical use"). Devices regulated under 21 C.F.R. ss.
862.2050 are specifically exempt from the 510(k) notification requirements.
There is no assurance that in the future the FDA would not classify the unit as
a class II device requiring the Company to file for an equivalency in order to
be able to continue commercial use of the unit.
If the Company is required to file for equivalency to existing
equipment, the notification under section 510(k) of the Federal Drug Act will
include statements that the cellular storage units for cryopreservation are
substantially equivalent to cryopreservation units on the market prior to the
enactment of the Medical Device Amendments of 1976. Total review time, according
to statistics
8
published in MDDI Reports (Medical Devices, Diagnostics & Instrumentation) by
F-D-C- Reports Inc., for all 510(k)s approved by the FDA as of October 19, 1995,
was 135 days, on average, with 1/2 being completed in 91 days or less. If the
cryopreservation unit is so accepted as substantially equivalent by the FDA,
marketing can continue. There is no assurance that the FDA will allow an
equivalency.
In the event that the cryogenic unit is not accepted as substantially
equivalent by the FDA it would require the Company to develop significant test
data proving the reliability of the unit which would take a significant amount
of time. Also, there can be no assurance that the Company will be granted the
right to produce the unit for distribution in the U.S. or that if it is granted
the right, it will be accomplished in a time frame that will not negatively
impact the potential future revenue of the Company.
EMPLOYEES
At present there are 9 employees on the staff of the Company. Daniel D.
Richard serves as the Chairman of the Board and Chief Executive Officer. William
C. Hardy serves as President and Chief Operating Officer. Additional employees
and staff will be hired on an "as needed" basis. The Company believes its
relationship with its employees to be excellent and therefore does not
contemplate any labor disputes.
NET/TECH INTERNATIONAL, INC.
CRYO-CELL owns 2,037,929 shares of Net/Tech International, Inc. common
stock (Net/Tech NASD Bulletin Board symbol...NTTI) which represents 36% of the
outstanding shares (5,697,212 shares total) of this company. Net/Tech has
received a patent for a Hygiene Guard hand washing system. This system will
monitor whether employees have washed their hands after using the restroom
facilities prior to returning to their workplace. In addition, the officers and
directors of the Company own 431,167 shares of Net/Tech stock (7.6%). Net/Tech
activities to date have been limited to purchasing the technology and acquiring
hand made prototypes and applying for patent protection. Net/Tech as a company
faces all the risk of a new business venture. Net/Tech believes its products
will be useful in addressing disposal problems in the medical and food
industries. Several Directors of the Company are currently members of the Board
of Directors of Net/Tech, and therefore, the Company takes an active role in the
major decisions of Net/Tech.
ITEM 2. DESCRIPTION OF PROPERTY
The Company is renting office space on a short term lease through mid
1997 in Safety Harbor, Florida. Subsequent to the balance sheet date, the
Company entered into a long term lease on a new, free-standing headquarters
building containing 7,500 square feet. The facility will contain executive
offices, conference and training center, testing and typing laboratory, cellular
storage facilities and supporting areas and is expected to be occupied in the
summer of 1997.
ITEM 3. LEGAL PROCEEDINGS
The Company has never been named as a defendant in any lawsuit.
In July of 1996, the Company filed suit in the Superior Court of the
State of California, in San Francisco, naming Cord Blood Registry, Inc., Jesse
Kramer, David T. Harris, The Board of Regents University of Arizona and other
defendants. The multi-count lawsuit, seeking millions of dollars in damages,
alleges among other things: breach of contract, fraud and deceit,
misrepresentation, unfair competition, and trade libel. In addition, the Company
seeks damages, including punitive damages, resulting from the alleged
misappropriation of funds belonging to CRYO-CELL in connection with
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cellular storage by its customers.
The Company believes the suit has merit and the allegations can be
proven. It has been established that the defendants have contractually
indemnified each other. Their contract stipulates an insurance program which
covers "the defendants' wrongful use of CRYO-CELL's material and interference of
a legitimate business arrangement between CRYO-CELL and the University of
Arizona". Litigation is proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock has been trading on the Over-The-Counter
market since January 10, 1991, the date of the Company's initial public
offering. The following table shows, for the calendar periods indicated, the
high and low closing bid quotations for the Company's common stock as reported
by the Dow Jones Retrieval Service. The quotations represent inter-dealer prices
without retail mark-up, mark-down or commission and may not represent actual
transactions.
HIGH LOW
---- ---
1995
- ----
February 28, 1995 5 1 3/4
May 31, 1995 6 7/8 3 1/8
August 31, 1995 5 3/8 2 3/4
November 30, 1995 3 3/4 1 3/8
1996
- ----
February 29, 1996 3 1/2 3 1/8
May 31, 1996 5 1/2 4 3/8
August 31, 1996 6 1/4 5 3/4
November 30, 1996 4 1/8 3 15/16
In January of 1997, the Company's stock began trading on the NASDAQ
Small Cap market.
The Company has not declared any cash dividends on its common stock and
does not expect to do so in the near future.
As of January 31, 1997, the Registrant had 386 shareholders of record,
and management believes there are approximately 750 additional beneficial
holders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of the financial condition and results of
operations of the Company for the two years ended November 30, 1996, should be
read in conjunction with the financial statements and related notes as well as
other information contained in this Annual Report on Form 10-KSB.
GENERAL
The Company is engaged in cellular storage and the design of cryogenic storage
devices used in its storage programs. The Company has been financed primarily
through both the private and public equity markets.
The revenue recognized to date has been almost exclusively from the sale of
Revenue Sharing Agreements which has become part of the Company's planned
principal operations. The Company's shift to a greater reliance on sale of
Revenue Sharing Agreements is responsible for its emergence from a development
stage enterprise.
