<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 March 28,1999 Commission file number 0-18170
------------- -------
CRYOMEDICAL SCIENCES, INC.
--------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 94-3076866
(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
--- ---
33,454,302 shares of Cryomedical Sciences, Inc. Common Stock, par value $.001
per share, were outstanding as of April 15, 1999.
<PAGE> 2
CRYOMEDICAL SCIENCES, INC.
FORM 10-QSB
QUARTER ENDED MARCH 28, 1999
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
--------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at March 28, 1999 (unaudited) and
December 27, 1998 3
Consolidated Statements of Operations for the thirteen weeks
ended March 28, 1999 and March 29, 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the thirteen weeks
ended March 28, 1999 and March 29, 1998 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7-9
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
2
<PAGE> 3
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 28, December 27,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets
Cash and cash equivalents $ 31,805 $ 135,183
Receivables, net allowance for doubtful accounts 487,157 486,773
of $467,270 and $677,634
Inventories 1,135,753 1,225,982
Prepaid expenses and other current assets 119,800 80,510
--------------------- ------------------------
Total current assets 1,774,515 1,928,448
Fixed assets, net accumulated depreciation and amortization 708,195 780,307
of $2,406,487 and $2,334,375
Other assets 18,727 18,727
--------------------- ------------------------
Total assets $ 2,501,437 $ 2,727,482
===================== ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Accounts payable $ 365,793 $ 593,021
Accrued expenses 356,252 367,104
Short-term credit facility 90,775 120,000
Unearned revenues 38,350 60,839
Warranty reserves 6,000 11,400
Extended warranties - current portion 13,479 16,179
Capital leases - current portion 37,285 37,285
--------------------- ------------------------
Total current liabilities 907,934 1,205,828
--------------------- ------------------------
Extended warranties, net of current portion 11,609 14,096
Capital leases, net of current portion 39,958 50,035
Deferred rent 23,116 25,884
--------------------- ------------------------
Total liabilities 982,617 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; 33,454,302
issued and outstanding 33,454 33,454
Additional paid-in capital 31,151,263 30,751,263
Accumulated deficit (29,665,897) (29,353,078)
--------------------- ------------------------
Total stockholders' equity 1,518,820 1,431,639
--------------------- ------------------------
Total liabilities and stockholders' equity $ 2,501,437 $ 2,727,482
===================== ========================
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Thirteen weeks ended
March 28, March 29,
-------------------------------------------------------------------------
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Revenues $ 390,830 $ 538,517
Cost of sales 300,144 331,470
-------------------------------------- ----------------------------
Gross profit 90,686 207,047
Expenses
Research and development 56,169 403,066
Sales and marketing 67,916 130,827
General and administrative 271,744 332,010
-------------------------------------- ----------------------------
Total expenses 395,829 865,903
-------------------------------------- ----------------------------
Operating loss (305,143) (658,856)
Interest income, net of interest expense (7,676) (7,430)
-------------------------------------- ----------------------------
Net loss $ (312,819) $ (666,286)
====================================== ============================
Net loss per common share $ (0.01) $ (0.02)
====================================== ============================
Weighted average number
of common shares outstanding 33,454,302 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>
Thirteen weeks ended
March 28, March 29,
--------------------- ---------------------
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (312,819) $ (666,286)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 72,112 95,612
Provision for bad debt 30,605 39,791
Write off of accounts receivable (219,444) -
Gain on disposal of fixed assets - (28)
Amortization of unearned compensation 39,525
Changes in operating assets and liabilities:
Decrease in receivables 188,455 399,353
Decrease in inventories 90,229 216,903
(Increase) decrease in prepaid and other current assets (39,290) 18,748
Decrease in accounts payable (227,228) (4,984)
(Decrease) increase in accrued expenses (10,852) 13,334
Decrease in unearned revenue (22,489) (24,157)
Decrease in warranty reserves (5,400) (33,002)
Decrease in extended warranties (5,187) (41,437)
