<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20459
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 26,1999 Commission file number 0-18170
----------------- -------
CRYOMEDICAL SCIENCES, INC.
--------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 94-3076866
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(State of Incorporation) (IRS Employer I.D. Number)
1300 Piccard Drive
Suite L-105
Rockville, Maryland 20850
-------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (301) 417-7070
--------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
33,854,302 shares of Cryomedical Sciences, Inc. Common Stock, par value $.001
per share, were outstanding as of November 10, 1999.
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CRYOMEDICAL SCIENCES, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 26, 1999
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
--------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at September 26,
1999 (unaudited) and December 27, 1998 3
Consolidated Statements of Operations for the
thirteen and thirty nine weeks ended September
26, 1999 and September 27, 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the
thirty nine weeks ended September 26, 1999 and
September 27, 1998 (unaudited) 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis or Plan of
Operation 8-10
Part II. Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and use of Proceeds 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
2
<PAGE> 3
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 26, December 27,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 5,972 $ 135,183
Receivables, net allowance for doubtful accounts 376,935 486,773
of $48,120 and $677,634
Inventories 1,211,795 1,225,982
Prepaid expenses and other current assets 132,480 80,510
------------ ------------
Total current assets 1,727,182 1,928,448
Fixed assets, net accumulated depreciation and amortization 556,869 780,307
of $2,529,657 and $2,334,375
Intangible assets 377,111 -
Other assets 18,727 18,727
------------ ------------
Total assets $ 2,679,889 $ 2,727,482
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 666,930 $ 593,021
Accrued expenses 363,037 367,104
Short-term credit facility 120,000 120,000
Unearned revenues 30,713 60,839
Warranty reserves - 11,400
Extended warranties - current portion 9,949 16,179
Capital leases - current portion 37,285 37,285
------------ ------------
Total current liabilities 1,227,914 1,205,828
------------ ------------
Extended warranties, net of current portion 6,634 14,096
Capital leases, net of current portion 20,422 50,035
Deferred rent 12,947 25,884
------------ ------------
Total liabilities 1,267,917 1,295,843
------------ ------------
Stockholders' equity
Preferred stock, $.001 par value per share,
9,378,800 authorized; 384 and 128 shares issued, respectively - -
Common stock, par value $.001 per share,
50,000,000 shares authorized; 33,854,302 and 33,454,302
issued and outstanding, respectively 33,854 33,454
Additional paid-in capital 31,313,343 30,751,263
Accumulated deficit (29,935,225) (29,353,078)
------------ ------------
Total stockholders' equity 1,411,972 1,431,639
------------ ------------
Total liabilities and stockholders' equity $ 2,679,889 $ 2,727,482
============ ============
</TABLE>
See notes to consolidated financial statements
3
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CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
September 26, September 27, September 26, September 27,
--------------------------------- ---------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $ 377,236 $ 697,454 $ 1,218,360 $ 1,956,813
Cost of sales 261,966 354,467 806,113 1,023,048
------------ ------------ ------------ ------------
Gross profit 115,270 342,987 412,247 933,765
Expenses
Research and development 59,061 74,640 182,512 600,794
Sales and marketing 58,950 101,058 204,409 382,885
General and administrative 173,764 261,234 584,933 843,104
------------ ------------ ------------ ------------
Total expenses 291,775 436,932 971,854 1,826,783
------------ ------------ ------------ ------------
Operating loss (176,505) (93,945) (559,607) (893,018)
Interest income, net of interest expense (8,287) (5,111) (22,540) (18,453)
------------ ------------ ------------ ------------
Net loss $ (184,792) $ (99,056) $ (582,147) $ (911,471)
============ ============ ============ ============
Net loss per common share $ (0.01) $ 0.00 $ (0.02) $ (0.03)
============ ============ ============ ============
Weighted average number
of common shares outstanding 33,806,476 33,454,302 33,572,550 33,454,302
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Thirty-nine weeks ended
September 26, September 27,
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1999 1998
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(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(582,147) $(911,471)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 208,890 263,612
