U. S. Securities and Exchange Commission
Washington D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended February 28, 2002
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from _________ to ________
Commission File Number 0-23386
CRYO-CELL INTERNATIONAL, INC.
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(Exact name of Small Business Issuer as Specified in its Charter)
DELAWARE 22-3023093
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(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
3165 McMullen Booth Road, Building B, Clearwater, Florida 33761
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(Address of Principal Executive Offices) (Zip Code)
Issuer's phone number, including area code: (727) 450-8000
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(Former name, former address and former fiscal year, if changed since
last report).
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15 (d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
State the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date. As of February 28, 2002,
11,339,379 shares of $0.01 par value common stock were outstanding.
Transitional Small Business Disclosure Format (check one). Yes [_] No [X]
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 Stockholders' Equity 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports On Form 8-K 21
SIGNATURES 23
2
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
February 28, November 30,
2002 2001
---- ----
Current Assets
Cash and cash equivalents $ 5,882,033 $ 5,540,751
Accounts receivable and advances (net of allowance for
doubtful accounts of $34,000) 181,340 215,308
Receivable - Revenue Sharing Agreement 370,000 370,000
Receivable - Affiliates 1,300,000 1,300,000
Note Receivable 151,750 51,750
Marketable securities 216,992 260,996
Prepaid expenses and other current assets 220,059 223,337
-----------------------------
Total current assets 8,322,174 7,962,142
-----------------------------
Property and Equipment 3,268,399 3,184,883
-----------------------------
Other Assets
Intangible assets (net of amortization of $67,680 and $64,944, respectively) 116,927 119,662
Investment in Saneron CCEL Therapeutics, Inc. 2,232,052 2,431,871
Investment in European Affiliates 3,075,000 3,100,000
Investment option to purchase a business 212,713 212,713
Deposits with vendors and others 362,245 383,075
-----------------------------
Total other assets 5,998,936 6,247,321
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$ 17,589,508 $ 17,394,346
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note Payable - Investment Bank $ 500,000 $ 467,000
Accounts payable 179,094 114,942
Accrued expenses and withholdings 440,304 248,380
Current portion of obligations under capital leases 1,074 1,510
-----------------------------
Total current liabilities 1,120,472 831,832
-----------------------------
Other Liabilities
Unearned revenue 1,687,067 2,009,942
Deposits 16,925 23,725
Obligations under capital leases-net of current portion 5,709 7,579
-----------------------------
Total other liabilities 1,709,701 2,041,246
-----------------------------
Minority Interest 12,992 -
-----------------------------
Stockholders' Equity
Preferred stock (500,000 $.01 par value authorized and unissued) - -
Common stock (20,000,000 $.01 par value common shares
authorized; 11,339,379 at February 28, 2002, and 11,326,379
at November 30, 2001 issued and outstanding) 113,414 113,285
Additional paid-in capital 22,426,662 21,986,961
Additional paid-in capital - stock options 335,965 309,757
Stock subcription receivable (243,600) -
Accumulated other comprehensive income (loss) (1,508) 42,496
Accumulated deficit (7,884,589) (7,931,231)
-----------------------------
Total stockholders' equity 14,746,343 14,521,268
-----------------------------
$ 17,589,508 $ 17,394,346
=============================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended
February 28, February 28,
2002 2001
---- ----
Revenue $ 1,484,786 $ 761,618
-------------------------------
Costs and Expenses:
Cost of sales 554,038 264,448
Marketing, general & administrative expenses 923,923 808,948
Research, development and related engineering 25,088 17,591
Depreciation and amortization 119,119 68,555
-------------------------------
Total cost and expenses 1,622,168 1,159,542
-------------------------------
Operating Loss (137,382) (397,924)
-------------------------------
Other Income and (Expense):
Interest Income 22,358 36,142
Interest Expense (522) (528)
Other Income 400,000 175,000
Loss on Sale of Marketable Securities - (100,474)
-------------------------------
Total other income 421,835 110,140
-------------------------------
Income (loss) before minority interest
and equity in earnings of affiliates 284,453 (287,784)
-------------------------------
Equity in earnings of affiliates (224,819) -
Minority interest (12,992)
-------------------------------
(237,811) -
-------------------------------
Net Income (Loss) $ 46,642 $ (287,784)
===============================
Net income (loss) per share - basic and diluted $ 0.00 $ (0.03)
============ ============
Number of Shares Used In Computation
Basic and diluted 11,330,857 10,142,485
===============================
Comprehensive income (loss):
Net income (loss): $ 46,642 $ (287,784)
Other comprehensive income (loss)
Net increase (decrease) in value
of marketable securities (44,004) (1,247)
-------------------------------
Comprehensive income (loss) $ 2,638 $ (289,031)
===============================
Comprehensive income (loss) per share - basic and diluted $ 0.00 $ (0.03)
============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED FEBRUARY 28, 2002
(Unaudited)
Additional Accumulated
Additional Paid-in Stock Other
Common Stock Paid-In Capital Subscriptions Comprehensive
------------
Shares Amount Capital Stock Options Receivable Income (Loss)
------ ------ ------- ------------- ---------- -------------
Balance, November 30, 2001 11,329,379 $113,285 $21,986,961 $309,757 $ - $ 42,496
Gain on sale of minority interest
in Stem Cell Preservation
Technologies, Inc. 396,830 (243,600)
Net decrease in value of
marketable securities (44,004)
Options issued for services rendered 26,208
Shares issued upon exercise of options 129 42,871
Net income
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11,329,379 $113,414 $22,426,662 $335,965 $(243,600) $ (1,508)
==============================================================================
Total
Accumulated Stockholders'
Deficit Equity
------- ------
Balance, November 30, 2001 ($7,931,231) $ 14,521,268
Gain on sale of minority interest
in Stem Cell Preservation
Technologies, Inc. 153,230
Net decrease in value of -
marketable securities (44,004)
Options issued for services rendered 26,208
Shares issued upon exercise of options 43,000
