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
For the quarterly period ended September 30, 2001 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)
125 TownPark Drive
Suite 300
Kennesaw, GA 30144
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(Address of principal executive offices)
Issuer's telephone number, including area code: (770) 420-8237
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
--- ---
12,413,209 shares of Cryomedical Sciences, Inc. Common Stock, par value $.001
per share, were outstanding as of November 10, 2001.
CRYOMEDICAL SCIENCES, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2001
INDEX
Part I. Financial Information Page No.
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Item 1. Financial Statements
Consolidated Balance Sheets at
September 30, 2001 (unaudited) and
December 31, 2000 3
Consolidated Statements of Operations for
the three-month and nine-month periods
ended September 30, 2001 and
September 30, 2000 (unaudited) 4
Consolidated Statements of Cash Flows
for the nine-month periods ended
September 30, 2001 and 2000 (unaudited) 5
Notes to Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis or Plan of Operation 8 - 10
Part II. Other Information
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2001 2000
---- ----
(unaudited)
ASSETS
- ------
Current assets
Cash and cash equivalents $ 353,488 $ 2,150,112
Receivables, net allowance for doubtful accounts
of $20,598 and $13,018, respectively 144,870 86,956
Inventories 598,502 653,945
Prepaid expenses and other current assets 126,562 135,547
--------------- ---------------
Total current assets 1,223,422 3,026,560
Fixed assets, net accumulated depreciation
of $2,075,538 and $1,879,927, respectively 490,720 433,655
Intangible assets, net of accumulated amortization of
$77,549 and $46,634, respectively 481,405 512,320
Other assets 3,717 16,284
--------------- ---------------
TOTAL ASSETS $ 2,199,264 $ 3,988,819
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Accounts payable $ 759,758 $ 120,066
Accrued expenses 457,844 225,195
Extended warranties - current portion 4,146
--
Capital leases - current portion 1,988 10,858
--------------- ---------------
Total current liabilities 1,219,590 360,265
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Advances for preferred stock 931,341
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Total liabilities 2,150,931 360,265
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Stockholders' equity
Preferred stock, $.001 par value per share,
1,000,000 authorized; 0 shares issued and outstanding -- --
Common stock, par value $.001 per share,
25,000,000 shares authorized; 12,413,209
issued and outstanding 12,413 12,413
Additional paid-in capital 36,916,868 36,916,868
Accumulated deficit (36,880,948) 33,300,727)
------------- ---------------
Total stockholders' equity 48,333 3,628,554
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,199,264 $ 3,988,819
============= ===============
See notes to consolidated financial statements
3
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-months ended Nine-months ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
(unaudited) (unaudited)
Revenues $ 247,288 $ 199,757 $ 1,036,417 $ 832,820
Cost of sales 89,164 120,680 502,996 388,260
------------------ ------------- ---------------- --------------
Gross profit 158,124 79,077 533,421 444,560
Expenses
Research and development 475,457 415,900 1,553,402 1,052,680
Sales and marketing 261,629 81,197 1,230,315 172,382
General and administrative 555,280 310,005 1,334,032 991,239
------------------ ------------- ---------------- --------------
Total expenses 1,292,366 807,102 4,117,749 2,216,301
------------------ ------------- ---------------- --------------
Operating loss (1,134,242) (728,025) (3,584,328) 1,771,741)
Interest income 2,340 65,865 30,427 114,564
Interest expense (2,378) (12,905) (26,320) (25,624)
------------------ ------------- ---------------- --------------
Net loss $ (1,134,280) $ (675,065) $ (3,580,221) $ 1,682,801)
================== ============= ================ ==============
Net loss per common share $ (0.09) $ (0.06) $ (0.29) $ (0.19)
================== ============= ================ ==============
Weighted average number
of common shares outstanding 12,413,209 12,041,094 12,413,209 8,719,800
================== ============= ================ ===============
See notes to consolidated financial statements
4
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine-months ended
September 30,
2001 2000
---- ----
(unaudited)
Cash flows from operating activities:
Net loss $ (3,580,221) $ (1,682,801)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 195,611 172,785
Amortization 30,915 20,948
Provision for bad debt 15,998 13,030
Write off of accounts receivable (8,418) (12,513)
Loss on disposal of fixed assets -- 14,579
Changes in operating assets and liabilities:
(Increase) decrease in receivables (65,494) 154,342
Decrease in inventories 55,443 319,898
Decrease (increase) in prepaid and other current assets 8,985 (138,977)
Decrease in other assets 12,567 4,611
Increase (decrease) in accounts payable 639,692 (488,307)
Increase (decrease) in accrued expenses 232,649 (209,040)
Decrease in unearned revenue
-- (14,372)
Decrease in extended warranties (4,146) (7,462)
Decrease in deferred rent -- (7,399)
-------------- --------------
Net cash used in operating activities (2,466,419) (1,860,678)