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RESULTS OF OPERATIONS
SALES. For the year ended November 30, 1996, the Company had revenues of
$2,669,616 compared to $500,000 in the prior fiscal year. The increase reflects
the sale of a greater number of Revenue Sharing Agreements than in the prior
period. Storage revenues in 1996 were minimal.
COST OF SALES. In the fiscal year ended November 30, 1996, cost of sales were
$292,708 while there was no cost of sales recorded in the prior year. This
increase represents the assignment of a proportionate share of the value of
equipment associated with the Revenue Sharing Agreements to cost of sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses during the twelve months ended November 30, 1996, were
$1,398,630 as compared to $710,025 in 1995. The increase reflects the expense of
market development, lab operations support and client services associated with
the Lifespan/service mark/Centers and Revenue Sharing Agreements, the expense of
voluntary regulatory approval for the Company's cellular storage unit, continued
product development, and the establishment of an expanded management team to
handle the anticipated growth.
LOAN SETTLEMENT EXPENSE. Loan settlement expense during the twelve months ended
November 30, 1996, was $95,251 as compared to $240,428 in 1995. These two
figures represent final adjustments associated with the conversion of a loan to
Net/Tech International, Inc. into Net/Tech common stock.
RESEARCH AND DEVELOPMENT EXPENSES. Research and Development expenses during the
twelve months ended November 30, 1996, were $111,499 as compared to $129,939 in
1995. The reduction of $18,440 reflects lower spending since the Company's
second generation cellular storage unit is into production.
OTHER. During the twelve months ended November 30, 1996, the Company realized a
gain of $150,000 on the sale of common stock of Net/Tech International, Inc.
There was no similar gain in 1995. During fiscal 1996 the Company wrote off
$146,506 for patents no longer considered necessary by the Company. There was
not a similar write-off in 1995. During fiscal 1996, the Company recognized the
equity in the loss of its unconsolidated affiliate (Net/Tech International,
Inc.) of $79,629 as compared to zero in the 1995. The Company recognized a
provision for income taxes of $38,064 in 1996 as compared to zero in 1995. The
Company utilized approximately $774,000 of tax loss-carryforward in 1996.
MATERIAL FOURTH QUARTER ADJUSTMENTS. The results for the fourth quarter ending
November 30, 1996, include the following adjustments: (1) the assignment of a
proportionate share of cellular storage unit cost to the related Revenue Sharing
Agreement revenue (cost of sales expense of $292,708), (2) the abandonment of
patents no longer considered necessary (added $146,506 to Other Expense), and
(3) the reversal of $200,000 of revenue recognized in the prior quarter since it
is dependent on a contingent event. Taken together, these fourth quarter
adjustments had a significant adverse effect on fourth quarter earnings.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1996, the Company had cash and cash equivalents of $1,079,531 as
compared to $11,536 at the end of fiscal 1995. The significant improvement in
the Company's liquidity primarily reflects increased profits from the sale of
Revenue Sharing Agreements during fiscal 1996.
As noted earlier, the Company has been financed from inception primarily through
both the private and public equity markets. In this way the Company has laid the
foundation for further growth while at the same time it ended fiscal 1996 with
no long term debt.
Subsequent to the balance sheet date, the Company entered into a seven year
lease on a new, free-standing headquarters building containing 7,500 square
feet. The facility will contain executive offices,
12
conference and training center, testing and typing laboratory, cellular storage
facilities and supporting areas. Construction is expected to be completed in the
summer of 1997. Annual lease commitments for the facility beginning in
mid-fiscal 1997 are expected to be approximately $120,000 per year. Capital
expenditures related to the facility are anticipated to be approximately
one-million dollars over the next several years.
The Company has six cellular storage units which have been funded thus far
(original value $900,000). In addition, the Company has twenty-eight units of
blood separation equipment (original value $1,000,000). Future capital
expenditures are dependent on the rate at which the Company opens additional
storage centers.
The Company anticipates that cash reserves plus cash flows from operations in
fiscal 1997 will be sufficient to fund its growth and that cash flows from
operations will depend primarily on the sale of additional revenue sharing
agreements.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
The Company operates in a rapidly changing environment that involves numerous
risks, some of which are beyond the Company's control. The following discussion
highlights some of the risks the Company faces.
MARKET ACCEPTANCE FOR CRYOPRESERVED STEM CELLS. The cryopreserved stem cell
market is a relatively new market and while the Company believes it will gain
increasing popularity, there can be no assurance that the growth of this market
will meet the Company's expectations.
ACCEPTANCE OF THE COMPANY'S CELLULAR STORAGE TECHNOLOGY. Although the Company
believes that its patented cellular storage technology will be accepted, there
can be no assurance that the Company's cryopreservation technology will function
in an operational setting in the manner as intended or develop a profit center
for the Company.
ABILITY TO SELL ADDITIONAL REVENUE SHARING AGREEMENTS. The Company's selling of
Revenue Sharing Agreements has assisted it in ending this last fiscal year with
no long term debt. The Company envisages an increasingly lesser reliance on
these Agreements as storage revenue increases. However, Revenue Sharing
Agreements will continue to play a key role in the Company's cash flow from
operations for the foreseeable future. There can be no assurance that the
Company will be successful in continuing to market these Agreements.
POSSIBLE NEED FOR ADDITIONAL CAPITAL. The Company believes it will generate
sufficient revenues to fund its operations. However, should the Company's
sources of revenue, primarily the Revenue Sharing Agreements, not materialize as
management anticipates, the Company may seek additional capital from public or
private sources. There can be no assurance that such capital will be available
or, if available, that the terms of its availability will not be adverse to the
existing shareholders of the business.
COMPETITIVE ENVIRONMENT. In the Company's opinion, the potential life saving
need for cryopreserved stem cells is likely to attract additional competitors in
the market. The Company believes its storage technology edge will enable it to
offer a more price-competitive service than its competitors. However, there can
be no assurance that competitors with more financial and technical resources
will not adversely affect the Company's business.
