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 June 30, 2002 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)
Suite 144 - Science III.
SUNY Park
Binghamton, NY 13902
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(Address of principal executive offices)
Issuer's telephone number, including area code: (607) 777-4415
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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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12,413,209 SHARES OF CRYOMEDICAL SCIENCES, INC. COMMON STOCK, PAR VALUE $.001
PER SHARE, WERE OUTSTANDING AS OF AUGUST 13, 2002.
CRYOMEDICAL SCIENCES, INC.
FORM 10-QSB
QUARTER ENDED JUNE 30, 2002
INDEX
Page No.
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Part I. Financial Information
Item 1. Unaudited Financial Statements:
Consolidated Balance Sheets at June 30, 2002 (unaudited) and December 31,
2001................................................................................... 3
Consolidated Statements of Operations for the three- and six-month periods ended
June 30, 2002 and June 30, 2001 (unaudited).............................. 4
Consolidated Statements of Comprehensive Income (Loss) for the three- and
six-month periods ended June 30, 2002 and June 30, 2001 (unaudited).................... 5
Consolidated Statements of Cash Flows for the six-month periods ended June 30,
2002 and June 30, 2001 (unaudited)..................................................... 6
Notes to Consolidated Financial Statements............................................. 7-9
Item 2. Management's Discussion and Analysis................................................... 10-12
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K....................................................... 13
Signatures..................................................................................... 14
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRYOMEDICAL SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2002 2001
------------------ -------------------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents $1,972,415 $ 286,105
Marketable securities, at market 1,585,491 -
Accounts receivable, net of allowance for doubtful accounts of $ -
and $26,970, respectively 1,733 54,043
Inventories - 487,858
Prepaid expenses and other current assets - 23,192
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Total current assets 3,559,638 851,198
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Fixed assets, net of accumulated depreciation of $27,648 and
$2,138,614, respectively 173,988 454,293
Intangible assets, net of accumulated amortization of $ - and
$87,855, respectively - 471,099
Deferred financing cost, net of accumulated amortization of
$51,543 and $ - , respectively 103,086 -
------------------ -------------------
Total assets $3,836,713 $1,776,590
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $1,056,524 $1,000,027
Accrued expenses 659,933 465,797
Notes payable 425,000 -
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Total current liabilities 2,141,457 1,465,824
Long term portion of note payable 80,824 -
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Total liabilities 2,222,281 1,465,824
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Stockholders' equity:
Preferred stock, $0.001 par value per share, 1,000,000 shares
authorized; 12,000 issued and outstanding 12 12
Common stock, $0.001 par value per share, 25,000,000 shares
authorized; 12,413,209 issued and outstanding 12,413 12,413
Additional paid-in capital 38,352,195 38,009,325
Accumulated deficit (36,901,417) (37,710,984)
Accumulated other comprehensive income 151,228 -
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Total stockholders' equity 1,614,432 310,766
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Total liabilities and stockholders' equity $3,836,713 $1,776,590
================== ===================
See notes to financial statements
3
CRYOMEDICAL SCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenue:
Product sales $ 16,858 $ 13,893 $ 18,552 $ --
Services and other 82,267 -- 359,760 77,038
------------ ------------ ------------ ------------
Total revenue 99,125 13,893 378,312 77,038
Cost of product sales 25,685 1,366 25,646 1,366
------------ ------------ ------------ ------------
Gross profit 73,440 12,528 352,666 75,672
------------ ------------ ------------ ------------
Expenses:
Research and development 133,228 65,854 231,770 139,627
Sales and marketing -- 20,192 -- 28,846
General and administrative 270,564 $ 27,194 282,547 84,746
------------ ------------ ------------ ------------
Total expenses 403,791 113,240 514,317 253,219
------------ ------------ ------------ ------------
Operating income (loss) (330,351) (100,713) (162,151) (177,547)
Interest expense, net -- 6 -- 16