Net income 46,642 46,642
-----------------------------
$ (7,884,589) $ 14,746,344
=============================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
-----------------------------
February 28, February 28,
2002 2001
---- ----
Cash Flows from Operating Activities
Net Income (Loss) 46,642 (287,784)
Adjustments to reconcile net income (loss)
to cash used for operating activities:
Depreciation and amortization 127,845 76,562
Loss on sale of marketable securities - 100,474
Issuance of common stock for interest and services rendered 26,208 173,263
Equity in earnings of affiliates 224,819 -
Minority interest 12,992
Changes in assets and liabilities:
Accounts receivable 33,968 (43,902)
Note Receivable (100,000) -
Prepaid expenses and other current assets 3,278 (83,913)
Deposits - (99,300)
Accounts payable 64,152 160,587
Accrued expenses 191,925 14,193
Unearned revenue and deposits (329,675) (107,105)
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Net cash provided by (used for) operating activities 302,154 (96,925)
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Cash flows from investing activities:
Loan receivable - (50,000)
Purchases of property and equipment (208,626) (65,414)
Payments for intangible assets - (1,040)
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Net cash provided by (used for) investing activities (208,626) (116,454)
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Cash flows from financing activities
Proceeds from the sale of securities 518,000 39,531
Private placement fees (100,340) -
Stock subscription receivable (243,600) 41,000
Exercise of stock options 43,000 41,000
Note payable 33,000 -
Repayment of capital leases (2,306) (2,046)
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Net cash provided by financing activities: 247,754 119,485
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Increase (decrease) in cash and cash equivalents 341,282 (93,894)
Cash and cash equivalents at beginning of period 5,540,751 2,695,794
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Cash and cash equivalents at end of period 5,882,033 2,601,900
=========== ==========
Supplemental disclosure of cash flow information:
Interest $ 522 $ 528
=========== ==========
Income taxes $ - $ -
=========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
6
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2002
(Unaudited)
NOTE 1 - FINANCIAL STATEMENTS
- -------------------------------
The Consolidated Financial Statements including the Consolidated Balance
Sheet as of February 28, 2002, Consolidated Statements of Operations and
Comprehensive Income, Stockholders' Equity and Cash Flows for the three months
ended February 28, 2002 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, stockholders' equity and changes in cash flows at February 28, 2002
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, 2001 Annual
Report on Form 10-KSB.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
On April 6, 2000, the Company entered into a renewable two-year
agreement with COLTEC, Ltd. for the exclusive license to market the Company's U-
Cord program in Europe. The marketing rights allow COLTEC, Ltd. to directly
market the U-Cord program, sell revenue sharing agreements or further sub-
license the marketing rights throughout Europe. The Company received $1,400,000
in cash in 2000 of which $465,000 and $700,000 were recorded as licensing fee
income in fiscal 2000 and 2001, respectively. As of February 28, 2002, the
Company recognized $175,000 as licensing fee income for fiscal 2002. The Company
is also entitled to licensing fees of 10.5% to 20% of adjusted U-CORD processing
and storage revenues to be generated in Europe of which $20,454 is reflected in
income in 2001. The agreement granted COLTEC, Ltd. a three-year option to
purchase 100,000 shares of the Company's common stock at $8.00 per share and up
to 100,000 additional options at $12.00 per share as needed which was issued in
2001 at $10.00 per share. Both of the options were exercised on August 28, 2001
for an aggregate of $1,800,000. Subsequent to the licensing agreement date,
COLTEC, Ltd. formed a corporation, CRYO-CELL Europe, B.V. to engage in the
cryogenic cellular storage business under the agreement. On September 19, 2000,
the Company entered into an agreement to purchase approximately 6% of CRYO-CELL
Europe, B.V. In October and November 2000, the Company paid $1,000,000 for
38,760 shares of the capital stock of CRYO-CELL Europe, B.V. The Company owned
these shares on January 24, 2001.
On October 15, 2001 the Company signed a renewable two-year agreement
with CRYO-CELL De Mexico, S.A. De C.V. (CCEL MEX) whereby the Company granted
CCEL MEX an exclusive license for the operation and commercialization of the
CRYO-CELL U-Cord program in Mexico, Ecuador and Central America which includes
the collection, processing and storage of umbilical stem cells as well as
allowing CCEL MEX exclusive rights to sublicense the U-Cord program in these
geographic areas. The price for the license to CCEL MEX is $600,000 of which
$200,000 was paid to the Company in fiscal 2001 and the balance is to be paid in
equal $200,000 installments in June 2002 and November 2003. The Company is
entitled to licensing fees of 15% to 25% of adjusted U-Cord processing and
storage revenues to be generated in Mexico, Equador and Central America as well
as 10% from the money received by CCEL MEX for the granting of sublicenses. The
Company has no other obligations to CCEL MEX other than to provide technical
assistance and training so that it can be self-operational. These procedures
were substantially completed by November 30, 2001. Accordingly, the Company
recognized $500,000 in licensing fee income in fiscal 2001 with respect to this
agreement. For the three-month period ended February 28, 2002 the Company
recognized the remaining $100,000 as licensing fee income.
7
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2002
(Unaudited)
In October 2001 the Company finalized a renewable three-year contract with
CRYO-CELL Middle East, Inc. (CCEL ME) for the exclusive license to market the
Company's U-Cord program in Israel, the Middle East and Turkey. The license
allows CCEL ME to directly market the Company's U-Cord program and further
sublicense the marketing rights throughout Israel, Turkey, Jordan, Lebanon,
Egypt, Saudi Arabia, Kuwait, Qatar, United Arab Emirates (including Dubai),
Bahrain, Oman and Yemen ("the Licensed Area"). The agreement provides for the
Company to receive $1,000,000, (allocated $500,000 to Israel and $500,000 to
Turkey and the Middle East), of which it received $100,000 in fiscal 2001 and
the balance being payable in three installments of $200,000 due July 2002,
February 2003 and November 2003 and one installment of $300,000 due July 2004.
