SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended May 31, 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
______________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report).
State the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date. As of May 31, 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
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports On Form 8-K 18
SIGNATURES 19
2
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED BALANCE SHEETS
ASSETS
------
May 31, November 30,
2002 2001
--------------- --------------
Current Assets
- --------------
Cash and cash equivalents $ 6,044,529 $ 5,540,751
Accounts receivable and advances (net of allowance for
doubtful accounts of $34,000) 260,567 215,308
Receivable - Revenue Sharing Agreement 370,000 370,000
Receivable - Affiliates 1,464,864 1,300,000
Note Receivable 251,750 51,750
Marketable securities 182,708 260,996
Prepaid expenses and other current assets 321,492 223,337
----------------- ----------------
Total current assets 8,895,910 7,962,142
----------------- ----------------
Property and Equipment 3,504,441 3,184,883
- ---------------------- ----------------- ----------------
Other Assets
- ------------
Intangible assets (net of amortization of $72,702 and $64,944, respectively) 114,798 119,662
Investment in Saneron CCEL Therapeutics, Inc. 2,196,882 2,431,871
Investment in European Affiliates 3,065,000 3,100,000
Investment option to purchase a business 112,713 212,713
Deposits with vendors and others 370,391 383,075
----------------- ----------------
Total other assets 5,859,784 6,247,321
----------------- ----------------
$ 18,260,135 $ 17,394,346
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
May 31, November 30,
2002 2001
------------------ ----------------
Current Liabilities
- -------------------
Note Payable - Investment Bank $ - $ 467,000
Accounts payable 590,668 114,942
Accrued expenses and withholdings 685,945 248,380
Current portion of obligations under capital leases 623 1,510
----------------- ----------------
Total current liabilities 1,277,236 831,832
----------------- ----------------
Other Liabilities
- -----------------
Unearned revenue 1,681,760 2,009,942
Deposits 5,932 23,725
Obligations under capital leases-net of current portion 3,785 7,579
----------------- ----------------
Total other liabilities 1,691,477 2,041,246
----------------- ----------------
Minority Interest 37,838 -
----------------- ----------------
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 May 31, 2002, and 11,326,379
at November 30, 2001 issued and outstanding) 114,742 113,285
Additional paid-in capital 22,952,334 21,986,961
Additional paid-in capital - stock options 362,173 309,757
Stock subcription receivable (5,000) -
Accumulated other comprehensive income (loss) (13,020) 42,496
Accumulated deficit (8,157,645) (7,931,231)
----------------- ----------------
Total stockholders' equity 15,253,584 14,521,268
----------------- ----------------
$ 18,260,135 $ 17,394,346
================= ================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Three Months Ended Six Months Ended
------------------ -----------------
May 31, May 31, May 31, May 31,
2002 2001 2002 2001
------------- ------------ ------------ ------------
Revenue $ 1,792,345 $ 1,870,871 $ 3,277,131 $ 2,632,489
------------- ------------ ------------ ------------
Costs and Expenses:
Cost of sales 590,067 395,064 1,144,105 659,512
Marketing, general & administrative expenses 1,418,499 941,219 2,342,422 1,750,167
Research, development and related engineering 20,651 1,500 45,739 19,091
Depreciation and amortization 119,120 79,629 238,239 148,184
------------- ------------ ------------ ------------
Total cost and expenses 2,148,337 1,417,412 3,770,505 2,576,954
------------- ------------ ------------ ------------
Operating Income (Loss) (355,992) 453,460 (493,374) 55,535
------------- ------------ ------------ ------------
Other Income and (Expense):
Interest Income 13,175 25,305 35,533 61,447
Interest Expense (18,945) (466) (19,467) (994)
Other Income 266,221 195,142 666,221 370,142
Settlement on Litigation (107,500) - (107,500) -
Loss on Sale of Marketable Securities - (31,425) - (131,899)
------------- ------------ ------------ ------------
Total other income 152,951 188,556 574,787 298,696
Income (loss) before minority interest
and equity in earnings of affiliates (203,041) 642,016 81,413 354,231
------------- ------------ ------------ ------------
Equity in earnings of affiliates (45,170) - (269,989) -
Minority Interest (24,846) - (37,838) -
