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Executives

Mercedes Walton - Chairman and CEO

Cryo-Cell International Inc. (OTCQB:CCEL) Wall Street Analyst Forum September 9, 2008 9:00 AM ET

Moderator

Good morning ladies and gentlemen. Good morning, in our attempt to adhere at the published schedule, I'd like to introduce the first company in today's program. Before I do so, I'll just quickly go over one or two administrative details associated with today's program.

First, each company, as most investors know, will be conducting a 40-minute presentation and Q&A session, which will be immediately followed by a breakout session. It is an opportunity for analysts, portfolio managers to ask additional one-on-one questions in more of a semi-formal environment.

Each company's 40-minute presentation and Q&A session will also be webcast. The webcasts are live, they are retrievable, it's both audio and PowerPoint. So if any investor wants to re-attend a meeting or attend a meeting that they missed, this is one way to do it.

Another way is seekingalpha.com, which has become increasingly prominent in the Wall Street, who audit using audio software to webcast, which they then convert it to transcript form, including the interactive Q&A session, which is then web searchable on Google Finance and mostly other major financial portals. Well, so there is a couple of ways to access.

In any case, we don't need further administrative introduction. I'd like to introduce the first company in this morning's program, Cryo-Cell International. It was established in 1989 with a primary focus on cryopreservation of the umbilical cords, stem cells for family use. Since their inception, they have been committed to the development and adoption of industry-best practices and technologies.

The (inaudible) during commitment to quality allows them to continually seek innovative approaches and applications of newly developed stem cell technologies. Cryo-Cell works to ensure that these new cellular therapies can reach full potential curing diseases, improving the health of their clients and their families.

In November 2007, the company introduced its C'elle service, which collects and preserves stem cells from menstrual fluid. Based in Oldsmar, Florida with over 155,000 clients worldwide, Cryo-Cell is one of the largest and most-established family cord blood banks. The market it serves includes the United States, Mexico, Central America, South America, India, Singapore and Malaysia. They are ISO 9001:2000 certified and accredited by the AABB.

Cryo-Cell operates in a state-of-the-art Good Manufacturing Practice and Good Tissue Practice compliant facility. Cryo-Cell is a publicly traded company. They trade in the OTC Bulletin Board under the symbol, CCEL.

So without any further introduction, I'd like to introduce Mercedes Walton, Chairman and Chief Executive Officer; and Jill Taymans, Chief Financial Officer.

Mercedes Walton

Thank you very much. Good morning. It's a pleasure to be here with you today, and we are really looking forward to the opportunity of sharing the Cryo-Cell story with you. I will be making some forward-looking statements during the presentation, and I hope that you reflect on this accordingly.

Cryo-Cell, was actually, became a public company in 1991. We were established actually in 1989, and for a while we were on NASDAQ and in 2003 the company was established on the Bulletin Board. We have about 11.7 million shares outstanding and approximately 5,000 shareholders, so it's a very large retail base.

Our market cap is currently around $9 million, and there are three officers of the company, myself, and Jill Taymans, our Chief Financial Officer and Dr. Julie Allickson, who is the Vice President of our Laboratory Operations and Research & Development.

Our actual Cryo-Cell Board of Directors is comprised of seven members including myself, and we have a Medical and Scientific Advisory Board. We are located in Oldsmar, Florida, which is actually in the Greater Tampa Bay area, about 20 minutes from the Tampa International Airport.

From a business perspective, Cryo-Cell is actually one of the worlds largest and most established cord blood stem cell bank. Our services are, primarily, our core business is what we call U-Cord services, namely the collection and cryopreservation of stem cells that are harvested from umbilical cord blood. And most recently, our new service C'elle which is the collection and preservation of stem cells that are harvested from menstrual fluid. I'll be speaking more about both of these services in depth.

Our client base is larger than over 155,000 clients worldwide, and we serve a broad range of markets and these markets are ever-expanding. Currently, the company has affiliates in Mexico, Central America, South America and Southeast Asia.

Our revenue sources come actually from three channels. The first is the service fees for the cord blood and the menstrual fluid, the initial collection processing, testing. Then we have a recurring annual storage fee for both of these services that comprise the annuity base of revenues. We also have an ever growing base of licensing fees and royalties that come from our global affiliates.

