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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
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For the quarterly period ended JUNE 25, 2000 Commission file number 0-18170
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CRYOMEDICAL SCIENCES, INC.
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(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)
820 Bear Tavern Road
Suite 106
EWING, NEW JERSEY 08628
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(Address of principal executive offices)
Issuer's telephone number, including area code: (609) 771-1100
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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
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12,006,860 shares of Cryomedical Sciences, Inc. Common Stock, par value $.001
per share, were outstanding as of July 31, 2000.
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CRYOMEDICAL SCIENCES, INC.
FORM 10-QSB
QUARTER ENDED JUNE 25, 2000
INDEX
Part I. Financial Information PAGE NO.
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Item 1. Financial Statements
Consolidated Balance Sheets at
June 25, 2000 (unaudited)
and December 26, 1999 3
Consolidated Statements of
Operations for the thirteen
and twenty-six weeks ended
June 25, 2000 and June 27,
1999 (unaudited) 4
Consolidated Statements of
Cash Flows for the twenty-six
weeks ended June 25, 2000 and
June 27, 1999 (unaudited) 5
Notes to Consolidated Financial
Statements 6-7
Item 2. Management's Discussion and Analysis or
Plan of Operation 8-9
Part II. Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
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CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
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CONSOLIDATED BALANCE SHEETS
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<CAPTION>
June 25, December 26,
2000 1999
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(unaudited)
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ASSETS
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Current assets
Cash and cash equivalents $ 5,285,508 $ 7,952
Receivables, net allowance for doubtful accounts 151,837 246,436
of $12,571 and $11,927, respectively
Inventories 717,435 952,298
Prepaid expenses and other current assets 248,430 79,372
-------------------- -----------------------
Total current assets 6,403,210 1,286,058
Fixed assets, net accumulated depreciation 388,504 494,452
of $1,760,527 and $2,592,074, respectively
Intangible assets, net 371,431 370,277
Other assets 12,836 8,328
-------------------- -----------------------
Total assets $ 7,175,981 $ 2,159,115
==================== =======================
LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities
Accounts payable $ 479,113 $ 648,578
Accrued expenses 298,222 484,473
Short-term credit facility 1,020,000 120,000
Unearned revenues 11,806 19,608
Extended warranties - current portion 9,121 9,949
Capital leases - current portion 23,144 36,657
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Total current liabilities 1,841,406 1,319,265
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Extended warranties, net of current portion - 4,146
Capital leases, net of current portion 5,472 9,908
Deferred rent - 7,399
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Total liabilities 1,846,878 1,340,718
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Stockholders' equity
Preferred stock, $.001 par value per share, 1,000,000
authorized; 0 and 384 shares issued and outstanding,
respectively - -
Common stock, par value $.001 per share,
25,000,000 shares authorized; 12,006,860 and 6,770,860
issued and outstanding, respectively 12,007 6,771
Additional paid-in capital 36,853,632 31,340,426
Accumulated deficit (31,536,536) (30,528,800)
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Total stockholders' equity 5,329,103 818,397
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Total liabilities and stockholders' equity $ 7,175,981 $ 2,159,115
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See notes to consolidated financial statements
3
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CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF OPERATIONS
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Thirteen weeks ended Twenty-six weeks ended
June 25, June 27, June 25, June 27,
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2000 1999 2000 1999
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(unaudited) (unaudited)
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Revenues $ 233,906 $ 450,294 $ 633,063 $ 841,124
Cost of sales 134,154 244,003 267,580 544,147
---------------- ----------------- ----------------- -------------------
Gross profit 99,752 206,291 365,483 296,977
Expenses
Research and development 450,155 67,282 636,780 123,451
Sales and marketing 55,750 77,543 91,185 145,459
General and administrative 488,555 139,425 681,234 411,169
---------------- ----------------- ----------------- -------------------
Total expenses 994,460 284,250 1,409,199 680,079
---------------- ----------------- ----------------- -------------------
Operating loss (894,708) (77,959) (1,043,716) (383,102)
Interest income 46,286 1,272 48,699 2,337
Interest expense (5,312) (7,849) (12,719) (16,590)
---------------- ----------------- ----------------- -------------------
Net loss $ (853,734) $ (84,536) $ (1,007,736) $ (397,355)
================ ================= ================= ===================
Net loss per common share $ (0.10) $ (0.01) $ (0.13) $ (0.06)
================ ================= ================= ===================
Weighted average number
of common shares outstanding 8,174,025 6,690,860 7,472,443 6,690,860
================ ================= ================= ===================
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See notes to consolidated financial statements