------------ ------------ ------------ ------------
Income (loss) from continuing operations (330,351) (100,719) (162,151) (177,563)
------------ ------------ ------------ ------------
Discontinued operations:
Loss from operations of cryosurgical assets (944,046) (1,269,894) (1,454,890) (2,268,378)
Gain on disposal of cryosurgical assets, net 2,426,109 -- 2,426,109 --
------------ ------------ ------------ ------------
Net income (loss) 1,151,712 (1,370,613) 809,568 (2,445,941)
============ ============ ============ ============
Basic earnings (loss) per share:
Loss from continuing operations $ (0.03) $ (0.01) $ (0.01) $ (0.02)
Loss from operation of cryosurgical assets (0.06) (0.10) (0.12) $ (0.18)
Gain on disposal of cryosurgical assets, net 0.20 -- 0.20 --
------------ ------------ ------------ ------------
Total $ 0.11 $ (0.11) $ 0.07 $ (0.20)
============ ============ ============ ============
Weighted average number of common shares outstanding:
Basic 12,413,209 12,413,209 12,413,209 12,413,209
============ ============ ============ ============
See notes to financial statements
4
CRYOMEDICAL SCIENCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net income (loss) $ 1,151,712 $(1,370,613) $ 809,568 $(2,445,941)
Unrealized gain on marketable securities 151,228 -- 151,228 --
----------- ----------- ----------- -----------
Comprehensive income (loss) $ 1,302,940 $(1,370,613) $ 960,796 $(2,445,941)
=========== =========== =========== ===========
See notes to financial statements
5
CRYOMEDICAL SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------------
2002 2001
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Cash flows from operating activities:
Net income (loss) $ 809,568 $(2,445,941)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Gain on sale of cryosurgical assets, net (2,426,109) --
Loss from discontinued operations 1,454,890 2,287,368
Depreciation 15,769 2,863
Provision for bad debt -- 12,203
Write-down of inventory 25,685 --
Allowance for doubtful accounts -- (6,896)
Issuance of warrants for non-cash consideration 188,241 --
Changes in operating assets and liabilities net of effects from
sale of cryosurgical assets:
(Increase) decrease in accounts receivable 9,650 (5,307)
Decrease (increase) in inventories 23,566 (25,841)
Decrease (increase) in prepaids and other current assets (4,092) 177,561
Increase in accounts payable 56,497 15,435
Increase in accrued expenses 194,136 14,146
Deferred financing costs 103,086 --
Decrease in extended warranties -- (4,146)
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Cash provided by continuing operations 450,888 21,445
Cash used in discontinued operations (1,225,173) (1,872,706)
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Net cash used in operations (774,285) (1,851,261)
----------- -----------
Cash flows from investing activities:
Purchase of equipment, net (89,405) (19,007)
Purchase of equipment by discontinued operations -- (148,806)
Proceeds from sale of cryosurgical assets 2,200,000 --
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Net cash provided (used) by investing activities 2,110,595 (167,813)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable 410,000 --
Payments on notes payable (60,000) --
Decrease in capital leases -- (5,810)
----------- -----------
Net cash provided (used) by financing activities 350,000 (5,810)
----------- -----------
Net increase/(decrease) in cash and cash equivalents 1,686,310 (2,024,884)
Cash and cash equivalents at beginning of period 286,105 2,150,112
----------- -----------
Cash and cash equivalents at end of period $ 1,972,415 $ 125,228
=========== ===========
See notes to financial statements
6
CRYOMEDICAL SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. General
Cryomedical Sciences, Inc. (the "Company"), through its wholly owned
subsidiary, BioLife Solutions, Inc. ("BioLife") is developing a range of
proprietary cell, tissue and organ specific hypothermic preservative solutions,
based on BioLife's patented HypoThermosol(TM) platform technology. Initial
clinical results suggest that BioLife's derivative HypoThermosol(TM) solutions
could significantly prolong cell, tissue and organ viability, which could, in
turn, improve clinical outcomes for new and existing cell and tissue therapy
applications, as well as for organ transplantation. BioLife has entered into
research agreements with several emerging companies engaged in the research and
commercialization of cell and gene therapy technology and has received several
government research grants in partnership with academic institutions involved in
cell and tissue therapy research. BioLife currently markets its
HypoThermosol(TM) line of solutions directly and through a distributor to
companies and labs engaged in pre-clinical research, and to academic
institutions.