What are stem cells? Well, there is certainly a lot of discussion and public awareness and a lot of, sometimes misunderstanding about stem cells. Stem cells are distinguished by two important characteristics. They are unspecialized cells that renew themselves for a long period of time through cell division, and under certain circumstances these cells can be coaxed into transforming into other cell types of the body such as heart muscle, or insulin producing cells of the pancreas.

You've probably heard of two primary types of stem cells; the controversial focus certainly has been on embryonic stem cells because of the source from which they are harvested. Then the second is adult stem cells which typically have been found in bone marrow and have been used for many years in transplant.

The US cord blood banking market is very interesting and fast emerging market. We estimate that there are approximately 4 million births in the United States a year and we believe that our addressable market is about 25% of the total number of births. So we believe our addressable market is about 1 million births a year, which translates into a rather low penetration of the US cord blood banking industry. We believe that the current annual penetration is actually less than 8% on an annualized basis.

The industry is highly fragmented, there are approximately 25 competitors. And there are three companies including Cryo-Cell that comprise about 80% of the industry. There are rather significantly high barriers to entry, one is increased government regulation, and this has become increasingly significant since 2005.

April 2005, the FDA took jurisdiction over the cord blood banking industry, and there have been major changes to the government regulation and oversight, which translates into significant capital investment required to operate laboratories, and particularly, the top quality laboratories such as Cryo-Cell. We are a Good Manufacturing Practice and Good Tissue Practice facility.

This also translates into a high cost of operation, and the cost for operating our business has increased significantly over the last few years. There is certainly an increase in presence of public cord blood banks, which is a result of State and National Regulation that has actually funded public cord blood banking, and it has become an increasing phenomenon.

Cryo-Cell's growth drivers are primarily in five major categories; the first is our product diversification. The company introduced our new service C'elle in November 2007, and we have commenced our pre-clinical studies of this technology which is quite an amazing technology.

Another growth driver is our established client base. We have a loyal base of clients; over 30% of our clients are repeat clients. So typically, when we are consummating the relationship with the client, it is most typically a client for life. Many families come and have repeat children that they store their cord blood stem cells with.

We have an ever expanding global presence, and our license business model is predicated upon providing our partners with turnkey operations. So, when we license our technology; for example, we provide everything from the design and development of the laboratory in this particular global market to helping the partner achieve a quality accreditation to sales and marketing support. So it's complete turnkey operation.

We have a highly differentiated marketing message. Cord blood banking has become bit of a commoditized service over the last several years, but Cryo-Cell is particularly proud that our service has some very unique features that differentiate us from the competitor. For example, Cryo-Cell has been for several years the exclusive partner to Upromise, the College Savings Program. When clients participate in our service, they can actually participate in the Upromise savings program at the same time.

We also offer a $50,000 product guarantee, which is our commitment that upon use of the cells that they will be viable for that client or we will provide a $50,000 product guarantee. So, those are few of some of the differentiated services that we offer.

We have targeted marketing initiatives that are very crucial to the company's growth. And in most recent years, we have been able to leverage highly scalable internet marketing initiative, call center support and clinical services strategies to target consumers and professional markets, typically the OB/GYN community.

To describe Cryo-Cell's competitive advantages next. The first is Cryo-Cell is regarded as a global leader in advancing women's healthcare. With our new service, the C'elle menstrual stem cell service and its potential therapeutic application, Cryo-Cell is becoming a particular vanguard for women's healthcare. Of all of the private cord blood banks, Cryo-Cell has the most significant number of quality accreditations. We are fully licensed and accredited by AABB, ISO 9001:2000, as well as by FDA.

We have growing royalties from global affiliates. Our two primary global affiliates are Cryo-Cell of Mexico and Asia Cryo-Cell Private Limited, which is headquartered in Chennai, India.

Commercial partnerships are of significance to us as well. Cryo-Cell actually owns 36% of a company called Saneron CCEL Therapeutics that has made major milestones in utilizing cord blood stem cells and developing neurological therapies. And as I mentioned earlier, we operate in a state-of-the-art manufacturing facility in 18,000 square foot facility in Oldsmar.

Cryo-Cell has a highly differentiated stem cell platform. Our cord service, the U-Cord service, is basically predicated upon a source of stem cells that comes from the umbilical cord that really can differentiate into hematopoietic stem cells, that is that they can divide and become stem cells of the blood system; blood cells, immune system cells and platelets.