------------- ------------ ------------ ------------
(70,016) - (307,827) -
------------- ------------ ------------ ------------
Net Income (Loss) $ (273,057) $ 642,016 $ (226,414) $ 354,231
============= ============ ============ ============
Net income (loss) per share - basic and diluted ($0.02) $ 0.06 ($0.02) $ 0.03
============= ============ ============ ============
Number of Shares Used In Computation
Basic and diluted 11,339,379 10,194,831 11,335,165 10,168,945
============= ============ ============ ============
Comprehensive income (loss):
Net income (loss): (274,101) 642,016 (226,414) 354,231
Other comprehensive income (loss)
Net increase (decrease) in value
of marketable securities (11,512) (28,563) (55,516) (29,810)
------------- ------------ ------------ ------------
Comprehensive income (loss) (285,613) 613,453 (281,930) 324,422
============= ============ ============ ============
Comprehensive income (loss) per share - basic and
diluted ($0.03) $ 0.06 ($0.02) $ 0.03
============= ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended
----------------
May 31, May 31,
2002 2001
---- ----
Cash Flows from Operating Activities
Net Income (Loss) $ (226,414) $ 354,231
Adjustments to reconcile net income (loss)
to cash used for operating activities:
Depreciation and amortization 255,689 164,269
Loss on sale of marketable securities - 131,899
Issuance of common stock for interest and services rendered 52,416 185,987
Equity in earnings of affiliates 269,989 -
Minority interest 37,838 -
Changes in assets and liabilities:
Accounts receivable (45,259) (44,116)
Receivable - Revenue Sharing Agreement - (690,000)
Receivable - Affiliate (164,864) -
Note Receivable (200,000) (100,000)
Prepaid expenses and other current assets (98,155) (70,698)
Deposits 12,684 (399,300)
Investment-option to purchase 100,000 -
Accounts payable 475,727 84,808
Accrued expenses 437,565 (35,680)
Unearned revenue and deposits (345,975) (214,350)
------------ -------------
Net cash provided by (used for) operating activities 561,241 (632,950)
------------ -------------
Cash flows from investing activities:
Loan receivable - 250,000
Marketable Securities 22,772 -
Purchases of property and equipment (567,376) (334,423)
Payments for intangible assets (608) (8,435)
------------ -------------
Net cash provided by (used for) investing activities (545,212) (92,858)
------------ -------------
Cash flows from financing activities
Proceeds from the sale of securities 521,770 52,101
Proceeds from the issuance of common stock - 24,500
Proceeds from the sale of warrants - 200,000
Private placement fees (67,340) -
Stock subscription receivable (5,000) -
Exercise of stock options 43,000 56,000
Repayment of capital leases (4,681) (4,154)
------------ -------------
Net cash provided by financing activities: 487,749 328,447
------------ -------------
Increase (decrease) in cash and cash equivalents 503,778 (397,361)
Beginning of period 5,540,751 2,695,794
------------ -------------
End of period $ 6,044,529 $ 2,298,433
============ =============
Supplemental disclosure of cash flow information:
Interest $ 19,467 $ 994
============ =============
Income taxes $ - $ -
============ =============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
NOTE 1 - FINANCIAL STATEMENTS
The Consolidated Financial Statements including the Consolidated Balance
Sheet as of May 31, 2002, Consolidated Statements of Operations and
Comprehensive Income, and Cash Flows for the six months ended May 31, 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, and changes in
cash flows at May 31, 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 as an up front licensing fee, of which $465,000 and $700,000 were recorded
in fiscal 2000 and 2001, respectively. As of May 31, 2002, the Company
recognized the remaining $235,000 of the licensing fee income for fiscal 2002.
Pursuant to the agreement the Company is entitled to on-going 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 which were 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 consideration 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
installments of $100,000 due June 2002, $100,000 due October 2002 and $200,000
due January 2003. The Company is entitled to on-going licensing fees of 15% to
25% of adjusted U-Cord processing and storage revenues to be generated in
Mexico, Ecuador 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 six-month period
ended May 31, 2002 the Company recognized the remaining $100,000 as licensing
fee income, which is included in Other Income.
