# Cryo Cell International Inc: Form 10-Q for the period ended May 31, 2012 - Company: [Cryo Cell International Inc](/companies/ccel.md) (CIK 862692) - Form: 10-Q - Filed: 2012-07-16 - Accepted by EDGAR: Jul 16, 2012, 21:15 ET - Period: 2012-05-31 - Accession: 0001193125-12-303575 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/862692/000119312512303575/d358060d10q.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/862692/000119312512303575/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2012-05-31. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2012-03-01 to 2012-05-31 | $4.4m | us-gaap:Revenues | | Revenue | 6 months, 2011-12-01 to 2012-05-31 | $8.6m | us-gaap:Revenues | | Cost of revenue | 3 months, 2012-03-01 to 2012-05-31 | $1.2m | us-gaap:CostOfServices | | Cost of revenue | 6 months, 2011-12-01 to 2012-05-31 | $2.2m | us-gaap:CostOfServices | | Research and development | 3 months, 2012-03-01 to 2012-05-31 | $7.8k | us-gaap:ResearchAndDevelopmentExpense | | Research and development | 6 months, 2011-12-01 to 2012-05-31 | $22.4k | us-gaap:ResearchAndDevelopmentExpense | | Selling, general and administrative | 3 months, 2012-03-01 to 2012-05-31 | $4.3m | us-gaap:SellingGeneralAndAdministrativeExpense | | Selling, general and administrative | 6 months, 2011-12-01 to 2012-05-31 | $7.4m | us-gaap:SellingGeneralAndAdministrativeExpense | | Operating income | 3 months, 2012-03-01 to 2012-05-31 | −$1.1m | us-gaap:OperatingIncomeLoss | | Operating income | 6 months, 2011-12-01 to 2012-05-31 | −$1.2m | us-gaap:OperatingIncomeLoss | | Interest expense | 3 months, 2012-03-01 to 2012-05-31 | $277.3k | us-gaap:InterestExpense | | Interest expense | 6 months, 2011-12-01 to 2012-05-31 | $576.4k | us-gaap:InterestExpense | | Income tax | 3 months, 2012-03-01 to 2012-05-31 | $1.7m | us-gaap:IncomeTaxExpenseBenefit | | Income tax | 6 months, 2011-12-01 to 2012-05-31 | $1.8m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2012-03-01 to 2012-05-31 | −$3.2m | us-gaap:NetIncomeLoss | | Net income | 6 months, 2011-12-01 to 2012-05-31 | −$4.9m | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2012-03-01 to 2012-05-31 | −$0.28 | us-gaap:EarningsPerShareDiluted | | Diluted EPS | 6 months, 2011-12-01 to 2012-05-31 | −$0.43 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2012-03-01 to 2012-05-31 | −$0.28 | us-gaap:EarningsPerShareBasic | | Basic EPS | 6 months, 2011-12-01 to 2012-05-31 | −$0.43 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 3 months, 2012-03-01 to 2012-05-31 | 11,322,143 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Diluted shares (weighted) | 6 months, 2011-12-01 to 2012-05-31 | 11,405,106 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 6 months, 2011-12-01 to 2012-05-31 | −$385.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 6 months, 2011-12-01 to 2012-05-31 | $116.5k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Share repurchases | 6 months, 2011-12-01 to 2012-05-31 | $1.4m | us-gaap:PaymentsForRepurchaseOfCommonStock | | Cash and equivalents | at 2012-05-31 | $2.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2012-05-31 | $9.6m | us-gaap:AssetsCurrent | | Total assets | at 2012-05-31 | $13.1m | us-gaap:Assets | | Current liabilities | at 2012-05-31 | $9.8m | us-gaap:LiabilitiesCurrent | | Long-term debt | at 2012-05-31 | $2.6m | us-gaap:LongTermDebtNoncurrent | | Shareholders' equity | at 2012-05-31 | −$7.7m | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 40,668 characters. ### Overview The Company is engaged in cellular processing and cryogenic storage, with a current focus on the collection and preservation of umbilical cord blood stem cells for family use. The Company’s principal sources of revenues are service fees for cord blood processing and preservation for new customers and recurring annual storage fees. Effective February 1, 2012, the Company charges fees of $2,074 to new clients for the collection kit, processing and testing and return medical courier service, with discounts in the case of multiple children from the same family and in other circumstances. The Company currently charges an annual storage fee of $125 for new clients; storage fees for existing customers depend on the contracts with such customers. The Company also offers a one-time payment plan, where the client is charged $3,949 with discounts in the case of multiple children from the same family and in other circumstances. The one-time plan includes the collection kit, processing and testing, return medical courier service and 21 years of pre-paid storage fees. The Company also receives other income from licensing fees and royalties from global affiliates. In recent years, the Company has expanded its research and development activities to develop technologies related to stem cells harvested from sources beyond umbilical cord blood stem cells. In 2006, the Company discovered novel technology related to menstrual stem cells. During 2007, much of the Company’s research and development activities focused on the development of proprietary technology related to maternal placental stem cells (MPSCs). In November 2007, the Company announced the commercial launch of the menstrual stem cell service related to this patent-pending technology. The Company continues to focus independently-funded research and development activities through a vast network of research collaboration partners. In August 2011, there was a