-------------- --------------
Cash flows from investing activities:
Increase in intangible assets -- (15,000)
Purchase of equipment (252,676) (169,166)
-------------- --------------
Net cash used in investing activities (252,676) (184,166)
-------------- --------------
Cash flows from financing activities:
Increase advances for preferred stock 931,341 --
Decrease in capital leases (8,870) (29,214)
Issuance of common stock -- 5,397,242
Decrease in line of credit -- (120,000)
-------------- --------------
Net cash provided by financing activities 922,471 5,248,028
-------------- --------------
Net (decrease) increase in cash and cash equivalents (1,796,624) 3,203,184
Cash and cash equivalents at beginning of period 2,150,112 7,952
-------------- --------------
Cash and cash equivalents at end of period $ 353,488 $ 3,211,136
============== ==============
Supplemental Cash Flow Information:
Cash paid for interest $ 26,320 $ 25,624
============== ==============
See notes to consolidated financial statements
5
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 low temperature medical
technologies for cryoablation of cancerous tissue, and for the
preservation of organs, tissues and cells.
The Consolidated Balance Sheet as of September 30, 2001, the Consolidated
Statements of Operations for three-month and nine-month periods ended
September 30, 2001 and 2000, and the Consolidated Statements of Cash Flows
for the nine-month periods ended September 30, 2001 and 2000, 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 30, 2001, 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 31,
2000 included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2000.
The results of operations for the three-month and nine-month periods ended
September 30, 2001 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 periods ended September 30, 2001 and 2000.
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: September 30, 2001 December 31, 2000
------------------ -----------------
Raw materials and purchased parts $ 362,354 $ 264,254
Work in process 18,864 9,643
Finished goods 217,284 380,048
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$ 598,502 $ 653,945
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D. ADVANCES FOR PREFERRED STOCK
----------------------------
The Company is raising approximately $1,000,000 in a private placement of 5,000
Units of its Series F Convertible Preferred Stock and warrants. As of September
30, 2001, the Company has raised
6
$931,341 in exchange for approximately 4,656 Units. Each Unit, priced at $200.01
per Unit, consists of two shares of Series F Preferred Stock, each convertible
into 400 shares of common stock at $0.25 per share, and one warrant to purchase
400 shares of common stock at $0.25 per share, and one warrant to purchase 400
shares of common stock at $0.375 per share before October, 2006. At September
30, 2001, these Units had not yet been issued by the Company and are classified
in the Company's Consolidated Balance Sheets as advances for preferred stock.
E. RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) as follows:
No. 141, Business Combinations
No. 142, Goodwill and Other Intangible Assets
No. 143, Accounting for Asset Retirement Obligations
SFAS No. 141 eliminates the use of the pooling-of-interests method of accounting
for business combinations and requires that all such transactions be accounted
for by the purchase method. In addition, SFAS No. 141 requires that intangible
assets be recognized as assets apart from goodwill and that they meet specific
criteria described in the Standard. This Standard is applicable to all business
combinations initiated after June 30, 2001 and all business combinations
accounted for using the purchase method for which the date of acquisition is
July 1, 2001 or later. Management will follow the Standard in accounting for all
future business combinations and does not believe that adoption will have any
significant impact on the Company's financial statements.
SFAS No. 142 eliminates the requirement to amortize goodwill and requires that
other intangible assets be separated into assets that have a finite useful life
and those with an indefinite useful life. Intangible assets with a finite useful
life are to be amortized over that useful life. Intangible assets with an
indefinite life are to be measured for impairment annually, or more frequently
if circumstances indicate impairment may have occurred. With respect to
goodwill, the Standard requires that it be measured annually for impairment
under a defined two-step process that begins with an estimation of the fair
value of a "reporting unit," which is defined in the Standard. The first step in
the process is a screening for impairment and the second step measures the
amount of impairment, if any. Upon initial adoption of SFAS No. 142, the change
is to be reported on the financial statements as a change in accounting
principle with the cumulative effect reported in the statement of income in the
period of adoption. The Standard is required to be applied starting with fiscal
years beginning after December 15, 2001, with early application permitted for
entities with fiscal years beginning after March 15, 2001. The Company expects
to adopt this new Standard with its fiscal year beginning January 1, 2002. The
Company has no goodwill and does not believe that adoption of the Standard will
have any impact on its financial statements.
