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, 2003
/ /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).
State the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date. As of July 15, 2003, 11,997,540
shares of $0.01 par value common stock were outstanding (including 645,161
shares held by the Company's majority-owned subsidiary, Stem Cell Preservation
Technologies, Inc.).
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 and Comprehensive Loss ........................ 4
Condensed Consolidated Statements of Cash Flows ............................................... 5
Notes to Condensed Consolidated Financial Statements .......................................... 6
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations ........ 12
Item 3. Controls and Procedures ....................................................................... 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ............................................................................. 21
Item 2. Changes in Securities ......................................................................... 21
Item 3. Defaults Upon Senior Securities ............................................................... 21
Item 4. Submission of Matters to a Vote of Security Holders ........................................... 21
Item 5. Other Information ............................................................................. 21
Item 6. Exhibits and Reports On Form 8-K .............................................................. 22
SIGNATURES ............................................................................................ 23
2
CRYO-CELL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
May 31, November 30,
2003 2002
------------------ -------------------
(Unaudited) (As Restated)
Current Assets
- --------------
Cash and cash equivalents $ 692,266 $ 1,935,532
Marketable securities 3,027,726 3,127,843
Accounts receivable and advances (net of allowance for
doubtful accounts of $142,010 and $89,010) 197,576 281,911
Receivable-Revenue Sharing Agreement 650,000 -
Receivable - Affiliates (net of allowance for doubtful accounts of $128,540) 237,360 412,071
Notes receivable (net of allowance for doubtful accounts of $66,000 and $41,000) 205,750 210,750
Prepaid expenses and other current assets 308,016 112,115
------------------ -------------------
Total current assets 5,318,694 6,080,222
------------------ -------------------
Property and Equipment-net 2,541,440 2,632,831
- -------------------------- ------------------ -------------------
Other Assets
- ------------
Intangible assets (net of amortization of $81,048 and $77,127, respectively) 97,640 102,345
Marketable securities 167,831 -
Receivable-Revenue sharing agreements 1,552,064 332,895
Investment in Saneron CCEL Therapeutics, Inc. 1,820,526 1,914,826
Investment in European Affiliates 739,667 739,667
Deferred consulting fees 1,363,314 1,438,412
Deposits 175,411 175,161
------------------ -------------------
Total other assets 5,916,453 4,703,306
------------------ -------------------
$ 13,776,587 $ 13,416,359
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
May 31, November 30,
2003 2002
------------------ -------------------
(Unaudited) (As Restated)
Current Liabilities
- -------------------
Accounts payable $ 398,512 $ 391,269
Accrued expenses and withholdings 945,322 1,217,407
------------------ -------------------
Total current liabilities 1,343,834 1,608,676
------------------ -------------------
Other Liabilities
- -----------------
Deferred revenue 3,167,769 2,228,164
Long-Term Liability-Revenue sharing agreements 6,416,666 4,416,666
Deferred consulting obligation 1,398,571 1,455,688
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Total other liabilities 10,983,006 8,100,518
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Minority Interest - -
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Stockholders' Equity
- --------------------
Preferred stock ($.01 par value, 500,000 authorized and none issued) - -
Common stock ($.01 par value, 20,000,000
authorized; 11,352,379 at May 31, 2003, and 11,352,379
at November 30, 2002 issued and outstanding) 113,524 113,524
Additional paid-in capital 23,025,166 23,012,760
Accumulated other comprehensive loss income (425,080) (387,997)
Accumulated deficit (21,263,863) (19,031,122)
------------------ -------------------
Total stockholders' equity 1,449,747 3,707,165
------------------ -------------------
$ 13,776,587 $ 13,416,359
================== ===================
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 LOSS
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
May 31, May 31, May 31, May 31,
2003 2002 2003 2002
------------ ------------ ------------ ------------
(As Restated) (As Restated)
Revenue $ 1,632,436 $ 1,646,629 $ 3,063,170 $ 3,054,970
------------ ------------ ------------ ------------
Costs and Expenses:
Cost of sales 672,484 554,067 1,300,220 1,071,910
Marketing, general & administrative expenses 1,867,123 1,595,492 3,475,486 2,474,619
Research, development and related engineering 33,672 20,651 65,390 45,739
Depreciation and amortization 80,151 119,120 162,658 238,239
------------ ------------ ------------ ------------
Total cost and expenses 2,653,430 2,289,330 5,003,754 3,830,507
------------ ------------ ------------ ------------
Operating Loss (1,020,994) (642,701) (1,940,584) (775,537)
------------ ------------ ------------ ------------
Other (Expense) Income:
Interest Income 15,310 13,175 45,789 35,533
Interest Expense (151,590) (80,740) (277,693) (138,387)
Other Income 45,006 266,221 77,812 666,221
Other Expense - (107,500) - (107,500)
Loss on Sale of Marketable Securities (24,753) - (24,753) -
------------ ------------ ------------ ------------
Total other (expense) income (116,027) 91,156 (178,845) 455,867
------------ ------------ ------------ ------------
Income (loss) before minority interest
and equity in earnings of affiliates (1,137,021) (551,545) (2,119,429) (319,670)
------------ ------------ ------------ ------------
Income Taxes (141,101) (141,101) -
Equity in earnings of affiliates 4,032 (45,170) 27,788 (269,989)
Minority Interest - (24,846) - (37,838)
------------ ------------ ------------ ------------
(137,069) (70,016) (113,313) (307,827)
------------ ------------ ------------ ------------
Net Loss $ (1,274,090) $ (621,561) $ (2,232,742) $ (627,497)
============ ============ ============ ============
Net income (loss) per common share - basic and diluted ($0.11) ($0.05) ($0.20) ($0.06)
============ ============ ============ ============
Number of Common Shares Used In Computation
Basic and diluted 11,352,379 11,339,379 11,352,379 11,335,165
============ ============ ============ ============
Comprehensive loss:
Net loss: $ (1,274,090) $ (621,561) $ (2,232,742) $ (627,497)
Other comprehensive income (loss):
Net change in unrealized loss 55,950 (11,512) (61,836) (55,516)
Reclassification adjustment for losses included in
net loss 24,753 - 24,753 -
------------ ------------ ------------ ------------
Comprehensive loss $ (1,193,387) $ (633,073) $ (2,269,825) $ (683,013)
============ ============ ============ ============
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 CASH FLOWS
(Unaudited)
Six Months Ended
----------------
May 31, May 31,
2003 2002
------------- --------------
(As Restated)
Cash Flows from Operating Activities:
Net Loss $ (2,232,742) $ (627,497)
Adjustments to reconcile net loss
to cash used for operating activities:
Depreciation and amortization 193,136 255,689
Loss on sale of marketable securities 24,753 -
Compensatory element of stock options 12,408 52,416
Provision for doubtful accounts 78,000 -
Dividend income reinvested in marketable securities (7,464) -
Equity (income) loss in earnings of affiliates (27,788) 269,989
Minority interest - 37,838
Changes in assets and liabilities:
Accounts receivable and advances 31,335 (45,259)
Receivable - Affiliates 174,711 (164,864)
Notes receivable (20,000) (200,000)
Deferred consulting fee 75,098 -
Prepaid expenses and other current assets (195,901) 34,042
Deposits (250) 12,684
Investment-option to purchase - 100,000
Accounts payable 7,244 475,727
Deferred revenue 939,605 (323,814)
Revenue sharing agreements 80,831 46,725
Accrued expenses and withholdings (270,679) 437,565
------------- --------------
Net cash (used in) provided by operating activities (1,137,703) 361,241
------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (97,040) (567,376)
Payments for intangible assets - (608)
Purchase of marketable securities - 22,772
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Net cash used in investing activities (97,040) (545,212)
------------- --------------
Cash flows from financing activities:
Proceeds from the sale of subsidiary's securities - 521,770
Private placement fees - (67,340)
Stock subscription receivable - (5,000)
Proceeds from the exercise of stock options and sale of warrants - 43,000
Proceeds from revenue sharing agreements 50,000 -
Repayments of deferred consulting obligation (57,117) -
Repayment of capital leases (1,406) (4,681)
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Net cash provided by financing activities (8,523) 487,749
------------- --------------
(Decrease) increase in cash and cash equivalents (1,243,266) 303,778
Beginning of period 1,935,532 5,540,751
------------- --------------
End of period $ 692,266 $ 5,844,529
============= ==============
Supplemental disclosure of cash flow information:
Interest $ 277,693 $ 138,387
============= ==============
Income taxes $ 141,101 $ -
============= ==============
Supplemental schedule of non-cash investing and financing activities:
Change in unrealized loss as a component of investments
$ (122,087) $ -
============= ==============
Change in unrealized gain (loss) as a component of marketable
securities $ 85,004 $ (37,083)
============= ==============
The accompanying notes to consolidated financial statements are an integral
part of these statements.
5
CRYO-CELL INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2003
(Unaudited)
Note 1 - Basis of Presentation
The unaudited condensed consolidated financial statements including the
Condensed Consolidated Balance Sheets as of May 31, 2003 and November 30, 2002,
Condensed Consolidated Statements of Operations and Comprehensive Loss for the
quarter and six months ended May 31, 2003 and May 31, 2002, and Cash Flows for
the six months ended May 31, 2003 and May 31, 2002 have been prepared by
CRYO-CELL International, Inc. (`the Company'). 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 for all periods presented have been made.
The unaudited consolidated condensed financial statements herein have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for interim financial reporting. Certain financial information and
note disclosures which are normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to those rules and regulations. It is suggested
that these condensed consolidated financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's
November 30, 2002 Annual Report on Form 10-KSB as amended.
In April 2003, upon the advice of its then auditors, management reviewed
its policy of recognition of revenue from the sale of revenue sharing agreements
and annual storage fees. Management along with its prior auditors, who had
previously opined upon the Company's financial statements for the years ended
November 30, 2002 and 2001, sought the guidance of the staff of the Office of
the Chief Accountant of the Securities and Exchange Commission. Based on
discussions among the parties, management determined that the accounting
treatment of the revenue sharing agreements and the storage revenue policies
should be changed and the Company's previously issued financial statements
restated (refer to Note 7).
Revenue Recognition for Enrollment Fees
During the first quarter of 2003, the Company changed its method of
recognizing enrollment fee revenue. Through November 30, 2002, the Company
recognized enrollment fees upon completion of the enrollment into the U-Cord
storage program. Beginning December 1, 2002, enrollment fees and the related
direct and incremental costs associated with these fees are deferred and
recognized once the processing of the specimens is complete. Had the accounting
treatment been in effect the accumulated deficit would have been $102,000
greater than previously reported as of November 30, 2002. The cumulative impact
of the change, including the impact of approximately $27,000 in the current
period, is reflected in the six months ended May 31, 2003. Management does not
believe that the impact of this adjustment is material to the November 30, 2002
financial statements (as restated), or to the projected operating results and
earnings trend for the year ending November 30, 2003.
Reclassification
Certain reclassifications have been made to the November 30, 2002 financial
statements to conform to the 2003 quarterly presentation, including the
reclassification of the minority interest liability into additional paid-in
capital.
Note 2 - Earnings per Common Share
Earnings (Loss) per share data is based on net income (loss) and not
comprehensive income (loss). Basic earnings (loss) per share for the quarter and
six-month period ended May 31, 2003 and May 31, 2002
6
were computed by dividing net income by the weighted average number of common
shares outstanding during the period. The Company did not present diluted
earnings per share, as the effect of potentially dilutive shares from
outstanding stock options would be antidilutive.