6
NOTE 2 - COMMITMENTS AND CONTINGENCIES (CONT'D)
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. As of
May 31, 2002 the Company has recognized $125,000 as licensing fee income.
NOTE 3 - LEGAL PROCEEDINGS
The Company is involved in the following legal proceedings:
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 in the Circuit Court of the 11th Judicial Circuit,
Miami-Dade County, Case No. 01-22158-CA-30. The suit alleges that CRYO-CELL
breached a contract with The Cancer Group, LLC and Michael Braham, individually,
by not providing the options and seeks an unspecified amount of damages. CRYO-
CELL filed a counter suit claiming breach of contract against The Cancer Group,
LLC and Michael Braham. On May 23, 2002 the Company entered into a settlement
agreement with The Cancer Group Institute LLC. As part of the settlement, the
agreement dated July 20, 1999 between the companies is null and void. , CRYO-
CELL agrees to issue The Cancer Group an option to purchase twelve thousand five
hundred (12,500) shares of CRYO-CELL common stock at an exercise price of $3.75
per share and the Company paid The Cancer Group the sum of $7,500 (Seven
Thousand Five Hundred Dollars). The $100,000 that was previously paid as an
option to purchase The Cancer Group was expensed during the period and is
included in Other Expenses.
On January 30, 2002, the Company was served with a complaint by its former
President and Chief Operating Officer, Wanda Dearth. The complaint (Case No. 02-
000811-CI-15) was filed in the Circuit Court of the Sixth Judicial Circuit of
the State of Florida, Pinellas County. 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 counter suit.
7
NOTE 3 - LEGAL PROCEEDINGS (CONT'D)
On February 22, 2002 the Company received a complaint filed by Pharmastem
Therapeutics, Inc. in the United States District Court of Delaware (Wilmington),
Case No. 02-CV-198, 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.
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 the 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 of the Company 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 borrowed $500,000 of which
$467,000 has been received as of November 30, 2001 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 the 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 (as per May 22, 2002 amendment below, shares reduced to 150,000) of its
common shares, as adjusted for the September 2001 forward split, as additional
compensation. SCPT's counsel also received 45,000 common shares for its legal
services. Both issuances of shares were valued at their fair value of $3,400 and
reflected in accompanying financial statements as deferred financing costs. SCPT
used $300,000 of the proceeds received as payment for its investment in CRYO-
CELL Europe NV and CRYO-CELL Italia, S.r.l. Of the 12,870,000 issued and
outstanding common shares of SCPT at November 30, 2001, the Company owned
11,500,000 (89.4%) shares. Upon payment of the dividend the Company will own
approximately 3,200,000 (24.9%) shares of SCPT.
8
NOTE 4 - STEM CELL PRESERVATION TECHNOLOGIES, INC. (CONT'D)
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 private
placement agent, Newbridge Securities Corporation, a subsidiary of FHIC. The
placement agent is to receive a commission of 10% of the gross proceeds from the
offering and a non-accountable expense reimbursement of 3% of the gross sale
proceeds. The Placement Agent originally was to receive warrants to acquire
25,900 common shares exercisable at $2.20 per share. As per the May 22, 2002
debt conversion agreement (see below), the warrant issuance was cancelled in
exchange for the issuance of 22,500 common shares. The number of shares
purchasable under these warrants is equal to 10% of the shares sold under the
private offering. The number of shares sold under the offering may be increased
to 2,500,000. The offering period originally terminated on December 31, 2001 but
was extended until February 28, 2002. By the closing of the offering on February
28, 2002, accredited investors subscribed for 259,000 common shares at $2.00 per
share for a total of $518,000. $207,060 was received by February 28, 2002 and
$238,600 of stock subscription receivable was received in March 2002. Offering
costs amounted to $121,170 of which $67,340 was deducted from the proceeds,
$33,000 was paid in the three months ended February 28, 2002 and $20,830 was
deferred at November 30, 2001.