UNEVEN PATTERN OF QUARTERLY OPERATING RESULTS. The Company's revenue in general,
and in particular its Revenue Sharing Agreement revenues, are difficult to
forecast and can vary from quarter to quarter due to various factors, including
(1) the relatively long sales cycles for these Agreements, and (2) the size and
13
timing of individual Agreement transactions. Accordingly, the Company's
quarterly results are difficult to predict and delays can cause quarterly
revenues and net income to fall significantly short of anticipated levels.
MANAGEMENT OF GROWTH. The Company anticipates rapid growth in capitalizing on
the opportunity in cryopreserved stem cells. The Company's future operating
results will depend on management's ability to manage growth, continuously hire
and retain qualified employees, forecast revenues and control expenses. An
unexpected decline in the growth rate of revenues without a corresponding and
timely slowdown in expense growth could have a material adverse effect on the
Company's business, results of operations or financial condition.
HIRING AND RETENTION OF EMPLOYEES. The Company's continued growth and success
depends to a significant extent on the continued service of senior management
and other key employees and the hiring of new qualified employees. There can be
no assurances that the Company will be successful in continuously recruiting new
personnel and in retaining existing personnel. The loss of one or more key
employees or the Company's inability to attract additional qualified employees
or retain other employees could have a material adverse effect on the Company's
business, results of operations or financial condition. In addition, the Company
may experience increased compensation costs in order to compete for skilled
employees.
ENFORCEMENT OF THE COMPANY'S INTELLECTUAL PROPERTY RIGHTS. The Company relies on
a combination of the protections provided under applicable patent, copyright,
trademark and trade secret laws. It also relies on confidentiality procedures
and licensing arrangements to establish and protect its rights in its products
and services. Despite the Company's efforts to protect these rights, it may be
possible for unauthorized third parties to copy certain portions of the
Company's products or to reverse engineer or obtain and use technology or other
information that the Company regards as proprietary. In addition, the laws of
certain countries do not protect the Company's proprietary rights to the same
extent as do the laws of the United States. Accordingly there can be no
assurance that the Company will be able to protect its proprietary technology
against unauthorized third party copying or use, which could adversely affect
the Company's competitive position.
INTERNATIONAL SALES. Although international sales have not been a factor to
date, the Company believes this market to offer attractive potential. Such
growth in international business will be subject to the risks attendant thereto,
including the general economic conditions in each country, the overlap of
different tax structures, the difficulty in managing an organization spread over
various countries, changes in regulatory requirements, compliance with a variety
of foreign laws and regulations and longer payment cycles in certain countries.
14
ITEM 7. FINANCIAL STATEMENTS
The financial statements and supplementary data listed in the
accompanying Index to Financial Statements are attached as part of this report.
CRYO-CELL INTERNATIONAL, INC.
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of CRYO-CELL International, Inc.
are included in Item 7:
Report of Independent Public Accountants 16
Consolidated Balance Sheets F-1
Consolidated Statements of Profit and Loss F-3
Consolidated Statements of Cash Flows F-4
Consolidated Statements of Shareholders' Equity F-6
Consolidated Notes to Financial Statements F-8
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
15
[LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
CRYO-CELL International, Inc.
We have audited the accompanying consolidated balance sheets of CRYO-CELL
International, Inc. and subsidiaries as of November 30, 1996 and 1995, and the
related consolidated statements of income (loss), shareholder's equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CRYO-CELL
International, Inc. and subsidiaries as of November 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
MIRSKY, FURST & ASSOCIATES, P.A.
Fort Lee, New Jersey
February 3, 1997
16
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
ASSETS
------
NOVEMBER 30 NOVEMBER 30
1996 1995
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $1,079,531 $ 11,536
Accounts receivable (net of reserve of $2500 in 1996) 673,533 0
Convertible notes receivable (net of reserve of $394,324 in 1995) 0 76,951
Notes receivable (net of reserve of $5,000 in 1995) 0 450,000
Inventory 13,628 0
Prepaid expenses 22,839 0
---------- ----------
Total Current Assets 1,789,531 538,487
---------- ----------
PROPERTY AND EQUIPMENT
Property and equipment, net 2,044,454 1,688,013
---------- ----------
OTHER ASSETS
Intangible assets (net of amortization of
$30,531 and $36,223, respectively) 67,630 218,821
Deposit on equipment 250,000 600,000
Security deposits 5,971 18,710
Investment in unconsolidated affiliate 50,138 0
---------- ----------
Total Other Assets 373,739 837,531
---------- ----------
TOTAL ASSETS $4,207,724 $3,064,031
------------ ========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-1
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
NOVEMBER 30 NOVEMBER 30
1996 1995
----------- -----------
CURRENT LIABILITIES
Accounts payable $ 86,433 $ 74,033
Accrued revenue sharing expense 292,708 0
Other accrued expenses 93,823 50,851
Income taxes payable 37,334 0
Loans payable 0 88,000
Convertible notes payable 0 250,000
Obligation under capital leases 8,296 16,970
----------- -----------
Total Current Liabilities 518,594 479,854
----------- -----------
OTHER LIABILITIES
Obligations under capital lease (net of current portion) 0 7,169
Deposits 30,000 30,000
Commitments and contingencies 0 0
----------- -----------
Total Other Liabilities 30,000 37,169
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock (500,000 $.01 par value authorized; 0 0
0 issued and outstanding)
Common stock (15,000,000 $.01 par value common shares
authorized; 7,151,984 at November 30, 1996 and 71,520 70,553
7,055,290 at November 30, 1995 issued and outstanding)
Additional paid-in capital 6,473,085 5,972,672
Accumulated deficit (2,885,475) (3,496,215)
----------- -----------
Total Stockholders' Equity 3,659,130 2,547,010
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,207,724 $ 3,064,031
=========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-2