Note 3 - Legal Proceedings
The Company is involved in the following legal proceedings:
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 (two of which are now out of business)
involved in cord blood banking. The suit 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 cryo-preserving cord
blood cells does not infringe either of the asserted patents. The Company also
notes that corresponding patents in other jurisdictions outside the United
States have been invalidated or abandoned. The litigation is still in the
discovery stage, with trial scheduled for October 2003.
In March 2003, CRYO-CELL Europe, N.V. ("CCEU") was served with a letter
terminating the Company's license agreement with a CCEU affiliate. On April 15,
2003, the Company commenced legal proceedings against CCEU and an affiliated
corporation in the Hague, Netherlands, for a preliminary injunction restraining
CCEU from using the "CRYO-CELL" name. On or about May 30, 2003, the Company
voluntarily withdrew its preliminary injunction application, and it plans to
file a new preliminary injunction proceeding seeking the same relief shortly.
On April 17, 2003, the Company filed a lawsuit against CCEU in the Circuit
Court of the Sixth Judicial District in the State of Florida, seeking to recover
money damages for unpaid royalty payments due under the license agreement
with the Company. The Company had previously advised CCEU that, by the Company's
calculation, CCEU owed the Company $323,562 in unpaid royalties. The license
agreement granted COLTEC, Ltd. and its affiliates an exclusive license to market
the Company's U-Cord program in Europe, and allowed them to directly market the
U-Cord program, sell revenue sharing agreements or further sub-license the
marketing rights throughout Europe. COLTEC, Ltd. subsequently assigned the
license agreement to an affiliated company.
Between May and July 2003, six putative class action complaints were filed
against the Company, certain current and former officers and directors of the
Company and two accounting firms who previously audited the Company's financial
statements. All six complaints allege violations of federal securities laws,
including improper recognition of revenue in the financial statements presented
in certain public reports of the Company. The complaints generally seek among
other things, certification of a class of persons who purchased the Company's
common stock between March 16, 1999 and May 20, 2003 and unspecified damages.
The Company has not yet responded to any of the complaints. The Company believes
the complaints are without merit and intends to defend the litigation
vigorously.
Note 4 - Investments in Subsidiaries and 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. As a result of the merger CCBT's
name was changed to Saneron CCEL Therapeutics, Inc. (SCTI). The STI
7
stockholders received 56.58% of the merged entity and the Company retained a
43.42% interest in the merged entity. The Company's ownership interest of
approximately 43% of SCTI is accounted for under the equity method of accounting
along with approximately $1,300,000 that represents goodwill and is reflected in
the investment balance. For the six months ended May 31, 2003, the Company
recorded equity in income of SCTI operations of approximately $28,00 and
recorded a charge to other comprehensive loss of approximately $122,000 related
to the temporary decline in the price of the Company's common stock currently
held as an investment by SCTI as a result of the merger. For the six months
ended May 31, 2002, the Company recorded equity in losses of SCTI in operations
of approximately $270,000. In February 2003, an independent valuation appraised
the Company's approximate 43% minority stake in SCTI at $3 million. The SCTI
investment, including the portion that represents goodwill, is reflected on the
balance sheet as of May 31, 2003 at approximately $1,820,000.
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 stockholders of record
on August 31, 2001 are to receive three (3) shares of SCPT common stock for
every four (4) shares of the Company's common stock the Company's stockholders
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 a forward split of 1,350 to 1 in September 2001.
The Board of Directors of the Company on August 21, 2001 set aside
1,000,000 shares of the common shares of SCPT (as adjusted for the September
2001 forward split) owned by CRYO-CELL International, Inc. for the purpose of
incentives for the recruiting of and rewarding of key SCPT executives. SCPT
cancelled these shares and retired these shares. During fiscal 2001, three
officers 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 May 31, 2003 an option for 45,000 of these
shares to the Company's former President 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.
In July 2001, SCPT entered into a financing agreement with Financial
Holdings and Investments Corp. ("FHIC") whereby SCPT borrowed $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. SCPT agreed
to issue FHIC 250,000 shares (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 the 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.
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 was 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
8
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
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. Offering costs amounted to $126,170. Of the 13,279,000
issued and outstanding common shares of SCPT at November 30, 2002, the Company
owned 11,500,000 (86.6%) shares. Upon payment of the dividend the Company will
own approximately 3,200,000 (24.9%) shares of SCPT.
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.
In August 2002, the Company contributed $600,000 cash and 645,161 shares of
its common stock (valued at $2,400,000 on the date of contribution) to SCPT to
acquire a revenue sharing agreement for the States of Illinois and New York from
SCPT. The transaction was accounted for on each entity's books at historical
cost, with no cost basis for the stock. The additional contribution and the
related revenue sharing agreement were eliminated in consolidation.
Through November 30, 2002 aggregate losses attributable to the minority
interest exceeded the minority's interest in the equity capital of SCPT. As a
result, minority interest on the balance sheet as of May 31, 2003 is reflected
at $0, and the Company has recognized 100% of the losses of SCPT in its
statement of operations during the quarter and six months ended May 31, 2003
(approximately $30,000, and 60,000, respectively).
The Company anticipates the spin-off of SCPT as a separate public company
to occur as soon as possible, In connection with the spin-off, all shareholders
of record of the Company on August 31, 2001 are expected to receive three shares
of SCPT for every four shares of CRYO-CELL stock that they owned. The payment
date of the shares to be distributed will follow the effective date of a
registration statement covering the stock dividend. SCPT continues its efforts
to complete the registration process and be declared effective by the Securities
and Exchange Commission (SEC). It is SCPT's intent to re-file the pre-effective
amendment for SCPT as soon as SCPT's financials are updated following
CRYO-CELL's filing of the first and second quarters of 2003.
