Cryo Cell International Inc (CCEL)

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LAST QUARTER’S EARNINGS RESULTS SHOW A DETERIORATING FINANCIAL CONDITION


Cash decreasing at an alarming rate . During the last fiscal quarter, cash and securities held by the company decreased by $3.0 million, a decrease of 41% . Cash is a vital asset to run and grow a business and this is a disturbing rate of cash depletion. To make matters worse, the Board just tripled the size of the share repurchase program to 3 million shares [ii] . If they were to repurchase all the shares that are authorized, we believe the company would run its cash balance to zero [iii] .






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Mismanagement is already causing substantial losses. In their last fiscal quarter, the company reported a net loss of approximately $1.7 million, a result that was more than $1.9 million worse than the same quarter last year [iv] .






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Lavish stock option grants consistent with dramatic expense increases. Despite this considerable earnings decrease, the company’s stock compensation expense in the last quarter was 339% higher than the same quarter last year [v] .






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Increased marketing spending yet decreased revenue . Despite increasing spending on sales and marketing initiatives in the last fiscal quarter, the company reported a 7% decrease in revenue and a 26% [vi] decrease in specimens processed, as compared to the same quarter last year. We believe new specimen collection is a key indicator of the company’s future revenue, and therefore the health of the company. Increasing spending on sales and marketing and getting a worse result is the quintessence of management ineffectiveness.






















MANAGEMENT ACTIONS INDICATE TO US THAT THEY ARE MOTIVATED
TO ENRICH THEMSELVES AT THE OTHER STOCKHOLDERS’ EXPENSE







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Without an executive search, the current directors chose inexperienced co-CEOs . Immediately upon taking control of Cryo-Cell last year, the Portnoy brothers had the Board appoint themselves as co-CEOs. No executive search was conducted and neither of the brother co-CEOs has ANY EXPERIENCE running a life science company or a public company.






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Spending on executive compensation increased. Despite stating in their 2011 proxy that they would “reduce executive cash compensation,” the Board-approved compensation package gave the brother co-CEOs a base salary that exceeds the prior CEO’s by more than $50,000 [vii] .






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Excessive stock option grants. After three months on the job, the Board granted the brother co-CEOs 400,000 stock options with an exercise price of $1.72 per share. These options will fully vest over two years regardless of performance [viii] . That’s right! There are no performance-based vesting conditions in the co-CEO brothers’ options.






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Repaid themselves proxy contest costs from failed 2007 proxy contest and 2011 proxy contest. As one of their first acts, the Board approved repayment of more than $500,000 to the co-CEOs for their proxy contest litigation in 2007 and their proxy contest costs in 2011 [ix] . The litigation costs from 2007 stem from a suit brought by the Portnoys to force a special election in which the Portnoys ultimately lost their proxy campaign. Given the poor leadership the company has had since last year’s annual meeting, we believe these reimbursements have been a waste of capital.






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Ridiculous perks abound. Co-CEO David Portnoy’s principal place of employment is the company’s headquarters, but he maintains the option to work from his residence in Miami, Florida. Of course, commuting expenses are paid by the company when he is not working from home. We do not see any reasonable justification for this added expense.




IF YOU RE-ELECT THE CURRENT BOARD,

WE BELIEVE THE COMPANY’S FINANCIAL RESULTS WILL ONLY
DETERIORATE FURTHER



IMMEDIATE CHANGE IS NEEDED



The brother co-CEOs have taken steps that convince us it will only get worse IF YOU APPROVE MANAGEMENT’S PROXY. They are eligible to earn up to 100% salary bonus – that’s $425,000 – for the coming year. The current Board has authorized a 3X increase of the share repurchase program which, if implemented, will result in further depletion of cash. The Board has already adopted an increase of the stock option pool by 2.5 million shares [x] and now they are asking the stockholders to approve the plan to enable additional incentive options to be made to insider Directors, which we believe will likely result in more undeserved rewards for management in addition to those already granted. To reiterate, the current Board added 1.5 million shares to the equity award pool in December, 2011 and then six months later, after they had already granted all 1.5 million awards, added another million. These awards authorized by the Board, if fully issued, would potentially DILUTE CURRENT STOCKHOLDER OWNERSHIP BY 22 % [xi] . The only way for stockholders to stop the current board from granting additional highly dilutive equity awards to insiders is to replace it with our independent nominees. Because the company is not yet on a national stock exchange with listing rules, even if stockholders vote AGAINST adoption of the 2012 Equity Incentive Plan, the Board could still grant these additional options. Hence, it is imperative that you vote FOR all our nominees on the GOLD proxy card.