Amortization 5,587
Provision for bad debt 79,028 87,828
Write off of accounts receivable (692,240) -
Sale of rental equipment 14,548 -
Gain on disposal of fixed assets - (2,951)
Amortization of unearned compensation - 39,525
Changes in operating assets and liabilities:
Decrease in receivables 723,050 187,339
Decrease in inventories 14,187 447,843
Increase in prepaid and other current assets (51,970) (6,191)
Increase in intangible assets (382,698) -
Increase in other assets - 0
Decrease in accounts payable 73,909 58,638
Decrease in accrued expenses (4,067) (32,402)
Decrease in unearned revenue (30,126) (58,590)
Decrease in warranty reserves (11,400) (42,606)
Decrease in extended warranties (13,692) (61,875)
Decrease in capital leases (29,613) (25,348)
Decrease in deferred rent (12,937) (4,679)
--------- ---------
Net cash used in operating activities (691,691) (61,328)
--------- ---------
Cash flows from investing activities:
Proceeds from disposal of fixed assets - 46,636
Purchase of equipment - (214,107)
--------- ---------
Net cash used in investing activities - (167,471)
--------- ---------
Cash flows from financing activities:
Issuance of Preferred Stock 400,000 -
Line of Credit - 120,000
Issuance of Common Stock 162,480 -
--------- ---------
Net cash provided by financing activities 562,480 120,000
--------- ---------
Net decrease in cash and cash equivalents (129,211) (108,799)
Cash and cash equivalents at beginning of period 135,183 124,000
--------- ---------
Cash and cash equivalents at end of period $ 5,972 $ 15,201
========= =========
Supplemental Cash Flow Information:
Cash paid for interest $ 25,028 $ 20,954
========= =========
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 6
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. GENERAL
Cryomedical Sciences, Inc. (the "Company") is engaged in the research,
development, marketing and manufacture of products for use in the field
of low-temperature medicine.
The Consolidated Balance Sheet as of September 26, 1999, the Consolidated
Statements of Operations for the thirteen and thirty-nine week periods
ended September 26, 1999 and September 27, 1998, and the Consolidated
Statements of Cash Flows for the thirteen and thirty-nine week periods
ended September 26, 1999 and September 27, 1998, have been prepared
without audit. In the opinion of management, all adjustments necessary to
present fairly the financial position, results of operations, and cash
flows at September 26, 1999, and for all periods then ended, have been
recorded. All adjustments recorded were of a normal recurring nature.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction with
the financial statements and notes thereto for the year ended December
27, 1998 included in the Company's Annual Report on Form 10-KSB for the
year ended December 27, 1998.
The results of operations for the thirteen and thirty-nine week periods
ended September 26, 1999 are not necessarily indicative of the operating
results anticipated for the full year.
B. NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common
shares outstanding during the thirteen and thirty-nine week periods ended
September 26, 1999 and September 27, 1998. No effect has been given to
unexercised stock options or warrants because the effect would be
anti-dilutive.
C. INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of the following: September 26, 1999 December 27, 1998
------------------ -----------------
<S> <C> <C>
Raw materials and purchased parts $ 673,663 $ 702,758
Work in process 141,679 111,140
Finished goods 396,453 412,084
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1,211,795 1,225,982
</TABLE>
6
<PAGE> 7
D. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" was issued, which is effective for fiscal years
beginning after December 15, 1997. The Company is complying with all
requirements, but has no items of comprehensive income.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company's business activities focus primarily on the manufacturing and
marketing related to its cryosurgical systems. The CMS AccuProbe(R) System Model
450 was cleared by the FDA in April 1991, the CMS AccuProbe(R) System Models 530
and 550 were cleared in December 1995, the CMS AccuProbe(R) 600 series was
cleared in March 1997 and the Cryo-lite(R) series was cleared in July 1997. The
Company plans to continue to market these systems in the various fields for
which they received clearance from the FDA. The Company received clearance in
November 1997 to expand its indications for use (labeling) for the AccuProbe(R)
system family. In September 1998 the Company received FDA clearance for its
AccuProbe(R) 800 series.
The Company is presently in the process of seeking funds for its wholly owned
subsidiary BioLife Solutions, Inc. ("BioLife") for the purpose of
commercializing its Hypothermosol(R) series of preservation solutions. There can
be no assurance that such funding will be obtained.