The Company is also entitled to licensing fees of 10.5% to 18% of adjusted U-
CORD processing and storage revenues to be generated in the Licensed Area as
well as 10% from the money received by CCEL ME for the granting of sublicenses.
CCEL ME has up to one year to terminate the Turkey and Middle East portion of
this agreement. The Company is required to train and provide technical and
marketing support to CCEL ME. In addition, the Company sold 50,000 of its common
stock warrants ($1.00 each) in fiscal 2001, expiring July 9, 2006, to the chief
operating officer of CCEL ME and an entity affiliated to him to purchase an
equal number of common shares of the Company at a strike price of $9.00. For the
three-month period ended February 28, 2002 the Company recognized $125,000 as
licensing fee income.
NOTE 3 - LEGAL PROCEEDINGS
- ---------------------------
In December 2001, the Board of Directors terminated the President of the
Company for cause. In January 2002, this terminated employee instituted an
action in Florida State court for breach of her employment contract and wrongful
termination. Although counsel for the Company is not able to render an opinion
on the ultimate outcome of the action, counsel believes the Board had cause to
terminate this officer. Management believes the Company has adequate defenses
and will vigorously defend against the action.
In July 1999, the Company entered into a 20-year exclusive agreement with
The Cancer Group Institute, LLC, a cancer information service. The agreement
dealt with the establishment of a business for the preservation of tumor tissue
relative to cancer treatment protocols. Cancer Group and Michael Braham were to
be provided options in CCEL stock when their efforts resulted in 100 oncologists
submitting patients' tumor tissue to CRYO-CELL. The Cancer Group represented
that its Web site, www.cancergroup.com was accessed by approximately 25,000
-------------------
oncologists, radiologists and cancer patients daily. Relying on this
information, in December 1999, the Company obtained an option to purchase The
Cancer Group Institute and all of its assets, including its Web site,
www.cancergroup.com. On or about September 20, 2001, The Cancer Group
- -------------------
Institute, LLC, a Florida Limited Liability Company and Michael Braham, an
individual filed a lawsuit against the Company. The suit alleges that CRYO-CELL
breached a contract with both The Cancer Group, LLC and Michael Braham,
individually, by not providing the options and seeks an unspecified amount of
damages. Management feels that the suit is without merit and has filed a
countersuit claiming breach of contract against The Cancer Group, LLC and
Michael Braham. The Company, in its answer and countersuit, alleges that The
Cancer Group did not perform under the contract, never produced any oncologist's
samples and is not entitled to the contract's benefits. The Company has also
petitioned for recession, requesting a judgment against the Plaintiff that the
parties be returned to status quo ante. CRYO-CELL had previously paid $100,000
for an option to purchase The Cancer Group.
8
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2002
(Unaudited)
On February 22, 2002 the Company received a complaint filed by Pharmastem
Therapeutics, Inc. (Pharmastem) alleging patent infringement. Pharmastem, a
Delaware corporation, has named eight companies active in cord blood banking in
the suit that seeks an injunction against the companies and an unspecified
amount of damages or royalties, treble damages and attorney's fees. The Company
believes that the asserted patents of Pharmastem are not valid and that CRYO-
CELL's business of collecting, processing and cryopreserving cord blood cells
does not infringe on either of the asserted patents.
NOTE 4 - STEM CELL PRESERVATION TECHNOLOGIES, INC.
- ------------------------------------------------------
The Board of Directors of the Company declared a dividend payable in shares
of common stock of the Company's subsidiary, Stem Cell Preservation
Technologies, Inc. (SCPT) on July 25, 2001. The Company's shareholders are to
receive three (3) shares of SCPT common stock for every four (4) shares of the
Company's common stock the Company's shareholders own as of record date of
August 31, 2001. An independent appraisal valued SCPT as of August 31, 2001 at
$62,500 or less than $0.01 per share, as adjusted for the September 2001 forward
split of 1,350 to 1.
The Board of Directors on August 21, 2001 reserved 1,000,000 shares of the
common shares of SCPT (as adjusted for the September 2001 forward split) that
CRYO-CELL International, Inc. would own after the dividend is paid for the
purpose of incentives for the recruiting of and rewarding of key SCPT
executives. SCPT cancelled these shares and retired these shares. As of November
30, 2001, three officers and directors of SCPT had received stock grants of
25,000 common shares each under this plan for services rendered and 925,000
common shares are available for future issuance. The fair value of the shares
granted was $1,500, which was charged to operations.
The Company's Board of Directors on August 29, 2001 granted options to
purchase an aggregate of 850,000 common shares of SCPT at $0.02 per share to
four officers of the Company. The grant price was in excess of the fair value of
the shares at the date of grant. Three of the officers exercised their options
for 805,000 common shares and at February 28, 2002 an option for 45,000 of these
shares to the Company's former President (See Legal Proceedings) was not
exercised. The Board of Directors of the Company also authorized the issuance of
195,000 common shares of SCPT to Saneron CCEL Therapeutics, Inc. (See Note 5).
In July 2001, SCPT entered into a financing agreement with Financial
Holdings and Investments Corp. (FHIC) whereby SCPT was to borrow $500,000 as
evidenced by an 8% interest bearing note payable no later than thirteen months
from the date of the note provided SCPT shall repay $300,000 of the principal if
and when SCPT realizes $1,500,000 from the sale of its securities. FHIC's
subsidiary is the placement agent for the sale of SCPT's securities. SCPT agreed
to issue FHIC 250,000 of its common shares, as adjusted for the September 2001
forward split, as additional compensation. SCPT's counsel also received 45,000
common shares from SCPT for its legal services in connection with the agreement.
