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United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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 September 24,2000 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
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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12,293,180 shares of Cryomedical Sciences, Inc. Common Stock, par value $.001
per share, were outstanding as of October 31, 2000.
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CRYOMEDICAL SCIENCES, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 24, 2000
INDEX
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<CAPTION>
Part I. Financial Information Page No.
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Item 1. Financial Statements
Consolidated Balance Sheets at September 24,
2000 (unaudited) and December 26, 1999 3
Consolidated Statements of Operations for the
thirteen and thirty nine weeks ended September
24, 2000 and September 26, 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the
thirty nine weeks ended September 24, 2000 and
September 26, 1999 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of
Operation 7-8
Part II. Other Information
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
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ITEM 1.
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
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<CAPTION>
September 24, December 26,
2000 1999
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(unaudited)
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ASSETS
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Current assets
Cash and cash equivalents $ 3,211,136 $ 7,952
Receivables, net allowance for doubtful accounts 91,577 246,436
of $12,444 and $11,927, respectively
Inventories 632,400 952,298
Prepaid expenses and other current assets 218,349 79,372
---------------- ----------------
Total current assets 4,153,462 1,286,058
Fixed assets, net accumulated depreciation
of $1,820,751 and $2,592,074, respectively 476,254 494,452
Intangible assets, net 364,329 370,277
Other assets 3,717 8,328
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Total assets $ 4,997,762 $ 2,159,115
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable $ 160,271 $ 648,578
Accrued expenses 275,433 484,473
Short-term credit facility - 120,000
Unearned revenues 5,236 19,608
Extended warranties - current portion 6,633 9,949
Capital leases - current portion 14,623 36,657
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Total current liabilities 462,196 1,319,265
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Extended warranties, net of current portion - 4,146
Capital leases, net of current portion 2,728 9,908
Deferred rent - 7,399
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Total liabilities 464,924 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; 12,293,180 and 6,770,860
issued and outstanding, respectively 12,293 6,771
Additional paid-in capital 36,732,146 31,340,426
Accumulated deficit (32,211,601) (30,528,800)
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Total stockholders' equity 4,532,838 818,397
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Total liabilities and stockholders' equity $ 4,997,762 $ 2,159,115
================ ================
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See notes to consolidated financial statements
3
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CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
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<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
September 24, September 26, September 24, September 26,
----------------------------------------- -------------------------------------------
2000 1999 2000 1999
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(unaudited) (unaudited)
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Revenues $ 199,757 $ 450,294 $ 832,820 $ 841,124
Cost of sales 120,680 244,003 388,260 544,147
------------------- --------------------- ------------------------ ------------------
Gross profit 79,077 206,291 444,560 296,977
Expenses
Research and development 415,900 67,282 1,052,680 123,451
Sales and marketing 81,197 77,543 172,382 145,459
General and administrative 310,005 139,425 991,239 411,169
------------------- --------------------- ------------------------ ------------------
Total expenses 807,102 284,250 2,216,301 680,079
------------------- --------------------- ------------------------ ------------------
Operating loss (728,025) (77,959) (1,771,741) (383,102)
Interest income 65,865 1,272 114,564 2,337
Interest expense (12,905) (7,849) (25,624) (16,590)
------------------- --------------------- ------------------------ ------------------
Net loss $ (675,065) $ (84,536) $ (1,682,801) $ (397,355)
=================== ===================== ======================== ==================
Net loss per common share $ (0.06) $ (0.01) $ (0.19) $ (0.06)
=================== ===================== ======================== ==================
Weighted average number
of common shares outstanding 12,041,094 6,690,860 8,719,800 6,714,510
=================== ===================== ======================== ==================
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See notes to consolidated financial statements
4
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CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Thirty-nine weeks ended
September 24, September 26,
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2000 1999
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(unaudited)
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Cash flows from operating activities:
Net loss $ (1,682,801) $ (582,147)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 172,785 208,890
Amortization 20,948 5,587
Provision for bad debt 13,030 79,028
Write off of accounts receivable (12,513) (692,240)
Loss on disposal of fixed assets 14,579 -
Sale of rental equipment - 14,548
Changes in operating assets and liabilities:
Decrease in receivables 154,342 723,050
Decrease in inventories 319,898 14,187
Increase in prepaid and other current assets (138,977) (51,970)
Increase in other assets 4,611 -
Decrease (increase) in accounts payable (488,307) 73,909
Decrease in accrued expenses (209,040) (4,067)
Decrease in unearned revenue (14,372) (30,126)
Decrease in warranty reserves - (11,400)
Decrease in extended warranties (7,462) (13,692)
Decrease in deferred rent (7,399) (12,937)
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Net cash used in operating activities (1,860,678) (279,380)
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Cash flows from investing activities:
Purchase of equipment (169,166) -
Increase in intangible assets (15,000) (382,698)
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Net cash used in investing activities (184,166) (382,698)
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Cash flows from financing activities:
Issuance of preferred stock - 400,000
Decrease in capital leases (29,214) (29,613)
Decrease in Line of credit (120,000) -
Issuance of common stock 5,397,242 162,480
------------------ ----------------------
Net cash provided by financing activities 5,248,028 532,867
------------------ ----------------------
Net increase (decrease) in cash and cash equivalents 3,203,184 (129,211)
Cash and cash equivalents at beginning of period 7,952 135,183
------------------ ----------------------
Cash and cash equivalents at end of period $ 3,211,136 $ 5,972
================== ======================
Supplemental Cash Flow Information:
Cash paid for interest $ 25,624 $ 25,028
================== ======================
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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
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 24, 2000, the
Consolidated Statements of Operations for the thirteen and thirty-nine
week periods ended September 24, 2000 and September 26, 1999, and the
Consolidated Statements of Cash Flows for the thirty-nine week periods
ended September 24, 2000 and September 26, 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 September 24, 2000, 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
26, 1999 included in the Company's Annual Report on Form 10-KSB for the
year ended December 26, 1999.