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
NOVEMBER 30 NOVEMBER 30
1996 1995
----------- -----------
Revenue $2,669,616 $ 500,000
---------- ----------
Costs and Expenses:
Cost of sales - revenue sharing 292,708 0
Selling, general & administrative expenses 1,398,630 710,025
Loan settlement expense 95,251 240,428
Research and development expenses 111,499 129,939
Depreciation and amortization 53,357 62,484
---------- ----------
Total Cost and Expenses 1,951,445 1,142,876
---------- ----------
Operating Profit (Loss) 718,171 (642,876)
---------- ----------
Other Income and (Expense):
Interest income 27,668 38,176
Interest (Expense) (14,135) 0
Gain on sale of unconsolidated affiliate's
stock 150,000 0
Write-off of patents abandoned as
unnecessary (146,506) 0
---------- ----------
Total Other Income 17,027 38,176
---------- ----------
Income (Loss) before equity in net loss
of unconsolidated affiliate and
provision for income taxes 735,198 (604,700)
Provision for income taxes 44,829 0
Equity in net loss of unconsolidated
affiliate 79,629 0
Net Income (Loss) ---------- ----------
$610,740 $(604,700)
========== ==========
Net Income (Loss) Per Share $ 0.09 ($ 0.09)
========== ==========
Number of Shares Used in Computation 7,176,428 6,919,967
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-3
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
NOVEMBER 30 NOVEMBER 30
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 610,740 $ (604,700)
Adjustments to reconcile net income
(loss) to cash provided by (used
for) operating activities:
Depreciation and amortization 53,357 62,484
Interest income 6,857 0
Write-off of patents abandoned as
unnecessary 146,506 26,630
Write-off of prototype 0 20,073
Loan settlement expense 95,251 240,428
Allowance for bad debts 2,500 30,000
Equity in loss of unconsolidated
affiliate 79,629 0
Consulting expense 208,053 0
Proceeds on sale of unconsolidated
affiliate's stock (150,000) 0
Changes in assets and liabilities:
Accounts and convertible notes
receivable (694,333) 0
Notes receivable 455,000 (455,000)
Inventory (13,628) 0
Prepaid expenses (22,839) 5,897
Accrued interest receivable 0 (36,639)
Accounts payable 12,402 4,175
Accrued expenses 335,680 15,752
Income taxes payable 37,334 0
Deposits and other 12,575 17,276
--------- --------
Net cash provided by (used for) operating
activities 1,175,084 (673,624)
--------- --------
Cash flows from investing activities:
Purchases of property and equipment-net (105,113) (10,626)
Patent and trademark acquisition costs 0 (9,196)
Advances made on convertible note
receivable (18,550) (219,788)
Proceeds from sale of investee stock 150,000 0
--------- ---------
Net cash provided (used for) investing
activities $ 26,337 $(239,610)
--------- ---------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED
NOVEMBER 30 NOVEMBER 30
1996 1995
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock $ 170,417 $ 877,466
Loan proceeds 88,662 38,000
Repayment of debt (376,662) 0
Loan advances to affiliated company 169,357 0
Principal payments under capital leases (15,843) (14,027)
Loan repayments from affiliated company 169,357 0
--------- --------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES: (133,426) 901,439
---------- --------
Increase (decrease) in cash and cash equivalents 1,067,995 (11,795)
Cash and cash equivalents:
Beginning of year 11,536 23,331
---------- --------
End of year $1,079,531 $ 11,536
========== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 45,436 $ 0
---------- --------
Income taxes $ 7,496 $ 0
---------- --------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Deposits for equipment in the amount of $600,000 were converted into equipment.
Consulting expenses of $208,053 were paid with the issuance of common stock.
The Company received 517,211 shares of Net/Tech common stock as payment for
advances and $6,857 current year interest income.
The accompanying notes to consolidated financial statement are an integral part
of these statements.
F-5
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SAHREHOLDERS' EQUITY
TOTAL
ADDITIONAL SHARE-
COMMON STOCK PAID-IN ACCUMULATED HOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ---------- ----------- ----------- -----------
BALANCE NOVEMBER 30, 1994 6,607,560 $ 66,076 $ 4,099,684 ($2,891,515) $ 1,274,245
========= ========== =========== =========== ===========
DECEMBER 1, 1994 TO
NOVEMBER 30, 1995
Shares issued at $2.99 per share 67,000 670 199,330 200,000
Shares issued at $4.00 per share 50,000 500 199,500 200,000
Shares issued at $5.00 per share
For blood separation equipment 200,000 2,000 998,000 1,000,000
Shares issued at $3.50 per share 30,000 300 104,700 105,000
Shares issued at $3.95 per share 60,000 600 236,557 237,157
Shares issued at $4.04 per share
For services provided 25,000 250 100,750 101,000
Shares issued at$2.50 per share
For services provided 3,230 32 8,043 8,075
Shares issued at $2.50 per share 2,500 25 6,225 6,250
Shares issued at $2.00 per share 10,000 100 19,883 19,983
Net(Loss) (604,700) (604,700)
------- --------- ----------- ----------- ---------
BALANCE NOVEMBER 30, 1995 7,055,290 $ 70,553 $ 5,972,672 ($3,496,215) $2,547,010
========= ========= =========== =========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SAHREHOLDERS' EQUITY
TOTAL
ADDITIONAL SHARE-
COMMON STOCK PAID-IN ACCUMULATED HOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
----------- ----------- ----------- ----------- -----------
BALANCE NOVEMBER 30, 1995 7,055,290 $ 70,553 $ 5,972,672 ($3,496,215) $ 2,547,010
=========== =========== =========== =========== ===========
Shares Issued Upon
Exercise of Options at $4.00 per share 5,000 50 19,950 20,000
Shares Issued Upon
Exercise of Options at $3.00 per share 50,000 500 149,500 150,000
Shares Issued
For Consulting Services 41,694 417 208,053 208,470
Increase in carrying value accounting
for Unconsolidated Affiliate 122,910 122,910
Net Income 610,740 610,740
----------- ----------- ----------- ----------- ----------
BALANCE NOVEMBER 30, 1996 7,151,984 $ 71,520 $ 6,473,085 ($2,885,475) $3,659,130
=========== =========== =========== =========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-7
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LINE OF BUSINESS
The Company was incorporated in Delaware on September 11, 1989. The
Company is engaged in cryogenic storage and the design and development of
cryogenic storage devices used in its storage programs. The revenue recognized
to date has been almost exclusively from the sale of Revenue Sharing Agreements
which has become part of the Company's planned principal operations. The
Company's shift to a greater reliance on the sale of Revenue Sharing Agreements
is responsible for its emergence from a development stage enterprise.