Both issuances of shares were valued at their fair value of $5,900 ($0.02 per
share) and are reflected in the accompanying financial statements as deferred
financing costs. SCPT used $300,000 of the proceeds received as payment for its
investments in CRYO-CELL NV and CRYO-CELL Italia, S.r.l. (See Note 5). Of the
13,065,000 issued and outstanding common shares of SCPT at November 30, 2001,
the Company owned 11,695,000 (89.5%) shares. Upon the payment of the dividend,
the Company will own approximately 3,200,000 (24.5%) shares of SCPT.
9
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2002
(Unaudited)
On November 1, 2001, SCPT offered for sale 1,250,000 shares of its common
stock at $2.00 per share in a private placement offering through a placement
agent, Newbridge Securities Corporation - a subsidiary of FHIC. The placement
agent is to receive a commission of 10% of the proceeds from the offering plus a
non-accountable expense reimbursement of 3% of the gross sale proceeds. The
Placement Agent also is to receive five (5) year warrants exercisable at $2.20
per share. The number of shares purchasable under these warrants will be equal
to 10% of the shares sold under the private offering. The offering period
originally terminated on December 31, 2001 but was extended until February 28,
2002. As of February 28, 2002, the offering closed at which time 259,000 common
shares had subscribed for purchase of which the proceeds from the sale of
119,000 was remitted by the agent to SCPT. As of March 19, 2002, SCPT had
received all of the proceeds, net of placement agent fees, from the sale of the
securities of $396,768 for 259,000 common shares.
NOTE 5 - INVESTMENTS IN AFFILIATES
- ----------------------------------
Saneron CCEL Therapeutics, Inc.
On October 10, 2001, the Company's subsidiary, CCEL Bio-Therapies, Inc.
(CCBT), effected the July 10, 2001 merger agreement with Saneron Therapeutics,
Inc. (STI) with CCBT remaining as survivor. The STI shareholders received 56.58%
of the merged entity and the Company retained a 43.42% interest. Prior to the
merger, CCBT was inactive and had no assets or liabilities. The agreement
required the Company to (i) contribute to CCBT 260,000 shares of its common
stock (which were actually issued on February 14, 2002) and 195,000 shares of
common stock of its subsidiary, SCPT, (ii) convert an advance of $150,000 to STI
to capital, (iii) assign certain licenses for stem cell research between the
Company, The University of South Florida and the University of South Florida
Research Foundation, including all obligations that the Company had under such
license agreements, and, (iv) change CCBT's name to Saneron CCEL Therapeutics,
Inc. The fair value of the assets contributed by the Company aggregated
$2,377,900. STI at the merger date had a historical capital deficiency of
$10,000, which included intangible assets that were not assigned any value by
its management. The intangible assets of STI consist of patents and all
marketing rights thereto, licenses, research and development, and future
research grants of approximately $3,000,000, all of which were not assigned a
value by management. The merger caused the recognition of $3,248,600 in goodwill
on the books of CCBT, which, as of February 28, 2002, is not considered to be
impaired by management. The Company recognized an expense of $199,819 in the
first quarter fiscal 2002 under the equity method from this minority owned
subsidiary.
CRYO-CELL Europe N V
On September 28, 2000, the Company purchased a 6% equity interest in CRYO-
CELL Europe, NV (CRYOC) for $1,000,000. The Company's decision to make this
investment was based on the decision of a large insurance company to provide
coverage to its pregnant policyholders. In October 2001 the Company's
subsidiary, Stem Cell Preservation Technologies, Inc. (SCPT) acquired a 1%
interest in CRYOC for $150,000. On October 3, 2001, the Company issued CRYOC
17,750 shares of the Company's common stock, whose fair value at issuance was
$112,713, as payment for an option to acquire an additional 60% interest in
CRYOC for $13,500,000. The option is for one year and is payable in shares of
the Company's common stock or other securities acceptable to CRYOC. The Company
may, at its discretion, extend the option to acquire the 60% interest for an
additional 120 days for no additional consideration if the Company demonstrates
to CRYOC that it is in active negotiations with any other company which has
expressed an interest in seeing the option exercised. The Company accounts for
its investment in CRYOC at cost.
10
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2002
(Unaudited)
CRYO-CELL Italia, S.r.l.
SCPT simultaneous with its investment in CRYOC acquired a 2.19% interest in
CRYO-CELL Italia, S.r.l. (Italia) from CRYOC for $150,000. The Company on August
29, 2001 purchased 21.9% of Italia from CRYOC for $1,800,000. The investments in
Italia are for an umbilical cord bank to be opened in a facility which is
partially owned or supported by the Vatican. The purchase price of the interests
in Italia by both the Company and SCPT included a 21.9% and 2.19% interest,
respectively, in a yet to be formed umbilical cord blood bank entity which is
planned to commence operations in the Iberian Peninsula. The Company also
received a first right of refusal to purchase from CRYOC its remaining 18.91%
interest in Italia. The excess of cost of the investment in Italia over the book
value of Italia at the time of acquisition was approximately $1,850,000. At
February 28, 2002, this goodwill is not considered by management to be impaired.
The Company reflects its effective 23.172% interest in Italia under the equity
method, which approximates the cost of the investment. The final execution of
this agreement is deemed to be a non-cash transaction.
11
Item 2. Management's Discussion and Analysis or Plan of Operation.