In conjunction with the sale of its cryosurgical assets (described
below )on June 25, 2002, the Company's Board of Directors approved merging the
Company's wholly owned subsidiary into the Company and to change the name of the
Company to BioLife Solutions, Inc. The Company expects that it will complete
this merger and the renaming of the Company by the end of the third quarter of
this year.
The Consolidated Balance Sheet as of June 30, 2002, the Consolidated
Statements of Operations for the three- and six-month periods ended June 30,
2002 and 2001, and the Consolidated Statements of Cash Flows for the six-month
periods ended June 30, 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 June 30, 2002, and for all
periods then ended, have been recorded. All adjustments recorded were of a
normal recurring nature.
Grant revenue recognized during the three- and six-month periods ended
June 30, 2002 totaled $101,330 and $279,040, respectively, and is included in
the Statement of Operations in "services and other" revenue.
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 should 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- and six-month periods ended
June 30, 2002 is not necessarily indicative of the operating results anticipated
for the full year.
B. Sale of Cryosurgical Assets
On June 25, 2002 the Company completed the sale of its cryosurgery
product line and related intellectual property assets to Irvine, CA-based
Endocare, Inc. (Nasdaq: ENDO). In the transaction, which was originally
announced on May 29, 2002, the Company transferred ownership of all of its
cryosurgical installed base, inventory, and related intellectual property, in
exchange for $2.2 million in cash and 120,022 shares of Endocare Common Stock
(valued at $1,434,263 on June 25, 2002).
7
CRYOMEDICAL SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating results of the cryosurgical operations for the six months
ended June 30, 2002 are shown separately in the accompanying statement of
operations. The Company recorded a gain on sale of cryosurgical assets of
$2,426,109 for the three and six months ended June 30, 2002.
Net sales of the cryosurgical operations for the three months and six
months ended June 30, 2002 were $45,598 and $128,419, respectively. These
amounts are not included in revenues in the accompanying income statements.
Cryosurgical assets, sold in the transaction with Endocare consisted of
the following (all assets are shown at cost:
JUNE 25,
2002
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Accounts receivable, net $ 42,660
Inventory 438,606
Other current assets 27,284
Fixed assets, net 245,680
Intangible assets, net 453,923
----------
Net assets sold $1,208,153
==========
C. Earnings (Loss) per Share
Basic earnings (loss) per share is calculated by dividing the net
income (loss) attributable to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
calculated by dividing income from continuing operations by the weighted average
number of shares outstanding, including potentially dilutive securities such as
preferred stock, stock options and warrants. Potential common shares totaling
4,800,000 were not included in the diluted earnings per share amounts for the
three and six month periods ending June 30, 2002 and June 30, 2001 as their
effect would have been anti-dilutive.
8
CRYOMEDICAL SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
D. Inventories
Inventories consist of the following:
June 30, 2002 December 31, 2001
---------------------------- ---------------------------
Raw materials and purchased parts $ -- $ 268,768
Finished goods -- 219,090
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Total $ -- $ 487,858
E. Notes Payable and Issuance of Company Warrants
In March 2002, in consideration for a loan in the amount of $250,000,
the Company issued (i) a 12-month promissory note in the principal amount of
$250,000, bearing interest at 10% per annum, and (ii) a five year warrant to
purchase 1,000,000 shares of the Company's common stock at $0.25 per share. The
Company recorded additional-paid-in-capital on the balance sheet of $154,629 to
reflect the fair market value of the warrants issued in conjunction with the
loan and recorded a corresponding deferred expense which is being amortized on a
straight line basis over the life of the loan.