The Company formed Safti-Cell, Incorporated, CCEL Immune System
Technologies, Inc. , CCEL Expansion Technologies, Inc. and CCEL Bio-Therapies,
Inc. in Delaware in calendar year 1993. As of November 30, 1996, no shares have
been issued for any of these subsidiaries. CCEL Immune System Technologies, Inc.
has opened a bank account but has had no activity in it for the year ended
November 30, 1996, and none of the other subsidiaries has any financial activity
but are all consolidated with the Company. The Company has retained these
corporations for possible future use.
REVENUE RECOGNITION
Revenue is recognized when the Company enters into a Revenue Sharing
Agreement and the payment pursuant to the agreement has been satisfactorily
assured.
Equipment costs related to the agreement are expensed in the period in
which the sale is recorded.
Cryogenic storage fees are recognized ratably over the storage period.
CONCENTRATION OF CREDIT RISKS
During 1996, nearly all of the Company revenues were derived from four
Revenue Sharing Agreements.
Financial instruments that potentially subject the Company to
concentration of credit risk are principally cash and cash equivalent accounts
in financial institutions, which often exceed the Federal Depository Insurance
limit. The Company places its cash with high quality financial institutions and
believes it is not exposed to any significant credit risk.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Reclassifications have been made to the prior year's Consolidated
Financial Statements to conform to the fiscal 1996 presentation.
F-8
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTS POLICIES - CONTINUED
CASH AND CASH EQUIVALENTS
Cash and equivalents consist of highly liquid investments with a
maturity date at acquisition of three months or less.
ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts related to the sale of
Revenue Sharing Agreements. These amounts have been collected subsequent to the
balance sheet date.
INVESTMENT
The investment in Net/Tech International, Inc., ("Net/Tech") by
CRYO-CELL is being accounted for on the equity method.
The following is a summary of Net/Tech assets, liabilities and results
of operations as of November 30, 1996:
November 30 November 30
1996 1995
--------- ---------
Cash $ 77,560 $ 0
--------- ---------
Net Fixed Assets 13,539 1,604
--------- ---------
Total Assets 177,485 83,989
--------- ---------
Total Current Liabilities 28,851 507,432
--------- ---------
Total Stockholders Equity (Deficit) 145,370 (423,443)
--------- ---------
Net Loss for the Period 198,241 235,508
--------- ---------
PROPERTY AND EQUIPMENT :
Property and Equipment are stated at cost. Depreciation is computed
using a straight-line method over estimated useful lives.
Upon the sale or retirement of depreciable assets, the cost and related
accumulated depreciation will be removed from the accounts and resulting profit
or loss will be reflected in income. Expenditures for maintenance and repairs
are charged to income as incurred.
Estimated useful lines are as follows:
Machinery and Equipment 5 - 10
Furniture and Fixtures 5 - 7
In 1995, Financial Accounting Standard No. 121 (SFAS 121), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of," was issued and is effective for fiscal years commencing after December 15,
1995. The future adoption of SFAS 121 is not expected to have a material effect
on the Company's financial statements. In the current year, the Company adopted
a policy of expensing the portion of equipment costs related to the Revenue
Sharing Agreements. The expense has been classified as a cost of goods sold.
F-9
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INTANGIBLE ASSETS
Costs incurred in connection with filing patent and trademarks
applications are capitalized. Patents and trademarks granted are amortized on a
straight line basis over a lifetime of 10 and 3 year, respectively.
Abandoned patents are expensed in the year of abandonment.
RESEARCH AND DEVELOPMENT COSTS
Research, development and related engineering costs are expensed as
incurred.
NET INCOME PER COMMON AND COMMON-EQUIVALENT SHARE
Net income per common and common-equivalent share is computed using the
weighted average number of common and dilutive common-equivalent shares
outstanding. Dilutive common-equivalent shares consist of the incremental shares
issuable upon the exercise of stock options (using the treasury stock method).
Fully diluted earnings per share have not been presented because the additional
dilution effect is immaterial.
STOCK -BASED COMPENSATION
The Company has not elected early adoption of the Financial Accounting
Standard No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." SFAS 123
becomes effective beginning with the Company's first quarter of fiscal 1997 and
will not have a material effect on the Company's consolidated financial position
or operating results. Upon adoption of SFAS 123, the Company will continue to
measure compensation expense for its stock-based employee compensation plans
using the intrinsic value method prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and will provide proforma disclosures of net
income and earnings per share as if the fair value-based method prescribed by
SFAS 123 had been applied in measuring compensation expense.
NOTE 2 - PROPERTY AND EQUIPMENT
The major classes of property and equipment, at cost, are as follows:
NOVEMBER 30 NOVEMBER 30
CLASSIFICATION 1996 1995
- -------------- ---------- -----------
Furniture and equipment $ 144,257 $ 142,800
Cellular Storage Units 600,000 300,000
Controlled Rate Freezer 140,000 140,000
Blood Separation Equipment 1,021,240 1,000,000
Prototype 246,919 246,919
----------- ----------
Total 2,152,416 1,829,719
Less
Accumulated depreciation and amortization 107,962 141,706
----------- ----------
Property and equipment, net $2,044,454 $1,688,013
=========== ==========
Certain components of the above equipment have not been depreciated since they
have not yet been placed in service at November 30, 1996. However, the Company
has accrued the costs of equipment allocable to Revenue Sharing Agreements.
