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 March 31, 2002 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)
1000 Cobb Place Blvd.
Building 200, Suite 270
Kennesaw, GA 30144
(Address of principal executive offices)
Issuer's telephone number, including area code: (770) 426-0101
--------------
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 May 14, 2001.
CRYOMEDICAL SCIENCES, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 2002
INDEX
Part I. Financial Information Page No.
--------
Item 1. Financial Statements
Consolidated Balance Sheets at March 31,
2002 (unaudited) and December 31, 2001 3
Consolidated Statements of Operations for the
three-month periods ended March 31, 2002 and
March 31, 2001 (unaudited) 4
Consolidated Statements of Cash Flows for the
three-month periods ended March 31, 2002 and
March 31, 2001 (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 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
March 31, December 31,
2002 2001
------------------- -------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 121,342 $ 286,105
Accounts receiveable, net of allowance for doubtful accounts of
$26,970, respectively
46,886 54,043
Inventories
475,898 487,858
Prepaid expenses and other current assets
23,193 23,192
=================== ===================
Total current assets
667,319 851,198
------------------- -------------------
Fixed assets, net of accumulated depreciation of $2,173,281 and
$2,138,614, respectively
482,321 454,293
Intangible assets, net of accumulated amortization of $98,161 and
$87,855, respectively
460,794 471,099
------------------- -------------------
Total assets $ 1,610,434 $ 1,776,590
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,056,446 $ 1,000,027
Accrued expenses
374,923 465,797
Notes payable
250,000 -
------------------- -------------------
Total current liabilities
1,681,369 1,465,824
Commitments
- -
------------------- -------------------
Total liabilities
1,681,369 1,465,824
=================== ===================
Stockholders' equity:
Preferred stock, $0.001 par value per share, 1,000,000 shares
authorized; 12,000 iissued and outstanding
12 12
Common stock, $0.001 par value per share, 25,000,000 shares
authorized; 12,413,209 iissued and outstanding
12,413 12,413
Additional paid-in capital
38,009,325 38,009,325
Accumulated deficit
(38,092,685) (37,710,984)
------------------- -------------------
Total stockholders' equity
(70,935) 310,766
------------------- -------------------
Total liabilities and stockholders' equity $ 1,610,434 $ 1,776,590
=================== ===================
See notes to financial statements
3
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended
March 31,
------------------------------------------
2002 2001
-------------------- -------------------
Revenues $ 302,584 $ 475,949
Cost of sales
(82,037) (262,047)
-------------------- -------------------
Gross profit
220,547 213,902
-------------------- -------------------
Expenses:
Research and development
204,591 449,485
Sales and marketing
17,019 462,117
General and administrative
381,243 396,718
-------------------- -------------------
Total expenses
602,853 1,308,320
-------------------- -------------------
Operating loss
(382,307) (1,094,418)
Interest income, net
102 19,090
-------------------- -------------------
Net loss $ (382,205) $ (1,075,328)
==================== ===================
Basic net loss per common share $ (0.03) $ (0.09)
==================== ===================
Weighted average number of
common shares outstanding
12,413,209 12,413,209
==================== ===================
See notes to financial statements
4
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
Three months ended
March 31,
------------------------------------------
------------------- -------------------
2002 2001
------------------- -------------------
Cash flows from operating activites:
Net loss $ (382,205) $ (1,075,328)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
34,667 59,809
Amortization
10,305 10,305
Provision for bad debt
- 5,140
Write off of accounts receivable
- (3,056)
Changes in operating assets and liabilities:
(Increase) decrease in receivables
7,157 (336,056)
Decrease in inventories
11,960 140,278
Decrease (increase) in prepaid and other current
assets 503 (79,632)
Increase (decrease) in accounts payable
56,419 65,478
Increase (decrease) in accrued expenses
(90,874) 179,261
Decrease in extended warranties
- (2,488)
-------------------
-------------------
Net cash used in operating activities
(352,068) (1,036,289)
------------------- -------------------
Cash flows from investing activities:
Purchase of equipment
(62,695) (24,195)
-------------------
-------------------
Net cash used in investing activities
(62,695) (24,195)
------------------- -------------------
Cash flows from financing activities:
Increase in notes
250,000 -
Decrease in capital leases
- (2,872)
-------------------
-------------------
Net cash provided by financing activities
250,000 (2,872)
------------------- -------------------
Net (decrease) increase in cash and cash equivalents
(164,763) (1,063,356)
Cash and cash equivalents at beginning of period
286,105 2,150,112
------------------- -------------------
Cash and cash equivalents at end of period $ 121,342 $ 1,086,756
=================== ===================
See notes to 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 March 31, 2002, the Consolidated
Statements of Operations for three-month periods ended March 31, 2002 and 2001,
and the Consolidated Statements of Cash Flows for the three-month periods ended
March 31, 2002 and 2001, 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 31, 2002, 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, 2001 included in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 2001.
The results of operations for the three-month period ended March 31,
2002 is 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 March 31, 2002 and 2001. 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: March 31, 2002 December 31, 2001
Raw materials and purchased parts $ [xx] $ $268,768
Finished goods [xxx] 219,090
$ [xxx] $ 487,858
6
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
D. Advances for preferred stock
The Company is raising approximately $1,000,000 in a private placement
of 5000 Units of its Series F Convertible Preferred Stock and warrants. As of
March 31, 2002, the Company has raised $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 March 31, 2002, 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 adopted 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.
7
CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED 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 March 31, 2002, and does
not believe that this new Standard will have any impact upon its financial
statements when adopted.
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.
8
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 March 31, 2002 increased $[xx] to $[xxx],
compared to $475,949 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.
Cost of goods sold, as a percentage of revenue, improved to [xx]% for the
three-months ended March 31, 2002, compared to [xx]% 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.
Research and development expense increased $[xx] for the three-months ended
March 31, 2002 to $[xxxxx], compared to $449,485 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. The increase 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 $[xxxxx] for the three-months ended March
31, 2002 to $[xxxxxx], compared to $462,117 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.
General and administrative expense increased $[xxxxxx] for the three-months
ended March 31, 2002 to $[xxxxxx], compared to $396,718 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.
Operating expenses increased $[xxxxxx] for the three-months ended March 31, 2002
to $[xxxxxxx], compared to $1,308,320 for the comparable period of the prior
year. The Company sustained a net loss of $[xxxxxx] for the three-month period
ended March 31, 2002, compared to a net loss of $1,075,328 for the comparable
period of the prior year.
9
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, the Company had cash and cash equivalents totaling $[xxxxx]
and a working capital deficit of $[xxxxx], as compared to $286,105 and $614,626,
respectively, at December 31, 2001. The decrease in the Company's cash and
working capital positions from December 31, 2001 was due primarily to net losses
during the period.
Capital expenditures for equipment totaled $[xxxxxx], in the period ended March
31, 2002, compared to $24,195 in the comparable period of the prior year.
The Company anticipates that its current cash balances will not be sufficient to
meet its cash requirements through December 2002. 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, 2001. 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
March 31, 2002.
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: May 20, 2002 By: /s/ Andrew Greuling
-------------------
Andrew Greuling
President and Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)