Note 5 - Stem Cell Preservation Technologies, Inc. Revenue Sharing Agreement
In May 2003, the Company's majority owned subsidiary SCPT entered into a
Revenue Sharing Agreement (RSA) with an independent limited liability company
(`LLC'). SCPT is to receive $2,000,000 payable in varying installments through
March 2007 with interest at 4%. As of July 2003, $250,000 has been received
under the terms of this agreement. The LLC is entitled to receive, for an
indefinite period, a fee for each adult stem cell specimen stored by SCPT for
persons located in the State of California up to 75,000 specimens. The fee is
$17.50 per specimen per year.
Note 6 - Stock Options
The Company accounts for stock options under Accounting Principles Board
Opinion No. 25 ("APB No. 25"), under which no compensation expense has been
recognized. In October 1995, the FASB issued
9
SFAS No. 123, Accounting for Stock-Based Compensation, which is effective for
years beginning after December 15, 1995. SFAS No. 123 established financial
accounting and reporting standards for stock-based employee compensation plans.
The statement defines a fair value based method of accounting for an employee
stock option or similar equity instrument and encourages all entities to adopt
that method of accounting for all of their stock compensation plans. However, it
also allows an entity to continue to measure compensation costs for those plans
using the intrinsic value based method of accounting prescribed by APB No. 25,
but requires pro forma disclosure of net income and earnings per share for the
effects on compensation expense had the accounting guidance for SFAS No. 123
been adopted.
On December 31, 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS No.
123 to provide alternative methods of transition to SFAS No. 123's fair value
method of accounting for stock-based employee compensation. SFAS No. 148 also
amends the disclosure provisions of SFAS No. 123 to require disclosure effects
of an entity's accounting policy with respect to stock-based employee
compensation on reported earnings in interim financial statements. The
disclosure provisions of SFAS No. 148 are applicable to all companies with
stock-based employee compensation. SFAS No. 148 is effective for fiscal years
ending after December 15, 2002 and for interim periods beginning after December
15, 2002. The Company does not plan to transition to the fair value based method
of accounting for stock-based employee compensation and has adopted the
disclosure requirements of SFAS 148 as of December 1, 2002.
Had SFAS No. 123 been implemented, the Corporation's net loss and loss per
share would have been increased to the amounts indicated below for the quarter
and six months ended May 31, 2003 and May 31, 2002:
- --------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
- --------------------------------------------------------------------------------------------------------
May 31, 2003 May 31, 2002 May 31, 2003 May 31, 2002
- --------------------------------------------------------------------------------------------------------
Net Loss, as reported ($1,274,090) ($621,561) ($2,232,742) ($627,497)
- --------------------------------------------------------------------------------------------------------
Deduct: Total stock-based
employee compensation
expense determined under fair
value based method for all
awards (71,246) (155,473) (244,441) (310,945)
- --------------------------------------------------------------------------------------------------------
Pro forma net loss ($1,345,336) ($777,034) ($2,477,183) ($938,442)
- --------------------------------------------------------------------------------------------------------
Loss per share:
- --------------------------------------------------------------------------------------------------------
Basic and diluted-as reported ($.11) ($.05) ($.20) ($.06)
- --------------------------------------------------------------------------------------------------------
Basic and diluted-pro forma ($.12) ($.07) ($.22) ($.08)
- --------------------------------------------------------------------------------------------------------
Note 7 - Restatement
For the quarter and six months ended May 31, 2002, the restatement as
described in Note 1 relating to the revenue sharing agreements did not have a
material impact on the Company's results of operating and financial condition. A
summary of significant effects of the restatement of the annual storage fees for
the quarter and six months ended May 31, 2002 are as follows:
10
Three Months Ended Six Months Ended
May 31, 2002 May 31, 2002
------------ ------------
(As Restated) (As Previously Reported) (As Restated) (As Previously Reported)
------------- ------------------------ ------------- ------------------------
Revenue $1,646,629 $1,792,345 $3,054,970 $3,277,131
Net loss ($621,560) ($273,057) ($627,497) ($226,414)
Loss per share ($.05) ($.02) ($.06) ($.02)
Shares used in
computation 11,339,379 11,339,379 11,335,165 11,335,165
Note 8 - Nasdaq
On June 24, 2003, the Company announced that its common stock will continue
to be listed on The Nasdaq SmallCap Market as a result of an exception granted
by the Nasdaq Listing Qualifications Panel related to the requirement that the
Company file its periodic reports with the Securities and Exchange Commission on
a timely basis. The Company had failed to meet this requirement as of April 14,
2003; however, the Company was granted a temporary exception from this standard
subject to the Company meeting certain conditions for accomplishing the filing
of its periodic reports with the Securities and Exchange Commission. The Company
filed an amended Form 10-KSB on June 27, 2003, as required under the terms of
the Nasdaq exception. On or before July 15, 2003, the Company must also file its
Form 10-QSB for the three months ended May 31, 2003, evidencing compliance with
all requirements for continued listing on The Nasdaq SmallCap Market. Further,
on or before October 15, 2003, the Company must file the Form 10-QSB for the
quarter ending August 31, 2003, evidencing compliance with all requirements for
continued listing on The Nasdaq SmallCap Market. In the event the Company is
deemed to have met the terms of the exception, it shall continue to be listed on
The Nasdaq SmallCap Market. The Company is filing this Form 10-QSB for the
second quarter of fiscal 2003 on a timely basis. However, the Company's reported
stockholders' equity as of May 31, 2003 is $1,449,747, which is lower than the
$2,500,000 minimum stockholders' equity requirement for inclusion on The Nasdaq
SmallCap Market. This shortfall results from the restatement of the Company's
financial statements reflected in the amended Form 10-KSB and from continued
losses through May 31, 2003. The Company has requested that the Nasdaq Listing
Qualifications Panel grant an extension for compliance with the minimum
stockholders' equity requirement, based on the Company's confidence that it can
return to compliance with this requirement. However, there can be no assurance
that the Panel will grant an extension, or that the Company will be able to
comply with the other terms of the exception and maintain its listing. If at
some future date the Company's securities should cease to be listed on The
Nasdaq SmallCap Market, they may continue to be listed on the OTC Bulletin
Board, or the Company may file for a listing on an alternative exchange. For the
duration of the exception, the Company's Nasdaq symbol will be "CCCEC".