F-10
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
NOTE 2 - PROPERTY AND EQUIPMENT CONTINUED
The Company has voluntarily submitted for approval its Patented
Cellular Storage Unit to the Underwriters Laboratories. These units have not yet
been placed into service.
NOTE 3 - ACCRUED EXPENSES
November 30 November 30
1996 1995
--------- -------
Accrued interest $ 0 $31,301
Consultants and patent costs 40,100 12,750
Legal and accounting 1,756 0
Payroll and payroll taxes 14,523 6,800
General expenses 37,444 0
Accrued Revenue Sharing
Agreement expenses 292,708 0
--------- -------
$ 386,531 $50,851
========= =======
NOTE 4 - PATENTS
The Company has patented technology on automatic cryogenic preservation
and has received patents for: additional functions of the cryogenic unit, an
additional unit which incorporates a multi-chambered design and for a process
for controlled freezing/thawing. The Company has been granted patents in several
countries including Australia and Israel.
NOTE 5 - RELATED PARTY TRANSACTIONS
On April 2, 1996, the Company issued 41,694 shares of restricted stock
valued at $208,470 to two former employees in consideration for consulting
services rendered.
The Company borrowed from the wife of the Chairman of the Board during
1996 and 1995, $88,662 and $38,000, respectively. These loans were repaid with
interest during 1996.
During the past three years, CRYO-CELL loaned a total of $517,211 to
Net/Tech International, Inc., an affiliate, on demand Convertible Notes with an
interest rate of 10%. These loans provided the operating capital necessary for
Net/Tech to continue operations. In 1995, CRYO-CELL's Board of Directors
resolved to convert the loans into 517,211 shares of restricted Net/Tech common
stock. This stock was issued in 1996 and represents full payment of the loan
balances. In settlement of the loan transaction with Net/Tech, the Company
recognized an expense of $95,271 and $240,428 in the years ended November 30,
1996 and 1995, respectively. The Company made short term loans totaling $169,857
to Net/Tech during 1996 and these short term loans were repaid in cash on
October 10, 1996.
During 1996, the Company recognized a gain of $150,000 on the sale of
500,000 shares of Net/Tech Common Stock.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Rent expense for the periods ended November 30, 1996, and November 30,
1995, was $16,332 and $16,376, respectively.
F-11
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
NOTE 6 - COMMITMENTS AND CONTINGENCIES CONTINUED
The Company has entered into a lease for office space through mid 1997.
The monthly payment is $739.
Subsequent to the balance sheet date, the Company entered into a seven
year lease on a new, free-standing headquarters building containing 7,500 square
feet. The facility will contain executive offices, conference and training
center, testing and typing laboratory, cellular storage facilities and
supporting areas. Construction is expected to be completed in the summer of
1997. Annual lease commitments for the facility beginning in the summer of 1997
are expected to be approximately $120,000 per year.
To the extent that Net/Tech could not raise sufficient capital through
the sales of stock or through loans or other sources, the Company had committed
to loan to, or guarantee a loan for, or purchase a sufficient number of shares
to guarantee that Net/Tech would be able to continue in business through
November 30, 1996. The Company has not extended this commitment.
The Company has entered into an agreement with Stainless Design
Corporation (SDC) to produce six of the Company's cellular storage units at a
cost of $150,000 per unit. An initial deposit of $900,000 was made, of which
$250,000 and $400,000 remained at November 30, 1996 and 1995, respectively.
NOTE 7 - CONVERTIBLE LOAN
The Company borrowed on two Convertible Loan Agreements totaling
$250,000 during July and August of 1994. The notes had a term of one year at
which time the principal plus interest, at 10% per year, was due. These loans
were extended by the lenders and were fully paid by the Company on February 1,
1996, including accrued interest.
NOTE 8 -INCOME TAXES
Provision for income taxes consists of the following:
NOVEMBER 30 NOVEMBER 30
1996 1995
------- -------
Current
Federal $ 0 $ 0
State $44,829 0
------- -------
Total current $44,829 $ 0
Deferred 0 0
------- -------
Total $44,829 $ 0
======= =======
Deferred taxes reflect the impact of temporary differences between the
amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable for the period plus or
minus the change during the period in deferred tax assets and liabilities.
F-12
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
NOTE 8 -INCOME TAXES CONTINUED
A reconciliation of income tax benefits with the amount of income tax computed
by applying the federal statutory rate (34%) to pretax income follows:
YEARS ENDED NOVEMBER 30, 1996 1995
------------------------ -------- ----------
Tax expense at statutory rate $220,593 $(205,598)
State taxes 44,829 (31,900)
Realization of operating loss carry forward (216,873) 0
Increase in valuation allowance 0 0
Benefit of capital loss carry forward (3,720) 237,498
-------- ----------
Total Income Taxes $ 44,829 $ 0
======== ==========
Net deferred assets in the accompanying balance sheet include the
following components:
Net operating loss carry forward $407,997 $ 839,664
Equity investments 183,074 9,361
Depreciation and other 11,171 11,994
Provisions for expenses and losses 111,112 191,976
------- -------
Total deferred assets 713,354 1,052,995
Less valuation allowance (713,354) (1,052,995)
-------- ---------
Deferred taxes, net of valuation allowance $ 0 $ 0
======== =========
The Company has unused net operating losses available for carry forward
to offset future federal taxable income of $73,631 which expires by the year
2006, $294,557 which expires by the year 2008, $536,253 which expires by the
year 2009 and $295,551 which expires by the year 2010. The total of the
foregoing net operating loss carryforward is $1,199,992.