change in control of the Board of Directors. The Company is refocusing its efforts on the Company’s umbilical cord blood and cord tissue business while continuing to develop the menstrual stem cell technology. During the six months ended May 31, 2012, total revenue decreased 5% as compared to the same period in 2011. The Company reported a net loss of approximately $4,900,000, or ($.43) per basic common share for the six months ended May 31, 2012 compared to net income of approximately $411,000 or $.03 per basic common share for the same period in 2011. The decrease in net income for the six months ended May 31, 2012 principally resulted from the cancellation of certain interests in the Illinois Revenue Sharing Agreement and the Bio-Stor Revenue Sharing Agreement resulting in extinguishment of debt in the amount of approximately $1,300,000, a 40% increase in selling, general and administrative expenses, due mainly to an increase in stock option compensation and the increase in sales and marketing initiatives including the implementation of a national sales force. The increase in stock option expense is mainly the result of the Nomination of Solicitation Notice received from Mr. Ki Yong Choi on May 30, 2012 nominating himself and five other persons for election as directors to compete with the Company’s board of directors at the 2012 Annual Meeting on July 10, 2012. Pursuant to the Co-CEOs employment agreements, if the Company receives a Nomination of Solicitation Notice, as defined by the Company’s Bylaws, all of the service-based vesting condition options that have been issued to the Co-CEOs will immediately vest. Included in stock option expense is approximately $700,000 that is due to the immediate vesting of options issued to the Co-CEOs. Also, during the second quarter of fiscal 2012, the Company reserved approximately $1.7 million of its deferred tax assets. The decision to reserve the deferred tax asset is based on the accounting standards surrounding income taxes that require a company to consider whether it is more likely than not that the deferred tax assets will be realized. The Company has made certain strategic decisions in fiscal 2011 and fiscal 2012 concerning the negotiated termination of some of the perpetual Revenue Sharing Agreements, the impairment of internal use software that is being replaced with a technology platform that is better suited for the Company’s business needs and the implementation of a national sales force in order to generate growth and future value of the stockholders. The strategic decisions, as well as the costs associated with the 2011 proxy contest and the accrual of severance associated with termination of the Company’s former Chief Executive Officer, resulted in losses in the past few quarters in late fiscal 2011 and the first six months of fiscal 2012. Once a company has had cumulative losses in recent years, regardless if the loss was planned for strategic purposes, the accounting standard does not allow the Company to put significant reliance on future taxable income projections to overcome the more likely than not threshold that the deferred tax assets will be realized. This is partially offset by a 1% decrease in cost of sales. In addition, research and development expenses were approximately $22,000 for the six months ended May 31, 2012, a decrease of approximately $94,000 or 81% in comparison to the same period in 2011. At May 31, 2012, the Company had cash and cash equivalents of $2,801,757. The Company’s cash decreased by approximately $3,500,000 during the first six months of fiscal 2012, primarily as a result of the payment of $2,576,000 for the cancellation of certain interests in certain Revenue Sharing Agreements and the stock repurchase plan pursuant to which the Company has repurchased 674,379 shares of the Company’s common stock for approximately $1,400,000. As of May 31, 2012, the Company had no long-term indebtedness. ### Results of Operations—Six Month Period Ended May 31, 2012 Compared to the Six Month Period Ended May 31, 2011 ***Revenues.*** Revenues for the six months ended May 31, 2012 were $8,604,138 as compared to $9,073,831 for the same period in 2011. The decrease in revenue was primarily attributable to a 5% decrease in processing and storage fees, which was partially offset by a 5% increase in licensee income. *Processing and Storage Fees.* The decrease in processing and storage fee revenue is primarily attributable to a decrease in specimens processed of 23%, partially offset by a 7% increase in recurring annual storage fee revenue and a decrease in sales discounts of 36% for the fiscal 2012 period compared to the 2011 period. Sales discounts represent discounts to returning clients and promotions offered to newly enrolled clients from time to time. *Licensee Income.* Licensee income for the six months ended May 31, 2012, was $660,875 as compared to $627,390 for the 2011 period. Licensee income for the six months ended May 31, 2012 primarily consisted of $645,875 in royalty income earned on the processing and storage of cord blood stem cell specimens in geographic areas where the Company has license agreements. The remaining licensee income of $15,000 related to installment payments of non-refundable up-front license fees from the licensees of the Company’s umbilical cord blood program in Nicaragua. Licensee income for the six months ended May 31, 2011 primarily consisted of $557,621 in royalty income earned on the processing and storage of cord blood stem cell specimens in geographic areas where the Company has license agreements. The remaining licensee income of $69,769 related to installment payments of non-refundable up-front license fees from the licensees of the Company’s umbilical cord blood program in Nicaragua and Germany. ***Cost of Sales.