Note 9 - Marketable Securities
During the second quarter 2003, the Company sold approximately $3,100,000
in marketable securities that were accounted for under SFAS 115, Accounting for
Certain Debt and Equity Instruments (SFAS 115). In accordance with SFAS 115, the
Company recorded a realized loss of approximately $25,000. The proceeds from the
sale were reinvested in certain marketable securities and cash equivalents,
which are reflected on the May 31, 2003 balance sheet at approximately
$3,000,000 and $95,000, respectively. Included within marketable securities, are
certificates of deposit that are not accounted for under SFAS 115 and a bond
investment of approximately $2,000,000 that has been classified as held to
maturity in accordance with SFAS 115.
11
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations.
Critical Accounting Policies
The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States
requires estimates and assumptions that affect the reported amounts of assets
and liabilities, revenues and expenses and related disclosures of contingent
assets and liabilities in the consolidated financial statements and accompanying
notes. The SEC has defined a company's critical accounting policies as the ones
that are most important to the portrayal of the company's financial condition
and results of operations, and which require the company to make its most
difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. The Company believes that
its estimates and assumptions are reasonable under the circumstances; however,
actual results may vary from these estimates and assumptions. We have identified
the following critical accounting policies that affect the more significant
judgments and estimates used in the preparation of the consolidated financial
statements.
Investments
The Company has made several significant investments in entities that
operate in related businesses. The Company has made these investments in order
to expand into international markets and be involved in the area of stem cell
research. The Company accounts for these investments under either the cost or
equity method, as applicable and periodically, and at least annually, reviews
its investments for possible impairment and, if necessary, adjusts the carrying
value of such investments.
Revenue Sharing Agreements
The Company has entered into Revenue Sharing Agreements ("RSAs") with
various parties whereby these parties contracted with the Company for a
percentage of future storage revenues the Company generates from clients in
specific geographical areas. The parties typically pay the Company a
non-refundable up-front fee for the rights to these future payments. The Company
had recognized these non-refundable fees as revenue. The Company, after
discussions with its prior auditors and the staff of the Office of the Chief
Accountant at the SEC, presently records this up-front fee as a long-term
liability. These agreements can take considerable time to negotiate and
finalize. Given the criteria under which these RSAs are established, cash
receipts from these contracts can fluctuate from period to period. The Company
periodically, and at least annually, reviews its RSA receivables for
collectibility. All payments made to the other parties to the RSAs are
recognized as interest expense. At such time as the total payments can be
determined, the Company will commence amortizing these liabilities under the
effective interest method.
License and Royalty Agreements
The Company enters into licensing agreements with certain investors in
various international markets in an attempt to capitalize on the Company's
technology. The investors typically pay a licensing fee for the exclusive rights
to use the Company's marketing programs, technology and know-how in a selected
area. The investor may be given a right to sell sub-license agreements as well.
In addition to the license fee, the Company earns royalties on subsequent
processing and storage revenues by the investor in the selected area and a fee
on any sub-license agreements that are sold by the investor where applicable. As
part of the accounting for license and royalty revenue, the Company uses
estimates and judgments in determining the timing and amount of revenue to
recognize. The Company periodically, and at least
12
annually, reviews license and royalty receivables for collectibility and, if
necessary, will record an expense for an allowance for an uncollectible account.
Marketable Securities
The Company has certain investments in certificates of deposit and bond
investments, which area categorized as marketable securities. The Company
believes these are conservative investments with a low risk for any loss of
principal. The Company regularly assesses its marketable security investments
for impairment and adjusts its investment strategy as it deems appropriate.
Litigation
The Company is periodically involved in litigation and regulatory
proceedings incidental to the conduct of our business and expect that we will be
involved in such litigation and regulatory proceedings from time to time. The
Company regularly reviews any such litigation and regulatory proceedings for
possible adverse outcomes, and provides estimates for the possible liability to
the Company from such adverse outcomes, as it considers appropriate.
Results of Operations - Six month period ending May 31, 2003
Revenues. Revenues for the six months ended May 31, 2003 were $3,063,170 as
compared to $3,054,970 for the same period in 2002 representing a .3% increase.
The increase was driven primarily by an increase in recurring annual storage fee
revenue. The number of new specimens processed during the six months ended May
31, 2003 decreased 14% compared to the same period in 2002. It is management's
opinion that certain incorrect rumors relative to the Company and its operations
affected revenues for the six months ended May 31, 2003. The Company has and
will continue to proactively correct the mistated items within the marketplace.
On May 5, 2003 the Company implemented a price increase of $140 effecting its
enrollment, processing and testing fees. The impact of this increase was
diminimus for the current reporting period, but is anticipated to have a
positive impact on revenue and gross profit during the fiscal third and fourth
quarters.
During the first quarter of 2003, the Company changed its method of
recognizing enrollment fee revenue. Through November 30, 2002, the Company
recognized enrollment fees upon completion of the enrollment into the U-Cord
storage program. Beginning December 1, 2002, enrollment fees and the related
direct and incremental costs associated with these fees are deferred and
recognized once the processing of the specimens is completed. Had the accounting
treatment been in effect the accumulated deficit would have been $102,000
greater than previously reported as of November 30, 2002. The cumulative impact
of the change, including the impact of approximately $27,000 during the current
period, is reflected in the six months ended May 31, 2003. Management does not
believe that the impact of this adjustment is material to the November 30, 2002
financial statements (as restated), or to the projected operating results and
earnings trend for the year ending November 30, 2003.