Decrease in capital leases (10,077) (13,768)
Decrease in deferred rent (2,768) (50)
--------------------- ---------------------
Net cash (used in) provided by operating activities (474,153) 39,554
--------------------- ---------------------
Cash flows from investing activities:
Proceeds from disposal of fixed assets - 5,436
Purchase of equipment - (150,006)
--------------------- ---------------------
Net cash used in investing activities - (144,570)
--------------------- ---------------------
Cash flows from financing activities:
Issuance of Preferred Stock 400,000 -
Decrease in short-term credit facility (29,225) -
--------------------- ---------------------
Net cash provided by financing activities 370,775 -
--------------------- ---------------------
Net decrease in cash and cash equivalents (103,378) (105,016)
Cash and cash equivalents at beginning of period 135,183 124,000
--------------------- ---------------------
Cash and cash equivalents at end of period $ 31,805 $ 18,984
===================== =====================
Supplemental Cash Flow Information:
Cash paid for interest 8,742 1,486
===================== =====================
</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 March 28, 1999, the Consolidated
Statements of Operations for the thirteen week periods ended March 28,
1999 and March 29, 1998, and the Consolidated Statements of Cash Flows
for the thirteen week periods ended March 28, 1999 and March 29, 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 March 28, 1999, 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 week period ended March 28,
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 week periods ended March 28, 1999
and March 29, 1998. No effect has been given to unexercised stock options
or warrants because the effect would be anti-dilutive.
C. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 28, 1999 December 27, 1998
-------------- -----------------
<S> <C> <C>
Raw materials and purchased parts $ 610,653 $ 702,758
Work in process 138,529 111,140
Finished goods 386,571 412,084
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$ 1,135,753 $ 1,225,982
</TABLE>
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.
6
<PAGE> 7
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 Technologies, 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 week periods ended March 28, 1999 and March 29, 1998
totaled $390,830 and $538,517 respectively, representing a decrease of 27%. The
decrease in revenues for the recent thirteen week period reflects a decline in
the number of CMS AccuProbe(R) Systems and accessories sold and a $65,000 back
order in CMSI cryoprobes. The Company believes that this decline continues to be
due primarily to a lack of the establishment of formal Medicare reimbursement
for prostate cryosurgery. In February 1999 the Health Care Finance
Administration ("HCFA") announced a new national coverage policy for cryosurgery
of the prostate for patients with localized prostate cancer. It is anticipated
that such a coverage policy will provide the Company with an opportunity to
realize revenues from cryosurgical operations of the prostate, but there can be
no assurance that such revenues will be realized. In April 1999 HCFA announced
that it had established two reimbursement codes for cryosurgery of the prostate
and that all covered procedures performed after July 1, 1999 would be considered
for reimbursement. There has been no indication from HCFA regarding the
reimbursement levels for the two procedural codes. The Company believes that
upon the issuance of the reimbursement levels for cryosurgery of the prostate,
it may realize additional revenues from cryosurgical operations subsequent to
July 1, 1999. There can be no assurance that such revenues will be realized. An
increase in revenues will be, to a large extent, dependent upon the levels of
reimbursement established by HCFA for cryosurgery of the prostate, as these
levels will influence both patients and physicians in regard to their choice of
cryosurgery as opposed to other modalities that may be used to treat prostate
cancer. The revenues of the Company have also been negatively impacted by an FDA
advisory that all companies involved in thermal ablation can no longer advertise
or promote uterine cryosurgical applications, specifically endometrial ablation.
Gross profit for all products for the thirteen week periods ended March 28, 1999
and March 29, 1998 totaled $90,686 and $207,047, respectively, or 23% and 38% of
revenues respectively. Gross profit as a percent of revenues decreased in the
thirteen week periods ended March 28, 1999 compared to the prior year period due
to changes in the mix of product sales and a decrease in the revenue base over
which certain manufacturing expenses are applied.