These cells have a very high rate of engrossment and a tolerance of tissue type mismatches. So, the U-Cord can be translated both autologously and allogeneically to one cell or to a sibling, for example. It is estimated that well over our 6,000, some estimate up over 8,000 transplants have occurred worldwide. And as the research progresses, the therapeutic potential of cord blood stem cells also increases significantly.

The C'elle service, which is different, but very complimentary to the cord blood service, is comprised of stem cells that are harvested from menstrual fluid. These cells are undifferentiated, multi-code, meaning that they can actually differentiate into other cell types of the body, and these cells are actually potentially pluripotent, which means that they could potentially differentiate into possibly every other cells types in the body.

The C'elle stem cells are a 100% matched to the women donor, and we believe that they may possibly also be a match for a first-degree relative, a parent, possibly a sibling or a child.

The properties of the C'elle stem cells and characteristics are very similar to stem cells that are harvested from bone marrow. But fascinatingly enough, these stem cells actually have embryonic stem cell markers, which are highly significant and that they indicate the ability of these stem cells to differentiate into many other cell types. They are highly clonogenic, meaning that they have a very high self-renewing capacity.

Cryo-Cell currently collects, tests, processes and preserves new cord stem cells, and there are a number of applications for our cord blood stem cells in treating cancers of the blood, lymphoma, leukemia, bone marrow failure syndrome, other types of blood disorders and immune deficiencies. There is also a current research and development underway looking at using cord blood stem cells to do cardiac nerve cell repair to treat diseases such as Alzheimer's and Parkinson's and possibly spinal cord injury..

This chart depicts the unit growth of our cord blood stem cells. And you can see that from the very inception of the company in 1998 up through 2007, we have experienced very significant growth, and we're very proud of this progress.

As I mentioned earlier, the C'elle service was launched on November 1st of 2007, and we are currently in pre-clinical testing of these stem cells. We actually have a publicly announced three pre-clinical studies that are focused on cardiac, therapeutic applications and diabetes.

And the collaboration model is one that is extraordinarily unique. We have a model that basically takes into account that the company is not a research and development firm, and therefore we are partnering with collaborators who have agreed to take the IP that Cryo-Cell owns regarding the C'elle cells.

And they actually fund all of the research themselves, and the IP that results from the therapeutic application is a split, 50-50 between the partner and Cryo-Cell, which is a model that is reflective of the fact that scientists around the world are clamoring to get a hold of these cells and potentially develop our therapeutic applications.

The product theme that we had been using very successfully is through the bundling of the cord blood stem cells with the C'elle stem cells, protects baby, protects mom and this is a message that resonates to expecting families very affectively because the families that are interested in the cord blood stem cells understand stem cell finds, the potential of therapies, and they are very keenly interested in the prospect of acquiring the C'elle service for the mother to add additional levels of insurance for future healthcare.

So this bundled combination creates a highly differentiated strategic platform for women's healthcare, and the C'elle stem cell technology is our patent pending. Cryo-Cell has an extensive patent portfolio that represents actually a number of patents within this one patent portfolio, and we are very excited about that.

In terms of potential research and development, we believe that the C'elle stem cell can possibly serve as an alternative to embryonic stem cells in the development of human cellular therapies and for use in regenerative medicine associated with the mother donor.

The cell is certainly non-controversial and it's coming from a source that otherwise would be discarded as medical waste, and it's also available on a recurring basis. So issues associated with volumes of stem cells that are required for therapies are addressed very effectively with the C'elle stem cell.

We have, through independent laboratories differentiated the C'elle stem cell into neural, cardiac, bone, fat, and cartilage cells. And we believe that the C'elle stem cell has the potential to advance women's healthcare by providing a broad range of perspective therapies to treat a wide range of diseases that afflict women such as heart disease, diabetes, stroke, neurological disorders, osteoporosis, and there are even potential cosmeceutical applications when you consider the potential of the cells to regenerate into epithelial cells that regenerate skin. So for example, anti-aging, wound healing applications.