NOTE 9 - OPTIONS
The following summarizes the Company's outstanding options:
NOVEMBER 30 NOVEMBER 30
1996 1995
------- -------
Options outstanding and exercisable at the
beginning of the year (# of shares) 549,000 417,500
Issued-Employee
(exercise price range: $2.00 - $5.00) 0 70,000
Issued-Non-Employee
(exercise price range: $3.50 - $20.00) 426,000 189,500
Exercised 55,000
Terminated 425,000 128,000
------- -------
Options outstanding and exercisable at the
end of the year (# of shares) 495,000 549,000
Price range of outstanding options
(n/m-no market) n/m n/m
F-13
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
NOTE 9 - OPTIONS CONTINUED
For outstanding shares under options at November 30, 1996, option
prices range from $2.00 to $20.00 per share. The expiration dates for these
options range from March 1997 to February 2000.
NOTE 10 - STOCKHOLDERS' EQUITY
The Company has reserved stock for future issuance as follows:
NUMBER
DESCRIPTION OF SHARES
----------- ---------
Reserve for employee stock options* 500,000
Reserve for non-employee stock options 600,000
*500,000 shares have been put in reserve for an employee stock option plan.
Employee Options under the Plan are exercisable at 100% of the current market
price and have a term of five years from the date of grant. The options
immediately terminate on the employee's termination or in the case of permanent
and total disability the options are exercisable for a period of 30 days after
termination.
NOTE 11 - MARKETING AND CELLULAR STORAGE AGREEMENT SIGNED WITH
GROUP IN ISRAEL
On March 31, 1991, the Company and an Israeli Group entered into a 40
year cross-licensing agreement in which the Israeli Group has been granted the
right to establish a cellular banking network. This agreement has been
superseded by an agreement with MedEquip Ltd. Under the terms of this agreement,
MedEquip will be responsible for marketing the Company's Lifespan/service
mark/Cellular Storage Program in the Middle East. All funding will be provided
by MedEquip.
In exchange for these rights, CRYO-CELL will receive $300,000, of which
$30,000 was received on August 28, 1995. The remaining $270,000 is due by April,
1997. The terms of the agreement call for the Company to receive 50% on the
first US $1,000,000 and no less than 30% of all revenues above US $1,000,000
calculated on an annual basis after deduction of 10% of the gross revenue for
expenses.
NOTE 12 - PURCHASE, MARKETING AND STOCK AGREEMENT WITH
INSTACOOL OF NORTH AMERICA, INC.
The Company signed an agreement on April 7, 1992, in which they
purchased all rights, title and interest from InstaCool to their Controlled Rate
Freezer (CRF). The purchase price was 20,000 shares of the Company's legended
common stock and a 5% royalty on all sales of the CRF units. In addition, the
Company was granted exclusive world marketing rights to InstaCool's coolant when
used in computer and/or robotic controlled cellular storage units.
There has been no activity relative to this agreement during 1996 and
1995.
NOTE 13 - REVENUE SHARING AGREEMENTS
ARIZONA
As of February 28, 1995, the Company sold a Revenue Sharing Agreement
with two private investors. The agreement interest entitles the investors to a
50% share of the Net Revenues (defined as the revenues after expenses for
running the Lifespan/service mark/Program) from all cellular storage activities
in
F-14
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
NOTE 13 - REVENUE SHARING AGREEMENTS CONTINUED
Arizona. In exchange, the Company received a total of $1,800,000 in negotiable
demand notes to be paid in 25% annual installments ($450,000 plus interest at
prime rate) annually, commencing April 30, 1996.
In January 1996, the notes were restructured to provide for an
accelerated payment of the $450,000, originally due April 30, 1996, to January
of 1996. This was in exchange for the payment of future amounts to be due and
payable out of revenues generated from the Lifespan/service mark/Program. Since
the restructuring made the repayment of the $1,350,000 note based upon future
revenue, the Company does not carry the note as a receivable and has not
recorded this portion of the income.
ILLINOIS
In 1996, the Company signed a series of agreements with a group of
investors entitling them to a 50% share in CRYO-CELL's portion of future net
revenues generated by the Cellular Storage Unit located in the Illinois Masonic
Medical Center. The Company is currently storing specimens in a standard
CryoMed unit.
Bio-Stor
On April 12, 1996, the Company and Bio-Stor International, Inc.
("Bio-Stor") Inc. signed an agreement whereby CRYO-CELL agrees to share in the
net revenue from 30,000 spaces in each of five locations in exchange for
$5,000,000. A non-refundable deposit of $1,000,000 was the condition for
obtaining these lease rights. In the event that the total $5,000,000 can not be
raised, all proceeds paid will be applied to individual Revenue Sharing
Agreement leases for locations designated by the Company.
The balance of $4,000,000 due for the lease rights must be paid within
12 months from the date of the agreement becomes effective. An extension of up
to 90 days will be granted if Bio-Stor files for their IPO with the SEC within
the 12 month time frame.
Bio-Stor issued a promissory note dated April 29, 1996, and due on June
1, 1996, in the amount of $900,000 representing 90% the non-refundable deposit
($1,000,000). The full $900,000 has been received by the Company as of the
balance sheet date. The agreement has been extended until October 12, 1997. The
extended agreement now covers revenue sharing in 33,000 spaces per unit or
165,000 spaces in total.
ORNDA HEALTHCORP
On November 30, 1996, the Company signed dual joint venture agreements
with OrNda HealthCorp, a Nashville based chain of 50 hospitals. Under the terms
of the Lifespan/service mark/segment of the agreement, CRYO-CELL will provide
OrNda the use of two CRYO-CELL patented Cellular Storage Units, each with an
approximate 35,000 storage capacity. In addition to OrNda receiving 25% of the
$50 per specimen annual cellular storage fees, CRYO-CELL will provide "pro-bono"
spaces within units for important research in cryopreservation of stem cells for
the future medical benefit of OrNda's patients. A second agreement was also
signed on November 30, 1996, in which OrNda was to pay CRYO-CELL $666,666 for
additional joint venture revenue sharing entitlements.