*** Cost of sales for the six months ended May 31, 2012 was $2,236,803 as compared to $2,265,278 for the same period in 2011, representing a 1% decrease. Cost of sales was 26% of revenues for the six months ended May 31, 2012 and 25% for the six months ended May 31, 2011. Cost of sales includes wages and supplies associated with process enhancements to the existing production procedures and quality systems in the processing of cord blood specimens at the Company’s facility in Oldsmar, Florida and depreciation expense of approximately $107,000 and $109,000 for the six months ended May 31, 2012 and 2011, respectively. ***Selling, General and Administrative Expenses.*** Selling, general and administrative expenses for the six months ended May 31, 2012 were $7,445,493 as compared to $5,216,294 for the 2011 period representing a 43% increase. These expenses are primarily comprised of expenses for consumer advertising, salaries and wages for personnel and professional fees. The increase in selling, general and administrative expenses is primarily due to an increase of approximately $1,300,000 or 67% in sales and marketing due to the Company’s new sales and marketing initiatives including the implementation of a national sales force and an increase of approximately $926,000 in noncash stock option expense. The increase in stock option expense is mainly the result of the Nomination of Solicitation Notice received from Mr. Ki Yong Choi on May 30, 2012 nominating himself and five other persons for election as directors to compete with the Company’s board of directors at the 2012 Annual Meeting on July 10, 2012. Pursuant to the Co-CEOs employment agreements, if the Company receives a Nomination of Solicitation Notice, as defined by the Company’s Bylaws, all of the service-based vesting condition options that have been issued to the Co-CEOs will immediately vest. Included in stock option expense is approximately $700,000 that is due to the immediate vesting of options issued to the Co-CEOs. The increase in selling, general and administrative expenses was partially offset by an approximate $291,000 or 53% decrease in legal and investor relations services and a decrease in consumer advertising of $400,000 or 36%. ***Research, Development and Related Engineering Expenses.*** Research, development and related engineering expenses for the six months ended May 31, 2012 were $22,420 as compared to $116,279 for the 2011 period representing an 81% decrease. The expenses for the six months ended May 31, 2012 and 2011 are primarily comprised of expenses related to the continued commercialization of the Company’s menstrual stem cell technology, which was launched in November 2007 and the Company’s new product, cord tissue. ***Depreciation and Amortization***. Depreciation and amortization (not included in Cost of Sales) for the six months ended May 31, 2012 was $101,090 compared to $160,016 for the 2011 period. The decrease was caused by a portion of the Company’s property and equipment becoming fully depreciated during fiscal 2011. ***Extinguishment of Revenue Sharing Agreements***. In December 2011, the Company entered into an Asset Purchase Agreement with Bio-Stor canceling the Bio-Stor Revenue Sharing Agreement. Pursuant to the terms of the Asset Purchase Agreement, on December 6, 2011, the Company made a one-time, lump-sum payment in the amount of $2.3 million to Bio-Stor, and Bio-Stor sold, assigned, conveyed, transferred, and delivered to the Company all of its rights, interest and title in the Bio Stor Revenue Sharing Agreement. In May 2012, the Company entered into Asset Purchase Agreements with two investors who each had a 22% interest in 45% of the Illinois Revenue Sharing Agreement (“Illinois RSA”). Pursuant to the terms of the Asset Purchase Agreements, in May 2012, the Company made a one-time, lump-sum payment in the amount of $138,000 to each of the investors, and the investors sold, assigned, conveyed, transferred, and delivered to the Company all of its rights, interest and title in their 22% interest of 45% of the Illinois RSA. The total payment amount of $2,576,000 was offset by the carrying amount of the short-term liability related to Bio-Stor and the Illinois Revenue Sharing Agreements in the amount of $1,100,000 and an accrued expense in the amount of $194,055 to reflect the extinguishment of revenue sharing agreements in the amount of $1,281,945 for the six months ended May 31, 2012. ***Interest Expense.*** Interest expense during the six months ended May 31, 2012, was $576,416 compared to $791,430 during the comparable period in 2011. Interest expense is mainly comprised of amounts due to the parties to the Company’s revenue sharing agreements (“RSAs”) based on the Company’s storage revenue. The decrease of 27% is a result of the extinguishment of the revenue sharing agreements. Also included in interest expense is the amortization of the present value of a deferred consulting agreement in the amount of $5,533 for both the six months ended May 31, 2012 and 2011. ***Equity in Losses of Affiliate.