Cost of Sales. Cost of sales for the six months ended May 31, 2003 were
$1,300,220 as compared to $1,071,910 for the same period in 2002 representing a
21% increase. Cost of sales were 42% of revenues for the six months ended May
31, 2003 compared with 35% for the six months ended May 31, 2002. The increase
in cost of sales is attributable to an increase in wages and supplies associated
with new enhancements to the existing production procedures and quality systems
in the processing of cord blood specimens at the Company's laboratory in
Clearwater, Florida and the costs associated with storage of specimens at the
Safti-Cell facility in Arizona which commenced in October 2002.
Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses during the six months ended May 31, 2003 were $3,475,486
as compared to $2,474,619 in 2002 representing a 40% increase. Marketing,
general and administrative expenses were 113% of revenues for the six months
ended May 31, 2003 compared to 81% for the six months ended May 31, 2002. The
increase is primarily the result of an increase in legal fees of $616,000 and
increased expenses of SCPT of approximately $277,000 relating to start-up
operational expenses offset by a reduction in salaries and wages of $188,000
mainly due to the one-time retirement bonus paid to the former Chairman during
the six months ended May 31, 2002. The net effect of these items accounted for
$705,000 or 70% of the increase. The increase in legal fees is attributable to
several reasons, principally several legal actions. The Company cannot provide
assurance that legal fees will be reduced in the foreseeable future. SCPT's
marketing, general and administrative expenses during the six months ended May
31, 2003 were $394,940 compared with $118,363 for the six months ended May 31,
2002. The increase in expenses is primarily related to salaries, professional
fees and consulting fees associated with the continuing development of the
company.
13
Research, Development and Related Engineering Expenses. Research, development
and related engineering expenses for the six months ended May 31, 2003 were
$65,390 as compared to $45,739 for the six months ended May 31, 2002. As a
percentage of revenues, research, development and related engineering expenses
were 2.0% and 1.5% for the six months ended May 31, 2003 and 2002, respectively.
Interest Expense. Interest expense for the six months ended May 31, 2003 was
$227,693 as compared to $138,387 for the same period in 2002. Interest expense
is mainly comprised of payments made to the other parties to the Company's
revenue sharing agreements (RSAs) based on the Company's storage revenues. The
other parties have contracted with the Company for a percentage of future
storage revenues the Company generates from clients in specific geographic
areas.
Other Income. Other income is comprised of revenue recognized on the sale of
license agreements, royalty income earned on the subsequent processing and
storage of specimens in geographical areas where the Company has license
agreements, and from the sale of sub-license agreements by licensees. Other
income for the six months ended May 31, 2003 and 2002 was $77,812 and $666,221,
respectively. All income had been recognized on the sale of license agreements
as of the end of fiscal 2002. The remaining income to be recognized on current
license agreement will be the royalty income earned and from the sale of
sub-license agreements.
Equity in Earnings of Affiliates. Equity in earnings of affiliates was $27,788
in the six months ended May 31, 2003, compared to a loss of $269,989 in the 2002
period. After the distribution of the shares of SCPT, the Company will continue
to hold more than 20% of the outstanding common stock of SCPT. Under the equity
method of accounting, if appropriate, a portion of the anticipated operating
losses of SCPT will be reflected on the Company's statements of operations as
equity in earnings of affiliates.
Results of Operations - Three month period ending May 31, 2003
Revenues. Revenues for the three months ended May 31, 2003 were $1,632,436 as
compared to $1,646,629 for the same period in 2002, representing a 0.9%
decrease. The slight decrease was driven primarily by relatively flat sales. The
number of new specimens processed during the second quarter ended May 31, 2003
decreased 21% compared to the same period in 2002. It is management's opinion
that certain incorrect rumors relative to the Company and its operations
affected revenues for the six months ended May 31, 2003. The Company has and
will continue to proactively correct the misstated items within the marketplace.
On May 5, 2003 the Company implemented a price increase of $140 affecting its
enrollment, processing and testing fees. The impact of this increase was de
minimus for the current reporting period, but is anticipated to have a positive
impact on revenue and gross profit during the fiscal third and fourth quarters.
Cost of Sales. Cost of sales for the three months ended May 31, 2003 was
$674,242 as compared to $554,067 for the same period in 2002, representing a 22%
increase. Cost of sales were 41% of revenues for the three months ended May 31,
2003 compared with 34% for the three months ended May 31, 2002. The increase in
cost of sales is attributable to an increase in wages and supplies associated
with new enhancements to the existing production procedures and quality systems
in the processing of cord blood specimens at the Company's laboratory in
Clearwater, Florida and the costs associated with storage of specimens at the
Safti-Cell facility in Arizona which commenced in October 2002.
Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses during the three months ended May 31, 2003 were
$1,867,123 as compared to $1,595,492 in 2002 representing a 16% increase.
Marketing, general and administrative expenses were 114% of revenues for the
three months ended May 31, 2003 compared to 97% for the three months ended May
31, 2002. The increase is primarily the result of an increase in legal fees of
$349,000 and increased expenses of SCPT of approximately $89,000
14
relating to start-up operational expenses, offset by a reduction in salaries and
wages of $222,000 mainly due to the one-time retirement bonus paid to the former
Chairman during the three months ended May 31, 2002. The net effect of these
items accounted for approximately $216,000, or 83%, of the total increase. The
increase in legal fees is attributable to several reasons, principally several
legal actions. The Company cannot provide assurance that legal fees will be
reduced in the foreseeable future. SCPT's marketing, general and administrative
expenses during the three months ended May 31, 2003 were $188,686 compared with
$99,490 for the three months ended May 31, 2002. The increase in expenses is
primarily related to salaries, professional fees and consulting fees associated
with the continuing development of the company
Research, Development and Related Engineering Expenses. Research, development
and related engineering expenses for the three months ended May 31, 2003 were
$33,672 as compared to $20,651 for the three months ended May 31, 2002. As a
percentage of revenues, research, development and related engineering expenses
were 2.1% and 1.3% for the three months ended May 31, 2003 and 2002,
respectively.