On May 22, 2002, FHIC agreed to convert the $500,000 note and accrued
interest thereon into 250,000 shares of SCPT's common stock and was paid an
incentive fee of $20,000 to convert the note into the common shares. The
conversion agreement also required FHIC to reduce the 250,000 shares of SCPT's
common stock received as additional compensation under the original terms of the
July 2001 financing agreement to 150,000 shares in full satisfaction.
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 May 31, 2002, is not considered to be
impaired by management. The Company recognized an expense of $234,989 in the six
months ended May 31, 2002 under the equity method from this minority owned
subsidiary.
9
NOTE 5 - INVESTMENTS IN AFFILIATES (CONT'D)
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 to 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.
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. (CCI) from CRYOC for $150,000. The Company on August
29, 2001 purchased 21.9% of CCI from CRYOC for $1,800,000. The investments in
CCI are for an umbilical cord bank to be opened within Italy. The purchase price
of the interests in CCI 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 CCI. The excess of cost of the investment in CCI over the
book value of Italia at the time of acquisition was approximately $1,850,000. At
May 31, 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.
In February 2002, the Italian Ministry of Health issued an ordinance
restricting private cord blood collection. The statutory basis under Italian law
for this action was Section 107 of the Regulation of Transfusion and Production
of Blood Products, which requires that these activities be conducted by duly
licensed organizations. In April and May 2002 petitions against the ordinance
were brought by CCI and three mothers in separate actions. CCI and the mothers
prevailed in all three circumstances resulting in the court permitting the
collection and export of the cord blood specimens. The ruling is under appeal.
Draft blood product and banking legislation is currently pending in the Italian
Parliament which includes a provision that expressly allows private cord blood
banking activities within the country. Management believes such legislation will
be enacted in the fall of 2002. While there can be no certainty, CCI management
believes the company will be able to operate its private cord blood banking
operations within the country.
NOTE 6 - SUBSEQUENT EVENTS
On June 18, 2002, Daniel D. Richard resigned from his positions as Chairman
and Chief Executive Officer of the Company. John V. Hargiss was appointed to the
position of Chief Executive Officer and Mercedes Walton, a Company director, was
elected Chairman of the Board. The Board awarded Mr. Richard a $250,000
retirement bonus which was recorded at May 31, 2002 and conditionally awarded,
200,000 stock options at 110% of market value at the time of grant from the
Company's Stock Incentive
10
NOTE 6 - SUBSEQUENT EVENTS (CONT'D)
Plan upon the successful completion of certain performance milestones. Mr.
Richard will be paid $200,000 per year over the next 10 years as part of a
long-term consulting agreement with the Company. The agreement constitutes a
survivor's benefit to his widow in the event of death before the expiration of
the 10-year period. The Company plans to take steps in an effort to protect
against any future obligation resulting from the survivorship benefit by seeking
insurance coverage in the amount of such potential liability.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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, Florida handles all aspects of its
business operations including the processing and storage of specimens.
The following is a discussion and analysis of the financial condition and
results of operations of the Company for the quarter ended May 31, 2002 as
compared to the same period of the prior year.
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. In June 2002, Stem Cell Preservation Technologies, Inc.
filed a registration statement and is in the process of responding to comments
from 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. As a
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result of the transaction, the Company retained a 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.
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
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. 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 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
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entity. 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.
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 May 31, 2002, $300,000 was
received. The remainder of the payments are due to be paid in three 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
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.
Results of Operations
Revenues. Revenues for the six months ended May 31, 2002 were $3,277,131 as
compared to $2,632,489 for the same period in 2001 representing a 24% increase.
The revenues for the six months ended May 31, 2001 include $750,000 from the
sale of a Revenue Sharing Agreement and $1,882,489 in sales from its customers.
Therefore, actual processing and storage revenue from sales to customers
increased $1,394,642 or 74%. The increase in revenues reflects the significant
growth in the processing and storage
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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. The upward sales trend has continued into the third quarter of fiscal
2002.
Cost of Sales. Cost of sales for the six months ended May 31, 2002 was
$1,144,105 as compared to $659,512 in 2001. The cost of sales for the six months
ended May 31, 2002 and May 31, 2001 represents the associated expenses resulting
from the processing and testing of the U-CordTM specimens in the Company's own
state of the art laboratory in Clearwater, Florida.
Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses during the six months ended May 31, 2002 were $2,342,422
as compared to $1,750,167 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 six months ended May 31, 2002, were
$45,739 as compared to $19,091 in 2001. The expenses incurred during the six
months ended May 31, 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.
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
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.
Liquidity and Capital Resources
At May 31, 2002, the Company had cash and cash equivalents of $6,044,529
as compared to $2,298,433 at May 31, 2001. The increase in cash and cash
equivalents was a result of the $3,837,955 that the Company received from the
exercise of options regarding 785,450 shares of the Company's common stock
during 2001.
Through May 31, 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 its cash on-hand, cash flows from operations
and receivables from its agreements will be sufficient to fund its growth for
the foreseeable future. Cash flows from operations will depend primarily on the
success of obtaining increasing revenues resulting from its umbilical cord blood
cellular storage marketing campaign.
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Forward Looking Statements
This Form 10-QSB, press releases and certain information provided
periodically in writing or orally by the Company's officers or its agents may
contain statements which constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act, as amended and Section 21E of the
Securities Exchange Act of 1934. The terms "CRYO-CELL International, Inc. ,"
"CRYO-CELL" "Company," "we," "our" and "us" refer to CRYO-CELL International,
Inc. The words "expect," "believe," "goal," "plan," "intend," "estimate" and
similar expressions and variations thereof, if used, are intended to
specifically identify forward-looking statements. Those statements appear in a
number of places in this Form 10-QSB and in other places, particularly,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and include statements regarding the intent, belief or current
expectations of the Company, its directors or its officers with respect to,
among other things:
(i) our legal proceedings;
(ii) our anticipated future cash flows;
(iii) our liquidity and capital resources;
(iv) our licensing arrangements and future operating plans;
(v) our future performance and operating results;
Investors and prospective investors are cautioned that any such forward-
looking statements are not guarantees of future performance and involve risks
and uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors. The
factors that might cause such differences include, among others, the following:
(i) any material inability to successfully optimize the opportunities
available to us from our licensing agreements;
(ii) any material reductions in the our liquidity and working capital;
(iii) any adverse effect or limitations caused by any governmental
regulations, proceedings or actions;
(iv) any continued or increased losses, or any inability to obtain
acceptable financing, where desirable in the future, in connection
with our operating or growth plans;
(v) any increased competition in our business;
(vi) any decrease or slow down in the number of people seeking to store
umbilical cord blood stem cells or decrease in the number of
people paying annual storage fees;
(vii) the effect of any future reduced cash position and future
inability to access borrowings;
(viii) any adverse impacts on our revenue or operating margins due to the
costs associated with increased growth in our business;
(ix) any adverse developments impacting our continued relationship with
and success of our licensees;
(x) any inability to achieve increases in revenue or earnings from
umbilical cord blood stem cell storage;
(xi) any future inability to substantially achieve the objectives
expected from the successful implementation of our strategy;
(xii) the combined decline of public market interest in the Company's
business sector and the Company's stock;
(xiii) any added requirements imposed on us by NASDAQ or future loss of
the Company's listing under NASDAQ;
(xiv) general economic and market conditions and combined general
downturn in the economy;
(xv) inability to generate positive cash flows and continuance of, or
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(xvi) the potential impact of negative market influences on the
Company's portfolio of cash and cash equivalents;
(xvii) any inability to successfully defend against claims and
litigation matters;
We undertake no obligation to publicly update or revise the forward-
looking statements made in this Form 10-QSB to reflect events or circumstances
after the date of this Form 10-QSB or to reflect the occurrence of unanticipated
events.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Incorporated by reference to Part I. Financial Statements-Notes to
Condensed Consolidated Financial Statements - Note 4.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amendment to Certificate of Incorporation
3.2 By-Laws
(b) Reports on Form 8-K.
The Company filed Form 8-K filed March 1, 2002 announcing that
Pharmastem Therapeutics, Inc. filed a lawsuit against the Company
alleging patent infringement.
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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/ JOHN V. HARGISS
-----------------------------
John V. Hargiss
Chief Executive Officer
Date: July 19, 2002
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