Subsequent to the Company's fiscal year end at November 30, 1996, OrNda
completed its payment of $666,666 to the Company.
F-15
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
NOTE 13 - REVENUE SHARING AGREEMENTS CONTINUED
GAMIDA MEDEQUIP, LTD.
On November 27, 1996, the Company announced that an agreement had been
signed with Gamida-MedEquip, Ltd. for exclusive rights to operate a
Lifespan/service mark/ cellular storage facility in Israel. The terms of the
agreement provide for Gamida to retain the first 10% of all gross revenues to be
applied toward the cost of operations. Thereafter, CRYO-CELL will receive:
50% on the first U.S. $1,000,000 gross revenues
45% on $1,000,001 to $1,500,000 gross revenues
40% on $1,500,001 to $2,000,000 gross revenues
35% on $2,000,001 to $2,500,000 gross revenues
30% on all revenues over $2,500,000 gross revenues
These percentages are on annual gross revenues and will be recomputed according
to the above revenue figures annually.
In addition, according to the terms of the agreement, CRYO-CELL will
receive 50% of all licensing or Revenue Sharing Agreement fees generated by
Gamida-MedEquip in Israel. CRYO-CELL will also receive a total of US $500,000
for the Lifespan/service mark/agreement and unit lease.
Gamida will be responsible, at their expense, for all Lifespan/service
mark/ Center operations, marketing activities in Israel as well as training
their technicians in the U.S. CRYO-CELL will also receive a portion of the
revenues from the allogeneic cell bank which will be initiated by
Gamida-MedEquip in Israel. Gamida is currently involved in the distribution of
products and/or services in Israel for various international healthcare supplies
manufacturers.
SACHEM CORPORATE FINANCE, LTD.
On February 18, 1997, subsequent to the end of the Company's most
recent fiscal year end, the Company announced that it had sold two Single Unit
Revenue Sharing Agreements for $2,000,000 to an associate firm of Sachem
Corporate Finance, Ltd.
The agreement covers revenue sharing in two units to be located in
CRYO-CELL Lifespan/service mark/sites in the U.S. A $400,000 non-refundable
deposit was paid to CRYO-CELL in the form of 100,000 shares of a NASDAQ small
cap stock at a market value slightly in excess of $400,000 at the time of the
transaction. The $1.6 million cash balance is due in full by May 31, 1997. Upon
receipt of the entire $2,000,000 on a timely basis, CRYO-CELL has granted Sachem
the right to purchase an additional three Single Unit Revenue Sharing Agreements
for $3,000,000. These must be outside the U.S. and could include Australia,
where CRYO-CELL has recently received a patent for its cellular storage
technology.
After the full $2,000,000 payment has been made, Sachem, which is
headquartered in London, England, will be granted a 10% management equity
position in CRYO-CELL's planned European operation.
F-16
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
NOTE 14 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1ST 2ND 3RD 4TH
1996 QUARTER QUARTER QUARTER QUARTER
---- ---------- ---------- ---------- -----------
Net Income (Loss) $ 274,605 $ 912,820 ($ 213,192) $ (363,493)
========== ========== ========== ===========
Income (Loss) per share $ 0.04 $ 0.13 $ (0.03) $ (0.05)
========== ========== ========== ===========
Shares used in
computation 7,639,576 7,097,603 7,098,750 7,150,000
========== ========== ========== ===========
1ST 2ND 3RD 4TH
1995 QUARTER QUARTER QUARTER QUARTER
---- ---------- ----------- --------- -----------
Net (Loss) $1,651,604 $ (473,889) $ (190,540) $(1,591,875)
========== ========== ========== ===========
(Loss) per share $ 0.23 $ (0.07) $ (0.03) $ (0.22)
========== ========== ========== ===========
Shares used in
computation 7,107,121 6,823,060 6,988,745 7,040,402
========== ========== ========== ===========
F-17
PART III
Documents incorporated by reference: The information required by Part
III of Form 10-KSB is incorporated by reference to the Issuer's definitive proxy
statement relating to the 1997 Annual Meeting of Shareholders which is expected
to be filed with Securities and Exchange Commission on or about March 30, 1997.
17
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation (1)
3.11 Amendment to Certificate of Incorporation
3.2 By-Laws (1)
3.21 Board Minutes to Amendment of By-Laws
10.1 Employment Agreement dated April 15, 1996 between the Company
and William Hardy
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
10.14 Agreement with Bio-Stor
10.15 Agreement with Gamida-MedEquip
10.16 Agreement with ORNDA HealthCorp
10.17 Convertible Note from Net/Tech International, Inc.
Dated November 30, 1995 (3)
21 List of Subsidiaries
27 Financial Data Schedule (for SEC use only)
-------------------
(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.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter for the
fiscal year ended November 30, 1995.
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.
18
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CRYO-CELL INTERNATIONAL, INC.
By: /s/ DANIEL D. RICHARD
-----------------------------
Daniel D. Richard,
Chief Executive Officer
Dated: March 14, 1997
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons in the capacities indicated.
NAME TITLE
/s/DANIEL D. RICHARD Chief Executive Officer and
- ------------------- Chairman of the Board
Daniel D. Richard (Principal Executive Officer)
/s/WILLIAM C. HARDY President
- ------------------- Chief Operating Officer
William C. Hardy
/s/BRIAN K. BURKE Principal Financial and
- ----------------- Accounting Officer
Brian K. Burke Secretary and Treasurer
Director
- ----------------
Leonard Green
Director
- ---------------------
Frank W. Hendricks
/s/ED MODZELEWSKI Director
- -----------------
Ed Modzelewski
/s/FREDERICK C.S. WILHELM Director
- -------------------------
Frederick C.S. Wilhelm
19