Interest Expense. Interest expense for the three months ended May 31, 2003 was
$151,590 as compared to $80,740 for the same period in 2002. Interest expense is
mainly comprised of payments made to the other parties to the Company's revenue
sharing agreements (RSAs) based on the Company's storage revenues. The other
parties have contracted with the Company for a percentage of future storage
revenues the Company generates from clients in specific geographic areas.
Other Income. Other income is comprised of revenue recognized on the sale of
license agreements, royalty income earned on the subsequent processing and
storage of specimens in geographical areas where the Company has license
agreements, and from the sale of sub-license agreements by licensees. Other
income for the three months ended May 31, 2003 and 2002 was $45,006 and
$266,221, respectively. All income had been recognized on the sale of license
agreements as of the end of fiscal 2002. The remaining income to be recognized
on current license agreement will be the royalty income earned and from the sale
of sub-license agreements.
Equity in Earnings of Affiliates. Equity in earnings of affiliates was $4,032 in
the three months ended May 31, 2003, compared to a loss of $45,170 in the 2002
period. After the distribution of the shares of SCPT, the Company will continue
to hold more than 20% of the outstanding common stock of SCPT. Under the equity
method of accounting, a portion of the anticipated operating losses of SCPT will
be reflected on the Company's statements of operations as equity in earnings of
affiliates.
Liquidity and Capital Resources
At May 31, 2003, the Company had cash and cash equivalents of $692,266 as
compared to $1,935,532 at November 30, 2002 a decreas of $1,243,266. This
compares with a $303,778 increase in cash and cash equivalents in the six months
ended May 31, 2002. The decrease in cash and cash equivalents during the six
months ended May 31, 2003 was primarily attributable to the increased marketing,
general and administrative expenses that were incurred during the quarter.
During the second quarter 2003, the Company sold approximately $3,100,000
in marketable securities that were accounted for under SFAS 115, Accounting for
Certain Debt and Equity Instruments (SFAS 115). In accordance with SFAS 115, the
Company recorded a realized loss of approximately $25,000. The proceeds from the
sale were reinvested in certain marketable securities and cash equivalents,
which are reflected on the May 31, 2003 balance sheet at approximately
$3,000,000 and $95,000, respectively. Included within marketable securities are
certificates of deposit that are not accounted for under SFAS 115 and a a bond
investment of approximately $2,000,000 that has been classified as held to
maturity in accordance with SFAS 115.
15
Through May 31, 2003, the Company's sources of cash have been from sales of
its U-CordTM program to customers, the sales of revenue sharing agreements and
the sale of license agreements. The Company does not have a line of credit or
other type of financing agreement.
The Company anticipates that its cash on-hand, cash equivalents, marketable
securities and cash flows from operations will be sufficient to fund its
operations for the foreseeable future. Cash flows from operations will depend
primarily upon increasing revenues from sales of its umbilical cord blood
cellular storage services.
Since inception SCPT's costs and expenses have been funded by capital
contributions, advances for the purchase of revenue sharing agreements sold by
SCPT, the sale of a promissory note for $500,000, which was converted into
SCPT's capital stock, and the sale of common stock. To date, cash has been
expended primarily for development stage expenses. The Company anticipates the
spin-off of SCPT as a separate public company to occur as soon as possible. In
connection with the spin-off, all shareholders of record of the Company on
August 31, 2001 are expected to receive three shares of SCPT for every four
shares of CRYO-CELL stock that they owned. The payment date of the shares to be
distributed will follow the effective date of SCPT's registration statement
covering the shares to be distributed. SCPT continues its efforts to complete
the registration process and be declared effective by the Securities and
Exchange Commission (SEC). It is SCPT's intent to re-file the pre-effective
amendment for SCPT as soon as SCPT's financials are updated following
CRYO-CELL's filing of the first and second quarters of 2003.
16
Item 3. Controls and Procedures
Based on their most recent review, which was completed within 90 days of
the filing of this report, the Company's principal executive officer and
principal financial officer have concluded that the Company's disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934, as amended, is accumulated and communicated to
the Company's management, including its principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure and are effective to ensure that such information is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms. There were no significant changes in the Company's
internal controls or in other factors that could significantly affect those
controls subsequent to the date of their evaluation.
17
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 of 1933, 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 and revenue sharing arrangements and future operating
plans;
(v) our future performance and operating results;
(vi) our international affiliations, investments and interests;
(vii) our previously announced dividend of shares of Stem Cell Preservation
Technologies, Inc.
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 or to enforce our
licensing agreements;
(ii) any material reductions in our liquidity and working capital;
(iii) any adverse effect or limitations caused by any governmental
regulations, proceedings or actions, foreign and domestic;
(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;
18
(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, foreign affiliates or investments in,
or relationships with, foreign companies;
(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 new laws, SEC regulations
or NASDAQ listing requirements and costs thereof;
(xiv) any future loss of the Company's listing under NASDAQ;
(xv) any technological breakthrough or medical breakthrough that would
render the Company's business of stem cell preservation obsolete;
(xvi) general economic and market conditions and combined general
downturn in the economy;
(xvii) any material failure or malfunction in our storage facilities;
(xviii) continued losses, future negative cash flows and inability to
obtain anticipated future positive cash flows;
(xix) any natural disaster such as a tornado, other disaster (fire) or
act of terrorism that adversely affects stored specimens;
(xx) the potential impact of negative market influences on the Company's
portfolio of cash, cash equivalents and marketable securities;
(xxi) any inability to successfully prosecute, or defend against, claims
and litigation matters or enforce agreements with domestic or
foreign entities;
(xxii) the costs associated with defending or prosecuting litigation
matters and any material adverse result from such matters; and
(xxiii) any material inability to successfully consummate, the previously
announced dividend of the shares of Stem Cell Preservation
Technologies, Inc.;
(xxiv) the costs associated with the consummation of the dividend of the
Stem Cell Preservation Technologies, Inc. common stock;
(xxv) the inability of the Stem Cell Preservation Technologies, Inc. to
generate the storage of any specimens in the geographic regions
covered by the revenue sharing agreements;
19
(xxvi) decreases in asset valuations;
(xxvii) any negative effect from a recent adverse newspaper article
regarding the Company's business operations;
(xxviii) inability to obtain an effective registration statement regarding
shares in SCPT;
(xxix) any new technology rendering the Company's patented equipment or
business obsolete;
(xxx) any performance failures related to the Company's equipment or
operations;
(xxxi) any negative consequences resulting from deriving, shipping and
storing specimens at a second location;
(xxxii) any negative consequences related to changes in the Board of
Directors or less involvement in the future by the Company's
founder Dan Richard.