In May 2002, in consideration for loans in the amount of $115,000, the
Company issued three separate 12-month promissory notes in the aggregate
principal amount of $115,000, bearing interest at 10% per annum and (ii) three
separate five year warrants to purchase an aggregate of 460,000 shares of the
Company's common stock at $0.25 per share. The Company recorded
additional-paid-in-capital on the balance sheet of $48,564 to reflect the fair
market value of the warrants issued in conjunction with the loans and recorded a
corresponding expense in the Company's statement of operations.
In connection with the sale of the Company's cryosurgical assets, as
partial consideration for services rendered, the Company issued to each of
Breslow & Walker, LLP, the Company's general counsel, and de Greef & Partners,
LLC, a consultant for the Company, a 10-year warrant to purchase 500,000 shares
of the Company's common stock at $0.25 per share. The Company recorded
additional-paid-in-capital on the balance sheet of $139,677 to reflect the fair
market value of the warrants issued and recorded a corresponding expense in the
Company's statement of operations.
F. Employment Agreement
Effective with the consummation of the sale of the Company's
cryosurgical assets, the Company has agreed to enter into a two year employment
agreement with John G. Baust, PhD, pursuant to which Dr. Baust shall be hired as
President and Chief Executive Office of the Company.
G. Recent Accounting Pronouncements
None
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the
Company's consolidated financial statements and notes thereto set forth
elsewhere herein. The discussion of the results from operations includes only
the Company's continuing operations.
The methods for preserving cells, tissue and organs have remained
largely unchanged for 50 years. BioLife Solutions, Inc., a wholly owned
subsidiary of Cryomedical Sciences, Inc., has developed the next generation of
preservation solutions designed to maintain the viability and health of cellular
matter and tissues during freezing, transportation and storage. Based on the
Company's proprietary bio-packaging technology and a patented understanding of
the mechanism of cellular damage and death, these products enable the
biotechnology and medical community to address a growing problem that exists
today. The expanding practice of cell and gene therapy has created a need for
products that ensure the biological viability of mammalian cell and tissue
material during transportation and storage. The HypoThermosol(R) and
CryoStor(TM) products that the Company is selling today are a significant step
forward in meeting these needs.
On June 25, 2002, the Company completed the sale of its cryosurgery
product line and related intellectual property assets to Irvine, CA-based
Endocare, Inc. In the transaction, the Company transferred ownership of all of
its cryosurgical installed base, inventory and related intellectual property in
exchange for $2.2 million in cash and 120,022 shares of Endocare Common Stock.
RESULTS OF OPERATIONS
FOR THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 2002 AND 2001
Revenue. For the three-months ended June 30, 2002 revenue from
continuing operations increased $85,232 to $99,125, compared to $13,893 for the
three-months ended June 30, 2001. The increase was the result of new consulting
revenue derived from research contracts with biotechnology firms and NIH grants.
For the six-months ended June 30, 2002, revenue increased $301,274 to $378,312,
compared to $77,038 for the six-months ended June 30, 2001. The increase was
also the result new consulting revenue from research contracts and $279,040 of
NIH grants received.
Cost of product sales. For three-months ended June 30, 2002, cost of
product sales increased to $25,685, compared to $1,366 for the three-months
ended June 30, 2001. During the second quarter of 2002, product inventory was
written down by $25,685 to reflect a zero inventory balance at June 30, 2002.
For the six-months ended June 30, 2002, cost of product sales increased to
$25,646, compared to $1,366 for the six-months ended June 30, 2001. This
increase in cost of product sales was the result of the inventory write down
described above.