The financial highlights of the company are demonstrated here. We have a growing installed base, increased serviced pricing -- the price of our service actually in 2003 was $275 for the initial processing, testing and first year of storage. Today, and beginning in 2005, the cost of the service increased to $1,720 and that includes processing, testing and first year of storage. The C'elle service currently retails for $499. The company has a strong cash position and we have no long-term debt.

This represents the financial summary. As you can see our revenues have increased from 2005, $14.5 million to $17.5 million in fiscal '07. Our gross profit is right now hovering around 63% to 64.7%. We actually were profitable from Q1 '04 through Q2 '06, we had nine consecutive quarters of profitability.

And in the beginning of 2006, the Board of Directors made the deliberate decision that we would invest in the growth of the business, mainly focusing on our product diversification and repositioning a corporate rebranding in the marketplace. As a result, we have had a period of losses, however, as you can see those losses are, we are closing the gap on them in our fiscal '08 and our cash equivalent as you can see are about $4 million.

In terms of milestones the growth strategy is, we definitely are focused on further diversification of our service offering. As we all know, everyday there is news about stem cells that emanate from new sources and Cryo-Cell is committed to be a continuing leader on the forefront of providing services that allow individuals to cryopreserve these stem cells for future application. This is certainly an element of our growth strategy.

Unit growth is definitely a top priority. Obviously, in an industry that is fast emerging as a stem cell industry, our M&A opportunities are certainly on the horizon as the industry consolidates, and geographical expansion is another key element of our growth strategy.

We have actually, as I mentioned earlier, bundled the C'elle and U-Cord service to offer the Protect Baby, Protect Mom. We have had the pre-clinical testing that's underway. We do have our clinical validation and testing for the commercialization, that's in final phases. And this has really created very highly differentiated message for Cryo-Cell because there is no other cord blood bank in the world that is in the position to offer this unique combination of services.

Why invest in Cryo-Cell? Well, first of all, on Cryo-Cell as the pioneer, we were actually the first of the private cord blood banks in the Unites States, which has a comprehensive market understanding. We've done a lot of heavy lifting in the industry, educating both consumers and practitioners about the benefits and value of cord blood stem cell banking.

[At a] time now, there are many states that now have legislated the requirements of OB/GYNs to inform their patients about the benefits of cord blood banking.

Product diversification is a very exciting element of our business. And particularly with the extensive IP portfolio that Cryo-Cell owns, we believe that there are many vast opportunities to build on emerging stem cell commercialization services.

We have extensive technological and regulatory expertise, and the company's revenue has increased by 133% from fiscal 03 to '07 from $7.5 million to $17.5 million.

So, the company's strategic pathway is very clear. We are on course with our strategy. We believe that we are at a very exciting time. We've gone through quite a journey to get here. And we believe that the future is extraordinarily bright for the company.

Thank you. Take questions, which you might have. Yes.

Question-and-Answer Session

Unidentified Audience Member

[Question Inaudible].

Mercedes Walton

Yes. Well, we do believe that C'elle is going to be very critical to the future growth of the company. And we believe that the success of C'elle is going to be predicated upon advancements in the scientific research. So, we actually published scientific paper in the journal of Cell Transplantation in April of 2008.

And this paper talks about the C'elle stem cell composition of the cell, and in fact, that it has differentiated its own of highly respected peer review journal. And we believe as these scientific collaborations that we've entered into, as they start to proliferate and additional future publications emerge that those studies and developments will actually fuel interest in the service. So, we believe that that's a key.

Another growth driver is licensing this technology. We had been very much focused on licensing both the U-Cord and the C'elle technology. Our partner in India, Asia Cryo-Cell, for example, has announced their intention to launch the C'elle service in November of 2008.

So, as these global affiliations start to expand, our licensing revenue and royalty that come from both the processing and the storage will continue to increase. And then we believe that the future of bundling the services, finding synergies between services is particularly vast if you consider the fact that we have a base of over 155,000 clients.

These families, these women typically are very well educated. They have discretionary income, and they are really the prime target market for the C'elle service. So, we're able to lever our embedded base of cord blood clients to promote the sales and service of C'elle.

So, it's the combination of advancing the commercialization of the new technology and building upon the momentum that's underway with the stem cell industry at large.

Moderator

Other questions? Okay. Well, thank you very much for your attention. And we certainly look forward to further discussions with you about Cryo-Cell. Thank you very much.

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