CRYO-CELL International, Inc. was incorporated on September 11, 1989 in the
state of Delaware. 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. The Company believes that it is the fastest growing
commercial firm currently specializing in separated umbilical cord blood stem
cell preservation. CRYO-CELL has pioneered several technologies that allow for
the processing and storage of specimens in a cryogenic environment. The
Company's original 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. Several other
companies involved in commercial cell banking rely on shipping their specimens
elsewhere for processing and storage. The Company has expanded into
international markets. The Company has signed agreements covering Europe,
Mexico, Israel and the Middle East for the license to market the Company's U-
Cord program in these geographies.
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 they 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 parents of newborns participating in stem cell preservation is still
relatively small compared to the number of births (four million per annum) in
the United States alone. Critical reasons for this low level of market
penetration are the misperception of the high cost of stem cell storage as well
as a general lack of awareness of the benefits of stem cell preservation
programs. However, evolving medical technology could significantly increase the
utilization of the U-Cord blood for transplantation and/or other types of
treatments. A number of competitors in this market have been charging upwards
of $1000 - $1500 for this stem cell preservation plus higher annual fees for
storage than the Company charges. The cost is usually not covered by insurance.
The Company has made this procedure affordable and within financial reach of
most families. The growth and profitability of the Company should come from
increases in stem cell specimen storage volume driven by its marketing
approaches, resulting in an increasing base of annual stem cell storage renewal
fees.
During the period since its inception, the Company's research and
development activities have principally involved the design and development of
its cellular storage systems ("CCEL Cellular Storage System") and in securing
patents on the same. The Company believes that its long-term cellular storage
units can provide an improved ability to store cells or other material in liquid
nitrogen, its vapors or other media. The units are controlled by a computer
system, which robotically inserts vials in pre-selected storage areas inside the
chamber. Additionally, the stored material can be robotically inserted or
retrieved by computer on an individual basis without all of the remaining
specimens being exposed to ambient temperature. The efficient use of storage
space and a dual identification system for inventory control is a competitive
advantage for the Company. The Company is the assignee of all patents on the
units.
12
Other cryopreservation systems are manually operated and can expose the
laboratory technician to liquid nitrogen when inserting or retrieving specimens.
Moreover, the use of these units exposes the remaining stored specimens to
ambient temperature whenever specimens are inserted or retrieved. The Company
has designed and holds patents on a system, which makes use of the latest in
computer, robotics and bar code laser scanning identification technologies. The
unit is assembled by an independent manufacturer utilizing the Company's
patented designs.
In February 1999, the Company was granted a patent on the CCEL III computer
controlled robotically operated cellular storage system, which is designed to be
multi-functional. When completely developed the unit will be able to store more
than 35,000 5ml vials, and many times that number of smaller vials. Because the
CCEL III is multi-functional it is currently being evaluated for various other
uses. 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.
The following is a discussion and analysis of the financial condition and
results of operations of the Company for the quarter ended February 28, 2002 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 to expectant parents and by distributing information to
obstetricians, pediatricians, Lamaze instructors and other childbirth educators,
certified nurse-midwifes and other related healthcare professionals. The Company
has a clinical support team of specially trained nurses who are available 24
hours, 7 days a week to educate expectant parents and the medical community on
the life-saving potential of cord blood stem cell preservation. In addition, the
Company exhibits at conferences, trade shows and other media focusing on the
expectant parent market.
In January 2000 the Company renewed its agreement with the Lamaze
Publishing Company to sponsor the Lamaze You and Your Baby tutorial tape. The
agreement was 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 programs. The
tutorial tape, which is distributed by approximately 9,000 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 were distributed through WAL-MART stores for the first time. The
Company also places an ad in Lamaze para Padres, Lamaze Publishing's magazine
for Hispanic mothers-to-be. The Company has exclusivity on the tutorial tape in
the cord blood storage category and first right of refusal for renewal of the
agreement beyond 2003.
In March 2000, the Company became a sponsor of the 2000 ACOG (American
College of Obstetricians and Gynecologists) Meeting CD-ROM. The CD includes a
segment on the Company's U-CordTM program and was distributed to approximately
40,000 ACOG members in November 2000. The Company is the only cord blood
preservation firm featured on the CD-ROM.
In March 2000, the Company launched its Mother to Mother(TM) Educational
Network program to offer the Company's umbilical cord blood preservation program
to expectant parents. The network is comprised of clients who have stored or who
have enrolled to store their newborn's U-Cord blood stem cells with the Company.
These independent contractors contact expectant parents, OB/GYN's and medical
caregivers advising them of the Company's affordable service.
13
The Company's advertisements have appeared in, or are scheduled for
insertion in, several national targeted prenatal magazines including American
Baby, Pregnancy, Baby Talk and Fit Pregnancy. Expectant parents have also
received information via emails and newsletter links through BabyCenter.com.
BayNews 9, a CNN affiliate, and NewsChannel 10 have both carried stories about
CRYO-CELL's affordable service.
In January 2002, the Company redesigned and greatly enhanced its Web site,
www.cryo-cell.com. The new site provides many new features and benefits that
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will contribute to the Company's continued growth. It is divided into areas of
interest, including sections for expectant parents, medical caregivers and
investors.
In January 2002, the Company introduced an insurance marketing program with
Lanier Upshaw, Inc., a prestigious insurance firm. Lanier Upshaw is a member of
Assurex Insurance Group, which has 62 North American partners and operates
worldwide in more than 35 countries. Under the terms of the agreement, Lanier
Upshaw has agreed to give every policyholder who enrolls in the CRYO-CELL U-Cord
preservation program a $25 gift certificate.
Stem Cell Preservation Technologies, Inc.
On July 25, 2001 the Board of Directors of CRYO-CELL International, Inc.
announced that the Company will declare and distribute a stock dividend in the
shares of its wholly-owned subsidiary, Stem Cell Preservation Technologies, Inc.