Research and development expenses for the thirteen week periods ended March 28,
1999 and March 29, 1998 totaled $56,169 and $403,066, respectively, a decrease
of 86%. Development
7
<PAGE> 8
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 week periods ended March 28, 1999
and March 29, 1998 totaled $67,916 and $130,827, respectively, a decrease of
48%. 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 week periods ended March
28, 1999 and March 29, 1998 totaled $271,744 and $332,010, respectively, a
decrease of 18%. 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 week periods ended March 28, 1999 and March
29, 1998 totaled $395,829 and $865,903, respectively, a decrease of 54%. The
Company sustained net losses of $312,819 for the thirteen week period ended
March 28, 1999 compared to net losses of $666,286 in the comparable period 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 March 28, 1999, the Company had cash and cash equivalents totaling $31,805
and working capital of $866,581, as compared to $135,183 and $722,620,
respectively, at December 27, 1998. The Company's cash decreased from December
27, 1998 due primarily to the net loss of $312,819 sustained by the Company in
the thirteen-week period ended March 28, 1999. The Company's working capital
position increased from December 27, 1998 due to the infusion of capital from
the ValorInvest purchase of additional securities.
Capital expenditures for equipment totaled $0, including $0 in consignment and
loaner CMS AccuProbe(R) Systems, in the thirteen week period ended March 28,
1999, compared to $150,006 and $100,000 respectively, in the comparable period
of the prior year. The Company does not expect to spend more than $300,000 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. 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
8
<PAGE> 9
institutions, the Company would likely become subject to restrictive covenants
relating to its operations and finances. The Company currently has 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.
YEAR 2000 ISSUE
Many computer systems record years in a two-digit format. Such systems, if not
modified will be unable to recognize and properly process information with dates
beyond the year 1999. The potential problems arising out of this inability
commonly are referred to as the "Year 2000 Issue".
The Company believes that the computers and software programs currently utilized
by the Company are Year 2000 ready. To date, no assessment has been made as to
the effect, if any, third party non-compliance will have on the Company's
operations. However, given the large number of suppliers available to the
Company and its ability, if necessary, to manufacture its products totally in
house, the Company does not believe that third party non-compliance would have a
material impact on the Company's operations.
FORWARD LOOKING INFORMATION
This Report contains certain forward-looking 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.
9
<PAGE> 10
CRYOMEDICAL SCIENCES, INC.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
In February, 1999, the Company raised $400,000 in gross proceeds from the sale
of 256 Series E Units to ValorInvest, Ltd. pursuant to Regulation S promulgated
under the Securities Act of 1933. Each Series E unit consists of one share of
Series E Convertible Preferred Stock, convertible into 10,000 shares of Common
Stock, and a warrant to purchase 5,000 shares of Common Stock at $.25 per share.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule.
(b) Reports on Form 8-K: none
10
<PAGE> 11
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: April 30, 1999 /s/Richard J. Reinhart, Ph.D.
-----------------------------
Richard J. Reinhart, Ph.D
President and Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-28-1998
<PERIOD-END> MAR-28-1999
<CASH> 31,805
<SECURITIES> 0
<RECEIVABLES> 954,427
<ALLOWANCES> (467,270)
<INVENTORY> 1,135,753
<CURRENT-ASSETS> 119,800
<PP&E> 3,114,682
<DEPRECIATION> (2,406,487)
<TOTAL-ASSETS> 2,501,437
<CURRENT-LIABILITIES> 907,934
<BONDS> 74,683
0
0
<COMMON> 33,454
<OTHER-SE> 1,485,366
<TOTAL-LIABILITY-AND-EQUITY> 2,501,437
<SALES> 254,618
<TOTAL-REVENUES> 390,830
<CGS> 95,653
<TOTAL-COSTS> 300,144
<OTHER-EXPENSES> 395,829
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7,676)
<INCOME-PRETAX> (312,819)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (312,819)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