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.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the date hereof.
CRYO-CELL International, Inc. (the "Company") undertakes no obligation to
publicly revise these forward-looking statements to reflect events or
circumstances that arise after the date hereof. Readers should carefully review
the risk factors described in other documents the Company files from time to
time with the Securities and Exchange Commission, including the Annual Report on
Form 10-KSB filed by the Company and any Current Reports on Form 8-K filed by
the Company.
20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Incorporated by reference to Part I. Financial Statements-Notes to
Condensed Consolidated Financial Statements - Note 3.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On June 24, 2003, the Company announced that its common stock will continue
to be listed on The Nasdaq SmallCap Market via an exception from the requirement
that it file its periodic reports with the Securities and Exchange Commission on
a timely basis. While the Company failed to meet this requirement as of April
14, 2003, the Company was granted a temporary exception from this standard
subject to the Company meeting certain conditions for accomplishing the filing
of its periodic reports with the Securities and Exchange Commission. The Company
filed an amended Form 10-KSB on June 27, 2003, as required under the terms of
the Nasdaq exception. On or before July 15, 2003, the Company must also file its
Form 10-QSB for the three months ended May 31, 2003, evidencing compliance with
all requirements for continued listing on The Nasdaq SmallCap Market. Further,
on or before October 15, 2003, the Company must file the Form 10-QSB for the
quarter ending August 31, 2003, evidencing compliance with all requirements for
continued listing on The Nasdaq SmallCap Market. In the event the Company is
deemed to have met the terms of the exception, it shall continue to be listed on
The Nasdaq SmallCap Market. The Company will file this Form 10-QSB for the
second quarter of fiscal 2003 on a timely basis. However, the Company's reported
stockholders' equity as of May 31, 2003 is $1,449,747, which is lower than the
$2,500,000 minimum stockholders' equity requirement for inclusion on The Nasdaq
SmallCap Market. This shortfall will result from the restatement of the
Company's financial statements reflected in the amended Form 10-KSB and from
continued losses through May 31, 2003. The Company has requested that the Nasdaq
Listing Qualifications Panel grant an extension for compliance with the minimum
stockholders' equity requirement, based on the Company's confidence that it can
return to compliance with this requirement. However, there can be no assurance
that the Panel will grant an extension, or that the Company will be able to
comply with the other terms of the exception and maintain its listing. If at
some future date the Company's securities should cease to be listed on The
Nasdaq SmallCap Market, they may continue to be listed on the OTC Bulletin Board
or the Company may file for listing on an alternative exchange. For the duration
of the exception, the Company's Nasdaq symbol will be "CCCEC".
21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Independent Contractor Agreement dated April 15, 2003 between
the Company and Houghton-Wagman Enterprises, Inc.
99.1 *Certification of the Chief Executive Officer of CRYO-CELL
International, Inc. pursuant to 18 U.S.C Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
99.2 *Certification of the Vice President, Finance of CRYO-CELL
International, Inc. pursuant to 18 U.S.C Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
* - Filed Herewith
(b) Reports on Form 8-K.
During the quarterly period ended May 31, 2003 the Company
filed a current report on Form 8-K dated April 18, 2003 where
it disclosed under Item 5 the appointment of the Company's
Chairman Mercedes Walton as Interim Chief Executive Officer
and Beth Houghton as the Company's Interim President and Chief
Operating Officer. The Company also disclosed the resignation
of John Hargiss as President and Chief Executive Officer. On
March 14, 2003 where it disclosed under Item 4 the dismissal
of the Company's independent auditors Weinick Sanders
Leventhal & Co., LLP and on the same date engaged Ernst &
Young LLP to serve as the Company's independent auditors. On
March 17, 2003 the Company filed a current report on Form
8-K/A where it disclosed under Item 7 a copy of the letter
addressed to the Securities and Exchange Commission from the
Company's former independent auditors Weinick Sanders
Leventhal & Co., LLP. On May 20, 2003 the Company filed a
current report on Form 8-K where it disclosed under Item 4 the
resignation of the Company's independent auditors, Ernst &
Young LLP. On June 30, 2003 the Company filed a current report
on Form 8-K where it disclosed under Item 4 the engagement of
the Company's independent auditors, Grant Thornton LLP.
22
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/ MERCEDES WALTON
-----------------------------
Mercedes Walton
Interim Chief Executive Officer
CRYO-CELL International, Inc.
/s/ JILL M. TAYMANS
--------------------
Jill M. Taymans
Vice President, Finance
Date: July 15, 2003
23
CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER REQUIRED
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Mercedes Walton, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of CRYO-CELL
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: July 15, 2003 By: /s/ Mercedes Walton
--------------------------------
Mercedes Walton
Interim Chief Executive Officer
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I, Jill Taymans, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of CRYO-CELL
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: July 15, 2003 By: /s/ Jill Taymans
-------------------------------------
Jill Taymans, Vice President, Finance
25