Stem Cell Preservation Technologies, Inc. is a development stage company, which
will be involved in the development of marketing programs for the collection and
preservation of adult stem cells.
All shareholders of record of CRYO-CELL on August 31, 2001 will receive a
distribution of three shares of Stem Cell Preservation Technologies, Inc. common
stock for every four shares of CCEL that they owned on the record date. The
payment date of the shares to be distributed will follow the effective date of a
registration statement. Stem Cell Preservation Technologies, Inc. is currently
preparing this registration statement, which it intends to file with the
Securities and Exchange Commission. Upon the effective date of the registration
statement and distribution of the shares, shareholders will be able to sell one-
third of their shares immediately and the remaining two-thirds equally over the
two years following the effective date.
Safti-Cell, Inc.
In October 2001 the Company sold 90% of Safti-Cell, Inc. a wholly-owned
subsidiary of the Company, to Diversified Cellular Storage, Inc. Diversified
Cellular Storage will be building a state-of-the-art "back-up" cellular storage
facility in Sedona, Arizona. According to the terms of the agreement,
Diversified Cellular Storage has committed land and property in excess of five
hundred thousand dollars, at no cost to Safti-Cell, Inc., and will be building a
fireproof and earthquake resistant storage facility. The Company will own 10% of
Safti-Cell, Inc. and will receive a 2% share in secondary storage of stem cells.
In addition, if Diversified Cellular Storage agrees to build a prototype of a
CRYO-CELL multi-million capacity facility for DNA back-up storage, CRYO-CELL
will receive an additional 8% equity in the DNA back-up storage program.
14
Saneron CCEL Therapeutics, Inc.
In February 2000, the Company, through its subsidiary CCEL BIO-THERAPIES,
Inc., entered into a research agreement with the University of South Florida at
Tampa to collaborate on a technology for the potential treatment of a number of
debilitating degenerative diseases. The research project is to be conducted at
the University's laboratory facilities. In March 2000, the Company transferred
$200,000 to CCEL BIO-THERAPIES, Inc. to meet its funding commitment. CCEL BIO-
THERAPIES, Inc. and the University are co-assignees of a filed patent
application covering the technology. An application has been made for federal
grants (STTR research grants) on behalf of CCEL BIO-THERAPIES, Inc. In addition,
an application was filed for a State of Florida I-4 (now Hi-Tech Corridor)
matching grant. The Company has been granted worldwide marketing rights for any
product developed as a result of this research program. Under the terms of the
agreement, the University will receive standard royalty payments on any future
product sales. In February 2001, the Company paid the University an initial
$100,000 license payment with the issuance of 15,000 shares of the Company's
common stock. In May 2001, the Company paid the University the first two
benchmark payments totaling $200,000 with the issuance of 50,000 shares of the
Company's common stock. The University was awarded the Hi-Tech Corridor grant in
the amount of $100,000. In September 2001, CCEL BIO-THERAPIES was awarded the
STTR grant in the amount of $107,000.
In October 2001, Saneron Therapeutics, Inc. merged into CCEL Bio-Therapies,
Inc., which then changed its name to Saneron CCEL Therapeutics, Inc. As part of
the merger, the Company contributed 260,000 shares of its common stock. The
world marketing rights granted through licenses to Saneron and CCEL BIO-
THERAPIES, INC. have been assigned to the merged company. Saneron CCEL
Therapeutics, Inc. has been granted patents in many countries throughout the
world for the therapeutic use of sertoli cells. Intellectual property for human
cord blood as a source of stem cells has been filed jointly by the University of
South Florida and Daniel D. Richard and has been assigned to Saneron CCEL
Therapeutics, Inc. At the conclusion of the merger the Company retained a 43.42%
minority interest in Saneron CCEL Therapeutics, Inc.
International Expansion
Europe. On April 6, 2000, the Company entered into a renewable agreement with
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COLTEC, Ltd. for the exclusive license to market the Company's U-Cord program in
Europe. The marketing rights allow COLTEC, Ltd. to directly market the U-Cord
program, sell revenue sharing agreements or further sub-license the marketing
rights throughout Europe. The Company received $1,400,000 in cash for the
marketing license and will receive royalties of 10.5% to 20% of adjusted U-Cord
processing and storage revenues to be generated in Europe, and granted COLTEC,
Ltd. a three year option to purchase 100,000 shares of the Company's common
stock ($8.00 exercise price) and will issue up to 100,000 additional options
($10.00 exercise price), as needed, to facilitate sales of sub-licensing and/or
revenue sharing agreements in Europe. Subsequent to the licensing agreement
date, COLTEC, Ltd. formed a corporation, CRYO-CELL Europe, B.V. to engage in the
cryogenic cellular storage business under the agreement. At September 19, 2000
the Company entered into an agreement to purchase approximately 6% of CRYO-CELL
Europe, B.V. In October and November 2000, the Company paid $1,000,000 for
38,760 shares of the capital stock of CRYO-CELL Europe, B.V. The Company owned
these shares on January 24, 2001.
On August 28, 2001, the Company entered into an agreement with CRYO-CELL
Europe, N.V. to purchase 21.9% of CRYO-CELL Italia, Srl from CRYO-CELL Europe's
equity in this emerging business entity. CRYO-CELL Italia intends to offer the
U-Cord program to expectant parents in Italy, initially operating from a
laboratory in the Vatican-owned San Raphaelo Hospital in Milan. Through its
prior agreement with CRYO-CELL Europe, the Company will receive a portion of the
processing and storage fees generated by CRYO-CELL Italia's operations. The
Company's equity purchase of $1,800,000 was facilitated by the exercise of
previously issued stock options.