4
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CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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Twenty-six weeks ended
June 25, June 27,
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2000 1999
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(unaudited)
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Cash flows from operating activities:
Net loss $ (1,007,736) $ (397,355)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 112,561 141,556
Amortization 13,846 -
Provision for bad debt 10,081 55,858
Write off of accounts receivable (9,437) (219,444)
Loss on disposal of fixed assets 14,579 -
Sale of rental equipment - 14,548
Changes in operating assets and liabilities:
Decrease in receivables 93,955 288,647
Decrease in inventories 234,863 32,257
Increase in prepaid and other current assets (169,058) (56,590)
Increase in other assets (4,508) -
Decrease in accounts payable (169,465) (127,429)
Decrease in accrued expenses (186,251) (10,578)
Decrease in unearned revenue (7,802) (32,048)
Decrease in warranty reserves - (9,800)
Decrease in extended warranties (4,974) (11,205)
Decrease in deferred rent (7,399) (7,389)
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Net cash used in operating activities (1,086,745) (338,972)
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Cash flows from investing activities:
Purchase of equipment (21,192) -
Increase in intangible assets (15,000) (173,257)
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Net cash used in investing activities (36,192) (173,257)
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Cash flows from financing activities:
Issuance of preferred stock - 400,000
Decrease in capital leases (17,949) (19,679)
Line of credit 900,000
Issuance of common stock 5,518,442 -
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Net cash provided by financing activities 6,400,493 380,321
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Net increase (decrease) in cash and cash equivalents 5,277,556 (131,908)
Cash and cash equivalents at beginning of period 7,952 135,183
-------------------- ---------------------
Cash and cash equivalents at end of period $ 5,285,508 $ 3,275
==================== =====================
Supplemental Cash Flow Information:
Cash paid for interest $ 12,719 $ 16,590
==================== =====================
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See notes to consolidated financial statements
5
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CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. GENERAL
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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 June 25, 2000, the Consolidated
Statements of Operations for the thirteen and twenty-six week periods
ended June 25, 2000 and June 27, 1999, and the Consolidated Statements of
Cash Flows for the twenty-six week periods ended June 25, 2000 and June
27, 1999, 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 June 25, 2000, and for the period
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 26,
1999 included in the Company's Annual Report on Form 10-KSB for the year
ended December 26, 1999.
In June 2000, the Company effected a 1 for 5 reverse stock split and
changed its ticker symbol to "CRYM". The common shares reflected in the
December 26, 1999 audited Consolidated Balance Sheet and the weighted
average shares reflected in the thirteen and twenty-six week Statements of
Operations as of June 27, 1999 have been restated to reflect the
post-reverse split number of shares.
The results of operations for the thirteen and twenty-six week periods
ended June 25, 2000 is not necessarily indicative of the operating results
anticipated for the full year.
B. NET LOSS PER SHARE
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Net loss per share is based on the weighted average number of common
shares outstanding during the thirteen and twenty-six week periods ended
June 25, 2000 and June 27, 1999. No effect has been given to unexercised
stock options or warrants because the effect would be anti-dilutive.
C. INVENTORIES
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Inventories consist of the following: June 25, 2000 December 26, 1999
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Raw materials and purchased parts $ 370,759 $ 653,529
Work in process 15,307 22,604
Finished goods 331,369 276,165
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717,435 952,298
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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
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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, the Cryo-lite(R) series was cleared in July 1997, and the
Blizzard Series was cleared in June 1998. 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. At the
American Urological Association meeting held in Atlanta, Georgia in May of this
year the Company introduced the AccuProbe(R) 800 series.
RESULTS OF OPERATIONS
Revenues for the thirteen and twenty-six week periods ended June 25, 2000
totaled $233,906 and $633,063 respectively, compared to $450,294 and $841,124
respectively, for the comparable periods of the prior year, representing
decreases of 48% and 25%, 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 twenty-six week periods ended
June 25, 2000 totaled $99,752 and $365,483, respectively, or 43% and 58% of
revenues, respectively, compared to gross profits of $206,291 and $296,977
respectively or 46% and 35% of revenues, respectively, for the comparable
periods of the prior year. Gross profit as a percent of revenues varied compared
to the prior year period due to changes in the mix of product and service sales
and changes in the overhead charged to cost of goods sold based on a reduction
in staff and related expenses and the relocation of the company.