SFAS No. 143 requires that asset retirement obligations be recognized as a
liability in the period in which it is incurred at its fair value if a
reasonable estimate can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset. The Standard
requires that the liability be discounted and accretion expense be recognized.
SFAS No. 143 is effective for financial statements issued for fiscal years
beginning after June 15, 2001, with earlier application permitted. The Company
does not have any asset retirement obligations as of September 30, 2001, and
does not believe that this new Standard will have any impact upon its financial
statements when adopted.
7
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. This Standard
establishes a single accounting model for long-lived assets to be disposed of by
sale and resolves other implementation issues involving long-lived assets that
are impaired or are to be disposed of. The Standard is effective for fiscal
years beginning after December 15, 2001, with early application permitted. The
Company is considering the effects of this new standard and does not believe
that it will have any significant effect on its financial statements when
adopted.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The initial development of the AccuProbe in 1992 provided CMS with market
dominance in the modern cryosurgical marketplace. The Company's Accuprobe(R)
System uses a patented design that maintains Super Cooled Liquid Nitrogen in a
liquid state, resulting in superior freezing characteristics when compared to
other cryosurgical systems. The Company is once again aggressively pursuing the
market for cryoprostatectomy that has shown a dramatic increase with the recent
positive changes in reimbursement.
Through its wholly owned subsidiary, BioLife Solutions, Inc., the Company is
developing a range of proprietary, cell, tissue and organ specific preservation
solutions, based on its patented Hypothermosol(TM) platform technology. Initial
clinical results suggest that these derivatives of Hypothermosol could
significantly prolong cell, tissue and organ viability. The Company continues to
develop a variety of relationships with biotech firms who can utilize the
Hypothermosol preservation solutions.
RESULTS OF OPERATIONS
Revenue for the three-months ended September 30, 2001 increased $47,531 to
$247,288, compared to $199,757 for the comparable period of the prior year. This
increase is attributable to an increase in grant revenue offset by somewhat
lower sales of AccuProbes and accessories, as well as lower mobile services
volume. Revenue for the nine-months ended September 30, 2001 increased $203,597
to $1,036,417, compared to $832,820 for the comparable period of the prior year.
This increase is attributable to higher sales of AccuProbe Systems and
accessories, higher mobile services volume, and higher grant revenue. This
increase was partially offset by a decrease in sales of AccuProbes.
Cost of goods sold, as a percentage of revenue, improved to 36% for the
three-months ended September 30, 2001, compared to 60% for the comparable period
of the prior year. This improvement was primarily attributable to the increase
in grant and contract revenue and was partially offset by an increase in the
cost of mobile services delivery. Cost of goods sold, as a percentage of
revenue, increased to 49% for the nine-months ended September 30, 2001, compared
to 47% for the comparable period of the prior year. This decrease is
attributable to a less profitable product mix.
Research and development expense increased $59,557 for the three-months ended
September 30, 2001 to $475,457, compared to $415,900 for the comparable period
of the prior year. The increase was attributable to increases in expenditures
for clinical trials related to development of the Hypothermosol technology,
which involved higher engineering headcount and consulting expense.
8
The increase was offset by lower in-house expenditure on the development of the
AccuProbe System, resulting in lower salaries and benefits expense. Research and
development expense increased $500,722 for the nine-months ended September 30,
2001 to $1,553,402, compared to $1,052,680 for the comparable period of the
prior year. The increase was also attributable to increases in expenditures for
clinical trials related to development of the Hypothermosol technology, which
involved higher engineering headcount and consulting expense and was offset by
lower in-house expenditure on the development of the AccuProbe System, resulting
in lower salaries and benefits expense.