15
On October 3, 2001, the Company issued CRYO-CELL Europe, N.V. 17,750 shares
of the Company's common stock for payment of an option to acquire an additional
60% interest in CRYO-CELL Europe, N.V. for $13,500,000. The option is for one
year and is payable in shares of the Company's common stock or other securities
acceptable to CRYO-CELL Europe, N.V.
Mexico. On June 13, 2001, the Company entered into an agreement for the
- ------
exclusive license to market the Company's U-Cord program in Mexico. The license
allows CRYO-CELL de Mexico to directly market and operate the U-Cord program
throughout Mexico, Central America and Ecuador. The total cost of the license is
$900,000 and the licensing fees are 10.5% to 18% of adjusted U-Cord processing
and storage revenues to be generated in Mexico and Central America. Per the
agreement CRYO-CELL de Mexico will purchase 100,000 warrants at $1.00 each
giving them the right to purchase 100,000 shares of the Company's common stock
at an exercise price of $8.00 per share. As of February 28, 2002, $200,000 was
received. The remainder of the payments are due to be paid in two installments
over a two-year period.
During October 2001, the License Agreement was revised. The initial cost of
the license was reduced to $600,000 in exchange for a higher percentage of on-
going fees. The Company will now receive 15% of processing fees and 25% of
annual storage fees.
Israel. On August 15, 2001, the Company entered into an agreement with CRYO-CELL
- ------
Israel for the exclusive license to market the Company's U-Cord program in
Israel. The total cost of the license is $500,000. In addition to the license
fees, the Company is entitled to receive 15% of net processing revenues and at
least 18% of annual storage fees generated by CRYO-CELL Israel's operations. In
addition the Company agreed to the sale of 50,000 warrants at $1.00 each to
purchase shares of CCEL at $9.00 per share over the next five years. The Company
has received the deposit of $50,000 and $50,000 for the purchase of the
warrants. The remainder of the payments is due to be paid in four installments
over a three-year period.
Middle East. On August 15, 2001, the Company entered into an agreement with
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CRYO-CELL Middle East, Inc. (CME) for the exclusive license to market the
Company's U-Cord program in the Middle East and Turkey. The total cost of the
license is $500,000, which will be recognized by the Company over a three-year
period. In addition to the license fees, the Company is entitled to receive 15%
of net processing revenues and at least 18% of annual storage fees generated by
CME's operations. In addition the Company agreed to the sale of 50,000 warrants
at $1.00 each to purchase shares of CCEL at $9.00 per share over the next five
years. The Company has received the deposit of $50,000 and $50,000 for the
purchase of the warrants. The remainder of the payments are due to be paid in
four installments over a three-year period. If, after payment of any monies
towards the portion of the License for the Middle East and Turkey, CME
determines that it no longer wants to operate in these countries, CME may void
the portion of the License for the Middle East and Turkey within one year from
the date of the agreement. In this case all of the monies paid by CME will be
applied to the Israel portion of the License fees.
Management
At present there are 42 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 and Chief Executive Officer. Mr. Richard is the
founder of the Company and co-inventor of much of the Company's technology it
currently employs. Mr. Richard has served as Chairman of the Board since the
Company's inception. Prior to founding the Company, Mr. Richard was the first
officer and director of Marrow-Tech, Inc., a publicly traded company engaged in
the field of cellular replication. Mr. Richard was also the President of Daniel
Richard Consultants, Inc., a marketing firm which operated in forty-four cities
in the U.S. and throughout the world.
16
John V. Hargiss, President and Chief Operating Officer. Mr. Hargiss joined the
Company in February 2002. Prior to joining the Company Mr. Hargiss was a health
care consultant, providing advisory services to firms within the biotechnology,
medical device and health care services segments. Mr. Hargiss served as
President and Chief Executive Officer of Biodynamics International, Inc.,
(currently Tutogen Medical, Inc., AMEX: TTG) for nine years. The company is a
publicly traded biomedical concern with operations in the U.S. and Germany, and
is engaged in tissue processing/preservation and the development of autologous
blood processing technology. Prior to this, he served as Corporate Vice
President of Sales and Marketing for the $200 million health care services unit
of the BOC Group, plc (NYSE: BOX). Mr. Hargiss held several executive management
positions during his twelve-year career with Becton-Dickinson & Co. (NYSE: BDX),
a multi-national medical and laboratory product firm. Mr. Hargiss holds an
M.B.A. from the University of Miami (FL) and a B.S. from the University of
Texas.
Gerald F. Maass, Executive Vice President. Mr. Maass joined the Company in March
1998. Prior to joining the Company Mr. Maass was an executive for Critikon, a
subsidiary of Johnson & Johnson, where his most recent position was
International Director of Marketing for the Patient Monitoring business. Mr.
Maass' ten-year tenure with Johnson and Johnson included several marketing and
business development roles; he also served on the Critikon management committee.
Prior to Johnson & Johnson, Mr. Maass was with Baxter Healthcare and Control
Data Corporation in marketing, sales management, business development and
business management roles. Mr. Maass began his career with Mayo Clinic in
Rochester, MN and holds a B.S. degree in Medical Technology. In September 1998,
Mr. Maass was appointed a member of the Company's Board of Directors.
Jill Taymans, Vice President, Finance. 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 ten 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, Vice President Technology. 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 B. S. 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.
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.
Medical Advisory Board
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.
17
Results of Operations
Revenues. Revenues for the three months ended February 28, 2002 were $1,484,786
as compared to $761,618 for the same period in 2001 representing a 95% increase.
The increase in revenues reflects the significant growth in the processing and
storage revenue associated with the Company's U-Cord(TM) stem cell program. The
Company believes that the growth is a result of its investments in its various
marketing programs, including its activities with Lamaze Publishing, and the
increased traffic on its updated Web site www.CRYO-CELL.com. The upward sales
trend has continued into the second quarter of fiscal 2002.