The results of operations for the thirteen and thirty-nine week periods
ended September 24, 2000 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 24, 2000 and September 26, 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: September 24, 2000 December 26, 1999
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Raw materials and purchased parts $ 274,738 $ 653,529
Work in process 14,857 22,604
Finished goods 342,805 276,165
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632,400 952,298
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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.
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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 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. In addition, the
Company's wholly owned subsidiary, Biolife Solutions, Inc., is developing a
product line of preservative solutions that are sold under the tradename,
Hypotermosol(TM).
RESULTS OF OPERATIONS
Revenues for the thirteen and thirty-nine week periods ended September 24,
2000 totaled $199,757 and $832,820, respectively, compared to $450,294 and
$841,124, respectively, for the comparable periods of the prior year,
representing decreases of 56% and 1%, respectively. The decrease in revenues
in the thirteen week period reflects a decline in the number of CMS
AccuProbe(R) Systems and accessories sold during this period.
Gross profit for all products for the thirteen and thirty nine-week periods
ended September 24, 2000 totaled $79,077 and $444,560, respectively, or 40%
and 53% 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. In 2000, gross profit as a percent of
revenues fluctuated compared to the prior year periods due to changes in
production volume and expenses, and the mix of product sales.
Research and development expenses for the thirteen and thirty-nine week
periods ended September 24, 2000 totaled $415,900 and $1,052,680,
respectively, compared to $67,282 and $123,451, respectively, for the
comparable periods of the prior year, representing an increase of 518% and
753%, respectively, from the respective prior year periods. Research and
development expenses increased due to expenditures for clinical trials related
to the Hypothermosol(TM) solutions and an increase in raw material inventory
used in R&D projects and other expenses related to the Accuprobe system.
Sales and marketing expenses for the thirteen and thirty-nine week periods
ended September 24, 2000 totaled $81,197 and $172,382, respectively, compared
to $77,543 and $145,459, respectively, for the comparable periods of the prior
year, representing an increase of 5% and 19%, respectively, from the prior
year periods. Sales and marketing expenses increased over the comparable
period of the previous year due to an increase in the number of marketing and
sales personnel and an increase in travel and related expenses.
General and administrative expenses for the thirteen and thirty-nine week
periods ended September 24, 2000 totaled $310,005 and $991,239, respectively,
and $ 139,425 and $411,169, respectively, for the comparable periods of the
prior year, representing an increase of 122% and 141%, respectively, from the
prior year periods. General and administrative expenses increased due to an
increase in legal expenses and costs associated with personnel.
7
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Operating expenses for the thirteen and thirty-nine week periods ended
September 24, 2000 totaled $807,102 and $2,216,301, respectively, and $284,250
and $680,079, respectively, for the comparable periods of the prior year,
representing an increase of 183% and 226%, respectively, from the prior year
periods. The Company sustained net losses of $675,065 and $1,692,801 for the
thirteen and thirty-nine week periods ended September 24, 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 September 24, 2000, the Company had cash and cash equivalents totaling
$3,211,136 and working capital of $3,691,266, 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 $169,166, in the thirty-nine week
period ended September 24, 2000, compared to $0 in the comparable period of
the prior year. The Company does not expect to spend more than $250,000 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 are based on current expectations that
involve numerous risks and uncertainties. Actual results could differ
materially form 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.
8
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CRYOMEDICAL SCIENCES, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In February 1999, Alan A. Rich, ("Rich"), a former Vice President of Sales and
Marketing for the Company, filed a suit against the Company in the Superior
Court of the Commonwealth of Massachusetts, Middlesex County, for breach of
contract, breach of the covenant of good faith and fair dealing, promissory
estoppel and violation of the Maryland Wage Payment and Collection Law based
upon the allegations that he was constructively discharged from employment
with the Company. After the suit was removed to Federal District Court, the
complaint was amended to include two additional causes of action, one related
to breach of Rich's stock option plan agreement and another relating to a
failure to issue a COBRA notice. The complaint sought appropriate damages. On
September 5, 2000, the United States District Court for the District of
Massachusetts presided over the motions for summary judgment filed by both the
Company and Rich. The Company's motion was granted dismissing the claims
regarding Rich's employment contract. Rich's motion was granted for the claims
regarding the Maryland Wage and Payment Collection Law, the stock option plan
agreement, and COBRA, and damages in the amount of $161,867.30 including
interest were awarded to Rich. On September 5, 2000, the Company entered into
a Settlement Agreement with Rich, pursuant to which the Company agreed to pay
$155,000 in satisfaction of all of Rich's claims.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule.
(b) Reports on Form 8-K; none
9
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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: November 7, 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)
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