Research and development. Expenses relating to research and development
for the three-months ended June 30, 2002 increased $67,374 to $133,228, compared
to $65,854 for the three-months ended June 30, 2001. The increase in research
and development expense was due to a general increase in product development
activity and was reflected in higher research personnel headcount and greater
expenditures on lab supplies. Expenses relating to research and development for
the six-months ended June 30, 2002 increased $92,143 to $231,770, compared to
$139,627 for the six-months ended June 30, 2001. The increase in research and
development expenditure for the six month period was due to the same factors
described above.
10
Sales and marketing. For the three-months ended June 30, 2002, sales
and marketing expense decreased $20,192. The decrease in sales and marketing
expense was the result of a shift in part-time personnel involved in sales and
marketing activities to research and development. For the six-months ended June
30, 2002, sales and marketing expense decreased $28,846. The decrease was also
due to the allocation of part-time to sales and marketing personnel to research
and development.
General and administrative expense. For the three-months ended June 30,
2002, general and administrative expense increased $244,370 to $270,564 compared
to $27,194 for the three-months ended June 30, 2001. For the six-months ended
June 30, 2002, general and administrative expense increased $197,801 to $282,547
compared to $84,746 for the six-months ended June 30, 2001. This increase was
due to a higher level of corporate-level activity during the period.
Discontinued operations. On June 25, 2002, all of the cryosurgical
assets, including customer receivables, inventory, fixed assets and intangible
assets related to the cryosurgical business, were sold to Endocare for a
combination of cash and common stock of the purchaser. For the three-months
ended June 30, 2002 loss from the operation of cryosurgical assets was $944,046,
compared to a loss of $1,269,894 for the three-months ended June 30, 2001. For
the six-months ended June 30, 2002 the loss from the sale of cryosurgical assets
was $1,454,890 compared to a loss of $2,268,378 for the comparable period. For
the three- and six-months ended June 30, 2002, the gain on disposal of
cryosurgical assets, net of assets sold at cost, was $2,426,109.
Operating expenses and net income. For the three-months ended June 30,
2002, operating expenses increased $290,551 to $403,791, compared to $113,240
for the three-months ended June 30, 2001. The company reported net income of
$1,151,712 for the three months ended June 30, 2002, compared to a net loss of
$1,370,613 for the three months ended June 30, 2001. For the six-months ended
June 30, 2002, operating expenses increased $261,098 to $514,317, compared to
$253,219 for the six-months ended June 30, 2001. The company reported net income
of $809,568 for the six- months ended June 30, 2002, compared to a net loss of
$2,445,941 for the six-months ended June 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, the Company had cash and cash equivalents of
$1,972,415 and marketable securities of $1,585,491. At June 30, 2002, the
Company had a working capital surplus of $1,418,181, compared to a working
capital deficit of $614,626 at December 31, 2001. The increase in the Company's
cash and working capital positions from December 31, 2001 was due to the sale of
the cryosurgical assets, and was partially offset by net losses during the
three- and six-month periods ending June 30, 2002.
Capital expenditures, totaled $89,405 in the six month period ended June 30,
2002, compared to $19,007 in the six month period ended June 30, 2001.
In March 2002, the Company borrowed $250,000 under a 12-month
promissory note agreement. In connection with this debt raise, the Company
issued warrants to purchase one million shares of the Company's Common Stock at
$0.25 per share. In May 2002, the Company borrowed an aggregate of $115,000
under 12-month promissory note agreements. In connection with this debt raise,
the Company issued warrants to purchase 460,000 shares of the Company's common
stock at $0.25 per share. In April 2002, the Company entered into a $200,000
promissory note agreement with a vendor of the Company. The principal amount of
this note is payable by the Company in monthly installments over an 18-month
period. The Company has paid down $60,000 of these notes.
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-
11
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 judgments 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.
12
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Form 8-K, filed July 10, 2002, relating to the sale of the Company's
cryosurgical assets to Endocare.
13
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: August 14, 2002 By: /s/ John G. Baust
-----------------
John G. Baust, PhD
President and Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
14