*** Equity in losses of affiliate was $77,664 for the six months ended May 31, 2012, compared to $56,212 for the 2011 period. Equity in losses of affiliate for the six months ended May 31, 2012 and 2011, solely consists of amounts related to compensation expense for Saneron stock option awards that were granted by Saneron to certain consultants and employees. ***Income Taxes***. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. The ultimate realization of our deferred tax assets depends upon generating sufficient future taxable income prior to the expiration of the tax attributes. In assessing the need for a valuation allowance, we must project future levels of taxable income. This assessment requires significant judgment. We examine the evidence related to the recent history of tax losses, the economic conditions which we operate and our forecasts and projections to make that determination. The Company records foreign income taxes withheld from installment payments of non-refundable up-front license fees and royalty income earned on the processing and storage of cord blood stem cell specimens in geographic areas where the Company has license agreements. The Company recorded $82,029 and $69,880 for the six months ended May 31, 2012 and 2011, respectively, of foreign income tax expense which is included in income tax expense in the accompanying consolidated statements of operations for the three and six months ended May 31, 2012. The Company has made certain strategic decisions during 2011 and 2012 concerning the negotiated termination of some of the perpetual Revenue Sharing Agreements (“RSA’s”), the impairment of internal use software that is being replaced with a technology platform that is better suited for the Company’s business needs and the implementation of a national sales force in order to generate growth and future value for the Company’s stockholders. These strategic decisions, including the decision to terminate the former CEO’s employment, resulted in losses in the past few quarters in late fiscal 2011 and the first six months of fiscal 2012. The accounting standards surrounding income taxes require a company to consider whether it is more likely than not that the deferred tax assets will be realized. Once a company has had cumulative losses in recent years, regardless of the nature of the loss, the accounting standards do not allow the Company to put significant reliance on future taxable income projections to overcome the more likely than not threshold that the deferred tax assets will be realized. As a result of these recent cumulative losses, the Company reserved approximately $1,700,000 as of May 31, 2012 resulting in a charge to earnings during the three months ended May 31, 2012. There was $1,718,919 of U.S. income tax expense recorded for the three and six months ended May 31, 2012 as a result of the Company’s decision to record a valuation allowance associated with certain of the Company’s deferred tax assets during the second quarter of 2012, as it is more likely than not that the deferred tax assets will not be realized. There was no U.S. income tax expense or benefit for the six months ended May 31, 2011. The Company did not record U.S. income tax expense or benefit during the six months ended May 31, 2011 due to the utilization of net operating losses and foreign tax credit carryforwards, which were previously reserved through valuation allowances in the Company’s financial statements. ### Results of Operations—Three Month Period Ended May 31, 2012 Compared to the Three Month Period Ended May 31, 2011 ***Revenues.*** Revenues for the three months ended May 31, 2012 were $4,425,549 as compared to $4,601,026 for the same period in 2011. The decrease in revenue was primarily attributable to a 4% decrease in processing and storage fees offset by a 5% increase in licensee income. *Processing and Storage Fees.* The decrease in processing and storage fee revenue is primarily attributable to a decrease in specimens processed of 23%, partially offset by a 32% decrease in sales discounts as well a 7% increase in recurring annual storage fee revenue for the three months ended May 31, 2012 compared to the 2011 period. Sales discounts represent discounts to returning clients and promotions offered to newly enrolled clients. *Licensee Income.* Licensee income for the three months ended May 31, 2012, was $319,133 as compared to $304,370 for the 2011 period. Licensee income for the three months ended May 31, 2012 primarily consisted of $309,133 in royalty income earned on the processing and storage of cord blood stem cell specimens in geographic areas where the Company has license agreements. The remaining licensee income of $10,000 related to installment payments of non-refundable up-front license fees from the licensees of the Company’s umbilical cord blood program in Nicaragua. Licensee income for the three months ended May 31, 2011 primarily consisted of $239,601 in royalty income earned on the processing and storage of cord blood stem cell specimens in geographic areas where the Company has license agreements. The remaining licensee income of $64,769 related to installment payments of non-refundable up-front license fees from the licensees of the Company’s umbilical cord blood program in Nicaragua and Germany. ***Cost of Sales.