Cost of Sales. Cost of sales for the three months ended February 28, 2002 were
$554,038 as compared to $264,448 in 2001. The cost of sales for the three months
ended February 28, 2002 and February 28, 2001 represents the associated expenses
resulting from the processing and testing of the U-Cord(TM) 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 three months ended February 28, 2002 were
$923,923 as compared to $808,948 in 2001. The increase reflects, in part, the
expenses of additional personnel, market development, clinical services
expansion and related expenses associated with the growth of the Company's
cellular storage program.
Research, Development and Related Engineering Expenses. Research, development
and related engineering expenses for the three months ended February 28, 2002,
were $25,088 as compared to $17,591 in 2001. The expenses incurred in the first
quarter of fiscal 2002 are the result of the continued development of the
Company's second generation cellular storage system. The expenses incurred in
2001 reflect the funding of the research project between the Company's
subsidiary, CCEL Bio-Therapies, Inc., and the University of South Florida at
Tampa.
Liquidity and Capital Resources
At February 28, 2002, the Company had cash and cash equivalents of
$5,882,033 as compared to $2,543,946 at February 28, 2001. The increase in cash
and cash equivalents was a result of the $3,837,955 that the Company received
from the exercise of 785,450 shares of the Company's common stock during 2001.
Through February 28, 2002, the Company's sources of cash have been from
sales of its U-Cord program to customers, the issuance of common stock from the
exercise of common stock options, the sales of Revenue Sharing Agreements and
the sale of subsidiary stock (prior to 1998).
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.
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
18
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.
19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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I. In July 1999, the Company entered into a 20-year exclusive agreement
with The Cancer Group Institute, LLC, a cancer information service.
The agreement dealt with the establishment of a business for the
preservation of tumor tissue relative to cancer treatment protocols.
Cancer Group and Michael Braham were to be provided options in CCEL
stock when their efforts resulted in 100 oncologists submitting
patients' tumor tissue to CRYO-CELL. The Cancer Group represented
that its Web site, www.cancergroup.com was accessed by approximately
25,000 oncologists, radiologists and cancer patients daily. Relying
on this information, in December 1999, the Company obtained an option
to purchase The Cancer Group Institute and all of its assets,
including its Web site, www.cancergroup.com. On or about September
-------------------
20, 2001, The Cancer Group Institute, LLC, a Florida Limited
Liability Company and Michael Braham, an individual filed a lawsuit
against the Company. The suit alleges that CRYO-CELL breached a
contract with both The Cancer Group, LLC and Michael Braham,
individually, by not providing the options and seeks an unspecified
amount of damages. CRYO-CELL feels that the suit is without merit and
has filed a countersuit claiming breach of contract against The
Cancer Group, LLC and Michael Braham. The Company, in its answer,
alleges that The Cancer Group did not perform under the contract,
never produced any oncologist's samples and is not entitled to the
contract's benefits. The Company has also petitioned for recession,
requesting a judgment against the Plaintiff that the parties be
returned to status quo ante. CRYO-CELL had previously paid $100,000
for an option to purchase The Cancer Group.
II. On January 30, 2002, the Company was served with a complaint by its
former President and Chief Operating Officer, Wanda Dearth. The
complaint alleges that the Company breached an agreement with Ms.
Dearth and is seeking damages and attorney's fees.
The Company's Board of Directors terminated Ms. Dearth's employment
on December 19, 2001. The Company believes that it is justified in
its action, believes the suit has no merit and is considering its
legal options, including filing a countersuit.
III. On February 22, 2002 the Company received a complaint filed by
Pharmastem Therapeutics, Inc. alleging patent infringement.
Pharmastem, a Delaware corporation, has named eight companies active
in cord blood banking in the suit which seeks an injunction against
the companies, an unspecified amount of damages or royalties, treble
damages and attorney's fees.The Company has consulted with their
patent attorney who believes that the asserted patents are not valid
and even if valid, believes that CRYO-CELL's business of collecting,
processing and cryopreserving cord blood cells does not infringe
either of the asserted patents. The Company also notes that it
believes that the corresponding patents in other jurisdictions
outside the United States have been invalidated.
20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(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)
(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-KSB for the year ended November 30, 1994.
(3) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended November 30, 1995.
(4) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended November 30, 1996.
(5) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended November 30, 1997.
(6) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended November 30, 1998.
(7) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended November 30, 1999.
(8) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended November 30, 2000.
(9) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended November 30, 2001.
(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 thereof.
(4) Form 8-K filed June 6, 2000 - Appointment of Wanda D. Dearth as
President and
21
COO. Form 8-K filed November 6, 2001 - The Cancer Group
Institute, LLC and Michael Braham filed a lawsuit against the
Company alleging breach of contract.
(5) Form 8-K filed December 19, 2001 - Termination of Wanda D.
Dearth as President, Chief Operating Officer and as a member of
the Board.
(6) Form 8-K filed February 1, 2002 - Wanda D. Dearth filed a
lawsuit against the Company alleging breach of contract.
(7) Form 8-K filed February 19, 2002 - Appointment of John V.
Hargiss as President and Chief Operating Officer.
(8) Form 8-K filed March 1, 2002 - Pharmastem Therapeutics, Inc.
filed a lawsuit alleging patent infringement.
Supplemental Information to be furnished with reports filed pursuant
to Section 15(d).
(c) No annual reports or proxy material have been sent to security
holders for the current fiscal year. Copies of any such report or
proxy material so furnished to security holders subsequent to the
filing of the annual report on this form will be furnished to the
Commission when sent to security holders.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRYO-CELL INTERNATIONAL, INC.
/s/ DANIEL D. RICHARD
-------------------------------
Daniel D. Richard
Chief Executive Officer
Date: April 12, 2002
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