Sales and marketing expense increased $180,432 for the three-months ended
September 30, 2001 to $261,629, compared to $81,197 for the comparable period of
the prior year. This increase was attributable to the overall expansion in the
Company's network of independent sales representatives, and increase in
promotional materials. Sales and marketing expense increased $1,057,933 for the
nine-months ended September 30, 2001 to $1,230,315, compared to $172,382, for
the comparable period of the prior year. This increase was due to higher
expenses relating to the expansion in the Company's network of independent sales
representatives, as well as an increase in salaries and benefits from a higher
number of marketing and sales personnel, increased sales commissions and travel.
General and administrative expense increased $245,275 for the three-months ended
September 30, 2001 to $555,280, compared to $310,005 in the comparable period of
the prior year. This increase is attributable to higher consulting costs and
increases in salaries and benefits. This increase was offset by lower legal and
miscellaneous general and administrative expenditure. General and administrative
expense increased $342,793 for the nine-months ended September 30, 2001 to
$1,334,032, compared to $991,239 in the comparable period of the prior year.
This increase is attributable to higher levels of overall corporate activity,
and is reflected in higher salaries and benefits expense and increases in
consulting fees. This increase was partially offset by lower legal fees.
Operating expenses increased $485,264 for the three-months ended September 30,
2001 to $1,292,366, compared to $807,102 for the comparable period of the prior
year. Operating expenses increased $1,901,448 for the nine-months ended
September 30, 2001 to $4,117,749, compared to $2,216,301 for the comparable
period of the prior year. The Company sustained a net loss of $1,134,280 and
$3,580,221, respectively, for the three-month and nine-month periods ended
September 30, 2001, compared to a net loss of $675,065 and $1,682,801,
respectively, for the comparable periods of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, the Company had cash and cash equivalents totaling
$353,488 and working capital of $3,832, as compared to $2,150,112 and
$2,666,295, respectively, at December 31, 2000. The decrease in the Company's
cash and working capital positions from December 31, 2000 was due primarily to
net losses during the period.
Capital expenditures for equipment totaled $252,676, in the period ended
September 30, 2001, compared to $169,166 in the comparable period of the prior
year.
9
The Company anticipates that its current cash balances will be sufficient to
meet its cash requirements through December 2001. Additional capital will be
necessary to ensure the Company's viability. In this respect the Company is
pursuing an additional equity financing. There can be no assurance that any such
transaction will be available on terms acceptable to the Company, if at all, or
that any financing transaction will not be dilutive to current stockholders. If
the Company is not able to raise additional funds, it may be required to
significantly curtail or cease its operating activities. The accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern.
FORWARD LOOKING INFORMATION
The information set forth in this Report (and other reports issued by the
Company and its officers from time to time) contain certain statements
concerning the Company's future results, future performance, intentions,
objectives, plans and expectations that are or may be deemed to be
"forward-looking statements." Such statements are made in reliance upon safe
harbor provisions of the Private Securities Litigation Act of 1995. These
forward-looking statements are based on current expectations that involve
numerous risks and uncertainties, including those risks and uncertainties
discussed in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2000. Assumptions relating to the foregoing involve judgements with
respect to, among other things, future economic, competitive, and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control. Although the Company believes that its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, the Company cannot assure you that the results
discussed or implied in such forward-looking statements will prove to be
accurate. In light of the significant uncertainties inherent in such
forward-looking statements, the inclusion of such statements should not be
regarded as a representation by the Company or any other person that the
Company's objectives and plans will be achieved. 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 obligations to revise any
of these forward-looking statements.
10
PART II - OTHER INFORMATION
Item 5. Other Information
During October 2001 the Company completed a private placement of 5,000 Units,
raising approximately $1,000,000. Each Unit was priced at $200.01 and consisted
of two shares of Series F Convertible Preferred Stock, convertible into 800
shares of Common Stock, and one warrant to purchase four hundred shares of
Common Stock, at $.375 per share, on or before October 2006. The Company had
retained Thomas Girschweiler (the "Adviser") to assist the Company in finding
qualified investors to purchase the Units. The Adviser is entitled to a finder's
fee equal to 10 percent of the monies received by the Company, payable in Units
valued at $200.01 per Unit. The Adviser also is entitled to a cash fee of 7
percent with respect to the monies received by the Company upon exercise of the
warrants. The Units were placed with investors in the United States and Europe,
and 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
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three-months ended
September 30, 2001.
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: November 14, 2001 By: /s/ Andrew Greuling
------------------------
Andrew Greuling
President and Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
12