*** Cost of sales for the three months ended May 31, 2012 was $1,209,900 as compared to $1,103,758 for the same period in 2011, representing a 10% increase. Cost of sales was 27% of revenues for the three months ended May 31, 2012 and 24% for the three months ended May 31, 2011. Cost of sales includes wages and supplies associated with process enhancements to the existing production procedures and quality systems in the processing of cord blood specimens at the Company’s facility in Oldsmar, Florida and depreciation expense of approximately $53,000 and $54,000 for the three months ended May 31, 2012 and 2011, respectively. The increase in cost of sales is primarily attributable to process enhancements during the three months ended May 31, 2012 compared to the 2011 period. ***Selling, General and Administrative Expenses.*** Selling, general and administrative expenses for the three months ended May 31, 2012 were $4,284,696 as compared to $2,698,209 for the 2011 period representing a 59% increase. These expenses are primarily comprised of expenses for consumer advertising, salaries and wages for personnel and professional fees. The increase in selling, general and administrative expenses is primarily due to an increase of approximately $823,000 or 82% in sales and marketing due to Company’s new sales initiatives including the implementation of a national sales force and an increase of approximately $726,000 in non-cash stock option expense. The increase in stock option expense is mainly the result of the Nomination of Solicitation Notice received from Mr. Ki Yong Choi on May 30, 2012 nominating himself and five other persons for election as directors to compete with the Company’s board of directors at the 2012 Annual Meeting on July 10, 2012. Pursuant to the Co-CEOs employment agreements, if the Company receives a Nomination of Solicitation Notice, as defined by the Company’s Bylaws, all of the service-based vesting condition options that have been issued to the Co-CEOs will immediately vest. Included in stock option expense is approximately $700,000 that is due to the immediate vesting of options issued to the Co-CEOs. The increase in selling, general and administrative expenses was partially offset by an approximate $179,000 or 62% decrease in legal and investor relations services and a decrease in consumer advertising of $425,000 or 88%. ***Research, Development and Related Engineering Expenses.*** Research, development and related engineering expenses for the three months ended May 31, 2012 were $7,841 as compared to $80,657 for the 2011 period. The expenses for the three months ended May 31, 2011 and 2010 are primarily comprised of expenses related to the continued commercialization of the Company’s menstrual stem cell technology, which was launched in November 2007 and the Company’s new product, cord tissue. ***Depreciation and Amortization***. Depreciation and amortization (not included in Cost of Sales) for the three months ended May 31, 2012 was $44,835 compared to $88,190 for the 2011 period. The decrease was caused by a portion of the Company’s property and equipment becoming fully depreciated during fiscal 2011. ***Extinguishment of Revenue Sharing Agreements***. In May 2012, the Company entered into Asset Purchase Agreements with two investors who each had a 22% interest in 45% of the Illinois Revenue Sharing Agreement (“Illinois RSA”). Pursuant to the terms of the Asset Purchase Agreements, in May 2012, the Company made a one-time, lump-sum payment in the amount of $138,000 to each of the investors, and the investors sold, assigned, conveyed, transferred, and delivered to the Company all of its rights, interest and title in their 22% interest of 45% of the Illinois RSA. The payment amounts of $276,000 was offset by the carrying amount of the short-term liability related to the Illinois Revenue Sharing Agreements in the amount of $200,000 and an accrued expense in the amount of $21,445 to reflect the extinguishment of revenue sharing agreements in the amount of $54,555 for the three months ended May 31, 2012. ***Interest Expense.*** Interest expense during the three months ended May 31, 2012, was $277,251 compared to $399,416 during the comparable period in 2011. Interest expense is mainly comprised of payments made to the other parties to the Company’s RSAs based on the Company’s storage revenue. The decrease of 31% is a result of the extinguishment of the revenue sharing agreements. Also included in interest expense is the amortization of the present value of a deferred consulting agreement in the amount of $2,743 for both the three months ended May 31, 2012 and 2011. ***Equity in Losses of Affiliate.*** Equity in losses of affiliate was $38,832 for the three months ended May 31, 2012, compared to $28,122 for the 2011 period. Equity in losses of affiliate for the three months ended May 31, 2012 and 2011, solely consists of amounts related to compensation expense for stock option awards that were granted by Saneron to certain consultants and employees. ***Income Taxes***. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. The ultimate realization of our deferred tax assets depends upon generating sufficient future taxable income prior to the expiration of the tax attributes. In assessing the need for a valuation allowance, we must project future levels of taxable income. This assessment requires significant judgment. We examine the evidence related to the recent history of tax losses, the economic conditions which we operate and our forecasts and projections to make that determination. The Company records foreign income taxes withheld from installment payments of non-refundable up-front license fees and royalty income earned on the processing and storage of cord blood stem cell specimens in geographic areas where the Company has license agreements. The Company recorded $24,884 and $31,019 for the three months ended May 31, 2012 and 2011, respectively, of foreign income tax expense, which is included in income tax expense in the accompanying consolidated statements of operations. The decrease in foreign tax expense is attributable to the decrease in royalties recognized during the period ended May 31, 2012 compared to May 31, 2011. The Company has made certain strategic decisions during 2011 and 2012 concerning the negotiated termination of some of the perpetual Revenue Sharing Agreements (“RSA’s”), the impairment of internal use software that is being replaced with a technology platform that is better suited for the Company’s business needs and the implementation of a national sales force in order to generate growth and future value for the Company’s stockholders. These strategic decisions, including the decision to terminate the former CEO’s employment, resulted in losses in the past few quarters in late fiscal 2011 and the first six months of fiscal 2012. The accounting standards surrounding income taxes require a company to consider whether it is more likely than not that the deferred tax assets will be realized. Once a company has had cumulative losses in recent years, regardless of the nature of the loss, the accounting standards do not allow the Company to put significant reliance on future taxable income projections to overcome the more likely than not threshold that the deferred tax assets will be realized. As a result of these recent cumulative losses, the Company reserved approximately $1,700,000 as of May 31, 2012 resulting in a charge to earnings during the three months ended May 31, 2012. There was $1,718,919 of U.S. income tax expense recorded for the three months ended May 31, 2012 as a result of the Company’s decision to record a valuation allowance associated with certain of the Company’s deferred tax assets during the second quarter of 2012, as it is more likely than not that the deferred tax assets will not be realized. There was no U.S. income tax expense or benefit for the three months ended May 31, 2011. The Company did not record U.S. income tax expense or benefit during the three months ended May 31, 2011 due to the utilization of net operating losses and foreign tax credit carryforwards, which were previously reserved through valuation allowances in the Company’s financial statements. ### Liquidity and Capital Resources Through May 31, 2012, the Company’s principal source of cash has been from sales of its umbilical cord blood program to customers, the sale of license agreements and royalties from licensees. The Company does not expect a change in its principal source of cash flow. At May 31, 2012, the Company had cash and cash equivalents of $2,801,757 as compared to $6,305,095 at November 30, 2011. The decrease in cash and cash equivalents during the six months ended May 31, 2012 was primarily attributable to the following: Net cash used in operating activities for the six months ended May 31, 2012 was $384,979 which was primarily attributable to the Company’s net loss, partially offset by non-cash expenses and implementation of interest-free financing plans and increases in working capital components. Net cash provided by operating activities for the six months ended May 31, 2011 was $238,538, which was primarily attributable to the Company’s net income and non-cash expenses, partially offset by increases in working capital components. Net cash provided by investing activities for the six months ended May 31, 2012 was $858,112, which was primarily attributable to the sale of marketable securities which was partially offset by the purchase of property and equipment and the investment in patents and trademarks. Net cash used in investing activities for the six months ended May 31, 2011 was $402,525, which was primarily attributable to the costs associated with the application and development of patents and the purchase of property and equipment. Net cash used in financing activities for the six months ended May 31, 2012 was $3,976,471, which was primarily attributable to the payment of $2,576,000 for the cancellation of certain interests in certain Revenue Sharing Agreements and the stock repurchase plan pursuant to which the Company has repurchased 674,379 shares of the Company’s common stock for approximately $1,400,000. Net cash provided by financing activities for the six months ended May 31, 2011 was $5,471 due to the exercise of stock options. The Company does not have a line of credit. The Company anticipates making non-discretionary capital expenditures of approximately $750,000 over the next twelve months for software enhancements and purchases of property and equipment. The Company anticipates funding future property and equipment purchases with cash-on-hand and cash flows from future operations. The Company anticipates that its cash and cash equivalents, marketable securities and cash flows from future operations will be sufficient to fund its known cash needs for at least the next 12 months. Cash flows from operations will depend