RESULTS OF OPERATIONS
Revenues for the thirteen and thirty-nine week periods ended September 26, 1999
totaled $377,236 and $1,218,360, respectively, compared to $697,454 and
$1,956,813, respectively, for the comparable periods of the prior year,
representing decreases of 46% and 38%, respectively. The decreases in revenues
reflects a decline in the number of CMS AccuProbe(R) Systems and accessories
sold.
Gross profit for all products for the thirteen and thirty nine-week periods
ended September 26, 1999 totaled $115,270 and $412,247, respectively, or 31% and
34% of revenues, respectively, compared to gross profits of $342,987 and
$933,765, respectively or 49% and 48% of revenues, respectively, for the
comparable periods of the prior year. Gross profit as a percent of revenues
decreased compared to the prior year periods due to changes in the mix of
product sales.
Research and development expenses for the thirteen and thirty-nine week periods
ended September 26, 1999 totaled $59,061 and $182,512, respectively, compared to
$74,640 and $600,794, respectively, for the comparable periods of the prior
year, representing a decrease of 21% and 70%, respectively, from the respective
prior year periods. Research and development expenses decreased due to a
reduction in personnel and a decrease in raw material inventory used in R&D
projects.
Sales and marketing expenses for the thirteen and thirty-nine week periods ended
September 26, 1999 totaled $58,950 and $204,409, respectively, compared to
$101,058 and $382,885, respectively, for the comparable periods of the prior
year, representing a decrease of 42% and 47%, respectively, from the prior year
periods. Sales and marketing expenses decreased over the comparable period of
the previous year due to reduced commissions, reduced number of personnel and a
reduction in travel and related expenses.
General and administrative expenses for the thirteen and thirty-nine week
periods ended September 26, 1999 totaled $173,764 and $584,933, respectively,
and $ 261,234 and $834,104, respectively, for the comparable periods of the
prior year, representing a decrease of 33% and
8
<PAGE> 9
31%, respectively, from the prior year periods. General and administrative
expenses decreased due to general cut backs in discretionary expenses, and a
reduction in the amount of leased space.
Operating expenses for the thirteen and thirty-nine week periods ended September
26, 1999 totaled $291,775 and $971,854, respectively, and $436,932 and
$1,826,783, respectively, for the comparable years of the prior year,
representing a decrease of 33% and 47%, respectively, from the prior year
periods. The Company sustained net losses of $184,792 and $582,147 for the
thirteen and thirty-nine week periods ended September 26, 1999, respectively,
compared to net losses of $99,056 and $911,471, respectively, for the comparable
periods of the prior year. The Company is continuing to make reductions in all
discretionary expenses in an attempt to maintain its viability as an operating
entity.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1998, the Company entered into a Stock Purchase Agreement with
ValorInvest, Ltd. ("ValorInvest"), a Geneva, Switzerland based investment bank,
pursuant to which, among other things, ValorInvest purchased securities from the
Company for $200,000 and subsequently purchased additional securities for
$400,000 in the first quarter of the 1999 fiscal year.
At September 26, 1999, the Company had cash and cash equivalents totaling $5,972
and working capital of $499,268, as compared to $135,183 and $722,620,
respectively, at December 27, 1998. The Company's cash and working capital
positions decreased from December 27, 1998 due primarily to the net loss of
$582,147 sustained by the Company in the thirty-nine week period ended September
26, 1999 net of the infusion of capital from ValorInvest.
Capital expenditures for equipment totaled $0, including $0 in consignment and
loaner CMS AccuProbe(R) Systems, in the thirty-nine week period ended September
26, 1999, compared to $214,107 and $164,101, respectively, in the comparable
period of the prior year. The Company does not expect to spend more than
$100,000 in total for equipment in the year ending December 26, 1999.