Research and development expenses for the thirteen and twenty-six week periods
ended June 25, 2000 totaled $450,155 and $636,780, respectively, compared to
$67,282 and $123,451, respectively, for the comparable periods of the prior
year, representing an increase of 569% and 416%, respectively, from the
respective prior year periods. Research and development expenses increased due
to an increase in raw material inventory used in R&D projects and other costs
related to the development of the 800 series AccuProbe(R) console.
Sales and marketing expenses for the thirteen and twenty-six week periods ended
June 25, 2000 totaled $55,750 and $91,185, respectively, compared to $77,543 and
$145,459, respectively, for the comparable periods of the prior year,
representing a decrease of 28% and 37%, 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 twenty-six week periods
ended June 25, 2000 totaled $488,555 and $681,234, respectively, and $139,425
and $411,169, respectively, for the comparable periods of the prior year,
representing an increase of 250% and 66%, respectively, from the prior year
periods. General and administrative expenses increased due to moving expenses
associated with relocation of the Company to Ewing, New Jersey and an increase
in legal and consulting, personnel costs and insurance expense.
8
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Operating expenses for the thirteen and twenty-six week periods ended June 25,
2000 totaled $994,460 and $1,409,199, respectively, and $284,250 and $680,079,
respectively, for the comparable periods of the prior year, representing an
increase of 250% and 107%, respectively, from the prior year periods. The
Company sustained net losses of $853,734 and $1,007,736 for the thirteen and
twenty-six week periods ended June 25, 2000, respectively, compared to net
losses of $84,536 and $397,355, respectively, for the comparable periods of the
prior year.
LIQUIDITY AND CAPITAL RESOURCES
At June 25, 2000, the Company had cash and cash equivalents totaling $5,285,508
and working capital of $4,561,804, as compared to $7,952 and ($33,207),
respectively, at December 26, 1999. The increase in the Company's cash and
working capital positions from December 26, 1999 was due primarily to the
receipt by the Company in May, 2000 of $5,696,700 from the private placement of
2,234,000 units consisting of common stock and warrants. The Company sold the
units at a price of $2.55 per unit. Each unit consisted of two shares of
restricted common stock and one warrant to purchase an additional share of the
common stock at a price of $1.25 by March 31, 2001.
Capital expenditures for equipment totaled $21,192, in the twenty-six week
period ended June 25, 2000, compared to $0 in the comparable period of the prior
year. The Company does not expect to spend more than $1,500,000 in total for
equipment in the year ending December 31, 2000.
The Company believes that sales for the remainder of the 2000 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 implement manufacturing and
testing protocols for its products, increase sales and marketing efforts, and
reestablish its education and retraining programs.
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.
9
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CRYOMEDICAL SCIENCES, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 6, 2000, Endocare, Inc. filed a suit against the Company in
the United States District Court, Central District of California, alleging that
the Company is infringing United States Letters Patent No. 5,647,868 (the "868
patent"), entitled "Cryosurgical Integrated Control and Monitoring System and
Method," owned by Endocare, Inc. as assignee, in that the Company is
manufacturing, using and selling and offering for sale products embodying the
patented invention. The complaint among other things, seeks to enjoin the
Company from infringing the 868 patent and to recover lost profits, compensatory
damages, treble damage for willful infringement, and costs and attorneys fees.
The Company has filed an answer to the complaint denying the critical
allegations therein and counterclaiming for a declaratory judgement of
invalidity, unenforceability, and noninfringement of the 868 patent, on the
basis of prior art and the fact that the patent applicant, or those acting on
his behalf, failed to exercise the duty of candor and to meet the duty of
disclosure that is required of those seeking a patent, damages, and reasonable
attorneys fees and costs because Endocare's actions make this an exceptional
case.
Item 2. Changes in Securities and Use of Proceeds
On May 24, 2000 the Company raised $5,696,700 in a private placement of
2,234,000 units consisting of two shares of restricted common stock and one
warrant to purchase an additional share of Common Stock for $1.25 by March 31,
2001. The offering was led by de Greef & Company who is entitled to a finder's
fee equal to 10 percent of the total value of the consideration received by the
Company, payable in cash and common stock at the same value as the securities
sold in the offering. The units were placed with a number of U.S. investors,
including persons having a relationship with the Company, and Swiss medical
technology investors. The sales of the units were exempt from Registration under
the Securities Act pursuant to Rule 506 of Regulation D and Rule 903 of
Regulation S.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
(27) Financial Data Schedule.
(b) Reports on Form 8-K, None
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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.
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(Registrant)
Date: August 9, 2000 /s/Richard J. Reinhart, Ph.D.
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Richard J. Reinhart, Ph.D
President and Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
11