primarily upon increasing revenues from sales of its umbilical cord blood cellular storage services and the menstrual stem cell service, and managing discretionary expenses. If expected increases in revenues are not realized, or if expenses are higher than anticipated, the Company may be required to reduce or defer cash expenditures or otherwise manage its cash resources during the next 12 months so that they are sufficient to meet the Company’s cash needs for that period. In addition, the Company may consider seeking equity or debt financing if deemed appropriate for its plan of operations, and if such financing can be obtained on acceptable terms. There is no assurance that any reductions in expenditures, if necessary, will not have an adverse effect on the Company’s business operations, including sales activities and the development of new services and technology. ### Critical Accounting Policies This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosures of contingent assets and liabilities. For a full discussion of our accounting policies please refer to Note 1 to the Consolidated Financial Statements included in our 2011 Annual Report on Form 10-K filed with the SEC. Our most critical accounting policies and estimates include: recognition of revenue and the related allowance for doubtful accounts, stock-based compensation, income taxes and license and revenue sharing agreements. We continually evaluate our judgments, estimates and assumptions. We base our estimates on the terms of underlying agreements, historical experience and other factors that we believe are reasonable based on the circumstances, the results of which form our management’s basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, *Management’s Discussion and Analysis of Financial Condition and Results of Operations* included in our 2011 Annual Report on Form 10-K. ### Recently Issued Accounting Pronouncements In June 2011, the FASB issued ASU 2011-05, *Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“*ASU 2011-05”). ASU 2011-05 will require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the changes in stockholders’ equity. The standard does not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011, with early adoption permitted. The Company will adopt ASU 2011-05 when required in the first quarter of 2013. The adoption of ASU 2011-05 will only impact presentation and will not have any effect on the Company’s consolidated financial statements or on its financial condition. In December 2011, the FASB issued Accounting Standards Update No. 2011-12: *Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12)*. The Update defers the specific requirement to present items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income. As part of this update, the FASB did not defer the requirement to report comprehensive income either in a single continuous statement or in two separate but consecutive financial statements. ASU 2011-12 is effective for annual periods beginning after December 15, 2011. The Company will adopt ASU 2011-12 in the first quarter of 2013. ### Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. ### Forward-Looking Statements This Form 10-Q, 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, as amended. The terms “Cryo-Cell International, Inc.,” “Cryo-Cell,” “Company,” “we,” “our” and “us” refer to Cryo-Cell International, Inc. The words “expect,” “anticipate”, “believe,” “goal,” “strategy”, “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-Q and in other places, 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 future performance and operating results; (ii) our future operating plans; (iii) our liquidity and capital resources; and (iv) our financial condition, accounting policies and management judgments. 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 risk factors set forth in Part I, “Item 1A. Risk Factors” of our most recent Annual Report on Form 10-K and the following: (i) any adverse effect or limitations caused by recent increases in government regulation of stem cell storage facilities; (ii) any increased competition in our business including increasing competition from public cord blood banks particularly in overseas markets but also in the U.S.; (iii) any decrease or slowdown in the number of people seeking to store umbilical cord blood stem cells or decrease in the number of people paying annual storage fees; (iv) market acceptance of our menstrual stem cell service will require publication of scientific studies, consumer awareness, and the development of new therapies from the menstrual stem cell technology, none of which are certain; (v) any new services relating to other types of stem cells that have not yet been offered commercially, and there is no assurance that other stem cell services will be launched or will gain market acceptance; (vi) any adverse impacts on revenue or operating margins due to the costs associated with increased growth in our business, including the possibility of unanticipated costs relating to the operation of our facility and costs relating to the commercial launch of the placental stem cell service offering or any other new types of stem cells; (vii) any unique risks posed by our international activities, including but not limited to local business laws or practices that diminish our affiliates’ ability to effectively compete in their local markets; (viii) any technological or medical