Cryo-Cell International, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended May 31, 2013. The unaudited statements consolidate the Company and its subsidiaries. Cryo-Cell’s core business is processing and cryogenic storage of umbilical cord blood, with recurring storage fees and international licensee royalties as key revenue sources.
Financial performance and liquidity
| Metric | Three months ended May 31, 2013 | Six months ended May 31, 2013 |
|---|---|---|
| Revenue | $4.86 million, up 10% year over year | $9.46 million, up 10% |
| Operating income (loss) | $88,828 | $651,889 |
| Net income (loss) | $(243,658) | $348 |
| Gross margin | Approximately 71.7% | Approximately 71.9% |
| Operating cash flow | Not separately presented | $1.09 million |
- Processing and storage fees rose 10% in the quarter and 11% for the six-month period. Management attributed growth to increased specimens processed (23% in the quarter; 18% year to date) and 4% growth in recurring annual storage fees. Six-month licensee income declined 1% to $651,764.
- Cost of sales increased 14% in the quarter and 19% year to date; it represented 28% of revenue in both 2013 periods. Six-month SG&A fell 24% to $5.65 million, including lower sales and marketing costs and substantially lower stock compensation.
- Cash and cash equivalents were $2.90 million at May 31, versus $2.68 million at November 30, 2012. Restricted cash was $2.51 million. Six-month investing cash outflow was $206,173 and financing cash outflow was $656,141, primarily reflecting $667,966 of treasury-stock purchases.
- Current assets were $9.58 million and current liabilities $10.66 million, implying negative working capital of approximately $1.08 million. Stockholders’ deficit was $9.41 million. Management reported no long-term indebtedness; the balance sheet includes a $2.30 million long-term revenue-sharing liability and substantial deferred revenue.
Changes versus the prior comparable period
- For the six months, Cryo-Cell moved from a $4.91 million net loss in 2012 to near break-even net income of $348 in 2013. The prior-year result included approximately $1.7 million of deferred-tax valuation allowance expense and a $1.28 million gain related to extinguishment of revenue-sharing agreements; 2012 also included about $700,000 of accelerated stock-option expense.
- Despite higher revenue, gross margin declined year over year, reflecting cost of sales growth outpacing revenue. Six-month operating results improved from a $1.20 million loss to $652,000 of income.
- In the current six-month period, the Company wrote off approximately $379,000 of patents and trademarks after discontinuing certain menstrual stem cell technology efforts. Management said this would not affect core operations.
Outlook, risks and unusual items
- Management expected cash, marketable securities and operating cash flows to fund known cash needs for at least 12 months. It anticipated approximately $750,000 of discretionary capital expenditures over the next 12 months, mainly for software enhancements and equipment. The Company had no line of credit and noted that weaker-than-expected revenue or higher costs could require spending reductions or financing.
- After quarter-end, the Company agreed to terminate a lease on additional space for a $150,000 fee, expecting approximately $280,000 of rent savings over 18 months, or net savings of about $130,000.
- On June 14, 2013, former CEO Mercedes Walton received an interim arbitration award of $1,080,938, plus reasonable legal fees and outplacement costs. The Company had accrued $1.63 million for the claim and legal fees at May 31. A separate lawsuit had no recorded accrual; trial was scheduled for January 6, 2014, and the potential loss was not estimable from the filing.
- Management identified risks including competition, changes in demand and annual storage renewals, licensee performance and enforcement, regulatory changes, facility or information-system failures, litigation, and the possibility that new services may not gain market acceptance. The Company’s $10.885 million tax valuation allowance reflects uncertainty about realizing deferred tax assets.
- Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Assess whether specimen-processing growth and recurring storage-fee trends can be sustained, and whether cost of sales can be controlled as volume rises.
- Review unrestricted liquidity alongside negative working capital, restricted trust cash, deferred-revenue obligations, and planned capital spending.
- Monitor the final Walton arbitration costs and the outcome of the separate lawsuit, as well as the adequacy of related accruals.
- Evaluate continuing royalty collections and the status of affiliate agreements, including negotiations with the Venezuela-region and Ecuador affiliates.
- Confirm period-end share-count and repurchase disclosures: the filing reports 10,774,775 shares outstanding at May 31 and 10,775,275 at July 8, 2013.