The Company has reduced expenditures in order to ensure its viability in light
of its limited cash and cash equivalents on hand. Although the Company believes
that it can continue to operate if additional cost cutting steps are
implemented, additional financing is needed if the Company wants the opportunity
to grow. The Company believes that sales for the remainder of the 1999 fiscal
year may be greater than the level experienced in the comparable prior year
periods due to the favorable reimbursement environment created by HCFA's new
coverage policy for cryosurgery of the prostate. However, the level of increased
sales, if any, will depend in part on the Company's ability to finance the
development, manufacturing and testing of its products, its sales and marketing
efforts, and its education and retraining programs. If funds are raised by
issuing equity securities, it may result in substantial dilution to existing
stockholders. If capital is raised through a debt financing with financial
institutions, the Company would likely become subject to restrictive covenants
relating to its operations and finances. The Company currently had no
commitments for obtaining any additional funds, and the sale of its products
represents its only current source of liquidity. There can be no assurance that
a financing will be consummated on reasonable terms or at all.
9
<PAGE> 10
FORWARD LOOKING INFORMATION
This Report contains certain forward-looking information statements made in
reliance upon the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements, including statements
regarding Medicare reimbursement, the Company's liquidity and capital resources,
and its ability to continue its operations in the absence of additional
financing, are based on current expectations that involve numerous risks and
uncertainties. Actual results could differ materially from those anticipated in
such forward-looking statements as a result of various known and unknown factors
including, without limitation, future economic, competitive, regulatory and
market conditions, future business decisions, the receipt of financing, market
acceptance of the Company's products, and those factors discussed in this
Report. Words such as "believes," "anticipates," expects," "intends," "may," and
similar expressions are intended to identify forward-looking statements, but are
not the exclusive means of identifying such statements. The Company undertakes
no obligation to revise any of these forward-looking statements.
10
<PAGE> 11
CRYOMEDICAL SCIENCES, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For information concerning Legal proceedings, reference is made to
Part II, item 1, Legal Proceedings, in the Company's Quarterly Report on Form
10-Q for the Quarter ended June 27, 1999.
Item 2. Changes in Securities and Use of Proceeds
On July 12, 1999 the Company entered into a Settlement Agreement with
Concept Group, Inc. ("Concept") in connection with a lawsuit filed in June 1997
by Concept against the Company in the United States District Court for the
Eastern District of Pennsylvania. Pursuant to the Settlement Agreement, in
addition to granting to Concept a world-wide, non-transferable, royalty-free
license to make, have made, sell, use, import, manufacture, produce and /or
market cryogenic surgical instruments based upon the techniques and
specifications as described and detailed in U.S. Patent Number 5,573,532, the
Company (a) issued to Concept and its attorney an aggregate of 400,000 shares of
Company's common stock (the "Initial Shares'), and (b) if the aggregate average
cash value (as defined in the Settlement Agreement) of the Initial Shares is
less than $550,000 one year from the execution of the Settlement Agreement,
agreed to issue such additional shares of Common Stock (up to a maximum of
600,000 shares) ("Contingent Shares") such the total shares issued (Initial
Shares plus Contingent Shares) shall be worth not less than $550,000. The
issuance of the shares of Common Stock was exempt from the registration
requirements of the Securities Act of 1933, as amended, by virtue of Section
4(2) thereof and Rule 506 promulgated thereunder.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule.
(b) Reports on Form 8-K; none
11
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Cryomedical Sciences, Inc.
--------------------------
(Registrant)
Date: November 10, 1999 /s/Richard J. Reinhart, Ph.D.
----------------------------------
Richard J. Reinhart, Ph.D.
President and Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-28-1998
<PERIOD-END> SEP-26-1999
<CASH> 5,972
<SECURITIES> 0
<RECEIVABLES> 425,055
<ALLOWANCES> (48,120)
<INVENTORY> 1,211,795
<CURRENT-ASSETS> 132,480
<PP&E> 3,086,526
<DEPRECIATION> (2,529,657)
<TOTAL-ASSETS> 2,679,889
<CURRENT-LIABILITIES> 1,227,914
<BONDS> 0
0
0
<COMMON> 33,854
<OTHER-SE> 1,378,118
<TOTAL-LIABILITY-AND-EQUITY> 2,679,889
<SALES> 733,043
<TOTAL-REVENUES> 1,218,360
<CGS> 431,032
<TOTAL-COSTS> 806,113
<OTHER-EXPENSES> 971,854
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (25,028)
<INCOME-PRETAX> (582,147)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (582,147)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