breakthroughs that would render our business of stem cell preservation obsolete; (ix) any material failure or malfunction in our storage facilities; or any natural disaster or act of terrorism that adversely affects stored specimens; (x) any adverse results to our prospects, financial condition or reputation arising from any material failure or compromise of our information systems; (xi) the costs associated with defending or prosecuting litigation matters, particularly including litigation related to intellectual property, litigation resulting from the termination of the former Chairman and CEO, and any material adverse result from such matters; (xii) current market, business and economic conditions in general and in our industry in particular; (xiii) the success of our licensing agreements and their ability to provide us with royalty fees; (xiv) any difficulties and increased expense in enforcing our international licensing agreements; (xv) any adverse performance by or relations with any of our licensees; (xvi) any inability to enter into new licensing arrangements including arrangements with non-refundable upfront fees; (xvii) any inability to realize cost savings as a result of recent acquisitions; (xviii) any inability to realize a return on an investment; (xix) any increased U.S. income tax expense as a result of inability to utilize or exhaustion of net operating losses; (xx) any adverse impact on our revenues as a result of greater emphasis in the future on the promotion of our menstrual stem cell service and any shifting of our marketing dollars towards our menstrual stem cell service; (xxi) any adverse impact on our revenues and operating margins as a result of discounting of our services in order to generate new business in tough economic times where consumers are selective with discretionary spending; (xxii) the success of our global expansion initiatives; (xxiii) our actual future ownership stake in future therapies emerging from our collaborative research partnerships; (xxiv) the ability of our reproductive tissue storage services to generate new revenues; (xxv) our ability to minimize our future costs related to R&D initiatives and collaborations and the success of such initiatives and collaborations; (xxvi) any inability to successfully identify and consummate strategic acquisitions; (xxvii) any inability to realize benefits from any strategic acquisitions; (xxviii) the costs associated with proxy contests and its impact on our business and (xxix) other factors many of which are beyond our control. We undertake no obligation to publicly update or revise the forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date of this Form 10-Q 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. 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-K filed by the Company and any Current Reports on Form 8-K filed by the Company ## Controls and procedures As filed, 4,606 characters. ### Evaluation of Disclosure Controls and Procedures Based on their most recent review, as of the end of the period covered by this report, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are ineffective to provide reasonable assurance 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. ### Changes in Internal Control Over Financial Reporting As previously disclosed in our Form 10-K filed on February 28, 2012, during the November 30, 2011, year-end closing process, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures and internal controls over financial reporting were not effective, due to a material weakness surrounding the Company’s identification and application of the appropriate accounting treatment for non-routine transactions and related documentation thereof. Management has undertaken steps to design and implement more effective internal controls, including the implementation of a review process of non-routine transactions and has engaged qualified consultants to assist the Company with the application of the appropriate accounting treatment of non-routine transactions when necessary. The changes in the Company’s internal control over financial reporting described in the previous paragraph were implemented during the first and second quarters of fiscal 2012 and as a result of such changes we believe we have remediated the material weakness described above, however the new controls have not been operating for a long enough period of time to conclude that the Company’s disclosure controls are effective. There were no other changes in the Company’s internal controls over financial reporting during the quarter ended May 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ### Limitations on the Effectiveness of Controls Our management, including our CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. ### CEO and CFO Certifications Appearing as exhibits 31.1, 31.2 and 31.3 to this report there are Certifications of the Co-CEO’s and the CFO. The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This Item of this report is the information concerning the evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented. ## Risk factors As filed, 592 characters. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended November 30, 2011, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Filed Jul 16, 2012. Source: SEC EDGAR, the filing index for accession 0001193125-12-303575. Last ingested by Listed: Oct 24, 2026, 14:58 ET. No prices; not investment advice.