Cryo-Cell International, Inc. — FY2013 Form 10-K
Reporting period: Fiscal year ended November 30, 2013; comparisons are with the year ended November 30, 2012. Cryo-Cell operates one reportable segment, focused on processing and cryogenic storage of umbilical cord blood and cord tissue for family use. The financial statements received an unqualified audit opinion; the auditor did not audit internal control over financial reporting.
Financial performance and position
| Metric | FY2013 / year-end | FY2012 / prior year-end |
|---|---|---|
| Total revenue | $18.995 million | $17.970 million |
| Operating income (loss) | $1.703 million | $(1.711) million |
| Net income (loss) | $27,436 | $(6.308) million |
| Operating margin | 9.0% | (9.5%) |
| Net margin | 0.1% | (35.1%) |
| Operating cash flow | $822,000 | $361,000 |
| Cash and cash equivalents | $3.925 million | $2.677 million |
| Total current assets / liabilities | $9.425 million / $9.810 million | $9.315 million / $10.664 million |
| Long-term debt | None reported | None reported |
- Processing and storage fees were $17.698 million, up 6%; licensee income was $1.297 million, down from $1.342 million. Recurring storage revenue rose 4%, while new cord blood specimens processed declined 10%. Management attributed the specimen decline mainly to international affiliates, particularly Ecuador; higher average selling prices and cord tissue growth partly offset it.
- Cost of sales rose 9% to $5.322 million, or 28% of revenue versus 27%. Selling, general and administrative expenses declined 21% to $11.366 million, largely from lower marketing and stock-compensation costs. Interest expense increased 54% to $1.401 million.
- Cash increased by $1.248 million. Investing cash flow was $1.149 million, including a $1.609 million release of restricted escrow cash; financing used $724,000, primarily for $739,000 of share repurchases. Cash from operations was $822,000.
- At year-end, restricted cash was $968,000; the balance sheet also showed a $2.3 million long-term revenue-sharing liability and a $9.268 million stockholders’ deficit. The current ratio was approximately 0.96.
Changes, outlook, risks and unusual items
- The return to a small net profit followed a $6.308 million loss in FY2012. FY2012 included approximately $1.596 million of gains from extinguishing revenue-sharing agreements, while FY2013 had no such gain. The improvement in FY2013 principally reflected revenue growth and lower SG&A, partly offset by higher cost of sales and interest expense.
- FY2013 included a $379,000 write-off of patents and trademarks tied to menstrual stem cell technology; the company discontinued pursuing certain related patents and had ceased offering the commercial service for lack of market acceptance. Management said the write-off would not materially affect core operations.
- Management expected cash, marketable securities and future operating cash flows to cover known needs for at least 12 months. It anticipated approximately $500,000 of discretionary capital expenditures over the next 12 months, mainly for software and equipment. No specific revenue or earnings guidance was provided.
- Management identified revenue growth and expense control as important to cash generation. Risks include dependence on cord-blood banking demand, competition, collection-kit supply from one supplier, and foreign-affiliate payment and operating risks. Foreign license affiliates represented approximately 42% of accounts receivable at year-end. Ecuador’s affiliate closed; Cryo-Cell recorded a $150,000 allowance and began billing affected clients directly. Venezuela’s affiliate had been sent a termination notice and was under discussion for a new agreement.
- Mexico paid the remaining $563,000 under its amended license arrangement in December 2013, after year-end; the agreement then terminated, eliminating further royalties or license payments from Mexico. Cryo-Cell had also lent Saneron $37,500 in October 2013 under a convertible-note program of up to $300,000, subject to conditions.
- Legal matters included a $525,000 settlement of the Florida/Texas revenue-sharing lawsuit, accrued at year-end and paid in December 2013; a former CEO arbitration award, with $50,000 accrued at year-end for remaining claims and fees; a shareholder derivative suit for which defendants moved to dismiss; and Cryo-Cell’s lawsuit against former counsel alleging negligence related to the Mexico license. Management cautioned that litigation outcomes are uncertain.
- The company reported disclosure controls and internal control over financial reporting as effective based on management’s assessment; no auditor attestation of internal controls was included.
Most important facts for investors to verify
- Whether revenue growth and the recovery in new specimen enrollments can continue, particularly after Ecuador’s closure and Mexico’s license termination.
- The quality and collectability of receivables, including foreign-affiliate balances, and the adequacy of the doubtful-account allowance, which reached $1.995 million.
- The cash-flow contribution from ongoing operations excluding the one-time release of restricted escrow cash, and the availability of restricted funds.
- Future cash obligations from revenue-sharing agreements, litigation, executive employment terms and the Saneron convertible-note commitment.
- The assumptions behind management’s 12-month liquidity assessment and planned capital spending, given the current ratio below 1 and stockholders’ deficit.